<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1999
-------------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period
from ____________________ to __________________
COMMISSION FILE NUMBER: 1-9481
---------------------------------------------------------
SANTA FE GAMING CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 88-0304348
- --------------------------------- ---------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
4949 N. RANCHO DRIVE, LAS VEGAS, NEVADA 89130
- --------------------------------------------------------------------------------
(Address of principal executive office and zip code)
(702) 658-4300
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ NO / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES_____ NO_____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
6,195,356 as of May 14, 1999
- -------------------------------------- ---------------------
Amount Outstanding Date
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SANTA FE GAMING CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
Balance Sheets at March 31, 1999 (unaudited)
and September 30, 1998.................................................................2
Statements of Operations for the three and six months
ended March 31, 1999 and 1998 (unaudited)..............................................3
Statement of Changes in Stockholders' Deficiency
for the six months ended March 31, 1999 (unaudited)....................................4
Statements of Cash Flows for the six months
ended March 31, 1999 and 1998 (unaudited)..............................................5
Notes to Consolidated Condensed Financial
Statements (unaudited).................................................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operation...................................................................................16
PART II. OTHER INFORMATION.......................................................................................36
</TABLE>
2
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SANTA FE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 1999 1998
------ ---------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and short-term investments $ 16,044,014 $ 22,650,882
Accounts receivable, net 1,077,429 1,617,762
Inventories 1,516,413 1,339,796
Prepaid expenses and other 3,518,795 3,243,415
------------- -------------
Total current assets 22,156,651 28,851,855
Land held for development 38,194,065 38,194,065
Property and equipment, net 108,095,642 110,655,085
Other assets 14,773,488 14,465,409
------------- -------------
Total assets $ 183,219,846 $ 192,166,414
------------- -------------
------------- -------------
LIABILITIES and STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 2,606,059 $ 3,864,000
Interest payable 4,381,057 4,497,420
Accrued and other liabilities 9,120,294 7,656,644
------------- -------------
16,107,410 16,018,064
Current portion of long-term debt 60,455,942 1,785,716
------------- -------------
Total current liabilities 76,563,352 17,803,780
Long-term debt-less current portion 92,711,705 153,146,836
Liabilities subject to compromise 61,192,024 62,700,000
Commitments
Stockholders' deficiency (47,247,235) (41,484,202)
------------- -------------
Total liabilities and stockholders' deficiency $ 183,219,846 $ 192,166,414
------------- -------------
------------- -------------
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
3
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SANTA FE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
March 31, 1999 March 31, 1998 March 31,1999 March 31,1998
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Casino $ 25,372,327 $ 23,272,800 $ 49,687,991 $ 45,252,711
Hotel 1,451,177 1,417,122 2,847,023 2,851,056
Food and beverage 5,320,889 5,382,471 10,755,884 10,709,689
Other revenues 3,371,252 1,889,935 5,685,385 3,758,413
------------ ------------ ------------ ------------
Gross revenues 35,515,645 31,962,328 68,976,283 62,571,869
Less casino promotional allowances (3,264,112) (3,291,408) (6,570,836) (6,541,703)
------------ ------------ ------------ ------------
Net operating revenues 32,251,533 28,670,920 62,405,447 56,030,166
------------ ------------ ------------ ------------
Operating expenses:
Casino 11,528,469 11,725,165 22,847,994 22,605,997
Hotel 538,535 503,285 1,005,579 952,308
Food and beverage 3,546,037 3,574,062 7,091,720 6,951,686
Other operating expenses 2,129,064 731,514 3,461,922 1,498,696
Selling, general & administrative 3,261,160 3,156,335 6,368,696 6,199,503
Corporate expenses 959,180 963,024 1,849,747 1,779,141
Utilities & property expenses 2,632,320 2,903,488 5,151,648 6,189,428
Depreciation & amortization 3,419,562 3,005,835 6,674,103 6,138,597
Reorganization expenses 350,472 0 350,472 0
------------ ------------ ------------ ------------
Total operating expenses 28,364,799 26,562,708 54,801,881 52,315,356
------------ ------------ ------------ ------------
Operating income 3,886,734 2,108,212 7,603,366 3,714,810
Interest expense 6,311,237 5,993,844 12,834,102 12,070,114
Other expenses 0 0 532,497 0
------------ ------------ ------------ ------------
Net loss (2,424,503) (3,885,632) (5,763,033) (8,355,304)
Dividends accrued
on preferred shares 521,214 379,065 1,042,428 758,129
------------ ------------ ------------ ------------
Net loss applicable to common shares ($ 2,945,717) ($ 4,264,697) ($ 6,805,461) ($ 9,113,433)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Average common shares outstanding 6,195,356 6,195,356 6,195,356 6,195,356
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Loss per common share ($0.48) ($0.69) ($1.10) ($1.47)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
4
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SANTA FE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
(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, 1998 $61,954 $21,985,750 $51,513,504 ($114,957,636) ($87,774) ($41,484,202)
Net loss (5,763,033) (5,763,033)
Preferred stock dividend
accrued 1,042,428 (1,042,428) 0
------- ----------- ----------- ------------- -------- ------------
Balances, March 31, 1999 $61,954 $23,028,178 $51,513,504 ($121,763,097) ($87,774) ($47,247,235)
------- ----------- ----------- ------------- -------- ------------
------- ----------- ----------- ------------- -------- ------------
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
5
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SANTA FE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
ended ended
March 31,1999 March 31, 1998
------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Cash and short-term investments provided by
(used in) operations $ 1,907,046 ($ 1,398,189)
Decrease (increase) in accounts receivable, net 540,333 (165,705)
Decrease (increase) in inventories (176,617) 7,559
Increase in prepaid expenses & other (275,382) (430,330)
Decrease (increase) in other assets (1,542,059) 1,408,926
Increase (decrease) in accounts payable (947,143) 384,616
Increase in interest payable 3,359,401 752,903
Increase in accrued and other liabilities 1,463,649 1,427,701
------------ ------------
Net cash provided by operating activities
before reorganization items 4,329,228 1,987,481
Professional fees paid for services in
connection with Chapter 11 proceedings (350,472) 0
------------ ------------
Net cash provided by operating activities 3,978,756 1,987,481
------------ ------------
Cash flows from investing activities:
Capital expenditures (1,843,276) (2,660,987)
Development cost (653,534) (2,224,777)
------------ ------------
Net cash used in investing activities (2,496,810) (4,885,764)
------------ ------------
Cash flows from financing activities:
Cash proceeds of long-term debt 0 57,500,000
Cash paid on long-term debt (7,989,577) (41,508,880)
Debt issue costs (99,238) (3,013,311)
------------ ------------
Net cash provided by (used in) financing activities (8,088,815) 12,977,809
------------ ------------
Increase (decrease) in cash and short-term
investments (6,606,869) 10,079,526
Cash and short-term investments,
beginning of period 22,650,882 15,146,217
------------ ------------
Cash and short-term investments,
end of period $ 16,044,014 $ 25,225,743
------------ ------------
------------ ------------
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
6
<PAGE>
SANTA FE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - GENERAL INFORMATION
Santa Fe Gaming Corporation (the "Company" or "Santa Fe Gaming"), a publicly
traded Nevada corporation, is the successor corporation of two affiliates,
Sahara Resorts ("SR") and Sahara Casino Partners, L.P., which combined in a
business combination in September 1993. The Company's primary business
operations are conducted through two wholly owned subsidiary corporations, Santa
Fe Hotel Inc. ("SFHI") and Pioneer Hotel Inc. ("PHI"). 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")
located in Laughlin, Nevada. The Company owns through an indirect wholly-owned
subsidiary, Sahara Las Vegas Corp. ("SLVC"), real estate on Las Vegas Boulevard
South and in Henderson, Nevada, for possible development opportunities.
NOTE 2 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, current liabilities plus Liabilities Subject to Compromise exceed
current assets in the accompanying balance sheet by $115.6 million, which is
attributable to (i) $61.2 million of principal and accrued interest at March 31,
1999 on the 13 1/2% First Mortgage Bonds issued by Pioneer Finance Corp. ("PFC")
which matured December 1, 1998 (the "13 1/2% Notes") but were not paid and (ii)
$57.5 million of notes issued by SLVC which mature in December 1999 (the "SLVC
Notes"). Furthermore, at March 31, 1999, there is a stockholders' deficiency of
$ 47.2 million. The Company's inability to repay the 13 1/2% Notes, its net
losses, and its stockholders' deficiency raise substantial doubt about its
ability to continue as a going concern. Management's plans regarding these
matters include seeking confirmation of a plan of reorganization for PFC under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"),
pursuant to the terms of consents of holders (the "Consenting Holders") of
approximately 75% of the outstanding 13 1/2% Notes to forbear until December 15,
2000 from exercising their rights or remedies as a result of, among other
things, failure to pay the principal and interest on the 13 1/2% Notes at
maturity and their agreement to vote to accept the PFC plan of reorganization
under Chapter 11 of the Bankruptcy Code. The consents were solicited pursuant to
PFC's Offering Circular and Consent Solicitation Statement dated October 23,
1998, as amended (the "Consent Solicitation"). On February 23, 1999, in
accordance with the Consent Solicitation, PFC voluntarily commenced a Chapter 11
proceeding. On April 12, 1999, PHI voluntarily commenced its Chapter 11
proceeding to facilitate the reorganization of the 13 1/2% Notes in accordance
with the Consent Solicitation. Contemporaneously with the filing of PHI's
voluntary petition, PFC and PHI filed with the Bankruptcy Court a proposed joint
plan of reorganization ("Joint Plan") substantially on the same terms as
contemplated by the Consent Solicitation and a proposed disclosure statement
("Disclosure Statement") to accompany the Joint Plan. The
7
<PAGE>
financial statements do not include any adjustments that might result from the
consequences of the proceedings under Chapter 11 nor all adjustments that might
be necessary should the Company be unable to continue as a going concern. See
Notes 3 and 7
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, 1998.
The results of operations for the six month period ended March 31, 1999 are not
necessarily indicative of the results to be expected for the entire year.
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting of only normal
accruals) necessary to present fairly the financial position of the Company at
March 31, 1999, the results of its operations for the three and six month
periods ended March 31, 1999 and 1998, the changes in stockholders' equity for
the six month period ended March 31, 1999, and cash flows for the six month
periods ended March 31, 1999 and 1998.
Certain reclassifications have been made in the 1998 consolidated financial
statements in order to conform to the presentation used in 1999.
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.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Bankruptcy - Related Accounting
The Company has accounted for all transactions related to the PFC and PHI
Chapter 11 case in accordance with Statement of Position 90-7 ("SOP 90-7"),
"Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code," which was issued by the American Institute of Certified Public
Accountants in November 1990. Accordingly, Liabilities Subject to Compromise
under the Chapter 11 case have been segregated on the Consolidated Balance
Sheet and are recorded for the amounts that are expected to be allowed under
the Joint Plan. In addition, the Consolidated Statements of Operations and
Consolidated Statements of Cash Flows for the period ended March 31, 1999
disclose expenses related to the Chapter 11 case.
8
<PAGE>
NOTE 4 - CASH AND SHORT-TERM INVESTMENTS
As of March 31, 1999, the Company held cash and short-term investments of $16.0
million compared to $22.7 million at September 30, 1998. Substantially all of
the cash and short-term investments were held by SFHI and PHI, and were subject
to restrictions which prohibit distribution of this cash to the Company.
At March 31, 1999, approximately $8.9 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 the $115 million principal amount of 11% First Mortgage Notes
due 2000 ("11% Notes") of SFHI was issued. As of March 31, 1999, SFHI did not
meet the conditions precedent to making a distribution to the Company.
At March 31, 1999, approximately $5.9 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% Notes of PFC
were issued. As of March 31, 1999, PHI did not meet the conditions precedent to
making a distribution to the Company. Approximately, $1.6 million of PHI's cash
is reserved for payments to be made to 13 1/2% Notes upon confirmation of the
Joint Plan. See Note 7
NOTE 5 - CURRENT PORTION OF LONG TERM DEBT
As of March 31, 1999, the Company had approximately $60.5 million in current
maturities of long term debt due to third parties during the twelve-month period
ending March 31, 2000, comprised primarily of $57.5 million principal amount of
SLVC Notes that matures in December 1999.
Pursuant to the terms of the SLVC Notes, the filing for relief under Chapter 11
by PFC (due to the non-payment of the 13 1/2% Notes at maturity) created an
event of default under the SLVC Notes that caused the SLVC Notes to
automatically become due and payable. Management is currently negotiating with
holders of the SLVC Notes to waive the acceleration and other defaults related
to the non-payment by PFC of the 13 1/2% Notes, although no assurance can be
given that such negotiations will be successful. The Company is also exploring
refinancing alternatives for the SLVC Notes. If the holders of the SLVC Notes
do not waive defaults and acceleration and demand payment under the SLVC Notes
and the Company guarantee and the Company is unable to refinance the SLVC Notes
or sell all or a portion of its assets and realize proceeds sufficient to
satisfy the debt, it is likely that SLVC and the Company will file for relief
under Chapter 11 of the Bankruptcy Code.
9
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In January 1999, SFHI acquired for $3.6 million the approximate 22-acre parcel
of undeveloped real property adjacent to the Santa Fe from Santa Fe Gaming. In
connection with the closing of the transaction, a $1.6 million first mortgage
note secured by the 22-acre parcel of real property was repaid. Management
believes the cash consideration paid represents that which could have been
negotiated between third parties in an arms length transaction.
NOTE 6 - LONG TERM DEBT, NET
As of March 31, 1999, the Company had $92.7 million in long-term debt, net of
(i) current maturities of $60.5 million, (ii) debt discount of $2.3 million,
(iii) the 13 1/2% Notes not paid at maturity and (iv) debt obligations owned but
not retired of $33.1 million of 11% Notes. The majority of such amounts mature
in December 2000, comprised primarily of $99.4 million principal amount of 11%
Notes, of which $33.1 million is held by SLVC, and $14.0 million of 9 1/2 Notes
issued by SFHI and guaranteed by the Company.
Pursuant to the terms of the $14 million principal amount of 9 1/2% Notes due
2000 (the "9 1/2% Notes") which SFHI issued, certain events related to the
non-payment by PFC of the 13 1/2% Notes at maturity created events of default
under the 9 1/2% Notes. Management is currently negotiating with holders of the
9 1/2% Notes to waive the defaults, although no assurance can be given that
such negotiations will be successful. The Company is also exploring refinancing
alternatives for the 9 1/2% Notes. If the holders of the 9 1/2% Notes do
not waive the defaults and accelerate the payment of the 9 1/2% Notes, a
default would occur under the 11% Notes which would permit 11% Notes to
accelerate. If the 9 1/2% Notes or 11% Notes were to be accelerated and
the Company is unable to refinance the indebtedness or sell all or a portion
of its assets and realize sufficient proceeds to satisfy the debt, it is
likely that SFHI and the Company will file for relief under Chapter 11 of the
Bankruptcy Code.
NOTE 7 - PETITION FOR RELIEF UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY
CODE AND LIABILITIES SUBJECT TO COMPROMISE
a. Liabilities Subject to Compromise
Liabilities Subject to Compromise consist of $55 million of principal and
approximately $6.2 million of accrued interest due on the 13 1/2% Notes as of
March 31, 1999. The 13 1/2% Notes were issued by PFC. The proceeds from such
issuance were loaned to PHI to acquire the Pioneer. The loan is secured by a
first priority deed of trust on the Pioneer which has been assigned to the
trustee for the benefit of the holders of the 13 1/2% Notes. The 13 1/2%
Notes are guaranteed by the Company. The 13 1/2% Notes matured on December 1,
1998, but were not paid at maturity
10
<PAGE>
In November 1998, the Company received and accepted consents from holders of
approximately 75%, or $45.8 million, of principal amount of the outstanding
13 1/2% Notes pursuant to which (i) PFC agreed to file for relief under
Chapter 11 of the Bankruptcy Code and to submit for confirmation a plan of
reorganization that provides for issuance of Amended Notes in satisfaction of
the 13 1/2% Notes pursuant to the terms set forth in the Consent
Solicitation, and (ii) the Consenting Holders agreed (a) to forbear until
December 15, 2000 from exercising rights or remedies arising as a result of
PFC's failure to pay principal and interest on the 13 1/2% Notes at the
December 1, 1998 maturity date, or the failure by PHI to pay principal and
interest on the intercompany note from PHI to PFC at the December 1, 1998
maturity date and (b) to vote to accept a plan of reorganization in a Chapter
11 bankruptcy case that provides for treatment of the 13 1/2% Notes
substantially as set forth in the Consent Solicitation.
Pursuant to the Consent Solicitation, in December 1998 PFC purchased on a
pro-rata basis from all Consenting Holders an aggregate of $5.0 million
principal amount of 13 1/2% Notes, plus accrued interest. PFC also expects to
repurchase from non-consenting holders their pro-rata amount of 13 1/2% Notes
(approximately $1.6 million) plus accrued interest through December 1, 1998 upon
confirmation of the Joint Plan. In addition, the Company provided collateral for
its previously unsecured guarantee of the 13 1/2% Notes, through the pledge of
stock of its subsidiaries SFHI, SR, Hacienda Hotel Inc., Sahara Nevada Corp. and
Santa Fe Coffee Company and by the grant of liens on certain of its other
assets.
b. Petition for Relief Under Chapter 11
On February 23, 1999, in accordance with the Consent Solicitation, PFC
voluntarily commenced a Chapter 11 proceeding . On April 12, 1999, PHI
commenced its Chapter 11 proceeding to facilitate the reorganization of the
13 1/2% Notes in accordance with the Consent Solicitation. Contemporaneously
with the filing of PHI's voluntary petition, PFC and PHI filed with the
Bankruptcy Court a proposed Joint Plan on substantially the same terms as
contemplated by the Consent Solicitation and a proposed Disclosure Statement
to accompany the Joint Plan.
The bankruptcy court has set a hearing on May 25, 1999, on PHI and PFC's
motion to approve the Disclosure Statement and has reserved August 10 and 11,
1999 for confirmation proceedings on the Joint Plan. No assurance can be
given that the Joint Plan will be confirmed.
PFC and PHI have received approval from the Bankruptcy Court to pay or otherwise
honor certain of its pre-petition obligations, including employee wages.
Therefore, the Company has continued accruing interest on the 13 1/2% Notes
subsequent to the date the bankruptcy petition was filed. The outstanding
principal and accrued interest due on the 13 1/2% Notes are the only Liabilities
Subject to Compromise reported in the Consolidated Balance Sheet. See Note 7
c. Plan of Reorganization
If the Joint Plan is confirmed, PFC will issue a principal amount of 13 1/2%
First Mortgage Notes (together with the PIK Notes, as defined below, the
"Amended Notes") equal to the principal amount of all outstanding 13 1/2%
Notes plus accrued interest as of December 1, 1998 after giving effect to the
redemption of approximately $1.6 million principal amount of 13 1/2% Notes
plus 50% of the interest payable thereafter through the issuance date of the
Amended Notes. The Amended Notes will bear interest at a rate equal to 13 1/2%
per annum. Interest on the Amended Notes will be payable semiannually. The
Amended Notes will mature on the eighth anniversary of the
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issue date. PFC will have the right to pay in kind up to 50% of the interest
payable on each interest payment date through the fourth interest payment
date through the issuance of additional Amended Notes with a principal amount
equal to 50% of the interest payable on such Interest Payment Date (the "PIK
Notes"). The terms of the PIK Notes will be identical to those of the Amended
Notes, including without limitation that interest on the PIK Notes will be
payable 50% in cash and 50% through the fourth interest payment date through
the issuance of additional PIK Notes. The Amended Notes will be redeemable at
100% of the principal amount plus accrued interest thereon, and unpaid to the
date of purchase by PFC at any time. Upon the occurrence of certain events,
PFC will be required to redeem all outstanding Amended Notes or make an offer
to repurchase all or a portion of the outstanding Amended Notes, in each case
at 100% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of purchase. Moreover, one of the
provisions of the Amended Notes will require that, on or before the later of
December 31, 1999 and the date that is six months from the confirmation date
of a plan of reorganization, PFC must complete an offer to repurchase $7.5
million principal amount of Amended Notes or purchase in the open market or
otherwise purchase and retire a principal amount of Amended Notes that can be
acquired with at least $7.5 million. If this requirement is not satisfied by
the specified date, an event of default will occur under the Amended Notes.
The Company will guaranty the payment of principal of, and premium, if any,
and interest on, the Amended Notes, and the guaranty will be secured by a
pledge of the common stock of its subsidiaries SFHI, SR, Hacienda Hotel,
Inc., Sahara Nevada Corp. and Santa Fe Coffee Company and by liens on certain
of its other assets.
The Joint Plan is subject to the approval of the Bankruptcy Court and the
approval of certain classes of creditors. No assurance can be given that the
Joint Plan will be confirmed.
d. Involuntary Proceedings
In January 1999 a purported holder of approximately $4.7 million of the 13 1/2%
Notes (the "Holder") who did not deliver consents pursuant to the Consent
Solicitation delivered to the Company a proposal for treatment of its 13 1/2%
Notes in a manner that was inconsistent with the terms agreed to by the
Consenting Holders. The Company advised the Holder that it was reviewing its
alternatives and would not take action with respect to the Holder's proposal at
that time. Thereafter, the Holder and two other holders who purportedly held in
the aggregate $3.1 million in principal amount of 13 1/2% Notes and who did not
provide consents pursuant to the Consent Solicitation delivered demand notices
for payment from the Company under its guarantee of the 13 1/2% Notes. On
January 14, 1999, the three holders of 13 1/2% Notes filed involuntary
bankruptcy petitions against PFC and the Company with the United States
Bankruptcy Court for the District of Nevada. The Company did not believe that
the three holders of 13 1/2% Notes complied with the requirements of the
Bankruptcy Code for the commencement of the involuntary cases. On February 4,
1999 the Company and PFC filed motions to dismiss the involuntary petitions and
sought such damages as provided by the Bankruptcy Code. These included costs and
reasonable attorneys fees and, in the event the petitions were filed in bad
faith, for all damages caused by such filings or punitive damages.
12
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On February 23, 1999, in accordance with the Consent Solicitation, PFC
voluntarily commenced its Chapter 11 proceedings. PFC has reserved its right to
seek damages against the three non-consenting holders for improperly commencing
the involuntary case against it. On March 19, 1999, the bankruptcy court
suspended the involuntary case against the Company pursuant to Bankruptcy Code
Section 305 and further ordered that the involuntary proceedings would be
dismissed upon motion by the Company upon the Company's obtaining certain
waivers of statutes of limitations regarding alleged avoidance actions.
NOTE 8- RELATED PARTIES
In fiscal years 1993 and 1992 Hacienda Hotel Inc's., predecessor made loans to
LICO, a Nevada corporation wholly owned by Paul W. Lowden, President and
Chairman of the Company, in the aggregate amount of $476,000. LICO provided
entertainment services to the Hacienda Resort Hotel and Casino and the
Sahara Hotel and Casino. In January 1998, the loans to LICO were satisfied
through an offset against Mr. Lowden's bonus for fiscal year 1998 in the amount
of $600,000 (the "Fiscal Year 1998 Bonus") and a fee in the amount of $100,000
due to Mr. Lowden for personal guarantees he issued for certain Company
financing arrangements (the "Personal Guarantee Fee"). In December 1998, at the
request of Mr. Lowden, the Company's payment of $350,000 of the Fiscal Year 1998
Bonus and the Personal Guarantee Fee which satisfied, in part, the loan to LICO,
was rescinded, and LICO's obligation to pay the Company $350,000, together with
interest thereon from January 1998, was reinstated. In February 1999, the
Company offset the remaining $350,000 payment to Mr. Lowden, payable in
connection with the 1998 Fiscal Year Bonus, against the outstanding
obligation of LICO to the Company.
NOTE 9 - SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION
Supplemental statement of cash flows information for the three month periods
ended March 31, 1999 and 1998 is presented below:
<TABLE>
<CAPTION>
(dollars in thousands)
1999 1998
-------- --------
<S> <C> <C>
Operating Activities:
Cash paid during the period for interest,
net of amount capitalized of $-0- and
$108 for 1999 and 1998, respectively $ 8,829 $ 10,708
-------- --------
-------- --------
Investing and Financing Activities:
Debt incurred in connection with the
acquisition of machinery and equipment $ 285 $ 9,409
-------- --------
-------- --------
</TABLE>
13
<PAGE>
10. SUPPLEMENTAL STATEMENT OF SUBSIDIARY INFORMATION -
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
THE COMPANY'S PRIMARY OPERATIONS ARE IN THE HOTEL/CASINO INDUSTRY AND
IN FISCAL YEARS 1999 AND 1998 WERE CONDUCTED THROUGH PHI AND SFHI. "OTHER" BELOW
INCLUDES FINANCIAL INFORMATION FOR THE COMPANY'S OTHER OPERATIONS BEFORE
ELIMINATING ENTRIES. SEE NOTE 5.
<TABLE>
<CAPTION>
Six Months
Ended
March 31, PHI SFHI OTHER Elimination TOTAL
--------- --- ---- ----- ----------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues 1999 $ 22,741 $ 39,084 $ 1,545 ($ 965) $ 62,405
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
1998 $ 20,355 $ 35,136 $ 1,267 ($ 728) $ 56,030
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
Operating income (loss) 1999 $ 2,285 $ 7,379 ($ 1,260) ($ 800) $ 7,604
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
1998 ($ 544) $ 5,854 ($ 988) ($ 607) $ 3,715
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
Interest expense 1999 $ 3,816 $ 7,336 $ 1,682 $ 0 $ 12,834
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
1998 $ 4,071 $ 6,710 $ 1,896 ($ 607) $ 12,070
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
Depreciation and
amortization 1999 $ 1,327 $ 3,662 $ 1,685 $ 6,674
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
1998 $ 2,785 $ 2,519 $ 835 $ 6,139
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
Rents 1999 $ 361 $ 0 $ 361
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
1998 $ 482 $ 1,214 $ 1,696
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
Capital expenditures 1999 $ 511 $ 5,128 $ 139 ($ 3,650) $ 2,128
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
1998 $ 2,142 $ 9,888 $ 40 $ 12,070
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
Identifiable assets 1999 $ 43,098 $ 86,595 $ 53,527 $183,220
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
1998 $ 97,023 $ 85,840 $ 56,162 ($ 1,245) $237,780
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
</TABLE>
14
<PAGE>
11. SUPPLEMENTAL STATEMENT OF SUBSIDIARY INFORMATION
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
THE COMPANY'S PRIMARY OPERATIONS ARE IN THE HOTEL/CASINO INDUSTRY AND
IN FISCAL YEARS 1999 AND 1998 WERE CONDUCTED THROUGH PHI AND SFHI. "OTHER" BELOW
INCLUDES FINANCIAL INFORMATION FOR THE COMPANY'S OTHER OPERATIONS BEFORE
ELIMINATING ENTRIES. SEE NOTE 5.
<TABLE>
<CAPTION>
Three Months
Ended
March 31, PHI SFHI OTHER Eliminations Total
--------- --- ---- ----- ------------ -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues 1999 $ 12,123 $ 19,683 $ 1,327 ($ 881) $32,252
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
1998 $ 10,445 $ 17,994 $ 809 ($ 577) $28,671
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Operating income (loss) 1999 $ 1,368 $ 3,411 ($ 92) ($ 800) $ 3,887
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
1998 ($ 224) $ 3,144 ($ 305) ($ 507) $ 2,108
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Interest expense 1999 $ 1,834 $ 3,653 $ 824 $ 0 $ 6,311
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
1998 $ 2,026 $ 3,374 $ 1,101 ($ 507) $ 5,994
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Depreciation and
amortization 1999 $ 656 $ 1,910 $ 854 $ 3,420
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
1998 $ 1,351 $ 1,076 $ 579 $ 3,006
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Rents 1999 $ 181 $ 0 $ 181
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
1998 $ 175 $ 610 $ 785
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Capital expenditures 1999 $ 177 $ 4,614 $ 125 ($3,650) $ 1,266
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
1998 $ 864 $ 9,598 $ 23 $10,485
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
</TABLE>
15
<PAGE>
SANTA FE GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Santa Fe Gaming Corporation (the "Company" or "Santa Fe Gaming"), a publicly
traded Nevada corporation, is the successor corporation of two affiliates,
Sahara Resorts ("SR") and Sahara Casino Partners, L.P., which combined in a
business combination in September 1993. The Company's primary business
operations are currently conducted through two wholly owned subsidiary
corporations, Santa Fe Hotel Inc. ("SFHI") and Pioneer Hotel Inc. ("PHI"). 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") located in Laughlin, Nevada. The Company owns through an indirect
wholly-owned subsidiary , Sahara Las Vegas Corp. ("SLVC"), real estate on Las
Vegas Boulevard South and in Henderson, Nevada, for possible development
opportunities.
In November 1998 , the Company's subsidiary Pioneer Finance Corp. ("PFC")
received and accepted consents from holders of approximately 75%, or $45.8
million principal amount of the outstanding 13 1/2% First Mortgage Bonds issued
by PFC (the "13 1/2% Notes") and guaranteed by the Company pursuant to which (i)
PFC agreed to file for relief under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") and to submit for confirmation a plan of
reorganization that provides for the issuance of 13 1/2% First Mortgage Notes
(the "Amended Notes") in satisfaction of the 13 1/2% Notes, which were not
paid at maturity, pursuant to the terms set forth in PFC's Offering Circular
and Consent Solicitation dated October 23, 1998, as amended (the "Consent
Solicitation"), (ii) the Consenting Holders agreed (a) to forbear until
December 15, 2000 from exercising rights or remedies arising as a result of the
failure to pay principal and interest on the 13 1/2% Notes at the
December 1, 1998 maturity date, or the failure by PHI to pay principal and
interest on the intercompany mirror note from PHI to PFC at the December 1, 1998
maturity date and (b) to vote to accept a plan of reorganization in a Chapter 11
bankruptcy case that provides for treatment of the 13 1/2% Notes substantially
as set forth in the Consent Solicitation. On February 23, 1999, in accordance
with the Consent Solicitation, PFC voluntarily commenced a Chapter 11
proceeding. On April 12, 1999, PHI voluntarily commenced its Chapter 11
proceeding to facilitate the reorganization of the 13 1/2% Notes
in accordance with the Consent Solicitation. Contemporaneously with the filing
of PHI's voluntary petition, PFC and PHI filed with the Bankruptcy Court a
proposed joint plan of reorganization ("Joint Plan") substantially on the same
terms as contemplated by the Consent Solicitation and a proposed disclosure
statement ("Disclosure Statement") to accompany the Joint Plan. The bankruptcy
court has set a hearing on May 25, 1999, on PHI and PFC's motion to approve the
Disclosure Statement and has reserved August 10 and 11, 1999 for confirmation
proceedings on the Joint Plan. No assurance can be given that the Joint Plan
that PFC and PHI filed with the
16
<PAGE>
Bankruptcy Court will be confirmed. The events related to the 13 1/2% Notes have
created events of default and acceleration under other indebtedness of the
Company. (See below Liquidity - SFHI, SLVC and Pioneer) (See part II-Other
Information Legal Proceedings)
In the first six months of fiscal 1999, 79.6% of the Company's net revenues was
derived from casino operations, 17.2% from food and beverage operations, 4.6%
from hotel operations and 9.1% from other operations such as bowling and ice
skating ("other revenues"), less promotional allowances of 10.5%. The Company's
business strategy emphasizes slot and video poker machine play. For the first
six months of fiscal 1999, approximately 87.1% of gaming revenues was derived
from slot and video poker machines, while 8.6% of such revenues was from table
games and 4.3% was from other gaming activities such as the race and sports
book, poker, bingo and keno.
The Company's earnings from operations before interest, taxes, depreciation
and amortization, rents, reorganization expenses and corporate charges
("EBITDA") were $16.8 million for the six months ended March 31, 1999, as
compared to $13.3 million for the six months ended March 31, 1998. EBITDA
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 generally accepted accounting principles
("GAAP"). It is included to provide additional information with respect to
the Company's ability to meet its future debt service, capital expenditures
and working capital requirements. Although EBITDA is not necessarily a
measure of the Company's ability to fund its cash needs, management believes
that certain investors find EBITDA to be a useful tool for measuring the
Company's ability to service its debt. The Company's definition of EBITDA may
not be the same as that of similarly captioned measures used by other
companies.
Set forth below is a discussion of the Company's results of operations for the
six and three months ended March 31, 1999 and 1998 on a consolidated basis and
by property for each of the Santa Fe and Pioneer.
RESULTS OF OPERATIONS - SIX MONTHS ENDED MARCH 31, 1999 AND 1998
CONSOLIDATED
NET OPERATING REVENUES. Consolidated revenues for the six month period ended
March 31, 1999 were $62.4 million, representing a $6.4 million, or 11.4%,
increase from $56.0 million for the same period in the prior year. Revenues
increased by $4.0 million at the Santa Fe and $2.3 million at the Pioneer.
OPERATING EXPENSE. Total operating expenses increased $2.5 million, or 4.8%, to
$54.8 million in the six months ended March 31, 1999 from $52.3 million in the
six months ended March 31, 1998. Total operating expenses as a percentage of
revenue decreased to 87.8% in the six months ended March 31, 1999 from 93.4% in
the six months ended March 31, 1998. Operating expenses increased by $2.4
million, or 8.3%, at the Santa Fe and $300,000 at SLVC and decreased by
$400,000, or 2.1%, at the Pioneer.
17
<PAGE>
OPERATING INCOME. Consolidated operating income for the six month period ended
March 31, 1999 was $7.6 million, representing a $3.9 million, or 104.7%,
increase from $3.7 million for the same period in the prior year. Operating
income increased by $1.5 million at the Santa Fe and $2.8 million at the Pioneer
and decreased by $200,000 at SLVC.
OTHER EXPENSE. Consolidated interest expense for the six month period ended
March 31, 1999 was $12.8 million, representing a $700,000, or 6.3%, increase
compared to $12.1 million for the same period in the prior year. Interest
expense of SLVC increased by $300,000 in the current period due to the
issuance of an additional $22.5 million for a total of $57.5 million of notes
issued by SLVC which mature in December 1999 (the "SLVC Notes") in November
1997. Interest expense increased by $600,000 at the Santa Fe and decreased by
$300,000 at the Pioneer. During the quarter ended December 31, 1998, PHI
incurred costs and expenses in connection with an offering of debt
securities. The offering was not consummated. Accordingly, PHI has recorded
an approximate $500,000 charge to earnings for the offering.
NET LOSS. Consolidated loss for the six month period ended March 31, 1999 was
$5.8 million, representing a $2.6 million, or 31.0%, decrease compared to $8.4
million in the same period in the prior year. Net income (loss) before income
tax improved by $900,000 at the Santa Fe and $2.5 million at the Pioneer, offset
by an increased net loss of $500,000 at SLVC.
The Company did not record an income tax benefit in the current six month period
or the prior year's six month period due to the uncertainty of the Company's
ability to recognize a benefit of the net operating loss. The preferred stock
accrued dividend rate increased to 11% in the current period compared to an 8%
dividend rate in the prior year. Consolidated net loss applicable to common
shares was $6.8 million compared to $9.1 million in the prior year period.
EBITDA, AS DEFINED. EBITDA increased $3.5 million, or 26.3%, to $16.8 million in
the six months ended March 31, 1999 compared to $13.3 million at March 31, 1998.
EBITDA for the 1999 six month period represents 1.28 times rent and interest
expense, compared to .97 times rent and interest expense in the prior year six
month period. The Company incurred less rent expense in the current period,
offset in part by increased interest expense as a result of a note placement by
SFHI in April 1998 and the application of net proceeds therefrom.
SANTA FE
NET OPERATING REVENUES. Revenues at the Santa Fe increased $4.0 million, or
11.2%, in the six months ended March 31, 1999 to $39.1 million as compared to
$35.1 million in the same period in the prior year. Management believes that
1999 results were positively impacted by the (i) completion of construction of
two new pylon signs in September 1998, (ii) installation of new gaming equipment
in fiscal 1999 and 1998 and (iii) the growth in the number of residents in
northwest Las Vegas. Casino revenues increased $3.5 million, or
18
<PAGE>
12.5%, to $31.3 million from $27.8 million when compared to the same six month
period of 1998, due to the increase in volume and the introduction of new slot
equipment. The increase in casino revenues was primarily due to an increase of
$2.9 million, or 12.1%, in slot and video poker revenues to $27.2 million in the
1999 period from $24.3 million in the 1998 period. Other gaming revenues,
including table game revenues, increased $600,000, or 15.1%, primarily due to
improved hold percentages in sports book, bingo and table games. Casino
promotional allowances increased $300,000, or 8.7%, to $3.4 million in the 1999
period from $3.1 million in the 1998 period due to the increase in customer
volume.
Hotel revenues remained unchanged at $1.7 million for the six months ended March
31, 1999 compared to the six months ended March 31, 1998, as an increase in
occupancy rate to 86.9% from 82.7% was offset by a 6.2% decrease in average
daily room rate. Food and beverage revenues increased $200,000, or 4.1%, to $6.4
million, in the six months ended March 31, 1999 from $6.2 million in the six
months ended March 31, 1998 due to an increase in customers. Other revenues
increased $500,000, or 20.0%, to $3.0 million in the six months ended March 31,
1999 compared to $2.5 million in the six months ended March 31, 1998, primarily
due to the opening in February 1999 of an additional retail outlet.
OPERATING EXPENSE. Operating expenses increased $2.4 million, or 8.3%, to $31.7
million in the six months ended March 31, 1999 from $29.3 million in the six
months ended March 31, 1998. Casino expenses increased $900,000, or 6.8%, to
$13.7 million in the six months ended March 31, 1999 from $12.8 million in the
six months ended March 31, 1998, related to the increase in casino revenues.
However, casino expenses as a percentage of casino revenues decreased to 43.8%
in the six months ended March 31, 1999 from 46.1% in the six months ended March
31, 1998 due to spreading of fixed costs over a larger revenue base. Hotel
expenses remained unchanged at $600,000 for the six month periods ended March
31, 1999 and March 31, 1998. Food and beverage expenses increased $300,000, or
8.7%, to $4.7 million in the six months ended March 31, 1999 from $4.4 million
in the six months ended March 31, 1998. Food and beverage expenses as a
percentage of food and beverage revenues increased to 73.8% in the six months
ended March 31, 1999 from 70.6% in the six months ended March 31, 1998, due to
an increase in the cost of food sales for the 1999 period compared to the 1998
period partially offset by a decrease in the cost of beverage sales. Other
expenses increased $500,000, or 44.3%, to $1.6 million for the six months ended
March 31, 1999 compared to $1.1 million for the six months ended March 31, 1998,
primarily due to the costs associated with an additional retail outlet which
opened February 1999.
Selling, general and administrative expenses increased $200,000, or 4.5%, to
$4.4 million in the six months ended March 31, 1999 from $4.2 million in the six
months ended March 31, 1998 due to increased advertising costs. Rate increases
for television and print advertising resulted in increased advertising
expenditures for the same level of advertising as in the prior year. Despite
this increase, selling, general and administrative expenses as a percentage of
revenues decreased to 11.4% in the six months ended March 31, 1999 from 12.1% in
the six months ended March 31, 1998 because of the increase in revenues.
Utilities and property expenses decreased $700,000, or 17.9%, to $3.0 million in
the six
19
<PAGE>
months ended March 31, 1999 from $3.7 million in the six months ended March 31,
1998, due to decreased rent expense for gaming and other equipment resulting
from the purchase of equipment previously under lease, partially offset by an
increase in property maintenance and utility expense. Utilities and property
expenses as a percentage of revenues decreased to 7.7% in the six months ended
March 31, 1999 from 10.4% in the six months ended March 31, 1999. Depreciation
and amortization expenses increased $1.2 million, or 45.4%, to $3.7 million in
the six months ended March 31, 1999 from $2.5 million in the six months ended
March 31, 1998 due to the purchase of equipment which was previously under
lease.
Interest Expense. Interest expense increased $600,000, or 9.3%, to $7.3 million
in the 1999 period from $6.7 million in the 1998 period due to an additional
$14.0 million principal amount of debt incurred in April 1998 to purchase gaming
and other equipment previously under lease and for other capital improvements.
Net Income (Loss). As a result of the factors discussed above, the Santa Fe
recorded net income of $40,000 for the six months ended March 31, 1999, an
improvement of $900,000, or 105.0%, from a net loss of $900,000 in the six
months ended March 31, 1998.
EBITDA AS DEFINED. EBITDA increased $1.5 million, or 14.9%, to $11.6 million in
the six months ended March 31, 1999 from $10.1 million in the six months ended
March 31, 1998. EBITDA margin increased to 29.8% in the six months ended March
31, 1999 from 28.9% in the six months ended March 31, 1998. EBITDA for the 1999
six month period represents 1.59 times rent and interest expense compared to
1.28 times rent and interest expense in the prior year six month period. The
Company incurred less rent expense in the current period, offset in part by
increased interest expense as a result of a note placement by SFHI in April 1998
and the application of net proceeds therefrom. The Santa Fe incurred no rent
expense in the six months ended March 31, 1999, compared to $1.2 million of rent
expense incurred in the six months ended March 31, 1998. Corporate charges were
$600,000 in each of the six month periods ended March 31, 1999 and March 31,
1998.
PIONEER
NET OPERATING REVENUES. Revenues at the Pioneer increased $2.3 million, or
11.7%, to $22.7 million in the six months ended March 31, 1999 as compared to
$20.4 million in the same period in the prior year. Management believes that
1999 results were positively impacted by an improvement in the Laughlin market
compared to prior periods.
Casino revenues increased $1.0 million, or 5.5%, to $18.4 million from $17.4
million when compared to the same six month period of 1998. The increase in
casino revenues was primarily due to an increase of $800,000, or 5.1%, in slot
and video poker revenues to $16.0 million in the 1999 period from $15.2 million
in the 1998 period. Other gaming revenue, including table games, increased
$200,000, or 7.9%, due to improved hold percentage in table games. Casino
promotional allowances decreased $200,000, or 7.0%, to $3.2 million in the 1999
period from $3.4 million in the 1998 period. Hotel revenues remained unchanged
at $1.2 million for the six months ended March 31, 1999 compared
20
<PAGE>
to the six months ended March 31, 1998, as a drop in occupancy rate to 67.6%
from 79.5% was offset by a 17.7% increase in average daily room rate. The
Pioneer has sought to obtain a higher room rate rather than increased
occupancy. Food and beverage revenues decreased $200,000, or 4.5%, to $4.3
million in the six months ended March 31, 1999 from $4.5 million in the six
months ended March 31, 1998, primarily due to a decrease in the amount of
complimentary food and beverage provided to customers. Other revenues
increased $1.4 million, or 196.9%, to $2.1 million in the six months ended
March 31, 1999 compared to $700,000 in the six months ended March 31, 1998
due to the opening in August 1998 of an additional retail outlet.
OPERATING EXPENSE. Operating expense decreased $400,000, or 2.1%, to $20.5
million in the six months ended March 31, 1999 from $20.9 million in the six
months ended March 31, 1998.
Casino expenses decreased $700,000, or 6.4%, to $9.1 million, in the six months
ended March 31, 1999 from $9.8 million in the six months ended March 31, 1998
due to a decrease in complimentary and marketing expenses. Casino expenses as a
percentage of casino revenues decreased to 49.7% in the six months ended March
31, 1999 from 56.0% in the six months ended March 31, 1998. Hotel expenses
remained unchanged at $400,000 for the six months ended March 31, 1999 compared
to the six months ended March 31, 1998. Food and beverage expenses decreased
$300,000, or 9.3%, to $2.3 million in the six months ended March 31, 1999 from
$2.6 million in the six months ended March 31, 1998 due to the decrease in food
and beverage revenues and decreases in cost of sales. Food and beverage expenses
as a percentage of food and beverage revenues decreased to 54.3% in the six
months ended March 31, 1999 from 57.1% in the six months ended March 31, 1998.
Other expenses increased $1.5 million, or 358.2%, to $1.9 million for the six
months ended March 31, 1999 compared to $400,000 for the six months ended March
31, 1998 due to the cost associated with an additional retail outlet which
opened August 1998. Other expenses as a percentage of other revenues increased
to 91.1% in the 1999 period from 59.1% in the 1998 period.
Selling, general and administrative expenses increased $100,000, or 3.5%, to
$3.0 million in the six months ended March 31, 1999 from $2.9 million in the six
months ended March 31, 1998. Selling, general and administrative expenses as a
percentage of revenues decreased to 13.4% in the six months ended March 31, 1999
from 14.4% in the six months ended March 31, 1998. Utilities and property
expenses decreased $100,000, or 4.3%, to $1.9 million in the six months ended
March 31, 1999 from $2.0 million in the six months ended March 31, 1998 due to
decreased rent expense for gaming equipment resulting from the purchase of
equipment previously under lease. Depreciation and amortization expenses
decreased $1.5 million, or 52.3% to $1.3 million in the six months ended March
31, 1999 from $2.8 million in the six months ended March 31, 1998 due to the
write-down of the carrying value of the Pioneer's fixed and intangible assets in
the fourth quarter of fiscal 1998, which was previously being depreciated or
amortized. During the quarter ended March 31, 1999, PHI incurred costs and
expenses in connection with the Joint Plan. Accordingly, PHI has recorded a
$350,000 charge to earnings for reorganization expenses.
21
<PAGE>
OTHER EXPENSE. Interest expense decreased $300,000, or 6.3%, to $3.8 million
in the 1999 period from $4.1 million in the 1998 period due to the payment of
approximately $5.0 million principal amount of 13 1/2% Notes in December
1998. The offering was not consummated. During the quarter ended December
31, 1998, PHI incurred costs and expenses in connection with an offering of
debt securities. Accordingly, PHI has recorded an approximate $500,000 charge
to earnings for the offering.
NET LOSS. As a result of the factors discussed above, net loss decreased $2.5
million, or 55.3%, to $2.1 million in the six months ended March 31, 1999 from
$4.6 million in the six months ended March 31, 1998.
EBITDA AS DEFINED. EBITDA increased $1.6 million, or 48.8%, to $4.9 million in
the six months ended March 31, 1999 from $3.3 million in the six months ended
March 31, 1998. EBITDA margin increased to 21.4% in the six months ended March
31, 1999 from 16.1% in the six months ended March 31, 1998. EBITDA for the 1999
six month period represents 1.17 times rent and interest expense, compared to
.72 times rent and interest expense in the prior year six month period. The
Pioneer incurred less rent expense in the current period as a result of the
purchase of $1.0 million of gaming equipment in December 1997 which was
previously under lease. In December 1998, the Company retired approximately $5.0
million principal amount of 13 1/2% Notes which will reduce interest expense in
future periods. The Pioneer incurred rent expense of $400,000 and $500,000 in
the six month periods ended March 31, 1999 and March 31, 1998, respectively, and
corporate charges of $550,000 and $600,000 in the six month periods ended March
31, 1999 and 1998, respectively.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1999 AND 1998
CONSOLIDATED
NET OPERATING REVENUES. Consolidated revenues for the three month period ended
March 31, 1999 were $32.3 million, representing a $3.6 million, or 12.5%,
increase from $28.7 million for the same period in the prior year. Revenues
increased by $1.7 million at the Santa Fe and $1.7 million at the Pioneer.
OPERATING EXPENSE. Total operating expenses increased $1.8 million, or 6.8%, to
$28.4 million in the three months ended March 31, 1999 from $26.6 in the three
months ended March 31, 1998. Total operating expenses as a percentage of revenue
decreased to 88.0% in the three months ended March 31, 1999 from 92.7% in the
three months ended March 31, 1998. Operating expenses increased by $1.5 million,
or 9.6%, at the Santa Fe, decreased by $100,000, or 0.8%, at the Pioneer and
were unchanged at SLVC.
OPERATING INCOME. Consolidated operating income for the three month period ended
March 31, 1999 was $3.9 million, representing a $1.8 million, or 84.4%,
increase from $2.1 million for the same period in the prior year. Operating
income increased by $300,000 at the Santa Fe and $1.6 million at the Pioneer and
decreased by $100,000 at SLVC.
22
<PAGE>
OTHER EXPENSE. Consolidated interest expense for the three month period ended
March 31, 1999 was $6.3 million, representing a $300,000, or 5.3%, increase
compared to $6.0 million for the same period in the prior year.
NET LOSS. Consolidated loss for the three month period ended March 31, 1999 was
$2.4 million, representing a $1.5 million, or 37.6%, decrease compared to $3.9
million in the same period in the prior year. Net loss before income tax
improved by $1.4 million at the Pioneer offset by an increased net loss of
$100,000 at SLVC. Net loss at the Santa Fe was unchanged.
The Company did not record an income tax benefit in the current quarter or the
prior year's quarter due to the uncertainty of the Company's ability to
recognize a benefit of the net operating loss. The preferred stock accrued
dividend rate increased to 11% in the current period compared to an 8% dividend
rate in the prior year. Consolidated net loss applicable to common shares was
$2.9 million compared to $4.3 million in the prior year period.
EBITDA, AS DEFINED. EBITDA increased $1.9 million, or 28.2%, to $8.8 million in
the three months ended March 31, 1999 compared to $6.9 million for the three
months ended March 31, 1998. EBITDA for the 1999 three month period represents
1.35 times rent and interest expense, compared to 1.01 times rent and interest
expense in the prior year three month period. The Company incurred less rent
expense in the current period, offset in part by increased interest expense as a
result of a note placement by SFHI in April 1998 and the application of net
proceeds therefrom.
SANTA FE
NET OPERATING REVENUES. Revenues at the Santa Fe increased $1.7 million, or
9.4%, in the three months ended March 31, 1999 to $19.7 million as compared to
$18.0 in the same period in the prior year. Management believes that 1999
results were positively impacted by the (i) completion of construction of two
new pylon signs in September 1998, (ii) installation of new gaming equipment in
fiscal 1999 and 1998 and (iii) the growth in the number of residents in
northwest Las Vegas.
Casino revenues increased $1.2 million, or 8.6%, to $15.6 million from $14.4
million when compared to the same three month period of 1998, due to an increase
in customers and the introduction of new slot equipment. The increase in casino
revenues was primarily due to an increase of $1.0 million, or 8.1%, in slot and
video poker revenues to $13.7 million in the 1999 quarter from $12.7 million in
the 1998 quarter. Other gaming revenues, including table game revenues,
increased $200,000, or 12.6%, primarily due to improved hold percentages in
sports book, bingo and table games. Casino promotional allowances increased
$100,000, or 6.7%, to $1.6 million in the 1999 quarter from $1.5 million in the
1998 quarter due to the increase in customer volume.
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Hotel revenues remained unchanged at $800,000 for the three months ended March
31, 1999 compared to the three months ended March 31, 1998, as an increase in
occupancy rate to 85.3% from 81.7% was offset by a 3.0% decrease in average
daily room rate. Food and beverage revenues were relatively unchanged at $3.1
million in the three months ended March 31, 1999 compared to $3.0 million in the
three months ended March 31, 1998. Other revenues increased $500,000, or 38.4%
to $1.8 million in the three months ended March 31, 1999 from $1.3 million in
the three months ended March 31, 1998, primarily due to the opening in
February 1999 of an additional retail outlet.
OPERATING EXPENSE. Operating expenses increased $1.5 million, or 9.6%, to $16.3
million in the quarter ended March 31, 1999 from $14.8 million in the quarter
ended March 31, 1998. Casino expenses increased $200,000, or 2.6%, to $6.8
million in the three months ended March 31, 1999 from $6.6 million in the three
months ended March 31, 1998, related to the increase in casino revenues.
However, casino expenses as a percentage of casino revenues decreased to 43.7%
in the three months ended March 31, 1999 from 46.3% in the three months ended
March 31, 1998 due to spreading of fixed costs over a larger revenue base. Hotel
expenses remained unchanged at $300,000 for the three month periods ended March
31, 1999 and March 31, 1998. Food and beverage expenses increased $200,000, or
7.2%, to $2.4 million in the three months ended March 31, 1999 from $2.2 million
in the three months ended March 31, 1998. Food and beverage expenses as a
percentage of food and beverage revenues increased to 76.4% in the three months
ended March 31, 1999 from 72.3 % in the three months ended March 31, 1998, due
to an increase in the cost of food sales for the 1999 quarter compared to the
1998 quarter partially offset by a decrease in the cost of beverage sales. Cost
of food sales increased due to an improvement in the quality of food sold. Other
expenses increased $500,000, or 96.4%, to $1.0 million for the three months
ended March 31, 1999 compared to $500,000 for the three months ended March 31,
1998, primarily due to the costs associated with the additional retail outlet
which opened February 1999.
Selling, general and administrative expenses increased $100,000, or 3.0%, to
$2.3 million in the three months ended March 31, 1999 from $2.2 million in the
three months ended March 31, 1998 due to increased advertising costs. Rate
increases for television and print advertising resulted in increase advertising
expenditures for the same level of advertising as in the prior year. Despite
this increase, selling, general and administrative expenses as a percentage of
revenues decreased to 11.7% in the three months ended March 31, 1999 from 12.4%
in the three months ended March 31, 1998 because of the increase in revenues.
Utilities and property expenses decreased $400,000, or 17.4%, to $1.5 million in
the three months ended March 31, 1999 from $1.9 million in the three months
ended March 31, 1998, due to decreased rent expense for gaming and other
equipment resulting from the purchase of equipment previously under lease,
partially offset by an increase in property maintenance and utility expense.
Utilities and property expenses as a percentage of revenues decreased to 7.9% in
the three months ended
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March 31, 1999 from 10.4% in the three months ended March 31, 1999. Depreciation
and amortization expenses increased $800,000, or 77.6%, to $1.9 million in the
three months ended March 31, 1999 from $1.1 million in the three months ended
March 31, 1998 due to the purchase of equipment which was previously under
lease.
INTEREST EXPENSE. Interest expense increased $300,000, or 8.3%, to $3.7
million in the 1999 quarter from $3.4 million in the 1998 quarter due to an
additional $14.0 million principal amount of debt incurred in April 1998 to
purchase gaming and other equipment previously under lease and for other capital
improvements.
NET LOSS. As a result of the factors discussed above, the Santa Fe recorded net
loss of $200,000 for the quarter ended March 31, 1999, unchanged from a net loss
of $200,000 in the quarter ended March 31, 1998.
EBITDA AS DEFINED. EBITDA increased $500,000, or 9.6%, to $5.6 million in the
three months ended March 31, 1999 from $5.1 million in the three months ended
March 31, 1998. EBITDA margin increased to 28.6% in the three months ended March
31, 1999 from 28.5% in the three months ended March 31, 1998. EBITDA for the
1999 three month period represents 1.54 times rent and interest expense compared
to 1.29 times rent and interest expense in the prior year three month period.
The Company incurred less rent expense in the current period, offset in part by
increased interest expense as a result of a note placement by SFHI in April 1998
and the application of net proceeds therefrom. The Santa Fe incurred no rent
expense in the three months ended March 31, 1999 and $600,000 of rent expense in
the three months ended March 31, 1998. Corporate charges were $300,000 in each
of the three month periods ended March 31, 1999 and 1998.
PIONEER
NET OPERATING REVENUES. Revenues at the Pioneer increased $1.7 million, or
16.1%, to $12.1 million in the March 1999 quarter as compared to $10.4 million
in the same period in the prior year. Management believes that 1999 results were
positively impacted by an improvement in the Laughlin market compared to prior
periods.
Casino revenues increased $800,000 or 9.7%, to $9.7 million from $8.9 million
when compared to the same quarter of 1998. The increase in casino revenues
was primarily due to an increase of $700,000, or 9.4%, in slot and video
poker revenues to $8.5 million in the 1999 period from $7.8 million in the
1998 period. Other gaming revenues, including table games, increased
$100,000, or 12.1%, due to improved hold percentage in table games. Casino
promotional allowances decreased $100,000, or 7.4%, to $1.6 million in the
1998 quarter from $1.7 million in the 1998 quarter. Hotel revenues remained
unchanged at $600,000 for the three months ended March 31, 1999 compared to
the three months ended March 31, 1998, as a drop in occupancy rate to 73.6%
from 83.1% was offset by a 15.2% increase in average daily room rate. The
Pioneer has sought to obtain a higher room rate rather than increased
occupancy. Food and beverage revenues decreased $100,000, or 4.7%, to $2.2
million in the three months ended March 31, 1999 from $2.3 million in the
three months ended March 31, 1998
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primarily due to a decrease in the amount of complimentary food and beverage
provided to customers. Other revenues increased $800,000, or 205.8%, to $1.2
million in the three months ended March 31, 1999 compared to $400,000 in the
three months ended March 31, 1998 due to the opening in August 1998 of an
additional retail outlet.
OPERATING EXPENSE. Operating expense increased $100,000, or 0.8%, to $10.8
million in the quarter ended March 31, 1999 from $10.7 million in the quarter
ended March 31, 1998.
Casino expenses decreased $400,000, or 7.4%, to $4.7 million, in the three
months ended March 31, 1999 from $5.1 million in the three months ended March
31, 1998 due to a decrease in complimentary and marketing expenses. Casino
expenses as a percentage of casino revenues decreased to 48.2% in the three
months ended March 31, 1999 from 57.1% in the three months ended March 31, 1998.
Hotel expenses remained unchanged at $200,000 for the three months ended March
31, 1999 compared to the three months ended March 31, 1998. Food and beverage
expenses decreased $200,000, or 13.6%, to $1.2 million in the three months ended
March 31, 1999 from $1.4 million in the quarter ended March 31, 1998 due to the
decrease in food and beverage revenues and decreases in cost of sales. Food and
beverage expenses as a percentage of food and beverage revenues decreased to
53.2% in the three months ended March 31, 1999 from 58.7% in the three months
ended March 31, 1998. Other expenses increased $900,000, or 421.4%, to $1.1
million for the three months ended March 31, 1999 compared to $200,000 for the
three months ended March 31, 1998 due to the cost associated with the additional
retail outlet which opened August 1998. Other expenses as a percentage of other
revenues increased to 96.2% in the 1999 quarter from 56.4% in the 1998 quarter.
Selling, general and administrative expenses were substantially unchanged at
$1.5 million in the three months ended March 31, 1999 and March 31, 1998.
Selling, general and administrative expenses as a percentage of revenues
decreased to 12.7% in the three months ended March 31, 1999 from 14.6% in the
three months ended March 31, 1998. Utilities and property expenses increased
$100,000, or 6.2%, to $1.0 million in the three months ended March 31, 1999 from
$900,000 in the three months ended March 31, 1998 primarily due to increased
property maintenance expense and property taxes. Depreciation and amortization
expenses decreased $700,000, or 51.4%, to $700,000 in the three months ended
March 31, 1999 from $1.4 million in the three months ended March 31, 1998 due to
the write-down of the carrying value of the Pioneer's fixed and intangible
assets in the fourth quarter of fiscal 1998, which was previously being
depreciated or amortized. During the quarter ended March 31, 1999, PHI
incurred costs and expenses in connection with the Joint Plan. Accordingly,
PHI has recorded an approximate $350,000 charge to earnings for
reorganization expenses.
OTHER EXPENSE. Interest expense decreased $200,000, or 9.5%, to $1.8 million in
the 1999 quarter from $2.0 million in the 1998 quarter due to the payment of
approximately $5.0 million principal amount of 13 1/2% Notes in December 1998.
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NET LOSS. As a result of the factors discussed above, net loss decreased $1.8
million, or 63.7%, to $800,000 in the quarter ended March 31, 1999 from $2.2
million in the quarter ended March 31, 1998.
EBITDA AS DEFINED. EBITDA increased $1.2 million, or 74.5%, to $2.8 million in
the three months ended March 31, 1999 from $1.6 million in the three months
ended March 31, 1998. EBITDA margin increased to 23.2% in the three months ended
March 31, 1999 from 15.4% in the three months ended March 31, 1998. EBITDA for
the 1999 three month period represents 1.39 times rent and interest expense,
compared to .73 times rent and interest expense in the prior year three month
period. In December 1998, the Company retired approximately $5.0 million
principal amount of 13 1/2% Notes which will reduce interest expense in future
periods. The Pioneer incurred rent expense of $200,000 in each of the three
month periods and corporate charges of $250,000 and $300,000 in each of the
three month periods ended March 31, 1999 and 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES; TRENDS AND FACTORS RELEVANT TO FUTURE
OPERATIONS
LIQUIDITY. As of March 31, 1999, the Company held cash and short-term
investments of $16.0 million compared to $22.7 million at September 30, 1998.
Substantially all of the cash and short-term investments was held by SFHI and
PHI, and was subject to restrictions which prohibit distribution to the Company.
CASH FLOW FROM OPERATIONS. The Company's cash provided by operations was $4.0
million for the six months ended March 31, 1999 as compared to $2.0 million for
the prior year period. The increase in cash provided by operations was primarily
due to improved cash flow at the Santa Fe and the Pioneer offset by increased
interest expense at SFHI and SLVC. The Company's principal uses of cash from
operations are for corporate expenses, interest payments on indebtedness and
capital expenditures, including development costs for proposed projects.
CASH USED FOR INVESTING ACTIVITIES. Cash used in investing activities was $2.5
million during the six month period ended March 31, 1999, as compared to $4.9
million during the six month period ended March 31, 1998. The Company owns,
through SLVC, an approximately 39 acre parcel of real property in Henderson,
Nevada, located in the southeast Las Vegas Valley. The Company is evaluating the
potential development of a hotel/casino and entertainment complex on this
property. The Company has completed preliminary engineering and architectural
drawings for the project. Any future development is subject to, among other
things, the Company's ability to obtain necessary financing. No assurance can be
given that the Company will obtain development financing or develop successfully
the Henderson property. (See Corporate and SLVC, below)
CASH FLOW FROM FINANCING ACTIVITIES. Cash used in financing activities was $8.1
million in the 1999 six month period compared to cash of $13.0 million provided
by financing activities during the same period in 1998. Cash used in financing
activities in the current year period represents primarily a principal payment
to repurchase $5 million of the 13 1/2% Notes pursuant to the terms of the PFC
Consent Solicitation and repayment of a $1.6
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million first mortgage note secured by the 22-acre parcel of undeveloped real
property adjacent to the Santa Fe acquired by SFHI in January 1999 from the
Company. Cash provided by financing activities in the prior year period
represents primarily the net proceeds resulting from the issuance by SLVC of
$22.5 million of additional SLVC Notes.
LIABILITIES SUBJECT TO COMPROMISE. The Company's subsidiary, PFC, had $55
million of principal and approximately $6.2 million accrued interest due on the
13 1/2% Notes as of March 31, 1999, which is presented as Liabilities Subject to
Compromise in the consolidated Condensed Balance Sheet contained herein. (See
General, above and Liquidity PHI, below)
CURRENT PORTION OF LONG TERM DEBT. The Company has approximately $60.5 million
in current maturities of long term debt due to third parties during the
twelve-month period ending March 31, 1999, comprised primarily of $57.5 million
principal amount of SLVC Notes issued by SLVC and guaranteed by the Company.
Pursuant to the terms of the SLVC Notes, the filing for relief under Chapter 11
by PFC (due to the non-payment of the 13 1/2% Notes at maturity) created an
event of default under the SLVC Notes that caused the SLVC Notes to
automatically become due and payable. Management is currently negotiating with
holders of the SLVC Notes to waive the acceleration and other defaults related
to the non-payment by PFC of the 13 1/2% Notes, although no assurance can be
given that such negotiations will be successful. The Company is also exploring
refinancing alternatives for the SLVC Notes. If the holders of the SLVC Notes
do not waive defaults and acceleration and demand payment under the SLVC Notes
and the Company guarantee and the Company is unable to refinance the SLVC Notes
or sell all or a portion of its assets and realize proceeds sufficient to
satisfy the debt, it is likely that SLVC and the Company will file for relief
under Chapter 11 of the Bankruptcy Code.
LONG TERM DEBT, NET. As of March 31, 1999, the Company had $92.7 million in
long-term debt, net of (i) current maturities of $60.5 million, (ii) debt
discount of $2.3 million, (iii) the 13 1/2% Notes not paid at maturity and (iv)
debt obligations owned but not retired of $33.1 million of 11% Notes. The
majority of such amounts mature in December 2000, comprised primarily of $99.4
million principal amount of 11% Notes, of which $33.1 million is held by SLVC,
and $14.0 million of 92% Notes issued by SFHI and guaranteed by the Company.
Pursuant to the terms of the $14 million principal amount of 9 1/2% Notes due
2000 (the "9 1/2% Notes") which SFHI issued, certain events related to the
non-payment by PFC of the 13 1/2% Notes at maturity, created events of default
under the 9 1/2% Notes. Management is currently negotiating with holders of the
9 1/2% Notes to waive the defaults, although no assurance can be given that
such negotiations will be successful. The Company is also exploring refinancing
alternatives for the 9 1/2% Notes. If the holders of the 9 1/2% Notes do
not waive the defaults and accelerate the payment of the 9 1/2% Notes, a
default would occur under the 11% Notes which would permit 11% Notes to
accelerate. If the 9 1/2% Notes and the 11% Notes were to be accelerated and
the Company is unable to refinance the indebtedness or sell all or a portion
of its assets and realize sufficient proceeds to satisfy the debt, it is
likely that SFHI and the Company will file for relief under Chapter 11 of the
Bankruptcy Code.
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satisfy the debt, it is likely that SFHI and the Company will file for relief
under Chapter 11 of the Bankruptcy Code.
The Company's debt agreements restrict the distribution of cash from SFHI,
PHI and SLVC to affiliates. Cash flows from these subsidiaries are not
currently, and are not expected in the foreseeable future to be, available
for distribution to the Company. In addition, debt agreements limit
additional indebtedness by such subsidiaries. Therefore, the Company and its
subsidiaries other than SLVC, PHI and SFHI (collectively "Corporate") must
rely on existing cash and available resources, consisting of subsidiary
assets that may be disposed of or refinanced, to provide liquidity to fund
Corporate cash requirements including obligations that may arise as a result
of the Company's guarantee of subsidiary debt. Management believes that,
based on operations for the three month and six month periods ended March 31,
1999, the Company will have sufficient resources, comprised of subsidiary
assets that may be sold or refinanced to meet its operating requirements
excluding debt service obligations (including guarantees) through the twelve
month period ending March 31, 2000, although no assurance can be given that
the assets can be sold or, if sold, would realize sufficient proceeds to fund
the Company's requirements. See more detailed discussion of Liquidity and
Capital Resources for SLVC, PHI, SFHI and Corporate, below.
SFHI - At March 31, 1999, approximately $11.9 million of the Company's current
assets, including approximately $8.9 million of cash and short term investments,
was held by SFHI.
Results of operations at the Santa Fe for the three and six months ended March
31, 1999 generated EBITDA as defined, of $5.6 and $11.6 million, approximately
1.54 and 1.59 times rent and interest expense, compared to $5.1 and $10.1
million of EBITDA in the 1998 period, or approximately 1.29 and 1.28 times rent
and interest expense. In the 1999 three and six month periods, the Santa Fe
reported no rent expense compared to approximately $600,000 and $1.2 million in
the 1998 period. In each of the 1999 and 1998 three and six month periods, the
Santa Fe reported approximately $300,000 and $600,000 in corporate charges.
SFHI's principal uses of cash from operations are for corporate charges,
interest payments on indebtedness and capital expenditures to maintain the Santa
Fe. SFHI's interest payments in future periods will be increased as a result of
the issuance of the 9 1/2% Notes in April 1998. Capital expenditures to
maintain the Santa Fe in fiscal 1999 are expected to be approximately $2.0
million excluding the purchase of real property.
Management believes that, based on operations for the three and six month
periods ended March 31, 1999, SFHI will have sufficient cash resources to meet
its operating and debt service requirements through the twelve month period
ending March 31, 2000, although no assurance can be given to that effect.
However, if SFHI's indebtedness were to be accelerated, no assurance can be
given that SFHI would be able to refinance the indebtedness or otherwise
satisfy its debt obligations. Results for the six month period ended
March 31, 1999 improved compared to the same period in the prior year. However,
results for the six month period ended March 31, 1999 are not necessarily
indicative of results for the entire fiscal year. (See Long-Term Debt, Net,
discussed above)
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SLVC - At March 31, 1999, a minimal amount of cash and short-term investments
was held by SLVC.
SLVC's principal use of cash is to satisfy principal and interest obligations on
the SLVC Notes. SLVC owns a 27-acre parcel of real estate on Las Vegas Boulevard
South which is subject to a lease with a water theme park operator. SLVC
generates minimal cash from the lease agreement after payment of property costs.
SLVC receives interest income on $33.1 million principal amount of 11% Notes
which are held as collateral for the SLVC Notes. Based on cash received from
interest payments on the $33.1 million of 11% Notes, it is expected that there
will be a deficit of approximately $1.3 million in cash available to satisfy the
SLVC Note interest payment due in June 1999.
SLVC also owns an approximately 39-acre parcel of real property in Henderson,
Nevada and is evaluating the potential development of a hotel/casino and
entertainment complex on the site. Corporate has completed preliminary
engineering and architectural drawings and received certain construction related
permits. Due to restrictions in the agreements governing the SLVC Notes, any
development costs are the responsibility of Corporate and any future development
is subject to, among other things, the Company's ability to obtain necessary
financing. No assurance can be given that the Company will obtain development
financing or develop successfully the Henderson property.
SLVC is exploring alternatives to improve liquidity and to satisfy the 1999
interest payments and December 1999 maturity of the SLVC Notes, including but
not limited to the sale of either the 27-acre parcel on Las Vegas Boulevard
South or the Henderson property and refinancing or modification of the SLVC
Notes. (See - Current Portion of Long -Term Debt discussed above)
The Company has no arrangements for any refinancings, modifications,
dispositions or other financings to satisfy the principal and interest
obligations on the SLVC Notes and no assurance can be given that SLVC will
successfully make such arrangements.
CORPORATE - Approximately $2.6 million of the Company's current assets at March
31, 1999, including approximately $1.1 of cash and short-term investments, was
held by Corporate.
Corporate consists primarily of non-operating entities which do not generate
cash flow from operations. Corporate's principal uses of cash are for debt
service, administrative and professional expenses of the parent company and
costs associated with the evaluation and development of proposed projects.
Additional potential uses of cash by Corporate include obligations that may
arise as a result of the Company's guarantee of subsidiary debt, including the
13 1/2% Notes not paid at maturity, and the guarantee of the tenant loan if the
Company terminates the lease subject to the parcel on Las Vegas Boulevard South
owned by SLVC.
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The Company has guaranteed the debt of its subsidiaries, PHI, SLVC and SFHI,
including the remaining $55 million principal amount of 13 1/2% Notes that
matured in December 1998 but was not paid. Demand has been made for payment
under the Company's guarantee of the 13 1/2% Notes. In order to generate
necessary liquidity, the Company may cause its subsidiaries to attempt to
dispose of, pledge or refinance certain assets to generate sufficient
liquidity to meet the cash requirements. There is no assurance that Corporate
will be able to dispose of any subsidiary assets or refinance or that sales
of subsidiary assets or refinance will result in sufficient proceeds to
satisfy obligations. (See SFHI, PHI and SLVC)
Management believes that Corporate has sufficient working capital and
available resources, primarily proceeds which may be available to Corporate
from the possible disposition of subsidiary assets or from possible
modifications of subsidiary debt obligations, as well as possible
modifications to its management arrangements with subsidiaries, to meet its
operating requirements through the period ending March 31, 2000, excluding
debt service obligations and cash obligations which may arise from the
Company's guarantee of the debt of its subsidiaries, although no assurance
can be given to that effect.
PHI - At March 31, 1999, approximately $7.4 million of the Company's current
assets, including approximately $5.9 million of cash and short-term investments,
was held by PHI.
Results of operations at the Pioneer for the three and six months ended March
31, 1999 generated EBITDA as defined of $2.8 and $4.9 million, approximately
1.39 and 1.17 times rent and interest expense, compared to $1.6 and $3.3 million
of EBITDA in 1998, or approximately .73 and .72 times rent and interest expense.
Pioneer reported rent expense of approximately $200,000 and $400,000 in the 1999
three and six month periods compared to $200,000 and $500,000 in the 1998 three
and six month periods. Rent in future periods will be approximately the same as
in the current quarter. Pioneer reported corporate charges of $300,000 and
$550,000 in the 1999 three and six month periods compared to $300,000 and
$600,000 in the 1998 three and six month periods. Interest expense in future
periods will be less as a result of the repurchase of $5.0 million principal
amount of 13 1/2% Notes in December 1998.
Although results of operations of the Pioneer have not been adversely impacted
since the commencement of the Consent Solicitation in October 1998 or the filing
for relief under Chapter 11 by PFC and PHI, no assurance can be given that such
filing and the potential filing for relief under Chapter 11 by the Company and
other subsidiaries of the Company, will not have a material adverse effect on
the operations and financial condition of the Pioneer and the Company.
PHI's principal uses of cash are for reorganization expenses, lease payments,
corporate charges, interest payments on the 13 1/2% Notes and capital
expenditures to maintain the Pioneer. Capital expenditures to maintain the
Pioneer in fiscal 1999 are expected to be approximately $1.0 million.
Management believes that, based on operations for the three and six month
periods ended March 31, 1999, PHI will have sufficient cash and available
resources to meet its operating requirements through the twelve months ending
March 31, 2000, although no assurance can be given to that effect. Results for
the six month period ended March 31, 1999
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improved compared to the same period in the prior year. However, results for the
six month period ended March 31, 1999 are not necessarily indicative of results
for the entire fiscal year.
PFC had $ 55.0 million of principal and approximately $6.2 million accrued
interest due on the 13 1/2% Notes as of March 31, 1999 which is presented as
Liabilities Subject to Compromise in the consolidated Condensed Balance Sheet
contained elsewhere herein. PFC did not pay the 13 1/2% Notes at maturity. See
"General" and "Liabilities Subject to Compromise" above and "PFC and PHI
Joint Plan" below for a discussion of bankruptcy proceedings involving PFC
and the Company.
PFC AND PHI JOINT PLAN
If the Joint Plan is confirmed, PFC will issue a principal amount of 13 1/2%
First Mortgage Notes (together with the PIK Notes, as defined below, the
"Amended Notes") equal to the principal amount of all outstanding 13 1/2%
Notes plus accrued interest as of December 1, 1998 after giving effect to the
redemption of approximately $1.6 million principal amount of 13 1/2% Notes
plus 50% of the interest payable thereafter through the issuance date of the
Amended Notes. The Amended Notes will bear interest at a rate equal to 13
1/2% per annum. Interest on the Amended Notes will be payable semiannually.
The Amended Notes will mature on the eighth anniversary of the issue date.
PFC will have the right to pay in kind up to 50% of the interest payable on
each interest payment date through the fourth interest payment date through
the issuance of additional Amended Notes with a principal amount equal to 50%
of the interest payable on such Interest Payment Date (the "PIK Notes"). The
terms of the PIK Notes will be identical to those of the Amended Notes,
including without limitation that interest on the PIK Notes will be payable
50% in cash and 50% through the fourth interest payment date through the
issuance of additional PIK Notes. The Amended Notes will be redeemable at
100% of the principal amount plus accrued interest thereon, and unpaid to the
date of purchase by PFC at any time. Upon the occurrence of certain events,
PFC will be required to redeem all outstanding Amended Notes or make an offer
to repurchase all or a portion of the outstanding Amended Notes, in each case
at 100% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of purchase. Moreover, one of the
provisions of the Amended Notes will require that, on or before the later of
December 31, 1999 and the date that is six months from the confirmation date
of a plan of reorganization, PFC must complete an offer to repurchase $7.5
million principal amount of Amended Notes or purchase in the open market or
otherwise purchase and retire a principal amount of Amended Notes that can be
acquired with at least $7.5 million. If this requirement is not satisfied by
the specified date, an event of default will occur under the Amended Notes.
The Company will guaranty the payment of principal of, and premium, if any,
and interest on, the Amended Notes, and the guaranty will be secured by a
pledge of the common stock of its subsidiaries SFHI, SR, Hacienda Hotel,
Inc., Sahara Nevada Corp. and Santa Fe Coffee Company and by liens on certain
of its other assets.
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The Joint Plan will be subject to the approval of the Bankruptcy Court and
the approval of certain classes of creditors. No assurance can be given that
the plan of reorganization submitted by PFC will be confirmed. Giving effect
to the issuance of Amended Notes as of the beginning of the period and
assuming that PFC elects to pay 50% of the interest payment obligations
through the fourth interest payment date following issuance of Amended Notes
through the issuance of PIK Notes, as a result of which there would be $65.2
million principal amount of Amended Notes outstanding at maturity, assuming
no repurchase and retirement of Amended Notes. The ratio of EBITDA less rent
for real property to cash interest expense, assuming 50% of the interest on
the 13-1/2% Notes is paid-in-kind, would have been 1.94-to-one for the twelve
months ended March 31, 1999 and EBITDA less rent for real property and
corporate charges would have been 1.65-to-one for the twelve months ended
March 31, 1999. Upon commencement of the requirement that all interest be
paid in cash on the fifth interest payment date, the ratio of EBITDA to cash
interest expense on the Amended Notes is expected to be less than one-to-one
(assuming no offers to repurchase Amended Notes have been made). Therefore,
it is expected that PFC would not be able to make the cash interest payment
on the fifth interest payment date (without contributions from the Company),
which would be an event of default under the indenture under which the
Amended Notes will be issued.
PREFERRED STOCK
The terms of the Company's preferred stock provide that dividends accrue on a
semi-annual basis, to the extent not declared. The Company is a party to
financing arrangements that restrict the Company's ability to exchange the
preferred stock for subordinated notes and to pay dividends or make
distributions with respect to the Company's capital stock, which currently
prohibit the payment of cash dividends on the preferred stock. The Company
accrued the semi-annual preferred stock dividends due in fiscal years 1999, 1998
and 1997. Dividends in an amount equal to dividend payments for one dividend
period have accrued and remain unpaid for two years, as a result of which the
preferred stockholders were entitled to elect two directors to the Company's
Board of Directors at the 1999 annual meeting of shareholders in addition to the
directors elected by the common stockholders. In September 1998 the dividend
rate increased to 11.0% from 8.0%, in March 1999 the dividend rate increased to
11.5% and the dividend rate will increase by 50 basis points each semi-annual
period, up to a maximum of 16%, until the preferred stock is redeemed or
exchanged.
RELATED PARTIES
In fiscal years 1993 and 1992 Hacienda Hotel Inc's., predecessor made loans to
LICO, a Nevada corporation wholly owned by Paul W. Lowden, which provided
entertainment services to the Hacienda Resort Hotel and Casino and the Sahara
Hotel and Casino, in the aggregate amount of $476,000. In January 1998, the
loans to LICO were satisfied through an offset against Mr. Lowden's bonus for
fiscal year 1998 in the amount of $600,000 ("Fiscal Year 1998 Bonus") and a fee
in the amount of $100,000 due to Mr. Lowden for personal guarantees he issued
for certain Company financing arrangements (the "Personal Guarantee Fee"). In
December 1998, at the request of Mr. Lowden, the Company's payment of $350,000
of the Fiscal Year 1998 Bonus and the Personal Guarantee Fee
33
<PAGE>
which satisfied, in part, the loan to LICO, was rescinded, and LICO's obligation
to pay the Company $350,000, together with interest thereon from January 1998,
was reinstated. The Company remained obligated to pay Mr. Lowden the additional
$350,000 of the fiscal year 1998 bonus. In February 1999, the Company offset the
remaining $350,000 payment to Mr. Lowden, payable in connection with the 1998
Fiscal Year Bonus, against the outstanding obligation of LICO to the Company.
COMPUTERIZED OPERATIONS AND THE YEAR 2000
INTRODUCTION. In an effort to adequately address and prepare for the impact and
to prevent potential disruption of business operations at the Company's
properties, the Company's Management Information Systems ("MIS") department has
been working to identify areas of risk related to the Company's current
technology's potential inability to process properly the change from the year
1999 to 2000.
STATE OF READINESS. Since 1997, the MIS department, which oversees and has
accountability for the operation of the Company's technology systems, has been
charged with assessing, evaluating and monitoring the actions the Company will
need to take to become year 2000 compliant. The MIS department has made an
assessment of most of the information technology ("IT") and non-IT systems of
both the Santa Fe and the Pioneer. Examples of IT systems include the
hotel-reservation system, billing system, inventory and purchasing system,
property management system and point of sale system (cash registers). Examples
of non-IT systems include slot machines, video poker machines, elevators to
guest rooms and executive offices, the telephone system, the in-room movie
program and the bingo system. Generally, the Company's non-IT systems appear to
be Year 2000 compliant, i.e., they have the ability to process properly the
change from the year 1999 to 2000. Most of the Company's IT systems need
upgrading and/or replacing to become Year 2000 compliant. The Company is
currently in the process of upgrading and/or replacing such IT systems and
expects to complete the process by September 30, 1999. The MIS department is
currently actively working with the vendors of all applications to make an
assessment as to their Year 2000 compliance, and, if necessary, any corrective
action it should take with respect to such applications. The Company does not
expect that the year 2000 issue will pose significant operational problems for
either the IT or non-IT assets.
The Company from time to time exchanges electronic information with suppliers
and other third parties. The Company has distributed written questionnaires to
its significant suppliers to determine the extent to which the Company's
interface systems are vulnerable to such persons failure to remediate their own
year 2000 issues. All of the significant suppliers who have responded to date
have represented to the Company either that their systems are currently year
2000 compliant or that they are taking steps to make their systems year 2000
compliant. There can be no assurance that such suppliers or third parties will
not suffer a year 2000 business disruption. Such failures could have a material
adverse effect on the Company's financial condition and results of operation.
34
<PAGE>
COSTS TO ADDRESS THE YEAR 2000 ISSUE. The Company estimates that it will spend
approximately $500,000 on system upgrades and/or replacements and has incurred
approximately $38,000 as of March 31, 1999. The Company believes that such
amount, as well as remaining costs to address the Year 2000 issue, will not have
a material effect on the liquidity or financial condition of the Company. The
Company intends to fund from operations the costs of becoming year 2000
compliant.
RISKS PRESENTED BY THE YEAR 2000 ISSUE. To date, the Company has not identified
any IT systems that present a material risk of not being year 2000 ready or for
which a suitable alternative cannot be implemented. However, as the Company's
assessment of the year 2000 issue continues, it is possible that the Company may
identify IT assets that do present a risk of year 2000-related disruption. In
addition, if any suppliers or third parties who provide goods or services that
are critical to the Company's activities fail to address their year 2000 issues
appropriately, there could be a material adverse effect on the Company's
financial condition and results of operations. Finally, the Company cannot
assure that it will complete successfully its assessment and corrective actions
in a timely manner. The failure to be year 2000 compliant in a timely manner
could have a material adverse effect on the Company's financial condition and
results of operations.
CONTINGENCY PLANS. Because the Company has not fully completed its assessment of
the risks from year 2000 failures, the Company has not developed year 2000
specific contingency plans. The Company will develop such plans if it identifies
a business function at risk.
EFFECTS OF INFLATION
The Company has been generally successful in recovering costs associated with
inflation through price adjustments in its 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.
35
<PAGE>
SANTA FE GAMING CORPORATION
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
In January 1999 a purported holder of approximately $4.7 million of
the 13 1/2% Notes (the "Holder") who did not deliver consents
pursuant to the Consent Solicitation delivered to the Company a
proposal for treatment of its 13 1/2% Notes in a manner that was
inconsistent with the terms agreed to by the Consenting Holders. The
Company advised the Holder that it was reviewing its alternatives
and would not take action with respect to the Holder's proposal at
that time. On January 14, 1999, the Holder and two other holders who
purportedly held in the aggregate $3.1 million in principal amount
of 13 1/2% Notes and who did not provide consents pursuant to the
Consent Solicitation delivered demand notices for payment from the
Company and filed involuntary bankruptcy petitions against PFC and
the Company before the United States Bankruptcy Court for the
District of Nevada. The Company did not believe that the three
holders of 13 1/2% Notes complied with the requirements of the
Bankruptcy Code for the commencement of the involuntary cases. On
February 4, 1999 the Company and PFC filed motions to dismiss the
involuntary petitions and sought such damages as provided by the
Bankruptcy Code. These included costs and reasonable attorneys fees
and, in the event the petitions were filed in bad faith, for all
damages caused by such filings or punitive damages.
On February 23, 1999, in accordance with the Consent Solicitation, PFC
voluntarily commenced its Chapter 11 proceedings. PFC has reserved its
right to seek damages against the three non-consenting holders for
improperly commencing the involuntary case against it. On March 19,
1999, the bankruptcy court suspended the involuntary case against the
Company pursuant to Bankruptcy Code Section 305 and further ordered
that the involuntary proceedings would be dismissed upon motion by the
Company upon the Company's obtaining certain waivers of statutes of
limitations regarding alleged avoidance actions.
The Company is the plaintiff in an action titled SANTA FE GAMING
CORP. V. HUDSON BAY PARTNERS, ET AL., CV-S-99-00298-JBR (LRL). This
action was instituted on March 11, 1999 in the United States
District Court for the District of Nevada. The defendants are Hudson
Bay Partners, LP, and David H. Lesser. The complaint includes causes
of action for violation of Section 13(d) of the Securities and
Exchange Act of 1934, breach of contract, and fraud. In this action,
the Company alleges that the defendants failed to comply with the
requirements of Section 13(d) in connection with their purchases of
the Company's preferred stock, and that defendants wrongfully
obtained and used confidential and proprietary information. The
Company seeks all appropriate injunctive relief in connection with
its Section 13(d) claim, specific performance and consequential and
compensatory damages in connection with its breach of contract
claim, and compensatory and punitive damages in connection with its
fraud claim, as well as any other appropriate relief. On April 30,
1999, the court denied the Company's motion for preliminary
injunction with respect to 13(d) claims. Limited discovery has been
conducted to date. No trial date has been scheduled.
The Company is the defendant in a pending action titled GMS GROUP,
LLC V. SANTA FE GAMING CORP., No. 99/602231. This action initially
was instituted on or about April 9, 1999 by means of a motion for
summary judgment in lieu of complaint filed in the Supreme Court for
the State of New York, County of New York and this action was later
reinstituted on or about May 5, 1999. GMS Group alleges that the
Company is in default on its guarantee of the 13-1/2% Notes and
seeks to recover the amounts it claims are past due on the 13-1/2%
Notes. The Company has not yet filed a response in this action.
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
PFC has $55 million of principal and approximately $6.2 million accrued
interest due on the 13 1/2% Notes as of March 31, 1999 which is
presented as Liabilities Subject to Compromise in the consolidated
Condensed Balance Sheet contained elsewhere herein. In November 1998
PFC received and accepted consents from holders of approximately 75%,
or $45.8 million principal amount of the outstanding 13 1/2% Notes
pursuant to which (i) PFC agreed to file for relief under Chapter 11 of
the United States Bankruptcy Code and to submit for confirmation a plan
of reorganization that provides for issuance of Amended Notes in
satisfaction of the 13 1/2% Notes pursuant to the terms set forth in
the Consent Solicitation, and (ii) the Consenting Holders agreed (a) to
forbear until December 2000 from exercising rights or remedies arising
as a result of the failure by PFC to pay principal and interest on the
13 1/2% Notes at the December 1, 1998 maturity date, or the failure by
PHI to pay principal and interest on the inter-company mirror note from
PHI to
36
<PAGE>
PFC at the December 1, 1998 maturity date and (b) to vote to accept
a plan of reorganization in a Chapter 11 bankruptcy case that provides
for treatment of the 13 1/2% Notes substantially as set forth in the
Offering Circular/Content Solicitation Statement. No assurance can be
given that the Joint Plan will be confirmed.
Pursuant to the terms of the SLVC Notes, the filing for relief under
Chapter 11 by PFC (due to the non-payment of the 13 1/2% Notes at
maturity) created an event of default under the SLVC Notes that caused
the SLVC Notes to automatically become due and payable. Management is
currently negotiating with holders of the SLVC Notes to waive the
acceleration and other defaults related to the non-payment by PFC of
the 13 1/2% Notes, although no assurance can be given that such
negotiations will be successful. The Company is also exploring
refinancing alternatives for the SLVC Notes. If the holders of the SLVC
Notes do not waive defaults and acceleration and demand payment under
the SLVC Notes and the Company guarantee and the Company is unable to
refinance the SLVC Notes or sell all or a portion of its assets and
realize proceeds sufficient to satisfy the debt, it is likely that
SLVC and the Company will file for relief under Chapter 11 of the
Bankruptcy Code.
Pursuant to the terms of the $14 million principal amount of 9 1/2%
Notes due 2000 (the "9 1/2% Notes") which SFHI issued, certain events
related to the non-payment by PFC of the 13 1/2% Notes at maturity,
created events of default under the 9 1/2% Notes. Management is
currently negotiating with holders of the 9 1/2% Notes to waive the
defaults, although no assurance can be given that such negotiations
will be successful. The Company is also exploring refinancing
alternatives for the 9 1/2% Notes. If the holders of the 9 1/2% Notes
do not waive the defaults and accelerate the payment of the 9 1/2%
Notes, a default would occur under the 11% Notes which would permit
11% Notes to accelerate. If the 9 1/2% Notes and the 11% Notes were to
be accelerated and the Company is unable to refinance the indebtedness
or sell all or a portion of its assets and realize sufficient proceeds
to satisfy the debt, it is likely that SFHI and the Company will file
for relief under Chapter 11 of the Bankruptcy Code.
If the Company were to file for relief under Chapter 11 of the
Bankruptcy Code or if an order for relief is entered in the Company's
involuntary bankruptcy case, an event of default would occur under the
11% Notes Indenture, resulting in automatic acceleration of the 11%
Notes
Item 4 - Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on May 3, 1999, Common
Stockholders elected two directors and voted on a proposal to ratify
the selection of Deloitte & Touche LLP as the Company's public
accountants. Preferred stockholders elected two special directors.
37
<PAGE>
The result of the vote taken on the election of Common Stockholder
Directors was as follows:
<TABLE>
<S> <C>
Paul W. Lowden 3,568,495
James W. Lewis 3,568,495
</TABLE>
The result of the vote taken for ratification of selection of Deloitte
& Touche LLP as the Company's public accountants are as follows:
<TABLE>
<S> <C> <C>
For: 3,568,495 Against: 0 Votes abstaining: 0
</TABLE>
The result of the vote taken on the election of two special directors
by Preferred Stockholders was as follows:
<TABLE>
<S> <C>
Nathan J. Rogers 330,928
Howard E. Foster 330,928
John M. Bradham 5,128,067
Peter J. Siris 5,128,067
</TABLE>
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibits
10.85 Amended and Restated Bylaws of Santa Fe Gaming
Corporation
10.86 First amendment to the Employment Agreement, dated October
1, 1998 by and among Santa Fe Gaming Corporation and
Thomas K. Land
27 Financial Data Schedules
B. Reports
The Registrant filed on February 12, 1999 a current report on Form 8-K
dated October 23, 1998 which was an exact copy of a current report on
Form 8-K filed inadvertently by Pioneer Finance Corp on
October 26, 1998.
The Registrant filed on March 1, 1999 a current report on Form 8-K
dated October 23, 1998 to explain a delay in the filing of an 8-K which
was incorrectly filed by Pioneer Finance Corp.
38
<PAGE>
The Registrant filed on February 25, 1999 a Current Report on Form 8-K
dated February 23, 1999 under Item 5. Other Events, reporting certain
information relating to the filing of a voluntary petition under the
United States Bankruptcy Code by PFC in the United States Bankruptcy
Court, District of Nevada in connection with the 13 1/2% Notes. The
Registrant filed a Current Report on Form 8-K dated March 12, 1999
under Item 5. Other Events, announcing the date of the 1999 Annual
Meeting.
The Registrant filed on March 22, 1999 a Current Report on Form 8-K
dated March 21, 1999 under Item 5. Other Events, reporting certain
information relating to the Company's having consented to the delisting
of its common and preferred stock by the American Stock Exchange and
the suspension of the involuntary bankruptcy petition filed with
respect to the Company on January 14, 1999.
The Registrant filed on May 10, 1999 a Current Report on Form 8-K dated
May 3, 1999 under Item 5. Other Events, reporting the election of new
board members at the May 3, 1999 annual meeting.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
SANTA FE GAMING CORPORATION, Registrant
By: /s/ THOMAS K. LAND
----------------------------------------
Thomas K. Land, Chief Financial Officer
Dated: May 17, 1999
40
<PAGE>
Exhibit 10.85
AMENDED AND RESTATED BY-LAWS
OF
SANTA FE GAMING CORPORATION
ARTICLE I.
MEETING OF STOCKHOLDERS
SECTION 1. The annual meeting of the stockholders of the Company
shall be held at its office in the City of Las Vegas, County of Clark and State
of Nevada, on the first Monday in February of each year, if not a legal holiday,
and if a legal holiday, then on the next succeeding day not a legal holiday, or
at such other time, on such other date or in such other location within or
without the State of Nevada as the Board of Directors shall determine, for
purpose of electing directors of the Company to serve for the ensuing year or
such other term as may be provided in the Articles of Incorporation of the
Company, and for the transaction of such other business as may be brought before
the meeting.
At least ten (10) days' written notice (but no more than 60 days'
written notice) specifying the time and place that the annual meeting shall be
convened shall be mailed in the United States Post Office addressed to each of
the stockholders of record as of the record date for the annual meeting, at his,
her or its address last known, as the same appears on the books of the Company.
SECTION 2. Special meetings of the stockholders may be held at the
office of the Company in the State of Nevada or elsewhere, whenever called by
the President, or by the Board of Directors. At least ten (10) days' written
notice of such meeting (but no more than 60 days' written notice), specifying
the day and hour and place that such meeting shall be convened, and objects for
calling the same, shall be mailed in a United States Post Office, addressed to
each of the stockholders of record at the time of issuing the notice, at his or
her or its address last known, as the same appears on the books of the Company.
SECTION 3. If all the stockholders of the Company shall waive notice
of a meeting, no notice of such meeting shall be required. Whenever all of the
stockholders shall meet in person or by proxy, such meeting shall be valid for
<PAGE>
all purposes without call or notice, and at such meeting any corporate action
may be taken unless a stockholder objects to the holding of such meeting.
The written certificate of the officer or officers calling any meeting
setting forth the substance of the notice, and the time and place of the mailing
of the same to the several stockholders, and the respective addresses to which
the same were mailed, shall be prima facie evidence of the manner and fact of
the calling and giving such notice.
If the address of any stockholder does not appear upon the books of
the Company, it will be sufficient to address any notice to such stockholder at
the principal office of the corporation.
SECTION 4. All lawful business to be transacted by the stockholders
of the Company may be transacted at any special meeting or at any adjournment
thereof. Only such business, however, shall be acted upon at a special meeting
of the stockholders as shall have been referred to in the notice calling such
meetings, but at any stockholders' meeting at which all of the outstanding
capital stock of the Company is represented, either in person or by proxy, any
lawful business may be transacted, and such meeting shall be valid for all
purposes unless a stockholder objects to the holding of such meeting.
SECTION 5. At the stockholders' meetings, the holders of fifty
percent (50%) in the amount of the issued and outstanding capital stock of each
class entitled to vote on a matter at the meeting shall constitute a quorum
entitled to take action with respect to the vote on that matter.
If the holders of the amount of stock necessary to constitute a quorum
shall fail to attend, in person or by proxy, at the time and place fixed by
these By-Laws for any annual meeting, or fixed by a notice as above provided for
a special meeting, a majority in interest of the stockholders present in person
or by proxy may adjourn from time to time without notice other than by
announcement at the meeting, until holders of the amount of stock requisite to
constitute a quorum shall attend. At any such adjourned meeting at which a
quorum shall be present, any business may be transacted which might have been
transacted as originally called.
SECTION 6. At the meeting of the stockholders, all questions touching
the qualifications of voters and the validity of proxies and the acceptance or
rejection of votes, shall be decided by either one or three inspectors. Such
inspectors shall be appointed by the Board of Directors, or, in lieu thereof, by
the President.
2
<PAGE>
SECTION 7. The Directors may prescribe a date not more than sixty
(60) days prior to the holding of any annual or special meeting of stockholders
as the date of which stockholders entitled to notice of and to vote at such
meetings shall be determined, and only stockholders of record on such date shall
be entitled to notice of or to vote at such meeting.
SECTION 8. Any action which may be taken by the vote of the
stockholders at a meeting may be taken without a meeting if authorized by the
written consent of stockholders holding at least a majority of the voting power,
unless the provisions of the Nevada General Corporation law or of the Articles
of Incorporation require a greater proportion of voting power to authorize such
action in which case such greater proportion of written consents shall be
required.
ARTICLE II.
DIRECTORS AND THEIR MEETINGS
SECTION 1. The Board of Directors of the Company shall consist of
six(6) members who shall hold office as set forth in the Articles of
Incorporation, and until their successors are elected and qualify.
The number of Directors of the Corporation may be increased or
decreased from time to time by resolution of the Board of Directors, or an
authorized committee thereof but no decrease shall have the effect of
shortening the term of any incumbent Director.
SECTION 2. When any vacancy occurs among the directors by death,
resignation, disqualification or other cause, the remaining directors, by the
affirmative vote of a majority thereof, shall elect a successor to hold office
for the unexpired portion of the term of the director whose place shall have
become vacant and until his successor shall have been elected and shall qualify.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of his term of office.
SECTION 3. Meetings of the directors may be held at the principal
office of the Company in the State of Nevada or elsewhere, at such place or
places as the Board of Directors may, from time to time, determine.
SECTION 4. The Board of Directors shall hold its first annual meeting
for the year no later than the earlier of (i) immediately after the annual
meeting of stockholders or immediately after the election of directors at the
annual meeting, or (ii) March 31. If such meeting is to occur other
3
<PAGE>
than immediately after the annual meeting of stockholders or the election of
directors at the annual meeting, notice of the meeting shall be given to each
Director by the Secretary at least two (2) days previous to the day fixed for
such meeting.
Regular meetings of the Board of Directors shall be held at such times
and places as the Board may by resolution determine. Notice of such regular
meetings shall be given to each Director by the Secretary at least two (2) days
previous to the day fixed for such meeting.
Special meetings of the Board of Directors may be held on the call of
the President or Secretary on at least twenty four (24) hours' notice in person
or by mail, telegram or facsimile transmission.
If all the directors of the Company shall waive notice of the meeting,
no notice of such meeting shall be required. Whenever all of the directors
shall meet, such meeting shall be valid for all purposes without call or notice,
and at such meeting any corporate action may be taken unless a director objects
to the holding of such meeting.
Any and all business may be transacted by any meeting of the Board of
Directors, either regular or special.
SECTION 5. A majority of the Board of Directors in office shall
constitute a quorum.
If at any meeting of the Board there be less than a quorum present, a
majority of those present may adjourn from time to time, until a quorum shall be
present, and no notice of such adjournment shall be required. The Board of
Directors (or in the absence of such action by the Board of Directors, the
President) may prescribe rules not in conflict with these By-Laws for the
conduct of its business.
SECTION 6. A director need not be a stockholder of the corporation.
SECTION 7. The Board of Directors shall have the power from time to
time to provide for the management of the affairs of the Company in such manner
as they see fit, and in particular from time to time to delegate any of the
powers of the Board in the course of the current business of the Company to any
standing or special committee or to any officer or agent and to appoint any
persons to be agents of the Company with such powers (including the power to
sub-delegate), and upon such terms as may be deemed fit.
SECTION 8. The Board of Directors may, by resolution adopted by a
majority of the whole Board, designate one or more committees of the Board of
Directors, each committee to consist of at least one or more of the directors
4
<PAGE>
of the corporation which, to the extent provided in the resolution, shall
have and may exercise the power of the Board of Directors in the management
of the business and affairs of the corporation and may have power to
authorize the seal of the corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as
may be determined from time to time by the Board of Directors. Notice of
committee meetings shall be given in the manner set forth in Section 4 of
this Article with respect to meetings of the Board of Directors. The members
of any such committee present at any meeting and not disqualified from voting
may, whether or not they constitute a quorum, unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any
absent or disqualified member. At meetings of such committees, a majority of
the members or alternate members shall constitute a quorum for the
transaction of business, and the act of a majority of the members or
alternate members at any meeting at which there is a quorum shall be the act
of any such committee.
Any such committee shall keep regular minutes of their proceedings and
report the same to the Board of Directors.
SECTION 9. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board of Directors or of such committee, as the case may be, and such written
consent is filed with the minutes of proceedings of the Board or committee.
SECTION 10. Directors may participate in any regular or special
meeting of the Board or any committee thereof by means of conference telephone
or similar communications equipment pursuant to which all persons participating
in the meeting of the Board can hear each other, and such participation shall
constitute presence in person at such meeting.
5
<PAGE>
ARTICLE III.
OFFICERS AND THEIR DUTIES
SECTION 1. The officers of the Company shall be a President, a
Vice-President, a Secretary and a Treasurer. The officers shall be elected by
and shall serve at the discretion of the Board of Directors, and until their
successors are elected and qualify. The offices of the Secretary and Treasurer
may be held by one person. Any vacancy occurring in any office of the
corporation by death, resignation, removal or otherwise shall be filled by the
Board of Directors.
The Board of Directors may from time to time, by resolution, appoint
such additional Vice-Presidents (and designate any as executive, senior, junior
or other numerical Vice-President) and additional Assistant Secretaries and
Assistant Treasurers of the Company as it may deem advisable; prescribe their
duties; and fix their compensation, and all such appointed officers shall be
subject to removal at any time by the Board of Directors. All officers and
agents of the Company shall be chosen and appointed in such manner and shall
hold their office for such terms as the Board of Directors may by resolution
prescribe.
SECTION 2. The President shall be the Chief Executive Officer of the
Company and shall have the supervision and, subject to the control of the Board
of Directors, the direction of the Company's affairs, with full power to execute
all resolutions and orders of the Board of Directors not especially entrusted to
some other officer of the Company.
The President shall preside at all meetings of the Board of Directors,
and at all meetings of the stockholders, and shall perform such other duties as
shall be prescribed by the Board of Directors.
SECTION 3. The Vice President shall perform such duties as shall be
prescribed by the President and the Board of Directors.
SECTION 4. The Treasurer shall have the custody of all the funds and
securities of the Company. When necessary or proper, the Treasurer shall
endorse on behalf of the Company for collection checks, notes and other
obligations; the Treasurer shall deposit all monies to the credit of the Company
in such bank or banks or other depository as the Board of Directors may
designate; the Treasurer shall sign all receipts and vouchers for payments made
by the Company, except as herein otherwise provided; the Treasurer shall also
have the care and custody of the stocks, bonds, certificates, vouchers, evidence
of debts, securities, and such other property belonging to the Company as the
Board of Directors
6
<PAGE>
shall designate; the Treasurer shall sign all papers required by law or by
these By-Laws or the Board of Directors to be signed by the Treasurer.
Whenever required by the Board of Directors, the Treasurer shall render a
statement of his cash account; the Treasurer shall enter regularly in the
books of the Company to be kept by him for the purpose, full and accurate
accounts of all monies received and paid by him on account of the Company.
The Treasurer shall at all reasonable times exhibit the books of the accounts
to any directors of the Company during business hours, and the Treasurer
shall perform all acts incident to the position of treasurer subject to the
control of the Board of Directors.
The Treasurer shall, if required by the Board of Directors, give bond
to the Company conditioned for the faithful performance of all his or her duties
as Treasurer in such sum, and with such security as shall be approved by the
Board of Directors, with expenses of such bond to be borne by the Company.
SECTION 5. The Board of Directors may appoint an Assistant Treasurer
who shall have such powers and perform such duties as may be prescribed for the
Assistant Treasurer by the Treasurer of the Company or by the Board of
Directors, and the Board of Directors shall require the Assistant Treasurer to
give a bond to the Company in such sum and with such security as it shall
approve, as conditioned for the faithful performance of his duties as Assistant
Treasurer, the expense of such bond to be borne by the Company.
SECTION 6. The Secretary shall keep the minutes of all meetings of
the Board of Directors and the minutes of all meetings of the stockholders and
of the Executive Committee in books provided for that purpose. The Secretary
shall attend to the giving and serving of all notices of the Company; the
Secretary may sign with the President or Vice-President, in the name of the
Company, all contracts authorized by the Board of Directors or Executive
Committee; the Secretary shall have the custody of the corporate seal of the
Company; the Secretary shall affix the corporate seal of the Company thereto
when so authorized by the Board of Directors or Executive Committee; the
Secretary shall affix the corporate seal to all certificates of stock duly
issued by the Company; the Secretary shall have charge of Stock Certificate
Books, transfer books and stock ledgers, and such other books and papers as the
Board of Directors or the Executive Committee may direct, all of which shall at
all reasonable times be open to the examination of any director upon application
at the office of the Company during business hours, and the Secretary shall, in
general, perform all duties incident to the office of Secretary.
SECTION 7. The Board of Directors may appoint an Assistant Secretary
who shall have such powers and perform
7
<PAGE>
such duties as may be prescribed for the Assistant Secretary by the Secretary
of the Company or by the Board of Directors.
SECTION 8. Unless otherwise ordered by the Board of Directors, the
President shall have full power and authority in behalf of the Company to attend
and to act and to vote at any meetings of the stockholders of any corporation in
which the Company may hold stock, and at any such meetings, shall possess and
may exercise any and all rights and powers incident to the ownership of such
stock, and which as the new owner thereof, the Company might have possessed and
exercised if present. The Board of Directors, by resolution, from time to time,
may confer like powers on any person or persons in place of the President to
represent the Company for the purposes mentioned in this section.
ARTICLE IV.
CAPITAL STOCK
SECTION 1. The capital stock of the Company shall be issued in such
manner and at such times and upon such conditions as shall be prescribed by the
Board of Directors.
SECTION 2. Every stockholder shall be entitled to have a certificate
signed by an officer of the Corporation, certifying the number of shares owned
by him in the corporation. If the corporation shall be authorized to issue more
than one class of stock or more than one series of any class, the voting powers,
designations, preferences, limitations, restrictions and relative rights of the
various classes of stock or series thereof and the qualifications, limitations
or restrictions of such rights, shall be set forth in full or summarized on the
face or back of the certificate which the corporation shall issue to represent
such stock.
The signatures on a stock certificate may be facsimiles. In case any
officer who has signed or whose facsimile signature has been placed upon a
certificate shall cease to be such officer before such certificate is issued,
such certificate may be issued with the same effect as though the person had not
ceased to be such officer. The seal of the corporation, or a facsimile thereof,
may, but need not be, affixed to certificates of stock.
SECTION 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
8
<PAGE>
owner of such lost or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require
and/or give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to
the certificate alleged to have been lost or destroyed.
SECTION 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation, if it is satisfied that all provisions of the laws
and regulations applicable to the corporation regarding transfer and ownership
of shares have been complied with, to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.
SECTION 5. The Board of Directors shall have power and authority to
make all such rules and regulations not inconsistent herewith as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of the capital stock of the Company.
The Board of Directors may appoint a transfer agent and a registrar of
transfers and may require all stock certificates to bear the signature of such
transfer agent and such registrar of transfer.
ARTICLE V.
OFFICES AND BOOKS
SECTION 1. The registered office of the Company in Nevada shall be at
4949 North Rancho Drive, Las Vegas, Nevada 89130 and the Company may have a
principal office in any other state or territory as the Board of Directors may
designate.
SECTION 2. The Stock and Transfer Books will be kept at the office of
the Company's transfer agent. A copy of the By-Laws and Articles of
Incorporation of the Company shall be kept at the Company's registered office in
the County of Clark, State of Nevada, for the inspection of all who are
authorized to have the right to see the same, and for the transfer of stock.
All other books of the Company shall be kept at such place or places as may be
prescribed by the Board of Directors.
ARTICLE VI.
INDEMNIFICATION
SECTION 1. Every person who was or is a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or
9
<PAGE>
investigative, by reason of the fact that such person or a person of whom
such person is the legal representative is or was a director or officer of
the corporation or is or was serving at the request of the corporation or for
its benefit as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise,
shall be indemnified and held harmless to the fullest extent legally
permissible under the general corporation law of the State of Nevada from
time to time against all expenses, liability and loss (including attorneys'
fees, judgments, fines and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith. The
expenses of officers and directors incurred in defending a civil or criminal
action, suit or proceeding must be paid by the corporation as they are
incurred and in advance of the final disposition of the action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that he is not entitled to be indemnified by the
corporation. Such right of indemnification shall be a contract right which
may be enforced in any manner desired by such person. Such right of
indemnification shall not be exclusive of any other right which such
directors, officers or representatives may have or hereafter acquire and,
without limiting the generality of such statement, they shall be entitled to
their respective rights of indemnification under any bylaw, agreement, vote
of stockholders, provision of law or otherwise, as well as their rights under
this Article.
SECTION 2. The Board of Directors may cause the corporation to
purchase and maintain insurance on behalf of any person who is or was a director
or officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred in any such
capacity or arising out of such status, whether or not the corporation would
have the power to indemnify such person.
ARTICLE VII.
AMENDMENT OF BY-LAWS
SECTION 1. These By-Laws, or any of them, may be altered, amended or
repealed, and new By-Laws may be made by the Board, by vote of a majority of the
number of directors then in office as directors, acting at any meeting of the
Board or by unanimous written consent. These By-Laws or any of them may be
altered, amended or repealed and new By-Laws may be made by the vote of the
holders of not less than a majority of the outstanding shares of voting stock of
the Corporation at an annual meeting of stockholders, without
10
<PAGE>
previous notice, or at any special meeting of stockholders, provided that
such proposed amendment, modification, repeal or adoption is given in the
notice of special meeting.
11
<PAGE>
THIS IS TO CERTIFY:
That I am the duly elected, qualified and acting Secretary of Santa Fe
Gaming Corporation and that the attached copy of the Amended and Restated
By-Laws of Santa Fe Gaming Corporation is a true and correct copy of said
bylaws.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of May 1999.
/s/ Thomas K. Land
-----------------------------------
Thomas K. Land
Secretary
12
<PAGE>
Exhibit 10.86
FIRST AMENDMENT
to the
EMPLOYMENT AGREEMENT, DATED OCTOBER 1, 1998
by and among
SANTA FE GAMING CORPORATION
("Employer")
-and-
THOMAS K. LAND
("Employee")
- --------------------------------------------------------------------------------
The First Amendment relates to the certain Employment Agreement dated
October 1, 1998 ("Agreement") made and entered into on the 30th day of September
1998, by and among Santa Fe Gaming Corporation, a Nevada corporation and its
affiliates ("Employer"), and Thomas K. Land ("Employee"). Capitalized terms not
otherwise defined herein have the meanings specified in the Agreement.
WITNESSETH:
WHEREAS, Pioneer Finance Corp. ("PFC"), a subsidiary of Santa Fe Gaming
Corporation ("SFGC"), did not pay the principal and accrued interest on its 13
1/2% First Mortgage Notes due December 1998 (13 1/2% Notes) at maturity,
December 1, 1998 (the "Pioneer Default"). The 13 1/2% Notes are guaranteed by
SFGC and secured by the assets of Pioneer Hotel, Inc.
WHEREAS, in November 1998 PFC agreed to file for relief under Chapter
11 of the United States Bankruptcy Code and to seek confirmation of a plan of
reorganization that provides for the issuance of amended notes in satisfaction
of the 13 1/2% Notes pursuant to the terms set forth in the Offering Circular &
Consent Solicitation, dated October 23, 1998, as amended ("Consent
Solicitation"), and on January 14, 1999, involuntary petitions were filed under
the United States Bankruptcy Code with respect to PFC and SFGC (the "Bankruptcy
Events").
WHEREAS, the Pioneer Default and the Bankruptcy Events trigger a
termination of the Agreement pursuant to Sections 6(g) and 6(h), respectively,
and obligate Employer to pay to Employee an amount equal to $92,500,00.
WHEREAS, Employer and Employee desire to acknowledge Employer's
obligation to pay to Employee $92,500.00 and to amend the Agreement to (i)
provide that it is not terminated as a result of the Pioneer Default or the
Bankruptcy Events and (ii) revise Section 6, as set forth herein.
<PAGE>
NOW, THEREFORE, for and in consideration of the foregoing recitals, and
in consideration of the mutual covenants, agreements, understandings,
undertakings, representations, warranties and promises heretofore set forth, and
intending to be legally bound hereby, Employer and Employee do hereby covenant
and agree as follows:
1. Employer hereby agrees to pay to Employee NINETY-TWO THOUSAND
FIVE HUNDRED DOLLARS ($92,500.00) in satisfaction of amount
payable under the Agreement as a result of the Pioneer Default
and the Bankruptcy Events.
2. The Pioneer Default and the Bankruptcy Events arising out of
the Pioneer Default shall not cause a termination of the
Agreement under Section 6.
3. Section 6 is amended by deleting clauses (g) and (h) thereof.
4. The Agreement, as modified herein, shall remain in full force
and effect.
IN WITNESS WHEREOF AND INTENDING TO BE LEGALLY BOUND THEREBY, the
parties hereto have executed and delivered this Amendment as of the year and
date first written above.
EMPLOYER:
SANTA FE GAMING CORPORATION, a Nevada corporation
By: /s/ Paul W. Lowden
---------------------------------------------------
Paul W. Lowden, President
EMPLOYEE:
By: /s/ Thomas K. Land
---------------------------------------------------
Thomas K. Land, Senior V.P. and Chief Financial Officer
2
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