<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ______ to _____
COMMISSION FILE NUMBER: 1-9481
SANTA FE GAMING CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 88-0304348
- -------------------------------- ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
4949 N. RANCHO DRIVE, LAS VEGAS, NEVADA 89130
- --------------------------------------------------------------------------------
(Address of principal executive office and zip code)
(702) 658-4300
-------------------------------------------------------
(Registrant's telephone number, including area code)
-------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES NO
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
6,195,356 as of February 13, 1998
- ---------------------------------- -----------------------------
Amount Outstanding Date
<PAGE>
SANTA FE GAMING CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
Balance sheets at December 31, 1997
(unaudited) and September 30, 1997. . . . . . . . . . . . . . 2
Statements of Operations for the three months
ended December 31, 1997 and 1996 (unaudited). . . . . . . . . 3
Statement of Changes in Stockholders' Equity
for the three months ended December 31, 1997
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Cash Flows for the three months
ended December 31, 1997 and 1996 (unaudited). . . . . . . . . 5
Notes to Consolidated Condensed Financial
Statements (unaudited). . . . . . . . . . . . . . . . . . . . 6
Independent Accountants' Review Report . . . . . . . . . . .11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . . . . . . . . . .12
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . .21
</TABLE>
1
<PAGE>
SANTA FE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1997 1997
- --------------------------------------------------- ------------ -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and short-term investments $ 23,063,562 $15,146,217
Accounts receivable, net 938,713 910,867
Inventories 1,410,472 1,248,199
Prepaid expenses & other 3,506,933 3,546,812
Assets held for sale 1,605,000 1,605,000
------------ ------------
Total current assets 30,524,680 22,457,095
Land held for development 36,589,065 36,589,065
Property and equipment, net 103,454,807 104,161,796
Goodwill, net 44,283,271 44,641,391
Other assets 11,220,641 8,446,931
------------ ------------
Total assets $226,072,464 $216,296,278
------------ ------------
------------ ------------
LIABILITIES and STOCKHOLDERS' EQUITY
- ---------------------------------------------------
Current liabilities:
Current portion of long-term debt $71,512,978 $6,644,979
Accounts payable 5,123,081 5,117,059
Interest payable 1,860,677 6,612,750
Accrued and other liabilities 7,816,534 6,525,215
Debt due upon sale of assets 1,559,000 1,559,000
------------ ------------
Total current liabilities 87,872,270 26,459,003
Long-term debt - less current portion 121,811,429 168,978,838
Commitments
Stockholders' equity:
Common stock, $.01 par value; authorized-100,000,000
shares; issued and outstanding-6,195,356 shares 61,954 61,954
Preferred stock, exchangeable, redeemable 8% cumulative,
stated at $2.14 liquidation value, authorized-10,000,000
shares; issued and outstanding-8,856,651 shares 20,848,557 20,469,492
Additional paid-in capital 51,513,504 51,513,504
Accumulated deficit (55,947,476) (51,098,739)
------------ ------------
Total 16,476,539 20,946,211
Less treasury stock - 4,875 shares, at cost (87,774) (87,774)
------------ ------------
Total stockholders' equity 16,388,765 20,858,437
------------ ------------
Total liabilities and stockholders' equity $226,072,464 $216,296,278
------------ ------------
------------ ------------
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
2
<PAGE>
SANTA FE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Revenues:
Casino $21,979,911 $19,877,173
Hotel 1,433,934 1,539,884
Food and beverage 5,327,218 5,272,243
Other revenues 1,868,478 1,941,283
----------------- -----------------
Gross revenues 30,609,541 28,630,583
Less casino promotional allowances (3,250,295) (3,222,744)
----------------- -----------------
Net operating revenues 27,359,246 25,407,839
----------------- -----------------
Operating expenses:
Casino 10,880,832 10,630,817
Hotel 449,023 414,718
Food and beverage 3,377,624 3,915,410
Other operating expenses 767,182 767,825
Selling, general & administrative 3,043,168 2,586,103
Corporate expenses 816,117 812,080
Utilities & property expenses 3,285,940 2,981,869
Depreciation & amortization 3,132,762 2,727,536
----------------- -----------------
Total operating expenses 25,752,648 24,836,358
----------------- -----------------
Operating income 1,606,598 571,481
Interest expense 6,076,270 5,645,112
----------------- -----------------
Loss before income tax benefit (4,469,672) (5,073,631)
Federal income tax benefit 0 (1,603,274)
----------------- -----------------
Net loss (4,469,672) (3,470,357)
Dividends paid or accrued on preferred shares 379,065 379,065
----------------- -----------------
Net loss applicable to common shares ($4,848,737) ($3,849,422)
----------------- -----------------
----------------- -----------------
Average common shares outstanding 6,195,356 6,195,356
----------------- -----------------
----------------- -----------------
Loss per common share:
net loss ($0.72) ($0.56)
dividends paid or accrued on preferred shares ($0.06) ($0.06)
----------------- -----------------
Loss per common share ($0.78) ($0.62)
----------------- -----------------
----------------- -----------------
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
3
<PAGE>
SANTA FE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Additional
Common Preferred Paid-in Accumulated Treasury
Stock Stock Capital Deficit Stock Total
------- ----------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances, October 1, 1997 $61,954 $20,469,492 $51,513,504 ($51,098,739) ($87,774) $20,858,437
Net loss (4,469,672) (4,469,672)
Preferred stock dividend accrued 379,065 (379,065) 0
------- ----------- ----------- ------------ ---------- -----------
Balances, December 31, 1997 $61,954 $20,848,557 $51,513,504 ($55,947,476) ($87,774) $16,388,765
------- ----------- ----------- ------------ ---------- -----------
------- ----------- ----------- ------------ ---------- -----------
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
SANTA FE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
December 31, 1997 December 31, 1996
- ----------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Cash and short-term investments used in operations ($930,398) ($300,601)
Increase in accounts receivable, net (27,846) (300,491)
Increase in accounts receivable, officer 0 (12,648)
Increase in inventories (162,273) (84,821)
Decrease in prepaid expenses & other 39,880 94,031
Increase in deferred income taxes 0 (1,603,274)
Increase in other assets (3,376,380) (1,225,970)
Increase (decrease) in accounts payable 371,040 (846,927)
Decrease in interest payable (4,752,073) (5,037,292)
Increase in accrued and other liabilities 1,411,637 3,578,512
---------------- ----------------
Net cash used in operating activities (7,426,413) (5,739,481)
---------------- ----------------
Cash flows from investing activities:
Capital expenditures (1,428,031) (236,576)
---------------- ----------------
Net cash used in investing activities (1,428,031) (236,576)
---------------- ----------------
Cash flows from financing activities:
Cash proceeds of long-term debt 57,500,000 1,559,000
Cash paid on long-term debt (40,728,211) (1,211,094)
---------------- ----------------
Net cash provided by financing activities 16,771,789 347,906
---------------- ----------------
Increase (decrease) in cash and short-term investments 7,917,345 (5,628,151)
Cash and short-term investments,
beginning of period 15,146,217 17,497,824
---------------- ----------------
Cash and short-term investments,
end of period $23,063,562 $11,869,673
---------------- ----------------
---------------- ----------------
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
5
<PAGE>
SANTA FE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF PRESENTATION AND GENERAL INFORMATION
Santa Fe Gaming Corporation, formerly known as Sahara Gaming Corporation, (the
"Company" or "Santa Fe Gaming"), a publicly traded Nevada corporation, is the
successor corporation of two affiliates, Sahara Resorts and Sahara Casino
Partners, L.P., which combined in a business combination in September, 1993.
The Company's primary business operations are conducted through two wholly owned
subsidiary corporations, Santa Fe Hotel Inc. ("SFHI") and Pioneer Hotel Inc.
("PHI") (the "Operating Companies"). SFHI owns and operates the Santa Fe Hotel
and Casino (the "Santa Fe"), located in Las Vegas, Nevada, and PHI owns and
operates the Pioneer Hotel & Gambling Hall (the "Pioneer") in Laughlin, Nevada.
The Company owns real estate 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 and in Henderson, Nevada, for possible development
opportunities.
These consolidated condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Annual Report to stockholders for the year ended September 30, 1997.
The results of operations for the three month period ended December 31, 1997
are not necessarily indicative of the results to be expected for the entire
year.
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting of only normal
accruals) necessary to present fairly the financial position of the Company at
December 31, 1997, the results of its operations for the three month periods
ended December 31, 1997 and 1996, the changes in stockholders' equity for the
three month period ended December 31, 1997, and cash flows for the three month
periods ended December 31, 1997 and 1996.
Certain reclassifications have been made in the 1996 consolidated financial
statements in order to conform to the presentation used in 1997.
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.
6
<PAGE>
Recently Adopted Accounting Standard
During the quarter ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128 "Earnings per Share." 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 effect of common share
equivalents. Since the Company incurred a net loss during the three-month
period ended December 31, 1997 and 1996, both basic and diluted per share
calculations are based upon average shares outstanding of 6,195,356 during
this period. The effect of options outstanding to purchase common shares was
not included in diluted calculations during the quarter ended December 31,
1996. Diluted net income per share during the first quarter ended December
31, 1997 is determined considering the dilutive effect of outstanding stock
options. The effect of options outstanding to purchase common shares was not
included in diluted calculations during the quarter ended December 31, 1997
since the exercise price of such options was greater than the average price
of the Company's common shares.
NOTE 2 - CASH AND SHORT-TERM INVESTMENTS
At December 31, 1997, approximately $6.7 million of the Company's consolidated
cash and short term investments was held by SFHI and was subject to certain
restrictions and limitations on its use, including restrictions on its
availability for distribution to the Company, by the terms of an indenture
pursuant to which $115 million principal amount of 11% First Mortgage Notes due
2000 ("11% Notes") of SFHI was issued. As of December 31, 1997, SFHI did not
meet the conditions precedent to making a distribution to the Company.
At December 31, 1997, approximately $12.7 million of the Company's consolidated
cash and short-term investments was held by PHI and was subject to certain
restrictions, including restrictions on its availability for distribution to the
Company, by the terms of an indenture pursuant to which the 13 1/2% First
Mortgage Notes due 1998 ("13 1/2% Notes") of Pioneer Finance Corp. were
issued. As of December 31, 1997, PHI did not meet the conditions precedent
to making a distribution to the Company.
At December 31, 1997, approximately $2.1 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 1999 ("SLVC Notes") of SLVC was issued.
NOTE 3 - ASSETS HELD FOR SALE
In November 1997, the Company entered into an agreement to sell the 22 acre
parcel of land next to the Santa Fe for approximately $3.6 million. The
agreement is subject to certain contingencies and will terminate if closing does
not occur before May 15, 1998. At
7
<PAGE>
closing, the buyer may elect to pay half the purchase price in cash,
approximately $1.8 million, and execute a promissory note in favor of the
Company for the balance. The promissory note will bear interest a the prime
rate and mature on May 15, 1998. The promissory note may be extended for six
months at an interest rate of four percent above the prime rate and the payment
of 10% of the principal balance.
NOTE 4 - CURRENT PORTION OF LONG-TERM DEBT
As of December 31, 1997, the Company's current liabilities exceeded current
assets by $57.3 million. The Company has approximately $71.5 million in
current maturities of long-term debt due to third parties during the
twelve-month period ending December 31, 1998, comprised primarily of $5.5
million principal amount of 10 1/4% Subordinated Debentures due June 1998
(the "10 1/4% Debentures"), $60.0 million of principal amount of 13 1/2%
Notes due December 1998 issued by Pioneer Finance Corporation and guaranteed
by the Company (the "13 1/2% Notes"), a $4.8 million balloon payment due on
the note payable by the Company to Sierra Construction Corp. ("Sierra
Construction") due December 1998 and principal amortization payments under
other notes payable and capital leases. The scheduled maturities applicable
to third party debt under other notes payable and capital leases at SFHI and
PHI during the twelve month period ending December 31, 1998 are $800,000 and
$100,000, respectively.
Although management has in the past and is currently exploring refinancing or
debt modification alternatives, as well as possible dispositions or financing
of certain assets, in order to satisfy the current maturities of long-term
debt obligations as they become due in the twelve month period ending
December 31, 1998, 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. The Company has no arrangements for any
such refinancings, modifications, disposition or other financings. 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 refinancings 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, and if the
holders of the various debt instruments were to demand payment upon the
maturity dates, events of default would occur which would lead to
cross-defaults in other material agreements of the Company including, without
limitation, agreements relating to substantially all of the outstanding
long-term debt of the Company and its subsidiaries.
NOTE 5 - LONG-TERM DEBT
In November 1997, the Company entered into an amended and restated agreement of
the SLVC Notes pursuant to which the principal amount of notes was increased
from $35 million 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. The additional proceeds were used
by SLVC primarily to acquire the 39 acre parcel of land in
8
<PAGE>
Henderson, Nevada from its affiliate Santa Fe Valley, Inc. ("SFVI") for cash
consideration of $20 million. SFVI used approximately $5 million to repay the
12 1/4% Notes and paid a dividend of $5 million to PHI. The balance of the
proceeds of approximately $10 million was retained by SFVI.
NOTE 6 - LEASES
In November 1997, SFHI amended the terms of operating leases for gaming and
other equipment to extend the term of the leases from up to 36 months to 48
months, to defer payment on the leases until August 1998, to increase lease
payments from August 1998 to the termination of the leases to $253,000 per
month and to replace older gaming equipment with new equipment. In January
1998, the Company entered into operating leases for an additional 200 slot
and video poker machines with terms for 36 months. Lease payments in the
aggregate, commencing in August 1998, will be approximately $300,000 per
month.
In December 1997, PHI purchased gaming equipment subject to operating leases
for approximately $1.1 million. Monthly lease payments for gaming equipment
will decrease by $44,000 as a result.
NOTE 7 - SUPPLEMENTAL INFORMATION
Supplemental statement of cash flows information for the three month periods
ended December 31, 1997 and 1996 is presented below:
<TABLE>
<CAPTION>
(dollars in thousands)
1997 1996
------- -------
<S> <C> <C>
Cash paid during the period for interest,
net of amount capitalized of $108,337 and
$-0- for 1997 and 1996, respectively $10,287 $10,358
------- -------
------- -------
</TABLE>
9
<PAGE>
8. SUPPLEMENTAL STATEMENT OF SUBSIDIARY INFORMATION -
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
THE COMPANY'S PRIMARY OPERATIONS ARE IN THE HOTEL/CASINO INDUSTRY AND IN
FISCAL YEARS 1997 AND 1996 WERE CONDUCTED THROUGH PHI AND SFHI. OTHER BELOW
INCLUDES FINANCIAL INFORMATION FOR THE COMPANY'S OTHER OPERATIONS BEFORE
ELIMINATING ENTRIES. IDENTIFIABLE ASSETS LISTED BELOW EXCLUDES BALANCES DUE
BETWEEN AFFILIATES. IN ADDITION TO THE FINANCIAL INFORMATION FOR THE THREE
MONTHS ENDED DECEMBER 31, 1997 AND 1996, AS SET FORTH IN THE TABLE BELOW, SEE
NOTES 2 AND 4 FOR ADDITIONAL DISCUSSION OF SUBSIDIARY OPERATIONS.
<TABLE>
<CAPTION>
(dollars in thousands) YEAR PHI SFHI OTHER ELIMINATIONS TOTAL
- --------------------- ---- -------- ------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES 1997 $ 9,910 $17,143 $ 457 $(151) $ 27,359
-------- ------- ------- ------------ --------
-------- ------- ------- ------------ --------
1996 $ 9,929 $15,197 $ 669 $(387) $ 25,408
-------- ------- ------- ------------ --------
-------- ------- ------- ------------ --------
OPERATING INCOME (LOSS) 1997 $ (320) $ 2,711 $ (684) $(100) $ 1,607
-------- ------- ------- ------------ --------
-------- ------- ------- ------------ --------
1996 $ (250) $ 759 $ 212 $(150) $ 571
-------- ------- ------- ------------ --------
-------- ------- ------- ------------ --------
INTEREST EXPENSE 1997 $ 2,045 $ 3,336 $ 795 $(100) $ 6,076
-------- ------- ------- ------------ --------
-------- ------- ------- ------------ --------
1996 $ 1,974 $ 3,235 $ 586 $(150) $ 5,645
-------- ------- ------- ------------ --------
-------- ------- ------- ------------ --------
DEPRECIATION AND AMORTIZATION 1997 $ 1,433 $ 1,443 $ 257 $ 3,133
-------- ------- ------- ------------ --------
-------- ------- ------- ------------ --------
1996 $ 1,400 $ 1,288 $ 40 $ 2,728
-------- ------- ------- ------------ --------
-------- ------- ------- ------------ --------
RENTS 1997 $ 307 $ 604 $ 911
-------- ------- ------- ------------ --------
-------- ------- ------- ------------ --------
1996 $ 278 $ 617 $ 895
-------- ------- ------- ------------ --------
-------- ------- ------- ------------ --------
CAPITAL EXPENDITURES 1997 $ 1,278 $290 $17 $ 1,585
-------- ------- ------- ------------ --------
-------- ------- ------- ------------ --------
1996 $ 233 $160 $126 $ 519
-------- ------- ------- ------------ --------
-------- ------- ------- ------------ --------
IDENTIFIABLE ASSETS 1997 $97,525 $74,522 $55,270 ($1,245) $226,072
-------- ------- ------- ------------ --------
-------- ------- ------- ------------ --------
1996 $112,574 $78,551 $32,349 ($1,245) $222,229
-------- ------- ------- ------------ --------
-------- ------- ------- ------------ --------
</TABLE>
10
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Santa Fe Gaming Corporation:
We have reviewed the accompanying consolidated condensed balance sheet of Santa
Fe Gaming Corporation and subsidiaries (the "Company") as of December 31,
1997, the related consolidated condensed statements of operations and of cash
flows for the three-month periods ended December 31, 1997 and 1996, and of
stockholders' equity for the three-month period ended December 31, 1997 in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of
the Company's management.
A review of interim financial information consists principally of inquiries of
Company personnel and analytical procedures applied to financial data. It is
substantially less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated condensed financial statements in order for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Santa Fe Gaming Corporation and
subsidiaries as of September 30, 1997, and the related consolidated statements
of operations, stockholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated December 8, 1997 we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated condensed balance
sheet as of September 30, 1997 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
As discussed in Note 4 to the consolidated condensed financial statements, as
of December 31, 1997 the Company's current liabilities exceeded current
assets by $57.3 million, which is due to $71.5 million in current maturities
of long term debt due to third parties during the twelve-months ended
December 31, 1998. Management of the Company is exploring alternatives to
address the $71.5 million current maturities of long term debt, which
consists primarily of the Pioneer Hotel, Inc. 13 1/2% Notes of $60 million,
including, but not limited to, disposition of asset, modifications to
existing lease agreements, a possible reduction of indebtedness or
refinancing of modification of the 13 1/2% Notes. If the Company is
ultimately unable to refinance or modify any such debt prior to maturity,
and/or obtain sufficient proceeds from asset dispositions or financings to
repay such debt, and if the holders of the various debt instruments were to
demand payment upon the maturity dates, events of default would occur which
would lead to cross-defaults in other material agreements of the Company
including, without limitation, agreements relating to substantially all of
the outstanding long-term debt of the Company and its subsidiaries. Although
management has in the past and is currently exploring refinancing
alternatives, as well as possible dispositions or financing of certain
assets, in order to satisfy long-term debt obligations as they become due, no
assurance can be given that the Company will be able to refinance or modify
some or all of its indebtedness or dispose of, or obtain financing with
respect to any assets.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
February 13, 1998
11
<PAGE>
SANTA FE GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
CONSOLIDATED
Consolidated revenues for the three month period ended December 31, 1997 were
$27.4 million, a $2.0 million, or 7.7%, increase from $25.4 million for the same
period in 1996. Revenues increased by $1.9 million at the Santa Fe Hotel and
Casino (the "Santa Fe") and were unchanged at the Pioneer Hotel and Gambling
Hall (the "Pioneer").
Consolidated operating income for the three month period ended December 31, 1997
was $1.6 million, a $1.0 million, or 181.1%, increase from $600,000 for the same
period in 1996. Operating income increased by $1.9 million at the Santa Fe and
decreased by $100,000 at the Pioneer.
Consolidated interest expense for the three month period ended December 31, 1997
was $6.1 million, a $500,000 increase compared to $5.6 million for the same
period in 1996. Interest expense increased by $100,000 at the Santa Fe in the
1997 period due to increased indebtedness outstanding under a $5.0 million
revolving note issued to the Company in December 1996. Interest expense of
Sahara Las Vegas Corp. ("SLVC") increased by $300,000 in the 1997 period due
to the issuance of $37.5 million principal amount of additional notes in
November 1997.
Consolidated net loss before income taxes for the three month period ended
December 31, 1997 was $4.5 million, a $600,000 decrease compared to net loss of
$5.1 million in the same period in the prior year. Net loss before income taxes
decreased by $1.8 million at the Santa Fe and increased by $100,000 at the
Pioneer.
Santa Fe Gaming Corporation ("the Company") did not record an income tax
benefit in the current quarter due to the uncertainty of the Company's
ability to recognize a benefit of the net operating loss. Consolidated net
loss, applicable to common shares was $4.8 million compared to $3.8 million
in the prior year period.
SANTA FE
Revenues at the Santa Fe increased 12.8%, or $1.9 million, in the three months
ended December 31, 1997 to $17.1 million as compared to $15.2 million in the
same period in the prior year. Casino revenues increased 17.7%, or $2.0
million, to $13.4 million from $11.4 million when compared to the same three
month period of 1996.
12
<PAGE>
Operating expenses were unchanged. Casino expenses increased by 4.0%, or
$200,000, primarily due to increased payroll expenses. Selling, general and
administrative expenses increased by 6.0%, or $100,000 and depreciation and
amortization expense increased 12.0%, or $200,000. Such increases were
offset by cost control related decreases of 18.7% or $500,000 in food and
beverage expenses. Operating income for the period increased $1.9 million,
or 257.0%, to $2.7 million in 1997 from $800,000 in 1996.
Santa Fe Hotel, Inc. ("SFHI") is negotiating with the Teamsters, Operating
Engineers, Culinary and Bartenders Unions ("Unions") with respect to collective
bargaining agreements covering certain employees at the Santa Fe. If
negotiations result in agreements between SFHI and the Unions, operating
expenses are expected to increase. In the event negotiations fail to result
in agreements, the Unions may call a strike, which would result in operating
revenues being adversely affected. In either event, there would be a
material adverse effect on the results of operations and financial condition
of Santa Fe and the Company.
PIONEER
Revenues at the Pioneer were unchanged at $9.9 million in the December 1997
quarter compared to the prior year. Casino revenues were $8.6 million in 1997,
representing an increase of 1.0%, or $100,000, compared to $8.5 million in the
1996 period. This was offset by a decrease in room revenue of $100,000.
Operating expenses increased $100,000, or .5%, to $10.2 million in the quarter
ended December 31, 1997, primarily due to slight increases in utilities and
property expenses and depreciation and amortization expenses. Accordingly,
operating income decreased by 28.3%, or $100,000, to a loss of $300,000 in the
fiscal 1998 quarter from a loss of $200,000 in 1996.
LIQUIDITY AND CAPITAL RESOURCES; TRENDS AND FACTORS RELEVANT TO FUTURE
OPERATIONS
As of December 31, 1997, the Company held cash and short-term investments of
$23.1 million compared to $15.1 million at September 30, 1997. The Company's
cash used for operations was $7.4 million for the three months ended December
31, 1997 as compared to $5.7 million for the prior year's quarter. Cash used
for investing activities was $1.4 million and $200,000, during the three month
periods ended December 1997 and 1996, respectively. This is principally due to
the acquisition of gaming equipment at the Pioneer in the current period. Cash
provided from financing activities was $16.8 million in the three month period
compared to $300,000 during the same period in 1996. The increase results
from the issuance of $22.5 million of additional SLVC Notes in November 1997,
with net proceeds to SLVC of approximately $20 million.
The Company's earnings before interest, taxes, depreciation, amortization and
rents ("EBITDAR") were $5.7 million and $4.2 million for the three months ended
December 31,
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1997 and 1996, respectively. EBITDAR for the 1997 three month period represents
.81 times rent and interest expense, compared to .64 times rent and interest
expense in the prior year three month period. The Company had approximately
$900,000 in rent expenses in each of the three month periods ended December
31, 1997 and 1996. EBITDAR should not be construed as a substitute for
operating income or a better indicator of liquidity than cash flow from
operating activities, which are determined in accordance with GAAP, 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 EBITDAR is not necessarily a measure
of the Company's ability to fund its cash needs, management believes that
certain investors find EBITDAR to be a useful tool for measuring the ability
of the Company to service its debt.
DEBT OBLIGATIONS - The Company has approximately $71.5 million in current
maturities of long term debt due to third parties during the twelve-month period
ending December 31, 1998, comprised primarily of a $5.5 million principal amount
of 10 1/4% Subordinated Debenture due June 1998 (the "10 1/4% Debentures"),
$60.0 million of principal amount of 13 1/2% Notes due December 1998 issued
by Pioneer Finance Corporation and guaranteed by the Company (the "13 1/2%
Notes"), a $4.8 million balloon payment due on the note payable by the
Company to Sierra Construction Corp. ("Sierra Construction") due December
1998 and principal amortization payments under other notes payable and
capital leases. The scheduled maturities applicable to third party debt
under other notes payable and capital leases at SFHI and PHI during the
twelve month period ending December 31, 1998 are $800,000 and $100,000,
respectively.
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 as they become due in the twelve month period
ending December 31, 1998, 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. The Company has no arrangements
for any such refinancings, disposition or other financings. Any such
refinancing or modification would be
14
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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 refinancings 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, and if the holders of the various debt
instruments were to demand payment upon the maturity dates, events of default
would occur which would lead to cross-defaults in other material agreements
of the Company including, without limitation, agreements relating to
substantially all of the outstanding long-term debt of the Company and its
subsidiaries.
The Company had $121.8 million in long-term debt, net of current maturities
and debt discount, as of December 31, 1997. Of such amounts, approximately
$57.5 million and $66.3 million mature in December 1999 and December 2000,
respectively, comprised primarily of $57.5 million of SLVC Notes due
December 1999 (the "SLVC Notes"), issued by SLVC and guaranteed by the
Company and $66 million of 11% Notes due December 2000 (the "11% Notes")
issued by SFHI and guaranteed by the Company.
Debt agreements restrict the distribution of cash from certain of the
Company's subsidiaries to the Company. Cash flow from SFHI and Pioneer
Hotel, Inc. ("PHI") and SLVC, is not currently, and is 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 parcel of real property subject to a sales
agreement, or, cause subsidiaries to dispose of or refinance assets, to
provide liquidity to fund Corporate cash requirements including obligations
that may arise as a result of the Company's guarantee of subsidiary debt.
See more detailed discussion of Liquidity for SLVC, PHI, SFHI and Corporate,
below.
LIQUIDITY - CORPORATE - Approximately $4.8 million of the Company's current
assets at December 31, 1997, including approximately $1.5 million of cash and
short-term investments, was held by Corporate.
In November 1997, Corporate entered into an agreement to sell the 22 acre
parcel of real property located adjacent to the Santa Fe. The sale is
subject to several contingencies, and will terminate if such contingencies
are not satisfied by May 15, 1998. If the sale is completed, the Company
will receive consideration of approximately $3.6 million, comprised of $1.8
million in cash and a promissory note in the amount of $1.8 million, of which
approximately $1.6 million would be required to retire debt against the
property.
In December 1997, Corporate and SFHI amended the terms of a $5 million note due
from SFHI to extend the maturity date until May 31, 1998. In addition, a $5
million revolving note facility due from SFHI was also modified to extend the
maturity date until May 31, 1998.
Corporate consists primarily of non-operating entities which do not generate
cash flow from operations. Corporate cash resources include interest income on,
and approximately $10 million principal amount outstanding under two notes
from SFHI which mature in May 1998. Corporate's principal uses of cash are
for debt service, administrative and professional expenses of the parent
company, and costs associated with the evaluation and development of proposed
projects. Corporate debt service includes payment obligations on $5.5
million principal amount of the 10 1/4% Debentures, a $5.2 million note
payable to Sierra Construction and a $1.6 million loan on a 22 acre parcel of
land due December 1999. See "Debt Obligations" above.
Additional potential uses of cash by Corporate include the payment of a
guaranteed tenant loan if the Company terminates the lease to which the parcel
on Las Vegas Boulevard
15
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South is subject (which loan had an outstanding balance of $5.2 million as of
December 31, 1997) and the payment of $750,000 to the recreational vehicle park
operator to which the Company transferred its rights and obligations relating to
Camperland recreational vehicle group contracts if the operator chooses to
relocate the Camperland membership to a mutually acceptable new location.
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,
are required to be paid in cash. In addition, the Company has the right to
redeem the preferred stock for its liquidation preference or from and after
September 30, 1998 to exchange in whole or in part the preferred stock at its
liquidation preference for junior subordinated notes. 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 or the redemption of the preferred stock. In the event not
declared, dividends accrue on the preferred stock. The Company accrued the
semi-annual preferred stock dividends due in March and September 1997. To
the extent the Company accrues four consecutive semi-annual preferred stock
dividends, the preferred stockholders will have the right to appoint two
members to the Board of Directors at the next annual meeting of shareholders.
In March 1999, the dividend rate will increase to 11.0% from 8.0% and will
increase by 50 basis points each semi-annual period thereafter, up to a maximum
of 16%.
Management believes that Corporate has sufficient working capital and available
resources to meet its operating and debt service requirements through the
twelve month period ending December 31, 1998, including the maturity of $5.5
million principal amount of 10 1/4% Debentures in June 1998 and the $4.8
million note due Sierra Construction in December 1998. Available resources
includes proceeds that may be available from the sale of real property and
repayment of up to approximately $10 million principal amount due to the
Company from SFHI discussed above, or from the sale of the notes due from
SFHI to third parties. No assurance can be given that the Company would have
available resources to satisfy the outstanding indebtedness. Management is
also exploring other alternatives to satisfy the outstanding indebtedness.
The Company has guaranteed the debt of its subsidiaries PHI, SLVC and SFHI,
including $60 million principal amount of 13 1/2 Notes due December 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 either 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 the necessary liquidity the Company may cause its subsidiaries to
dispose of 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 of loans. See Liquidity -
SFHI, Liquidity - PHI and Liquidity - SLVC.
LIQUIDITY - SFHI - At December 31, 1997, approximately $9.5 million of the
Company's current assets, including approximately $6.7 million of cash and short
term investments, was held by SFHI.
Results from operations at the Santa Fe for the three months ended December 31,
1997 generated EBITDAR of $5.0 million, approximately 1.27 times rent and
interest expense, compared to $2.9 million of EBITDAR in 1996, or approximately
.75 times rent and interest expense. The Santa Fe had approximately $600,000
in rent expense in the fiscal 1998 and 1997 period. Management believes that
Santa Fe's EBITDAR in prior periods was adversely impacted
16
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as a result of increased competition in its market area and restricted access to
the property due to road construction that was ongoing from April 1996
through February 1998.
SFHI's principal uses of cash from operations are for operating lease payments,
interest payments on indebtedness and capital expenditures to maintain the
facility. Effective November 1997, SFHI amended and restated most of its
operating lease agreements for gaming equipment to extend the term from 36
months to 48 months and defer payments until August 1998, at which time the
monthly lease payments in the aggregate will be approximately $300,000.
Capital expenditures to maintain the facility in fiscal 1998 are expected to
be approximately the same that was expended in fiscal 1997.
Management believes that, based on operations for the three month period
ended December 31, 1997, SFHI will have sufficient cash resources to meet its
operating expense requirements through the twelve month period ending
December 31, 1998, although no assurance can be given to that effect.
Results for the 1998 first quarter improved compared to the same quarter in
the prior year. However, results for the 1998 first quarter are not
necessarily indicative of results for the entire fiscal year. Management
believes SFHI will be able to refinance the two notes due in May 1998 or
obtain an extension from the Company, with respect to some or all of the $10
million principal amount. SFHI is exploring alternatives to improve
liquidity, including, but not limited to, further operating lease
modifications and possible refinancings or modification of the 11% Notes.
The Company has no arrangements for any such refinancings, dispositions or
other financings. To the extent that SFHI 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 SFHI. No
assurance can be given that Corporate would have available resources to make
contributions or advances. See "Liquidity-Corporate".
LIQUIDITY - PHI - At December 31, 1997, approximately $14.1 million of the
Company's current assets, including approximately $12.7 million of cash and
short term investments, was held by PHI including $9.5 million of the cash
and short-term investments held by a subsidiary.
Results from operations at the Pioneer for the three months ended December 31,
1997, generated EBITDAR of $1.7 million, approximately .71 times rent and
interest expense, compared to $1.6 million of EBITDAR in 1996, or approximately
.73 times rent and interest expense. The Pioneer reported approximately
$300,000 in rent expense in the fiscal 1998 and 1997 period. Rent in future
periods will be reduced by approximately $130,000 per quarter compared to the
current quarter ended December 31, 1997 due to the purchase of gaming
equipment previously
17
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under lease in December 1997. Results for the first quarter are not
necessarily indicative of the results to be expected in the future.
PHI's principal uses of cash are for lease payments, interest payments on
indebtedness and capital expenditures to maintain the facility. Capital
expenditures to maintain the facility in fiscal 1998 are expected to be
approximately the same that was expended in fiscal 1997. However, PHI is
expected to incur approximately $1.5 million to purchase gaming equipment in the
1998 period of which $1.1 million was incurred as of December 31, 1997.
Management believes that, based on operations for the three month period ended
December 31, 1997, PHI will have sufficient cash and available resources to
meet its operating requirements through the twelve months ending December 31,
1998, although no assurance can be given to that effect. Results for the
1998 first quarter were flat compared to the same quarter in the prior year.
However, results for the 1998 first quarter are not necessarily indicative of
the results for the entire year. Approximately $10.0 million of cash is held
by a subsidiary and could be available to satisfy in part the obligations
under the 13 1/2% Notes. The 13 1/2% Notes mature in December 1998. PHI is
exploring alternatives to improve liquidity and to address the maturity of
the 13 1/2% Notes, including, but not limited to, modifications to existing
lease agreements, a possible reduction of indebtedness or refinancing or
modification of the 13 1/2% Notes. The Company has no arrangements for any
such refinancings, dispositions or other financings. No assurance can be
given that the Company would have available resources to do so. No assurance
can be given that PHI can pay the outstanding principal amount of 13 1/2%
Notes at maturity.
LIQUIDITY - SLVC - At December 31, 1997, approximately $2.1 million of the
Company's cash and short-term investments was held by SLVC.
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. SLVC's principal uses of cash on hand, cash
generated under the lease agreement, and interest income on the 11% Notes is to
satisfy principal and interest obligations on the SLVC Notes.
Additional potential uses of cash by SLVC include the redemption of $7.0 million
principal amount of SLVC Notes or, alternatively, the redemption of $7.0
million principal amount of 11% Notes, in the event cash flow, before a
maximum $2.4 million in lease obligations at the Santa Fe, is less than $13.5
million for any four quarter period.
SLVC holds a 39 acre parcel of real property in Henderson, Nevada and is
evaluating the development of a casino entertainment complex on the site.
The Company has completed preliminary engineering and architectural drawings.
Any future development costs will be 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.
18
<PAGE>
Management believes that SLVC has available resources, consisting primarily of
restricted working capital and interest income on the 11% Notes held as
collateral, to meet operating and debt service requirements through the twelve
months ending December 31, 1998, although no assurance can be given to that
effect.
RELATED PARTIES From 1991 through 1993 LICO, a company wholly-owned by Mr.
Lowden, Chairman of the Board, Chief Executive Officer and 53% stockholder of
the Company, borrowed an aggregate of $476,000 from a subsidiary of the Company,
pursuant to an unsecured demand loan which bears interest at 2% over the prime
rate. The outstanding balance of the loan including accrued interest was
$700,000 as of December 31, 1997. In January 1998, the Company offset amounts
due Mr. Lowden under certain compensation arrangements against the outstanding
balance of the loan.
In November 1993, Mr. Lowden and Bank of America (the "Bank") entered into a
personal loan agreement under which the principal balance of the loan is
amortized through quarterly principal payments through April 1998, with any
remaining principal balance due July 31, 1998. The loan is secured by
substantially all of the common stock of the Company owned by Mr. Lowden (the
"Pledged Shares"). Mr. Lowden's loan agreement provides that in the event the
market value of the Pledged Shares is less than three times the outstanding loan
balance, the bank, at its sole option, may require either an immediate reduction
in the outstanding balance or the pledging of additional collateral acceptable
to the bank such that the value of the pledged collateral is at least three
times the outstanding loan balance. Based on the recent trading price of the
Company's common stock, the market value of the Pledge Shares has from time to
time been less than three times the outstanding loan balance. Mr. Lowden has
advised the Company that pursuant to discussions between Mr. Lowden and the
Bank, Mr. Lowden has reduced the loan balance to $877,000 by paying an
additional $50,000 and has provided additional collateral to the Bank. If an
event of default were to occur under Mr. Lowden's personal loan with the bank,
and if the bank acquired the Pledged Shares upon foreclosure, Mr. Lowden's
ownership of the Company's outstanding common stock would be reduced to below
50%. If Mr. Lowden ceases to own more than 50% of the outstanding shares of the
Company's common stock, an event of default would result under certain of the
Company's long-term indebtedness, which could result in cross-defaults under
substantially all of the Company's other long-term indebtedness, including the
13 1/2% Notes, SLVC Notes and 11% Notes.
COMPUTERIZED OPERATIONS AND THE YEAR 2000
During recent years, there has been significant global awareness raised
regarding the potential disruption to business operations worldwide resulting
form the inability of current technology to process properly the change from the
year 1999 to 2000. Although, based on a review of its data processing,
operating and other computer-based systems, the Company does not currently
believe that it will experience any significant adverse effects or material
costs resulting therefrom, the Company cannot provide any assurance in this
regard, and any such costs or effect could materially and adversely effect the
operations of the Company.
19
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EFFECTS OF INFLATION
The Company has been generally successful in recovering costs associated with
inflation through price adjustments in its hotel operations. 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 Quarterly Report on Form 10-Q which are not
historical facts are forward looking statements, such as statements relating to
future operating results, existing and expected competition, financing and
refinancing sources and availability and plans for future development or
expansion activities and capital expenditures. Such forward looking statements
involve a number of risks and uncertainties that may significantly affect the
Company's liquidity and results in the future and, accordingly, actual results
may differ materially from those expressed in any forward looking statements.
Such risks and uncertainties include, but are not limited to, those related to
effects of competition, leverage and debt service financing and refinancing
efforts, general economic conditions, changes in gaming laws or regulations
(including the legalization of gaming in various jurisdictions) and risks
related to development and construction activities.
20
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SANTA FE GAMING CORPORATION
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibits:
10.90 Purchase Agreement by and between Santa Fe
Gaming Corporation and Steve Allen dated
November 21, 1997
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
B. Reports: None
21
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
SANTA FE GAMING CORPORATION, Registrant
By: /s/ Thomas K. Land
------------------------------------------
Thomas K. Land, Chief Financial Officer
Dated: February 13, 1998
22
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Exhibit 10.90
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement"), dated for
identification purposes as of the 21st day of November, 1997, is by and
between SANTA FE GAMING CORPORATION, a Nevada corporation ("Seller"), and
STEVE ALLEN OR HIS NOMINEE ("Buyer"). Capitalized terms used in the RECITALS
below, not otherwise defined therein, shall have the meanings ascribed to
them in SECTION 1 of this Agreement.
R E C I T A L S
WHEREAS, this Agreement is made and entered into with
reference to the following facts:
WHEREAS, Seller is the owner of the Real Property which
consists of approximately 20.96 acres located at in Las Vegas, Clark County,
Nevada.
WHEREAS, Buyer desires to purchase, and Seller desires to
sell, the Real Property on the terms and conditions set forth in this
Agreement.
WHEREAS, Buyer and Seller executed a Purchase Agreement
dated as of November 21, 1997 (the "Initial Agreement"), whereby Buyer agreed
to purchase the Real Property from Seller and Seller agreed to sell the Real
Property to Buyer under the terms and conditions of the Initial Agreement.
WHEREAS, Buyer and Seller acknowledge that the Initial
Agreement contains some mistakes in the numbering of the Articles and
Sections contained within the Initial Agreement and that the size of the Real
Property and the amount of the Purchase Price have changed.
WHEREAS, by entering into this Agreement, Buyer and
Seller desire to terminate the Initial Agreement, and have this Agreement
control.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing
recitals, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Buyer and Seller agree as
follows:
1. DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
<PAGE>
1.1 "APPURTENANCES" means all rights, privileges and
easements appurtenant to the Real Property, including, without limitation,
all minerals, oil, gas and other hydrocarbon substances in, on and under the
Real Property, as well as all development rights, air rights, water, water
rights and water stock relating to the Real Property and any other easements
appurtenant to the Real Property.
1.2 "CLOSING" means the consummation of the conveyance
of the Real Property as contemplated under this Agreement, all of which shall
occur on or before the Closing Date.
1.3 "CLOSING DATE" means, except as otherwise set forth
in SECTION 7.2.3.1(i), the earlier to occur of (a) thirty (30) days after
Buyer obtains Zoning Approval, or (b) May 15, 1998.
1.4 "DEED" means the Grant, Bargain & Sale Deed, to be
duly executed, acknowledged and delivered in recordable form by Seller in
accordance with SECTION 3.2 of this Agreement, conveying to Buyer good and
marketable fee simple title to the Real Property, with the Deed Restriction.
1.5 "DEED OF TRUST" means the deed of trust, security
agreement and assignment of rents executed and delivered by Buyer at the
Closing. The Deed of Trust will secure the Promissory Note and shall be
recorded on the Closing Date with the Clark County Recorder's Office as a
first priority lien on the Real Property in favor of Seller.
1.6 "DEED RESTRICTION" means that restriction in the
Deed which sets forth the following: (a) No part of the Real Property shall
ever at any time be used for the purpose of buying, selling, or handling
intoxicating liquors, and (b) No part of the Real Property shall ever at any
time be used for the purpose of "gaming" or "gambling" or for the operation
of a "game" or "gambling game" as those terms are defined in the Nevada
Gaming Control Act.
1.7 "DUE DILIGENCE PERIOD" means the period commencing
on November 21, 1997 and ending at 6:00 p.m. (Pacific time) on December 22,
1997.
1.8 "EARNEST MONEY DEPOSIT" means the sum of Ten
Thousand Dollars ($10,000) delivered by Buyer which shall be deposited in
Escrow with Escrow Holder on or before three (3) business days after the date
of execution and delivery of this Agreement by Seller and Buyer.
1.9 "ESCROW" means the escrow established with Escrow
Holder for the consummation of the purchase and sale of the Real Property in
accordance with this Agreement.
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<PAGE>
1.10 "ESCROW HOLDER" means National Title Company.
1.11 "PROMISSORY NOTE" means the secured promissory note
to be issued by Buyer to Seller at the Closing in the principal amount of One
Million Eight Hundred Nineteen Thousand Eight Hundred Seven and 50/100
Dollars ($1,819,807.50). The Promissory Note shall be secured by the Deed of
Trust.
1.12 "PURCHASE PRICE" means the sum of Three Million
Seven Hundred Forty-One Thousand Three Hundred Sixty and 00/100 Dollars
($3,741,360.00).
1.13 "REAL PROPERTY" means the Appurtenances and the Real
Property consisting of approximately 20.96 acres located in the City of Las
Vegas, Clark County, Nevada with an accessors parcel numbers of
138-02-101-001 (as to parcels I and II) and 138-02-101-013 (as to parcel III)
as more particularly described on EXHIBIT "A", which is attached hereto and
incorporated herein by reference.
1.14 "TITLE COMPANY" means National Title Company.
1.15 "TITLE POLICY" means the standard form of CLTA Joint
Protection policy issued by the Title Company for property located in the
State of Nevada to be issued for the benefit of Buyer and Seller, which Title
Policy shall show only those Permitted Exceptions (defined below).
1.16 "ZONING APPROVAL" means the zoning approval Buyer
will apply for to obtain R-4 zoning for an apartment building on the Real
Property.
2. PURCHASE PRICE. Seller agrees to sell to Buyer and Buyer
agrees to purchase from Seller, the Real Property in accordance with the
terms, and subject to the conditions, of this Agreement. The Purchase Price
for the Real Property will be paid as follows:
2.1 EARNEST MONEY DEPOSIT. Buyer shall deliver the
Earnest Money Deposit in accordance with SECTION 1.8.
2.2 PORTION OF PURCHASE PRICE. On or before the Closing
Date, Buyer shall deposit into Escrow the amount of One Million Nine Hundred
Twenty-One Thousand Five Hundred Fifty-Two and 50/100 Dollars
($1,921,552.50), as adjusted for prorations and adjustments in accordance
with SECTION 9 and Buyer's share of Escrow closing costs in accordance with
SECTION 10, in cash or in other immediately available funds.
2.3 AMOUNT FINANCED BY SELLER. The balance of the
Purchase Price ($1,819,807.50) shall be financed by Seller. Interest on the
financed amount shall accrue at the prevailing
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<PAGE>
prime rate set by Bank of America Nevada. On or before the Closing Date,
Buyer shall deliver into Escrow the Promissory Note and Deed of Trust,
executed and acknowledged by Buyer. The maturity date of the Promissory Note
is May 15, 1998. At the maturity date, Buyer shall pay to Seller the
outstanding balance of the principal and all accrued interest under the
Promissory Note. Subject to Seller's approval of Buyer's financial
condition, Buyer may extend the maturity date of the Promissory Note for six
(6) months upon written notice to Seller of at least thirty (30) days prior
to the maturity date and payment to Seller of ten percent (10%) of the
remaining balance. If Buyer extends the maturity date, the interest rate
shall increase to the then prevailing prime rate set by Bank of America,
Nevada plus four (4) points during the extended period. At the extended
maturity date, Buyer shall pay to Seller the outstanding balance of the
principal and all accrued interest under the Promissory Note. There shall be
no prepayment penalty.
3. ESCROW; CLOSING.
3.1 OPENING OF ESCROW. Within forty-eight (48) hours
following the mutual execution and delivery of this Agreement, the parties
shall open the Escrow with Escrow Holder in order to consummate the purchase
and sale in accordance with the terms and provisions of this Agreement by
depositing a fully executed counterpart of this Agreement with Escrow Holder.
This Agreement shall constitute joint escrow instructions to Escrow Holder;
PROVIDED, HOWEVER, that the parties shall execute such additional
instructions as may be reasonably requested by Escrow Holder not inconsistent
with the provisions of this Agreement. The Closing will take place on the
Closing Date at the offices of Escrow Holder located at 714 E. Sahara Avenue,
Suite 102, Las Vegas, Nevada.
3.2 BY SELLER. At the Closing, Seller shall deliver or
cause to be delivered to Escrow Holder the following items (if applicable),
duly executed and, where appropriate, acknowledged by Seller.
3.2.1 The Deed.
3.2.2 Such resolutions, authorizations, and/or
other corporate documents relating to Seller as are reasonably required by
Buyer in connection with the transactions contemplated under this Agreement.
3.3 BY BUYER. At the Closing, Buyer will deliver or
cause to be delivered to Escrow Holder the following items, duly executed
and, where appropriate, acknowledged by Buyer.
3.3.1 The portion of the Purchase Price
($1,921,552.50), to be paid in accordance with SECTION 2.2 of
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this Agreement, and after taking into account the adjustments and cost
allocations in accordance with SECTIONS 9 AND 10.
3.3.2 The Promissory Note.
3.3.3 The Deed of Trust.
3.3.4 Such corporate resolutions, and/or other
corporate and partnership documents relating to Buyer as are reasonably
required by Seller in connection with the transactions contemplated under
this Agreement.
3.4 BY BUYER AND SELLER. Buyer and Seller will each
deposit into the Escrow such other instruments consistent with this Agreement
as are reasonably required to effectuate the transactions contemplated under
this Agreement.
3.5 CLOSE OF ESCROW. When (a) each party has deposited
in Escrow all of the funds and documents required to be deposited in Escrow
by it pursuant to this SECTION 3 or any other provision of this Agreement,
and (b) each of the parties has approved or waived each of the conditions in
its favor set forth in SECTION 7 of this Agreement, and (c) Escrow Holder is
otherwise in a position to close Escrow, Escrow Holder shall close Escrow by:
3.5.1 RECORDATION. Recording in the Official
Records of the County of Clark, State of Nevada the Deed, the Deed of Trust
and any other documents deposited in Escrow which are in recordable form;
3.5.2 FUNDS. Delivering to Seller the portion of
the Purchase Price ($1,921,552.50), in accordance with SECTION 2.2, as
adjusted for Seller's share of prorations and Closing costs;
3.5.3 DOCUMENTS TO SELLER. Delivering to Seller
the Promissory Note, copies of the Deed of Trust and any other documents (or
copies thereof) delivered into Escrow by Buyer;
3.5.4 DOCUMENTS TO BUYER. Delivering to Buyer the
Deed and any other documents (or copies thereof) delivered into Escrow by
Seller; and
3.5.5 TITLE POLICY. Delivering to Buyer and Seller
two (2) originals of the Title Policy and any direct access reinsurance
agreements.
4. REPRESENTATIONS AND WARRANTIES.
4.1 SELLER'S REPRESENTATIONS AND WARRANTIES. Seller
makes the following representations and warranties to Buyer, all of which
will be true as of the date of the Closing:
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4.1.1 ORGANIZATION. Seller is duly organized,
validly existing and in good standing under the laws of the State of Nevada
and is duly qualified to do business in the State of Nevada. The execution
and delivery of this Agreement and the other documents contemplated this
Agreement by Seller, and the performance by Seller of the obligations under
this Agreement and the other documents contemplated in this Agreement (i) are
within the power of Seller; (ii) have been duly authorized by all requisite
corporate action on the part of all of its constituent corporate partners;
and (iii) will not violate any provision of law, any order of any court or
agency of government, the charter documents of Seller, or any indenture,
agreement or any other instrument to which Seller is a party. This Agreement
and each of the other documents described in this Agreement when executed and
delivered to Buyer, will constitute legal, valid and binding obligations
enforceable against Seller in accordance with the terms of such documents.
4.1.2 NON-FOREIGN PERSON. Seller is not a
"foreign person" as that term is defined in Section 1445(f) of the Code and
the applicable provisions of the applicable state, if any, and the
regulations issued thereunder, as amended, or any successor thereto.
4.1.3 FEE REAL PROPERTY OWNER. Seller has
good and marketable fee simple title in and to, and is the sole owner of, the
Real Property.
4.1.4 TITLE. At Closing, the Deed will convey
to Buyer good and marketable fee simple title to the Real Property, free and
clear of all liens, security interests, encumbrances, rights of first
refusal, agreements, encroachments, special assessments, claims, leases,
tenancies, federal or state taxes or defects except the Permitted Exceptions
and the Deed Restriction.
4.2 BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer
makes the following representations and warranties to Seller upon which
warranties and representations Seller has relied and will continue to rely,
all of which are true as of the date of this Agreement and will be true and
correct as of the Closing:
4.2.1 ORGANIZATION. Buyer, if this Agreement
is assigned to a legal entity, is duly organized, validly existing and in
good standing under the laws of the [State of Virginia]. The execution and
delivery of this Agreement and the other documents contemplated this
Agreement by Buyer, and the performance by Buyer of the obligations under
this Agreement and the other documents contemplated in this Agreement (i) are
within the power of Buyer; (ii) have been duly authorized by all requisite
action on the part of Buyer and all of its constituent corporate partners;
and (iii) will not violate any provision of law, any order of any court or
agency of government, the charter documents of Buyer or its general partners,
or any indenture, agreement or any other instrument to which Buyer is a
party.
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This Agreement and each of the other documents described in this Agreement
when executed and delivered to Buyer, will constitute legal, valid and
binding obligations enforceable against Buyer in accordance with the terms of
such documents.
4.2.2 COMPLIANCE WITH AGREEMENTS. The
execution and delivery of, and performance under, this Agreement has not and
will not constitute a breach or default under any other agreement, law or
court order under which Buyer is a party.
4.2.3 INSOLVENCY. There are no attachments,
execution proceedings, assignments for the benefit of creditors, insolvency,
bankruptcy, reorganization or other proceedings pending or threatened against
Buyer, nor are any such proceedings contemplated by Buyer.
4.2.4 BROKERS. With the exception of the
commission payable to Real Corp. Realty, there are no brokers' commissions or
finder's fees payable in connection with the transaction contemplated by this
Agreement.
5. OBLIGATIONS.
5.1 SELLER'S PRE-CLOSING OBLIGATIONS. Seller
hereby covenants to Buyer, upon which covenants Buyer has relied and will
continue to rely, that for the period from the date of this Agreement through
and including the Closing Date:
5.1.1 FURTHER LIENS AND ENCUMBRANCES. Seller
will not subject the Real Property to any additional liens, encumbrances,
covenants, conditions, easements, rights of way or similar matters after the
date of this Agreement. Seller will not hereafter modify, extend, renew,
replace or otherwise change any of the terms, covenants or conditions of any
of such documents, or enter into any new agreements affecting the Real
Property without the prior written consent of Buyer, which consent shall not
be unreasonably withheld.
5.2 ADDITIONAL OBLIGATIONS OF SELLER. In addition
to any other obligations of Seller that will survive the Closing, Seller
agrees as follows:
5.2.1 ASSISTANCE WITH OBTAINING ZONING
APPROVAL. Seller shall cooperate with and assist Buyer in obtaining Zoning
Approval.
5.2.2 1031 EXCHANGE. Seller shall cooperate
with Buyer in an IRC 1031 tax deferred exchange.
5.3 BUYER'S PRE-CLOSING OBLIGATIONS. Buyer hereby
covenants to Seller, upon which covenants Seller has relied and will continue
to rely, that for the period from the date of this Agreement through and
including the Closing Date:
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5.3.1 ZONING APPROVAL. Buyer has applied for
Zoning Approval and Buyer has and shall continue to use its best efforts to
obtain the Zoning Approval. Buyer shall report to Seller on a monthly basis
as to the status of the Zoning Approval. Buyer has a duty to report to
Seller as soon as possible after Buyer has received any indication that the
Zoning Approval will not be granted or that the Zoning Approval has been
denied prior to Buyer appealing the denial.
6. TITLE TO REAL PROPERTY. At Closing, title to the
Real Property will be conveyed to Buyer by Seller by the Deed, subject only
to the Deed Restriction and the following matters ("Permitted Exceptions"):
6.1 matters of title respecting the Real Property
approved or deemed approved by Buyer in accordance with this Agreement; and
6.2 matters affecting the condition of title to the
Real Property created by or with the written consent of Buyer.
7. CONDITIONS PRECEDENT/CONCURRENT TO CLOSING; CLOSING
DATE.
7.1 BUYER'S CONDITIONS. Buyer shall not be
required to close the transaction provided for under this Agreement, unless
and until Buyer deems that each and every one of the following conditions has
been fulfilled:
7.1.1 REPRESENTATIONS, WARRANTIES AND
COVENANTS OF SELLER. Seller shall have duly and timely performed each and
every covenant to be performed by Seller under this Agreement and the
representations and warranties of Seller set forth in this Agreement shall be
true and correct as of the Closing in all respects.
7.1.2 SELLER'S DELIVERIES. Seller shall have
duly and timely delivered to Buyer all of the items described in SECTION 3.2
of this Agreement.
7.1.3 TITLE INSURANCE. The Title Company will
have (a) issued or have unconditionally and irrevocably committed to issue
the Title Policy to Buyer and Seller.
7.1.4 DUE DILIGENCE APPROVAL. Buyer shall
have approved (or be deemed to have approved) all matters to be reviewed in
accordance with SECTION 8 of this Agreement.
7.1.5 ZONING APPROVAL. Except as set forth in
SECTION 7.2.3 below, Buyer has obtained Zoning Approval.
7.2 SELLER'S CONDITIONS. Seller shall not be
required to close the transaction provided for under this Agreement,
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unless and until Seller deems that each and every one of the following
conditions has been fulfilled:
7.2.1 REPRESENTATIONS, WARRANTIES AND
COVENANTS OF BUYER. Buyer shall have duly and timely performed each and every
covenant to be performed by Buyer under this Agreement and the
representations and warranties of Buyer set forth in this Agreement shall be
true and correct as of the Closing in all respects.
7.2.2 BUYER'S DELIVERIES. Buyer shall have
duly and timely delivered to Buyer all of the items described in SECTION 3.3
of this Agreement.
7.2.3 ZONING APPROVAL. Buyer agrees that if
Buyer's application for Zoning Approval is denied by the Las Vegas Planning
Commission, Buyer shall notify Seller immediately after such denial and prior
to appealing the denial to the Las Vegas City Council. Except as set forth
in SECTION 7.2.3.1 below, if Buyer's application for Zoning Approval has been
denied by the Planning Commission, either Buyer or Seller shall have the
right to terminate this Agreement and the Earnest Money Deposit, and any
interest thereon, will be immediately returned to Buyer without further
instructions from Seller, and all rights and obligations of the parties
existing hereunder shall terminate and be of no further force or effect,
except any rights and obligations which are expressly stated to survive the
termination of this Agreement.
7.2.3.1 If Buyer advises Seller that Buyer's
application for Zoning Approval has been denied by the Las Vegas Planning
Commission and that Buyer wishes to appeal the denial to the Las Vegas City
Council, Seller shall have the right to terminate this Agreement as set forth
in SECTION 7.2.3 above unless Buyer elects to:
(i) waive the Zoning Approval condition
in writing and proceed with the purchase and acquire the Real Property
without Zoning Approval, in which case Escrow shall close within two (2) days
after Seller's receipt of Buyer's notice; or
(ii) Buyer agrees in writing that the
Earnest Money Deposit shall be forfeited and released to Seller immediately,
and Buyer delivers an additional $10,000 to Escrow Holder (the "Additional
Earnest Money Deposit") to be held by Escrow Holder under the same terms and
conditions as the Earnest Money Deposit. In the event Buyer elects to
proceed under this SECTION 7.2.3.1(II), the Closing Date shall be as set
forth in SECTION 1.3.
8. DUE DILIGENCE PERIOD.
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8.1 MATTERS TO BE REVIEWED. Buyer's obligation to
close the purchase of the Real Property and to pay the Purchase Price shall
be subject to and conditioned upon Buyer's reasonable satisfaction with all
of the following items, each of which Buyer shall have the right to review
and approve or disapprove in Buyer's reasonable discretion during the Due
Diligence Period:
8.1.1 TITLE. Buyer acknowledges that Seller
has delivered to Buyer, at Seller's sole cost and expense, a current
preliminary title report issued by United Title Company relating to the Real
Property, together with all underlying documents relating thereto. Buyer has
examined and approved all matters of title and acknowledges to Seller that
there are no defects in title, and Buyer has no objections thereto.
8.1.2 INSPECTIONS AND STUDIES. Buyer has
reviewed and approved any and all inspections, investigations, tests, studies
(including feasibility studies and other economic models) and appraisals as
Buyer has have elected to make or obtain with respect to the Real Property
including, without limitation, environmental studies, appraisals, and
analyses of the Real Property's compliance with governmental regulations.
Buyer and Buyer's representatives, agents and designees have had and continue
to have the right to enter the Real Property at all reasonable times, upon
reasonable oral notice to Seller to perform all such investigations. Seller
will reasonably cooperate with Buyer and its representatives in that regard.
8.2 NO OBJECTIONS.
8.2.1 Buyer has approved all items set forth
in SECTION 8.1.2.
9. PRORATIONS AND ADJUSTMENTS. Buyer is acquiring all
of Seller's right, title and interest in and to the Real Property as of the
Closing Date, and accordingly, there shall be no prorations between the
parties, except as expressly provided herein.
9.1 TAXES. Seller shall pay general real estate
and ad valorem personal property taxes and sewer or special (improvement
district) taxes or fees for all periods prior to the Closing Date and all
special taxes or assessments becoming a lien against the Real Property prior
to the Closing Date, and any such taxes for the period in which the Closing
Date falls shall be prorated as of the Closing Date.
9.2 METHOD OF PRORATION. All prorations will be
made as of the Closing Date based on a 365-day year.
10. COSTS AND EXPENSES. The closing costs shall be
allocated as follows:
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10.1 SELLER. Seller shall pay the standard coverage
portion of the Title Policy, Seller's share of prorations, all state and
county transfer taxes, and any document recording charges and notary fees,
including, without limitation, any recording fees and notary charges with
respect to the Deed.
10.1.1 Seller shall pay the real estate commission
of six percent (6%) of the Purchase Price to Real Corp. Realty (the "Real
Estate Commission").
10.2 BUYER. Buyer shall pay the extended coverage
portion of the Title Policy, if any, Buyer's share of the prorations, and any
document recording charges and notary fees with respect to the Deed of Trust.
10.3 OTHER CLOSING COSTS. Buyer and Seller will
each pay their own legal and professional fees and fees of other consultants
incurred by Buyer and Seller, respectively. All other closing costs and
expenses will be allocated equally between Buyer and Seller.
11. CLOSING AND POSSESSION.
11.1 DELIVERY OF POSSESSION. Simultaneously with
the delivery of the fully executed Deed, Promissory Note, and Deed of Trust,
Seller shall deliver possession and enjoyment of the Real Property to Buyer
and Buyer shall thereupon have the immediate right to possess, develop, use,
sell, encumber and/or transfer the Real Property, or any part thereof for its
own account subject to the obligations under the Promissory and Deed of Trust.
12. GENERAL INDEMNIFICATION.
12.1 BY SELLER. Seller will defend, indemnify and
hold the Buyer, and his nominee and each of its respective officers,
directors, agents, shareholders, representatives, employees, attorneys,
affiliates, beneficiaries, subsidiaries, successors and assigns
(collectively, the "Buyer Indemnitees") harmless from and against:
12.1.1 Any and all claims, demands,
liabilities, liens, costs, expenses, penalties, damages and losses
(including, but not limited to, attorneys' fees and costs) of every kind and
nature incurred or accrued prior to the Closing Date with respect to the Real
Property, whether arising from acts or omissions of Seller, its agents or
employees or otherwise including, but not limited to, all liabilities and
obligations for which Seller would have been, or will be, liable had Seller
not transferred the Real Property to Buyer pursuant to this Agreement (which
shall include, but not be limited to, all liabilities, obligations, claims
(including, without limitation, statutory and contractual claims), damages
and expenses resulting from or in
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any way related to the Seller's acts or omissions with respect to the Real
Property;
12.1.2 Any and all liabilities and obligations
arising from any breach of the warranties, representations, covenants and
agreements of Seller or its agents contained in this Agreement or in any
agreements between Seller and any third parties relating to the Real
Property; and
12.1.3 Any and all liabilities and obligations
arising after the Closing Date as a result of Seller's failure to pay all
taxes, assessments, fees and other government charges levied upon Seller's
assets and income or otherwise relating or attributable to the Real Property
due as of the Closing Date.
The foregoing indemnification by Seller shall survive the
Closing.
12.2 BY BUYER. Buyer will defend, indemnify and
hold Seller and each of its officers, directors, agents, shareholders,
representatives, employees, attorneys, affiliates, beneficiaries,
subsidiaries, successors and assigns (collectively, the "Seller Indemnitees")
harmless from and against:
12.2.1 Any and all claims, demands,
liabilities, liens, costs, expenses, penalties, damages and losses
(including, but not limited to, attorneys' fees and costs) of every kind and
nature incurred or accrued from and after the Closing Date with respect to
the Real Property, whether arising from acts or omissions of Buyer, its
agents or employees or otherwise including, without limitation, statutory and
contractual claims, damages and expenses resulting from or in any way related
to the Buyer's acts or omissions relating to the operation of the Real
Property; and
12.2.2 Any and all liabilities and obligations
arising from any breach of the warranties, representations, covenants and
agreements of Buyer or its agents contained in this Agreement or in any
agreements between Buyer and any third parties relating to the Real Property.
The foregoing indemnification by Buyer shall survive the
Closing.
13. CONDEMNATION AND DESTRUCTION.
13.1 EMINENT DOMAIN OR TAKING. If proceedings under
a power of eminent domain relating to the Real Property or any part thereof
are commenced prior to the Closing Date, Seller shall promptly inform Buyer
in writing.
13.1.1 If such proceedings involve the taking
of title to all the Real Property, Buyer may elect to terminate this
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Agreement by notice in writing sent within thirty (30) days of Seller's
written notice to Buyer, in which case the Earnest Money Deposit, and any
interest thereon, will be returned to Buyer and neither party shall have any
further obligation to or rights against the other except any rights or
obligations of either party which are expressly stated to survive termination
of this Agreement.
13.1.2 If the proceedings do not involve the
taking of title to all the Real Property or if Buyer does not elect to
terminate this Agreement, this transaction will be consummated as described
in this Agreement and any award or settlement payable with respect to such
proceeding will be paid or assigned to Buyer upon the Closing.
13.2 DAMAGE OR DESTRUCTION. Except as provided in
this paragraph, prior to the Close of Escrow the entire risk of loss of
damage by earthquake, flood, hurricane, landslide, fire or other casualty is
borne and assumed by Seller. If, prior to the Closing Date, any part of the
Real Property is damaged or destroyed by earthquake, flood, landslide, fire
or other casualty, Seller will promptly inform Buyer of such fact in writing
and advise Buyer as to the extent of the damage.
13.2.1 If such damage or destruction is
material, Buyer has the option to terminate this Agreement upon written
notice to the Seller given not later than thirty (30) days after receipt of
Seller's written notice to Buyer advising of such damage or destruction.
13.2.2 If this Agreement is so terminated,
Buyer will be entitled to the return of the Earnest Money Deposit together
with any interest thereon.
13.2.3 If Buyer does not timely exercise this
option to terminate this Agreement, or if the casualty is not material,
Seller will assign to Buyer all of Seller's right, title and interest in and
to any and all insurance proceeds under Seller's insurance policies relating
to such damage or destruction, and shall reduce the Purchase Price by the
amount of the deductible and Seller's co-insurance obligation, if any, under
such policy, and this transaction will close pursuant to the terms of this
Agreement.
14. REMEDIES.
14.1 BUYER'S REMEDIES GENERALLY. IN THE EVENT THE
CLOSING FAILS TO OCCUR BECAUSE OF EITHER A FAILURE OF SATISFACTION OF ANY OF
THE CONDITIONS IN FAVOR OF BUYER SET FORTH IN THIS AGREEMENT, OR SELLER'S
FAILURE TO PERFORM ANY OF SELLER'S OBLIGATIONS UNDER THIS AGREEMENT, THEN
BUYER SHALL HAVE THE RIGHT TO TERMINATE THIS AGREEMENT UPON WRITTEN NOTICE TO
SELLER. UPON SUCH TERMINATION, SELLER SHALL IMMEDIATELY RETURN, OR CAUSE THE
TITLE COMPANY TO RETURN, TO BUYER ANY AND ALL DOCUMENTS AND FUNDS
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THERETOFORE DEPOSITED OR PAID BY BUYER. ALTERNATIVELY, NOTWITHSTANDING SUCH
FAILURE OF CONDITION AND/OR SELLER'S BREACH, BUYER MAY ELECT TO PROCEED WITH
THE PURCHASE OF THE REAL PROPERTY, RESERVING THE RIGHT TO COLLECT DAMAGES
FROM SELLER FOR ANY SUCH BREACH. IF BUYER ELECTS TO PROCEED WITH THE
PURCHASE OF THE REAL PROPERTY AS HEREINABOVE PROVIDED FOR, BUYER'S EXCLUSIVE
REMEDY SHALL LIMITED TO THE RIGHT TO COMPEL SPECIFIC PERFORMANCE BY SELLER.
14.2 SELLER'S REMEDIES. IF BUYER SHOULD FAIL TO
CONSUMMATE THIS AGREEMENT AS A RESULT OF BUYER'S DEFAULT UNDER THE TERMS OF
THIS AGREEMENT, THEN SELLER, AS ITS SOLE AND EXCLUSIVE REMEDY, MAY TERMINATE
THIS AGREEMENT BY NOTIFYING BUYER THEREOF AND RECEIVE OR RETAIN THE EARNEST
MONEY DEPOSIT AS LIQUIDATED DAMAGES. THE PARTIES AGREE THAT SELLER WILL
SUFFER DAMAGES IN THE EVENT OF BUYER'S DEFAULT ON ITS OBLIGATIONS. ALTHOUGH
THE AMOUNT OF SUCH DAMAGES IS DIFFICULT OR IMPOSSIBLE TO DETERMINE, THE
PARTIES AGREE THAT THE AMOUNT OF THE DEPOSIT IS A REASONABLE ESTIMATE OF
SELLER'S LOSS IN THE EVENT OF BUYER'S DEFAULT. THUS, SELLER SHALL ACCEPT AND
RETAIN THE DEPOSIT AS LIQUIDATED DAMAGES BUT NOT AS A PENALTY. SUCH
LIQUIDATED DAMAGES SHALL CONSTITUTE SELLER'S SOLE AND EXCLUSIVE REMEDY.
SELLER AND BUYER ACKNOWLEDGE THAT THEY HAVE READ AND
UNDERSTAND THE PROVISIONS OF THE FOREGOING PROVISION AND BY THEIR SIGNATURES
IMMEDIATELY BELOW AGREE TO BE BOUND BY ITS TERMS.
"BUYER" "SELLER"
STEVE ALLEN SANTA FE GAMING CORPORATION, a
Nevada corporation
/s/ Steve Allen /s/ Thomas K. Land
By: Thomas K.Land
Its: Senior Vice President &
Chief Financial Officer
15. NOTICE. All notices, requests, demands or documents
which are required or permitted to be given or served hereunder shall be in
writing and (a) delivered personally, (b) delivered by a national overnight
courier (i.e., Federal Express), or (c) transmitted by facsimile, addressed
as follows:
To Seller at: Santa Fe Gaming Corporation
4949 N. Rancho Road
Las Vegas, Nevada 89130
Attention: Thomas K. Land
Facsimile: (702) 658.4303
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with a copy to:
Jones Vargas
201 W. Liberty Street
Reno, Nevada 89501
Attention: Mike Alonso, Esq.
Facsimile: (702) 786-1177
To Buyer at: Steve Allen
4141 Del Monte Avenue
Las Vegas, Nevada 89102
Attention: Steve Allen
Facsimile: (702) 870-2655
Notice shall be deemed to have been delivered only upon actual delivery to
the intended addressee in the case of either personal, courier, or facsimile
delivery. The addresses for purposes of this paragraph may be changed by
giving written notice of such change in the manner provided herein for giving
notices. Unless and until such written notice is delivered, the latest
information stated by written notice, or provided herein if no written notice
of change has been delivered, shall be deemed to continue in effect for all
purposes hereunder.
16. MISCELLANEOUS.
16.1 SURVIVAL. The recitals set forth at the
beginning of this Agreement are deemed incorporated herein, and the parties
to this Agreement warrant and represent that they do not omit to state any
material fact necessary to make the statements or Exhibits, as the case may
be, materially misleading. The representations, warranties, covenants,
acknowledgments, agreements and indemnities contained in this Agreement and
the Exhibits, or in any of the documents or agreements executed and/or
delivered and/or exchanged pursuant to the terms of this Agreement, shall
survive the Closing Date, and shall not be deemed to have merged or
terminated upon the Closing Date.
16.2 PARTIES IN INTEREST. As and when used herein,
the terms, "Seller" and "Buyer" mean and include, and this Agreement their
respective successor and assigns and shall be binding upon and inure to the
benefit of, the above-named Seller and Buyer and their respective successors
and permitted assigns.
16.3 SECTION HEADINGS. The headings of sections are
inserted only for convenience and shall in no way define, describe or limit
the scope or intent of any provision of this Agreement.
16.4 NO ORAL MODIFICATIONS. This Agreement may not
be amended or modified except in writing executed by all parties hereto.
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16.5 FULL INTEGRATION. Buyer and Seller each
acknowledge that there are no other agreements or representations, either
oral or written, express or implied, that are not embodied in this Agreement,
and this Agreement, the Exhibits attached to this Agreement, and the Transfer
Documents, represent a complete integration of all the prior and
contemporaneous agreements and understandings and documents.
16.6 BINDING EFFECT. This Agreement shall be
binding upon and inure to the benefit of the parties hereto, and their
respective successors and assigns, and no other party shall be a beneficiary
hereunder.
16.7 ADVICE OF COUNSEL. Buyer and Seller each
acknowledge that (a) it has not made any representation as to the Federal or
State tax implications relating to the transactions contemplated herein, (b)
it has thoroughly read and reviewed the terms and provisions of this
Agreement and the Exhibits attached hereto and is familiar with the terms of
this Agreement, (c) the terms and provisions contained in this Agreement are
clearly understood by it and have been fully and unconditionally consented to
by it, (d) it has had full benefit and advice of counsel of its own
selection, in regard to understanding the terms, meaning and effect of this
Agreement, (e) the execution of this Agreement and of the Transfer Documents
is done freely, voluntarily, with full knowledge, and without duress, (f) in
executing this Agreement, it is relying on no other representations, either
written or oral, express or implied, made to it by any other party to this
Agreement, and the consideration received by it under this Agreement has been
actual and adequate.
16.8 ATTORNEYS' FEES. If an action is commenced by
a party hereto resulting from a dispute with respect to the transactions
contemplated herein, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and costs from the other party in such action. As
used herein, the term "attorneys' fees" means attorneys' fees whether or not
litigation ensues and if litigation ensues whether incurred at trial, on
appeal, on discretionary review or otherwise.
16.9 GOVERNING LAW. This Agreement will be governed
by, interpreted under, and construed and enforced in accordance with the laws
of the State of Nevada.
16.10 CAPTIONS. The captions contained in this
Agreement are for convenience only and are not intended to limit or define
the scope or effect of any provision of this Agreement.
16.11 SEVERABILITY. The invalidity, illegality or
unenforceability of any provision of this Agreement shall not affect the
enforceability of any other provision of this Agreement, all of which shall
remain in full force and effect.
-16-
<PAGE>
16.12 TIME OF THE ESSENCE. Time is of the essence
of this Agreement and of the obligations required hereunder.
16.13 NON-WAIVER. No delay or failure by any party
to exercise any right hereunder, and no partial or single exercise of any
such right, shall constitute a waiver of that or any other right, unless
otherwise expressly provided herein.
16.14 FACSIMILE. The parties hereto and their
respective successors and assigns are hereby authorized to rely upon the
signatures of each person and entity on this Agreement which are delivered by
facsimile as constituting a duly authorized, irrevocable, actual, current
delivery of this Agreement with original ink signatures of each person and
entity.
16.15 FURTHER ASSURANCES. Buyer and Seller agree
to execute all documents and instruments reasonably required in order to
consummate the purchase and sale contemplated in this Agreement.
16.16 COUNTERPARTS. This Agreement may be executed
in any number of counterparts and each such counterpart shall be deemed to be
an original, but all of which, when taken together, shall constitute one
Agreement.
16.17 ESCROW HOLDER. In performing its duties
hereunder, Escrow Holder shall not incur any liability to anyone for any
damages, losses or expenses, except for its negligence or intentional
misconduct, and it shall accordingly not incur any such liability with
respect (a) to any action taken or omitted in good faith upon advice of its
counsel or (b) to any action taken or omitted in reliance upon any
instrument, including any written notice or instruction provided for in this
Agreement, not only as to its due execution and the validity and
effectiveness of its provision, but also as to the truth and accuracy of any
information contained therein, that Escrow Holder shall in good faith believe
to be genuine, to have been signed or presented by a proper person,, and to
conform to the provisions of this Agreement. Seller and Buyer hereby agree
to indemnify and hold harmless Escrow Holder against any and all losses,
claims, damages, liabilities and expenses, including reasonable costs of
investigation and legal fees and disbursements, that may be imposed upon
Escrow Holder or incurred by Escrow Holder in connection with its acceptance
or performance of its duties hereunder, including any litigation arising out
of this Agreement or involving the subject matter hereof, unless resulting
from Escrow Holder's negligence or intentional misconduct. If any dispute
shall arise between Seller and Buyer sufficient in the discretion of Escrow
Holder to justify its doing so, Escrow Holder shall be entitled to tender
into the registry or custody of the clerk of any state court of general
jurisdiction located in the county in which the Real Property is located or
the clerk for the United States District Court, having jurisdiction over the
county in which the Real Property is located, any or all
-17-
<PAGE>
money, property or documents in its hands relating to this Agreement,
together with such pleadings as it shall deem appropriate, and thereupon be
discharged from all further duties and liabilities under this Agreement.
Seller and Buyer shall bear all costs and expenses of any such legal
proceedings equally.
Buyer and Seller have executed this Agreement as of the
date written above.
"BUYER" "SELLER"
STEVE ALLEN SANTA FE GAMING CORPORATION, a
Nevada corporation
/s/ Thomas K. Land
/s/ Steve Allen
By: Thomas K. Land
Its: Senior Vice President &
Chief Financial Officer
-18-
<PAGE>
Santa Fe Gaming Corporation
Las Vegas, Nevada
We have made a review, in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified Public
Accountants, of the unaudited interim financial information of Santa Fe Gaming
Corporation and subsidiaries for the periods ended December 31, 1997 and 1996,
as indicated in our report dated February 13, 1998 (which includes an
explanatory paragraph relating to current portion of long-term debt of $71.5
million at December 31, 1997 described in Note 4); because we did not perform
an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended December 31, 1997 is
incorporated by reference In Registration Statement No. 33-44700 on Form S-8 and
in post-effective Amendment No. 1 to Registration Statement No. 33-7053 on Form
S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that act.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
February 13, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 23,063,562
<SECURITIES> 0
<RECEIVABLES> 938,713
<ALLOWANCES> 0
<INVENTORY> 1,410,472
<CURRENT-ASSETS> 30,524,680
<PP&E> 199,830,902
<DEPRECIATION> 53,266,695
<TOTAL-ASSETS> 226,072,464
<CURRENT-LIABILITIES> 87,872,270
<BONDS> 0
0
20,848,557
<COMMON> 61,954
<OTHER-SE> (55,947,476)
<TOTAL-LIABILITY-AND-EQUITY> 226,072,464
<SALES> 0
<TOTAL-REVENUES> 27,359,246
<CGS> 0
<TOTAL-COSTS> 15,474,661
<OTHER-EXPENSES> 10,277,987
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,076,270
<INCOME-PRETAX> (4,469,672)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,469,672)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,469,672)
<EPS-PRIMARY> (.72)
<EPS-DILUTED> 0
</TABLE>
