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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual report pursuant to Section 13 or 15(d) of the
- ----- Securities Exchange Act of 1934 for the fiscal year ended
September 30, 1998 or
Transition report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
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 No.)
incorporation or organization)
4949 N. RANCHO DR., LAS VEGAS, NEVADA 89130
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(Address of principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (702) 658-4300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
- -------------------- ---------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE AMERICAN STOCK EXCHANGE
EXCHANGEABLE REDEEMABLE PREFERRED STOCK AMERICAN STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to filing requirements for the past 90 days. YES X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K, or any amendment to this Form 10-K. X
-----
The number of shares of common stock outstanding as of December 22,
1998, was 6,195,356. The market value of the common stock held by
nonaffiliates of the Registrant as of December 22, 1998, was approximately
$999,521. The market value was computed by reference to the closing sales
price of $.375 per share of common stock on the American Stock Exchange as of
December 22, 1998.
DOCUMENTS INCORPORATED BY REFERENCE:
PART III HEREOF INCORPORATES BY REFERENCE PORTIONS OF THE PROXY STATEMENT FOR
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MARCH 18, 1999 (TO BE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION WITHIN 120 DAYS AFTER SEPTEMBER
30, 1998).
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SANTA FE GAMING CORPORATION AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
PART I
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Page
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<C> <S> <C>
Item 1. Business..............................................................3
General............................................................3
Hotel and Casino Operations........................................3
Development Opportunities..........................................7
Nevada Regulations and Licensing...................................7
Item 2. Properties...........................................................11
Item 3. Legal Proceedings....................................................11
Item 4. Submission of Matters to a Vote of Security Holders..................13
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters...........................................13
Item 6. Selected Financial Data..............................................14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................15
Item 8. Financial Statements and Supplementary Data..........................32
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..............................................63
PART III
Item 10. Directors and Executive Officers of the Registrant...................63
Item 11. Executive Compensation...............................................63
Item 12. Security Ownership of Certain Beneficial Owners and Management.......63
Item 13. Certain Relationships and Related Transactions.......................63
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......63
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
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
("SR") 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") together (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 adjacent to the Santa Fe, and through an indirect wholly-owned
subsidiary of the Company, Sahara Las Vegas Corp. ("SLVC"), on Las Vegas
Boulevard South (the "Strip") and in Henderson, Nevada, for possible
development opportunities.
The Company through its wholly owned subsidiaries, Hacienda Hotel
Inc. ("HHI") and Sahara Nevada Corp. ("SNC"), owned and operated the Hacienda
Resort Hotel and Casino (the "Hacienda") and the Sahara Hotel and Casino (the
"Sahara"), but sold substantially all of the assets related to those
hotel-casinos in August 1995 and October 1995, respectively.
In November 1998, Pioneer Finance Corp. ("PFC"), a special purpose
subsidiary of Santa Fe Gaming, which issued the 13 1/2% First Mortgage Bonds
due December 1, 1998 ("13 1/2% Notes") to finance the acquisition of the
Pioneer in 1988, agreed to file for relief under Chapter 11 of the United
States Bankruptcy Code and to seek confirmation of a plan or reorganization
that will permit the issuance of new notes in satisfaction of the 13 1/2%
Notes in accordance with the terms set forth in the Offering Circular and
Consent Solicitation dated October 23, 1998, as amended ("Consent
Solicitation"). See Item 7- "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
The principal executive office of the Company is located at 4949 N.
Rancho Dr., Las Vegas, Nevada 89130 and the telephone number is (702)
658-4300.
HOTEL AND CASINO OPERATIONS
The Company's primary business operations are in the gaming industry
and are conducted at the Santa Fe in Las Vegas, Nevada and the Pioneer in
Laughlin, Nevada.
DESCRIPTION OF THE HOTEL-CASINOS
The Santa Fe is located in Las Vegas, approximately nine miles
northwest of downtown Las Vegas, adjacent to US-95 at the off-ramp for Rancho
Road. The Santa Fe was built in 1991 on a 38-acre site and includes a 440,000
square foot facility, features a traditional southwestern decor, 200 hotel
rooms, an 85,000 square foot casino with 1,616 slot and video poker machines
and a wide range of table games, a 550-seat bingo room, a 180-seat race and
sports book with 38 large screen televisions, an arcade and a variety of
dining options, including three specialty restaurants, a 575-seat buffet and
a 24-hour restaurant. The hotel features 200 rooms in a five-story tower.
Each room features a mountain- view, is approximately 310 square feet, has
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a sitting area and a choice of king or two double beds. The hotel offers its
guests a pool, spa and patio area. Additionally, the Santa Fe includes a
Hockey League regulation size ice skating arena and a 60-lane
state-of-the-art bowling center. Among the Santa Fe's five full-service bars
is a lounge which features live entertainment nightly and overlooks the ice
skating arena. The Santa Fe also includes convention and banquet seating for
500 people. In September 1998, the Santa Fe completed construction of two new
state-of-the-art marquee signs.
The Pioneer, built in 1982, featuring a classical western
architecture style, is located in Laughlin, Nevada, an unincorporated town on
the Colorado River bordering Arizona. The Pioneer is located on approximately
12 acres of land, with Colorado River frontage of approximately 770 feet, and
is situated near the center of Laughlin's Casino Drive. Approximately 6 1/2
acres of the 12 acres are subject to a 99-year ground lease (the "Pioneer
Ground Lease") which, by its terms, is scheduled to terminate in December
2078. One of the three motel buildings together with a portion of both the
Pioneer's casino building and a second motel building are located on land
subject to the Pioneer Ground Lease. The leased land lies between and
separates the remaining two parcels of land that are held in fee.
The Pioneer is comprised of four buildings. The casino is located in
the main building, totaling approximately 50,000 square feet of which
approximately 21,500 square feet house the casino. The Pioneer features 921
slot machines and provides a range of table games, including blackjack
("21"), craps, a roulette wheel and a keno game. The first floor includes the
casino, two bars, snack bar and gift shop, as well as a twenty-four hour
restaurant, kitchen, smoke shop, special events area, restrooms and storage
areas. A partial second floor houses a gourmet restaurant, administrative
offices and banquet rooms. The three motel buildings were built in 1984 of
frame construction and comprise approximately 66,000, 54,000 and 30,000
square feet, respectively. A total of 417 motel rooms are housed in the three
buildings and improvements include a fenced swimming pool and spa. The
Pioneer property also includes a parking lot with approximately 1,000 parking
spaces.
REVENUES
The primary source of revenues to the Company's hotel-casinos is
gaming, which represented 81%, 79.3% and 78.6% in 1998, 1997 and 1996,
respectively, of total revenues, excluding gain on sale of assets, in the
respective fiscal years. The following table sets forth information regarding
the approximate number of licensed games and gaming devices of the Santa Fe
and the Pioneer as of September 30, 1998:
<TABLE>
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Santa Fe Pioneer Total
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<S> <C> <C> <C>
Slot Machines 1,616 921 2,537
Blackjack ("21") 21 13 34
Craps 2 2 4
Roulette 3 1 4
Poker and Pan 5 - 5
Race/Sports Book 1 - 1
Keno 1 1 2
Bingo 1 - 1
Other 3 1 4
</TABLE>
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The Santa Fe targets primarily (i) mature local Las Vegas gamers who
desire a comfortable off-Strip gaming venue with favorable slot and video
poker machine payouts, (ii) local Las Vegas families that seek a variety of
recreational amenities that are separate from adult gaming activities, (iii)
out-of-town hockey and bowling leagues that seek a southwest venue to conduct
tournaments and (iv) out-of-own business and vacation travelers who desire
off-Strip accommodations as well as friends and relatives of local residents
who require accommodations. The occupancy rate at the Santa Fe for the last
three fiscal years was 83.1% in fiscal 1998, 84.6% in fiscal 1997 and 93.0%
in fiscal 1996.
The Santa Fe attempts to attract and retain customers by offering
slot and video poker machine payouts that compare favorably to the
competition. A highly visible means used by the Santa Fe to accomplish this
marketing program is to offer what management believes to be the largest
number of quarter video poker machines with a theoretical payout of 100% or
better. The Santa Fe periodically sponsors detailed product research of its
competitors to categorize the number and type of video poker games by payouts
and monitors changes in game products to assist it in maintaining a
sustainable competitive advantage over competing properties.
The Santa Fe uses an electronic players' club, the Desert Fortune
Club (the"Club"), to capture player information, better identify customers
and build customer retention and loyalty. The Santa Fe uses this information
for database marketing and rewards. Club members receive targeted periodic
mailings, including newsletters detailing activities and specials at the
Santa Fe, invitations to special events and tournaments, coupons for
complimentary or discounted dining and cheques redeemable for cash at the
Santa Fe.
The Pioneer targets primarily (i) mature, out-of-town customers
residing in Central Arizona and Southern California, (ii) retirees who reside
in the Northeast and Midwest United States and Canada, and travel to the
Southwest United States during the winter months and (iii) local residents
who reside in Laughlin, Nevada, in Bullhead City, Kingman and Lake Havasu,
Arizona. The occupancy rate at the Pioneer in each of the last three fiscal
years was 76.9%, 79.6% and 84.8% respectively, in fiscal years 1998, 1997 and
1996.
The Pioneer attempts to attract and retain customers by offering
slot and video poker machine payouts that compare favorably to the
competition. A visible means used by the Pioneer to accomplish this marketing
program is to offer what management believes to be the largest number of
quarter video poker machines with pay tables that have a theoretical pay out
percentage of 99.97% or better. The Pioneer periodically sponsors detailed
product research of its competitors to categorize the number and type of
video poker games by payouts and monitors changes in game products to assist
it in maintaining a sustainable competitive advantage over competing
properties.
The Pioneer has organized a program it calls the "Round-Up Club"
established to encourage repeat business from frequent and active slot
customers. As a member of the Round-Up Club uses a slot machine, points
accumulate in the member's account that can be redeemed for free gifts, food
and beverages. Pioneer management also uses the Round-Up Club membership list
for direct mail marketing.
MANAGEMENT AND PERSONNEL
At September 30, 1998, the Company employed 24 administrative
personnel, and the Santa Fe and the Pioneer employed 1,194 and 732 persons,
respectively.
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SFHI is negotiating 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 SFHI and the Unions, operating
expenses may increase. In the event negotiations fail to result in an
agreement, the Unions may call a strike, which would result in operating
revenues being adversely affected. In either event, there could be a material
adverse effect on the results of operations and financial condition of SFHI
and the Company.
The Santa Fe continues to be the target of a union boycott in which
the Unions ask the public not to patronize the properties. Management is
unable to determine the impact, if any, of the union boycott on the Santa Fe.
COMPETITION
In Las Vegas, hotels and gambling casinos compete primarily in three
areas: on or near the Strip, within downtown Las Vegas and in the locals
market. The Strip and downtown properties predominantly target out of town
visitors, while local properties generally target residents of the Las Vegas
Valley (the "Locals Market"). In particular, the Santa Fe targets the
communities north and northwest of downtown Las Vegas (the "Northwest Las
Vegas Market"). The Locals Market is highly competitive. The number of
casinos catering to the Locals Market has increased in the last several
years. Management believes the Santa Fe competes primarily with Fiesta Hotel
and Casino and Texas Station due to their proximity, approximately five miles
southeast of the Santa Fe. Unlike the other competitors in the Northwest Las
Vegas Market, the Santa Fe, Fiesta Hotel and Casino and Texas Station each
offers in excess of 1,000 gaming positions, hotel accommodations, extensive
dining options and various other amenities. Additionally, the Resort at
Summerlin, an approximately $270.0 million hotel-casino expected to be
completed in 1999, will be located approximately eight miles southwest of the
Santa Fe. According to public announcements, the Resort at Summerlin will be
a luxury destination resort and will target primarily high-end out-of-town
visitors.
In addition to competing against the hotel-casinos in Laughlin, the
Pioneer also competes with the hotel-casinos in Las Vegas and those situated
on I-15 (the principal highway between Las Vegas and southern California)
near the California-Nevada state line, as well as a growing number of Native
American casinos in Laughlin's regional market. The Company believes the
significant expansion of hotel and casino capacity in Las Vegas in recent
years and the growth of Native American casinos in Laughlin's central Arizona
and southern California feeder markets have had a negative impact on Laughlin
hotel-casinos, including the Pioneer, by drawing visitors away from the
Laughlin market. This has, in turn, resulted in increased competition among
Laughlin hotel-casinos, including the Pioneer.
On August 28, 1998 the California General Assembly, Senate and
Governor approved legislation authorizing gaming operations on tribal lands
pursuant to a form of compact. Prior to this date, such gaming operations
were illegal in California. In addition, on November 3, 1998 California
voters approved Proposition 5, which permits Native American tribes that
enter into agreements with the State of California pursuant to the form of
compact to conduct gaming activities including horse race wagering, gaming
devices (including slot machines), banked card games and lotteries.
Proposition 5 has been challenged in court and, as a result, the Company does
not know when it will become effective. However, Management believes that
increased competition from Native American gaming will cause a decline in the
Company's revenues and will have a negative impact on its business.
Management believes that the development by Native Americans and others of
casino properties similar to those in Las Vegas in areas close to Nevada,
particularly California and Arizona, could have a material adverse effect on
the Pioneer's business and results of operations.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for further discussion of competition.
6
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DEVELOPMENT OPPORTUNITIES
HENDERSON, NEVADA
The Company owns, through an indirect wholly owned subsidiary, an
approximately 39-acre parcel of real property in Henderson, Nevada, located
in the southeast Las Vegas Valley. The Company is evaluating the potential
development of a hotel-casino and entertainment complex on this property. The
Company has completed preliminary engineering and design drawings, obtained
construction permits and incurred development costs. Any future development
is subject to, among other things, the Company's ability to obtain necessary
financing. No assurance can be given that the Company will obtain development
financing or develop successfully the Henderson property. See Item 2.
Properties
Senate Bill 208, or the Neighborhood Casino Act, which the Nevada
legislature passed in its 1997 session and Nevada's governor signed into law,
affects the development of the Henderson property as well as other potential
locations for casinos targeting the Locals Market. Management believes that
the Neighborhood Casino Act may impact the Company favorably by limiting the
expansion of competition in the Locals Market. However, in the event the
Company's issued land use permits for the Henderson property were to expire,
the Neighborhood Casino act may also restrict the Company's ability to
construct and operate any hotel-casino it may develop on the Henderson
property.
LAS VEGAS, NEVADA
The Company owns, through an indirect wholly owned subsidiary, an
approximately 27-acre parcel of real property on the Strip, which it may use
for possible future development. In connection with the acquisition of the
property, the Company assumed an operating lease under which a water theme
park operates, which may be terminated, at any time, by the Company; however,
if it is terminated prior to 2004, the Company has agreed to pay a loan owed
by the tenant to the prior owner. Any future development of the property is
subject to, among other things, the Company's ability to obtain necessary
financing. No assurance can be given that the Company will obtain development
financing or develop successfully the Strip property. The Strip property is
exempt from the provisions of Senate Bill 208. See Item 2. Properties.
NEVADA REGULATIONS AND LICENSING
The Company, PHI and SFHI (collectively, the "Santa Fe Group") are
subject to extensive state and local regulation by the Nevada Gaming
Commission (the "Commission"), Nevada Gaming Control Board (the "Board") and
in the case of PHI and SFHI, the Clark County Liquor and Gaming Licensing
Board and the City of Las Vegas, respectively (collectively the "Nevada
Gaming Authorities").
The laws, regulations and supervisory procedures of the Nevada
Gaming Authorities seek (i) to prevent unsavory or unsuitable persons from
having any direct or indirect involvement with gaming at any time or in any
capacity, (ii) to establish and maintain responsible accounting practices and
procedures, (iii) to maintain effective control over the financial practices
of licensees, including establishing minimum procedures for internal fiscal
affairs and the safeguarding of assets and revenues, providing reliable
record-keeping and making periodic reports to the Nevada Gaming Authorities,
(iv) to prevent cheating and fraudulent practices and (v) to provide a source
of state and local revenues through taxation and licensing fees. Changes in
such laws, regulations and procedures could have an adverse effect on any or
all of the members of the Santa Fe Group. Management believes the Santa Fe
Group is in compliance with regulations promulgated by the Nevada Gaming
Authorities.
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LICENSING AND REGISTRATION. PHI and SFHI hold Nevada State gaming
licenses to operate the Pioneer and the Santa Fe. The Company has been
approved by the Nevada Gaming Authorities to own, directly or indirectly, a
beneficial interest in the Operating Companies.
The licenses held by members of the Santa Fe Group are not
transferable. Each issuing agency may at any time revoke, suspend, condition,
limit or restrict licenses or approvals to own a beneficial interest in an
Operating Company for any cause deemed reasonable by such agency. Any failure
to retain a valid license or approval would have a material adverse effect on
all members of the Santa Fe Group.
If it is determined that the Operating Companies or, when
applicable, new members of the Santa Fe Group, have violated the Nevada laws
or regulations relating to gaming, the Operating Companies or, when
applicable, new members of the Santa Fe Group, could, under certain
circumstances, be fined and the licenses of the Operating Companies or, when
applicable, new members of the Santa Fe Group, could also be limited,
conditioned, revoked or suspended. A violation under any of the licenses
held by the Company, or any of the Operating Companies or, when applicable,
new members of the Santa Fe Group, may be deemed a violation of all the other
licenses held by the Company and each of the Operating Companies or, when
applicable, new members of the Santa Fe Group. If the Commission does
petition for a supervisor to manage the affected casino and hotel facilities,
the suspended or former licensees shall not receive any earnings of the
gaming establishment until approved by the court, and after deductions for
the costs of the supervisor's operation and expenses and amounts necessary to
establish a reserve fund to facilitate continued operation in light of any
pending litigation, disputed claims, taxes, fees and other contingencies
known to the supervisor which may require payment. The supervisor is
authorized to offer the gaming establishment for sale if requested by the
suspended or former licensee, or without such a request after six months
after the date the license was suspended, revoked or not renewed.
INDIVIDUAL LICENSING. Stockholders, directors, officers and certain
key employees of corporate gaming licensees must be licensed by the Nevada
Gaming Authorities. An application for licensing of an individual may be
denied for any cause deemed reasonable by the issuing agency. Changes in
licensed positions must be reported to Nevada Gaming Authorities. In addition
to its authority to deny an application for an individual license, the Nevada
Gaming Authorities have jurisdiction to disapprove a change in corporate
position. If the Nevada Gaming Authorities were to find any such person
unsuitable for licensing or unsuitable to continue to have a relationship
with a corporate licensee, such licensee would have to suspend, dismiss and
sever all relationships with such person. Such corporate licensee would have
similar obligations with regard to any person who refuses to file appropriate
applications, who is denied licensing following the filing of an application
or whose license is revoked. Each gaming employee must obtain a work permit
which may be revoked upon the occurrence of certain specified events.
Any individual who is found to have a material relationship or a
material involvement with a gaming licensee may be investigated to be found
suitable or to be licensed. The finding of suitability is comparable to
licensing and requires submission of detailed financial information and a
full investigation. Key employees, controlling persons or others who exercise
significant influence upon the management or affairs of a gaming licensee may
be deemed to have such a relationship or involvement.
Beneficial owners of more than 10% of the voting securities of a
corporation or partner interests of a partnership registered with the Nevada
Gaming Authorities that is "publicly traded" (a "Registered Entity") must be
found suitable by the Nevada Gaming Authorities, and any person who acquires
more than 5% of the voting securities or partner interests, as the case may be,
of a Registered Entity must report the acquisition to the Nevada Gaming
Authorities in a filing similar to the beneficial ownership filings required by
the Federal
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securities laws. Under certain circumstances an institutional investor, as
such term is defined in the Gaming Control Act and the regulations of the
Commission and Board (collectively, the "Nevada Gaming Regulations"), that
acquires more than 10% of the Company's voting securities may apply to the
Commission for a waiver of such finding of suitability requirement. If the
stockholder who must be found suitable is a corporation, partnership or
trust, it must submit detailed business and financial information including a
list of beneficial owners. Any beneficial owner of equity or debt securities
of a Registered Entity (whether or not a controlling stockholder) may be
required to be found suitable if the relevant Nevada Gaming Authorities have
reason to believe that such ownership would be inconsistent with the declared
policy of the State of Nevada. If the beneficial owner who must be found
suitable is a corporation, partnership or trust, it must submit detailed
business and financial information, including a list of its securities.
In addition, the Clark County Liquor and Gaming Licensing Board has
taken the position that it has the authority to approve all persons owning or
controlling more than 2% of the stock or partner interests of a Registered
Entity, including a gaming licensee or otherwise, or of any corporation,
partnership or person controlling such an entity. The applicant is required
to pay all costs of investigation.
Any stockholder found unsuitable and who beneficially owns, directly
or indirectly, any securities or partner interests of a Registered Entity
beyond such period of time as may be prescribed by the Nevada Gaming
Authorities may be guilty of a gross misdemeanor. Any person who fails or
refuses to apply for a finding of suitability or a license within 30 days
after being ordered to do so may be found unsuitable. A Registered Entity is
subject to disciplinary action if, after it receives notice that a person is
unsuitable to be a securityholder or partner, as the case may be, or to have
any other relationship with it, such Registered Entity (a) pays the
unsuitable person any dividends or property upon any voting securities or
partner interests or makes any payments or distributions of any kind
whatsoever to such person, (b) recognizes the exercise, directly or
indirectly, of any voting rights in its securities or partner interests by
the unsuitable person, (c) pays the unsuitable person any remuneration in any
form for services rendered or otherwise, except in certain and specific
circumstances or (d) fails to pursue all lawful efforts to require the
unsuitable person to divest himself of his voting securities, including, if
necessary, the immediate purchase of the voting securities for cash at fair
market value.
Registered Entities must maintain current stock ledgers in the State
of Nevada that may be examined by the Nevada Gaming Authorities at any time.
If any securities or partner interests are held in trust by an agent or by a
nominee, the record holder may be required to disclose the identity of the
beneficial owner to the Nevada Gaming Authorities. A failure to make such
disclosure may be grounds for finding the record owner unsuitable. Record
owners are required to conform to all applicable rules and regulations of the
Nevada Gaming Authorities. Licensees also are required to render maximum
assistance in determining the identity of a beneficial owner.
The Nevada Gaming Authorities have the power to require that
certificates representing voting securities of a corporate licensee bear a
legend to the effect that such voting securities or partner interests are
subject to the Nevada Gaming Regulations. The Nevada Gaming Authorities,
through the power to regulate licensees, have the power to impose additional
restrictions on the holders of such voting securities at any time.
FINANCIAL RESPONSIBILITY. The Company and the Operating Companies
are required to submit detailed financial and operating reports to the Nevada
Gaming Authorities. Substantially all loans, leases, sales of securities and
other financial transactions entered into by the Company or the Operating
Companies must be reported to and, in some cases, approved by the Nevada
Gaming Authorities.
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CERTAIN TRANSACTIONS. None of the Santa Fe Group may make a public
offering of its securities without the approval of the Commission if the
proceeds therefrom are intended to be used to construct, acquire or finance
gaming facilities in Nevada, or retire or extend obligations incurred for
such purposes. Such approval, if given, will not constitute a recommendation
or approval of the investment merits of the securities offered. Any public
offering requires the approval of the Commission.
Changes in control of the Company through merger, consolidation,
acquisition of assets, management or consulting agreements or any form of
takeover cannot occur without the prior investigation of the Board and
approval of the Commission. The Commission may require controlling
stockholders, partners, officers, directors and other persons who have a
material relationship or involvement in the transaction to be licensed.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and other corporate
defense tactics that affect corporate gaming licensees in Nevada, and
corporations whose securities are publicly traded that are affiliated with
those operations, may be injurious to stable and productive corporate gaming.
The Commission has established a regulatory scheme to ameliorate the
potentially adverse effects of these business practices upon Nevada's gaming
industry and to further Nevada's policy to (i) assure the financial stability
of corporate or partnership gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of
corporate or partnership affairs. Approvals are, in certain circumstances,
required from the Commission before the Company can make exceptional
repurchases of voting securities above the current market price thereof
(commonly referred to as "greenmail") and before an acquisition opposed by
management can be consummated. Nevada's gaming regulations also require prior
approval by the Commission if the Company were to adopt a plan of
recapitalization proposed by the Company's Board of Directors in opposition
to a tender offer made directly to the stockholders for the purpose of
acquiring control of the Company.
MISCELLANEOUS. Pursuant to recent changes in Nevada law, the Company
and its Nevada-based affiliates, including subsidiaries, may engage in gaming
activities outside the State of Nevada without seeking the approval of the
Authorities provided that such activities are lawful in the jurisdiction
where they are to be conducted and that certain information regarding the
foreign operation is provided to the Board on a periodic basis. The Company
and its Nevada-based affiliates may be disciplined by the Commission if any
of them violates any laws of the foreign jurisdiction pertaining to the
foreign gaming operation, fails to conduct the foreign gaming operation in
accordance with the standards of honesty and integrity required of Nevada
gaming operations, engages in activities that are harmful to the State of
Nevada or its ability to collect gaming taxes and fees, or employs a person
in the foreign operation who had been denied a license or finding of
suitability in Nevada on the ground of personal unsuitability.
License fees and taxes, computed in various ways depending on the
type of gaming involved, are payable to the State of Nevada and to the
counties and cities in which the Company and the Operating Companies' conduct
their respective operations. Depending upon the particular fee or tax
involved, these fees and taxes are payable either monthly, quarterly or
annually and are based upon: (i) a percentage of the gross gaming revenues
received by the casino operation; (ii) the number of slot machines operated
by the casino; or (iii) the number of table games operated by the casino. A
casino entertainment tax is also paid by the licensee where entertainment is
furnished in connection with the selling of food or refreshments.
Finally, the Nevada Gaming Authorities may require that lenders to
licensees be investigated to determine if they are suitable and, if found
unsuitable, may require that they dispose of their loans.
10
<PAGE>
ITEM 2. PROPERTIES
The Santa Fe is located on a 38-acre site in the northwest section
of Las Vegas, approximately nine miles from the north end of the Strip. The
Santa Fe property is subject to a first priority deed of trust securing 9 1/2%
Notes due December 15, 2000 ("9 1/2% Notes") and a second priority deed of
trust securing 11% First Mortgage Notes due December 15, 2000 ("11% Notes").
As of September 30, 1998, $99.4 million principal amount of the 11% Notes
remain outstanding, and is reported in the consolidated Balance Sheet net of
unamortized debt discount of $2.9 million and $33.1 million principal amount
held by an indirect wholly owned subsidiary of the Company. See Item 1.
Business-- Description of the Hotel-Casinos for more detailed information
regarding the Santa Fe.
The Pioneer is located on approximately 12 acres of land, with
Colorado River frontage of approximately 770 feet, and is situated near the
center of Laughlin's Casino Drive. Approximately 6 1/2 acres of the 12-acre
Pioneer site is leased from an unaffiliated third party. The Pioneer property
is subject to a first priority deed of trust securing 13 1/2% First Mortgage
Bonds due December 1, 1998 ("13 1/2% Notes"). As of September 30, 1998, $60.0
million principal amount of the 13 1/2% Notes was outstanding. See Item 1.
Business-- Description of the Hotel-Casinos for more detailed information
regarding the Pioneer.
In November 1993 the Company acquired an approximately 22-acre
parcel of property across the street from the Santa Fe. This property is
subject to a first priority deed of trust securing a $1.6 million promissory
note due in December 1999.
In March 1994 the Company purchased a 39-acre parcel of real
property in Henderson, Nevada, located in southeast Las Vegas Valley. This
property is subject to a first priority deed of trust securing $57.5 million
principal amount of notes due December 15, 1999 ("SLVC Notes"). See Item 1.
Business-Development Opportunities for more information regarding the real
property.
In October 1995 the Company acquired 27 acres of real property
located on the Strip. The property is subject to a ground lease, which the
Company may terminate at any time. The Company has guaranteed payments by the
tenant of a loan owed to the prior owner of the property ("tenant loan") and
has agreed to pay the tenant loan in full in certain situations, including in
the event the lease is terminated for any reason prior to its scheduled
termination date of 2004. The tenant loan, which is amortized through monthly
principal and interest payments through December 2004, had an outstanding
balance of $4.8 million as of September 30, 1998. This property is subject to
a first priority deed of trust securing the SLVC Notes. See Item 1.
Business-Development Opportunities for more information regarding the real
property.
ITEM 3. LEGAL PROCEEDINGS
POULOS V. CAESAR'S WORLD, INC., ET AL. AND AHERN V. CAESAR'S WORLD, INC., ET AL.
The Company and its predecessor, Sahara Casino Partners, L.P. are
defendants in a class action lawsuit originally filed in the United States
District Court of Florida, Orlando Division, entitled POULOS V. CAESAR'S
WORLD, INC., ET AL., AHERN V. CAESAR'S WORLD, INC., ET AL. and SCHRIER V.
CAESAR'S WORLD, INC., ET AL, along with a fourth action against cruise ship
gaming operators and which have been consolidated in a single action now
pending in the United States District Court, District of Nevada (the
"Court"). Also named as defendants in these actions are many of the largest
gaming companies in the United States and certain gaming equipment
manufacturers. Each complaint is identical in its material allegations. The
actions allege that the defendants have engaged in fraudulent and misleading
conduct by inducing people to play video poker machines and electronic slot
machines based on false beliefs concerning how the machines operate and the
extent to which
11
<PAGE>
there is actually an opportunity to win on a given play. The complaints
allege that the defendants' acts constitute violations of the Racketeer
Influenced and Corrupt Organizations Act and also give rise to claims for
common law fraud and unjust enrichment, and seek compensatory, special
consequential, incidental and punitive damages of several billion dollars.
In response to the complaints, all of the defendants, including the
Company, filed motions attacking the pleadings for failure to state a claim,
seeking to dismiss the complaints for lack of personal jurisdiction and
venue. As a result of those motions, the Court has required the Plaintiffs in
the four consolidated cases to file a single consolidated amended complaint.
Subsequent to Plaintiffs' filing of their consolidated amended complaint, the
defendants refiled numerous motions attacking the amended complaint upon many
of the bases as the prior motions. The Court heard the arguments on those
motions and ultimately denied the motions. Plaintiffs then filed their motion
to certify a class. Defendants have vigorously opposed the motion and the
Court has not yet ruled on the motion to certify the class. If the Court
denies the certification then the case cannot go forward as a class action.
If the Court certifies a class then the parties will proceed to meet
discovery.
TREASURE BAY - SECURITIES LITIGATION
On December 12, 1994 the Company and SFHI filed a lawsuit in the
Court, naming Treasure Bay officers A. Clay Rankin III, Joe N. Hendrix and
Bernie Burkholder, and former officer Francis L. Miller as defendants in
matters involving violations of Section 10(b) and Rule 10b-5 of the
Securities Exchange Act of 1934, violation of Nevada state securities laws,
fraud and negligent misrepresentation in connection with the Company's
investment of $10 million in exchange for a 20% interest in Treasure Bay, and
the Company's guarantee of $4.5 million of Treasure Bay's indebtedness. The
defendants have filed answers to the complaint and discovery is continuing.
On December 15, 1994 Francis L. Miller filed a lawsuit in the
Mississippi Circuit Court, Second Judicial District, against the Company and
SFHI, as well as Paul W. Lowden and Suzanne Lowden, alleging, among other
things, that the Company made certain misrepresentations which induced
Francis Miller to entrust the management of his investments in Treasure Bay's
two Mississippi casinos to the Company and SFHI and to sell the Company and
SFHI a 20% ownership interest in Treasure Bay. The lawsuit was subsequently
amended to remove Suzanne Lowden as a defendant. The Company and SFHI filed a
successful motion to transfer this case to the Court.
The Court dismissed the Francis L. Miller lawsuit as originally
filed in Mississippi Circuit Court. The Court permitted Mr. Miller to file
the claims that he asserted in the dismissed action as counterclaims to the
lawsuit filed by the Company against Messrs. Miller, Rankin, Hendrix and
Burkholder on December 12, 1994 in the Court. Thus, the two lawsuits were
combined. The parties to the combined litigation have concluded most of the
formal discovery involved in this case. A pre-trial order is expected to be
entered in the case in March, 1999. The case is expected to go to trial in
the late spring of 1999.
In addition, the Company is subject to various lawsuits relating to
routine matters incidental to its business. The Company does not believe that
the outcome of such litigation, in the aggregate, will have a material
adverse effect on the Company. See Item 1. Business Hotel-Casino Operations-
Management and Personnel for discussion of several proceedings relating to
labor matters.
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security
holders during the fourth quarter of fiscal 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S STOCK AND RELATED SECURITY HOLDERS MATTERS
The Company's Common Stock is traded on the American Stock Exchange
(the "AMEX") under the symbol "SGM". The Company's exchangeable Redeemable
Preferred Stock is also traded on the AMEX under the symbol "SGMp". In
November 1998 the Company was advised by the AMEX that it does not fully
satisfy all the guidelines for continued listing of the Company's common and
preferred stock. Accordingly, there can be no assurance that such stock will
continue to be listed on the AMEX.
The closing sales price of the Common Stock on December 22, 1998, as
reported by the AMEX was $0.375 per share. The tables below set forth the
high and low closing sales prices by quarter for the fiscal years ended
September 30, 1998 and 1997 for the Common Stock, as reported by the AMEX.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL 1998 QUARTER QUARTER QUARTER QUARTER
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
High $1.00 $2.75 $1.69 $1.31
Low $0.69 $0.69 $1.25 $0.56
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL 1997 QUARTER QUARTER QUARTER QUARTER
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
High $1.75 $1.63 $1.38 $1.00
Low $1.13 $0.69 $0.69 $0.69
</TABLE>
The Company has never paid cash dividends on its Common Stock, nor
does it anticipate paying such dividends in the foreseeable future.
There were approximately 7,700 stockholders as of December 22, 1998.
The number of stockholders was computed by including an estimate of those
stockholders whose stock is beneficially held for them by participants in a
clearing agency as of that date.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The table below sets forth a summary of selected financial data of
the Company for the years ended September 30 (dollars in thousands, except
per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total Revenues net(1) $112,849 $104,989 $148,432 $251,109 $253,718
Net Income (Loss)
Before Extraordinary Items,
Net of Taxes (4) $(62,343) $(13,713) $ 9,739 $(23,183) $(15,739)
Per Common Share(3) $ (10.06) $ (2.21) $ 1.57 $ (3.74) $ (2.54)
Net Income (Loss)(2) (4) $(63,859) $(13,133) $ 16,160 $(23,363) $(16,961)
Per Common Share(3) $ (10.31) $ (2.12) $ 2.61 $ (3.77) $ (2.74)
Cash Dividends
Per Common Share -- -- -- -- --
Total Assets $192,166 $216,296 $228,656 $366,638 $478,555
Long-Term Debt
less current portion(5) $213,147 $170,538 $167,687 $198,655 $379,093
Redeemable
Preferred Stock(6) $ 21,986 $ 20,469 $ 18,953 $ 17,521 $ 16,202
</TABLE>
- --------------------------------------------------------------------------------
(1) Operating results for fiscal 1998, 1997 and 1996 do not include any
revenues attributable to the Hacienda and Sahara, which were sold in
August 1995 and October 1995, respectively. Fiscal 1996 includes a
$40.8 million gain relating to the sale of substantially all of the
assets of SNC. Fiscal 1995 includes an $8.9 million gain relating to
the sale of substantially all the assets of HHI.
(2) Amounts presented include stock dividends paid or accrued on preferred
shares.
(3) Amounts have been restated to reflect a 25% common stock dividend paid
in February 1994.
(4) Results for fiscal 1998 include a $44.0 million impairment loss to
adjust to fair market value the carrying value of the Pioneer fixed and
intangible assets. (See Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations).
(5) Long term debt for fiscal 1998 includes $60 million due with respect to
the 13 1/2% Notes on December 1, 1998 and not paid. (See Item 7 -
Management's Discussion and Analysis of Financial Condition and Results
of Operations)
(6) The Company declared and issued paid in kind dividends on its
Exchangeable, Redeemable 8% Preferred Stock during fiscal years 1996
and 1995. The Company did not declare dividends on its preferred stock
in fiscal 1998 and 1997. The accrued dividends of approximately $1.5
million for fiscal 1998 and 1997 have been recorded as an increase to
the preferred stock account.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - FISCAL 1998 COMPARED TO FISCAL 1997
CONSOLIDATED
NET OPERATING REVENUES. Consolidated net operating revenues for the
year ended September 30, 1998 were $112.8 million, a $7.8 million, or 7.5%,
increase from $105.0 million for the same period in fiscal 1997. Revenues
increased by $8.8 million at the Santa Fe and decreased by $100,000 at the
Pioneer. The prior period's revenues included a $700,000 gain on the sale of
real property.
In November 1998, PFC, a special purpose subsidiary of Santa Fe
Gaming which issued the 13 1/2% Notes to finance the acquisition of the
Pioneer in 1988, agreed to file for relief under Chapter 11 of the United
States Bankruptcy Code and to seek confirmation of a plan of reorganization
that will permit the issuance of new notes in satisfaction of the 13 1/2%
Notes pursuant to the terms set forth in the Consent Solicitation. Holders of
approximately 75% of the outstanding 13 1/2% Notes have agreed to forbear from
exercising rights or remedies as a result of PFC's failure to pay principal
and interest on the 13 1/2% Notes at the December 1, 1998 maturity and to vote
to accept a plan of reorganization that provides for treatment of the 13 1/2%
Notes in the manner described in the Consent Solicitation. Although results
of operations at the Pioneerhave not been noticeably adversely impacted since
the commencement of the Consent Solicitation in October 1998, no assurance
can be given that the filing for relief under Chapter 11 by PFC, and
potentially by PHI, the Company and other subsidiaries of the Company, will
not have a material adverse affect on the results of operations and financial
condition of the Company. See Liquidity and Capital Resources
OPERATING EXPENSES. Total operating expenses, excluding the
impairment loss of $44.0 million (see Pioneer discussion below), increased
$5.1 million, or 5.1%, to $105.0 million for the year ended September 30,
1998 from $99.9 million in the year ended September 30, 1997. Total operating
expenses as a percentage of revenue decreased to 93.1% in the year ended
September 30, 1998 from 95.2% in the year ended September 30, 1997. Operating
expenses increased by $2.3 million or 4.0% at the Santa Fe and $900,000 or
2.2% at the Pioneer. Operating expenses of SLVC increased by $2.4 million,
primarily due to the amortization of debt issue costs associated with the
issuance of an additional $37.5 million in principal amount of notes (the
"SLVC Notes") in August and November 1997.
In September 1998, in accordance with SFAS No. 121, the Company
determined that an impairment had occurred to the carrying value of its
assets at the Pioneer. In the quarter ended September 30, 1998, the Company
recorded a $44.0 million impairment loss to adjust to fair market value the
carrying value of the Pioneer fixed and intangible assets (see more detailed
discussion below-Pioneer).
OPERATING INCOME . Consolidated operating income, excluding the
impairment loss of $44.0 million discussed above, for the year ended
September 30, 1998 was $7.8 million, a $2.7 million, or 54.3%, increase from
$5.1 million for the same period in fiscal 1997. Operating income increased
by $6.6 million at the Santa Fe and decreased by $1.0 million at the Pioneer
and $2.2 million at SLVC. The prior period included a $700,000 gain on sale
of real property by the Company.
INTEREST EXPENSE. Consolidated interest expense for the year ended
September 30, 1998 was $25.4 million, a $2.8 million increase compared to
$22.6 million for the same period in fiscal 1997. Interest expense of SLVC
increased by $2.1 million in the 1998 period due to the issuance of the
additional SLVC Notes in August and November 1997.
NET LOSS. Consolidated loss before income tax for the year ended
September 30, 1998 was $62.3 million, a $44.8 million increase compared to a
net loss of $17.5 million in the same period in the prior year. The current
year reflects the $44.0 million charge to recognize the impairment loss
discussed above. Loss
15
<PAGE>
before income tax decreased by $5.0 million in the 1998 period at the Santa
Fe and increased by $500,000 at the Pioneer (excluding the $44.0 million
charge) and $4.3 million at SLVC. The prior period included a $700,000 gain
on sale of real property by the Company.
The Company did not record an income tax benefit in the current
fiscal year due to the uncertainty of the Company's ability to recognize the
benefit of the net operating loss. Consolidated net loss applicable to common
shares was $63.9 million, or $10.31 per common share, in the 1998 period
compared to $13.1 million, or $2.12 per common share, in the prior year
period.
EBITDA. Earnings before interest, taxes, depreciation and
amortization, rents and corporate charges ("EBITDA") increased $3.9 million,
or 16.7%, to $27.1 million in the year ended September 30, 1998 from $23.2
million in the year ended September 30, 1997. EBITDA for fiscal 1998
represents .99 times rent and interest expense compared to .87 times rent and
interest expense in the prior year period. The Company incurred rent expense
of $2.1 million and $4.0 million in the years ended September 30, 1998 and
1997, respectively. The Company will incur less rent expense in future
periods, offset, in part, by increased interest expense as a result of a $14
million note placement by SFHI in April 1998 and the issuance of an
additional $22.5 million principal amount of Notes by SLVC in November 1997
and the application of net proceeds therefrom. EBITDA should not be
construed as a substitute for operating income or a better indicator of
liquidity than cash flow from operating, investing and financing activities,
which are determined in accordance with generally accepted accounting
principles ("GAAP"), and it is included herein to provide additional
information with respect to the ability of the Company to meet its future
debt service, capital expenditure and working capital requirements. Although
EBITDA is not necessarily a measure of the Company's ability to fund its cash
needs, management believes that EBITDA is a useful tool for measuring the
ability of the Company to service its debt. The Company's definition of
EBITDA may not be the same as that of similarly captioned measures used by
other companies.
SANTA FE
NET OPERATING REVENUES. Revenues at the Santa Fe increased $8.8
million, or 14.1%, to $71.5 million in fiscal 1998 from $62.7 million in
fiscal 1997. Management believes that fiscal 1998 results were positively
impacted by the (i) completion of construction, beginning in September 1997,
on the highway adjacent to the Santa Fe, (ii) installation of new gaming
equipment in fiscal 1998 and 1997 and (iii) the growth in the number of
residents in northwest Las Vegas, which offset the competitive pressures
resulting from expansions at competing facilities during fiscal 1996.
Casino revenues increased $8.7 million, or 18.1%, to $57.1 million
in fiscal 1998 from $48.4 million in fiscal 1997. The increase in casino
revenues was due to growth in slot and video poker machine revenues of $8.6
million, or 20.5%, to $50.5 million in fiscal 1998 from $41.9 million in
fiscal 1997 due to an increase in coin-in volume of 11.4% and a slight
increase in hold percentage. Other gaming revenues, including table game
revenues, increased $200,000, or 2.5%, to $6.7 million in fiscal 1998 from
$6.5 million in fiscal 1997 primarily due to increased racebook and bingo
business, partially offset by a decrease in table game hold percentage.
Casino promotional allowances increased $700,000, or 12.4%, to $6.2 million
in fiscal 1998 from $5.5 million in fiscal 1997 due to the increase in
customer volume.
Hotel revenues were substantially unchanged at $3.3 million in
fiscal 1998 and 1997 due to a 2.0% increase in average daily room rate in
fiscal 1998, offset by a decrease in occupancy rate to 83.1% from 84.6% in
fiscal 1997. Management believes that the decrease in occupancy rate was
associated with the room rate increase. Food and beverage revenues increased
$500,000, or 4.3%, to $12.3 million in fiscal 1998 from
16
<PAGE>
$11.8 million in fiscal 1997 due to an increase in customer volume. Other
revenues increased $200,000, or 3.9%, to $5.0 million in fiscal 1998 from
$4.8 million in fiscal 1997 primarily due to an increase in bowling revenue
and interest income.
OPERATING EXPENSES. Total operating expenses increased $2.3 million,
or 4.0%, to $59.3 million in fiscal 1998 from $57.0 million in fiscal 1997.
Total operating expenses as a percentage of revenue decreased to 82.9% in
fiscal 1998 from 90.9% in fiscal 1997.
Casino expenses increased $2.5 million, or 10.3%, to $26.0 million
in fiscal 1998 from $23.5 million in fiscal 1997 due to the increase in
casino revenues. Casino expenses as a percentage of casino revenues decreased
to 45.4% in fiscal 1998 from 48.6% in fiscal 1997 due to the spreading of
fixed costs over a larger revenue base. Hotel expenses remained unchanged at
$1.1 million for fiscal 1998 and fiscal 1997. Food and beverage expenses
decreased $400,000, or 3.7%, to $8.7 million in fiscal 1998 from $9.1 million
in fiscal 1997 despite the increase in food and beverage revenues due to
cost-of-sales control measures. As a result, food and beverage expenses as a
percentage of food and beverage revenues decreased to 71.3% in fiscal 1998
from 77.2% in fiscal 1997. Other expenses were substantially unchanged at
$2.2 million in fiscal 1998 compared to $2.1 million in fiscal 1997. Other
expenses as a percentage of other revenues decreased to 43.4% in fiscal 1998
from 43.8% in fiscal 1997 due to a decline in other revenues as discussed
above.
Selling, general and administrative expenses increased $700,000, or
8.6%, to $8.8 million in fiscal 1998 from $8.1 million in fiscal 1997 due to
an increase in advertising costs and data processing and security expenses.
Selling, general and administrative expenses as a percentage of revenues
decreased to 12.3% in fiscal 1998 from 12.9% in fiscal 1997. Utilities and
property expenses decreased $1.4 million, or 17.4%, to $6.5 million in fiscal
1998 from $7.9 million in fiscal 1997 due to decreased rent expense for
gaming equipment resulting from the purchase of equipment previously under
lease. Utilities and property expenses as a percentage of revenues decreased
to 9.1% in fiscal 1998 from 12.6% in fiscal 1997. Depreciation and
amortization expenses increased $800,000, or 14.5%, to $6.0 million in fiscal
1998 from $5.2 million in fiscal 1997 due to the purchase of gaming and other
equipment previously under lease.
INTEREST EXPENSE. Interest expense increased $800,000, or 6.0%, to
$14.1 million in fiscal 1998 from $13.3 million in fiscal 1997 due to the
additional $14 million principal amount of debt incurred to purchase gaming
and other equipment previously under lease and for other capital
improvements.
During fiscal 1998, the Company incurred costs and expenses in
connection with a proposed offering of debt securities. In September 1998,
the Company postponed proceeding with the proposed offering due to conditions
in the financial markets. Accordingly the Company has recorded a $758,000
charge to earnings for expenses of the proposed offering.
NET LOSS. As a result of the factors discussed above, net loss
decreased $5.0 million, or 66.0%, to $2.6 million in fiscal 1998 from $7.6
million in fiscal 1997.
EBITDA, AS DEFINED. EBITDA increased $5.7 million, or 38.7%, to
$20.6 million in fiscal 1998 from $14.9 million in fiscal 1997. EBITDA margin
increased to 28.8% in fiscal 1998 from 23.7% in fiscal 1997. EBITDA for
fiscal 1998 represents 1.35 times rent and interest expense compared to .91
times rent and interest expense in the prior year period. Santa Fe incurred
rent expense of $1.2 million and $3.0 million in the years ended September
30, 1998 and 1997, respectively. Santa Fe incurred corporate charges of $1.1
million and $900,000 in the years ended September 30, 1998 and 1997,
respectively. Santa Fe will incur less rent expense in future periods, offset
by increased interest expense as a result of a $14 million note placement in
April 1998 and the application of proceeds therefrom.
In the fourth quarter of fiscal 1998 revenues increased $2.7
million, or 17.8%, to $18.1 million from $15.4 million and EBITDA increased
$2.1 million, or 65.7%, to $5.3 million from $3.2 million in fiscal 1997.
EBITDA for the 1998 quarter represents 1.43 times rent and interest expense,
compared to .77 times rent and interest expense in the prior year quarter.
17
<PAGE>
PIONEER
NET OPERATING REVENUES. Revenues at the Pioneer decreased $100,000,
or 0.4%, to $40.7 million in fiscal 1998 from $40.8 million in fiscal 1997.
The decrease in revenues at the Pioneer in current years 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, and new casinos opened in Las Vegas.
Casino revenues decreased $600,000, or 1.7%, to $34.2 million in
fiscal 1998 from $34.8 million in fiscal 1997. The decrease in casino
revenues was primarily due to a decline in other gaming revenues, including
table game revenues, which decreased $500,000, or 10.5%, to $4.3 million in
fiscal 1998 from $4.8 million in fiscal 1997. Slot revenues decreased
$100,000, or .3%, to $29.9 million in fiscal 1998 from $30.0 million in
fiscal 1997 due to a decrease in coin-in volume of 6.0% offset in part by a
slight increase in hold percentage. Casino promotional allowances decreased
$500,000, or 6.9%, to $6.4 million in fiscal 1998 from $6.9 million in fiscal
1997 due to the decrease in customer volume.
Hotel revenues decreased $200,000, or 6.7%, to $2.4 million in
fiscal 1998 due to a 2.7% decrease in occupancy rate to 76.9% from 79.6% due
to the decline in visitor volume to Laughlin. The average daily room rate was
substantially unchanged. Food and beverage revenues decreased $200,000, or
2.1%, to $8.8 million in fiscal 1998 from $9.0 million in fiscal 1997 due to
the decrease in customer volume and an increase in incentive programs and
giveaways. Other revenues increased $300,000, or 20.9%, to $1.7 million in
fiscal 1998 from $1.4 million in fiscal 1997 due to the opening in August
1998 of the River Rick Smoke Shop, which sells cigarettes at discounted
prices.
OPERATING EXPENSES. Total operating expenses increased $44.9 million
to $85.7 million in fiscal 1998 from $40.7 million in fiscal 1997, primarily
due to a charge of $44.0 million for loss on asset impairment discussed
below. Operating expenses increased $900,000, or 2.2%, and operating expenses
as a percentage of revenue increased to 102.4% in fiscal 1998 from 99.8% in
fiscal 1997.
Casino expenses were substantially unchanged at $18.7 million in
fiscal 1998 and 1997. Casino expenses as a percentage of casino revenues
increased to 54.6% in fiscal 1998 from 53.6% in fiscal 1997. Hotel expenses
increased $100,000, or 19.4%, to $800,000 in fiscal 1998 from $700,000 in
fiscal 1997, primarily due to increases in labor wage rates and costs to
upgrade the hotel rooms. Hotel expenses as a percentage of hotel revenue
increased to 33.5% in fiscal 1998 from 26.2% in fiscal 1997. Food and
beverage expenses increased $100,000, or 1.7%, to $5.3 million in fiscal 1998
from $5.2 million in fiscal 1997, despite the decrease in food and beverage
revenues, due to increases in labor wage rates. As a result, food and
beverage expenses as a percentage of food and beverage revenues increased to
59.5% in fiscal 1998 from 57.3% in fiscal 1997. Other expenses increased
$200,000, or 18.5%, to $1.0 million in fiscal 1998 from $800,000 in fiscal
1997 due to the cost of sales associated with the River Rick Smoke Shop
discussed above. Other expenses as a percentage of other revenues decreased
to 60.1% in fiscal 1998 from 61.3% in fiscal 1997.
Selling, general and administrative expenses increased $300,000, or
6.4%, to $5.9 million in fiscal 1998 from $5.6 million in fiscal 1997 due to
increased advertising costs and allocated corporate expenses. The Pioneer
altered its marketing strategy during fiscal 1998 to include television
advertising as part of its communication mix in order to reach the regional
market to encourage new visits. Selling, general and administrative expenses
as a percentage of revenues increased to 14.5% in fiscal 1998 from 13.6% in
fiscal 1997. Utilities and property expenses were substantially unchanged at
$4.4 million in fiscal 1998 compared to $4.3 million in fiscal 1997.
Utilities and property expenses as a percentage of revenues increased to
10.8% in fiscal 1998 from 10.5% in fiscal 1997. Depreciation and amortization
expenses were substantially unchanged at $5.6 million in fiscal 1998 and 1997.
18
<PAGE>
In September 1998, in accordance with SFAS No. 121, the Company
determined an impairment loss had occurred to the carrying value of the
assets of the Pioneer in Laughlin, Nevada. On August 28, 1998, the California
General Assembly, Senate and Governor approved legislation authorizing gaming
operations pursuant to a form of compact. Prior to this date, California
authorities considered gaming devices operated on Indian reservations to be
illegal. On November 3, 1998, California voters approved Proposition 5, which
expands the definition of gaming operations considered legal by the form of
compact. Proposition 5 has been challenged in court and, as a result, the
Company does not know when it will become effective. However, Management
believes this change in regulatory policy will further intensify the
competitive environment in Laughlin, Nevada and adversely affect the outlook
for longer term operating results for gaming operations in Laughlin, Nevada.
Management's view of the Laughlin market indicated that the cash flows
associated with Pioneer operations would not be sufficient to recover the
carrying value of the Company's investment. Under the requirements of SFAS
No. 121, an impairment charge of $44.0 million was recognized in the fourth
quarter of fiscal 1998 to adjust to fair market value the carrying value of
the Pioneer's fixed and intangible assets.
INTEREST EXPENSE. Interest expense decreased $600,000, or 6.5%, to
$8.1 million in fiscal 1998 from $8.7 million in fiscal 1997 due to the
payment in November 1997 of a $5.0 million note of a wholly-owned subsidiary
of PHI.
NET LOSS. As a result of the factors discussed above, net loss
increased $44.5 million, or 517.2%, to $53.1 million in fiscal 1998 from $8.6
million in fiscal 1997. Excluding the impairment loss, net loss for fiscal
1998 was $9.1 million.
EBITDA, AS DEFINED. EBITDA decreased $1.0 million, or 13.5%, to $6.6
million in fiscal 1998 from $7.6 million in fiscal 1997. EBITDA margin
decreased to 16.2% in fiscal 1998 from 18.7% in fiscal 1997. EBITDA for
fiscal 1998 represents .73 times rent and interest expense compared to .78
times rent and interest expense in the prior year period. Pioneer incurred
rent expense of $800,000 and $1.0 million in the years ended September 30,
1998 and 1997, respectively. Pioneer incurred corporate charges of $1.1
million and $900,000 in the years ended September 30, 1998 and 1997,
respectively.
In the fourth quarter of fiscal 1998, revenues increased $700,000,
or 8.4%, to $9.9 million from $9.2 million and EBITDA increased $500,000, or
65.0%, to $1.2 million from $700,000 in fiscal 1997. EBITDA for the 1998
quarter represents .55 times rent and interest expense compared to .25 times
rent and interest expense in the prior year quarter.
In November 1998, PFC, a special purpose subsidiary of Santa Fe
Gaming which issued the 13 1/2% Notes to finance the acquisition of the
Pioneer in 1988, agreed to file for relief under Chapter 11 of the United
States Bankruptcy Code and to seek confirmation of a plan of reorganization
that will permit the issuance of new notes in satisfaction of the 13 1/2%
Notes pursuant to the terms set forth in the Consent Solicitation. See
"Results of Operations - Fiscal 1998 Compared to Fiscal 1997 - Consolidated.
RESULTS OF OPERATIONS - FISCAL 1997 COMPARED TO FISCAL 1996
CONSOLIDATED
NET OPERATING REVENUES. Consolidated revenues for the year ended
September 30, 1997 were $105.0 million, a $2.7 million, or 2.5%, decrease
from $107.7 million for the same period in fiscal 1996, excluding a gain of
$40.8 million on the sale of assets in fiscal 1996. Revenues increased by
$1.1 million at the Santa Fe and decreased by $3.6 million at the Pioneer.
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OPERATING EXPENSES. Total operating expenses decreased $7.4 million,
or 6.9%, to $99.9 million for the year ended September 30, 1997 from $107.3
million in the year ended September 30, 1996. Total operating expenses as a
percentage of revenue, excluding a gain of $40.8 million on the sale of
assets in fiscal 1996, decreased to 95.2% in the year ended September 30,
1997 from 99.6% in the year ended September 30, 1996. Operating expenses
decreased by $3.7 million, or 6.1%, at the Santa Fe and $1.9 million, or
4.5%, at the Pioneer. Operating expense of subsidiaries of the Company, whose
assets were sold in fiscal years 1996 and 1995, decreased $2.5 million.
OPERATING INCOME . Consolidated operating income for the year ended
September 30, 1997 was $5.1 million, a $4.7 million, or 1176.4%, increase
from $400,000 for the same period in fiscal 1996, excluding the $40.8 million
gain. Operating income increased by $4.7 million at the Santa Fe and
decreased by $1.6 million at the Pioneer. The 1997 period included a $700,000
gain on sale of real property by the Company. The 1996 period included a $1.2
million intercompany gain on sale of real property by the Santa Fe, which was
eliminated in consolidation.
OTHER EXPENSE. Consolidated interest expense for the year ended
September 30, 1997 was $22.6 million, a $1.8 million decrease compared to
$24.4 million for the same period in fiscal 1996. In fiscal 1996, the Company
recorded a provision to reduce the remaining carrying value of its investment
in Treasure Bay in the amount of approximately $2.8 million.
NET LOSS. Consolidated loss before income tax and extraordinary item
for the year ended September 30, 1997 was $17.5 million, a $9.3 million
decrease compared to a net loss of $26.8 million in the same period in the
prior year, excluding the $40.8 million gain. Loss before income tax and
extraordinary item decreased by $4.9 million in the 1997 period at the Santa
Fe and increased by $400,000 at the Pioneer. The prior period included a
$700,000 gain on sale of real property by the Company.
In fiscal 1997 the Company recorded an extraordinary gain of $2.1
million after tax on the repurchase of $13.1 million principal amount of 11%
Notes and $3.5 million principal amount of 10 1/4% Subordinated Sinking Fund
Debentures, due 1998 ("Subdebentures"). In fiscal 1996, the Company recorded
an extraordinary gain of $7.9 million after tax on the repurchase of $25.6
million principal amount of 11% Notes and $22.8 million principal amount of
13 1/2% Notes.
The Company reported a net loss applicable to common shares of $13.1
million or $2.12 per common share in fiscal 1997 compared to net income of
$16.2 million or $2.61 per common share in fiscal 1996. The net loss was
$10.7 million or $1.73 per common share in fiscal 1996 excluding the $40.8
million gain on sale of assets.
EBITDA, AS DEFINED. EBITDA increased $4.7 million, or 25.5%, to
$23.2 million in the year ended September 30, 1997 from $18.5 million in the
year ended September 30, 1996, excluding the $40.8 million gain. EBITDA for
the 1997 period represents .87 times rent and interest expense compared to
.72 times rent and interest expense in the prior year period.
SANTA FE
NET OPERATING REVENUES. Net operating revenues increased $1.0
million, or 1.7%, to $62.7 million in fiscal 1997 from $61.7 million in
fiscal 1996. Management believes that fiscal 1997 results were positively
impacted by the installation of new gaming equipment in fiscal 1996 and the
growth in the Locals Market, which offset the competitive pressures resulting
from the expansions at competing facilities during fiscal 1996.
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Casino revenues increased $2.8 million, or 6.1%, to $48.4 million in
fiscal 1997 from $45.6 million in fiscal 1996. The increase in casino
revenues was due to growth in slot and video poker machine revenues of $3.1
million, or 8.0%, to $41.9 million in fiscal 1997 from $38.8 million in
fiscal 1996 due to an increase in coin-in volume of 2.8% and a slight
increase in hold percentage. Other gaming revenues, including table game
revenues, decreased $300,000, or 5.1%, to $6.5 million in fiscal 1997 from
$6.8 million in fiscal1996 primarily due to a decrease in keno and poker
business. Casino promotional allowance was substantially unchanged at $5.5
million.
Hotel revenues were substantially unchanged at $3.3 million in
fiscal 1997 compared to $3.2 million in fiscal 1996 due to a 14.3% increase
in average daily room rate, offset by a decrease in occupancy rate to 84.6%
in fiscal 1997 from 93.0% in fiscal 1996. Management believes that the
decrease in occupancy rate was associated with the room rate increase. Food
and beverage revenues decreased $900,000, or 6.9%, to $11.8 million in fiscal
1997 from $12.6 million in fiscal 1996 due to a change in marketing strategy
which relied less on discount priced food and resulted in decreased volume.
Other revenues decreased $900,000, or 16.8%, to $4.8 million in fiscal 1997
from $5.7 million in fiscal 1996 primarily due to a $1.2 million gain on the
sale of land in fiscal 1996.
OPERATING EXPENSES. Total operating expenses decreased $3.7 million,
or 6.1%, to $57.0 million in fiscal 1997 from $60.7 million in fiscal 1996.
Total operating expenses as a percentage of revenue decreased to 90.9% in
fiscal 1997 from 98.5% in fiscal 1996.
Casino expenses increased $1.1 million, or 5.2%, to $23.5 million in
fiscal 1997 from $22.4 million in fiscal 1996 due to the increase in casino
revenues. Casino expenses as a percentage of casino revenues were
substantially unchanged at 48.6% in fiscal 1997 compared to 49.0% in fiscal
1996. Hotel expenses decreased $100,000, or 12.7%, to $1.1 million in fiscal
1997 from $1.2 million in fiscal 1996 due to reduced occupancy. Hotel
expenses as a percentage of revenues decreased to 33.3% in fiscal 1997 from
39.1% in fiscal 1996 due to reduced occupancy. Food and beverage expenses
decreased $1.8 million, or 16.4%, to $9.1 million in fiscal 1997 from $10.9
million in fiscal 1996 due to a decrease in volume and cost of sales control
measures. As a result, food and beverage expenses as a percentage of food and
beverage revenues decreased to 77.2% in fiscal 1997 from 86.0% in fiscal
1996. Other expenses were substantially unchanged at $2.1 million in fiscal
1997 compared to $2.2 million in fiscal 1996. Other expenses as a percentage
of other revenues increased to 43.8% in fiscal 1997 from 38.4% in fiscal 1996
due to a decline in other revenues as discussed above.
Selling, general and administrative expenses decreased $900,000, or
10.4%, to $8.1 million in fiscal 1997 from $9.0 million in fiscal 1996 even
though revenues increased due to a decrease in general advertising and
marketing costs. Consequently, selling, general and administrative expenses
as a percentage of revenues decreased to 12.9% in fiscal 1997 from 14.7% in
fiscal 1996. Utilities and property expenses increased $1.0 million, or
14.1%, to $7.9 million in fiscal 1997 from $6.9 million in fiscal 1996 due to
increased rent expense for gaming equipment resulting from sale/leaseback
transactions partially offset by a related loss on the transactions in fiscal
1996. Utilities and property expenses as a percentage of revenues increased
to 12.6% in fiscal 1997 from 11.2% in fiscal 1996. Depreciation and
amortization expenses decreased $2.9 million, or 35.0%, to $5.2 million in
fiscal 1997 from $8.1 million in fiscal 1996 due to the sale of gaming
equipment in fiscal 1996.
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OTHER INCOME (EXPENSE). Interest expense decreased $200,000, or
1.5%, to $13.3 million in fiscal 1997 from $13.5 million in fiscal 1996 due
to the repurchase and retirement of $5.6 million principal amount of 11%
Notes in fiscal 1996. In fiscal 1996 the Company recorded a provision to
reduce the remaining carrying value of its investment in Treasure Bay in the
amount of approximately $2.8 million and an extraordinary charge of $600,000
due to the repurchase and retirement of 11% Notes referred to above.
NET LOSS. As a result of the factors discussed above, net loss
decreased $5.9 million, or 43.6%, to $7.6 million in fiscal 1997 from $13.5
million in fiscal 1996.
EBITDA, AS DEFINED. EBITDA increased $4.7 million, or 46.1%, to $14.9
million in fiscal 1997 from $10.2 million in fiscal 1996. EBITDA margin
increased to 23.7% in fiscal 1997 from 16.5% in fiscal 1996. EBITDA for
fiscal 1997 represents .91 times rent and interest expense compared to .73
times rent and interest expense in prior year period.
PIONEER
NET OPERATING REVENUES. Revenues at the Pioneer decreased 8.1%, or $3.6
million, to $40.8 million from $44.4 million in fiscal 1996. The decrease in
fiscal 1997 revenues 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, and new casinos opened in Las Vegas.
Casino revenues decreased $3.9 million, or 9.9%, to $34.8 million in
fiscal 1997 from $38.7 million in fiscal 1996. The decrease in casino revenues
was primarily due to slot revenues, which decreased $3.0 million, or 9.0%, to
$30.0 million in fiscal 1997 from $33.0 million in fiscal 1996 due to a decrease
in coin- in volume of 13.6%, partially offset by a slight increase in hold
percentage. Other casino revenues, including table game revenues, decreased
$900,000, or 15.2%, to $4.8 million in fiscal 1997 from $5.7 million in fiscal
1996. Casino promotional allowances remained substantially unchanged at $6.9
million.
Hotel revenues decreased $600,000, or 19.5%, to $2.5 million in fiscal
1997 due to a 5.2% decrease in occupancy rate to 79.6% from 84.8% and a 13.1%
decrease in the average daily room rate. As visitor volume in Laughlin
decreased, room rates were reduced to attract customers. Food and beverage
revenues increased $1.0 million, or 12.2%, to $9.0 million in fiscal 1997 from
$8.0 million in fiscal 1996 as a result of a volume-oriented marketing program.
Other revenues remained substantially unchanged at $1.4 million.
OPERATING EXPENSES. Total operating expenses decreased $2.0 million to
$40.7 million in fiscal 1997 from $42.7 million in fiscal 1996.
Casino expenses had a volume-related decrease of $1.6 million, or 8.2%,
to $18.7 million in 1997 from $20.3 million in 1996. Casino expenses as a
percentage of casino revenues increased to 53.6% in fiscal 1997 from 52.6% in
fiscal 1996 due to the decline in casino revenues. Hotel expenses increased
$200,000, or 35.0%, to $700,000 in fiscal 1997 from $500,000 in fiscal 1996.
Hotel expenses as a percentage of hotel revenue increased to 26.2% in fiscal
1997 from 15.6% in fiscal 1996 due to the decline in hotel revenues. Food and
beverage expenses decreased $100,000, or 2.1%, to $5.2 million in fiscal 1997
from $5.3 million in fiscal 1996, despite the increase in food and beverage
revenues, due to improved cost control measures. As a result, food and beverage
expenses as a percentage of food and beverage revenues decreased to 57.3% in
fiscal 1997 from 65.7% in fiscal 1996. Other expenses remained substantially
unchanged at $800,000 in fiscal 1997 and $900,000 in fiscal 1996. Other expenses
as a percentage of other revenues decreased to 61.3% in fiscal 1997 compared to
61.8% in fiscal 1996.
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Selling, general and administrative expenses increased $300,000, or
5.2%, to $5.6 million in fiscal 1997 from $5.3 million in fiscal 1996 due to
increased advertising and promotional costs. Selling, general and administrative
expenses as a percentage of revenues increased to 13.6% in fiscal 1997 from
11.9% in fiscal 1996. Utilities and property expenses decreased $200,000, or
5.9%, to $4.3 million in fiscal 1997 compared to $4.5 million in fiscal 1996.
Utilities and property expenses as a percentage of revenues increased to 10.5%
in fiscal 1997 from 10.2% in fiscal 1996. Depreciation and amortization expenses
decreased $300,000, or 5.0%, to $5.6 million in fiscal 1997 from $5.9 million in
fiscal 1996, due to the sale of certain equipment in the prior year.
OTHER INCOME (EXPENSE). Interest expense decreased $700,000, or 7.2%,
to $8.7 million in fiscal 1997 from $9.4 million in fiscal 1996 due to the
repurchase and retirement of $22.75 million principal amount of 13 1/2% Notes in
fiscal 1996, partially offset by interest incurred on a $5 million first
mortgage loan. In fiscal 1996 the Company recorded an extraordinary gain of $3.1
million after tax due to the repurchase and retirement of 13 1/2% Notes referred
to above.
NET LOSS. As a result of the factors discussed above, net loss
increased $5.6 million, or 185.2%, to $8.6 million in fiscal 1997 from $3.0
million in fiscal 1996.
EBITDA, AS DEFINED. EBITDA decreased $1.7 million, or 18.2%, to
$7.6 million in fiscal 1997 from $9.3 million in fiscal 1996. EBITDA margin
decreased to 18.7% in fiscal 1997 from 21.0% in fiscal 1996. EBITDA for the
1997 twelve month period represents .84 times rent and interest expense,
compared to .92 times rent and interest expense in the prior year period.
LIQUIDITY AND CAPITAL RESOURCES; TRENDS AND FACTORS RELEVANT TO FUTURE
OPERATIONS
LIQUIDITY. As of September 30, 1998, the Company held cash and
short-term investments of $22.7 million compared to $15.1 million at
September 30, 1997. Management believes that, based on operations for the
year ended September 30, 1998, the Company will have sufficient resources,
including real property held by SLVC, to meet its operating and debt service
requirements (excluding the 13 1/2% Notes which matured on December 1, 1998
but were not paid) through the twelve month period ending September 30, 1999,
although no assurance can be given to that effect.
The Company had $60 million of principal and approximately $2.7
million and $4.1 million accrued interest due on the 13 1/2% Notes as of
September 30, 1998 and December 1, 1998, respectively, which is presented as
Debt Not Paid At Maturity in the consolidated Balance Sheet contained herein.
In November 1998 PFC received and accepted consents from holders of
approximately 75%, or $45.8 million principal amount, of the outstanding 13
1/2% Notes pursuant to which (i) PFC agreed to file for relief under Chapter
11 of the United States Bankruptcy Code and to submit for confirmation a plan
of reorganization that provides for issuance of new notes in satisfaction of
the 13 1/2% Notes pursuant to the terms set forth in the Consent
Solicitation, and (ii) the consenting holders agreed (a) to forbear until
December 2000 from exercising rights or remedies arising as a result of the
failure by PFC to pay principal and interest on the 13 1/2% Notes at the
December 1, 1998 maturity date, or the failure by PHI to pay principal and
interest on the intercompany mirror note from PHI to PFC at the December 1,
1998 maturity date and (b) to vote to accept a plan of reorganization in a
Chapter 11 bankruptcy case that provides for treatment of the 13 1/2% Notes
substantially as described in the Consent Solicitation. No assurance can be
given that the plan of reorganization PFC intends to submit for confirmation
will be confirmed. (See - more detailed discussion - Liquidity Capital
Resources-Pioneer, below)
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It is possible that three or more holders of the 13 1/2% Notes could
file an involuntary petition under the Bankruptcy Code with respect to PFC prior
to PFC filing for relief under Chapter 11. If PFC were to become a debtor in a
case under the Bankruptcy Code (whether a case were commenced voluntarily or
involuntarily), it is possible that PHI and the Company would file for relief
under Chapter 11 of the Bankruptcy Code. The commencement of a voluntary case
under the Bankruptcy Code by the Company or certain circumstances related to an
involuntary case under the Bankruptcy Code with respect to the Company will
cause the automatic acceleration of outstanding indebtedness of subsidiaries of
the Company, SFHI and SLVC, all of which indebtedness is guaranteed by the
Company. If acceleration were to occur, the Company would expect to negotiate
with the creditors of SFHI and SLVC regarding a rescission of the acceleration.
However, if the creditors holding the indebtedness were not to rescind the
acceleration, it is likely that SFHI and SLVC would file for relief under
Chapter 11 of the Bankruptcy Code.
Excluding the 13 1/2% Notes, the Company has approximately $1.8 million
in current maturities of long term debt due to third parties during the
twelve-month period ending September 30, 1999, comprised primarily of payments
under other notes payable and capital leases. The scheduled maturities
applicable to third party debt under notes payable and capital leases at SFHI
and PHI during the twelve month period ending September 30, 1999 are $1.5
million and $6,000, respectively.
The Company had $153.1 million in long-term debt, net of current
maturities, debt discount and debt obligations owned, but not retired by the
Company, and excluding the 13 1/2% Notes discussed above, as of September 30,
1998. Approximately $59.1 million and $118.2 million mature in December 1999
and December 2000, respectively, comprised of $57.5 million principal amount of
SLVC Notes due December 1999 issued by SLVC, $99.4 million principal amount of
11% Notes due December 2000 issued by SFHI, of which $33.1 million is held by
SLVC, $14.0 million of 9 1/2 % Notes due December 2000 issued by SFHI and a $4.8
million note due December 2000 (the "Sierra Note"). The Company amended the
terms of the Sierra Note in October 1998 to among other items, (i) extend the
maturity from December 1998 to December 2000, (ii) require interest only
payments until maturity and (iii) add certain mandatory prepayment requirements.
Although management has in the past and is currently exploring
refinancing or debt modifications alternatives, as well as possible dispositions
or financing of certain assets, in order to satisfy the current maturities of
long-term debt obligations in 1999 and 2000, and intends to cause PFC to file
for relief under Chapter 11 of the United States Bankruptcy Code in order to
address the nonpayment at maturity of the 13 1/2% Notes, no assurance can be
given that the Company will be able to refinance or modify some or all of its
indebtedness or dispose of, or obtain financing with respect to any assets. Any
such refinancing or modification would be subject to the Company's future
operations and the prevailing market conditions at the time of such proposed
transaction and may require the approval of the Nevada Gaming Authorities for
such financings or asset sales. 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, 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.
Debt agreements restrict the distribution of cash from certain of the
Company's subsidiaries to the Company. Cash flows from SFHI, PHI and SLVC are
not currently, and are not expected in the foreseeable future to be, available
for distribution to the Company. In addition, debt agreements limit additional
indebtedness of such subsidiaries. Therefore, the Company and its subsidiaries
other than SLVC, PHI and SFHI, (collectively "Corporate") must rely on existing
cash and available resources, including the 22-acre
24
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parcel of real property, or cause subsidiaries to dispose of or refinance
assets, to provide liquidity to fund Corporate cash requirements, including
without limitations obligations that may arise as a result of the Company's
guarantee of subsidiary debt. See more detailed discussion of Liquidity and
Capital Resources SFHI, SLVC, PHI and Corporate, below.
CASH FLOW FROM OPERATIONS. The Company's cash provided by operations
was $300,000 for the year ended September 30, 1998 as compared to cash used in
operations of $8.3 million for the prior year period. The increase in cash used
in operations was primarily due to improved cash flow from the Santa Fe offset
by increased interest expense at SLVC. The Company's principal uses of cash from
operations are for rents for real property and gaming equipment, corporate
expenses, interest payments on indebtedness and capital expenditures. Management
believes that cash flow from operations in the prior period was adversely
impacted by restricted access to the Santa Fe due to road construction that was
ongoing from April 1996 through February 1998 and increased competition in the
Las Vegas Locals Market.
CASH FLOW FROM INVESTING ACTIVITIES. Cash used in investing activities
was $12.7 million during the year ended September 1998, as compared to cash
provided by investing activities of $1.4 million during the year ended September
1997. The current period use represents the acquisition of gaming equipment at
the Santa Fe and Pioneer and the acquisition of new pylon signs at the Santa Fe.
In addition, investing activities include costs incurred to develop the 39-acre
parcel in Henderson, Nevada owned by SLVC.
The Company is evaluating the potential development of a
hotel-casino and entertainment complex on this property. The Company has
completed preliminary engineering and architectural drawings for the project.
Any future development is subject to, among other things, the Company's
ability to obtain necessary financing. No assurance can be given that the
Company will obtain development financing or develop successfully the
Henderson property.
CASH FLOW FROM FINANCING ACTIVITIES. Cash provided by financing
activities was $19.9 million in the 1998 twelve month period compared to $4.6
million during the same period in 1997. This represents primarily the net
proceeds resulting from the issuance by SLVC of the additional $22.5 million
principal amount of SLVC Notes and the issuance by SFHI of $14 million principal
amount of 9 1/2% Notes . Additionally, in April 1998 the Company sold to a third
party promissory notes issued by SFHI with an aggregate principal amount of
approximately $10 million for approximately $9 million in cash.
SFHI - At September 30, 1998, approximately $15.0 million of the Company's
current assets, including approximately $11.8 million of cash and short term
investments, was held by SFHI.
Results of operations at the Santa Fe for the year ended September 30,
1998 generated EBITDA, as defined. of $20.6 million, approximately 1.35 times
rent and interest expense, compared to $14.9 million of EBITDA in 1997, or
approximately .91 times rent and interest expense. In the fiscal 1998 period,
the Santa Fe reported approximately $1.2 million in rent expense compared to
$3.0 million in the fiscal 1997 period. In the fiscal 1998 period, the Santa Fe
reported approximately $1.1 million in corporate charges compared to $900,000 in
the fiscal 1997 period. SFHI will incur less rent expense in future periods,
offset by increased interest expense as a result of $14 million note placement
in April 1998 and application of the proceeds therefrom. Management believes
that Santa Fe's EBITDA in prior periods was adversely impacted as a result
25
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of increased competition in its market area and restricted access to the
property due to road construction. The completion of the road construction near
the Santa Fe in September 1997 alleviated the access restriction to the Santa
Fe, which management believes resulted in increased customer traffic reflected
in the increased revenues.
SFHI's principal uses of cash from operations are for operating lease
payments, corporate charges, interest payments on indebtedness and capital
expenditures to maintain the facility. SFHI's lease payments in future periods
will be decreased, offset in part by increased interest expense, as a result of
the issuance of the 9 1/2 % Notes in April 1998 and the use of net proceeds
therefrom, to purchase gaming equipment previously leased and two new pylon
signs. Capital expenditures to maintain the facility in fiscal 1999 are expected
to be approximately the same that was expended in fiscal 1998, excluding the
purchase of gaming equipment and two new pylon signs in fiscal 1998.
SFHI is exploring alternatives to improve liquidity, including, but not
limited to, possible refinancings or modification of the 9 1/2 % Notes and 11%
Notes. The Company has no arrangements for any refinancings, dispositions or
other financings. Management believes that, based on operations for the twelve
month period ended September 30, 1998, SFHI will have sufficient cash resources
to meet its operating and debt service requirements through the twelve month
period ending September 30, 1999, although no assurance can be given to that
effect.
SLVC - At September 30, 1998, approximately $1.0 million of the Company's cash
and short-term investments was held by SLVC. In December 1998, SLVC utilized
cash and short-term investments together with interest income on $33.1 million
principal amount of 11% Notes held by SLVC, and a cash contribution by Corporate
of approximately $325,000, to make the interest payment due December 20, 1998 on
the SLVC Notes.
SLVC's principal use of cash is to satisfy principal and interest
obligations on the SLVC Notes. SLVC owns a 27-acre parcel of real estate on Las
Vegas Boulevard South which is subject to a lease with a water theme park
operator. SLVC generates minimal cash from the lease agreement after payment of
property costs. SLVC receives interest income on $33.1 million principal amount
of 11% Notes which are held as collateral for the SLVC Notes. Based on cash
received from interest payments on the $33.1 million of 11% Notes, there will be
a deficit of approximately $1.3 million in cash available to satisfy the SLVC
Note interest payment due in June 1999.
SLVC also owns a 39-acre parcel of real property in Henderson, Nevada
and is evaluating the development of a casino entertainment complex on the site.
Corporate has completed preliminary engineering and architectural drawings and
received certain construction related permits. Due to restrictions in the SLVC
Notes, any future development costs are the responsibility of Corporate and any
future development is subject to, among other things, the Company's ability to
obtain necessary financing. No assurance can be given that the Company will
obtain development financing or develop successfully the Henderson property.
Additional potential required uses of cash by SLVC include the
redemption of $7.0 million principal amount of SLVC Notes or, alternatively, the
purchase of $7.0 million principal amount of 11% Notes, if SFHI cash flow (as
defined in the agreement relating to the SLVC Notes), before a maximum $2.4
million in lease obligations at the Santa Fe, is less than $13.5 million for any
four quarter period.
Management believes that SLVC has available resources, consisting
primarily of the real property referred to above that may be sold and interest
income on the 11% Notes held as collateral, to meet the June 1999 interest
payment obligation on the SLVC Notes and other operating requirements through
September 30, 1999, although no assurance can be given to that effect. SLVC is
exploring alternatives to improve liquidity
26
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and to address the June 1999 interest payment and December 1999 maturity of
the SLVC Notes, including but not limited to the sale of either the 27-acre
parcel on Las Vegas Boulevard South or the Henderson property and refinancing
or modification of the SLVC Notes. The Company has no arrangements for any
refinancings, modifications, dispositions or other financings, the purpose of
which would be to satisfy the principal and interest obligations on the SLVC
Notes, and no assurance can be given that SLVC will successfully make such
arrangements. To the extent that SLVC is unable to generate sufficient cash
to meet its debt service requirements, Corporate may, to the extent of
available funds, make capital contributions or make advances to SLVC. No
assurance can be given that Corporate would have available resources to make
contributions or advances. (See Liquidity - Corporate)
PHI - At September 30, 1998 approximately $11.0 million of the Company's current
assets, including approximately $9.4 million of cash and short term investments,
was held by PHI. A wholly-owned subsidiary of PHI held $6.5 million of the cash
and short-term investments held by the Pioneer at September 30, 1998. In
December 1998 the wholly-owned subsidiary of PHI distributed $6.5 million to the
Pioneer and the Company repurchased approximately $5.0 million principal amount
of 13 1/2% Notes, plus accrued interest, pursuant to the Consent Solicitation.
Results of operations at the Pioneer for the year ended September 30,
1998 generated EBITDA, as defined of $6.6 million, approximately .73 times rent
and interest expense, compared to $7.6 million of EBITDA in 1997, or
approximately .78 times rent and interest expense. Pioneer reported rent expense
of approximately $800,000 in the fiscal 1998 compared to $1.0 million in fiscal
1997. Pioneer reported corporate charges of $1.1 million in fiscal 1998 compared
to $900,000 fiscal 1997.
PHI's principal uses of cash are for operating lease payments,
corporate expenses, interest payments on indebtedness and capital
expenditures to maintain the facility. Capital expenditures to maintain the
facility in fiscal 1999 are expected to be approximately the same as was
expended in fiscal 1998 of approximately $2.7 million, excluding
approximately $1.9 million to purchase gaming equipment in the 1998 period.
Management believes that, based on operations for the period ended
September 30, 1998, PHI will have sufficient cash and available resources to
meet its operating requirements through the twelve months ending September 30,
1999, although no assurance can be given to that effect.
PFC had $60 million of principal and approximately $2.7 million and
$4.1 million accrued interest due on the 13 1/2% Notes as of September 30,
1998 and December 1, 1998, respectively, which is presented as Debt Not Paid
At Maturity in the consolidated Balance Sheet contained elsewhere herein. In
November 1998 PFC received and accepted consents from holders of
approximately 75% or $45.8 million principal amount of the outstanding 13
1/2% Notes pursuant to which (i) PFC agreed to file for relief under Chapter
11 of the United States Bankruptcy Code and to submit for confirmation a plan
of reorganization that provides for issuance of new notes in satisfaction of
the 13 1/2% Notes pursuant to the terms set forth in the Consent
Solicitation, and (ii) the consenting holders agreed (a) to forbear until
December 2000 from exercising rights or remedies arising as a result of the
failure by PFC to pay principal and interest on the 13 1/2% Notes at the
December 1, 1998 maturity date, or the failure by PHI to pay principal and
interest on the intercompany mirror note from PHI to PFC at the December 1,
1998 maturity date and (b) to vote to accept a plan of reorganization in a
Chapter 11 bankruptcy case that provides for treatment of the 13 1/2% Notes
substantially as set forth in the Consent Solicitation.
27
<PAGE>
Pursuant to the Consent Solicitation, in December 1998 PFC purchased on
a pro-rata basis from all consenting holders, an aggregate $5.0 million
principal amount of 13 1/2% Notes, plus accrued interest. PFC also expects to
repurchase from non-consenting holders their pro-rata amount of 13 1/2% Notes
(approximately $1.5 million), plus accrued interest through December 1,1998,
upon confirmation of the plan of reorganization contemplated by the Consent
Solicitation that PFC intends to submit for confirmation in the Chapter 11 case.
In addition, the Company provided collateral for its previously unsecured
guarantee of the 13 1/2% Notes, through the pledge of stock of its subsidiaries
SFHI, SR, HHI., SNC. and Santa Fe Coffee Company, (collectively the "Pledged
Companies"), and by the grant of liens on certain of its other assets.
Although results of operations of the Pioneer have not been
noticeably adversely impacted since the commencement of the Consent
Solicitation in October 1998, no assurance can be given that the filing for
relief under Chapter 11 by PFC, and potentially by PHI, the Company and other
subsidiaries of the Company, will not have a material adverse affect on the
operations and financial condition of the Pioneer. Management does not
believe the filing for relief or the contemplated plan of reorganization will
materially effect operating results at the Pioneer. However, no assurance can
be given that the anticipated bankruptcy case will not adversely affect the
Pioneer, the Company or its other subsidiaries, including PHI.
Pursuant to the plan of reorganization, PFC will issue a principal
amount of 13 1/2% First Mortgage Notes due 2006 (together with the PIK Notes, as
defined below, the "New Notes") equal to the principal amount of all outstanding
13 1/2% Notes plus accrued interest as of December 1, 1998. The New Notes will
bear interest at a rate equal to 13 1/2% per annum. Interest on the New Notes
will be payable semiannually, on June 1 and December 1 of each year and will
accrue from the date following the Issue Date. The New Notes will mature on
December 1, 2006. PFC will have the right to pay in kind up to 50% of the
interest payable on each interest payment date through the fourth interest
payment date following issuance through the issuance of additional New Notes
with a principal amount equal to 50% of the interest payable on such Interest
Payment Date (the "PIK Notes"). The terms of the PIK Notes will be identical to
those of the New Notes, including without limitation that interest on the PIK
Notes will be payable 50% in cash and 50% through the fourth interest payment
date following issuance through the issuance of additional PIK Notes. PFC
expects to satisfy 50% of each interest payment obligation through the fourth
interest payment date following issuance through the issuance of PIK Notes, as a
result of which there would be $65.2 million principal amount of New Notes
outstanding at maturity, assuming no repurchase and retirement of New Notes. The
New Notes will be redeemable at 100% of the principal amount plus accrued
interest thereon, and unpaid to the date of purchase by PFC at any time. Upon
the occurrence of certain events, PFC will be required to redeem all outstanding
New Notes or make an offer to repurchase all or a portion of the outstanding New
Notes, in each case at 100% of the aggregate principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the date of purchase. Moreover,
one of the provisions of the New Notes will require that, on or before the later
of December 31, 1999 and the date that is six months from the date a plan of
reorganization is confirmed, (a) PFC must complete an offer to repurchase $7.5
million principal amount of New Notes or purchase in the open market or
otherwise and retire at least $7.5 million principal amount of New Notes, and
(b) SLVC must grant liens (subject to prior liens securing not more than $35
million of debt) for the benefit of the holders of the New Notes on
substantially all of its assets. If such requirements are not satisfied by the
specified date, an event of default will occur under the New Notes. The Company
will guaranty the payment of principal of, and premium, if any, and interest on,
the New Notes, and the guaranty will be secured by a pledge of the common stock
of its Pledged Companies and by liens on certain of its other assets.
The plan of reorganization will be subject to the approval of the
bankruptcy court, and potentially the approval of other creditors. No assurance
can be given that the plan of reorganization to be submitted by PFC will be
confirmed. Giving effect to the issuance of New Notes as of the beginning of the
period and assuming
28
<PAGE>
that PFC elects to pay 50% of the interest payment obligations through the
fourth interest payment date following issuance of New Notes through the
issuance of PIK Notes, the ratio of EBITDA to cash interest expense less rent
for real property would have been 1.52-to-one for the twelve months ended
September 30, 1998. Upon commencement of the requirement that all interest be
paid in cash in on the fifth interest payment date, the ratio of EBITDA to
cash interest expense on the New Notes is expected to be less than one-to-one
(assuming no offers to repurchase New Notes have been made). Therefore, it is
expected that PFC would not be able to make the cash interest payment on the
fifth interest payment date, which would be an event of default under the
indenture under which the New Notes will be issued.
The payments made to repurchase the 13 1/2% Notes in December 1998 and
the grant of security interest pursuant to the Consent Solicitation may be
avoidable as a preference and could be subject to recovery by a trustee in
bankruptcy, an official creditors' committee, other representatives of creditors
of PFC or PHI, or PFC or PHI as debtors in possession under the Bankruptcy Code
within one year of the payments. If the payments were successfully challenged as
preferences, holders would be required to return the funds received, together
with interest thereon in a rate determined by the court, or would be precluded
from receiving any distribution on account of such holders' 13 1/2% Notes.
CORPORATE - Approximately $1.8 million of the Company's current assets at
September 30, 1998, including approximately $400,000 of cash and short-term
investments, was held by Corporate.
Corporate consists primarily of non-operating entities which do not
generate cash flow from operations. Corporate's principal uses of cash are for
debt service, administrative and professional expenses and costs associated with
the evaluation and development of proposed projects. Additional potential uses
of cash by Corporate include obligations that may arise as a result of the
Company's guarantee of subsidiary debt, including the 13 1/2% Notes not paid at
maturity, and the guarantee of the tenant loan if the Company terminates the
lease subject to the parcel on Las Vegas Boulevard South owned by SLVC.
The Company has guaranteed the debt of its subsidiaries, PHI, SLVC and
SFHI, including $60 million principal amount of 13 1/2% Notes that matured
December 1, 1998. Furthermore, in the event that cash at SLVC, SFHI or PHI is
insufficient to meet liquidity requirements, Corporate may make contributions,
or, to the extent permitted by financing arrangements, loans to SLVC, SFHI or
PHI to prevent an event of default under debt instruments to which SLVC, SFHI or
PHI is a party and which loans have been guaranteed by Corporate. In order to
generate necessary liquidity, the Company may cause its subsidiaries to dispose
of, pledge or refinance certain assets to generate sufficient liquidity to meet
the cash requirements. No assurance can be given that Corporate would have
available resources to make such contributions or loans. (See SFHI, PHI and
SLVC.)
The Company's preferred stock provides that dividends accrue on a
semi-annual basis, to the extent not declared. The Company is a party to
financing arrangements that restrict the Company's ability to exchange the
preferred stock to subordinated notes commencing in September 1998 and 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. The Company accrued the semi-annual preferred stock dividends
due in fiscal year 1998 and 1997. To the extent dividends in an amount equal to
dividend payments for one dividend period have accrued and remain unpaid for two
years, the preferred stockholders have the right to elect two members to the
Board of Directors at the next annual meeting of shareholders. Because of
accrued and unpaid dividend, preferred stockholders, voting as a class, will be
entitled to elect two directors, in addition to the six directors to be elected
by the common stockholders, at the annual meeting to be held in Spring 1999. In
September 1998 the dividend rate increased to 11.0% from 8.0% and will increase
by 50 basis points each semi-annual period thereafter, up to a maximum of 16%.
29
<PAGE>
Management believes that Corporate has sufficient working capital and
available resources, including the 22-acre parcel of property adjacent to the
Santa Fe site, to meet its operating and debt service requirements through the
twelve month period ending September 30, 1999, excluding obligations which may
arise from the Company's guarantee of the debt of its subsidiaries, although no
assurance can be given to that effect.
RELATED PARTIES
In November 1993 Mr. Lowden, Chairman of the Board, Chief Executive
Officer and 57% stockholder of the Company, and Bank of America entered into
a personal loan agreement, secured by a pledge of substantially all the
common shares of the Company owned by Mr. Lowden. Mr. Lowden advised the
Company he repaid the entire loan balance in July 1998.
From 1991 through 1993 LICO, a company wholly-owned by Mr. Lowden,
borrowed an aggregate of $476,000 from a subsidiary of the Company, pursuant to
an unsecured demand loan which bore interest at 2% over the prime rate. The
outstanding balance of the loan including accrued interest was $700,000 as of
December 31, 1997. In January 1998, the amount outstanding under the loan was
satisfied in full through the offset of amounts due Mr. Lowden under
compensation arrangements.
COMPUTERIZED OPERATIONS AND THE YEAR 2000
INTRODUCTION. In an effort to adequately address and prepare for the
impact and to prevent potential disruption of business operations at the
Company's properties, the Company's Management Information Systems ("MIS")
department has been working to identify areas of risk related to the Company's
current technology's potential inability to process properly the change from the
year 1999 to 2000.
STATE OF READINESS. Since 1997, the MIS department, which oversees
and has responsibility for the operation of the Company's technology systems,
has been charged with assessing, evaluating and monitoring the actions the
Company will need to take to become year 2000 compliant. The MIS department
has made an assessment of most of the information technology ("IT") and
non-IT systems of both the Santa Fe and the Pioneer. Examples of IT systems
include the hotel-reservation system, billing system, inventory and
purchasing system, property management system and point of sale system (cash
registers). Examples of non-IT systems include slot machines, video poker
machines, elevators to guest rooms and executive offices, the telephone
system, the in-room movie program and the bingo system. Generally, the
Company's non-IT systems appear to be Year 2000 compliant, i.e., they have
the ability to process properly the change from the year 1999 to 2000. Most
of the Company's IT systems need upgrading and/or replacing to become Year
2000 compliant. The Company is currently in the process of upgrading and/or
replacing such IT systems and expects to complete the process by September
30, 1999. There is a small number of both IT and non- IT applications for
which the Company has not completed assessment for potential Year 2000
problems. An example is the accounting program for guest telephone calls at
the Santa Fe. The MIS department is currently actively working with the
vendors of each application to make an assessment as to their Year 2000
compliance, and, if necessary, any corrective action it should take with
respect to such applications. The Company does not expect that the year 2000
issue will pose significant operational problems for either the IT or non-IT
assets.
The Company from time to time exchanges electronic information with
suppliers and other third parties. As of the date of this report, the Company
does not have any information concerning the Year 2000 compliance of its
suppliers or other third parties, although the Company has distributed
written questionnaires to its significant suppliers to determine the extent
to which the Company's interface systems are vulnerable to such persons'
failure to remediate their own year 2000 issues. There can be no assurance
that such suppliers or third parties will not suffer a year 2000 business
disruption. Such failures could have a material adverse effect on the
Company's financial condition and results of operation.
30
<PAGE>
COSTS TO ADDRESS THE YEAR 2000 ISSUE. The Company estimates that it
will spend approximately $300,000 on system upgrades and/or replacements. The
Company believes that such amount, as well as remaining costs to address the
Year 2000 issue, will not have a material effect on the liquidity or
financial condition of the Company. The Company intends to fund from
operations the costs of becoming year 2000 compliant.
RISKS PRESENTED BY THE YEAR 2000 ISSUE. To date, the Company has not
identified any IT systems that present a material risk of not being year 2000
ready or for which a suitable alternative cannot be implemented. However, as
the Company's assessment of the year 2000 issue continues, it is possible
that the Company may identify IT assets that do present a risk of year
2000-related disruption. In addition, if any suppliers or third parties who
provide goods or services that are critical to the Company's activities fail
to address their year 2000 issues appropriately, there could be a material
adverse effect on the Company's financial condition and results of
operations. Finally, the Company cannot assure that it will complete
successfully its assessment and corrective actions in a timely manner. The
failure to be year 2000 compliant in a timely manner could have a material
adverse effect on the Company's financial condition and results of operations.
CONTINGENCY PLANS. Because the Company has not fully completed its
assessment of the risks from year 2000 failures, the Company has not developed
year 2000 specific contingency plans. The Company will develop such plans if it
identifies a business function at risk.
EFFECTS OF INFLATION
The Company has been generally successful in recovering costs
associated with inflation through price adjustments in its hotels. Any such
increases in costs associated with casino operations and maintenance of
properties may not be completely recovered by the Company.
PRIVATE SECURITIES LITIGATION REFORM ACT
Certain statements in this Annual Report on Form 10-K 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.
31
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
For the Years Ended September 30, 1998, 1997 and 1996
<TABLE>
Page
----
<S> <C>
Independent Auditors' Report.........................................................33
Consolidated Balance Sheets as of
September 30, 1998 and 1997................................................ 34
Consolidated Statements of Operations for the Years Ended
September 30, 1998, 1997 and 1996...........................................35
Consolidated Statements of Stockholders' Equity for the
Years Ended September 30, 1998, 1997 and 1996...............................36
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1998, 1997 and 1996.....................................37
Notes to Consolidated Financial Statements...........................................38
</TABLE>
Financial Statement Schedules are omitted because of the absence of conditions
under which they are required or because the information is included in the
financial statements or the notes thereto.
32
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDERS OF SANTA FE GAMING CORPORATION:
We have audited the accompanying consolidated balance sheets of
Santa Fe Gaming Corporation and subsidiaries (the"Company") as of September
30, 1998 and 1997, and the related consolidated statements of operations,
stockholders' equity (deficiency), and cash flows for each of the three years
in the period ended September 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Santa Fe Gaming
Corporation and Subsidiaries as of September 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended September 30, 1998 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Notes 9
and 23 to the financial statements, the Company did not pay the $60 million
principal amount of 13-1/2% First Mortgage Notes ("13-1/2% Notes") of Pioneer
Finance Corp. ("PFC"), which were due December 1, 1998, which debt is secured
by the Pioneer Hotel, Inc. ("Pioneer") and guaranteed by Santa Fe Gaming. The
Company's inability to meet the repayment terms of the 13-1/2% Notes, its net
losses, and its stockholders' deficiency raise substantial doubt about its
ability to continue as a going concern. Management's plans regarding these
matters are also described in Notes 9 and 23, which include utilizing the
support of holders of approximately 75% of the outstanding 13-1/2% Notes to
forbear exercising their rights or remedies as a result of the failure to pay
the 13-1/2% Notes and vote to accept a plan of reorganization under Chapter
11 of the United States Bankruptcy Code. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
December 23, 1998
33
<PAGE>
SANTA FE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and short-term investments $ 22,650,882 $ 15,146,217
Accounts receivable, net 1,617,762 910,867
Inventories 1,339,796 1,248,199
Prepaid expenses & other 3,243,415 3,546,812
-------------- ---------------
Total current assets 28,851,855 20,852,095
-------------- ---------------
Property and equipment:
Land held for development 38,194,065 38,194,065
Land used in operations 29,343,886 29,343,886
Buildings and improvements 90,665,531 90,368,461
Machinery and equipment 39,219,898 35,607,418
Accumulated depreciation (48,574,230) (51,157,969)
-------------- ---------------
Property and equipment, net 148,849,150 142,355,861
Goodwill, net 0 44,641,391
Other assets 14,465,409 8,446,931
-------------- ---------------
Total assets $ 192,166,414 $ 216,296,278
============== ===============
LIABILITIES and STOCKHOLDERS' EQUITY (DEFICIENCY)
- -------------------------------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,785,716 $ 6,644,979
Accounts payable 3,864,000 5,117,059
Interest payable 4,497,420 6,612,750
Accrued and other liabilities 7,656,644 6,525,215
-------------- ---------------
17,803,780 24,900,003
Current debt not paid at maturity 62,700,000 0
-------------- ---------------
Total current liabilities 80,503,780 24,900,003
Long-term debt - less current portion 153,146,836 170,537,838
Commitments
Stockholders' equity (deficiency):
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 21,985,750 20,469,492
Additional paid-in capital 51,513,504 51,513,504
Accumulated deficit (114,957,636) (51,098,739)
-------------- ---------------
Total (41,396,428) 20,946,211
Less treasury stock - 4,875 shares, at cost (87,774) (87,774)
-------------- ---------------
Total stockholders' equity (deficiency) (41,484,202) 20,858,437
-------------- ---------------
Total liabilities and stockholders' equity (deficiency) $ 192,166,414 $ 216,296,278
============== ===============
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
34
<PAGE>
SANTA FE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Casino $ 91,383,488 $ 83,217,092 $ 84,595,109
Hotel 5,699,479 5,817,273 6,460,613
Food and beverage 21,102,213 20,785,262 20,739,903
Other 7,286,665 6,864,737 8,367,249
Gain on sale of assets 0 725,179 40,753,738
------------- ------------- -------------
Gross revenues 125,471,845 117,409,543 160,916,612
Less casino promotional allowances (12,622,591) (12,420,872) (12,484,339)
------------- ------------- -------------
Net operating revenues 112,849,254 104,988,671 148,432,273
------------- ------------- -------------
Operating expenses:
Casino 44,635,725 42,196,846 43,474,270
Hotel 1,890,842 1,756,065 1,806,907
Food and beverage 14,002,750 14,250,879 16,160,601
Other 3,161,547 2,938,658 3,452,922
Selling, general and administrative 12,561,344 11,820,409 13,512,309
Corporate expenses 3,443,950 2,935,848 2,823,304
Utilities and property expenses 11,616,199 12,868,831 11,982,079
Depreciation and amortization 13,723,996 11,157,480 14,069,415
Loss on asset impairment 44,025,709 0 0
------------- ------------- -------------
Total operating expenses 149,062,062 99,925,016 107,281,807
------------- ------------- -------------
Operating income (loss) (36,212,808) 5,063,655 41,150,466
Interest expense 25,371,590 22,607,548 24,422,302
Other expenses 758,241 0 2,752,405
------------- ------------- -------------
Income (loss) before income tax expense
(benefit) and extraordinary item (62,342,639) (17,543,893) 13,975,759
Federal income tax expense (benefit) 0 (3,830,601) 4,236,523
------------- ------------- -------------
Income (loss) before extraordinary item (62,342,639) (13,713,292) 9,739,236
Extraordinary item-gain on early
extinguishment of debt, net of tax
provision of $1,129,000 in 1997 and
$4,229,000 in 1996 0 2,096,238 7,854,707
------------- ------------- -------------
Net income (loss) (62,342,639) (11,617,054) 17,593,943
Dividends paid or accrued on preferred shares 1,516,258 1,516,259 1,434,291
------------- ------------- -------------
Net income (loss) applicable to common shares $ (63,858,897) $ (13,133,313) $ 16,159,652
============= ============= =============
Average common shares outstanding 6,195,356 6,195,356 6,195,356
============= ============= =============
Income (loss) per common share:
before extraordinary item $ (10.06) $ (2.21) $ 1.57
extraordinary item 0.00 0.34 1.27
dividends on preferred shares (0.25) (0.25) (0.23)
------------- ------------- -------------
Income (loss) per common share $ (10.31) $ (2.12) $ 2.61
============= ============= =============
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
35
<PAGE>
SANTA FE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
<TABLE>
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 17,593,943 17,593,943
Preferred stock dividends 1,431,848 (1,434,291) (2,443)
------------- ------------- ------------- ------------- ------------- -------------
Balances, September 30, 1996 61,954 18,953,233 51,513,504 (37,965,426) (87,774) 32,475,491
Net loss (11,617,054) (11,617,054)
Preferred stock dividends 1,516,259 (1,516,259) 0
------------- ------------- ------------- ------------- ------------- -------------
Balances,September 30, 1997 61,954 20,469,492 51,513,504 (51,098,739) (87,774) 20,858,437
Net loss (62,342,639) (62,342,639)
Preferred stock dividends 1,516,258 (1,516,258) 0
------------- ------------- ------------- ------------- ------------- -------------
Balances,September 30, 1998 $ 61,954 $ 21,985,750 $ 51,513,504 $(114,957,636) $ (87,774) $ (41,484,202)
============= ============= ============= ============= ============= =============
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
36
<PAGE>
SANTA FE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
<TABLE>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (62,342,639) $ (11,617,054) $ 17,593,943
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 13,723,996 11,157,480 14,069,415
Gain on sale of assets 0 (725,179) (40,753,738)
Gain on early extinguishment of debt, net 0 (2,096,238) (7,854,707)
Loss on impairment of assets 44,025,709
Provision to reduce carrying value of
investments in minority-owned subsidiary 2,752,405
Debt discount amortization 1,532,759 1,703,368 1,765,887
Decrease (increase) in accounts receivable, net (706,895) 618,856 4,659,386
Decrease (increase) in accounts receivable, officer 0 636,113 (91,071)
Decrease (increase) in inventories (91,597) (30,079) 558,307
Decrease in prepaid expenses & other 303,397 231,702 1,009,110
Decrease (increase) in deferred income taxes 0 (3,830,601) 4,136,523
Decrease (increase) in other assets 2,778,522 (1,105,769) 2,877,546
Decrease in accounts payable (888,041) (640,102) (1,267,819)
Increase (decrease) in interest payable 584,670 (529,475) (2,374,551)
Increase (decrease) in accrued and other liabilities 1,372,066 (2,115,775) (6,589,101)
------------- ------------- -------------
Net cash provided by (used in) operating activities 291,947 (8,342,753) (9,508,465)
------------- ------------- -------------
Cash flows from investing activities:
Proceeds from sale of subsidiary assets 128,508,377
Proceeds from sale leaseback of equipment 5,000,000
Proceeds from sale of land held for development 3,150,000
Capital expenditures (5,700,499) (1,566,035) (4,571,140)
Development costs (6,958,828) (202,919) (663,357)
------------- ------------- -------------
Net cash provided by (used in) investing activities (12,659,327) 1,381,046 128,273,880
------------- ------------- -------------
Cash flows from financing activities:
Cash proceeds of long-term debt 81,439,996 21,675,658 20,000,000
Cash paid on long-term debt (58,065,611) (15,709,115) (163,948,828)
Debt issue cost (3,502,340) (1,356,443) (68,695)
------------- ------------- -------------
Net cash provided by (used in) financing activities 19,872,045 4,610,100 (144,017,523)
------------- ------------- -------------
Increase (decrease) in cash and short-term investments 7,504,665 (2,351,607) (25,252,108)
Cash and short-term investments,
beginning of year 15,146,217 17,497,824 42,749,932
------------- ------------- -------------
Cash and short-term investments,
end of year $ 22,650,882 $ 15,146,217 $ 17,497,824
============= ============= =============
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
37
<PAGE>
SANTA FE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
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
("SR") 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 adjacent to the Santa Fe, and through an indirect wholly-owned
subsidiary of the Company, Sahara Las Vegas Corp. ("SLVC"), on Las Vegas
Boulevard South (the "Strip") and in Henderson, Nevada, for possible
development opportunities.
The Company through its wholly owned subsidiaries, Hacienda Hotel
Inc. ("HHI") and Sahara Nevada Corp. ("SNC"), owned and operated the Hacienda
Resort Hotel and Casino (the "Hacienda") and the Sahara Hotel and Casino (the
"Sahara"), but sold substantially all of the assets related to those
hotel-casinos in August 1995 and October 1995, respectively.
In November 1998, Pioneer Finance Corp. ("PFC"), a special purpose
subsidiary of Santa Fe Gaming, which issued the 13 1/2% First Mortgage Bonds
due December 1, 1998 ("13 1/2% Notes") to finance the acquisition of the
Pioneer in 1988, agreed to file for relief under Chapter 11 of the United
States Bankruptcy Code and to seek confirmation of a plan or reorganization
of a plan of reorganization that will permit the issuance of new notes in
satisfaction of the 13 1/2% Notes in accordance with the terms set forth in
the Offering Circular and Consent Solicitation dated October 23, 1998, as
amended ("Consent Solicitation"). See Notes 3, 9, 10 and 23
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in the
financial statements, current liabilities exceed current assets in the
accompanying balance sheet by $51,651,925, which is primarily attributable to
$60 million of 13 1/2 % Notes, which were due December 1, 1998. Furthermore,
at September 30, 1998, there is a stockholders' deficiency of $41,484,202.
The Company's inability to meet the repayment terms of the 13-1/2% Notes, its
net losses, and its stockholders' deficiency raise substantial doubt about
its ability to continue as a going concern. Management's plans regarding these
matters are also described in Notes 9 and 23, which include utilizing the
support of holders of approximately 75% of the outstanding 13-1/2% Notes to
forbear exercising their rights or remedies as a result of the failure to pay
the 13-1/2% Notes and vote to accept a plan of reorganization under Chapter
11 of the United States Bankruptcy Code. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Santa Fe Gaming and its wholly owned subsidiaries. Amounts
representing the Company's investment in less than majority-owned companies
in which a significant equity ownership interest is held are accounted for on
the equity method. All material inter-company accounts and transactions have
been eliminated in consolidation.
38
<PAGE>
Cash and Short-Term Investments
Investments which mature within 90 days from the date of purchase
are treated as cash equivalents and are included in cash and short-term
investments.
Inventories
Food, beverage, gift shop and other inventories are stated at
first-in, first-out cost, not in excess of market.
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Costs of maintenance and repairs of property and equipment are
expensed as incurred. Costs of major improvements are capitalized and
depreciated pursuant to the standard described below. Gains or losses on the
disposal of property and equipment are recognized in the year of sale. In
sale/ leaseback transactions of property and equipment, gains are deferred
and recognized over the lease term and losses are recognized in the year of
sale.
The Company periodically assesses the recoverability of property,
plant and equipment and evaluates such assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Asset impairment is determined to exist if estimated
future cash flows, undiscounted and without interest charges, are less than
the carrying amount in accordance with Statement of Financial Accounting
Standards ("SFAS") 121, Impairment of Long-Lived Assets ("SFAS 121").
Depreciation and amortization are computed by the straight-line
method over the shorter of the estimated useful lives or lease terms. The
length of depreciation and amortization periods are for buildings and
improvements 7 to 40 years and for machinery and equipment 3 to 15 years.
Goodwill
The excess cost over the net assets of an acquired company is
amortized using the straight line method over a 40 year period. Management
periodically evaluates the realizability of goodwill and evaluates such asset
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. Asset impairment is
determined to exist if estimated future cash flows, undiscounted and without
interest charges, are less than the carrying amount in accordance with SFAS
121, Impairment of Long-Lived Assets.
Pre-Opening Expenses and Capitalized Interest
All pre-opening expenses directly related to development of gaming
operations are capitalized as incurred and included in Other Assets and
expensed within the first year of operations. Interest costs are capitalized
on funds disbursed during the development phase of projects and expensed
pursuant to depreciation and amortization methods over the asset's estimated
useful life.
39
<PAGE>
Federal Income Taxes
Deferred income taxes are provided on temporary differences between
pretax financial statement income and taxable income resulting primarily from
different methods of depreciation and amortization. The Company accounts for
Income Taxes in accordance with SFAS No. 109, Accounting for Income Taxes.
("SFAS 109")
Revenue Recognition
Casino revenue is recorded as gaming wins less losses. Revenues
include the retail amount of room, food, beverage and other services provided
gratuitously to customers. Such amounts are then deducted as promotional
allowances. The estimated cost of providing these promotional services has
been reported in the accompanying consolidated financial statements as an
expense of each department granting complimentary services. The table below
summarizes the departments' costs of such services (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Food and Beverage $11,357 $11,051 $12,114
Hotel 931 972 1,128
Other 162 181 216
------- ------- -------
Total $12,450 $12,204 $13,458
======= ======= =======
</TABLE>
Indirect Expenses
Certain indirect expenses of operating departments such as utilities
and property expense and depreciation and amortization are shown separately
in the accompanying consolidated statements of operations and are not
allocated to departmental operating costs and expenses.
Earnings Per Share
During the quarter ended December 31, 1997, the Company adopted SFAS
No. 128 "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 requires the
presentation of basic net income (loss) per share and diluted net income
(loss) per share. Basic per share amounts are computed by dividing net income
(loss) by average shares outstanding during the period. Diluted per share
amounts are computed by dividing net income (loss) by average shares
outstanding plus the dilutive net income (loss) by average shares outstanding
plus the dilutive effect of common share equivalents. The effect of options
outstanding was not included in diluted calculations during the quarter ended
September 30, 1998 since the Company incurred a net loss during the
three-month and twelve-month periods ended September 30, 1998.
Estimates and Assumptions
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. Significant estimates used by the Company include estimated
useful lives for depreciable and amortizable assets, certain other estimated
liabilities and valuation reserves and estimated cash flows in assessing the
recoverability of long-lived assets. Actual results may differ from estimates.
40
<PAGE>
Reclassification
Certain reclassifications have been made in the 1997 and 1996
consolidated financial statements in order to conform to the presentation
used in 1998.
Recently Issued Accounting Standards
The Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"), which is effective
for fiscal years beginning after December 15, 1997. This statement requires
companies to classify items of other comprehensive income by their nature in
a financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a Balance Sheet. Management does not believe
that SFAS No. 130 will have a material impact on the Company's financial
statements.
The FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which is effective for
fiscal years beginning after December 15, 1997. This statement redefines how
operating segments are determined and requires qualitative disclosure of
certain financial and descriptive information about a company's operating
segments. The Company will adopt SFAS No. 131 in the year ending September
30, 1999. Management has not yet completed its analysis of which operating
segments it will report on to comply with SFAS No. 131.
The FASB recently issued SFAS No. 133 ("SFAS 133"), Accounting for
Derivative Instruments and Hedging Activities, which is effective for
financial statements for all fiscal quarters of all fiscal years beginning
after June 15, 1999. SFAS 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. Management
has not determined what effect, if any, adoption of SFAS 133 will have on the
Company's future operations or financial condition.
The American Institute of Certified Public Accountants' Accounting
Standards Executive Committee issued Statement of Position ("SOP") 98-5
"Reporting on the Costs of Start-up Activities." This standard provides
guidance on the financial reporting for start-up costs and organization
costs. This standard requires costs of start-up activities and organization
costs to be expensed as incurred. Management believes that this SOP could
have a material impact on the consolidated financial statements depending on
the status of the Company's current and future expansion projects at the time
of adoption of this standard. This standard is effective for fiscal years
beginning after December 15, 1998.
Fair Value of Financial Instruments
The Company estimates the fair value of its long term debt and
preferred stock to be $198.3 million and $3.3 million, respectively, at
September 30, 1998 based upon available market prices. The Company estimates
that all other financial instruments have a fair value which approximates
their recorded value.
3. CASH AND SHORT-TERM INVESTMENTS
At September 30, 1998, approximately $11.8 million of the Company's
consolidated cash and short term investments was held by SFHI and was subject to
certain restrictions and limitations on its use, including restrictions on its
availability for distribution to the Company, by the terms of an indenture
pursuant to which
41
<PAGE>
$115 million principal amount of 11% First Mortgage Notes due December 2000
("11% Notes") of SFHI was issued. As of September 30, 1998, SFHI did not meet
the conditions precedent to making a distribution to the Company. See Note 10
At September 30, 1998, approximately $9.4 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 December 1998 ("13 1/2% Notes") of Pioneer
Finance Corp. ("PFC") were issued, the proceeds of which were loaned to PHI.
As of September 30, 1998, PHI did not meet the conditions precedent to making
a distribution to the Company. PFC did not pay the 13 1/2% Notes at maturity.
See Notes 9, 10 and 23
At September 30, 1998, approximately $1.0 million of the Company's
consolidated cash and short-term investments was held by SLVC and was subject
to certain restrictions and limitations on its use by the terms of $57.5
million principal amount of notes due December 1999 ("SLVC Notes"). As of
September 30, 1998, SLVC did not meet the conditions precedent to making a
distribution to the Company. See Note 10
4. ACCOUNTS RECEIVABLE, NET
Accounts receivable at September 30, 1998 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Casino and hotel $2,891,652 $2,467,672
Other 563,957 449,963
---------- ----------
3,455,609 2,917,635
Less allowance for doubtful accounts 1,837,847 2,006,768
---------- ----------
Total $1,617,762 $ 910,867
========== ==========
</TABLE>
Changes in the allowance for doubtful accounts for the years ended
September 30, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year $ 2,006,768 $ 2,196,847 $ 2,317,702
Provision 40,673 94,738 397,413
Accounts written-off (209,594) (284,817) (518,268)
----------- ----------- ------------
Balance, end of year $ 1,837,847 $ 2,006,768 $ 2,196,847
=========== =========== ===========
</TABLE>
5. LAND HELD FOR DEVELOPMENT
In March 1994 the Company purchased for approximately $15.1 million
a 39-acre parcel of land located in Henderson, Nevada, for future
development of a proposed casino hotel complex. At September 30, 1998 the
cost to acquire the property is included in land held for development in the
consolidated Balance Sheet. See Note 8
In October 1995 in connection with the sale of the Sahara, the Company
acquired a 27-acre parcel on Las Vegas Boulevard South which was valued at
approximately $21.5 million. The Company assumed an operating lease under which
a water theme park operates on the 27-acre parcel. The lease may be terminated
42
<PAGE>
by the Company at any time after December 1996. The Company has guaranteed
payments by the tenant of a loan to the prior owner of the property ("tenant
loan") and has agreed to pay the loan in full in certain situations,
including in the event the lease is terminated for any reason prior to 2004.
The tenant loan, which is amortized through monthly principal and interest
payments through December 2004, had an outstanding balance of $4.8 million as
of September 30, 1998. 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.
In November 1993, the Company acquired for approximately $1.6
million, a 22-acre parcel of property located adjacent to the Santa Fe. In
November 1997, the Company entered into an agreement to sell the 22-acre
parcel of land for approximately $3.6 million. The agreement was subject to
certain contingencies which did not occur and the agreement to sell
terminated.
6. PROPERTY AND EQUIPMENT, NET
In March 1998 the Company acquired, for approximately $10.7 million,
gaming equipment and furniture and fixtures previously under lease at the
Santa Fe. In June 1998 the Santa Fe acquired additional gaming equipment for
$1.2 million. In September 1998 Santa Fe completed construction of two new
pylon signs at a total cost of approximately $1.8 million. The Company funded
the acquisitions and construction with proceeds from a $14 million note
placement in April 1998. See Notes 10 and 11
In December 1997 the Company acquired, for approximately $1.2
million, gaming equipment previously under lease at the Pioneer. In January
1998 the Pioneer acquired, for approximately $500,000, additional gaming
machines with available working capital. See Note 11
7. GOODWILL, NET
Goodwill of $56.5 million was recorded by the Company on December 1,
1988 as a result of the allocation of the purchase price of the Pioneer.
Goodwill is net of accumulated amortization of $11.9 million at September 30,
1997. Amortization expense was $1.4 million in the fiscal years 1998, 1997
and 1996.
In 1998, in accordance with SFAS No. 121, the Company determined an
impairment loss had occurred to the carrying value of the assets of the
Pioneer. In the quarter ended September 30, 1998 the Company recorded an
impairment loss to adjust to fair market value the carrying value of the
Pioneer's fixed and intangible assets. Consequently, the remaining value of
goodwill of $43.2 million was written off at September 30, 1998. See Note 18
8. Other Assets
As of September 30, 1998 and 1997, in addition to costs to acquire
the 39-acre parcel of real property in Henderson, Nevada the Company has
recorded approximately $9.3 million and $3.5 million in preliminary
engineering and design fees, construction related permits and development
costs.
In February 1996 the Company, through a wholly-owned subsidiary,
acquired a 50% equity interest for $175,000 in a restaurant/tavern operation
in northwest Las Vegas, Santa Fe Mining Company, L.L.C. ("Santa Fe Mining").
The restaurant/tavern opened on July 1, 1996. The Company and its partner
each contributed $175,000 and have guaranteed a $950,000 loan incurred to
finance construction and equipment. In addition, Santa Fe Mining entered into
a three year fully amortizing note at 11 1/2% per annum for approximately
$100,000 to finance the acquisition of slot equipment.
43
<PAGE>
9. DEBT NOT PAID AT MATURITY
The 13 1/2% Notes were issued by PFC, the proceeds from which were
loaned to PHI to acquire the Pioneer and are secured by an assignment of a
first priority deed of trust on the Pioneer and are guaranteed by the
Company. Interest was payable semi-annually on June 1 and December 1 at a
rate of 13 1/2% per annum and the principal amount was due December 1, 1998.
PFC did not pay the principal and accrued interest on the 13 1/2% Notes at
maturity. The Company had $60 million of principal and approximately $2.7
million accrued interest due on the 13 1/2% Notes as of September 30, 1998,
which is presented as Debt Not Paid At Maturity in the consolidated Balance
Sheet contained herein. See Notes 3, 10 and 23
44
<PAGE>
10. LONG-TERM DEBT
Long-term debt is presented net of unamortized debt discounts and
debt obligations owned, but not retired, by the Company. The Company is
subject to various financing agreements containing covenants and
restrictions, of which, management believes it is in compliance with the
exception of the 13 1/2% Notes. (See Note 9 and 23) Long-term debt at
September 30, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
11% First Mortgage Notes, Net
("11% Notes") due 2000 $ 63,383,205 $ 62,092,196
9.5% Senior Secured Notes,
("9.5% Notes") due 2000 14,000,000 -0-
11% Equipment Notes,
("Equipment Notes") due 2001 9,939,996 -0-
Note Purchase Agreement
("SLVC Notes") due December 15, 1999 57,500,000 35,000,000
Note payable to Sierra Construct-
tion Corp. ("Sierra Note"), due
2000; interest at prime plus 2% 4,879,875 5,297,126
12% First Mortgage Note ("Land
Note") due 1999 1,559,000 1,559,000
10 1/4% Subordinated Sinking
Fund Debentures ("Sub
Debentures") due 1998 -0- 5,233,806
12 1/4% First Mortgage Note,
("12 1/4% Note") due 1998 -0- 5,000,000
13 1/2% First Mortgage Notes,
("13 1/2% Notes") due 1998 60,000,000 60,000,000
Other notes payable, collater-
alized primarily by equipment 3,418,696 2,575,724
Obligations under capital leases 251,780 424,965
------------ ------------
Subtotal 214,932,552 177,182,817
Less current portion 1,785,716 6,644,979
Less Debt Not Paid at Maturity
(See Notes 9 and 23) 60,000,000 -0-
------------ ------------
Total long-term debt $153,146,836 $170,537,838
============ ============
</TABLE>
45
<PAGE>
In addition to the $60 million principal amount of 13 1/2% Notes
that matured on December 1, 1998, the scheduled maturities of long-term debt
(excluding capital leases) for the year ending September 30 are as follows:
<TABLE>
<S> <C>
1999 $ 1,652,954
2000 60,051,526
2001 92,423,760
2002 92,238
2003 103,223
Thereafter 357,071
------------
Total $154,680,772
============
</TABLE>
11% NOTES:
On December 29, 1993, SFHI consummated a public offering (the
"Offering") of 11,500 units, with each unit consisting of $10,000 principal
of the 11% Notes and one warrant to acquire, for no additional consideration,
an additional $1,000 principal amount of the 11% Notes upon exercise no later
than December 15, 1996. The 11% Notes are secured by, among other things, a
second priority deed of trust on the Santa Fe and are guaranteed by the
Company. Interest is payable semi-annually on June 15 and December 15, at the
rate of 11% per annum. The 11% Notes mature on December 15, 2000. Assuming
all warrants were exercised on December 15, 1996, the total principal amount
of 11% Notes to be paid at maturity would have been $126.5 million and the
effective rate of interest per annum would have been 12.46%. SFHI is subject
to certain covenants under the indenture in which the 11% Notes were issued
including, among other things, restrictions on the incurrence of additional
debt and making any loan or any distribution or dividends to any affiliate of
the Company. See Note 3
In August 1995, in accordance with the indenture governing the 11%
Notes, SFHI completed an offer to repurchase for cash $21.5 million principal
amount of 11% Notes at a price of $1,010 per $1,000 principal amount, plus
accrued interest (the "Repurchase Offer"), representing that principal amount
that could be purchased with funds remaining in the Parkville collateral
account dedicated to use in the development of a proposed dockside riverboat
casino and received upon liquidation of the Parkville assets. The repurchase
offer was required to be made because the proposed casino in Parkville,
Missouri that SFHI intended to develop was not operating by June 30, 1995. As
a result of the commencement of the Repurchase Offer discussed above,
warrants to acquire $11.5 million principal amount 11% Notes were exercised
resulting in $126.5 million principal amount of 11% Notes outstanding. Upon
completion of the Repurchase Offer, $105 million principal amount of 11%
Notes was outstanding.
In January 1996 and August 1997, the Company completed the
repurchase of an aggregate of $38.7 million principal amount of 11% Notes.
The Company financed the repurchases with the net proceeds of private
placements of an aggregate of $35 million principal amount of SLVC Notes
issued by SLVC. The Company retired $5.6 million principal amount of the 11%
Notes purchased and pledged the balance of $33.1 million principal amount
held by the Company as collateral for the SLVC Notes. The Company recorded
extraordinary gains of approximately $4.9 million after tax related to the
debt repurchase in the quarter ended March 31, 1996 and of approximately $1.7
million after tax related to the debt repurchase in the quarter ended
September 30, 1997.
46
<PAGE>
In March 1998, holders of a majority of the 11% Notes consented to
three proposals to amend the indenture under which the 11% Notes were issued
and, as a result, all three proposals became effective. Pursuant to the
amendments, SFHI was permitted to (a) incur $14 million of senior secured
indebtedness; (b) grant a security interest in certain gaming equipment to
secure two promissory notes in the aggregate principal amount of
approximately $10 million to obtain an extension of the maturity of the two
promissory notes from May 1998 until April 2001 and a reduction in the
interest rate to 11%, and (c) lease 3 acres for development of a non-gaming
hotel.
As of September 30, 1998, $99.4 million principal amount of the 11%
Notes was outstanding. The 11% Notes are reported in the consolidated Balance
Sheet net of unamortized debt discount of $2.9 million and of the $33.1
million principal amount held by SLVC and pledged as collateral for the SLVC
Notes. The 11% Notes are callable at 103.115 through December 15, 1999 and at
par thereafter until maturity.
9 1/2% NOTES:
In April 1998, SFHI consummated the issuance of $14 million
principal amount of 9 1/2% Notes, secured by a first priority deed of trust on
the Santa Fe contemplated by the consent solicitation relating to its 11%
Notes. The 9 1/2% Notes require quarterly interest only payments, and mature
on December 15, 2000. SFHI used approximately $10.7 million of proceeds to
purchase gaming and other equipment under lease and approximately $1.2
million of the proceeds to fund in part the purchase of additional gaming
equipment.
EQUIPMENT NOTES:
In April 1998, SFHI modified the terms of two $5 million promissory
notes due an affiliate, aggregating approximately $10 million ("Equipment
Notes") in connection with a sale by the Affiliate of the Equipment Notes to
a third party. The terms were modified to (i) reduce the interest rate to 11%
and to extend the maturity date from May 1998 to April 2001 and (ii) grant a
security interest in certain gaming and other equipment. In April 1998, the
Company consummated the sale of the Equipment Notes for cash proceeds of
approximately $9 million. In December 1998, SFHI amended the terms of one of
the Equipment Notes to reduce the principal amount to $4.5 million and to
provide for amortization payments of principal and interest until maturity.
See Note 23
SLVC NOTES:
The SLVC Notes were initially issued in January 1996 in an aggregate
principal amount of $20 million. The SLVC Notes are secured by, among other
things, the 27-acre parcel of real property on the Las Vegas Strip, 39-acre
parcel of real property in Henderson, Nevada and $33.1 million principal
amount of 11% Notes, and are guaranteed by the Company. Interest is payable
semi-annually on June 20 and December 20 and the principal amount is due
December 1999. The SLVC Notes are callable at certain premiums through June
15, 1999 and at par thereafter until maturity. Upon the earlier of the
repayment of the SLVC Notes or maturity, SLVC is required to pay $2.1 million
in fees associated with the SLVC Notes.
In November 1997 the Company entered into an amended and restated
agreement with respect to the SLVC Notes pursuant to which an additional
$22.5 million principal amount of SLVC Notes were issued to increase the
outstanding principal balance to $57.5 million. SLVC issued two tranches of
promissory notes, $37 million principal amount with an interest rate of 9.75%
and $20.5 million with an interest rate of 13.25%. Certain other provisions
of the loan agreement were amended, including the elimination of any sinking
fund principal payments prior to maturity in December 1999.
47
<PAGE>
In August 1997 the SLVC and the holders of the SLVC Notes amended
the terms of the SLVC Notes to, among other things, (i) provide for the
issuance of an additional $15 million of SLVC Notes to increase the
outstanding principal amount to $35.0 million from the original issuance of
$20 million in January 1996, and (ii) revise a covenant requiring redemption
of $7.0 million principal amount of SLVC Notes (or alternatively the
redemption of 11% Notes), in the event cash flow (before a maximum of $2.4
million in lease payments) at the Santa Fe is less than $13.5 million for any
four-quarter period commencing with the four-quarter period ending December
31, 1997. Such obligation, if it arises, will be reduced on a
dollar-for-dollar basis to the extent that, during the period in which SLVC
is so required to repurchase SLVC Notes, the Company acquires 11% Notes and
pledges such acquired 11% Notes as additional collateral for the SLVC Notes
or contributes the acquired 11% Notes to SFHI and causes the contributed SFHI
Notes to be canceled.
The proceeds from the SLVC Notes were used as follows: (i) In
January 1996, approximately $17.5 million was used to repurchase $25.6
million principal amount of 11% Notes, of which $5.6 million was retired and
$20.0 million is held as collateral for the SLVC Notes (ii) In August 1997,
approximately $10.5 million was used to repurchase $13.1 million principal
amount of 11% Notes, which is held as collateral for the SLVC Notes, $2.5
million was deposited in a cash collateral account for use for future
principal and interest payments on the SLVC Notes and the remaining balance
was used to pay for certain expenses and to make distributions to the
Company, and (iii) In November 1997, $20 million was used by SLVC to acquire
the 39-acre parcel of land in Henderson, Nevada from an affiliate for cash.
SIERRA NOTE:
The Sierra Note issued in December 1993 for $6.6 million bears
interest at 2% above the prime rate (10 1/4% at September 30, 1998) and
originally was payable in monthly installments of principal and interest of
$80,099 commencing December 1993 until maturity in December 1998. In October
1998, the Company amended the terms of the Sierra Note to extend the maturity
date to December 2000, provide for certain mandatory prepayment requirements
and to require interest only payments until the maturity date. See Note 23
LAND NOTE:
In December 1996, the Company borrowed approximately $1.6 million
pursuant to a first mortgage note secured by the 22-acre parcel. The note
requires monthly interest only payments at a 12% per annum interest rate for
a three-year term. The Company utilized proceeds from the note to satisfy an
existing first mortgage note of $850,000 and expenses of the transactions,
resulting in net proceeds of approximately $650,000.
SUBDEBENTURES:
The Subdebentures had an outstanding principal balance of $5.5
million less unamortized discount of $300,000 on September 30, 1997. The
Company utilized proceeds from the sale of Equipment Notes in April 1998 to
retire the Subdebentures upon maturity in June 1998.
12 1/4% NOTE:
In May 1997, the Company borrowed $5.0 million at a rate of 12 1/4%
interest, payable monthly for a twelve month term, pursuant to the first
mortgage note secured by the 39-acre parcel of land located in Henderson,
Nevada (the "12 1/4% Note"). In November 1997, the Company repaid the 12 1/4%
Note with proceeds of the SLVC Note placement.
48
<PAGE>
11. LEASES
All non-cancelable leases have been classified as capital or
operating leases. At September 30, 1998, the Company had leases for personal
and real property which expire in various years to 2078. Under most leasing
arrangements, the Company pays the taxes, insurance and the operating
expenses related to the leased property.
At September 30, 1998 and 1997, equipment leased under capital
leases are recorded in the consolidated Balance Sheet as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Equipment $1,011,422 $ 995,570
Less accumulated amortization 424,946 284,394
---------- ----------
Total $ 586,476 $ 711,176
========== ==========
</TABLE>
Amortization of assets leased under capital leases is included in
depreciation and amortization expense in the consolidated Statements of
Operations.
Future minimum lease payments as of September 30, 1998 are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
----------- -----------
<S> <C> <C>
1999 $ 148,469 $ 741,954
2000 112,214 741,179
2001 12,153 723,595
2002 1,851 716,539
2003 -0- 716,539
Thereafter -0- 53,919,556
----------- -----------
$ 274,687 $57,559,362
===========
Less amount representing interest 22,907
-----------
Present value of minimuml ease payments $ 251,780
===========
</TABLE>
Included in future minimum operating lease payments are rental costs
associated with the real property under the lease at the Pioneer.
Approximately 6 1/2 acres of the Pioneer property are subject to a 99 year
ground lease, expiring in December 2078. Under the ground lease the Company
is subject to an annual rental obligation of $700,000 per year, adjusted
annually based on the Consumer Price Index. Additionally, beginning January
1, 2004 and every ten years thereafter, the annual rent will be adjusted to
an amount equal to 10% of the fair market value of the land subject to the
ground lease, on an unimproved basis.
In December 1997, the Pioneer purchased the gaming equipment
previously subject to lease for approximately $1.2 million, as a result of
which monthly rental expense for gaming equipment decreased by approximately
$44,000.
In March 1998, Santa Fe purchased gaming and other equipment
previously subject to lease for approximately $10.7 million, as a result of
which monthly rental expenses decreased approximately $300,000.
49
<PAGE>
12. STOCKHOLDERS' EQUITY (DEFICIENCY)
The Company has outstanding redeemable exchangeable cumulative
preferred stock. Prior to fiscal 1997, the Company 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. No dividends were declared on
the preferred stock in fiscal 1997 and 1998. Pursuant to the terms of the
Certificate of Designation with respect to the preferred stock, dividends
that are not declared are cumulative and accrue. The dividend rate per annum
was equal to 8% of $2.14 for each share of preferred stock until September
30, 1998, at which date the dividend rate increased to 11%. The dividend will
continue to increase by an additional 50 basis points on each succeeding
dividend payment date up to a maximum of 16% per annum. The accrued stock
dividends have been recorded as an increase to the preferred stock account.
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. As of September 30, 1998, the aggregate
liquidation preference of the Preferred Stock was $21.9 million or $2.49 per
share.
At the election of the Company, the Preferred Stock is redeemable,
in whole or in part, at any time and from time to time at a redemption price
equal to the per share liquidation preference of $2.14 plus (i) an amount
equal to all accrued but unpaid dividends, whether or not declared, plus (ii)
under certain circumstances relating to asset dispositions and mergers, an
additional amount determined in accordance with the Certificate of
Designation of the Preferred Stock (the "Liquidation Preference").
Additionally, at the election of the Company, if any shares of Preferred
Stock have not been redeemed on or prior to the tenth dividend payment date
from the issuance of the Preferred Stock, September 30, 1998, such shares may
be exchanged from time to time for Junior Subordinated Notes of the Company.
The principal amount of the Junior Subordinated Notes, if issued, will be
equal to the Liquidation Preference of the Preferred Stock for which such
notes are exchanged. The Junior Subordinated Notes would mature on September
30, 2008, and would bear interest at an annual rate of 11%, payable
semi-annually. The Company is a party to financing agreements that prohibit
the Company from exercising an option to exchange the Preferred Stock into
Junior Subordinated Notes.
The Company has accrued, but not paid, dividends payable on the
Preferred Stock since September 30, 1996. Pursuant to the Certificate of
Designation, because at least one full dividend payment has been accrued but
not paid for two years, the holders of the Preferred Stock will be entitled,
as a separate class, to elect two directors to the Company's board of
directors at the next annual meeting of stockholders scheduled to be held in
early 1999. The two directors to be elected by Preferred Stockholders will be
in addition to the six directors to be elected by the holders of the
Company's Common Stock. The Preferred Stockholders' right to elect two
directors will continue until all dividend arrearages have been paid.
13. STOCK OPTION PLAN
The Company has a Key Employee Stock Option Plan (the "Stock Option
Plan") providing for the grant of up to 619,535 shares of its common stock to
key employees. The Stock Option Plan provides for both incentive stock
options and non-qualified stock options. In October 1995, the Company
canceled all outstanding options and issued 153,000 options at an exercise
price of $3.00 per share. In 1996, options to acquire 6,250 were canceled. In
February 1997, the Company canceled all outstanding options and issued
146,750 options at an exercise price of $1.50. In 1997, options to acquire
10,000 were canceled. During fiscal year ended September 30, 1998, 447,785
options were granted. As of September 30, 1998, there were 584,535 options
outstanding under the Stock Option Plan. No options were exercised during
fiscal years 1998, 1997 and 1996. The outstanding options have an expiration
date of February 2007.
50
<PAGE>
In December 1995, the Company adopted the 1995 Non-Employee Director
Stock Option Plan (the "Non-Employee Director Plan") which provides for the
grant of up to 100,000 shares of its common stock to the directors. Directors
are automatically granted an option to purchase 12,500 shares of the common
stock at an exercise price equal to the market value of such shares on the
date of such election to the board. As of September 30, 1998, there were
25,000 options outstanding under this plan. The outstanding options have an
expiration date of February 2007.
SFHI, SLVC and PHI (collectively, the "Subsidiaries"), have adopted
subsidiary stock option plans (the "Subsidiary Plans"). The Subsidiary Plans
provide for the grant of options by each of the Subsidiaries with respect to
an aggregate of up to 10% of the outstanding shares of such Subsidiary's
Common Stock to employees, non-employee directors, consultants or affiliates
of the Company or the Subsidiaries. The purpose of the Subsidiary Plans is to
enable the Subsidiaries, the Company and any subsidiaries of the Company or
Subsidiaries to attract, retain and motivate their employees, non-employee
directors, consultants and affiliates by providing for or increasing the
proprietary interest of such persons in the Subsidiaries. Certain of the
agreements under which the Company's long-term debt is issued provide that if
the Company ceases to own, directly or indirectly, 100% of the outstanding
capital stock of specified Subsidiaries, an event of default will occur or an
offer to repurchase the debt must be made. As a result, the Subsidiary Plans
may not be exercised if the exercise would result in a default, or require an
offer to repurchase the outstanding debt, under any agreement with respect to
long-term debt of the Company or any of its Subsidiaries. As of December 21,
1998, no options had been granted under any Subsidiary Plans.
Accounting for stock-based compensation:
In October 1995, the FASB issued SFAS No. 123,"Accounting for
Stock-Based Compensation" ("SFAS 123"), which is effective for fiscal years
beginning after December 15, 1995. Although SFAS 123 encourages an entity to
measure compensation by applying the fair value method of accounting for
employee stock-based compensation arrangements, it permits an entity to
continue to account for employee stock-based compensation arrangements under
the provisions of Accounting Principles Board Opinion 25 ("APB 25").
The Company has elected to continue to account for stock-based
compensation in accordance with APB 25. Under APB 25, generally only stock
options that have intrinsic value at the date of grant are considered
compensatory. Intrinsic value represents the excess, if any, of the market
price of the stock at the grant date over the exercise price of the option.
Under SFAS 123, all stock option grants are considered compensatory.
Compensation cost is measured at the date of grant based on the estimated
fair value of the options determined using an option pricing model. The model
takes into account the stock price at the grant date, the exercise price, the
expected life of the option, the volatility of the stock, expected dividends
on the stock and the risk-free interest rate over the expected life of the
option.
The following table discloses the Company's pro forma net income and
net income per share for 1998 and 1997 assuming compensation cost for
employee stock options had been determined using the fair value-based method
prescribed by SFAS 123. The table also discloses the weighted average
assumptions used in estimating the fair value of each option grant on the
date of grant using the Black-Scholes option pricing model, and the estimated
weighted average fair value of the options granted. The model assumes no
expected future dividend payments on Santa Fe Gaming's Common Stock for the
options granted in both 1998 and 1997 (dollars in thousands, except per share
data).
51
<PAGE>
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net income (loss):
As reported $(63,859) $(13,133)
Pro forma $(64,067) $(13,169)
Net income (loss) per share:
As reported $ (10.31) $ (2.12)
Pro forma $ (10.34) $ (2.13)
Weighted average assumptions:
Expected stock price volatility 100.0% 85.0%
Risk-free interest rate 5.4% 6.0%
Expected option lives (in years) 4.0 4.0
Estimated fair value of options $ .72 $ .98
</TABLE>
14. FEDERAL INCOME TAXES
The Company accounts for income taxes under SFAS 109. In accordance
with SFAS 109, deferred income taxes reflect the net effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,
and (b) operating loss and tax credit carryforwards. Deferred income taxes of
$11.0 million were recorded as of October 1, 1993 as a result of the purchase
accounting associated with the Company's investment in a publicly traded
partnership. The Company has recognized approximately $29.3 million in
federal income tax benefit for financial reporting purposes based on book
losses.
The expense (benefit) for income taxes attributable to pre-tax
income consisted of:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30 1998 1997 1996
----------------------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current $ -0- $ -0- $ 114
Deferred -0- (2,702) 8,352
------- ------- -------
Total expense (benefit) $ -0- $(2,702) $ 8,466
======= ======= =======
</TABLE>
The expense (benefit) for income taxes attributable to pre-tax
income differs from the amount computed at the federal income tax statutory
rate as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30 1998 1997 1996
----------------------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Amount at statutory rate $(21,820) $(3,946) $9,121
Goodwill 14,732 487 487
Valuation Allowance 6,418 -0- -0-
Lobbying costs/Political
contributions 82 -0- 12
Deferred tax credits -0- -0- (699)
Other 588 757 (455)
-------- ------- ------
$ -0- $(2,702) $8,466
======== ======= ======
</TABLE>
52
<PAGE>
The components of the deferred tax asset (liability) consisted of the following:
<TABLE>
<CAPTION>
AT SEPTEMBER 30 1998 1997
----------------------------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX LIABILITIES
Prepaid expenses $ 947 $ 961
Fixed asset cost, depreciation
and amortization, net 12,132 11,672
Capitalized interest -0- 953
Original issue discount 34 34
Other 2,142 2,142
-------- --------
Gross deferred tax liabilities $ 15,255 $ 15,762
-------- --------
-------- --------
DEFERRED TAX ASSETS
Net operating loss carryforward $ 19,550 $ 13,675
Reserves for accounts and
contracts receivable 564 575
Other 335 325
Deferred payroll 443 407
Tax credits 780 780
-------- --------
Gross deferred tax assets $ 21,672 $ 15,762
======== ========
Net deferred tax asset (liability)
before valuation allowance $ 6,417 $ -0-
Valuation Allowance (6,417) -0-
-------- --------
Net deferred tax asset (liability) $ -0- $ -0-
======== ========
</TABLE>
At September 30, 1998 the Company has a net operating loss
carryforward for regular income tax purposes of approximately $57.5 million,
which will fully expire by the year 2018. The Company recorded a valuation
allowance to reduce the carrying value of the net deferred tax assets due to
the uncertainty surrounding the utilization of the net operating losses.
15. BENEFIT PLANS
The Company has a savings plan (the "Plan") qualified under Section
401(k) of the Internal Revenue Code of 1986, as amended. The Plan covers
substantially all of the Company's employees. The Company's matching
contributions paid in 1998, 1997 and 1996 were $105,000, $96,000 and
$106,000, respectively.
The Company contributed to multi-employer pension plans under
various union agreements to which SNC and HHI were a party. Contributions,
based on wages paid to covered employees, were approximately $100,000 for the
year ended September 30, 1996. The Company's share of any unfunded liability
related to multi-employer plans, if any, is not determinable.
16. RELATED PARTIES
In November 1993, Mr. Lowden, Chairman of the Board, Chief Executive
Officer and 57% stockholder of the Company, and Bank of America entered into
a personal loan agreement, secured by a pledge of substantially all the
common shares of the Company owned by Mr. Lowden. Mr. Lowden advised the
Company he repaid the entire loan balance in July 1998.
53
<PAGE>
From 1991 through 1993, LICO, a company wholly-owned by Mr. Lowden,
borrowed an aggregate of $476,000 from a subsidiary of the Company, pursuant
to an unsecured demand loan which bore interest at 2% over the prime rate. In
1998, the amount outstanding under the loan including accrued interest was
satisfied in full through the offset of amounts due Mr. Lowden under
compensation arrangements.
17. GAIN ON SALE OF ASSETS
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. The Company recorded
a pre-tax gain of $40.8 million in fiscal year 1996. The gain represents the
sale price offset by the carrying value of the assets sold, estimated cost
and expenses of the transaction, and net of the extinguishment of debt charge
discussed below. In connection with the sale of the Sahara, the Company made
a tender offer to purchase for cash all outstanding 12 1/8% First Mortgage
Notes due August 1996 ("12 1/8% Notes") secured by a first deed of trust on
the Sahara, at a price of $1,047 per $1,000 principal amount, plus accrued
interest. 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.
In November 1996, the Company sold an option to acquire a 40-acre
parcel located approximately eight miles south of the former Hacienda on Las
Vegas Boulevard South for $2.8 million. Pursuant to the option agreement, the
option holder exercised the option in February, 1997 to purchase the property
for $350,000 in additional net proceeds to the Company. The Company reported
a $730,000 gain on the sale in fiscal 1997.
18. LOSS ON ASSET IMPAIRMENT
In September 1998, in accordance with SFAS No. 121, the Company
determined an impairment loss had occurred to the carrying value of the
assets of the Pioneer in Laughlin, Nevada. On August 28, 1998, the California
General Assembly, Senate and Governor approved legislation authorizing gaming
operations pursuant to a form of compact. Prior to this date, California
authorities considered gaming devices operated on Indian reservations to be
illegal. On November 3, 1998, California voters approved Proposition 5, which
expands the definition of gaming operations considered legal by the form of
compact. Proposition 5 has been challenged in court and, as a result the
Company does not know when it will become effective. However, Management
believes this change in regulatory policy will further intensify the
competitive environment in Laughlin, Nevada and adversely affect the outlook
for longer term operating results for gaming operations in Laughlin, Nevada.
Management's view of the Laughlin market indicated that the cash flows
associated with Pioneer operations would not be sufficient to recover the
carrying value of the Company's investment. Under the requirements of SFAS
No. 121, an impairment charge of $44.0 million was recognized in the fourth
quarter of fiscal 1998 to adjust to fair market value the carrying value of
the Pioneer's fixed and intangible assets.
19. OTHER EXPENSE
During fiscal 1998, the Company incurred costs and expenses in
connection with a proposed offering of debt securities. In September 1998,
the Company postponed proceeding with the proposed offering due to conditions
in the financial markets. Accordingly the Company has recorded a $758,000
charge to earnings for expenses of the proposed offering.
54
<PAGE>
In April 1994, SFHI purchased from Treasure Bay Gaming & Resorts
Inc. ("Treasure Bay") for $10.0 million approximately 20% of Treasure Bay's
common stock and 33 1/3% of Treasure Bay's preferred stock. The Company also
unconditionally guaranteed the payment of $4.5 million of the indebtedness of
Treasure Bay incurred to finance working capital in connection with the
opening of Treasure Bay's casinos in Biloxi, Mississippi in April 1994 and in
Tunica, Mississippi in May 1994, which indebtedness the Company acquired in
December 1994. In connection with its stock purchase, SFHI entered into an
agreement with Treasure Bay to manage both properties. However, in December
1994, Treasure Bay notified the Company that Treasure Bay was assuming
management control of Treasure Bay's properties and alleged that the Company
was in default under the management agreement and had mismanaged the Treasure
Bay properties. On January 10, 1995, Treasure Bay and its operating
subsidiary, Treasure Bay Corp., filed for Chapter 11 relief in the United
States Bankruptcy Court for the Southern District of Mississippi. On October
7, 1996, the U.S. Bankruptcy Court for the Southern District of Mississippi
denied confirmation of Treasure Bay management's confirmation plan.
Subsequent to the denial of Treasure Bay's confirmation plan, the entire
bankruptcy case was transferred to U.S. Bankruptcy Court of New Orleans,
Louisiana. In July 1997, the U.S. Bankruptcy Court of New Orleans entered an
order for confirmation of the Plan of Reorganization proposed by the
debtor-in-possession of Treasure Bay. Santa Fe Gaming recorded a $12.6
million writedown in fiscal 1994 and, based on factors relative to the
bankruptcy proceedings, the Company recorded a $2.8 million pre-tax charge
against income in the fourth quarter of fiscal 1996, in connection with its
investment in Treasure Bay, its guarantee related to the working capital loan
and its management contract.
20. EXTRAORDINARY ITEMS
The Company recorded an extraordinary gain of approximately $3.0
million after tax in fiscal 1996 related to repurchases of 13 1/2% Notes in
the quarter ended March 31, 1996. In January 1996 the Company completed the
repurchase of an aggregate of $12.5 million principal amount of 13 1/2% Notes
plus accrued interest. 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. The 13 1/2% Notes acquired were submitted to the trustee for
cancellation in satisfaction of the December 1997 sinking fund obligation.
In January 1996 and August 1997, the Company completed the
repurchase of an aggregate of $38.7 million principal amount of 11% Notes.
The Company financed the repurchases with the net proceeds of private
placements of an aggregate of $35 million principal amount of SLVC Notes
issued by SLVC. The Company retired $5.6 million principal amount of the 11%
Notes purchased and pledged the balance of $33.1 million principal amount
held by the Company as collateral for the SLVC Notes. The Company recorded
extraordinary gains of approximately $4.9 million after tax related to the
debt repurchase in the quarter ended March 31, 1996 and of approximately $1.7
million after tax related to the debt repurchase in the quarter ended
September 30, 1997.
In April 1997, the Company acquired $3.5 million principal amount of
Subdebentures. The Company submitted $2.3 million in Subdebentures to the
trustee for cancellation in satisfaction of the sinking fund payment due in
June 1997. In addition, the Company submitted $1.2 million for cancellation
in reduction of the balance due at maturity in June 1998. The Company
recorded a $400,000 extraordinary gain net of amortization of debt discount
and original issue cost and federal income tax of $300,000 on the purchase
which is reported in the quarter ended June 30, 1997.
55
<PAGE>
21. CONTINGENCIES
Litigation:
The Company and its predecessor, Sahara Casino Partners, L.P. are
defendants in a class action lawsuit originally filed in the United States
District Court of Florida, Orlando Division, entitled POULOS V. CAESAR'S
WORLD, INC., ET AL., AHERN V. CAESAR'S WORLD, INC., ET AL. and SCHRIER V.
CAESAR'S WORLD, INC., ET AL, along with a fourth action against cruise ship
gaming operators and which have been consolidated in a single action now
pending in the United States District Court, District of Nevada (the
"Court"). Also named as defendants in these actions are many, of the largest
gaming companies in the United States and certain gaming equipment
manufacturers. Each complaint is identical in its material allegations. The
actions allege that the defendants have engaged in fraudulent and misleading
conduct by inducing people to play video poker machines and electronic slot
machines based on false beliefs concerning how the machines operate and the
extent to which there is actually an opportunity to win on a given play. The
complaints allege that the defendants' acts constitute violations of the
Racketeer Influenced and Corrupt Organizations Act and also give rise to
claims for common law fraud and unjust enrichment, and seek compensatory,
special consequential, incidental and punitive damages of several billion
dollars.
In response to the complaints, all of the defendants, including the
Company, filed motions attacking the pleadings for failure to state a claim,
seeking to dismiss the complaints for lack of personal jurisdiction and
venue. As a result of those motions, the Court has required the Plaintiffs in
the four consolidated cases to file a single consolidated amended complaint.
Subsequent to Plaintiffs' filing of their consolidated amended complaint, the
defendants refiled numerous motions attacking the amended complaint upon many
of the bases as the prior motions. The Court heard the arguments on those
motions and ultimately denied the motions. Plaintiffs then filed their motion
to certify a class. Defendants have vigorously opposed the motion and the
Court has not yet ruled on the motion to certify the class. If the Court
denies the certification then the case cannot go forward as a class action.
If the Court certifies a class then the parties will proceed to meet
discovery.
On December 12, 1994 the Company and SFHI filed a lawsuit in the
Court, naming Treasure Bay officers A. Clay Rankin III, Joe N. Hendrix and
Bernie Burkholder, and former officer Francis L. Miller as defendants in
matters involving violations of Section 10(b) and Rule 10b-5 of the
Securities Exchange Act, violation of Nevada state securities laws, fraud and
negligent misrepresentation in connection with the Company's investment of
$10 million in exchange for a 20% interest in Treasure Bay, and the Company's
guarantee of $4.5 million of Treasure Bay's indebtedness. The defendants have
filed answers to the complaint and discovery is continuing.
On December 15, 1994 Francis L. Miller filed a lawsuit in the
Mississippi Circuit Court, Second Judicial District, against the Company and
SFHI, as well as Paul W. Lowden and Suzanne Lowden, alleging, among other
things, that the Company made certain misrepresentations which induced
Francis Miller to entrust the management of his investments in Treasure Bay's
two Mississippi casinos to the Company and SFHI and to sell the Company and
SFHI a 20% ownership interest in Treasure Bay. The lawsuit was subsequently
amended to remove Suzanne Lowden as a defendant. The Company and SFHI filed a
successful motion to transfer this case to the Court.
The Court dismissed the Francis L. Miller lawsuit as originally
filed in Mississippi Circuit Court. The Court permitted Mr. Miller to file
the claims that he asserted in the dismissed action as counterclaims to the
lawsuit filed by the Company against Mr. Miller et al. on December 12, 1994
in the Court. The effect of this court initiated action was to combine the
two lawsuits. The parties to the combined litigation have concluded most of
the formal discovery involved in this case. A pre-trial order is expected to
be entered in the case in March, 1999. The case is expected to go to trial in
the late spring of 1999.
56
<PAGE>
In addition, the Company is subject to various lawsuits relating to
routine matters incidental to its business. The Company does not believe that
the outcome of such litigation, in the aggregate, will have a material
adverse effect on the Company.
Other:
On September 30, 1997, the United States Tax Court issued an adverse
ruling applicable to hotels and casinos which provide meals to employees. The
IRS has interpreted the Tax Court ruling to mean that nonqualifying employees
are required to recognize income based on the fair value of meals in excess
of the amount paid by the employee. Accordingly, employers may be liable for
withholding and payroll taxes associated with the fair value of the meals
provided to employees in excess of the amount paid by the employee. At this
time, it is uncertain whether or not the Company will be liable for
withholding and payroll taxes and penalties for failure to withhold related
to the income excluded from nonqualifying employee wages for the meals it has
provided.
In February 1998, the Company amended its agreement with the owner
of a recreational vehicle park, which purchased the rights and obligations
under contracts with members of Camperland, a recreational vehicle park
previously owned and operated by the Company. In accordance with the
amendment, the Company (i) reconveyed a first deed of trust on 14 acres of
vacant land owned by the existing park, which secured performance by the
existing park's operators in connection with the assumption of the Camperland
contracts, and (ii) was relieved of its obligation, in certain situations, to
make payment of $750,000 under certain circumstances and of all performance
obligations with regard to the Camperland contract.
22. SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
Supplemental statement of cash flows information is presented below:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Operating activities:
Cash paid during the year for interest, net of
amounts capitalized of $108, $204 and $0
for 1998, 1997 and 1996, respectively $23,355 $22,587 $25,676
======= ======= =======
Cash paid during the year for income taxes: $ -0- $ 100 $ -0-
======= ======= =======
Investing and financing activities:
Capital lease obligations incurred in
connection with the acquisition of
machinery and equipment $ 22 $ 208 $ 161
======= ======= =======
Long-term debt incurred in connection with
the acquisition of machinery and equipment $11,160 $ 1,071 $ 76
======= ======= =======
Preferred stock dividends at liquidation value:
Accrued $ 1,516 $ 1,516 $ -0-
======= ======= =======
Paid in kind $ -0- $ -0- $ 1,432
======= ======= =======
</TABLE>
57
<PAGE>
23. SUBSEQUENT EVENTS
13 1/2% NOTES
The 13 1/2% Notes were issued by PFC, the proceeds from which were
loaned to PHI to acquire the Pioneer and are secured by an assignment of a
first priority deed of trust on the Pioneer and are guaranteed by the
Company. Interest is payable semi-annually on June 1 and December 1 at a rate
of 13 1/2% per annum and the principal amount was due December 1, 1998. PFC
did not pay the principal and accrued interest on the 13 1/2% Notes at
maturity. The Company had $60 million of principal and approximately $2.7
million and $4.1 million accrued interest due on the 13 1/2% Notes as of
September 30, 1998 and December 1, 1998, respectively, which is presented as
Debt Not Paid At Maturity in the consolidated Balance Sheet contained
elsewhere herein.
In November 1998, the Company received and accepted consents from
holders of approximately 75% or $45.8 million principal amount of the
outstanding 13 1/2% Notes pursuant to which (i) PFC agreed to file for relief
under Chapter 11 of the United States Bankruptcy Code and to submit for
confirmation a plan of reorganization that provides for issuance of new notes
in satisfaction of the 13 1/2% Notes pursuant to the terms set forth in the
Consent Solicitation, and (ii) the consenting holders agreed (a) to forbear
until December 2000 from exercising rights or remedies arising as a result of
the failure by PFC to pay principal and interest on the 13 1/2% Notes at the
December 1, 1998 maturity date, or the failure by PHI to pay principal and
interest on the intercompany mirror note from PHI to PFC at the December 1,
1998 maturity date and (b) to vote to accept a plan of reorganization in a
Chapter 11 bankruptcy case that provides for treatment of the 13 1/2% Notes
substantially as set forth in the Consent Solicitation. However, pursuant to
the indenture under which the 13 1/2% Notes were issued, holders of the 13
1/2% Notes who did not furnish consents in the consent solicitation may take
action individually against PFC for payment of the 13 1/2% Notes.
Pursuant to the Consent Solicitation, in December 1998 PFC purchased
on a pro-rata basis from all consenting holders, an aggregate $5.0 million
principal amount of 13 1/2% Notes, plus accrued interest. PFC also expects to
repurchase from non-consenting holders their pro-rata amount of 13 1/2% Notes
(approximately $1.5 million) plus accrued interest thru December 1, 1998,
upon confirmation of the plan of reorganization contemplated by the Consent
Solicitation that PFC intends to submit for confirmation in the Chapter 11
case. In addition, the Company provided collateral for its previously
unsecured guarantee of the 13 1/2% Notes, through the pledge of stock of its
subsidiaries SFHI, SR, HHI, SNC and Santa Fe Coffee Company, (collectively
the "Pledged Companies"), and by the grant of liens on certain of its other
assets.
Although results of operations of the Pioneer have not been
noticeably adversely impacted since the commencement of the Consent
Solicitation in October 1998, no assurance can be given that the filing for
relief under Chapter 11 by PFC, and potentially by PHI, the Company and other
subsidiaries of the Company, will not have a material adverse affect on the
operations and financial condition of the Pioneer. Management does not
believe the filing for relief or the contemplated plan of reorganization will
materially effect operating results at the Pioneer. However, no assurance can
be given that the anticipated bankruptcy case will not adversely affect the
Pioneer, the Company or its other subsidiaries, including PHI.
Pursuant to the plan of reorganization, PFC will issue a principal
amount of 13 1/2% First Mortgage Notes due 2006 (together with the PIK Notes, as
defined below, the "New Notes") equal to the principal amount of all outstanding
13 1/2% Notes plus accrued interest as of December 1, 1998. The New Notes will
bear interest at a rate equal to 13 1/2% per annum. Interest on the New Notes
will be payable semiannually, on June 1 and December 1 of each year and will
accrue from the date following the Issue Date. The New Notes will mature on
December 1, 2006. PFC will have the right to pay in kind up to 50% of the
interest payable on each interest payment date through the fourth interest
payment date following issuance through the issuance of additional New Notes
with a principal amount equal to 50% of the interest payable on such Interest
Payment Date (the "PIK Notes"). The terms of the PIK Notes will be identical to
those of the New Notes, including without limitation that interest on the PIK
Notes will be payable 50% in cash and 50% through the fourth interest payment
date following issuance through the issuance of additional PIK Notes. PFC
expects to satisfy
58
<PAGE>
50% of each interest payment obligation through the fourth interest payment
date following issuance through the issuance of PIK Notes, as a result of
which there would be $65.2 million principal amount of New Notes outstanding
at maturity, assuming no repurchase and retirement of New Notes. The New
Notes will be redeemable at 100% of the principal amount plus accrued
interest thereon, and unpaid to the date of purchase by PFC at any time. Upon
the occurrence of certain events, PFC will be required to redeem all
outstanding New Notes or make an offer to repurchase all or a portion of the
outstanding New Notes, in each case at 100% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the date of
purchase. Moreover, one of the provisions of the New Notes will require that,
on or before the later of December 31, 1999 and the date that is six months
from the date a plan of reorganization is confirmed, (a) PFC must complete an
offer to repurchase $7.5 million principal amount of New Notes or purchase in
the open market or otherwise and retire at least $7.5 million principal
amount of New Notes, and (b) SLVC must grant liens (subject to prior liens
securing not more than $35 million of debt) for the benefit of the holders of
the New Notes on substantially all of its assets. If such requirements are
not satisfied by the specified date, an event of default will occur under the
New Notes. The Company will guaranty the payment of principal of, and
premium, if any, and interest on, the New Notes, and the guaranty will be
secured by a pledge of the common stock of its Pledged Companies and by liens
on certain of its other assets.
The plan of reorganization will be subject to the approval of the
bankruptcy court, and potentially of other creditors. No assurance can be
given that the plan of reorganization to be submitted by PFC will be
confirmed. Giving effect to the issuance of New Notes as of the beginning of
the period and assuming that PFC elects to pay 50% of the interest payment
obligations through the fourth interest payment date following issuance of
the New Notes through the issuance of PIK Notes, the ratio of earnings before
interest, taxes, depreciation and amortization, rents and corporate charges
("EBITDA") to cash interest expense less rent for real property would have
been 1.52-to-one, for the twelve months ended September 30, 1998. Upon
commencement of the requirement that all interest be paid in cash on the
fifth interest payment date, the ratio of EBITDA to cash interest expense on
the New Notes is expected to be less than one-to-one (assuming no offers to
repurchase New Notes have been made). Therefore, it is expected that PFC
would not be able to make the cash interest payment on the fifth interest
payment date, which would be an event of default under the indenture under
which the New Notes will be issued.
The payments made to repurchase the 13 1/2% Notes in December 1998
and the grant of security interest pursuant to the Consent Solicitation may
be avoidable as a preference and could be subject to recovery by a trustee in
bankruptcy, an official creditors' committee, other representatives of
creditors of PFC or PHI, or PFC or PHI as debtors in possession under the
Bankruptcy Code within one year of the payments. If the payments were
successfully challenged as preferences, holders would be required to return
the funds received, together with interest thereon in a rate determined by
the court, or would be precluded from receiving any distribution on account
of such holders' 13 1/2% Notes.
It is possible that three or more holders of the 13 1/2% Notes could
file an involuntary petition under the Bankruptcy Code with respect to PFC
prior to PFC filing for relief under Chapter 11. If PFC were to become a
debtor in a case under the Bankruptcy Code (whether a case were commenced
voluntarily or involuntarily), it is possible that PHI and the Company would
file for relief under Chapter 11 of the Bankruptcy Code. The commencement of
a voluntary case under the Bankruptcy Code by the Company or certain
circumstances related to an involuntary case under the Bankruptcy Code with
respect to the Company will cause the automatic acceleration of outstanding
indebtedness of subsidiaries of the Company, SFHI and SLVC, all of which
indebtedness is guaranteed by the Company. If acceleration were to occur, the
Company would expect to negotiate with the creditors of SFHI and SLVC
regarding a rescission of the acceleration. However, if the creditors holding
the indebtedness were not to rescind the acceleration, it is likely that SFHI
and SLVC would file for relief under Chapter 11 of the Bankruptcy Code.
59
<PAGE>
SIERRA NOTE:
In October 1998, the Company amended the terms of the Sierra Note to
extend the maturity date to December 2000, provide for a principal reduction
of $90,000 upon amendment, to add certain mandatory prepayment requirements
and to require interest only payments until the maturity date. In accordance
with the amendment, mandatory principal payments are required, if and when,
and in an amount which equals the percentage of principal amount of Pioneer
Notes retired.
EQUIPMENT NOTES:
In December 1998, SFHI modified the terms of a $4.9 million
Equipment Note. The amendment provides for monthly principal and interest
payments in an amount of $124,000 and a balloon payment of approximately $2.0
million at maturity in April 2001, in exchange for a discount on the face
amount of the note to approximately $4.5 million.
60
<PAGE>
24. SUPPLEMENTAL STATEMENT OF SUBSIDIARY INFORMATION -
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
THE COMPANY'S PRIMARY OPERATIONS ARE IN THE HOTEL/CASINO INDUSTRY AND IN
FISCAL YEARS 1998, 1997 AND 1996 WERE CONDUCTED THROUGH PHI AND SFHI. "OTHER"
BELOW INCLUDES FINANCIAL INFORMATION FOR THE COMPANY'S OTHER OPERATIONS
BEFORE ELIMINATING ENTRIES. IN ADDITION TO THE FINANCIAL INFORMATION FOR THE
TWELVE MONTHS ENDED SEPTMBER 30, 1998, 1997 AND 1996, AS SET FORTH IN THE
TABLE BELOW, SEE NOTES 2, 4 AND 7 FOR ADDITIONAL DISCUSSION OF SUBSIDIARY
OPERATIONS.
<TABLE>
(dollars in thousands) YEAR PHI SFHI OTHER ELIMINATIONS TOTAL
- ---------------------- ---- --- ---- ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES 1998 $ 40,663 $71,520 $ 1,598 $ (932) $112,849
======== ======= ======= ======= ========
1997 $ 40,839 $62,706 $ 2,972 $(1,528) $104,989
======== ======= ======= ======= ========
1996 $ 44,415 $61,653 $46,290 $(3,926) $148,432
======== ======= ======= ======= ========
OPERATING INCOME (LOSS) 1998 $(44,998) $12,241 $(2,806) $ (650) $(36,213)
======== ======= ======= ======= ========
1997 $ 90 $ 5,678 $ 341 $(1,045) $ 5,064
======== ======= ======= ======= ========
1996 $ 1,729 $ 935 $40,603 $(2,117) $ 41,150
======== ======= ======= ======= ========
INTEREST EXPENSE 1998 $ 8,139 $14,072 $ 3,811 $ (650) $ 25,372
======== ======= ======= ======= ========
1997 $ 8,700 $13,280 $ 1,673 $(1,045) $ 22,608
======== ======= ======= ======= ========
1996 $ 9,371 $13,476 $ 2,447 $ (872) $ 24,422
======== ======= ======= ======= ========
DEPRECIATION AND AMORTIZATION 1998 $ 5,604 $ 6,002 $ 2,118 $ 13,724
======== ======= ======= ======= ========
1997 $ 5,583 $ 5,240 $ 334 $ 11,157
======== ======= ======= ======= ========
1996 $ 5,878 $ 8,063 $ 128 $ 14,069
======== ======= ======= ======= ========
RENTS 1998 $ 840 $ 1,250 $ 2,090
======== ======= ======= ======= ========
1997 $ 1,024 $ 3,022 $ 4,046
======== ======= ======= ======= ========
1996 $ 737 $ 455 $ 1,192
======== ======= ======= ======= ========
CAPITAL EXPENDITURES 1998 $ 2,662 $14,137 $ 83 $ 16,882
======== ======= ======= ======= ========
1997 $ 949 $ 1,422 $ 475 $ 2,846
======== ======= ======= ======= ========
1996 $ 1,291 $ 3,518 $(2,802) $ 2,007
======== ======= ======= ======= ========
IDENTIFIABLE ASSETS 1998 $ 47,561 $89,725 $56,884 $(1,245) $192,925
======== ======= ======= ======= ========
1997 $107,629 $76,635 $33,277 $(1,245) $216,296
======== ======= ======= ======= ========
1996 $116,439 $80,156 $33,307 $(1,245) $228,657
======== ======= ======= ======= ========
</TABLE>
61
<PAGE>
25. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
For the Year Ended September 30,
<TABLE>
<CAPTION>
(dollars in thousands, except per share) 1998 1997
- ---------------------------------------- --------- ---------
<S> <C> <C>
Revenues
First Quarter $ 27,359 $ 25,408
Second Quarter 28,671 27,482
Third Quarter 28,839 27,516
Fourth Quarter 27,980 24,583
--------- ---------
$ 112,849 $ 104,989
========= =========
Operating Income (Loss)
First Quarter $ 1,607 $ 571
Second Quarter 2,108 2,984
Third Quarter 2,691 2,743
Fourth Quarter (42,619) (1,234)
--------- ---------
$ (36,213) $ 5,064
========= =========
Net Loss before
extraordinary item
First Quarter $ (4,470) $ (3,470)
Second Quarter (3,885) (1,927)
Third Quarter (4,030) (2,351)
Fourth Quarter (49,958) (5,965)
--------- ---------
$ (62,343) $ (13,713)
========= =========
Net Loss before
extraordinary net
per common share
First Quarter $ (0.72) $ (0.56)
Second Quarter $ (0.63) (0.31)
Third Quarter $ (0.65) (0.38)
Fourth Quarter $ (8.06) (0.96)
--------- ---------
$ (10.06) $ (2.21)
========= =========
Net Loss
First Quarter $ (4,470) $ (3,470)
Second Quarter (3,885) (1,927)
Third Quarter (4,030) (1,979)
Fourth Quarter (49,958) (4,241)
--------- ---------
$ (62,343) $ (11,617)
========= =========
Net Loss per
Common Share
First Quarter $ (0.78) $ (0.62)
Second Quarter (0.69) (0.37)
Third Quarter (0.71) (0.38)
Fourth Quarter (8.13) (0.75)
--------- ---------
$ (10.31) $ (2.12)
========= =========
</TABLE>
62
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the directors and executive officers of
the Company to be included in the Company's Proxy Statement for the 1999
Annual Meeting of Stockholders (the "Proxy Statement") is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information regarding Executive Compensation to be included in
the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding Security Ownership to be included in the
Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding Certain Relationships and Related
Transactions to be included in the Proxy Statement is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. AND 2. FINANCIAL STATEMENTS AND SCHEDULES
The financial statements and schedules filed as part of this
report are listed in the Index to Consolidated Financial
Statements under Item 8.
(b) REPORTS ON FORM 8-K FILED DURING THE LAST QUARTER OF 1998.
The Registrant filed a Current Report on Form 8-K dated October
23, 1998 under Item 5. Other Events, reporting certain
information relating to the Sierra Construction Corp. Notes; the
recognition of an impairment loss of certain Pioneer Hotel, Inc.
assets and the commencement of an Exchange Offer and Consent
Solicitation of Pioneer Finance Corp.
The Registrant filed a Current Report on Form 8-K dated November
16, 1998 under Item 5. Other Events, reporting certain
amendments to the Exchange Offer and Consent Solicitation
Statement of Pioneer Finance Corp.
The Registrant filed a Current Report on Form 8-K dated November
27, 1998 under Item 5. Other Events, reporting certain
information relating to the expiration of the Exchange Offer and
Consent Solicitation of Pioneer Finance Corp. and information
relating to the continued listing of the Company's common and
preferred stock on the American Stock Exchange.
63
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
The Registrant filed a Current Report on Form 8-K dated
December 1, 1998 under Item 5. Other Events reporting
certain information relating to an event of default under
the Pioneer Finance Corp. 13 1/2% First Mortgage Bonds due
December 1, 1998.
(c) EXHIBITS
3.1 Articles of Incorporation and Bylaws of the Company
(Previously filed with the Securities and Exchange
Commission as an exhibit to the Company's S-4 (No.
33-67864) Registration Statement on Form 10-K dated June
15, 1982 and incorporated herein by reference.)
3.2 Certificate of Designation for Exchangeable Redeemable
Preferred Stock. (Previously filed with the Securities and
Exchange Commission as an exhibit to the Company's
Registration Statement on Form S-4 (No. 33-67864) and
incorporated herein by reference.)
4.1 Indenture dated as of June 15, 1983 between Hacienda
Resorts, Inc. and Valley Bank of Nevada, as Trustee, with
respect to the Company's 10-1/4% Subordinated Sinking Fund
Debentures due 1998. (Previously filed with the Securities
and Exchange Commission as an exhibit to the Registration
Statement of Hacienda Resorts, Inc. on Form S-1 (No.
2-82796) and incorporated herein by reference.)
10.1 Form of Indenture (the "Pioneer Indenture")between Pioneer
Finance, the Partnership and Security Pacific National
Bank, as Trustee, relating to the 13-1/2% First Mortgage
Bonds Due 1998 of Pioneer Finance (the "Bonds").(1)
10.2 Form of Bonds (included as an exhibit to the Pioneer
Indenture).(1)
10.3 Form of Purchase Money Note relating to the acquisition of
the Pioneer Hotel and Gambling Hall (the "Pioneer
Acquisition") (included as an exhibit to the Pioneer
Indenture).(1)
10.4 Form of Purchase Money Deed of Trust relating to the Bonds
(included as an exhibit to the Pioneer Indenture).(1)
10.5 Form of Guaranty of the Partnership relating to the Bonds
(included in the Pioneer Indenture).(1)
10.6 Form of Assignment Agreement from Pioneer Finance Corp. to
the Trustee relating to the Bonds (included as an exhibit
to the Pioneer Indenture). (1)
10.7 Form of Subordination Provision relating to the Bonds
(included as an Exhibit to the Pioneer Indenture).(1)
10.8 Form of PARI PASSU Certificate relating to the Bonds
(included as an exhibit to the Pioneer Indenture).(1)
10.9 Acquisition Agreement relating to the Pioneer
Acquisition.(1)
10.10 Pioneer Ground Lease, as amended.(1)
10.11 Conformed Lessor's Agreement dated as of November 16, 1988
among Lessor, Lessee and Pioneer Operating Partnership
relating to the Pioneer Acquisition.(1)
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.12 Standard Form of Agreement between Owner and Contractor by
and between Sahara Operating Partnership and Sierra
Construction Corp.(3)
10.13 Notes secured by liens on office building in Las Vegas,
Nevada in the original principal amounts of $301,598.05,
$23,337.96 and $649,063.99 bearing interest at 10%, 11% and
13.5% per annum, respectively.(3)
10.14 Promissory Note in the amount of $4,500,000 dated September
1, 1987 from Sahara Las Vegas to the Partnership.(2)
10.15 First Supplemental Indenture to Pioneer Indenture dated as
of December 21, 1990 among Pioneer Finance, and Sahara
Casino Partners, L.P. and Security Pacific National Bank. (4)
10.16 Promissory Note in the amount of $2,760,079 dated October
10, 1990 executed by Santa Fe Operating Limited Partnership
in favor of Deutsche Credit Corporation, collateralized by
equipment. (5)
10.17 Lease agreement for signage dated April 29, 1991 between
SNET as Lessor and Santa Fe Operating Limited Partnership
as Lessee. (5)
10.18 Second Supplemental Indenture dated as of September 30,
1993 between Sahara Resorts, Sahara Gaming Corporation and
Nevada State Bank, as Trustee, with respect to 10-1/4%
Subordinated Sinking Fund Debentures. (6)
10.19 1993 Key Employee Stock Option Plan. (6)
10.20 Lease Agreement, dated May 26, 1993, between City of
Parkville, Missouri, and Sahara Casino Partners, L.P., was
previously filed with the Commission as Exhibit 10.86 to
the Company and Santa Fe Hotel Inc.'s Registration
Statement on Form S-1 (No. 33-70286) (7)
10.21 Amendment to Lease Agreement, made as of September 7, 1993,
by Sahara Casino Partners, L.P., and the City of Parkville,
Missouri (7)
10.22 Second Amendment to Lease Agreement, made as of December
27, 1993, by Sahara Parkville, Inc. and the City of
Parkville, Missouri (7)
10.23 Landlord's Consent, Estoppel Certificate and Third
Amendment to Lease Agreement, entered into on December 27,
1993, by and between the City of Parkville, Missouri,
Sahara Parkville, Inc., IBJ Schroeder Bank & Trust Company,
and Santa Fe Hotel Inc. (7)
10.24 Fourth Amendment to Lease Agreement, made as of January 18,
1994 by Sahara Parkville, Inc and the City of Parkville,
Missouri (7)
10.25 Fifth Amendment to Lease Agreement, made as of January
18,1994, by Sahara Parkville, Inc. and the City of
Parkville, Missouri (7)
10.26 Sixth Amendment to Lease Agreement dated June 30, 1995 by
Sahara Parkville, Inc., and the City of Parkville,
Missouri. (8)
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.27 Development Agreement by Sahara Parkville, Inc. and the
City of Parkville, Missouri (7)
10.28 Amendment to Development Agreement, dated January 18, 1994,
by Sahara Parkville, Inc. and the City of Parkville,
Missouri (7)
10.29 Second Amendment to Development Agreement, dated October
28, 1994, by Sahara Parkville, Inc. and the City of
Parkville, Missouri (7)
10.30 Third Amendment to Development Agreements dated June 30,
1995 by Sahara Parkville, Inc. and the City of Parkville,
Missouri. (8)
10.31 Agreement for Purchase and Sale dated as of January 10,
1995 by and among Hacienda Hotel Inc., Sahara Gaming
Corporation, as Guarantor, and William G. Bennett. (8)
10.32 Assignment Agreement dated October 2, 1995 by and between
Howard Hughes Properties, Limited Partnership and Sahara
Las Vegas Corp. and Guaranty Agreement dated October 2,
1995 by and between Howard Hughes Properties, Limited
Partnership and Sahara Las Vegas Corp.(9)
10.33 Lease Modification Letter dated August 24, 1995 by and
between Wet N' Wild Nevada, Inc. and Sahara Corporation.(9)
10.34 Note Purchase Agreement, dated as of January 16, 1996, by
and among Sahara Gaming Corporation, Sahara Las Vegas Corp.
and SunAmerica Life Insurance Company. (10)
10.35 Deed of Trust, Fixture Filing and Financing Statement and
Security Agreement with Assignment of Rents, dated as of
January 16, 1996, by and among Sahara Las Vegas Corp., as
trustor, Stewart Title of Nevada, as trustee, and
SunAmerica Life Insurance Company, as beneficiary. (10)
10.36 Security Agreement, dated as of January 16, 1996, by and
between Sahara Las Vegas Corp. and SunAmerica Life
Insurance Company. (10)
10.37 Guaranty, dated as of January 16, 1996, made by Sahara
Gaming Corporation in favor of SunAmerica Life Insurance
Company. (10)
10.38 Option Agreement by and between Santa Fe Gaming Corporation
and Pat Clark dated November 13, 1996. (11)
10.39 Sahara Las Vegas Corp. Tranche A Note due December 15,
1999, dated July 31, 1997 (12)
10.40 Casino Properties Guaranty dated July 29, 1997 (12)
10.41 Sahara Resorts Guaranty dated July 29, 1997 (12)
10.42 Hacienda Hawaiian Guaranty dated July 29, 1997 (12)
10.43 First Amendment to Company Security Agreement dated July
29, 1997 (12)
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.44 Sahara Resorts Pledge Agreement dated July 29, 1997 (12)
10.45 Company Pledge Agreement dated July 29, 1997 (12)
10.46 Casino Properties Pledge Agreement dated July 29, 1997 (12)
10.47 Hacienda Hawaiian Pledge Agreement dated July 29, 1997 (12)
10.48 Second Amended and Restated Note Purchase Agreement dated
as of November 25, 1997 among Registrant, SLVC and the
holders named therein. (13)
10.49 Form of Tranche A Promissory Note. (13)
10.50 Form of Tranche B Promissory Note. (13)
10.51 Second Amendment to Deed of Trust, Fixture filing and
Financing Statement and Security Agreement with Assignment
of Rents executed and delivered on November 25, 1997 by
SLVC in favor of SunAmerica Life Insurance Company, as
Collateral Agent. (13)
10.52 Second Amendment to Security Agreement executed and
delivered on November 25, 1997 between SLVC and SunAmerica
Life Insurance Company, as Collateral Agent. (13)
10.53 Deed of Trust, Fixture Filing and Financing Statement and
Security Agreement with Assignment of Rents executed and
delivered on November 25, 1997 by SLVC in favor of
SunAmerica Life Insurance Company, Collateral Agent. (13)
10.54 Second Amendment to Subordination, Non-Disturbance and
Attornment Agreement dated November 25, 1997 among SLVC,
Wet 'N Wild Nevada, Inc. And SunAmerica Life Insurance
Company, as Collateral agent. (13)
10.55 Second Amendment to the Environmental Indemnity Agreement
executed and delivered on November 25, 1997 by Registrant
and SLVC in favor of Sun America Life Insurance Company, as
Collateral Agent. (13)
10.56 Environmental Indemnity Agreement issued by Registrant and
SLVC on November 25, 1997 in favor of SunAmerica Life
Insurance Company, as Collateral Agent. (13)
10.57 Consent to Amendment and Restatement delivered on November
25, 1997 by Registrant, Sahara Resorts, Casino Properties,
Inc. and Hacienda Hawaiian Properties, Inc. (13)
10.58 Intercreditor Agreement dated as of November 25, 1997 among
SunAmerica Life Insurance Company and Credit Suisse First
Boston Mortgage Capital LLC. (13)
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.59 Purchase Agreement by and between Santa Fe Gaming
Corporation and Steve Allen dated November 21, 1997 (14)
10.60 First Supplemental Indenture with respect to 11% First
Mortgage Notes due 2000 between Santa Fe Hotel Inc., Santa
Fe Gaming Corporation and IBJ Schroder Bank & Trust Company
dated as of April 14, 1998 (15)
10.61 Amended and Restated Note by an between Santa Fe Hotel
Inc., Santa Fe Gaming Corporation in favor of PDS Financial
Corporation-Nevada, as Collateral Agent dated April 14,
1998 (15)
10.62 Security Agreement between Santa Fe Hotel Inc. and PDS
Financial Corporation-Nevada, as Collateral Agent dated
April 14, 1998 (15)
10.63 Amended and Restated Promissory Note by and between Santa
Fe Hotel Inc., Santa Fe Gaming Corporation in favor of PDS
Financial Corporation-Nevada, as Collateral Agent dated
April 14, 1998 (15)
10.64 Security Agreement between Santa Fe Hotel Inc. and PDS
Financial Corporation-Nevada dated April 14, 1998 (15)
10.65 Note Purchase Agreement dated as of April 14, 1998 among
Santa Fe Gaming Corporation, Santa Fe Hotel Inc.,
SunAmerica Life Insurance Company and Credit Suisse First
Boston Mortgage Capital LLC (15)
10.66 Form of Promissory Note due December 15, 2000 (15)
10.67 Deed of Trust, Fixture Filing and Financing Statement and
Security Agreement with Assignment of Rents executed and
delivered on April 14, 1998 by Santa Fe Hotel Inc. in favor
of SunAmerica Life Insurance Company, as Collateral Agent. (15)
10.68 Security Agreement dated as of April 14, 1998 by Santa Fe
Hotel Inc. in favor of SunAmerica Life Insurance Company,
as Collateral Agent. (15)
10.69 Environmental Indemnity Agreement dated as of April 14,
1998 by Santa Fe Hotel Inc. in favor of SunAmerica Life
Insurance Company, as Collateral Agent. (15)
10.70 Guaranty dated as of April 14, 1998 by Santa Fe Gaming
Corporation in favor of SunAmerica Life Insurance Company,
as Collateral Agent. (15)
10.71 Subordination and Intercreditor Agreement dated as of April
14, 1998 among SunAmerica Life Insurance Company, as
Collateral Agent, Santa Fe Hotel Inc. and IBJ Schroder
Bank & Trust Company, as Trustee (15)
10.72 Amended and Restated Promissory Note dated as of October 1,
1998 by Santa Fe Gaming Corporation in favor of Sierra
Construction Corp. (16)
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.73 Employment Agreement by and among Santa Fe Gaming
Corporation and Thomas K. Land dated October 1, 1998
10.74 Security Agreement by and between Hacienda Hotel Inc. and
IBJ Schroder Bank & Trust Company dated November 30, 1998.
10.75 Security Agreement by and between Santa Fe Coffee Company
and IBJ Schroder Bank & Trust Company dated November 30,
1998.
10.76 Security Agreement by and between Sahara Nevada Corp. and
IBJ Schroder Bank & Trust Company dated November 30, 1998.
10.82 Fourth Supplemental Indenture by and among IBJ Schroder
Bank & Trust Company, Pioneer Finance Corp, Pioneer Hotel,
Inc. and Santa Fe Gaming Corporation dated November 30,
1998.
10.83 Security Agreement by and between Santa Fe Gaming
Corporation and IBJ Schroder Bank & Trust Company dated
November 30, 1998.
10.84 Pledge Agreement by and between Santa Fe Gaming Corporation
and IBJ Schroder Bank & Trust Company dated November 30,
1998.
22. Subsidiaries of the Company. (6)
23.1 Consent of Deloitte & Touche LLP
27. Financial Data Schedule
</TABLE>
FOOTNOTES TO EXHIBIT INDEX
--------------------------
(1) Previously filed with the Securities and Exchange Commission as an
exhibit to the Registration Statement on Form S-1 (No. 33-24589) of
Pioneer Finance Corp., the Partnership and Pioneer Operating
Partnership and incorporated herein by reference.
(2) Previously filed with the Securities and Exchange Commission as an
exhibit to the Partnership's Annual Report on Form 10-K for the year
ended September 30, 1987 and incorporated herein by reference.
(3) Previously filed with the Securities and Exchange Commission as an
exhibit to the Partnership's Registration Statement on Form S-1 (No.
33-13214) and incorporated herein by reference.
(4) Previously filed with the Securities and Exchange Commission as an
exhibit to post effective Amendment No. 5 to the Registration Statement
on Form S-1 (No. 33-33031) of Sahara Finance Corp., Sahara Casino
Partners, L.P., Sahara Operating Limited Partnership, Hacienda
Operating Limited Partnership, Santa Fe Operating Limited Partnership,
as filed on April 15, 1991 and incorporated herein by reference.
69
<PAGE>
(5) Previously filed with the Securities and Exchange Commission as an
exhibit to post effective Amendment No. 8 to the Registration Statement
on Form S- 1 (No. 33-33031) of Sahara Finance Corp., Sahara Casino
Partners, L.P., Sahara Operating Limited Partnership, Hacienda
Operating Limited Partnership, Santa Fe Operating Limited Partnership,
as filed December 30, 1991.
(6) Previously filed with the Securities and Exchange Commission as an
exhibit to Sahara Gaming Corporation's Annual Report on Form 10-K for
the year ended September 30, 1993.
(7) Previously filed with the Securities and Exchange Commission as an
exhibit to Sahara Gaming Corporation's Report on Form 10-K for the year
ended September 30, 1994.
(8) Previously filed with the Securities and Exchange Commission as an
exhibit to Sahara Gaming Corporation's Report on Form 10-Q for the
quarter ended June 30, 1995.
(9) Previously filed with the Securities and Exchange Commission as an
exhibit to Sahara Gaming Corporation's Report on Form 10-K for the year
ended September 30, 1995.
(10) Previously filed with the Securities and Exchange Commission as an
exhibit to Sahara Gaming Corporation's Report on Form 10-Q for the
quarter ended December 31, 1995.
(11) Previously filed with the Securities and Exchange Commission as an
exhibit to Santa Fe Gaming Corporation's Report on Form 10-K for the
year ended September 30, 1996.
(12) Previously filed with the Securities and Exchange Commission as an
exhibit to Santa Fe Gaming Corporation's Report on Form 10-Q for the
quarter ended June 30, 1997.
(13) Previously filed with the Securities and Exchange Commission as an
exhibit to Santa Fe Gaming Corporation's Report on Form 8-K dated
December 4, 1997.
(14) Previously filed with the Securities and Exchange Commission as an
exhibit to Santa Fe Gaming Corporation's Report on Form 10-Q for the
quarter ended December 31, 1997.
(15) Previously filed with the Securities and Exchange Commission as an
exhibit to Santa Fe Gaming Corporation's Report on Form 10-Q for the
quarter ended March 30, 1998.
(16) Previously filed with the Securities and Exchange Commission as an
exhibit to Santa Fe Gaming Corporation's Report on Form 8-K dated
October 23, 1998.
70
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SANTA FE GAMING CORPORATION
December 28, 1998 By: /s/ Paul W. Lowden
--------------------------
Paul W. Lowden, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Paul W. Lowden Chairman of the Board and President
- ----------------------- (Principal Executive Officer) December 28, 1998
Paul W. Lowden
/s/ William J. Raggio Director
- -----------------------
William J. Raggio December 28, 1998
/s/ James W. Lewis Director December 28, 1998
- -----------------------
James W. Lewis
/s/ Suzanne Lowden Director December 28, 1998
- -----------------------
Suzanne Lowden
/s/ John Delaney Director December 28, 1998
- -----------------------
John Delaney
/s/ Thomas K. Land Director and Chief Financial Officer
- ----------------------- (Principal Financial and
Thomas K. Land Accounting Officer)
December 28, 1998
</TABLE>
71
<PAGE>
Exhibit 10.73
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DATED: October 1, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
30th day of September, 1998, by and among Santa Fe Gaming Corporation, a
Nevada corporation and its affiliates ("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 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 8308
Emerald Isle Avenue, 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;
WHEREAS, Employer and Employee have previously entered into Employment
Agreements dated February 28, 1994, October 1, 1996 and October 1, 1997.
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
- --------------------------------------------------------------------------------
3
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
assigned by Employer;
(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'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 one hundred
eighty (180) 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 one
hundred eightieth (180th) 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 would
diminish Employee's responsibility, authority, general status or comparative
- --------------------------------------------------------------------------------
4
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
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. Employee may
terminate this Agreement or not renew this Agreement with, at least, 30 days
written notice. 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 and, in the case of Section 7(a), will be equal to
one-half the annual Base Salary, in effect.
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;
however, that upon approval of such an even 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 and in the case of Section 7(a)
will be equal to one-half the annual Base Salary, in effect;
(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 Employer to Employee of the termination
of this Agreement without Cause; provided, however, that such notice must
be accompanied by Employer's tender to Employee of the lump sum of payments
- --------------------------------------------------------------------------------
5
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
due to Employee pursuant to Section 7 and in the case of Section 7(a) will
be equal to one-half the annual Base Salary, in effect;
(e) the giving of written notice by Employee to Employer upon a material
breach of this Agreement by Employer including a change in the Employee's
responsibilities and/or position, provided however, Employer shall have a
period of seven (7) days after giving of such notice to cure the breach or
default; if the default is not cured within such period, the Employee will
be entitled to the lump sum of payments due to Employee for services
rendered pursuant to Section 7 and in the case of Section 7(a) will be
equal to one-half the annual Base Salary, in effect;
(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 Santa Fe Gaming execute an agreement to effect such an event
that the Employer tender to Employee the lump sum of payments due to
Employee for services rendered pursuant to Section 7 and in the case of
Section 7(a) will be equal to one-half the annual Base Salary, in effect;
(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 occurrence, that
Employer tender to Employee the lump sum of payments due to Employee for
services rendered pursuant to Sections 7 and in the case of Section 7(a)
will be equal to one-half of the annual base salary in effect;
(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 approval by the Board of
Directors to proceed toward filing of a bankruptcy petition that Employer
tender to Employee the lump sum of payments due to Employee for services
rendered pursuant to Section 7 and in the case of Section 7(a) will be
equal to one-half the annual Base Salary, in effect.
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
- --------------------------------------------------------------------------------
6
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
of ONE HUNDRED EIGHTY-FIVE THOUSAND DOLLARS ($185,000.00), for the
twelve month period beginning October 1, 1998, 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 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.
(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 approved 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
- --------------------------------------------------------------------------------
7
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
all insurance, maintenance, and repair expenses incident to such
automobile.
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
borne 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 11 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.
12. SUCCESSION. This Agreement shall be binding upon and inure to the
- --------------------------------------------------------------------------------
8
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
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
JONES VARGAS
201 West Liberty Street
PO Box 281
Reno, NV 89504-0281
TO EMPLOYEE: Thomas K. Land
8308 Emerald Isle Avenue
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 17.
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.
- --------------------------------------------------------------------------------
9
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
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 10 and 11 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 21, 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.
22. 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, 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.
- --------------------------------------------------------------------------------
10
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
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
President
EMPLOYEE
/s/
------------------------
Thomas K. Land
Senior Vice President and
Chief Financial Officer
- --------------------------------------------------------------------------------
11
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
EXHIBIT 10.74
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement") is dated as of November 30,
1998 and entered into by and between HACIENDA HOTEL INC., a Nevada
corporation ("Grantor"), and IBJ SCHRODER BANK & TRUST COMPANY, as successor
trustee, for the benefit of the holders of the Bonds (as hereinafter defined)
(the "Holders") (the "Secured Party"), under the Indenture dated as of
December 1, 1988 among Pioneer Finance Corp., a Nevada corporation ("PFC"),
Santa Fe Gaming Corporation, a Nevada corporation and successor-in-interest
to Sahara Casino Partners, L.P. ("SFGC"), and Security Pacific National Bank
as predecessor to the Secured Party, as amended by (i) that certain First
Supplemental Indenture, dated as of December 21, 1990, (ii) that certain
Second Supplemental Indenture, dated as of September 30, 1993, (iii) that
certain Tri-Party Agreement, dated as of December 30, 1994, (iv) that certain
Third Supplemental Indenture, dated as of August 31, 1995, and (v) that
certain Fourth Supplemental Indenture, dated as of November 30, 1998 (the
"Indenture").
PRELIMINARY STATEMENTS
A. PFC issued $120,000,000 principal amount of 13 1/2% First Mortgage
Bonds due December 1, 1998 (the "Bonds"), pursuant to the Indenture, of which
$60,000,000 principal amount remains outstanding as of the date hereof.
Capitalized terms used and not otherwise defined herein shall have the
meanings specified in the Indenture.
B. Pursuant to the Offering Circular and Consent Solicitation
Statement dated October 23, 1998 and Supplement dated November 14, 1998
(together, the "Amended Joint Offering Circular/Consent Solicitation
Statement"), PFC has solicited (the "Solicitation") the consents (the
"Consents") of Holders to the Proposed Consents (as defined in the Amended
Joint Offering Circular/Consent Solicitation Statement).
C. In connection with the Solicitation and the receipt and
acceptance of Consents by PFC, Grantor has agreed to grant security interests
in the Collateral (as defined herein) to secure the payment of the principal
of, premium, if any, and interest on, the Bonds.
NOW, THEREFORE, in consideration of the premises, in accordance with the
Solicitation and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Grantor hereby agrees with Secured
Party as follows:
SECTION 1. GRANT OF SECURITY. Grantor hereby grants to Secured
Party, for the equal and ratable benefit of the Holders, a security interest
in all of Grantor's right, title and interest in and to the following, in
each case whether now or hereafter existing or in which Grantor now has or
hereafter acquires an interest and wherever the same may be located (the
"Collateral"):
<PAGE>
(a) all present and future chattels, furniture, furnishings, goods,
equipment (including, without limitation, gaming equipment and devices),
fixtures and all other tangible personal property, of whatever kind and
nature (including, without limitation, any building or structure that is now
or that may hereafter be erected on any premises owned by Grantor, the
"Premises"), including, but not limited to, machinery, materials, goods and
equipment now or hereafter used in any construction or operation relating
thereto and all other tangible personal property, together with all
replacements and substitutions for any and all personal property in which
Grantor has an interest, including without limitation such goods and
equipment as shall from time to time be located, placed, installed or used in
or upon, or procured for use, or to be used or useful in connection with the
operation of the whole, or any part of, the Premises or any facilities on the
Premises and all parts thereof and all accessions thereto (any and all such
equipment, replacements, substitutions, parts and accessions being the
"Equipment");
(b) all present and future inventory and merchandise in all of its
forms (including, but not limited to, (i) all goods held by Grantor for sale
or lease or to be furnished under contracts of service or so leased or
furnished, (ii) all raw materials, (iii) works in process, (iv) all goods in
which Grantor has an interest in mass or a joint or other interest or right
of any kind, (v) all goods that are returned to or repossessed by Grantor,
and (vi) all accessions thereto and products thereof (all such inventory,
accessions and products being the "Inventory");
(c) all present and future right, title and interest of Grantor in
and to all leases, subleases, licenses, concessions, franchises and other use
or occupancy agreements, and any amendments, modifications, extensions or
renewals thereof (collectively, "Leases"), whether or not specifically herein
described, that now or may hereafter pertain to or affect the Premises or any
portion thereof, and all amendments to the same, including, but not limited
to, the following: (i) all payments due and to become due under such Leases,
whether as rent, damages, insurance payments, condemnation awards, or
otherwise; (ii) all claims, rights, powers, privileges and remedies under
such Leases; and (iii) all rights of the Grantor under such Leases to
exercise any election or option, or to give-or receive any notice, consent,
waiver or approval, or to accept any surrender of the premises or any part
thereof, together with full power and authority in the name of the Grantor,
or otherwise, to demand and receive, enforce, collect, and receipt for any or
all of the foregoing, to endorse or execute any checks or any instruments or
orders, to file any claims, and to take any other action that Secured Party
may deem necessary or advisable in connection therewith;
(d) all present and future deposit accounts of Grantor, any demand,
time, savings, passbook or like account maintained by Grantor with any bank,
savings and loan association, credit union or like organization, and all
money, cash and cash equivalents of Grantor, whether or not deposited in any
such deposit account;
(e) all present and future general intangibles (including but not
limited to all governmental permits relating to construction or other
activities on the Premises), all tax refunds of every kind and nature to
which Grantor now or hereafter may become entitled, however arising, all
other refunds, and all deposits, goodwill, choses in action, rights to
payment or performance, judgments taken on any rights or claims included in
the Collateral, trade secrets,
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computer programs, software, customer lists, business names, trademarks,
trade names and service marks, patents, patent applications, licenses,
copyrights, technology, processes, proprietary information and insurance
proceeds;
(f) all present and future books and records, including, without
limitation, books of account and ledgers of every kind and nature, ledger
cards, computer programs, tapes, disks and other information storage devices,
all related data processing software, and all electronically recorded data
relating to Grantor or its business, all receptacles and containers for such
records, and all files and correspondence;
(g) all present and future maps, plans, specifications, surveys,
studies, reports, data and drawings (including, without limitation,
architectural, structural, mechanical and engineering plans and
specifications, studies, data and drawings) prepared for or relating to the
Premises or the construction, renovation or restoration of any improvements
on the Premises or the extraction of minerals, sand, gravel or other valuable
substances from the Premises, together with all amendments and modifications
thereto;
(h) all present and future licenses, permits, variances, special
permits, franchises, certificates, rulings, certifications, validations,
exemptions, filings, registrations, authorizations, consents, approvals,
waivers, orders, rights and agreements (including options, option rights and
contract rights), other than those that may not be transferred by law, now or
hereafter obtained by Grantor from any governmental authority having or
claiming jurisdiction over the Premises or any other element of the
Collateral or providing access thereto, or the operation of any business on,
at, or from the Premises;
(i) all present and future stocks, bonds, debentures, securities,
investment property, subscription rights, options, warrants, puts, calls,
certificates, partnership interests, joint venture interests, investments,
brokerage accounts and all rights, preferences, privileges, dividends,
distributions, redemption payments and liquidation payments received or
receivable with respect thereto;
(j) all present and future accessions, appurtenances, components,
repairs, repair parts, spare parts, replacements, substitutions, additions,
issue and improvements to or of or with respect to any of the foregoing;
(k) all other fixtures and storage and office facilities, and all
accessions thereto and products thereof and all water stock relating to the
Premises;
(l) all other tangible and intangible personal property of Grantor;
(m) all rights, remedies, powers and privileges of Grantor with
respect to any of the foregoing; and
(n) any and all proceeds, products, rents, income and profits of any
of the foregoing, including, without limitation, all money, accounts, general
intangibles, deposit accounts, documents, instruments, chattel paper, goods,
insurance proceeds (whether or not the Secured
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Party is the loss payee), and any other tangible or intangible property
received upon the sale or disposition of any of the foregoing (it being
agreed, for purposes hereof, that the term "proceeds" includes whatever is
receivable or received when any of the Collateral is sold, collected,
exchanged or otherwise disposed of, whether such disposition is voluntary or
involuntary);
provided, however, that the Collateral shall not include (x) any present or
future accounts or accounts receivable, relating to timeshare operations,
hotel room rentals or casino markers, owing to Grantor or in which Grantor
may have any interest (any and all such property being the "Accounts"), or
(y) any proceeds of Accounts (including, without limitation, all money,
accounts, general intangibles, deposit accounts, securities accounts,
documents, instruments, chattel paper, goods, insurance proceeds and any
other tangible or intangible property (a) received in exchange for Accounts,
(b) received upon payment, collection, settlement or compromise of Accounts,
(c) issued to evidence, replace or otherwise in respect of Accounts or (d)
upon sale or any other disposition whatsoever of Accounts).
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and
the Collateral is collateral security for, the prompt payment or performance
in full when due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including the payment of
amounts that would become due but for the operation of the automatic stay
under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)), of
all obligations and liabilities of every nature of PFC now or hereafter
existing under or arising out of or in connection with the Bonds, Indenture
and Mortgage Documents and all amendments, extensions or renewals thereof,
whether for principal, premium, if any, interest (including without
limitation interest that, but for the filing of a petition in bankruptcy with
respect to PFC, would accrue on such obligations), fees, expenses,
indemnities or otherwise, whether voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion
of such obligations or liabilities that are paid, to the extent all or any
part of such payment is avoided or recovered directly or indirectly from
Secured Party or any Holder as a preference, fraudulent transfer or otherwise
(all such obligations and liabilities being the "Underlying Debt"), and all
obligations of every nature of Grantor now or hereafter existing under this
Agreement (all such obligations of Grantor, together with the Underlying
Debt, being the "Secured Obligations").
SECTION 3. GRANTOR REMAINS LIABLE. Anything contained herein to
the contrary notwithstanding, (a) Grantor shall remain liable under any
contracts and agreements included in the Collateral, to the extent set forth
therein, to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by
Secured Party of any of its rights hereunder shall not release Grantor from
any of its duties or obligations under the contracts and agreements included
in the Collateral, and (c) Secured Party shall not have any obligation or
liability under any contracts and agreements included in the Collateral by
reason of this Agreement or otherwise, nor shall Secured Party be obligated
to perform any of the obligations or duties of Grantor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
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SECTION 4. REPRESENTATIONS AND WARRANTIES. Grantor represents and
warrants as follows:
(a) OWNERSHIP OF COLLATERAL. Except for the security interest
created by this Agreement, Grantor owns the Collateral free and clear of any
Lien. Except such as may have been filed in favor of Secured Party relating
to this Agreement, no effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is on file in
any filing or recording office.
(b) OFFICE LOCATIONS: OTHER NAMES. The chief place of business,
the chief executive office and the office where Grantor keeps its records
regarding the Accounts and all originals of all chattel paper that evidence
Accounts is, and has been for the four month period preceding the date
hereof, located at 4949 North Rancho Drive, Las Vegas, Nevada 89130. Grantor
has not in the past done, and does not now do, business under any other name
(including any trade-name or fictitious business name) except Hacienda Hotel
Inc.
(c) GOVERNMENTAL AUTHORIZATIONS. No authorization, approval or
other action by, and no notice to or filing with, any governmental authority
or regulatory body is required for either (i) the grant by Grantor of the
security interest granted hereby, (ii) the execution, delivery or performance
of this Agreement by Grantor, or (iii) the perfection of or the exercise by
Secured Party of its rights and remedies hereunder (except (i) the filing of
Uniform Commercial Code financing statements with the office of the Secretary
of State of the State of Nevada and (ii) as has been previously taken by or
at the direction of Grantor).
(d) PERFECTION. This Agreement, together with the filing of a UCC-l
financing statement describing the Collateral with the Secretary of State of
Nevada with the Clark County Recorder creates a valid, perfected, enforceable
and first priority security interest in the Collateral, securing the payment
of the Secured Obligations, and all filings and other actions necessary or
desirable to perfect and protect such security interest have been duly made
or taken.
(e) OTHER INFORMATION. All information heretofore, herein or
hereafter supplied to Secured Party by or on behalf of Grantor with respect
to the Collateral is accurate and complete in all material respects.
SECTION 5. FURTHER ASSURANCES.
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable,
or that Secured Party reasonably may request, in order to perfect and protect
any security interest granted or purported to be granted hereby or to enable
Secured Party to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing,
Grantor will: (i) at the request of Secured Party, deliver and pledge to
Secured Party hereunder all promissory notes and other instruments (including
checks) and all original counterparts of chattel paper constituting
Collateral, duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form, and substance satisfactory to Secured
Party, (ii) execute and file such
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financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as Secured Party
may reasonably request, in order to perfect and preserve the security
interests granted or purported to be granted hereby, (iii) at any reasonable
time, upon request by Secured Party, exhibit the Collateral to and allow
inspection of the Collateral by Secured Party, or persons designated by
Secured Party, and (iv) at Secured Party's reasonable request, appear in and
defend any action or proceeding that may affect Grantor's title to or Secured
Party's security interest in all or any significant part of the Collateral.
(b) Grantor hereby authorizes Secured Party to file one or more
financing or continuation statements, and amendments thereto, relative to all
or any part of the Collateral without the signature of Grantor. Grantor
agrees that a carbon, photographic or other reproduction of this Agreement or
of a financing statement signed by Grantor shall be sufficient as a financing
statement and may be filed as a financing statement in any and all
jurisdictions.
(c) Grantor will furnish to Secured Party from time to time
statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as Secured Party may
reasonably request, all in reasonable detail.
SECTION 6. CERTAIN COVENANTS OF GRANTOR. Grantor shall:
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;
(b) notify Secured Party of any change in Grantor's name or identity
within 15 days of such change;
(c) give Secured Party 30 days prior written notice of any change in
Grantor's chief place of business, chief executive office or residence;
(d) if Secured Party gives value to enable Grantor to acquire rights
in or the use of any Collateral, use such value for such purposes; and
(e) pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to
the extent the validity thereof is being contested in good faith and for
which adequate reserves have been established; provided that Grantor shall in
any event pay such taxes, assessments, charges, levies or claims not later
than five days prior to the date of any proposed sale under any judgment,
writ or warrant of attachment entered or filed against Grantor or any of the
Collateral as a result of the failure to make such payment.
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SECTION 7. SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND INVENTORY.
Grantor shall:
(a) keep the Equipment and Inventory at the Premises or, upon 30 days
prior written notice to Secured Party, at such other places in jurisdictions
where all action that may be necessary or desirable, or that Secured Party
may reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby, or to enable Secured Party to
exercise and enforce its rights and remedies hereunder, with respect to such
Equipment and Inventory shall have been taken;
(b) cause the Equipment to be maintained and preserved in the same
condition, repair and working order as when new, ordinary wear and tear
excepted, and shall forthwith make or cause to be made all repairs,
replacements and other improvements in connection therewith that are
necessary or desirable to such end. Grantor shall promptly furnish to Secured
Party a statement respecting any material loss or damage to any of the
Equipment; and
(c) perform all acts that are necessary or desirable to cause all
licenses, permits, variances, special permits, franchises, certificates,
rulings, certifications, validations, exemptions, filings, registrations,
authorizations, consents, approvals. waivers, orders, rights, and agreements
in which a security interest has been conveyed to Secured Party pursuant to
subsection 1(h) to remain in full force and effect.
SECTION 8. INSURANCE. Grantor shall, at its own expense, maintain
insurance with respect to the Equipment and Inventory, if any.
SECTION 9. LICENSE OF PATENTS, TRADEMARKS, COPYRIGHTS, ETC. Grantor
hereby assigns, transfers and conveys to Secured Party, effective upon the
occurrence of any Event of Default, the non-exclusive right and license to
use all trademarks, tradenames, copyrights, customers lists, patents or
technical processes owned or used by Grantor that relate to the Collateral
and any other collateral granted by Grantor as security for the Secured
Obligations, together with any goodwill associated therewith, all to the
extent necessary to enable Secured Party to use, possess and realize on the
Collateral and to enable any successor or assign to enjoy the benefits of the
Collateral. This right and license shall inure to the benefit of all
successors, assigns and transferees of Secured Party and its successors,
assigns and transferees, whether by voluntary conveyance, operation of law,
assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise.
Such right and license is granted free of charge, without requirement that
any monetary payment whatsoever be made to Grantor.
SECTION 10. OTHER LIENS. Grantor shall not, except for the security
interest created by this Agreement and as otherwise contemplated by the
Indenture, the Solicitation and the Mortgage Documents, create or suffer to
exist any Lien upon or with respect to any of the Collateral to secure the
indebtedness or other obligations of any Person.
SECTION 11. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Grantor hereby
irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full
authority in the place and stead of Grantor and in the name of Grantor,
Secured Party or otherwise, from time to time in Secured
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Party's discretion to take any action and to execute any instrument that
Secured Party may deem necessary or advisable to accomplish the purposes of
this Agreement, including without limitation:
(a) to ask for, demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of any of the Collateral;
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (a) above;
(c) to file any claims or take any action or institute any
proceedings (including, without limitation, any proceeding before any Nevada
Gaming Authority) that Secured Party may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Secured Party with respect to any of the Collateral;
(d) to pay or discharge taxes or Liens (other than Liens permitted
under this Agreement) levied or placed upon or threatened against the
Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by Secured Party in its sole discretion,
any such payments made by Secured Party to become obligations of Grantor to
Secured Party, due and payable immediately without demand; and
(e) upon the occurrence and during the continuation of an Event of
Default, generally to sell, transfer, pledge, make any agreement with respect
to or otherwise deal with any of the Collateral as fully and completely as
though Secured Party were the absolute owner thereof for all purposes, and to
do, at Secured Party's option and Grantor's expense, at any time or from time
to time, all acts and things that Secured Party deems necessary to protect,
preserve or realize upon the Collateral and Secured Party's security interest
therein in order to effect the intent of this Agreement, all as fully and
effectively as Grantor might do.
SECTION 12. SECURED PARTY MAY PERFORM. If Grantor fails to perform
any agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Grantor under Section 16.
SECTION 13. STANDARD OF CARE. The powers conferred on Secured Party
hereunder are solely to protect its and the Holders' interest in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the exercise of reasonable care in the custody of any Collateral
in its possession and the accounting for moneys actually received by it
hereunder, Secured Party shall have no duty as to any Collateral or as to the
taking of any necessary steps to preserve rights against prior parties or any
other rights pertaining to any Collateral, it being understood that Secured
Party shall have no responsibility for (a) ascertaining or taking action with
respect to calls, conversions, exchanges, maturities, tenders or other
matters relating to any Collateral, whether or not Secured Party has or is
deemed to have knowledge of such matters, (b) taking any necessary steps
(other than steps taken in accordance with the standard of care set forth
above to maintain possession of the Collateral) to preserve rights against
any parties with
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respect to any Collateral, (c) taking any necessary steps to collect or
realize upon the Secured Obligations or any guarantee therefor, or any part
thereof, or any of the Collateral, or (d) initiating any action to protect
the Collateral against the possibility of a decline in market value. Secured
Party shall be deemed to have exercised reasonable care in the custody and
preservation of Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Secured Party accords its own
property.
SECTION 14. REMEDIES.
If any Event of Default shall have occurred and be continuing, Secured
Party may exercise in respect of the Collateral, in addition to all other
rights and remedies provided for herein or otherwise available to it, all the
rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "Code")
(whether or not the Code applies to the affected Collateral), and also may
(i) require Grantor to, and Grantor hereby agrees that it will at its expense
and upon request of Secured Party forthwith, assemble all or part of the
Collateral as directed by Secured Party and make it available to Secured
Party at a place to be designated by Secured Party that is reasonably
convenient to both parties, (ii) enter onto the property where any Collateral
is located and take possession thereof with or without judicial process,
(iii) prior to the disposition of the Collateral, store, process, repair or
recondition the Collateral or otherwise prepare the Collateral for
disposition in any manner to the extent Secured Party deems appropriate, (iv)
take possession of Grantor's premises or place custodians in exclusive
control thereof, remain on such premises and use the same and any of
Grantor's equipment for the purpose of completing any work in process, taking
any actions described in the preceding clause, (v) collect any Secured
Obligation, and (vi) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private
sale, at any of Secured Party's offices or elsewhere, for cash, on credit or
for future delivery, at such time or times and at such price or prices and
upon such other terms as Secured Party may deem commercially reasonable.
Secured Party may be the purchaser of any or all of the Collateral at any
such sale and Secured Party shall be entitled, for the purpose of bidding and
making settlement or payment of the purchase price for all or any portion of
the Collateral sold at any such public sale, to use andapply any of the
Secured Obligations as a credit on account of the purchase price for any
Collateral payable by Secured Party at such sale. Each purchaser at any such
sale shall hold the property sold absolutely free from any claim or right on
the part of Grantor, and Grantor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and/or appraisal which it now
has or may at any time in the future have under any rule of law or statute
now existing or hereafter enacted. Grantor agrees that, to the extent notice
of sale shall be required by law, at least ten days notice to Grantor of the
time and place of any public sale or the time after which any private sale is
to be made shall constitute reasonable notification. Secured Party shall not
be obligated to make any sale of Collateral regardless of notice of sale
having been given. Secured Party may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it
was so adjourned. Grantor hereby waives any claims against Secured Party
arising by reason of the fact that the price at which any Collateral may have
been sold at such a private sale was less than the price which might have
been obtained at a public sale, even if Secured Party accepts the first offer
received and does not offer such
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Collateral to more than one offeree. If the proceeds of any sale or other
disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantor shall be liable for the deficiency and the fees of any
attorneys employed by Secured Party to collect such deficiency.
SECTION 15. APPLICATION OF PROCEEDS. Except as expressly provided
elsewhere in this Agreement, all proceeds received by Secured Party in
respect of any sale of, collection from, or other realization upon all or any
part of the Collateral may, in the discretion of Secured Party, be held by
Secured Party as Collateral for, and/or then, or at any other time
thereafter, applied in full or in part by Secured Party against, the Secured
Obligations in the following order of priority:
FIRST: To the payment of all costs and expenses of such sale, collection
or other realization, including costs and expenses of Secured Party and its
agents and counsel, and all other expenses, liabilities and advances made or
incurred by Secured Party in connection therewith, and all amounts for which
Secured Party is entitled to indemnification hereunder and all advances made
by Secured Party hereunder for the account of Grantor, and to the payment of
all costs and expenses paid or incurred by Secured Party in connection with
the exercise of any right or remedy hereunder, all in accordance with Section
17;
SECOND: To the payment of all other Secured Obligations (for the
ratable benefit of the holders thereof) in such order as Secured Party shall
elect; and
THIRD: To the payment to or upon the order of Grantor, or to whomsoever
may be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct, of any surplus then remaining from such proceeds.
SECTION 16. INDEMNITY AND EXPENSES.
(a) Grantor agrees to indemnify Secured Party and the Holders, and
any agent, attorney, employee, officer, or director thereof (collectively,
"Indemnified Persons"), from and against any and all claims, losses and
liabilities in any way relating to, growing out of or resulting from this
Agreement and the transactions contemplated hereby (including, without
limitation, enforcement of this Agreement), except to the extent such claims,
losses or liabilities result solely from such Indemnified Person's gross
negligence or willful misconduct as finally determined by a court of
competent jurisdiction.
(b) Grantor shall pay to Secured Party upon demand the amount of any
and all costs and expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, that Secured Party may reasonably
incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from,
or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of Secured Party hereunder, or (iv) the
failure by Grantor to perform or observe any of the provisions hereof.
SECTION 17. CONTINUING SECURITY INTEREST. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the
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indefeasible payment in full, in cash, of the Secured Obligations, (b) be
binding upon Grantor, its successors and assigns, and (c) inure, together
with the rights and remedies of Secured Party hereunder, to the benefit of
Secured Party and its successors, transferees and assigns. Upon the
indefeasible payment in full, in cash, of all Secured Obligations, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Grantor. Upon any such termination Secured Party
will, at Grantor's expense, execute and deliver to Grantor such documents as
Grantor shall reasonably request to evidence such termination.
SECTION 18. AMENDMENTS; ETC. No amendment or waiver of any
provision of this Agreement, or consent to any departure by Grantor herefrom,
shall in any event be effective unless the same shall be approved by the
Holders of a majority of the Outstanding Bonds, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which it was given.
SECTION 19. NOTICES. Any notice or other communication herein
required or permitted to be given shall be in writing and may be personally
served, telexed or sent by facsimile or United States mail or courier service
and shall be deemed to have been given when delivered in person or by courier
service, upon receipt of facsimile or telex, or four business days after
depositing it in the United States mail with postage prepaid and properly
addressed. For the purposes hereof, the address of each party hereto shall
be as set forth below, or, as to either party, such other address as shall be
designated by such party in a written notice delivered to the other party
hereto.
To Secured Party:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York
Attention: Reorganization Operations Department
To Grantor:
Hacienda Hotel Inc.
4949 North Rancho Drive
Las Vegas, Nevada 89130
Attention: Chief Financial Officer
SECTION 20. FAILURE OR INDULGENCE NOT WAIVER: REMEDIES CUMULATIVE. No
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or
be construed to be a waiver of any default or acquiescence therein, nor shall
any single or partial exercise of any such power, right or privilege preclude
any other or further exercise thereof or of any other power, right or
privilege. All rights and remedies existing under this Agreement are
cumulative to, and not exclusive of, any rights or remedies otherwise
available.
SECTION 21. SEVERABILITY. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and
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enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 22. HEADINGS. Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 23. GOVERNING LAW: TERMS. THIS AGREEMENT SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEVADA, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES, EXCEPT TO THE EXTENT THAT THE UNIFORM COMMERCIAL CODE PROVIDES
THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY
THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEVADA.
SECTION 24. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL
JUDICIAL PROCEEDINGS BROUGHT AGAINST GRANTOR ARISING OUT OF OR RELATING TO
THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE OF NEVADA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT GRANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS AGREEMENT. Grantor hereby agrees that service of all
process in any such proceeding in any such court may be made by registered or
certified mail, return receipt requested, to Grantor at its address provided
in Section 20, such service being hereby acknowledged by Grantor to be
sufficient for personal jurisdiction in any action against Grantor in any
such court and to be otherwise effective and binding service in every
respect. Nothing herein shall affect the right to serve process in any other
manner permitted by law.
SECTION 25. WAIVER OF JURY TRIAL. GRANTOR AND SECURED PARTY HEREBY AGREE
TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is
intended to be all-encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction, including
without limitation contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims. Grantor and Secured Party each
acknowledge that this waiver is a material inducement for Grantor and Secured
Party to enter into a business relationship, that Grantor and Secured Party have
already relied on this waiver in entering into this Agreement and that each will
continue to rely on this waiver in their related future dealings. Grantor and
Secured Party further warrant and represent that each has reviewed this waiver
with its legal counsel, and that each knowingly and voluntarily waives its jury
trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THIS WAIVER SHALL APPLY TO ANY
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SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT. In the event of litigation, this Agreement may be filed as a
written consent to a trial by the court.
SECTION 26. WAIVERS.
26.1 Grantor absolutely, unconditionally, knowingly, and expressly
waives:
(a) (i) notice of acceptance hereof; (ii) notice of any loans or
other financial accommodations made or extended under the Bonds, Indenture or
Mortgage Documents or the creation or existence of any Secured Obligations;
(iii) notice of the amount of the Secured Obligations, subject, however, to
Grantor's right to make inquiry of Secured Party to ascertain the amount of
the Secured Obligations at any reasonable time; (iv) notice of any adverse
change in the financial condition of PFC or of any other fact that might
increase Grantor's risk hereunder; (v) notice of presentment for payment,
demand, protest, and notice thereof as to any instruments among the Bonds,
Indenture or Mortgage Documents; (vi) notice of any Event of Default under
the Bonds, Indenture or Mortgage Documents ; and (vii) all other notices
(except if such notice is specifically required to be given to Grantor
hereunder or under the Bonds, Indenture or Mortgage Documents) and demands to
which Grantor might otherwise be entitled.
(b) its right, under Nevada Revised Statutes Section 40.430, or
otherwise, to require Secured Party to institute suit against, or to exhaust
any rights and remedies which Secured Party has or may have against, PFC or
any third party, or against any collateral for the Secured Obligations
provided by PFC or any third party. In this regard, Grantor agrees that
Grantor is bound to the payment of all Secured Obligations, whether now
existing or hereafter accruing, as fully as if such Secured Obligations were
directly owing to Secured Party by Grantor. Grantor further waives any
defense arising by reason of any disability or other defense (other than the
defense that the Secured Obligations shall have been fully and finally
performed and indefeasibly paid) of PFC or by reason of the cessation from
any cause whatsoever of the liability of PFC in respect thereof.
(c) (i) any rights to assert against Secured Party any defense (legal
or equitable), set-off, counterclaim, or claim which Grantor may now or at
any time hereafter have against PFC or any other party liable to Secured
Party, (ii) any defense, set-off, counterclaim, or claim, of any kind or
nature, arising directly or indirectly from the present or future lack of
perfection, sufficiency, validity, or enforceability of the Secured
Obligations or any security therefor; (iii) any defense Grantor has to
performance hereunder, and any right Grantor has to be exonerated, arising by
reason of: the impairment or suspension of Secured Party's rights or
remedies against PFC; the alteration by Secured Party of the Secured
Obligations; any discharge of PFC's obligations to Secured Party by operation
of law as a result of Secured Party's intervention or omission; or the
acceptance by Secured Party of anything in partial satisfaction of the
Secured Obligations; (iv) the benefit of any statute of limitations affecting
Grantor's liability hereunder or the enforcement thereof, and any act which
shall defer or delay the operation of any statute of limitations applicable
to the Secured Obligations shall similarly operate to defer or delay the
operation of such statute of limitations applicable to Grantor's liability
hereunder.
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26.2. Grantor absolutely, unconditionally, knowingly, and expressly
waives any defense arising by reason of or deriving from (i) any claim or
defense based upon an election of remedies by Secured Party; or (ii) any
election by Secured Party under Bankruptcy Code Section 1111(b) to limit the
amount of, or any collateral securing, its claim against PFC.
Grantor waives all rights and defenses arising out of an election of
remedies by the creditor, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed Grantor's rights of subrogation and reimbursement against PFC.
Grantor waives all rights and defenses that Grantor may have because the
Underlying Debt is secured by real property. This means, among other things:
(1) Secured Party may collect from Grantor without first
foreclosing on any real or personal property collateral pledged by PFC.
(2) If Secured Party forecloses on any real property
collateral pledged by PFC:
(i) The amount of the Secured Obligations may be reduced only
by the price for which that collateral is sold at the foreclosure sale, even
if the collateral is worth more than the sale price.
(ii) Secured Party may collect from Grantor even if Secured
Party, by foreclosing on the real property collateral, has destroyed any
right Grantor may have to collect from PFC.
This is an unconditional and irrevocable waiver of any rights and
defenses Grantor may have because the Underlying Debt is secured by real
property.
If any of the Secured Obligations at any time are secured by a mortgage or
deed of trust upon real property, Secured Party may elect, in its sole
discretion, upon a default with respect to the Secured Obligations, to
foreclose such mortgage or deed of trust judicially or nonjudicially in any
manner permitted by law, before or after enforcing the Bonds, Indenture or
Mortgage Documents, without diminishing or affecting the liability of Grantor
hereunder except to the extent the Secured Obligations are repaid with the
proceeds of such foreclosure.
26.3. Grantor hereby absolutely, unconditionally, knowingly, and
expressly waives: (1) any right of subrogation Grantor has or may have as
against PFC with respect to the Secured Obligations; (2) any right to proceed
against PFC or any other person or entity, now or hereafter, for
contribution, indemnity, reimbursement, or any other suretyship rights and
claims, whether direct or indirect, liquidated or contingent, whether arising
under express or implied contract or by operation of law, which Grantor may
now have or hereafter have as against PFC with respect to the Secured
Obligations; and (3) any right to proceed or seek recourse against or with
respect to any property or asset of PFC.
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SECTION 27. RELEASES. Grantor consents and agrees that, without notice
to or by Grantor, and without affecting or impairing the obligations of
Grantor hereunder, Secured Party may, by action or inaction:
(a) compromise, settle, extend the duration or the time for the
payment of, or discharge the performance of, or may refuse to or otherwise
not enforce this Agreement, the Bonds, Indenture or Mortgage Documents, or
any part thereof, with respect to PFC or any other person;
(b) release PFC or any other person or grant other indulgences to PFC
or any other person in respect thereof;
(c) amend or modify in any manner and at any time (or from time to
time) any of the Bonds, Indenture or Mortgage Documents; or
(d) release or substitute any other guarantor, if any, of the Secured
Obligations, or enforce, exchange, release, or waive any security for the
Secured Obligations or any other guaranty of the Secured Obligations, or any
portion thereof.
SECTION 28. NO ELECTION. Secured Party shall have all of the rights to
seek recourse against Grantor to the fullest extent provided for herein, and
no election by Secured Party to proceed in one form of action or proceeding,
or against any party, or on any obligation, shall constitute a waiver of
Secured Party's right to proceed in any other form of action or proceeding or
against other parties unless Secured Party has expressly waived such right in
writing. Specifically, but without limiting the generality of the foregoing,
no action or proceeding by Secured Party under any document or instrument
evidencing the Secured Obligations shall serve to diminish the liability of
Grantor under this Agreement except to the extent that Secured Party finally
and unconditionally shall have realized indefeasible payment by such action
or proceeding.
SECTION 29. INDEFEASIBLE PAYMENT. The Secured Obligations shall not be
considered indefeasibly paid for purposes of this Agreement unless and until
all payments to Secured Party are no longer subject to any right on the part
of any person, including PFC, PFC as a debtor in possession, or any trustee
(whether appointed under the Bankruptcy Code or otherwise) of any of PFC's
assets, to invalidate or set aside such payments or to seek to recoup the
amount of such payments or any portion thereof, or to declare the same to be
fraudulent or preferential. Upon such full and final performance and
indefeasible payment of the Secured Obligations, whether by PFC pursuant to
the Bonds, Indenture or Mortgage Documents or by any other person, Secured
Party shall have no obligation whatsoever to transfer or assign its interests
the Bonds, Indenture or Mortgage Documents to Grantor, except as otherwise
required by applicable law. In the event that, for any reason, any portion
of such payments to Secured Party is set aside or restored, whether
voluntarily or involuntarily, after the making thereof, then the obligation
intended to be satisfied thereby shall be revived and continued in full force
and effect as if said payment or payments had not been made, and Grantor
shall be liable for the full amount Secured Party is required to repay plus
any and all costs and expenses (including attorneys' fees and expenses and
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attorneys' fees and expenses incurred pursuant to proceedings arising under
the Bankruptcy Code) paid by Secured Party in connection therewith.
SECTION 30. FINANCIAL CONDITION OF THE PFC. Grantor represents and
warrants to Secured Party that Grantor is currently informed of the financial
condition of PFC and of all other circumstances which a diligent inquiry
would reveal and which bear upon the risk of nonpayment of the Secured
Obligations. Grantor further represents and warrants to Secured Party that
Grantor has read and understands the terms and conditions of in the Bonds,
Indenture or Mortgage Documents. Grantor hereby covenants that Grantor will
continue to keep informed of PFC's financial condition, the financial
condition of other guarantors, if any, and of all other circumstances which
bear upon the risk of nonpayment or nonperformance of the Secured Obligations.
SECTION 31. COUNTERPARTS. This Agreement may be executed in one or
more counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same
instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document.
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IN WITNESS WHEREOF, Grantor and Secured Party have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
HACIENDA HOTEL INC.,
as Grantor
By: /s/
----------------------------------
Name: Thomas K. Land
--------------------------------
Title: Senior Vice President, Chief Financial Officer
-----------------------------------------------
IBJ SCHRODER BANK & TRUST COMPANY,
as Secured Party
By: /s/
----------------------------------
Name: Barbara McCluskey
--------------------------------
Title: Vice President
-------------------------------
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EXHIBIT 10.75
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement") is dated as of November 30,
1998 and entered into by and between SANTA FE COFFEE COMPANY, a Nevada
corporation ("Grantor"), and IBJ SCHRODER BANK & TRUST COMPANY, as successor
trustee, for the benefit of the holders of the Bonds (as hereinafter defined)
(the "Holders") (the "Secured Party"), under the Indenture dated as of
December 1, 1988 among Pioneer Finance Corp., a Nevada corporation ("PFC"),
Santa Fe Gaming Corporation, a Nevada corporation and successor-in-interest
to Sahara Casino Partners, L.P. ("SFGC"), and Security Pacific National Bank
as predecessor to the Secured Party, as amended by (i) that certain First
Supplemental Indenture, dated as of December 21, 1990, (ii) that certain
Second Supplemental Indenture, dated as of September 30, 1993, (iii) that
certain Tri-Party Agreement, dated as of December 30, 1994, (iv) that certain
Third Supplemental Indenture, dated as of August 31, 1995, and (v) that
certain Fourth Supplemental Indenture, dated as of November 30, 1998 (the
"Indenture").
PRELIMINARY STATEMENTS
A. PFC issued $120,000,000 principal amount of 13 1/2% First Mortgage
Bonds due December 1, 1998 (the "Bonds"), pursuant to the Indenture, of which
$60,000,000 principal amount remains outstanding as of the date hereof.
Capitalized terms used and not otherwise defined herein shall have the
meanings specified in the Indenture.
B. Pursuant to the Offering Circular and Consent Solicitation
Statement dated October 23, 1998 and Supplement dated November 14, 1998
(together, the "Amended Joint Offering Circular/Consent Solicitation
Statement"), PFC has solicited (the "Solicitation") the consents (the
"Consents") of Holders to the Proposed Consents (as defined in the Amended
Joint Offering Circular/Consent Solicitation Statement).
C. In connection with the Solicitation and the receipt and
acceptance of Consents by PFC, Grantor has agreed to grant security interests
in the Collateral (as defined herein) to secure the payment of the principal
of, premium, if any, and interest on, the Bonds.
NOW, THEREFORE, in consideration of the premises, in accordance with the
Solicitation and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Grantor hereby agrees with Secured
Party as follows:
SECTION 1. GRANT OF SECURITY. Grantor hereby grants to Secured
Party, for the equal and ratable benefit of the Holders, a security interest
in all of Grantor's right, title and interest in and to the following, in
each case whether now or hereafter existing or in which Grantor now has or
hereafter acquires an interest and wherever the same may be located (the
"Collateral"):
<PAGE>
(a) all present and future chattels, furniture, furnishings, goods,
equipment (including, without limitation, gaming equipment and devices),
fixtures and all other tangible personal property, of whatever kind and
nature (including, without limitation, any building or structure that is now
or that may hereafter be erected on any premises owned by Grantor, the
"Premises"), including, but not limited to, machinery, materials, goods and
equipment now or hereafter used in any construction or operation relating
thereto and all other tangible personal property, together with all
replacements and substitutions for any and all personal property in which
Grantor has an interest, including without limitation such goods and
equipment as shall from time to time be located, placed, installed or used in
or upon, or procured for use, or to be used or useful in connection with the
operation of the whole, or any part of, the Premises or any facilities on the
Premises and all parts thereof and all accessions thereto (any and all such
equipment, replacements, substitutions, parts and accessions being the
"Equipment");
(b) all present and future inventory and merchandise in all of its
forms (including, but not limited to, (i) all goods held by Grantor for sale
or lease or to be furnished under contracts of service or so leased or
furnished, (ii) all raw materials, (iii) works in process, (iv) all goods in
which Grantor has an interest in mass or a joint or other interest or right
of any kind, (v) all goods that are returned to or repossessed by Grantor,
and (vi) all accessions thereto and products thereof (all such inventory,
accessions and products being the "Inventory");
(c) all present and future right, title and interest of Grantor in
and to all leases, subleases, licenses, concessions, franchises and other use
or occupancy agreements, and any amendments, modifications, extensions or
renewals thereof (collectively, "Leases"), whether or not specifically herein
described, that now or may hereafter pertain to or affect the Premises or any
portion thereof, and all amendments to the same, including, but not limited
to, the following: (i) all payments due and to become due under such Leases,
whether as rent, damages, insurance payments, condemnation awards, or
otherwise; (ii) all claims, rights, powers, privileges and remedies under
such Leases; and (iii) all rights of the Grantor under such Leases to
exercise any election or option, or to give-or receive any notice, consent,
waiver or approval, or to accept any surrender of the premises or any part
thereof, together with full power and authority in the name of the Grantor,
or otherwise, to demand and receive, enforce, collect, and receipt for any or
all of the foregoing, to endorse or execute any checks or any instruments or
orders, to file any claims, and to take any other action that Secured Party
may deem necessary or advisable in connection therewith;
(d) all present and future deposit accounts of Grantor, any demand,
time, savings, passbook or like account maintained by Grantor with any bank,
savings and loan association, credit union or like organization, and all
money, cash and cash equivalents of Grantor, whether or not deposited in any
such deposit account;
(e) all present and future general intangibles (including but not
limited to all governmental permits relating to construction or other activities
on the Premises), all tax refunds of every kind and nature to which Grantor now
or hereafter may become entitled, however arising, all other refunds, and all
deposits, goodwill, choses in action, rights to payment or performance,
judgments taken on any rights or claims included in the Collateral, trade
secrets,
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computer programs, software, customer lists, business names, trademarks,
trade names and service marks, patents, patent applications, licenses,
copyrights, technology, processes, proprietary information and insurance
proceeds;
(f) all present and future books and records, including, without
limitation, books of account and ledgers of every kind and nature, ledger
cards, computer programs, tapes, disks and other information storage devices,
all related data processing software, and all electronically recorded data
relating to Grantor or its business, all receptacles and containers for such
records, and all files and correspondence;
(g) all present and future maps, plans, specifications, surveys,
studies, reports, data and drawings (including, without limitation,
architectural, structural, mechanical and engineering plans and
specifications, studies, data and drawings) prepared for or relating to the
Premises or the construction, renovation or restoration of any improvements
on the Premises or the extraction of minerals, sand, gravel or other valuable
substances from the Premises, together with all amendments and modifications
thereto;
(h) all present and future licenses, permits, variances, special
permits, franchises, certificates, rulings, certifications, validations,
exemptions, filings, registrations, authorizations, consents, approvals,
waivers, orders, rights and agreements (including options, option rights and
contract rights), other than those that may not be transferred by law, now or
hereafter obtained by Grantor from any governmental authority having or
claiming jurisdiction over the Premises or any other element of the
Collateral or providing access thereto, or the operation of any business on,
at, or from the Premises;
(i) all present and future stocks, bonds, debentures, securities,
investment property, subscription rights, options, warrants, puts, calls,
certificates, partnership interests, joint venture interests, investments,
brokerage accounts and all rights, preferences, privileges, dividends,
distributions, redemption payments and liquidation payments received or
receivable with respect thereto;
(j) all present and future accessions, appurtenances, components,
repairs, repair parts, spare parts, replacements, substitutions, additions,
issue and improvements to or of or with respect to any of the foregoing;
(k) all other fixtures and storage and office facilities, and all
accessions thereto and products thereof and all water stock relating to the
Premises;
(l) all other tangible and intangible personal property of Grantor;
(m) all rights, remedies, powers and privileges of Grantor with
respect to any of the foregoing; and
(n) any and all proceeds, products, rents, income and profits of any
of the foregoing, including, without limitation, all money, accounts, general
intangibles, deposit accounts, documents, instruments, chattel paper, goods,
insurance proceeds (whether or not the Secured
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<PAGE>
Party is the loss payee), and any other tangible or intangible property
received upon the sale or disposition of any of the foregoing (it being
agreed, for purposes hereof, that the term "proceeds" includes whatever is
receivable or received when any of the Collateral is sold, collected,
exchanged or otherwise disposed of, whether such disposition is voluntary or
involuntary);
provided, however, that the Collateral shall not include (x) any present or
future accounts or accounts receivable, relating to timeshare operations,
hotel room rentals or casino markers, owing to Grantor or in which Grantor
may have any interest (any and all such property being the "Accounts"), or
(y) any proceeds of Accounts (including, without limitation, all money,
accounts, general intangibles, deposit accounts, securities accounts,
documents, instruments, chattel paper, goods, insurance proceeds and any
other tangible or intangible property (a) received in exchange for Accounts,
(b) received upon payment, collection, settlement or compromise of Accounts,
(c) issued to evidence, replace or otherwise in respect of Accounts or (d)
upon sale or any other disposition whatsoever of Accounts).
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and
the Collateral is collateral security for, the prompt payment or performance
in full when due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including the payment of
amounts that would become due but for the operation of the automatic stay
under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)), of
all obligations and liabilities of every nature of PFC now or hereafter
existing under or arising out of or in connection with the Bonds, Indenture
and Mortgage Documents and all amendments, extensions or renewals thereof,
whether for principal, premium, if any, interest (including without
limitation interest that, but for the filing of a petition in bankruptcy with
respect to PFC, would accrue on such obligations), fees, expenses,
indemnities or otherwise, whether voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion
of such obligations or liabilities that are paid, to the extent all or any
part of such payment is avoided or recovered directly or indirectly from
Secured Party or any Holder as a preference, fraudulent transfer or otherwise
(all such obligations and liabilities being the "Underlying Debt"), and all
obligations of every nature of Grantor now or hereafter existing under this
Agreement (all such obligations of Grantor, together with the Underlying
Debt, being the "Secured Obligations").
SECTION 3. GRANTOR REMAINS LIABLE. Anything contained herein to
the contrary notwithstanding, (a) Grantor shall remain liable under any
contracts and agreements included in the Collateral, to the extent set forth
therein, to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by
Secured Party of any of its rights hereunder shall not release Grantor from
any of its duties or obligations under the contracts and agreements included
in the Collateral, and (c) Secured Party shall not have any obligation or
liability under any contracts and agreements included in the Collateral by
reason of this Agreement or otherwise, nor shall Secured Party be obligated
to perform any of the obligations or duties of Grantor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
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SECTION 4. REPRESENTATIONS AND WARRANTIES. Grantor represents and
warrants as follows:
(a) OWNERSHIP OF COLLATERAL. Except for the security interest
created by this Agreement, Grantor owns the Collateral free and clear of any
Lien. Except such as may have been filed in favor of Secured Party relating
to this Agreement, no effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is on file in
any filing or recording office.
(b) OFFICE LOCATIONS: OTHER NAMES. The chief place of business,
the chief executive office and the office where Grantor keeps its records
regarding the Accounts and all originals of all chattel paper that evidence
Accounts is, and has been for the four month period preceding the date
hereof, located at 4949 North Rancho Drive, Las Vegas, Nevada 89130. Grantor
has not in the past done, and does not now do, business under any other name
(including any trade-name or fictitious business name) except Santa Fe Coffee
Company.
(c) GOVERNMENTAL AUTHORIZATIONS. No authorization, approval or
other action by, and no notice to or filing with, any governmental authority
or regulatory body is required for either (i) the grant by Grantor of the
security interest granted hereby, (ii) the execution, delivery or performance
of this Agreement by Grantor, or (iii) the perfection of or the exercise by
Secured Party of its rights and remedies hereunder (except (i) the filing of
Uniform Commercial Code financing statements with the office of the Secretary
of State of the State of Nevada and (ii) as has been previously taken by or
at the direction of Grantor).
(d) PERFECTION. This Agreement, together with the filing of a UCC-l
financing statement describing the Collateral with the Secretary of State of
Nevada with the Clark County Recorder creates a valid, perfected, enforceable
and first priority security interest in the Collateral, securing the payment
of the Secured Obligations, and all filings and other actions necessary or
desirable to perfect and protect such security interest have been duly made
or taken.
(e) OTHER INFORMATION. All information heretofore, herein or
hereafter supplied to Secured Party by or on behalf of Grantor with respect
to the Collateral is accurate and complete in all material respects.
SECTION 5. FURTHER ASSURANCES.
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable,
or that Secured Party reasonably may request, in order to perfect and protect
any security interest granted or purported to be granted hereby or to enable
Secured Party to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing,
Grantor will: (i) at the request of Secured Party, deliver and pledge to
Secured Party hereunder all promissory notes and other instruments (including
checks) and all original counterparts of chattel paper constituting
Collateral, duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form, and substance satisfactory to Secured
Party, (ii) execute and file such
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financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as Secured Party
may reasonably request, in order to perfect and preserve the security
interests granted or purported to be granted hereby, (iii) at any reasonable
time, upon request by Secured Party, exhibit the Collateral to and allow
inspection of the Collateral by Secured Party, or persons designated by
Secured Party, and (iv) at Secured Party's reasonable request, appear in and
defend any action or proceeding that may affect Grantor's title to or Secured
Party's security interest in all or any significant part of the Collateral.
(b) Grantor hereby authorizes Secured Party to file one or more
financing or continuation statements, and amendments thereto, relative to all
or any part of the Collateral without the signature of Grantor. Grantor
agrees that a carbon, photographic or other reproduction of this Agreement or
of a financing statement signed by Grantor shall be sufficient as a financing
statement and may be filed as a financing statement in any and all
jurisdictions.
(c) Grantor will furnish to Secured Party from time to time
statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as Secured Party may
reasonably request, all in reasonable detail.
SECTION 6. CERTAIN COVENANTS OF GRANTOR. Grantor shall:
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;
(b) notify Secured Party of any change in Grantor's name or identity
within 15 days of such change;
(c) give Secured Party 30 days prior written notice of any change in
Grantor's chief place of business, chief executive office or residence;
(d) if Secured Party gives value to enable Grantor to acquire rights
in or the use of any Collateral, use such value for such purposes; and
(e) pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to
the extent the validity thereof is being contested in good faith and for
which adequate reserves have been established; provided that Grantor shall in
any event pay such taxes, assessments, charges, levies or claims not later
than five days prior to the date of any proposed sale under any judgment,
writ or warrant of attachment entered or filed against Grantor or any of the
Collateral as a result of the failure to make such payment.
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SECTION 7. SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND INVENTORY.
Grantor shall:
(a) keep the Equipment and Inventory at the Premises or, upon 30 days
prior written notice to Secured Party, at such other places in jurisdictions
where all action that may be necessary or desirable, or that Secured Party
may reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby, or to enable Secured Party to
exercise and enforce its rights and remedies hereunder, with respect to such
Equipment and Inventory shall have been taken;
(b) cause the Equipment to be maintained and preserved in the same
condition, repair and working order as when new, ordinary wear and tear
excepted, and shall forthwith make or cause to be made all repairs,
replacements and other improvements in connection therewith that are
necessary or desirable to such end. Grantor shall promptly furnish to Secured
Party a statement respecting any material loss or damage to any of the
Equipment; and
(c) perform all acts that are necessary or desirable to cause all
licenses, permits, variances, special permits, franchises, certificates,
rulings, certifications, validations, exemptions, filings, registrations,
authorizations, consents, approvals. waivers, orders, rights, and agreements
in which a security interest has been conveyed to Secured Party pursuant to
subsection 1(h) to remain in full force and effect.
SECTION 8. INSURANCE. Grantor shall, at its own expense, maintain
insurance with respect to the Equipment and Inventory, if any.
SECTION 9. LICENSE OF PATENTS, TRADEMARKS, COPYRIGHTS, ETC. Grantor
hereby assigns, transfers and conveys to Secured Party, effective upon the
occurrence of any Event of Default, the non-exclusive right and license to
use all trademarks, tradenames, copyrights, customers lists, patents or
technical processes owned or used by Grantor that relate to the Collateral
and any other collateral granted by Grantor as security for the Secured
Obligations, together with any goodwill associated therewith, all to the
extent necessary to enable Secured Party to use, possess and realize on the
Collateral and to enable any successor or assign to enjoy the benefits of the
Collateral. This right and license shall inure to the benefit of all
successors, assigns and transferees of Secured Party and its successors,
assigns and transferees, whether by voluntary conveyance, operation of law,
assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise.
Such right and license is granted free of charge, without requirement that
any monetary payment whatsoever be made to Grantor.
SECTION 10. OTHER LIENS. Grantor shall not, except for the security
interest created by this Agreement and as otherwise contemplated by the
Indenture, the Solicitation and the Mortgage Documents, create or suffer to
exist any Lien upon or with respect to any of the Collateral to secure the
indebtedness or other obligations of any Person.
SECTION 11. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Grantor hereby
irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full
authority in the place and stead of Grantor and in the name of Grantor, Secured
Party or otherwise, from time to time in Secured
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Party's discretion to take any action and to execute any instrument that
Secured Party may deem necessary or advisable to accomplish the purposes of
this Agreement, including without limitation:
(a) to ask for, demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of any of the Collateral;
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (a) above;
(c) to file any claims or take any action or institute any
proceedings (including, without limitation, any proceeding before any Nevada
Gaming Authority) that Secured Party may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Secured Party with respect to any of the Collateral;
(d) to pay or discharge taxes or Liens (other than Liens permitted
under this Agreement) levied or placed upon or threatened against the
Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by Secured Party in its sole discretion,
any such payments made by Secured Party to become obligations of Grantor to
Secured Party, due and payable immediately without demand; and
(e) upon the occurrence and during the continuation of an Event of
Default, generally to sell, transfer, pledge, make any agreement with respect
to or otherwise deal with any of the Collateral as fully and completely as
though Secured Party were the absolute owner thereof for all purposes, and to
do, at Secured Party's option and Grantor's expense, at any time or from time
to time, all acts and things that Secured Party deems necessary to protect,
preserve or realize upon the Collateral and Secured Party's security interest
therein in order to effect the intent of this Agreement, all as fully and
effectively as Grantor might do.
SECTION 12. SECURED PARTY MAY PERFORM. If Grantor fails to perform
any agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Grantor under Section 16.
SECTION 13. STANDARD OF CARE. The powers conferred on Secured Party
hereunder are solely to protect its and the Holders' interest in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the exercise of reasonable care in the custody of any Collateral
in its possession and the accounting for moneys actually received by it
hereunder, Secured Party shall have no duty as to any Collateral or as to the
taking of any necessary steps to preserve rights against prior parties or any
other rights pertaining to any Collateral, it being understood that Secured
Party shall have no responsibility for (a) ascertaining or taking action with
respect to calls, conversions, exchanges, maturities, tenders or other
matters relating to any Collateral, whether or not Secured Party has or is
deemed to have knowledge of such matters, (b) taking any necessary steps
(other than steps taken in accordance with the standard of care set forth
above to maintain possession of the Collateral) to preserve rights against
any parties with
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respect to any Collateral, (c) taking any necessary steps to collect or
realize upon the Secured Obligations or any guarantee therefor, or any part
thereof, or any of the Collateral, or (d) initiating any action to protect
the Collateral against the possibility of a decline in market value. Secured
Party shall be deemed to have exercised reasonable care in the custody and
preservation of Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Secured Party accords its own
property.
SECTION 14. REMEDIES.
If any Event of Default shall have occurred and be continuing, Secured
Party may exercise in respect of the Collateral, in addition to all other
rights and remedies provided for herein or otherwise available to it, all the
rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "Code")
(whether or not the Code applies to the affected Collateral), and also may
(i) require Grantor to, and Grantor hereby agrees that it will at its expense
and upon request of Secured Party forthwith, assemble all or part of the
Collateral as directed by Secured Party and make it available to Secured
Party at a place to be designated by Secured Party that is reasonably
convenient to both parties, (ii) enter onto the property where any Collateral
is located and take possession thereof with or without judicial process,
(iii) prior to the disposition of the Collateral, store, process, repair or
recondition the Collateral or otherwise prepare the Collateral for
disposition in any manner to the extent Secured Party deems appropriate, (iv)
take possession of Grantor's premises or place custodians in exclusive
control thereof, remain on such premises and use the same and any of
Grantor's equipment for the purpose of completing any work in process, taking
any actions described in the preceding clause, (v) collect any Secured
Obligation, and (vi) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private
sale, at any of Secured Party's offices or elsewhere, for cash, on credit or
for future delivery, at such time or times and at such price or prices and
upon such other terms as Secured Party may deem commercially reasonable.
Secured Party may be the purchaser of any or all of the Collateral at any
such sale and Secured Party shall be entitled, for the purpose of bidding and
making settlement or payment of the purchase price for all or any portion of
the Collateral sold at any such public sale, to use andapply any of the
Secured Obligations as a credit on account of the purchase price for any
Collateral payable by Secured Party at such sale. Each purchaser at any such
sale shall hold the property sold absolutely free from any claim or right on
the part of Grantor, and Grantor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and/or appraisal which it now
has or may at any time in the future have under any rule of law or statute
now existing or hereafter enacted. Grantor agrees that, to the extent notice
of sale shall be required by law, at least ten days notice to Grantor of the
time and place of any public sale or the time after which any private sale is
to be made shall constitute reasonable notification. Secured Party shall not
be obligated to make any sale of Collateral regardless of notice of sale
having been given. Secured Party may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it
was so adjourned. Grantor hereby waives any claims against Secured Party
arising by reason of the fact that the price at which any Collateral may have
been sold at such a private sale was less than the price which might have
been obtained at a public sale, even if Secured Party accepts the first offer
received and does not offer such
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Collateral to more than one offeree. If the proceeds of any sale or other
disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantor shall be liable for the deficiency and the fees of any
attorneys employed by Secured Party to collect such deficiency.
SECTION 15. APPLICATION OF PROCEEDS. Except as expressly provided
elsewhere in this Agreement, all proceeds received by Secured Party in
respect of any sale of, collection from, or other realization upon all or any
part of the Collateral may, in the discretion of Secured Party, be held by
Secured Party as Collateral for, and/or then, or at any other time
thereafter, applied in full or in part by Secured Party against, the Secured
Obligations in the following order of priority:
FIRST: To the payment of all costs and expenses of such sale,
collection or other realization, including costs and expenses of Secured
Party and its agents and counsel, and all other expenses, liabilities and
advances made or incurred by Secured Party in connection therewith, and all
amounts for which Secured Party is entitled to indemnification hereunder and
all advances made by Secured Party hereunder for the account of Grantor, and
to the payment of all costs and expenses paid or incurred by Secured Party in
connection with the exercise of any right or remedy hereunder, all in
accordance with Section 17;
SECOND: To the payment of all other Secured Obligations (for the
ratable benefit of the holders thereof) in such order as Secured Party shall
elect; and
THIRD: To the payment to or upon the order of Grantor, or to whomsoever
may be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct, of any surplus then remaining from such proceeds.
SECTION 16. INDEMNITY AND EXPENSES.
(a) Grantor agrees to indemnify Secured Party and the Holders, and
any agent, attorney, employee, officer, or director thereof (collectively,
"Indemnified Persons"), from and against any and all claims, losses and
liabilities in any way relating to, growing out of or resulting from this
Agreement and the transactions contemplated hereby (including, without
limitation, enforcement of this Agreement), except to the extent such claims,
losses or liabilities result solely from such Indemnified Person's gross
negligence or willful misconduct as finally determined by a court of
competent jurisdiction.
(b) Grantor shall pay to Secured Party upon demand the amount of any
and all costs and expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, that Secured Party may reasonably
incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from,
or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of Secured Party hereunder, or (iv) the
failure by Grantor to perform or observe any of the provisions hereof.
SECTION 17. CONTINUING SECURITY INTEREST. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the
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indefeasible payment in full, in cash, of the Secured Obligations, (b) be
binding upon Grantor, its successors and assigns, and (c) inure, together
with the rights and remedies of Secured Party hereunder, to the benefit of
Secured Party and its successors, transferees and assigns. Upon the
indefeasible payment in full, in cash, of all Secured Obligations, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Grantor. Upon any such termination Secured Party
will, at Grantor's expense, execute and deliver to Grantor such documents as
Grantor shall reasonably request to evidence such termination.
SECTION 18. AMENDMENTS; ETC. No amendment or waiver of any
provision of this Agreement, or consent to any departure by Grantor herefrom,
shall in any event be effective unless the same shall be approved by the
Holders of a majority of the Outstanding Bonds, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which it was given.
SECTION 19. NOTICES. Any notice or other communication herein
required or permitted to be given shall be in writing and may be personally
served, telexed or sent by facsimile or United States mail or courier service
and shall be deemed to have been given when delivered in person or by courier
service, upon receipt of facsimile or telex, or four business days after
depositing it in the United States mail with postage prepaid and properly
addressed. For the purposes hereof, the address of each party hereto shall
be as set forth below, or, as to either party, such other address as shall be
designated by such party in a written notice delivered to the other party
hereto.
To Secured Party:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York
Attention: Reorganization Operations Department
To Grantor:
Santa Fe Coffee Company
4949 North Rancho Drive
Las Vegas, Nevada 89130
Attention: Chief Financial Officer
SECTION 20. FAILURE OR INDULGENCE NOT WAIVER: REMEDIES CUMULATIVE. No
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or
be construed to be a waiver of any default or acquiescence therein, nor shall
any single or partial exercise of any such power, right or privilege preclude
any other or further exercise thereof or of any other power, right or
privilege. All rights and remedies existing under this Agreement are
cumulative to, and not exclusive of, any rights or remedies otherwise
available.
SECTION 21. SEVERABILITY. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and
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enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 22. HEADINGS. Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 23. GOVERNING LAW: TERMS. THIS AGREEMENT SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEVADA, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES, EXCEPT TO THE EXTENT THAT THE UNIFORM COMMERCIAL CODE PROVIDES
THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY
THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEVADA.
SECTION 24. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL
JUDICIAL PROCEEDINGS BROUGHT AGAINST GRANTOR ARISING OUT OF OR RELATING TO
THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE OF NEVADA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT GRANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS AGREEMENT. Grantor hereby agrees that service of all
process in any such proceeding in any such court may be made by registered or
certified mail, return receipt requested, to Grantor at its address provided
in Section 20, such service being hereby acknowledged by Grantor to be
sufficient for personal jurisdiction in any action against Grantor in any
such court and to be otherwise effective and binding service in every
respect. Nothing herein shall affect the right to serve process in any other
manner permitted by law.
SECTION 25. WAIVER OF JURY TRIAL. GRANTOR AND SECURED PARTY HEREBY AGREE
TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is
intended to be all-encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction, including
without limitation contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims. Grantor and Secured Party each
acknowledge that this waiver is a material inducement for Grantor and Secured
Party to enter into a business relationship, that Grantor and Secured Party have
already relied on this waiver in entering into this Agreement and that each will
continue to rely on this waiver in their related future dealings. Grantor and
Secured Party further warrant and represent that each has reviewed this waiver
with its legal counsel, and that each knowingly and voluntarily waives its jury
trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THIS WAIVER SHALL APPLY TO ANY
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SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT. In the event of litigation, this Agreement may be filed as a
written consent to a trial by the court.
SECTION 26. WAIVERS.
26.1 Grantor absolutely, unconditionally, knowingly, and expressly
waives:
(a) (i) notice of acceptance hereof; (ii) notice of any loans or
other financial accommodations made or extended under the Bonds, Indenture or
Mortgage Documents or the creation or existence of any Secured Obligations;
(iii) notice of the amount of the Secured Obligations, subject, however, to
Grantor's right to make inquiry of Secured Party to ascertain the amount of
the Secured Obligations at any reasonable time; (iv) notice of any adverse
change in the financial condition of PFC or of any other fact that might
increase Grantor's risk hereunder; (v) notice of presentment for payment,
demand, protest, and notice thereof as to any instruments among the Bonds,
Indenture or Mortgage Documents; (vi) notice of any Event of Default under
the Bonds, Indenture or Mortgage Documents ; and (vii) all other notices
(except if such notice is specifically required to be given to Grantor
hereunder or under the Bonds, Indenture or Mortgage Documents) and demands to
which Grantor might otherwise be entitled.
(b) its right, under Nevada Revised Statutes Section 40.430, or
otherwise, to require Secured Party to institute suit against, or to exhaust
any rights and remedies which Secured Party has or may have against, PFC or
any third party, or against any collateral for the Secured Obligations
provided by PFC or any third party. In this regard, Grantor agrees that
Grantor is bound to the payment of all Secured Obligations, whether now
existing or hereafter accruing, as fully as if such Secured Obligations were
directly owing to Secured Party by Grantor. Grantor further waives any
defense arising by reason of any disability or other defense (other than the
defense that the Secured Obligations shall have been fully and finally
performed and indefeasibly paid) of PFC or by reason of the cessation from
any cause whatsoever of the liability of PFC in respect thereof.
(c) (i) any rights to assert against Secured Party any defense (legal
or equitable), set-off, counterclaim, or claim which Grantor may now or at
any time hereafter have against PFC or any other party liable to Secured
Party, (ii) any defense, set-off, counterclaim, or claim, of any kind or
nature, arising directly or indirectly from the present or future lack of
perfection, sufficiency, validity, or enforceability of the Secured
Obligations or any security therefor; (iii) any defense Grantor has to
performance hereunder, and any right Grantor has to be exonerated, arising by
reason of: the impairment or suspension of Secured Party's rights or
remedies against PFC; the alteration by Secured Party of the Secured
Obligations; any discharge of PFC's obligations to Secured Party by operation
of law as a result of Secured Party's intervention or omission; or the
acceptance by Secured Party of anything in partial satisfaction of the
Secured Obligations; (iv) the benefit of any statute of limitations affecting
Grantor's liability hereunder or the enforcement thereof, and any act which
shall defer or delay the operation of any statute of limitations applicable
to the Secured Obligations shall similarly operate to defer or delay the
operation of such statute of limitations applicable to Grantor's liability
hereunder.
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26.2. Grantor absolutely, unconditionally, knowingly, and expressly
waives any defense arising by reason of or deriving from (i) any claim or
defense based upon an election of remedies by Secured Party; or (ii) any
election by Secured Party under Bankruptcy Code Section 1111(b) to limit the
amount of, or any collateral securing, its claim against PFC.
Grantor waives all rights and defenses arising out of an election of
remedies by the creditor, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed Grantor's rights of subrogation and reimbursement against PFC.
Grantor waives all rights and defenses that Grantor may have because the
Underlying Debt is secured by real property. This means, among other things:
(1) Secured Party may collect from Grantor without first
foreclosing on any real or personal property collateral pledged by PFC.
(2) If Secured Party forecloses on any real property
collateral pledged by PFC:
(i) The amount of the Secured Obligations may be reduced only
by the price for which that collateral is sold at the foreclosure sale, even
if the collateral is worth more than the sale price.
(ii) Secured Party may collect from Grantor even if Secured
Party, by foreclosing on the real property collateral, has destroyed any
right Grantor may have to collect from PFC.
This is an unconditional and irrevocable waiver of any rights and
defenses Grantor may have because the Underlying Debt is secured by real
property.
If any of the Secured Obligations at any time are secured by a mortgage or
deed of trust upon real property, Secured Party may elect, in its sole
discretion, upon a default with respect to the Secured Obligations, to
foreclose such mortgage or deed of trust judicially or nonjudicially in any
manner permitted by law, before or after enforcing the Bonds, Indenture or
Mortgage Documents, without diminishing or affecting the liability of Grantor
hereunder except to the extent the Secured Obligations are repaid with the
proceeds of such foreclosure.
26.3. Grantor hereby absolutely, unconditionally, knowingly, and
expressly waives: (1) any right of subrogation Grantor has or may have as
against PFC with respect to the Secured Obligations; (2) any right to proceed
against PFC or any other person or entity, now or hereafter, for
contribution, indemnity, reimbursement, or any other suretyship rights and
claims, whether direct or indirect, liquidated or contingent, whether arising
under express or implied contract or by operation of law, which Grantor may
now have or hereafter have as against PFC with respect to the Secured
Obligations; and (3) any right to proceed or seek recourse against or with
respect to any property or asset of PFC.
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SECTION 27. RELEASES. Grantor consents and agrees that, without notice
to or by Grantor, and without affecting or impairing the obligations of
Grantor hereunder, Secured Party may, by action or inaction:
(a) compromise, settle, extend the duration or the time for the
payment of, or discharge the performance of, or may refuse to or otherwise
not enforce this Agreement, the Bonds, Indenture or Mortgage Documents, or
any part thereof, with respect to PFC or any other person;
(b) release PFC or any other person or grant other indulgences to PFC
or any other person in respect thereof;
(c) amend or modify in any manner and at any time (or from time to
time) any of the Bonds, Indenture or Mortgage Documents; or
(d) release or substitute any other guarantor, if any, of the Secured
Obligations, or enforce, exchange, release, or waive any security for the
Secured Obligations or any other guaranty of the Secured Obligations, or any
portion thereof.
SECTION 28. NO ELECTION. Secured Party shall have all of the rights to
seek recourse against Grantor to the fullest extent provided for herein, and
no election by Secured Party to proceed in one form of action or proceeding,
or against any party, or on any obligation, shall constitute a waiver of
Secured Party's right to proceed in any other form of action or proceeding or
against other parties unless Secured Party has expressly waived such right in
writing. Specifically, but without limiting the generality of the foregoing,
no action or proceeding by Secured Party under any document or instrument
evidencing the Secured Obligations shall serve to diminish the liability of
Grantor under this Agreement except to the extent that Secured Party finally
and unconditionally shall have realized indefeasible payment by such action
or proceeding.
SECTION 29. INDEFEASIBLE PAYMENT. The Secured Obligations shall not be
considered indefeasibly paid for purposes of this Agreement unless and until all
payments to Secured Party are no longer subject to any right on the part of any
person, including PFC, PFC as a debtor in possession, or any trustee (whether
appointed under the Bankruptcy Code or otherwise) of any of PFC's assets, to
invalidate or set aside such payments or to seek to recoup the amount of such
payments or any portion thereof, or to declare the same to be fraudulent or
preferential. Upon such full and final performance and indefeasible payment of
the Secured Obligations, whether by PFC pursuant to the Bonds, Indenture or
Mortgage Documents or by any other person, Secured Party shall have no
obligation whatsoever to transfer or assign its interests the Bonds, Indenture
or Mortgage Documents to Grantor, except as otherwise required by applicable
law. In the event that, for any reason, any portion of such payments to Secured
Party is set aside or restored, whether voluntarily or involuntarily, after the
making thereof, then the obligation intended to be satisfied thereby shall be
revived and continued in full force and effect as if said payment or payments
had not been made, and Grantor shall be liable for the full amount Secured Party
is required to repay plus any and all costs and expenses (including attorneys'
fees and expenses and
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attorneys' fees and expenses incurred pursuant to proceedings arising under
the Bankruptcy Code) paid by Secured Party in connection therewith.
SECTION 30. FINANCIAL CONDITION OF THE PFC. Grantor represents and
warrants to Secured Party that Grantor is currently informed of the financial
condition of PFC and of all other circumstances which a diligent inquiry
would reveal and which bear upon the risk of nonpayment of the Secured
Obligations. Grantor further represents and warrants to Secured Party that
Grantor has read and understands the terms and conditions of in the Bonds,
Indenture or Mortgage Documents. Grantor hereby covenants that Grantor will
continue to keep informed of PFC's financial condition, the financial
condition of other guarantors, if any, and of all other circumstances which
bear upon the risk of nonpayment or nonperformance of the Secured Obligations.
SECTION 31. COUNTERPARTS. This Agreement may be executed in one or
more counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same
instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document.
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IN WITNESS WHEREOF, Grantor and Secured Party have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
SANTA FE COFFEE COMPANY,
as Grantor
By: /s/
-----------------------------
Name: Thomas K. Land
--------------------------
Title: Senior Vice President, Chief Financial Officer
----------------------------------------------
IBJ SCHRODER BANK & TRUST COMPANY,
as Secured Party
By: /s/
-----------------------------
Name: Barbara McCluskey
---------------------------
Title: Vice President
--------------------------
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EXHIBIT 10.76
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement") is dated as of November 30,
1998 and entered into by and between SAHARA NEVADA CORP., a Nevada
corporation ("Grantor"), and IBJ SCHRODER BANK & TRUST COMPANY, as successor
trustee, for the benefit of the holders of the Bonds (as hereinafter defined)
(the "Holders") (the "Secured Party"), under the Indenture dated as of
December 1, 1988 among Pioneer Finance Corp., a Nevada corporation ("PFC"),
Santa Fe Gaming Corporation, a Nevada corporation and successor-in-interest
to Sahara Casino Partners, L.P. ("SFGC"), and Security Pacific National Bank
as predecessor to the Secured Party, as amended by (i) that certain First
Supplemental Indenture, dated as of December 21, 1990, (ii) that certain
Second Supplemental Indenture, dated as of September 30, 1993, (iii) that
certain Tri-Party Agreement, dated as of December 30, 1994, (iv) that certain
Third Supplemental Indenture, dated as of August 31, 1995, and (v) that
certain Fourth Supplemental Indenture, dated as of November 30, 1998 (the
"Indenture").
PRELIMINARY STATEMENTS
A. PFC issued $120,000,000 principal amount of 13 1/2% First Mortgage
Bonds due December 1, 1998 (the "Bonds"), pursuant to the Indenture, of which
$60,000,000 principal amount remains outstanding as of the date hereof.
Capitalized terms used and not otherwise defined herein shall have the
meanings specified in the Indenture.
B. Pursuant to the Offering Circular and Consent Solicitation
Statement dated October 23, 1998 and Supplement dated November 14, 1998
(together, the "Amended Joint Offering Circular/Consent Solicitation
Statement"), PFC has solicited (the "Solicitation") the consents (the
"Consents") of Holders to the Proposed Consents (as defined in the Amended
Joint Offering Circular/Consent Solicitation Statement).
C. In connection with the Solicitation and the receipt and
acceptance of Consents by PFC, Grantor has agreed to grant security interests
in the Collateral (as defined herein) to secure the payment of the principal
of, premium, if any, and interest on, the Bonds.
NOW, THEREFORE, in consideration of the premises, in accordance with the
Solicitation and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Grantor hereby agrees with Secured
Party as follows:
SECTION 1. GRANT OF SECURITY. Grantor hereby grants to Secured
Party, for the equal and ratable benefit of the Holders, a security interest
in all of Grantor's right, title and interest in and to the following, in
each case whether now or hereafter existing or in which Grantor now has or
hereafter acquires an interest and wherever the same may be located (the
"Collateral"):
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(a) all present and future chattels, furniture, furnishings, goods,
equipment (including, without limitation, gaming equipment and devices),
fixtures and all other tangible personal property, of whatever kind and
nature (including, without limitation, any building or structure that is now
or that may hereafter be erected on any premises owned by Grantor, the
"Premises"), including, but not limited to, machinery, materials, goods and
equipment now or hereafter used in any construction or operation relating
thereto and all other tangible personal property, together with all
replacements and substitutions for any and all personal property in which
Grantor has an interest, including without limitation such goods and
equipment as shall from time to time be located, placed, installed or used in
or upon, or procured for use, or to be used or useful in connection with the
operation of the whole, or any part of, the Premises or any facilities on the
Premises and all parts thereof and all accessions thereto (any and all such
equipment, replacements, substitutions, parts and accessions being the
"Equipment");
(b) all present and future inventory and merchandise in all of its
forms (including, but not limited to, (i) all goods held by Grantor for sale
or lease or to be furnished under contracts of service or so leased or
furnished, (ii) all raw materials, (iii) works in process, (iv) all goods in
which Grantor has an interest in mass or a joint or other interest or right
of any kind, (v) all goods that are returned to or repossessed by Grantor,
and (vi) all accessions thereto and products thereof (all such inventory,
accessions and products being the "Inventory");
(c) all present and future right, title and interest of Grantor in
and to all leases, subleases, licenses, concessions, franchises and other use
or occupancy agreements, and any amendments, modifications, extensions or
renewals thereof (collectively, "Leases"), whether or not specifically herein
described, that now or may hereafter pertain to or affect the Premises or any
portion thereof, and all amendments to the same, including, but not limited
to, the following: (i) all payments due and to become due under such Leases,
whether as rent, damages, insurance payments, condemnation awards, or
otherwise; (ii) all claims, rights, powers, privileges and remedies under
such Leases; and (iii) all rights of the Grantor under such Leases to
exercise any election or option, or to give-or receive any notice, consent,
waiver or approval, or to accept any surrender of the premises or any part
thereof, together with full power and authority in the name of the Grantor,
or otherwise, to demand and receive, enforce, collect, and receipt for any or
all of the foregoing, to endorse or execute any checks or any instruments or
orders, to file any claims, and to take any other action that Secured Party
may deem necessary or advisable in connection therewith;
(d) all present and future deposit accounts of Grantor, any demand,
time, savings, passbook or like account maintained by Grantor with any bank,
savings and loan association, credit union or like organization, and all
money, cash and cash equivalents of Grantor, whether or not deposited in any
such deposit account;
(e) all present and future general intangibles (including but not
limited to all governmental permits relating to construction or other activities
on the Premises), all tax refunds of every kind and nature to which Grantor now
or hereafter may become entitled, however arising, all other refunds, and all
deposits, goodwill, choses in action, rights to payment or performance,
judgments taken on any rights or claims included in the Collateral, trade
secrets,
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computer programs, software, customer lists, business names, trademarks,
trade names and service marks, patents, patent applications, licenses,
copyrights, technology, processes, proprietary information and insurance
proceeds;
(f) all present and future books and records, including, without
limitation, books of account and ledgers of every kind and nature, ledger
cards, computer programs, tapes, disks and other information storage devices,
all related data processing software, and all electronically recorded data
relating to Grantor or its business, all receptacles and containers for such
records, and all files and correspondence;
(g) all present and future maps, plans, specifications, surveys,
studies, reports, data and drawings (including, without limitation,
architectural, structural, mechanical and engineering plans and
specifications, studies, data and drawings) prepared for or relating to the
Premises or the construction, renovation or restoration of any improvements
on the Premises or the extraction of minerals, sand, gravel or other valuable
substances from the Premises, together with all amendments and modifications
thereto;
(h) all present and future licenses, permits, variances, special
permits, franchises, certificates, rulings, certifications, validations,
exemptions, filings, registrations, authorizations, consents, approvals,
waivers, orders, rights and agreements (including options, option rights and
contract rights), other than those that may not be transferred by law, now or
hereafter obtained by Grantor from any governmental authority having or
claiming jurisdiction over the Premises or any other element of the
Collateral or providing access thereto, or the operation of any business on,
at, or from the Premises;
(i) all present and future stocks, bonds, debentures, securities,
investment property, subscription rights, options, warrants, puts, calls,
certificates, partnership interests, joint venture interests, investments,
brokerage accounts and all rights, preferences, privileges, dividends,
distributions, redemption payments and liquidation payments received or
receivable with respect thereto;
(j) all present and future accessions, appurtenances, components,
repairs, repair parts, spare parts, replacements, substitutions, additions,
issue and improvements to or of or with respect to any of the foregoing;
(k) all other fixtures and storage and office facilities, and all
accessions thereto and products thereof and all water stock relating to the
Premises;
(l) all other tangible and intangible personal property of Grantor;
(m) all rights, remedies, powers and privileges of Grantor with
respect to any of the foregoing; and
(n) any and all proceeds, products, rents, income and profits of any of
the foregoing, including, without limitation, all money, accounts, general
intangibles, deposit accounts, documents, instruments, chattel paper, goods,
insurance proceeds (whether or not the Secured
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<PAGE>
Party is the loss payee), and any other tangible or intangible property
received upon the sale or disposition of any of the foregoing (it being
agreed, for purposes hereof, that the term "proceeds" includes whatever is
receivable or received when any of the Collateral is sold, collected,
exchanged or otherwise disposed of, whether such disposition is voluntary or
involuntary);
provided, however, that the Collateral shall not include (x) any present or
future accounts or accounts receivable, relating to timeshare operations,
hotel room rentals or casino markers, owing to Grantor or in which Grantor
may have any interest (any and all such property being the "Accounts"), or
(y) any proceeds of Accounts (including, without limitation, all money,
accounts, general intangibles, deposit accounts, securities accounts,
documents, instruments, chattel paper, goods, insurance proceeds and any
other tangible or intangible property (a) received in exchange for Accounts,
(b) received upon payment, collection, settlement or compromise of Accounts,
(c) issued to evidence, replace or otherwise in respect of Accounts or (d)
upon sale or any other disposition whatsoever of Accounts).
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and
the Collateral is collateral security for, the prompt payment or performance
in full when due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including the payment of
amounts that would become due but for the operation of the automatic stay
under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)), of
all obligations and liabilities of every nature of PFC now or hereafter
existing under or arising out of or in connection with the Bonds, Indenture
and Mortgage Documents and all amendments, extensions or renewals thereof,
whether for principal, premium, if any, interest (including without
limitation interest that, but for the filing of a petition in bankruptcy with
respect to PFC, would accrue on such obligations), fees, expenses,
indemnities or otherwise, whether voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion
of such obligations or liabilities that are paid, to the extent all or any
part of such payment is avoided or recovered directly or indirectly from
Secured Party or any Holder as a preference, fraudulent transfer or otherwise
(all such obligations and liabilities being the "Underlying Debt"), and all
obligations of every nature of Grantor now or hereafter existing under this
Agreement (all such obligations of Grantor, together with the Underlying
Debt, being the "Secured Obligations").
SECTION 3. GRANTOR REMAINS LIABLE. Anything contained herein to
the contrary notwithstanding, (a) Grantor shall remain liable under any
contracts and agreements included in the Collateral, to the extent set forth
therein, to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by
Secured Party of any of its rights hereunder shall not release Grantor from
any of its duties or obligations under the contracts and agreements included
in the Collateral, and (c) Secured Party shall not have any obligation or
liability under any contracts and agreements included in the Collateral by
reason of this Agreement or otherwise, nor shall Secured Party be obligated
to perform any of the obligations or duties of Grantor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
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SECTION 4. REPRESENTATIONS AND WARRANTIES. Grantor represents and
warrants as follows:
(a) OWNERSHIP OF COLLATERAL. Except for the security interest
created by this Agreement, Grantor owns the Collateral free and clear of any
Lien. Except such as may have been filed in favor of Secured Party relating
to this Agreement, no effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is on file in
any filing or recording office.
(b) OFFICE LOCATIONS: OTHER NAMES. The chief place of business,
the chief executive office and the office where Grantor keeps its records
regarding the Accounts and all originals of all chattel paper that evidence
Accounts is, and has been for the four month period preceding the date
hereof, located at 4949 North Rancho Drive, Las Vegas, Nevada 89130. Grantor
has not in the past done, and does not now do, business under any other name
(including any trade-name or fictitious business name) except Sahara Nevada
Corp.
(c) GOVERNMENTAL AUTHORIZATIONS. No authorization, approval or
other action by, and no notice to or filing with, any governmental authority
or regulatory body is required for either (i) the grant by Grantor of the
security interest granted hereby, (ii) the execution, delivery or performance
of this Agreement by Grantor, or (iii) the perfection of or the exercise by
Secured Party of its rights and remedies hereunder (except (i) the filing of
Uniform Commercial Code financing statements with the office of the Secretary
of State of the State of Nevada and (ii) as has been previously taken by or
at the direction of Grantor).
(d) PERFECTION. This Agreement, together with the filing of a UCC-l
financing statement describing the Collateral with the Secretary of State of
Nevada with the Clark County Recorder creates a valid, perfected, enforceable
and first priority security interest in the Collateral, securing the payment
of the Secured Obligations, and all filings and other actions necessary or
desirable to perfect and protect such security interest have been duly made
or taken.
(e) OTHER INFORMATION. All information heretofore, herein or
hereafter supplied to Secured Party by or on behalf of Grantor with respect
to the Collateral is accurate and complete in all material respects.
SECTION 5. FURTHER ASSURANCES.
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or desirable, or that Secured
Party reasonably may request, in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable Secured Party to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, Grantor will: (i)
at the request of Secured Party, deliver and pledge to Secured Party hereunder
all promissory notes and other instruments (including checks) and all original
counterparts of chattel paper constituting Collateral, duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in form,
and substance satisfactory to Secured Party, (ii) execute and file such
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financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as Secured Party
may reasonably request, in order to perfect and preserve the security
interests granted or purported to be granted hereby, (iii) at any reasonable
time, upon request by Secured Party, exhibit the Collateral to and allow
inspection of the Collateral by Secured Party, or persons designated by
Secured Party, and (iv) at Secured Party's reasonable request, appear in and
defend any action or proceeding that may affect Grantor's title to or Secured
Party's security interest in all or any significant part of the Collateral.
(b) Grantor hereby authorizes Secured Party to file one or more
financing or continuation statements, and amendments thereto, relative to all
or any part of the Collateral without the signature of Grantor. Grantor
agrees that a carbon, photographic or other reproduction of this Agreement or
of a financing statement signed by Grantor shall be sufficient as a financing
statement and may be filed as a financing statement in any and all
jurisdictions.
(c) Grantor will furnish to Secured Party from time to time
statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as Secured Party may
reasonably request, all in reasonable detail.
SECTION 6. CERTAIN COVENANTS OF GRANTOR. Grantor shall:
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;
(b) notify Secured Party of any change in Grantor's name or identity
within 15 days of such change;
(c) give Secured Party 30 days prior written notice of any change in
Grantor's chief place of business, chief executive office or residence;
(d) if Secured Party gives value to enable Grantor to acquire rights
in or the use of any Collateral, use such value for such purposes; and
(e) pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to
the extent the validity thereof is being contested in good faith and for
which adequate reserves have been established; provided that Grantor shall in
any event pay such taxes, assessments, charges, levies or claims not later
than five days prior to the date of any proposed sale under any judgment,
writ or warrant of attachment entered or filed against Grantor or any of the
Collateral as a result of the failure to make such payment.
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<PAGE>
SECTION 7. SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND INVENTORY.
Grantor shall:
(a) keep the Equipment and Inventory at the Premises or, upon 30 days
prior written notice to Secured Party, at such other places in jurisdictions
where all action that may be necessary or desirable, or that Secured Party
may reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby, or to enable Secured Party to
exercise and enforce its rights and remedies hereunder, with respect to such
Equipment and Inventory shall have been taken;
(b) cause the Equipment to be maintained and preserved in the same
condition, repair and working order as when new, ordinary wear and tear
excepted, and shall forthwith make or cause to be made all repairs,
replacements and other improvements in connection therewith that are
necessary or desirable to such end. Grantor shall promptly furnish to Secured
Party a statement respecting any material loss or damage to any of the
Equipment; and
(c) perform all acts that are necessary or desirable to cause all
licenses, permits, variances, special permits, franchises, certificates,
rulings, certifications, validations, exemptions, filings, registrations,
authorizations, consents, approvals. waivers, orders, rights, and agreements
in which a security interest has been conveyed to Secured Party pursuant to
subsection 1(h) to remain in full force and effect.
SECTION 8. INSURANCE. Grantor shall, at its own expense, maintain
insurance with respect to the Equipment and Inventory, if any.
SECTION 9. LICENSE OF PATENTS, TRADEMARKS, COPYRIGHTS, ETC. Grantor
hereby assigns, transfers and conveys to Secured Party, effective upon the
occurrence of any Event of Default, the non-exclusive right and license to
use all trademarks, tradenames, copyrights, customers lists, patents or
technical processes owned or used by Grantor that relate to the Collateral
and any other collateral granted by Grantor as security for the Secured
Obligations, together with any goodwill associated therewith, all to the
extent necessary to enable Secured Party to use, possess and realize on the
Collateral and to enable any successor or assign to enjoy the benefits of the
Collateral. This right and license shall inure to the benefit of all
successors, assigns and transferees of Secured Party and its successors,
assigns and transferees, whether by voluntary conveyance, operation of law,
assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise.
Such right and license is granted free of charge, without requirement that
any monetary payment whatsoever be made to Grantor.
SECTION 10. OTHER LIENS. Grantor shall not, except for the security
interest created by this Agreement and as otherwise contemplated by the
Indenture, the Solicitation and the Mortgage Documents, create or suffer to
exist any Lien upon or with respect to any of the Collateral to secure the
indebtedness or other obligations of any Person.
SECTION 11. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Grantor hereby
irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full
authority in the place and stead of Grantor and in the name of Grantor, Secured
Party or otherwise, from time to time in Secured
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Party's discretion to take any action and to execute any instrument that
Secured Party may deem necessary or advisable to accomplish the purposes of
this Agreement, including without limitation:
(a) to ask for, demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of any of the Collateral;
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (a) above;
(c) to file any claims or take any action or institute any
proceedings (including, without limitation, any proceeding before any Nevada
Gaming Authority) that Secured Party may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Secured Party with respect to any of the Collateral;
(d) to pay or discharge taxes or Liens (other than Liens permitted
under this Agreement) levied or placed upon or threatened against the
Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by Secured Party in its sole discretion,
any such payments made by Secured Party to become obligations of Grantor to
Secured Party, due and payable immediately without demand; and
(e) upon the occurrence and during the continuation of an Event of
Default, generally to sell, transfer, pledge, make any agreement with respect
to or otherwise deal with any of the Collateral as fully and completely as
though Secured Party were the absolute owner thereof for all purposes, and to
do, at Secured Party's option and Grantor's expense, at any time or from time
to time, all acts and things that Secured Party deems necessary to protect,
preserve or realize upon the Collateral and Secured Party's security interest
therein in order to effect the intent of this Agreement, all as fully and
effectively as Grantor might do.
SECTION 12. SECURED PARTY MAY PERFORM. If Grantor fails to perform
any agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Grantor under Section 16.
SECTION 13. STANDARD OF CARE. The powers conferred on Secured Party
hereunder are solely to protect its and the Holders' interest in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the exercise of reasonable care in the custody of any Collateral
in its possession and the accounting for moneys actually received by it
hereunder, Secured Party shall have no duty as to any Collateral or as to the
taking of any necessary steps to preserve rights against prior parties or any
other rights pertaining to any Collateral, it being understood that Secured
Party shall have no responsibility for (a) ascertaining or taking action with
respect to calls, conversions, exchanges, maturities, tenders or other
matters relating to any Collateral, whether or not Secured Party has or is
deemed to have knowledge of such matters, (b) taking any necessary steps
(other than steps taken in accordance with the standard of care set forth
above to maintain possession of the Collateral) to preserve rights against
any parties with
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respect to any Collateral, (c) taking any necessary steps to collect or
realize upon the Secured Obligations or any guarantee therefor, or any part
thereof, or any of the Collateral, or (d) initiating any action to protect
the Collateral against the possibility of a decline in market value. Secured
Party shall be deemed to have exercised reasonable care in the custody and
preservation of Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Secured Party accords its own
property.
SECTION 14. REMEDIES.
If any Event of Default shall have occurred and be continuing, Secured
Party may exercise in respect of the Collateral, in addition to all other
rights and remedies provided for herein or otherwise available to it, all the
rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "Code")
(whether or not the Code applies to the affected Collateral), and also may
(i) require Grantor to, and Grantor hereby agrees that it will at its expense
and upon request of Secured Party forthwith, assemble all or part of the
Collateral as directed by Secured Party and make it available to Secured
Party at a place to be designated by Secured Party that is reasonably
convenient to both parties, (ii) enter onto the property where any Collateral
is located and take possession thereof with or without judicial process,
(iii) prior to the disposition of the Collateral, store, process, repair or
recondition the Collateral or otherwise prepare the Collateral for
disposition in any manner to the extent Secured Party deems appropriate, (iv)
take possession of Grantor's premises or place custodians in exclusive
control thereof, remain on such premises and use the same and any of
Grantor's equipment for the purpose of completing any work in process, taking
any actions described in the preceding clause, (v) collect any Secured
Obligation, and (vi) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private
sale, at any of Secured Party's offices or elsewhere, for cash, on credit or
for future delivery, at such time or times and at such price or prices and
upon such other terms as Secured Party may deem commercially reasonable.
Secured Party may be the purchaser of any or all of the Collateral at any
such sale and Secured Party shall be entitled, for the purpose of bidding and
making settlement or payment of the purchase price for all or any portion of
the Collateral sold at any such public sale, to use andapply any of the
Secured Obligations as a credit on account of the purchase price for any
Collateral payable by Secured Party at such sale. Each purchaser at any such
sale shall hold the property sold absolutely free from any claim or right on
the part of Grantor, and Grantor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and/or appraisal which it now
has or may at any time in the future have under any rule of law or statute
now existing or hereafter enacted. Grantor agrees that, to the extent notice
of sale shall be required by law, at least ten days notice to Grantor of the
time and place of any public sale or the time after which any private sale is
to be made shall constitute reasonable notification. Secured Party shall not
be obligated to make any sale of Collateral regardless of notice of sale
having been given. Secured Party may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it
was so adjourned. Grantor hereby waives any claims against Secured Party
arising by reason of the fact that the price at which any Collateral may have
been sold at such a private sale was less than the price which might have
been obtained at a public sale, even if Secured Party accepts the first offer
received and does not offer such
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Collateral to more than one offeree. If the proceeds of any sale or other
disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantor shall be liable for the deficiency and the fees of any
attorneys employed by Secured Party to collect such deficiency.
SECTION 15. APPLICATION OF PROCEEDS. Except as expressly provided
elsewhere in this Agreement, all proceeds received by Secured Party in
respect of any sale of, collection from, or other realization upon all or any
part of the Collateral may, in the discretion of Secured Party, be held by
Secured Party as Collateral for, and/or then, or at any other time
thereafter, applied in full or in part by Secured Party against, the Secured
Obligations in the following order of priority:
FIRST: To the payment of all costs and expenses of such sale,
collection or other realization, including costs and expenses of Secured
Party and its agents and counsel, and all other expenses, liabilities and
advances made or incurred by Secured Party in connection therewith, and all
amounts for which Secured Party is entitled to indemnification hereunder and
all advances made by Secured Party hereunder for the account of Grantor, and
to the payment of all costs and expenses paid or incurred by Secured Party in
connection with the exercise of any right or remedy hereunder, all in
accordance with Section 17;
SECOND: To the payment of all other Secured Obligations (for the
ratable benefit of the holders thereof) in such order as Secured Party shall
elect; and
THIRD: To the payment to or upon the order of Grantor, or to whomsoever
may be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct, of any surplus then remaining from such proceeds.
SECTION 16. INDEMNITY AND EXPENSES.
(a) Grantor agrees to indemnify Secured Party and the Holders, and
any agent, attorney, employee, officer, or director thereof (collectively,
"Indemnified Persons"), from and against any and all claims, losses and
liabilities in any way relating to, growing out of or resulting from this
Agreement and the transactions contemplated hereby (including, without
limitation, enforcement of this Agreement), except to the extent such claims,
losses or liabilities result solely from such Indemnified Person's gross
negligence or willful misconduct as finally determined by a court of
competent jurisdiction.
(b) Grantor shall pay to Secured Party upon demand the amount of any
and all costs and expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, that Secured Party may reasonably
incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from,
or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of Secured Party hereunder, or (iv) the
failure by Grantor to perform or observe any of the provisions hereof.
SECTION 17. CONTINUING SECURITY INTEREST. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the
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indefeasible payment in full, in cash, of the Secured Obligations, (b) be
binding upon Grantor, its successors and assigns, and (c) inure, together
with the rights and remedies of Secured Party hereunder, to the benefit of
Secured Party and its successors, transferees and assigns. Upon the
indefeasible payment in full, in cash, of all Secured Obligations, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Grantor. Upon any such termination Secured Party
will, at Grantor's expense, execute and deliver to Grantor such documents as
Grantor shall reasonably request to evidence such termination.
SECTION 18. AMENDMENTS; ETC. No amendment or waiver of any
provision of this Agreement, or consent to any departure by Grantor herefrom,
shall in any event be effective unless the same shall be approved by the
Holders of a majority of the Outstanding Bonds, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which it was given.
SECTION 19. NOTICES. Any notice or other communication herein
required or permitted to be given shall be in writing and may be personally
served, telexed or sent by facsimile or United States mail or courier service
and shall be deemed to have been given when delivered in person or by courier
service, upon receipt of facsimile or telex, or four business days after
depositing it in the United States mail with postage prepaid and properly
addressed. For the purposes hereof, the address of each party hereto shall
be as set forth below, or, as to either party, such other address as shall be
designated by such party in a written notice delivered to the other party
hereto.
To Secured Party:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York
Attention: Reorganization Operations Department
To Grantor:
Sahara Nevada Corp.
4949 North Rancho Drive
Las Vegas, Nevada 89130
Attention: Chief Financial Officer
SECTION 20. FAILURE OR INDULGENCE NOT WAIVER: REMEDIES CUMULATIVE. No
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or
be construed to be a waiver of any default or acquiescence therein, nor shall
any single or partial exercise of any such power, right or privilege preclude
any other or further exercise thereof or of any other power, right or
privilege. All rights and remedies existing under this Agreement are
cumulative to, and not exclusive of, any rights or remedies otherwise
available.
SECTION 21. SEVERABILITY. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and
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enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 22. HEADINGS. Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 23. GOVERNING LAW: TERMS. THIS AGREEMENT SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEVADA, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES, EXCEPT TO THE EXTENT THAT THE UNIFORM COMMERCIAL CODE PROVIDES
THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY
THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEVADA.
SECTION 24. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL
JUDICIAL PROCEEDINGS BROUGHT AGAINST GRANTOR ARISING OUT OF OR RELATING TO
THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE OF NEVADA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT GRANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS AGREEMENT. Grantor hereby agrees that service of all
process in any such proceeding in any such court may be made by registered or
certified mail, return receipt requested, to Grantor at its address provided
in Section 20, such service being hereby acknowledged by Grantor to be
sufficient for personal jurisdiction in any action against Grantor in any
such court and to be otherwise effective and binding service in every
respect. Nothing herein shall affect the right to serve process in any other
manner permitted by law.
SECTION 25. WAIVER OF JURY TRIAL. GRANTOR AND SECURED PARTY HEREBY
AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this
waiver is intended to be all-encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including without limitation contract claims, tort claims, breach of duty
claims, and all other common law and statutory claims. Grantor and Secured
Party each acknowledge that this waiver is a material inducement for Grantor
and Secured Party to enter into a business relationship, that Grantor and
Secured Party have already relied on this waiver in entering into this
Agreement and that each will continue to rely on this waiver in their related
future dealings. Grantor and Secured Party further warrant and represent that
each has reviewed this waiver with its legal counsel, and that each knowingly
and voluntarily waives its jury trial rights following consultation with
legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
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SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT. In the event of litigation, this Agreement may be filed as a
written consent to a trial by the court.
SECTION 26. WAIVERS.
26.1 Grantor absolutely, unconditionally, knowingly, and expressly
waives:
(a) (i) notice of acceptance hereof; (ii) notice of any loans or
other financial accommodations made or extended under the Bonds, Indenture or
Mortgage Documents or the creation or existence of any Secured Obligations;
(iii) notice of the amount of the Secured Obligations, subject, however, to
Grantor's right to make inquiry of Secured Party to ascertain the amount of
the Secured Obligations at any reasonable time; (iv) notice of any adverse
change in the financial condition of PFC or of any other fact that might
increase Grantor's risk hereunder; (v) notice of presentment for payment,
demand, protest, and notice thereof as to any instruments among the Bonds,
Indenture or Mortgage Documents; (vi) notice of any Event of Default under
the Bonds, Indenture or Mortgage Documents ; and (vii) all other notices
(except if such notice is specifically required to be given to Grantor
hereunder or under the Bonds, Indenture or Mortgage Documents) and demands to
which Grantor might otherwise be entitled.
(b) its right, under Nevada Revised Statutes Section 40.430, or
otherwise, to require Secured Party to institute suit against, or to exhaust
any rights and remedies which Secured Party has or may have against, PFC or
any third party, or against any collateral for the Secured Obligations
provided by PFC or any third party. In this regard, Grantor agrees that
Grantor is bound to the payment of all Secured Obligations, whether now
existing or hereafter accruing, as fully as if such Secured Obligations were
directly owing to Secured Party by Grantor. Grantor further waives any
defense arising by reason of any disability or other defense (other than the
defense that the Secured Obligations shall have been fully and finally
performed and indefeasibly paid) of PFC or by reason of the cessation from
any cause whatsoever of the liability of PFC in respect thereof.
(c) (i) any rights to assert against Secured Party any defense (legal
or equitable), set-off, counterclaim, or claim which Grantor may now or at
any time hereafter have against PFC or any other party liable to Secured
Party, (ii) any defense, set-off, counterclaim, or claim, of any kind or
nature, arising directly or indirectly from the present or future lack of
perfection, sufficiency, validity, or enforceability of the Secured
Obligations or any security therefor; (iii) any defense Grantor has to
performance hereunder, and any right Grantor has to be exonerated, arising by
reason of: the impairment or suspension of Secured Party's rights or
remedies against PFC; the alteration by Secured Party of the Secured
Obligations; any discharge of PFC's obligations to Secured Party by operation
of law as a result of Secured Party's intervention or omission; or the
acceptance by Secured Party of anything in partial satisfaction of the
Secured Obligations; (iv) the benefit of any statute of limitations affecting
Grantor's liability hereunder or the enforcement thereof, and any act which
shall defer or delay the operation of any statute of limitations applicable
to the Secured Obligations shall similarly operate to defer or delay the
operation of such statute of limitations applicable to Grantor's liability
hereunder.
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26.2. Grantor absolutely, unconditionally, knowingly, and expressly
waives any defense arising by reason of or deriving from (i) any claim or
defense based upon an election of remedies by Secured Party; or (ii) any
election by Secured Party under Bankruptcy Code Section 1111(b) to limit the
amount of, or any collateral securing, its claim against PFC.
Grantor waives all rights and defenses arising out of an election of
remedies by the creditor, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed Grantor's rights of subrogation and reimbursement against PFC.
Grantor waives all rights and defenses that Grantor may have because the
Underlying Debt is secured by real property. This means, among other things:
(1) Secured Party may collect from Grantor without first
foreclosing on any real or personal property collateral pledged by PFC.
(2) If Secured Party forecloses on any real property
collateral pledged by PFC:
(i) The amount of the Secured Obligations may be reduced only
by the price for which that collateral is sold at the foreclosure sale, even
if the collateral is worth more than the sale price.
(ii) Secured Party may collect from Grantor even if Secured
Party, by foreclosing on the real property collateral, has destroyed any
right Grantor may have to collect from PFC.
This is an unconditional and irrevocable waiver of any rights and
defenses Grantor may have because the Underlying Debt is secured by real
property.
If any of the Secured Obligations at any time are secured by a mortgage or
deed of trust upon real property, Secured Party may elect, in its sole
discretion, upon a default with respect to the Secured Obligations, to
foreclose such mortgage or deed of trust judicially or nonjudicially in any
manner permitted by law, before or after enforcing the Bonds, Indenture or
Mortgage Documents, without diminishing or affecting the liability of Grantor
hereunder except to the extent the Secured Obligations are repaid with the
proceeds of such foreclosure.
26.3. Grantor hereby absolutely, unconditionally, knowingly, and
expressly waives: (1) any right of subrogation Grantor has or may have as
against PFC with respect to the Secured Obligations; (2) any right to proceed
against PFC or any other person or entity, now or hereafter, for
contribution, indemnity, reimbursement, or any other suretyship rights and
claims, whether direct or indirect, liquidated or contingent, whether arising
under express or implied contract or by operation of law, which Grantor may
now have or hereafter have as against PFC with respect to the Secured
Obligations; and (3) any right to proceed or seek recourse against or with
respect to any property or asset of PFC.
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SECTION 27. RELEASES. Grantor consents and agrees that, without notice
to or by Grantor, and without affecting or impairing the obligations of
Grantor hereunder, Secured Party may, by action or inaction:
(a) compromise, settle, extend the duration or the time for the
payment of, or discharge the performance of, or may refuse to or otherwise
not enforce this Agreement, the Bonds, Indenture or Mortgage Documents, or
any part thereof, with respect to PFC or any other person;
(b) release PFC or any other person or grant other indulgences to PFC
or any other person in respect thereof;
(c) amend or modify in any manner and at any time (or from time to
time) any of the Bonds, Indenture or Mortgage Documents; or
(d) release or substitute any other guarantor, if any, of the Secured
Obligations, or enforce, exchange, release, or waive any security for the
Secured Obligations or any other guaranty of the Secured Obligations, or any
portion thereof.
SECTION 28. NO ELECTION. Secured Party shall have all of the rights to
seek recourse against Grantor to the fullest extent provided for herein, and
no election by Secured Party to proceed in one form of action or proceeding,
or against any party, or on any obligation, shall constitute a waiver of
Secured Party's right to proceed in any other form of action or proceeding or
against other parties unless Secured Party has expressly waived such right in
writing. Specifically, but without limiting the generality of the foregoing,
no action or proceeding by Secured Party under any document or instrument
evidencing the Secured Obligations shall serve to diminish the liability of
Grantor under this Agreement except to the extent that Secured Party finally
and unconditionally shall have realized indefeasible payment by such action
or proceeding.
SECTION 29. INDEFEASIBLE PAYMENT. The Secured Obligations shall not be
considered indefeasibly paid for purposes of this Agreement unless and until all
payments to Secured Party are no longer subject to any right on the part of any
person, including PFC, PFC as a debtor in possession, or any trustee (whether
appointed under the Bankruptcy Code or otherwise) of any of PFC's assets, to
invalidate or set aside such payments or to seek to recoup the amount of such
payments or any portion thereof, or to declare the same to be fraudulent or
preferential. Upon such full and final performance and indefeasible payment of
the Secured Obligations, whether by PFC pursuant to the Bonds, Indenture or
Mortgage Documents or by any other person, Secured Party shall have no
obligation whatsoever to transfer or assign its interests the Bonds, Indenture
or Mortgage Documents to Grantor, except as otherwise required by applicable
law. In the event that, for any reason, any portion of such payments to Secured
Party is set aside or restored, whether voluntarily or involuntarily, after the
making thereof, then the obligation intended to be satisfied thereby shall be
revived and continued in full force and effect as if said payment or payments
had not been made, and Grantor shall be liable for the full amount Secured Party
is required to repay plus any and all costs and expenses (including attorneys'
fees and expenses and
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attorneys' fees and expenses incurred pursuant to proceedings arising under
the Bankruptcy Code) paid by Secured Party in connection therewith.
SECTION 30. FINANCIAL CONDITION OF THE PFC. Grantor represents and
warrants to Secured Party that Grantor is currently informed of the financial
condition of PFC and of all other circumstances which a diligent inquiry
would reveal and which bear upon the risk of nonpayment of the Secured
Obligations. Grantor further represents and warrants to Secured Party that
Grantor has read and understands the terms and conditions of in the Bonds,
Indenture or Mortgage Documents. Grantor hereby covenants that Grantor will
continue to keep informed of PFC's financial condition, the financial
condition of other guarantors, if any, and of all other circumstances which
bear upon the risk of nonpayment or nonperformance of the Secured Obligations.
SECTION 31. COUNTERPARTS. This Agreement may be executed in one or
more counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same
instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document.
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IN WITNESS WHEREOF, Grantor and Secured Party have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
SAHARA NEVADA CORP.,
as Grantor
By: /s/
-------------------------------
Name: Thomas K. Land
-----------------------------
Title: Senior Vice President, Chief Financial Officer
----------------------------
IBJ SCHRODER BANK & TRUST COMPANY,
as Secured Party
By: /s/
-------------------------------
Name: Barbara McCluskey
-----------------------------
Title:
----------------------------
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$4,515,624.65 EXHIBIT 10.77
LAS VEGAS, NEVADA
DATED: DECEMBER 14, 1998
SECOND AMENDED AND RESTATED NOTE
THIS SECOND AMENDED AND RESTATED NOTE (THE "SECOND AMENDED NOTE"),
effective December 14, 1998, is entered into by and between Santa Fe Hotel
Inc., a Nevada corporation (the "Borrower") and PDS Financial Corporation -
Nevada, a Nevada corporation ("PDS"). PDS and its permitted assigns, are
referred to herein as the "Holder."
R E C I T A L S
WHEREAS, that certain Amended and Restated Note (the "First Amended
Note") dated as of April 14, 1998 was issued by the Borrower in favor of PDS
in the principal amount of Four Million Nine Hundred Seventy-Eight Thousand
Four Hundred Forty and 00/100 Dollars ($4,978,444.00);
WHEREAS, the Borrower and PDS desire to modify certain terms of the
First Amended Note to, among other things, restate the First Amended Note in
its entirety as provided herein and the Borrower desires to grant a security
interest in certain of its assets to secure obligations arising under this
Second Amended Note;
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the Borrower and the Holder agree as follows:
1. The Borrower, for value received, hereby unconditionally promises
to pay to the order of the Holder, at the address specified in writing by
Holder to the Borrower in lawful money of the United States of America and in
immediately available funds, on April 14, 2001, the principal amount of Four
Million Five Hundred Fifteen Thousand Six Hundred Twenty-Four and 65/100
Dollars ($4,515,624.65). The Borrower further agrees to pay interest in like
money at such office on the unpaid principal amount hereof from time to time
outstanding at the rate of 11 percent per annum (the "Contract Rate"). This
Note shall be payable as follows: (i) On December 14, 1998 the sum of
$45,635.70 shall be due and payable; (ii) commencing January 14, 1999 and on
the 14th day of each and every month thereafter through and including March
14, 2001 (each a "Due Date"), there shall be due and payable monthly
installments of principal and accrued interest equal to $124,206.87; and
(iii) on April 14, 2001 (the "Maturity Date") the sum of $2,009,938.09,
together with any additional unpaid principal and accrued interest thereon
shall be due and payable.
2. Prepayment.
2.1 The Borrower shall prepay from time to time an amount equal to
the net proceeds received by the Borrower from any disposition in the
ordinary course of business of the Collateral (as such term is defined in
that certain Amended Security
<PAGE>
Agreement of even date herewith between the Borrower and PDS, as
collateral agent). Notwithstanding the foregoing, the Borrower shall
not be required to prepay any amounts due on this Second Amended Note as
a result of a sale by the Borrower of all or substantially all of the
Collateral to an entity at least a majority of the voting interests of
which are owned directly or indirectly by the Lowden Family (as defined
herein) if such entity assumes this Second Amended Note and Borrower's
obligations under the Amended Security Agreement.
2.2 The Borrower may prepay the amount due on this Second Amended
Note in whole or in part at any time and from time to time (i) at
101 percent of the principal amount so prepaid plus interest thereon to the
prepayment date if such prepayment occurs at any time from the date hereof
through December 14, 1999, or (ii) at 100 percent of the principal amount
so prepaid plus interest thereon to the prepayment date if such prepayment
occurs thereafter, in either case upon 30 days' prior written notice.
3. This Second Amended Note is secured by certain Collateral (as such
term is defined in that certain Amended Security Agreement of even date herewith
between the Borrower and PDS, as collateral agent).
4. The Borrower shall pay interest on overdue installments of principal
and interest on this Second Amended Note at the Contract Rate plus 5 percent
(the "Default Rate"), to the extent lawful.
5. Upon the Borrower's failure to pay any principal or interest under
this Second Amended Note when due, which failure continues for a period of 5
days, then all amounts then remaining unpaid on this Second Amended Note shall
become, or may be declared to be, immediately due and payable.
6. The Holder may not assign, sell or transfer this Second Amended Note
or any interest herein to a third party without the prior written consent of the
Borrower, which consent shall not be unreasonably withheld. If such consent is
not given or denied by the Borrower within five (5) business days after the
Borrower's receipt of Holder's written request for such consent, which request
shall specify the person to which the Second Amended Note or an interest herein
is proposed to be assigned, sold or transferred and the structure of the
proposed assignment, sale or transfer, the Borrower shall be deemed to have
consented to such proposed assignment, sale or transfer.
7. In the event the Borrower enters into any transaction, merger,
consolidation, liquidation, windup or dissolution, or conveys, sells, leases,
transfers or otherwise disposes of in one transaction or a series of
transactions all or substantially all of its property or assets, this Second
Amended Note shall become immediately due and payable on the date (the "Sale
Date") such event occurs. Notwithstanding the foregoing, (a) the Borrower may
merge or consolidate with, or dispose of all or substantially all of its assets
to, an entity at least a majority of the voting interests of which are owned
directly or indirectly by the Lowden Family (as such term is defined herein), in
either case without this Second Amended Note becoming due and payable, if
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<PAGE>
the entity with which the Borrower merges or consolidates or to which all or
substantially all of such assets are transferred assumes this Second Amended
Note and (b) the Borrower may assign its rights and obligations hereunder to an
entity at least a majority of the voting interests of which are owned directly
or indirectly by the Lowden Family in connection with the sale of all or
substantially all of the Collateral to such entity if such entity assumes this
Second Amended Note. For purposes of this Second Amended Note, "Lowden Family"
shall mean Mr. Paul Lowden and Mrs. Suzanne Lowden and the executors,
administrators or legal representatives of their estates, heirs, distributees
and beneficiaries, any trust as to which any of the foregoing is a settlor or
co-settlor, any trustee of the estate of any of the foregoing that is bankrupt
or insolvent, any guardian or conservator of any of the foregoing that is
adjudged disabled or incompetent, and any corporation, partnership or other
entity which is an affiliate of any of the foregoing, Lowden Family shall also
mean any lineal descendants of the grandparents of such persons, but only to the
extent that the beneficial ownership of the voting interests held by such lineal
descendants was directly received (by gift, trust or sale) from any such person.
8. The occurrence of any one or more of the following shall constitute
an event of default (collectively, "Events of Default" and individually each
an "Event of Default") hereunder: (a) any failure to pay the principal or
accrued interest outstanding under this Second Amended Note on the Due Date
or on the Maturity Date (or any earlier maturity date, whether by
acceleration, redemption or otherwise), which failure continues for a period
of five days, or (b) any default under any other document or instrument
executed and delivered to Holder in connection with this Second Amended Note
shall occur. If any such Events of Default shall occur, Holder or its
permitted assigns or their permitted assigns may declare the entire unpaid
principal balance hereof and all accrued interest thereon and all other
amounts due hereunder to be immediately due and payable and thereby
accelerate the maturity hereof, and Holder or its permitted assigns or their
permitted assigns may proceed to exercise any rights and remedies that they
may have under this Second Amended Note.
9. The Borrower hereby waives presentment and demand for payment,
notice of dishonor, protest and notice of protest of this Second Amended Note
and agrees to pay all costs of collection when incurred (including, without
limitation, reasonable attorneys' fees and disbursements), and including all
reasonable costs and expenses incurred in connection with the pursuit by
Holder (or its permitted assignee) or in connection with any of Holder's (or
its permitted assignee's) collection efforts, whether or not suit on this
Second Amended Note is filed and all such costs and expenses shall be payable
on demand.
10. The Borrower covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon or plead or in any manner whatsoever
claim or take the benefit or advantage of, any usury, stay or extension law
or any other law which would prohibit or forgive the Borrower from paying all
or any portion of the principal of, or interest on, this Second Amended Note,
wherever enacted, now or at any time hereafter in force, or which may
otherwise affect the covenants or the performance of this Second Amended
Note; and the Borrower (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and covenants that
it will not hinder, delay or impede the execution of any power herein or
therein granted to Holder or its permitted assigns but will suffer and permit
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<PAGE>
the execution of every such power as though no such law had been enacted.
11. This Second Amended Note shall be governed by and construed in
accordance with the laws of the state of Nevada.
12. This Second Amended Note may not be changed or terminated orally,
but only by an agreement in writing signed by any party against whom
enforcement of such change or termination is sought.
13. All parties now and hereafter liable with respect to this Second
Amended Note, whether maker, principal, surety, guarantor, endorser or
otherwise, hereby waive presentment, demand, protest and other notices of any
kind.
SANTA FE HOTEL INC.
By: /s/
-------------------
Thomas K. Land
Chief Financial Officer
4
<PAGE>
EXHIBIT 10.82
FOURTH SUPPLEMENTAL INDENTURE
THIS FOURTH SUPPLEMENTAL INDENTURE (the "Supplemental Indenture"), dated
as of November 30, 1998, by and among IBJ Schroder Bank & Trust Company, as
Trustee (the "Trustee"), Pioneer Finance Corp., a Nevada corporation (the
"Company"), Pioneer Hotel Inc., a Nevada corporation and
successor-in-interest to Pioneer Operating Limited Partnership (the
"Operating Company"), and Santa Fe Gaming Corporation, a Nevada corporation
formerly known as Sahara Gaming Corporation and successor-in-interest to
Sahara Casino Partners, L.P. ("Sahara Casino") (the "Guarantor").
Capitalized terms not otherwise defined herein have the meanings set forth in
the Indenture, as defined below.
RECITALS
A. The Company, Sahara Casino, as guarantor, and Security Pacific
National Bank ("Security Pacific"), as trustee, executed that certain
Indenture dated December 1, 1988 (as amended as described herein, the
"Indenture"), as amended by (i) that certain First Supplemental Indenture,
dated as of December 21, 1990, among the Company, Sahara Casino, as
guarantor, and Security Pacific, as trustee; (ii) that certain Second
Supplemental Indenture, dated as of September 30, 1993, among Bank of America
National Trust and Savings Association ("Bank of America"), as successor
trustee, the Company, Sahara Casino, as guarantor, Pioneer Operating Limited
Partnership, a Nevada limited partnership ("POLP"), the Operating Company,
and Sahara Gaming Corporation ("Sahara Gaming"), as guarantor, reflecting
various reorganizations in which the Guarantor became the successor of Sahara
Casino and the Operating Company became the successor of POLP; (iii) that
certain Tri-Party Agreement, dated as of December 30, 1994, by and among the
Company, the Guarantor, the Operating Company, Bank of America, Bank of
America Nevada, a Nevada banking association, and the Trustee, pursuant to
which Bank of America was replaced as the trustee by the Trustee; and (iv)
that certain Third Supplemental Indenture, dated as of August 31, 1995, by
and among the Company, the Operating Company, the Guarantor and IBJ Schroder
Bank & Trust Company, as successor trustee, with respect to $120,000,000
principal amount of the Company's 13 1/2% First Mortgage Bonds Due December 1,
1998 (the "Bonds"). The Bonds are guaranteed ("Guaranty") by the Guarantor.
The Bonds and the Company's obligations under the Indenture are secured by
the real and personal property described in or from time to time subject to
the Mortgage and the other Mortgage Documents.
B. The Company, pursuant to its Offering Circular and Consent
Solicitation Statement, dated October 23, 1998, as amended by the Supplement
dated November 14, 1998 to Offering Circular and Consent Solicitation Statement
(together, the "Amended Joint Offering Circular/Consent Solicitation
Statement"), copies of which are attached hereto as EXHIBIT A, has solicited the
consents of the Holders to, among other things, (i) until December 15, 2000 (the
"Termination Date") forbear from exercising any rights and remedies under the
Bonds, the Indenture, the Guaranty and the Mortgage Documents with respect to
any failure by the Company to pay principal and interest on the Bonds when due
on December 1, 1998, (ii) until the Termination Date, forbear from exercising
any rights and remedies under the Note and related security documents with
respect to any failure by the Operating Company to pay principal and
<PAGE>
interest on the Note when due on December 1, 1998 and (iii) certain
amendments (the "Amendments") to the Indenture as described in this
Supplemental Indenture, and the Holders of at least a majority of the
outstanding Bonds have granted such consents, subject to the terms and
conditions included in the Amended Joint Offering Circular/Consent
Solicitation Statement (the "Consents").
C. In connection with the Consents, certain subsidiaries of the
Guarantor have agreed to grant security interests in substantially all of
their assets to secure the Bonds.
D. In connection with the Consents, the Guarantor has agreed to pledge
the common stock of certain of its subsidiaries and to grant a security
interest in substantially all of its other assets to secure the Guarantee.
E. The Company, the Operating Company and the Guarantor have requested
that the Trustee execute this Supplemental Indenture, and the Trustee is
willing to execute this Supplemental Indenture pursuant to the terms and
conditions of the Indenture.
NOW, THEREFORE, in consideration of the mutual covenants and premises
set forth herein, and for other valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties further agree as
follows:
AGREEMENT
SECTION 1. DEFINED TERMS. Capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Indenture.
SECTION 2. AMENDMENT TO SECTION 101 OF THE INDENTURE.
(a) The following definitions in Section 101 of the Indenture are
hereby amended to provide in their entirety as follows:
"Mortgage Documents" means the Mortgage, the Note, the Assignment
Agreement and all financing statements related thereto, THE GUARANTOR PLEDGE
AGREEMENT, THE GUARANTOR SECURITY AGREEMENT, THE GUARANTOR SUBSIDIARIES
SECURITY AGREEMENTS and any other assignments, pledge agreements, mortgages,
deeds of trust, agreements or instruments (other than securities or other
assets that constitute part of the Trust Estate) delivered or to be delivered
to the Trustee, or delivered to the Company and assigned or pledged to the
Trustee, as security for the Bonds OR THE GUARANTEE.
(b) The following new definitions are added to Section 101 of the
Indenture:
"Excluded Assets" means, in the case of the Guarantor, the approximately
20 acre parcel of real property located at Lone Mountain Road, Las Vegas,
Nevada, and the capital stock of any Subsidiaries other than the Guarantor
Subsidiaries and, in the case of the Guarantor Subsidiaries, any Accounts (as
defined in the Guarantor Subsidiaries Security Agreements).
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"Guarantor Pledge Agreement" means the Pledge Agreement between the
Guarantor and the Trustee, pursuant to which the Guarantor has pledged all of
the outstanding common stock of Santa Fe Hotel, Sahara Resorts and the
Guarantor Subsidiaries as security for its obligations under the Guaranty,
substantially in the form attached hereto as Exhibit F, as the same may be
amended, modified or supplemented from time to time in accordance with its
terms.
"Guarantor Preferred Stock" means the Guarantor's Exchangeable
Redeemable Preferred Stock, $2.14 liquidation preference per share, pursuant
to the Certificate of Designation for Exchangeable Redeemable Preferred Stock.
"Guarantor Security Agreement" means the Security Agreement between the
Guarantor and Trustee, pursuant to which the Guarantor has granted Liens in
substantially all of its assets, other than the Excluded Assets, as security
for its obligations under the Guaranty, substantially in the form attached
hereto as Exhibit G, as the same may be amended, modified or supplemented
from time to time in accordance with its terms.
"Guarantor Subsidiaries" means Hacienda Hotel Inc., a Nevada
corporation, Sahara Nevada Corp., a Nevada corporation, and Santa Fe Coffee
Company, a Nevada corporation.
"Guarantor Subsidiaries Security Agreements" means the Security
Agreements executed by each of the Guarantor Subsidiaries granting Liens in
substantially all of the assets of each Guarantor Subsidiary, other than the
Excluded Assets as security for the Company's obligations under the Bonds,
substantially in the form attached hereto as Exhibit H, as the same may be
amended, modified or supplemented from time to time in accordance with its
terms.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
judgment of the Company's Board of Directors, (i) qualified to perform the
task for which it has been engaged and (ii) disinterested and Independent
with respect to the Company and each Affiliate of the Company and/or the
Lowden/Radcliffe Group.
"Junior Subordinated Notes" means the Junior Subordinated Notes under
and as defined in the Certificate of Designation of the Guarantor Preferred
Stock or any other securities that are issued in exchange for or to redeem,
acquire or otherwise pay Guarantor Preferred Stock.
"Santa Fe Hotel" means Santa Fe Hotel Inc., a Nevada corporation, or any
Person with which Santa Fe Hotel may merge, consolidate or amalgamate, or to
which Santa Fe Hotel may Dispose of all or substantially all of its property
and assets as an entirety or substantially as an entirety.
SECTION 3. AMENDMENT TO SECTION 901 OF THE INDENTURE. Section 901
of the Indenture is hereby amended by the addition of the following paragraph:
(i) to amend or modify the Pioneer Ground Lease; PROVIDED that the
Operating Company first delivers to the Trustee a report of an Independent
Financial Advisor with respect thereto confirming that the proposed amendment
or modification is not economically adverse to the Holders.
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SECTION 4. AMENDMENT TO SECTION 902 OF THE INDENTURE. Section 902
of the Indenture is hereby amended to read in its entirety as follows:
SECTION 902. SUPPLEMENTAL INDENTURE WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority of the
Outstanding Amount of the Bonds then Outstanding, by Act of such Holders
delivered to the Company, the Operating Company, the Guarantor and the
Trustee, the parties hereto (each, other than the Trustee, when authorized by
a Board Resolution) may from time to time enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture
or modifying in any manner the rights of the Trustee or the Holders
hereunder; and, SUBJECT TO SECTION 901(I), with the consent of the Holders of
not less than a majority in Outstanding Amount of the Bonds then Outstanding,
by Act of said Holders delivered to the Company, the Operating Company, the
Guarantor and the Trustee, each party to the Pioneer Ground Lease, the
Lessor's Certificate and Agreement or a Mortgage Document (in the case of
parties that are corporations or Partnerships (other than the Trustee), each
pursuant to authorization granted by a Board Resolution) may enter into one
or more amendments or supplements to the Pioneer Ground Lease, the Lessor's
Certificate and Agreement or such Mortgage Document for the purpose of adding
any provisions to or changing in any manner or eliminating any of the
provisions of the Pioneer Ground Lease, the Lessor's Certificate and
Agreement or such Mortgage Document or of modifying in any manner the rights
(whether direct or derivative) of the Trustee or the Holders under the
Pioneer Ground Lease, the Lessor's Certificate and Agreement or such Mortgage
Document; provided that no such supplemental indenture, amendment or
supplement shall be valid or effective for any purpose unless the Company,
the Operating Partnership, the Guarantor and the Trustee, if not a party to
this Indenture or the Pioneer Ground Lease, the Lessor's Certificate and
Agreement or the applicable Mortgage Documents, as the case may be, shall
have consented in writing to the executed form of such supplemental
indenture, amendment or supplement, as the case may be (in the case of
parties that are corporations or Partnerships (other than the Trustee), each
pursuant to authorization granted by a Board Resolution); and provided,
further, that no such supplemental indenture, amendment or supplement shall,
without the consent of the Holder of each Outstanding Bond affected thereby:
(a) change the Stated Maturity of the principal of (or premium, if
any, on), or any installment of interest on, any Bond, or reduce the
principal amount thereof or the rate of interest thereon or any premium
payable upon the redemption thereof, or reduce the aggregate principal
amount of Bonds required to be redeemed pursuant to the Sinking Fund, or
change the place of payment or the coin or currency in which any Bond or
any premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the
Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date); or
(b) change the expressed maturity of the principal of reduce the
principal amount thereof or the rate of thereon or any premium payable upon
the prepayment reduce the aggregate principal amount of the Note required
to be prepaid, or change the place of payment or the coin or currency in
which the Note or any premium or interest
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thereon is payable, or impair the right to institute suit for enforcement
of any such payment on or after the maturity thereof (or in the case of
prepayment, on or after the prepayment date); or
(c) reduce the percentage in Outstanding Amount of the Outstanding
Bonds, the consent of whose Holders is required for any such supplemental
indenture, amendment or supplement or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences) provided
for in this Indenture; or
(d) modify any of the provisions of this Section or Section 513,
except to increase any such percentage or to provide that certain other
provisions of this Indenture or the Mortgage Documents cannot be modified
or waived without the consent of the Holder of each Bond affected thereby;
or
(e) modify or affect in any manner the terms and conditions of the
obligation of the Guarantor in respect of the due and punctual payment of
the principal of (or premium, if any) or interest on the Bonds or the due
and punctual payment of the Sinking Fund Payments; or
(f) permit the creation of any Lien ranking prior to the Lien of the
Mortgage (except as expressly permitted pursuant to this Indenture or the
Mortgage Documents) or terminate the Lien of any of the Mortgage Documents
or deprive the Holder of any Bond of the security afforded by the Lien of
any of the Mortgage Documents; or
(g) modify or waive any of the provisions of this Indenture
respecting the Incurrence of additional Secured Debt; or
(h) modify any of the provisions of this Indenture in such manner as
to affect the rights of the Holders of Bonds to the benefits of the Sinking
Fund; or
(i) deprive the Holder of any Bond of the security of the Trust
Estate or the Note afforded by the Lien of the Mortgage Documents except as
otherwise provided in the Mortgage Documents.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 5. AMENDMENT TO ARTICLE TEN OF THE INDENTURE.
(a) Section 1015 of the Indenture is hereby amended to read in its
entirety as follows:
SECTION 1015. AMENDMENTS TO MORTGAGE DOCUMENTS.
Without limitation to the provisions set forth in Article Nine, neither the
Company, the Guarantor or the Operating Company will enter into or consent to or
permit any amendment,
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supplement, modification or waiver of or relating to any Mortgage Document,
the Pioneer Ground Lease or the Lessor's Certificate and Agreement without
the prior written consent of the Trustee; PROVIDED, HOWEVER, THAT IN THE CASE
OF THE PIONEER GROUND LEASE, SUCH AMENDMENT, SUPPLEMENT, MODIFICATION OR
WAIVER MAY BE MADE WITHOUT THE TRUSTEE'S WRITTEN CONSENT IF THE OPERATING
COMPANY FIRST DELIVERS TO THE TRUSTEE A REPORT OF AN INDEPENDENT FINANCIAL
ADVISOR WITH RESPECT THERETO CONFIRMING THAT THE PROPOSED AMENDMENT OR
MODIFICATION IS NOT ECONOMICALLY ADVERSE TO THE HOLDERS.
(b) Article Ten of the Indenture is hereby amended by the addition of
the following section:
SECTION 1018. OBLIGATIONS OF THE GUARANTOR.
The Guarantor will not:
(a) make any dividend or other distribution, direct or indirect, on
account of any shares of any class of its capital stock now or hereafter
outstanding, except a dividend payable solely in shares of that class of
capital stock to the holders of that class or in options, warrants or other
rights to purchase such capital stock;
(b) make any redemption, retirement, sinking fund or similar payment,
purchase or other acquisition for value, direct or indirect, of any shares
of any class of its capital stock now or hereafter outstanding (other than
in exchange for its capital stock or options, warrants or other rights to
purchase such capital stock);
(c) make any payment to retire, or to obtain the surrender of, any
outstanding warrants, options or other rights to acquire shares of any
class of its capital stock now or hereafter outstanding; and
(d) make any payment or prepayment of principal of, premium, if any,
or redemption, purchase, retirement, defeasance (including in-substance or
legal defeasance), sinking fund or similar payment with respect to any
Junior Subordinated Notes.
SECTION 6. AMENDMENT TO ARTICLE THIRTEEN OF THE INDENTURE.
(a) Article Thirteen of the Indenture is hereby amended by the addition
of the following section:
SECTION 1303. SECURITY.
In order to secure the performance of the Guarantor's obligations
hereunder and under the Guarantee, the Guarantor has executed and delivered
to the Trustee the Guarantor Pledge Agreement and the Guarantor Security
Agreement.
(b) Exhibit F to the Indenture consists of the Guarantor Pledge
Agreement substantially in the form attached hereto as EXHIBIT B.
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(c) Exhibit G to the Indenture consists of the Guarantor Security
Agreement substantially in the form attached hereto as EXHIBIT C.
SECTION 7. AMENDMENT TO ARTICLE FOURTEEN OF THE INDENTURE.
(a) Article Fourteen of the Indenture is hereby amended by the addition
of the following section:
SECTION 1406. GUARANTOR SUBSIDIARIES SECURITY AGREEMENTS.
In order to secure the performance of the Company's obligations
hereunder and under the Bonds, each of the Guarantor Subsidiaries has
executed and delivered to the Trustee a Guarantor Subsidiary Security
Agreement.
(b) Exhibit H to the Indenture consists of the Guarantor Subsidiary
Security Agreement substantially in the form attached hereto as EXHIBIT D.
SECTION 8. EXECUTION BY TRUSTEE. The Trustee executes this
Supplemental Indenture in accordance with the terms of the Indenture;
PROVIDED, HOWEVER, that such execution is conditioned upon the satisfaction
of all the terms and conditions contained herein, and that such execution
shall not constitute a waiver of any of the terms and conditions set forth in
the Indenture or other Mortgage Documents.
SECTION 9. INDEMNIFICATION. The Guarantor agrees to defend,
indemnify and hold the Trustee and its officers, employees and agents
harmless from any claims, judgments, damages, penalties, fines, costs,
liabilities (including sums paid in settlements of claims) or loss, including
reasonable attorneys' fees, consultant fees, and expert fees which may arise
due to any breach of the Trustee's fiduciary responsibilities under the
Indenture as a result of the Trustee's execution of this Supplemental
Indenture.
SECTION 10. EFFECT ON INDENTURE DOCUMENTS. Except as otherwise
amended, modified or supplemented by this Supplemental Indenture, the
Indenture and the Mortgage Documents shall continue in full force and effect
and are enforceable in accordance with their terms. This Supplemental
Indenture is an amendment to and implementation to the Indenture, and the
Indenture and this Supplemental Indenture shall be read together from and
after the date of effectiveness of this Supplemental Indenture.
SECTION 11. COUNTERPARTS. This Supplemental Indenture may be
executed in any number of counterparts, each of which shall be an original,
but such counterparts shall together constitute but one and the same
instrument.
SECTION 12. GOVERNING LAW. This Supplemental Indenture shall be
governed by and construed in accordance with the laws of the State of Nevada.
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IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Supplemental Indenture to be duly executed as of the date first written above.
Trustee Company
IBJ SCHRODER BANK & TRUST PIONEER FINANCE CORP., a
COMPANY Nevada corporation
By: /s/ BARBARA MCCLUSKEY By: /s/ THOMAS K. LAND
------------------------- -------------------------
Its: Vice President Its: Senior Vice President,
Chief Financial Officer
Operating Company Guarantor
PIONEER HOTEL INC., a Nevada SANTA FE GAMING CORPORATION, a
corporation Nevada corporation
By: /s/ THOMAS K. LAND By: /s/ THOMAS K. LAND
------------------------- -------------------------
Its: Senior Vice President, Its: Senior Vice President,
Chief Financial Officer Chief Financial Officer
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EXHIBIT A
OFFERING CIRCULAR AND CONSENT SOLICITATION STATEMENT DATED OCTOBER 23, 1998
AS SUPPLEMENTED BY
SUPPLEMENT DATED NOVEMBER 14, 1998 TO
OFFERING CIRCULAR AND CONSENT SOLICITATION STATEMENT DATED OCTOBER 23, 1998
<PAGE>
EXHIBIT 10.83
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement") is dated as of November 30,
1998 and entered into by and between SANTA FE GAMING CORPORATION, a Nevada
corporation ("Grantor"), and IBJ SCHRODER BANK & TRUST COMPANY, as successor
trustee, for the benefit of the holders of the Bonds (as hereinafter defined)
(the "Holders") (the "Secured Party"), under the Indenture dated as of
December 1, 1988 among Pioneer Finance Corp., a Nevada corporation ("PFC"),
Grantor, as successor-in-interest to Sahara Casino Partners, L.P., and
Security Pacific National Bank as predecessor to the Secured Party, as
amended by (i) that certain First Supplemental Indenture, dated as of
December 21, 1990, (ii) that certain Second Supplemental Indenture, dated as
of September 30, 1993, (iii) that certain Tri-Party Agreement, dated as of
December 30, 1994, (iv) that certain Third Supplemental Indenture, dated as
of August 31, 1995, and (v) that certain Fourth Supplemental Indenture, dated
as of November 30, 1998 (the "Indenture").
PRELIMINARY STATEMENTS
A. PFC issued $120,000,000 principal amount of 13 1/2% First Mortgage
Bonds due December 1, 1998 (the "Bonds"), pursuant to the Indenture, of which
$60,000,000 principal amount remains outstanding as of the date hereof.
Capitalized terms used and not otherwise defined herein shall have the
meanings specified in the Indenture.
B. Pursuant to the Offering Circular and Consent Solicitation
Statement dated October 23, 1998 and Supplement dated November 14, 1998
(together, the "Amended Joint Offering Circular/Consent Solicitation
Statement"), PFC has solicited (the "Solicitation") the consents (the
"Consents") of Holders to the Proposed Consents (as defined in the Amended
Joint Offering Circular/Consent Solicitation Statement).
C. In connection with the Solicitation and the receipt and acceptance
of Consents by PFC, Grantor has agreed to grant security interests in the
Collateral (as defined herein) to secure the payment of the principal of,
premium, if any, and interest on, the Bonds.
NOW, THEREFORE, in consideration of the premises, in accordance with the
Solicitation and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Grantor hereby agrees with Secured
Party as follows:
SECTION 1. GRANT OF SECURITY. Grantor hereby grants to Secured
Party, for the equal and ratable benefit of the Holders, a security interest
in all of Grantor's right, title and interest in and to the following, in
each case whether now or hereafter existing or in which Grantor now has or
hereafter acquires an interest and wherever the same may be located (the
"Collateral"):
(a) all present and future chattels, furniture, furnishings, goods,
equipment (including, without limitation, gaming equipment and devices),
fixtures and all other tangible personal property, of whatever kind and
nature (including, without limitation, any building or structure that is now
or that may hereafter be erected on any premises owned by Grantor, the
"Premises"),
<PAGE>
including, but not limited to, machinery, materials, goods and equipment now
or hereafter used in any construction or operation relating thereto and all
other tangible personal property, together with all replacements and
substitutions for any and all personal property in which Grantor has an
interest, including without limitation such goods and equipment as shall from
time to time be located, placed, installed or used in or upon, or procured
for use, or to be used or useful in connection with the operation of the
whole, or any part of, the Premises or any facilities on the Premises and all
parts thereof and all accessions thereto (any and all such equipment,
replacements, substitutions, parts and accessions being the "Equipment");
(b) all present and future inventory and merchandise in all of its
forms (including, but not limited to, (i) all goods held by Grantor for sale
or lease or to be furnished under contracts of service or so leased or
furnished, (ii) all raw materials, (iii) works in process, (iv) all goods in
which Grantor has an interest in mass or a joint or other interest or right
of any kind, (v) all goods that are returned to or repossessed by Grantor,
and (vi) all accessions thereto and products thereof (all such inventory,
accessions and products being the "Inventory");
(c) all present and future accounts, accounts receivable, rentals,
revenues, receipts, payments, and income of any nature whatsoever derived
from or received with respect to any facilities on the Premises, agreements,
contracts, leases, contract rights, rights to payment, instruments,
documents, chattel paper, security agreements, guaranties, undertakings,
surety bonds, insurance policies, condemnation deposits and awards, notes and
drafts, securities, certificates of deposit and the right to receive all
payments thereon or in respect thereof (whether principal, interest, fees or
otherwise), contract rights (other than rights under contracts or
governmental permits that may not be transferred by law), including, without
limitation, rights to all deposits from tenants and other users of the
Premises or any facilities on the Premises, rights under all contracts
relating to the construction, renovation or restoration of any of the
improvements now or hereafter located on the Premises or the financing
thereof and all rights under payment or performance bonds, warranties, and
guaranties, and all rights to payment from any credit/charge card
organization or entity, books of account, and principal, interest and
payments due on account of goods sold, services rendered, loans made or
credit extended, on or in connection with the Premises or any facilities on
the Premises and all forms of obligations owing to and rights of Grantor or
in which Grantor may have any interest, however created or arising (any and
all such accounts, contract rights, chattel paper, documents, instruments,
general intangibles and other obligations being the "Accounts", and any and
all such security agreements, leases and other contracts being the "Related
Contracts");
(d) all present and future right, title and interest of Grantor in and
to all leases, subleases, licenses, concessions, franchises and other use or
occupancy agreements, and any amendments, modifications, extensions or
renewals thereof (collectively, "Leases"), whether or not specifically herein
described, that now or may hereafter pertain to or affect the Premises or any
portion thereof, and all amendments to the same, including, but not limited
to, the following: (i) all payments due and to become due under such Leases,
whether as rent, damages, insurance payments, condemnation awards, or
otherwise; (ii) all claims, rights, powers, privileges and remedies under
such Leases; and (iii) all rights of the Grantor under such Leases to
exercise any election or option, or to give-or receive any notice, consent,
waiver or approval, or to accept any surrender of the premises or any part
thereof, together with full power and authority in the name
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of the Grantor, or otherwise, to demand and receive, enforce, collect, and
receipt for any or all of the foregoing, to endorse or execute any checks or
any instruments or orders, to file any claims, and to take any other action
that Secured Party may deem necessary or advisable in connection therewith;
(e) all present and future deposit accounts of Grantor, any demand,
time, savings, passbook or like account maintained by Grantor with any bank,
savings and loan association, credit union or like organization, and all
money, cash and cash equivalents of Grantor, whether or not deposited in any
such deposit account;
(f) all present and future general intangibles (including but not
limited to all governmental permits relating to construction or other
activities on the Premises), all tax refunds of every kind and nature to
which Grantor now or hereafter may become entitled, however arising, all
other refunds, and all deposits, goodwill, choses in action, rights to
payment or performance, judgments taken on any rights or claims included in
the Collateral, trade secrets, computer programs, software, customer lists,
business names, trademarks, trade names and service marks, patents, patent
applications, licenses, copyrights, technology, processes, proprietary
information and insurance proceeds;
(g) all present and future books and records, including, without
limitation, books of account and ledgers of every kind and nature, ledger
cards, computer programs, tapes, disks and other information storage devices,
all related data processing software, and all electronically recorded data
relating to Grantor or its business, all receptacles and containers for such
records, and all files and correspondence;
(h) all present and future maps, plans, specifications, surveys,
studies, reports, data and drawings (including, without limitation,
architectural, structural, mechanical and engineering plans and
specifications, studies, data and drawings) prepared for or relating to the
Premises or the construction, renovation or restoration of any improvements
on the Premises or the extraction of minerals, sand, gravel or other valuable
substances from the Premises, together with all amendments and modifications
thereto;
(i) all present and future licenses, permits, variances, special
permits, franchises, certificates, rulings, certifications, validations,
exemptions, filings, registrations, authorizations, consents, approvals,
waivers, orders, rights and agreements (including options, option rights and
contract rights), other than those that may not be transferred by law, now or
hereafter obtained by Grantor from any governmental authority having or
claiming jurisdiction over the Premises or any other element of the
Collateral or providing access thereto, or the operation of any business on,
at, or from the Premises;
(j) all present and future stocks, bonds, debentures, securities,
investment property, subscription rights, options, warrants, puts, calls,
certificates, partnership interests, joint venture interests, investments,
brokerage accounts and all rights, preferences, privileges, dividends,
distributions, redemption payments and liquidation payments received or
receivable with respect thereto;
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(k) all present and future accessions, appurtenances, components,
repairs, repair parts, spare parts, replacements, substitutions, additions,
issue and improvements to or of or with respect to any of the foregoing;
(l) all other fixtures and storage and office facilities, and all
accessions thereto and products thereof and all water stock relating to the
Premises;
(m) all other tangible and intangible personal property of Grantor;
(n) all rights, remedies, powers and privileges of Grantor with respect
to any of the foregoing; and
(o) any and all proceeds, products, rents, income and profits of any of
the foregoing, including, without limitation, all money, accounts, general
intangibles, deposit accounts, documents, instruments, chattel paper, goods,
insurance proceeds (whether or not the Secured Party is the loss payee), and
any other tangible or intangible property received upon the sale or
disposition of any of the foregoing (it being agreed, for purposes hereof,
that the term "proceeds" includes whatever is receivable or received when any
of the Collateral is sold, collected, exchanged or otherwise disposed of,
whether such disposition is voluntary or involuntary);
provided, however, that the Collateral shall not include the approximately 20
acre parcel of real property located at Lone Mountain Road, Las Vegas,
Nevada, owned by Grantor as of the date hereof, or any shares of capital
stock of subsidiaries of Grantor other than Santa Fe Hotel Inc., a Nevada
corporation, Sahara Resorts, a Nevada corporation, Hacienda Hotel Inc., a
Nevada corporation, Sahara Nevada Corp., a Nevada corporation, and Santa Fe
Coffee Company, a Nevada corporation.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and
the Collateral is collateral security for, the prompt payment or performance
in full when due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including the payment of
amounts that would become due but for the operation of the automatic stay
under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)), of
all obligations and liabilities of every nature of PFC now or hereafter
existing under or arising out of or in connection with the Bonds, Indenture
and Mortgage Documents and all amendments, extensions or renewals thereof,
whether for principal, premium, if any, interest (including without
limitation interest that, but for the filing of a petition in bankruptcy with
respect to PFC, would accrue on such obligations), fees, expenses,
indemnities or otherwise, whether voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion
of such obligations or liabilities that are paid, to the extent all or any
part of such payment is avoided or recovered directly or indirectly from
Secured Party or any Holder as a preference, fraudulent transfer or otherwise
(all such obligations and liabilities being the "Underlying Debt"), and all
obligations of every nature of Grantor now or hereafter existing under this
Agreement (all such obligations of Grantor, together with the Underlying
Debt, being the "Secured Obligations").
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SECTION 3. GRANTOR REMAINS LIABLE. Anything contained herein to the
contrary notwithstanding, (a) Grantor shall remain liable under any contracts
and agreements included in the Collateral, to the extent set forth therein,
to perform all of its duties and obligations thereunder to the same extent as
if this Agreement had not been executed, (b) the exercise by Secured Party of
any of its rights hereunder shall not release Grantor from any of its duties
or obligations under the contracts and agreements included in the Collateral,
and (c) Secured Party shall not have any obligation or liability under any
contracts and agreements included in the Collateral by reason of this
Agreement or otherwise, nor shall Secured Party be obligated to perform any
of the obligations or duties of Grantor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES. Grantor represents and
warrants as follows:
(a) OWNERSHIP OF COLLATERAL. Except for the security interest created
by this Agreement, Grantor owns the Collateral free and clear of any Lien.
Except such as may have been filed in favor of Secured Party relating to this
Agreement, no effective financing statement or other instrument similar in
effect covering all or any part of the Collateral is on file in any filing or
recording office.
(b) OFFICE LOCATIONS: OTHER NAMES. The chief place of business, the
chief executive office and the office where Grantor keeps its records
regarding the Accounts and all originals of all chattel paper that evidence
Accounts is, and has been for the four month period preceding the date
hereof, located at 4949 North Rancho Drive, Las Vegas, Nevada 89130. Grantor
has not in the past done, and does not now do, business under any other name
(including any trade-name or fictitious business name) except Santa Fe Gaming
Corporation.
(c) GOVERNMENTAL AUTHORIZATIONS. No authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the grant by Grantor of the
security interest granted hereby, (ii) the execution, delivery or performance
of this Agreement by Grantor, or (iii) the perfection of or the exercise by
Secured Party of its rights and remedies hereunder (except (i) the filing of
Uniform Commercial Code financing statements with the office of the Secretary
of State of the State of Nevada and (ii) as has been previously taken by or
at the direction of Grantor).
(d) PERFECTION. This Agreement, together with the filing of a UCC-l
financing statement describing the Collateral with the Secretary of State of
Nevada with the Clark County Recorder creates a valid, perfected, enforceable
and first priority security interest in the Collateral, securing the payment
of the Secured Obligations, and all filings and other actions necessary or
desirable to perfect and protect such security interest have been duly made
or taken.
(e) OTHER INFORMATION. All information heretofore, herein or hereafter
supplied to Secured Party by or on behalf of Grantor with respect to the
Collateral is accurate and complete in all material respects.
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SECTION 5. FURTHER ASSURANCES.
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable,
or that Secured Party reasonably may request, in order to perfect and protect
any security interest granted or purported to be granted hereby or to enable
Secured Party to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing,
Grantor will: (i) at the request of Secured Party mark conspicuously each
item of chattel paper included in the Accounts, each Related Contract and, at
the request of Secured Party, each of its records pertaining to the
Collateral, with a legend, in form and substance satisfactory to Secured
Party, indicating that such Collateral is subject to the security interest
granted hereby, (ii) at the request of Secured Party, deliver and pledge to
Secured Party hereunder all promissory notes and other instruments (including
checks) and all original counterparts of chattel paper constituting
Collateral, duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form, and substance satisfactory to Secured
Party, (iii) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be
necessary or desirable, or as Secured Party may reasonably request, in order
to perfect and preserve the security interests granted or purported to be
granted hereby, (iv) at any reasonable time, upon request by Secured Party,
exhibit the Collateral to and allow inspection of the Collateral by Secured
Party, or persons designated by Secured Party, and (v) at Secured Party's
reasonable request, appear in and defend any action or proceeding that may
affect Grantor's title to or Secured Party's security interest in all or any
significant part of the Collateral.
(b) Grantor hereby authorizes Secured Party to file one or more
financing or continuation statements, and amendments thereto, relative to all
or any part of the Collateral without the signature of Grantor. Grantor
agrees that a carbon, photographic or other reproduction of this Agreement or
of a financing statement signed by Grantor shall be sufficient as a financing
statement and may be filed as a financing statement in any and all
jurisdictions.
(c) Grantor will furnish to Secured Party from time to time statements
and schedules further identifying and describing the Collateral and such
other reports in connection with the Collateral as Secured Party may
reasonably request, all in reasonable detail.
SECTION 6. CERTAIN COVENANTS OF GRANTOR. Grantor shall:
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;
(b) notify Secured Party of any change in Grantor's name or identity
within 15 days of such change;
(c) give Secured Party 30 days prior written notice of any change in
Grantor's chief place of business, chief executive office or residence;
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(d) if Secured Party gives value to enable Grantor to acquire rights in
or the use of any Collateral, use such value for such purposes; and
(e) pay promptly when due all property and other taxes, assessments and
governmental charges or levies imposed upon, and all claims (including claims
for labor, materials and supplies) against, the Collateral, except to the
extent the validity thereof is being contested in good faith and for which
adequate reserves have been established; provided that Grantor shall in any
event pay such taxes, assessments, charges, levies or claims not later than
five days prior to the date of any proposed sale under any judgment, writ or
warrant of attachment entered or filed against Grantor or any of the
Collateral as a result of the failure to make such payment.
SECTION 7. SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND
INVENTORY. Grantor shall:
(a) keep the Equipment and Inventory at the Premises or, upon 30 days
prior written notice to Secured Party, at such other places in jurisdictions
where all action that may be necessary or desirable, or that Secured Party
may reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby, or to enable Secured Party to
exercise and enforce its rights and remedies hereunder, with respect to such
Equipment and Inventory shall have been taken;
(b) cause the Equipment to be maintained and preserved in the same
condition, repair and working order as when new, ordinary wear and tear
excepted, and shall forthwith make or cause to be made all repairs,
replacements and other improvements in connection therewith that are
necessary or desirable to such end. Grantor shall promptly furnish to Secured
Party a statement respecting any material loss or damage to any of the
Equipment;
(c) notify Secured Party of the establishment after the date hereof of
any securities accounts or deposit accounts in which Secured Party may take a
security interest pursuant to applicable law and take such steps as may be
requested by Secured Party to perfect Secured Party's lien therein; and
(d) perform all acts that are necessary or desirable to cause all
licenses, permits, variances, special permits, franchises, certificates,
rulings, certifications, validations, exemptions, filings, registrations,
authorizations, consents, approvals. waivers, orders, rights, and agreements
in which a security interest has been conveyed to Secured Party pursuant to
subsection 1(h) to remain in full force and effect.
SECTION 8. INSURANCE. Grantor shall, at its own expense,
maintain insurance with respect to the Equipment and Inventory, if any.
SECTION 9. DEPOSIT ACCOUNTS; SECURITIES ACCOUNTS. Upon the
occurrence and during the continuation of an Event of Default or Potential
Event of Default, Secured Party may exercise dominion and control over, and
refuse to permit further withdrawals (whether of money,
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securities, instruments or other property) from any securities accounts or
deposit accounts maintained with Secured Party constituting part of the
Collateral.
SECTION 10. LICENSE OF PATENTS, TRADEMARKS, COPYRIGHTS, ETC. Grantor
hereby assigns, transfers and conveys to Secured Party, effective upon the
occurrence of any Event of Default, the non-exclusive right and license to
use all trademarks, tradenames, copyrights, customers lists, patents or
technical processes owned or used by Grantor that relate to the Collateral
and any other collateral granted by Grantor as security for the Secured
Obligations, together with any goodwill associated therewith, all to the
extent necessary to enable Secured Party to use, possess and realize on the
Collateral and to enable any successor or assign to enjoy the benefits of the
Collateral. This right and license shall inure to the benefit of all
successors, assigns and transferees of Secured Party and its successors,
assigns and transferees, whether by voluntary conveyance, operation of law,
assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise.
Such right and license is granted free of charge, without requirement that
any monetary payment whatsoever be made to Grantor.
SECTION 11. OTHER LIENS. Grantor shall not, except for the security
interest created by this Agreement and as otherwise contemplated by the
Indenture, the Solicitation and the Mortgage Documents, create or suffer to
exist any Lien upon or with respect to any of the Collateral to secure the
indebtedness or other obligations of any Person.
SECTION 12. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Grantor hereby
irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full
authority in the place and stead of Grantor and in the name of Grantor,
Secured Party or otherwise, from time to time in Secured Party's discretion
to take any action and to execute any instrument that Secured Party may deem
necessary or advisable to accomplish the purposes of this Agreement,
including without limitation:
(a) to ask for, demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of any of the Collateral;
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (a) above;
(c) to file any claims or take any action or institute any proceedings
(including, without limitation, any proceeding before any Nevada Gaming
Authority) that Secured Party may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Secured Party with respect to any of the Collateral;
(d) to pay or discharge taxes or Liens (other than Liens permitted
under this Agreement) levied or placed upon or threatened against the
Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by Secured Party in its sole discretion,
any such payments made by Secured Party to become obligations of Grantor to
Secured Party, due and payable immediately without demand; and
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(e) upon the occurrence and during the continuation of an Event of
Default, generally to sell, transfer, pledge, make any agreement with respect
to or otherwise deal with any of the Collateral as fully and completely as
though Secured Party were the absolute owner thereof for all purposes, and to
do, at Secured Party's option and Grantor's expense, at any time or from time
to time, all acts and things that Secured Party deems necessary to protect,
preserve or realize upon the Collateral and Secured Party's security interest
therein in order to effect the intent of this Agreement, all as fully and
effectively as Grantor might do.
SECTION 13. SECURED PARTY MAY PERFORM. If Grantor fails to perform any
agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Grantor under Section 16.
SECTION 14. STANDARD OF CARE. The powers conferred on Secured Party
hereunder are solely to protect its and the Holders' interest in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the exercise of reasonable care in the custody of any Collateral
in its possession and the accounting for moneys actually received by it
hereunder, Secured Party shall have no duty as to any Collateral or as to the
taking of any necessary steps to preserve rights against prior parties or any
other rights pertaining to any Collateral, it being understood that Secured
Party shall have no responsibility for (a) ascertaining or taking action with
respect to calls, conversions, exchanges, maturities, tenders or other
matters relating to any Collateral, whether or not Secured Party has or is
deemed to have knowledge of such matters, (b) taking any necessary steps
(other than steps taken in accordance with the standard of care set forth
above to maintain possession of the Collateral) to preserve rights against
any parties with respect to any Collateral, (c) taking any necessary steps to
collect or realize upon the Secured Obligations or any guarantee therefor, or
any part thereof, or any of the Collateral, or (d) initiating any action to
protect the Collateral against the possibility of a decline in market value.
Secured Party shall be deemed to have exercised reasonable care in the
custody and preservation of Collateral in its possession if such Collateral
is accorded treatment substantially equal to that which Secured Party accords
its own property.
SECTION 15. REMEDIES.
If any Event of Default shall have occurred and be continuing, Secured
Party may exercise in respect of the Collateral, in addition to all other
rights and remedies provided for herein or otherwise available to it, all the
rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "Code")
(whether or not the Code applies to the affected Collateral), and also may
(i) require Grantor to, and Grantor hereby agrees that it will at its expense
and upon request of Secured Party forthwith, assemble all or part of the
Collateral as directed by Secured Party and make it available to Secured
Party at a place to be designated by Secured Party that is reasonably
convenient to both parties, (ii) enter onto the property where any Collateral
is located and take possession thereof with or without judicial process,
(iii) prior to the disposition of the Collateral, store, process, repair or
recondition the Collateral or otherwise prepare the Collateral for
disposition in any manner to the extent Secured Party deems appropriate, (iv)
take possession of Grantor's premises or place custodians in exclusive
control thereof, remain on such premises and use the same and any of
Grantor's
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equipment for the purpose of completing any work in process, taking any
actions described in the preceding clause, (v) collect any Secured
Obligation, and (vi) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private
sale, at any of Secured Party's offices or elsewhere, for cash, on credit or
for future delivery, at such time or times and at such price or prices and
upon such other terms as Secured Party may deem commercially reasonable.
Secured Party may be the purchaser of any or all of the Collateral at any
such sale and Secured Party shall be entitled, for the purpose of bidding and
making settlement or payment of the purchase price for all or any portion of
the Collateral sold at any such public sale, to use andapply any of the
Secured Obligations as a credit on account of the purchase price for any
Collateral payable by Secured Party at such sale. Each purchaser at any such
sale shall hold the property sold absolutely free from any claim or right on
the part of Grantor, and Grantor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and/or appraisal which it now
has or may at any time in the future have under any rule of law or statute
now existing or hereafter enacted. Grantor agrees that, to the extent notice
of sale shall be required by law, at least ten days notice to Grantor of the
time and place of any public sale or the time after which any private sale is
to be made shall constitute reasonable notification. Secured Party shall not
be obligated to make any sale of Collateral regardless of notice of sale
having been given. Secured Party may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it
was so adjourned. Grantor hereby waives any claims against Secured Party
arising by reason of the fact that the price at which any Collateral may have
been sold at such a private sale was less than the price which might have
been obtained at a public sale, even if Secured Party accepts the first offer
received and does not offer such Collateral to more than one offeree. If the
proceeds of any sale or other disposition of the Collateral are insufficient
to pay all the Secured Obligations, Grantor shall be liable for the
deficiency and the fees of any attorneys employed by Secured Party to collect
such deficiency.
SECTION 16. APPLICATION OF PROCEEDS. Except as expressly provided
elsewhere in this Agreement, all proceeds received by Secured Party in
respect of any sale of, collection from, or other realization upon all or any
part of the Collateral may, in the discretion of Secured Party, be held by
Secured Party as Collateral for, and/or then, or at any other time
thereafter, applied in full or in part by Secured Party against, the Secured
Obligations in the following order of priority:
FIRST: To the payment of all costs and expenses of such sale,
collection or other realization, including costs and expenses of Secured
Party and its agents and counsel, and all other expenses, liabilities and
advances made or incurred by Secured Party in connection therewith, and all
amounts for which Secured Party is entitled to indemnification hereunder and
all advances made by Secured Party hereunder for the account of Grantor, and
to the payment of all costs and expenses paid or incurred by Secured Party in
connection with the exercise of any right or remedy hereunder, all in
accordance with Section 17;
SECOND: To the payment of all other Secured Obligations (for the
ratable benefit of the holders thereof) in such order as Secured Party shall
elect; and
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THIRD: To the payment to or upon the order of Grantor, or to
whomsoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds.
SECTION 17. INDEMNITY AND EXPENSES.
(a) Grantor agrees to indemnify Secured Party and the Holders, and any
agent, attorney, employee, officer, or director thereof (collectively,
"Indemnified Persons"), from and against any and all claims, losses and
liabilities in any way relating to, growing out of or resulting from this
Agreement and the transactions contemplated hereby (including, without
limitation, enforcement of this Agreement), except to the extent such claims,
losses or liabilities result solely from such Indemnified Person's gross
negligence or willful misconduct as finally determined by a court of
competent jurisdiction.
(b) Grantor shall pay to Secured Party upon demand the amount of any
and all costs and expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, that Secured Party may reasonably
incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from,
or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of Secured Party hereunder, or (iv) the
failure by Grantor to perform or observe any of the provisions hereof.
SECTION 18. CONTINUING SECURITY INTEREST. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the indefeasible payment in full, in cash, of the
Secured Obligations, (b) be binding upon Grantor, its successors and assigns,
and (c) inure, together with the rights and remedies of Secured Party
hereunder, to the benefit of Secured Party and its successors, transferees
and assigns. Upon the indefeasible payment in full, in cash, of all Secured
Obligations, the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to Grantor. Upon any such termination
Secured Party will, at Grantor's expense, execute and deliver to Grantor such
documents as Grantor shall reasonably request to evidence such termination.
SECTION 19. AMENDMENTS; ETC. No amendment or waiver of any provision of
this Agreement, or consent to any departure by Grantor herefrom, shall in any
event be effective unless the same shall be approved by the Holders of a
majority of the Outstanding Bonds, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which it was given.
SECTION 20. NOTICES. Any notice or other communication herein
required or permitted to be given shall be in writing and may be personally
served, telexed or sent by facsimile or United States mail or courier service
and shall be deemed to have been given when delivered in person or by courier
service, upon receipt of facsimile or telex, or four business days after
depositing it in the United States mail with postage prepaid and properly
addressed. For the purposes hereof, the address of each party hereto shall
be as set forth below, or, as to either party, such other address as shall be
designated by such party in a written notice delivered to the other party
hereto.
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To Secured Party:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York
Attention: Reorganization Operations Department
To Grantor:
Santa Fe Gaming Corporation
4949 North Rancho Drive
Las Vegas, Nevada 89130
Attention: Chief Financial Officer
SECTION 21. FAILURE OR INDULGENCE NOT WAIVER: REMEDIES CUMULATIVE. No
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or
be construed to be a waiver of any default or acquiescence therein, nor shall
any single or partial exercise of any such power, right or privilege preclude
any other or further exercise thereof or of any other power, right or
privilege. All rights and remedies existing under this Agreement are
cumulative to, and not exclusive of, any rights or remedies otherwise
available.
SECTION 22. SEVERABILITY. In case any provision in or obligation
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 23. HEADINGS. Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 24. GOVERNING LAW: TERMS. THIS AGREEMENT SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS
OF THE STATE OF NEVADA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES,
EXCEPT TO THE EXTENT THAT THE UNIFORM COMMERCIAL CODE PROVIDES THAT THE
VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS
OF A JURISDICTION OTHER THAN THE STATE OF NEVADA.
SECTION 25. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL
JUDICIAL PROCEEDINGS BROUGHT AGAINST GRANTOR ARISING OUT OF OR RELATING TO
THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE OF NEVADA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT GRANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND IRREVOCABLY
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AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS
AGREEMENT. Grantor hereby agrees that service of all process in any such
proceeding in any such court may be made by registered or certified mail,
return receipt requested, to Grantor at its address provided in Section 20,
such service being hereby acknowledged by Grantor to be sufficient for
personal jurisdiction in any action against Grantor in any such court and to
be otherwise effective and binding service in every respect. Nothing herein
shall affect the right to serve process in any other manner permitted by law.
SECTION 26. WAIVER OF JURY TRIAL. GRANTOR AND SECURED PARTY HEREBY
AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this
waiver is intended to be all-encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including without limitation contract claims, tort claims, breach of duty
claims, and all other common law and statutory claims. Grantor and Secured
Party each acknowledge that this waiver is a material inducement for Grantor
and Secured Party to enter into a business relationship, that Grantor and
Secured Party have already relied on this waiver in entering into this
Agreement and that each will continue to rely on this waiver in their related
future dealings. Grantor and Secured Party further warrant and represent that
each has reviewed this waiver with its legal counsel, and that each knowingly
and voluntarily waives its jury trial rights following consultation with
legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT. In the event of litigation, this Agreement may be filed as a
written consent to a trial by the court.
SECTION 27. COUNTERPARTS. This Agreement may be executed in one or
more counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same
instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document.
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IN WITNESS WHEREOF, Grantor and Secured Party have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
SANTA FE GAMING CORPORATION,
as Grantor
By: /s/ THOMAS K. LAND
--------------------------------------------
Name: Thomas K. Land
Title: Senior Vice President,
Chief Financial Officer
IBJ SCHRODER BANK & TRUST COMPANY,
as Secured Party
By: /s/ BARBARA MCCLUSKEY
--------------------------------------------
Name: Barbara McCluskey
Title: Vice President
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EXHIBIT 10.84
PLEDGE AGREEMENT
This PLEDGE AGREEMENT (this "Agreement") is dated as of November
30, 1998 and entered into by and between SANTA FE GAMING CORPORATION, a
Nevada corporation ("Pledgor"), and IBJ SCHRODER BANK & TRUST COMPANY, as
successor trustee, for the benefit of the holders of the Bonds (as
hereinafter defined) (the "Holders") (the "Secured Party"), under the
Indenture dated as of December 1, 1988 among Pioneer Finance Corp., a Nevada
corporation ("PFC"), Santa Fe Gaming Corporation, a Nevada corporation and
successor-in-interest to Sahara Casino Partners, L.P. ("SFGC"), and Security
Pacific National Bank as predecessor to the Secured Party, as amended by (i)
that certain First Supplemental Indenture, dated as of December 21, 1990,
(ii) that certain Second Supplemental Indenture, dated as of September 30,
1993, (iii) that certain Tri-Party Agreement, dated as of December 30, 1994,
(iv) that certain Third Supplemental Indenture, dated as of August 31, 1995,
and (v) that certain Fourth Supplemental Indenture, dated as of November 30,
1998 (the "Indenture").
PRELIMINARY STATEMENTS
A. Pledgor is the legal and beneficial owner of the shares of
stock (the "Pledged Shares") described in SCHEDULE I annexed hereto and
issued by the corporations named therein.
B. PFC issued $120,000,000 principal amount of 13 1/2% First
Mortgage Bonds due December 1, 1998 (the "Bonds"), pursuant to the Indenture,
of which $60,000,000 principal amount remains outstanding as of the date
hereof. Capitalized terms used and not otherwise defined herein shall have
the meanings specified in the Indenture.
C. Payment of the principal of, premium, if any, and interest on
the Bonds has been guaranteed by the Pledgor (the "Guaranty").
D. Pursuant to the Offering Circular and Consent Solicitation
Statement dated October 23, 1998 and Supplement dated November 14, 1998
(together, the "Amended Joint Offering Circular/Consent Solicitation
Statement"), PFC has solicited (the "Solicitation") the consents (the
"Consents") of Holders to the Proposed Consents (as defined in the Amended
Joint Offering Circular/Consent Solicitation Statement).
E. In connection with the Solicitation and the receipt and
acceptance of Consents by PFC, Pledgor has agreed to secure the obligations
arising under the Guaranty by a pledge by Pledgor of all the outstanding
common stock of its wholly owned subsidiaries, Sahara Resorts, a Nevada
corporation ("SR"), Santa Fe Hotel Inc., a Nevada corporation ("SFHI"),
Hacienda Hotel Inc., a Nevada corporation ("Hacienda"), Sahara Nevada Corp.,
a Nevada corporation ("Sahara Nevada"), and Santa Fe Coffee Company, a Nevada
corporation (Santa Fe Coffee").
<PAGE>
NOW, THEREFORE, in consideration of the premises, in accordance
with the Solicitation and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, Pledgor hereby agrees
with Secured Party as follows:
SECTION 1. PLEDGE OF SECURITY. Pledgor hereby pledges to Secured
Party, for the equal and ratable benefit of the Holders, and hereby grants to
Secured Party a security interest in, for the equal and ratable benefit of
the Holders, all of Pledgor's right, title and interest in and to the
following (the "Pledged Collateral"):
(a) the Pledged Shares and the certificates representing the
Pledged Shares and any interest of Pledgor in the entries on the books of any
financial intermediary pertaining to the Pledged Shares, and all dividends,
cash, warrants, rights, instruments and other property or proceeds from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares;
(b) all additional shares of, and all securities convertible into
and warrants, options and other rights to purchase or otherwise acquire,
stock of any issuer of the Pledged Shares from time to time acquired by
Pledgor in any manner (which shares shall be deemed to be part of the Pledged
Shares), the certificates or other instruments representing such additional
shares, securities, warrants, options or other rights and any interest of
Pledgor in the entries on the books of any financial intermediary pertaining
to such additional shares, and all dividends, cash, warrants, rights,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or
all of such additional shares, securities, warrants, options or other rights;
and
(c) to the extent not covered by clauses (a) through (b) above,
all proceeds of any or all of the foregoing Pledged Collateral. For purposes
of this Agreement, the term "proceeds" includes whatever is receivable or
received when Pledged Collateral or proceeds are sold, exchanged, collected
or otherwise disposed of, whether such disposition is voluntary or
involuntary, and includes, without limitation, proceeds of any indemnity or
guaranty payable to Pledgor or Secured Party from time to time with respect
to any of the Pledged Collateral.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and
the Pledged Collateral is collateral security for, the prompt payment or
performance in full when due, whether at stated maturity, by required
prepayment, declaration, acceleration, demand or otherwise (including the
payment of amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section
362(a)), of all obligations and liabilities of every nature of Pledgor now
or hereafter existing under or arising out of or in connection with the
Guaranty and all amendments, extensions or renewals thereof, whether for
principal, premium, if any, interest (including without limitation interest
that, but for the filing of a petition in bankruptcy with respect to Pledgor,
would accrue on such obligations), fees, expenses, indemnities or otherwise,
whether voluntary or involuntary, direct or indirect, absolute or contingent,
liquidated or unliquidated, whether or not jointly owed with others, and
whether or not from time to time decreased or extinguished and later
increased, created or incurred, and all or any portion of such obligations or
liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from Secured Party or any Holder
as a
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preference, fraudulent transfer or otherwise (all such obligations and
liabilities being the "Underlying Debt"), and all obligations of every nature
of Pledgor now or hereafter existing under this Agreement (all such
obligations of Pledgor, together with the Underlying Debt, being the "Secured
Obligations").
SECTION 3. DELIVERY OF PLEDGED COLLATERAL. All certificates or
instruments representing or evidencing the Pledged Collateral shall be
delivered to and held by or on behalf of Secured Party pursuant hereto and
shall be in suitable form for transfer by delivery or, as applicable, shall
be accompanied by Pledgor's endorsement, where necessary, or duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to Secured Party. Upon the occurrence and during the
continuation of an Event of Default, Secured Party shall have the right, at
any time in its discretion and without notice to Pledgor, to transfer to or
to register in the name of Secured Party or any of its nominees any or all of
the Pledged Collateral, subject only to the revocable rights specified in
Section 7(a). In addition, upon the occurrence and during the continuation
of an Event of Default, Secured Party shall have the right at any time to
exchange certificates or instruments representing or evidencing Pledged
Collateral for certificates or instruments of smaller or larger
denominations. Secured party acknowledges that the certificates evidencing
shares of common stock of SFHI must be held by or on behalf of Secured Party
in the state of Nevada.
SECTION 4. REPRESENTATIONS AND WARRANTIES. Pledgor represents and
warrants as follows:
(a) DUE AUTHORIZATION, ETC. OF PLEDGED COLLATERAL. All of the
Pledged Shares have been duly authorized and validly issued and are fully
paid and non-assessable.
(b) DESCRIPTION OF PLEDGED COLLATERAL. The Pledged Shares
constitute percentage interests of the issued and outstanding shares of stock
of each of the Persons set forth on SCHEDULE I annexed hereto, and there are
no outstanding warrants, options or other rights to purchase, or other
agreements outstanding with respect to, or property that is now or hereafter
convertible into, or that requires the issuance or sale of, any Pledged
Shares.
(c) OWNERSHIP OF PLEDGED COLLATERAL. Pledgor is the legal, record
and beneficial owner of the Pledged Collateral free and clear of any Lien
except for the security interest created by this Agreement and Permitted
Liens.
(d) GOVERNMENTAL AUTHORIZATIONS. No authorization, approval or
other action by, and no notice to or filing with, any governmental authority
or regulatory body is required for either (i) the pledge by Pledgor of the
Pledged Collateral pursuant to this Agreement and the grant by Pledgor of the
security interest granted hereby, (ii) the execution, delivery or performance
of this Agreement by Pledgor, or (iii) the exercise by Secured Party of the
voting or other rights, or the remedies in respect of the Pledged Collateral,
provided for in this Agreement (except as may be required in connection with
a disposition of Pledged Collateral by laws affecting the offering and sale
of securities generally and as may be required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended).
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<PAGE>
(e) PERFECTION. Assuming Secured Party's continued possession of
the certificates representing the Pledged Shares, the pledge of the Pledged
Collateral pursuant to this Agreement creates a valid and perfected first
priority security interest in the Pledged Collateral, securing the payment of
the Secured Obligations.
SECTION 5. OTHER LIENS; ADDITIONAL PLEDGED COLLATERAL; ETC.
Pledgor shall:
(a) not (i) create or suffer to exist any Lien upon or with
respect to any of the Pledged Collateral, except for the security interest
under this Agreement or (ii) permit any issuer of Pledged Shares to merge or
consolidate unless all the outstanding capital stock of the surviving or
resulting corporation is, upon such merger or consolidation, pledged
hereunder and no cash, securities or other property is distributed in respect
of the outstanding shares of any other constituent corporation;
(b) (i) cause each issuer of Pledged Shares not to issue any stock
or other securities in addition to or in substitution for the Pledged Shares
issued by such issuer, except to Pledgor, and (ii) pledge hereunder,
immediately upon its acquisition (directly or indirectly) thereof, any and
all additional shares of stock or other securities of each issuer of Pledged
Shares;
(c) promptly deliver to Secured Party all written notices received
by it as holder of the Pledged Collateral; and
(d) pay promptly when due all taxes, assessments and governmental
charges or levies imposed upon, and all claims against, the Pledged
Collateral, except to the extent the validity thereof is being contested in
good faith and for which adequate reserves have been established; PROVIDED
that Pledgor shall in any event pay such taxes, assessments, charges, levies
or claims not later than five days prior to the date of any proposed sale
under any judgment, writ or warrant of attachment entered or filed against
Pledgor or any of the Pledged Collateral as a result of the failure to make
such payment.
SECTION 6. FURTHER ASSURANCES; PLEDGE AMENDMENTS.
(a) Pledgor agrees that from time to time, at the expense of
Pledgor, Pledgor will promptly execute and deliver all further instruments
and documents, and take all further action, that may be necessary or
desirable, or that Secured Party may request, in order to perfect and protect
any security interest granted or purported to be granted hereby or to enable
Secured Party to exercise and enforce its rights and remedies hereunder with
respect to any Pledged Collateral. Without limiting the generality of the
foregoing, Pledgor will: (i) execute and file such financing or continuation
statements, or amendments thereto, control agreements and such other
instruments or notices, as may be necessary or desirable, or as Secured Party
may reasonably request, in order to perfect and preserve the security
interests granted or purported to be granted hereby and (ii) at Secured
Party's request, appear in and defend any action or proceeding that may
affect Pledgor's title to or Secured Party's security interest in all or any
part of the Pledged Collateral.
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<PAGE>
(b) Pledgor further agrees that it will, upon obtaining any
additional shares of stock or other securities required to be pledged
hereunder as provided in Section 5(b), promptly (and in any event within five
business days) deliver to Secured Party a Pledge Amendment, duly executed by
Pledgor, in substantially the form of SCHEDULE II annexed hereto (a "Pledge
Amendment"), in respect of the additional Pledged Shares to be pledged
pursuant to this Agreement. Pledgor hereby authorizes Secured Party to
attach each Pledge Amendment to this Agreement and agrees that all Pledged
Shares listed on any Pledge Amendment delivered to Secured Party shall for
all purposes hereunder be considered Pledged Collateral; PROVIDED that the
failure of Pledgor to execute a Pledge Amendment with respect to any
additional Pledged Shares pledged pursuant to this Agreement shall not impair
the security interest of Secured Party therein or otherwise adversely affect
the rights and remedies of Secured Party hereunder with respect thereto.
SECTION 7. VOTING RIGHTS; DIVIDENDS; ETC.
(a) So long as no Event of Default (as defined in the Indenture)
shall have occurred and be continuing:
(i) Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Collateral or any part
thereof for any purpose not inconsistent with the terms of this Agreement,
the Indenture or the Consents;
(ii) Pledgor shall be entitled to receive and retain, and to utilize
free and clear of the lien of this Agreement, any and all dividends paid in
respect of the Pledged Collateral; PROVIDED, HOWEVER, that any and all
(A) dividends, paid or payable other than in cash in respect of,
and instruments and other property received, receivable or otherwise
distributed in respect of, or in exchange for, any Pledged Collateral,
(B) dividends and other distributions paid or payable in cash in
respect of any Pledged Collateral in connection with a partial or
total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in redemption of
or in exchange for any Pledged Shares,
shall be, and shall forthwith be delivered to Secured Party to hold
as, Pledged Collateral and shall, if received by Pledgor, be received
in trust for the benefit of Secured Party, be segregated from the
other property or funds of Pledgor and be forthwith delivered to
Secured Party as Pledged Collateral in the same form as so received
(with all necessary endorsements); and
(iii) Secured Party shall promptly execute and deliver (or cause
to be executed and delivered) to Pledgor all such proxies, dividend payment
orders and other instruments as Pledgor may from time to time reasonably
request for the purpose of enabling Pledgor
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<PAGE>
to exercise the voting and other consensual rights which it is entitled
to exercise pursuant to paragraph (i) above and to receive the dividends
which it is authorized to receive and retain pursuant to paragraph (ii)
above.
(b) Upon the occurrence and during the continuation of an Event of
Default:
(i) upon written notice from Secured Party to Pledgor, all rights of
Pledgor to exercise the voting and other consensual rights which it would
otherwise be entitled to exercise pursuant to Section 7(a)(i) shall cease,
and all such rights shall thereupon become vested in Secured Party who
shall thereupon have the sole right to exercise such voting and other
consensual rights;
(ii) all rights of Pledgor to receive the dividends which it would
otherwise be authorized to receive and retain pursuant to Section 7(a)(ii),
at Secured Party's option, shall cease, and all such rights shall, at
Secured Party's option, thereupon become vested in Secured Party who shall
thereupon have the sole right to receive and hold as Pledged Collateral
such dividends; and
(iii) all dividends which are received by Pledgor contrary to the
provisions of paragraph (ii) of this Section 7(b) shall be received in
trust for the benefit of Secured Party, shall be segregated from other
funds of Pledgor and shall forthwith be paid over to Secured Party as
Pledged Collateral in the same form as so received (with any necessary
endorsements).
(c) In order to permit Secured Party to exercise the voting and
other consensual rights which it may be entitled to exercise pursuant to
Section 7(b)(i) and to receive all dividends and other distributions which it
may be entitled to receive under Section 7(a)(ii) or Section 7(b)(ii), (i)
Pledgor shall promptly execute and deliver (or cause to be executed and
delivered) to Secured Party all such proxies, dividend payment orders and
other instruments as Secured Party may from time to time reasonably request
and (ii) without limiting the effect of the immediately preceding clause (i),
Pledgor hereby grants to Secured Party an irrevocable proxy to vote the
Pledged Shares and to exercise all other rights, powers, privileges and
remedies to which a holder of the Pledged Shares would be entitled
(including, without limitation, giving or withholding written consents of
shareholders, calling special meetings of shareholders and voting at such
meetings), which proxy shall be effective, automatically and without the
necessity of any action (including any transfer of any Pledged Shares on the
record books of the issuer thereof) by any other Person (including the issuer
of the Pledged Shares or any officer or agent thereof), upon the occurrence
and during the continuation of an Event of Default and which effectiveness
shall terminate upon the earlier of (i) the Event of Default being waived or
cured (subject to revival upon future Events of Default) and (ii) payment in
full of the Secured Obligations.
SECTION 8. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Pledgor
hereby irrevocably appoints Secured Party as Pledgor's attorney-in-fact, with
full authority in the place and stead of Pledgor and in the name of Pledgor,
Secured Party or otherwise, from time to time in Secured Party's discretion
to take any action and to execute any instrument that Secured Party
6
<PAGE>
may deem necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation:
(a) to file one or more financing or continuation statements, or
amendments thereto, relative to all or any part of the Pledged Collateral
without the signature of Pledgor (to the extent permitted by applicable law);
(b) during the continuance of any Event of Default, to ask,
demand, collect, sue for, recover, compound, receive and give acquittance and
receipts for moneys due and to become due under or in respect of any of the
Pledged Collateral;
(c) during the continuance of any Event of Default, to receive,
endorse and collect any instruments made payable to Pledgor representing any
dividend, principal or interest payment or other distribution in respect of
the Pledged Collateral or any part thereof and to give full discharge for the
same; and
(d) during the continuance of any Event of Default, to file any
claims or take any action or institute any proceedings that Secured Party may
deem necessary or desirable for the collection of any of the Pledged
Collateral or otherwise to enforce the rights of Secured Party with respect
to any of the Pledged Collateral.
SECTION 9. SECURED PARTY MAY PERFORM. If Pledgor fails to perform
any agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Pledgor under Section 13(b).
SECTION 10. STANDARD OF CARE. The powers conferred on Secured
Party hereunder are solely to protect its interest in the Pledged Collateral
and shall not impose any duty upon it to exercise any such powers. Except
for the exercise of reasonable care in the custody of any Pledged Collateral
in its possession and the accounting for moneys actually received by it
hereunder, Secured Party shall have no duty as to any Pledged Collateral, it
being understood that Secured Party shall have no responsibility for (a)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relating to any Pledged Collateral,
whether or not Secured Party has or is deemed to have knowledge of such
matters, (b) taking any necessary steps (other than steps taken in accordance
with the standard of care set forth above to maintain possession of the
Pledged Collateral) to preserve rights against any parties with respect to
any Pledged Collateral, (c) taking any necessary steps to collect or realize
upon the Secured Obligations or any guarantee therefor, or any part thereof,
or any of the Pledged Collateral, or (d) initiating any action to protect the
Pledged Collateral against the possibility of a decline in market value.
Secured Party shall be deemed to have exercised reasonable care in the
custody and preservation of Pledged Collateral in its possession if such
Pledged Collateral is accorded treatment substantially equal to that which
Secured Party accords its own property consisting of negotiable securities.
SECTION 11. REMEDIES.
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(a) If any Event of Default shall have occurred and be continuing,
Secured Party may exercise in respect of the Pledged Collateral, in addition
to all other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party on default under the
Uniform Commercial Code as in effect in any relevant jurisdiction (the
"Code") (whether or not the Code applies to the affected Pledged Collateral),
and Secured Party may also in its sole discretion, without notice except as
specified below, sell the Pledged Collateral or any part thereof in one or
more parcels at public or private sale, at any exchange or broker's board or
at any of Secured Party's offices or elsewhere, for cash, on credit or for
future delivery, at such time or times and at such price or prices and upon
such other terms as Secured Party may deem commercially reasonable,
irrespective of the impact of any such sales on the market price of the
Pledged Collateral. Secured Party or any Holder may be the purchaser of any
or all of the Pledged Collateral at any such sale and Secured Party, as agent
for and representative of Holders (but not any Holder or Holders in its or
their respective individual capacities unless Requisite Holders shall
otherwise agree in writing), shall be entitled, for the purpose of bidding
and making settlement or payment of the purchase price for all or any portion
of the Pledged Collateral sold at any such public sale, to use and apply any
of the Secured Obligations as a credit on account of the purchase price for
any Pledged Collateral payable by Secured Party at such sale. Each purchaser
at any such sale shall hold the property sold absolutely free from any claim
or right on the part of Pledgor, and Pledgor hereby waives (to the extent
permitted by applicable law) all rights of redemption, stay and/or appraisal
which it now has or may at any time in the future have under any rule of law
or statute now existing or hereafter enacted. Pledgor agrees that, to the
extent notice of sale shal be required by law, at least ten days' notice to
Pledgor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. Secured
Party shall not be obligated to make any sale of Pledged Collateral
regardless of notice of sale having been given. Secured Party may adjourn
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. Pledgor hereby waives any
claims against Secured Party arising by reason of the fact that the price at
which any Pledged Collateral may have been sold at such a private sale was
less than the price which might have been obtained at a public sale, even if
Secured Party accepts the first offer received and does not offer such
Pledged Collateral to more than one offeree. If the proceeds of any sale or
other disposition of the Pledged Collateral are insufficient to pay all the
Secured Obligations, Pledgor shall be liable for the deficiency and the fees
of any attorneys employed by Secured Party to collect such deficiency.
(b) Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as from time to time amended (the
"Securities Act"), and applicable state securities laws, Secured Party may be
compelled, with respect to any sale of all or any part of the Pledged
Collateral conducted without prior registration or qualification of such
Pledged Collateral under the Securities Act and/or such state securities
laws, to limit purchasers to those who will agree, among other things, to
acquire the Pledged Collateral for their own account, for investment and not
with a view to the distribution or resale thereof. Pledgor acknowledges that
any such private sales may be at prices and on terms less favorable than
those obtainable through a public sale without such restrictions (including,
without limitation, a public offering made pursuant to a registration
statement under the Securities Act) and Pledgor agrees that any such
8
<PAGE>
private sale shall be deemed to have been made in a commercially reasonable
manner and that Secured Party shall have no obligation to engage in public
sales and no obligation to delay the sale of any Pledged Collateral for the
period of time necessary to permit the issuer thereof to register it for a
form of public sale requiring registration under the Securities Act or under
applicable state securities laws, even if such issuer would, or should, agree
to so register it.
(c) If Secured Party determines to exercise its right to sell any
or all of the Pledged Collateral, upon written request, Pledgor shall and
shall cause each issuer (which is a Subsidiary of Pledgor) of any Pledged
Shares to be sold hereunder from time to time to furnish to Secured Party all
such information as Secured Party may request in order to determine the
number of shares and other instruments included in the Pledged Collateral
which may be sold by Secured Party in exempt transactions under the
Securities Act and the rules and regulations of the Securities and Exchange
Commission thereunder, as the same are from time to time in effect.
SECTION 12. APPLICATION OF PROCEEDS. Except as expressly provided
elsewhere in this Agreement, all proceeds received by Secured Party in
respect of any sale of, collection from, or other realization upon all or any
part of the Pledged Collateral may, in the discretion of Secured Party, be
held by Secured Party as Pledged Collateral for, and/or then, or at any time
thereafter, applied in full or in part by Secured Party against, the Secured
Obligations in the following order of priority:
FIRST: To the payment of all costs and expenses of such sale,
collection or other realization, including reasonable compensation to
Secured Party and its agents and counsel, and all other expenses,
liabilities and advances made or incurred by Secured Party in connection
therewith, and all amounts for which Secured Party is entitled to
indemnification hereunder and all advances made by Secured Party hereunder
for the account of Pledgor, and to the payment of all costs and expenses
paid or incurred by Secured Party in connection with the exercise of any
right or remedy hereunder, all in accordance with Section 13;
SECOND: To the payment of all other Secured Obligations in such order
as Secured Party shall elect; and
THIRD: To the payment to or upon the order of Pledgor, or to
whosoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds.
SECTION 13. INDEMNITY AND EXPENSES.
(a) Pledgor agrees to indemnify Secured Party and the Holders, and
any agent, attorney, employee, officer, or director thereof (collectively,
"Indemnified Persons"), from and against any and all claims, losses and
liabilities in any way relating to, growing out of or resulting from this
Agreement and the transactions contemplated hereby (including, without
limitation, enforcement of this Agreement), except to the extent such claims,
losses or liabilities result solely from such Indemnified Person's gross
negligence or willful misconduct as finally determined by a court of
competent jurisdiction.
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(b) Pledgor shall pay to Secured Party upon demand the amount of
any and all costs and expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, that Secured Party may incur in
connection with (i) the administration of this Agreement, (ii) the custody or
preservation of, or the sale of, collection from, or other realization upon,
any of the Pledged Collateral, (iii) the exercise or enforcement of any of
the rights of Secured Party hereunder, or (iv) the failure by Pledgor to
perform or observe any of the provisions hereof.
SECTION 14. CONTINUING SECURITY INTEREST. This Agreement shall
create a continuing security interest in the Pledged Collateral and shall (a)
remain in full force and effect until the indefeasible payment in full in
cash, of all Secured Obligations, (b) be binding upon Pledgor, its successors
and assigns, and (c) inure, together with the rights and remedies of Secured
Party hereunder, to the benefit of Secured Party and its successors,
transferees and assigns. Upon the indefeasible payment in full in cash, of
all Secured Obligations, the security interest granted hereby shall terminate
and all rights to the Pledged Collateral shall revert to Pledgor. Upon any
such termination Secured Party will, at Pledgor's expense, execute and
deliver to Pledgor such documents as Pledgor shall reasonably request to
evidence such termination and Pledgor shall be entitled to the return, upon
its request and at its expense, against receipt and without recourse to
Secured Party, of such of the Pledged Collateral as shall not have been sold
or otherwise applied pursuant to the terms hereof.
SECTION 15. AMENDMENTS; ETC. No amendment, modification,
termination or waiver of any provision of this Agreement, and no consent to
any departure by Pledgor therefrom, shall in any event be effective unless
approved by the Holders of a majority of the Outstanding Bonds and, in the
case of any such amendment or modification, by Pledgor. Any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which it was given.
SECTION 16. NOTICES. Any notice or other communication herein
required or permitted to be given shall be in writing and may be personally
served, telexed or sent by facsimile or United States mail or courier service
and shall be deemed to have been given when delivered in person or by courier
service, upon receipt of facsimile or telex, or four business days after
depositing it in the United States mail with postage prepaid and properly
addressed. For the purposes hereof, the address of each party hereto shall
be as set forth below or, as to either party, such other address as shall be
designated by such party in a written notice delivered to the other party
hereto.
To Secured Party:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York
Attention: Reorganization Operations Department
To Pledgor:
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Santa Fe Gaming Corporation
4949 North Rancho Drive
Las Vegas, Nevada 89130
Attention: Chief Financial Officer
SECTION 17. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of Secured Party in the exercise of any
power, right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence
therein, nor shall any single or partial exercise of any such power, right or
privilege preclude any other or further exercise thereof or of any other
power, right or privilege. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
SECTION 18. SEVERABILITY. In case any provision in or obligation
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 19. HEADINGS. Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 20. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEVADA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT
THAT THE UNIFORM COMMERCIAL CODE PROVIDES THAT THE VALIDITY OR PERFECTION OF
THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF NEVADA. Unless otherwise defined herein, terms used
in Articles 8 and 9 of the Uniform Commercial Code in the State of Nevada are
used herein as therein defined.
SECTION 21. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL
JUDICIAL PROCEEDINGS BROUGHT AGAINST PLEDGOR ARISING OUT OF OR RELATING TO
THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE OF NEVADA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES
TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS
AGREEMENT. Pledgor hereby agrees that service of all process in any such
proceeding in any such court may be made by registered or certified mail,
return receipt requested, to Pledgor at its address provided in Section 16,
such service being hereby acknowledged by Pledgor to be
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sufficient for personal jurisdiction in any action against Pledgor in any
such court and to be otherwise effective and binding service in every
respect. Nothing herein shall affect the right to serve process in any other
manner permitted by law or shall limit the right of Secured Party to bring
proceedings against Pledgor in the courts of any other jurisdiction.
SECTION 22. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, PLEDGOR AND SECURED PARTY HEREBY AGREE TO WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be
all-encompassing of any and all disputes that may be filed in any court and
that relate to the subject matter of this transaction, including without
limitation contract claims, tort claims, breach of duty claims, and all other
common law and statutory claims. Pledgor and Secured Party each acknowledge
that this waiver is a material inducement for Pledgor and Secured Party to
enter into a business relationship, that Pledgor and Secured Party have
already relied on this waiver in entering into this Agreement and that each
will continue to rely on this waiver in their related future dealings.
Pledgor and Secured Party further warrant and represent that each has
reviewed this waiver with its legal counsel, and that each knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the
event of litigation, this Agreement may be filed as a written consent to a
trial by the court.
SECTION 23. COUNTERPARTS. This Agreement may be executed in one
or more counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document.
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IN WITNESS WHEREOF, Pledgor and Secured Party have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
SANTA FE GAMING CORPORATION,
as Pledgor
By: /s/ THOMAS K. LAND
----------------------------------
Name: Thomas K. Land
Title: Senior Vice President,
Chief Financial Officer
IBJ SCHRODER BANK & TRUST
COMPANY, as Secured Party
By: /s/ BARBARA MCCLUSKEY
----------------------------------
Name: Barbara McCluskey
Title: Vice President
S-1
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SCHEDULE I
Attached to and forming a part of the Pledge Agreement dated as of
November 30, 1998 between Santa Fe Gaming Corporation, as Pledgor, and IBJ
Schroder Bank & Trust Company, as Secured Party.
PART A
<TABLE>
<CAPTION>
STOCK
CLASS OF CERTIFICATE PAR NUMBER OF PERCENTAGE
STOCK ISSUER STOCK NOS. VALUE SHARES INTEREST
------------ -------- ----------- ----- --------- ----------
<S> <C> <C> <C> <C> <C>
SAHARA RESORTS COMMON 1 NO PAR 10,000 100%
SANTA FE HOTEL, INC. COMMON 1 NO PAR 1,000 100%
HACIENDA HOTEL, INC. COMMON 1 NO PAR 1,000 100%
SAHARA NEVADA CORP. COMMON 1 NO PAR 1,000 100%
SANTA FE COFFEE COMMON 1 NO PAR 100 100%
</TABLE>
I-1
<PAGE>
SCHEDULE II
PLEDGE AMENDMENT
This Pledge Amendment, dated _____________, ____, is delivered
pursuant to Section 6(b) of the Pledge Agreement referred to below. The
undersigned hereby agrees that this Pledge Amendment may be attached to the
Pledge Agreement dated November __, 1998, between the undersigned and IBJ
Schroder Bank & Trust Company, as Secured Party (the "Pledge Agreement,"
capitalized terms defined therein being used herein as therein defined), and
that the Pledged Shares listed on this Pledge Amendment shall be deemed to be
part of the Pledged Shares and shall become part of the Pledged Collateral
and shall secure all Secured Obligations.
SANTA FE GAMING CORPORATION,
By:
---------------------------------
Name:
Title:
<TABLE>
<CAPTION>
STOCK
CLASS OF CERTIFICATE PAR NUMBER OF PERCENTAGE
STOCK ISSUER STOCK NOS. VALUE SHARES INTEREST
------------ -------- ----------- ----- --------- ----------
<S> <C> <C> <C> <C> <C>
</TABLE>
II-1
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in post-effective Amendment No.
1 to Registration Statement No. 33-7053 on Form S-8 and in Registration
Statement No. 33-44700 on Form S-8 of our report Dated December 23, 1998
(which expresses an unqualified opinion and includes an explanatory paragraph
relating to Santa Fe Gaming Corporation's ability to continue as a going
concern) appearing in the Annual Report on Form 10-K of Santa Fe Gaming
Corporation for the year ended September 30, 1998.
Deloitte & Touche LLP
Las Vegas, Nevada
December 28, 1998
72
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 22,650,882
<SECURITIES> 0
<RECEIVABLES> 1,617,762
<ALLOWANCES> 0
<INVENTORY> 1,339,796
<CURRENT-ASSETS> 28,851,855
<PP&E> 197,423,380
<DEPRECIATION> 48,574,230
<TOTAL-ASSETS> 192,166,414
<CURRENT-LIABILITIES> 80,503,780
<BONDS> 153,146,836
0
21,985,750
<COMMON> 61,954
<OTHER-SE> (63,444,132)
<TOTAL-LIABILITY-AND-EQUITY> 192,166,414
<SALES> 0
<TOTAL-REVENUES> 112,849,254
<CGS> 0
<TOTAL-COSTS> 63,690,864
<OTHER-EXPENSES> 85,371,198
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,371,590
<INCOME-PRETAX> (62,342,639)
<INCOME-TAX> 0
<INCOME-CONTINUING> (62,342,639)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (62,342,639)
<EPS-PRIMARY> (10.31)
<EPS-DILUTED> (10.31)
</TABLE>
