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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM T-3
APPLICATION FOR QUALIFICATION OF INDENTURE
UNDER THE TRUST INDENTURE ACT OF 1939
PIONEER FINANCE CORP.
------------------------------------------------------
(Name of applicant)
4949 Rancho Drive
Las Vegas, Nevada 89130
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(Address of principal executive offices)
SECURITIES TO BE ISSUED UNDER THE INDENTURE TO BE QUALIFIED:
TITLE OF CLASS AMOUNT
-------------- ------
13 1/2 % First Mortgage Notes Up to an aggregate principal
due 2006 amount of $60,000,000
Approximate date of proposed public offering: As soon as practicable after this
application for qualification becomes effective.
NAME AND ADDRESS OF AGENT FOR SERVICE:
Thomas K. Land
c/o Santa Fe Gaming Corporation
4949 Rancho Drive
Las Vegas, Nevada 89130
WITH A COPY TO:
Karen E. Bertero
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California 90071
The obligor hereby amends this application for qualification on such date
or dates as may be necessary to delay its effectiveness until (i) the 20th day
after the filing of an amendment which specifically states that it shall
supersede this application, or (ii) such date as the Commission, acting pursuant
to Section 307(c) of the Act, may determine upon the written request of the
obligor.
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GENERAL
1. GENERAL INFORMATION.
(a) The Applicant, Pioneer Finance Corp. ("Pioneer Finance"), is a
corporation.
(b) The Applicant was organized under the laws of the State of Nevada.
2. SECURITIES ACT EXEMPTION APPLICABLE.
The Applicant intends to offer (the "Exchange Offer"), upon the terms
and subject to the conditions set forth in an Offering Circular and Consent
Solicitation Statement (the "Joint Offering Circular/Consent Solicitation
Statement") and the accompanying letter of transmittal and consent form (the
"Letter of Transmittal and Consent Form") filed as exhibits hereto, to
exchange (the "Exchange") a principal amount of its 13 1/2% First Mortgage
Notes due 2006 (together with the PIK Notes, as defined below, the "New
Notes") equal to the principal amount of all its outstanding 13 1/2% First
Mortgage Bonds due December 1, 1998 (the "Old Notes") properly tendered for
exchange and not withdrawn, less the principal amount of Old Notes
repurchased in the Exchange Offer for all outstanding Old Notes. Upon
consummation of the Exchange, the Applicant will pay approximately $6.9
million to holders of tendered Old Notes for principal and interest payments.
The Applicant also intends to solicit (the "Solicitation"), pursuant to
the Joint Offering Circular/Consent Solicitation Statement, the consents (the
"Consents") of holders of Old Notes to the following (the "Proposed
Consents"), which Proposed Consents will be effective only if the Exchange
Offer is not consummated:
- to agree, among other things, to a forbearance until December 15, 2000
against the exercise of rights and remedies in the event of the failure by the
Applicant to pay principal and interest on the Old Notes when due on December 1,
1998 (the "Maturity Defaults"), and any other defaults arising as a direct
result of the Maturity Defaults;
- to agree, among other things, to a forbearance until December 15, 2000
against the exercise of rights and remedies in the event of the failure by
Pioneer Hotel Inc., a Nevada corporation ("Pioneer Hotel"), to pay principal and
interest on the Promissory Note dated December 1, 1988 in the principal amount
of $120 million by PHI in favor of the Applicant (the "Purchase Money Note")
when due on December 1, 1998 (the "Purchase Money Note Maturity Defaults"), and
any other defaults arising as a direct result of the Purchase Money Note
Defaults; and
- in the event the Exchange Offer is not consummated and the Applicant
files a bankruptcy case under Chapter 11 of the United States Bankruptcy Code,
among other things to vote to accept a plan of reorganization that provides for
treatment of the Old Notes in a manner substantially the same as proposed in the
Exchange.
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The Consents will not become effective unless the Exchange Offer is not
consummated and the Applicant receives valid Consents with respect to at least
$47 million principal amount of Old Notes (the "Requisite Consents"). The
Applicant will pay an aggregate of $6.9 million to holders of Old Notes with
respect to which Consents are furnished for principal and interest payments.
The Exchange Offer is being made by the Applicant in reliance on an
exemption from the registration requirements of the Securities Act of 1933,
as amended, afforded by Section 3(a)(9) thereof. There have not been and
there are not to be any sales of New Notes by the Applicant or by or through
an underwriter at or about the same time as the Exchange Offer. No cash
payment has been made or will be made by an holder of the New Notes. IBJ
Schroder Bank and Trust Company has been retained to serve as the exchange
and solicitation agent (the "Exchange/Solicitation Agent"), and D. F. King &
Co., Inc. has been retained as the information agent (the "Information
Agent"), in connection with the Exchange Offer and Solicitation. The
Exchange/Solicitation Agent and Information Agent will not solicit any
Exchange of Old Notes or Consent of any holder of the Old Notes nor make any
recommendation to any holder of the Old Notes with respect to the Exchange
Offer or the Solicitation, and no portion of the fee to be paid to the
Exchange/Solicitation Agent or the Information Agent is contingent on the
consummation of the Exchange Offer or the Solicitation. The
Exchange/Solicitation Agent and the Information Agent will be paid reasonable
and customary fees and reimbursement of out-of-pocket expenses. Other than
such fees, there has been and will be no consideration that has been or is to
be given, directly or indirectly, to any person in connection with the
Exchange Offer and Solicitation. The Applicant will not pay any commission
or other remuneration to any broker, dealer, salesperson or other person for
soliciting the tender of Old Notes pursuant to the Exchange Offer or the
furnishing of Consents pursuant to the Solicitation.
AFFILIATIONS
3. AFFILIATES.
All of the outstanding capital stock of the Applicant is owned by Sahara
Resorts, a Nevada corporation ("Sahara Resorts"), and all of the outstanding
capital stock of Sahara Resorts is owned by Santa Fe Gaming Corporation, a
Nevada corporation ("Santa Fe Gaming"). As more fully discussed in response to
Item 5, Paul W. Lowden is the controlling shareholder, a director and chairman
of the board, president and chief executive officer of Santa Fe Gaming.
Accordingly, as of September 30, 1998, and thereafter until the effective date,
Santa Fe Gaming, Sahara Resorts and Mr. Lowden may be considered affiliates of
Pioneer.
CORPORATE AFFILIATES
Set forth below are all direct and indirect subsidiaries of Santa Fe
Gaming, showing the relationship of each to the Applicant and to each other.
The capital stock of each subsidiary is wholly owned by such subsidiary's parent
company.
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SUBSIDIARIES OF SANTA FE GAMING
Hacienda Hotel Inc.
Pioneer Hotel Inc.
Sahara Illinois Corp.
Sahara Nevada Corp.
Sahara Resorts
Santa Fe Coffee Company
Santa Fe Hotel Inc.
SFM, Inc.
Atlantis Gaming Corporation
SUBSIDIARIES OF PIONEER HOTEL INC.
Santa Fe Valley Inc.
SUBSIDIARIES OF SAHARA RESORTS
Casino Properties Inc.
Las Vegas Aces
Pioneer Finance Corp.
Resorts Marketing International
Sahara Las Vegas Corp.
Tempo Advertising Inc.
SUBSIDIARIES OF SANTA FE HOTEL INC.
Sahara Mississippi Management Company
Sahara Parkville Inc.
SUBSIDIARIES OF CASINO PROPERTIES INC.
Ever-Ski Properties Inc.
Hacienda Hawaiian Properties, Inc.
MANAGEMENT AND CONTROL
4. DIRECTORS AND EXECUTIVE OFFICERS.
Set forth below are the names, complete mailing addresses of and all
offices held by all directors and executive officers of the Applicant and all
persons chosen to become directors or executive officers.
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<TABLE>
<CAPTION>
Name and Address(1) Position
------------------- --------
<S> <C>
Paul W. Lowden Director; President
Thomas K. Land Director; Vice President and Chief
Financial Officer
William J. Raggio Director; Secretary
Suzanne Lowden Director
James W. Lewis Director
John W. Delaney Director
</TABLE>
--------------------------
(1) The complete mailing address of each director and executive officer of the
Applicant is c/o Santa Fe Gaming Corporation, 4949 Rancho Drive, Las Vegas,
Nevada 89130.
5. PRINCIPAL OWNERS OF VOTING SECURITIES.
As discussed in response to Item 3, Santa Fe Gaming indirectly owns 100% of
the currently issued capital stock of the Applicant. The following table sets
forth information regarding each beneficial owner of 10 percent or more of Santa
Fe Gaming's voting securities as of September 30, 1998.
<TABLE>
<CAPTION>
Name and Complete Title of Number of Shares Percentage of Voting
Mailing Address Class Owned(1) Owned Securities Owned
- ----------------- -------------- ---------------- --------------------
<S> <C> <C> <C>
Paul W. Lowden(2) Common Stock 3,724,391(3) 54.73%
</TABLE>
------------------------
(1) Pursuant to the Amended and Restated Articles of Incorporation of Santa Fe
Gaming, the Board of Directors has the authority to authorize the issuance
of shares of preferred stock from time to time in one or more series and to
fix or alter the designations, powers and preferences or other rights, and
the qualifications,
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limitations or restrictions thereof. Pursuant to such authority, the Board
of Directors of Santa Fe Gaming has authorized the issuance of a class of
Exchangeable Redeemable Preferred Stock. Holders of the Exchangeable
Redeemable Preferred Stock generally have no voting rights, except as
Nevada law may otherwise provide and except that (i) each holder thereof
will be entitled to one vote for the election of two additional directors
of Santa Fe Gaming if dividends in an amount equal to dividend payments for
one Dividend Period have accrued and remain unpaid for two years (which
right will first be exercisable at the annual meeting of shareholders to be
held in 1999), and (ii) the approval of the holders of two-thirds of the
outstanding number of shares of Exchangeable Redeemable Preferred Stock is
required before Santa Fe Gaming may, directly or indirectly, issue a class
or series of equity securities ranking senior to or on parity with the
Exchangeable Redeemable Preferred Stock or take any action that would
materially and adversely affect the rights, preferences, power or
privileges of the Redeemable Exchangeable Preferred Stock.
(2) The address for Paul W. Lowden is c/o Santa Fe Gaming Corporation, 4949
Rancho Drive, Las Vegas, Nevada 89130.
(3) Includes 482,361 shares held by LICO, a Nevada corporation, which is wholly
owned by Mr. Lowden. During the fiscal year ended September 30, 1998,
options to purchase 279,510 shares of Santa Fe Gaming common stock were
granted to Mr. Lowden.
The Applicant is not aware of any other person owning 10 percent or more of
Santa Fe Gaming's voting securities.
UNDERWRITERS
6. UNDERWRITERS.
(a) Within three years prior to the date of the filing of this
Application, no person acted as an underwriter of any securities of the
Applicant which were outstanding on the date of this Application.
(b) No person is acting as principal underwriter of the securities
proposed to be offered pursuant to the New Indenture.
CAPITAL SECURITIES
7. CAPITALIZATION.
(a) Set forth below is certain information with respect to each authorized
class of securities of the Applicant as of September 30, 1998:
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CAPITAL STOCK
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Number of Shares
Title of Class Number of Shares Authorized ---------------
-------------- --------------------------- Outstanding
-----------
<S> <C> <C>
Common Stock, no par 2,500 10
value
<CAPTION>
DEBT SECURITIES
AS OF APRIL 5, 1996
Designation of Debt Amount Authorized Amount Outstanding
------------------- ----------------- ------------------
<S> <C> <C>
13-1/2% First Mortgage $120,000,000 aggregate $60,000,000 aggregate
Bonds due December 1, 1998 principal amount principal amount
</TABLE>
(b) Each share of the Common Stock is entitled to one vote on all matters
submitted to a vote of stockholders. The 13-1/2% First Mortgage Bonds due
December 1, 1998 do not have voting rights.
INDENTURE SECURITIES
8. ANALYSIS OF INDENTURE PROVISIONS.
The New Notes will be subject to the New Indenture among the Applicant,
Santa Fe Gaming as guarantor (the "Guarantor"), and IBJ Schroder Bank & Trust
Company as trustee (the "Trustee"). The following is a general description of
certain provisions of the New Indenture to be filed as an exhibit hereto, and
the description is qualified in its entirety by reference thereto. Capitalized
terms used below and not defined herein have the same meanings as in the New
Indenture.
(a) EVENTS OF DEFAULT; WITHHOLDING OF NOTICE. The term "Event of Default"
when used in the New Indenture means any one of the following: (i) default in
the payment of interest on any New Notes when it becomes due and payable and
continuance of such default for a period of 5 days; (ii) default in the payment
of all or any portion of the principal of, or premium, if any, on, any New Notes
(or in the deposit of any sinking fund payment), when it becomes due and
payable; (iii) any "event of default" under the Mortgage; (iv) default in the
performance, or breach, of any obligation or covenant of the Applicant, Pioneer
Hotel or the Guarantor related to a consolidation, merger, conveyance or
transfer as described in Article Eight of the New Indenture; (v) default in the
performance, or breach, of any other covenant of the Guarantor or the Applicant
in the New Indenture or any Mortgage Document to which either is a party, or of
Pioneer Hotel in any Mortgage Document to which it is a party, and continuance
thereof for 5 days (with regard to a default involving the payment of money) and
15 days (with regard to a non-monetary default) after "notice of default"; (vi)
any default under the Pioneer Ground Lease unless cured or waived prior to the
expiration of any applicable grace period provided for therein; (vii) certain
events of bankruptcy, insolvency or reorganization
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relating to the Applicant, Pioneer Hotel or the Guarantor; (viii) the
revocation, suspension, withdrawal, limitation or loss of any Permit that
results in the cessation of a substantial portion of the operations of the
Pioneer Hotel & Gambling Hall in Laughlin, Nevada, for a period, in the case of
a Gaming Permit, of more than 90 consecutive days and, in the case of any other
Permit, of more than 120 consecutive days; (ix) the existence of a final
unsatisfied judgment or judgments (that have not been effectively stayed) in an
aggregate amount in excess of $2,000,000 against Pioneer Hotel, the Guarantor or
the Applicant or the Trust Estate for a period of 60 days; (x) the existence of
a final unsatisfied judgment (that has not been effectively stayed) that, by
itself or upon recordation, imposes or would impose a Lien on any portion of the
Trust Estate prior to that of Mortgage Documents; (xi) acceleration of any Debt
of Pioneer Hotel, the Guarantor or the Applicant of $2,000,000 or more in the
aggregate, unless such acceleration is rescinded, annulled or stayed, or such
Debt is discharged, within 10 days after "notice of default"; (xii) acceleration
of any Debt (regardless of amount) of Pioneer Hotel, the Guarantor or the
Applicant is secured by a Lien on all or any portion of the Trust Estate unless,
in the case of Debt secured by a Lien that is junior to the Lien of all Mortgage
Documents, such acceleration is rescinded, annulled or stayed, or such Debt is
discharged, within 10 days after "notice of default"; (xiii) admission by
Pioneer Hotel, the Guarantor or the Applicant of its inability to pay its debts
generally as they become due; or (xiv) the entry of a final judgment, decree or
order by a court of competent jurisdiction holding the Guaranty or any Mortgage
Document to be invalid or unenforceable in any material respect or the assertion
by Pioneer Hotel, the Guarantor or the Applicant or any Persons acting on behalf
of any of the foregoing in any pleading filed in such court that the Guaranty or
any Mortgage Document is invalid or unenforceable in any material respect;
PROVIDED, HOWEVER, that in the event that the statutory reinstatement period
provided by Nevada law with respect the Note is less than 35 days at the time of
the occurrence of an Event of Default, then the grace period with respect to
such Event of Default shall be extended by the number of days by which such
statutory reinstatement period is less than 35. "Notice of Default" means
notice to the Applicant and the Guarantor by the Trustee or by the holders of at
least 25% in Outstanding Amount of the New Notes specifying an Event of Default
and requesting the Applicant or the Guarantor to cure the same or take other
appropriate action.
Certain events, defined in the Mortgage, Note and Assignment Agreement as
"events of default," constitute Events of Default under the New Indenture, as
follows: (i) default in the payment of interest on the Note when it becomes due
and payable and continuance of such default for a period of 5 days; (ii) default
in the payment of the principal of, or premium, if any, on the Note at its
maturity; (iii) default in the payment or satisfaction of any sinking fund or
prepayment obligation when and as required by the terms of the Note; (iv)
default in the payment of any other sum due under the Note or the Mortgage
Documents, and the continuance of such default for a period of 5 days after
written notice to Pioneer Hotel from the Mortgage Trustee; (v) failure to keep
in full force and effect the insurance required by the Mortgage or to comply
with certain other provisions thereof relating to insurance matters; (vi) unless
permitted under the Mortgage, the material removal or material demolition of, or
material alteration to, the Premises
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(other than as a result of a Taking or Casualty); (vii) default in the
performance, or breach, of any other covenant of Pioneer Hotel in the Mortgage
and continuance thereof for 5 days (with regard to a "notice of default," unless
the default or breach is curable but not susceptible of being cured with
reasonable diligence within such 5- or 15-day period (for reasons other than the
lack of funds), in which case such 5- or 15-day period, as the case may be,
shall be extended for such further period of time as may reasonably be required
to cure the same, provided that Pioneer Hotel proceeds to cure the same with
reasonable diligence; (vii) an Event of Default under the New Indenture; (viii)
any default under the Pioneer Ground Lease unless cured or waived prior to the
expiration of any applicable grace period; (ix) default in the performance, or
breach, of any of the provisions of the Mortgage relating to mergers,
consolidations, amalgamations and Disposition of assets by Pioneer Hotel; or (x)
any representation or warranty of Pioneer Hotel in the Mortgage or in any
certificate delivered pursuant thereto proves to be incorrect in any respect
that materially impairs the value of the Trust Estate or the security for the
Note provided thereby. Further, all debt secured by the Mortgage will
accelerate upon the imposition of any new mortgage tax or similar tax if payment
thereof by Pioneer Hotel would be unlawful or would violate applicable usury
laws. Notwithstanding the foregoing, in the event that the statutory
reinstatement period provided under Nevada law with respect to the Note is less
than 35 days at the time of the occurrence of an event of default under the
Mortgage, then the grace period with respect to such event of default shall be
extended by the number of days by which such statutory reinstatement period is
less than 35.
The New Indenture provides that the Trustee, within 90 days after the
occurrence of a default, will give notice thereof by mail to all Noteholders,
unless the default has been cured or waived; provided, however, that, except in
the case of a default in the payment of the principal of, premium, if any, or
interest on, the New Notes or any sinking fund payment, the Trustee may withhold
such notice if certain officers or executives of the Trustee in good faith
determine that such withholding is in the interest of the Noteholders; and,
provided, further, that, notwithstanding the foregoing, the Trustee shall, as
promptly as practicable after the Trustee shall learn of the occurrence of a
default under the New Indenture resulting from a default under the Pioneer
Ground Lease, transmit notice of such default by mail to all Noteholders.
In case an Event of Default occurs and is continuing, the Trustee or the
Holders of not less than 25% in Outstanding Amount of the New Notes, by notice
in writing to the Applicant and the Guarantor (and to the Trustee, if given by
holders), may declare the principal of and accrued interest on all the New Notes
to be due and payable immediately; provided, however, that the Trustee shall not
take action to declare the principal of and accrued interest on the New Notes
immediately due and payable until the statutory reinstatement period provided
under Nevada law with respect to the Note shall have expired. Such declaration
may be annulled and past defaults may be waived by the holders of a majority in
Outstanding Amount of the New Notes, upon the conditions provided in the New
Indenture. The Mortgage provides that any acceleration of the New Notes (or
rescission thereof) shall automatically be deemed an acceleration of the Note
(or rescission thereof), and the waiver of any Event of Default under the New
Indenture
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shall be deemed an automatic waiver of the corresponding default, if any, under
the Mortgage.
(b) AUTHENTICATION AND DELIVERY OF BONDS; APPLICATION OF PROCEEDS. The
New Bonds will be executed on behalf of the Applicant by its Chairman of the
Board, President or one of its Vice Presidents under its corporate seal
reproduced thereon attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the New Notes may be
manual or facsimile. A New Note shall not be valid until there appears on
such New Note a certificate of authentication duly executed by the Trustee by
manual signature of an authorized officer.
Because the New Notes are being issued in exchange for the Old Notes, there
will be no proceeds from the issuance of the New Notes.
(c) RELEASE OR SUBSTITUTION OF PROPERTY. In order to secure the payment
of all principal and interest and all other obligations of the Applicant under
the New Indenture, the Applicant will unconditionally and absolutely assign to
the Trustee a first priority security interest in the Mortgage and the Note.
Pursuant to the Mortgage, Pioneer Hotel (the Grantor under the Mortgage) may (i)
sell or dispose of any Tangible Personal Property which has become obsolete or
unfit for use or which is no longer necessary or desirable in the conduct of
Pioneer Hotel's business; (ii) alter, repair, replace, change the location or
position of and add to any Tangible Personal Property, provided that no change
in location of Tangible Personal Property may impair the security of the
Mortgage upon such property; and (iii) renew, extend, surrender, terminate,
modify or amend any Leases (as defined in the Mortgage) of Tangible Personal
Property when prudent to do so.
Santa Fe Gaming will guaranty the Applicant's obligations under the New
Notes and the New Indenture. The guaranty will be secured by the pledge of
common stock of two of Santa Fe Gaming's subsidiaries, Santa Fe Hotel Inc., a
Nevada corporation ("SFHI"), and Sahara Resorts, a Nevada corporation. The
pledge of the SFHI stock may be released upon provision of substitute
collateral, as provided in the New Indenture.
(d) SATISFACTION AND DISCHARGE OF THE NEW INDENTURE. The New Indenture
will be discharged and canceled upon payment of all the principal of, and
premium, if any, and interest on, the New Notes, redemption of all New Notes or
deposit with the Trustee of funds or obligations issued or guarantied by the
United States sufficient for such payment or redemption.
(e) STATEMENT AS TO COMPLIANCE. Pioneer Hotel, the Guarantor and the
Applicant are each required to furnish to the Trustee within 120 days after the
close of each fiscal year an officers' certificate to the effect that a review
of their respective activities has been made with a view to determining whether
their obligations under the New Indenture, the Mortgage Documents and the
Pioneer Ground Lease, as the case may be, have been complied with and as to
whether the signers have obtained knowledge of any default in the fulfillment of
any such obligation during such fiscal year. If Pioneer Hotel, the Guarantor or
the Applicant obtains knowledge of any such default, it is
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required promptly to notify the Trustee of such default and the action it is
taking and proposes to take with respect thereto; provided, however, that upon
the occurrence of a default under the Pioneer Ground Lease, the Applicant is
required to notify the Trustee immediately by telephone, confirmed in writing.
9. OTHER OBLIGORS.
The full performance of the New Notes and the New Indenture by the
Applicant will been guarantied by Santa Fe Gaming, which is the ultimate parent
company of the Applicant. The complete mailing address of Santa Fe Gaming
Corporation is 4949 Rancho Drive, Las Vegas, Nevada 89130.
CONTENTS OF APPLICATION FOR QUALIFICATION. This application for
qualification comprises--
(a) Pages numbered 1 to 14, consecutively.
(b) The statement of eligibility and qualification of each trustee under
the indenture to be qualified (to be filed by amendment).
(c) The following exhibits in addition to those filed as a part of the
statement of eligibility and qualification of each trustee:
EXHIBIT T3A Articles of Incorporation of Pioneer Finance Corp.,
currently in effect, incorporated herein by reference to
Exhibit 3.1 to Amendment No. 2 to the Applicant's
Registration Statement on Form S-1 dated November 21,
1988, registration no. 33-24589 (the "S-1 Amendment
No. 2").
EXHIBIT T3B Bylaws of Pioneer Finance Corp., currently in effect,
incorporated herein by reference to Exhibit 3.2 to the
S-1 Amendment No. 2.
EXHIBIT T3C.1 Indenture among Pioneer Finance Corp., Santa Fe Gaming
Corporation, as successor in interest to Sahara Casino
Partners, L.P., as Guarantor, and IBJ Schroder Bank &
Trust Company, as successor Trustee, dated as of December
1, 1988, incorporated herein by reference to Exhibit 4.1
to the S-1 Amendment No. 2.
EXHIBIT T3C.2 First Supplemental Indenture among Pioneer Finance Corp.,
Sahara Casino Partners, L.P., as Guarantor and Security
Pacific National Bank as Trustee, dated as of December
21, 1990, previously filed as an exhibit to
post-effective Amendment No. 5 to the Registration
Statement on Form S-1 (No. 33-33031) of Sahara Finance
Corp., Sahara Casino
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Partners, L.P., Sahara Operating Limited Partnership,
Hacienda Operating Limited Partnership, and Santa Fe
Operating Partnership as filed on April 15, 1991 and
incorporated herein by reference.
EXHIBIT T3C.3* Second Supplemental Indenture among Pioneer Finance
Corp., Bank of America National Trust and Savings
Association as Trustee, Sahara Casino Partners, L.P., as
Guarantor, Pioneer Operating Limited Partnership, Pioneer
Hotel Inc. and Sahara Gaming Corporation, dated as of
September 30, 1993.
EXHIBIT T3C.4* Tri-Party Agreement among Pioneer Finance Corp., Sahara
Gaming Corporation, Pioneer Hotel Inc., Bank of America
National Trust and Savings Association, Bank of America
Nevada and IBJ Schroder Bank & Trust Company, dated as of
December 30, 1994.
EXHIBIT T3C.5* Third Supplemental Indenture among IBJ Schroder Bank &
Trust Company as Trustee, Pioneer Finance Corp. and
Sahara Gaming Corporation as Guarantor, dated as of
August 31, 1995.
EXHIBIT T3C.6* Form of Indenture among Pioneer Finance Corp., as issuer,
Santa Fe Gaming Corporation, as Guarantor, and IBJ
Schroder Bank & Trust Company, as Trustee.
EXHIBIT T3E.1 Form of Offering Circular and Consent Solicitation
Statement.
EXHIBIT T3E.2 Form of Letter of Transmittal and Consent Form.
EXHIBIT T3E.3 Form of Letter to Beneficial Owners.
EXHIBIT T3E.4 Form of Letter to Registered Holders.
EXHIBIT T3E.5 Form of Letter to Holders in Physical Form.
EXHIBIT T3E.6 Notice of Guaranteed Delivery.
EXHIBIT T3F Cross reference sheet showing the location in the New
Indenture of the provisions inserted therein pursuant to
Sections 310 through 318(a), inclusive, of the Act (to be
included as part of Exhibit T3C.6).
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-----------------------
* To be filed by amendment.
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SIGNATURES
Pursuant to the requirements of the Trust Indenture Act of 1939, the
applicant, Pioneer Finance Corp., a corporation organized and existing under
the laws of Nevada, has duly caused this application to be signed on its
behalf by the undersigned, thereunto duly authorized, and its seal to be
hereunto affixed and attested, all in the City of Las Vegas, and State of
Nevada, on the 23rd day of October, 1998.
(SEAL) PIONEER FINANCE CORP.
By: /s/ THOMAS K. LAND
--------------------------
Thomas K. Land
VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Attest: /s/ WILLIAM J. RAGGIO
-----------------------------
William J. Raggio
SECRETARY
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
EXHIBIT T3A Articles of Incorporation of Pioneer
Finance Corp., currently in effect,
incorporated herein by reference to
Exhibit 3.1 to Amendment No. 2 to the
Applicant's Registration Statement
on Form S-1 dated November 21, 1988,
registration no. 33-24589 (the "S-1
Amendment No. 2").
EXHIBIT T3B Bylaws of Pioneer Finance Corp.,
currently in effect, incorporated
herein by reference to Exhibit 3.2 to
the S-1 Amendment No. 2.
EXHIBIT T3C.1 Indenture among Pioneer Finance Corp.,
Santa Fe Gaming Corporation, as
successor in interest to Sahara Casino
Partners, L.P., as Guarantor, and IBJ
Schroder Bank & Trust Company, as
successor Trustee, dated as of
December 1, 1988, incorporated herein
by reference to Exhibit 4.1 to the S-1
Amendment No. 2.
EXHIBIT T3C.2 First Supplemental Indenture among
Pioneer Finance Corp., Sahara Casino
Partners, L.P., as Guarantor and
Security Pacific National Bank as
Trustee, dated as of December 21,
1990, previously filed as an exhibit
to post-effective Amendment No. 5 to
the Registration Statement on Form S-1
(No. 33-33031) of Sahara Finance
Corp., Sahara Casino Partners, L.P.,
Sahara Operating Limited Partnership,
Hacienda Operating Limited
Partnership, and Santa Fe Operating
Partnership as filed on April 15, 1991
and incorporated herein by reference.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
EXHIBIT T3C.3* Second Supplemental Indenture among
Pioneer Finance Corp., Bank of America
National Trust and Savings Association
as Trustee, Sahara Casino Partners,
L.P., as Guarantor, Pioneer Operating
Limited Partnership, Pioneer Hotel
Inc. and Sahara Gaming Corporation,
dated as of September 30, 1993.
EXHIBIT T3C.4* Tri-Party Agreement among Pioneer
Finance Corp., Sahara Gaming
Corporation, Pioneer Hotel Inc., Bank
of America National Trust and Savings
Association, Bank of America Nevada
and IBJ Schroder Bank & Trust Company,
dated as of December 30, 1994.
EXHIBIT 43C.5* Third Supplemental Indenture among IBJ
Schroder Bank & Trust Company as
Trustee, Pioneer Finance Corp. and
Sahara Gaming Corporation as
Guarantor, dated as of August 31,
1995.
EXHIBIT T3C.6* Form of Indenture among Pioneer
Finance Corp., as issuer, Santa Fe
Gaming Corporation, as Guarantor, and
IBJ Schroder Bank & Trust Company, as
Trustee.
EXHIBIT T3E.1 Form of Offering Circular and Consent
Solicitation Statement.
EXHIBIT T3E.2 Form of Letter of Transmittal and Consent
Form.
EXHIBIT T3E.3 Form of Letter to Beneficial Owners.
EXHIBIT T3E.4 Form of Letter to Registered Holders.
EXHIBIT T3E.5 Form of Letter to Holder of Notes in
Physical Form.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
EXHIBIT T3E.6 Notice of Guaranteed Delivery.
EXHIBIT T3F Cross reference sheet showing the location in
the New Indenture of the provisions inserted therein
pursuant to Sections 310 through 318(a), inclusive,
of the Act. To be included as part of Exhibit T3C.6
</TABLE>
-------------------------
* To be filed by amendment.
3
<PAGE>
OFFERING CIRCULAR AND CONSENT SOLICITATION STATEMENT
PIONEER FINANCE CORP.
OFFER TO EXCHANGE
ALL OUTSTANDING
13 1/2% FIRST MORTGAGE BONDS DUE DECEMBER 1, 1998
($60,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR 13 1/2% FIRST MORTGAGE NOTES DUE 2006
AND
CONSENT SOLICITATION STATEMENT
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON NOVEMBER 20, 1998 (AS SUCH DATE MAY BE EXTENDED, THE "EXCHANGE
EXPIRATION DATE"). THE CONSENT SOLICITATION AND REVOCATION RIGHTS WILL EXPIRE
AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON NOVEMBER 20, 1998 (AS SUCH DATE MAY BE
EXTENDED, THE "SOLICITATION EXPIRATION DATE.")
If the Exchange Offer (as defined) is consummated or the Requisite
Consents (as defined) are received in the Solicitation (as defined), the Company
will pay an aggregate of $6.9 million to tendering or consenting holders. See
"Repurchase of Old Notes in the Exchange or the Solicitation."
THE EXCHANGE
Pioneer Finance Corp., a Nevada corporation (the "Company" or "PFC")
and an indirect wholly owned subsidiary of Santa Fe Gaming Corporation, a Nevada
corporation ("SFGC"), hereby offers (the "Exchange Offer"), upon the terms and
subject to the conditions set forth in this Offering Circular and Consent
Solicitation Statement (the "Joint Offering Circular/Consent Solicitation
Statement") and the accompanying letter of transmittal and consent form (the
"Letter of Transmittal and Consent Form"), to exchange (the "Exchange") a
principal amount of its 13 1/2% First Mortgage Notes due 2006 (together with the
PIK Notes, as defined below, the "New Notes") equal to the principal amount of
all its outstanding 13 1/2% First Mortgage Bonds due December 1, 1998 (the "Old
Notes") properly tendered for exchange and not withdrawn, less the principal
amount of Old Notes repurchased in the Exchange Offer (see "The Exchange Offer -
Acceptance of Old Notes for Exchange; Delivery of New Notes; Payment of Interest
and Repurchase of Old Notes"), for all outstanding Old Notes. Upon consummation
of the Exchange, the Company will pay accrued and unpaid interest through
December 1, 1998 on the tendered Old Notes ($4.1 million) and repurchase an
aggregate of $2.8 million principal amount of Old Notes. As of the date of this
Joint Offering Circular/Consent Solicitation Statement, an aggregate principal
amount of $60 million of Old Notes is outstanding. See "The Exchange Offer."
The New Notes will bear interest at a rate equal to 13 1/2% per annum.
Interest on the New Notes is payable semiannually, commencing June 1, 1999, on
June 1 and December 1 of each year (each, an "Interest Payment Date") and will
accrue from the date following the Exchange Expiration Date. PFC will have the
right to pay up to 50% of the interest payable on each Interest Payment Date
through December 1, 2000 through the issuance of additional New Notes with a
principal amount equal to 50% of the interest payable on such Interest
<PAGE>
Payment Date (the "PIK Notes"). The terms of the PIK Notes will be identical to
those of the New Notes, including without limitation that interest on the PIK
Notes will be payable 50% in cash and 50% through December 1, 2000 through the
issuance of additional PIK Notes. PFC expects to satisfy 50% of each interest
payment obligation through the December 1, 2000 through the issuance of PIK
Notes, as a result of which there would be $65.2 million principal amount of New
Notes outstanding at maturity, assuming no repurchase and retirement of New
Notes. The New Notes will mature on December 1, 2006. See "Description of New
Notes."
SFGC will guaranty the payment of principal of, and premium, if any,
and interest on, the New Notes, and the guaranty will be secured by a pledge of
the common stock of Santa Fe Hotel Inc., a Nevada corporation ("SFHI"), and
Sahara Resorts, a Nevada corporation ("SR"). SFHI owns and operates the Santa
Fe Hotel and Casino in Northwest Las Vegas. SR owns directly and indirectly all
of the outstanding capital stock of Sahara Las Vegas Corp. ("SLVC"), a Nevada
Corporation that owns two parcels of real estate in the Las Vegas area for
potential development.
The New Notes will be redeemable by the Company at any time and from
time to time at the redemption prices and subject to the conditions set forth in
"Description of New Notes - Optional Redemption." Upon the occurrence of
certain events, the Company will be required to redeem all outstanding New Notes
or make an offer to repurchase all or a portion of the outstanding New Notes, in
each case at 100% of the aggregate principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the date of purchase. See "Description of
New Notes - Redemption" and "Description of New Notes - Offers to Repurchase."
The Company will accept for exchange any and all Old Notes that are
validly tendered prior to 12:00 midnight, New York City time, on the Exchange
Expiration Date. Tenders of Old Notes may be withdrawn at any time prior to
12:00 midnight, New York City time, on the Exchange Expiration Date. The
Exchange Offer is conditioned upon, among other things, 100% of the outstanding
Old Notes being properly tendered for exchange and not withdrawn (the "Minimum
Condition"). See "The Exchange Offer - Conditions of the Exchange Offer."
THE SOLICITATION
The Company is also soliciting (the "Solicitation") the consents (the
"Consents") of holders of Old Notes to the following (the "Proposed Consents"),
which Proposed Consents will be effective only if the Exchange Offer is not
consummated:
- to agree to a forbearance until December 15, 2000 against the
exercise of rights and remedies in the event of the failure by PFC to pay
principal and interest on the Old Notes when due on December 1, 1998 (the
"Maturity Defaults"), and any other defaults arising as a direct result of the
Maturity Defaults;
- to agree to a forbearance until December 15, 2000 against the
exercise of rights and remedies in the event of the failure by Pioneer Hotel
Inc., a Nevada corporation ("PHI"), to pay principal and interest on the
Promissory Note dated December 6, 1988 in the principal amount of $120 million
by PHI in favor of PFC (the "Purchase Money Note") when due on December 1, 1998
(the "Purchase Money Note Maturity Defaults"), and any other defaults arising as
a direct result of the Purchase Money Note Defaults; and
- in the event the Exchange Offer is not consummated and the
Company files a bankruptcy case under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code"), among other things to vote to accept a plan of
reorganization (the "Plan") that provides for treatment of the Old Notes in a
manner substantially the same as proposed in the Exchange.
The Consents will not become effective unless the Exchange Offer is
not consummated and PFC receives valid Consents with respect to at least $47
million principal amount of Old Notes (the "Requisite
2
<PAGE>
Consents"). If the Requisite Consents with respect to the Solicitation have not
been received by the Solicitation Expiration Date, the Company may extend the
Solicitation for a specified period or on a daily basis until the Requisite
Consents have been received. Consents may be revoked by holders at any time
prior to the Solicitation Expiration Date and will automatically expire if the
Requisite Consents are not obtained prior to the Solicitation Expiration Date.
REPURCHASE OF OLD NOTES IN THE EXCHANGE OR SOLICITATION
Upon a successful consummation of the Exchange Offer, the Company will
pay in cash all accrued and unpaid interest on tendered Old Notes through
December 1, 1998 ($4.1 million) and repurchase on a pro rata basis from all
registered holders of the Old Notes ("Holders") who properly tender and do not
withdraw Old Notes before the Exchange Expiration Date an aggregate of
$2.8 million principal amount of Old Notes (the "Repurchased Amount"). See "The
Exchange Offer - Acceptance of Old Notes for Exchange; Delivery of New Notes;
Payment of Interest and Repurchase of Old Notes" and "Material United States
Federal Income Tax Considerations."
If the Exchange Offer is not consummated but as of the Solicitation
Expiration Date PFC has received the Requisite Consents, the Company will
repurchase for cash on a pro rata basis from the Holders of Old Notes with
respect to which Consents have been properly furnished an aggregate of $6.5
million principal amount of Old Notes, together with accrued and unpaid interest
thereon through the Solicitation Expiration Date (approximately $400,000). See
"The Solicitation - Repurchase of Old Notes" and "Material United States Federal
Income Tax Considerations."
The payments to be made in connection with the Exchange Offer or
Solicitation will be funded through payments by PHI under the Purchase Money
Note. In the event PFC were to file for relief under Chapter 11 of the
Bankruptcy Code within 90 days (or possibly one year), or PHI were to file for
relief under Chapter 11 of the Bankruptcy Code within one year, of the payments,
the payments may be avoidable as a preference and could be subject to recovery
by a trustee in bankruptcy, an official creditors' committee, other
representatives of creditors of PFC or PHI, or PFC or PHI as debtors in
possession. If the payments were successfully challenged as preferences,
holders would be required to return the funds received, together with interest
thereon in a rate determined by the court, or would be precluded from receiving
any distribution on account of such holders' Old Notes.
GENERAL
If the Minimum Condition is not satisfied and the Exchange Offer is
not consummated for that or any other reason, but the Company has received the
Requisite Consents as of the Solicitation Expiration Date, the Company intends
to file for relief under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code"). If the Exchange Offer is not consummated and the Requisite
Consents are not received, the Company may file for relief under Chapter 11 of
the Bankruptcy Code or may continue to negotiate with the holders of the Old
Notes for a restructuring of the Old Notes. If the Company were to seek
confirmation of the Plan, no assurance can be given that the Plan would meet the
requirements for confirmation, even if the Requisite Consents are received and
the Old Notes subject to the Consents are voted to accept the Plan. See "Risk
Factors - Significant Leverage; Inability to Service New Note Indebtedness; Lack
of Profitable Operations." The Company believes it is in the best interests of
the Company and the holders of Old Notes to restructure the Old Notes outside of
bankruptcy. See "Consequences to Holders if the Exchange Offer or Solicitation
are Not Successful."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
3
<PAGE>
_____________________________
SEE "RISK FACTORS" BEGINNING ON PAGE 13 HEREIN FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED BY HOLDERS IN EVALUATING THE EXCHANGE OFFER AND
SOLICITATION
THE OFFER OF THE SECURITIES OFFERED HEREBY HAVE NOT APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFERING CIRCULAR. ANY
REPRESENTATION TO THE CONTRARY IS CRIMINAL OFFENSE.
The date of this Joint Offering Circular/Consent Solicitation
Statement is October 23, 1998
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . .6
OFFERING CIRCULAR/CONSENT SOLICITATION
STATEMENT SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
THE PIONEER HOTEL & GAMBLING HALL . . . . . . . . . . . . . . . . . . . . .7
PURPOSE OF THE EXCHANGE OFFER AND SOLICITATION. . . . . . . . . . . . . . .7
THE EXCHANGE OFFER. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
THE SOLICITATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
CONSEQUENCES TO HOLDERS OF OLD NOTES IF
EXCHANGE OFFER OR SOLICITATION NOT SUCCESSFUL . . . . . . . . . . . . . . 13
SUMMARY DESCRIPTION OF NEW NOTES. . . . . . . . . . . . . . . . . . . . . 14
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SUMMARY UNAUDITED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . 19
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
BACKGROUND AND PURPOSE OF EXCHANGE OFFER AND
CONSENT SOLICITATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
THE EXCHANGE OFFER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
THE SOLICITATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
CONSEQUENCES TO NON-TENDERING AND
NON-CONSENTING HOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . 41
CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF PHI. . . . . . . . . . . . . . . . . . . . . . . 45
BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
NEVADA REGULATIONS AND LICENSING. . . . . . . . . . . . . . . . . . . . . 60
i
<PAGE>
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . 68
PRINCIPAL STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . 70
CERTAIN TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 71
MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
DESCRIPTION OF NEW NOTES. . . . . . . . . . . . . . . . . . . . . . . . . 76
INDEX TO UNAUDITED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . .F-1
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PFC. . . . . . . . . . . .F-2
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PHI. . . . . . . . . . . .F-8
</TABLE>
ii
<PAGE>
GENERAL
IBJ Schroder Bank & Trust Company (the "Exchange/Solicitation Agent")
has agreed to act as exchange and consent solicitation agent in connection with
the Exchange Offer and the Solicitation. D.F. King & Co., Inc. (the
"Information Agent") has agreed to act as information agent in connection with
the Exchange Offer and the Solicitation. Holders of Old Notes who require
information about tendering Old Notes or about the Solicitation or have general
questions should contact the Company's Chief Financial Officer, Thomas K. Land,
at (702) 658-4340, the Information Agent at (800) 628-8538 or at the
Exchange/Solicitation Agent at (212) 858-2103.
The Exchange Offer and Solicitation are being made by the Company
only to holders of Old Notes in reliance upon the exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), afforded by Section 3(a)(9) thereof. The Company will not
pay any commission or other remuneration to any broker, dealer, salesman or
other person for soliciting tenders of Old Notes. Officers, directors and
employees of the Company and SFGC may solicit tenders from holders of Old Notes
and will answer inquiries concerning the Exchange Offer, but they will not
receive additional compensation therefor.
The Company has no arrangements for and has no understanding with any
dealer, salesman or other person regarding the solicitation of tenders
hereunder and no person has been authorized to give any information or to make
any representation not contained in this Offering Circular in connection with
the Exchange Offer and, if given or made, such information or representation
must not be relied upon as having been authorized by the Company or any other
person. Neither the delivery of this Offering Circular nor any exchange made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company, SFGC or SFGC's subsidiaries since
the respective dates as of which information is given herein.
5
<PAGE>
AVAILABLE INFORMATION
The Company is not currently subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). SFGC is
currently subject to the informational requirements of the Exchange Act, and in
accordance therewith files periodic reports and other information with the
Securities and Exchange Commission (the "Commission"). Such periodic reports
may be inspected without charge at the public reference facilities maintained
by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the Commission located at 7 World Trade Center,
13th Floor, New York, New York 10048, and Suite 1400, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials may be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, and its public reference
facilities in New York, New York and Chicago, Illinois, at prescribed rates.
The Commission maintains a website that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the Commission's website is
http:\\www.sec.gov. SFGC's common stock is listed on the New York Stock
Exchange and reports, proxy statements and other information regarding SFGC and
its subsidiaries can also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
The following documents have been filed with the Commission by SFGC:
1. SFGC's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997.
2. SFGC's Current Reports on Form 8-K dated December 4, 1997 and
April 20, 1998.
3. SFGC's Quarterly Reports on Form 10-Q for the quarters ended December
31, 1997, March 31, 1998 and June 30, 1998.
Copies of all such documents, as well as all other reports filed by SFGC
pursuant to Section 13(a) and Section 15(d) of the Exchange Act from the date
hereof through the later of the Exchange Solicitation Date and the Solicitation
Expiration Date (not including the exhibits to such information, unless such
exhibits are specifically incorporated by reference in such information) will
be provided without charge to each person, including any beneficial owners, to
whom this Exchange Offer/Consent Solicitation Statement is delivered, upon
request. Copies of this Joint Offering Circular/Consent Solicitation
Statement, as amended or supplemented from time to time, and any other
documents (or parts of documents) that constitute part of this Joint Offering
Circular/Consent Solicitation Statement will also be provided without charge to
each such person, upon request. Requests should be directed to the Company,
4949 N. Rancho Drive, Las Vegas, Nevada 89130, Attention: Chief Financial
Officer.
6
<PAGE>
OFFERING CIRCULAR/CONSENT SOLICITATION STATEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION AND FINANCIAL DATA, INCLUDING THE FINANCIAL STATEMENTS AND
NOTES THERETO, APPEARING ELSEWHERE HEREIN. FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PARTICIPANTS IN THE EXCHANGE OFFER AND
SOLICITATION, SEE "RISK FACTORS."
THE COMPANY
The Company is an indirect wholly-owned subsidiary of SFGC and was
formed for the sole purpose of financing the acquisition of the Pioneer Hotel &
Gambling Hall (the "Pioneer") by the predecessor to SFGC.
THE PIONEER HOTEL & GAMBLING HALL
The Pioneer is located on approximately 12 acres of riverfront
property near the center of the casino strip in Laughlin, Nevada, and is
comprised of 417 hotel rooms, a casino of approximately 21,500 square feet and
related facilities. The Pioneer features a casual western atmosphere that
attracts a clientele from the surrounding California, Arizona and Nevada areas.
Approximately 6 1/2 acres of the Pioneer property are leased by the Pioneer
pursuant to a long-term ground lease (the "Pioneer Ground Lease").
PURPOSE OF THE EXCHANGE OFFER AND SOLICITATION
In December 1988, PFC issued $120 million principal amount of Old
Notes, the net proceeds of which were used to finance SFGC's purchase through
its wholly-owned subsidiary, PHI, of the Pioneer in Laughlin, Nevada. The net
proceeds from the sale of the Old Notes were loaned (the "Prior Loan") by the
Company to PHI. The Prior Loan is evidenced by the Purchase Money Note, which
is secured by a first priority lien on fee and leasehold interests, and on
certain personal property, at the Pioneer. PFC has assigned to the trustee
under the indenture dated December 1, 1988 pursuant to which the Old Notes were
issued (the "Old Note Indenture"), for the benefit of the holders of the Old
Notes, the Purchase Money Note and the benefit of the liens and security
interests securing the Purchase Money Note. The payment terms of the Purchase
Money Note mirror the payment terms of the Old Notes, including the December 1,
1998 maturity. PFC satisfied sinking fund obligations with respect to the Old
Notes in 1996 and 1997, as a result of which $60 million principal amount of
Old Notes has been retired. The remaining $60 million principal amount of the
Old Notes matures on December 1, 1998.
Beginning in mid-June 1998, the Company and SFGC have been in
discussions with the beneficial owner of approximately 25% of the outstanding
principal amount of Old Notes regarding a possible restructuring of the Old
Notes. In connection with these discussions, in September 1998 the Company
agreed to pay the fees and expenses of counsel for an unofficial committee of
holders of the Old Notes. Although the Company believes it has made progress
in discussions for the restructuring of the Old Notes, no final agreement has
been reached. The Company intends to continue such discussions. However,
taking into consideration the December 1, 1998 maturity of the Old Notes, the
Company determined that it is in its best interests to commence the Exchange
Offer and the Solicitation to permit all holders of Old Notes to elect to
participate in a restructuring on the terms offered in the Exchange or, in the
alternative, to enter into the Consents. The Company believes that it is in
the best interests of the Company and the holders of Old Notes to restructure
the Old Notes outside of a bankruptcy case.
In order for the Minimum Condition to be satisfied, all outstanding
Old Notes must be tendered in the Exchange and not withdrawn. Concurrently
with the Exchange Offer, the Company is seeking the Consents so that if the
Minimum Condition or any other condition to the Exchange Offer is not satisfied
and the Exchange Offer is not consummated, the Company will have the Consents
of certain holders of Old Notes pursuant to which the consenting Holders agree,
among other things, to forbear against exercising rights and remedies with
respect to the Maturity Defaults and the Purchase Money Note Maturity Defaults
and vote to accept a plan of reorganization
7
<PAGE>
which provides for treatment of the Old Notes in a bankruptcy case under
Chapter 11 of the Bankruptcy Code that is substantially similar to the
treatment of the Old Notes offered in the Exchange (the "Plan").
If the Exchange Offer is not consummated but the Requisite Consents
are received, the Company intends to file for relief under Chapter 11 of the
Bankruptcy Code. If the Exchange Offer is not consummated and the Requisite
Consents are not received, the Company may file for relief under Chapter 11 of
the Bankruptcy Code or may continue to negotiate with the holders of the Old
Notes for a restructuring of the Old Notes. If the Company were to seek
confirmation of the Plan, no assurance can be given that the Plan would meet
the requirements of confirmation, even if the Requisite Consents are received
and the Old Notes subject to the Consents are voted to accept the Plan. Giving
effect to the issuance of New Notes as of the beginning of the period and
assuming that PFC elected to pay 50% of the interest payment obligations
through December 1, 2000 through the issuance of PIK Notes, the ratio of EBITDA
to cash interest expense would have been 1.40-to-one, and EBITDA less corporate
charges (giving effect to fees payable under the Management Agreement) to cash
interest expense would have been 1.11-to-one, in each case for the twelve
months ended June 30, 1998. Upon commencement of the requirement that all
interest be paid in cash in 2001, the ratio of EBITDA to cash interest expense
on the New Notes is expected to be less than one-to-one (assuming no offers to
repurchase New Notes have been made). Therefore, it is expected that PFC would
not be able to make the cash interest payment in June 2001, which would be an
event of default under the Indenture.
At any time after the December 1, 1998 maturity date of the Old
Notes, if the Company has not filed for bankruptcy relief and the Exchange
Offer has not been consummated, it is possible that three or more holders of
Old Notes would file an involuntary petition under the Bankruptcy Code with
respect to PFC. If PFC were to become a debtor in a case under the Bankruptcy
Code (whether a case were commenced voluntarily or involuntarily), it is likely
that PHI and SFGC would file for relief under Chapter 11 of the Bankruptcy
Code. The commencement of a voluntary case under the Bankruptcy Code by SFGC
or certain circumstances related to an involuntary case under the Bankruptcy
Code with respect to SFGC will cause the automatic acceleration of outstanding
indebtedness of subsidiaries of SFGC, SFHI and Sahara Las Vegas Corp., a Nevada
corporation ("SLVC"), all of which indebtedness is guaranteed by SFGC. If
acceleration were to occur, SFGC would expect to negotiate with the creditors
of SFHI and SLVC regarding a rescission of the acceleration. However, if the
creditors holding the indebtedness were not to rescind the acceleration, it is
likely that SFHI and SLVC would file for relief under Chapter 11 of the
Bankruptcy Code.
THE EXCHANGE OFFER
The Exchange Offer . . . . . . . . . The Company is offering upon the terms
and subject to the conditions set forth
herein and in the accompanying letter
of transmittal (the "Letter of
Transmittal"), to exchange a principal
amount of its 13 1/2% First Mortgage
Notes due 2006 (the "New Notes") equal
to the Exchanged Amount for all
outstanding Old Notes tendered in the
Exchange Offer (less the principal
amount of Old Notes repurchased in the
Exchange. See "Repurchase of Old
Notes"). As of the date of this Joint
Offering Circular/Consent Solicitation
Statement, $60 million in aggregate
principal amount of the Old Notes is
outstanding. As of October 5, 1998,
there were 89 registered holders of the
Old Notes, including Cede & Co. as
nominee for the Depository Trust
Company ("DTC"). As of October 5,
there were 55 DTC participants with
positions in the Old Notes. See "The
Exchange Offer - Terms of the Exchange
Offer."
Exchange Expiration Date . . . . . . 12:00 midnight, New York City time, on
November 20, 1998, as the same may be
extended. See "The Exchange
8
<PAGE>
Offer - Exchange Expiration Date;
Extensions; Amendments."
Conditions of the Exchange Offer . . The Exchange Offer is conditioned upon,
among other things, 100% of the
outstanding principal amount of Old
Notes being properly tendered for
exchange and not withdrawn (the
"Minimum Condition"). See "The
Exchange Offer - Conditions of the
Exchange Offer."
Procedures for Tendering Old Notes . Unless a tender of Old Notes is
effected pursuant to the procedures for
book-entry transfer as provided herein,
each holder desiring to accept the
Exchange Offer must complete and sign
the Letter of Transmittal and Consent
Form, have the signature thereon
guaranteed if required by the Letter of
Transmittal and Consent Form, and
deliver the Letter of Transmittal and
Consent Form, together with the Old
Notes or a Notice of Guaranteed
Delivery, any other required documents
(such as evidence of authority to act,
if the Letter of Transmittal and
Consent Form is signed by someone
acting in a fiduciary or representative
capacity), to the Exchange/Solicitation
Agent (as defined) at the address set
forth on the back cover page of this
Joint Offering Circular/Consent
Solicitation Statement prior to 12:00
midnight, New York City time, on the
Exchange Expiration Date. Any
Beneficial Owner (as defined) of the
Old Notes whose Old Notes are
registered in the name of a nominee,
such as a broker, dealer, commercial
bank or trust company, who wishes to
tender Old Notes in the Exchange Offer,
should instruct such entity or person
to promptly tender Old Notes on such
Beneficial Owner's behalf. See "The
Exchange Offer - Procedures for
Tendering Old Notes."
Guaranteed Delivery Procedures . . . Holders of Old Notes who wish to tender
their Old Notes and (i) whose Old Notes
are not immediately available or
(ii) who cannot deliver their Old Notes
or any other documents required by the
Letter of Transmittal and Consent Form
to the Exchange/Solicitation Agent
prior to the Exchange Expiration Date
(or complete the procedure for
book-entry transfer on a timely basis),
may tender their Old Notes according to
the guaranteed delivery procedures set
forth in the Letter of Transmittal and
Consent Form. See "The Exchange Offer
- Guaranteed Delivery Procedures."
Acceptance of Old Notes and Delivery
of New Notes . . . . . . . . . . . . Subject to satisfaction of the Minimum
Condition and the other conditions to
the Exchange Offer, the Company will
accept all Old Notes that are properly
tendered in the Exchange Offer prior to
12:00 midnight, New York City time, on
the Exchange Expiration Date and in
exchange therefor will pay in cash
accrued and unpaid interest on Old
Notes tendered and repurchase for cash
a portion of the Old Notes tendered as
described under "Payment of
9
<PAGE>
Interest and Repurchase of Old Notes,"
and will issue New Notes with a
principal amount equal to the principal
amount of Old Notes tendered less the
principal amount so repurchased. The
New Notes issued pursuant to the
Exchange Offer will be delivered
promptly after acceptance of the Old
Notes. See "The Exchange Offer -
Acceptance of Old Notes for Exchange;
Delivery of New Notes."
Payment of Interest and Repurchase of
Old Notes. . . . . . . . . . . . . . Upon consummation of the Exchange
Offer, the Company will pay in cash all
accrued and unpaid interest on tendered
Old Notes through December 1, 1998
($4.1 million) and purchase for cash
on a pro rata basis from the Holders of
tendered Old Notes an aggregate
$2.8 million principal amount of Old
Notes. Each tendering Holder will have
repurchased the Holder's pro rata share
of Old Notes, which will be determined
by multiplying $2.8 million by a
fraction, the numerator of which is the
principal amount of Old Notes tendered
by the Holder in the Exchange Offer,
and the denominator of which is the
aggregate principal amount of Old Notes
tendered in the Exchange Offer and not
withdrawn. The payments will be funded
through payments by PHI under the
Purchase Money Note. In the event PFC
were to file for relief under Chapter
11 of the Bankruptcy Code within 90
days (or possibly one year), or PHI
were to file for relief under Chapter
11 of the Bankruptcy Code within one
year, of the payments, the payments may
be avoidable as a preference and could
be subject to recovery by a trustee in
bankruptcy, an official creditors'
committee, other representatives of
creditors of PFC or PHI, or PFC or PHI
as debtors in possession. If the
payments were successfully challenged
as preferences, holders would be
required to return the funds received,
together with interest thereon in a
rate determined by the court, or would
be precluded from receiving any
distribution on account of such
holders' Old Notes.
Withdrawal Rights. . . . . . . . . . Tenders of Old Notes may be withdrawn
at any time prior to the Exchange
Expiration Date. See "The Exchange
Offer - Withdrawal Rights."
The Exchange/Solicitation Agent
and Information Agent. . . . . . . . IBJ Schroder Bank & Trust Company is
the exchange and solicitation agent (in
such capacity, the
"Exchange/Solicitation Agent").
D.F. King & Co., Inc. is the
Information Agent. The address and
telephone numbers of the
Exchange/Solicitation Agent and the
Information Agent are set forth in "The
Exchange Offer - The
Exchange/Solicitation Agent and
Information Agent; Assistance."
Fees and Expenses. . . . . . . . . . All fees and expenses incident to the
Company's
10
<PAGE>
consummation of the Exchange Offer will
be borne by the Company. The Company
will not pay any commission or other
remuneration to any broker, dealer,
salesman or other person for soliciting
tenders of Old Notes. See "The
Exchange Offer - Fees and Expenses."
THE SOLICITATION
The Solicitation . . . . . . . . . . The Company is soliciting the Consents
of holders, in the event the Exchange
Offer is not consummated, to, among
other things, a forbearance against the
exercise of rights and remedies in the
event of the failure by PFC to pay
principal and interest on the Old Notes
when due on December 1, 1998 (the
"Maturity Defaults"), and any other
defaults arising as a direct result of
the Maturity Defaults; a forbearance
against the exercise of rights and
remedies in the event of a failure by
PHI to pay principal and interest on
the Purchase Money Note on December 1,
1998 (the "Purchase Money Note Maturity
Defaults"), and any other defaults
arising as a direct result of the
Purchase Money Note Maturity Defaults;
and if the Company files a bankruptcy
case under Chapter 11 of the Bankruptcy
Code, to agree to vote to accept a plan
of reorganization (the "Plan") that
provides for treatment of the Old Notes
in a manner substantially the same as
proposed in the Exchange. See "The
Solicitation - General."
Procedures for Furnishing Consents . A Holder desiring to consent to the
Proposed Consents should either
(i) complete and sign the Letter of
Transmittal and Consent Form, or a
facsimile thereof, have the signature
thereon (and on any proxy delivered
therewith) guaranteed if required by
the Letter of Transmittal and Consent
Form and mail or otherwise deliver the
Letter of Transmittal and Consent Form,
or such facsimile, together with a duly
executed proxy if the holder was not a
registered holder, the Old Notes with
respect to which Consents are furnished
and any other required documents to the
Exchange/Solicitation Agent, attention
Chief Financial Officer, at its address
set forth on the back cover page of
this Joint Offering Circular/Consent
Solicitation Statement or (ii) request
its broker, dealer, commercial bank,
trust company or other nominee to
effect the transaction on its behalf.
Any beneficial holder whose Old Notes
are registered in the name of its
broker, dealer, commercial bank, trust
company or other nominee and who wishes
to consent should contact such
registered holder promptly and instruct
such registered holder to consent on
its behalf. If such beneficial holder
wishes to consent on its own behalf,
such beneficial holder must obtain a
proxy from the registered holder
authorizing the beneficial holder to
vote Old Notes on behalf of such
registered holder.
11
<PAGE>
Solicitation Expiration Date . . . . 12:00 midnight New York City time on
November 20, 1998, as the same may be
extended. See "The Solicitation
Expiration Date; Extensions;
Amendments."
Revocation . . . . . . . . . . . . . Consents with respect to the Old Notes
may be revoked by the Holders at any
time prior to the Solicitation
Expiration Date, but may not be revoked
thereafter. Any Holder who revokes a
Consent will not have any Old Notes
repurchased, unless such Consent is
redelivered prior to the Solicitation
Expiration Date. See "The
Solicitation--Revocation of Consents."
Guaranteed Delivery Procedures Holders of Old Notes who wish to
furnish Consents with respect to their
Old Notes and (i) whose Old Notes are
not immediately available or (ii) who
cannot deliver their Old Notes or any
other documents required by the Letter
of Transmittal and Consent Form to the
Exchange/Solicitation Agent prior to
the Solicitation Expiration Date (or
complete the procedure for book-entry
transfer on a timely basis), may submit
Consents and their Old Notes according
to the guaranteed delivery procedures
set forth in the Letter of Transmittal
and Consent Form. See "Solicitation -
Guaranteed Delivery Procedures."
Repurchase of Old Notes. . . . . . . Upon acceptance by the Company of the
Requisite Consents as of the
Solicitation Expiration Date and
assuming the Exchange Offer is not
consummated, the Company will purchase
for cash on a pro rata basis from the
Holders of Old Notes with respect to
which valid Consents have been received
an aggregate $ 6.5 million principal
amount of Old Notes, together with
accrued and unpaid interest thereon
(approximately $400,000). Each
consenting Holder will have repurchased
the Holder's pro rata share of Old
Notes, which will be determined by
multiplying $6.5 million by a fraction,
the numerator of which is the principal
amount of Old Notes with respect to
which the Holder has furnished valid
Consents, and the denominator of which
is the aggregate principal amount of
Old Notes with respect to which valid
Consents have been received and not
revoked. The payments will be funded
through payments by PHI under the
Purchase Money Note. In the event PFC
were to file for relief under Chapter
11 of the Bankruptcy Code within 90
days (or possibly one year), or PHI
were to file for relief under Chapter
11 of the Bankruptcy Code within one
year, of the payments, the payments may
be avoidable as a preference and could
be subject to recovery by a trustee in
bankruptcy, an official creditors'
committee, other representatives of
creditors of PFC or PHI, or PFC or PHI
as debtors in possession. If the
payments were successfully challenged
as preferences, holders would be
required to return the funds received,
12
<PAGE>
together with interest thereon in a
rate determined by the court, or would
be precluded from receiving any
distribution on account of such
holders' Old Notes.
CONSEQUENCES TO HOLDERS OF OLD NOTES IF EXCHANGE
OFFER OR SOLICITATION NOT SUCCESSFUL
In order for the Minimum Condition to be satisfied, all outstanding
Old Notes must be tendered in the Exchange and not withdrawn. Concurrently
with the Exchange Offer, the Company is seeking the Consents so that if the
Minimum Condition or any other condition to the Exchange Offer is not satisfied
and the Exchange Offer is not consummated, the Company will have the Consents
of certain holders of Old Notes pursuant to which, among other things, the
consenting Holders agree to forbear against exercising rights and remedies with
respect to the Maturity Defaults and the Purchase Money Note Maturity Defaults
and vote to accept a plan of reorganization which provides for treatment of the
Old Notes in a bankruptcy case under Chapter 11 of the Bankruptcy Code that is
substantially similar to the treatment of the Old Notes offered in the Exchange
(the "Plan").
If the Exchange Offer is not consummated but the Requisite Consents
are received, the Company intends to file for relief under Chapter 11 of the
Bankruptcy Code. If the Exchange Offer is not consummated and the Requisite
Consents are not received, the Company may file for relief under Chapter 11 of
the Bankruptcy Code or may continue to negotiate with the holders of the Old
Notes for a restructuring of the Old Notes. If the Company were to seek
confirmation of the Plan, no assurance can be given that the Plan would meet
the requirements of confirmation, even if the Requisite Consents are received
and the Old Notes subject to the Consents are voted to accept the Plan. Giving
effect to the issuance of New Notes as of the beginning of the period and
assuming that PFC elected to pay 50% of the interest payment obligations
through December 1, 2000 through the issuance of PIK Notes, the ratio of EBITDA
to cash interest expense would have been 1.40-to-one, and EBITDA less corporate
charges (giving effect to fees payable under the Management Agreement) to cash
interest expense would have been 1.11-to-one, in each case for the twelve
months ended June 30, 1998. Upon commencement of the requirement that all
interest be paid in cash in 2001, the ratio of EBITDA to cash interest expense
on the New Notes is expected to be less than one-to-one (assuming no offers to
repurchase New Notes have been made). Therefore, it is expected that PFC would
not be able to make the cash interest payment in June 2001, which would be an
event of default under the Indenture.
At any time after the December 1, 1998 maturity date of the Old
Notes, if the Company has not filed for bankruptcy relief and the Exchange
Offer has not been consummated, it is possible that three or more holders of
Old Notes would file an involuntary petition under the Bankruptcy Code with
respect to PFC. If PFC were to become a debtor in a case under the Bankruptcy
Code (whether a case were commenced voluntarily or involuntarily), it is likely
that PHI and SFGC would file for relief under Chapter 11 of the Bankruptcy
Code. The commencement of a voluntary case under the Bankruptcy Code by SFGC
or certain circumstances related to an involuntary case under the Bankruptcy
Code with respect to SFGC will cause the automatic acceleration of outstanding
indebtedness of subsidiaries of SFGC, SFHI and Sahara Las Vegas Corp., a Nevada
corporation ("SLVC"), all of which indebtedness is guaranteed by SFGC. If
acceleration were to occur, SFGC would expect to negotiate with the creditors
of SFHI and SLVC regarding a rescission of the acceleration. However, if the
creditors holding the indebtedness were not to rescind the acceleration, it is
likely that SFHI and SLVC would file for relief under Chapter 11 of the
Bankruptcy Code.
13
<PAGE>
SUMMARY DESCRIPTION OF NEW NOTES
Securities Offered . . . . . . . . . A principal amount of 13 1/2% First
Mortgage Notes Due 2006 equal to the
principal amount of Old Notes tendered
for exchange, less the principal amount
of tendered Old Notes repurchased in
the Exchange Offer (approximately $57.1
million), increasing to $65.2 million
at maturity through the issuance of the
PIK Notes.
Maturity Date. . . . . . . . . . . . December 1, 2006.
Interest Payment Dates . . . . . . . June 1 and December 1, commencing
June 1, 1999.
Interest Payments. . . . . . . . . . The New Notes will bear interest at a
rate equal to 13 1/2% per annum.
Interest will accrue from the date
following the Expiration Date. The
Company will have the right to pay up
to 50% of each interest payment through
December 1, 2000 through the issuance
of additional New Notes with a
principal amount equal to 50% of the
interest payable on the outstanding New
Notes on each Interest Payment Date
(the "PIK Notes"). See "Description of
New Notes--Principal, Maturity and
Interest."
Mandatory Redemption . . . . . . . . The New Notes must be redeemed in whole
at 100% of the principal amount
thereof, plus accrued and unpaid
interest to the date of redemption,
upon an optional prepayment of
principal, or payment of principal at
maturity prior to the maturity date of
the New Notes, by SFGC of the amended
and restated promissory note dated as
of October 1, 1998 by SFGC in favor of
Sierra Construction Corp. (the "Sierra
Note").
Optional Redemption. . . . . . . . . The New Notes may be redeemed in whole
or in part at any time and from time to
time at 100% of the principal amount
thereof plus accrued and unpaid
interest thereon.
Offers to Repurchase . . . . . . . . CERTAIN CAPITAL CONTRIBUTIONS. SFGC
will covenant that it will cause its
subsidiaries Sahara Resorts ("SR"),
Casino Properties, Inc. ("CPI"),
Hacienda Hawaiian Properties, Inc.
("HHP") and SLVC to dividend to SFGC
any net proceeds (or dividends received
directly or indirectly from net
proceeds), if any, to the extent
permitted by applicable law and by
agreements to which they are then
parties, from (a) the disposition by
SLVC of the 27 acre parcel of real
property on Las Vegas Boulevard South
or the 40 acre parcel of real property
in Henderson, Nevada, or (b) the
repayment or disposition of 11% First
Mortgage Notes issued by SFHI and held
by SLVC, and that SFGC will contribute
to PFC an amount equal to any such
dividend (less any portion of a
dividend required to be used by SFGC to
repay principal and accrued interest on
the Sierra Note. PFC will be required
to make an offer to repurchase, at 100%
of
14
<PAGE>
principal amount, New Notes with an
aggregate principal amount, plus
accrued and unpaid interest, equal to
the amount so contributed.
EXCESS CASH FLOW. The Company will be
required to make an offer to repurchase
New Notes on an annual basis with 25%
of Excess Cash Flow (as defined), to
the extent that 25% of Excess Cash Flow
not previously subject to an offer to
repurchase equals or exceeds $1
million.
SUBSTITUTION AND RELEASE OF COLLATERAL.
In connection with a substitution or
release of collateral, the Company may
be required to make offers to repurchase
a portion of the New Notes. See
"Substitution and Release of Collateral
Securing the Guaranty."
Security . . . . . . . . . . . . . . The Purchase Money Note from PHI to PFC
will be refinanced with a new note (the
"Mirror Note"), which will have payment
terms that mirror those in the New
Notes. The Mirror Note will be secured
by a first priority lien on
substantially all the existing and
future assets of PHI, and the New Notes
will be secured by an assignment of
such security interests.
Guaranty . . . . . . . . . . . . . . SFGC will guaranty the payment of the
principal of, and premium, if any, and
interest on, the New Notes. The
guaranty will be secured by a pledge by
SFGC of all the outstanding common
stock of SFHI and SR.
Substitution and Release of
Collateral . . . . . . . . . . . . . The pledge of the SFHI capital stock
securing the Guaranty will be released
concurrent with the consummation of any
series of transactions as a result of
which (i) PFC makes an offer to
repurchase $7.5 million principal
amount of New Notes; and (ii) security
interests are granted for the benefit
of the holders of the New Notes (a) in
substantially all of the assets of SLVC
(the "SLVC Asset Liens"), subject to
prior liens securing no more than an
aggregate of $35 million in
indebtedness (which indebtedness may
provide that interest is payable in
kind for up to three years) and related
costs and charges and (b) in preferred
stock or debt of SFHI (the "SFHI
Securities Liens"), with a stated value
or principal amount of at least $25
million at the date of issuance, which
security interest, may be subject to
prior liens securing no more than an
aggregate of $35 million in
indebtedness (which indebtedness may
provide that interest is payable in
kind for up to three years) and related
costs and charges, provided that at the
date of grant of such security interest
SFHI does not have indebtedness in
excess of $265 million.
If any assets subject to the SLVC Asset
Liens or SFHI Security Liens are
disposed of subsequent to the grant of
15
<PAGE>
the security interests for the benefit
of the holders of the New Notes, the
liens will be released concurrent with
the disposition, provided that SLVC or
the entity holding the SFHI preferred
or debt securities distributes,
directly or indirectly, to the extent
permitted by applicable law and
agreements to which SLVC or such other
entity is then a party, to SFGC the net
proceeds, if any, received upon the
disposition, SFGC contributes to PFC
the distribution received (less any
portion of the distribution required to
be used by SFGC to repay principal and
accrued interest on the Sierra Note),
and PFC makes an offer to repurchase,
at 100% of the principal amount, New
Notes with an aggregate principal
amount, plus accrued and unpaid
interest thereon, equal to the amount
so contributed.
Change of Control. . . . . . . . . . A change in control will occur if (a)
SFGC fails to own 100% of the
outstanding voting stock of PHI or PFC
or (b) any person (other than the
Lowden Family) becomes the beneficial
owners of more than 35% of the
outstanding voting stock of SFGC. Upon
a change of control, PFC will be
required to make an offer to repurchase
all outstanding Exchange Notes at 100%
of the principal amount thereof, plus
accrued and unpaid interest to the date
of repurchase.
Covenants. . . . . . . . . . . . . . The Indenture will contain certain
covenants restricting the ability of
PFC and PHI to, among other things,
(i) incur additional indebtedness,
(ii) pay dividends or make other
restricted payments (including
investments), (iii) create certain
liens, (iv) enter into certain mergers
or consolidations, and (v) enter into
transactions with affiliates. These
covenants are subject to certain
exceptions and qualifications. See
"Description of New Notes--Certain
Covenants."
16
<PAGE>
Bankruptcy Remote Bylaw Provisions . PFC will amend its bylaws to provide
that the unanimous consent of the Board
of Directors (or consent of all
directors then in office) will be
required to file for relief under
Chapter 11 of the Bankruptcy Code.
Holders of a majority of the
Outstanding Amount of New Notes will be
entitled to designate a director
independent of SFGC and its affiliates
to serve as a director of PFC, and SFGC
will covenant to cause the outstanding
voting shares of PFC held by it,
directly or indirectly, to be voted for
the election of any such designee.
Subject to approval of the lenders to
SLVC, if the SLVC Asset Liens are
granted, SLVC will amend its bylaws to
provide that unanimous consent of the
Board of Directors (or consent of all
directors then in office) will be
required to commence a case under the
Bankruptcy Code. Holders of a majority
of the outstanding principal amount of
New Notes will be entitled to designate
a director independent of SFGC and its
affiliates to serve as a director of
SLVC, and SFGC will covenant to cause
the outstanding voting shares of SLVC
held be it, directly or indirectly, to
be voted for the election of any such
designee.
Amendments . . . . . . . . . . . . . The Indenture, the New Notes and
related documents may be amended or
modified with the consent of holders of
a majority of the outstanding principal
amount of New Notes, except that
(i) consent of holders of at least 75%
of the outstanding principal amount
will be required to approve the
modification of the debt incurrence
covenant to permit up to $25 million
principal amount of indebtedness
secured by a first priority lien in all
the collateral securing the New Notes,
the proceeds of which are used to make
an offer to repurchase New Notes at
100% of the principal amount thereof,
plus accrued and unpaid interest
thereon to the date of a payment, and
(ii) the consent of each holder
adversely affected will be required to
reduce the principal amount of New
Notes whose holders must consent to an
amendment or waiver; reduce the rate of
or change the time for payment of
interest on any New Note; reduce the
principal of or change the fixed
maturity of any New Note or alter the
redemption or offer to repurchase
provisions with respect thereto; make
any New Note payable in money other
than that stated in the New Note; or
waive a default in the payment of the
principal of, or interest or premium
on, any New Note.
17
<PAGE>
Absence of a Public Market for the
New Notes . . . . . . . . . . . . . The New Notes are a new issue of
securities with no established market.
Accordingly, there can be no assurance
as to the development or liquidity of
any market for the New Notes. The
Company does not intend to apply for
listing of the New Notes on any
securities exchange.
Resales of the New Notes . . . . . . The New Notes will be unrestricted
securities within the meaning of Rule
144 under the Securities Act. See
"Risk Factors - Absence of Public
Market and Transfer Restrictions."
RISK FACTORS
For a discussion of certain matters that should be considered by
prospective investors in connection with the Exchange Offer, see "Risk
Factors."
18
<PAGE>
SUMMARY UNAUDITED FINANCIAL DATA
The following tables set forth selected unaudited consolidated
financial information of PHI. The selected consolidated financial information
as of September 30, 1996 and 1997 and for each of the years ended
September 30, 1995, 1996, and 1997 and for the nine months ended June 30, 1997
and 1998 and as of June 30, 1998 were derived from PHI's unaudited consolidated
financial statements included elsewhere in this Joint Offering Circular/Consent
Solicitation Statement. In the opinion of management, the unaudited
consolidated financial statements include all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of such
information. The operating results for the nine months ended June 30, 1998 are
not necessarily indicative of results for the full fiscal year. The
information presented below should be read in conjunction with the Unaudited
Consolidated Financial Statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
PHI" included elsewhere in this Offering Circular.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,______ Nine Months Ended June 30,
---------------------------------------- --------------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net operating revenues . . . . . $ 46,034 $ 44,415 $ 40,839 $ 31,688 $ 30,741
Total operating expenses . . . . 40,534 42,686 40,749 30,386 31,128
-------- -------- -------- ------- --------
Operating income (loss). . . . . 5,500 1,729 90 1,302 (387)
. . . . . . . . . . . . .40,135
OTHER DATA:
EBITDA(1). . . . . . . . . . . $ 11,410 $ 8,644 $ 6,929 $ 6,358 $ 4,833
EBITDA margin. . . . . . . . . 24.8% 19.5% 17.0% 20.1% 15.7%
Depreciation & amortization. . $ 5,227 $ 5,878 $ 5,583 $ 4,186 $ 4,255
Capital expenditures . . . . . 5,998 1,291 949 726 2,329
EBITDA/Proforma cash
interest expense (2). . . . 1.67x
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
--------------------
ACTUAL ADJUSTED(3)
------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance Sheet Data:
Cash and short-term investments $ 9,333 $ 2,400
Total assets (4) . . . . . . . 92,516 42,015
Total long-term debt . . . . . 60,026 57,137
Stockholder's equity (deficit)(4) 27,836 (19,106)
</TABLE>
(1) EBITDA consists of earnings before interest, income taxes, depreciation,
amortization, rents attributable to gaming equipment operating leases
and corporate charges. In December 1997, the Company purchased all
gaming equipment subject to operating leases. See "Executive
Compensation - Management Agreement" for a discussion of historical
corporate charges allocated to PHI. Concurrent with the consummation of
the Exchange Offer, PHI and SFGC will enter into a Management Agreement
pursuant to which PHI will pay to SFGC management fees of $100,000 per
month, plus a variable fee based on achievement of certain EBITDA
targets. Fees payable under the Management Agreement will be higher
than the historical corporate charge allocation. The Company's
definition of EBITDA may not be the same as that of similarly captioned
measures used by other companies. While EBITDA should not be construed
as a substitute for operating income or a better indicator of liquidity
than cash flow from operations, investing, and financing activities,
which are determined in accordance with generally accepted accounting
principles, ("GAAP"), it is included herein to provide additional
information with respect to the ability of the Company to meet its
future debt service, capital expenditure and working capital
requirements. Although EBITDA is not necessarily a measure of the
Company's ability to fund its cash needs, management believes that
EBITDA is a useful tool for measuring the ability of the Company to
service its debt.
(2) Pro forma cash interest expense gives effect to the Exchange Offer as if
it had occurred at the beginning of the period presented. Based on
operating results for the twelve months ended June 30, 1998, EBITDA to
pro forma cash interest would be 1.40-to-one (1.11-to-one, giving effect
to fees payable under the Management Agreement).
(3) As adjusted for the Exchange Offer.
(4) In September 1998, in accordance with SFAS No. 121, PHI determined an
impairment loss had occurred to the carrying value of the assets of the
Pioneer in Laughlin, Nevada. PHI is currently reviewing information to
determine the amount of the impairment loss. However, management
believes that the impairment loss, to be recorded in the quarter ended
September 30, 1998, will eliminate the goodwill of $43.6 million
recorded on the balance sheet as of June 30, 1998.
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RISK FACTORS
In addition to the other information contained in this Joint Offering
Circular/Consent Solicitation Statement, holders of Old Notes should consider
carefully the following risk factors affecting the business of the Company.
SIGNIFICANT LEVERAGE; INABILITY TO SERVICE NEW NOTE INDEBTEDNESS; LACK OF
PROFITABLE OPERATIONS
PHI and the Company are, and after the Exchange Offer will be, highly
leveraged. As of June 30, 1998, PHI had total outstanding indebtedness of
approximately $60 million, consisting of the Old Notes and approximately
$26,000 of equipment financing notes. After giving effect to the Exchange, PHI
would have approximately $57.1 million of outstanding indebtedness as of
June 30, 1998. Assuming 50% of the interest on the New Notes is paid in kind
through December 1, 2000 through the issuance of the PIK Notes and no offers to
repurchase New Notes have been made, there will be $65.2 million principal
amount of New Notes outstanding at maturity.
Following the completion of the Exchange Offer, PHI will continue to
have substantial annual fixed debt service and will be dependent on the
operations of the Pioneer to meets its obligations. Giving effect to the
Exchange as of the beginning of the period, the ratio of EBITDA (as defined) to
total interest expense would have been less than one-to-one for the nine months
ended June 30, 1998. Giving effect to the Exchange as of the beginning of the
period and assuming that PFC elected to pay 50% of the interest payment
obligations through December 1, 2000 through the issuance of PIK Notes, the
ratio of EBITDA to cash interest expense would have been 1.40-to-one, and
EBITDA less corporate charges (giving effect to fees payable under the
Management Agreement) to cash interest expense would have been 1.11-to-one, in
each case for the twelve months ended June 30, 1998. Upon commencement of the
requirement that all interest be paid in cash in 2001, the ratio of EBITDA to
cash interest expense on the New Notes is expected to be less than one-to-one
(assuming no offers to repurchase New Notes have been made). Therefore, it is
expected that PFC would not be able to make the cash interest payment in June
2001, which would be an event of default under the Indenture.
PHI has had net losses in each of the last four fiscal years and
earnings were insufficient to cover fixed charges in 1994, 1995, 1996, 1997 and
in the nine months ended June 30, 1998 (see "Selected Unaudited Consolidated
Financial Data"). No assurance can be given that funds generated from the
operations of the Pioneer will be sufficient to meet all of PHI's interest
payment obligations or obligations to pay all outstanding principal at maturity
under the Mirror Note (and, accordingly, the Company's obligations on the New
Notes) as well as to operate the Pioneer.
The degree to which PHI (and the Company) is leveraged could have
important consequences to holders of the New Notes, including, but not limited
to (i) limiting PHI's ability to satisfy its obligations with respect to the
Mirror Note (and, accordingly, the Company's obligations on the New Notes),
(ii) increasing PHI's vulnerability to adverse changes in the Laughlin gaming
market, (iii) limiting PHI's ability to obtain additional financing to fund
future working capital, capital expenditures and other general corporate
requirements, (iv) requiring the dedication of a substantial portion of PHI's
cash flow from operations to the payment of principal of, and interest on, its
indebtedness, thereby reducing the availability of such cash flow to fund
working capital, capital expenditures or other general corporate purposes,
(v) limiting PHI's flexibility in planning for, or reacting to, changes in its
business and the industry and (vi) placing PHI at a competitive disadvantage to
less leveraged competitors.
PHI's future operating performance is itself dependent on a number of
factors, many of which are outside of PHI's control, including prevailing
economic conditions and financial, business, regulatory and other factors. If
PHI were unable to generate sufficient cash from its future operations to
service its debt (including paying interest on the Mirror Note, and which, in
turn, would impact the Company's ability to pay interest on the New Notes), or
to satisfy operating expenses, or to generally pay its debts as they mature,
PHI would be required to
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explore alternatives, such as seeking additional debt or equity financing,
reducing or delaying capital expenditures or selling material assets or
operations. PHI's financial condition would make more difficult the successful
consummation of any financing. No assurance can be given that PHI would be
successful in implementing any of these alternatives, if necessary. In
addition, Nevada law contains certain restrictions on the ability of companies
engaged in the gaming business to undertake certain financing transactions.
Such restrictions could cause delays in obtaining necessary capital.
GUARANTY
No assurance can be given that SFGC will have sufficient funds to pay
amounts, if any, that it may become obligated to pay under the Guaranty.
Enforcement of the Guaranty against SFGC will be subject to all defenses
available to the Company regarding enforcement of the Mirror Note and the
security interests securing such note. As of October 1, 1998, SFGC had
outstanding indebtedness of approximately $7.0 million, $1.6 million of which
matures in December 1999 and $4.8 million of which matures in December 2000.
SFGC has also guaranteed indebtedness of its subsidiaries, SFHI and SLVC, in
the aggregate amount of approximately $160 million, $57.5 million of which
matures in December 1999 and $100 million of which matures in December 2000.
SFGC has limited cash resources, and must rely on distributions from
subsidiaries, to the extent available, to fund its operations. Each of PHI,
SFHI and SLVC are parties to debt instruments that restrict the ability of the
subsidiaries to make distributions to affiliates, including SFGC. None of the
subsidiaries satisfies the requirements to make distributions currently. No
assurance can be given that SFGC will be able to satisfy the obligations under
its outstanding indebtedness, or that its subsidiaries will be able to satisfy
their debt service obligations. As a result, no assurance can be given that
SFGC would be able to satisfy its obligations under the Guaranty. See
"Business," "Description of New Notes - Guaranty" and "Description of New Notes
- - Remedies Upon Default."
SECURITY FOR THE NEW NOTES
As security for the New Notes, PFC will pledge to the Trustee the
Mirror Note and the deed of trust securing the Mirror Note (the "Deed of
Trust"). Additionally, the New Notes will be supported by the Guaranty. See
"Description of the New Notes--Security" and "Description of the New
Notes--Guaranty." The land underlying the Pioneer includes fee and leasehold
interests. Thus, the Deed of Trust will be subject and subordinate to the
lessor's interest in the land subject to the Pioneer Ground Lease.
Improvements on the leasehold include portions of the hotel buildings and a
portion of the casino building. If the ground lease were to be terminated by
the lessor as the result of a default by PHI thereunder, PHI would lose
possession of the land subject to such lease and improvements thereon and,
accordingly, the holders' security interest in the lease and improvements would
be extinguished, substantially reducing the value of the collateral securing
the New Notes. The termination of the lease would hinder PHI's ability to
operate the Pioneer as a result of the loss of the improvements. Under the
Pioneer Ground Lease which, by its terms, will expire in December 2078, annual
rent is $716,000, and is subject to annual adjustments based on the Consumer
Price Index and to adjustments every ten years to an amount equal to 10% of the
fair market value of the land subject to the Pioneer Ground Lease on an
unimproved basis (the next such adjustment to occur in 2004).
In the event of a foreclosure sale of the Pioneer under the Deed of
Trust, licensing requirements of the Nevada Gaming Authorities may limit the
number of potential bidders for the Pioneer and may delay the sale thereof,
either of which could adversely affect the sales price of the Pioneer.
LAUGHLIN MARKET; COMPETITION
The gaming and hotel industries are highly fragmented and
characterized by a high degree of competition among a large number of
participants. In Laughlin, the Pioneer competes with nine other hotel-casinos
and a Native American hotel-casino located approximately 10 miles south of the
Pioneer. The Pioneer also competes with the hotel-casinos in Las Vegas and
those situated on I-15 (the principal highway between Las Vegas
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and southern California) near the California-Nevada state line, as well as a
growing number of Native American casinos in Laughlin's regional market. The
Company believes the significant expansion of hotel and casino capacity in Las
Vegas in recent years and the growth of Native American casinos in Laughlin's
central Arizona and southern California feeder markets have had a negative
impact on Laughlin hotel-casinos, including the Pioneer, by drawing visitors
away from the Laughlin market. This has, in turn, resulted in increased
competition among Laughlin hotel-casinos for a reduced number of visitors thus
contributing to generally lower revenues and profit margins at Laughlin
hotel-casinos, including the Pioneer. According to figures compiled by Nevada
Gaming Authorities total gaming revenues in the Laughlin market were
approximately $485 million for each of the twelve month periods ended June 30,
1998 and 1997, compared to approximately $540 million in the twelve month
period ended September 30, 1993 (a 10.2% decline).
Casino gaming is currently conducted by numerous Native American
tribes throughout the United States and other Native American tribes are either
in the process of establishing or considering the establishment of gaming at
additional locations, including sites in California and Arizona. In August
1998 the California General Assembly, Senate and Governor approved legislation
authorizing gaming operations by Native American tribes pursuant to a form of
compact executed by the Governor and an Indian Tribe. The November 1998 ballot
in California will include a voter initiative which, if approved by the voters
of California, would mandate that the Governor sign compacts relating to gaming
on tribal lands with California tribes upon their request. The initiative, the
passage of which requires an affirmative vote representing a majority of the
votes cast with respect thereto, would also amend current California law to
permit gambling devices, including slot machines, banked card games and
lotteries at tribal casinos. The passage of the California initiative and the
continued growth of gaming in jurisdictions outside of Nevada is likely to have
a material adverse effect on the financial condition and results of operations
of the Pioneer. The Company believes that the expansion of casino gaming in
the areas close to Nevada, such as California and Arizona, could have an
adverse impact on the Pioneer's operations and, depending on the nature,
location and extent of such operations, such impact could be material.
Gaming has expanded dramatically in the United States in recent
years. This growth has been reflected in various forms including riverboats,
dockside gaming facilities, Native American gaming ventures, land-based
casinos, state-sponsored lotteries, off-track wagering and card parlors. Since
1990, when there were casinos in only three states (excluding casinos on Native
American lands), gaming has spread to a number of additional states and still
other states are currently considering, or may in the future consider, the
legalization of casino gaming in specific geographic areas within their
jurisdictions.
GAMING REGULATION
The gaming operations and the ownership of securities of PHI are
subject to extensive regulation by the Nevada Gaming Commission (the "Nevada
Commission"), the Nevada State Gaming Control Board (the "Nevada Board") and
Clark County, Nevada (collectively, the "Nevada Gaming Authorities"). The
Nevada Gaming Authorities have broad authority with respect to licensing and
registration of entities and individuals involved with PHI, including holders
of the New Notes. To enforce applicable gaming regulations, Nevada Gaming
Authorities may, among other things, limit, suspend or revoke the licenses of
any gaming entity or individual, and may levy fines or forfeiture of assets
against PHI or individuals for violations of gaming laws or regulations. The
suspension or revocation of any of PHI's licenses or the levy on the PHI of
substantial fines or forfeiture of assets would have a material adverse effect
on the Company. See "Nevada Gaming Regulation."
Any public offering of securities by the Company requires the prior
approval of the Nevada Commission if the securities or the proceeds from the
offering are intended to be used for the construction of, to acquire any
interest in or to finance the operations of any gaming facilities in Nevada, or
to retire or extend obligations incurred for such purposes. There can be no
assurances that any such approval will be granted or that if granted, it will
be granted on a timely basis.
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In connection with obtaining requisite approvals of the Nevada Gaming
Authorities for the Exchange Offer, PHI may be required to disclose the
identities of the holders of the New Notes to the Nevada Gaming Authorities
prior to registration of the Exchange Offer. The Nevada Commission may, in its
discretion, require the holders of the New Notes to file applications, be
investigated and be found suitable to hold the New Notes. If requested,
appropriate applications must be filed within 30 days of the request. If the
Nevada Commission determines that a person is unsuitable to own such New Notes,
then pursuant to the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act"), PHI can be sanctioned, including
the loss of its approvals, if, without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest or
any distribution whatsoever; (ii) recognizes any voting right by such
unsuitable person in connection with such securities; (iii) pays the unsuitable
person remuneration in any form; or (iv) makes any payment to the unsuitable
person by way of principal, redemption, conversion, exchange, liquidation or
similar transaction.
Each holder of the New Notes shall be deemed to have agreed (to the
extent permitted by law) that if the Nevada Gaming Authorities determine that a
holder or beneficial owner of New Notes must be found suitable under applicable
law, and if such holder or beneficial owner either refuses to file an
application or is found unsuitable, such holder shall, upon the request of PHI
and by the terms of the Notes, dispose of such holder's or beneficial owner's
New Notes within 30 days after receipt of such request or such earlier date as
may be ordered by the Nevada Gaming Authorities. PHI will also have the option
to repurchase such holder's New Notes at a price equal to the lesser of such
holder's cost and 100% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon through the earlier of the date of redemption and the
date of finding of unsuitability.
In August 1996, President Clinton signed a bill creating the National
Gambling Impact Study Commission (the "NGISC"), composed of individuals with
ties to the gaming industry as well as individuals who are openly opposed to
legalized gaming, to examine the economic and social impact of gaming. The
NGISC began a series of hearings on June 20, 1997 and is scheduled to release a
report on its findings, together with recommended legislation and
administrative action, in June 1999. Any additional regulation of the gaming
industry resulting from the NGISC's recommendations could have a material
adverse impact on the gaming industry, including the Company.
LIMITED OBLIGATIONS
The liability of the Company, PHI and SFGC under the New Notes, the
Mirror Note and the Guaranty, respectively, will be limited to the extent of
their respective assets.
ABSENCE OF PUBLIC MARKET AND TRANSFER RESTRICTIONS
Nonaffiliates of the Company who acquire the New Notes will be able
to freely trade the New Notes without restriction under Rule 144 under the
Securities Act of 1933, as amended. Affiliates of the Company who acquire the
New Notes, however, may resell the New Notes only in compliance with the
provisions of Rule 144.
The New Notes constitute a new issue of securities and have no
established trading market. There can be no assurance as to the liquidity of
any markets that may develop for the New Notes, the ability of holders of the
New Notes to sell the New Notes, or the prices at which holders would be able
to sell their New Notes. Future trading prices of the New Notes will depend on
many factors, including, among other things, the Company's ability to effect
the Exchange Offer, prevailing interest rates, the Company's operating results
and the market for similar securities. The Company does not intend to apply
for listing of the Notes on any securities exchange.
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COMPUTERIZED OPERATIONS AND THE YEAR 2000
During recent years, there has been significant global awareness
raised regarding the potential disruption to business operations worldwide
resulting from the inability of current technology to process properly the
change from the year 1999 to 2000. Although, based on a review of its data
processing, operating and other computer-based systems, PHI does not currently
anticipate any material disruption in its operations as a result of any failure
by PHI to achieve year 2000 compliance, there can be no assurance to that
effect.
RELIANCE ON KEY MANAGEMENT; CONTROL BY PRINCIPAL STOCKHOLDER
PHI future performance will depend to a significant extent upon the
efforts and abilities of certain key members of senior management of PHI and of
SFGC, including Paul W. Lowden, Christopher W. Lowden and Thomas K. Land. The
loss of the services of any of the foregoing members of senior management could
have a material adverse effect on PHI and there can be no assurance that a
suitable replacement could be found. Upon completion of the Offering, such
individuals acting through SFGC will provide services to PHI pursuant to the
terms of the Management Agreement. Such individuals have significant
responsibilities with respect to the other operations of SFGC that may impact
the amount of time that they will be able to commit to PHI. See "Executive
Compensation--Management Agreement."
Mr. Paul W. Lowden beneficially owns over 50% of the outstanding
voting common stock of SFGC, which in turn owns, directly or indirectly, 100%
of the outstanding voting common stock of the Company and PHI. As a result,
Mr. Lowden is generally able to control the election of the Board of Directors
of the Company and PHI and approve or disapprove any other matters submitted to
the stockholders.
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BACKGROUND AND PURPOSE OF EXCHANGE OFFER AND CONSENT SOLICITATION
In December 1988, $120 million principal amount of Old Notes were
issued to finance SFGC's purchase through its wholly-owned subsidiary, PHI, of
the Pioneer in Laughlin, Nevada. The net proceeds from the sale of the Old
Notes were loaned (the "Prior Loan") by the Company to PHI. The Prior Loan is
evidenced by the Purchase Money Note, which is secured by a first priority lien
on fee and leasehold interests, and on certain personal property, at the
Pioneer. The Purchase Money Note mirrors the payment terms of the Old Notes,
and matures on December 1, 1998. PFC satisfied sinking fund obligations with
respect to the Old Notes as a result of which $60 million principal amount of
Old Notes has been retired. The remaining $60 million principal amount of the
Old Notes matures on December 1, 1998.
Beginning in mid-June 1998, the Company and SFGC have been in
discussions with the beneficial owner of approximately 25% of the outstanding
principal amount of Old Notes regarding a possible restructuring of the Old
Notes. In connection with these discussions, in September 1998 the Company
agreed to pay the fees and expenses of counsel for an unofficial committee of
holders of the Old Notes. Although the Company believes it has made progress
in discussions for the restructuring of the Old Notes, no final agreement has
been reached. The Company intends to continue such discussions. However,
taking into consideration the December 1, 1998 maturity of the Old Notes, the
Company determined that it is in its best interests to commence the Exchange
Offer and the Solicitation to permit all holders of Old Notes to elect to
participate in a restructuring on the terms offered in the Exchange or, in the
alternative, to enter into the Consents. The Company believes that it is in
the best interests of the Company and the holders of Old Notes to restructure
the Old Notes outside of a bankruptcy case.
In order for the Minimum Condition to be satisfied, all outstanding
Old Notes must be tendered in the Exchange and not withdrawn. Concurrently
with the Exchange Offer, the Company is seeking the Consents so that if the
Minimum Condition or any other condition to the Exchange Offer is not satisfied
and the Exchange Offer is not consummated, the Company will have the Consents
of certain holders of Old Notes pursuant to which, among other things, the
consenting Holders agree to forbear against exercising rights and remedies with
respect to the Maturity Defaults and the Purchase Money Note Maturity Defaults
and vote to accept a plan of reorganization which provides for treatment of the
Old Notes in a bankruptcy case under Chapter 11 of the Bankruptcy Code that is
substantially similar to the treatment of the Old Notes offered in the Exchange
(the "Plan").
If the Exchange Offer is not consummated but the Requisite Consents
are received, the Company intends to file for relief under Chapter 11 of the
Bankruptcy Code. If the Exchange Offer is not consummated and the Requisite
Consents are not received, the Company may file for relief under Chapter 11 of
the Bankruptcy Code or may continue to negotiate with the holders of the Old
Notes for a restructuring of the Old Notes. If the Company were to seek
confirmation of the Plan, no assurance can be given that the Plan would meet
the requirements of confirmation, even if the Requisite Consents are received
and the Old Notes subject to the Consents are voted to accept the Plan. Giving
effect to the issuance of New Notes as of the beginning of the period and
assuming that PFC elected to pay 50% of the interest payment obligations
through December 1, 2000 through the issuance of PIK Notes, the ratio of EBITDA
to cash interest expense would have been 1.40-to-one, and EBITDA less corporate
charges (giving effect to fees payable under the Management Agreement) to cash
interest expense would have been 1.11-to-one, in each case for the twelve
months ended June 30, 1998. Upon commencement of the requirement that all
interest be paid in cash in 2001, the ratio of EBITDA to cash interest expense
on the New Notes is expected to be less than one-to-one (assuming no offers to
repurchase New Notes have been made). Therefore, it is expected that PFC would
not be able to make the cash interest payment in June 2001, which would be an
event of default under the Indenture.
At any time after the December 1, 1998 maturity date of the Old
Notes, if the Company has not filed for bankruptcy relief and the Exchange
Offer has not been consummated, it is possible that three or more holders of
Old Notes would file an involuntary petition under the Bankruptcy Code with
respect to PFC. If PFC were to become a debtor in a case under the Bankruptcy
Code (whether a case was commenced voluntarily or
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involuntarily), it is likely that PHI and SFGC would file for relief under
Chapter 11 of the Bankruptcy Code. The commencement of a voluntary case under
the Bankruptcy Code by SFGC and certain circumstances related to an involuntary
case under the Bankruptcy Code with respect to SFGC will cause the automatic
acceleration of outstanding indebtedness of subsidiaries of SFGC, SFHI, and
SLVC, all of which indebtedness is guaranteed by SFGC. If acceleration were to
occur, SFGC would expect to negotiate with the creditors regarding a rescission
of the acceleration. However, if the creditors holding the indebtedness were
not to rescind the acceleration, it is likely that SFHI and SLVC would file for
relief under Chapter 11 of the Bankruptcy Code.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the
conditions set forth herein and in the accompanying Letter of Transmittal and
Consent Form, to exchange a principal amount of its New Notes equal to the
outstanding principal all Old Notes properly tendered and not withdrawn, less
the principal amount of Old Notes repurchased in the Exchange (see "The
Exchange Offer - Repurchase of Old Notes"). Subject to satisfaction of the
conditions of the Exchange Offer, the Company will accept for exchange any and
all Old Notes that are validly tendered on or prior to 12:00 midnight, New York
City time, on the Exchange Expiration Date, and in exchange therefor will:
- issue New Notes with a principal amount equal to the principal
amount of Old Notes tendered, less the principal amount of Old Notes
repurchased in the Exchange Offer,
- pay in cash all accrued and unpaid interest on tendered Old
Notes through December 1, 1998 ($4.1 million), and
- repurchase for cash from tendering Holders an aggregate of $2.8
million principal amount of Old Notes.
Tenders of the Old Notes may be withdrawn at any time prior to 12:00
midnight, New York City time, on the Exchange Expiration Date. The Exchange
Offer is conditioned upon, among other things, 100% of the outstanding
principal amount of Old Notes being tendered for exchange and not withdrawn
(the "Minimum Condition").
As of the date of this Offering Circular, $60 million in aggregate
principal amount of the Old Notes is outstanding. As of October 5, 1988, there
were 89 registered holders of the Old Notes. Solely for reasons of
administration (and for no other purpose), the Company has fixed the close of
business on October 21, 1998, as the record date (the "Record Date") for
purposes of determining the persons to whom this Offering Circular and the
Letter of Transmittal will be mailed initially. Only a Holder of the Old Notes
(or such holder's legal representative or attorney-in-fact) may participate in
the Exchange Offer. There will be no fixed record date for determining holders
of the Old Notes entitled to participate in the Exchange Offer.
The Company shall be deemed to have accepted validly tendered Old
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange/Solicitation Agent. The Exchange/Solicitation Agent will act as
agent for the tendering holders of Old Notes and for the purposes of receiving
the New Notes and cash from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Exchange Expiration Date.
EXCHANGE EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Exchange Expiration Date will be November 20, 1998 at 12:00
midnight, New York City time, unless the Company, in its sole discretion,
extends the Exchange Offer, in which case the Exchange Expiration Date will be
the latest date and time to which the Exchange Offer is extended.
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In order to extend the Exchange Offer, the Company will notify the
Exchange/Solicitation Agent of any extension by oral or written notice and will
make a public announcement thereof, each prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled Exchange
Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, (ii) to extend the Exchange Offer, (iii) to terminate
the Exchange Offer, whether or not any of the conditions set forth below under
"Conditions of the Exchange Offer" shall not have been satisfied, and (iv) to
amend the terms of the Exchange Offer in any manner by giving oral or written
notice of such delay, extension, termination or modification to the
Exchange/Solicitation Agent. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendments by means of a public announcement or a
supplement to this Joint Offering Circular/Consent Solicitation Statement that
will be distributed to the registered holders of the Old Notes.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is conditioned upon all outstanding Old Notes
being properly tendered for exchange and not withdrawn (the "Minimum
Condition"). As of the date of this Offering Circular, an aggregate principal
amount of $60 million of Old Notes is outstanding.
In addition to the Minimum Condition, the Exchange Offer is
conditioned upon the following conditions:
- No legal action or proceeding shall have been instituted or
threatened in any court or by or before any governmental agency
(i) directly or indirectly with respect to the Exchange Offer or the
Solicitation, (ii) which, in the sole judgment of the Company, may
materially adversely affect the business, operations or financial
condition of the Company;
- There shall not have occurred any material adverse development in
any existing action or proceeding of any nature;
- There shall not have occurred (i) any general suspension of
trading in, or limitation on prices for, securities on the New York
Stock Exchange, (ii) a declaration of a banking moratorium by United
States authorities or any governmental agency in the United States,
(iii) the commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving
the United States or (iv) such a material adverse change in general
economic, political or financial conditions, if the effect of any
economic, political or financial conditions on the financial markets
of the United States shall be such as, in the sole judgment of the
Company, shall make it impracticable to consummate the Exchange
Offer;
- There shall not have occurred any change, or development involving
a prospective change, in or affecting the business or financial
affairs of the Company which, in the sole judgment of the Company,
would materially impair the contemplated benefits of the Exchange
Offer or the Solicitation to the Company;
- No statute, rule or regulation shall have been proposed or
enacted, nor shall any action have been taken by any governmental
authority, which, in the sole judgment of the Company, would or might
prohibit, restrict or delay consummation of the Exchange Offer as
presently proposed or materially impair the contemplated benefits of
the Exchange Offer or the Solicitation to the Company; and
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- There shall not exist, in the sole judgment of the Company, any
other actual or threatened legal impediment to the acquisition of the
Old Notes or the issuance of the New Notes as presently proposed;
If the Exchange Offer should be withdrawn pursuant to the foregoing,
the Old Notes previously tendered will be returned without expense to the
tendering holders as promptly as practicable following such withdrawal.
By agreeing to participate in the Exchange, a Holder also agrees to
allocate the cash and New Notes received for the Old Notes and accrued and
unpaid interest thereon in the same manner in which the Company will make such
allocation. The Company will allocate the cash paid in the Exchange first to
accrued and unpaid interest on the Old Notes to the extent thereof, and any
remaining cash will be allocated to the principal amount of the Old Notes.
Based on this allocation method, of the approximate $6.9 million cash to be
paid in the Exchange, approximately $4.1 million will be allocated to the
payment of interest and $2.8 million will be allocated to the principal amount
of the Old Notes.
PROCEDURES FOR TENDERING OLD NOTES
The tender of a holder's Old Notes as set forth below and the
acceptance thereof by the Company will constitute a binding agreement between
the tendering holder and the Company upon the terms and subject to the
conditions set forth in this Joint Offering Circular/Consent Solicitation
Statement and in the accompanying Letter of Transmittal and Consent Form.
Except as set forth below, a holder who wishes to tender Old Notes for exchange
pursuant to the Exchange Offer must transmit such Old Notes, together with a
properly completed and duly executed Letter of Transmittal and Consent Form,
including all other documents required by such Letter of Transmittal and
Consent Form to the Exchange/Solicitation Agent at the address set forth on the
back cover page of this Offering Circular prior to 12:00 midnight, New York
City time, on the Exchange Expiration Date. THE METHOD OF DELIVERY OF OLD
NOTES, LETTERS OF TRANSMITTAL AND CONSENT FORM AND ALL OTHER REQUIRED DOCUMENTS
IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT THE
HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange/Solicitation Agent's
account in accordance with DTC's procedures for such transfer. In connection
with a book-entry transfer, a Letter of Transmittal and Consent Form need not
be transmitted to the Exchange/Solicitation Agent, provided that the book-entry
transfer procedure must be complied with prior to 12:00 midnight, New York City
time, on the Exchange Expiration Date.
Each signature on a Letter of Transmittal and Consent Form or a
notice of withdrawal, as the case may be, must be guaranteed unless the Old
Notes surrendered for exchange pursuant hereto are tendered (i) by a registered
holder of the Old Notes who has not completed either the box entitled "Special
Exchange Instructions" or the box entitled "Special Delivery Instructions" in
the Letter of Transmittal and Consent Form, or (ii) by an Eligible Institution
(as defined). In the event that a signature on a Letter of Transmittal and
Consent Form or a notice of withdrawal, as the case may be, is required to be
guaranteed, such guarantee must be by a firm which is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or otherwise be an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (collectively, "Eligible
Institutions"). If the Letter of Transmittal and Consent Form is signed by a
person other than the registered holder of the Old Notes, the Old Notes
surrendered for exchange must either (i) be endorsed by the registered holder,
with the signature
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thereon guaranteed by an Eligible Institution, or (ii) be accompanied by a bond
power, in satisfactory form as determined by the Company in its sole
discretion, duly executed by the registered holder, with the signature thereon
guaranteed by an Eligible Institution. The term "registered holder" as used
herein with respect to the Old Notes means any person in whose name the Old
Notes are registered on the books of the Registrar.
All questions as to the validity, form, eligibility (including time
of receipt), acceptance, and withdrawal of Old Notes tendered for exchange will
be determined by the Company in its sole discretion, which determination shall
be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered and to reject any Old Notes the
Company's acceptance of which might, in the judgment of the Company or its
counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to
particular Old Notes either before or after the Exchange Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Old Notes in the Exchange Offer). The interpretation of the terms and
conditions of the Exchange Offer (including the Letter of Transmittal and the
instructions thereto), by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with
tenders of Old Notes for exchange must be cured within such period of time as
the Company shall determine. The Company will use reasonable efforts to give
notification of defects or irregularities with respect to tenders of Old Notes
for exchange but shall not incur any liability for failure to give such
notification. Tenders of the Old Notes will not be deemed to have been made
until such irregularities have been cured or waived.
If any Letter of Transmittal and Consent Form, endorsement, bond
power, power of attorney or any other document required by the Letter of
Transmittal and Consent Form is signed by a trustee, executor, corporation or
other person acting in a fiduciary or representative capacity, such person
should so indicate when signing, and, unless waived by the Company, proper
evidence satisfactory to the Company, in its sole discretion, of such person's
authority to so act must be submitted.
Any beneficial owner of the Old Notes (a "Beneficial Owner") whose
Old Notes are registered in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to tender Old Notes in the
Exchange Offer should contact such registered holder promptly and instruct such
registered holder to tender on such Beneficial Owner's behalf. If such
Beneficial Owner wishes to tender directly, such Beneficial Owner must, prior
to completing and executing the Letter of Transmittal and Consent Form and
tendering Old Notes, make appropriate arrangements to register ownership of the
Old Notes in such Beneficial Owner's name. Beneficial Owners should be aware
that the transfer of registered ownership may take considerable time.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes
are not immediately available or (ii) who cannot deliver their Old Notes or any
other documents required by the Letter of Transmittal and Consent Form to the
Exchange/Solicitation Agent prior to the Exchange Expiration Date (or complete
the procedure for book-entry transfer on a timely basis), may tender their Old
Notes according to the guaranteed delivery procedures set forth in the Letter
of Transmittal and Consent Form. Pursuant to such procedures: (i) such tender
must be made by or through an Eligible Institution and a Notice of Guaranteed
Delivery (as defined in the Letter of Transmittal and Consent Form) must be
signed by such Holder, (ii) on or prior to the Exchange Expiration Date, the
Exchange/Solicitation Agent must have received from the Holder and the Eligible
Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the Holder, the certificate number or numbers of the
tendered Old Notes, and the principal amount of tendered Old Notes, stating
that the tender is being made thereby and guaranteeing that, within four
business days after the date of delivery of the Notice of Guaranteed Delivery,
the tendered Old Notes, a duly executed Letter of Transmittal and Consent Form
and any other required documents will be deposited by the Eligible Institution
with the Exchange/Solicitation Agent, and (iii) such properly completed and
executed documents required by the Letter of Transmittal and the tendered Old
Notes in proper form for transfer (or
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confirmation of a book-entry transfer of such Old Notes into the
Exchange/Solicitation Agent's account at DTC) must be received by the
Exchange/Solicitation Agent within four business days after the Exchange
Expiration Date. Any Holder who wishes to tender Old Notes pursuant to the
guaranteed delivery procedures described above must ensure that the
Exchange/Solicitation Agent receives the Notice of Guaranteed Delivery and
Letter of Transmittal relating to such Old Notes prior to 12:00 midnight, New
York City time, on the Exchange Expiration Date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES; PAYMENT OF
INTEREST AND REPURCHASE OF OLD NOTES
Upon satisfaction or waiver of all the conditions to the Exchange
Offer, the Company will accept any and all Old Notes that are properly tendered
in the Exchange Offer prior to 12:00 midnight, New York City time, on the
Exchange Expiration Date. The New Notes issued pursuant to the Exchange Offer
will be delivered promptly after acceptance of the Old Notes. For purposes of
the Exchange Offer, the Company shall be deemed to have accepted validly
tendered Old Notes, when, as, and if the Company has given oral or written
notice thereof to the Exchange/Solicitation Agent.
Upon consummation of the Exchange Offer, the Company will pay in cash
the accrued and unpaid interest on the tendered Old Notes through December 1,
1998 ($4.1 million) and will purchase for cash from the Holders of tendered Old
Notes an aggregate $2.8 million principal amount of Old Notes, together with
accrued and unpaid. Each tendering Holder will have repurchased a principal
amount of such holder's pro rata share of Old Notes tendered, determined by
multiplying $2.8 million by a fraction, the numerator of which is the principal
amount of Old Notes tendered by a Holder in the Exchange Offer, and the
denominator of which is the aggregate principal amount of Old Notes tendered in
the Exchange Offer and not withdrawn. The payments will be funded through
payments by PHI under the Purchase Money Note. In the event PFC were to file
for relief under Chapter 11 of the Bankruptcy Code within 90 days (or possibly
one year), or PHI were to file for relief under Chapter 11 of the Bankruptcy
Code within one year, of the payments, the payments may be avoidable as a
preference and could be subject to recovery by a trustee in bankruptcy, an
official creditors' committee, other representatives of creditors of PFC or
PHI, or PFC or PHI as debtors in possession. If the payments were successfully
challenged as preferences, holders would be required to return the funds
received, together with interest thereon in a rate determined by the court, or
would be precluded from receiving any distribution on account of such holders'
Old Notes.
In all cases, issuances of New Notes, payment of accrued and unpaid
interest on tendered Old Notes and repurchase of Old Notes in exchange for Old
Notes that are accepted for exchange pursuant to the Exchange Offer will be
made only after timely receipt by the Exchange/Solicitation Agent of such Old
Notes, a properly completed and duly executed Letter of Transmittal and Consent
Form and all other required documents (or of confirmation of a book-entry
transfer of such Old Notes into the Exchange/Solicitation Agent's account at
DTC); provided, however, that the Company reserves the absolute right to waive
any defects or irregularities in the tender or conditions of the Exchange
Offer. If any tendered Old Notes are not accepted for any reason, such
unaccepted Old Notes will be returned without expense to the tendering Holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn by delivery of a written
notice to the Exchange/Solicitation Agent, at its address set forth on the back
cover page of this Offering Circular, at any time prior to 12:00 midnight, New
York City time, on the Exchange Expiration Date. Any such notice of withdrawal
must (i) specify the name of the person having deposited the Old Notes to be
withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn
(including the certificate number or numbers and principal amount of such Old
Notes, as applicable), (iii) be signed by the Holder in the same manner as the
original signature on the Letter of Transmittal and Consent Form by which such
Old Notes were tendered (including any required signature guarantees) or be
accompanied by a bond power in the name of the person withdrawing the tender,
in satisfactory
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form as determined by the Company in its sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution together with the other documents required upon transfer by the
Indenture, and (iv) specify the name in which such Old Notes are to be
re-registered, if different from the Depositor, pursuant to such documents of
transfer. Any questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, in its sole
discretion. The Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Notes which
have been tendered for exchange but which are withdrawn will be returned to the
Holder thereof without cost to such Holder as soon as practicable after
withdrawal. Properly withdrawn Old Notes may be retendered by following one of
the procedures described under "The Exchange Offer--Procedures for Tendering
Old Notes" at any time on or prior to the Exchange Expiration Date.
THE EXCHANGE/SOLICITATION AGENT AND INFORMATION AGENT; ASSISTANCE
IBJ Schroder Bank & Trust Company is the Exchange/Solicitation Agent,
and D.F. King & Co., Inc. is the Information Agent. All tendered Old Notes,
executed Letters of Transmittal and Consent Forms and other related documents
should be directed to the Exchange/Solicitation Agent. Questions and requests
for assistance and requests for additional copies of the Joint Offering
Circular/Consent Solicitation Statement, the Letter of Transmittal and other
related documents should be addressed to the Exchange/Solicitation Agent or
Information Agent as follows:
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EXCHANGE/SOLICITATION AGENT
BY HAND OR OVERNIGHT COURIER:
IBJ SCHRODER BANK & TRUST COMPANY
ONE STATE STREET
NEW YORK, NEW YORK 10004
ATTENTION: SECURITIES PROCESSING WINDOW
SUBCELLAR ONE, (SC-1)
BY REGISTERED OR CERTIFIED MAIL:
IBJ SCHRODER BANK AND TRUST COMPANY
P.O. BOX 84
BOWLING GREEN STATION
NEW YORK, NY 10274-0084
ATTENTION: REORGANIZATION OPERATIONS DEPARTMENT
BY FACSIMILE:
(212) 858-2611
CONFIRM BY TELEPHONE (212) 858-2103
INFORMATION AGENT
D.F. KING & CO., INC.
77 WATER STREET
20TH FLOOR
NEW YORK, NEW YORK 10005
ATTENTION: KEVIN SCHWICARDI
TOLL FREE: 800-628-8538
OR BANKS AND BROKERS CALL (212) 425-1685
FEES AND EXPENSES
All expenses incident to the Company's consummation of the Exchange
Offer will be borne by the Company, including, without limitation: (i) printing
expenses (including, without limitation, expenses of printing certificates for
the New Notes in a form eligible for deposit with DTC and of printing the Joint
Offering Circulars/Consent Solicitation Statement), (ii) messenger, telephone
and delivery expenses, (iii) fees and disbursements of counsel for the Company,
(iv) fees and disbursements of independent certified public accountants,
(v) internal expenses of the Company (including, without limitation, all
salaries and expenses of officers and employees of the Company performing legal
or accounting duties) and (vi) reasonable and customary fees and out-
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of-pocket expenses incurred by the Exchange/Solicitation Agent for and in
connection with their services in connection with the Exchange Offer.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay the
Exchange/Solicitation Agent and the Information Agent reasonable and customary
fees for their services and will reimburse them for their reasonable
out-of-pocket expenses in connection therewith.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however, a transfer
tax is imposed for any reason other than the exchange of Old Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption is not
submitted with the Letter of Transmittal and Consent Form, the amount of such
transfer taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old
Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss will be recognized by the Company for
accounting purposes. The expenses of the Exchange Offer will be amortized over
the term of the New Notes.
RESALES OF THE NEW NOTES
Nonaffiliates of the Company who acquire the New Notes will be able to
freely trade the New Notes without restriction under Rule 144. Affiliates of
the Company who acquire the New Notes, however, may resell the New Notes only in
compliance with the provisions of Rule 144.
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THE SOLICITATION
GENERAL
The Company is soliciting the consents (the "Consents") of the Holders
to the following (the "Proposed Consents"), which will be effective only if the
Exchange Offer is not consummated and valid consents are properly furnished by
the Solicitation Expiration Date with respect to at least $47 million principal
amount of Old Notes:
- Until December 15, 2000 (the "Termination Date"), the consenting
Holders will forbear from exercising any rights and remedies under the
Old Notes, the Old Note Indenture, the Guaranty and the Mortgage
Documents (as defined in the Old Note Indenture) with respect to any
failure by the Company to pay principal and interest on the Old Notes
when due on December 1, 1998 (the "Maturity Defaults") and any other
defaults under the Old Notes, the Indenture, the Guaranty or the
Mortgage Documents arising as a direct consequence of the Maturity
Defaults;
- Until the Termination Date, the consenting Holders will forbear
from exercising any rights and remedies under the Purchase Money Note
and related security documents with respect to any failure by PHI to
pay principal and interest on the Purchase Money Note when due on
December 1, 1998 (the "Purchase Money Note Maturity Defaults") and any
other defaults under the Purchase Money Note arising as a direct
consequence of the Purchase Money Note Maturity Defaults; and
- The consenting Holders will agree to consent to and support a
plan of reorganization under Chapter 11 of the Bankruptcy Code which
provides for treatment of the Old Notes in a bankruptcy case under
Chapter 11 of the Bankruptcy Code that is substantially similar to the
treatment of the Old Notes offered in the Exchange (the "Plan"). Such
support shall include, without limitation, (i) voting to accept the
Plan and making reasonable efforts to obtain confirmation of the Plan,
even if the Plan involves a "cramdown" under Section 1129(b) of the
Bankruptcy Code of classes of claims or equity interests other than
the class that includes the Old Notes, (ii) not agreeing to,
consenting to, recommending or voting for any plan that contains terms
inconsistent with the Plan, and (iii) not objecting to or otherwise
commencing any proceeding to oppose or alter the Plan or taking any
action that is inconsistent with, or that would delay solicitation,
confirmation, effectiveness or substantial consummation of the Plan.
In order for the Proposed Consents to become effective, the Exchange Offer
must not be consummated and the Company must receive Consents of Holders with
respect to at least $47 million principal amount of Old Notes (the "Requisite
Consents"). As of October 21, 1998, $60 million principal amount of the Old
Notes was outstanding. If the Proposed Consents become effective, the Company
will repurchase an aggregate of $6.5 million principal amount of Old Notes,
together with accrued and unpaid interest thereon through the Solicitation
Expiration Date (approximately $400,000). See "Repurchase of Old Notes."
Upon effectiveness of the Proposed Consents, a consenting Holder's right to
sell or transfer the Old Notes will be restricted, and each consenting Holder
will be required to hold Old Notes in certificated form. See "Restrictions on
Transfer."
As of October 5, 1988, there were 89 registered holders of the Old
Notes. Solely for reasons of administration (and for no other purpose), the
Company has fixed the close of business on October 21, 1998, as the record date
(the "Record Date") for purposes of determining the persons to whom this Joint
Offering Circular/Consent Solicitation Statement and the Letter of Transmittal
and Consent Form will be mailed initially.
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Only a Holder of the Old Notes (or such holder's legal representative or
attorney-in-fact) may deliver a Consent. There will be no fixed record date for
determining holders of the Old Notes entitled to participate in the
Solicitation.
SOLICITATION EXPIRATION DATE; EXTENSIONS; AMENDMENT
The term "Solicitation Expiration Date" will be at 12:00 midnight New York
City time, November 20, 1998, unless the Company, in its sole discretion,
extends the period during which the Solicitation is open, in which case the
Solicitation Expiration Date will be the latest date and time to which the
Solicitation is extended.
In order to extend the Solicitation Expiration Date, the Company will make
a public announcement thereof prior to 9:00 a.m., New York time, on the next
business day after the previously scheduled Solicitation Expiration Date.
The Company reserves the right, in its sole discretion, (1) to delay
accepting any Consents, (ii) to extend the Solicitation, (iii) to terminate the
Solicitation, and (iv) to amend the terms of the Solicitation in any manner by
giving oral or written notice of such delay, extension, termination or
modification to the Exchange/Solicitation Agent. If the Solicitation is amended
in a manner determined by the Company to constitute an adverse change to the
Holders, the Company will promptly disclose such amendments by means of a public
announcement or a supplement to this Joint Offering Circular/Consent
Solicitation Statement that will be distributed to the registered holders of Old
Notes.
PROCEDURES FOR FURNISHING CONSENTS
The furnishing of a consent and delivery of a holder's Old Notes as
set forth below and the acceptance thereof by the Company will constitute a
binding agreement between the tendering holder and the Company upon the terms
and subject to the conditions set forth in this Joint Offering Circular/Consent
Solicitation Statement and in the accompanying Letter of Transmittal and Consent
Form with respect to the Consents. Except as set forth below, a holder who
wishes to furnish a Consent with respect to Old Notes pursuant to the
Solicitation must deliver a properly completed and duly executed Letter of
Transmittal and Consent Form, together with the Old Notes subject to the
Consents and all other documents required by such Letter of Transmittal and
Consent Form, to the Exchange/Solicitation Agent at the address set forth on the
back cover page of this Joint Offering Circular/Consent Solicitation Statement
prior to 12:00 midnight, New York City time, on the Solicitation Expiration
Date. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND CONSENT
FORM, OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF
THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF
DELIVERY BY MAIL, IT IS RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY.
Each signature on a Letter of Transmittal and Consent Form or a notice of
revocation, as the case may be, must be guaranteed unless the Old Notes with
respect to which Consents are furnished pursuant hereto and the related Letter
of Transmittal and Consent Form are submitted (i) by a registered holder of the
Old Notes who has not completed either the box entitled "Special Exchange
Instructions" or the box entitled "Special Delivery Instructions" in the Letter
of Transmittal and Consent Form, or (ii) by an Eligible Institution. In the
event that a signature on a Letter of Transmittal and Consent Form or a notice
of revocation, as the case may be, is required to be guaranteed, such guarantee
must be by an Eligible Institution. If the Letter of Transmittal and Consent
Form is signed by a person other than the registered holder of the Old Notes,
the Old Notes with respect to which Consents are furnished must either (i) be
endorsed by the registered holder, with the signature thereon guaranteed by an
Eligible Institution, or (ii) be accompanied by a proxy, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an Eligible
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Institution. The term "registered holder" as used herein with respect to the
Old Notes means any person in whose name the Old Notes are registered on the
books of the Registrar.
The Company reserves the right to receive Consents by any other reasonable
means or in any form that reasonably evidences the giving of Consent.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance and revocation of the Consents will be resolved by the
Company in its sole discretion, which resolution shall be final and binding.
The Company reserves the absolute right to reject any and all Consents not
validly given or any Consents the Company's acceptance of which could, in the
opinion of the Company or its counsel, be unlawful. The Company also reserves
the absolute right to waive any defects or irregularities or conditions of the
Solicitation as to the particular Old Notes either before or after the
Solicitation Expiration Date (including the right to waive the ineligibility of
any holder who seeks to furnish a consent in Solicitation. The interpretation
of the terms and conditions of the Solicitation (including the Letters of
Transmittal and Consent Form and the instructions thereto) by the Company shall
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with deliveries of Consents must be cured within
such time as the Company shall determine. Neither the Company nor any other
person shall be under any duty to give notification of defects or irregularities
with respect to deliveries of Consents, nor shall any of them incur any
liability for failure to give such notification.
If any Letter of Transmittal and Consent Form, endorsement, proxy,
power of attorney or any other document required by the Letter of Transmittal
and Consent Form is signed by a trustee, executor, corporation or other person
acting in a fiduciary or representative capacity, such person should so indicate
when signing, and, unless waived by the Company, proper evidence satisfactory to
the Company, in its sole discretion, of such person's authority to so act must
be submitted.
Any Beneficial Owner of the Old Notes whose Old Notes are registered
in the name of a broker, dealer, commercial bank, trust company or other nominee
and who wishes to furnish Consents in the Solicitation should contact such
registered holder promptly and instruct such registered holder to furnish the
Consent on such Beneficial Owner's behalf. If such Beneficial Owner wishes to
Consent directly, such Beneficial Owner must, prior to completing and executing
the Letter of Transmittal and Consent Form, make appropriate arrangements to
register ownership of the Old Notes in such Beneficial Owner's name. Beneficial
Owners should be aware that the transfer of registered ownership may take
considerable time.
GUARANTEED DELIVERY PROCEDURES
In order for a Consent to be properly furnished, the Old Notes to
which the Consents relate must be submitted to the Exchange/Solicitation
Agreement. Holders who wish to furnish the Consent with respect to their Old
Notes and (i) whose Old Notes are not immediately available or (ii) who cannot
deliver their Old Notes or any other documents required by the Letter of
Transmittal and Consent Form to the Exchange/Solicitation Agent prior to the
Solicitation Expiration Date (or complete the procedure for book-entry transfer
on a timely basis), may submit their Old Notes in connection with the
Solicitation according to the guaranteed delivery procedures set forth in the
Letter of Transmittal and Consent Form. Pursuant to such procedures: (i) such
submission must be made by or through an Eligible Institution and a Notice of
Guaranteed Delivery (as defined in the Letter of Transmittal and Consent Form)
must be signed by such Holder, (ii) on or prior to the Solicitation Expiration
Date, the Exchange/Solicitation Agent must have received from the Holder and the
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the Holder, the certificate number or numbers of the
tendered Old Notes, and the principal amount of Old Notes with respect to which
Consents are furnished, stating that the Consents and related submission of Old
Notes is being made thereby and guaranteeing that, within four business days
after the date of delivery of the Notice of Guaranteed Delivery, a duly executed
Letter of Transmittal and Consent Form, the Old Notes to which the Consent
relates and any other required documents will be deposited by the Eligible
Institution with the
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Exchange/Solicitation Agent, and (iii) such properly completed and executed
documents required by the Letter of Transmittal and Consent Form and the Old
Notes with respect to which Consents are furnished in proper form for transfer
(or confirmation of a book-entry transfer of such Old Notes into the
Exchange/Solicitation Agent's account at DTC) must be received by the
Exchange/Solicitation Agent within four business days after the Solicitation
Expiration Date. Any Holder who wishes to submit their Old Notes in connection
with the Solicitation pursuant to the guaranteed delivery procedures described
above must ensure that the Exchange/Solicitation Agent receives the Notice of
Guaranteed Delivery and Letter of Transmittal and Consent Form relating to such
Old Notes prior to 12:00 midnight, New York City time, on the Solicitation
Expiration Date.
REVOCATION OF CONSENTS
All properly completed and executed Letters of Transmittal and Consent Form
received by the Company will be counted, unless the Company receives from a
Holder a properly completed and duly executed notice of revocation or a changed
Consent bearing a date later than the date of the prior Consent at any time
prior to the Solicitation Expiration Date the Proposed Consents become
effective. Until the Solicitation Expiration Date, any Holder may revoke the
Consent as to an Old Note or portion of an Old Note if the Company receives
notice of revocation.
REPURCHASE OF OLD NOTES
Upon receipt of the Requisite Consents as of the Solicitation Expiration
Date and assuming the Exchange Offer is not consummated, the Company will
purchase for cash on a pro rata basis from the Holders of Old Notes with respect
to which valid Consents have been received an aggregate $6.5 million principal
amount of Old Notes, together with accrued and unpaid interest thereon
(approximately $400,000). Thus, of the approximate $6.9 million cash to be
paid, the Company will allocate approximately $6.5 million to payment of an
equivalent principal amount of the Old Notes that are repurchased and
approximately $400,000 to the payment of accrued and unpaid interest thereon.
By consenting to the Solicitation, a Holder agrees to allocate the cash received
for the principal amount of the Old Notes and accrued and unpaid interest
thereon in the same manner in which the Company will make such allocation. Each
consenting Holder will have repurchased the Holder's pro rata share of Old
Notes, which will be determined by multiplying $6.5 million by a fraction, the
numerator of which is the principal amount of Old Notes with respect to which
the Holder has furnished valid Consents, and the denominator of which is the
aggregate principal amount of Old Notes with respect to which valid Consents
have been received and not revoked. The payments will be funded through
payments by PHI under the Purchase Money Note. In the event PFC were to file
for relief under Chapter 11 of the Bankruptcy Code within 90 days (or possibly
one year), or PHI were to file for relief under Chapter 11 of the Bankruptcy
Code within one year, of the payments, the payments may be avoidable as a
preference and could be subject to recovery by a trustee in bankruptcy, an
official creditors' committee, other representatives of creditors of PFC or PHI,
or PFC or PHI as debtors in possession. If the payments were successfully
challenged as preferences, holders would be required to return the funds
received, together with interest thereon in a rate determined by the court, or
would be precluded from receiving any distribution on account of such holders'
Old Notes.
In all cases, payment of accrued and unpaid interest on tendered Old Notes
and repurchase of Old Notes in connection with the acceptance by the Company of
the Requisite Consents will be made only after timely receipt by the
Exchange/Solicitation Agent, a properly completed and duly executed Letter of
Transmittal and Consent Form, the Old Notes to which the Consent relates and all
other required documents (or of confirmation of a book-entry transfer of such
Old Notes into the Exchange/Solicitation Agent's account at DTC); provided,
however, that the Company reserves the absolute right to waive any defects or
irregularities in the furnishing of the Consents. If any Consents are not
accepted for any reason, the Old Notes to which the Consents relate will be
returned without expense to the submitting Holder thereof as promptly as
practicable after the expiration or termination of the Solicitation. Any Old
Notes that are subject to effective Consents and are not repurchased will be
reissued in certificated form, if held and submitted in uncertificated form,
will have noted thereon a restriction on transfer and
38
<PAGE>
will be returned to the submitting Holder. See "Restriction on Transfer of Old
Notes; Issuance of Certificated Notes."
RESTRICTION ON TRANSFER OF OLD NOTES; ISSUANCE OF CERTIFICATED NOTES
If the Consents become effective on the Solicitation Expiration Date, any
Holder that has furnished a Consent will have agreed (i) not to transfer, sell,
assign, encumber or otherwise dispose of the beneficial ownership of the
Holder's Old Notes, unless the Holder provides evidence satisfactory to PHI and
PFC that the Holder's transferee (and, if different, the beneficial owner of the
Old Notes so transferred) has agreed in writing in form and substance
satisfactory to PHI and PFC that the transferred Old Notes are subject to the
terms of the Consent, and that the transferee (and, if different, the beneficial
owner) has agreed to be bound by the terms of the Consent, and (ii) that any Old
Notes subject to Consents that are held through DTC will be reissued in
certificated form. The restriction on transfer will be noted on the Old Notes
with respect to which Consents are received and no such Old Notes will be
transferred unless the Holder delivers to the Company an opinion of counsel in
form and substance satisfactory to the Company in its sole discretion that the
transferee has agreed to and is bound by the Proposed Consents.
THE EXCHANGE/SOLICITATION AGENT AND INFORMATION AGENT; ASSISTANCE
IBJ Schroder Bank & Trust Company is the Exchange/Solicitation Agent,
and D.F. King & Co., Inc. is the Information Agent. Letters of Transmittal and
Consent Forms and other related documents should be directed to the Company's
Chief Financial Officer, the Exchange/Solicitation Agent or the Information
Agent. Questions and requests for assistance and requests for additional copies
of the Joint Offering Circular/Consent Solicitation Statement, the Letter of
Transmittal/Consent Form and other related documents should be addressed to the
Company at the address set forth on the back cover page and to the
Exchange/Solicitation Agent or Information Agent as follows:
39
<PAGE>
SOLICITATION AGENT
BY HAND OR OVERNIGHT COURIER:
IBJ SCHRODER BANK & TRUST COMPANY
ONE STATE STREET
NEW YORK, NEW YORK 10004
ATTENTION: SECURITIES PROCESSING WINDOW
SUBCELLAR ONE, (SC-1)
BY REGISTERED OR CERTIFIED MAIL:
IBJ SCHRODER BANK AND TRUST COMPANY
P.O. BOX 84
BOWLING GREEN STATION
NEW YORK, NY 10274-0084
ATTENTION: REORGANIZATION OPERATIONS DEPARTMENT
BY FACSIMILE:
(212) 858-2611
ATTENTION: REORGANIZATION OPERATIONS DEPARTMENT
CONFIRM BY TELEPHONE (212) 858-2103
INFORMATION AGENT
D.F. KING & CO., INC.
77 WATER STREET
20TH FLOOR
NEW YORK, NEW YORK 10005
ATTENTION: KEVIN SCHWICARDI
TOLL FREE: 800-628-8538
OR BANKS AND BROKERS CALL (212) 425-1685
FEES AND EXPENSES
All expenses incident to the Solicitation will be borne by the
Company, including, without limitation: (i) printing expenses, (ii) messenger,
telephone and delivery expenses, (iii) fees and disbursements of counsel for the
Company, (iv) fees and disbursements of independent certified public
accountants, (v) internal expenses of the Company (including, without
limitation, all salaries and expenses of officers and employees of the Company
performing legal or accounting duties) and (vi) reasonable and customary fees
and out-of-pocket expenses incurred by the Exchange/Solicitation Agent and the
Information Agent for and in connection with their services in connection with
the Solicitation.
40
<PAGE>
The Company will not make any payments to brokers, dealers or others
soliciting Consents. The Company, however, will pay the Exchange/Solicitation
Agent ant the Information Agent reasonable and customary fees for its services
and will reimburse them for their reasonable out-of-pocket expenses in
connection therewith.
CONSEQUENCES TO NON-TENDERING AND NON-CONSENTING HOLDERS
If the Exchange Offer is not consummated but the Requisite Consents
are received, the Company intends to file for relief under Chapter 11 of the
Bankruptcy Code. If the Exchange Offer is not consummated and the Requisite
Consents are not received, the Company may file for relief under Chapter 11 of
the Bankruptcy Code or may continue to negotiate with the holders of the Old
Notes for a restructuring of the Old Notes. If the Company were to seek
confirmation of the Plan, no assurance can be given that the Plan would meet the
requirements of confirmation, even if the Requisite Consents are received and
the Old Notes subject to the Consents are voted to accept the Plan. Giving
effect to the issuance of New Notes as of the beginning of the period and
assuming that PFC elected to pay 50% of the interest payment obligations through
December 1, 2000 through the issuance of PIK Notes, the ratio of EBITDA to cash
interest expense would have been 1.40-to-one, and EBITDA less corporate charges
(giving effect to fees payable under the Management Agreement) to cash interest
expense would have been 1.11-to-one, in each case for the twelve months ended
June 30, 1998. Upon commencement of the requirement that all interest be paid
in cash in 2001, the ratio of EBITDA to cash interest expense on the New Notes
is expected to be less than one-to-one (assuming no offers to repurchase New
Notes have been made). Therefore, it is expected that PFC would not be able to
make the cash interest payment in June 2001, which would be an event of default
under the Indenture.
At any time after the December 1, 1998 maturity date of the Old Notes,
if the Company has not filed for bankruptcy relief and the Exchange Offer has
not been consummated, it is possible that three or more holders of Old Notes
would file an involuntary petition under the Bankruptcy Code with respect to
PFC. If PFC were to become a debtor in a case under the Bankruptcy Code
(whether a case was commenced voluntarily or involuntarily), it is likely that
PHI and SFGC would file for relief under Chapter 11 of the Bankruptcy Code. The
commencement of a voluntary case under the Bankruptcy Code by SFGC and certain
circumstances related to an involuntary case under the Bankruptcy Code with
respect to SFGC will cause the automatic acceleration of outstanding
indebtedness of subsidiaries of SFGC, SFHI, and SLVC, all of which indebtedness
is guaranteed by SFGC. If acceleration were to occur, SFGC would expect to
negotiate with the creditors regarding a rescission of the acceleration.
However, if the creditors holding the indebtedness were not to rescind the
acceleration, it is likely that SFHI and SLVC would file for relief under
Chapter 11 of the Bankruptcy Code.
41
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of PHI as of
June 30, 1998 and as adjusted to reflect the consummation of the Exchange Offer.
The table should be read in conjunction with the unaudited Consolidated
Financial Statements and related notes thereto of PHI included elsewhere herein.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
--------------------------------
ACTUAL AS ADJUSTED
--------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and short-term investments(1)................................. $ 9,333 $ 2,400
-------- --------
-------- --------
Accrued interest on current portion of long-term debt(1)........... 675 ---
-------- --------
-------- --------
Long-term debt, including current portion:
New Notes....................................................... -- $ 57,111
Old Notes(2).................................................... $ 60,000 ---
Equipment notes................................................. 26 26
-------- --------
Total debt.................................................... 60,026 57,137
Stockholder's Equity:
Common Stock.................................................... 1 1
Additional Paid in Capital...................................... 55,585 55,585
Accumulated Deficit(1)(3)....................................... (27,750) (74,692)
-------- --------
Total stockholder's equity (deficit)(3)............................ 27,836 (19,106)
-------- --------
Total capitalization.......................................... $ 87,862 $ 38,031
-------- --------
-------- --------
</TABLE>
- ----------------------
(1) Approximately $6.9 million of cash and short term investments will be used
to pay $4.1 million of accrued and unpaid interest and to repurchase $2.8
million principal amount of Old Notes from holders of Old Notes who tender
Old Notes in the Exchange Offer.
(2) In connection with the consummation of the Exchange Offer, the Company will
pay accrued and unpaid interest of $4.1 million through December 1, 1998 on
tendered Old Notes, repurchase $2.8 million principal amount of Old Notes
and issue New Notes in an aggregate principal amount of $57.1 million.
(3) In September 1998, in accordance with SFAS No. 121, PHI determined an
impairment loss had occurred to the carrying value of the assets of the
Pioneer in Laughlin, Nevada. PHI is currently reviewing information to
determine the amount of the impairment loss. However, management believes
that the impairment loss, to be recorded in the quarter ended September 30,
1998, will eliminate the goodwill of $43.6 minimum recorded on the balance
sheet as of June 30, 1998.
42
<PAGE>
PHI SELECTED UNAUDITED CONSOLIDATED FINANCIAL DATA
The following tables set forth selected unaudited consolidated
financial data of PHI. The selected consolidated financial data as of
September 30, 1996 and 1997 and for each of the years ended September 30, 1995,
1996, and 1997 and for the nine months ended June 30, 1997 and 1998 and as of
June 30, 1998 and were derived from PHI's unaudited consolidated financial
statements (included elsewhere herein). The unaudited consolidated financial
data as of and for the years ended September 30, 1994 and 1993 have been derived
from unaudited consolidated financial statements of PHI not contained herein.
In the opinion of management, the unaudited consolidated financial statements
contain all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of such information. The operating results
for the nine months ended June 30, 1998 are not necessarily indicative of
results for the full fiscal year. The information presented below should be
read in conjunction with the Consolidated Financial Statements and notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations of PHI" included elsewhere in this Joint Offering Circular/Consent
Solicitation Statement. (dollars in thousands)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
------------------------ -------------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Casino.......................... $ 47,640 $ 43,227 $ 40,540 $ 38,661 $ 34,821 $ 27,038 $ 25,987
Hotel........................... 3,733 3,433 3,187 3,163 2,547 1,979 1,797
Food and beverage............... 7,956 7,743 7,831 8,041 9,026 6,964 6,839
Other........................... 2,088 1,708 1,443 1,416 1,369 1,085 1,115
-------- -------- -------- -------- -------- -------- --------
Gross revenues.................... 61,417 56,111 53,001 51,281 47,763 37,066 35,738
Less casino promotional
allowances.................... (7,364) (6,841) (6,966) (6,866) (6,924) (5,378) (4,997)
-------- -------- -------- -------- -------- -------- --------
Net operating revenues............ 54,053 49,270 46,034 44,415 40,839 31,688 30,741
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Casino.......................... 20,423 20,362 20,258 20,343 18,667 14,073 14,243
Hotel........................... 596 511 414 495 668 483 606
Food and beverage............... 5,872 5,104 5,010 5,283 5,171 3,888 4,038
Other........................... 929 803 876 873 837 636 630
Selling, general &
administrative................ 3,706 4,079 4,046 5,278 5,554 4,042 4,327
Utilities & property
expenses...................... 3,204 3,361 3,955 3,799 3,245 2,343 2,368
Rents & leases.................. 421 563 748 737 1,024 735 661
Depreciation & amortization..... 4,985 5,063 5,227 5,878 5,583 4,186 4,255
-------- -------- -------- -------- -------- -------- --------
Total operating expenses...... 40,136 39,846 40,534 42,686 40,749 30,386 31,128
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)......... 13,917 9,424 5,500 1,729 90 1,302 (387)
Interest expense................ 13,875 13,877 13,765 9,371 8,700 6,046 6,098
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
tax benefit and
extraordinary item............ 42 (4,453) (8,265) (7,642) (8,610) (4,744) (6,485)
Federal income tax benefit...... - - 1,462 1,572 - - -
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item............ 42 (4,453) (6,803) (6,070) (8,610) (4,744) (6,485)
Extraordinary item, net of tax.. - - 2,838 3,052 - - -
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............... $ 42 $( 4,453) $( 3,965) $( 3,018) $( 8,610) $( 4,744) $( 6,485)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
------------------------ -------------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA: (dollars in thousands)
EBITDA(1)...................... $19,359 $ 14,983 $11,410 $ 8,644 $ 6,929 $ 6,358 $ 4,833
EBITDA margin.................. 35.8% 30.4% 24.8% 19.5% 17.0% 20.1% 15.7%
Capital expenditures........... $ 1,782 $ 1,741 $ 5,998 $ 1,291 $ 949 $ 726 $ 2,329
Ratio of earnings to fixed
charges(2)................... 1.0 (2) (2) (2) (2) (2) (2)
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF JUNE 30,
------------------ -------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term
investments................... $ 13,084 $ 12,168 $ 3,036 $ 5,907 $ 3,249 $ 9,333
Total assets.................... 109,892 105,971 97,782 114,736 107,629 92,516
Total debt...................... 103,206 102,923 83,808 60,379 65,081 60,026
Stockholder's equity (deficit).. (1,514) (5,967) 5,865 42,931 34,321 27,836
</TABLE>
- ------------------------
(1) EBITDA consists of earning before interest, income taxes, depreciation,
amortization, rents attributable to gaming equipment operating leases and
corporate charges. In December 1997, the Company purchased all gaming
equipment subject to operating leases. See "Executive Compensation -
Management Agreement" for a discussion of historical corporate charges
allocated to PHI. Concurrent with the consummation of the Exchange Offer,
PHI and SFGC will enter into a Management Agreement pursuant to which PHI
will pay to SFGC management fees of $100,000 per month, plus a variable fee
based on achievement of certain EBITDA targets. Fees payable under the
Management Agreement will be higher than the historical corporate charge
allocation. The Company's definition of EBITDA may not be the same as that
of similarly captioned measures used by other companies. While EBITDA
should not be construed as a substitute for operating income or a better
indicator of liquidity than cash flow from operations, investing, and
financing activities, which are determined in accordance with GAAP, it is
included herein to provide additional information with respect to the
ability of the Company to meet its future debt service, capital expenditure
and working capital requirements. Although EBITDA is not necessarily a
measure of the Company's ability to fund its cash needs, management
believes that EBITDA is a useful tool for measuring the ability of the
Company to service its debt.
(2) Earnings were insufficient to cover fixed charges by $4.5 million in 1994,
$8.3 million in 1995, $7.6 million in 1996, $8.6 million in 1997, $4.7
million in the nine months ended June 30, 1997 and $6.5 million in the nine
months ended June 30, 1998.
44
<PAGE>
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
PHI
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION AND FINANCIAL DATA, INCLUDING THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS OF PHI AND NOTES THERETO, APPEARING ELSEWHERE HEREIN.
REFERENCES TO FISCAL YEARS REFER TO YEARS ENDING SEPTEMBER 30.
GENERAL
The Company was formed to operate the Pioneer, which was acquired in
December 1988 and serves the community in and surrounding Laughlin, Nevada. The
Pioneer, built in 1982, is located in Laughlin, Nevada, an unincorporated town
on the Colorado River bordering Arizona. Accessible by major interstate
highways to various population centers in the western United States, Laughlin is
situated approximately 90 miles south of Las Vegas, Nevada, approximately
280 miles northwest of San Diego, California, 335 miles northeast of
Los Angeles, California, and 225 miles north of Phoenix, Arizona. The Pioneer
is surrounded by new hotel/casino development. Directly to the north of the
Pioneer is the Colorado Belle owned by Circus Circus Enterprises, Inc.; directly
to the south is the Golden Nugget; and diagonally across Casino Drive is the
Ramada Express.
According to figures complied by the Nevada Gaming Authorities, total
gaming revenues in the Laughlin market were approximately $485 million for each
of the twelve months ended June 30, 1998 and 1997. However, total gaming
revenues in the Laughlin market have declined 9.4% from $517 million since the
twelve months ended September 1993. Pioneer revenues from fiscal 1993 to fiscal
1997 declined from $54.1 million to $40.8 million and EBITDA (as defined)
declined from $19.4 million to $6.9 million. The decline is believed to be
primarily due to competitive gaming market in and around Laughlin, including
Indian gaming facilities opened in Arizona and Southern California and new
casinos opened in Las Vegas.
In the nine months ended June 30, 1998, the Company's revenues were
derived 84.5% from casino operations, 22.2% from food and beverage operations,
5.8% from hotel operations and 3.8% from other operations such as gift shops,
less promotional allowances of 16.3%. The Company's business strategy
emphasizes slot and video poker machines play. For the first nine months of
fiscal 1998, approximately 87.3% of gaming revenues were derived from slot and
video poker machines, while 10.6% of such revenues were from table games and
2.1% were from other gaming activities such as the race and sports book, poker,
bingo and keno.
PHI's gaming operations typically have their highest levels of
business during the winter tourist season, when the Pioneer experiences heavier
tourist traffic. In general, the highest levels of business activity at
Laughlin casinos occurs during the tourist season from October to June of each
year. During summer months, primary visitors to Laughlin are water and
recreational enthusiasts who have a more modest gaming profile.
RESULTS OF OPERATIONS
The following table sets forth certain of the Company's operating
information for the years ended September 30, 1995, 1996 and 1997 and the nine
months ended June 30, 1997 and 1998. Departmental operating expenses are shown
as a percentage of departmental revenues. All other percentages are based on
net operating revenues.
45
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
---------------------------------------- -----------------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Casino...................................... 88.1% 87.0% 85.3% 85.3% 84.5%
Hotel....................................... 6.9% 7.1% 6.2% 6.2% 5.8%
Food and beverage........................... 17.0% 18.1% 22.1% 22.0% 22.2%
Other....................................... 3.1% 3.3% 3.5% 3.4% 3.8%
------ ------ ------ ------ ------
Gross Revenues................................ 115.1% 115.5% 117.0% 117.0% 116.3%
Less casino promotional allowances.......... -15.1% -15.5% -17.0% -17.0% -16.3%
------ ------ ------ ------ ------
Net operating revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Casino(1)................................... 50.0% 52.6% 53.6% 52.1% 54.8%
Hotel(1).................................... 13.0% 15.6% 26.2% 24.4% 33.7%
Food and beverage(1)........................ 64.0% 65.7% 57.3% 55.8% 59.0%
Other(1).................................... 60.7% 61.8% 61.3% 58.5% 56.6%
Selling, general & administrative........... 8.8% 11.9% 13.6% 12.8% 14.1%
Utilities & property expenses............... 8.6% 8.6% 7.9% 7.4% 7.7%
Rents & leases.............................. 1.6% 1.7% 2.5% 2.3% 2.1%
Depreciation & amortization................. 11.4% 13.2% 13.7% 13.2% 13.8%
------ ------ ------ ------ ------
Total Operating expenses.................... 88.1% 96.1% 99.8% 95.9% 101.3%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Operating income (loss)....................... 11.9% 3.9% .2% 4.1% -1.3%
Interest expense.............................. 29.9% 21.1% 21.3% 19.1% 19.8%
------ ------ ------ ------ ------
Income (loss) before income tax
benefit and extraordinary item.............. -18.0% -17.2% -21.1% -15.0% -21.1%
Federal income tax benefit.................... 3.2% 3.5% 0% 0% 0%
------ ------ ------ ------ ------
Income (loss) before extraordinary item....... -14.8% -13.7 -21.1% -15.0% -21.1%
Extraordinary item-gain on early
extinguishment of debt, net of tax
provision of $1,462,000 in 1995
and $1,572,055 in 1996...................... 6.2% 6.9% 0.0% 0.0% 0.0%
------ ------ ------ ------ ------
Net income (loss)............................. -8.6% -6.8% -21.1% -15.0% -21.1%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
EBITDA(2)..................................... 24.8% 19.5% 17.0% 20.1% 15.7%
</TABLE>
- ------------------------
(1) Shown as percentage of corresponding departmental revenue.
(2) EBITDA consists of earnings before interest, income taxes, depreciation,
amortization, rents attributable to gaming equipment operating leases and
corporate charges. In December 1997, the Company purchased all gaming
equipment subject to operating leases. See "Executive Compensation -
Management Agreement" for a discussion of historical corporate charges
allocated to PHI. Concurrent with the consummation of the Exchange Offer,
PHI and SFGC will enter into a Management Agreement pursuant to which PHI
will pay to SFGC management fees of $100,000 per month, plus a variable fee
based on adjustment of certain EBITDA targets. Fees payable under the
Management Agreement will be higher than the historical corporate charge
allocation. The Company's definition of EBITDA may not be the same as that
of similarly captioned measures used by other companies. While EBITDA
should not be construed as a substitute for operating income or a better
indicator of liquidity than cash flow from operations, investing, and
financing activities, which are determined in accordance with GAAP, it is
included herein to provide additional information with respect to the
ability of the Company to meet its future debt service, capital expenditure
and working capital requirements. Although EBITDA is not necessarily a
measure of the Company's ability to fund its cash needs, management
believes that EBITDA is a useful tool for measuring the ability of the
Company to service its debt.
46
<PAGE>
NINE MONTHS ENDED JUNE 30, 1998 COMPARED TO NINE MONTHS ENDED JUNE 30, 1997
NET OPERATING REVENUES. Revenues at the Pioneer decreased 3.0%, or
$1.0 million, to $30.7 million as compared to $31.7 million in the prior year.
The decrease in the current period's revenues is believed to be primarily due to
the competitive gaming market environment in and around Laughlin, including
Indian gaming facilities opened in Arizona and Southern California, and new
casinos opened in Las Vegas.
Casino revenues were $26.0 million in 1998, representing a decrease of
3.9%, or $1.0 million, from $27.0 million when compared to the 1997 period due
to a 2.2%, or $500,000, decrease in slot win and a 15.6%, or $500,000, decrease
in table win. Casino promotional allowances decreased $400,000, or 7.1%, from
$5.4 million in the 1997 period to $5.0 million in the 1998 period.
Hotel revenues decreased $200,000 to $1.8 million from the nine months
ended June 30, 1997 to the nine months ended June 30, 1998, as a result of a
drop in occupancy rate from 80.9% to 79.4% and a 4.4% decrease in average daily
room rate. Food and beverage revenues decreased to $6.8 million in the nine
months ended June 30, 1998 compared to $7.0 million in the nine months ended
June 30, 1997, due to a decrease in customers and the implementation of
incentive programs, such as reduced food prices, and giveaways intended to
increase business. Other revenues remained substantially unchanged at
$1.1 million in the nine months periods ended June 30, 1997 and June 30, 1998.
OPERATING EXPENSES. Total operating expenses increased $700,000, or
2.4%, from $30.4 million in the nine months ended June 30, 1997 to $31.1 million
in the nine months ended June 30, 1998. Total operating expenses as a
percentage of revenue increased from 95.9% in the nine months ended June 30,
1997 to 101.3% in the nine months ended June 30, 1998.
Casino expenses increased $100,000, or 1.2%, from $14.1 million in the
nine months ended June 30, 1997 to $14.2 million in the nine months ended
June 30, 1998, primarily due to an increase in contributions paid for wide area
progressive slots. Casino expenses as a percentage of casino revenues increased
from 52.1 % in the nine months ended June 30, 1997 to 54.8% in the nine months
ended June 30, 1998. Hotel expenses increased $100,000, or 25.5%, from the nine
months ended June 30, 1997 to the nine months ended June 30, 1998, primarily due
to increases in pay rates and costs to upgrade the hotel rooms. Food and
beverage expenses increased $100,000, or 3.9%, from $3.9 million in the nine
months ended June 30, 1997 to $4.0 million in the nine months ended June 30,
1998, despite the decrease in food and beverage revenues, due to increases in
pay rates and cost of sales. The cost of sales was impacted by the incentive
programs. Food and beverage expenses as a percentage of food and beverage
revenues increased from 55.8% in the nine months ended June 30, 1997 to 59.0% in
the nine months ended June 30, 1998. Other expenses remained unchanged at
$600,000 from the nine months ended June 30, 1997 to the nine months ended
June 30, 1998.
Selling, general and administrative expenses increased $300,000, or
7.0%, from $4.0 million in the nine months ended June 30, 1997 to $4.3 million
in the nine months ended June 30, 1998 due to increased advertising costs. The
Pioneer altered its marketing strategy during fiscal year 1998 to include
television advertising as part of its communications mix in order to reach the
regional market to encourage new visits. Selling, general and administrative
expenses as a percentage of revenues increased from 12.8% in the nine months
ended June 30, 1997 to 14.1% in the nine months ended June 30, 1998. Utilities
and property expenses were nearly unchanged at $2.3 million in the nine months
ended June 30, 1997 versus $2.4 million in the nine months ended June 30, 1998.
Depreciation and amortization expenses were substantially unchanged at
$4.2 million in the nine months ended June 30, 1997 versus $4.3 million in the
nine months ended June 30, 1998.
OTHER INCOME (EXPENSE). Interest expense remained relatively
unchanged at $6.1 million in each of the nine month periods.
47
<PAGE>
NET LOSS. As a result of the factors discussed above, net loss
increased $1.8 million, or 36.7%, from $4.7 million in the nine months ended
June 30, 1997 to $6.5 million in the nine months ended June 30, 1998.
EBITDA. EBITDA decreased $1.5 million, or 24.0%, from $6.4 million in
the nine months ended June 30, 1997 to $4.8 million in the nine months ended
June 30, 1998. EBITDA margin decreased from 20.1 % in the nine months ended
June 30, 1997 to 15.7% in the nine months ended June 30, 1998. EBITDA for the
1998 nine month period represents 0.78 times rent and interest expense, compared
to 1.02 times rent and interest expense in the prior year nine month period.
The Company will incur less rent expense in future periods as a result of the
purchase of $1.2 million gaming equipment in December 1997 previously subject to
operating leases.
FISCAL 1997 COMPARED TO FISCAL 1996
NET OPERATING REVENUES. Revenues at the Pioneer decreased 8.1%, or
$3.6 million, to $40.8 million from $44.4 million in fiscal 1996. The decrease
in fiscal 1997 revenues is believed to be primarily due to the competitive
gaming market environment in and around Laughlin, including Indian gaming
facilities opened in Arizona and Southern California, and new casinos opened in
Las Vegas.
Casino revenues were $34.8 million in fiscal 1997, representing a
decrease of 9.9%, or $3.8 million, compared to fiscal 1996 due primarily to a
decrease in slot revenue of 9.0%, or $3.0 million. The decrease in slot revenue
is attributable to less customer traffic and a trend from dollar play to quarter
and nickel play. Casino promotional allowances remained substantially unchanged
at $6.9 million.
Hotel revenues declined $600,000 during fiscal 1997 as a result of a
decline in occupancy and the average daily rate. As visitor volume in Laughlin
decreased, room rates were reduced to attract customers. Food and beverage
revenues increased approximately $1 million as a result of a volume-oriented
marketing program. Other revenues remained substantially unchanged at
$1.4 million.
OPERATING EXPENSES. Operating expenses decreased $1.9 million, or 4.5
%, to $40.7 million, primarily in casino expenses which had a volume-related
decrease of $1.7 million, or 8.2%. Accordingly, operating income decreased by
94.8%, or $1.6 million, to $100,000 in fiscal 1997 from $1.7 million in fiscal
1996.
Casino expenses experienced a volume-related decrease of 8.2 %, or
$1.7 million.
Selling, general and administrative expenses increased 5.2%, or
$300,000, primarily as a result of increased advertising and promotional costs.
Utilities and property expenses decreased 14.9%, or $600,000, primarily due to a
decrease in payroll expenses. Decreases in depreciation and amortization
expenses of 5.0%, or $300,000, were related to the sale of certain equipment
during the prior year.
OTHER INCOME (EXPENSE). Interest expense decreased $700,000, or 7.2%,
from $9.4 million in fiscal 1996 to $8.7 million in fiscal 1997 due to the
repurchase and retirement of $22.75 million principal amount of Old Notes in
fiscal 1996, partially offset by interest incurred on a $5 million first
mortgage loan. In fiscal 1996 the Company recorded an extraordinary gain of
$3.1 million after tax due to the repurchase and retirement of Old Notes
referred to above.
NET LOSS. As a result of the factors discussed above, net loss
increased $5.6 million, or 185.2%, from $3.0 million in fiscal 1996 to $8.6
million in fiscal 1997.
EBITDA. EBITDA decreased $1.7 million, or 19.8%, from $8.6 million in
fiscal 1996 to $6.9 million in fiscal 1997. EBITDA margin decreased from 19.5%
in fiscal 1996 to 17.0% in fiscal 1997. EBITDA for the 1997 twelve month period
represents 0.77 times rent and interest expense, compared to 0.92 times rent and
interest expense in the prior year period.
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FISCAL 1996 COMPARED TO FISCAL 1995
NET OPERATING REVENUES. Revenues at the Pioneer decreased 3.5%, or
$1.6 million, to $44.4 million from $46.0 million in fiscal 1995. The decrease
in fiscal 1996 revenues is believed to be primarily due to the competitive
gaming market environment in and around Laughlin, including Indian gaming
facilities opened in Arizona and Southern California, and new casinos opened in
Las Vegas.
Casino revenues were $38.7 million in fiscal 1996, representing a
decrease of 4.6%, or $1.9 million, compared to fiscal 1995 due primarily to a
decrease in slot revenue of 6.3%, or $2.2 million. The decrease in slot revenue
is attributable to less customer traffic in Laughlin. Casino promotional
allowances decreased $100,000, or 1.4%, from $7.0 million in fiscal 1995 to
$6.9 million in fiscal 1996.
Hotel revenues remained substantially unchanged at $3.2 million. Food
and beverage revenues increased $200,000, or 2.7%, from $7.8 million in fiscal
1995 to $8.0 in fiscal 1996, primarily due to increases in beverage prices.
Other revenues remained substantially unchanged at $1.4 million.
OPERATING EXPENSES. Operating expenses increased $2.2 million or 5.3%
to $42.7 million. Casino expenses increased 0.4%, or $100,000, as volume
related decreases in expenses were offset by increased promotional expenses
incurred as a result of the competition in the area. Food and beverage expenses
had a volume related increase of 5.4%, or $300,000.
Selling, general and administrative expenses increases $1.2 million,
or 30.5%, primarily as a result of increased advertising and promotional costs.
Increases in depreciation and amortization expenses of $700,000, or 12.5%, were
related to an expansion project completed in December 1994.
OTHER INCOME (EXPENSE). Interest expense decreased $4.4 million, or
31.9%, from $13.8 million in fiscal 1995 to $9.4 million in fiscal 1996 due to
the repurchase and retirement of $20.0 million and $22.75 million principal
amount of Old Notes in fiscal 1995 and fiscal 1996, respectively. The Company
recorded extraordinary after tax gains of $2.8 million and $3.1 million in
fiscal 1995 and 1996, respectively, due to the repurchase and retirement of Old
Notes referred to above.
NET LOSS. As a result of the factors discussed above, net loss
decreased from $4.0 million in fiscal 1995 to $3.0 million in fiscal 1996.
EBITDA. EBITDA decreased $2.8 million, or 24.2%, from $11.4 million
in fiscal 1995 to $8.6 million in fiscal 1996. EBITDA margin decreased from
24.8% in fiscal 1995 to 19.5% in fiscal 1996. EBITDA for the 1996 twelve month
period represents 0.92 times rent and interest expense, compared to 0.82 times
rent and interest expense in the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. As of June 30, 1998, PHI had cash and short-term
investments of $9.3 million. As of June 30, 1998, $6.4 million of cash and
short-term investments was held by a subsidiary of PHI. Management believes
that, based on operations in the nine months ended June 30, 1998, PHI will have
sufficient cash resources to meet its operating requirements, with the exception
of debt service obligations on the Old Notes, through the twelve months ending
June 30, 1999, although no assurance can be given to that effect.
CASH FLOW FROM OPERATIONS. PHI's cash used in operations was
$6.4 million in the nine months ended June 30, 1998 compared to $6.6 million in
the prior year period. PHI's primary use of cash after operating expenditures
is for interest payments on the Old Notes. PHI generated EBITDA in the nine
months ended June 30, 1997 and 1998 of $6.4 million and $4.8 million,
respectively.
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CASH USED FOR INVESTING ACTIVITIES. Cash provided by investing
activities was $17.6 million in the nine months ended June 30, 1998 compared to
$0.6 million used for investing activities in the prior year period. The cash
provided by investing activities in fiscal 1998 represents primarily the sale of
land held for development for cash consideration for $20 million, offset by the
acquisition of $1.2 million equipment, primarily under lease.
CASH FLOW FROM FINANCING ACTIVITIES. Cash used in financing
activities was $5.1 million in the nine months ended June 30, 1998 compared to
$4.6 million provided by financing activities in the prior year period. In the
fiscal 1997 period, the Company completed a $5.0 million debt financing
transaction, the proceeds of which were used primarily to retire existing debt
due to an affiliate. In fiscal 1998, from net proceeds from the sale of the
land held for development, the Company repaid the $5.0 million indebtedness.
The Company will, simultaneously with the consummation of the Exchange
Offer, refinance all the Old Notes. After giving effect to the Exchange, PHI
would have $57.1 million of outstanding indebtedness as of June 30, 1998.
Assuming 50% of the interest on the New Notes is paid in kind through December
1, 2000 through the issuance of the PIK Notes and no offers to repurchase New
Notes have been made, there will be $65.2 million principal amount of New Notes
outstanding at maturity.
Following the completion of the Exchange Offer, PHI will continue to
have substantial annual fixed debt service and will be dependent on the
operations of the Pioneer to meets its obligations. Following the consummation
of the Exchange Offer, management expects cash flow generated by the Pioneer to
fund its operating and debt service requirements through December 2000. Giving
effect to the Exchange as of the beginning of the period, the ratio of EBITDA
(as defined) to total interest expense would have been less than one-to-one for
the twelve months ended June 30, 1998. Giving effect to the Exchange as of the
beginning of the period and assuming that PFC elected to pay 50% of the interest
payment obligations through December 1, 2000 through the issuance of PIK Notes,
the ratio of EBITDA to cash interest expense would have been 1.40-to-one, and
EBITDA less corporate charges (giving effect to fees payable under the
Management Agreement) to cash interest expense would have been 1.11-to-one, in
each case for the twelve months ended June 30, 1998. Upon commencement of the
requirement that all interest be paid in cash in 2001, the ratio of EBITDA to
cash interest expense on the New Notes is expected to be less than one-to-one
(assuming no offers to repurchase New Notes have been made). Therefore, it is
expected that PFC would not be able to make the cash interest payment in June
2001, which would be an event of default under the Indenture.
If the Exchange Offer is not consummated but the Requisite Consents
are received, the Company intends to file a case under Chapter 11 of the
Bankruptcy Code. If the Exchange Offer is not consummated and the Requisite
Consents are not received, the Company may file a case under Chapter 11 of the
Bankruptcy Code or may continue to attempt to negotiate on restructuring of the
Old Notes. If the Company were to seek confirmation of the Plan, no assurance
can be given that the Plan would meet the requirements for confirmation even if
the Requisite Consents are received and the Old Notes subject to the Consents
are voted to accept the Plan.
At any time after the December 1, 1998 maturity date of the Old Notes,
if PHI has not filed for bankruptcy relief and the Exchange Offer has not been
consummated, it is possible that three or more holders of Old Notes would file
an involuntary petition under the Bankruptcy Code with respect to PFC. If PFC
were to become a debtor in a case under the Bankruptcy Code (whether a case was
commenced voluntarily or involuntarily), it is likely that PHI and SFGC would
file for relief under Chapter 11 of the Bankruptcy Code. The commencement of a
voluntary case under the Bankruptcy Code by SFGC or certain circumstances
related to an involuntary case under the Bankruptcy Code with respect to SFGC
will cause the automatic acceleration of outstanding indebtedness of SFHI, and
SLVC, all of which indebtedness is guaranteed by SFGC. If acceleration were to
occur, SFGC would expect to negotiate with the creditors of SFHI and SLVC
regarding a rescission of the acceleration. However, if the creditors holding
the indebtedness were not to rescind the acceleration, it is likely that SFHI
and SLVC would file for relief under Chapter 11 of the Bankruptcy Code.
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COMPUTERIZED OPERATIONS AND THE YEAR 2000
During recent years, there has been significant global awareness
raised regarding the potential disruption to business operations worldwide
resulting from the inability of current technology to process properly the
change from the year 1999 to 2000. Although, based on a review of its data
processing, operating and other computer-based systems, PHI does not currently
anticipate any material disruption in its operations as a result of any failure
by PHI to achieve year 2000 compliance, there can be no assurance to that
effect.
INFLATION
PHI has been generally successful in recovering costs associated with
inflation through price adjustment in its hotel operations. There can be no
assurance, however, that any future increases in costs associated with casino
operations and maintenance of properties will be recovered by PHI.
RECENTLY ISSUED ACCOUNTING STANDARDS
The American Institute of Certified Public Accountants' Accounting
Standards Executive Committee issued Statement of Position 98-5 "Reporting on
the Costs of Start-Up Activities" ("SOP 98-5"). This standard provides guidance
on the financial reporting for start-up costs and organization costs. This
standard requires costs of start-up activities and organization costs to be
expensed as incurred. This standard is effective for fiscal years beginning
after December 15, 1998, though earlier application is encouraged. Management
does not believe that SOP 98-5 will have a material impact on the presentation
of the Company's consolidated financial statements.
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"), which is effective for fiscal years beginning after December 15,
1997. This statement requires companies to classify items of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a balance sheet. Management does not believe
that SFAS No. 130 will have a material impact on the presentation of the
Company's financial statements.
The FASB issued Statement of Financial Accounting Standard No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("SFAS
No. 131"), which is effective for fiscal years beginning after December 15,
1997. This statement redefines how operating segments are determined and
requires qualitative disclosure of certain financial and descriptive information
about a company's operating segments. The Company will adopt SFAS No. 131 in
the year ending September 30, 1999. Management has not yet completed its
analysis of which operating segments it will report on to comply with SFAS
No. 131.
QUARTERLY FINANCIAL INFORMATION
The table below sets forth unaudited net operating revenues and EBITDA
for PHI for the last eight quarters. This information was derived from PHI's
unaudited financial statements and includes all adjustments that management
considers necessary for a fair presentation of the results for such quarters.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1997 FISCAL 1998
----------- ---------------------------------------------- -----------------------------------
SEPT. 30, DEC. 31, MAR. 31 JUN. 30, SEPT. 30, DEC. 31, MAR. 31 JUNE 30,
1996 1996 1997 1997 1997 1997 1998 1998
---- ---- ---- ---- ---- ---- ---- ----
($ IN MILLIONS)
<S> <S> <C> <C> <C> <C> <C> <C> <C>
Net operating revenues.. $9.9 $9.9 $11.2 $10.6 $9.2 $9.9 $10.4 $10.4
EBITDA.................. 0.9 1.5 2.9 2.0 0.6 1.5 1.4 1.9
</TABLE>
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BUSINESS
GENERAL
The Pioneer, built in 1982, is located in Laughlin, Nevada on the
Colorado River bordering Arizona. Accessible by major interstate highways to
various population centers in the western United States, Laughlin is situated
approximately 90 miles south of Las Vegas, Nevada. PHI has owned and operated
the Pioneer since 1988. The Company's business strategy emphasizes slot and
video poker machine play and table games offering rules and odds that are
favorable compared to the competition.
Gaming operations have been the primary source of revenues for PHI,
accounting for approximately 84.5% of total revenues for the nine-month period
ended June 30, 1998. Hotel and other revenue accounted for approximately 8.3%
of total revenues during the nine-month period. Food and beverage operations,
consisting primarily of a bar, an upscale restaurant, a coffee shop/cafe and a
snack bar, generated approximately 6.1% of total revenues during the nine-month
period.
PHI's gaming operations typically have their highest levels of
business during the winter tourist season, when the Pioneer experiences heavier
tourist traffic. In general, the highest levels of business activity at
Laughlin casinos occurs during the tourist season from October to June of each
year. During summer months, primary visitors to Laughlin are water and
recreational enthusiasts who have a more modest gaming profile.
BUSINESS STRATEGY
PHI's business strategy is to attract and retain regional out-of-town
gaming customers from Southern California and Central Arizona, residents of
Laughlin Nevada, Bullhead City, Kingman and Lake Havasu, Arizona and retirees
who reside in the Northeast and Midwest United States and Canada, and travel to
the Southwest United States during the winter months, by focusing on the
following:
Slot/Video Poker Play. Management believes that many local and repeat
customers seek to maximize their entertainment dollars through "time on device."
Therefore, PHI is committed to providing a high-value gaming experience to its
customers by offering slot and video poker machines with favorable payouts,
which management believes prolongs gaming time.
Table Game Play. Management believes that table game customers also
seek to maximize their entertainment dollars by extending their time at gaming
tables. Management offers table game players single deck blackjack games and
other table games with rules that management believes are favorable compared to
other Laughlin casinos.
Repeat Visitors. Management believes that the Pioneer attracts repeat
out-of-town visitors, in large part as a result of its favorable gaming odds and
extensive database marketing program and service oriented marketing strategy.
The Pioneer provides superior quality restaurants that serve only "from scratch"
menu items including homemade mashed potatoes, homemade baked goods, and premium
grade meats at reasonable prices. The Pioneer utilizes service oriented
marketing strategy that focuses on exceeding customer expectations by
identifying individual player preferences in terms of room type, preferred
liquors, cigarette brands, and types of snacks, and providing those items as
part of custom amenity packages. Management has also designed and implemented
programs that recognize and reward premium players.
DESCRIPTION OF THE PIONEER
THE CASINO AND HOTEL. The Pioneer is located on approximately 12
acres of land, with Colorado River frontage of approximately 770 feet, and is
situated near the center of Laughlin's Casino Drive. Approximately 6 1/2 acres
of the 12 acres are subject to a 99-year ground lease (the "Pioneer Ground
Lease")
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which, by its terms, is scheduled to terminate in December 2078. One of the
three motel buildings together with a portion of both the Pioneer's casino
building and a second motel building are located on land subject to the Pioneer
Ground Lease. The leased land lies between and separates the two parcels of
land that are held in fee.
The Pioneer hotel-casino complex was built in 1982 in a classical
western architectural style. The Pioneer is comprised of four buildings. The
casino is located in the main building, totaling approximately 50,000 square
feet of which approximately 21,500 square feet house the casino. The Pioneer
features 921 slot machines and provides a range of table games, including 13
blackjack ("21") tables, 2 craps tables, 1 roulette wheel and 1 keno game. An
aggregate of 417 motel rooms are housed in the three remaining buildings. The
complex amenities include a special events area, a coffee shop/buffet, two bars,
a snack bar and a gift shop. A partial second floor in the main building houses
a gourmet restaurant, administrative offices and banquet rooms.
Improvements include the main casino building, three motel buildings,
a tennis court and a fenced swimming pool and spa. The main casino building was
built of reinforced concrete block and wood and steel framing in 1982 in a
classical western architectural style. The first floor includes the casino, as
well as a twenty-four hour restaurant, two bars, snack bar, kitchen, gift shop,
smoke shop, restrooms and storage areas. A partial second floor houses a
gourmet restaurant. The three motel buildings were built in 1984 of frame
construction and comprise approximately 66,000; 54,000; and 30,000 square feet,
respectively. The Pioneer property also includes a parking lot with
approximately 1,000 parking spaces.
MARKETING
The Company targets primarily (i) mature, out-of-town customers
residing in Central Arizona and Southern California, (ii) retirees who reside in
the Northeast and Midwest United States and Canada, and travel to the Southwest
United States during the winter months and (iii) local residents who reside in
Laughlin, Nevada and in Bullhead City, Kingman and Lake Havasu, Arizona. As a
result, management's marketing efforts focus on (a) positioning the Pioneer as
an Old Western Saloon and Gambling Hall that caters to a customer who prefers a
gaming/entertainment environment without family style diversions,
(b) advertising its favorable slot and video gaming machines through a campaign
entitled "Nobody Stacks Up Better," (c) conducting promotions and special events
that encourage and reward repeat visitation, (d) utilizing television, radio,
outdoor and print media and (e) extensive database marketing efforts.
The Pioneer is positioned as an Old Western Saloon and Gambling Hall.
The interior of the casino was remodeled in 1997 to better impart this theme.
Employees are dressed in western wear and all interior fixtures and signage
reflect this theme, as does the exterior facade of the casino building. The
symbol of the property is a 60-foot neon sign of a cowboy. This neon sign,
located along the Colorado River is identical to the one on Fremont Street in
downtown Las Vegas. The sign and the likeness of the character is depicted in a
variety of media, and is a registered trademark of PHI.
PHI attempts to attract and retain customers by offering slot and
video poker machine payouts that compare favorably to the competition. A
visible means used by PHI to accomplish this marketing program is to offer what
management believes to be the largest number of quarter video poker machines
with pay tables that have a theoretical pay out percentage of 99.97% or better.
PHI periodically sponsors detailed product research of its competitors to
categorize the number and type of video poker games by payouts and monitors
changes in game products to assist it in maintaining a sustainable competitive
advantage over competing properties. The strategy has been communicated in an
advertising campaign entitled "Nobody Stacks Up Better," which started in April
1998 and which management believes has established the Pioneer as a preferred
location for good value slot and video poker machine gaming in the Laughlin
area. PHI also regularly replaces less performing slot and video poker
equipment to enhance its favorable slot and video poker machine play by offering
players access to state-of-the-art games and devices while retaining popular
older machines.
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The Pioneer has organized a program known as the "Round-Up Club"
established to encourage repeat business from frequent and active slot
customers. As a member of the Round-Up Club uses a slot machine, points
accumulate in the member's account that can be redeemed for free gifts, food and
beverages. Pioneer management also uses the Round-Up Club membership list for
direct mail marketing.
PHI conducts promotions and special events which reward loyal play and
encourages repeat visitation of both local and out-of-town gamblers. In
addition, PHI conducts a number of special events that target players from the
Pioneer's database. These special events include golf tournaments, miniature
golf tournaments, video poker tournaments, slot tournaments, blackjack
tournaments, themed customer appreciation dinners and parties that recognize and
reward loyal customers.
PHI advertises through a variety of media including television, radio,
billboards and print media. In addition, PHI relies on its extensive database,
developed through the Round-Up Club, to communicate to past and existing
customers. The Round-Up Club systems capture a variety of information about
players, including types of games played, length of playing time, guests
residences, hobbies, recreational activities and other information useful for
segmenting customers.
PHI's primary vehicle for communicating with its customers listed on
its database is direct mail. The Company has developed separate newsletters for
its slot and table game players. In addition, the Company mails targeted offers
to various segments of its database to generate incremental visits. These
offers include invitations to special events and tournaments, coupons for
complimentary or discounted dining and cheques redeemable for cash at the
Pioneer.
In addition, PHI's casino hosts build relationships with Round-Up Club
customers through personalized communications via mail and telephone. The
Company's hosts further personalize relationships with guests through a program
in which premium customers receive custom gift baskets, containing players'
favorite liquors, candies, cigarettes and other personalized amenities upon
checking into their hotel rooms at the Pioneer.
LAUGHLIN MARKET
Significant construction of hotel/casino complexes in Laughlin began
in the early 1980's. The Pioneer competes with nine other hotel-casinos and a
Native American hotel-casino located approximately ten miles south of the
Pioneer. Total gaming revenues in the Laughlin market were approximately $485
million for each of the twelve months ended June 30, 1998 and 1997. However,
total gaming revenues in the Laughlin market have declined 10.2% from
approximately $540 million since the twelve month period ended September 30,
1993.
COMPETITION
In addition to competing against the hotel-casinos in Laughlin, the
Pioneer also competes with the hotel-casinos in Las Vegas and those situated on
I-15 (the principal highway between Las Vegas and southern California) near the
California-Nevada state line, as well as a growing number of Native American
casinos in Laughlin's regional market. The Company believes the significant
expansion of hotel and casino capacity in Las Vegas in recent years and the
growth of Native American casinos in Laughlin's central Arizona and southern
California feeder markets have had a negative impact on Laughlin hotel-casinos,
including the Pioneer, by drawing visitors away from the Laughlin market. This
has, in turn, resulted in increased competition among Laughlin hotel-casinos for
a reduced number of visitors, thus contributing to generally lower revenues and
profit margins at Laughlin hotel-casinos, including the Pioneer.
Casino gaming is currently conducted by numerous Native American
tribes throughout the United States and other Native American tribes are either
in the process of establishing or considering the establishment of gaming at
additional locations, including sites in California and Arizona. In August 1998
the California General Assembly, Senate and Governor approved legislation
authorizing gaming operations by Native American tribes
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pursuant to a form of compact executed by the Governor and an Indian tribe. The
November 1998 ballot in California will include a voter initiative which, if
approved by the voters of California, would mandate that the Governor sign
compacts relating to gaming on tribal lands with California tribes upon their
request. The initiative, the passage of which requires an affirmative vote
representing a majority of the votes cast with respect thereto, would also amend
current California law to permit gambling devices, including slot machines,
banked card games and lotteries at tribal casinos. The passage of the
California initiative and the continued growth of gaming in jurisdictions
outside of Nevada is likely to have a material adverse effect on the financial
condition and results of operations of the Pioneer. The Company believes that
the expansion of casino gaming in the areas close to Nevada, such as California
and Arizona, could have an adverse impact on the Pioneer's operations and,
depending on the nature, location and extent of such operations, such impact
could be material.
GAMING SECURITY
The Pioneer employs extensive supervision and accounting procedures to
control the handling of cash in its gaming operations. These measures include
security personnel, closed-circuit television observation of critical areas of
the casino, locked cash boxes, observers, strict sign-in and sign-out procedures
which ensure, to the extent practicable, that gaming chips issued by, and
returned to, the casino cashiers' cages are accurately accounted for, and
procedures for the regular observation of gaming employees. The accounting
department of the Pioneer, which employs persons who have no involvement in the
gaming operations, reviews on a daily basis records compiled by gaming employees
pertaining to cash receipts and credit extensions. Moreover, regular periodic
analysis of the results of PHI's gaming operations, including analysis of PHI's
compliance with the internal control standards established by the Nevada Gaming
Control Board, are performed by PHI to detect significant deviations from
industry standards. Based on the results of these analysis, management believes
that its procedures are in compliance in all material respects with the
requirements established by the Nevada Gaming Authorities.
THE PIONEER GROUND LEASE
Approximately 6-1/2 acres of the 12-acre Pioneer complex are subject
to the Pioneer Ground Lease, a 99-year ground lease expiring in December 2078.
As a result of the Pioneer Ground Lease, the Deed of Trust will be subject and
subordinate to rights of the lessors (collectively, the "Lessor") thereunder.
The parties comprising the Lessor are unrelated to PHI and its affiliates. One
of the three motel buildings, the tennis court and the swimming pool at the
Pioneer, together with a portion of both the Pioneer's casino building and a
second motel building, are located on land subject to the Pioneer Ground Lease.
Moreover, the leased land lies between and separates the two parcels of land
that will be held in fee. Should a default occur under the Pioneer Ground
Lease, the Lessor would have the right to terminate the Pioneer Ground Lease,
PHI would lose possession of the land subject to the Pioneer Ground Lease and
improvements thereon and, accordingly, the Noteholders' security interest in
such lease and improvements would be extinguished, substantially reducing the
value of the collateral securing the New Notes. The termination of the Pioneer
Ground Lease would hinder PHI's ability to operate the Pioneer as a result of
the loss of such improvements. Under the Pioneer Ground Lease, PHI is subject
to a current annual rental obligation of approximately $716,000 ("Basic Rent").
The Basic Rent is subject to annual adjustments based on the Consumer Price
Index. Additionally, on January 15, 2004 (and every ten years thereafter) Basic
Rent will be adjusted (the "Adjusted Rent") to an amount equal to 10% of the
fair market value of the land subject to the Pioneer Ground Lease, on an
unimproved basis. The Adjusted Rent will also be subject to annual Consumer
Price Index modifications.
The Pioneer Ground Lease provides that, in addition to the rental
obligation, PHI is obligated to pay and discharge all taxes, assessments and any
other charges levied upon or assessed against the leased land and all
improvements and other property on the leased land.
Under the Pioneer Ground Lease, PHI is required to obtain the consent
of the Lessor prior to encumbering its leasehold interest by a deed of trust,
mortgage or other security instrument; although PHI expects to obtain such
consent with respect to the Deed of Trust, it has not yet been obtained.
Although the Indenture permits
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PHI, under certain circumstances, to incur additional debt secured by the
Pioneer (see "Description of the New Notes Certain Covenants"), PHI is required
to obtain the Lessor's consent prior to incurring any such additional debt.
Pursuant to the terms of the Pioneer Ground Lease, if any building or
improvement erected by the Lessee on the leased land is damaged or destroyed,
PHI must, at its expense, repair or restore it. Should all of the leased land,
or so much thereof as to prevent or substantially impair the business conducted
thereon, be taken by eminent domain, the Pioneer Ground Lease would terminate
and the New Notes would be subject to mandatory redemption. See "Description of
the New Notes Redemption Complete Taking." If only a portion were to be taken,
the Pioneer Ground Lease would remain in effect as to the remainder of the
leased land at an abated rent. Any compensation or damages awarded for the
taking of any of the leased land would belong to the Lessor; PHI would be
entitled to any award made for the taking of or injury to the Lessee's
improvements, or on account of any cost or loss sustained by PHI in the removal
of PHI's fixtures, equipment or furnishings or as a result of any alterations,
modifications or repairs PHI would have to make in order to make the remaining
portion of the leased land suitable for its continued occupancy.
Upon an event of default thereunder, the Pioneer Ground Lease may be
terminated by the Lessor. Events of default under the Pioneer Ground Lease
include: (i) PHI's failure to pay any rent, tax, assessment, insurance premium
or any other amount to be paid by PHI when due and continuance of such default
for ten days; (ii) PHI's failure to commence or complete the repair or
restoration of the improvements on the leased land within the times and in the
manner provided in the Pioneer Ground Lease and continuance of such default for
30 days after written notice from the Lessor; (iii) PHI's failure to use,
maintain and operate the leased land as required in the Pioneer Ground Lease, or
abandonment of the leased land, and continuance of such default for 30 days
after written notice from the Lessor; and (iv) PHI's breach of any other
covenant, condition or restriction under the Pioneer Ground Lease and
continuance of such default for 30 days after written notice from the Lessor.
In addition, the Lessor has the right to terminate the Pioneer Ground Lease
immediately upon notice to PHI if PHI, without the Lessor's consent, encumbers,
assigns or otherwise transfers the Pioneer Ground Lease, or any rights or
interest thereunder or in or to any of the improvements on the leased land. If
the Lessee is a corporation or a partnership, the transfer, assignment or
hypothecation of more than 50% of its stock or partnership interest is
considered an assignment for such purpose. The Pioneer Ground Lease provides
that PHI must hold the Lessor harmless from any liability for damage or injury
arising from any use of the leased land, any accident, fire or casualty on the
leased land or any act or omission of the Lessee, other than any liability
arising from the Lessor's willful acts or gross negligence.
The Company expects that the Lessor and PHI will enter into an
agreement which will provide, among other things, for the Lessor's (i) approval
of the lien on the Pioneer Ground Lease created by the Deed of Trust in favor of
the Company, (ii) consent to the pledge by the Company of the Mirror Note and
Deed of Trust to the Trustee for the benefit of the New Noteholders,
(iii) approval of the right of the Trustee, on behalf of the New Noteholders, to
remedy events of default under the Pioneer Ground Lease, (iv) approval of the
right of PHI to transfer the Pioneer Ground Lease to the Trustee or another
transferee in a foreclosure sale or in lieu of such foreclosure and (v) waiver
of Lessor's right to terminate the Pioneer Ground Lease in the event of a
transfer of more than 50% of the partnership interests in PHI so long as the
Lessee remains under the control of the "Lowden Family," as defined under
"Description of the New Notes Certain Definitions."
PROPERTY
The property is located on approximately 12 acres of land, with
Colorado River frontage of approximately 770 feet. The Pioneer is situated near
the center of Laughlin's Casino Drive. The property lies 40 to 50 feet above
the river's main water level.
Approximately 6.5 acres of the approximately 12-acre Pioneer complex
are subject to the Pioneer Ground Lease, which, by its terms, is scheduled to
terminate in December 2078. One of the three motel buildings at
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the Pioneer together with a portion of both the Pioneer's casino building and a
second motel building, are located on land subject to the Pioneer Ground Lease.
Moreover, the leased land lies between and separates the two parcels of land
that will be held in fee.
EMPLOYEES
At September 30, 1998, the Pioneer employed 732 persons.
SANTA FE GAMING CORPORATION
SFGC's primary business operations are currently conducted through two
wholly owned subsidiary corporations, SFHI and 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. In addition, SFGC, through its indirect
wholly owned subsidiary, SLVC, owns real estate parcels on Las Vegas Boulevard
and in Henderson, Nevada, for future development opportunities. The principal
executive office of SFGC is located at 4949 N. Rancho Dr., Las Vegas, Nevada
89130 and the telephone number is (702) 658-4300.
Set forth below is a description of the Santa Fe and SFGC's
properties.
THE SANTA FE
The Santa Fe is located on a 40-acre site in the northwest part of Las
Vegas, approximately nine miles from the north end of the Las Vegas Strip. The
targeted customers are residents of northwest Las Vegas and, to a lesser extent,
residents of the entire Las Vegas Valley.
The Santa Fe features 200 standard hotel rooms, an 85,000 square foot
casino, an ice skating arena, a 60-lane bowling center, three themed
restaurants, a dedicated bingo room, a race book and other public areas.
Additionally, the Santa Fe includes a coffee shop, buffet, five full service
bars and a lounge area that features live entertainment.
The Santa Fe features 1,615 slot machines and provides a range of
table games, including 18 blackjack ("21") tables, 2 craps tables, 2 roulette
wheels and 1 keno game.
The primary source of revenues to SFHI is gaming, which represented
79.3%, 78.6% and 61.4% in 1997, 1996 and 1995, respectively, of total revenues
in the respective fiscal years, and 79.6% of total revenues for the nine months
ended June 30, 1998.
The Santa Fe's target market is primarily the residents of northwest
Las Vegas, visitors to the local area, local businesses, and hockey and bowling
leagues. The Santa Fe emphasizes its convenient location, the southwestern
theme and its broad range of amenities, including a 60 lane bowling center and
an ice skating arena. The occupancy rate at the Santa Fe for the last three
fiscal years was 84.6% in fiscal 1997, 93.0% in fiscal 1996, and 96.0% in fiscal
1995.
The Santa Fe has an automated player tracking system, the "Desert
Fortune Player Club", which was established to encourage repeat business from
frequent and active slot and bingo customers. The Desert Fortune Player Club
offers members points for slot machine and bingo play, which can be redeemed for
cash as well as food, beverage, and rooms at the Santa Fe. The automated player
tracking system used for the Desert Fortune Player Club is designed to allow the
Santa Fe to more precisely track play, more efficiently reward frequent
players, and to enhance management's ability to better market directly to
different segments of the Santa Fe customer base.
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At September 30, 1998, SFGC employed 24 administrative personnel and
the Santa Fe employed 1,194.
SFHI is negotiating with the Teamsters, Operating Engineers, Culinary
and Bartenders unions ("Unions") with respect to a collective bargaining
agreement covering certain employees at the Santa Fe. If negotiations result in
an agreement between SFHI and the Unions, operating expenses may increase. In
the event negotiations fail to result in an agreement, the Unions may call a
strike, which would result in operating revenues being adversely affected. In
either event, there could be a material adverse effect on the results of
operations and financial condition of the Santa Fe and SFGC.
The Santa Fe continues to be the target of a union boycott in which
the unions ask that the public not patronize the properties. Management is
unable to determine the impact, if any, of the union boycott.
COMPETITION
In Las Vegas, Nevada, hotels and gambling casinos compete primarily in
three areas: on or near the Las Vegas Strip; within downtown Las Vegas, and in
the locals market. The Strip and downtown properties have a predominant target
market of out of town visitors, while local properties generally target
residents of the Las Vegas Valley. The Santa Fe targets and competes for the
residents of northwest Las Vegas, a growing residential community, and, to a
lesser extent, the residents of the entire Las Vegas Valley, emphasizing its
convenient location, the southwestern theme and its broad range of amenities.
There has been significant growth in the number of facilities throughout the Las
Vegas Valley catering to the local population, including several facilities
within five miles of the Santa Fe in North Las Vegas, resulting in increased
competition among the locals facilities.
DEVELOPMENT OPPORTUNITIES
HENDERSON, NEVADA. SFGC owns, through an indirect wholly owned
subsidiary, an approximately 39 acre parcel of real property in Henderson,
Nevada, located in the southeast Las Vegas Valley. SFGC is evaluating the
potential development of a hotel/casino and entertainment complex on this
property. SFGC has completed preliminary engineering and architectural
drawings. Any future development is subject to, among other things , SFGC's
ability to obtain necessary financing. No assurance can be given that SFGC will
obtain development financing or develop successfully the Henderson property.
In June 1997, the Nevada legislature adopted Senate Bill 208 ("SB
208") which is intended to impose stricter requirements with respect to
developing resort hotels within Clark County, Nevada, before gaming licenses can
be granted. Under SB 208, the stricter requirements will not be applicable to
SFGC's proposed development of the Henderson, Nevada project provided (i) the
project has received all approvals for land use for the proposed project from
the local governing body on or before December 31, 1998, and such approvals
remain unexpired on that date, and (ii) the Nevada Gaming Commission approves a
nonrestricted gaming license for the project on or before December 31, 2002. If
such approvals and/or licenses are not obtained by such date, the designation
given to the Henderson property by the City of Henderson as being within a
gaming enterprise district would expire. In order to obtain a gaming license
after the designation as a gaming enterprise district has expired, SFGC would
have to petition the City of Henderson to designate the Henderson property as a
gaming enterprise district pursuant to more stringent standards. Notices of
hearings on the petition would have to be served on all property owners and
advisory boards representing property owners within 2,500 feet of the property
line of the Henderson property. All interested parties would be allowed to be
heard at any hearing on the petition. As the petitioner, SFGC would have to
prove several land use type factors have been met by clear and convincing
evidence. Approval of the petition would also require a three-fourths vote from
the governing body of the City of Henderson. If the petition is granted, it may
be appealed by an aggrieved person to the Gaming Policy Committee (the
"Committee") which is made up of the Governor and ten members who sit either by
virtue of their office within State government or as Governor appointees. The
Committee has the right to reverse the decision of the City of Henderson.
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LAS VEGAS, NEVADA. SFGC owns, through an indirect wholly owned
subsidiary, an approximately 27-acre parcel of real property on the Las Vegas
Strip, which may be used for possible future development. In connection with
the acquisition of the property, SFGC assumed an operating lease under which a
water theme park operates, which may be terminated, at any time, by SFGC;
however, if it is terminated prior to 2004, SFGC has agreed to pay a loan owed
by the tenant to the prior owner. Any future development of the property is
subject to, among other things, SFGC's ability to obtain necessary financing.
No assurance can be given that SFGC will obtain development financing or develop
successfully the Las Vegas Strip property.
LEGAL PROCEEDINGS
POULOS V. CAESAR'S WORLD, INC., ET AL. AND AHERN V. CAESAR'S WORLD,
INC., ET AL. SFGC and its predecessor, Sahara Casino Partners, L.P. are
defendants in three class action lawsuits filed in the United States District
Court of Florida, Orlando Division, entitled POULOS V. CAESAR'S WORLD, INC., ET
AL., AHERN V. CAESAR'S WORLD, INC., ET AL. and SCHRIER V. CAESAR'S WORLD, INC.,
ET AL, which have been consolidated in a single action. Also named as
defendants in these actions are many, if not most, of the largest gaming
companies in the United States and certain gaming equipment manufacturers. Each
complaint is identical in its material allegations. The actions allege that the
defendants have engaged in fraudulent and misleading conduct by inducing people
to play video poker machines and electronic slot machines based on false beliefs
concerning how the machines operate and the extent to which there is actually an
opportunity to win on a given play. The complaints allege that the defendants'
acts constitute violations of the Racketeer Influenced and Corrupt Organizations
Act ("RICO") and also give rise to claims for common law fraud and unjust
enrichment, and it seeks compensatory, special consequential, incidental and
punitive damages of several billion dollars.
In response to the complaints, all of the defendants, including SFGC
and the Partnership, filed motions attacking the pleadings for failure to state
a claim, seeking to dismiss the complaints for lack of personal jurisdiction and
venue. As a result of those motions, the Court has required the Plaintiffs in
the four consolidated cases to file a single consolidated amended complaint.
Subsequent to Plaintiff's filing of their consolidated amended complaint, the
defendants refiled numerous motions attacking the amended complaint upon many of
the same bases as their prior motions. The Court heard the arguments on eight
of those motions on November 3, 1997, and has taken them under advisement. The
Court has not indicated when it will render its decision on those motions.
TREASURE BAY SECURITIES LITIGATION. On December 12, 1994, the Company
and SFHI filed a lawsuit in the United States District Court, District of
Nevada, naming Treasure Bay officers A. Clay Rankin III, Joe N. Hendrix and
Bernie Burkholder, and former officer Francis L. Miller as defendants in matters
involving violations of Section 10(b) and Rule 10(b)-5 of the Securities
Exchange Act, violation of Nevada state securities laws, fraud and negligent
misrepresentation in connection with the Company's investment of $10 million in
exchange for a 20% interest in Treasure Bay, and the Company's guarantee of $4.5
million of Treasure Bay's indebtedness. The defendants have filed answers to the
complaint and discovery is continuing.
On December 15, 1994, Francis L. Miller filed a lawsuit in the
Mississippi Circuit Court, Second Judicial District, against the Company and
SFHI, as well as Paul W. Lowden and Suzanne Lowden, alleging, among other
things, that the Company made certain misrepresentations which induced Francis
Miller to entrust the management of his investments in Treasure Bay's two
Mississippi casinos to the Company and SFHI and to sell the Company and SFHI a
20% ownership interest in Treasure Bay. The lawsuit was subsequently amended to
remove Suzanne Lowden as a defendant. The Company and SFHI filed a successful
motion to transfer this case to the United States District Court in Nevada.
The United States District Court in Nevada dismissed the Francis L.
Miller lawsuit as originally filed in Mississippi Circuit Court. The Court
permitted Mr. Miller to file the claims that he asserted in the dismissed action
as counterclaims to the lawsuit filed by the Company against Mr. Miller et al.
on December 12, 1994 in the United States District Court, District of Nevada.
The effect of this court initiated action was to combine the two
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lawsuits. The parties to the combined litigation are currently engaged in
discovery. The discovery process is expected to last several months.
SFGC, the Company and PHI are subject to various lawsuits relating to
routine matters incidental to its business. The Company does not believe that
the outcome of such litigation, in the aggregate, will have a material adverse
effect on the financial condition of PHI financial statements.
NEVADA REGULATIONS AND LICENSING
SFGC, PHI and SFHI (collectively, the "Santa Fe Group") are subject to
extensive state and local regulation by the Nevada Gaming Authorities.
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities seek (i) to prevent unsavory or unsuitable persons from having any
direct or indirect involvement with gaming at any time or in any capacity, (ii)
to establish and maintain responsible accounting practices and procedures, (iii)
to maintain effective control over the financial practices of licensees,
including establishing minimum procedures for internal fiscal affairs and the
safeguarding of assets and revenues, providing reliable record-keeping, and
making periodic reports to the Nevada Gaming Authorities, (iv) to prevent
cheating and fraudulent practices, and (v) to provide a source of state and
local revenues through taxation and licensing fees. Changes in such laws,
regulations and procedures could have an adverse effect on any or all of the
members of the Santa Fe Group. Management believes the Santa Fe Group is in
compliance with regulations promulgated by the Nevada Gaming Authorities.
LICENSING AND REGISTRATION. PHI and SFHI hold Nevada State gaming
licenses to operate the Pioneer and the Santa Fe. SFCG has been approved by the
Nevada Gaming Authorities to own, directly or indirectly, a beneficial interest
in PHI and SFHI (the "Gaming Licensees").
The licenses held by members of the Santa Fe Group are not
transferable. Each issuing agency may at any time revoke, suspend, condition,
limit or restrict licenses or approvals to own a beneficial interest in a Gaming
Licensee for any cause deemed reasonable by such agency. Any failure to retain a
valid license or approval would have a material adverse effect on all members of
the Santa Fe Group.
If it is determined that PHI, the Gaming Licensee or, when applicable,
new members of the Santa Fe Group, have violated the Nevada laws or regulations
relating to gaming, the Gaming Licensees or, when applicable, new members of the
Santa Fe Group, could, under certain circumstances, be fined and the licenses of
the Gaming Licensees or, when applicable, new members of the Santa Fe Group,
could also be limited, conditioned, revoked or suspended. A violation under any
of the licenses held by SFGC, or any of the Gaming Licensees or, when
applicable, new members of the Santa Fe Group, may be deemed a violation of all
the other licenses held by SFGC and each of the Gaming Licensees or, when
applicable, new members of the Santa Fe Group. If the Nevada Commission does
petition for a supervisor to manage the affected casino and hotel facilities,
the suspended or former licensees shall not receive any earnings of the gaming
establishment until approved by the court, and after deductions for the costs of
the supervisor's operation and expenses and amounts necessary to establish a
reserve fund to facilitate continued operation in light of any pending
litigation, disputed claims, taxes, fees, and other contingencies known to the
supervisor which may require payment. The supervisor is authorized to offer the
gaming establishment for sale if requested by the suspended or former licensee,
or without such a request after six months after the date the license was
suspended, revoked, or not renewed.
INDIVIDUAL LICENSING. Stockholders, directors, officers and certain
key employees of corporate licensees must be licensed by the Nevada Gaming
Authorities. An application for licensing of an individual may be denied for
any cause deemed reasonable by the issuing agency. Changes in licensed
positions must be reported to Nevada Gaming Authorities. In addition to its
authority to deny an application for an individual license, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in corporate position. If
the Nevada Gaming Authorities were to find any such person unsuitable for
licensing or unsuitable to continue having a relationship
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with a corporate licensee, such licensee would have to suspend, dismiss and
sever all relationships with such person. Such corporate licensee would have
similar obligations with regard to any person who refuses to file appropriate
applications, who is denied licensing following the filing of an application or
whose license is revoked. Each gaming employee must obtain a work permit which
may be revoked upon the occurrence of certain specified events.
Any individual who is found to have a material relationship or a
material involvement with a gaming licensee may be required to be investigated
in order to be found suitable or to be licensed. The finding of suitability is
comparable to licensing and requires submission of detailed financial
information and a full investigation. Key employees, controlling persons or
others who exercise significant influence upon the management or affairs of a
gaming licensee may be deemed to have such a relationship or involvement.
Beneficial owners of more than 10% of the voting securities of a
corporation registered with the Nevada Gaming Authorities that is "publicly
traded" (a "Registered Entity") must be found suitable by the Nevada Gaming
Authorities, and any person who acquires more than 5% of the voting securities
or partner interests, as the case may be, of a Registered Entity must report the
acquisition to the Nevada Gaming Authorities in a filing similar to the
beneficial ownership filings required by the Federal securities laws. Under
certain circumstances an institutional investor, as such term is defined in the
Nevada Act, that acquires more than 10% of SFGC's voting securities may apply to
the Nevada Gaming Commission for a waiver of such finding of suitability
requirement. If the stockholder who must be found suitable is a corporation,
partnership or trust, it must submit detailed business and financial information
including a list of beneficial owners.
Any beneficial owner of equity or debt securities of a Registered
Entity (whether or not a controlling stockholder) may be required to be found
suitable if the relevant Nevada Gaming Authorities have reason to believe that
such ownership would be inconsistent with the declared policy of the State of
Nevada. If the beneficial owner who must be found suitable is a corporation,
partnership or trust, it must submit detailed business and financial
information, including a list of its securities. In addition, the Clark County
Liquor and Gaming Licensing Board has taken the position that it has the
authority to approve all persons owning or controlling more than 2% of the stock
or partner interests of a Registered Entity, including a gaming licensee or
otherwise, or of any corporation, partnership or person controlling such an
entity. The applicant is required to pay all costs of investigation.
Any stockholder found unsuitable and who beneficially owns, directly
or indirectly, any securities or partner interests of a Registered Entity beyond
such period of time as may be prescribed by the Nevada Gaming Authorities may be
guilty of a gross misdemeanor. Any person who fails or refuses to apply for a
finding of suitability or a license within 30 days after being ordered to do so
may be found unsuitable. A Registered Entity is subject to disciplinary action
if, after it receives notice that a person is unsuitable to be a securityholder
or partner, as the case may be, or to have any other relationship with it, such
Registered Entity (a) pays the unsuitable person any dividends or property upon
any voting securities or partner interests or makes any payments or
distributions of any kind whatsoever to such person, (b) recognizes the
exercise, directly or indirectly, of any voting rights in its securities or
partner interests by the unsuitable person, (c) pays the unsuitable person any
remuneration in any form for services rendered or otherwise, except in certain
and specific circumstances or (d) fails to pursue all lawful efforts to require
the unsuitable person to divest himself of his voting securities, including, if
necessary, the immediate purchase of the voting securities for cash at fair
market value.
Registered Entities are required to maintain current stock ledgers, as
the case may be, in the State of Nevada that may be examined by the Nevada
Gaming Authorities at any time. If any securities or partner interests are held
in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make such disclosure may be grounds for finding the record owner
unsuitable. Record owners are required to conform to all applicable rules and
regulations of the Nevada Gaming Authorities. Licensees also are required to
render maximum assistance in determining the identity of a beneficial owner.
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The Nevada Gaming Authorities have the power to require that
certificates representing voting securities of a corporate licensee bear a
legend to the general effect that such voting securities or partner interests
are subject to the Nevada Act. The Nevada Gaming Authorities, through the power
to regulate licensees, have the power to impose additional restrictions on the
holders of such voting securities at any time.
FINANCIAL RESPONSIBILITY. Each of SFGC and the Gaming Licensees is
required to submit detailed financial and operating reports to the Nevada Gaming
Authorities. Substantially all loans, leases, sales of securities and other
financial transactions entered into by SFGC or the Gaming Licensees must be
reported to and, in some cases, approved by the Nevada Gaming Authorities.
CERTAIN TRANSACTIONS. None of the Santa Fe Group may make a public
offering of its securities without the prior approval of the Nevada Commission
if the proceeds therefrom are intended to be used to construct, acquire or
finance gaming facilities in Nevada, or retire or extend obligations incurred
for such purposes. Such approval, if given, will not constitute a
recommendation or approval of the investment merits of the securities offered.
Any public offering requires the approval of the Nevada Commission.
Changes in control of SFGC through merger, consolidation, acquisition
of assets, management or consulting agreements or any form of takeover cannot
occur without the prior investigation of the Nevada Board and approval of the
Nevada Commission. The Nevada Commission may require controlling stockholders,
partners, officers, directors and other persons having a material relationship
or involvement, to be licensed.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and other corporate
defense tactics that affect corporate gaming licensees in Nevada, and
corporations whose securities are publicly traded that are affiliated with those
operations, may be injurious to stable and productive corporate gaming. The
Nevada Commission has established a regulatory scheme to ameliorate the
potentially adverse effects of these business practices upon Nevada's gaming
industry and to further Nevada's policy to (i) assure the financial stability of
corporate or partnership gaming operators and their affiliates; (ii) preserve
the beneficial aspects of conducting business in the corporate form; and (iii)
promote a neutral environment for the orderly governance of corporate or
partnership affairs. Approvals are, in certain circumstances, required from the
Nevada Commission before SFGC can make exceptional repurchases of voting
securities above the current market price thereof (commonly referred to as
"greenmail") and before an acquisition opposed by management can be consummated.
Nevada's gaming regulations also require prior approval by the Nevada Commission
if SFGC were to adopt a plan of recapitalization proposed by SFGC's Board of
Directors in opposition to a tender offer made directly to the stockholders for
the purpose of acquiring control of SFGC.
MISCELLANEOUS. Pursuant to recent changes in Nevada law, the Santa Fe
Group, and their affiliates, may engage in gaming activities outside the State
of Nevada without seeking the approval of the Nevada Gaming Authorities provided
that such activities are lawful in the jurisdiction where they are to be
conducted and that certain information regarding the foreign operation is
provided to the Nevada Board on a periodic basis. SFGC and its Nevada-based
affiliates may be disciplined by the Nevada Commission if any of them violates
any laws of the foreign jurisdiction pertaining to the foreign gaming operation,
fails to conduct the foreign gaming operation in accordance with the standards
of honesty and integrity required of Nevada gaming operations, engages in
activities that are harmful to the State of Nevada or its ability to collect
gaming taxes and fees, or employs a person in the foreign operation who had been
denied a license or finding of suitability in Nevada on the ground of personal
unsuitability.
License fees and taxes, computed in various ways depending on the type
of gaming involved, are payable to the State of Nevada and to the counties and
cities in which SFGC and the Gaming Licensees' respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross gaming revenues received by the casino
operation; (ii) the number of slot machines operated by the casino; or (iii) the
number of table games
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operated by the casino. A casino entertainment tax is also paid by the licensee
where entertainment is furnished in connection with the selling of food or
refreshments.
Finally, the Nevada Gaming Authorities may require that lenders to
licensees, including each holder of Notes, be investigated to determine if they
are suitable and, if found unsuitable, may require that they dispose of their
loans (including the New Notes).
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MANAGEMENT
The following table sets forth information regarding the directors,
executive officers and other key personnel of each of the Company, PHI and/or
SFGC:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH SFGC, PFC AND PHI
---- --- -------------------------------
<S> <C> <C>
Paul W. Lowden 54 Chairman of the Board and President of the
Company and PHI and Chairman of the Board,
President and Chief Executive Officer of SFGC
Thomas K. Land 38 Director, Senior Vice President and Chief
Financial Officer of the Company, PHI and
SFGC
William J. Raggio 71 Director, Executive Vice President, Secretary
and Corporate Counsel of the Company, PHI and
SFGC
Suzanne Lowden 46 Director of the Company and PHI and Director
and Executive Vice President and Director of
SFGC
Christopher W. Lowden 33 Executive Vice President of Operations of
SFGC
James W. Lewis(1)(2) 71 Director of the Company, PHI and SFGC
John W. Delaney(1)(2) 50 Director of the Company, PHI and SFGC
Andre J. Carrier 28 Vice President of Administration of SFGC
Andrew M. Klebanow 44 Vice President of Marketing of SFGC
Clifford Holder 42 Director of Corporate Security and
Surveillance of SFGC
</TABLE>
- --------------------
(1) Member of the Compensation Committee of the Board of Directors of SFGC.
(2) Member of the Audit Committee of the Board of Directors of SFGC.
The present position with the Company, PHI and/or SFGC and principal
occupation during the past five years of the directors, executive officers and
other key personnel named above are set forth below:
PAUL W. LOWDEN
Paul Lowden has served as Chairman of the Board and Chief Executive
Officer of the Company and Chairman of the Board, President and Chief Executive
Officer of SFGC since their respective formation. Mr. Lowden was also Chairman
of the Board, President and Chief Executive Officer of SFGC's predecessor,
Sahara Resorts, from 1982 through September 1993. Mr. Lowden is married to
Suzanne Lowden and is Christopher Lowden's father.
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THOMAS K. LAND
Thomas K. Land has served as Senior Vice President and Corporate
Controller of each of the Company and SFGC since February 1994, and was elected
Chief Financial Officer of the Company and SFGC in July 1994. Mr. Land was
appointed to the Board of Directors of each of the Company and SFGC in
December 1995. Prior to joining the Company, Mr. Land was the Chief Financial
Officer of a construction company, where he was employed from 1990 through
February 1994. Mr. Land is a certified public accountant in the State of
Pennsylvania.
WILLIAM J. RAGGIO
William J. Raggio has served as a Director, Vice President, Secretary
and Corporate Counsel of the Company and SFGC since their respective formation.
Previously, Mr. Raggio held the same positions with Sahara Resorts since 1982.
Mr. Raggio is a senior partner of the law firm of Jones Vargas of Reno, Nevada,
general counsel to the Company. Since 1972 he has been a Nevada State Senator.
Mr. Raggio is also a director of Sierra Health Services, Inc., a Nevada
corporation.
SUZANNE LOWDEN
Suzanne Lowden has served as a Director and President of the Company
since its formation, has served as a Director and Executive Vice President of
SFGC since its formation and had served as a Director of Sahara Resorts since
1987. Mrs. Lowden was elected Vice President of Sahara Resorts in July 1992.
She is also a founding board member of Commercial Bank of Nevada. Mrs. Lowden
served as a Nevada State Senator from November 1992 through 1996. She worked
for the CBS affiliate in Las Vegas from 1977 to 1987 as an anchorwoman,
reporter, writer and producer of television news. Mrs. Lowden is married to
Paul W. Lowden.
CHRISTOPHER W. LOWDEN
Christopher W. Lowden has served as Executive Vice President of
Operations of SFGC since February 1996. Mr. Lowden served as President of
Sahara Development Group from August 1993 through February 1996. From 1989
until August 1993 he was General Manager of the Company's hotel-casino in
Laughlin, Nevada, the Pioneer Hotel and Gambling Hall. Christopher Lowden is
the son of Paul Lowden.
JAMES W. LEWIS
James W. Lewis has served as a Director of the Company and SFGC since
their respective formation. Mr. Lewis served as a Director of Sahara Resorts
from 1983 to September 1993. Mr. Lewis is associated with the Corporate Finance
Department of Westamerica Investment Group and has prior associations with F.L.
Bryant & Co., Inc., Van Kasper & Co. and Bateman Eichler, Hill Richards,
Incorporated.
JOHN W. DELANEY
John W. Delaney has served as a Director of the Company and SFGC since
January 1997, when he was appointed to fill vacancies on the Board of Directors
of each of the Company and SFGC. He was elected to his current term in
February 1997. Mr. Delaney is currently President and Chief Executive Officer
of Cityfed Mortgage Co., a mortgage banking firm, where he has been employed
since 1978.
ANDRE J. CARRIER
Andre J. Carrier has served as Vice President of Administration of
SFGC since 1994. From 1993 to 1994, Mr. Carrier served as Vice President of
Sahara Development Group. Mr. Carrier is a graduate of Cornell University's
School of Hotel Administration.
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ANDREW M. KLEBANOW
Andrew M. Klebanow has served as Vice President of Marketing of SFGC
since 1996. In such position, Mr. Klebanow directs all marketing efforts for
the Company, including market planning, market research, advertising, promotions
and database marketing. From 1991 to 1993, Mr. Klebanow was Director of
Marketing at the Hacienda Hotel and Casino. Mr. Klebanow earned his master's
degree from Cornell University's School of Hotel Administration.
CLIFFORD HOLDER
Clifford Holder has served as the Director of Corporate Security and
Surveillance of SFGC since December 1988.
MANAGEMENT AGREEMENT
SFGC currently allocates administrative and operating expenses among
its subsidiaries on a pro rata basis. Corporate charges allocated to PHI were
$363,000, $500,000, $594,000, $977,000 and $930,000 for the fiscal years ended
1993, 1994, 1995, 1996 and 1997, respectively, and $655,000 and $837,000 in the
nine months ended June 30, 1997 and 1998, respectively. Concurrently with the
consummation of the Exchange Offer or Solicitation, SFGC and PHI will enter into
a Management Agreement (the "Management Agreement").
Pursuant to the Management Agreement, SFGC will provide certain
management services (the "Management Services") to PHI, including (i) executive
services, including review and evaluation of PHI's results of operations and
development of appropriate strategies, programs and long-range plans designed to
improve such results, (ii) financial services, including financial planning,
budget supervision, development of standards and procedures for internal audits
and retention and evaluation of independent auditors, (iii) data processing
services, (iv) legal services, including rendering legal advice and retention
and evaluation of outside legal counsel, (v) marketing services, (vi) tax
planning and compliance services, including federal and state tax return
preparation and review, (vii) site selection services, including evaluation of
and consultation on the selection of prospective sites for new projects and
negotiations of real property acquisitions and (viii) administrative services,
including supervision of personnel matters, development and implementation of
appropriate employee benefit plans, evaluation and acquisition of insurance
policies, establishment of standards and policies related to all insurance and
insurance-related matters and development of standards and policies related to
safety programs and supervision of such programs. In addition, SFGC will grant
the Company a license (the "License"), pursuant to which PHI will be permitted
to use each of SFGC's trademarks, servicemarks, tradenames and logos in the
operation of PHI's business.
In consideration for SFGC's agreement to provide Management Services
and grant the License PHI shall pay to SFGC:
(a) a fixed fee (the "Fixed Fee") of $100,000 per month (pro rated
for partial months); and
(b) a variable fee (the "Variable Fee" and, together with the Fixed
Fee, the "Management Fees") for each full quarter year following the date of
consummation of the Exchange Offer or Solicitation, as the case may be, in the
amount of 10% of EBITDA for such fiscal year in excess of EBITDA for the same
quarter from the prior year.
PHI will pay the Fixed Fee on a monthly basis, not later than 10 days
after the end of each month, and any Variable Fee not later than 45 days after
the end of each fiscal quarter; PROVIDED, that during the occurrence and
continuance of a Default or an Event of Default, PHI will not pay and SFGC will
not be entitled to receive or retain any Variable Fees.
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Pursuant to the Management Agreement, SFGC will bear the cost of the
acquisition and maintenance of any capital equipment necessary to perform the
Management Services. SFGC will also bear the expense of all salaries, bonuses
and other compensation to be paid to personnel it engages to render the
Management Services. All such persons will be deemed to be officers, employees,
agents or contractors of SFGC; however, to the extent any such person must be
licensed or approved by the Nevada Gaming Authorities, PHI will bear the expense
of obtaining such regulatory approvals.
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EXECUTIVE COMPENSATION
Set forth below is information concerning the annual and long-term
compensation for services in all capacities to SFGC for the fiscal years ended
September 30, 1997, 1996 and 1995 of (i) SFGC's Chief Executive Officer during
the fiscal year ended September 30, 1997 and (ii) as of September 30, 1997, each
other executive officer of SFGC whose total annual salary and bonus exceeded
$100,000 (the "Named Executive Officers"). SFGC currently allocates the
compensation expenses reflected below, as well as other administrative and
operating expenses, among its subsidiaries (including the PHI) on a pro rata
basis. Upon consummation of the Exchange Offer, PHI and SFGC expect to enter
into a management agreement pursuant to which PHI will pay SFGC specified fees
for certain management services. See "Management Management Agreement."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------------------------
AWARDS PAYOUT
------------------------- ---------------------------
ANNUAL COMPENSATION SECURITIES UNDERLYING
------------------- RESTRICTED OPTIONS LTIP
------------------------- --------
OTHER ALL
ANNUAL COMPEN- STOCK OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS SATION AWARDS SARS PAYOUT COMPENSATION
POSITION YEAR ($) ($)(1) ($)(2) ($) (#) ($) ($)(3)
- ------------------------- -------- ----------- ---------- ---------- ------------- ---------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul W. Lowden 1997 $550,000 $200,000 -- $0 0 $0 $41,595
President, Chairman of 1996 503,269 200,000 -- 0 0 0 16,958
the Board and CEO 1995 314,598 0 -- 0 0 0 4,620
Thomas K. Land 1997 138,704 10,000 -- 0 0 0 2,250
Senior Vice President 1996 130,000 10,000 -- 0 0 0 2,469
and Chief Financial 1995 112,365 10,000 -- 0 0 0 300
Officer
</TABLE>
- --------------
(1) See "Certain Compensation Arrangements."
(2) SFGC provides automobiles to its senior executives and provides such
persons complimentary privileges at the restaurants and bars of SFGC's
hotel-casinos. It is impractical to ascertain the extent to which such
privileges are utilized for personal rather than business purposes.
However, after reasonable inquiry SFGC believes the value of any such
personal benefits is less than 25% of the compensation for each person
reported above.
(3) "All Other Compensation" in fiscal 1997 consists of payments of life
insurance premiums by SFGC in the amounts of $40,324 and $1,805 for
Messrs. Lowden and Land, respectively, and SFGC-matching contributions to
the Retirement Savings 401(k) Plan in the amounts of $1,275 and $445 for
Messrs. Lowden and Land, respectively. "All Other Compensation" in fiscal
1996 and 1995 consists of SFGC-matching contributions to the Retirement
Savings 401(k) Plan.
CERTAIN COMPENSATION ARRANGEMENTS
In January 1998, the Compensation Committee of the Board of Directors
of SFGC approved a fee payable to Mr. Paul Lowden in the amount of $100,000 in
connection with personal guarantees issued by Mr. Lowden for certain financing
arrangements. Furthermore, Mr. Lowden received a bonus in the amount of
approximately $600,000 in January 1998 (the "Fiscal Year 1998 Bonus"), pursuant
to a compensation arrangement approved by the Compensation Committee in January
1996 and accrued in fiscal 1995 in connection with SFGC's sale of the Hacienda
Resort Hotel and Sahara Hotel and Casino in 1995. In accordance with that
arrangement, to the extent that Mr. Lowden (or any entity wholly-owned by
Mr. Lowden) had any outstanding loans from, or receivables to, SFGC at the time
the Fiscal Year 1998 Bonus was paid, such bonus was to be first satisfied by an
offset against any such indebtedness. In January 1998, SFGC offset a loan due
from an entity wholly-owned by Mr. Lowden, in part with application of the
Fiscal Year 1998 Bonus and in part by the amounts due to Mr. Lowden for the
personal guarantees issued in connection with certain financing transactions.
See "Certain Transactions."
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<PAGE>
Additionally, during the current fiscal year, options to purchase 279,510 shares
of SFGC common stock were granted to Mr. Lowden.
SFGC and Thomas K. Land, Senior Vice President and Chief Financial
Officer of the Company and SFGC, are parties to an employment agreement for a
one year term commencing on October 1, 1998 and terminating on September 30,
1999. Pursuant to the agreement, Mr. Land is entitled to a minimum annual base
salary of $185,000. The agreement also provides that Mr. Land may participate
in any employee benefit plans, including bonus plans, of SFGC. Additionally,
during the fiscal year ended September 30, 1998, options to purchase 55,675
shares of SFGC common stock were granted to Mr. Land.
COMPENSATION OF DIRECTORS
Directors who are not employees of SFGC or its affiliates receive
$24,000 annually and $1,000 per Board meeting attended, $800 per Committee
meeting attended as a member and $900 per Committee meeting attended as
Chairman.
Additionally, upon first being elected to the Board of Directors of
SFGC, each non-employee director receives options to purchase 12,500 shares of
Common Stock of SFGC at an exercise price equal to the fair market value of the
Common Stock on the date of grant. Such options are fully vested at the date of
grant.
Directors of SFGC do not receive separate compensation for serving as
directors of the Company.
COMPENSATION COMMITTEE MEMBERS; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
Members of the Compensation Committee of the Board of Directors of
SFGC, James W. Lewis and John W. Delaney, determine compensation arrangements
for the Company's executive officers. Neither Mr. Lewis nor Mr. Delaney has
been an officer of SFGC or any of its subsidiaries and has no other
"interlocking" relationship with Company executives.
STOCK INCENTIVE PLAN
PHI has adopted a stock incentive plan (the "Stock Incentive Plan").
The Stock Incentive Plan provides for the grant of options or stock appreciation
rights with respect to an aggregate of up to 10% of the outstanding shares of
PHI common stock to employees, non-employee directors, consultants or affiliates
of PHI. The purpose of the Stock Incentive Plan is to enable PHI to attract,
retain and motivate their employees, non-employee directors, consultants and
affiliates by providing for or increasing the proprietary interest of such
persons.
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<PAGE>
PRINCIPAL STOCKHOLDERS
SFGC owns all of the outstanding capital stock of the Company and of
PHI. The following sets forth information regarding beneficial ownership of
common stock of SFGC and the exchangeable redeemable preferred stock of SFGC
(the "Preferred Stock"), as of September 30, 1998, by (i) each person known to
be the beneficial owner of more than 5% of the outstanding Common Stock or
Preferred Stock; (ii) each Director of SFGC; and (iii) all directors and
officers of SFGC as a group. The shares owned by each person, or by the group,
and the shares included in the total number of shares outstanding have been
adjusted, and the percentage owned (where such percentage exceeds 1%) has been
computed, in accordance with Rule 13d-3(d)(1) under the Exchange Act.
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
NAME AND ADDRESS OF SHARES OF COMMON SHARES OF PREFERRED
BENEFICIAL OWNER COMMON STOCK STOCK PREFERRED STOCK STOCK
- ------------------------------------------------ ----------------------- ------------- ---------------------- ----------------
<S> <C> <C> <C> <C>
Paul W. Lowden(1) 3,724,391(2) 54.73% 97,100(3) 1.10%
William J. Raggio 17,972(4) * 4,815(5) *
James W. Lewis 13,750(4) * -- --
Suzanne Lowden 4,792(6) * 2,524(7) *
Thomas K. Land 69,175(8) 1.02 1,000 *
Christopher W. Lowden 71,049(9) 1.04 1,400 *
John W. Delaney 13,750(4) * -- --
All Directors and Officers as a 3,914,879 57.5% 106,839 1.2%
group (7 persons)
</TABLE>
- --------------------------------
* Less than 1%
(1) The address for Paul W. Lowden is c/o Santa Fe Gaming Corporation, P.O. Box
4335, Las Vegas, Nevada 89127.
(2) Includes 482,361 shares held by LICO, a Nevada corporation ("LICO"), which
is wholly owned by Mr. Lowden. During the current fiscal year, options to
purchase 279,510 shares of SFGC common stock were granted to Mr. Lowden.
(3) Includes 92,041 shares held by LICO.
(4) Of such shares, 12,500 may be acquired upon the exercise of outstanding
stock options.
(5) Includes 16 shares held by Mr. Raggio's wife, as to which Mr. Raggio
disclaims beneficial ownership.
(6) Includes 4,521 shares held by Mrs. Lowden as custodian for a child and
excludes shares beneficially owned by Mr. Lowden reflected in the table.
(7) Includes 1,262 shares held by Mrs. Lowden as custodian for a child and
excludes shares beneficially owned by Mr. Lowden reflected in the table.
(8) Of such shares, 68,175 may be acquired upon the exercise of outstanding
stock options. During the current fiscal year, options to purchase 55,675
shares of SFGC common stock were granted to Mr. Land.
(9) Of such shares, 68,175 may be acquired upon the exercise of outstanding
stock options. During the current fiscal year, options to purchase 54,425
shares of SFGC common stock were granted to Mr. Lowden.
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<PAGE>
CERTAIN TRANSACTIONS
The following is a description of certain transactions during the
fiscal year ended September 30, 1997 in which officers and directors of SFGC
and/or the Company and its affiliates or families had a direct or indirect
interest.
Jones Vargas, a Nevada law firm of which William J. Raggio is a senior
partner, is paid a retainer fee of $120,000 per year. SFGC and its subsidiaries
paid Jones Vargas approximately $317,022, including retainers, for its services
during the fiscal year ended September 30, 1997.
In fiscal 1993 and 1992 the predecessor to Hacienda Hotel Inc., a
subsidiary of SFGC, made loans to LICO, a company wholly-owned by Mr. Lowden
providing entertainment services to the Hacienda and the Sahara, in the
aggregate amount of $476,000. As of September 30, 1997, there was $686,000
outstanding under these loans, including interest computed at an annual rate
equal to the prime rate plus 2%. Principal and interest were due on demand.
The loans to LICO were approved by the Boards of Directors of the predecessors
to SFGC and Hacienda Hotel Inc., respectively, with Mr. Lowden abstaining from
the vote. In January 1998, pursuant to Mr. Lowden's compensation arrangement,
SFGC satisfied in full the Fiscal Year 1998 Bonus in the amount of $600,000 to
Mr. Lowden through an offset against the loans to LICO. In addition, in fiscal
1997 SFGC satisfied in full the fee payable to Mr. Lowden for issuing personal
guarantees to support certain SFGC financing arrangements (see "Executive
Compensation") through an offset in January 1998 of the LICO loans. As of
January 26, 1998, the LICO loans had been satisfied in full through the offset
of the Fiscal Year 1998 Bonus and the personal guarantee fee.
The Company and PHI are included in the consolidated United States
federal income tax return of SFGC. SFGC and its subsidiaries are parties to a
tax sharing agreement (the "Tax Sharing Agreement") pursuant to which the
Company and PHI are obligated to make payments periodically to SFGC in respect
of their allocable share of the total United States federal income tax liability
of the SFGC consolidated group. For any particular taxable year, any payments
made by either the Company or PHI to SFGC in excess of their allocable share of
such liability must be refunded to the Company or PHI, as the case may be,
following the close of such taxable year. In the event that the Company or PHI
is included in a state or local income tax return with SFGC, the Company or PHI
must make periodic payments to, and shall have a right to receive refunds from
SFGC in a manner consistent with that described above.
MATERIAL UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material United States
federal income tax consequences to a Holder of Old Notes resulting from the
Exchange and the Solicitation. The summary assumes that Holders hold the Old
Notes, New Notes and PIK Notes as capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the "Code"), and that
none of Old Notes, New Notes or the PIK Notes will be considered traded on an
"established securities market" (as such term is defined in Code Section
1273(b)(3) and the regulations thereunder) at the time of the Exchange.
Further, this summary assumes that the New Notes and PIK Notes will be treated
as debt and not equity for United States federal income tax purposes. This
discussion does not purport to deal with all aspects of United States federal
income taxation that may be relevant to Holders that may be subject to special
federal income tax laws such as dealers in securities, financial institutions,
life insurance companies, individuals who are not citizens or residents of the
United States or corporations, partnerships or other entities that are not
organized under the laws of the United States or any political subdivision
thereof, or persons that hold the Old Notes, New Notes or PIK Notes as part of a
hedge, conversion transaction, straddle or other risk reduction transaction. In
addition, the following discussion does not consider the effect of any
applicable foreign, state or local tax laws.
71
<PAGE>
The discussion below is based upon the current provisions of the Code,
existing and proposed Treasury Regulations promulgated thereunder, rulings of
the Internal Revenue Service (the "Service") and judicial decisions now in
effect as of the date hereof. Such authorities may be repealed, revoked or
modified, possibly with retroactive effect, so as to result in United States
federal income tax consequences different from those discussed below.
As discussed below, the Exchange should constitute a recapitalization
under Section 368(a)(1)(E) of the Code. The Company, however, will not seek a
ruling from the Service regarding any of the tax issues discussed herein,
including the tax treatment of the Exchange as a recapitalization. Moreover, as
noted in the discussion, certain of the issue material to the federal income tax
consequences of certain atters are factual in nature, and other issues involve
areas of law that are ambigous or with respect to which legal authority is
lacking and as to which the Company is able to offer limited guidance. It is
possible, for example, that the Service may challenge the treatment of the
Exchange as a recapitalization and assert that the Exchange is a taxable
transaction because the New Notes do not constitute "securities" or because of
other legal positions. Consequently, there can be no assurance that the Service
will not challenge one or more of the tax consequences described herein.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF UNITED
STATES FEDERAL INCOME TAXATION THAT MIGHT BE RELEVANT TO A HOLDER'S DECISION TO
PARTICIPATE IN THE EXCHANGE OR SOLICITATION OR TO THE OWNERSHIP AND DISPOSITION
OF THE NEW NOTES OR PIK NOTES. HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS
CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS THAT MAY BE
SPECIFIC TO THEM AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY
OTHER TAXING JURISDICTION.
TAX CONSEQUENCES OF THE EXCHANGE
TREATMENT OF THE EXCHANGE AS A RECAPITALIZATION UNDER CODE SECTION
368. The exchange of Old Notes for New Notes should be treated as a
recapitalization under Section 368(a)(1)(E) of the Code if both the Old Notes
and the New Notes are considered "securities" for United States federal income
tax purposes. If the Exchange qualifies as a recapitalization, a Holder that
exchanges Old Notes for New Notes and cash will recognize gain (but not loss) to
the extent of the lesser of (i) the amount of the cash received for the
principal amount of the Old Notes or (ii) the amount of gain realized in the
Exchange (I.E., the excess, if any, of the sum of the cash and the issue price
of the New Notes received for the principal amount of the Old Notes over the
Holder's adjusted tax basis in the Old Notes).
Any recognized gain will generally be treated as capital gain and will
be long-term capital gain if the Holder held the Old Notes for more than 12
months. If, however, a Holder purchased the Old Notes at a market discount
(within the meaning of Code Section 1278), any gain recognized will be treated
as ordinary income to the extent it does not exceed the accrued market discount
on the Old Notes. Any accrued market discount not taken into account as
ordinary income will be treated as accrued market discount with respect to the
New Notes and the PIK Notes, most likely in proportion to their respective
stated principal amounts.
Following the Exchange, a Holder's tax basis in the New Notes will
equal the Holder's tax basis in the Old Notes exchanged for such New Notes
increased by the amount of gain recognized and decreased by the amount of cash
received for the principal amount of the Old Notes. A Holder's holding period
for the New Notes will include the holding period for the Old Notes exchanged
for such New Notes.
Any consideration received by a Holder for interest accrued on the Old
Notes will be taxable as ordinary income to the extent not previously taken into
income by the Holder. The allocation of the consideration received by a Holder
in the Exchange between the principal amount of the Old Notes and the accrued
interest on such obligations should be determined by the Holder in the manner
described below under "PAYMENT OF ACCRUED INTEREST ON THE OLD NOTES."
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<PAGE>
TREATMENT OF THE EXCHANGE AS A TAXABLE EXCHANGE. Given that the
original terms to maturity for the Old Notes and the New Notes are 10 years and
8 years, respectively, and in view of certain other factual characteristics and
circumstances, both the Old Notes and the New Notes should be treated as
"securities" for United States federal income tax purposes. Thus, the Exchange
should constitute a recapitalization under Section 368 resulting in the federal
income tax consequences discussed above under "TREATMENT OF THE EXCHANGE AS A
RECAPITALIZATION UNDER CODE SECTION 368." The Company, however, will not seek a
ruling from the Service regarding the treatment of the Old Notes and New Notes
as "securities", and it is possible that the Service may challenge such
treatment. If such a challenge were successful, the Exchange would be
considered a taxable exchange with the likely result that a Holder would
recognize gain or loss at the time of the Exchange equal to the difference
between (i) the sum of the issue price (I.E., the stated principal amount) of
the New Notes and the cash received in exchange for the principal amount of the
Old Notes and (ii) the Holder's adjusted tax basis in the Old Notes.
Subject to the market discount rules, any recognized gain or loss
would generally be treated as capital gain or loss and would be long-term
capital gain or loss if the Holder held the Old Notes for more than 12 months.
A Holder's tax basis in the New Notes would equal the issue price (I.E., the
stated principal amount) of the New Notes, and the holding period for the New
Notes would commence following the day of the Exchange. The consideration
received by a Holder for interest accrued on the Old Notes would be taxable as
ordinary income to the extent not previously taken into income (as discussed
below).
PAYMENT OF ACCRUED INTEREST ON THE OLD NOTES. Whether the Exchange is
treated as a recapitalization under Section 368 or as a taxable exchange, a
Holder, in addition to any gain recognized as a result of the Exchange, will
recognize ordinary income attributable to the portion of cash and New Notes
received as payment for accrued interest on the Old Notes. Holders which have
already included the accrued interest in income should not recognize any
additional income as a result of the consideration received as payment for the
accrued interest on the Old Notes.
Due to the lack of direct regulatory authority and the absence of
guidance under the Code, the allocation of the cash and New Notes received by a
Holder in the Exchange between the principal amount of the Old Notes and the
accrued interest thereon cannot be anticipated with precision. Consistent with
the form and manner in which the Exchange will be consummated, the Company
intends to take the position for accounting and tax purposes and for purposes of
backup withholding and information reporting, that any cash paid in the Exchange
is first allocable to accrued interest on the Old Notes to the extent thereof
(approximately $4.1 million), and any remaining cash (approximately $2.8
million) is allocable to reduce principal of the Old Notes. In conformity with
this approach, the entire principal amount of the New Notes will be deemed to
have been exchanged for the outstanding principal amount of the Old Notes, and
none of the New Notes will be considered to have been issued in payment of
accrued interest on the Old Notes. By agreeing to participate in the Exchange,
a Holder also agrees to allocate the cash and New Notes received for the
principal amount of the Old Notes and accrued and unpaid interest thereon in the
same manner in which the Company will make such allocation.
The Service may seek to recharacterize the cash payment and allocate
it proportionately between the outstanding principal amount and accrued interest
on the Old Notes. If the Service is successful in this regard, a Holder may
recognize more taxable gain in the Exchange depending on its adjusted tax basis
in the Old Notes.
NEW NOTES AND PIK NOTES
ORIGINAL ISSUE DISCOUNT. The Company intends to pay fifty percent of
the stated scheduled interest on the New Notes for the first four accrual
periods (which are six months each) in cash and the balance of the scheduled
stated interest for such periods will be paid in the form of the PIK Notes.
After the first four accrual periods, all stated interest on the New Notes will
be paid in cash. Because the Company will pay at least 50 percent of the stated
interest accruing on the New Notes for each accrual period over the term of the
New Notes in cash, 50
73
<PAGE>
percent of the stated interest for each accrual period during the term of the
New Notes should be considered "qualified stated interest" and will be
includible in each Holder's income in accordance with its accounting method.
Since the Company expects to satisfy fifty percent of the interest
payable on each Interest Payment Date during the first four accrual periods
through the issuance of PIK Notes, the New Notes will be issued with original
issue discount ("OID") for United States federal income tax purposes.
Consequently, a Holder of New Notes will be required to include OID in gross
income as it accrues on a constant yield basis over the term of the New Notes in
advance of the receipt of any cash payment attributable to such income
(regardless of whether the Holder is a cash or accrual basis taxpayer).
The total amount of OID with respect to a New Note will be equal to
the excess of (i) the sum of the stated principal amount due at maturity plus
fifty percent of all scheduled interest payments (including those payable in the
form of PIK Notes) on a New Note over (ii) the issue price of a New Note. The
issue price of a New Note should equal its stated principal amount, because
neither the Old Notes nor the New Notes should be considered traded on an
established securities market at the time of the Exchange and the New Notes
provide for adequate stated interest.
The amount of OID for each of the first four accrual periods of a New
Note should equal the stated principal amount of the PIK Note issued as interest
on the New Note for each such accrual period. Since the interest payments made
in cash during each of the first four accrual periods will equal the stated
principal amount of the PIK Note issued for such period, a Holder should have
sufficient cash to satisfy its tax liability attributable to the sum of the OID
and qualified stated interest payments made during the first four accrual
periods. Thereafter, the amount of OID and qualified stated interest required
to be included in income during a complete taxable year by a Holder should be
equal to the amount of scheduled interest payments made during such year.
PIK NOTES. The applicable Treasury regulations treat each New Note
and the PIK Notes issued with respect to the New Note as part of the same debt
instrument. As such, the issue price of a newly issued PIK Note should be
determined by allocating the adjusted issue price, at the time of issuance, of
the underlying New Note between the newly issued PIK Note and the underlying New
Note in proportion to their respective stated principal amounts. Because the
OID in each of the first four accrual periods of a New Note will equal the
stated principal amount of the PIK Note issued in each of such periods and the
issue price of a New Note will be increased by the amount of such OID, the issue
price of each PIK Note should equal its stated principal amount.
In addition, because the terms of each PIK Note are identical to the
New Notes, the OID on a PIK Note should accrue in the same manner as described
above in the case of a New Note. Also, the discussion below under "CONSEQUENCES
TO THE COMPANY AND TO CORPORATE HOLDERS" regarding application of the AHYDOs
rules should apply on a proportionate basis to each PIK Note.
CONSEQUENCES TO THE COMPANY AND TO CORPORATE HOLDERS. A debt
obligation issued by a corporation with a maturity in excess of five years will
constitute a "applicable high yield debt obligation" within the meaning of
Section 163(i)(1) of the Code ("AHYDOs") if its yield to maturity is equal to or
greater than the sum of the relevant applicable federal rate (the ''AFR") plus
five percentage points, and the debt obligation is issued with significant OID.
Since the yield to maturity on the New Notes and the PIK Notes are expected to
exceed the sum of the mid-term AFR plus five percentage points and are expected
to be issued with significant OID, the New Notes and the PIK Notes are expected
to constitute AHYDOs. In such event, the Company will not be entitled to deduct
OID that accrues with respect to the New Notes and PIK Notes until amounts
attributable to such OID are paid. In addition, if, as expected, the New Notes
and PIK Notes constitute AHYDOs and the yield to maturity of the New Notes and
PIK Notes exceeds the sum of the mid-term AFR plus six percentage points (the
"Excess Yield"), the Company's deduction for the "disqualified portion" of the
OID accruing on the New Notes and PIK Notes will be disallowed. In general, the
"disqualified portion" of the OID for any accrual period will be equal to the
product of (i) the Excess Yield divided by the yield to maturity on the New
Notes and PIK Notes, and (ii) the OID for the accrual period. The Company does
not expect that the loss of this deduction will have a material adverse effect
on
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<PAGE>
the Company's financial condition or results of operations. Subject to
otherwise applicable limitations, Holders of New Notes and PIK Notes that are
corporations (other than S corporations) will be entitled to a
dividends-received deduction (generally at a current rate of 70%) with respect
to any disqualified portion of the accrued OID to the extent that the Company
has sufficient current or accumulated earnings and profits. If the disqualified
portion exceeds the Company's current and accumulated earnings and profits, the
excess will continue to be taxed as ordinary OID income in accordance with the
rules described above in "ORIGINAL ISSUE DISCOUNT."
DISPOSITION OF NEW NOTES AND PIK NOTES. A Holder will generally
recognize gain or loss upon the sale, exchange, retirement or other disposition
of the New Notes or PIK Notes equal to the difference between the amount
realized on the disposition and the Holder's adjusted tax basis in the New Notes
or the PIK Notes, as applicable. A Holder's adjusted tax basis in a New Note
will generally be the amount described above in "TAX CONSEQUENCES OF THE
EXCHANGE", increased by the amount of OID attributable to the New Note that is
previously included in income by such Holder. A Holder's adjusted tax basis in
a PIK Note will generally be the stated principal amount of the PIK Note
increased by the amount of OID attributable to the PIK Note that is previously
included in income by such Holder. Subject to the market discount rules, the
gain or loss recognized on a disposition of a New Note generally will be capital
gain or loss and would be long-term capital gain or loss if the Holder held the
New Notes for more than 12 months. A Holder that disposes of a New Note
independently of its related PIK Note, or who disposes of a PIK Note
independently of the related New Note, may be subject to the "coupon stripping"
rules under Section 1286 of the Code.
SOLICITATION AND REPURCHASE OF A PORTION OF THE OLD NOTES FOR CASH
The receipt by the Company of the Requisite Consents of Holders to a
forbearance against the exercise of certain rights and remedies associated with
the Old Notes until December 15, 1999 will not result in a modification of the
Old Notes and, therefore, will not result in a deemed exchange of the Old Notes.
If the Requisite Consents are obtained and the Exchange is not
consummated, the Company will repurchase on a pro rata basis from Holders of Old
Notes an aggregate of $6.5 million principal amount of Old Notes, together with
accrued and unpaid interest thereon through the Solicitation Expiration Date.
In such event, a Holder will recognize gain or loss at the time of the
repurchase equal to the difference between (i) the amount of cash received for
the principal amount of Old Notes repurchased and (ii) the Holder's adjusted tax
basis in such Old Notes. Subject to the market discount rules, such gain or
loss will generally be treated as capital gain or loss and will be long-term
capital gain or loss if the Holder held the Old Notes for more than 12 months.
In addition to any gain or loss recognized, a Holder will recognize
ordinary income attributable to the cash received as payment for accrued
interest on the Old Notes repurchased that was not previously included in
income. For federal income tax purpose, it is unclear how the approximate $6.9
million cash payment to be made by the Company should be allocated between the
principal amount of the Old Notes and the accrued interest thereon. Consistent
with the form of the transaction to be consummated as part of the Solicitation,
the Company intends to take the position for tax and accounting purposes and for
purposes of backup withholding and information reporting, that approximately
$400,000 will be paid to Holders as payment for accrued interest on the Old
Notes and approximately $6.5 million will be paid to repurchase an equivalent
principal amount of Old Notes. By consenting to the Solicitation, a Holder
agrees to allocate the cash received for the principal amount of the Old Notes
and accrued and unpaid interest thereon in the same manner in which the Company
will make such allocation. It is possible, however, that the Service may
challenge such allocation and require a Holder to allocate the cash received
first to accrued and unpaid interest on all of the Old Notes held by the Holder,
and allocate any remaining cash to the principal amount of the Old Notes. This
will have the effect of causing a cash basis Holder to report a greater portion
of the accrued interest on its Old Notes as ordinary income.
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BACKUP WITHHOLDING AND INFORMATION REPORTING.
Under certain circumstances, a Holder may be subject to backup
withholding at a 31% rate on payments received in the Solicitation or Exchange
(and with respect to the New Notes and PIK Notes issued in the Exchange). This
withholding generally applies only if the Holder (i) fails to furnish his or her
social security or other taxpayer identification number ("TIN"), (ii) furnishes
an incorrect TIN, (iii) is notified by the Service that he or she has failed to
report payment of interest and dividends properly and the Service has notified
the Company that he or she is subject to backup withholding, or (iv) fails,
under certain circumstances, to provide a certified statement, signed under
penalty of perjury, that the TIN provided is his or her correct number and that
he or she is not subject to backup withholding. Any amount withheld from a
payment to a Holder under the backup withholding rules is allowable as a credit
against such Holder's federal income tax liability, provided that the required
information is furnished to the Service. Certain Holders (E.G., corporations)
are not subject to backup withholding. Holders should consult their tax
advisors as to their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption.
The Company will report annually to the Service and to each Holder of
record information with respect to the amount of OID accruing during the
calendar year. Also, because the Exchange should be treated as a
recapitalization under Code Section 368, Holders will be required to file
certain information regarding the exchange in connection with filing their
federal income tax returns for the period in which the Exchange occurs.
DESCRIPTION OF NEW NOTES
The following is only a summary of the terms of the New Notes, does
not purport to be a full description thereof and is qualified in its entirety by
reference to the Indenture referred to below, the Mirror Note, the Deed of
Trust, the Guaranty and the other exhibits to the Indenture (including certain
terms defined in such documents), copies of which have are available upon
request to PHI at 4949 North Rancho Drive, Las Vegas, Nevada 89130, Attention:
Chief Financial Officer. The terms of the New Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 as in effect on the date of the Indenture. The
definitions of certain terms used herein are set forth in "Certain Definitions"
below. THE TERMS OF THE NEW NOTES DIFFER IN MATERIAL RESPECTS FROM THE TERMS OF
THE OLD NOTES. HOLDERS OF OLD NOTES SHOULD REVIEW "DESCRIPTION OF THE NEW
NOTES" CAREFULLY.
GENERAL
The New Notes being offered hereby will be issued in exchange for the
Old Notes and as PIK Notes under the Indenture to be dated as of the date
following the Exchange Expiration Date among PFC, as issuer, SFGC, as guarantor,
and IBJ Schroder Bank & Trust Company, as Trustee. The New Notes will have a
stated maturity of December 1, 2006 and will bear interest from their date of
issue at 13-1/2% per annum, payable on June 1 and December 1 in each year,
commencing June 1, 1999, to holders of record at the close of business on the
next preceding May 15 and November 15, respectively. PFC will have the right,
through December 1, 2000, to pay in kind up to 50% of the accrued and unpaid
interest on each New Note through the issuance of additional New Notes with a
principal amount equal to the accrued and unpaid interest being satisfied in
kind (the "PIK Notes"). The New Notes will be issued in denominations of $
1,000 and integral multiples thereof, except to the extent the Exchanged Amount
for any Holder or the PIK Notes to be issued on any Interest Payment Date to any
Holder are in an amount that is not an integral multiple of $1,000. The New
Notes will be secured obligations of PFC and payment of the principal thereof,
and premium, if any, and interest thereon will be guarantied by SFGC. See
"Security" and "Guaranty" below in this section. The authorized principal
amount of the New Notes is $65,200,000.
The principal of, and premium, if any, and interest on the New Notes
will be payable at the corporate trust office of the Trustee in New York, New
York; provided that payment of interest may be made at PFC's option by check
mailed to each holder of New Notes at such holder's registered address. The New
Notes may
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be presented for registration of transfer and/or exchange at the corporate trust
office of the Trustee in New York, New York, or at an office or agency
maintained by PFC in the City of New York.
CERTAIN DEFINITIONS
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person, and with respect to any specified natural
person, any other natural person having a relationship by blood, marriage or
adoption not more remote than first cousin with such specified natural person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Amortization" means, for any period, as applied to any Person, the
amount of the amortization of goodwill and other intangible items (other than
amortization of debt discount and capitalized financing fees) that is reflected
on the financial statements of such Person and its consolidated Subsidiaries for
such period in accordance with generally accepted accounting principles
consistently applied.
"Capitalized Lease Obligation" means, as applied to any Person, any
lease of any property (whether real, personal or mixed) by that Person as lessee
that, in conformity with generally accepted accounting principles consistently
applied, is or should be accounted for as a capital lease on the balance sheet
of that Person.
"Cash Flow" means, for any period, the following for such period as
determined on a consolidated basis in accordance with generally accepted
accounting principles consistently applied (except as provided in this
definition): the Consolidated Net Income before depreciation expense and
amortization and amortization of debt discount and capitalized financing fees of
PHI and its consolidated Subsidiaries for such period, offset on a
dollar-for-dollar basis to the extent Consolidated Net Income in any prior
period constitued a net loss.
"Casualty" means any act or occurrence of any kind or nature that
results in damage, loss or destruction to any buildings or improvements on the
Premises and/or certain tangible personal property related thereto.
"Change in Control" means any of the following events: (i) a Person
or group (which term, as used in this definition, has the meaning specified in
Section 13(d)(3) of the Exchange Act) other than the Lowden Family shall attain
beneficial ownership of 35% or more of the total number of outstanding Voting
Shares of, or, if such entity does not have Voting Shares, other equity or
ownership interests in, SFGC or its successor; or (ii) the Lowden Family ceases
to have beneficial ownership, directly or indirectly, of all of the outstanding
Voting Shares of, or if such entity does not have Voting Shares, other equity or
ownership interests in, PHI or PFC.
"Complete Taking" means (i) a Taking that causes the termination of,
or would permit the lessor to terminate, the Pioneer Ground Lease, (ii) a Taking
of all or substantially all of the Premises or (iii) a Taking of so much of the
Premises as to prevent or substantially impair the conduct of PHI's business
thereon in substantially the same manner as conducted prior to such Taking.
"Consolidated Fixed Charges" means, for any period, as applied to any
Person, (i) the interest expense of such Person and its consolidated
Subsidiaries for such period, including, without limitation, the amortization of
debt discount and capitalized financing fees and the interest portion of any
deferred payment obligation calculated in accordance with the effective interest
method of accounting, (ii) the interest component of rentals in respect of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by such Person or any of its consolidated Subsidiaries during such
period and (iii) one-third of the Consolidated Operating Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such Person or any of its
consolidated Subsidiaries during such period, in each case determined on a
consolidated basis and (except as otherwise provided
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in this definition) in accordance with generally accepted accounting principles
consistently applied. For purposes of this definition, interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by the chief financial officer of such Person (or, if such
Person is a partnership, its managing general partner or the chief financial
officer of its corporate managing general partner, as the case may be) to be the
rate of interest implicit in such Capitalized Lease Obligation in accordance
with generally accepted accounting principles consistently applied.
"Consolidated Income Tax Expense" means, for any period, as applied to
any Person, the provision for federal, state, local and foreign income taxes of
such Person and its consolidated Subsidiaries for such period, determined in
accordance with generally accepted accounting principles consistently applied.
"Consolidated Net Income" means, for any period, as applied to any
Person, the Net Income of such Person and its consolidated Subsidiaries for such
period determined in accordance with generally accepted accounting principles
consistently applied excluding (i) the portion of Net Income allocable to
minority interests in unconsolidated Subsidiaries to the extent that cash
dividends or distributions have not actually been received by such Person or one
of its consolidated Subsidiaries and (ii) Net Income of any entity combined with
such Person or one of its consolidated Subsidiaries on a "pooling of interests
basis attributable to any period prior to the date of combination.
"Consolidated Operating Lease Obligations" means, for any period, as
applied to any Person, the amount of fixed or percentage rent paid, accrued
and/or scheduled to be paid or accrued by such Person and any of its
consolidated Subsidiaries during such period under leases (other than
Capitalized Lease Obligations) with an original term exceeding five years,
determined on a consolidated basis in accordance with generally accepted
accounting principles consistently applied; PROVIDED, HOWEVER, that,
notwithstanding the foregoing provisions of this definition, Consolidated
Operating Lease Obligations, as applied to PHI, shall include the fixed or
percentage rent paid, accrued and/or scheduled to be paid or accrued under
(i) the Pioneer Ground Lease and (ii) the Subpermit Agreement for Shared Use of
Parking Lot and Dock Facilities on State Property dated as of December 31, 1986
between Nevada Casino Hotels, Inc., and PHI.
"Coverage Ratio" means, for any period, the ratio of (i) the sum of
Consolidated Net Income plus, to the extent reflected in the computation of such
Consolidated Net Income and, without duplication, depreciation expense,
Amortization, Consolidated Income Tax Expense and Consolidated Fixed Charges of
PHI and its consolidated Subsidiaries during such period to (ii) the sum of
Consolidated Fixed Charges of PHI and its consolidated Subsidiaries and the
amount of any interest capitalized by PHI or any of its consolidated
Subsidiaries during such period, except to the extent that any such capitalized
interest would, in accordance with generally accepted accounting principles
consistently applied, be included in amortization of debt discount in a
subsequent period, in each case determined for such period on a consolidated
basis.
"Debt" means, as applied to any Person as of any date, (i) any
indebtedness in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
under letters of credit (to the extent of the amounts drawn under such letters
of credit) or reimbursement agreements relating thereto, or representing the
deferred and unpaid portion of the purchase price of any property or service
(other than trade accounts payable in the ordinary course of business), (ii) any
Capitalized Lease Obligations of such Person and (iii) any guaranties or
endorsements (other than for the purpose of collection in the ordinary course of
business) or other contingent obligations in respect of or to purchase or
otherwise acquire Debt of others.
"Default" means an Event of Default or an event which, after notice or
lapse of time or both, would become an Event of Default.
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"Disposition" means any sale, lease, assignment, transfer, abandonment
or other disposition, including any of the foregoing that occurs upon
liquidation, dissolution or winding up; and the term "Dispose" has a correlative
meaning.
"Excess Cash Flow" for any fiscal year means 25% of Cash Flow for such
fiscal year.
"Existing Encumbrances" means Liens existing on the date of the
Indenture.
"Gaming Permits" means all licenses, permits, approvals and
authorizations required by any of the Nevada Gaming Authorities in connection
with the ownership or operation of the Pioneer or any financing obtained in
connection therewith or by any owner or operator thereof.
"Incur" means to create, incur, assume, guaranty, or otherwise become
directly or indirectly liable for, any Debt; and the terms "Incurred" and
"Incurrence" have correlative meanings.
"Independent" means a person who (i) does not have any material direct
or indirect financial interest in the Company, SFGC, PHI or any other obligor
under the New Notes or in any Affiliate of the Company, SFGC, PHI or such other
obligor, and (ii) is not connected with the Company, SFGC, PHI or such other
obligor or any Affiliate of the Company, SFGC, PHI or such other obligor, as an
officer, employee, promoter, underwriter, trustee, partner, director or person
performing similar functions.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
judgment of the Company's Board of Directors, (i) qualified to perform the task
for which it has been engaged, and (ii) disinterested and Independent with
respect to the Company and each Affiliate of the Company and/or the Lowden
Family.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of the Indenture, a Person shall be deemed to own subject to a
Lien any asset that it has acquired or holds subject to the interest of a vendor
or lessor under any conditional sale agreement, Capitalized Lease Obligation or
other title retention agreement relating to such asset.
"Lowden Family" means Paul W. Lowden; any of the lineal descendants of
any of the grandparents of Mr. Lowden; any of the spouses of such lineal
descendants; any of the lineal descendants of such spouses; any trusts primarily
for the benefit of one or more members of the Lowden Family; any corporation, if
at least a majority of the outstanding Voting Shares of such corporation are
beneficially owned, directly or indirectly, by the Lowden Family; any
partnership in which a majority of the outstanding general partner interests and
outstanding limited partner interests are beneficially owned, directly or
indirectly, by members of the Lowden Family; any limited liability company in
which all managing members (or, if there are no managing members, members with
at least a majority of equity interests therein) are beneficially owned,
directly or indirectly, by members of the Lowden Family; any executor,
administrator, trustee or personal representative of any member of the Lowden
Family who is deceased; any trustee of the estate of any member of the Lowden
Family that is bankrupt or insolvent; and any guardian or conservator of any
member of the Lowden Family adjudged disabled or incompetent by a court of
competent jurisdiction. As used in this definition, references to "beneficial
ownership" have the meaning set forth in Rule 13d-3 under the Exchange Act.
"Management Agreement" means the Management Agreement to be dated as
of the date of the Indenture between PHI and SFGC.
"Mortgage Documents" means the Deed of Trust, the Mirror Note, the
Assignment Agreement and all financing statements related thereto, and any other
assignments, pledge agreements, mortgages, deeds of trust, agreements or
instruments (other than securities or other assets which constitute part of the
Trust Estate)
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delivered or to be delivered to the Trustee, or delivered to PFC and assigned or
pledged to the Trustee, as security for the New Notes.
"Net Income" means, for any period, as applied to any Person, the net
income (loss) of such Person for such period, determined in accordance with
generally accepted accounting principles consistently applied (except as
provided in this definition), which shall reflect any intercompany charges of
any Affiliate of such Person properly allocable to such Person under generally
accepted accounting principles consistently applied, excluding from "Net
Income," however, (i) any gain or loss, net of taxes, realized upon any sale,
transfer or other Disposition (including by way of merger or consolidation) by
such Person of any property or other assets of such Person outside of the
ordinary course of business, (ii) any gain or loss, net of taxes, realized upon
the termination of any employee pension or benefit plan and (iii) any
extraordinary gain or loss, net of taxes, in each case as determined in
accordance with generally accepted accounting principles consistently applied.
"Net Income" means, for any period, with respect to any property or asset
acquired by any Person, the historical net income (loss) of such property or
asset during such period, adjusted to give effect to the effective tax rate of
such Person for such period, determined in accordance with generally accepted
accounting principles consistently applied.
"Net Proceeds" means the aggregate cash proceeds received by SLVC in
respect of Disposition of the assets set forth on a schedule to the Indenture,
or the repayment of 11% First Mortgage Notes due 2000 issued by SFHI and owned
by SLVC as of the date of then Indenture (including, without limitation, any
cash received upon the sale or other Disposition of any non-cash consideration
received in any Disposition or repayment ), net of the direct costs relating to
such Disposition or repayment (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Debt (to the
extent, in the case of revolving credit Debt, such Debt is permanently reduced)
secured by a Lien on the asset or assets that were the subject of such
Disposition or repayment and any reserve established by SLVC in accordance with
generally accepted accounting principles against any liabilities associated with
such Disposition or repayment and retained by SLVC after such Disposition or
repayment.
"Nevada Gaming Authorities" means the Nevada State Gaming Commission,
the Nevada State Gaming Control Board and the County of Clark, State of Nevada,
and any other political subdivision or governmental body, agency or official who
shall at any time exercise any power or authority with respect to the licensing
or operation of gaming facilities in the State of Nevada.
"Outstanding Amount" of any Debt at any time means the principal
amount outstanding of such Debt at such time, unless such Debt was issued at a
discount, in which case the "Outstanding Amount" of such Debt means the original
issue price of such Debt plus the accretion to such time of the original issue
discount, determined in accordance with generally accepted accounting principles
consistently applied.
"Permits" means all licenses, franchises, approvals, authorizations,
statements of compliance, certificates of operation, certificates of occupancy
and permits required for the lawful ownership, occupancy, operation and use of
all or a material portion of a casino or other gaming facility and any hotel or
other place of lodging operated in connection therewith (which may be temporary
or permanent), including, without limitation, all Gaming Permits.
"Permitted Additional Debt" has the meaning specified in "Certain
Covenants - Limitations on Debt."
"Permitted Encumbrances" means (i) Liens on the Trust Estate for
taxes, assessments or certain other charges that are not yet due and payable or
if due and payable are not delinquent to the extent that any fine, penalty,
interest or cost may be added for the nonpayment thereof or that are being
contested in good faith and by appropriate proceedings, (ii) the Lien on the
Trust Estate created by the Indenture and the Mortgage Documents,
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(iii) Liens under the Indenture and the Deed of Trust securing certain amounts
payable to the trustee thereunder, (iv) Existing Encumbrances, (v) Liens on the
Trust Estate or any portion thereof that secure Debt incurred in compliance with
the provisions of the Indenture described under "Certain Covenants - Limitations
on Debt" and "Certain Covenants - Limitations on Liens on the Trust Estate;"
(vi) certain easements, rights of way, restrictions and similar encumbrances
permitted under the Deed of Trust, (vii) leases, concessions, arrangements or
franchises entered into in accordance with the terms of the Deed of Trust,
(viii) carriers', warehousemen's, mechanics', materialmen's, repairmen's or
other similar Liens arising in the ordinary course of business that are not
overdue for a period of more than 20 days or that are being contested in good
faith and by appropriate proceedings, (ix) pledges or deposits in connection
with workers' compensation, unemployment insurance and other social security or
insurance legislation or regulations, (x) leases or subleases entered into in
accordance with the covenant "Certain Leases and Subleases," and (xi) deposits
to secure the performance of bids, trade contracts (other than for borrowed
money), leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature incurred in the ordinary course of
business.
"Permitted Refinancing Debt" means Debt of PHI or a Subsidiary
(i) issued in exchange for, or (ii) the proceeds from the issuance and sale or
disbursement of which are used substantially concurrently to repay, redeem,
refund, refinance, discharge or otherwise retire for value, in whole or in part
(collectively, "repay"), or constituting an amendment, modification or
supplement to, or a deferral or renewal of (collectively, an "amendment"), a
Debt of PHI or a Subsidiary (and any penalties, fees and expenses actually
incurred by PHI or such Subsidiary in connection with the repayment or amendment
thereof) existing immediately after the original issuance of the New Notes or
incurred pursuant to the Indenture covenant described under "Limitation on Debt"
in a principal amount (or, if such Permitted Refinancing Debt provides for an
amount less than the principal amount thereof to be due and payable upon the
acceleration thereof, with an original issue price) not in excess of (a) the
principal amount of the Debt so refinanced (or, if such Permitted Refinancing
Debt refinances Debt under a revolving credit facility or other agreement
providing a commitment for subsequent borrowings, with a maximum commitment not
to exceed the maximum commitment under such revolving credit facility or other
agreement) plus (b) unpaid accrued interest on such Debt plus (c) penalties,
premiums, fees and expenses actually incurred by PHI or such Subsidiary, as the
case may be, in connection with the repayment or amendment thereof.
Notwithstanding the foregoing, any Permitted Refinancing Debt incurred to repay
all of the New Notes then outstanding shall not be limited in principal amount
or otherwise if PHI, contemporaneously with such issuance, irrevocably deposits
with the Trustee or Paying Agent an amount of the proceeds of such Permitted
Refinancing Debt sufficient to redeem or repay each installment of the
outstanding principal amount of the Debt on, and all interest thereon accrued
to, the date fixed for such repayment, together with irrevocable instructions to
redeem and repay the New Notes on the stated redemption date.
Person" means any individual, corporation, partnership, joint venture
limited liability company, association, joint-stock company, trust,
unincorporated organization or other entity, or government or any agency or
political subdivision thereof.
"Premises" means the real property interests (including PHI's
leasehold interest in the Pioneer Ground Lease) subjected or required to be
subjected to the lien of the Deed of Trust, together with all rents, issues,
profits, revenues and other income and proceeds therefrom.
"Restricted Investment" means, as applied to any Person, (i) any
direct or indirect advance, loan or other extension of credit to, or guaranty of
any Debt of, any Subsidiary or Affiliate of such Person and (ii) any direct or
indirect capital contribution to, purchase or other acquisition of any capital
stock, partnership or other ownership interest, debt security or other security
of, or other investment in, any Subsidiary or Affiliate of such Person;
PROVIDED, HOWEVER, that Restricted Investments shall not include, in respect of
PFC, the loan evidenced by the Mirror Note.
"Restricted Payment" means, as applied to any Person, (a) any direct
or indirect dividend or other distribution of assets, properties, cash, rights,
obligations or securities paid, made, declared or authorized by such
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Person on or in respect of any class of such Person's capital stock, partner
interests or other ownership interests, as the case may be, and (b) any direct
or indirect payment by or on behalf of such Person in connection with the
redemption, purchase, retirement or other acquisition of its capital stock,
partner interests or other ownership interests, as the case may be; PROVIDED,
HOWEVER, that Restricted Payments shall not include any redemption or repurchase
of any capital stock, partners' interests or other ownership interests of such
Person, if (x) such Person receives an opinion of counsel (a copy of which is
delivered to the Trustee) that failure to redeem or repurchase such capital
stock, partner interests or other ownership interests would subject such Person
or any of its Subsidiaries to an adverse action or failure to act by a Nevada
Gaming Authority and, in the opinion of the board of directors (or a committee
thereof) or managing general partner of such Person (or if such managing general
partner is a corporation, of its Board of Directors (or a committee thereof)),
as the case may be, such adverse action or failure to act would be likely to
have a material adverse effect with respect to such Person and its Subsidiaries,
considered as a whole, and (y) such adverse action or failure to act cannot be
prevented or remedied except through such a redemption or repurchase. For
purposes of this definition, "capital stock," "partner interests" and "ownership
interests" shall include warrants, rights and options to acquire shares of
capital stock, partner interests and ownership interests, as the case may be.
"Sierra Note" means the amended and restated promissory note dated as
of October 1, 1998 by SFGC in favor of Sierra Construction Corp.
"Subsidiary" of any Person means (i) any corporation a majority of the
Voting Shares of which are owned, (ii) any partnership a majority of the general
partner interests and/or limited partner interests of which are owned and
(iii) any other entity a majority of the ownership interests of which are owned,
by such Person, or by any other Subsidiary or Subsidiaries of such Person, or by
such Person and/or one or more Subsidiaries of such Person.
"Taking" means the acquisition or condemnation by eminent domain or by
deed in lieu thereof of the whole or any part of the Premises, by a competent
governmental authority, for any public or quasi-public use or purpose.
"Tax Allocation Agreement" means the Tax Allocation Agreement to be
dated as of the date of the Indenture among SFGC and its Subsidiaries, including
the Company and PHI.
"Trust Estate" means the property which is covered or intended to be
covered by the Lien of the Deed of Trust as security for the Mirror Note.
"Voting Shares" means capital stock or other ownership interests of
the class or classes having general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers, trustees, general
partners or other persons performing similar functions of a corporation or other
entity (irrespective of whether or not at the time capital stock or other
ownership interests of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).
For the purposes of the Indenture, any references to Subsidiaries of
PHI shall be deemed to mean such Subsidiaries, if any, that PHI may have from
time to time; and the term "consolidated," when used with respect to the
financial statements of, or other financial terms relating to, PHI as of any
period or at any date, shall be disregarded in the event that PHI does not have
any Subsidiaries that should, under generally accepted accounting principles
consistently applied, be consolidated with PHI for such period or as of such
date.
SECURITY
The New Notes will be secured by the pledge to the Trustee for the
benefit of the Noteholders of the Mirror Note in a principal amount equal to the
Exchanged Amount issued by PHI to PFC to evidence the refinancing by PHI of the
Purchase Money Note. The Mirror Note will contain interest, principal,
redemption and default terms that are virtually identical to those of the New
Notes. The Mirror Note will be secured by the Deed of
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Trust, which also will be pledged to the Trustee and will encumber PHI's fee
interests in the Pioneer, certain other property or facilities owned by or
leased to PHI (including PHI's leasehold interest under the Pioneer Ground
Lease), any additions and improvements constructed thereon, and furniture,
furnishings, fixtures, machinery and equipment at any time forming a part
thereof, or used in connection therewith, and certain other property and assets
of PHI. The Lien created by the Deed of Trust on PHI's leasehold interest in
the Pioneer Ground Lease and improvements thereon is subject and subordinate to
the lessor's fee interest in the leased land.
The Indenture permits the creation of additional Liens on the Pioneer
and other property and assets encumbered by the Deed of Trust, which additional
Liens may be equal in priority or junior to (or, in case of Liens securing Debt
Incurred for the purpose of financing the acquisition by PHI or any of its
Subsidiaries of furniture, fixtures or equipment used in the operation of the
Pioneer and Liens with respect to certain other Debt under certain
circumstances, senior to) the Lien of the Deed of Trust, subject to the
limitations described under "Certain Covenants--Limitation on Debt" below in
this section.
Certain rights and remedies of the Trustee and the Noteholders upon
the occurrence of a default under the Indenture, the Mirror Note or the Deed of
Trust are described under "Remedies Upon Default" below in this section.
GUARANTY; SUBSTITUTION AND RELEASE OF COLLATERAL
The obligations of PFC to pay the principal of, and premium, if any,
and interest on, the New Notes when due are guarantied by SFGC. Enforcement of
the Guaranty against SFGC will be subject to all defenses available to PFC
regarding enforcement of the New Notes, and may be subject to all defenses
available to PHI regarding enforcement of the Mirror Note and the security
interests securing such note, including, in particular, the right to force the
Trustee to exercise its remedies under the Deed of Trust prior to the
commencement of any action on the Guaranty. In addition, to the extent the
Trustee acts in such a manner as to diminish the value of SFGC's rights of
subrogation against either PHI or PFC, SFGC may have a defense to the
enforcement of the Guaranty. Under Nevada law SFGC's right of subrogation is
not waivable.
The Guaranty will be secured by a pledge of the common stock of SFHI
and SR, which may, at the time of pledge or at a later date, be subject to a
senior Lien securing not more than $5 million aggregate principal amount of
Debt. Concurrent with the consummation of any series of transactions, as a
result of which (a) PFC makes an offer to repurchase $7.5 million principal
amount of New Notes, and (b) Liens are granted for the benefit of the holders of
the New Notes (i) in substantially all of the assets of SLVC (the "SLVC Asset
Liens"), subject to prior Liens securing no more than an aggregate of
$35 million in Debt (which Debt may provide that interest is payable in kind for
up to three years) and related costs and charges, and with respect to preferred
stock or debt of SFHI with a stated value or principal amount of at least
$25 million at the date of issuance (the "SFHI Securities Liens"), which Lien
may be subject to prior Liens securing more than an aggregate of $35 million in
Debt (which Debt may provide that interest is payable in kind for up to three
years) and related costs and charge, provided that at the date of grant of such
Lien SFHI does not have outstanding Debt in excess of $265 million, the pledge
of the SFHI capital stock will be released.
If any of the assets subject to the SLVC Asset Liens or the securities
subject to the SFHI Securities Liens are Disposed of by SLVC or the owner of the
pledged securities, as the case may be, the Liens for the benefit of the New
Noteholders will be released, provided that (i) the Net Proceeds, if any, from
the Disposition are distributed, to the extent permitted by applicable law and
any agreements to which SLVC may then be a party, indirectly to SFGC, (ii) SFGC
contributes the distribution received, less any amount required to prepay
principal and interest on the Sierra Note, to PFC, and (iii) PFC makes an offer
to repurchase New Notes, at 100% of the principal amount thereof plus accrued
and unpaid interest thereon, purchasable with the amount so contributed.
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LIMITED RECOURSE
Notwithstanding anything in the Indenture, the New Notes, the Guaranty
or the Mortgage Documents to the contrary, (i) PFC, PHI and SFGC will be liable
thereunder only to the extent of their respective assets (including, in the case
of PFC, its interest in the Mirror Note and Deed of Trust), and (ii) no other
Person (including, but not limited to any incorporator, officer, director,
shareholder Affiliate or controlling Person of PFC, or any successor, personal
representative, heir or assign of any of the foregoing, in each case past,
present or future) except for PHI, SFGC and PFC shall be liable in respect of
any obligation of PFC, PHI or SFGC, as the case may be, under the Indenture, the
New Notes, the Guaranty or the Mortgage Documents; PROVIDED, HOWEVER, that the
foregoing shall not be deemed to limit the liability of PFC, PHI and SFGC in
respect of claims arising under federal or state securities laws or that cannot
be limited or waived under applicable law.
REDEMPTION
OPTIONAL. The New Notes will be subject to redemption at the option
of PFC, upon not less than 30 nor more than 60 days' notice mailed to holders of
New Notes to be redeemed at their registered addresses, at any time as a whole
or from time to time in part, at 100% of the principal amount, together with
accrued interest to the date fixed for redemption.
MANDATORY. Concurrent with (i) any voluntary prepayment of principal
outstanding under the Sierra Note, or (ii) the payment at maturity of principal
outstanding under the Sierra Note prior to the maturity date of the New Notes,
PFC is required to redeem all New Notes, at a Redemption Price equal to 100% of
the principal amount thereof, together with accrued interest to the date fixed
for redemption.
COMPLETE TAKING. In the event of a Complete Taking, PFC is required
to redeem all of the New Notes at a Redemption Price equal to 100% of the
principal amount thereof, together with accrued interest to the date fixed for
redemption, which date will be the later of (i) the second business day
following the date on which the award for such Complete Taking will be paid and
(ii) 30 days after notice of such redemption is first sent to Noteholders. In
the event of a Casualty or a taking other than a Complete Taking, the Deed of
Trust requires that insurance proceeds and other awards be applied to a
restoration of the Pioneer.
SELECTION. The Indenture provides that, in the event of redemption of
less than all the outstanding New Notes, the particular New Notes to be redeemed
will be selected by the Trustee pro rata, by lot or by such other manner as the
Trustee deems equitable. Upon surrender of any New Note to be redeemed in part
only, a new security in a principal amount equal to the unredeemed portion
thereof will be issued. As long as there are other outstanding New Notes, New
Notes held by PFC, SFGC, PHI or any Affiliate of PFC, SFGC or PHI will not be
selected for redemption by the Trustee (to the extent the Trustee has knowledge
of such holdings). On and after the redemption date, interest will cease to
accrue on New Notes or portions of New Notes called for redemption.
OFFERS TO REPURCHASE
CHANGE OF CONTROL. If there is a Change of Control, then the Company
will commence, within 10 business days following the date of the Change of
Control, an offer to repurchase (the "Change of Control Repurchase Offer") all
of the then outstanding Notes at a purchase price equal to 100% of the aggregate
principal amount of the New Notes plus accrued and unpaid interest thereon, if
any, to the date of the purchase (the "Repurchase Price").
The source of funds for any repurchase of New Notes upon a Change of
Control will be cash then on hand and/or generated from operations or other
available sources, including borrowings, sales of assets or equity. However,
there can be no assurance that sufficient funds would be available at the time
of any Change of Control to make any required repurchases. In addition, the
ability to repurchase New Notes upon a Change of Control could be limited by the
terms of then existing Debt and there can be no assurance that the Company would
be able to fund
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the repurchase of New Notes upon a Change of Control within the limitations
imposed by the terms of any such Indebtedness. Any failure by the Company to
redeem Notes tendered pursuant to a Change of Control Offer will be deemed an
Event of Default under the Indenture.
The existence of a Holder's right to require the Company to repurchase
such Holder's Notes upon the occurrence of a Change of Control may deter a third
party from acquiring the Company in a transaction that would constitute a Change
of Control.
SFGC CAPITAL CONTRIBUTION. SFGC will agree to cause its Subsidiaries,
Sahara Resorts, a Nevada corporation ("SR"), Casino Properties, Inc., a Nevada
corporation ("CPI"), Hacienda Hawaiian Properties, Inc., a Hawaii corporation
("HHP"), and SLVC to dividend, to the extent permitted by applicable law and any
agreements to which such Subsidiaries may be parties, to SR, CPI and HHP, in the
case of SLVC, to CPI in the case of HHP, to SR, in the case of CPI and to SFGC,
in the case of SR, any Net Proceeds received by SLVC from the Disposition by
SLVC of either the 27 acre parcel of real property on Las Vegas Boulevard South
in Las Vegas, Nevada or the 40 acre parcel of real property in Henderson,
Nevada, or the Disposition or repayment of 11% First Mortgage Notes due 2000
issued by SFHI, in each case owned by SLVC on the date of the Indenture. SFGC
will be required, within five business days of receipt of any such dividend, to
contribute (a "Contribution") to PFC an amount equal to such dividend received,
less any amount that SFGC is required to repay under the Sierra Note. PFC will
be required within 30 days after any Contribution to offer to redeem that
portion of the outstanding New Notes purchasable with the Contribution, provided
such funds exceed $5 million (a "Contribution Repurchase Offer") at a price
equal to 100% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the redemption date. Within 30 days after any Contribution,
PFC will mail to all Holders a notice apprising such Holders of that fact and of
such Holders' rights arising as a result thereof including rights with respect
to the Contribution.
EXCESS CASH FLOW REPURCHASE OFFER. Within 120 days after each fiscal
year end, commencing with the fiscal year ending September 30, 1999, the Company
will be required to commence an offer to repurchase (an "Excess Cash Flow
Repurchase Offer") that portion of the outstanding New Notes purchasable with
the Excess Cash Flow for the preceding fiscal year. Notwithstanding the
foregoing, if Excess Cash Flow for any fiscal year is less than $1 million, the
Company will not be obligated to make an Excess Cash Flow Repurchase Offer until
the Excess Cash Flow from such fiscal year, together with the Excess Cash Flow
from the succeeding fiscal years, equals or exceeds $1 million. Any New Notes
repurchased in an Excess Cash Flow Repurchase Offer will be repurchased at a
price equal to 100% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the redemption date.
OFFERS IN CONNECTION WITH RELEASE OF SFHI STOCK PLEDGE, SLVC ASSET
LIENS AND SFHI SECURITIES LIENS. In connection with the release of any of the
pledge of the SFHI common stock securing the Guaranty, the Company will be
required to make an offer to repurchase $7.5 million in principal amount of New
Notes, together with accrued and unpaid interest thereon. In connection with
the release of the SLVC Asset Liens or the SFHI Securities Pledge, the Company
may be required to make an offer to repurchase New Notes. See "Guaranty;
Substitution and Release of Collateral."
GENERAL. If any repurchase date is on or after an interest payment
record date and on or before an Interest Payment Date, any accrued interest will
be paid to the Holder in whose name a New Note is registered at the close of
business on such record date, and no additional interest will be payable to
Holders who tender New Notes pursuant to any repurchase offer.
The Indenture requires that any repurchase offer remains open from the
time of mailing until 20 business days thereafter, unless a longer period is
required by applicable law or stock exchange rule. Under the tender offer rules
promulgated under the Exchange Act, a repurchase offer must remain open for at
least 20 business days. The Company intends to comply with all applicable
tender offer rules in connection with any repurchase offer.
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TRANSFER REQUIRED BY THE NEVADA GAMING AUTHORITIES
In the event of a foreclosure on and the taking of possession by or on
behalf of the Trustee or Noteholders of the real property or interests in real
property (including the leasehold interest in the Pioneer Ground Lease) pledged
as security under the Deed of Trust following a default under the Indenture, the
Nevada Gaming Authorities would have discretionary authority to require any or
all of the Noteholders to file applications, to be investigated and to be found
suitable as owners or landlords of a gaming establishment. The ordinary
practice of the Nevada Gaming Authorities is not to require the individual
holders of obligations such as the New Notes to be investigated and found
suitable unless there has been a default and the relevant Nevada Gaming
Authorities have determined that the holder of the debt instrument exercises a
material influence over the gaming operations of PHI in question. Each
Noteholder, by accepting the Bond, shall be deemed to have agreed (to the extent
permitted by law) that if the relevant Nevada Gaming Authorities determine that
a holder or beneficial owner of the Bond must be found suitable under applicable
law (whether as the result of such a foreclosure or for any other reason)' and
if such holder or beneficial owner is not found suitable, such holder shall,
upon the request of PFC, dispose of such holder's New Notes within 30 days after
receipt of such request.
CERTAIN COVENANTS
THE COVENANTS IN THE INDENTURE WILL DIFFER IN MATERIAL RESPECTS FROM
THE COVENANTS IN THE OLD NOTE INDENTURE. HOLDERS OF OLD NOTES SHOULD REVIEW
"CERTAIN COVENANTS" CAREFULLY.
PHI will not be a party to the Indenture. However, insofar as any of
the covenants set forth in the Indenture purports to impose an obligation or
restriction upon PHI, such covenants (together with the defined terms and
ancillary provisions necessary for the interpretation and operation thereof)
will be incorporated by reference into the Mirror Note, and PHI, by its
execution of the Mirror Note, will agree that it is bound by and will perform
and comply with each such covenant. Furthermore, as a result of the pledge of
the Mirror Note to the Trustee as security for the New Notes, the Trustee will
be entitled to enforce such covenants directly against PHI.
LIMITATION ON DEBT. The Company will not, directly or indirectly,
create, incur, issue, assume, guarantee or suffer to exist, or otherwise in any
manner become or remain liable with respect to, any Debt other than the New
Notes, including any PIK Notes.
PHI will not, and will not permit any Subsidiary to, directly or
indirectly, create, incur, issue, assume, guarantee or suffer to exist or
otherwise in any manner become or remain liable in any respect to, any Debt
other than the Mirror Note and the following (collectively, "Permitted
Additional Indebtedness"): (i) Permitted Refinancing Debt, (ii) Debt incurred
to finance the purchase of furniture, fixtures or equipment for use in the
operations of the Pioneer secured by a Lien on such furniture, fixtures or
equipment, provided that the aggregate amount of Debt outstanding at any time
incurred under this clause (ii) shall not exceed $1 million, (iii) Debt payable
to any of, or amount, PHI and any Subsidiary; (iv) Indebtedness of PHI or any
Subsidiary outstanding as of the date of the Indenture; (v) Debt incurred solely
in respect of performance bonds and completion guarantees; and (vi) Debt secured
by a senior Lien on the Trust Estate, provided the proceeds thereof are used by
PHI to purchase the land subject to the Pioneer Ground Lease.
Anything in the Indenture to the contrary notwithstanding, PHI will
not Incur any Debt unless it has obtained (i) all Gaming Permits, if any,
required in connection therewith and (ii) all required consents and approvals,
if any, of the Lessor under the Pioneer Ground Lease.
LIMITATION ON LIENS ON THE TRUST ESTATE. PHI, SFGC and PFC will not,
and will cause their respective Subsidiaries not to, create, incur, assume or
suffer to exist any Lien on the Mirror Note. the Deed of Trust or any related
documents, or on all or any portion of the Trust Estate, other than Permitted
Encumbrances. Permitted Encumbrances include Liens securing Debt incurred in
compliance with the restrictions described above.
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LIMITATION ON DISTRIBUTIONS AND INVESTMENTS. As long as any of the
New Notes are outstanding, neither PFC nor PHI will make, directly or
indirectly, any Restricted Payment or Restricted Investment.
RESTRICTION OF ACTIVITIES. PFC will not, directly or indirectly,
engage in any business or activities, acquire or hold any property (including
any capital stock or partners' or other ownership interests) or Incur any Debt
(other than the New Notes); provided that PFC may hold the Mortgage Documents,
collect and remit payments received and preserve its rights thereunder, do or
cause to be done all things necessary or appropriate to protect the Trust Estate
and to preserve its rights therein, and otherwise comply with its obligations
under the Indenture, the Mortgage Documents and the New Notes and perform
activities incidental thereto.
PHI will not, and will cause its Subsidiaries not to, engage in any
business or activities other than those necessary or appropriate for, incidental
to, connected with or arising out of, the financing, ownership and operation of
the Pioneer.
AFFILIATE TRANSACTIONS. The Company, PHI and SFGC may not engage in
any transactions with Affiliates, except on terms that are no less favorable to
the Company, PHI or SFGC, as the case may be, than those generally available on
an arm's length basis in equivalent transactions with unrelated third parties.
Notwithstanding the foregoing, payments under the Management Agreement and the
Tax Allocation Agreement will be permitted.
AMENDMENTS OF PIONEER GROUND LEASE. PHI may amend or modify the
Pioneer Ground Lease in any manner which, in the aggregate, is not adverse to
the New Noteholders. PHI will be required to obtain a determination of an
Independent Financial Advisor with respect thereto. PHI may amend or modify the
Pioneer Ground Lease.
CERTAIN LEASES AND SUBLEASES. PHI will be permitted to lease or
sublease a portion of the Premises for retail uses, including without limitation
for gas stations or restaurants, provided that PHI must grant a security
interest in its leasehold or subleasehold interest to secure the Mirror Note,
which security interest will be assigned to the Trustee for the benefit of the
New Noteholders.
BANKRUPTCY REMOTE BYLAW PROVISIONS. PFC will amend its bylaws to
provide that unanimous consent of the Board of Directors (or consent of all
directors there in office) will be required to file for relief under Chapter 11
of the Bankruptcy Code. Holders of a majority of the Outstanding Amount of New
Notes will be entitled to designate a director independent of SFGC and its
Affiliates to serve as a director of PFC, and SFGC will covenant to cause the
outstanding Voting Shares of PFC held be it, directly or indirectly, to be voted
for the election of any such designee.
Subject to approval of any lenders to SLVC, if the SLVC Asset Liens
are granted, SLVC will amend its bylaws to provide that the unanimous consent of
the Board of Directors (or consent of all directors then in office) will be
required to file for relief under Chapter 11 of the Bankruptcy Code. Holders of
a majority of the Outstanding Amount of New Notes will be entitled to designate
a director independent of SFGC and its Affiliates to serve as a director of
SLVC, and SFGC will covenant to cause the outstanding Voting Shares of SLVC held
by it, directly or indirectly, to be voted for the election of any such
designee.
REPORTS. PHI will file with the Trustee, for the Trustee to provide
to Holders of New Notes, copies of its annual and quarterly reports and of the
information, documents and reports, if any, that PHI or any Subsidiary is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act within 15 days of the required date of such filing. To the extent
that PHI is not subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act, SFGC will file with the Commission and provide to the Trustee,
for the Trustee to provide to the Holders, such annual and quarterly reports and
such information, documents and other reports (or copies of such portions of any
of the foregoing as the Commission may be rules and regulations prescribe) that
it is require to file with the Commission pursuant to Sections 13 and 15(d) of
the Exchange Act. PHI
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or SFGC, as applicable, will also make such reports available to prospective
purchasers of the Notes, securities analysts and broker-dealer upon their
request.
LIMITATIONS ON CONSOLIDATION, MERGER AND CONVEYANCE
PFC will not merge, consolidate or amalgamate with or into any Person,
or Dispose of any of its properties or assets, except for Dispositions of
properties and assets to the Trustee or Noteholders as contemplated by the
Indenture or the Mortgage Documents or in connection with the exercise by the
Trustee or Noteholders of their respective rights and remedies thereunder.
PHI and SFGC will not consolidate or merge with or into any person
unless: (i) either (a) PHI or SFGC, as the case may be, will be the continuing
person or (b) the person formed by or surviving any such consolidation or merger
(if other than PHI or SFGC, as the case may be), is a corporation organized and
existing under the laws of the United States, any State or the District of
Columbia and the corporation formed by or surviving any such consolidation or
merger assumes by supplemental indenture all the obligations of PHI or SFGC, as
the case may be, under the New Notes and the Indenture; (ii) immediately after
the transaction no Default or Event of Default (and no event that, after notice
or lapse of time, or both become an Event of Default) will have occurred and be
continuing; (iii) in the case of a transaction involving PHI, the Coverage Ratio
of PHI or the successor, as the case may be, immediately after giving effect to
such transaction, calculated cumulatively for the four most recent fiscal
quarters then completed on a pro forma basis, would be such that PHI or the
successor, as the case may be, would be entitled to incur at least $1.00 of
additional Debt under the Coverage Ratio test in the Limitations on Debt
covenant; and (iv) such transaction will not result in or cause the loss of any
Gaming License. Upon consummation of a consolidation or merger involving PHI,
all interest payable on the New Notes accruing from and after the date of the
merger or consolidation will be payable solely in cash.
EVENTS OF DEFAULT AND NOTICE THEREOF
The following events are defined in the Indenture as "Events of
Default":
- default in the payment of interest on any New Note when it becomes due
and payable and continuance of such default for a period of five days;
- default in the payment of all or any portion of the principal of, or
premium, if any, on, any New Note, when it becomes due and payable;
- any "event of default" under the Deed of Trust;
- default in the performance, or breach, of any obligation or covenant
described above under "Limitations on Consolidation, Merger and
Conveyance" in this section;
- default in the performance or breach of any other covenant of SFGC or
PFC in the Indenture or any Mortgage Document to which either is a
party, or of PHI in any Mortgage Document to which it is a party, and
continuance thereof for five days (with regard to a default involving
the payment of money) and 15 days (with regard to a non-monetary
default) after "notice of default";
- any default under the Pioneer Ground Lease unless cured or waived
prior to the expiration of any applicable grace period provided for
therein;
- certain events of bankruptcy, insolvency or reorganization relating to
PHI, SFGC or PFC;
- the revocation, suspension, withdrawal, limitation or loss of any
Permit that results in the cessation of a substantial portion of the
operations of the Pioneer for a period, in the case of a Gaming
Permit, of
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more than 90 consecutive days and, in the case of any other Permit, of
more than 120 consecutive days;
- the existence of a final unsatisfied judgment or judgments (that have
not been effectively stayed) in an -aggregate amount in excess of
$2,000,000 against PHI, SFGC or PFC or the Trust Estate for a period
of 60 days;
- the existence of a final unsatisfied judgment (that has not been
effectively stayed) that, by itself or upon recordation, imposes or
would impose a Lien on any portion of the Trust Estate prior to that
of the Deed of Trust;
- acceleration of any Debt of PHI, SFGC or PFC of $2,000,000 or more in
the aggregate, unless such acceleration is rescinded, annulled or
stayed, or such Debt is discharged, within ten days after "notice of
default";
- acceleration of any Debt (regardless of amount) of PHI, SFGC or PFC
that is secured by a Lien on all or any portion of the Trust Estate
unless, in the case of Debt secured by a Lien that is junior to the
Lien of the Deed of Trust, such acceleration is rescinded, annulled or
stayed, or such Debt is discharged, within ten days after "notice of
default";
- admission by PHI, SFGC or PFC of their inability to pay its debts
generally as they become due; and
- the entry of a final judgment, decree or order by a court of competent
jurisdiction holding the Guaranty or any Mortgage Document to be
invalid or unenforceable in any material respect or the assertion by
PHI, SFGC or PFC or any Person acting on behalf of any of the
foregoing in any pleading tiled in such a court that the Guaranty or
any Mortgage Document is invalid or unenforceable in any material
respect.
provided, however, that in the event that the statutory reinstatement period
provided by Nevada law with respect to the Mirror Note is less than 35 days at
the time of the occurrence of an Event of Default, then the grace period with
respect to such Event of Default shall be extended by the number of days by
which such statutory reinstatement period is less than 35. See "Remedies Upon
Default--Power of Sale." As used herein, "notice of default" means notice to
PFC and SFGC by the Trustee or by the holders of at least 25% in Outstanding
Amount of the New Notes specifying an event of default and requesting PFC or
SFGC to cure the same or take other appropriate action.
The following events are defined in the Deed of Trust as "events of
default," and thus constitute Events of Default under the Indenture: default in
the payment of interest on the Mirror Note when it becomes due and payable and
continuance of such default for a period of five days; default in the payment of
the principal of, or premium, if any, on, the Mirror Note at its maturity;
default in the payment or satisfaction of any prepayment obligation when and as
required by the terms of the Mirror Note; default in the payment of any other
sum due under the Mirror Note or the Deed of Trust, and the continuance of such
default for a period of five days after written notice to PHI from the Trustee;
failure to keep in full force and effect the insurance required by the Deed of
Trust or to comply with certain other provisions thereof relating to insurance
matters grace period; unless permitted under the Deed of Trust, the material
removal or material demolition of, or material alteration to, the Premises
(other than as a result of a Taking or Casualty); default in the performance, or
breach, of any other covenant of PHI in the Deed of Trust and continuance
thereof for five days (with regard to a default involving the payment of money)
and 15 days (with regard to a non-monetary default) after "notice of default,"
unless the default or breach is curable but not susceptible of being cured with
reasonable diligence within such five or 15-day period (for reasons other than
the lack of funds), in which case such five or 15-day period, as the case may
be, shall be extended for such further period of time as may reasonably be
required to cure the same, provided that PHI proceeds to cure the same with
reasonable diligence; an Event of Default under the Indenture; any default under
the Pioneer Ground Lease unless cured or waived prior to the expiration of any
applicable grace period; or any representation or warranty of PHI in
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the Deed of Trust or in any certificate delivered pursuant thereto proves to be
incorrect as of its date in any respect that materially impairs the value of the
Trust Estate or the security for the Mirror Note provided thereby. Further, all
Debt secured by the Deed of Trust will accelerate upon the imposition of any new
mortgage tax or similar tax if payment thereof by PHI would be unlawful or would
violate applicable usury laws. Notwithstanding the foregoing, in the event that
the statutory reinstatement period provided under Nevada law with respect to the
Mirror Note is less than 35 days at the time of the occurrence of an event of
default under the Deed of Trust, then the grace period with respect to such
event of default shall be extended by the number of days by which such statutory
reinstatement period is less than 35. See "Remedies Upon Default--Power of
Sale."
The Indenture provides that the Trustee, within 90 days after the
occurrence of a default, will give notice thereof by mail to all Noteholders,
unless the default has been cured or waived; PROVIDED, HOWEVER that, except in
the case of a default in the payment of the principal of, premium, if any, or
interest on, the New Notes, the Trustee may withhold such notice if certain
officers or executives of the Trustee in good faith determine that such
withholding is in the interest of the Noteholders; and, PROVIDED, FURTHER, that,
notwithstanding the foregoing, the Trustee shall, as promptly as practicable
after the Trustee shall learn of the occurrence of a default under the Indenture
resulting from a default under the Pioneer Ground Lease, transmit notice of such
default by mail to all Noteholders.
In case an Event of Default occurs and is continuing, the Trustee or
the holders of not less than 25% in Outstanding Amount of the New Notes, by
notice in writing to PFC and SFGC (and to the Trustee, if given by holders), may
declare the principal of and accrued interest on all the New Notes to be due and
payable immediately; PROVIDED, HOWEVER, that the Trustee shall not take action
to declare the principal of and accrued interest on the New Notes immediately
due and payable until the statutory reinstatement period provided under Nevada
law with respect to the Mirror Note shall have expired. See "Remedies Upon
Default--Power of Sale." Such declaration may be annulled and past defaults may
be waived by the holders of a majority in Outstanding Amount of the New Notes,
upon the conditions provided in the Indenture. The Deed of Trust provides that
any acceleration of the New Notes (or rescission thereof), shall automatically
be deemed an acceleration of the Mirror Note (or rescission thereof). and the
waiver of any Event of Default under the Indenture shall be deemed an automatic
waiver of the corresponding default, if any, under the Deed of Trust.
PHI, SFGC and PFC are each required to furnish to the Trustee, within
120 days after the close of each fiscal year, an officers' certificate to the
effect that a review of their respective activities has been made with a view to
determining whether their obligations under the Indenture, the Mortgage
Documents and the Pioneer Ground Lease, as the case may be, have been complied
with and as to whether the signers have obtained knowledge of any default in the
fulfillment of any such obligation during such fiscal year. If PHI, SFGC or PFC
obtains knowledge of any such default, it is required promptly to notify the
Trustee of such default and the action it is taking and proposes to take with
respect thereto; PROVIDED, HOWEVER, that upon the occurrence of a default under
the Pioneer Ground Lease, PHI is required to notify the Trustee immediately by
telephone, confirmed in writing.
REMEDIES UPON DEFAULT
GENERAL. If an Event of Default under the Indenture occurs and the
New Notes become due and payable full, the Trustee, acting on behalf of the
Noteholders, or holders of not less than a majority of the aggregate principal
amount of the New Notes then outstanding, may enforce the remedies provided
under the Indenture. (The following discussion assumes action by the Trustee,
but applies equally to action by such Noteholders.) These remedies include
seeking payment on the New Notes from SFGC pursuant to the Guaranty and seeking
a sale pursuant to the Nevada Uniform Commercial Code of the Mirror Note of PHI
that will be pledged to secure payment of the New Notes. An event of default
under the Indenture will also constitute a default under the Deed of Trust and,
upon acceleration of the New Notes, the Mirror Note will, subject to the
statutory reinstatement period, automatically become due and payable. Thus, if
the Trustee acquired the Mirror Note in such a sale, it would then have the
right, subject to the following discussion, to foreclose on the Pioneer pursuant
to the Deed of Trust to satisfy payment on the Mirror Note (which should
represent unpaid indebtedness in an amount approximately equal
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<PAGE>
to the amount then due under the New Notes because of their identical payment
terms). If the Trustee attempted to collect the indebtedness under the Mirror
Note without exercising its remedies under the Deed of Trust, PHI could defend
such action by requiring the Trustee to exhaust its rights under the Deed of
Trust. If, however, the Trustee commenced an action on the Mirror Note without
first exhausting its remedies under the Deed of Trust, under Nevada law the
Trustee may be deemed to have waived its rights under the Deed of Trust. As a
practical matter, the Trustee would exercise its remedies under the Deed of
Trust prior to the commencement of any action on the Mirror Note or the
Guaranty.
At the foreclosure sale of the property, the Trustee could seek to
purchase the Pioneer by bidding at the foreclosure sale. If the proceeds of the
sale were less than the full amount due under the Mirror Note, the Trustee could
seek a deficiency judgment against PHI by filing an application to the court
within six months of the foreclosure sale. In such proceeding, the Trustee
would be limited in its recovery to the difference of (i) the total unpaid
amount of the Mirror Note minus (ii) the greater of the fair market value of the
Pioneer or the amount received in the foreclosure sale.
THE MIRROR NOTE. After acceleration of the New Notes, the Trustee may
cause the Mirror Note to be sold in either a private or public sale, by giving
at least ten days' written notice of the time and place of such sale to PFC.
The Trustee may acquire the Mirror Note in such sale by bidding up to the amount
due under the New Notes. If the Trustee acquires the Mirror Note in such a
sale, then, subject to the following discussion, the Trustee may pursue a
foreclosure on the Pioneer and other property or assets subject to the Deed of
Trust either judicially or by power of sale pursuant to the terms of the Deed of
Trust.
POWER OF SALE. If the Trustee purchases the Mirror Note in the
execution sale, then, pursuant to the terms of the Deed of Trust, the Trustee
will have the right to foreclose on the Pioneer under a trustee's power of sale.
The Trustee could initiate a trustee's sale by recording with the Clark County,
Nevada recorder a notice of breach and election to sell the property (the
"Default Notice"), and by providing such notice to PHI and SFGC. The failure to
deliver either the Default Notice or the notice of trustee's sale to SFGC could
release its obligations under the Guaranty.
Under Nevada law, for a period of 35 days following the recordation of
the Default Notice and the mailing (by certified mail) of a copy of the Default
Notice to PHI, PHI would have the option to reinstate the Mirror Note by making
good its deficiency in performance or payment and by paying all costs, fees and
expenses incident to preparation of such Default Notice and incident to making
good its deficiency in performance or payment. Following the passage of not
less than three months from the date of recording of the Default Notice, the
trustee under the Deed of Trust could commence the foreclosure sale by providing
PHI and SFGC with notice of the time and place thereof in accordance with Nevada
law. Prior to the actual sale of the Pioneer, PHI would have the right to
redeem the property from such sale by paying in full the outstanding amount of
principal of and interest on the Mirror Note. The actual trustee's sale of the
Pioneer would extinguish PHI's right of redemption.
JUDICIAL FORECLOSURE. If the Trustee elects to proceed with a
judicial foreclosure on the Pioneer, it would be required to file a suit in
Clark County, Nevada. If the court found in favor of the Trustee, a judgment of
foreclosure and order of sale would be entered, and the court would order the
sale of the Pioneer. Judicial foreclosures rarely occur in Nevada.
Following the final adjudication of the matter but prior to the actual
sale of the Pioneer, PHI would have the right to release the property from the
Deed of Trust by paying the full amount of the judgment rendered in such
adjudication. Additionally, following the foreclosure sale of the Pioneer, PHI
would have a statutory right to redeem the property for a period of one year by
paying to the purchaser of the Pioneer (i) the foreclosure sale price, (ii) 1%
per month on such foreclosure sale price to the time of redemption and (iii) an
amount sufficient to cover any payments made by such purchaser in respect of
liens, taxes and assessments and interest on any such payments. This right of
redemption following foreclosure could discourage bidders at such a sale.
91
<PAGE>
GUARANTY. Under the Guaranty, the Trustee may seek payment on the New
Notes from SFGC regardless of what actions it may have taken to execute against
the Mirror Note or to foreclose on the Pioneer. As a matter of law, however,
SFGC's liability under the Guaranty cannot exceed the liability of PHI.
Enforcement of the Guaranty against SFGC will be subject to all defenses
available to PFC regarding enforcement of the New Notes, and may be subject to
all defenses available to PHI regarding enforcement of the Mirror Note and the
security interest securing such note, including, in particular, the right to
force the Trustee to exercise its remedies under the Deed of Trust prior to the
commencement of any action on the Guaranty. In addition, to the extent the
Trustee acts in such a manner as to diminish the value of SFGC's rights of
subrogation against either PHI or PFC, SFGC may have a defense to the
enforcement of the Guaranty. Under Nevada law SFGC's right of subrogation is
not waivable. Nevada law also provides that, if the Trustee's enforcement of
the power of sale is automatically stayed pursuant to the United States
Bankruptcy Code, the Trustee may commence an action under the Guaranty against
SFGC after 120 days have elapsed from the date the Default Notice was delivered
to SFGC.
NEVADA GAMING RESTRICTIONS. During the pendency of each foreclosure
proceeding described above, the Trustee could seek the appointment of a receiver
through a petition to the appropriate Nevada state court for the taking of
possession of the Pioneer. The receiver would be required to obtain the
approval of the Nevada Gaming Authorities to continue gaming operations until
the foreclosure sale. In addition, if the Trustee acquires the Pioneer in the
foreclosure sale, it would be required to seek the approval of the Nevada Gaming
Authorities for the receiver to continue gaming operations subsequent to the
foreclosure proceeding. and there can be no assurance that such approval would
be granted. As an alternative to the foregoing, if the Trustee acquired the
Pioneer in a foreclosure sale, it could contract for the operation of the
Pioneer by an independent operator who would be required to comply with the
licensing requirements and other restrictions imposed by the Nevada Gaming
Authorities.
In each foreclosure sale described above, licensing requirements under
the Nevada Gaming Control Act may limit the number of other potential bidders
and may delay the sale, either of which could adversely affect the sales price
of the Pioneer.
FORECLOSURE SALE PROCEEDS. The net amount realized in any foreclosure
sale of the Pioneer will only be the amount that exceeds (i) any amounts due and
owing holders of Debt or Permitted Encumbrances that are secured by a Lien on
any portion of the Trust Estate that is senior to the Lien of the Deed of Trust,
(ii) amounts due and owing the trustees for services under the Indenture and the
Deed of Trust and (iii) certain costs, taxes and other expenses related to the
foreclosure sale. The net amount so realized will be shared ratably among the
Noteholders and the holders of Debt, if any, secured by a Lien on any portion of
the Trust Estate that is PARI PASSU with that of the Deed of Trust. In that
regard, the Indenture requires that the instrument creating any such PARI PASSU
Lien provide, among other things, that the Debt secured thereby shall be deemed
to have been accelerated upon acceleration of the Mirror Note.
MODIFICATIONS OF THE INDENTURE
From time to time, and without the consent of the Noteholders, the
parties to the Indenture may enter into one or more supplemental indentures, and
the parties to any Mortgage Document may enter into one or more amendments or
supplements thereto, in each case for certain specific purposes, including
curing ambiguities, defects or inconsistencies, and making any changes or
modifications to the terms thereof that do not adversely affect the rights of
any Noteholder; provided, however, that no such supplemental indenture,
amendment or supplement shall be effective unless PFC, SFGC, PHI and the
Trustee, if not a party thereto, shall have consented in writing thereto.
Modifications, changes and amendments to the Indenture and the Mortgage
Documents also may be made by the parties thereto with the consent of the
holders of not less than a majority of the Outstanding Amount of the New Notes
then outstanding, except that the consent of holders of not less than 75% of the
Outstanding Amount will be required to approve a modification of the "Limitation
on Debt" covenant to permit up to $25 million principal amount of indebtedness
secured by a senior Lien on the Trust Estate, the proceeds of which would be
required to be used to make an offer to repurchase New Notes at 100% of the
principal amount thereof, plus accrued
92
<PAGE>
and unpaid interest thereon to the date of a payment. provided, however, that no
such modification, change or amendment shall be effective unless PFC, SFGC, PHI
and the Trustee, if not a party thereto, shall have consented in writing
thereto. No change will be effective against a Noteholder without such
Noteholder's consent with regard to the following matters: (i) the time or
place of payment of principal of, premium, if any, or interest on, or that
reduces the principal amount, interest rate or premium, if any, payable on, any
Bond; (ii) the principal amount of New Notes required to consent to an amendment
or waiver; (iii) the redemption or offer to repurchase provisions with respect
thereto; make any New Note payable in money other than that stated in the New
Note; or (iv) waive a default in the payment of the principal of, or interest or
premium on, any New Note. Solely for the foregoing purpose, the term 'Mortgage
Documents" shall be deemed to include the Pioneer Ground Lease and the Lessor's
Agreement.
SATISFACTION AND DISCHARGE OF INDEBTEDNESS
The Indenture will be discharged and canceled upon payment of all the
principal of, and premium, if any, and interest on, the New Notes, redemption of
all the New Notes or deposit with the Trustee of funds or obligations issued or
guarantied by the United States sufficient for such payment or redemption.
THE TRUSTEE
The Trustee is IBJ Schroder Bank & Trust Company.
The Indenture provides that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture and the Mortgage Documents. During the existence of an
Event of Default, the Trustee will exercise such of the rights and powers vested
in it under the Indenture and the Mortgage Documents and will use the same
degree of care and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs. The
holders of a majority in Outstanding Amount of the New Notes shall have the
right, during the continuance of an Event of Default, to direct the time, method
and place of conducting any proceeding for exercising any remedy available to
the Trustee. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any of the Noteholders, unless they shall offer to the Trustee
security or indemnity satisfactory to it.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of PFC, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claims as security or otherwise. The Trustee will be permitted to engage in
other transactions with PFC, provided, however, if it acquires any conflicting
interest (within the meaning of the Trust Indenture Act of 1939, as amended) it
must eliminate such conflict or resign.
BOOK-ENTRY, DELIVERY AND FORM
The New Notes will initially be issued in the form of one Global Note
(the "Global Note"). The Global Note will be deposited on the date of the
consummation of the Exchange Offer (the "Closing Date") with the Trustee as
custodian for The Depository Trust Company (the "Depository") and registered in
the name of Cede & Co., as nominee of the Depository (such nominee being
referred to herein as the "Global Note Holder").
The Depository is a limited-purpose trust company that was created to
hold securities for its participating organizations (collectively, the
"Participants" or the "Depository's Participants") and to facilitate the
clearance and settlement of transactions in such securities between Participants
through electronic book-entry changes in accounts of its Participants. The
Depository's Participants include securities brokers and dealers, banks and
trust companies, clearing corporations and certain other organizations. Access
to the Depository's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
93
<PAGE>
Participants" or the "Depository's Indirect Participants") that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depository only through the Depository's
Participants or the Depository's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Note, the Depository will credit the
accounts of Participants exchanging Old Notes for New Notes with portions of the
principal amount of the Global Note and (ii) ownership of the Notes evidenced by
the Global Note will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by the Depository (with respect to the
interests of the Depository's Participants), the Depository's Participants and
the Depository's Indirect Participants. Holders are advised that the laws of
some states require that certain persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer Notes
evidenced by the Global Note will be limited to such extent.
So long as the Global Note Holder is the registered owner of any
Notes, the Global Note Holder will be considered the sole Holder under the
Indenture of any Notes evidenced by the Global Note. Beneficial owners of Notes
evidenced by the Global Note will not be considered the owners or Holders
thereof under the Indenture for any purpose, including with respect to the
giving of any directions, instructions or approvals to the Trustee thereunder.
Neither the Company nor the Trustee will have any responsibility or liability
for any aspect of the records of the Depository or for maintaining, supervising
or reviewing any records of the Depository relating to the Notes.
Payments in respect of the principal of, premium, if any, and
interest, if any, on any Notes registered in the name of the Global Note Holder
on the applicable record date will be payable by the Trustee to or at the
direction of the Global Note Holder in its capacity as the registered Holder
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee may treat the persons in whose names Notes, including the Global Note,
are registered as the owners thereof for the purpose of receiving such payments.
Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of Notes. The Company believes, however, that it is currently the policy of the
Depository to immediately credit the accounts of the relevant Participants with
such payments, in amounts proportionate to their respective holdings of
beneficial interests in the relevant security as shown on the records of the
Depository. Payments by the Depository's Participants and the Depository's
Indirect Participants to the beneficial owners of Notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Depository's Participants or the Depository's Indirect Participants.
CERTIFICATED NOTES. Any beneficial owner of Notes evidenced by the
Global Note may obtain Notes in the form of registered definitive Notes
("Certificated New Notes"). If the Company notifies the Trustee in writing that
the Depository is no longer willing or able to act as a depository and the
Company is unable to locate a qualified successor within 90 days then, upon
surrender by the Global Note Holder of its Global Note, Notes in such form will
be issued to each person that the Global Note Holder and the Depository identify
as being the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by
the Global Note Holder or the Depository in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depository for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT. The Indenture will require that
payments in respect of the Notes represented by the Global Note (including
principal, premium, if any, interest and Liquidated Damages, if any) be made by
wire transfer of immediately available funds to the accounts specified by the
Global Note Holder. With respect to Certificated Notes, the Company will make
all payments of principal, premium, if any, interest and Liquidated Damages, if
any, by wire transfer of immediately available funds to the accounts specified
by the Holders thereof or, if no such account is specified, by mailing a check
to each such Holder's registered address. Secondary trading in long-term notes
and debentures of corporate issuers is generally settled in clearing-house or
94
<PAGE>
next-day funds. In contrast, the Notes represented by the Global Note are
expected to trade in the Depository's Same-Day Funds Settlement System, and any
permitted secondary market trading activity in such Notes will, therefore, be
required by the Depository to be settled in immediately available funds. The
Company expects that secondary trading in the Certificated Notes will also be
settled in immediately available funds.
95
<PAGE>
IMPORTANT
Any holder of Old Notes who wishes to accept the Exchange Offer or furnish
Consents in the Solicitation should either (a) complete the Letter of
Transmittal and Consent Form and forward it with such Old Notes and any other
required documents to the Exchange/Solicitation Agent or (b) request a broker or
bank to effect the transaction for such holder. Holders of the Old Notes
registered in the name of a broker, dealer, bank, trust company or nominee
should contact such institution to tender their Old Notes. See "The Exchange
Offer - Procedures for Tendering Old Notes" and "The Solicitation -- Procedures
for Furnishing Consents."
THE EXCHANGE/SOLICITATION AGENT:
IBJ SCHRODER BANK & TRUST COMPANY
BY MAIL: BY FACSIMILE: BY HAND OR OVERNIGHT
DELIVERY:
IBJ Schroder Bank & Trust (212) 858-2611 IBJ Schroder Bank & Trust
Company Company
P.O. Box 84 To Confirm: One State Street
Bowling Green Station (212) 858-2103 New York, NY 10004
New York, NY 10274-0084 Attn: Securities
Attn: Reorganization Processing Window,
Operations Department Subcellar One, (SC-1)
If you have any additional questions, or need
additional copies of this Joint Offering Circular/Consent
Solicitation Statement, the Letter of Transmittal and Consent
Form or any other Exchange Offer or Solicitation materials,
please contact the Information Agent or the Company's Chief Financial Officer at
the addresses and/or telephone numbers listed below.
THE INFORMATION AGENT: THE COMPANY:
D.F. King & Co., Inc Thomas K. Land
77 Water Street Chief Financial Officer
20th Floor Pioneer Finance Corp.
New York, NY 10005 4949 North Rancho Drive
Las Vegas, Nevada 89130
Toll Free: (800) 628-8538
or Banks and Brokers Call: (212) 425-1685 (702) 658-4340
96
<PAGE>
INDEX
TO UNAUDITED FINANCIAL STATEMENTS
For the Years Ended September 30, 1995, 1996, and 1997
And Nine Months Ended June 30, 1997 and 1998
<TABLE>
<CAPTION>
Page
-----
Pioneer Finance Corp.
- ---------------------
<S> <C>
Balance Sheets as of September 30, 1996 and 1997 and June 30, 1998 . . . . . . . . . . F-2
Statements of Operations for the Years Ended September 30, 1995, 1996 and
1997 and for the Nine Months Ended June 30, 1997 and 1998. . . . . . . . . . . . . F-3
Statement of Stockholder's Equity for the Years Ended September 30, 1995, 1996 and
1997 and for the Nine Months Ended June 30, 1998 . . . . . . . . . . . . . . . . . F-4
Statements of Cash Flows for the Years Ended September 30, 1995, 1996 and 1997 and
for the Nine Months Ended June 30, 1997 and 1998 . . . . . . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . F-6
Pioneer Hotel Inc.
- -------------------
Consolidated Balance Sheets as of September 30, 1996 and 1997 and June 30, 1998. . . . F-8
Consolidated Statements of Operations for the Years Ended September 30, 1995, 1996
and 1997 and for the Nine Months Ended June 30, 1997 and 1998 . . . . . . . . . . F-9
Consolidated Statement of Stockholder's Equity for the Years Ended September 30, 1996,
and 1997 and for the Nine Months Ended June 30, 1998 . . . . . . . . . . . . . . . F-10
Consolidated Statements of Cash Flows for the Years Ended September 30, 1995, 1996,
and 1997 and for the Nine Months Ended June 30, 1997 and 1998. . . . . . . . . . . F-11
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . F-12
</TABLE>
Financial Statement Schedules are omitted because of the absence of
conditions under which they are required or because the information is
included in the financial statements or the notes thereto.
F-1
<PAGE>
PIONEER FINANCE CORP.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
ASSETS 1996 1997 1998
- --------------------------------------------------- --------------- ---------------- -------------
<S> <C> <C> <C>
Current assets:
Cash and short-term investments . . . . . . . . . . . . $ 1,000 $ 1,000 $ 1,000
Interest receivable . . . . . . . . . . . . . . . . . . 2,700,000 2,700,000 675,000
Note receivable . . . . . . . . . . . . . . . . . . . . 0 0 60,000,000
------------ ------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . 2,701,000 2,701,000 60,676,000
Note receivable. . . . . . . . . . . . . . . . . . . . . . . 60,000,000 60,000,000 0
------------ ------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $ 62,701,000 $ 62,701,000 $ 60,676,000
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . $ 0 $ 0 $ 60,000,000
Accrued interest payable. . . . . . . . . . . . . . . . 2,700,000 2,700,000 675,000
------------ ------------ ------------
Total current liabilities. . . . . . . . . . . . . . . . . . 2,700,000 2,700,000 60,675,000
Long-term debt - less current portion. . . . . . . . . . . . 60,000,000 60,000,000 0
Stockholder's equity:
Common Stock, no par value;
authorized - 2,500 shares; issued
and outstanding - 10 shares . . . . . . . . . . . . . 1,000 1,000 1,000
------------ ------------ ------------
Total stockholder's equity . . . . . . . . . . . . . . . . . 1,000 1,000 1,000
------------ ------------ ------------
Total liabilities and stockholder's equity . . . . . . . . . $ 62,701,000 $ 62,701,000 $ 60,676,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See the accompanying Notes to Financial Statements.
F-2
<PAGE>
PIONEER FINANCE CORP.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
------------------------------------------ --------------------------
1995 1996 1997 1997 1998
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . . $13,714,867 $9,237,918 $8,100,000 $6,075,000 $6,075,000
Interest expense. . . . . . . . . . . . . . . 13,714,867 9,237,918 8,100,000 6,075,000 6,075,000
----------- ---------- ---------- ---------- ----------
Net income. . . . . . . . . . . . . . . . . . $0 $0 $0 $0 $0
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
</TABLE>
See the accompanying Notes to Financial Statements.
F-3
<PAGE>
PIONEER FINANCE CORP.
STATEMENT OF STOCKHOLDER'S EQUITY
(Unaudited)
<TABLE>
<CAPTION>
COMMON
STOCK TOTAL
---------- ----------
<S> <C> <C>
Balances, October 1, 1995 . . . . . . . $1,000 $1,000
Net income. . . . . . . . . . . . . . . 0
---------- ----------
Balances, September 30, 1996. . . . . . 1,000 1,000
Net income. . . . . . . . . . . . . . . 0
---------- ----------
Balances, September 30, 1997. . . . . . 1,000 1,000
Net income. . . . . . . . . . . . . . . 0
---------- ----------
Balances, June 30, 1998 . . . . . . . . $1,000 $1,000
---------- ----------
---------- ----------
</TABLE>
See the accompanying Notes to Financial Statements.
F-4
<PAGE>
PIONEER FINANCE CORP.
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
----------------------------------------- ---------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Decrease in interest receivable . . . . . . . . 906,383 1,017,367 0 2,025,000 2,025,000
Decrease in interest payable. . . . . . . . . . (906,383) (1,017,367) 0 (2,025,000) (2,025,000)
------------ ------------ ------------ ----------- -------------
Net cash provided by operating activities. . . . . 0 0 0 0 0
------------ ------------ ------------ ----------- -------------
Cash flows from financing activities:
Cash proceeds from investment
in marketable securities. . . . . . . . . . . 20,000,000 22,750,000 0 0 0
Cash paid on long-term debt . . . . . . . . . . (20,000,000) (22,750,000) 0 0 0
------------ ------------ ------------ ----------- -------------
Net cash provided by financing activities. . . . . 0 0 0 0 0
------------ ------------ ------------ ----------- -------------
Increase (decrease) in cash and short-term
investments . . . . . . . . . . . . . . . . . . 0 0 0 0 0
Cash and short-term investments, beginning of
period. . . . . . . . . . . . . . . . . . . . . 1,000 1,000 1,000 1,000 1,000
Cash and short-term investments, end of period . . $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
------------ ------------ ------------ ----------- -------------
------------ ------------ ------------ ----------- -------------
</TABLE>
See the accompanying Notes to Financial Statements.
F-5
<PAGE>
PIONEER FINANCE CORP.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
For the years ended September 30, 1995, 1996, and 1997
And the Nine Months ended June 30, 1997 and 1998
1. BASIS OF PRESENTATION AND GENERAL INFORMATION
Pioneer Finance Corp. ("PFC" or "Company") is a indirect wholly-owned
subsidiary of Santa Fe Gaming Corporation, formerly known as Sahara Gaming
Corporation ("Santa Fe Gaming"), a publicly traded Nevada corporation. PFC
was organized for the purpose of issuing $120 million in first mortgage bonds
due December of 1998 (the "13 1/2% Notes"). PFC has had no operations to
date other than interest income from Pioneer Hotel Inc. ("PHI") on the
promissory note and interest expense on the 13 1/2% Notes.
The Company is a subsidiary of SFGC and has common management. The
accompanying financial statements have been prepared from the separate
records maintained by the Company and may not necessarily be indicative of
the conditions that would have existed if the Company had been operated as an
unaffiliated entity.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
accruals) necessary to present fairly the financial position of the Company
at September 30, 1996 and 1997 and June 30, 1998 the results of its
operations for the years ended September 30, 1995, 1996 and 1997 and the nine
months ended June 30, 1997 and 1998, the changes in stockholder's equity for
the years ended September 30, 1996 and 1997 and for the nine months ended
June 30, 1998 and its cash flows for the years ended September 30, 1995, 1996
and 1997 and for the nine months ended June 30, 1997 and 1998.
2. NOTE RECEIVABLE
Proceeds of the 13 1/2% Notes issued were loaned by PFC to PHI, formerly
known as Pioneer Operating Limited Partnership. PHI, a wholly-owned
subsidiary of Santa Fe Gaming, delivered to PFC a promissory note secured by
a first priority deed of trust on the Pioneer Hotel and Gambling Hall (the
"Pioneer") located in Laughlin, Nevada. The promissory note and first
priority deed of trust are pledged as collateral for the bonds issued. The
terms and conditions of the promissory note are consistent with the
conditions under the Indenture under which the 13 1/2% Notes were issued.
3. LONG-TERM DEBT
Long-term debt consists solely of the 13 1/2% Notes. Interest is
payable semi-annually on June 1 and December 1 at a rate of 13 1/2% per
annum. PFC is subject to certain conditions under the indenture under which
the 13 1/2% Notes were issued, including, without limitation, restrictions on
the incurrence of additional debt and the making of any loans or
distributions or dividends to affiliates of the Company. Management believes
it is in compliance with the
F-6
<PAGE>
conditions under the Indenture. The 13 1/2% Notes are secured by a first deed
of trust on the Pioneer and are guaranteed by Santa Fe Gaming. See Note 4.
The 13 1/2% Notes were issued in December 1988 in the aggregate $120
million principal amount. The terms of the 13 1/2% Notes require $30 million
sinking fund obligations in each of December 31, 1996 and 1997, with the
remaining balance due in December 1998. In September 1995, PHI acquired $20
million principal amount of 13 1/2% Notes which were submitted to PFC to
submit to the trustee for cancellation in satisfaction in full of PFC's
sinking fund payment due in December 1996 and reduced the December 1997
sinking fund obligation to $22.75 million. In January and March 1996, PHI
completed the repurchase of an aggregate of $22.75 million principal amount
of 13 1/2% Notes which were submitted to PFC to submit to the trustee for
cancellation in satisfaction of the December 1997 sinking fund obligation.
At September 30, 1997 the outstanding balance of the 13 1/2% Notes was $60.0
million.
Although management has in the past and is currently exploring
refinancing or debt modification alternatives, as well as possible
dispositions or financing of certain assets, in order to satisfy the current
maturity of the 13 1/2%, no assurance can be given that the Company will be
able to refinance or modify some or all of its indebtedness or dispose of, or
obtain financing with respect to any assets. Any such refinancing or
modification would be subject to the Company's future operations and the
prevailing market conditions at the time of such proposed transaction and may
require the approval of the Nevada Gaming Authorities for such financings or
asset sales. If the Company is ultimately unable to refinance or modify any
such debt prior to maturity, and/or obtain sufficient proceeds from asset
dispositions or financings to repay such debt, events of default would occur
which would lead to cross-defaults in other material agreements of the
Company including, without limitation, agreements relating to substantially
all of the outstanding long-term debt of the Company and its subsidiaries.
4. SUBSEQUENT EVENTS - IMPAIRMENT LOSS
In September 1998, in accordance with SFAS No. 121, PHI determined an
impairment occurred to the carrying value of its assets at the Pioneer in
Laughlin, Nevada. In the quarter ended September 30, 1998, PHI will record
the impairment loss to adjust to fair market value the carrying value of its
fixed and intangible assets. PHI is currently reviewing information to
determine the amount of the impairment loss to be recorded in the quarter
ended September 30, 1998. Management believes however, that the impairment
loss will eliminate the net goodwill of $43.6 million recorded on the balance
sheet as of June 30, 1998. PFC's unaudited financial statements and notes
contained herein should be read in conjunction with the accompanying PHI
financial statement and notes.
F-7
<PAGE>
PIONEER HOTEL INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
ASSETS 1996 1997 1998
------------ ------------- ------------
<S> <C> <C> <C>
Current assets:
Cash and short-term investments. . . . . . . . . . . $5,907,116 $3,249,383 $9,332,985
Accounts receivable, net . . . . . . . . . . . . . . 383,125 312,409 358,658
Inventories. . . . . . . . . . . . . . . . . . . . . 275,731 241,337 234,655
Prepaid expenses & other . . . . . . . . . . . . . . 1,126,168 981,712 1,082,818
------------ ------------ ------------
Total current assets . . . . . . . . . . . . . . . . . 7,692,140 4,784,841 11,009,116
Land held for development. . . . . . . . . . . . . . . 15,084,665 15,084,665 0
Property and equipment, net. . . . . . . . . . . . . . 40,980,277 38,215,778 37,751,663
Goodwill, net. . . . . . . . . . . . . . . . . . . . . 46,073,869 44,641,391 43,567,032
Other assets . . . . . . . . . . . . . . . . . . . . . 4,905,298 4,901,997 188,178
------------ ------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . $114,736,249 $107,628,672 $92,515,989
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt. . . . . . . . . . $287,837 $79,670 $60,026,183
Accounts payable . . . . . . . . . . . . . . . . . . 1,381,829 1,812,489 1,135,427
Accrued interest payable . . . . . . . . . . . . . . 2,761,414 2,740,000 675,000
Accrued and other liabilities. . . . . . . . . . . . 2,745,596 2,447,308 2,843,684
------------ ------------ ------------
Total current liabilities. . . . . . . . . . . . . . . 7,176,676 7,079,467 64,680,294
Due to affiliates. . . . . . . . . . . . . . . . . . . 4,537,418 1,226,818 0
Long-term debt - less current portion. . . . . . . . . 60,091,082 65,001,299 0
Stockholder's equity:
Common Stock, no par value; authorized - 1,000
shares; issued and outstanding - 1,000 shares . . 1,000 1,000 1,000
Additional paid-in capital . . . . . . . . . . . . . 55,584,674 55,584,674 55,584,674
Accumulated deficit. . . . . . . . . . . . . . . . . (12,654,601) (21,264,586) (27,749,979)
------------ ------------ ------------
Total stockholder's equity . . . . . . . . . . . . . . 42,931,073 34,321,088 27,835,695
------------ ------------ ------------
Total liabilities and stockholder's equity . . . . . . $114,736,249 $107,628,672 $92,515,989
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See the accompanying Notes to Unaudited Consolidated Financial Statements.
F-8
<PAGE>
PIONEER HOTEL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
----------------------------------------- --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Casino . . . . . . . . . . . . . . . . . . . . . . . $40,540,185 $38,661,476 $34,820,933 $27,037,555 $25,987,209
Hotel. . . . . . . . . . . . . . . . . . . . . . . . 3,187,027 3,163,406 2,547,158 1,979,165 1,796,964
Food and beverage. . . . . . . . . . . . . . . . . . 7,830,965 8,041,231 9,025,673 6,964,357 6,839,221
Other revenues . . . . . . . . . . . . . . . . . . . 1,443,023 1,415,085 1,368,801 1,084,812 1,114,778
----------- ----------- ----------- ----------- -----------
Gross revenues . . . . . . . . . . . . . . . . . . . . 53,001,200 51,281,198 47,762,565 37,065,889 35,738,172
Less casino promotional allowances . . . . . . . . . (6,966,757) (6,866,101) (6,923,303) (5,377,837) (4,996,926)
----------- ----------- ----------- ----------- -----------
Net operating revenues . . . . . . . . . . . . . . . . 46,034,443 44,415,097 40,839,262 31,688,052 30,741,246
----------- ----------- ----------- ----------- -----------
Operating expenses:
Casino . . . . . . . . . . . . . . . . . . . . . . . 20,258,375 20,342,733 18,666,624 14,073,167 14,243,361
Hotel. . . . . . . . . . . . . . . . . . . . . . . . 413,822 494,626 667,672 482,957 605,863
Food and beverage. . . . . . . . . . . . . . . . . . 5,010,460 5,283,269 5,171,106 3,887,570 4,037,867
Other operating expenses . . . . . . . . . . . . . . 876,376 873,907 839,175 634,964 631,003
Selling, general & administrative. . . . . . . . . . 4,045,642 5,277,783 5,553,521 4,042,290 4,326,543
Utilities & property expenses. . . . . . . . . . . . 3,954,736 3,798,791 3,245,191 2,342,931 2,367,950
Rents & leases . . . . . . . . . . . . . . . . . . . 747,960 737,397 1,023,656 735,309 660,914
Depreciation & amortization. . . . . . . . . . . . . 5,227,136 5,877,851 5,582,794 4,186,374 4,254,714
----------- ----------- ----------- ----------- -----------
Total operating expenses . . . . . . . . . . . . . . . 40,534,507 42,686,357 40,749,739 30,385,562 31,128,215
----------- ----------- ----------- ----------- -----------
Operating income (loss). . . . . . . . . . . . . . . . 5,499,936 1,728,740 89,523 1,302,490 (386,969)
Interest expense . . . . . . . . . . . . . . . . . . . 13,764,919 9,370,977 8,699,508 6,046,483 6,098,424
----------- ----------- ----------- ----------- -----------
Loss before income tax benefit and extraordinary item. (8,264,983) (7,642,237) (8,609,985) (4,743,993) (6,485,393)
Federal income tax benefit . . . . . . . . . . . . . . 1,462,000 1,572,055 0 0 0
----------- ----------- ----------- ----------- -----------
Loss before extraordinary item . . . . . . . . . . . . (6,802,983) (6,070,182) (8,609,985) (4,743,993) (6,485,393)
Extraordinary item-gain on early
extinguishment of debt, net of tax
provision of $1,462,000 in 1995
and $1,572,055 in 1996 . . . . . . . . . . . . . . . 2,838,000 3,051,636 0 0 0
----------- ----------- ----------- ----------- -----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . ($3,964,983) ($3,018,546) ($8,609,985) ($4,743,993) ($6,485,393)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See the accompanying Notes to Unaudited Consolidated Financial Statements.
F-9
<PAGE>
PIONEER HOTEL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(Unaudited)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
----------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Balances, October 1, 1995. . . . . . . . $1,000 $15,500,000 $(9,636,055) $5,864,945
Capital contribution by parent . . . . . 40,084,674 40,084,674
Net loss . . . . . . . . . . . . . . . . (3,018,546) (3,018,546)
---------- ----------- ------------ -------------
Balances, September 30, 1996 . . . . . . 1,000 55,584,674 (12,654,601) 42,931,073
Net loss . . . . . . . . . . . . . . . . (8,609,985) (8,609,985)
---------- ----------- ------------ -------------
Balances, September 30, 1997 . . . . . . 1,000 55,584,674 (21,264,586) 34,321,088
Net loss . . . . . . . . . . . . . . . . (6,485,393) (6,485,393)
---------- ----------- ------------ -------------
Balances, June 30, 1998. . . . . . . . . $1,000 $55,584,674 ($27,749,979) $27,835,695
---------- ----------- ------------ -------------
---------- ----------- ------------ -------------
</TABLE>
See the accompanying Notes to Unaudited Consolidated Financial Statements.
F-10
<PAGE>
PIONEER HOTEL INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
------------------------------------------- ---------------------------
1995 1996 1997 1997 1998
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . ($3,964,983) ($3,018,546) ($8,609,985) ($4,743,993) ($6,485,393)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation & amortization. . . . . . . . . . . . . 5,227,136 5,877,851 5,582,794 4,186,374 4,254,714
Gain on early extinguishment of debt, net. . . . . . (2,838,000) (3,051,636) 0 0 0
Federal income tax benefit . . . . . . . . . . . . . (1,462,000) (1,572,055) 0 0 0
Decrease (increase) in accounts receivable,
net . . . . . . . . . . . . . . . . . . . . . . . 42,392 (78,575) 70,716 (27,497) (46,249)
Decrease in inventories. . . . . . . . . . . . . . . 171,553 687 34,394 7,558 6,682
Decrease (increase) in prepaid expenses &
other . . . . . . . . . . . . . . . . . . . . . . (335,250) 19,704 144,461 9,591 (101,106)
Decrease (increase) in other assets. . . . . . . . . 46,138 (605,997) (230,070) (641,090) (480,636)
Increase (decrease) in accounts payable. . . . . . . (169,594) 161,940 430,660 122,898 (678,411)
Decrease in interest payable . . . . . . . . . . . . (906,383) (1,063,261) (21,414) (2,076,414) (2,065,000)
Increase (decrease) in other current liabilities . . 1,129 (180,914) (298,289) (543) 396,377
Increase (decrease) in due to affiliates . . . . . . 168,442 1,492,817 (3,310,600) (3,459,398) (1,226,818)
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities. . . . . . . . . (4,019,420) (2,017,985) (6,207,333) (6,622,514) (6,425,840)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . (3,959,123) (1,215,159) (1,070,848) (644,250) (2,406,250)
Proceeds from sale of assets . . . . . . . . . . . . 0 0 0 0 20,000,000
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities . . . . . . . . . . . . . . . . . . . . . (3,959,123) (1,215,159) (1,070,848) (644,250) 17,593,750
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Cash proceeds of long-term debt. . . . . . . . . . . 0 0 5,000,000 5,000,000 0
Cash paid on long-term debt. . . . . . . . . . . . . (1,153,402) (18,895,522) (379,552) (350,425) (5,084,308)
Capital contribution . . . . . . . . . . . . . . . . 0 25,000,000 0 0 0
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . . . . (1,153,402) 6,104,478 4,620,448 4,649,575 (5,084,308)
Increase (decrease) in cash and short-term
investments. . . . . . . . . . . . . . . . . . . . . (9,131,945) 2,871,334 (2,657,733) (2,617,189) 6,083,602
Cash and short-term investments, beginning of
period . . . . . . . . . . . . . . . . . . . . . . . 12,167,727 3,035,782 5,907,116 5,907,116 3,249,383
----------- ----------- ----------- ----------- -----------
Cash and short-term investments, end of
period . . . . . . . . . . . . . . . . . . . . . . . $3,035,782 $5,907,116 $3,249,383 $3,289,927 $9,332,985
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See the accompanying Notes to Unaudited Consolidated Financial Statements.
F-11
<PAGE>
PIONEER HOTEL INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended September 30, 1995, 1996, and 1997
And Nine Months ended June 30, 1997 and 1998
1. BASIS OF PRESENTATION AND GENERAL INFORMATION
Pioneer Hotel, Inc. a Nevada corporation (the "Pioneer" or "Company"),
was formed to own and operate a hotel and casino in Laughlin, Nevada. The
Company is a wholly owned subsidiary of Santa Fe Gaming Corporation ("SFGC")
which, in addition, owns and operates a casino and hotel in northwest Las
Vegas, Nevada and owns real estate parcels in Las Vegas, Nevada.
The Company owns 100% of the common stock of Santa Fe Valley, Inc. a
Nevada corporation ("SFV"), which was formed in 1995 to own a real estate
parcel in Henderson, Nevada. In November 1997, SFV sold the real estate
parcel for cash consideration to a subsidiary of SFGC. See Notes 3 and 5.
The Company is a subsidiary of SFGC and has common management. The
accompanying financial statements have been prepared from the separate
records maintained by the Company and may not necessarily be indicative of
the conditions that would have existed if the Company had been operated as an
unaffiliated entity. Certain expenses paid by SFGC are allocated to the
Company as corporate charges, which management of the Company believes are
appropriate.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
accruals) necessary to present fairly the financial position of the Company
at September 30, 1996 and 1997 and June 30, 1998 the results of its
operations for the years ended September 30, 1995, 1996 and 1997 and the nine
months ended June 30, 1997 and 1998, the changes in stockholder's equity for
the years ended September 30, 1996 and 1997 and for the nine months ended
June 30, 1998 and its cash flows for the years ended September 30, 1995, 1996
and 1997 and for the nine months ended June 30, 1997 and 1998.
The Company's gaming operations typically have their highest levels of
business during the winter tourist season when its casino customers
experience heavier tourist traffic. In general, the highest levels of
business activity at Laughlin casinos occurs during the tourist season from
October to June of each year. During summer months, primary visitors to
Laughlin are water and recreational enthusiasts, who have a more modest
gaming profile.
F-12
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Pioneer and its wholly owned subsidiary, SFV. All material intercompany
accounts and transactions have been eliminated in consolidation.
CASH AND SHORT-TERM INVESTMENTS
Investments which mature within 90 days from the date of purchase are
treated as cash equivalents and are included in cash and short-term
investments.
INVENTORIES
Food, beverage, gift shop and other inventories are stated at first-in,
first-out cost, not in excess of market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Costs of maintenance and
repairs of property and equipment are expensed as incurred. Costs of major
improvements are capitalized and depreciated pursuant to the standard
described below. Gains or losses on the disposal of property and equipment
are recognized in the year of sale. In sale/ leaseback transactions of
property and equipment, gains are deferred and recognized over the lease term
and losses are recognized in the year of sale.
Depreciation and amortization are computed by the straight-line method
over the shorter of the estimated useful lives or lease terms. The length of
depreciation and amortization periods are for buildings and improvements 7 to
40 years and for machinery and equipment 3 to 15 years.
GOODWILL
The excess cost over the net assets of an acquired company is amortized
using the straight line method over a 40 year period. In accordance with
SFAS No. 121, Management periodically evaluates the recoverability of
goodwill as events and circumstances indicate a possible inability to recover
the carrying amount. Adoption of SFAS No. 121 in fiscal 1996 had no impact
on the financial statements of the Company. See Note 18.
FEDERAL INCOME TAXES
SFGC allocates income tax expense or benefit to the Company as if the
Company were filing separate tax returns pursuant to a tax sharing
arrangement. The Company accounts for income taxes in accordance with SFAS
No. 109, Accounting for Income Taxes. Adoption of SFAS No. 109 had no effect
on the amounts of income tax expense allocated to the Company.
F-13
<PAGE>
REVENUE RECOGNITION
Casino revenue is recorded as gaming wins less losses. Revenues include
the retail amount of room, food, beverage and other services provided
gratuitously to customers. Such amounts are then deducted as promotional
allowances. The estimated cost of providing these promotional services has
been reported in the accompanying consolidated financial statements as an
expense of each department granting complimentary services. The table below
summarizes the departments' costs of such services (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------------ -----------------
1995 1996 1997 1997 1998
--------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Food and Beverage . . . .$5,905 $5,673 $5,415 $4,091 $4,196
Hotel . . . . . . . . . .925 935 808 609 573
Other . . . . . . . . . .162 68 12 9 11
------ ------ ------- ------- -------
Total. . . . . . . .$6,992 $6,676 $6,235 $4,709 $4,780
------ ------ ------- ------- -------
------ ------ ------- ------- -------
</TABLE>
INDIRECT EXPENSES
Certain indirect expenses of operating departments such as utilities and
property expense and depreciation and amortization are shown separately in
the accompanying consolidated statements of operations and are not allocated
to departmental operating costs and expenses.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates used by the Company include
estimated useful lives for depreciable and amortizable assets, certain other
estimated liabilities and valuation reserves, and estimated cash flows in
assessing the recoverability of long-lived assets. Actual results may differ
from estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of debt to be $48 million at
September 30, 1997 based upon available market prices. The Company estimates
that all other financial instruments have a fair value which approximates
their recorded value.
RECENTLY ISSUED ACCOUNTING STANDARDS
The American Institute of Certified Public Accountants' Accounting
Standards Executive Committee issued Statement of Position 98-5 "Reporting on
the Costs of Start-up Activities" ("SOP 98-5"). This standard provides
guidance on the financial reporting for start-up costs and organization
costs. This standard requires costs of start-up activities and organization
costs to be expensed as incurred. This standard is effective for fiscal
years beginning after December 15,
F-14
<PAGE>
1998, though earlier application is encouraged. Management does not believe
that SOP 98-5 will have a material impact on the presentation of the
Company's consolidated financial statements.
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"), which is effective for fiscal years beginning after
December 15, 1997. This statement requires companies to classify items of
other comprehensive income by their nature in a financial statement and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
balance sheet. Management does not believe that SFAS No. 130 will have a
material impact on the presentation of the Company's financial statements.
The FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("SFAS
No. 131"), which is effective for fiscal years beginning after December 15,
1997. This statement redefines how operating segments are determined and
requires qualitative disclosure of certain financial and descriptive
information about a company's operating segments. The Company will adopt
SFAS No. 131 for the fiscal year ending September 30, 1999. Management has
not yet completed its analysis of which operating segments it will report on
to comply with SFAS No. 131.
3. CASH AND SHORT-TERM INVESTMENTS
The Company's cash and short term investments are subject to certain
restrictions and limitations on its use, including restrictions on its
availability for distribution to SFGC, by the terms of an indenture pursuant
to which $120 million principal amount of 13 1/2% First Mortgage Notes due
2000 ("13 1/2% Notes") of Pioneer Finance Corp. was issued. As of September
30, 1997, the Company did not meet the conditions precedent to making a
distribution to the SFGC.
In November 1997, SFV sold the Henderson parcel for cash consideration
of $20 million to a subsidiary of SFGC. A portion of the net proceeds from
the sale were utilized to repay $5 million of indebtedness secured by the
property and the balance was held at SFV. During the nine month period ended
June 30, 1998, SFV made cash dividends to the Pioneer of $5.0 million in
November 1997 and $3.4 million in June 1998, to provide, in part, liquidity
to meet debt service payments. Approximately $6.4 million of the Company's
cash and short-term investments as of June 30, 1998 was held by SFV. See
Note 5.
4. ACCOUNTS RECEIVABLE, NET
Accounts receivable at September 30, 1996 and 1997 and June 30, 1998
consisted of the following:
F-15
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
----------------------- ----------
1996 1997 1998
---------- ---------- ---------
<S> <C> <C> <C>
Casino and hotel. . . . . . . . . . $503,755 $568,486 $642,315
Less allowance for doubtful 120,630 256,077 283,657
accounts . . . . . . . . . . . . . -------- --------- ---------
Total . . . . . . . . . . $383,125 $312,409 $358,658
-------- --------- ---------
-------- --------- ---------
</TABLE>
Changes in the allowance for doubtful accounts for the years ended
September 30, 1995, 1996 and 1997 and the nine months ended June 30, 1997 and
1998 were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
--------------------------------------- -----------------------
1995 1996 1997 1997 1998
---------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance, beginning of period. . . . . . $389,991 $243,114 $120,630 $120,630 $256,077
Provision . . . . . . . . . . . . . . . 127,253 23,929 140,142 52,598 29,166
Accounts written-off. . . . . . . . . . (274,130) (146,413) (4,695) 0 (1,586)
--------- --------- --------- --------- --------
Balance, end of period . . . . . . $243,114 $120,630 $256,077 $173,228 $283,657
--------- --------- --------- --------- --------
--------- --------- --------- --------- --------
</TABLE>
5. LAND HELD FOR DEVELOPMENT
In October 1995, SFGC contributed 39 acres of real property located in
Henderson, Nevada to SFV, in accordance with an agreement reached with
holders of the 13 1/2% Notes. The property was recorded in the accompanying
balance sheet at SFGC's cost. . SFGC acquired the Henderson parcel for
approximately $15.1 million in March 1994. In November 1997, SFV sold the
Henderson parcel for cash consideration of $20.0 million to a subsidiary of
SFGC. A portion of the net proceeds from the sale were utilized to repay $5
million of indebtedness secured by the property and the balance held in cash
at SFV. The sale price approximated the carrying value of the development at
the time of sale. See Notes 3, 8 and 10.
6. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, at September 30, 1996 and 1997 and June 30,
1998 was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
--------------------------- -----------
1996 1997 1998
------------ ------------ -----------
<S> <C> <C> <C>
Land . . . . . . . . . . . . . . . $ 7,925,589 $ 7,925,589 $ 7,925,589
Buildings and Improvements. . . . . 35,653,042 35,632,714 35,901,863
Machinery and Equipment . . . . . . 15,097,674 15,014,019 15,899,441
Accumulated Depreciation. . . . . . (17,696,028) (20,356,544) (21,975,230)
------------ ------------ ------------
Total. . . . . . . . . . . . . $40,980,277 $38,215,778 $37,751,663
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
In December 1997, the Company acquired, for approximately $1.2 million,
gaming equipment previously under lease at the Pioneer. In January 1998, the
Pioneer acquired, for
F-16
<PAGE>
approximately $500,000, an additional 108 gaming machines with funds from
available working capital.
In September 1998, in accordance with SFAS No. 121, the Company
determined an impairment loss had occurred to the carrying value of the
assets of the Pioneer in Laughlin, Nevada. In the quarter ending September
30, 1998 the Company will record the impairment loss to adjust to fair
market value the carrying value of its fixed and intangible assets. See
Notes 7 and 18.
7. GOODWILL, NET
Goodwill of $56,510,724 was recorded by the Company on December 1, 1988
as a result of the allocation of the purchase price of the Pioneer. Goodwill
is net of accumulated amortization of $10.4 million, $11.9 million and $12.9
million at September 30, 1996 and 1997 and June 30, 1998, respectively.
Amortization expense was $1.4 million in the fiscal years 1995, 1996, and
1997, and $1.1 million for the nine months ended June 30, 1997 and 1998.
In September 1998, in accordance with SFAS No. 121, the Company
determined an impairment loss had occurred to the carrying value of the
assets of the Pioneer in Laughlin, Nevada. In the quarter ending September
30, 1998 the Company will record the impairment loss to adjust to fair
market value the carrying value of its fixed and intangible assets See Notes
6 and 18.
8. OTHER ASSETS
As of September 30, 1996 and 1997, the Company had recorded $2.5 and
$3.5 million, respectively, in preliminary engineering and development costs
related to the Henderson property. In November 1997, SFV sold the Henderson
parcel for cash consideration of $20.0 million. See Notes 3 and 5.
9. LONG-TERM DEBT
The Company is subject to various financing agreements containing
covenants and restrictions, with which the Company was in compliance at June
30, 1998. Long-term debt at September 30, 1996 and 1997 and at June 30, 1998
consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
-------------------------- ------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
13 1/2% Notes, due Dec. 1998. . . . $60,000,000 $60,000,000 $60,000,000
12 1/4% Notes, due May 1998 . . . . 0 5,000,000 0
Other notes payable . . . . . . . . 378,919 80,969 26,183
----------- ----------- ------------
Subtotal . . . . . . . . . . . 60,378,919 65,080,969 60,026,183
Less current portion. . . . . . . . 287,837 79,670 60,026,183
----------- ----------- ------------
Total long-term debt . . . . . $60,091,082 $65,001,299 $ 0
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
F-17
<PAGE>
The 13 1/2% Notes were issued by Pioneer Finance Corp. ("PFC"), an
indirect wholly-owned subsidiary of SFGC. Proceeds of the 13 1/2% Notes
issued were loaned by PFC to the Company's predecessor Pioneer Operating
Limited Partnership. The Company delivered to PFC a promissory note secured
by a first priority deed of trust on the Pioneer Hotel and Gambling Hall (the
"Pioneer Casino") located in Laughlin, Nevada. The promissory note and first
priority deed of trust are pledged as collateral for the 13 1/2% Notes. The
terms of the promissory note are consistent with the terms of the Indenture
under which the 13 1/2% Notes were issued. The 13 1/2% Notes are guaranteed
by SFGC. Interest is payable semi-annually on June 1 and December 1 at a
rate of 13 1/2% per annum. The Company is subject to certain conditions under
the indenture under which the 13 1/2% Notes were issued, including, without
limitation restrictions on the incurrence of additional debt and the making
of any loans or distributions or dividends to affiliates of the Company.
In 1995, in accordance with terms of an agreement reached with holders
of the 13 1/2% Notes pursuant to which the holders of the 13 1/2% Notes
consented to the sale of certain assets by SFGC, SFGC made an equity
contribution of $15 million in cash to the Company. Such funds were
restricted in use for debt service on the 13 1/2% Notes, repurchase of
13 1/2%, and capital expenditures at the Pioneer. SFGC also pledged to
contribute up to an additional $10 million. Such obligation was reduced
dollar for dollar to the extent SFGC and its affiliates loaned or contributed
up to $10 million to Pioneer Inc. In addition, SFGC contributed the capital
stock of a wholly-owned subsidiary to Pioneer, which owned the real property
located in Henderson, Nevada. SFGC had acquired the property for
approximately $15.1 million in March 1994.
In September 1995 the Company retired $20 million principal amount of
13 1/2% Notes. The Company recorded an extraordinary gain of $4.3 million less
income tax charge of $1.5 million. The $20.0 million principal amount of the
13 1/2% Notes acquired was submitted to the trustee for cancellation and in
satisfaction in full of the Company's remaining $12.75 million sinking fund
payment due in December 1996 and reduced the December 1997 sinking fund
obligation to $22.75 million.
In January 1996, SFGC completed the repurchase of an aggregate of
$12.5 million in principal amount of 13 1/2% Notes and contributed the 13 1/2%
Notes to the Company in satisfaction of the $10.0 million pledge referred to
above. In addition, in March 1996, the Company completed the repurchase of
$10.2 million principal amount of 13 1/2% Notes and accrued interest thereon for
$8.6 million with cash contributed by SFGC. The Company recorded an
extraordinary gain of approximately $3.0 million after tax related to the debt
repurchases in the quarter ended March 31, 1996. The 13 1/2% Notes acquired
were submitted to the trustee for cancellation in satisfaction of the December
1997 sinking fund obligation. At September 30, 1997 the outstanding balance of
the 13 1/2% Notes due December 1, 1998 was $60.0 million.
The Company used the remaining cash contributed by SFGC in December 1995
and 1996, together with available working capital, to make the semi- annual
interest payments due on the 13 1/2% Notes.
F-18
<PAGE>
In May 1997, the Company borrowed $5.0 million at a rate of 12 1/4%
interest, payable monthly for a twelve month term, pursuant to a first
mortgage note secured by the 39 acre parcel of land located in Henderson,
Nevada (the "12 1/4% Note"). Net proceeds were used primarily to repay
indebtedness to SFGC for costs to develop SFV. In November 1997, SFV sold
the Henderson parcel for cash consideration to an affiliate, the proceeds of
which, in part, were used to satisfy $5.0 million indebtedness against the
property.
Although management has in the past and is currently exploring
refinancing or debt modification alternatives, as well as possible
dispositions or financing of certain assets, in order to satisfy the current
maturity of the 13 1/2% Notes, no assurance can be given that the Company
will be able to refinance or modify some or all of its indebtedness or
dispose of, or obtain financing with respect to any assets. Any such
refinancing or modification would be subject to the Company's future
operations and the prevailing market conditions at the time of such proposed
transaction and may require the approval of the Nevada Gaming Authorities for
such financings or asset sales. If the Company is ultimately unable to
refinance or modify any such debt prior to maturity, and/or obtain sufficient
proceeds from asset dispositions or financings to repay such debt, events of
default would occur which would lead to cross-defaults in other material
agreements of the Company including, without limitation, agreements relating
to substantially all of the outstanding long-term debt of the Company and its
subsidiaries.
10. DUE TO AFFILIATES
As of September 30, 1996 and 1997, the Company owed approximately $4.5
million and $1.2 million respectively to SFGC, representing primarily
advances made by SFGC for costs in the development of the Henderson parcel.
In May 1997, the Company repaid approximately $4.0 million of the outstanding
balance with proceeds of the 12 1/4% Notes See Note 9.
11. LEASES
All non-cancelable leases have been classified as capital or operating
leases. Under most leasing arrangements, the Company pays the taxes,
insurance and the operating expenses related to the leased property. Future
minimum operating lease payments as of June 30, 1998 are as follows: <TABLE>
<CAPTION>
JUNE 30, 1998
-------------
<S> <C>
1999 $ 716,539
2000 716,539
2001 716,539
2002 716,539
2003 716,539
Thereafter 54,098,691
-----------
$57,681,386
-----------
-----------
</TABLE>
Included in future minimum operating lease payments are rental costs
associated with the real property under the lease at the Pioneer.
Approximately 6.5 acres of the Pioneer property are subject to a 99 year
ground lease, expiring in December 2078. Under the ground lease the
F-19
<PAGE>
Company is subject to an annual rental obligation of approximately $700,000
per year, adjusted annually based on the Consumer Price Index. Additionally,
beginning January 1, 2004 and every ten years thereafter, the annual rent
will be adjusted to an amount equal to 10% of the fair market value of the
land subject to the ground lease.
In December 1997, the Pioneer purchased gaming equipment previously
subject to lease for approximately $1.2 million.
12. STOCKHOLDER'S EQUITY
In September 1995, pursuant to an agreement reached with holders of
13 1/2% Notes, in which the holders of 13 1/2% Notes consented to the sale of
certain assets of SFGC, SFGC contributed approximately $20.0 million
principal amount of 13 1/2% Notes to the Company which were submitted for
cancellation.
In fiscal 1996, SFGC contributed $15 million in cash to the Pioneer and
contributed the capital stock of a wholly-owned subsidiary valued at $15.1
million which owned a 39 acre parcel of real property in Henderson, Nevada.
In January 1996, SFGC contributed $125 million principal amount of 13 1/2%
Notes to the Company for cancellation, in satisfaction of a $10.0 million
pledge by SFGC. See Note 9.
13. FEDERAL INCOME TAXES
The Company's current taxable income is included in the consolidated
federal tax return of SFGC. The consolidated provision or benefit is
allocated proportionately among the subsidiaries of SFGC pursuant to a tax
allocation arrangement ("Tax Arrangement") based on the contribution of each
company in the consolidated federal tax return as if each company calculated
its tax on a separate return basis. The Tax Arrangement provides that if the
Company's tax liability as calculated on a separate return basis exceeds the
Company's portion of the consolidated tax liability, the Company is to
reimburse the excess of the separate return liability over its allocated
portion of the consolidated tax liability to its parent. Pioneer has $18.4
million in net operating losses as of September 30, 1997. A valuation
allowance has been recorded due to the uncertainty of the utilization of the
Pioneer's net operating losses.
The components of the deferred tax asset (liability) consisted of the
following (dollars in thousands):
F-20
<PAGE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30
------------------------
1996 1997
------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX LIABILITIES
Valuation allowance. . . . . . . . . . . . . . . . . . . . . . $2,241 $4,393
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . 364 314
Fixed asset cost, depreciation and amortization, net . . . . . 975 804
Capitalized interest . . . . . . . . . . . . . . . . . . . . . 953 953
Reserves for accounts and contract receivable. . . . . . . . . 69 24
------ -------
Gross deferred tax liabilities . . . . . . . . . . . . . . . . $4,602 $6,488
------ -------
------ -------
DEFERRED TAX ASSETS
Net operating loss carryforward, net of tax sharing benefit. . $4,414 $6,271
Other/Treasure Bay . . . . . . . . . . . . . . . . . . . . . . 2 25
Deferred payroll . . . . . . . . . . . . . . . . . . . . . . . 186 192
------ -------
Gross deferred tax assets. . . . . . . . . . . . . . . . . . . 4,602 6,488
------ -------
Net deferred tax assets (liabilities). . . . . . . . . . . . . $0 $0
------ -------
------ -------
</TABLE>
As of June 30, 1998 the Company's deferred tax asset is value at $0.0 due
to the uncertainty of the utilization of the Company's net operating losses and
the parents ability to reimburse the Company for any tax benefit reported in the
parents federal income tax return.
14. SUBSIDIARY STOCK OPTION PLAN
The Company has adopted a subsidiary stock option plan (the "Subsidiary
Plan"). The Subsidiary Plan provides for the grant of options with respect to
an aggregate of up to 10% of the outstanding shares of such Common Stock to
employees, non-employee directors, consultants or affiliates of the Company.
The purpose of the Subsidiary Plan is to enable the Company to attract, retain
and motivate their employees, non-employee directors, consultants and affiliates
by providing for or increasing the proprietary interest of such persons. The
indenture under which the 13 1/2% Notes were issued provides that if SFGC ceases
to own directly or indirectly, 100% of the outstanding capital stock of the
Company, an event of default will occur. As a result, the Subsidiary Plan
provides that options granted under the Subsidiary Plan may not be exercised if
the exercise would result in a default, or require an offer to repurchase the
outstanding debt, under any agreement with respect to long-term debt of the
Company. As of June 30, 1998, no options had been granted under the Subsidiary
Plan.
15. BENEFIT PLANS
SFGC has a savings plan (the "Plan") qualified under Section 401(k) of the
Internal Revenue Code of 1986, as amended. The Plan covers substantially all of
the Company's employees. The Company's matching contributions paid for the
fiscal years 1995, 1996 and
F-21
<PAGE>
1997 were $24,000, $47,000, and $39,000, respectively, and for the nine months
ended June 30, 1997 and 1998 were $27,000 and $27,000, respectively.
16. CONTINGENCIES
POULOS V. CAESAR'S: SFGC and its predecessor, Sahara Casino Partners, L.P.
are defendants in a class action lawsuit originally filed in the United States
District Court of Florida, Orlando Division, entitled POULOS V. CAESAR'S WORLD,
INC., ET AL., AHERN V. CAESAR'S WORLD, INC., ET AL. and SCHRIER V. CAESAR'S
WORLD, INC., ET AL, along with a fourth action against cruise ship gaming
operators and which have been consolidated in a single action now pending in
the United States District Court, District of Nevada. Also named as defendants
in these actions are many, if not most, of the largest gaming companies in the
United States and certain gaming equipment manufacturers. Each complaint is
identical in its material allegations. The actions allege that the defendants
have engaged in fraudulent and misleading conduct by inducing people to play
video poker machines and electronic slot machines based on false beliefs
concerning how the machines operate and the extent to which there is actually an
opportunity to win on a given play. The complaints allege that the defendants'
acts constitute violations of the Racketeer Influenced and Corrupt Organizations
Act ("RICO") and also give rise to claims for common law fraud and unjust
enrichment, and it seeks compensatory, special consequential, incidental and
punitive damages of several billion dollars.
In response to the complaints, all of the defendants, including SFGC and
the Partnership, filed motions attacking the pleadings for failure to state a
claim, seeking to dismiss the complaints for lack of personal jurisdiction and
venue. As a result of those motions, the Court has required the Plaintiffs in
the four consolidated cases to file a single consolidated amended complaint.
Subsequent to Plaintiffs' filing of their consolidated amended complaint, the
defendants refiled numerous motions attacking the amended complaint upon many of
the bases as the prior motions. The Court heard the arguments on eight of those
motions on November 3,1997, and has taken them under advisement. The Court has
not indicated when it will render its decision on those motions.
OTHER: In addition, the Company is subject to various lawsuits relating
to routine matters incidental to its business. The Company does not believe
that the outcome of such litigation, in the aggregate, will have a material
adverse effect on the Company.
INTERNAL REVENUE SERVICE: On September 30, 1997, the United States Tax
Court issued an adverse ruling applicable to hotels and casinos which provide
meals to employees. The IRS has interpreted the Tax Court ruling to mean that
non-qualifying employees are required to recognize income based on the fair
value of meals in excess of the amount paid by the employee. Accordingly,
employers may be liable for withholding and payroll taxes associated with the
fair value of the meals provided to employees in excess of the amount paid by
the employee.
Subsequent to the Tax Court decision legislation was enacted which greatly
reduced the requirements for employee income exclusion. On July 24, 1998 the
IRS issued guidance for determining whether employees receiving meals may
exclude from income the value of those meals, and has established a sixty-day
public comment period regarding the guidance.
F-22
<PAGE>
Accordingly, at this time, it is uncertain whether or not the Company will be
liable for withholding and payroll taxes and penalties for failure to withhold
related to the income excluded from the non-qualifying employee wages for the
meals it has provided.
17. SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
Supplemental statement of cash flows information is presented below (in
thousands):
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED JUNE 30
-------------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Operating activities:
Cash paid during the year for
interest, net of amount
capitalized of $3,030, $0, and
$204 for fiscal years 1995, 1996
and 1997, respectively, and $0
and $108,337 for the nine months
ended June 30, 1997 and 1998
respectively.. . . . . . . . . . . . . . $14,671 $10,327 $8,123 $8,123 $8,123
-------- -------- ------- -------- -------
-------- -------- ------- -------- -------
Long-term debt incurred in
connection with the acquisition
of machinery and equipment . . . . . . .. $ 2,039 $ 76 $ 82 $ 82 $ 31
-------- -------- ------- -------- -------
-------- -------- ------- -------- -------
Capital Contribution of Land
Held for Development . . . . . . . . . . $ 0 $15,084 $ 0 $ 0 $ 0
-------- -------- ------- -------- -------
-------- -------- ------- -------- -------
</TABLE>
18. SUBSEQUENT EVENTS-IMPAIRMENT LOSS
In September 1998, in accordance with SFAS No. 121, the Company determined
an impairment loss had occurred to the carrying value of its assets of the
Pioneer in Laughlin, Nevada. In the quarter ended September 30, 1998 the
Company will record the impairment loss to adjust to fair market value the
carrying value of its fixed and intangible assets. See Notes 5, 6 and 7.
The impairment of the carrying value occurred due to a change in the
regulatory policy regarding legislation of gaming operations on Indian
reservations in the State of California. On August 28, 1998, the California
General Assembly, Senate and Governor approved legislation authorizing gaming
operations pursuant to a form of compact. Prior to this date, California
authorities considered gaming devices operated on Indian reservations to be
illegal and had instituted action to seize and shut down such operations. In
addition, on November 3, 1998, California voters will consider Proposition 5,
which if approved will expand the definition of legal gaming operations
considered legal by the form of compact. Management believes that even if
Proposition 5 is defeated on November 3, 1998, additional gaming operations in
Southern California will be developed based on the form of compact. This change
in regulatory policy will further intensify the competitive environment in
Laughlin, Nevada and adversely affect the
F-23
<PAGE>
outlook for longer term operating results for gaming operations in Laughlin,
Nevada. The Company is currently reviewing information to determine the amount
of the impairment loss to be recorded in the quarter ended September 30, 1998.
Management believes, however, that the impairment loss will eliminate the net
goodwill of $43.6 million recorded on the balance sheet as of June 30, 1998.
F-24
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
13 1/2% FIRST MORTGAGE NOTES DUE DECEMBER 1, 2006
FOR ALL OF THE OUTSTANDING
13 1/2% FIRST MORTGAGE BONDS DUE DECEMBER 1, 1998
AND
CONSENT FORM
OF
PIONEER FINANCE CORP.
PURSUANT TO THE OFFERING CIRCULAR AND CONSENT SOLICITATION STATEMENT
DATED OCTOBER 23, 1998
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON FRIDAY, NOVEMBER 20, 1998, UNLESS EXTENDED (THE "EXCHANGE
EXPIRATION DATE"). THE CONSENT SOLICITATION AND REVOCATION RIGHTS WILL EXPIRE
AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, NOVEMBER 20, 1998, UNLESS
EXTENDED (THE "SOLICITATION EXPIRATION DATE"). CONSENTS MAY BE REVOKED AT ANY
TIME PRIOR TO THE SOLICITATION EXPIRATION DATE AND WILL AUTOMATICALLY EXPIRE IF
THE REQUISITE CONSENTS ARE NOT OBTAINED (AS SUCH TERMS ARE DEFINED IN THE
OFFERING CIRCULAR AND CONSENT SOLICITATION STATEMENT).
- --------------------------------------------------------------------------------
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
IF YOU DESIRE TO ACCEPT THE EXCHANGE OFFER AND/OR CONSENT AND AGREE TO BE
BOUND BY THE PROPOSED CONSENTS, THIS LETTER OF TRANSMITTAL AND CONSENT
FORM SHOULD BE COMPLETED, SIGNED, AND SUBMITTED TO THE
EXCHANGE/SOLICITATION AGENT:
IBJ SCHRODER BANK AND TRUST COMPANY
BY MAIL: BY FACSIMILE: BY HAND OR OVERNIGHT DELIVERY:
IBJ Schroder Bank & Trust (212) 858-2611 IBJ Schroder Bank & Trust
Company Company
P.O. Box 84 One State Street
Bowling Green Station To Confirm: New York, NY 10004
New York, NY 10274-0084 (212) 858-2103 Attn: Securities Processing
Attn: Reorganization Window, Subcellar One, (SC-1)
Operations Department
DELIVERY OF THIS LETTER OF TRANSMITTAL AND CONSENT FORM TO AN ADDRESS OR
TRANSMISSION VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
For any questions regarding this Letter of Transmittal and Consent Form or
for any additional information you may contact the Exchange/Solicitation Agent
or the Information Agent.
The Information Agent:
D.F. KING & CO., INC.
77 Water Street, 20th Floor
New York, New York 10005
Toll free (800) 628-8538
or
Banks and Brokers call (212) 425-1685
1
<PAGE>
The undersigned hereby acknowledges receipt of the Offering Circular and
Consent Solicitation Statement dated October 23, 1998 (as the same may be
amended or supplemented, the "Joint Offering Circular/Consent Solicitation
Statement") and this Letter of Transmittal and Consent Form (the "Letter of
Transmittal and Consent Form"), which together constitute the offer (the
"Exchange Offer") by Pioneer Finance Corp., a Nevada corporation (the
"Company"), upon the terms and subject to the conditions set forth in the
Joint Offering Circular/Consent Solicitation Statement and the Letter of
Transmittal and Consent Form to exchange a principal amount of its 13 1/2%
First Mortgage Notes due December 1, 2006 (together with the PIK Notes, as
defined in the Joint Offering Circular/Consent Solicitation Statement, the
"New Notes") equal to the principal amount of all its outstanding 13 1/2%
First Mortgage Bonds due December 1, 1998 (the "Old Notes") properly tendered
for exchange and not withdrawn, less the principal amount of Old Notes
repurchased by the Company, as described in the Joint Offering
Circular/Consent Solicitation Statement under the caption "The Exchange
Offer--Acceptance of Old Notes for Exchange; Delivery of New Notes; Payment
of Interest and Repurchase of Old Notes." The Exchange Offer is subject to
certain conditions. See "The Exchange Offer--Conditions of the Exchange
Offer" in the Joint Offering Circular/Consent Solicitation Statement.
In the event that the Exchange Offer is not consummated, the Company is
soliciting (the "Consent Solicitation") the consents (the "Consents") of the
registered holders (individually, a "Holder" and collectively the "Holders") of
the Old Notes and their agreement to be bound by certain proposals (the
"Proposed Consents") as described in the Joint Offering Circular/Consent
Solicitation Statement and in this Letter of Transmittal and Consent Form.
All capitalized terms used herein without definition shall have the
meanings ascribed to them in the Joint Offering Circular/Consent Solicitation
Statement.
CASH PAYMENTS TO HOLDERS UPON EXCHANGE/CONSENT
Upon a successful consummation of the Exchange Offer, the Company will pay
in cash accrued and unpaid interest through December 1, 1998 (approximately $4.1
million) with respect to all Old Notes that are properly tendered and not
withdrawn and repurchase on a pro rata basis from all Holders who properly
tender and do not withdraw Old Notes before the Exchange Expiration Date an
aggregate of approximately $2.8 million principal amount of Old Notes (the
"Tendering Holder Repurchase Amount"). See "The Exchange Offer - Repurchase of
Old Notes" in the Joint Offering Circular/Consent Solicitation Statement.
If the Exchange Offer is not consummated but as of the Solicitation
Expiration Date the Company has received and accepted Consents from Holders with
respect to at least $47 million principal amount of outstanding Old Notes, the
Proposed Consents will become effective and the Company will repurchase on a pro
rata basis from the Holders of Old Notes with respect to which Consents have
been properly furnished and not revoked an aggregate of $6.5 million principal
amount of Old Notes, together with accrued and unpaid interest thereon
(approximately $400,000) through the Solicitation Expiration Date (the
"Consenting Holder Repurchase Amount"). See "The Solicitation--Repurchase of
Notes" in the Joint Offering Circular/Consent Solicitation Statement.
HOLDERS OF OLD NOTES MAY (i) TENDER FOR EXCHANGE ANY OR ALL OLD NOTES HELD
BY SUCH HOLDER PURSUANT TO THE EXCHANGE OFFER; OR (ii) CONSENT TO AND AGREE TO
BE BOUND BY THE PROPOSED CONSENTS WITH RESPECT TO ANY OR ALL OLD NOTES HELD BY
SUCH HOLDER PURSUANT TO THE CONSENT SOLICITATION; OR (iii) BOTH TENDER FOR
EXCHANGE AND CONSENT AND AGREE TO BE BOUND BY THE PROPOSED CONSENTS WITH RESPECT
TO ANY OR ALL OLD NOTES HELD BY SUCH HOLDER.
TO TENDER FOR EXCHANGE ANY OR ALL OLD NOTES HELD BY SUCH HOLDERS PURSUANT
TO THE EXCHANGE OFFER, PLEASE SEE PART I - TENDERS. HOLDERS MUST COMPLETE BOX 1
ENTITLED "DESCRIPTION OF OLD NOTES TENDERED" AND SIGN THE ATTACHED "TENDERING
HOLDER SIGNATURE" BOX ON PAGE 5 OF THIS LETTER OF TRANSMITTAL AND CONSENT FORM.
TO CONSENT TO AND AGREE TO BE BOUND BY THE PROPOSED CONSENTS WITH RESPECT
TO ANY OR ALL OF THE OLD NOTES HELD BY SUCH HOLDERS PURSUANT TO THE CONSENT
SOLICITATION, PLEASE SEE PART II - CONSENTS. HOLDERS MUST CHECK
2
<PAGE>
"CONSENTS" IN THE SECTION ENTITLED "PART II--CONSENTS," COMPLETE BOX A ENTITLED
"DESCRIPTION OF OLD NOTES AS TO WHICH CONSENT IS GIVEN" AND SIGN THE ATTACHED
"CONSENTING HOLDER SIGNATURE" BOX ON PAGE 11 OF THIS LETTER OF TRANSMITTAL AND
CONSENT FORM.
TO BOTH TENDER FOR EXCHANGE AND CONSENT TO AND AGREE TO BE BOUND BY THE
PROPOSED CONSENTS WITH RESPECT TO ANY OR ALL OF THE OLD NOTES HELD BY SUCH
HOLDERS, PLEASE SEE PARTS I & II. SUCH HOLDERS MUST COMPLETE THE APPROPRIATE
SECTIONS OF PART I TO TENDER OLD NOTES FOR EXCHANGE, COMPLETE THE APPROPRIATE
SECTIONS OF PART II TO CONSENT TO THE PROPOSED CONSENTS, COMPLETE BOX 1 ENTITLED
"DESCRIPTION OF OLD NOTES TENDERED," COMPLETE BOX A ENTITLED "DESCRIPTION OF OLD
NOTES AS TO WHICH CONSENT IS GIVEN," CHECK "CONSENTS" IN THE SECTION ENTITLED
"PART II--CONSENTS" AND SIGN BOTH THE "TENDERING HOLDER SIGNATURE" AND
"CONSENTING HOLDER SIGNATURE" BOXES.
To validly tender Old Notes for exchange and/or consent to the Proposed
Consents, Holders of certificates representing such Old Notes must deliver such
certificates and all other documents required by this Letter of Transmittal and
Consent Form to the Exchange/Solicitation Agent. See "Instructions to Letter of
Transmittal and Consent Form."
Capitalized terms used but not defined herein have the meanings ascribed to
them in the Joint Offering Circular/Consent Solicitation Statement.
PART I - TENDERS
(TO BE COMPLETED BY HOLDERS WHO WISH TO TENDER OLD NOTES IN THE EXCHANGE OFFER)
The undersigned hereby tenders for exchange the Old Notes described in Box
1 ("Description of Old Notes Tendered") below upon the terms and subject to the
conditions described in this Letter of Transmittal and Consent Form. The
undersigned is the Holder of all the Old Notes and the undersigned represents
that it has received from each beneficial owner of the tendered Old Notes
("Beneficial Owners") valid instructions which authorize and instruct the
undersigned to take the action described in this Letter of Transmittal and
Consent Form.
Subject to, and effective upon, the acceptance for exchange of the tendered
Old Notes, the undersigned hereby exchanges, assigns and transfers to, or upon
the order of, the Company, all right, title and interest in, to and under the
tendered Old Notes. Holders who tender and do not withdraw their Old Notes will
receive upon acceptance of the Old Notes by the Company New Notes therefor in a
principal amount equal to the principal amount thereof less the principal amount
of such Old Notes repurchased in the Exchange Offer. See "The Exchange
Offer--Repurchase of Old Notes" in the Joint Offering Circular/Consent
Solicitation Statement.
If Old Notes not tendered or not exchanged are to be delivered to a person
other than to the Holder of the Old Notes tendered or to an address other than
that of the Holder of such Old Notes, such Holder should so indicate in Box 2
("Special Delivery Instructions--Certificates") of this Letter of Transmittal
and Consent Form.
The undersigned hereby irrevocably constitutes and appoints the
Exchange/Solicitation Agent as the true and lawful agent and attorney in fact of
the undersigned with respect to the tendered Old Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to (i) deliver the tendered Old Notes to the Company
or cause ownership of the tendered Old Notes to be transferred to, or upon the
order of, the Company on the books of the registrar for the Old Notes and
deliver all accompanying evidences of transfer and authenticity to, or upon the
order of, the Company upon receipt by the Exchange/Solicitation Agent, as the
undersigned's agent, of the New Notes to which the undersigned is entitled upon
acceptance by the Company of the tendered Old Notes pursuant to the Exchange
Offer and (ii) receive all benefits and otherwise exercise all rights of
beneficial ownership of the tendered Old Notes, all in accordance with the terms
of the Exchange Offer.
3
<PAGE>
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer--Procedures for
Tendering Old Notes" in the Joint Offering Circular/Consent Solicitation
Statement and in the instructions hereto will constitute a binding agreement
between the undersigned and the Company upon the terms and subject to the
conditions of the Exchange Offer, subject only to withdrawal of such tenders on
the terms set forth in the Joint Offering Circular/Consent Solicitation
Statement under the caption "The Exchange Offer--Withdrawal Rights." All
authority herein conferred or agreed to be conferred shall survive the death or
incapacity of the undersigned and any Beneficial Owner(s), and every obligation
of the undersigned or any Beneficial Owner(s) hereunder shall be binding upon
the heirs, representatives, successors and assigns of the undersigned and such
Beneficial Owner(s).
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the tendered
Old Notes and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges, encumbrances and adverse
claims when the tendered Old Notes are acquired by the Company as contemplated
herein. The undersigned and each Beneficial Owner will, upon request, execute
and deliver any additional documents reasonably requested by the Company or the
Exchange/Solicitation Agent as necessary or desirable to complete and give
effect to the transactions contemplated hereby.
The undersigned hereby represents and warrants that the information set
forth in Box 1 ("Description of Old Notes Tendered") is true and correct.
By agreeing to participate in the Exchange Offer, a Holder also agrees to
allocate the cash and New Notes received for the Old Notes and accrued and
unpaid interest thereon in the same manner in which the Company will make such
allocation. The Company will allocate the cash paid in the Exchange Offer first
to accrued and unpaid interest on the Old Notes to the extent thereof, and any
remaining cash will be allocated to the principal amount of the Old Notes.
Based on this allocation method, of the approximate $6.9 million cash to be paid
in the Exchange Offer, approximately $4.1 million will be allocated to the
payment of interest and $2.8 million will be allocated to the principal amount
of the Old Notes.
To validly tender Old Notes for exchange, Holders of physical certificates
representing such Holder's Old Notes must deliver such certificates and all
other documents required by this Letter of Transmittal and Consent Form to the
Exchange/Solicitation Agent.
Holders of Old Notes who are tendering their Old Notes by book-entry
transfer to the Exchange/Solicitation Agent's account at The Depository Trust
Company ("DTC") can execute the tender through the DTC Automated Tender Offer
Program ("ATOP") for which the transaction will be eligible. DTC participants
who are accepting the Exchange Offer must transmit their acceptance to DTC,
which will verify the acceptance and execute a book-entry delivery to the
Exchange/Solicitation Agent's DTC account. DTC will then send an Agent's
Message to the Exchange/Solicitation Agent for its acceptance. DTC participants
may also accept the Exchange Offer prior to the Exchange Expiration Date by
submitting a Notice of Guaranteed Delivery through ATOP.
THE UNDERSIGNED, BY COMPLETING BOX 1 ENTITLED "DESCRIPTION OF OLD NOTES
TENDERED" AND SIGNING THE ATTACHED "TENDERING HOLDER SIGNATURE" BOX, MAY BE
DEEMED TO HAVE TENDERED FOR EXCHANGE SUCH HOLDER'S OLD NOTES AND TO HAVE MADE
CERTAIN REPRESENTATIONS AS DESCRIBED HEREIN AND IN THE JOINT OFFERING
CIRCULAR/CONSENT SOLICITATION STATEMENT. ONLY REGISTERED HOLDERS OF OLD NOTES
AND PERSONS AUTHORIZED TO SIGN BY REGISTERED HOLDERS ARE ENTITLED TO TENDER FOR
EXCHANGE OLD NOTES. ANY BENEFICIAL OWNER OF OLD NOTES WHO IS NOT THE REGISTERED
HOLDER OF THE OLD NOTES MUST ARRANGE PROMPTLY WITH THE REGISTERED HOLDER TO
EXCHANGE OLD NOTES ON HIS OR HER BEHALF.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THIS LETTER OF
TRANSMITTAL AND CONSENT FORM BE ACCEPTED FROM OR ON BEHALF OF, HOLDERS IN ANY
JURISDICTION IN WHICH THE MAKING OF THE EXCHANGE OFFER OR THE ACCEPTANCE OF SUCH
LETTER OF TRANSMITTAL AND CONSENT FORM WOULD NOT BE IN COMPLIANCE WITH THE LAWS
OF SUCH JURISDICTION.
4
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL AND CONSENT FORM
BEFORE SIGNING BELOW
Holders who wish to tender for exchange their Old Notes must complete Box 1
entitled "Description of Old Notes Tendered" and the box entitled "Tendering
Holder Signature" below. If the "Aggregate Amount Tendered" in column (3) of
Box 1 is left blank, the Holder delivering this Letter of Transmittal and
Consent Form may be deemed to have authorized tender as to all Old Notes owned
by such Holder.
- --------------------------------------------------------------------------------
TENDERING HOLDER SIGNATURE
TO TENDER FOR EXCHANGE OLD NOTES, PLEASE SIGN BELOW
(SEE PART A INSTRUCTIONS 1 AND 5)
IN ADDITION, COMPLETE SUBSTITUTE FORM W-9 OR W-8
- --------------------------------------------------------------------------------
X
---------------------------------------------------------
X
---------------------------------------------------------
(Signature of Holder(s) or Authorized Signatory
Note: The above lines must be signed by the registered holder(s) of Old Notes
as their name(s) appear(s) therein or by person(s) authorized to become
registered holder(s) (evidence of such authorization must be transmitted with
this Letter of Transmittal and Consent Form). If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer, or other person
acting in a fiduciary or representative capacity, such person must set forth his
or her full title below. See Part A Instruction 5.
Name(s):
------------------------------------------------
Capacity:
-------------------------------------------------
Address:
--------------------------------------------------
- ----------------------------------------------------------
(Zip Code)
Area Code and Telephone Number:
- ----------------------------------------------------------
Tax Identification or Social Security No.:
- ----------------------------------------------------------
- --------------------------------------------------------------------------------
Signature Guarantee
(If required by Part A Instruction 5)
Authorized Signature:
X
---------------------------------------------------------
Name:
-----------------------------------------------------
(Please Print)
Title:
----------------------------------------------------
Name of Firm:
---------------------------------------------
(Must be an Eligible Institution as defined in Part A Instruction 5)
Address:
--------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
(Zip Code)
Area Code and Telephone Number:
- ----------------------------------------------------------
Dated: , 1998
------------------------
- --------------------------------------------------------------------------------
5
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
BOX 1
DESCRIPTION OF OLD NOTES TENDERED
(ATTACHED ADDITIONAL SIGNED PAGES, IF NECESSARY)
- ---------------------------------------------------------------------------------------------------------------------------------
Aggregate
Name(s) and Address(es) of Registered Holder(s), Exactly Certificate Principal Amount Aggregate
as name(s) appear(s) on Old Note Certificate(s) Number(s) of Old Represented by Principal Amount
(Please fill in, if blank) Notes* Certificate(s) Tendered**
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by persons tendering by book-entry transfer.
** All tenders must be in multiples of $1,000 of principal amount. Unless
otherwise indicated in this column, the principal amount of all Old Notes
identified in this Box 1 or delivered to the Exchange/Solicitation Agent
herewith shall be deemed tendered. See Instruction 4.
/ / CHECK HERE IF OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO
THE ACCOUNT MAINTAINED BY THE EXCHANGE/SOLICITATION AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE "USE OF BOOK-ENTRY TRANSFER"
BELOW (Box 4).
/ / CHECK HERE IF OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE/SOLICITATION AGENT
AND COMPLETE "USE OF GUARANTEED DELIVERY" BELOW (Box 3).
/ / CHECK HERE IF OLD NOTES ARE BEING DELIVERED HEREWITH.
- --------------------------------------------------------------------------------
BOX 2
SPECIAL DELIVERY INSTRUCTIONS - CERTIFICATES
(SEE PART A INSTRUCTIONS 5, 6 AND 7)
TO BE COMPLETED ONLY IF UNTENDERED OLD NOTES OR OLD NOTES NOT ACCEPTED FOR
EXCHANGE ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE
UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail any Old Notes not tendered hereby or not accepted for exchange to:
Name(s):
------------------------------------------------------------------------------
(Please Print)
Address:
------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
(Include Zip Code)
Tax Identification or Social Security No.:
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
BOX 3
USE OF GUARANTEED DELIVERY
(SEE PART A INSTRUCTION 2)
TO BE COMPLETED ONLY IF OLD NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF
GUARANTEED DELIVERY.
Name(s) of Holder(s):
----------------------------------------------------------
Window Ticket No. (if any):
----------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
----------------------------
Name of Eligible Institution that Guaranteed Delivery:
-------------------------
If Delivered by Book-Entry Transfer, complete the following:
DFC Account Number:
---------------------------------------------------
VOI Number:
-----------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOX 4
USE OF BOOK-ENTRY TRANSFER
(SEE PART A INSTRUCTION 1)
TO BE COMPLETED ONLY IF DELIVERY OF OLD NOTES IS TO BE MADE BY BOOK-ENTRY
TRANSFER.
Name of Tendering Institution:
-------------------------------------------------
Account Number:
----------------------------------------------------------------
VOI Number:
--------------------------------------------------------------------
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOX 5
DTC PARTICIPANT INFORMATION
(SEE PART A INSTRUCTION 1)
TO BE COMPLETED BY ALL HOLDERS DELIVERING OLD NOTES. NEW NOTES WILL BE
DELIVERED ONLY IN BOOK-ENTRY FORM:
Name of DTC Participant:
-------------------------------------------------------
DTC Participant Number:
--------------------------------------------------------
Contact at DTC Participant:
----------------------------------------------------
------------------------------------------------------------------------------
(Name)
------------------------------------------------------------------------------
(Telephone No.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
BOX 6
SPECIAL PAYMENT INSTRUCTIONS
(SEE PART A INSTRUCTION 16)
To be completed ONLY if in the event the Exchange Offer is consummated and
checks for the Tendering Holder's Repurchase Amount are to be issued in the na
me of someone other than the person who submits this Letter of Transmittal and
Consent Form.
ISSUE TO:
Name
-------------------------------------------------------------------------
(Please Print)
Address
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Social Security Number or Employer Identification Number (A correct taxpayer
identification number must also be provided on the Substitute Form W-9 or
W-8 included herein.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOX 7
SPECIAL DELIVERY INSTRUCTIONS - PAYMENTS
(SEE PART A INSTRUCTION 16)
To be completed ONLY if in the event the Exchange Offer is consummated and
checks for the Tendering Holder's Repurchase Amount are to be sent to someone
other than the person who submits this Letter of Transmittal and Consent Form
or to an address other than that shown in Box 1 ("Description of Old Notes
Tendered") above in this Letter of Transmittal and Consent Form.
Mail To:
Name
-------------------------------------------------------------------------
(Please Print)
Address
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ALL TENDERING HOLDERS MUST COMPLETE THE SUBSTITUTE FORM W-9 OR W-8
CONTAINED HEREIN.
SEE PAGE 18.
8
<PAGE>
PART II - CONSENTS
(TO BE COMPLETED BY HOLDERS WHO WISH TO CONSENT TO THE PROPOSED CONSENTS)
The undersigned is a Holder (as defined in the Joint Offering
Circular/Consent Solicitation Statement and this Letter of Transmittal and
Consent Form) of the Old Notes. As a Holder of such Old Notes, the undersigned
hereby:
CONSENTS / / DOES NOT CONSENT / /
to the following in the event the Exchange Offer is not consummated (the
"Proposed Consents"):
1. Until December 15, 2000 (the "Termination Date"), to forbear from
exercising any rights and remedies under the Old Notes, the Indenture (the
"Indenture") dated as of December 1, 1988 among the Company, Santa Fe Gaming
Corporation, a Nevada corporation and successor in interest to Sahara Casino
Partners L.P. ("SFGC"), and IBJ Schroder Bank and Trust Company, as successor
trustee (the "Trustee"), the Guaranty and the Mortgage Documents (as defined in
the Indenture) with respect to any failure by the Company to pay principal and
interest on the Old Notes when due on December 1, 1998 (the "Maturity Defaults")
and any other defaults under the Old Notes, the Indenture, the Guaranty or the
Mortgage Documents arising as a direct consequence of the Maturity Defaults.
2. Until the Termination Date, to forbear from exercising any rights and
remedies under the Promissory Note dated December 6, 1988 in the original
principal amount of $120 million by Pioneer Hotel Inc., a Nevada corporation
("PHI"), in favor of the Company (the "Purchase Money Note") and related
security documents, with respect to any failure by PHI to pay principal and
interest on the Purchase Money Note when due on December 1, 1998 (the "Purchase
Money Note Maturity Defaults") and any other defaults under the Purchase Money
Note arising as a direct consequence of the Purchase Money Note Maturity
Defaults.
3. To consent to and support a plan of reorganization under Chapter 11 of
the United States Bankruptcy Code which provides for treatment of the Old Notes
in a bankruptcy case under Chapter 11 of the Bankruptcy Code that is
substantially similar to the treatment of the Old Notes offered in the Exchange
(the "Plan"). Such support shall include, without limitation, (i) voting to
accept the Plan and making reasonable efforts to obtain confirmation of the
Plan, even if the Plan involves a "cramdown" under Section 1129(b) of the
Bankruptcy Code of classes of claims or equity interests other than the class
that includes the Old Notes, (ii) not agreeing to, consenting to or voting for
any plan that contains terms inconsistent with the Plan and (iii) not objecting
to or otherwise commencing any proceeding to oppose or alter the Plan or making
any action that is inconsistent with, or that would delay solicitation,
confirmation, effectiveness or substantial consummation of the Plan.
To validly consent to the Proposed Consents, Holders of physical
certificates representing Old Notes must deliver such certificates with respect
to which Old Notes such Holders' consents relate and all other documents
required by this Letter of Transmittal and Consent Form to the
Exchange/Solicitation Agent.
THE PROPOSED CONSENTS WILL BECOME EFFECTIVE ONLY IF (1) THE EXCHANGE OFFER
IS NOT CONSUMMATED AND (2) VALID CONSENTS WITH RESPECT TO AT LEAST $47 MILLION
PRINCIPAL AMOUNT OF OLD NOTES HAVE BEEN RECEIVED AND NOT REVOKED AT THE
SOLICITATION EXPIRATION DATE.
ALL OLD NOTES WITH RESPECT TO WHICH CONSENTS BECOME EFFECTIVE MUST BE
EVIDENCED IN CERTIFICATED FORM. ANY OLD NOTES WITH RESPECT TO WHICH CONSENTS
ARE VALIDLY GIVEN AND NOT REVOKED AND THAT ARE HELD THROUGH DTC WILL BE REISSUED
IN CERTIFICATED FORM.
If the Consents become effective on the Solicitation Expiration Date, any
Holder that has furnished a Consent will have agreed (i) not to transfer, sell,
assign, encumber or otherwise dispose of the beneficial ownership
9
<PAGE>
of the Holder's Old Notes, unless the Holder provides evidence satisfactory to
PHI and the Company that the Holder's transferee (and, if different, the
beneficial owner of the Old Notes so transferred) has agreed in writing in form
and substance satisfactory to PHI and the Company that the transferred Old Notes
are subject to the terms of the Consent, and that the transferee (and, if
different, the beneficial owner) has agreed to be bound by the terms of the
Consent, and (ii) that any Old Notes subject to Consents that are held through
DTC will be reissued in certificated form. The restriction on transfer will be
noted on the Old Notes with respect to which Consents are received and no such
Old Notes will be transferred unless the Holder delivers to the Company an
opinion of counsel in form and substance satisfactory to the Company in its sole
discretion that the transferee has agreed to and is bound by the Proposed
Consents.
Thus, of the approximate $6.9 million cash to be paid, the Company will
allocate approximately $6.5 million to payment of an equivalent principal amount
of the Old Notes that are repurchased and approximately $400,000 to the payment
of accrued and unpaid interest thereon. By consenting to the Consent
Solicitation, a Holder agrees to allocate the cash received for the principal
amount of the Old Notes and accrued and unpaid interest thereon in the same
manner in which the Company will make such allocation.
Unless otherwise specified by the undersigned, this Letter of Transmittal
and Consent Form relates to all Old Notes of which the undersigned is the
Holder. If this Letter of Transmittal and Consent Form relates to less than all
of the Old Notes as to which the undersigned is a Holder, the specific Old Notes
to which this Letter of Transmittal and Consent Form relates shall be identified
in Box A ("Description of Old Notes as to which Consent is Given").
A Consent hereby given will be binding upon the Holder of the Old Notes who
gives such Consent, subject only to revocation by the delivery of a Consent by a
subsequent Holder or written notice of revocation by a registered holder,
executed and filed in the manner, and at the time, described in the Joint
Offering Circular/Consent Solicitation Statement.
If the Exchange Offer is not consummated but as of the Solicitation
Expiration Date the Company has received and accepted Consents with respect to
at least $47 million principal amount of outstanding Old Notes and the Proposed
Consents become effective, the Consents will become effective and the Company
will repurchase on a pro rata basis from all Holders furnishing valid Consents
(the "Consenting Holders") an aggregate of $6.5 million principal amount of Old
Notes, together with accrued and unpaid interest thereon through the
Solicitation Expiration Date. Certificates representing the Old Notes with
respect to which Consents are furnished will be canceled, and new certificates
will be issued with a principal amount equal to the aggregate principal amount
with respect to which Consents are furnished, less the Consenting Holder's
Repurchase Amount. The new certificates will contain the restrictions on
transfer described above. Any Old Notes subject to Consents that are held
through DTC will be reissued in certificated form.
THE UNDERSIGNED, BY COMPLETING BOX A ENTITLED "DESCRIPTION OF OLD NOTES AS
TO WHICH CONSENT IS GIVEN" AND SIGNING THE ATTACHED "CONSENTING HOLDER
SIGNATURE" BOX, MAY BE DEEMED TO HAVE CONSENTED AND AGREED TO BE BOUND BY THE
PROPOSED CONSENTS WITH RESPECT TO SUCH OLD NOTES, TO HAVE MADE CERTAIN
REPRESENTATIONS AS DESCRIBED HEREIN AND IN THE JOINT OFFERING CIRCULAR/CONSENT
SOLICITATION STATEMENT. ONLY REGISTERED HOLDERS OF OLD NOTES AS OF THE
SOLICITATION EXPIRATION DATE AND PERSONS AUTHORIZED TO SIGN BY REGISTERED
HOLDERS AS EVIDENCED BY THE EXECUTED FORM OF PROXY ATTACHED HERETO ARE ENTITLED
TO CONSENT TO THE PROPOSED CONSENTS. IF THE UNDERSIGNED IS NOT THE REGISTERED
HOLDER OF THE OLD NOTES, THE UNDERSIGNED MUST HAVE THE REGISTERED HOLDER SIGN
THE ATTACHED FORM OF PROXY.
THE CONSENT SOLICITATION IS NOT BEING MADE TO, NOR WILL THIS LETTER OF
TRANSMITTAL AND CONSENT FORM BE ACCEPTED FROM OR ON BEHALF OF, HOLDERS IN ANY
JURISDICTION IN WHICH THE MAKING OF THE CONSENT SOLICITATION OR THE ACCEPTANCE
OF
10
<PAGE>
SUCH LETTER OF TRANSMITTAL AND CONSENT FORM WOULD NOT BE IN COMPLIANCE WITH THE
LAWS OF SUCH JURISDICTION.
11
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL AND CONSENT FORM
BEFORE SIGNING BELOW
Holders who wish to consent to the Proposed Consents must complete Box A
below entitled "Description of Old Notes as to which Consent is Given" and sign
below. If the "Principal Amount of Old Notes as to which Consent is Given" in
column (4) of Box A is left blank, the Holder delivering this Consent Form may
be deemed to have given its Consent as to all Old Notes owned by such Holder.
- --------------------------------------------------------------------------------
CONSENTING HOLDER SIGNATURE
TO CONSENT TO AND AGREE TO BE BOUND BY THE PROPOSED CONSENTS, PLEASE SIGN BELOW
(SEE PART B INSTRUCTIONS 1, 2 AND 3)
IN ADDITION, COMPLETE SUBSTITUTE FORM W-9 OR W-8
X
--------------------------------------------------------------------------
X
--------------------------------------------------------------------------
Signature(s) of Holder(s) Date:
PLEASE TYPE OR PRINT INFORMATION BELOW
-------------------------------------------------------------------
Name(s):
-------------------------------------------------------------------
Capacity:
-------------------------------------------------------------------
Address:
-------------------------------------------------------------------
(Including Zip Code)
Area Code and
Telephone Number:
----------------------------------------------------------
SIGNATURE GUARANTEE
(If required; see Part B Instruction 3)
Signature(s)
Guaranteed
by an Eligible
Institution:
----------------------------------------------------------
(Authorized Signature)
----------------------------------------------------------
(Title)
----------------------------------------------------------
(Name of Eligible Institution)
Dated:
-------------------------------------------------------------------
- --------------------------------------------------------------------------------
12
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
BOX A
DESCRIPTION OF OLD NOTES AS TO WHICH CONSENT IS GIVEN
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Name(s) and Address(es) of Registered Holder(s) Certificate(s) as to which Consent is Given and which are
or Cede & Co. Participant(s) Submitted Herewith (Attach additional list, if necessary)
---------------------------------------------------------------------
Principal Amount
Aggregate Principal of Old Notes as to
Amount of which Consent
Certificate or Old Notes is given*
Cede & Co. Represented by (must be an
Account Certificate(s) or integral multiple
Number(s) Held in Account(s) of $1,000)
<S> <C> <C> <C>
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
*If the consent form relates to less than the aggregate principal amount of Old Notes registered in the name of the
Registered Holder(s), or held by Cede & Co. for the account of the Participant(s), named above, list the certificate
or account numbers and principal amounts of Old Notes to which this consent form relates. Otherwise, this consent form
will be deemed to relate to the aggregate principal amount of Old Notes registered in the name or, or held by Cede & Co.
for the account of, such Registered Holder(s) or Participant(s).
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
BOX B
SPECIAL DELIVERY INSTRUCTIONS - CERTIFICATES-CONSENTS NOT
GIVEN OR NOT ACCEPTED AS CONSENTING
(SEE PART B INSTRUCTIONS 5 AND 6)
TO BE COMPLETED ONLY IF OLD NOTES WITH RESPECT TO WHICH CONSENTS ARE NOT GIVEN
OR ARE NOT ACCEPTED AS CONSENTING ARE TO BE SENT TO SOMEONE OTHER THAN THE
UNDERSIGNED, OR TO THE UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail any Old Notes with respect to which Consents are not given or are not
accepted as consenting to:
Name(s):
------------------------------------------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
(Include Zip Code)
Tax Identification or Social Security No.:
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
BOX C
USE OF GUARANTEED DELIVERY
(SEE PART B INSTRUCTION 2)
TO BE COMPLETED ONLY IF OLD NOTES WITH RESPECT TO WHICH CONSENTS ARE GIVEN ARE
BEING DELIVERED BY MEANS OF A NOTICE OF GUARANTEED DELIVERY.
Name(s) of Holder(s):
----------------------------------------------------------
Window Ticket No. (if any):
----------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
----------------------------
Name of Eligible Institution that Guaranteed Delivery:
-------------------------
If Delivered by Book-Entry Transfer, complete the following:
DFC Account Number:
-----------------------------------------------------
VOI Number:
-------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOX D
USE OF BOOK-ENTRY TRANSFER
(SEE PART B INSTRUCTION 1)
TO BE COMPLETED ONLY IF DELIVERY OF OLD NOTES WITH RESPECT TO WHICH CONSENTS ARE
GIVEN IS TO BE MADE BY BOOK-ENTRY TRANSFER.
Name of Tendering Institution:
-------------------------------------------------
Account Number:
----------------------------------------------------------------
VOI Number:
---------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
BOX E
SPECIAL PAYMENT INSTRUCTIONS
(See Part B Instruction 16)
To be completed ONLY if checks for the Consenting Holder's Repurchase Amount
are to be issued in the name of someone other than the person who submits this
Letter of Transmittal and Consent Form.
ISSUE TO:
Name
--------------------------------------------------------------------------
(Please Print)
Address
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Social Security Number or Employer Identification Number (A correct taxpayer
identification number must also be provided on the Substitute Form W-9
included herein.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOX F
SPECIAL DELIVERY INSTRUCTIONS -
PAYMENTS
(See Part B Instruction 16)
To be completed ONLY if checks for the Consenting Holder's Repurchase Amount
are to be sent to someone other than the person who submits this Letter of
Transmittal and Consent Form or to an address other than that shown in Box 1
("Description Of Old Notes As To Which Consents Are Given") above in this
Letter of Transmittal and Consent Form.
Mail To:
Name
--------------------------------------------------------------------------
(Please Print)
Address
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOX G
SPECIAL DELIVERY INSTRUCTIONS -
CERTIFICATED NOTES
(See Part B Instruction 15)
To be completed ONLY if Old Notes with respect to which Consents are validly
given and not revoked that are held through DTC and which will be reissued in
certificated form are to be issued in the name of someone other than the person
who submits this Consent Form or to an address other than that shown in Box 1
("Description Of Old Notes As To Which Consents Are Given") above in this
Letter of Transmittal and Consent Form.
Mail To:
Name
--------------------------------------------------------------------------
(Please Print)
Address
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ALL CONSENTING HOLDERS MUST COMPLETE THE SUBSTITUTE FORM W-9 OR W-8 CONTAINED
HEREIN. SEE PAGE 18.
15
<PAGE>
FORM OF PROXY WITH RESPECT TO THE CONSENT SOLICITATION
The undersigned hereby irrevocably appoints ___________________________________
as attorney and proxy of the undersigned, with full power of substitution, to
execute and deliver the form of Consent on which this form of proxy is set forth
with respect to the Old Notes in accordance with the terms of the Consent
Solicitation, with all of the power the undersigned would possess if consenting
personally. THIS PROXY IS IRREVOCABLE AND IS COUPLED WITH AN INTEREST AND SHALL
EXPIRE AT THE DATE OF EFFECTIVENESS OF THE PROPOSED CONSENTS. The aggregate
principal amount and serial numbers of Old Notes as to which this Proxy is given
are set forth below. If such information is not provided in the boxes below,
this Proxy will be deemed to be given as to the total principal amount of Old
Notes held by the Holder.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Aggregate Principal Amount of Old Note(s) Certificate Number(s)
<S> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
FORM OF PROXY
IMPORTANT--READ CAREFULLY
To authorize a proxy this proxy must be executed by the Holder(s) of the Old
Notes in exactly the same manner as the name(s) appear(s) on the Old Notes. If
Old Notes to which this proxy relates are held by two or more joint holders, all
such holders must sign this proxy. If a signature is by a trustee,
administrator, guardian, attorney-in-fact, officer of a corporation or other
Holder acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit appropriate evidence satisfactory to the
Company of such person's authority so to act.
----------------------------------------------------------------------------
TO AUTHORIZE A PROXY, PLEASE SIGN BELOW
(SEE PART B INSTRUCTIONS 1 AND 3)
X
------------------------------------------------------------------------
X
------------------------------------------------------------------------
Signature(s) of Holder(s) Date:
PLEASE TYPE OR PRINT INFORMATION BELOW
Name(a):
-----------------------------------------------------------------
Capacity:
----------------------------------------------------------------
Address:
--------------------------------------------------------------
(Including Zip code)
Area Code and
Telephone Number:
------------------------------------------------------------
SIGNATURE GUARANTEE
(If required; see Part B Instruction 3)
Signature(s) Guaranteed
By an Eligible Institution:
-----------------------------------------------
(Authorized Signature)
-----------------------------------------------
(Title)
-----------------------------------------------
(Name of Eligible Institution
Dated:
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
17
<PAGE>
BACKUP WITHHOLDING INFORMATION
Upon a successful consummation of the Exchange Offer, the Company will pay
in cash accrued and unpaid interest through December 1, 1998 (approximately $4.1
million) with respect to all Old Notes that are properly tendered and not
withdrawn and repurchase on a pro rata basis from all Holders who properly
tender and do not withdraw Old Notes before the Exchange Expiration Date an
aggregate of approximately $2.8 million principal amount of Old Notes (the
"Tendering Holder Repurchase Amount"). See "The Exchange Offer--Acceptance of
Old Notes for Exchange; Delivery of New Notes; Payment of Interest and
Repurchase of Old Notes."
If the Exchange Offer is not consummated but as of the Solicitation
Expiration Date the Company has received and accepted Consents from Holders with
respect to at least $47 million principal amount of outstanding Old Notes, the
Proposed Consents will become effective and the Company will repurchase on a pro
rata basis from the Holders of Old Notes with respect to which Consents have
been properly furnished and not revoked an aggregate of $6.5 million principal
amount of Old Notes, together with accrued and unpaid interest thereon
(approximately $400,000) through the Solicitation Expiration Date (the
"Consenting Holder Repurchase Amount").
Under the United States Federal income tax law, payments that are made to a
Holder with respect to his or her tender or consent may be subject to backup
withholding. A holder whose tender or consent is accepted and who is not an
exempt recipient must provide the Company with his or her correct taxpayer
identification number on Substitute Form W-9 below, or if such Holder is an
exempt foreign person, submit a substitute Form W-8 below in order to avoid
backup withholding. If such Holder is an individual, the taxpayer
identification number generally is his or her social security number. If the
Old Notes are in more than one name or are not in the name of the actual owner,
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional guidelines on which number to
report. In addition, if the Company is not provided with the correct taxpayer
information, the Holder may be subject to a $50 penalty imposed by the Internal
Revenue Service. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions.
Holders who are exempt recipients (including corporations) are not subject to
these backup withholding and reporting requirements.
If backup withholding applies, the Company is required to withhold 31% of
any such payments made to the Holder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an
over-payment of taxes, a refund may be obtained from the Internal Revenue
Service.
18
<PAGE>
PAYER'S NAME: PIONEER FINANCE CORP.
(See Part A Instruction 8 and Part B Instruction 5)
<TABLE>
<CAPTION>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------
Business name:
------------------------------------------------------------------------------------------------------
Please check appropriate box:
/ / Individual/Sole proprietor / / Corporation / / Partnership / / Other
------------------------------------------------------------------------------------------------------
PART 1-PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND
SUBSTITUTE CERTIFY BY SIGNING AND DATING BELOW. -----------------------------
Social Security Number or
FORM W-9 Employee Identification Number
------------------------------------------------------------------------------------------------------
PART 2-Certification-Under Penalties of Perjury, I certify that:
PART 3-
Department of (1) The number shown on this form is my correct Taxpayer
the Treasury Identification Number (or I am waiting for a number to be issued
Internal to me) and
Revenue Service
Awaiting TIN
(2) I am not subject to backup withholding because (a) I am exempt
Payer's Request from backup withholding, or (b) I have not been notified by the / /
for Taxpayer Internal Revenue Service ("IRS") that I am subject to backup
Identification withholding as a result of failure to report all interest or
Number ("TIN") dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding.
------------------------------------------------------------------------------------------------------
CERTIFICATION INSTRUCTIONS-You must cross out item (2) in Part 2 above if you have been notified by
the IRS that you are subject to backup withholding because of underreporting interest or dividends on
your tax return. However, if after being notified by the IRS that you were subject to backup
withholding you received another notification from the IRS stating that you are no longer subject to
backup withholding, do not cross out item (2).
SIGNATURE DATE , 1998
------------------------------------------------------ ----------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY EXCHANGE OR CONSENT PAYMENTS MADE TO YOU PURSUANT TO THE
EXCHANGE OFFER OR THE CONSENT SOLICITATION. PLEASE REVIEW THE ENCLOSED
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 3 OF THE SUBSTITUTE FORM W-9.
-----------------------------------------------------------------------
CERTIFICATE OF PERSON AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not issued to me, and either (a) I have mailed or delivered
an application to receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social Security
Administration Office or (b) I intend to mail or deliver an
application in the near future. I understand that if I do not provide
a taxpayer identification number with sixty (60) days, 31% of all
reportable payments made to me thereafter will be withheld until I
provide a number.
Date: , 1998
------------------------------------- ------------------
Signature
-----------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
Name:
SUBSTITUTE --------------------------------------------------
Address:
--------------------------------------------------
TIN (if any):
FORM W-8
--------------------------------------------------
I (we) certify under penalties of perjury that:
Department of the ____ 1. I am not a citizen of the United States
Treasury Internal and I am neither a lawful permanent
Revenue Service resident of the United States nor have I
been, nor do I reasonably expect to be,
present in the United States for a
period aggregating 183 or more days
Non-U.S. Persons during the calendar year; or
Only
____ 2. We are a foreign corporation,
partnership, estate or trust.
Taxpayer Identification --------------------------------------------------
Number ("TIN")
Signature: Date:
------------------ --------------
Signature: Date:
------------------ --------------
--------------------------------------------------
Accepted by:
Signature:
------------------
Printed Name: Title:
--------------- -------------
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF EXCHANGE OR CONSENT PAYMENTS MADE TO YOU. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
20
<PAGE>
INSTRUCTIONS TO LETTER OF TRANSMITTAL AND CONSENT FORM
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER AND
CONSENT SOLICITATION
A. TENDERING OLD NOTES FOR EXCHANGE
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CONSENT FORM AND OLD NOTES.
This Letter of Transmittal and Consent Form is to be completed by Holders of
tendered Old Notes, if physical certificates representing such tendered Old
Notes are to be forwarded herewith pursuant to the procedures set forth in the
Joint Offering Circular/Consent Solicitation Statement under "The Exchange
Offer-Procedures for Tendering Old Notes." For a Holder of physical
certificates to properly tender Old Notes pursuant to the Exchange Offer, a
properly completed and duly executed copy of this Letter of Transmittal and
Consent Form, including the Substitute Form W-9 or W-8, and any other documents
required by this Letter of Transmittal and Consent Form must be received by the
Exchange/Solicitation Agent at its address set forth herein, and certificates
for tendered Old Notes must be received by the Exchange/Solicitation Agent at
its address set forth herein prior to the Exchange Expiration Date. Any
financial institution that is a participant in DTC (the "Book-Entry Transfer
Facility") may electronically transmit its acceptance of the Exchange Offer by
causing DTC to transfer Old Notes to the Exchange/Solicitation Agent in
accordance with DTC's ATOP procedures for such transfer prior to the Exchange
Expiration Date. The Exchange/Solicitation Agent will make available its
general participant account for the Old Notes at the Book-Entry Transfer
Facility for purposes of the Exchange Offer. Any financial institution that is
a participant in the Book-Entry Transfer Facility may make a book-entry delivery
of Old Notes by causing the Book-Entry Transfer Facility to transfer Old Notes
to the Exchange/Solicitation Agent's account prior to the Exchange Expiration
Date. Delivery of a Letter of Transmittal and Consent Form to a Book-Entry
Transfer Facility will not constitute valid delivery to the
Exchange/Solicitation Agent. The method of delivery of certificates for
tendered Old Notes, this Letter of Transmittal and Consent Form, and all other
required documents to the Exchange/Solicitation Agent is at the election and
risk of the tendering Holder and the delivery will be deemed made only when
actually received by the Exchange/Solicitation Agent. If delivery is by mail,
registered mail with return receipt requested, properly insured, is recommended.
Instead of delivery by mail, it is recommended that the Holder use an overnight
or hand delivery service. In all cases, sufficient time should be allowed to
assure timely delivery. No Letter of Transmittal and Consent Form or tendered
Old Notes should be sent to the Company. Neither the Company nor the
Exchange/Solicitation Agent is under any obligation to notify any tendering
holder of the Company's acceptance of tendered Old Notes prior to the closing of
the Exchange Offer. NEW NOTES WILL BE DELIVERED ONLY IN BOOK-ENTRY FORM THROUGH
DTC AND ONLY TO THE DTC ACCOUNT OF THE TENDERING HOLDER OR THE TENDERING
HOLDER'S CUSTODIAN. ACCORDINGLY, A HOLDER WHO TENDERS OLD NOTES MUST SPECIFY IN
BOX 5 THE DTC PARTICIPANT NAME, NUMBER AND CONTACT INFORMATION TO WHICH THE NEW
NOTES SHOULD BE DELIVERED.
2. GUARANTEED DELIVERY PROCEDURES. If a Holder desires to tender Old
Notes pursuant to the Exchange Offer and (a) certificates representing such
tendered Old Notes are not immediately available, (b) time will not permit such
Holder's Letter of Transmittal and Consent Form, certificates representing such
tendered Old Notes, and all other required documents to reach the
Exchange/Solicitation Agent on or prior to the Exchange Expiration Date, or (c)
the procedures for book-entry transfer cannot be completed on or prior to the
Exchange Expiration Date, such Holder may tender Old Notes with the effect that
such tender will be deemed to have been received on or prior to the Exchange
Expiration Date if the procedures set forth below and in the Joint Offering
Circular/Consent Solicitation Statement under "The Exchange Offer--Guaranteed
Delivery Procedures" (including the completion of Box 3 above) are followed.
Pursuant to such procedures, (i) the tender must be made by or through an
Eligible Institution (as defined herein), (ii) a properly completed and duly
executed Notice of Guaranteed Delivery substantially in the form provided by the
Company herewith, or an Agent's Message with respect to a guaranteed delivery
that is accepted by the Company, must be received by the Exchange/Solicitation
Agent on or prior to the Exchange Expiration Date and (iii) the certificates for
the tendered Old Notes, in proper form for transfer (or a Book-Entry
Confirmation of the transfer of such tendered Old Notes to the
Exchange/Solicitation Agent's account at DTC as described in the Joint Offering
Circular/Consent Solicitation Statement), together with a Letter of Transmittal
and Consent Form (or manually signed facsimile thereof) properly completed and
duly executed with any required signature guarantees and any other documents
required by the Letter of Transmittal and Consent Form or a properly transmitted
Agent's Message must be received by the Exchange/Solicitation Agent within four
New York Stock Exchange trading days after the date of execution of the Notice
of Guaranteed Delivery. Any Holder who wishes to tender Old Notes pursuant to
the guaranteed delivery
21
<PAGE>
procedures described above must ensure that the Exchange/Solicitation Agent
receives the Notice of Guaranteed Delivery relating to such tendered Old Notes
prior to the Exchange Expiration Date. Failure to complete the guaranteed
delivery procedures outlined above will not, of itself, affect the validity or
effect a revocation of any Letter of Transmittal and Consent Form properly
completed and executed by a Holder who attempted to use the guaranteed delivery
process.
3. BENEFICIAL OWNER INSTRUCTIONS TO HOLDERS. Only a Holder in whose name
Old Notes are registered on the books of the registrar (or the legal
representative or attorney-in-fact of such registered Holder) may execute and
deliver this Letter of Transmittal and Consent Form. Any Beneficial Owner of
Old Notes who is not the Holder must arrange promptly with the Holder to
exchange Old Notes on his or her behalf.
4. PARTIAL TENDERS. Tenders of Old Notes will be accepted only in
multiples of $1,000 in principal amount. If less than the entire principal
amount of Old Notes held by the Holder is tendered, the Holder should fill in
the principal amount tendered in the column labeled "Aggregate Principal Amount
Tendered" of the box entitled "Description of Old Notes Tendered" (Box 1) above.
The entire principal amount of Old Notes delivered to the Exchange/Solicitation
Agent will be deemed to have been tendered for exchange unless otherwise
indicated. If the entire principal amount of Old Notes held by the Holder is
not tendered for exchange, then new certificates representing the Old Notes for
the principal amount of Old Notes not tendered for exchange will be sent to the
Holder at its registered address, unless a different address is provided in the
box entitled "Special Delivery Instructions - Certificates" (Box 2) on this
Letter of Transmittal and Consent Form, as soon as practicable following the
Exchange Expiration Date.
5. SIGNATURES ON THE LETTER OF TRANSMITTAL AND CONSENT FORM; BOND POWERS
AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal and
Consent Form is signed by the Holder(s) of the tendered Old Notes, the signature
must be in exactly the same manner as the name(s) appears on the tendered Old
Notes.
If any of the tendered Old Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal and Consent Form.
If any tendered Old Notes are held in different names, it will be necessary to
complete, sign and submit as many separate copies of the Letter of Transmittal
and Consent Form as there are different names in which such tendered Old Notes
are held.
If this Letter of Transmittal and Consent Form is signed by the Holder(s)
of Old Notes, then such Holder(s) need not and should not endorse any Old Notes
nor provide a separate bond power. In any other case, such Holder(s) must
either properly endorse the tendered Old Notes or transmit a properly completed
separate bond power with this Letter of Transmittal and Consent Form with the
signature(s) on the endorsement or bond power guaranteed by a Medallion
Signature Guarantor (as defined below).
If this Letter of Transmittal and Consent Form is signed by a person other
than the Holder(s) of any tendered Old Notes, such tendered Old Notes must be
endorsed or accompanied by appropriate bond powers, in each case, signed as the
name(s) of the Holder(s) appear(s) on the tendered Old Notes, with the
signature(s) on the endorsement or bond power guaranteed by a Medallion
Signature Guarantor.
If this Letter of Transmittal and Consent Form or any tendered Old Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations, or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing and,
unless waived by the Company, evidence satisfactory to the Company of their
authority to so act must be submitted with this Letter of Transmittal and
Consent Form.
Signatures on this Letter of Transmittal and Consent Form must be
guaranteed by a recognized participant in the Securities Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Signature Program or
the Stock Exchange Medallion Program (each a "Medallion Signature Guarantor"),
unless the Old Notes are tendered (i) by the Holder of the Old Notes (or by a
participant in DTC whose name appears on a security position listing as the
owner of such Old Notes) who has not completed Box 2 ("Special Delivery
Instructions") on this Letter of Transmittal and Consent Form, or (ii) for the
account of a member firm of a registered national securities
22
<PAGE>
exchange, a member of the National Association of Securities Dealers, Inc.
("NASD") or a commercial bank or trust company having an office or correspondent
in the United States (each of the foregoing being referred to as an "Eligible
Institution"). If the tendered Old Notes are registered in the name of a person
other than the signer of the Letter of Transmittal and Consent Form or if Old
Notes not tendered are to be returned to a person other than the Holder, then
the signature on this Letter of Transmittal and Consent Form accompanying the
tendered Old Notes must be guaranteed by a Medallion Signature Guarantor as
described above. Beneficial Owners whose tendered Old Notes are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
must contact such broker, dealer, commercial bank, trust company or other
nominee if they desire to tender such Old Notes.
6. SPECIAL DELIVERY INSTRUCTIONS. Holders should indicate in Box 2
("Special Delivery Instructions--Certificates") the name and address to which
substitute Old Notes for principal amounts not tendered or not accepted for
exchange are to be sent, if different from the name and address of the person
signing this Letter of Transmittal and Consent Form. In the case of issuance in
a different name, the taxpayer identification or social security number of the
person named must also be indicated.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, substitute Old Notes for amounts not tendered or not exchanged are to
be delivered to, or are to be registered in the name of, any person other than
the Holder of Old Notes, tendered, or if tendered Old Notes are registered in
the name of any person other than the person signing this Letter of Transmittal
and Consent Form, or if a transfer tax is imposed for any reason other than the
transfer and exchange of Old Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the Holder or on any other
person) will be payable by the Holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with this Letter of
Transmittal and Consent Form, the amount of such transfer taxes will be billed
directly to such Holder and/or withheld from any payments due with respect to
the Old Notes tendered by such Holder.
It will not be necessary for transfer tax stamps to be affixed to the
tendered Old Notes listed in this Letter of Transmittal and Consent Form.
8. TAX IDENTIFICATION NUMBER. The tendering Holder(s) of any Old Notes
which are accepted for exchange must provide the Exchange/Solicitation Agent
with its correct taxpayer identification number ("TIN"), which, in the case of a
Holder who is an individual, is his or her social security number. In the case
of a tendering Holder who has completed Box 6 entitled "Special Payment
Instructions" above, however, the correct TIN on the Substitute Form W-9 or W-8
should be provided for the recipient of the tendering Holder's Repurchase Amount
delivered pursuant to such instructions. Failure to provide the information on
the Form W-9 or W-8 will cause the Company to withhold 31% of any payments made
to the consenting Holder or such recipient, as the case may be, until such
information is received. See "Backup Withholding Information" above.
9. VALIDITY OF TENDERS. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of tendered
Old Notes will be resolved by the Company in its sole discretion, which
resolution will be final and binding. The Company reserves the right to reject
any and all Old Notes not validly tendered or any Old Notes the acceptance of
which would, in the opinion of the Company or its counsel, be unlawful. The
Company also reserves the right to waive any defects or irregularities or
conditions of the Exchange Offer including the ineligibility of any Holder who
seeks to tender Old Notes in the Exchange Offer. The interpretation of the
terms and conditions of the Exchange Offer (including this Letter of Transmittal
and Consent Form and the instructions hereto) by the Company shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Neither the Company, the Exchange/Solicitation Agent
nor any other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes, nor shall any of them incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange/Solicitation Agent that
are not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned by the Exchange/Solicitation Agent to the
Holders, unless otherwise provided in this Letter of Transmittal and Consent
Form, as soon as practicable following the Exchange Expiration Date.
23
<PAGE>
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to
amend, waive or modify any of the conditions in the Exchange Offer in the case
of any Old Notes.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular or
contingent tender of Old Notes or transmittal of this Letter of Transmittal and
Consent Form will be accepted.
12. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any Holder whose
tendered Old Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange/Solicitation Agent at the address indicated herein for further
instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Joint Offering
Circular/Consent Solicitation Statement or this Letter of Transmittal and
Consent Form may be directed to the Exchange/Solicitation Agent at the addresses
and telephone numbers indicated herein. Holders may also contact their broker,
dealer, commercial bank, trust, company or other nominee for assistance
concerning the Exchange Offer.
14. ACCEPTANCE OF TENDERED OLD NOTES AND ISSUANCE OF NEW NOTES; RETURN OF
OLD NOTES. Subject to the terms and conditions of the Exchange Offer, the
Company will accept for exchange all validly tendered Old Notes and, as soon as
practicable after the Solicitation Exchange Expiration Date, will issue New
Notes in a principal amount equal to the Exchanged Amount (less the principal
amount of such Old Notes repurchased in the Exchange. See "The Exchange
Offer--Repurchase of Old Notes"). For purposes of the Exchange Offer, the
Company shall be deemed to have accepted tendered Old Notes when, as and if the
Company has given written or oral notice (immediately followed in writing)
thereof to the Exchange/Solicitation Agent. If any tendered Old Notes are not
exchanged pursuant to the Exchange Offer for any reason, such unexchanged Old
Notes will be returned, without expense, to the undersigned at the address shown
in Box 1 or at a different address as may be indicated herein under "Special
Delivery Instructions--Certificates" (Box 2).
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the procedures
set forth in the Joint Offering Circular/Consent Solicitation Statement under
the caption "The Exchange Offer--Withdrawal Rights."
16. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS OF TENDERING HOLDER'S
REPURCHASE AMOUNT. Tendering Holders should indicate, in the applicable box,
the name and address to which the Tendering Holder's Repurchase Amount is to be
sent or issued, if different from the name and address of the person submitting
the Letter of Transmittal and Consent Form. In the case of issuance or payment
in a different name, the tax identification number of the person named must also
be indicated and a Substitute Form W-9 for such recipient must also be
completed. See Instruction 8. If no such instructions are given, the Tendering
Holder's Repurchase Amount will be sent to the name and address of the person
signing this Letter of Transmittal and Consent Form.
B. CONSENTING TO PROPOSED CONSENTS
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CONSENT FORM AND OLD NOTES.
This Letter of Transmittal and Consent Form is to be completed by Holders of Old
Notes with respect to which Consents are to be furnished, if physical
certificates representing such Old Notes are to be forwarded herewith pursuant
to the procedures set forth in the Joint Offering Circular/Consent Solicitation
Statement under "The Solicitation--Procedures for Furnishing Consents." For a
Holder of physical certificates to deliver a valid Consent pursuant to the
Consent Solicitation, a properly completed and duly executed copy of this Letter
of Transmittal and Consent Form, including the Substitute Form W-9 or W-8, and
any other documents required by this Letter of Transmittal and Consent Form must
be received by the Exchange/Solicitation Agent at its address set forth herein,
and certificates for Old Notes must be received by the Exchange/Solicitation
Agent at its address set forth herein, prior to the Solicitation Expiration
Date. Any financial institution that is a participant in DTC (the "Book-Entry
Transfer Facility") may cause DTC to transfer Old Notes to the
Exchange/Solicitation Agent in accordance with DTC's procedures for such
transfer prior to the Solicitation Expiration Date. The Exchange/Solicitation
Agent will make available its general participant account for the Old Notes at
the Book-Entry Transfer Facility for purposes of the Consent Solicitation. Any
financial institution that is a participant in the Book-Entry Transfer Facility
may make a book-entry delivery of Old Notes by causing the Book-Entry Transfer
Facility to transfer Old Notes to the
24
<PAGE>
Exchange/Solicitation Agent's account prior to the Solicitation Expiration Date.
Delivery of a Letter of Transmittal and Consent Form to a Book-Entry Transfer
Facility will not constitute valid delivery to the Exchange/Solicitation Agent.
The method of delivery of this Letter of Transmittal and Consent Form,
certificates for Old Notes subject to the Consents furnished and all other
required documents to the Exchange/Solicitation Agent is at the election and
risk of the consenting Holder and the delivery will be deemed made only when
actually received by the Exchange/Solicitation Agent. If delivery is by mail,
registered mail with return receipt requested, properly insured, is recommended.
Instead of delivery by mail, it is recommended that the Holder use an overnight
or hand delivery service. In all cases, sufficient time should be allowed to
assure timely delivery. No Letter of Transmittal and Consent Form or Old Notes
should be sent to the Company. Neither the Company nor the
Exchange/Solicitation Agent is under any obligation to notify any consenting
holder of the Company's acceptance of Consents prior to the closing of the
Consent Solicitation.
2. GUARANTEED DELIVERY PROCEDURES. If a Holder desires to deliver Old
Notes with respect to which Consents are given pursuant to the Consent
Solicitation and (a) certificates representing such Old Notes are not
immediately available, (b) time will not permit such Holder's Letter of
Transmittal and Consent Form, certificates representing such tendered Old Notes
and all other required documents to reach the Exchange/Solicitation Agent on or
prior to the Solicitation Expiration Date, or (c) the procedures for book-entry
transfer cannot be completed on or prior to the Solicitation Expiration Date,
such Holder may deliver a Consent and the Old Notes subject to the Consent with
the effect that such Consent will be deemed to have been received on or prior to
the Solicitation Expiration Date if the procedures set forth below and in the
Joint Offering Circular/Consent Solicitation Statement under "The
Solicitation--Guaranteed Delivery Procedures" (including the completion of Box C
above) are followed. Pursuant to such procedures, (i) the delivery must be made
by or through an Eligible Institution, (ii) a properly completed and duly
executed Notice of Guaranteed Delivery substantially in the form provided by the
Company herewith, or an Agent's Message with respect to a guaranteed delivery
that is accepted by the Company, must be received by the Exchange/Solicitation
Agent on or prior to the Solicitation Expiration Date and (iii) the certificates
for the Old Notes subject to the Consent, in proper form for transfer (or a
Book-Entry Confirmation of the transfer of such Old Notes to the
Exchange/Solicitation Agent's account at DTC as described in the Joint Offering
Circular/Consent Solicitation Statement), together with a Letter of Transmittal
and Consent Form (or manually signed facsimile thereof) properly completed and
duly executed with any required signature guarantees and any other documents
required by the Letter of Transmittal and Consent Form or a properly transmitted
Agent's Message must be received by the Exchange/Solicitation Agent within four
New York Stock Exchange trading days after the date of execution of the Notice
of Guaranteed Delivery. Any Holder who wishes to deliver Old Notes pursuant to
the guaranteed delivery procedures described above must ensure that the
Exchange/Solicitation Agent receives the Notice of Guaranteed Delivery relating
to such Old Notes subject to a Consent prior to the Solicitation Expiration
Date. Failure to complete the guaranteed delivery procedures outlined above
will not, of itself affect the validity or effect a revocation of any Letter of
Transmittal and Consent Form properly completed and executed by a Holder who
attempted to use the guaranteed delivery process.
3. BENEFICIAL OWNER INSTRUCTIONS TO HOLDERS. Only a Holder in whose name
Old Notes are registered on the books of the registrar (or the legal
representative or attorney-in-fact of such registered Holder) may execute and
deliver this Letter of Transmittal and Consent Form. Any Beneficial Owner of
Old Notes who is not the Holder must arrange promptly with the Holder to deliver
Consents on his or her behalf.
4. PARTIAL CONSENTS. Consents with respect to Old Notes will be accepted
only in multiples of $1,000 in principal amount. If Consents are furnished with
respect to less than the entire principal amount of Old Notes held by the
Holder, the Holder should fill in the principal amount with respect to which
Consents are furnished in the column labeled "Aggregate Principal Amount As to
Which Consent is Given" of the box entitled "Description of Old Notes as to
which Consent is Given" (Box A) above. Consents will be deemed to have been
furnished with request to the entire principal amount of Old Notes held by a
Holder and delivered to the Exchange/Solicitation Agent unless otherwise
indicated. If Consents are not furnished with respect to the entire principal
amount of Old Notes held by the Holder, then certificates will be issued
representing the Old Notes (i) for the principal amount of Old Notes subject to
the Consents, with the restrictions on transfer noted, and (ii) for the
principal amount of Old Notes not subject to Consents, which will not be subject
to restrictions on transfer, Certificates will be sent to the Holder at its
registered address, unless a different address is provided in the box
25
<PAGE>
entitled "Special Delivery Instructions--Certificates" (Box B) on this Letter of
Transmittal and Consent Form, as soon as practicable following the Solicitation
Expiration Date.
5. SIGNATURES ON THE LETTER OF TRANSMITTAL AND CONSENT FORM; POWERS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal and
Consent Form is signed by the Holder(s) of the Old Notes with respect to which
Consents are given, the signature must be in exactly the same manner as the
name(s) appears on the such Old Notes.
If any of the Old Notes with respect to which Consents are given are owned
of record by two or more joint owners, all such owners must sign this Letter of
Transmittal and Consent Form. If any Old Notes with respect to which Consents
are given are held in different names, it will be necessary to complete, sign
and submit as many separate copies of the Letter of Transmittal and Consent Form
as there are different names in which such tendered Old Notes are held.
If this Letter of Transmittal and Consent Form is signed by the Holder(s)
of Old Notes, then such Holder(s) need not and should not endorse any Old Notes
nor provide a separate bond power. In any other case, such Holder(s) must
either properly endorse the Old Notes with respect to which Consents are given
or transmit a properly completed separate bond power with this Letter of
Transmittal and Consent Form with the signature(s) on the endorsement or bond
power guaranteed by a Medallion Signature Guarantor (as defined below).
If this Letter of Transmittal and Consent Form is signed by a person other
than the Holder(s) of any Old Notes with respect to which Consents are given,
such Old Notes must be endorsed or accompanied by appropriate bond powers, in
each case, signed as the name(s) of the Holder(s) appear(s) on such Old Notes,
with the signature(s) on the endorsement or bond power guaranteed by a Medallion
Signature Guarantor.
If this Letter of Transmittal and Consent Form or any Old Notes with
respect to which Consents are given or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and, unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with this Letter of Transmittal and Consent Form.
Signatures on this Letter of Transmittal and Consent Form must be
guaranteed by a recognized participant in the Securities Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Signature Program or
the Stock Exchange Medallion Program (each a "Medallion Signature Guarantor"),
unless the Consents are given with respect to Old Notes that are delivered (i)
by the Holder of the Old Notes (or by a participant in DTC whose name appears on
a security position listing as the owner of such Old Notes) who has not
completed Box B ("Special Delivery Instructions--Certificates") on this Letter
of Transmittal and Consent Form, or (ii) for the account of a member firm of a
registered national securities exchange, a member of the National Association of
Securities Dealers, Inc. ("NASD") or a commercial bank or trust company having
an office or correspondent in the United States (each of the foregoing being
referred to as an "Eligible Institution"). If the Old Notes with respect to
which Consents are given are registered in the name of a person other than the
signer of the Letter of Transmittal and Consent Form or if Old Notes for which
Consents are not given are to be returned to a person other than the Holder,
then the signature on this Letter of Transmittal and Consent Form accompanying
such Old Notes must be guaranteed by a Medallion Signature Guarantor as
described above. Beneficial Owners whose Old Notes are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee must
contact such broker, dealer, commercial bank, trust company or other nominee if
they desire to deliver Consents with respect to such Old Notes.
6. SPECIAL DELIVERY INSTRUCTIONS. Holders should indicate in Box B
("Special Delivery Instructions--Certificates") the name and address to which
substitute Old Notes (whether for Old Notes taht are subject or not subject to
Consents) are to be sent, if different from the name and address of the person
signing this Letter of Transmittal and Consent Form. In the case of issuance in
a different name, the taxpayer identification or social security number of the
person named must also be indicated.
26
<PAGE>
7. TAX IDENTIFICATION NUMBER. The Holder(s) of any Old Notes for which
Consents are accepted must provide the Exchange/Solicitation Agent with its
correct taxpayer identification number ("TIN"), which, in the case of a Holder
who is an individual, is his or her social security number. In the case of a
Consenting Holder who has completed Box E entitled "Special Payment
Instructions" above, however, the correct TIN on the Substitute Form W-9 should
be provided for the recipient of the Consenting Holder's Repurchase Amount
delivered pursuant to such instructions. Failure to provide the information on
the Form W-9 will cause the Company to withhold 31% of any payments made to the
consenting Holder or such recipient, as the case may be, until such information
is received. See "Backup Withholding Information" above.
8. VALIDITY OF CONSENTS. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and revocation of Consents
will be resolved by the Company in its sole discretion, which resolution will be
final and binding. The Company reserves the right to reject any and all
Consents not validly furnished or the acceptance of which would, in the opinion
of the Company or its counsel, be unlawful. The Company also reserves the right
to waive any defects or irregularities of the Consent Solicitation including the
ineligibility of any Holder who seeks to furnish Consents. The interpretation
of the terms and conditions of the Consent Solicitation (including this Letter
of Transmittal and Consent Form and the instructions hereto) by the Company
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with delivery of Consents must be cured within such
time as the Company shall determine. Neither the Company, the
Exchange/Solicitation Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to delivery of Consents,
nor shall any of them incur any liability for failure to give such notification.
Consents will not be deemed to have been delivered until such defects or
irregularities have been cured or waived. Any Old Notes with respect to which
Consents are given and received by the Exchange/Solicitation Agent that are not
properly given and as to which the defects or irregularities have not been cured
or waived will be returned by the Exchange/Solicitation Agent to the Holders,
unless otherwise provided in this Letter of Transmittal and Consent Form, as
soon as practicable following the Solicitation Expiration Date.
9. WAIVER OF TERMS. The Company reserves the absolute right to amend,
waive or modify any of the terms in the Consent Solicitation in the case of any
Old Notes.
10. NO CONDITIONAL CONSENTS. No alternative, conditional, irregular, or
contingent Consents with respect to Old Notes or transmittal of this Letter of
Transmittal and Consent Form will be accepted.
11. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any Holder whose Old
Notes with respect to which Consents are furnished have been mutilated, lost,
stolen or destroyed should contact the Exchange/Solicitation Agent at the
address indicated herein for further instructions.
12. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Joint Offering
Circular/Consent Solicitation Statement or this Letter of Transmittal and
Consent Form may be directed to the Exchange/Solicitation Agent at the addresses
and telephone numbers indicated therein. Holders may also contact their broker,
dealer, commercial bank, trust, company or other nominee for assistance
concerning the Consent Solicitation.
13. ACCEPTANCE OF CONSENTS; RETURN OF OLD NOTES. Subject to the terms and
conditions of the Consents Solicitation, the Company will accept all validly
delivered Consents and, as soon as practicable after the Solicitation Expiration
Date, will reissue Old Notes with the restriction on transfer noted in a
principal amount equal to the principal amount of Old Notes with respect to
which Consents are given, less the principal amount of such Old Notes
repurchased in the Consent Solicitation. See "The Solicitation--Repurchase of
Old Notes." For purposes of the Consent Solicitation, the Company shall be
deemed to have accepted Consents and Consents will become effective when, as and
if the Company has given written or oral notice (immediately followed in
writing) thereof to the Exchange/Solicitation Agent. If any Old Notes are
delivered in connection with Consents that do not become effective for any
reason, such Old Notes will be returned, without expense, to the Holder at the
address shown in Box A or at a different address as may be indicated herein
under "Special Delivery Instructions--Certificates" (Box B).
27
<PAGE>
14. REVOCATION. Consents may be revoked only pursuant to the procedures
set forth in the Joint Offering Circular/Consent Solicitation Statement under
the caption "The Solicitation--Revocation of Consents."
15. SPECIAL DELIVERY INSTRUCTIONS--CERTIFICATED NOTES. Consenting Holders
should indicate, in Box G, the name in which certificates are to be issued and
the address to which certificates are to be sent for the Old Notes which will be
reissued in certificated form, if different from the name and address of the
person submitting this Letter of Transmittal and Consent Form.
16. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS OF CONSENTING HOLDER'S
REPURCHASE AMOUNT. Consenting Holders should indicate, in the applicable box,
the name and address to which the Consenting Holder's Repurchase Amount is to be
sent or issued, if different from the name and address of the person submitting
the Letter of Transmittal and Consent Form. In the case of issuance or payment
in a different name, the tax identification number of the person named must also
be indicated and a Substitute Form W-9 for such recipient must also be
completed. See Instruction 7. If no such instructions are given, the
Consenting Holder's Repurchase Amount will be sent to the name and address of
the person signing this Letter of Transmittal and Consent Form.
28
<PAGE>
LETTER TO BENEFICIAL OWNERS
PIONEER FINANCE CORP.
OFFER TO EXCHANGE
13 1/2% FIRST MORTGAGE NOTES DUE 2006
FOR ALL OF ITS OUTSTANDING
13 1/2% FIRST MORTGAGE BONDS DUE DECEMBER 1, 1998
AND CONSENT SOLICITATION
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON FRIDAY, NOVEMBER 20, 1998, UNLESS EXTENDED (THE "EXCHANGE
EXPIRATION DATE"). THE SOLICITATION AND REVOCATION RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, NOVEMBER 20, 1998, UNLESS
EXTENDED (THE "SOLICITATION EXPIRATION DATE")
- -------------------------------------------------------------------------------
October 23, 1998
To Our Clients:
Enclosed for your consideration are the Offering Circular and Consent
Solicitation Statement dated October 23, 1998 (the "Joint Offering
Circular/Consent Solicitation Statement") and the accompanying Letter of
Transmittal and Consent Form (the "Letter of Transmittal and Consent Form"),
which together constitute the offer (the "Exchange Offer") by Pioneer Finance
Corp., a Nevada corporation (the "Company"), upon the terms and subject to the
conditions set forth in the Joint Offering Circular/Consent Solicitation
Statement and the accompanying Letter of Transmittal and Consent Form to
exchange a principal amount of its 13 1/2% First Mortgage Notes due December 1,
2006 (together with the PIK Notes, as defined in the Joint Offering
Circular/Consent Solicitation Statement, the "New Notes") equal to the principal
amount of all its outstanding 13 1/2% First Mortgage Bonds due December 1, 1998
(the "Old Notes"), less the principal amount of Old Notes repurchased by the
Company, as described in the Joint Offering Circular/Consent Solicitation
Statement under the caption "The Exchange Offer - Repurchase of Old Notes," and
the Solicitation (the "Solicitation") of consents to the Proposed Consents (as
defined in the Joint Offering Circular/Consent Solicitation Statement) from the
Holders of the Old Notes.
The Exchange Offer is conditioned upon, among other things, 100% of the
outstanding principal amount of Old Notes being properly tendered for exchange
and not withdrawn (the "Minimum Condition"). See "The Exchange
Offer--Conditions of the Exchange Offer" in the Joint Offering Circular/Consent
Solicitation Statement. The Consents will not become effective unless the
Exchange Offer is not consummated and the Company receives valid Consents with
respect to at least $47 million principal amount of Old Notes.
We are the Holder of Old Notes held for your account. A tender of such Old
Notes and Consents with respect to such Old Notes can be made only by us as the
Holder and pursuant to your instructions. The enclosed Letter of Transmittal
and Consent Form is furnished to you for your information only and cannot be
used by you to tender Old Notes or deliver Consents with respect to Old Notes
held by us for your account. Beneficial owners of Old Notes whose Old Notes are
held in the name of a broker, dealer, commercial bank, trust company or other
nominee must contact such broker, dealer, commercial bank, trust company or
other nominee if they desire to exchange such Old Notes or deliver Consents with
respect to such Old Notes.
We request that you advise us whether you wish us to tender any or all of
the Old Notes and/or deliver Consents with respect to any or all of the Old
Notes held by us for your account upon the terms and subject to the
<PAGE>
conditions set forth in the Joint Offering Circular/Consent Solicitation
Statement and the Letter of Transmittal and Consent Form.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to execute a Letter of Transmittal and Consent Form and
tender your Old Notes and/or deliver Consents with respect to your Old Notes on
your behalf in accordance with the terms of the Exchange Offer and/or the
Solicitation.
Your attention is directed to the following:
1. The Exchange Offer and withdrawal rights will expire at
12:00 midnight, New York City time, on Friday, November 20, 1998, unless
extended.
2. The Solicitation and revocation rights will expire at 12:00 midnight,
New York City time, on Friday, November 20, 1998 unless extended.
3. The Company's obligation to exchange Old Notes for New Notes is
subject to certain conditions set forth in the Joint Offering Circular/Consent
Solicitation Statement under the caption "The Exchange Offer--Conditions to the
Exchange Offer."
4. Any transfer taxes with respect to the exchange and transfer of any
Old Notes pursuant to the Exchange Offer will be paid by the Company, except as
otherwise provided in Part A Instruction 7 of Letter of Transmittal and Consent
Form.
If you wish to have us tender and/or deliver Consents with respect to any
or all of your Old Notes, please so instruct us by completing, executing,
detaching and returning to us the accompanying instruction form. An envelope
to return your instructions is enclosed. If you authorize the tender of your
Old Notes, all such Old Notes will be tendered unless otherwise specified on
such instructions. If you authorize the delivery of Consents, Consents with
respect to all of your Old Notes will be delivered unless otherwise specified in
your instructions. Your instructions should be forwarded to us in ample time to
permit us to submit a tender and/or deliver Consents on your behalf before the
Expiration Date and the Exchange Expiration Date.
Neither the Exchange Offer nor the Solicitation is being made to, and
neither offers nor Consents are being solicited from (nor will tenders of Old
Notes or Consent forms be accepted from or on behalf of), Holders in any
jurisdiction in which the making of the Exchange Offer or acceptance for
exchange of the Old Notes or the making of the Solicitation of the acceptance of
Consent forms, would not be in compliance with the laws of that jurisdiction.
However, the Company may, in its sole discretion, take such action as it may
deem necessary to make the Exchange Offer in any such jurisdiction.
<PAGE>
OFFER TO TENDER FOR EXCHANGE
13 1/2% FIRST MORTGAGE NOTES DUE 2006
FOR ALL OF THE OUTSTANDING
13 1/2% FIRST MORTGAGE BONDS DUE DECEMBER 1, 1998
AND CONSENT SOLICITATION
OF
PIONEER FINANCE CORP.
To Registered Holders:
We are enclosing herewith the material listed below relating to the offer
(the "Exchange Offer") by Pioneer Finance Corp., a Nevada corporation (the
"Company"), to exchange its 13 1/2% First Mortgage Bonds due December 1, 1998
(the "Old Notes") for a principal amount of its 13 1/2% First Mortgage Notes due
December 1, 2006 (the "New Notes") equal to the principal amount of the Old
Notes tendered and not withdrawn, less the principal amount of tendered Old
Notes repurchased by the Company as described in the Offering Circular and
Consent Solicitation Statement, dated October 23, 1998 (as it may be
supplemented and amended from time to time, the "Joint Offering Circular/Consent
Solicitation Statement"), and the Solicitation of Consents to the Proposed
Consents, upon the terms and subject to the conditions set forth in the Joint
Offering Circular/Consent Solicitation Statement, and the related Letter of
Transmittal and Consent Form.
Capitalized terms used without definition herein shall have the meanings
assigned to them in the Joint Offering Circular/Consent Solicitation Statement.
The Exchange Offer is conditioned upon, among other things, 100% of the
outstanding principal amount of Old Notes being properly tendered for exchange
and not withdrawn (the "Minimum Condition"). See "The Exchange
Offer--Conditions of the Exchange Offer" in the Joint Offering Circular/Consent
Solicitation Statement. The Consents will not become effective unless the
Exchange Offer is not consummated and the Company receives and accepts valid
Consents with respect to at least $47 million principal amount of Old Notes.
Enclosed herewith for your information and forwarding to your clients for
whose accounts you hold Old Notes registered in your name or the name of your
nominee are copies of the following documents:
1. The Offering Circular and Consent Solicitation Statement dated
October 23, 1998 (the "Joint Offering Circular/Consent Solicitation
Statement");
2. The Letter of Transmittal and Consent Form to tender Old Notes for
exchange and to consent to the Proposed Consents (for your use and for
the information of your clients). Facsimile copies of the Letter of
Transmittal and Consent Form may be used to tender Old Notes for
exchange and to consent to the Proposed Consents;
3. A Notice of Guaranteed Delivery, to be used to accept the Exchange
Offer and/or to consent to the Proposed Consents if Old Notes and all
other required documents cannot be delivered to IBJ Schroder Bank and
Trust Company (the "Exchange/Solicitation Agent") by the Exchange
Expiration Date and/or the Solicitation Expiration Date, or the
book-entry transfer of such Old Notes cannot be completed by the
Exchange Expiration Date or the Solicitation Expiration Date;
4. A form of letter which may be sent to your clients for whose accounts
you hold Old Notes in your name or in the name of your nominee with an
accompanying instruction form for obtaining such clients' instructions
with regard to the Exchange Offer and the Solicitation;
5. A letter from the Company regarding the Exchange Offer and the
Solicitation that may be sent to your clients; and
<PAGE>
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY.
PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, NOVEMBER 20, 1998, UNLESS EXTENDED AND THAT THE SOLICITATION
WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, NOVEMBER 20, 1998,
UNLESS EXTENDED.
IMPORTANT: DTC PARTICIPANTS MAY ELECTRONICALLY TRANSMIT THEIR ACCEPTANCE OF THE
EXCHANGE OFFER IN ACCORDANCE WITH DTC'S ATOP PROCEDURES FOR TRANSFER.
ALTERNATIVELY, THE LETTER OF TRANSMITTAL AND CONSENT FORM (OR A MANUALLY SIGNED
FACSIMILE THEREOF), TOGETHER WITH THE OLD NOTES AND ALL OTHER REQUIRED
DOCUMENTS, MUST BE RECEIVED BY THE EXCHANGE/SOLICITATION AGENT PRIOR TO THE
EXPIRATION DATE.
In order to exchange Old Notes pursuant to the Exchange Offer and/or the
consent to the Proposed Consents and deliver Old Notes relating thereto, a duly
executed and properly completed Letter of Transmittal and Consent Form and any
required signature guarantees should be sent to the Exchange/Solicitation Agent,
and certificates representing the tendered Old Notes (or confirmation of a
book-entry transfer) should be delivered to the Exchange/Solicitation Agent, all
in accordance with the instructions set forth in the Letter of Transmittal and
Consent Form and the Joint Offering Circular/Consent Solicitation Statement.
The Company will, upon request, reimburse brokers, dealers, commercial
banks, trust companies and other nominees for reasonable and customary mailing
and handling expenses incurred by them in forwarding material to their
customers. The Company will pay or cause to be paid all transfer taxes, if any,
with respect to the transfer of any Old Notes to it pursuant to the Exchange
Offer, except as otherwise provided in Part A Instruction 7 of the Letter of
Transmittal and Consent Form.
Any inquiries you may have with respect to the Exchange Offer and the
Solicitation should be addressed to, and additional copies of the enclosed
materials may be obtained from, the Exchange/Solicitation Agent, at the address
and telephone number contained in the Joint Offering Circular/Consent
Solicitation Statement.
Very truly yours,
PIONEER FINANCE CORP.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS IS INTENDED TO CONSTITUTE
YOU OR ANY PERSON THE AGENT OF THE COMPANY OR IBJ SCHRODER BANK AND TRUST
COMPANY OR ANY OF THEIR RESPECTIVE AFFILIATES, OR AUTHORIZE YOU OR ANY OTHER
PERSON TO MAKE ANY STATEMENT ON THEIR BEHALF OTHER THAN STATEMENTS EXPRESSLY
MADE IN THE JOINT OFFERING CIRCULAR/CONSENT SOLICITATION STATEMENT OR THE LETTER
OF TRANSMITTAL AND CONSENT FORM OR USE ANY DOCUMENTS IN CONNECTION WITH THE
EXCHANGE OFFER OR THE SOLICITATION OTHER THAN FOR THE PURPOSES DESCRIBED HEREIN.
<PAGE>
INSTRUCTION TO REGISTERED HOLDER FROM BENEFICIAL OWNER
OF
13 1/2% FIRST MORTGAGE BONDS DUE DECEMBER 1, 1998
OF
PIONEER FINANCE CORP.
To Registered Holder:
The undersigned hereby acknowledges receipt of the Offering Circular and
Consent Solicitation Statement dated October 23, 1998 (as the same may be
amended or supplemented, the "Joint Offering Circular/Consent Solicitation
Statement") and the accompanying Letter of Transmittal and Consent Form (the
"Letter of Transmittal and Consent Form"), which together constitute the offer
(the "Exchange Offer") by Pioneer Finance Corp., a Nevada corporation (the
"Company"), upon the terms and subject to the conditions set forth in the Joint
Offering Circular/Consent Solicitation Statement and the accompanying Letter of
Transmittal and Consent Form to exchange a principal amount of its 13 1/2% First
Mortgage Notes due December 1, 2006 (together with the PIK Notes, as defined in
the Joint Offering Circular/Consent Solicitation Statement, the "New Notes")
equal to the principal amount of all its outstanding 13 1/2% First Mortgage
Bonds due December 1, 1998 (the "Old Notes"), less the principal amount of Old
Notes repurchased by the Company, as described in the Joint Offering
Circular/Consent Solicitation Statement under the caption "The Exchange
Offer - Repurchase of Old Notes," and the Solicitation of Consents to the
Proposed Consents.
Capitalized terms used herein without definition shall have the meaning
assigned to them in the Joint Offering Circular/Consent Solicitation Statement.
This will instruct you, the registered holder, as to the action to be taken
by you relating to the Exchange Offer and the Solicitation with respect to the
Old Notes held by you for the account of the undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (fill in amount):
$___________ of 13 1/2% First Mortgage Bonds due December 1, 1998.
A. With respect to the Exchange Offer, the undersigned hereby instructs
you (check appropriate box):
/ / To TENDER the following Old Notes held by you for the account of
the undersigned (insert principal amount of Old Notes to be tendered (if
any)):
$___________ 13 1/2% First Mortgage Bonds due December 1, 1998.
/ / NOT to TENDER any Old Notes held by you for the account of the
undersigned.
B. With respect to the Solicitation, the undersigned hereby instructs you
(check appropriate box):
/ / To CONSENT to the Proposed Consents with respect to the following
Old Notes held by you for the account of the undersigned (insert principal
amount of Old Notes with respect to which Consents are delivered (if any)):
$__________ 13 1/2% First Mortgage Bonds due December 1, 1998.
/ / NOT to CONSENT to the Proposed Consents.
--------------------------------------------------------------
SIGN HERE
<PAGE>
Name of beneficial owner(s) (please print): ___________________________________
Signature(s): _________________________________________________________________
Address: ______________________________________________________________________
Telephone Number: _____________________________________________________________
Taxpayer identification or Social Security Number:_____________________________
_______________________________________________________________________________
Date: _________________________________________________________________________
<PAGE>
LETTER TO HOLDERS OF NOTES IN PHYSICAL FORM
PIONEER FINANCE CORP.
OFFER TO EXCHANGE
13 1/2% FIRST MORTGAGE NOTES DUE DECEMBER 1, 2006
FOR ALL OF ITS OUTSTANDING
13 1/2% FIRST MORTGAGE BONDS DUE DECEMBER 1, 1998
AND CONSENT SOLICITATION
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON FRIDAY, NOVEMBER 20, 1998, UNLESS EXTENDED (THE "EXCHANGE
EXPIRATION DATE"). THE CONSENT SOLICITATION AND REVOCATION RIGHTS WILL EXPIRE
AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, NOVEMBER 20, 1998, UNLESS
EXTENDED (THE "SOLICITATION EXPIRATION DATE").
- --------------------------------------------------------------------------------
October 23, 1998
To Holders of Notes in Physical Form:
Enclosed for your consideration are the Offering Circular and Consent
Solicitation Statement dated October 23, 1998 (the "Joint Offering
Circular/Consent Solicitation Statement") and the accompanying Letter of
Transmittal and Consent Form (the "Letter of Transmittal and Consent Form"),
which together constitute the offer (the "Exchange Offer") by Pioneer Finance
Corp., a Nevada corporation (the "Company"), upon the terms and subject to the
conditions set forth in the Joint Offering Circular/Consent Solicitation
Statement and the accompanying Letter of Transmittal and Consent Form to
exchange a principal amount of its 13 1/2% First Mortgage Notes due December 1,
2006 (together with the PIK Notes, as defined in the Joint Offering
Circular/Consent Solicitation Statement, the "New Notes") equal to the principal
amount of all its outstanding 13 1/2% First Mortgage Bonds due December 1, 1998
(the "Old Notes"), less the principal amount of Old Notes repurchased by the
Company, as described in the Joint Offering Circular/Consent Solicitation
Statement under the caption "The Exchange Offer - Repurchase of Old Notes," and
the Solicitation of Consents to the Proposed Consents, from the registered
holders (individually, a "Holder" and collectively the "Holders") thereof.
The Exchange Offer is conditioned upon, among other things, 100% of the
outstanding principal amount of Old Notes being properly tendered for exchange
and not withdrawn (the "Minimum Condition"). See "The Exchange
Offer--Conditions of the Exchange Offer" in the Joint Offering Circular/Consent
Solicitation Statement. The Consents will not become effective unless the
Exchange Offer is not consummated and the Company receives valid Consents with
respect to at least $47 million principal amount of Old Notes.
If you decide to tender any or all of the Old Notes you hold in the
Exchange Offer and/or to deliver Consents with respect to any or all of the Old
Notes you hold pursuant to the Solicitation, you must complete the enclosed
Letter of Transmittal and Consent Form and send it, with any other required
documents, to IBJ Schroder Bank and Trust Company at one of the addresses
indicated on the front of the Letter of Transmittal and Consent Form, in
compliance with the procedures described in the Joint Offering Circular/Consent
Solicitation Statement and in the Letter of Transmittal and Consent Form.
ANY NEW NOTES ISSUED TO YOU IN EXCHANGE FOR YOUR OLD NOTES PURSUANT TO
THE EXCHANGE OFFER WILL BE ISSUED ONLY IN BOOK-ENTRY FORM THROUGH THE DEPOSITORY
TRUST COMPANY ("DTC"), WHICH MEANS THAT YOU WILL NOT RECEIVE A CERTIFICATE
EVIDENCING ANY NEW NOTES THAT ARE ISSUED TO YOU. IN ORDER TO RECEIVE YOUR NEW
NOTES, YOU WILL NEED TO CONTACT A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY
OR OTHER NOMINEE IN ORDER TO PROVIDE THE NECESSARY DTC ACCOUNT INFORMATION ON
THE LETTER OF TRANSMITTAL AND CONSENT FORM (SEE
<PAGE>
INSTRUCTION 1 UNDER "TENDERING OLD NOTES FOR EXCHANGE" AND BOX 5 IN PART I -
TENDERS OF THE LETTER OF TRANSMITTAL AND CONSENT FORM) AND INFORM THEM THAT
DELIVERY OF THE NEW NOTES WILL BE MADE THROUGH A DTC DEPOSIT OR WITHDRAWAL AT
CUSTODIAN (DWAC) TRANSACTION. Failure to provide the necessary account
information may result in your tender being rejected or may cause a delay in
confirmation of your New Notes. Any Old Notes subject to Consents that are held
through DTC will be reissued in certificated form. The Letter of Transmittal
and Consent Form requires you to provide other information as well, so please be
sure to follow the instructions carefully.
If you have any questions about the Exchange Offer, the Solicitation or
the procedures required to tender or deliver Consents with respect to your Old
Notes, please call the Exchange/Solicitation Agent at the telephone numbers
listed on the front of the Letter of Transmittal and Consent Form.
Very truly yours,
PIONEER FINANCE CORP.
<PAGE>
NOTICE OF GUARANTEED DELIVERY
TO TENDER FOR EXCHANGE
13 1/2% FIRST MORTGAGE NOTES DUE 2006
FOR ALL OF THE OUTSTANDING
13 1/2% FIRST MORTGAGE BONDS DUE DECEMBER 1, 1998
AND FOR CONSENTS TO THE PROPOSED CONSENTS
PIONEER FINANCE CORP.
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THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT., NEW
YORK CITY TIME, ON FRIDAY, NOVEMBER 20, 1998, UNLESS EXTENDED (THE "EXCHANGE
EXPIRATION DATE"). THE CONSENT SOLICITATION AND REVOCATION RIGHTS WILL EXPIRE
AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, NOVEMBER 20, 1998, UNLESS
EXTENDED (THE "SOLICITATION EXPIRATION DATE").
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Registered holders of 13 1/2% First Mortgage Bonds due December 1,
1998 (the "Old Notes") of Pioneer Finance Corp., a Nevada corporation (the
"Company"), who wish to (a) tender their Old Notes in exchange for a principal
amount of 13 1/2% First Mortgage Notes due 2006 (the "New Notes") equal to the
principal amount of the Old Notes tendered by such registered holder, less the
principal amount of tendered Old Notes repurchased by the Company as described
in the Joint Offering Circular and Consent Solicitation Statement, dated October
23, 1998 (as it may be supplemented and amended from time to time, the "Joint
Offering Circular/Consent Solicitation Statement"), and/or (b) Consent to the
Proposed Consents and deliver their Old Notes with respect to which such
Consents are delivered and (x) whose Old Notes are not immediately available, or
(y) who cannot deliver their Old Notes and the Letter of Transmittal and Consent
Form or any other documents required by the Letter of Transmittal and Consent
Form to IBJ Schroder Bank and Trust Company, as exchange/solicitation agent (the
"Exchange/Solicitation Agent"), on or prior to the Exchange Expiration Date
and/or the Solicitation Expiration Date, or (c) who cannot complete the
procedures for delivery by book-entry transfer on a timely basis must use this
Notice of Guaranteed Delivery or one substantially equivalent hereto. This
Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile
transmission or mail to the Exchange/Solicitation Agent. See "The Exchange
Offer--Guaranteed Delivery Procedures" in the Joint Offering Circular/Consent
Solicitation Statement.
THE EXCHANGE/SOLICITATION AGENT FOR THE OFFER IS:
IBJ SCHRODER BANK AND TRUST COMPANY
BY MAIL: BY FACSIMILE: BY HAND OR OVERNIGHT
DELIVERY:
IBJ SCHRODER BANK & TRUST (212) 858-2611 IBJ SCHRODER BANK & TRUST
COMPANY COMPANY
P.O. BOX 84 TO CONFIRM: ONE STATE STREET
BOWLING GREEN STATION (212) 858-2103 NEW YORK, NY 10004
NEW YORK, NY 10274-0084 ATTN: SECURITIES PROCESSING
ATTN: REORGANIZATION WINDOW, SUBCELLAR ONE, (SC-1)
OPERATIONS DEPARTMENT
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER
THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE
TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON THE LETTER OF TRANSMITTAL AND CONSENT FORM IS
REQUIRED TO BE GUARANTEED BY AN ELIGIBLE INSTITUTION UNDER THE INSTRUCTIONS
THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED
ON THE LETTER OF TRANSMITTAL AND CONSENT FORM FOR GUARANTEE OF SIGNATURES.
<PAGE>
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Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Old Notes
indicated below pursuant to the Exchange Offer, upon the terms and subject to
the conditions contained in the Joint Offering Circular/Consent Solicitation
Statement, and the accompanying Letter of Transmittal and Consent Form.
DESCRIPTION OF SECURITIES TENDERED
NAME AND ADDRESS OF
REGISTERED HOLDER AS IT CERTIFICATE NUMBER(s) PRINCIPAL AMOUNT OF
APPEARS ON THE OLD NOTES OF OLD NOTES TRANSMITTED OLD NOTES TRANSMITTED
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The undersigned hereby consents to the Proposed Consents with respect
to the principal amount of Old Notes indicated below pursuant to the
Solicitation, upon the terms and subject to the conditions in the Joint
Offering Circular/Consent Solicitation Statement, and the accompanying Letter
of Transmittal and Consent Form.
DESCRIPTION OF SECURITIES DELIVERED
NAME AND ADDRESS OF
REGISTERED HOLDER AS IT CERTIFICATE NUMBER(s) PRINCIPAL AMOUNT OF
APPEARS ON THE OLD NOTES OF OLD NOTES TRANSMITTED OLD NOTES TRANSMITTED
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<PAGE>
THE FOLLOWING GUARANTEE MUST BE COMPLETED
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GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office, branch,
agency or correspondent in the United States, which is a member of a
recognized Medallion Signature Program approved by the Securities Transfer
Association, Inc., hereby guarantees to deliver to the Exchange/Solicitation
Agent at its address set forth above, either the Old Notes tendered hereby in
proper form for transfer and/or with respect to which Consents are given, or
confirmation of the book-entry transfer of such Old Notes to the
Exchange/Solicitation Agent's account at The Depository Trust Company pursuant
to the procedures for book-entry transfer set forth in the Joint Offering
Circular/Consent Solicitation Statement, in either case together with a
properly completed and duly executed Letter of Transmittal and Consent Form
(or facsimile thereof), with any required signature guarantees, and any other
documents required by the Letter of Transmittal and Consent Form within three
business days after the Exchange Expiration Date and/or the Solicitation
Expiration Date, as the case may be.
Name of Firm:________________________________________________________________
_____________________________________________________________________________
(Authorized Signature)
Address:_____________________________________________________________________
(Zip Code)
Area Code and Telephone Number:______________________________________________
Name:________________________________________________________________________
(Please Type or Print)
Title:_______________________________________________________________________
Date:________________________, 1998
If Old Notes will be tendered and/or delivered by book-entry
transfer, provide the following information:
DTC Account Number:_______________________
Date:_____________________________________
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. OLD
NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL AND CONSENT
FORM.
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