<PAGE>
 
                                                                   EXHIBIT 10.86

                                 EXHIBIT III-C

                            SAHARA RESORTS GUARANTY


          This GUARANTY is entered into as of July 29, 1997 by SAHARA RESORTS, a
Nevada corporation ("GUARANTOR"), in favor of and for the benefit of SUNAMERICA
LIFE INSURANCE COMPANY, as collateral agent for and representative of (in such
capacity herein called "REPRESENTATIVE") the holders of the Notes from time to
time ("HOLDERS"), and, subject to subsection 3.7, for the benefit of the other
Beneficiaries (as hereinafter defined).

                                    RECITALS

          A.        Sahara Las Vegas Corp., a Nevada corporation ("COMPANY"),
and Santa Fe Gaming Corporation (formerly named Sahara Gaming Corporation) have
entered into that certain Amended and Restated Note Purchase Agreement dated as
of July 29, 1997 with Representative (said Amended and Restated Note Purchase
Agreement, as it may hereafter be amended, supplemented or otherwise modified
from time to time, being the "NOTE PURCHASE AGREEMENT"; capitalized terms
defined therein and not otherwise defined herein being used herein as therein
defined).

          B.        Guarantor owns substantially all the capital stock of
Company and will benefit from the transactions contemplated by the Basic
Documents.

          C.        It is a condition precedent to the effectiveness of the Note
Purchase Agreement, including but not limited to the issuance of any additional
Notes thereunder, that Company's obligations thereunder be guarantied by
Guarantor.  Guarantor has received copies of the Note Purchase Agreement and the
other Basic Documents.

          D.        Guarantor is willing irrevocably and unconditionally to
guaranty such obligations of Company.

          NOW, THEREFORE, based upon the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
in order to induce Holders and Representative to enter into the Note Purchase
Agreement and to acquire the Additional Notes thereunder, Guarantor hereby
agrees as follows:

SECTION 1.   DEFINITIONS

          1.1  CERTAIN DEFINED TERMS.  As used in this Guaranty, the following
               ---------------------                                          
terms shall have the following meanings unless the context otherwise requires:

               "BENEFICIARIES" means Representative and Holders.

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<PAGE>
 
               "GUARANTIED OBLIGATIONS" has the meaning assigned to that term in
     subsection 2.1.

               "GUARANTY" means this Guaranty dated as of July 25, 1997, as it
     may be amended, supplemented or otherwise modified from time to time.

               "PAYMENT IN FULL", "PAID IN FULL" or any similar term means
     payment in full of the Guarantied Obligations, including without limitation
     all principal, interest, costs, fees and expenses (including, without
     limitation, reasonable legal fees and expenses) of Beneficiaries as
     required under the Basic Documents.

          1.2  INTERPRETATION.  References to "Sections" and "subsections" shall
               --------------                                                   
be to Sections and subsections, respectively, of this Guaranty unless otherwise
specifically provided.  In the event of any conflict or inconsistency between
the terms, conditions and provisions of this Guaranty and the terms, conditions
and provisions of the Note Purchase Agreement, the terms, conditions and
provisions of this Guaranty shall prevail.

SECTION 2.  THE GUARANTY

          2.1  GUARANTY OF THE GUARANTIED OBLIGATIONS.  Subject to the
               --------------------------------------                 
provisions of subsection 2.2, Guarantor hereby irrevocably and unconditionally
guaranties, as primary obligor and not merely as surety, the due and punctual
payment in full of all Guarantied Obligations when the same shall become due,
whether at stated maturity, by required prepayment, declaration, acceleration,
demand or otherwise (including amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11
U.S.C. (S) 362(a)).  The term "GUARANTIED OBLIGATIONS" is used herein in its
most comprehensive sense and includes:

               (a) any and all Obligations of Company now or hereafter made,
     incurred or created, whether absolute or contingent, liquidated or
     unliquidated, whether due or not due, and however arising under or in
     connection with the Note Purchase Agreement and the other Basic Documents,
     including those arising under successive borrowing transactions under the
     Note Purchase Agreement which shall either continue the Obligations of
     Company or from time to time renew them after they have been satisfied and
     including interest which, but for the filing of a petition in bankruptcy
     with respect to Company, would have accrued on any Guarantied Obligations,
     whether or not a claim is allowed against Company for such interest in the
     related bankruptcy proceeding; and

               (b) those expenses set forth in subsection 2.8 hereof.

          2.2  LIMITED ON AMOUNT GUARANTIED.  If any Fraudulent Transfer Law (as
               ----------------------------                                     
hereinafter defined) is determined by a court of competent jurisdiction to be
applicable to the obligations of Guarantor under this Guaranty, such obligations
of Guarantor hereunder shall be limited to a maximum aggregate amount equal to
the largest amount that would not render

                                       2
<PAGE>
 
its obligations hereunder subject to avoidance as a fraudulent transfer or
conveyance under Section 548 of Title 11 of the United States Code or any
applicable provisions of comparable state law (collectively, the "FRAUDULENT
TRANSFER LAWS"), in each case after giving effect to all other liabilities of
Guarantor, contingent or otherwise, that are relevant under the Fraudulent
Transfer Laws (specifically excluding, however, any liabilities of guarantor (x)
in respect of intercompany indebtedness to Company or other affiliates of
Company to the extent that such indebtedness would be discharged in an amount
equal to the amount paid by Guarantor hereunder and (y) under any guaranty of
subordinated indebtedness which guaranty contains a limitation as to maximum
amount similar to that set forth in this sentence of subsection 2.2, pursuant to
which the liability of Guarantor hereunder is included in the liabilities taken
into account in determining such maximum amount) and after giving effect as
assets to the value (as determined under the applicable provisions of the
Fraudulent Transfer Laws) of any rights to subrogation, reimbursement,
indemnification or contribution of Guarantor pursuant to applicable law or
pursuant to the terms of any agreement.

          2.3  PAYMENT BY GUARANTOR; APPLICATION OF PAYMENTS.  Subject to the
               ---------------------------------------------                 
provisions of subsection 2.2, Guarantor hereby agrees, in furtherance of the
foregoing and not in limitation of any other right which any Beneficiary may
have at law or in equity against Guarantor by virtue hereof, that upon the
failure of Company to pay any of the Guarantied Obligations when and as the same
shall become due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C.  (S) 362(a)), Guarantor will upon demand pay, or
cause to be paid, in cash, to Representative for the ratable benefit of
Beneficiaries, an amount equal to the sum of the unpaid principal amount of all
Guarantied Obligations then due as aforesaid, accrued and unpaid interest on
such Guarantied Obligations (including, without limitation, interest which, but
for the filing of a petition in bankruptcy with respect to Company, would have
accrued on such Guarantied Obligations, whether or not a claim is allowed
against Company for such interest in the related bankruptcy proceeding) and all
other Guarantied Obligations then owed to Beneficiaries as aforesaid.  All such
payments shall be applied promptly from time to time by Representative:

          First, to the payment of the costs and expenses of any collection or
          -----                                                               
     other realization under this Guaranty, including reasonable compensation to
     Representative and its agents and counsel, and all expenses, liabilities
     and advances made or incurred by Representative in connection therewith;

          Second, to the payment of all other Guarantied Obligations in such
          ------                                                            
     order as Representative shall elect pursuant to Section 2.5 of the Note
     Purchase Agreement; and

          Third, after payment in full of all Guarantied Obligations, to the
          -----                                                             
     payment to Guarantor, or its successors or assigns, or to whomsoever may be
     lawfully entitled to receive the same or as a court of competent
     jurisdiction may direct, of any surplus then remaining from such payments.

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<PAGE>
 
          2.4  LIABILITY OF GUARANTOR ABSOLUTE.  Guarantor agrees that its
               -------------------------------                            
obligations hereunder are irrevocable, absolute, independent and unconditional
and shall not be affected by any circumstance which constitutes a legal or
equitable discharge of a guarantor or surety other than payment in full of the
Guarantied Obligations.  In furtherance of the foregoing and without limiting
the generality thereof, Guarantor agrees as follows:

          (a) This Guaranty is a guaranty of payment when due and not of
     collectibility.

          (b) Representative may enforce this Guaranty upon the occurrence of an
     Event of Default under the Note Purchase Agreement.

          (c) The obligations of Guarantor hereunder are independent of the
     obligations of Company under the Basic Documents, and a separate action or
     actions may be brought and prosecuted against Guarantor whether or not any
     action is brought against Company or any other guarantors and whether or
     not Company is joined in any such action or actions.

          (d) Payment by Guarantor of a portion, but not all, of the Guarantied
     Obligations shall in no way limit, affect, modify or abridge Guarantor's
     liability for any portion of the Guarantied Obligations which has not been
     paid.  Without limiting the generality of the foregoing, if Representative
     is awarded a judgment in any suit brought to enforce Guarantor's covenant
     to pay a portion of the Guarantied Obligations, such judgment shall not be
     deemed to release Guarantor from its covenant to pay the portion of the
     Guarantied Obligations that is not the subject of such suit, and such
     judgment shall not, except to the extent satisfied by Guarantor, limit,
     affect, modify or abridge Guarantor's liability hereunder in respect of the
     Guarantied Obligations.

          (e) Any Beneficiary, upon such terms as it deems appropriate, without
     notice or demand and without affecting the validity or enforceability of
     this Guaranty or giving rise to any reduction, limitation, impairment,
     discharge or termination of Guarantor's liability hereunder, from time to
     time may (i) renew, extend, accelerate, increase the rate of interest on,
     or otherwise change the time, place, manner or terms of payment of the
     Guarantied Obligations, (ii) settle, compromise, release or discharge, or
     accept or refuse any offer of performance with respect to, or substitutions
     for, the Guarantied Obligations or any agreement relating thereto and/or
     subordinate the payment of the same to the payment of any other
     obligations; (iii) request and accept other guaranties of the Guarantied
     Obligations and take and hold security for the payment of this Guaranty or
     the Guarantied Obligations; (iv) release, surrender, exchange, substitute,
     compromise, settle, rescind, waive, alter, subordinate or modify, with or
     without consideration, any security for payment of the Guarantied
     Obligations, any other guaranties of the Guarantied Obligations, or any
     other obligation of any Person (including any other guarantor) with respect
     to the Guarantied Obligations; (v) enforce and apply any security now or
     hereafter held by

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<PAGE>
 
     or for the benefit of such Beneficiary in respect of this Guaranty or the
     Guarantied Obligations and direct the order or manner of sale thereof, or
     exercise any other right or remedy that such Beneficiary may have against
     any such security, in each case as such Beneficiary in its discretion may
     determine consistent with the Note Purchase Agreement and any applicable
     security agreement, including foreclosure on any such security pursuant to
     one or more judicial or nonjudicial sales, whether or not every aspect of
     any such sale is commercially reasonable, and even though such action
     operates to impair or extinguish any right of reimbursement or subrogation
     or other right or remedy of Guarantor against Company or any security for
     the Guarantied Obligations; and (vi) exercise any other rights available to
     it under the Basic Documents.

          (f) This Guaranty and the obligations of Guarantor hereunder shall be
     valid and enforceable and shall not be subject to any reduction,
     limitation, impairment, discharge or termination for any reason (other than
     payment in full of the Guarantied Obligations), including without
     limitation the occurrence of any of the following, whether or not Guarantor
     shall have had notice or knowledge of any of them: (i) any failure or
     omission to assert or enforce or agreement or election not to assert or
     enforce, or the stay or enjoining, by order of court, by operation of law
     or otherwise, of the exercise or enforcement of, any claim or demand or any
     right, power or remedy (whether arising under the Basic Documents, at law,
     in equity or otherwise) with respect to the Guarantied Obligations or any
     agreement relating thereto, or with respect to any other guaranty of or
     security for the payment of the Guarantied Obligations; (ii) any
     rescission, waiver, amendment or modification of, or any consent to
     departure from, any of the terms or provisions (including without
     limitation provisions relating to events of default) of the Note Purchase
     Agreement, any of the other Basic Documents or any agreement or instrument
     executed pursuant thereto, or of any other guaranty or security for the
     Guarantied Obligations or any agreement relating to such other guaranty or
     security; (iii) the Guarantied Obligations, or any agreement relating
     thereto, at any time being found to be illegal, invalid or unenforceable in
     any respect; (iv) the application of payments received from any source
     (other than payments received pursuant to the other Basic Documents or from
     the proceeds of any security for the Guarantied Obligations, except to the
     extent such security also serves as collateral for indebtedness other than
     the Guarantied Obligations) to the payment of indebtedness other than the
     Guarantied Obligations, even though any Beneficiary might have elected to
     apply such payment to any part or all of the Guarantied Obligations; (v)
     any Beneficiary's consent to the change, reorganization or termination of
     the corporate structure or existence of Company or any of its Subsidiaries
     and to any corresponding restructuring of the Guarantied Obligations; (vi)
     any failure to perfect or continue perfection of a security interest in any
     collateral which secures any of the Guarantied Obligations; (vii) any
     defenses, set-offs or counterclaims which Company may allege or assert
     against any Beneficiary in respect of the Guarantied Obligations, including
     but not limited to failure of consideration, breach of warranty, payment,
     statute of frauds, statute of limitations, accord and satisfaction and
     usury; and (viii) any other act or thing or omission, or

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<PAGE>
 
     delay to do any other act or thing, which may or might in any manner or to
     any extent vary the risk of Guarantor as an obligor in respect of the
     Guarantied Obligations.

          2.5  WAIVERS BY GUARANTOR.  Guarantor hereby waives, for the benefit
               --------------------                                           
of Beneficiaries:

               (a) any right to require any Beneficiary, as a condition of
     payment or performance by Guarantor, to (i) proceed against Company, any
     other guarantor of the Guarantied Obligations or any other Person, (ii)
     proceed against or exhaust any security held from Company, any such other
     guarantor or any other Person, (iii) proceed against or have resort to any
     balance of any deposit account or credit on the books of any Beneficiary in
     favor of Company or any other Person, or (iv) pursue any other remedy in
     the power of any Beneficiary whatsoever;

               (b) any defense arising by reason of the incapacity, lack of
     authority or any disability or other defense of Company including, without
     limitation, any defense based on or arising out of the lack of validity or
     the unenforceability of the Guarantied Obligations or any agreement or
     instrument relating thereto or by reason of the cessation of the liability
     of Company from any cause other than payment in full of the Guarantied
     Obligations ;

               (c) any defense based upon any statute or rule of law which
     provides that the obligation of a surety must be neither larger in amount
     nor in other respects more burdensome than that of the principal;

               (d) any defense based upon any Beneficiary's errors or omissions
     in the administration of the Guarantied Obligations, except behavior which
     amounts to bad faith;

               (e) (i) any principles or provisions of law, statutory or
     otherwise, which are or might be in conflict with the terms of this
     Guaranty and any legal or equitable discharge of Guarantor's obligations
     hereunder, (ii) the benefit of any statute of limitations affecting
     Guarantor's liability hereunder or the enforcement hereof, (iii) any rights
     to set-offs, recoupments and counterclaims, and (iv) promptness, diligence
     and any requirement that any Beneficiary protect, secure, perfect or insure
     any security interest or lien or any property subject thereto;

               (f) notices, demands, presentments, protests, notices of protest,
     notices of dishonor and notices of any action or inaction, including
     acceptance of this Guaranty, notices of default under the Note Purchase
     Agreement or any agreement or instrument related thereto, notices of any
     renewal, extension or modification of the Guarantied Obligations or any
     agreement related thereto, notices of any extension of credit to Company
     and notices of any of the matters referred to in subsection 2.3 and any
     right to consent to any thereof; and 

                                       6
<PAGE>
 
               (g) any defenses or benefits that may be derived from or afforded
     by law which limit the liability of or exonerate guarantors or sureties, or
     which may conflict with the terms of this Guaranty, including without
     limitation the provisions of Nevada Revised Statutes Sections 40.430-
     40.459, 40.475 and 40.485 as permitted by Nevada Revised Statutes Section
     40.495, and any successor provisions.

          2.6  CERTAIN CALIFORNIA LAW WAIVERS.  As used in this subsection 2.6,
               ------------------------------                                  
any reference to "the principal" includes Company, and any reference to "the
creditor" includes each Beneficiary.  In accordance with Section 2856 of the
California Civil Code:

               (a) Guarantor agrees to withhold the exercise of any and all
     rights of subrogation, reimbursement and contribution against Company,
     against any other guarantor of any of the Guarantied Obligations and
     against any collateral or security granted by any such other guarantor for
     any of the Guarantied Obligations until the Guarantied Obligations shall
     have been paid in full, all as more fully set forth in subsection 2.7;

               (b) Guarantor waives any and all other rights and defenses
     available to Guarantor as against any Beneficiary by reason of Sections
     2787 to 2855, inclusive, 2899 and 3433 of the California Civil Code except
     to the extent expressly provided herein, including without limitation any
     and all rights or defenses Guarantor may have by reason of protection
     afforded to the principal with respect to any of the Guarantied
     Obligations, or to any other guarantor of any of the Guarantied Obligations
     with respect to any of such guarantor's obligations under its guaranty, in
     either case pursuant to the antideficiency or other laws of the State of
     California limiting or discharging the principal's indebtedness or such
     guarantor's obligations, including without limitation Section 580a, 580b,
     580d, or 726 of the California Code of Civil Procedure; and

               (c) Guarantor waives all rights and defenses arising out of an
     election of remedies by the creditor, even though that election of
     remedies, such as a nonjudicial foreclosure with respect to security for
     any Guarantied Obligation, has destroyed Guarantor's rights of subrogation
     and reimbursement against the principal by the operation of Section 580d of
     the Code of Civil Procedure or otherwise; and even though that election of
     remedies by the creditor, such as nonjudicial foreclosure with respect to
     security for an obligation of any other guarantor of any of the Guarantied
     Obligations, has destroyed Guarantor's rights of contribution against such
     other guarantor.

No other provision of this Guaranty shall be construed as limiting the
generality of any of the covenants and waivers set forth in this subsection 2.6.
In accordance with subsection 4.6 below, this Guaranty shall be governed by, and
shall be construed and enforced in accordance with, the internal laws of the
State of Nevada, without regard to conflicts of laws principles.  This
subsection 2.6 is included solely out of an abundance of caution, and shall

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<PAGE>
 
not be construed to mean that any of the above-referenced provisions of
California law are in any way applicable to this Guaranty or to any of the
Guarantied Obligations.

          2.7  GUARANTOR'S RIGHTS OF SUBROGATION, CONTRIBUTION, ETC.  Until the
               ----------------------------------------------------            
Guarantied Obligations shall have been paid in full, Guarantor shall withhold
exercise of (a) any claim, right or remedy, direct or indirect, that Guarantor
now has or may hereafter have against Company or any of its assets in connection
with this Guaranty or the performance by Guarantor of its obligations hereunder,
in each case whether such claim, right or remedy arises in equity, under
contract, by statute, including without limitation under Nevada Revised Statutes
Section 40.475 or 40.485 as permitted by Nevada Revised Statutes Section 40.495
(1993), under common law or otherwise and including without limitation (i) any
right of subrogation, reimbursement or indemnification that Guarantor now has or
may hereafter have against Company, (ii) any right to enforce, or to participate
in, any claim, right or remedy that any Beneficiary now has or may hereafter
have against Company, and (iii) any benefit of, and any right to participate in,
any collateral or security now or hereafter held by any Beneficiary, and (b) any
right of contribution Guarantor may have against any other guarantor of any of
the Guarantied Obligations.  Guarantor further agrees that, to the extent the
agreement to withhold the exercise of its rights of subrogation, reimbursement,
indemnification and contribution as set forth herein is found by a court of
competent jurisdiction to be void or voidable for any reason, any rights of
subrogation, reimbursement or indemnification Guarantor may have against Company
or against any collateral or security, and any rights of contribution Guarantor
may have against any such other guarantor, shall be junior and subordinate to
any rights any Beneficiary may have against Company, to all right, title and
interest any Beneficiary may have in any such collateral or security, and to any
right any Beneficiary may have against such other guarantor.  Representative, on
behalf of Beneficiaries, may use, sell or dispose of any item of collateral or
security as it sees fit without regard to any subrogation rights Guarantor may
have, and upon any such disposition or sale any rights of subrogation such
Guarantor may have shall terminate.  If any amount shall be paid to Guarantor on
account of any such subrogation, reimbursement or indemnification rights at any
time when all Guarantied Obligations shall not have been paid in full, such
amount shall be held in trust for Representative on behalf of Beneficiaries and
shall forthwith be paid over to Representative for the benefit of Beneficiaries
to be credited and applied against the Guarantied Obligations, whether matured
or unmatured, in accordance with the terms hereof.

          2.8  EXPENSES.  Guarantor agrees to pay, or cause to be paid, on
               --------                                                   
demand, and to save Beneficiaries harmless against liability for, any and all
costs and expenses (including reasonable fees and disbursements of counsel and
reasonable allocated costs of internal counsel) incurred or expended by any
Beneficiary in connection with the enforcement of or preservation of any rights
under this Guaranty.

          2.9  CONTINUING GUARANTY.   This Guaranty is a continuing guaranty and
               -------------------                                              
shall remain in effect until all of the Guarantied Obligations shall have been
paid in full. Guarantor hereby irrevocably waives any right to revoke this
Guaranty as to future transactions giving rise to any Guarantied Obligations.

                                       8
<PAGE>
 
          2.10  AUTHORITY OF GUARANTOR OR COMPANY.  It is not necessary for any
                ---------------------------------                              
Beneficiary to inquire into the capacity or powers of Guarantor or Company or
the officers, directors or any agents acting or purporting to act on behalf of
any of them.

          2.11 FINANCIAL CONDITION OF COMPANY.  Any extensions of credit may be
               ------------------------------                                  
granted to Company or continued from time to time without notice to or
authorization from Guarantor regardless of the financial or other condition of
Company at the time of any such grant or continuation.  No Beneficiary shall
have any obligation to disclose or discuss with Guarantor its assessment, or
Guarantor's assessment, of the financial condition of Company. Guarantor has
adequate means to obtain information from Company on a continuing basis
concerning the financial condition of Company and its ability to perform its
obligations under the Basic Documents, and Guarantor assumes the responsibility
for being and keeping informed of the financial condition of Company and of all
circumstances bearing upon the risk of nonpayment of the Guarantied Obligations.
Guarantor hereby waives and relinquishes any duty on the part of any Beneficiary
to disclose any matter, fact or thing relating to the business, operations or
conditions of Company now known or hereafter known by any Beneficiary.

          2.12 RIGHTS CUMULATIVE.  The rights, powers and remedies given to
               -----------------                                           
Beneficiaries by this Guaranty are cumulative and shall be in addition to and
independent of all rights, powers and remedies given to Beneficiaries by virtue
of any statute or rule of law or in any of the other Basic Documents or any
agreement between Guarantor and any Beneficiary or Beneficiaries or between
Company and any Beneficiary or Beneficiaries.  Any forbearance or failure to
exercise, and any delay by any Beneficiary in exercising, any right, power or
remedy hereunder shall not impair any such right, power or remedy or be
construed to be a waiver thereof, nor shall it preclude the further exercise of
any such right, power or remedy.

          2.13 BANKRUPTCY; POST-PETITION INTEREST; REINSTATEMENT OF GUARANTY.
               -------------------------------------------------------------  
(a)  So long as any Guarantied Obligations remain outstanding, Guarantor shall
not, without the prior written consent of Representative in accordance with the
terms of the Note Purchase Agreement, commence or join with any other Person in
commencing any bankruptcy, reorganization or insolvency proceedings of or
against Company.  The obligations of Guarantor under this Guaranty shall not be
reduced, limited, impaired, discharged, deferred, suspended or terminated by any
proceeding, voluntary or involuntary, involving the bankruptcy, insolvency,
receivership, reorganization, liquidation or arrangement of Company or by any
defense which Company may have by reason of the order, decree or decision of any
court or administrative body resulting from any such proceeding.

          (b) Guarantor acknowledges and agrees that any interest on any portion
of the Guarantied Obligations which accrues after the commencement of any
proceeding referred to in clause (a) above (or, if interest on any portion of
the Guarantied Obligations ceases to accrue by operation of law by reason of the
commencement of said proceeding, such interest as would have accrued on such
portion of the Guarantied Obligations if said proceedings had not been
commenced) shall be included in the Guarantied Obligations because it is the
intention of Guarantor and Beneficiaries that the Guarantied Obligations

                                       9
<PAGE>
 
which are guarantied by Guarantor pursuant to this Guaranty should be determined
without regard to any rule of law or order which may relieve Company of any
portion of such Guarantied Obligations.  Guarantor will permit any trustee in
bankruptcy, receiver, debtor in possession, assignee for the benefit of
creditors or similar person to pay Representative, or allow the claim of
Representative in respect of, any such interest accruing after the date on which
such proceeding is commenced.

               (c) In the event that all or any portion of the Guarantied
Obligations are paid by Company, the obligations of Guarantor hereunder shall
continue and remain in full force and effect or be reinstated, as the case may
be, in the event that all or any part of such payment(s) are rescinded or
recovered directly or indirectly from any Beneficiary as a preference,
fraudulent transfer or otherwise, and any such payments which are so rescinded
or recovered shall constitute Guarantied Obligations for all purposes under this
Guaranty.

          2.14 NOTICE OF EVENTS.  As soon as Guarantor obtains knowledge
               ----------------                                         
thereof, Guarantor shall give Representative written notice of any condition or
event which has resulted in (a) a material adverse change in the financial
condition of Guarantor or Company or (b) a breach of or noncompliance with any
term, condition or covenant contained herein or in the Note Purchase Agreement,
any other Basic Document or any other document delivered pursuant hereto or
thereto.

          2.15 SET OFF.  In addition to any other rights any Beneficiary may
               -------                                                      
have under law or in equity, if any amount shall at any time be due and owing by
Guarantor to any Beneficiary under this Guaranty, such Beneficiary is authorized
at any time or from time to time, without notice (any such notice being hereby
expressly waived), to set off and to appropriate and to apply any and all
deposits (general or special, including but not limited to indebtedness
evidenced by certificates of deposit, whether matured or unmatured) and any
other indebtedness of such Beneficiary owing to Guarantor and any other property
of Guarantor held by any Beneficiary to or for the credit or the account of
Guarantor against and on account of the Guarantied Obligations and liabilities
of Guarantor to any Beneficiary under this Guaranty.

SECTION 3.  REPRESENTATIONS, WARRANTIES AND COVENANTS

          3.1  REPRESENTATIONS AND WARRANTIES.
               ------------------------------ 

               In order to induce Beneficiaries to accept this Guaranty and to
enter into the Note Purchase Agreement and to issue the Notes thereunder,
Guarantor hereby represents and warrants to Beneficiaries that the following
statements are true and correct:

               (a) CORPORATE EXISTENCE.  Guarantor is duly organized, validly
                   -------------------                                       
     existing and in good standing under the laws of the state of its
     incorporation, has the corporate power to own its assets and to transact
     the business in which it is now engaged and is duly qualified as a foreign
     corporation and in good standing under the laws of each jurisdiction where
     its ownership or lease of property or the conduct of its business

                                       10
<PAGE>
 
     requires such qualification, except for failures to be so qualified,
     authorized or licensed that would not in the aggregate have a material
     adverse effect on the business, operations, assets or financial condition
     of Guarantor.

          (b) CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Guarantor
              -------------------------------------------------------           
     has the corporate power, authority and legal right to execute, deliver and
     perform this Guaranty and the other Basic Documents to which Guarantor is a
     party and all obligations required hereunder or thereunder and has taken
     all necessary corporate action to authorize its Guaranty hereunder on the
     terms and conditions hereof and its execution, delivery and performance of
     this Guaranty and the other Basic Documents to which Guarantor is a party
     and all obligations required hereunder or thereunder.  No consent of any
     other Person including, without limitation, stockholders and creditors of
     Guarantor, and no license, permit, approval or authorization of, exemption
     by, notice or report to, or registration, filing or declaration with, any
     governmental authority is required by Guarantor in connection with this
     Guaranty or any other Basic Document to which Guarantor is a party or the
     execution, delivery, performance, validity or enforceability of this
     Guaranty or any other Basic Document to which Guarantor is a party and all
     obligations required hereunder or thereunder.  This Guaranty and the other
     Basic Documents to which Guarantor is a party have been, and each
     instrument or document required hereunder or thereunder will be, executed
     and delivered by a duly authorized officer of Guarantor, and this Guaranty
     and the other Basic Documents to which Guarantor is a party constitute, and
     each instrument or document required hereunder or thereunder when executed
     and delivered by Guarantor hereunder or thereunder will constitute, the
     legally valid and binding obligation of Guarantor, enforceable against
     Guarantor in accordance with their terms, except as enforcement may be
     limited by applicable bankruptcy, insolvency, reorganization, moratorium or
     other similar laws or equitable principles relating to or limiting
     creditors' rights generally.

          (c) NO LEGAL BAR TO THIS GUARANTY.  The execution, delivery and
              -----------------------------                              
     performance of this Guaranty and the other Basic Documents to which
     Guarantor is a party and the documents or instruments required hereunder or
     thereunder will not violate any provision of any existing law or regulation
     binding on Guarantor, or any order, judgment, award or decree of any court,
     arbitrator or governmental authority binding on Guarantor, or the
     certificate of incorporation or bylaws of Guarantor or any securities
     issued by Guarantor, or any mortgage, indenture, lease, contract or other
     agreement, instrument or undertaking to which Guarantor is a party or by
     which Guarantor or any of its assets may be bound, the violation of which
     would have a material adverse effect on the business, operations, assets or
     financial condition of Guarantor and will not result in, or require, the
     creation or imposition of any Lien on any of its property, assets or
     revenues pursuant to the provisions of any such mortgage, indenture, lease,
     contract or other agreement, instrument or undertaking.

          (d) REPRESENTATIONS AND WARRANTIES IN NOTE PURCHASE AGREEMENT.  All
              ---------------------------------------------------------      
     representations and warranties made by SGC or Company in the Note Purchase

                                       11
<PAGE>
 
     Agreement regarding Guarantor individually are true, correct and complete
     as of the date hereof.

     3.2  COVENANTS.  Guarantor covenants and agrees that it shall perform
          ---------                                                       
all covenants contained in Sections 5 and 6 of the Note Purchase Agreement that
relate to Guarantor.

SECTION 4.  MISCELLANEOUS

     4.1  SURVIVAL OF WARRANTIES.  All agreements, representations and
          ----------------------                                      
warranties made herein shall survive the execution and delivery of this Guaranty
and the other Basic Documents and any increase in the amount of the Notes or
other Obligations under the Note Purchase Agreement.

     4.2  NOTICES.  Any communications between Representative and Guarantor
          -------                                                          
and any notices or requests provided herein to be given may be given by mailing
the same, postage prepaid, or by telex, facsimile transmission or cable to each
such party at its address set forth in the Note Purchase Agreement, on the
signature pages hereof or to such other addresses as each such party may in
writing hereafter indicate.  Any notice, request or demand to or upon
Representative or Guarantor shall not be effective until received.

     4.3  SEVERABILITY.  In case any provision in or obligation under this
          ------------                                                    
Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.

     4.4  AMENDMENTS AND WAIVERS.  No amendment, modification, termination
          ----------------------                                          
or waiver of any provision of this Guaranty, and no consent to any departure by
Guarantor therefrom, shall in any event be effective without the written
concurrence of Representative and, in the case of any such amendment or
modification, Guarantor against whom enforcement of such amendment or
modification is sought.  Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.

     4.5  HEADINGS.  Section and subsection headings in this Guaranty are
          --------                                                       
included herein for convenience of reference only and shall not constitute a
part of this Guaranty for any other purpose or be given any substantive effect.

     4.6  APPLICABLE LAW.  THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF
          --------------                                                  
GUARANTOR AND BENEFICIARIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEVADA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

     4.7  SUCCESSORS AND ASSIGNS.  This Guaranty is a continuing guaranty
          ----------------------                                         
and shall be binding upon Guarantor and its respective successors and assigns.
This Guaranty shall inure to the benefit of Beneficiaries and their respective
successors and assigns.  Guarantor shall

                                       12
<PAGE>
 
not assign this Guaranty or any of the rights or obligations of Guarantor
hereunder without the prior written consent of all Holders.  Any Beneficiary
may, without notice or consent, assign its interest in this Guaranty in whole or
in part, in accordance with Section 9.14 of the Note Purchase Agreement with
respect to an assignment by any Holder and in accordance with Section 8.7 of the
Note Purchase Agreement with respect to an assignment by the Collateral Agent.
The terms and provisions of this Guaranty shall inure to the benefit of any
transferee or assignee of any Note, and in the event of such transfer or
assignment the rights and privileges herein conferred upon such Beneficiary
shall automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof.

     4.8  CONSENT TO JURISDICTION AND SERVICE OF PROCESS.  ALL JUDICIAL
          ----------------------------------------------               
PROCEEDINGS BROUGHT AGAINST GUARANTOR ARISING OUT OF OR RELATING TO THIS
GUARANTY, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT OF COMPETENT JURISDICTION IN THE STATE OF NEVADA.  BY EXECUTING AND
DELIVERING THIS AGREEMENT, GUARANTOR, FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, IRREVOCABLY

          (I)   ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
     JURISDICTION AND VENUE OF SUCH COURTS;

          (II)  WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;

          (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
     ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
     REQUESTED, TO GUARANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH
     SUBSECTION 4.2;

          (IV)  AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
     SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER GUARANTOR IN ANY SUCH
     PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
     BINDING SERVICE IN EVERY RESPECT;

          (V)    AGREES THAT BENEFICIARIES RETAIN THE RIGHT TO SERVE PROCESS IN
     ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST GUARANTOR
     IN THE COURTS OF ANY OTHER JURISDICTION; AND

          (VI)   AGREES THAT THE PROVISIONS OF THIS SUBSECTION 4.8 RELATING TO
     JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
     EXTENT PERMISSIBLE.

     4.9  WAIVER OF TRIAL BY JURY.  GUARANTOR AND, BY ITS ACCEPTANCE OF THE
          -----------------------                                          
BENEFITS HEREOF, EACH BENEFICIARY EACH HEREBY AGREES TO

                                       13
<PAGE>
 
WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS GUARANTY.  The scope of this waiver is
intended to be all encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction, including
without limitation contract claims, tort claims, breach of duty claims and all
other common law and statutory claims.  Guarantor and, by its acceptance of the
benefits hereof, each Beneficiary, each (i) acknowledges that this waiver is a
material inducement for Guarantor and Beneficiaries to enter into a business
relationship, that Guarantor and Beneficiaries have already relied on this
waiver in entering into this Guaranty or accepting the benefits thereof, as the
case may be, and that each will continue to rely on this waiver in their related
future dealings and (ii) further warrants and represents that each has reviewed
this waiver with its legal counsel, and that each knowingly and voluntarily
waives its jury trial rights following consultation with legal counsel.  THIS
WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN
WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS
SUBSECTION 4.9 AND EXECUTED BY REPRESENTATIVE AND GUARANTOR), AND THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS GUARANTY.  In the event of litigation, this Guaranty may be filed as a
written consent to a trial by the court.

          4.10 NO OTHER WRITING.  This writing is intended by Guarantor and
               ----------------                                            
Beneficiaries as the final expression of this Guaranty and is also intended as a
complete and exclusive statement of the terms of their agreement with respect to
the matters covered hereby.  No course of dealing, course of performance or
trade usage, and no parol evidence of any nature, shall be used to supplement or
modify any terms of this Guaranty.  There are no conditions to the full
effectiveness of this Guaranty.

          4.11 FURTHER ASSURANCES.  At any time or from time to time, upon the
               ------------------                                             
request of Representative, Guarantor shall execute and deliver such further
documents and do such other acts and things as Representative may reasonably
request in order to effect fully the purposes of this Guaranty.

          4.12 COUNTERPARTS; EFFECTIVENESS.  This Guaranty may be executed in
               ---------------------------                                   
any number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original for all purposes; but all such counterparts together shall
constitute but one and the same instrument.  This Guaranty shall become
effective as to Guarantor upon the execution of a counterpart hereof by
Guarantor and receipt by Representative of written or telephonic notification of
such execution and authorization of delivery thereof.

          4.13 REPRESENTATIVE AS COLLATERAL AGENT.
               ---------------------------------- 

               (a) Representative has been appointed to act as Representative
hereunder by Holders. Representative shall be obligated, and shall have the
right hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or

                                       14
<PAGE>
 
refrain from taking any action, solely in accordance with this Guaranty and the
Note Purchase Agreement.

          (b) Representative shall at all times be the same Person that is
Collateral Agent under the Note Purchase Agreement.  Written notice of
resignation by Collateral Agent pursuant to subsection 8.7 of the Note Purchase
Agreement shall also constitute notice of resignation as Representative under
this Guaranty; removal of Collateral Agent pursuant to subsection 8.7 of the
Note Purchase Agreement shall also constitute removal as Representative under
this Guaranty; and appointment of a successor Collateral Agent pursuant to
subsection 8.7 of the Note Purchase Agreement shall also constitute appointment
of a successor Representative under this Guaranty.  Upon the acceptance of any
appointment as Collateral Agent under subsection 8.7 of the Note Purchase
Agreement by a successor Collateral Agent, that successor Collateral Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring or removed Representative under this Guaranty, and
the retiring or removed Representative under this Guaranty shall promptly (i)
transfer to such successor Representative all sums held hereunder, together with
all records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Representative under this Guaranty,
and (ii) take such other actions as may be necessary or appropriate in
connection with the assignment to such successor Representative of the rights
created hereunder, whereupon such retiring or removed Representative shall be
discharged from its duties and obligations under this Guaranty.  After any
retiring or removed Representative's resignation or removal hereunder as
Representative, the provisions of this Guaranty shall inure to its benefit as to
any actions taken or omitted to be taken by it under this Guaranty while it was
Representative hereunder.

                                       15
<PAGE>
 
          IN WITNESS WHEREOF, the undersigned Guarantor has caused this Guaranty
to be duly executed and delivered by its officer thereunto duly authorized as of
the date first written above.


                              SAHARA RESORTS


                              By  /s/ Thomas K. Land
                                 -------------------------------------- 
                                      Thomas K. Land

                              Title:  Treasurer and Assistant Secretary


                              By  /s/ Paul W. Lowden
                                 --------------------------------------- 
                                      Paul W. Lowden

                              Title:  President


                                      S-1