-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AlKTLOKs/1DTLTIq5RpO4noph2h/cyaxJsW3n7gwee3dlbVpAHpbENw3p6drEMnz m7FP5ZEWyhheG1qkmLDnZQ== 0001047469-98-011014.txt : 19980324 0001047469-98-011014.hdr.sgml : 19980324 ACCESSION NUMBER: 0001047469-98-011014 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980323 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PREMIER PARKS INC CENTRAL INDEX KEY: 0000701374 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 736137714 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13703 FILM NUMBER: 98571338 BUSINESS ADDRESS: STREET 1: 11501 NE EXPWY CITY: OKLAHOMA CITY STATE: OK ZIP: 73131 BUSINESS PHONE: 4054752500 MAIL ADDRESS: STREET 1: 11501 NORTHEAST EXPWY CITY: OKLAHOMA CITY STATE: OK ZIP: 73131 FORMER COMPANY: FORMER CONFORMED NAME: TIERCO GROUP INC/DE/ DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number: 0-9789 ------------------------ PREMIER PARKS INC. (Exact name of registrant as specified in its charter) DELAWARE 73-6137714 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) No.) 11501 NORTHEAST EXPRESSWAY OKLAHOMA CITY, OKLAHOMA 73131 (Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (405) 475-2500 SECURITIES REGISTERED PURSUANT TO SEC. 12(B) OF THE ACT: SHARES OF COMMON STOCK, PAR VALUE $.05 PER SHARE RIGHTS TO PURCHASE SERIES A JUNIOR PREFERRED STOCK (Title of class) SECURITIES REGISTERED PURSUANT TO SEC. 12(G) OF THE ACT: NONE ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / State the aggregate market value of the voting stock held by non-affiliates (assuming, solely for the purposes of this Form, that all the directors of the Registrant are affiliates) of the Registrant: Approximately $746,170,000 as of March 16, 1998 (based on the last sales price on such date as reported on the New York Stock Exchange). See "Item 5. -- Market for the Registrant's Common Equity and Related Stockholder Matters." Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest most practicable date: The number of shares of Common Stock of the Registrant outstanding as of March 16, 1998 was 18,873,111 shares. DOCUMENTS INCORPORATED BY REFERENCE The information required in Part III by Item 10, as to directors, and by Items 11, 12 and 13 is incorporated by reference to the Registrant's proxy statement in connection with the annual meeting of stockholders to be held in June 1998, which will be filed by the Registrant within 120 days after the close of its 1997 fiscal year. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS INTRODUCTION The Company(1) is a leading U.S. theme park company which, at December 31, 1997, operated thirteen regional parks. Based on 1997 attendance of approximately eleven million visitors at these parks, the Company is the fourth largest regional park operator. The Company's total revenue and earnings before interest, taxes, depreciation and amortization ("EBITDA") for the twelve months ended December 31, 1997 was approximately $193.9 million and $61.3 million, respectively. Premier expects to acquire in March 1998 approximately 50% of the outstanding capital stock of Walibi, which owns six theme parks and two smaller attractions in Europe. Walibi's operations had combined 1997 attendance of approximately 3.5 million. Following this acquisition the Company will commence a tender offer for the remaining capital stock of Walibi. On February 9, 1998, Premier entered into an agreement to acquire all of the outstanding capital stock of Six Flags Entertainment Corporation ("SFEC"). SFEC, through it subsidiaries, operates eight "Six Flags" branded regional theme parks, as well as three separately gated water parks and a wildlife safari park, with aggregate 1997 attendance of approximately 22.2 million. The Company expects to close the acquisition of SFEC in April 1998. See "-- Recent Developments." The Company's thirteen parks at December 31, 1997, were located in geographically diverse markets across the United States with concentrated populations. During the 1997 operating season, the eleven parks then owned by the Company drew, on average, approximately 82% of their patrons from within a 100-mile radius, with approximately 35.7% of visitors utilizing group and other pre-sold tickets and approximately 20.6% utilizing season passes. Each of the Company's parks is individually themed and provides a complete family-oriented entertainment experience. The Company's theme parks generally offer a broad selection of state-of-the-art and traditional thrill rides, water attractions, themed areas, concerts and shows, restaurants, game venues and merchandise outlets. Since current management assumed control in 1989, the Company has acquired twelve parks (including its leasehold and management interests in Marine World, but excluding the parks to be acquired in the Walibi acquisition and the SFEC acquisition) and has achieved significant internal growth. During the year ended December 31, 1997, the eleven parks owned by the Company during the 1997 season achieved same park growth in attendance, revenue and park-level operating cash flow (representing all park operating revenues and expenses without depreciation and amortization or allocation of corporate overhead or interest expense) of 17.3%, 21.3% and 59.5%, respectively, as compared to 1996. DESCRIPTION OF PARKS ADVENTURE WORLD Adventure World is a combination theme and water park located in Largo, Maryland, approximately 15 miles east of Washington, D.C. and 30 miles southwest of Baltimore, Maryland. The park's primary market includes Maryland, northern Virginia, Washington, D.C. and parts of Pennsylvania and Delaware. This market provides the park with a permanent resident population base of approximately 6.6 million - ------------------------ (1) As used in this Report, unless the context requires otherwise, the terms (i) the "1996 Acquisitions" refers to the acquisitions of Elitch Gardens, The Great Escape, Waterworld Sacramento and Waterworld Concord (together, the "Waterworld Parks") and Riverside Park, (ii) the "1997 Acquisitions" refers to the acquisition of Kentucky Kingdom--The Thrill Park in Louisville, Kentucky ("Kentucky Kingdom"), the proposed acquisition of all of the outstanding capital stock of Walibi S.A. ("Walibi") assuming successful completion of the Walibi Tender Offer (as defined herein), as well as the Company's management contract, lease and purchase option with respect to Marine World Africa USA in Vallejo, California ("Marine World") and (iii) "Company" or "Premier" refers to Premier Parks Inc. and its consolidated subsidiaries. 1 people within 50 miles and 10.9 million people within 100 miles. Based on a copyrighted 1996-97 survey of television households within designated market areas ("DMAs") published by A.C. Nielsen Media Research, the Washington, D.C. and Baltimore markets are the number 7 and number 23 DMAs in the United States, respectively. Based upon in-park surveys, approximately 87% of the visitors to Adventure World in 1997 resided within a 50-mile radius of the park, and 92% resided within a 100-mile radius. The Company owns a site of 515 acres, with 115 acres currently used for park operations. The remaining 400 acres, which are fully zoned for entertainment and recreational uses, provide the Company with ample expansion opportunity, as well as the potential to develop complementary operations, such as an amphitheater. Adventure World's principal competitors are King's Dominion Park, located in Doswell, Virginia (near Richmond); Hershey Park, located in Hershey, Pennsylvania; and Busch Gardens, located in Williamsburg, Virginia. These parks are located approximately 120, 125 and 175 miles, respectively, from Adventure World. DARIEN LAKE & CAMPING RESORT Darien Lake, a combination theme and water park, is the largest theme park in the State of New York and the 38th largest theme park in the United States based on 1997 attendance of 1.4 million. Darien Lake is located off Interstate 90 in Darien Center, New York, approximately 30, 40 and 120 miles from Buffalo, Rochester and Syracuse, New York, respectively. The park's primary market includes upstate New York, western and northern Pennsylvania and southern Ontario, Canada. This market provides the park with a permanent resident population base of approximately 2.1 million people within 50 miles of the park and 3.1 million with 100 miles. The Buffalo, Rochester and Syracuse markets are the number 40, number 75 and number 72 DMAs in the United States, respectively. Based upon in-park surveys, approximately 62% of the visitors to Darien Lake in 1997 resided within a 50-mile radius of the park, and 79% resided within a 100-mile radius. The Darien Lake property consists of approximately 1,000 acres, including 144 acres for the theme park, 242 acres of campgrounds and 593 acres of agricultural, undeveloped and water areas. Darien Lake also has a 20,000 seat amphitheater. Following the 1995 season, the Company entered into a long-term arrangement with a national concert promoter to realize the cash flow potential of the amphitheater. As a result, since it acquired the park, the Company has realized substantial increases in revenues earned from concerts held at the facility. Adjacent to the Darien Lake theme park is a camping resort owned and operated by the Company with 1,180 developed campsites, including 330 recreational vehicles (RV's) available for daily and weekly rental. In addition, there are 500 other campsites available for tenting. Darien Lake is one of the few theme parks in the United States which offers a first class campground adjacent to the park. The campground is the fifth largest in the United States. In 1997, approximately 310,000 people used the Darien Lake campgrounds. The Company believes that substantially all of the camping visitors use the theme park. The Company is constructing an economy motel at the site for the 1998 season to supplement the campgrounds. Darien Lake's principal competitor is Wonderland Park located in Toronto, Canada, approximately 125 miles from Darien Lake. In addition, Darien Lake competes to a lesser degree with three smaller amusement parks located within 50 miles of the park. Darien Lake is significantly larger with a more diverse complement of entertainment than any of these three smaller facilities. ELITCH GARDENS Elitch Gardens is a combination theme and water park located on approximately 60 acres in the downtown area of Denver, Colorado, next to Mile High Stadium and McNichols Arena, and close to Coors Field. Based on 1997 attendance of 1.5 million, Elitch Gardens is the 37th largest theme park in the United States. The park's primary market includes the greater Denver area, as well as most of central Colorado. 2 This market provides the park with a permanent resident population base of approximately 2.4 million people within 50 miles of the park and approximately 3.3 million people within 100 miles. The Denver area is the number 18 DMA in the United States. Based upon in-park surveys, approximately 54% of the visitors to Elitch Gardens in 1997 resided within a 50-mile radius of the park, and 78% resided within a 100-mile radius. A park in Denver under the name of "Elitch Gardens" has been in continuous operation for over 100 years. During 1994 and 1995, the park was relocated from its smaller location on the north side of Denver to its current location in downtown Denver. The park was constructed at a cost of $100.0 million (including land and equipment, as well as extensive infrastructure). The park was reopened in 1995. Management believes that the park, as constructed, did not have sufficient marketable rides and attractions to achieve its attendance potential. In addition, prior to its acquisition in 1996, the park lacked theming and landscaping, as well as creative marketing. Elitch Gardens has no significant direct competitors. FRONTIER CITY Frontier City is a western theme park located along Interstate 35 in northeast Oklahoma City, Oklahoma, approximately 100 miles from Tulsa. The park's market includes nearly all of Oklahoma and certain parts of Texas and Kansas, with its primary market in Oklahoma City and Tulsa. This market provides the park with a permanent resident population base of approximately 1.2 million people within 50 miles of the park and 2.1 million people within 100 miles. The Oklahoma City and Tulsa markets are the number 43 and number 58 DMAs in the United States, respectively. Based upon in-park surveys, approximately 63% of the visitors to Frontier City in 1997 resided within a 50-mile radius of the park, and 69% resided within a 100-mile radius. The Company owns a site of approximately 90 acres, with 60 acres currently used for park operations. The remaining 30 acres provide the Company with the potential to develop complementary operations, such as campgrounds or an amphitheater. Frontier City's only significant competitor is Six Flags Over Texas, located in Arlington, Texas, approximately 225 miles from Frontier City. GEAUGA LAKE Geauga Lake is a combination theme and water park, and is the 40th largest theme park in the United States based on 1997 attendance of 1.3 million. Geauga Lake is located in Aurora, Ohio, 20 miles southeast of Cleveland and approximately 30, 60 and 120 miles, respectively, from Akron and Youngstown, Ohio and Pittsburgh, Pennsylvania. This market provides the park with a permanent resident population base of approximately 4.0 million people within 50 miles of the park and 7.4 million within 100 miles. The Cleveland/Akron, Youngstown and Pittsburgh markets are the number 13, number 97 and number 19 DMAs in the United States, respectively. Based upon in-park surveys, approximately 44% of the visitors to Geauga Lake in 1997 resided within a 50-mile radius of the park, and 76% resided within a 100-mile radius. The 257-acre property on which Geauga Lake is situated includes a 55-acre spring-fed lake. The theme park itself presently occupies approximately 116 acres. There are approximately 87 acres of undeveloped land (of which approximately 30 acres have the potential for further development). Geauga Lake's principal competitors are Cedar Point in Sandusky, Ohio and Kennywood in Pittsburgh, Pennsylvania. These parks are located approximately 90 miles and 120 miles, respectively, from Geauga Lake. There are also three small water parks within a 50-mile radius of Geauga Lake, and Sea World, a marine park, is located on the other side of Geauga Lake. While Sea World does, to some extent, compete with Geauga Lake, it is a complementary attraction, and many patrons visit both facilities. In that regard, the Company and Sea World conduct joint marketing programs in outer market areas, involving joint television advertising of combination passes. In addition, combination tickets are sold at each park. 3 THE GREAT ESCAPE The Great Escape, which opened in 1954, is a combination theme and water park located off Interstate 87 in the Lake George resort area, 180 miles north of New York City and 40 miles north of Albany. The park's primary market includes the Lake George tourist population and the upstate New York and western New England resident population. Official statistics indicate that the area had a visitor population of over 7.5 million people in 1995, of which over 3.5 million were overnight visitors, with an average length of stay of 4.3 days. This market provides the park with a permanent resident population base of approximately 800,000 people within 50 miles of the park and 3.3 million people within 100 miles. The Albany market is the number 52 DMA in the United States. Based upon in-park surveys, approximately 41% of the visitors to The Great Escape in 1997 resided within a 50-mile radius of the park, and 69% resided within a 100-mile radius. The Great Escape is located on a site of approximately 335 acres, with 100 acres currently used for park operations. Approximately 30 of the undeveloped acres are suitable for park expansion. The Great Escape's only significant direct competitor is Riverside Park, the Company's park located in Springfield, Massachusetts, approximately 150 miles from The Great Escape. In addition, there is a smaller water park located in Lake George. KENTUCKY KINGDOM In November 1997, the Company acquired all of the membership interests of the limited liability company that owns substantially all of the assets used in the operation of Kentucky Kingdom, a combination theme and water park located in Louisville, Kentucky, for an aggregate purchase price of $64.0 million, of which approximately $4.8 million was paid by delivery of 121,671 shares of Common Stock, with the balance paid in cash and by the assumption of liabilities. Depending upon the level of revenues at Kentucky Kingdom during each of the 1998-2000 seasons, the Company may be required to issue additional shares of Common Stock to the seller. Kentucky Kingdom is a combination theme and water park, located on approximately 58 acres on and adjacent to the grounds of the Kentucky State Fair in Louisville, Kentucky, of which approximately 38 acres are leased under ground leases with terms (including renewal options) expiring in 2049, with the balance owned by the Company. Based on 1997 attendance of 1.1 million, Kentucky Kingdom was the 47th largest theme park in the United States. The park's primary market includes Louisville and Lexington, Kentucky, Evansville and Indianapolis, Indiana and Nashville, Tennessee. This market provides the park with a permanent resident population of approximately 1.4 million people within 50 miles and 4.6 million people within 100 miles. The Louisville and Lexington markets are the number 50 and number 67 DMAs in the United States. The Company believes that, although Kentucky Kingdom is outfitted with a large number of rides and has a solid attendance base, the park has suffered from limited available funds for investment and a lack of revenue outlets. Premier intends to spend approximately $10 million prior to the 1998 season to add two major new attractions and to upgrade the quality and quantity of the merchandise outlets and restaurants. The Company also intends to implement more professional and creative marketing, sales and promotional programs. Kentucky Kingdom's only significant direct competitor is Paramount's Kings Island and The Beach, located in Cincinnati, Ohio, approximately 100 miles from the park. MARINE WORLD Marine World, a theme park which has historically featured primarily marine mammals and exotic land animals, is the 47th largest theme park in the United States, based on 1997 attendance of 1.1 million. Marine World is located in Vallejo, California, approximately 32 miles from San Francisco, 22 miles from Oakland and 57 miles from Sacramento. This market provides the park with a permanent resident population base of approximately 5.4 million people within 50 miles and 10.0 million people within 100 miles. The San Francisco/Oakland and Sacramento areas are the number 5 and number 20 DMAs in the 4 United States, respectively. Based upon in-park surveys, approximately 50% of the visitors to Marine World in 1997 resided within a 50-mile radius of the park, and 78% resided within a 100-mile radius. In April 1997, the Company became manager of Marine World, pursuant to which the Company is entitled to receive an annual base management fee of $250,000 and up to $250,000 annually in additional fees based on park performance. In November 1997, the Company exercised an option to lease approximately 40 acres of land within the site for nominal rent and an initial term of 55 years (plus four ten-year and one four-year renewal options). The Company intends to expand the park's entertainment component by adding theme park rides and attractions on the leased land, which is located within the existing park, in order to create one fully-integrated regional theme park at the site. Premier is entitled to receive, in addition to the management fee, 80% of the cash flow generated by the combined operations at the park, after combined operating expenses and debt service on outstanding debt obligations relating to the park. The Company is currently implementing the first phase of the expansion of the entertainment component at Marine World. The Company also has an option to purchase the entire site commencing in February 2002 at a purchase price equal to the greater of the then principal amount of certain debt obligations of the seller (expected to aggregate $52.0 million at February 2002) or the then fair market value of the seller's interest in the park (based on a formula relating to the seller's 20% share of Marine World's cash flow). The Company currently expects to exercise this purchase option when it becomes exercisable. Marine World currently consists of 105 acres comprised of various presentation stadiums, animal habitats, visitor walkways, parking, concession and picnic areas, bordering a 55-acre man-made lake. The park provides for the shelter and care of over 50 marine mammals, 600 land animals, over 70 sharks and rays, birds and reptiles, over 2,600 tropical and cold water fish and marine invertebrates, and 500 butterflies, all featured in a variety of exhibits and participatory attractions. Since taking over the management of Marine World in April 1997, the Company has stabilized the park's performance by reducing operating expenses, shortening the operating season, and beginning to expand the park's entertainment component by adding a themed children's area with children's rides called "Popeye's Seaport" and the DinoSphere TurboRide, a ride simulation theatre. The Company expects to invest between $35-$40 million at Marine World for the 1998 season to add fourteen new rides, including a boomerang steel roller coaster, a river rapids ride and a shoot-the-chute giant splash ride. Marine World's principal competitors are Underwater World at Pier 39 in San Francisco, Great America in Santa Clara and Outer Bay at Monterey Bay Aquarium. These parks are located approximately, 30, 60 and 130 miles from Marine World, respectively. In addition, plans for Hecker Pass, a new theme park in Gilroy, California (approximately 100 miles from Marine World) are under development. If developed, the Company believes that the park would not be operational for at least two years. RIVERSIDE PARK On February 5, 1997, the Company acquired all of the outstanding common stock of the owner of Riverside Park and an adjacent multi-use stadium, for a purchase price of $22,200,000 ($1,000,000 of which was paid through issuance of 32,129 shares of the Company's common stock). Riverside Park is a combination theme park and motor speedway, located off Interstate 91 near Springfield, Massachusetts, approximately 95 miles west of Boston. Riverside Park's primary market includes Springfield and western Massachusetts, and Hartford and western Connecticut, as well as portions of eastern Massachusetts (including Boston) and eastern New York. Based on 1997 attendance of over 1.2 million, Riverside Park is the 43rd largest theme park in the United States. This market provides the park with a permanent resident population base of approximately 3.1 million people within 50 miles and 14.7 million people within 100 miles. Based upon in-park surveys, approximately 63% of the visitors to Riverside Park in 1997 resided within a 50-mile radius of the park, and 95% resided within a 100-mile radius. Springfield, Hartford/New Haven and Boston are the number 103, number 27 and number 6 DMAs in the United States. Riverside Park is comprised of approximately 160 acres, with 118 acres currently used for park operations, 12 acres for a picnic grove and approximately 30 undeveloped acres. Riverside Park's 5 Speedway is a multi-use stadium which includes a one-quarter mile NASCAR-sanctioned short track for automobile racing which can seat 6,200 for speedway events and 15,000 festival style for concerts. Riverside Park's most significant competitor is Lake Compounce located in Bristol, Connecticut, approximately 50 miles from Riverside Park. Lake Compounce had not been in regular full-service operation for several years. However, the prior owner of the park entered into a joint venture relationship in 1996 with an established park operator, and the park has received a substantial investment of private and public funds and did operate in the 1997 season. To a lesser extent, Riverside Park competes with The Great Escape, the Company's park located in Lake George, New York, approximately 150 miles from Riverside Park. WATERWORLD PARKS The Waterworld Parks consist of two water parks (Waterworld USA/Concord and Waterworld USA/ Sacramento) and one family entertainment center (Paradise Island). Waterworld USA/Concord is located in Concord, California, in the East Bay area of San Francisco. The park's primary market includes nearly all of the San Francisco Bay area. This market provides the park with a permanent resident population base of approximately 6.8 million people within 50 miles of the park and 10.0 million people within 100 miles. The San Francisco Bay market is the number 5 DMA in the United States. Based upon in-park surveys, approximately 94% of the visitors in 1997 resided within a 50-mile radius of the park, and 97% resided within a 100-mile radius. Waterworld USA/Sacramento is located on the grounds of the California State Fair in Sacramento, California. Also located on the fair grounds is Paradise Island, the Company's family entertainment center. The facilities' primary market includes Sacramento and the immediate surrounding area. This market provides the park with a permanent resident population base of approximately 2.7 million people within 50 miles of the park and 9.7 million people within 100 miles. The Sacramento market is the number 20 DMA in the United States. Based upon in-park surveys, approximately 80% of the visitors in 1997 resided within a 50-mile radius of the park, and 96% resided within a 100-mile radius. Both facilities are leased under long-term ground leases. The Concord site includes approximately 29 acres, with 24 acres currently used for park operations. The Sacramento facility is located on approximately 20 acres, all of which is used for the park and the family entertainment center. Concord's only significant direct competitor is Raging Waters located in San Jose, approximately 100 miles from that facility. Sacramento's only significant competitor is Sunsplash located in northeast Sacramento, approximately 40 miles from that facility. WHITE WATER BAY White Water Bay is a tropical themed water park situated on 22 acres located along Interstate 40 in southwest Oklahoma City, Oklahoma. The park is the 15th largest water park in the United States based on 1997 attendance of approximately 316,000. The park's primary market includes the greater Oklahoma City metropolitan area. Oklahoma City is the number 43 DMA in the United States. This market provides the park with a permanent resident population base of approximately 1.2 million people within 50 miles of the park and 2.1 million people within 100 miles. Based upon in-park surveys, approximately 80% of the visitors to White Water Bay in 1997 resided within a 50-mile radius of the park, and 87% resided within a 100-mile radius. White Water Bay has no direct competitors. WYANDOT LAKE Wyandot Lake, a water park that also offers "dry" rides, is located just outside of Columbus, Ohio, adjacent to the Columbus Zoo on property sub-leased from the Columbus Zoo. The park's primary market includes the Columbus metropolitan area and other central Ohio towns. This market provides the park with a permanent resident population base of approximately 2.0 million people within 50 miles of the park and approximately 6.4 million people within 100 miles. The Columbus market is the number 34 DMA in 6 the United States. Based on in-park surveys, approximately 85% of the visitors to Wyandot Lake in 1997 resided within a 50-mile radius of the park, and 93% resided within a 100-mile radius. The Company leases from the Columbus Zoo the land, the buildings and several rides which existed on the property at the time the lease was entered into in 1983. The current lease expires in 1998, but the Company expects to exercise the first of its two five-year renewal options. The land leased by Wyandot Lake consists of approximately 18 acres. The park shares parking facilities with the Columbus Zoo. Wyandot Lake's direct competitors are Paramount's Kings Island and The Beach, each located in Cincinnati, Ohio, and Cedar Point, located in Sandusky, Ohio. Each of these parks is located approximately 100 miles from Wyandot Lake. Although the Columbus Zoo is located adjacent to the park, it is a complementary attraction, with many patrons visiting both facilities. MARKETING AND PROMOTION The Company attracts visitors through local oriented multi-media marketing and promotional programs for each of its parks. These programs are tailored to address the different characteristics of their respective markets and to maximize the impact of specific park attractions and product introductions. All marketing and promotional programs are updated or completely revamped each year to address new developments. Marketing programs are supervised by the Company's Vice President for Marketing, with the assistance of the Company's senior management and its national advertising agency. The Company also develops partnership relationships with well-known national and regional consumer goods companies and retailers to supplement its advertising efforts and to provide attendance incentives in the form of discounts and/or premiums. The Company has also arranged for popular local radio and television programs to be filmed or broadcast live from its parks. Group sales and pre-sold tickets provide the Company with a consistent and stable base of attendance, representing over 35.7% of aggregate attendance in 1997 at the eleven parks owned during that season. Each park has a group sales and pre-sold ticket manager and a well-trained sales staff dedicated to selling multiple group sales and pre-sold ticket programs through a variety of methods, including direct mail, telemarketing and personal sales calls. Historically, Premier has been successful in substantially increasing group sales and pre-sold tickets at its existing and acquired parks. The Company has also developed effective programs for marketing season pass tickets. Season pass sales establish a solid attendance base in advance of the season, thus reducing exposure to inclement weather. Additionally, season pass holders often bring paying guests and generate "word-of-mouth" advertising for the parks. The increased in-park spending which results from season passes is not offset by incremental operating expenses, since such expenses are relatively fixed during the operating season. During 1997, 20.6% of visitors to the Company's eleven parks then owned utilized season passes. A significant portion of the Company's attendance is attributable to the sale of discount admission tickets. The Company offers discounts on season and multi-visit tickets, tickets for specific dates and tickets to affiliated groups such as businesses, schools and religious, fraternal and similar organizations. The increased in-park spending which results from such attendance is not offset by incremental operating expenses, since such expenses are relatively fixed during the operating season. In 1997, approximately 72% of patrons at the Company's eleven parks then owned were admitted at a discount rate and, for the year ended December 31, 1997, approximately 44.7% of the Company's revenue was attributable to in-park spending (in-park spending does not include admissions, sponsorship revenue or other income). The Company also implements promotional programs as a means of targeting specific market segments and geographic locations not reached through its group or retail sales efforts. The promotional programs utilize coupons, sweepstakes, reward incentives and rebates to attract additional visitors. These programs are implemented through direct mail, telemarketing, direct response media, sponsorship marketing and targeted multi-media programs. The special promotional offers are usually for a limited time and 7 offer a reduced admission price or provide some additional incentive to purchase a ticket, such as combination tickets with a complementary location. PARK OPERATIONS The Company currently operates in geographically diverse markets in the United States and, after completing the Walibi acquisition, in Europe. Each of the Company's parks is operated to the extent practicable as a separate operating division of the Company in order to maximize local marketing opportunities and to provide flexibility in meeting local needs. Each park is managed by a general manager who reports to one of the Company's regional executives (each of whom reports to its Chief Operating Officer) and is responsible for all operations and management of the individual park. Local advertising, ticket sales, community relations and hiring and training of personnel are the responsibility of individual park management in coordination with corporate support teams. Each of the Company's parks is managed by a full-time, on-site management team under the direction of the general manager. Each such management team includes senior personnel responsible for operations and maintenance, marketing and promotion, human resources and merchandising. Park management compensation structures are designed to provide incentives (including stock options and cash bonuses) for individual park managers to execute the Company's strategy and to maximize revenues and operating cash flow at each park. The Company's ten general managers at December 31, 1997 had an aggregate of approximately 210 years experience in the industry, including approximately 85 years at parks owned or operated by Premier. The Company's parks are generally open daily from Memorial Day through Labor Day. In addition, most of the Company's parks are open during weekends prior to and following their daily seasons, primarily as a site for theme events (such as Hallowscream and Oktoberfest). Typically, the parks charge a basic daily admission price, which allows unlimited use of all rides and attractions, although in certain cases special rides and attractions require the payment of an additional fee. The Company's family entertainment center is open year-round and does not charge an admission price. CAPITAL IMPROVEMENTS The Company regularly makes capital investments in the development and implementation of new rides and attractions at its parks. The Company purchases both new and used rides. In addition, the Company rotates rides among its parks to provide fresh attractions. The Company believes that the introduction of new rides is an important factor in promoting each of the parks in order to achieve market penetration and encourage longer visits, which lead to increased attendance and in-park spending. In addition, the Company generally adds theming to acquired parks and enhances the theming and landscaping of its existing parks in order to provide a complete family oriented entertainment experience. Capital expenditures are planned on a seasonal basis with most expenditures made during the off-season. Expenditures for materials and services associated with maintaining assets, such as painting and inspecting rides are expensed as incurred and therefore are not included in capital expenditures. The Company's level of capital expenditures are directly related to the optimum mix of rides and attractions given park attendance and market penetration. These targeted expenditures are intended to drive significant attendance growth at the parks and to provide an appropriate complement of entertainment value, depending on the size of a particular market. As an individual park begins to reach an appropriate attendance penetration for its market, management generally plans a new ride or attraction every three to four years in order to enhance the park's entertainment product. 8 MAINTENANCE AND INSPECTION The Company's rides are inspected daily by maintenance personnel during the operating season. These inspections include safety checks as well as regular maintenance and are made through both visual inspection of the ride and test operation. Senior management of the Company and the individual parks evaluate the risk aspects of each park's operation. Potential risks to employees and staff as well as to the public are evaluated. Contingency plans for potential emergency situations have been developed for each facility. During the off-season, maintenance personnel examine the rides and repair, refurbish and rebuild them where necessary. This process includes x-raying and magnafluxing (a further examination for minute cracks and defects) steel portions of certain rides at high-stress points. At March 1, 1998, the Company had approximately 125 full-time employees who devote substantially all of their time to maintaining the parks and their rides and attractions. In addition to the Company's maintenance and inspection procedures, the Company's liability insurance carrier performs an annual inspection of each park and all attractions and related maintenance procedures. The result of insurance inspections are written evaluation and inspection reports, as well as written suggestions on various aspects of park operations. State inspectors also conduct annual ride inspections before the beginning of each season. Other portions of each park are also subject to inspections by local fire marshals and health and building department officials. Furthermore, the Company uses Ellis & Associates as water safety consultants at its parks in order to train life guards and audit safety procedures. INSURANCE The Company maintains insurance of the type and in amounts that it believes are commercially reasonable and that are available to businesses in its industry. The Company maintains multi-layered general liability policies that provide for excess liability coverage of up to $25.0 million per occurrence. By virtue of self-insured retention limits, the Company is required to pay the first $50,000 of loss per occurrence. The Company also maintains fire and extended coverage, workers' compensation, business interruption and other forms of insurance typical to businesses in its industry. The fire and extended coverage policies insure the Company's real and personal properties (other than land) against physical damage resulting from a variety of hazards. COMPETITION The Company's parks compete directly with other theme parks, water and amusement parks and indirectly with all other types of recreational facilities and forms of entertainment within their market areas, including movies, sports attractions and vacation travel. The Company's family entertainment center competes directly with all types of recreational facilities and forms of entertainment within its market. Accordingly, the Company's business is and will continue to be subject to factors affecting the recreation and leisure time industries generally, such as general economic conditions and changes in discretionary consumer spending habits. Within each park's regional market area, the principal factors affecting competition include location, price, the uniqueness and perceived quality of the rides and attractions in a particular park, the atmosphere and cleanliness of a park and the quality of its food and entertainment. The Company believes its parks feature a sufficient variety of rides and attractions, restaurants, merchandise outlets and family orientation to enable it to compete effectively. SEASONALITY The operations of the Company are highly seasonal, with more than 80% of park attendance occurring in the second and third calendar quarters and the most active period falling between Memorial Day and Labor Day. The great majority of the Company's revenues are collected in the second and third quarters of each year. 9 GOVERNMENT REGULATION Operations at the parks are subject to certain local, state and federal governmental regulations including, without limitation, labor, health, safety and minimum wage regulations applicable to theme park operations, and local and state regulations applicable to restaurant operations at the park. The Company believes that it is in substantial compliance with applicable regulatory standards and, although no assurance can be given, it does not foresee the need for any significant expenditures in this area in the near future. ENVIRONMENTAL REGULATION The Company's operations are subject to federal, state and local environmental laws and regulations governing water discharges, air emissions, soil contamination, wetlands, the maintenance of underground storage tanks and the disposal of waste and hazardous materials. The Company believes that it is in substantial compliance with all such laws and regulations. At Geauga Lake, the Company is conducting groundwater monitoring around a former on-site landfill under the supervision of the Ohio Environmental Protection Agency. The Company is awaiting administrative action on its request for curtailment of the scope and duration of this monitoring, based on the sampling results to date. The Company does not anticipate that it will be required to incur any material costs in connection with the monitoring program or any other post-closure activities. Elitch Gardens is located on property that was used as a manufactured gas plant by the Public Service Company of Colorado ("PSC"), a railroad yard for Burlington Northern Railroad, and an auto shredding operation. Although these operations were discontinued over 30 years ago, residual contamination related to those operations remains in the soil and groundwater beneath the property. Specifically, environmental investigations have documented the presence of trash fill material, metals, hydrocarbon-contaminated soils and residual coal tars at the site. At the time of the construction of the park, the prior owner of the park entered into a consent agreement with the Colorado Department of Health which specifies the soil and groundwater management and monitoring requirements for the site (the "Consent Agreement"). The Consent Agreement also contains a limited release and covenant not to sue by the State of Colorado with respect to then-known environmental conditions, subject to several conditions and exceptions. In addition, the United States Environmental Protection Agency has reviewed the Consent Agreement and stated that its intervention under applicable Federal environmental statues would not be warranted, assuming compliance with the Consent Agreement and barring a change in, or discovery of new information about, environmental conditions relating to the property. At the closing of the Company's acquisition of Elitch Gardens, PSC and Trillium Corporation (successor-in-interest to Burlington Northern Railroad) consented to the assignment to Premier by the prior owner of its rights under an allocation agreement (the "Allocation Agreement"). Under the Allocation Agreement, PSC and Trillium agreed to pay for 25 years, commencing in 1994, all Contamination Expenses (as defined) with respect to the site, except that Premier will be responsible, under certain circumstances, for a maximum of $100,000 of such Contamination Expenses and, in all cases, for the costs of groundwater monitoring required under the Consent Agreement. The Company does not anticipate that it will be required to incur any material costs in connection with the environmental condition of this site. EMPLOYEES At March 1, 1998, the Company employed approximately 712 full-time employees, and the Company employed approximately 10,430 seasonal employees during the 1997 operating season. In this regard, the Company competes with other local employers for qualified student and other candidates on a season-by- season basis. As part of the seasonal employment program, the Company employs a significant number of teenagers, which subjects the Company to child labor laws. 10 Commencing April 1997, the Company became the manager of Marine World. Certain of the employees at that park are currently subject to a labor agreement with a local chapter of a national union that expires in January 2000. The Company has not experienced any strikes or work stoppages by its employees, and the Company considers its employee relations to be good. RECENT DEVELOPMENTS WALIBI In December 1997, the Company entered into an agreement with three of the principal stockholders of Walibi, pursuant to which the Company expects to purchase in March 1998 approximately 50% of the outstanding capital stock of Walibi (the "Private Acquisition"). Following the closing of the Private Acquisition, the Company will commence a "public takeover bid," as defined and regulated under Belgian law (the "Walibi Tender Offer"), for the remainder of the outstanding capital stock of Walibi. Walibi is a corporation (societe anonyme) organized under the laws of Belgium. Walibi's stock is currently traded on the Official Market of the Brussels Stock Exchange. It owns six theme parks (the "Walibi Parks"), two located in Belgium, one in The Netherlands and three in France, as well as two smaller attractions in Belgium. Walibi's operations had combined 1997 attendance of approximately 3.5 million. The transaction values Walibi at approximately $139.5 million (at the exchange rate of Belgian Francs ("BEF") 37.065 to US$1 on December 31, 1997), based on a multiple of seven times Walibi's 1997 EBITDA. This amount includes the assumption or refinancing of Walibi net indebtedness (total debt less cash and cash equivalents) which aggregated approximately $54.3 million at December 31, 1997. As a result, the aggregate consideration to be paid by the Company for the outstanding stock of Walibi (assuming the Company acquires 100% of the outstanding Walibi capital stock pursuant to the Walibi Tender Offer) will be $85.2 million (based on the year-end exchange rate). The purchase price in the Private Acquisition will be paid 80% in cash in BEF and 20% in Premier Common Stock (approximately 228,000 shares). Shares of Premier Common Stock issuable in the Private Acquisition will not be registered under the Securities Act of 1933 and are subject to a "lock-up" agreement until 41 days after the consummation of the Private Acquisition. The consideration offered in the Walibi Tender Offer will be payable at the election of the holders of Walibi capital stock (i) in cash only or (ii) in cash and shares of Premier Common Stock in the same ratio as the Private Acquisition. The Company will fund the cash portion of the purchase price of the Walibi acquisition (as well as the refinancing of certain indebtedness of Walibi) from borrowings under a $300.0 million senior secured credit facility (the "Premier Credit Facility") entered into by Premier on March 13, 1998. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity, Capital Commitments and Resources." In addition, the Company will be obligated to issue additional shares of Premier Common Stock in the event certain gross revenue targets are met for the Walibi Parks. Under the terms of the Walibi Agreement, the Company has agreed to invest at least BEF 1.4 billion (approximately $38 million based on the year-end exchange rate) in the Walibi Parks over the three years commencing with the 1999 season. SIX FLAGS Pursuant to an Agreement and Plan of Merger dated as of February 9, 1998 (the "Six Flags Agreement"), Premier agreed to acquire by merger all of the capital stock of SFEC from its current stockholders for $965 million (plus an approximate $11 million adjustment based on year-end balance sheet adjustments and option cancellation costs). During 1997, Six Flags' attendance, revenue and EBITDA totaled approximately 22.2 million, $708.7 million and $164.1 million, respectively. The purchase price is payable all in cash or, at the Company's option, in cash and depositary shares representing interests 11 in up to $200.0 million (but not less than $100.0 million) of the Company's Convertible Redeemable Preferred Stock (the "Seller Preferred Stock"). At the date of acquisition, Six Flags' liabilities will include approximately $192.3 million principal amount at maturity ($161.1 million accreted value at December 28, 1997) of SFEC's Zero Coupon Senior Notes due 1999 (the "SFEC Zero Coupon Senior Notes") and approximately $285.0 million principal amount at maturity ($269.9 million accreted value at December 28, 1997) of 12 1/4% Senior Subordinated Discount Notes due 2005 (the "SFTP Senior Subordinated Notes") of Six Flags Theme Parks Inc. (together with its subsidiaries, "SFTP"), an indirect wholly-owned subsidiary of SFEC. In addition, the Company will refinance all outstanding Six Flags bank indebtedness (approximately $348.5 million at December 28, 1997) and certain other indebtedness of SFEC (approximately $30.5 million at December 28, 1997) primarily through borrowings under a $472.0 million senior secured credit facility (the "Six Flags Credit Facility" and, together with the Premier Credit Facility, the "Credit Facilities") to be entered into by SFTP concurrently with the closing under the Six Flags Agreement. The acquisition is scheduled to close in April 1998. In connection with the Six Flags Agreement, the company presently named Premier Parks Inc. (together with its consolidated subsidiaries, "Premier Operations") will merge with a wholly-owned subsidiary of Premier Parks Holdings Corporation in accordance with Section 251(g) of the Delaware General Corporation Law. As a result, holders of shares of Common Stock of Premier Operations will become, on a share-for-share basis, holders of Common Stock of Premier Parks Holdings Corporation, and Premier Operations will become a wholly-owned subsidiary of Premier Parks Holdings Corporation. On the effective date of the merger, Premier Operations will change its name to Premier Parks Operations Inc., and Premier Parks Holdings Corporation will change its name to Premier Parks Inc. The Company intends to fund the Six Flags acquisition with the proceeds of the following public offerings (the "Offerings"): 1. The Company will issue approximately 13,000,000 shares of Common Stock with estimated gross proceeds of $593.2 million (based upon the average closing price of the Company's Common Stock for the twenty trading days ended February 27, 1998). 2. The Company will issue approximately 5,000,000 Premium Income Equity Securities ("PInES-SM-") representing interests in the Company's Mandatorily Convertible Preferred Stock (the "Mandatorily Convertible Preferred Stock" and, together with the Seller Preferred Stock, the "Convertible Preferred Stock"), with estimated gross proceeds of $228.2 million (based upon the average closing price of the Company's Common Stock for the twenty trading days ended February 27, 1998). 3. The Company will issue Senior Discount Notes due 2008 (the "Company Senior Discount Notes") with estimated gross proceeds of $250.0 million. 4. The Company will issue $280.0 million principal amount of its Senior Notes due 2006 (the "Company Senior Notes" and, together with the Company Senior Discount Notes, the "Company Notes"). 5. SFEC will issue $170.0 million principal amount of its Senior Notes due 2006 (the "New SFEC Notes") guaranteed on a fully subordinated basis by the Company. The proceeds of the New SFEC Notes, together with additional funds, will be deposited in escrow to repay in full at or prior to maturity the SFEC Zero Coupon Senior Notes. There can be no assurance that the Offerings and the Company's acquisition of SFEC will be consummated, or, if consummated, that the terms of the securities sold in the Offerings will conform to the proposed terms thereof described in this Report. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity, Capital Commitments and Resources." 12 EXECUTIVE OFFICERS OF THE REGISTRANT
AGE AS OF NAME MARCH 1, 1998 POSITION - ------------------------------------------ ----------------- ------------------------------------------------------ Kieran E. Burke........................... (40) Director, Chairman of the Board and Chief Executive Officer since June 1994; Director, President and Chief Executive Officer from October 1989 through June 1994. Gary Story................................ (42) Director, President and Chief Operating Officer since June 1994; Executive Vice President and Chief Operating Officer from February 1992 through June 1994; prior to such period, general manager of Frontier City theme park for more than five years. James F. Dannhauser....................... (45) Chief Financial Officer since October 1, 1995; Director since October 1992; prior to June 1996, Managing Director of Lepercq de Neuflize & Co. Incorporated for more than five years. Hue W. Eichelberger....................... (39) Executive Vice President since February 1, 1997; General Manager of Adventure World since May 1992; Park Manager of White Water Bay from February 1991 to May 1992. Richard A. Kipf........................... (63) Secretary/Treasurer since 1975; Vice President since June 1994. Traci E. Blanks........................... (37) Vice President of Marketing since 1995; Vice President Marketing for Frontier City and White Water Bay from 1992 through 1994; Director of Marketing for Frontier City from 1986 through 1992.
Each of the above executive officers has been elected to serve in the position indicated until the next annual meeting of directors which will follow the annual meeting of stockholders to be held in June 1998. 13 ITEM 2. PROPERTIES Set forth below is a brief description of the Company's real estate at March 1, 1998: Adventure World, Largo, Maryland -- 515 acres (fee ownership interest) Darien Lake, Darien Center, New York -- 979 acres (fee ownership interest) Elitch Gardens, Denver, Colorado -- 60 acres (fee ownership interest) Frontier City, Oklahoma City, Oklahoma -- 90 acres (fee ownership interest) Geauga Lake, Aurora, Ohio -- 258 acres (fee ownership interest) The Great Escape, Lake George, New York -- 335 acres (fee ownership interest) Kentucky Kingdom, Louisville, Kentucky -- 58 acres (fee ownership and leasehold interest)(1) Marine World, Vallejo, California -- 40 acres (long-term leasehold interest at nominal rent) Riverside Park, Agawam, Massachusetts -- 160 acres (fee ownership interest) Waterworld/Concord, Concord, California -- 29 acres (leasehold interest)(2) Waterworld/Sacramento, Sacramento, California -- 20 acres (leasehold interest)(3) White Water Bay, Oklahoma City, Oklahoma -- 22 acres (fee ownership interest) Wyandot Lake, Columbus, Ohio -- 18 acres (leasehold interest)(4) In addition to the foregoing, at March 1, 1998, the Company indirectly owned real estate interests through its non-controlling general partnership interest in 229 East 79th Street Associates L.P., a limited partnership that converted to cooperative ownership a New York City apartment building. The Company leases office space in New York City for which it recognized approximately $64,000 in net rental expense during 1997 after consideration of the rental payments made by Windcrest Partners, an affiliate of the Company, which shares office space with the Company. The Company also leases certain of the rides and attractions at its parks. See Notes 5 and 11 to Notes to Consolidated Financial Statements. The Company considers its properties to be well-maintained, in good condition and adequate for their present uses and business requirements. ITEM 3. LEGAL PROCEEDINGS The nature of the industry in which the Company operates tends to expose it to claims by visitors for injuries. Historically, the great majority of these claims have been minor. While the Company believes that it is adequately insured against the claims currently pending against it and any potential liability, if the number of such events resulting in liability significantly increased, or if the Company becomes subject to damages that cannot by law be insured against, such as punitive damages, there may be a material adverse effect on its operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. - ------------------------ (1) Approximately 38 acres are leased under ground leases with terms (including renewal options) expiring in 2049, with the balance owned by the Company. (2) The site is leased from the City of Concord. The lease expires in 2025 and the Company has five five- year renewal options. (3) The site is leased from the California Exposition and State Fair. The lease expires in 2015 and, subject to the satisfaction of certain conditions, may be renewed by the Company for an additional ten-year term. (4) The site is subleased from the Columbus Zoo. The lease expires in 1998 and the Company has two five-year renewal options, the first of which will be exercised in that year. Acreage for this site does not include approximately 30 acres of parking which is shared with the Columbus Zoo. 14 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock has been listed on the New York Stock Exchange (the "NYSE") since December 22, 1997 under the symbol "PKS." Between May 30, 1996 and December 19, 1997, the Company's Common Stock was traded on the Nasdaq National Market ("NASDAQ") and quoted under the symbol "PARK." Prior to May 30, 1996, trading in the Common Stock was reported on The Pink Sheets and the OTC Bulletin Board. Set forth below in the first table are the high and low sales prices for the Common Stock as reported by the NYSE since December 22, 1997. Set forth below in the second table are the high and low sales prices for the Common Stock as reported by NASDAQ from May 30, 1996 through December 19, 1997. The third table sets forth the high and low bid quotations for the Common Stock as reported on The Pink Sheets and the OTC Bulletin Board for the prior periods indicated. These quotations reflect inter-dealer prices, without mark-up, mark-down or commission and may not necessarily represent actual transactions. Prices shown for periods prior to May 1996 have been adjusted to reflect the Company's one-for-five reverse stock split at that time. NEW YORK STOCK EXCHANGE
YEAR QUARTER HIGH LOW - --------- ---------------------- --------- --------- 1998 First (through $55 1/8 $37 1/8 March 16, 1998) 1997 Fourth (beginning 40 1/2 40 1/16 December 22, 1997)
NASDAQ NATIONAL MARKET
YEAR QUARTER HIGH LOW - --------- ---------------------- --------- --------- 1997 Fourth (through $43 3/8 $37 December 19, 1997) Third 37 3/4 32 Second 36 7/8 26 First 32 1/8 25 7/8 1996 Fourth 32 7/8 29 3/8 Third 29 3/4 20 3/4 Second (beginning 22 1/8 19 7/8 May 30, 1996)
THE PINK SHEETS/OTC BULLETIN BOARD
YEAR QUARTER HIGH LOW - --------- ---------------------- --------- --------- 1996 Second (through $20 $12 1/2 May 29, 1996) First 13 3/4 10
As of March 16, 1998, there were 747 holders of record of the Company's Common Stock. The Company paid no cash dividends during the three years ended December 31, 1997. The Company does not anticipate paying any cash dividends on its Common Stock during the foreseeable future. The indentures relating to the Premier Notes limit, and following the Six Flags acquisition the indentures relating to the Company Notes will limit, the payment of cash dividends to common stockholders. 15 ITEM 6. SELECTED FINANCIAL DATA
1997(1) 1996(2) 1995(3) 1994 1993 ---------- ---------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenue......................................................... $ 193,904 $ 93,447 $ 41,496 $ 24,899 $ 21,860 Depreciation and amortization................................... 19,792 8,533 3,866 1,997 1,537 Interest expense, net........................................... 17,775 11,121 5,578 2,299 1,438 Termination fee, net of expenses(4)............................. 8,364 -- -- -- -- Provision for income tax expense (benefit)...................... 9,615 1,497 (762) 68 91 Income (loss) before extraordinary loss......................... 14,099 1,765 (1,045) 102 1,354 Extraordinary (loss), net of tax effect......................... -- -- (140 (5) -- -- Net income (loss)............................................... 14,099 1,765 (1,185) 102 1,354 Per Share: Income (loss) before extraordinary loss: Basic....................................................... .79 .14 (.40 (5) .04 .51 Diluted..................................................... .76 .13 (.40 (5) .04 .51 Net income (loss): Basic....................................................... .79 .14 (.44) .04 .51 Diluted..................................................... .76 .13 (.44) .04 .51 Cash Dividends................................................ -- -- -- -- -- Net cash provided by operating activities....................... 47,150 11,331 10,646 1,060 2,699 Net cash used in investing activities........................... (217,070) (155,149) (74,139) (10,177) (7,698) Net cash provided by financing activities....................... 250,165 119,074 90,914 7,457 2,106 Total assets.................................................... 611,321 304,803 173,318 45,539 36,707 Long-term debt and capitalized lease obligations(6)............. $ 217,026 $ 150,834 $ 94,278 $ 24,108 $ 20,821
- ------------------------ (1) The historical Statement of Operations Data for 1997 reflect the results of Riverside Park from February 5, 1997 and Kentucky Kingdom from November 7, 1997 (the dates of their respective acquisitions). (2) The historical Statement of Operations Data for 1996 reflect the results of Elitch Gardens from October 31, 1996, the Waterworld Parks from November 19, 1996 and The Great Escape from December 4, 1996 (the dates of their respective acquisitions). (3) The historical Statement of Operations Data for 1995 reflect the results of the parks acquired in the Company's acquisition of Funtime Parks from the date of acquisition, August 15, 1995. (4) Represents a termination fee (net of expenses) paid to the Company upon termination of its prior agreement to become managing general partner of Six Flags over Texas. (5) During 1995, the Company incurred an extraordinary loss of $140,000, net of income tax benefit, on extinguishment of debt in connection with the Funtime Acquisition. This extraordinary loss is not included in income (loss) before extraordinary loss and income (loss) before extraordinary loss per common share for 1995. (6) Includes current portion. Balances are at December 31 of the indicated year. 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company's revenue is derived from the sale of tickets for entrance to its parks (approximately 52.7%, 44.0% and 48.8% in 1995, 1996 and 1997, respectively) and the sale of food, merchandise, games and attractions inside its parks and other income (approximately 47.3%, 56.0% and 51.2% in 1995, 1996 and 1997, respectively). The Company's principal costs of operations include salaries and wages, employee benefits, advertising, outside services, maintenance, utilities and insurance. The Company's expenses are relatively fixed. Costs for full-time employees, maintenance, utilities, advertising and insurance do not vary significantly with attendance, thereby providing the Company with a significant degree of operating leverage as attendance increases and fixed costs per visitor decrease. The Company acquired three parks in August 1995 in the Funtime acquisition, and acquired four parks during the last quarter of 1996. The Company acquired Riverside Park in February 1997, and Kentucky Kingdom in November 1997. In addition, the Company assumed management of Marine World in April 1997, exercised a lease option with respect to a portion of that park in November 1997, and executed a purchase option for the entire park in September 1997. The following discussion as it relates to 1996 includes two presentations. The first includes the historical results of the Company (including the results of the parks acquired in the 1996 Acquisitions (other than Riverside Park) only from their dates of acquisition forward (October 31, 1996 for Elitch Gardens; November 19, 1996 for the Waterworld Parks; and December 4, 1996 for The Great Escape). The second includes both the historical results for the Company and the results of the parks acquired in the 1996 Acquisitions for periods prior to the dates of their respective acquisition. The following discussion as it relates to 1997 includes the results of the parks acquired in the 1996 Acquisitions (other than Riverside Park) for the full year, as well as Kentucky Kingdom and Riverside Park from their dates of acquisition forward, and includes Marine World only to the extent of the management fee received and depreciation expense related to that park. The Company believes that significant opportunities exist to acquire additional theme parks. Although the Company has had discussions with respect to several additional business acquisitions, no agreement or understanding has been reached with respect to any specific future acquisition other than the Six Flags and Walibi acquisitions. In addition, the Company intends to continue its on-going expansion of the rides and attractions and overall improvement of its parks to maintain and enhance their appeal. Management believes this strategy has contributed to increased attendance, lengths of stay and in-park spending and, therefore, profitability. A consummated acquisition, including, the Six Flags and Walibi acquisitions, when consummated, may adversely affect the Company's operating results, at least in the short term, depending on many factors including capital requirements and the accounting treatment of any such acquisition. 17 RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997 AND 1996 The table below sets forth certain financial information with respect to the Company (including the 1996 Acquisitions) for the year ended December 31, 1996 and with respect to the Company and Kentucky Kingdom and Marine World for the year ended December 31, 1997:
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1996 ------------------------- -------------------------------------------------------------------- HISTORICAL HISTORICAL PREMIER HISTORICAL 1996 (EXCLUDING NINE MONTHS ENDED ACQUISITIONS MARINE KENTUCKY SEPTEMBER 30, 1996 FOR PERIODS WORLD AND KINGDOM HISTORICAL FOR 1996 SUBSEQUENT TO HISTORICAL KENTUCKY AND MARINE PREMIER(1) ACQUISITIONS(2) SEPTEMBER 30, 1996(3) COMBINED KINGDOM)(4) WORLD(5) ----------- ------------------- --------------------- ----------- ------------ ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (IN THOUSANDS) (IN THOUSANDS) REVENUE: Theme park admissions....... $ 41,162 $ 34,062 $ 724 $ 75,948 $ 94,611 $ -- Theme park food, merchandise and other................. 52,285 30,453 1,020 83,758 99,103 190 ----------- ------- ------- ----------- ------------ ----------- Total revenue............. 93,447 64,515 1,744 159,706 193,714 190 ----------- ------- ------- ----------- ------------ ----------- OPERATING COSTS AND EXPENSES: Operating expenses.......... 42,425 23,204 3,116 68,745 80,307 1,049 Selling, general and administrative............ 16,927 17,035 2,289 36,251 36,461 86 Costs of products sold...... 11,101 9,448 347 20,896 23,025 -- Depreciation and amortization.............. 8,533 13,028 703 22,264 19,159 633 ----------- ------- ------- ----------- ------------ ----------- Total operating costs and expenses................ 78,986 62,715 6,455 148,156 158,952 1,768 ----------- ------- ------- ----------- ------------ ----------- Income (loss) from operations.................. 14,461 1,800 (4,711) 11,550 34,762 (1,578) OTHER INCOME (EXPENSE): Interest expense, net....... (11,121) (4,624) (517) (16,262) (17,763) (12) Termination fee, net of expenses.................. -- -- -- -- 8,364 -- Other income (expense)...... (78) (284) -- (362) (59) -- ----------- ------- ------- ----------- ------------ ----------- Total other income (expense)............... (11,199) (4,908) (517) (16,624) (9,458) (12) ----------- ------- ------- ----------- ------------ ----------- Income before income taxes..................... 3,262 (3,108) (5,228) (5,074) 25,304 (1,590) Income tax expense (benefit)................. 1,497 1,131 -- 2,628 9,615 -- ----------- ------- ------- ----------- ------------ ----------- Net income (loss)........... $ 1,765 $ (4,239) $ (5,228) $ (7,702) $ 15,689 $ (1,590) ----------- ------- ------- ----------- ------------ ----------- ----------- ------- ------- ----------- ------------ ----------- HISTORICAL PREMIER ----------- REVENUE: Theme park admissions....... $ 94,611 Theme park food, merchandise and other................. 99,293 ----------- Total revenue............. 193,904 ----------- OPERATING COSTS AND EXPENSES: Operating expenses.......... 81,356 Selling, general and administrative............ 36,547 Costs of products sold...... 23,025 Depreciation and amortization.............. 19,792 ----------- Total operating costs and expenses................ 160,720 ----------- Income (loss) from operations.................. 33,184 OTHER INCOME (EXPENSE): Interest expense, net....... (17,775) Termination fee, net of expenses.................. 8,364 Other income (expense)...... (59) ----------- Total other income (expense)............... (9,470) ----------- Income before income taxes..................... 23,714 Income tax expense (benefit)................. 9,615 ----------- Net income (loss)........... $ 14,099 ----------- -----------
- ------------------------ (1) Includes results of the 1996 Acquisitions from and after the acquisition dates. (2) Includes results of the 1996 Acquisitions for the nine months ended September 30, 1996. (3) Includes results of the 1996 Acquisitions for the respective periods commencing October 1, 1996 and (ending) on the respective acquisition dates (or in the case of Riverside Park, December 31, 1996). (4) Excludes management fee and depreciation expense relating to Marine World and results of Kentucky Kingdom for the period subsequent to the acquisition date, November 7, 1997. (5) Represents management fee and depreciation expense relating to Marine World and results of Kentucky Kingdom from the acquisition date through December 31, 1997. 18 REVENUE. Revenue aggregated $193.9 million in 1997 ($193.7 million at the eleven parks owned during the 1997 season), compared to $93.4 million in 1996, and to combined revenue of $159.7 million in 1996. This 21.3% increase in revenue at the same eleven parks is primarily attributable to increased attendance (17.3%) at these eleven parks, which resulted in part from increased season pass and group sales at several parks. OPERATING EXPENSES. Operating expenses increased during 1997 to $81.4 million ($80.3 million at the eleven parks owned during the 1997 season) from $42.4 million reported in 1996, and from $68.7 million combined operating expenses for 1996. This 16.9% increase in operating expenses at the same eleven parks is mainly due to additional staffing related to the increased attendance levels and increased pay rates. As a percentage of revenue, operating expenses at these parks constituted 41.5% for 1997 and 43.0% on a combined basis for 1996. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses at the eleven owned parks were $36.5 million in 1997, compared to $16.9 million reported, and $36.3 million combined, selling, general and administrative expenses for 1996. As a percentage of revenues, these expenses at the same eleven parks constituted 18.8% for 1997 and 22.7% for 1996 combined. This increase over 1996 combined expenses relates primarily to increased advertising and marketing expenses to promote the newly acquired parks and the new rides and attractions at all of the parks, increased sales taxes arising from increased volume generally and increased property taxes and professional services, offset by significant reductions in personnel and insurance expenses. COSTS OF PRODUCTS SOLD. Costs of products sold were $23.0 million at the eleven parks for 1997 compared to $11.1 million reported and $20.9 million combined for 1996. Cost of products sold (as a percentage of in-park revenue) at these parks constituted approximately 23.2% for 1997 and 25.0% for 1996 combined. This $2.1 million or 10.2% increase over combined 1996 results is directly related to the 18.3% increase in food, merchandise and other revenues. DEPRECIATION AND INTEREST EXPENSE. Depreciation expense increased $11.3 million over the reported 1996 results. The increase is a result of the full year's effect of the 1996 Acquisitions (other than Riverside Park), the purchase price paid for the Riverside Park and Kentucky Kingdom acquisitions and the on-going capital program at the Company's parks. Interest expense, net, increased $6.7 million from 1996 as a result of interest on the 1997 Premier Notes (as defined herein). TERMINATION FEE, NET OF EXPENSES. During October 1997, the Company entered into an agreement with the limited partner of the partnership that owns Six Flags Over Texas to become the managing general partner of the partnership, to manage the operations of the park, to receive a portion of the income from such operations, and to purchase limited partnership units over the term of the agreement. The agreement was non-exclusive and contained a termination fee of $10,750,000 payable to the Company in the event the agreement was terminated. Subsequent to the Company's agreement with the limited partnership, the prior operator of the park reached an agreement with the limited partnership, and the Company's agreement was terminated. The Company received the termination fee in December 1997 and included the termination fee, net of $2,386,000 of expenses associated with the transaction, as income in 1997. INCOME TAXES. The Company incurred income tax expense of $9.6 million during 1997, compared to $1.5 million during 1996. The effective tax rate for 1997 was approximately 40.5% as compared to 45.9% in 1996. This decrease is the result of the decline in the size of the non-deductible goodwill from the Funtime Acquisition and the acquisition of Riverside Park relative to the Company's income. At December 31, 1997, the Company estimates that it had approximately $37 million of net operating losses ("NOLs") carryforwards for Federal income tax purposes. The NOLs are subject to review and potential disallowance by the Internal Revenue Service upon audit of the Federal income tax returns of the 19 Company and its subsidiaries. In addition, the use of such NOLs is subject to limitations on the amount of taxable income that can be offset with such NOLs. Some of such NOLs also are subject to a limitation as to which of the subsidiaries' income such NOLs are permitted to offset. Accordingly, no assurance can be given as to the timing or amount of the availability of such NOLs to the Company and its subsidiaries. See Note 7 to Notes to Consolidated Financial Statements. YEARS ENDED DECEMBER 31, 1996 AND 1995 The table below sets forth certain financial information with respect to the Company and the Funtime parks for the year ended December 31, 1995 and with respect to the Company and the 1996 Acquisitions (other than Riverside Park) for the year ended December 31, 1996:
YEAR ENDED DECEMBER 31, 1995 ------------------------------------------------------ HISTORICAL FUNTIME(2) YEAR ENDED DECEMBER 31, 1996 ------------------------------------------------------ -------------------------------- SIX MONTHS HISTORICAL ENDED FORTY-THREE PREMIER HISTORICAL JULY 2, DAYS ENDED HISTORICAL (EXCLUDING 1996 1996 PREMIER(1) 1995 AUGUST 14, 1995 COMBINED ACQUISITIONS)(3) ACQUISITIONS(4) ----------- ----------- --------------- ----------- --------------- --------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (IN THOUSANDS) (IN THOUSANDS) REVENUE: Theme park admissions............... $ 21,863 $ 6,195 $ 9,680 $ 37,738 $ 41,157 $ 5 Theme park food, merchandise and other............................. 19,633 8,958 13,450 42,041 52,148 137 ----------- ----------- ------- ----------- ------- ------- Total revenue......................... 41,496 15,153 23,130 79,779 93,305 142 ----------- ----------- ------- ----------- ------- ------- EXPENSES: Operating expenses.................. 19,775 10,537 6,039 36,351 40,568 1,857 Selling, general and administrative.................... 9,272 3,459 2,533 15,264 16,534 393 Costs of products sold.............. 4,635 2,083 2,953 9,671 11,071 30 Depreciation and amortization....... 3,866 3,316 829 8,011 7,785 748 ----------- ----------- ------- ----------- ------- ------- Total costs and expenses.............. 37,548 19,395 12,354 69,297 75,958 3,028 ----------- ----------- ------- ----------- ------- ------- Income (loss) from operations......... 3,948 (4,242) 10,776 10,482 17,347 (2,886) Interest expense, net................. (5,578) (2,741) (321) (8,640) (11,121) -- Other income (expense)................ (177) 4 (4) (177) (78) -- ----------- ----------- ------- ----------- ------- ------- Total other income (expense).......... (5,755) (2,737) (325) (8,817) (11,199) -- ----------- ----------- ------- ----------- ------- ------- Income before income taxes and extraordinary loss.................. (1,807) (6,979) 10,451 1,665 6,148 (2,886) Income tax expense (benefit).......... (762) (2,722) 4,076 592 2,905 (1,408) ----------- ----------- ------- ----------- ------- ------- Income (loss) before extraordinary loss................................ $ (1,045) $ (4,257) $ 6,375 $ 1,073 $ 3,243 $ (1,478) ----------- ----------- ------- ----------- ------- ------- ----------- ----------- ------- ----------- ------- ------- HISTORICAL PREMIER ----------- REVENUE: Theme park admissions............... $ 41,162 Theme park food, merchandise and other............................. 52,285 ----------- Total revenue......................... 93,447 ----------- EXPENSES: Operating expenses.................. 42,425 Selling, general and administrative.................... 16,927 Costs of products sold.............. 11,101 Depreciation and amortization....... 8,533 ----------- Total costs and expenses.............. 78,986 ----------- Income (loss) from operations......... 14,461 Interest expense, net................. (11,121) Other income (expense)................ (78) ----------- Total other income (expense).......... (11,199) ----------- Income before income taxes and extraordinary loss.................. 3,262 Income tax expense (benefit).......... 1,497 ----------- Income (loss) before extraordinary loss................................ $ 1,765 ----------- -----------
- ------------------------ (1) Includes results of the Funtime acquisition from and after August 15, 1995, the acquisition date. (2) Represents results of the parks acquired in the Funtime acquisition from January 1, 1995 to August 14, 1995. (3) Excludes operating results of parks acquired in the 1996 Acquisitions, but includes interest expense incurred by virtue of associated financings as of the date incurred. (4) Represents results of the parks acquired in the 1996 Acquisitions (other than Riverside Park which was acquired in February 1997) from their respective acquisition dates through December 31, 1996. REVENUE. Revenue aggregated $93.4 million in 1996 ($93.3 million without the 1996 Acquisitions), compared to $41.5 million actual in 1995, and to combined revenue of $79.8 million in 1995. This 17.0% increase in revenue (excluding the 1996 Acquisitions) over combined 1995 revenue at the same six parks is attributable to increased attendance (10.3%) and per capita revenue (6.3%) at the six parks and increased sponsorship revenue, as well as increased season pass sales at several parks, and increased campground 20 revenue at Darien Lake and income from the new contractual arrangements for 1996 at the Darien Lake Performance Arts Center. OPERATING EXPENSES. Operating expenses increased during 1996 to $42.4 million ($40.6 million excluding the 1996 Acquisitions) from $19.8 million reported in 1995 and from $36.4 million combined operating expenses for 1995. This 11.6% increase in operating expenses (excluding the 1996 Acquisitions) over combined 1995 operating expenses is mainly due to additional staffing related to increased attendance levels and increased pay rates, offset to some extent by a decrease in equipment rental expense in 1996 due to the purchase of equipment that had been leased during 1995. As a percentage of revenue, operating expenses (excluding the 1996 Acquisitions) constituted 43.5% for 1996 and 45.6% on a combined basis for 1995. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses were $16.5 million in 1996 (excluding the 1996 Acquisitions), compared to $9.3 million reported, and $15.3 million combined, selling, general and administrative expenses for 1995. As a percentage of revenue, these expenses constituted 17.7% for 1996 and 19.1% for 1995 combined. This increase over 1995 combined expenses relates primarily to increased advertising and marketing expenses to promote the Funtime parks and the new rides and attractions at all of the parks, increased sales taxes arising from increased volume generally and increased property taxes and professional services. COSTS OF PRODUCTS SOLD. Costs of products sold were $11.1 million for 1996 compared to $4.6 million reported and $9.7 million combined for 1995. Cost of products sold (as a percentage of in-park revenue) constituted approximately 21.2% for 1996 and 23.0% for 1995 combined. This $1.4 million or 14.5% increase over combined 1995 results is directly related to the 24.0% increase in 1996 in food, merchandise and other revenue. DEPRECIATION AND INTEREST EXPENSE. Depreciation and amortization expense was $8.5 million for 1996 as compared to $3.9 million in 1995. The increase was a result of the full year's effect of the Funtime acquisition, the $116.2 million spent during the fourth quarter of 1996 for the 1996 Acquisitions and the on-going capital program at the Company's parks. Interest expense, net, increased $5.5 million in 1996, as compared to 1995, as a result of interest on the 1995 Premier Notes (as defined herein) for twelve months in 1996 as compared to four and one-half months in 1995 and the Company's borrowings under its then- existing senior credit facility made in connection with the 1996 Acquisitions. INCOME TAXES. The Company incurred income tax expense of $1.5 million during 1996, compared to a tax benefit of $762,000 during 1995. The effective tax rate for 1996 was approximately 45.9% as compared to 42.2% in 1995. The increase is the result of twelve months of goodwill amortization in 1996 versus four and one-half months in 1995. The goodwill recognized for financial reporting of the Funtime Acquisition and the 1996 Acquisitions is not deductible for Federal income tax purposes. See Note 7 to Notes to Consolidated Financial Statements. LIQUIDITY, CAPITAL COMMITMENTS AND RESOURCES The operations of the Company are highly seasonal, with the majority of the operating season occurring between Memorial Day and Labor Day. Most of the Company's revenue is collected in the second and third quarters of each year while most expenditures for capital improvements and major maintenance are incurred when the parks are closed. The Company employs a substantial number of seasonal employees who are compensated on an hourly basis. The Company is not subject to Federal or certain applicable state minimum wage rates in respect of its seasonal employees. However, the 1996 increase of $.90 an hour over two years in the Federal minimum wage rate, and any increase in these state minimum wage rates, may result over time in increased compensation expense for the Company as it relates to these employees as a result of competitive factors. 21 HISTORICAL During 1996, the Company generated net cash of $11.3 million from operating activities. Net cash used in investing activities in 1996 totaled $155.1 million, $116.2 million of which was employed in connection with the 1996 Acquisitions (other than Riverside Park) and $39.4 million represented amounts spent for capital expenditures, offset slightly by proceeds received from equipment sales. Net cash provided by financing activities for 1996 totaled $119.1 million, reflecting the net proceeds from the June 1996 public offering described below and borrowings under the Company's senior credit facility, offset, in part, by scheduled repayments of capitalized lease obligations. During 1997, the Company generated net cash of $47.2 million from operating activities. Net cash used in investing activities in 1997 totaled $217.1 million, $81.4 million of which was employed in connection with the acquisitions of Riverside Park and Kentucky Kingdom and $135.9 million represented amounts spent for capital expenditures at the Company's parks. Net cash provided by financing activities for 1997 totaled $250.2 million, reflecting the net proceeds from the January 1997 offerings of Common Stock and $125.0 million principal amount of the Company's 9 3/4% Senior Notes due 2007 (the "1997 Premier Notes") described below, offset in part by repayment of borrowings under the Company's senior credit facility. In June 1996, the Company completed a public offering of approximately 3.9 million shares of Common Stock at a price to the public of $18.00 per share, resulting in aggregate net proceeds to the Company of approximately $65.3 million. In connection with the June 1996 public offering, all of the Company's then outstanding shares of preferred stock, together with all accrued dividends thereon, were converted into approximately 2.6 million shares of Common Stock. In January 1997, the Company completed two concurrent public offerings, issuing an additional 6.9 million shares of Common Stock at a price to the public of $29.00 per share, resulting in aggregate net proceeds to the Company of approximately $189.5 million, and issuing $125.0 million principal amount of the 1997 Premier Notes, resulting in net proceeds of approximately $120.7 million. On October 31, 1996, the Company acquired substantially all of the assets used in the operation of Elitch Gardens for $62.5 million in cash. On November 19, 1996, the Company acquired substantially all of the assets used in the operation of the Waterworld Parks for an aggregate cash consideration of $17.25 million. On December 4, 1996, the Company acquired substantially all of the assets of The Great Escape for $33.0 million in cash. On February 5, 1997, the Company acquired all of the capital stock of the owner of Riverside Park for approximately $22.2 million, of which $1.0 million was paid in Common Stock with the balance paid in cash. On April 1, 1997, the Company assumed management of Marine World, and subsequently exercised a long-term lease option for a portion of the park and obtained a purchase option with respect to the entire property. In November 1997, the Company purchased substantially all of the assets used in the operation of Kentucky Kingdom for a purchase price of $64.0 million, of which approximately $4.8 million was paid by delivery of 121,671 shares of Common Stock, with the balance paid in cash and by assumption of certain liabilities. Depending on the level of revenues at Kentucky Kingdom during each of the 1998 through 2000 seasons, the Company may be required to issue additional shares of Common Stock to the seller. At December 31, 1997, substantially all of Premier's indebtedness was represented by the 1997 Premier Notes and the Company's 12% Senior Notes due 2003 (the "1995 Premier Notes," and, together with the 1997 Premier Notes, the "Premier Notes") in an aggregate principal amount of $215.0 million, which require aggregate annual interest payments of approximately $23.0 million. Except in the event of a change of control of the Company and certain other circumstances, no principal payment on the Premier Notes is due until the maturity dates thereof, August 15, 2003 in the case of the 1995 Premier Notes and January 15, 2007, in the case of the 1997 Premier Notes. In February 1998, Premier terminated its $115.0 million senior secured credit facility and obtained a commitment with respect to the Premier Credit Facility. The Company will expense its remaining deferred charges related to the terminated facility in the 22 first quarter of 1998. The Company entered into the Premier Credit Facility on March 13, 1998. The Company anticipates that it will borrow 125.0 million thereunder, in connection with the Walibi acquisition. PRO FORMA Upon consummation of the Six Flags transactions, the Company intends to issue (i) approximately 13,000,000 shares of Common Stock, (ii) approximately 5,000,000 PInES(SM) (depositary shares representing approximately $200.0 million of Mandatorily Convertible Preferred Stock), (iii) depositary shares representing up to $200.0 million of Seller Preferred Stock, (iv) approximately $250.0 million accreted amount of Company Senior Discount Notes, (v) $280.0 million aggregate principal amount of Company Senior Notes and (vi) $170.0 million aggregate principal amount of New SFEC Notes. The PInES(SM) will accrue cumulative dividends (payable, at the Company's option, in cash or shares of Common Stock), and will be mandatorily convertible into Common Stock in 2001. The Seller Preferred Stock will accrue cumulative cash dividends and the Company is required to offer to purchase the Seller Preferred Stock in 2010. The Company Senior Discount Notes will not require any interest payments prior to September 2003, and, except in the event of a change of control of the Company and certain other circumstances, any principal payments prior to their maturity in 2008. The Company Senior Notes will require annual interest payments of approximately $28 million (based on an assumed interest rate) and, except in the event of a change of control of the Company or certain other circumstances, will not require any principal payments prior to their maturity in 2006. The New SFEC Notes will require annual interest payments of approximately $16 million (based on an assumed interest rate) and, except in the event of a change of control of the Company or certain other circumstances, will not require any principal payments prior to their maturity in 2006. The net proceeds of the New SFEC Notes, together with other funds, will be deposited in escrow to repay in full the SFEC Zero Coupon Senior Notes. In addition, in connection with the Six Flags transactions, the Company will (i) assume $285.0 million principal amount at maturity of the SFTP Senior Subordinated Notes, which had an accreted value of $269.9 million at December 28, 1997, (ii) refinance all outstanding SFTP bank indebtedness with the proceeds of $420.0 million of borrowings under the Six Flags Credit Facility, and (iii) refinance all outstanding bank debt of SFEC with a portion of the proceeds of the Offerings. The SFTP Senior Subordinated Notes require interest payments of approximately $34.9 million per annum, payable semi-annually commencing December 15, 1998, and, except in certain circumstances, no principal payments are due thereon until their maturity date, June 15, 2005. Term loan borrowings under the Six Flags Credit Facility will mature on November 30, 2004 (with principal payments of $1.0 million in each of 1998 through 2001, $25.0 million in 2002, $40.0 million in 2003 and $303.0 million at maturity). Revolving credit borrowings under this facility ($100.0 million) mature on the fifth anniversary of the Six Flags Credit Facility. Borrowings under the Six Flags Credit Facility will be guaranteed by SFEC and SFTP's subsidiaries and will be secured by a pledge by SFEC of the stock of SFTP and by substantially all of the assets of SFTP and its subsidiaries (other than real estate). The Premier Credit Facility includes a five-year $75.0 million revolving credit facility, a five-year $100.0 million term loan facility (with principal payments of $10.0 million, $25.0 million, $30.0 million and $35.0 million in the second, third, fourth and fifth years) and an eight-year $125.0 million term loan facility (with principal payments of $1.0 million in each of the first six years and $25.0 million and $94.0 million in the seventh and eighth years, respectively). Borrowings under the Premier Credit Facility are guaranteed by Premier Operations' domestic subsidiaries and secured by substantially all of the assets of Premier Operations and such subsidiaries (other than real estate). There can be no assurance that the Offerings and the Company's acquisition of SFEC will be consummated, or, if consummated, that the terms of the securities sold in the Offerings will conform to the proposed terms thereof described in this Report. On a pro forma basis as of December 31, 1997, the Company would have had total outstanding indebtedness in the accreted principal amount of $1,832.0 million (excluding $161.1 million accreted value 23 of the SFEC Zero Coupon Senior Notes which will be repaid from proceeds of the New SFEC Notes, together with other funds). Based on actual interest rates for debt outstanding at December 31, 1997 and assumed interest rates for pro forma debt, annual interest payments for 1998 on this indebtedness would have aggregated $136.9 million. In addition, annual dividend payments on the Convertible Preferred Stock at assumed dividend rates would have aggregated $28.0 million. By reason of the Six Flags acquisition, the Company will be required to offer to purchase the SFTP Senior Subordinated Notes at a price equal to 101% of their accreted amount (approximately $287.9 million at June 15, 1998). On March 16, 1998, the last reported sales price of these notes was substantially in excess of their accreted amount. The Company does not expect to be required to purchase any material amount of these notes by reason of this offer. Although the Company has entered into discussions with lenders to provide a standby arrangement to finance the purchase of such notes, there can be no assurance that such discussions will be successful or that the Company will be able to obtain any other financing in the event that it should become necessary. Following the Six Flags transactions, the Company will be required to (i) make minimum annual distributions of approximately $46.2 million (subject to cost of living adjustments) to its partners in two Six Flags parks, Six Flags Over Texas and Six Flags Over Georgia (the "the Co-Venture Parks"); and (ii) make minimum capital expenditures at each of the Co-Venture Parks during rolling five-year periods, generally based on 6% of such park's revenue. Cash flow from operations at the Co-Venture Parks will be used to satisfy these requirements, before any funds are required from the Company. The Company has also agreed to purchase a maximum number of 5% per year (accumulating to the extent not purchased in any given year) of limited partnership units outstanding as of the date of the co-venture agreements that govern the partnerships (to the extent tendered by the unit holders). The agreed price for these purchases is based on a valuation for each respective Co-Venture Park equal to the greater of (i) a value derived by multiplying its weighted-average four year EBITDA (as defined therein) by a specified multiple (8.0 in the case of the Georgia park and 8.5 in the case of the Texas park) or (ii) $250.0 million in the case of the Georgia park and $374.8 million in the case of the Texas park. The Company's obligations with respect to Six Flags Over Georgia and Six Flags Over Texas will continue until 2026 and 2027, respectively. As the Company purchases units, it will be entitled to the minimum distribution and other distributions attributable to such units unless it is then in default under its obligations to its partners at the Co-Venture Parks. The Company estimates that its maximum unit purchase obligation for 1998, when purchases are required only for the Georgia park, will aggregate approximately $13 million (approximately $31 million for 1999 when purchases for both partnerships are required) and its minimum capital expenditures at these parks for 1998 will total $11 million. The Company's liquidity could be adversely affected by unfavorable weather, accidents or the occurrence of an event or condition, including negative publicity or significant local competitive events, that significantly reduces paid attendance and, therefore, revenue at any of its theme parks. On June 2, 1997, a slide collapsed at the Company's Waterworld park in Concord, California, resulting in one fatality and the park's closure for twelve days. The park re-opened with the approval of the City of Concord on June 14, 1997. Although the collapse and the resulting closure had a material adverse impact on that park's operating performance for 1997, as well as a lesser impact on the Company's Sacramento water park (which is also named "Waterworld"), located approximately seventy miles from the Concord park, the Company's other parks were not adversely affected. The Company has recovered all of the Concord park's operating shortfall under its business interruption insurance. In addition, the Company believes that its liability insurance coverage should be more than adequate to provide for any personal injury liability which may ultimately be found to exist in connection with the collapse. The Company believes that, based on current and anticipated operating results, cash flow from operations, available cash, available borrowings under the Credit Facilities and the net proceeds of the Offerings (to the extent not used in connection with the Six Flags acquisition) will be adequate to meet the 24 Company's future liquidity needs, including anticipated requirements for working capital, capital expenditures, scheduled debt and preferred stock dividends and its obligations under arrangements relating to the Co-Venture Parks, for at least the next several years. The Company may, however, need to refinance all or a portion of its debt on or prior to maturity or to obtain additional financing. NEWLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. SFAS No. 130 establishes standards for reporting and display of "comprehensive income" and its components in a set of financial statements. It requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company currently does not have any components of comprehensive income that are not included in net income. After the acquisition of Walibi, the only item not currently included in the Company's consolidated statement of operations would be the currency translation adjustment that will be reported as part of stockholders' equity after the acquisition. The Company will adopt SFAS No. 130 in the year 1998. Also in June 1997, Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," was issued. SFAS No. 131 is effective for periods beginning after December 15, 1997. SFAS No. 131 requires that a public entity report financial and descriptive information about its reportable segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company will adopt SFAS No. 131 in 1998. However, such adoption is not expected to impact the Company's financial disclosures because the Company's current operations are limited to one reportable operating segment under SFAS No. 131's definitions. After the acquisition of Walibi, the Company will be required to disclose certain financial information related to its foreign operations. In January 1997, the Securities and Exchange Commission issued Release No. 33-7386, which requires enhanced descriptions of accounting policies for derivative financial instruments and derivative commodity instruments in the footnotes to financial statements. The release also requires certain quantitative and qualitative disclosure outside financial statements about market risks inherent in market risk sensitive instruments and other financial instruments. The requirements regarding accounting policy descriptions were effective for any fiscal period ending after June 15, 1997. However, because derivative financial and commodity instruments have not materially affected the Company's consolidated financial position, cash flows or results of operations, this part of the release does not affect the Company's 1997 financial statement disclosures. The quantitative and qualitative disclosures required by the release will be initially provided in the Company's annual report on Form 10-K for the year ending December 31, 1998. IMPACT OF YEAR 2000 ISSUE An issue exists for all companies that rely on computers as the year 2000 approaches. The "Year 2000" problem is the result of past practices in the computer industry of using two digits rather than four to identify the applicable year. This practice will result in incorrect results when computers perform arithmetic operations, comparisons or data field sorting involving years later than 1999. The Company anticipates that it will be able to test its entire system using its internal programming staff and outside computer consultants and intends to make any necessary modifications to prevent disruption to its operations. Costs in connection with any such modifications are not expected to be material. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and schedules listed in Item 14(a)(1) and (2) are included in this Report beginning on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 25 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Identification of Directors Incorporated by reference from the information captioned "Proposal 1: Election of Directors" included in the Company's Proxy Statement in connection with the annual meeting of stockholders to be held in June 1998. (b) Identification of Executive Officers Information regarding executive officers is included in Item 1 of Part I herein. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference from the information captioned "Executive Compensation" included in the Company's Proxy Statement in connection with the annual meeting of stockholders to be held in June 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a), (b) Incorporated by reference from the information captioned "Stock Ownership of Management and Certain Beneficial Holders" included in the Company's Proxy Statement in connection with the annual meeting of stockholders to be held in June 1998. (c) Changes in Control None. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference from the information captioned "Certain Transactions" included in the Company's Proxy Statement in connection with the annual meeting of stockholders to be held in June 1998. 26 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) and (2) Financial Statements and Financial Statement Schedules The following consolidated financial statements of the Premier Parks Inc. and subsidiaries, the notes thereto, the related report thereon of independent auditors, and financial statement schedules are filed under Item 8 of this Report:
PAGE ----------- Independent Auditors' Report.............................................................................. F-2 Consolidated Balance Sheets--December 31, 1997 and 1996................................................... F-3 Consolidated Statements of Operations Years ended December 31, 1997, 1996 and 1995............................................................ F-4 Consolidated Statements of Stockholders' Equity Years ended December 31, 1997, 1996 and 1995............................................................ F-5 Consolidated Statements of Cash Flows Years ended December 31, 1997, 1996 and 1995............................................................ F-6 Notes to Consolidated Financial Statements................................................................ F-8
Schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are omitted because they either are not required under the related instructions, are inapplicable, or the required information is shown in the financial statements or notes thereto. (a)(3) See Exhibit Index. (b) Reports on Form 8-K The Company's Current Report on Form 8-K, dated November 7, 1997, as amended. The Company's Current Report on Form 8-K, dated December 15, 1997. The Company's Current Report on Form 8-K, dated February 9, 1998. (c) Exhibits See Item 14(a)(3) above.
27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 23, 1998 PREMIER PARKS INC. By: /s/ KIERAN E. BURKE ----------------------------------------- Kieran E. Burke CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the following capacities on the dates indicated. NAME TITLE DATE - ------------------------------ -------------------------- ------------------- Chairman of the Board, /s/ KIERAN E. BURKE Chief Executive Officer - ------------------------------ (Principal Executive March 23, 1998 Kieran E. Burke Officer) and Director /s/ GARY STORY - ------------------------------ President, Chief Operating March 23, 1998 Gary Story Officer and Director Chief Financial Officer /s/ JAMES F. DANNHAUSER (Principal Financial and - ------------------------------ Accounting March 23, 1998 James F. Dannhauser Officer) and Director /s/ PAUL A. BIDDELMAN - ------------------------------ Director March 23, 1998 Paul A. Biddelman /s/ MICHAEL E. GELLERT - ------------------------------ Director March 23, 1998 Michael E. Gellert /s/ JACK TYRRELL - ------------------------------ Director March 23, 1998 Jack Tyrrell /s/ SANDY GURTLER - ------------------------------ Director March 23, 1998 Sandy Gurtler /s/ CHARLES R. WOOD - ------------------------------ Director March 23, 1998 Charles R. Wood 28 PREMIER PARKS INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ----- Independent Auditors' Report............................................................................... F-2 Consolidated Balance Sheets--December 31, 1997 and 1996.................................................... F-3 Consolidated Statements of Operations--Years ended December 31, 1997, 1996 and 1995........................ F-4 Consolidated Statements of Stockholders' Equity--Years ended December 31, 1997, 1996 and 1995.............. F-5 Consolidated Statements of Cash Flows--Years ended December 31, 1997, 1996 and 1995........................ F-6 Notes to Consolidated Financial Statements................................................................. F-8
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Premier Parks Inc.: We have audited the accompanying consolidated balance sheets of Premier Parks Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Premier Parks Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Oklahoma City, Oklahoma February 23, 1998 F-2 PREMIER PARKS INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996
1997 1996 -------------- ------------ ASSETS Current assets: Cash and cash equivalents......................................................... $ 84,288,000 4,043,000 Accounts receivable............................................................... 6,537,000 1,180,000 Inventories....................................................................... 5,547,000 4,200,000 Income tax receivable............................................................. 995,000 -- Prepaid expenses and other current assets......................................... 3,690,000 3,416,000 -------------- ------------ Total current assets.......................................................... 101,057,000 12,839,000 -------------- ------------ Other assets: Deferred charges.................................................................. 10,123,000 6,752,000 Deposits and other................................................................ 3,949,000 9,087,000 -------------- ------------ Total other assets............................................................ 14,072,000 15,839,000 -------------- ------------ Property and equipment, at cost..................................................... 485,866,000 263,175,000 Less accumulated depreciation..................................................... 35,610,000 17,845,000 -------------- ------------ 450,256,000 245,330,000 -------------- ------------ Intangible assets................................................................... 48,876,000 31,669,000 Less accumulated amortization..................................................... 2,940,000 874,000 -------------- ------------ 45,936,000 30,795,000 -------------- ------------ Total assets.................................................................. $ 611,321,000 304,803,000 -------------- ------------ -------------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses............................................. $ 23,199,000 11,059,000 Accrued interest payable.......................................................... 9,785,000 4,304,000 Current portion of capitalized lease obligations.................................. 795,000 1,492,000 -------------- ------------ Total current liabilities..................................................... 33,779,000 16,855,000 -------------- ------------ Long-term debt and capitalized lease obligations: Long-term debt: Senior notes.................................................................... 215,000,000 90,000,000 Credit facility................................................................. -- 57,574,000 Capitalized lease obligations..................................................... 1,231,000 1,768,000 -------------- ------------ Total long-term debt and capitalized lease obligations........................ 216,231,000 149,342,000 Other long-term liabilities......................................................... 4,025,000 4,846,000 Deferred income taxes............................................................... 33,537,000 20,578,000 -------------- ------------ Total liabilities............................................................. 287,572,000 191,621,000 -------------- ------------ Stockholders' equity: Preferred stock, 500,000 shares authorized at December 31, 1997 and 1996; no shares issued and outstanding at December 31, 1997 and 1996..................... -- -- Common stock, $.05 par value, 90,000,000 and 30,000,000 shares authorized at December 31, 1997 and 1996, respectively; 18,899,457 and 11,392,669 shares issued and 18,873,111 and 11,366,323 shares outstanding at December 31, 1997 and 1996, respectively.............................................................. 944,000 569,000 Capital in excess of par value.................................................... 354,235,000 144,642,000 Accumulated deficit............................................................... (17,241,000) (31,340,000) Deferred compensation............................................................. (13,500,000) -- -------------- ------------ 324,438,000 113,871,000 Less 26,346 common shares of treasury stock, at cost.............................. (689,000) (689,000) -------------- ------------ Total stockholders' equity.................................................... 323,749,000 113,182,000 -------------- ------------ Total liabilities and stockholders' equity.................................... $ 611,321,000 304,803,000 -------------- ------------ -------------- ------------
See accompanying notes to consolidated financial statements. F-3 PREMIER PARKS INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 -------------- ------------- ------------ Revenue: Theme park admissions................................................... $ 94,611,000 41,162,000 21,863,000 Theme park food, merchandise, and other................................. 99,293,000 52,285,000 19,633,000 -------------- ------------- ------------ Total revenue....................................................... 193,904,000 93,447,000 41,496,000 -------------- ------------- ------------ Operating costs and expenses: Operating expenses...................................................... 81,356,000 42,425,000 19,775,000 Selling, general and administrative..................................... 36,547,000 16,927,000 9,272,000 Costs of products sold.................................................. 23,025,000 11,101,000 4,635,000 Depreciation and amortization........................................... 19,792,000 8,533,000 3,866,000 -------------- ------------- ------------ Total operating costs and expenses.................................. 160,720,000 78,986,000 37,548,000 -------------- ------------- ------------ Income from operations.............................................. 33,184,000 14,461,000 3,948,000 Other income (expense): Interest expense, net................................................... (17,775,000) (11,121,000) (5,578,000) Termination fee, net of expenses........................................ 8,364,000 -- -- Other income (expense).................................................. (59,000) (78,000) (177,000) -------------- ------------- ------------ Total other income (expense)........................................ (9,470,000) (11,199,000) (5,755,000) -------------- ------------- ------------ Income (loss) before income taxes................................... 23,714,000 3,262,000 (1,807,000) Income tax expense (benefit).............................................. 9,615,000 1,497,000 (762,000) Income (loss) before extraordinary loss............................. 14,099,000 1,765,000 (1,045,000) Extraordinary loss on extinguishment of debt, net of income tax benefit of $90,000 in 1995......................................................... -- -- (140,000) -------------- ------------- ------------ Net income (loss)................................................... $ 14,099,000 1,765,000 (1,185,000) -------------- ------------- ------------ -------------- ------------- ------------ Net income (loss) applicable to common stock........................ $ 14,099,000 1,162,000 (1,714,000) -------------- ------------- ------------ -------------- ------------- ------------ Weighted average number of common shares outstanding--basic............... 17,938,000 8,603,000 3,938,000 -------------- ------------- ------------ -------------- ------------- ------------ Income (loss) per average common share outstanding--basic: Income (loss) before extraordinary loss............................. $ .79 .14 (.40) Extraordinary loss.................................................. -- -- (.04) -------------- ------------- ------------ Net income (loss)................................................... $ .79 .14 (.44) -------------- ------------- ------------ -------------- ------------- ------------ Weighted average number of common shares outstanding--diluted............. 18,438,000 8,972,000 3,938,000 -------------- ------------- ------------ -------------- ------------- ------------ Income (loss) per average common share outstanding--diluted: Income (loss) before extraordinary loss $ .76 .13 (.40) Extraordinary loss.................................................. -- -- (.04) -------------- ------------- ------------ Net income (loss)................................................... $ .76 .13 (.44) -------------- ------------- ------------ -------------- ------------- ------------
See accompanying notes to consolidated financial statements. F-4 PREMIER PARKS INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
SERIES A, 7% CUMULATIVE CONVERTIBLE PREFERRED STOCK COMMON STOCK -------------------- -------------------- CAPITAL IN SHARES SHARES EXCESS OF ACCUMULATED DEFERRED TREASURY ISSUED AMOUNT ISSUED AMOUNT PAR VALUE DEFICIT COMPENSATION STOCK TOTAL --------- --------- --------- --------- ---------- ------------ ------------- ----------- ---------- Balances at December 31, 1994............. -- $ -- 3,398,467 $ 170,000 50,573,000 (31,920,000) -- (689,000) 18,134,000 Issuance of preferred stock............ 200,000 200,000 -- -- 19,800,000 -- -- -- 20,000,000 Conversion of debt to common stock.. -- -- 1,485,433 74,000 8,888,000 -- -- -- 8,962,000 Net loss........... -- -- -- -- -- (1,185,000) -- -- (1,185,000) --------- --------- --------- --------- ---------- ------------ ------------- ----------- ---------- Balances at December 31, 1995............. 200,000 200,000 4,883,900 244,000 79,261,000 (33,105,000) -- (689,000) 45,911,000 Conversion of preferred stock to common stock............ (200,000) (200,000) 2,560,928 128,000 72,000 -- -- -- -- Issuance of common stock............ -- -- 3,947,841 197,000 65,309,000 -- -- -- 65,506,000 Net income......... -- -- -- -- -- 1,765,000 -- -- 1,765,000 --------- --------- --------- --------- ---------- ------------ ------------- ----------- ---------- Balances at December 31, 1996............. -- -- 11,392,669 569,000 144,642,000 (31,340,000) -- (689,000) 113,182,000 Issuance of common stock............ -- -- 7,506,788 375,000 209,593,000 -- (14,625,000) -- 195,343,000 Amortization of deferred compensation..... -- -- -- -- -- -- 1,125,000 -- 1,125,000 Net income......... -- -- -- -- -- 14,099,000 -- -- 14,099,000 --------- --------- --------- --------- ---------- ------------ ------------- ----------- ---------- Balances at December 31, 1997............. -- $ -- 18,899,457 $ 944,000 354,235,000 (17,241,000) (13,500,000) (689,000) 323,749,000 --------- --------- --------- --------- ---------- ------------ ------------- ----------- ---------- --------- --------- --------- --------- ---------- ------------ ------------- ----------- ----------
See accompanying notes to consolidated financial statements. F-5 PREMIER PARKS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 -------------- -------------- -------------- Cash flows from operating activities: Net income (loss).............................................. $ 14,099,000 1,765,000 (1,185,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization................................ 19,792,000 8,533,000 3,866,000 Deferred compensation........................................ 1,125,000 -- -- Extraordinary loss on early extinguishment of debt........... -- -- 230,000 Amortization of debt issuance costs.......................... 1,918,000 811,000 317,000 Gain on sale of assets....................................... (46,000) (51,000) -- (Increase) decrease in accounts receivable................... (5,272,000) (215,000) 5,794,000 Deferred income taxes (benefit).............................. 6,737,000 1,433,000 (808,000) Increase in income tax receivable............................ (995,000) -- -- Increase in inventories and prepaid expenses and other current assets............................................. (1,150,000) (2,360,000) (455,000) (Increase) decrease in deposits and other assets............. 6,237,000 (3,947,000) 1,197,000 Increase (decrease) in accounts payable and accrued expenses................................................... (776,000) 5,216,000 (2,366,000) Increase in accrued interest payable......................... 5,481,000 146,000 4,056,000 -------------- -------------- -------------- Total adjustments........................................ 33,051,000 9,566,000 11,831,000 -------------- -------------- -------------- Net cash provided by operating activities................ 47,150,000 11,331,000 10,646,000 -------------- -------------- -------------- Cash flows from investing activities: Proceeds from the sale of equipment............................ 246,000 476,000 -- Other investments.............................................. (38,000) (48,000) (63,000) Additions to property and equipment............................ (135,852,000) (39,423,000) (10,732,000) Acquisition of theme park assets............................... (60,050,000) (116,154,000) -- Acquisition of Stuart Amusement Company in 1997 and Funtime Parks, Inc. in 1995, net of cash acquired.................... (21,376,000) -- (63,344,000) -------------- -------------- -------------- Net cash used in investing activities.................... (217,070,000) (155,149,000) (74,139,000) -------------- -------------- -------------- Cash flows from financing activities: Repayment of debt.............................................. (66,576,000) (1,082,000) (17,487,000) Proceeds from borrowings....................................... 132,500,000 57,574,000 93,500,000 Net cash proceeds from issuance of preferred stock............. -- -- 20,000,000 Net cash proceeds from issuance of common stock................ 189,530,000 65,306,000 -- Payment of debt issuance costs................................. (5,289,000) (2,724,000) (5,099,000) -------------- -------------- -------------- Net cash provided by financing activities................ 250,165,000 119,074,000 90,914,000 -------------- -------------- -------------- Increase (decrease) in cash and cash equivalents................. 80,245,000 (24,744,000) 27,421,000 Cash and cash equivalents at beginning of year................... 4,043,000 28,787,000 1,366,000 -------------- -------------- -------------- Cash and cash equivalents at end of year......................... $ 84,288,000 4,043,000 28,787,000 -------------- -------------- -------------- -------------- -------------- -------------- Supplementary cash flow information: Cash paid for interest......................................... $ 18,315,000 11,640,000 1,701,000 -------------- -------------- -------------- -------------- -------------- -------------- Cash paid (received) for income taxes (refund)................. $ 3,697,000 64,000 (22,000) -------------- -------------- -------------- -------------- -------------- --------------
F-6 PREMIER PARKS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 Supplemental disclosure of noncash investing and financing activities: 1997 - The Company issued $5,813,000 of common stock (153,800 shares) as components of theme park acquisitions. - The Company issued restricted common stock (450,000 shares) to certain employees valued at $14,625,000. - The Company assumed $268,000 of capital lease obligations as a component of a theme park acquisition. 1996 - Preferred stock (200,000 shares) was converted into common stock (2,560,928 shares). - The Company issued $200,000 of common stock (9,091 shares) as a component of a theme park acquisition. - The Company acquired certain equipment through a capital lease with an obligation of $64,000. 1995 - Common stock (1,485,433 shares) was exchanged for $9,095,000 of debt, net of $133,000 of costs. - The Company acquired certain rides and attractions through capital leases with obligations totaling $3,259,000. See accompanying notes to consolidated financial statements. F-7 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 (1) SUMMARY OF SIGNIFICANT POLICIES DESCRIPTION OF BUSINESS Premier Parks Inc. (the Company) owns and operates regional theme amusement and water parks. As of December 31, 1997, the Company and its subsidiaries own and operate twelve parks: Adventure World, a combination theme and water park located in Largo, Maryland; Darien Lake & Camping Resort, a combination theme and water park with an adjacent camping resort and performing arts center, located between Buffalo and Rochester, New York; Elitch Gardens, a theme park located in Denver, Colorado; Frontier City, a western theme park located in Oklahoma City, Oklahoma; Geauga Lake, a combination theme and water park located near Cleveland, Ohio; The Great Escape and Splash Water Kingdom, a combination theme and water park located in Lake George, New York; Kentucky Kingdom--The Thrill Park, located in Louisville, Kentucky; Riverside Park, a theme park located near Springfield, Massachusetts; two water parks operated under the name Waterworld/USA, located in Northern California; White Water Bay, a tropical water park located in Oklahoma City, Oklahoma; and Wyandot Lake, a water park which also includes "dry rides" located in Columbus, Ohio. The Company also manages Marine World Africa USA in Vallejo, California. BASIS OF PRESENTATION The Company's accounting policies reflect industry practices and conform to generally accepted accounting principles. The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and limited partnerships and limited liability companies in which the Company beneficially owns 100% of the interests. Intercompany transactions and balances have been eliminated in consolidation. The Company's investment in a partnership in which it does not own a controlling interest is accounted for using the equity method and included in other assets. CASH EQUIVALENTS Cash equivalents of $73,694,000 and $2,753,000 at December 31, 1997 and 1996, respectively, consist of short-term highly liquid investments with a remaining maturity as of purchase date of three months or less, which are readily convertible into cash. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. INVENTORIES Inventories are stated at the lower of cost (first in, first out) or market and primarily consist of products for resale including merchandise and food and miscellaneous supplies including repair parts for rides and attractions. F-8 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (1) SUMMARY OF SIGNIFICANT POLICIES (CONTINUED) ADVERTISING COSTS Production costs of commercials and programming are charged to operations in the year first aired. The costs of other advertising, promotion, and marketing programs are charged to operations in the year incurred. The amounts capitalized at year-end are included in prepaid expenses. Advertising and promotions expense incurred was $21,600,000, $9,100,000, and $5,700,000 during 1997, 1996, and 1995, respectively. DEFERRED CHARGES The Company capitalizes all costs related to the issuance of debt with such costs included in deferred charges in the consolidated balance sheets. The amortization of such costs is recognized as interest expense under a method approximating the interest method over the life of the respective debt issue. As of December 31, 1996, approximately $626,000 of costs associated with the Company's January 1997 debt and equity offerings (notes 5 and 8) were also included in deferred charges. DEPRECIATION AND AMORTIZATION Buildings and improvements are depreciated over their estimated useful lives of approximately 30 years by use of the straight-line method. Furniture and equipment are depreciated using the straight-line method over 5-10 years. Rides and attractions are depreciated using the straight-line method over 5-25 years. Amortization of property associated with capitalized lease obligations is included in depreciation expense in the consolidated financial statements. Maintenance and repairs are charged directly to expense as incurred, while betterments and renewals are generally capitalized in the property accounts. When an item is retired or otherwise disposed of, the cost and applicable accumulated depreciation are removed and the resulting gain or loss is recognized. INTANGIBLE ASSETS Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected period to be benefited, generally 25 years. Impairment of goodwill is assessed whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. LONG-LIVED ASSETS The Company adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," on January 1, 1996. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The adoption of SFAS No. 121 did not have an impact on the Company's consolidated financial position or results of operations in 1996. F-9 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (1) SUMMARY OF SIGNIFICANT POLICIES (CONTINUED) INTEREST EXPENSE RECOGNITION Interest on notes payable is generally recognized as expense on the basis of stated interest rates. Capitalized lease obligations that do not have a stated interest rate or that have interest rates considered to be lower than prevailing market rates (when the obligations were incurred) are carried at amounts discounted to impute a market rate of interest cost. Total interest expense incurred was $25,714,000, $12,597,000, and $6,074,000 in 1997, 1996 and 1995, respectively. Interest expense in the accompanying consolidated statements of operations is shown net of interest income. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. INCOME (LOSS) PER COMMON SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share." SFAS No. 128 revised the previous calculation methods and presentations of earnings per share. The statement requires that all prior-period earnings per share data be restated. The Company adopted SFAS No. 128 in the fourth quarter of 1997 as required by the statement. The effect of applying SFAS No. 128 was not material to the Company's prior period's earnings per share data. The previously reported amounts for earnings per share were replaced by basic earnings per share and diluted earnings per share. Basic earnings per share for the second quarter of 1997 and for the year 1996 are $.01 per share higher than the previously reported primary earnings per share amounts. The Company issued convertible preferred stock in 1995. Preferred stock dividends of $603,000 and $529,000, which were paid through additional issuances of common stock, were considered in determining net income (loss) applicable to common stock in 1996 and 1995, respectively. Under the provisions of SFAS No. 128, basic earnings per share is computed by dividing net income (loss) applicable to common stock by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if the Company's outstanding stock options were exercised (calculated using the treasury stock method). The following table reconciles the weighted average number of common shares outstanding used in the calculations of basic and diluted income per average common share outstanding for the years 1997 and 1996. The Company incurred a loss in 1995 and the effect on diluted loss per average common share F-10 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (1) SUMMARY OF SIGNIFICANT POLICIES (CONTINUED) outstanding of all contingently issuable common shares was antidilutive. Therefore, there is no difference in the number of shares used in the basic and diluted calculations for the year 1995.
YEAR ENDED DECEMBER 31, ------------------------ 1997 1996 ------------ ---------- Weighted average number of common shares outstanding--basic............................ 17,938,000 8,603,000 Dilutive effect of potential common shares issuable upon the exercise of employee stock options.............................................................................. 500,000 369,000 ------------ ---------- Weighted average number of common shares outstanding--diluted.......................... 18,438,000 8,972,000 ------------ ---------- ------------ ----------
STOCK OPTIONS On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB No. 25, "Accounting for Stock Issued to Employees," whereby compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. Companies which continue to apply the provisions of APB No. 25 are required by SFAS No. 123 to disclose pro forma net earnings and net earnings per share for employee stock option grants made in 1995, 1996 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB No. 25, and has provided the pro forma disclosures required by SFAS No. 123 in note 8. USE OF ESTIMATES 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. Actual results could differ from those estimates. RECLASSIFICATIONS Reclassifications have been made to certain amounts reported in 1996 and 1995 to conform with the 1997 presentation. (2) FAIR VALUE OF FINANCIAL INSTRUMENTS The recorded amounts for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and accrued interest payable approximate fair value because of the short maturity of these financial instruments. The fair value estimates, methods, and assumptions relating to the Company's other financial instruments are discussed in note 5. F-11 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (3) ACQUISITION OF THEME PARKS PRIOR TO JANUARY 1998 Pursuant to a merger agreement, on August 15, 1995, the Company acquired Funtime Parks, Inc. (Funtime), a company owning three regional theme parks, for an initial purchase price of approximately $60,000,000 in cash, with an additional amount of approximately $5,400,000 paid to the former shareholders as a postclosing adjustment related to the operating cash flows of the former Funtime parks after the acquisition date. The acquisition was accounted for as a purchase. As of the acquisition date and after giving effect to the purchase, $18,030,000 of deferred tax liabilities were recognized for the tax consequences attributable to the differences between the financial statement carrying amounts and the tax basis of Funtime's assets and liabilities. Approximately $13,500,000 of cost in excess of the fair value of the net assets acquired was recorded as goodwill. The accompanying 1997, 1996 and 1995 consolidated statements of operations reflect the results of Funtime from the date of acquisition (August 15, 1995). On October 31, 1996, the Company acquired all of the interests of a partnership which owned substantially all of the assets used in the operation of Elitch Gardens for $62,500,000 in cash. Thereupon, the partnership dissolved by operation of law. As a result, the assets were then directly owned by the Company. The transaction was accounted for as a purchase. In addition, the Company entered into a five-year non-competition agreement with the president of Elitch Gardens Company's general partner. Based upon the purchase method of accounting, the purchase price was primarily allocated to property and equipment with $4,506,000 of costs recorded as intangible assets, primarily goodwill. The general partner and a principal limited partner of Elitch Gardens Company have agreed severally to indemnify the Company for claims in excess of $100,000 in an amount up to $1,000,000 per partner. On November 19, 1996, the Company acquired all of the interests of two partnerships which owned substantially all of the assets used in the operation of the two Waterworld/USA water parks and a related family entertainment center for an aggregate cash purchase price of approximately $17,250,000, of which $862,500 was placed in escrow to fund potential indemnification claims by the Company. Thereupon, the partnerships dissolved by operation of law. As a result, the assets were then directly owned by the Company. The transaction was accounted for as a purchase. Based upon the purchase method of accounting, the purchase price was primarily allocated to property and equipment with $5,110,000 of costs recorded as intangible assets, primarily goodwill. On December 4, 1996, the Company acquired all of the interests in a limited liability company which owned substantially all of the assets used in the operation of The Great Escape and Splash Water Kingdom for a cash purchase price of $33,000,000. The transaction was accounted for as a purchase. In connection with the acquisition, the Company entered into a non-competition agreement and a related agreement with the former owner, providing for an aggregate consideration of $1,250,000. In addition, as a component of the transaction, the Company issued 9,091 shares of its common stock ($200,000) to an affiliate of the former owner. Based upon the purchase method of accounting, the purchase price was primarily allocated to property and equipment with $9,221,000 of costs recorded as intangible assets, primarily goodwill. The accompanying 1997 and 1996 consolidated statement of operations reflects the results of the Elitch Gardens, Waterworld/USA, and The Great Escape and Splash Water Kingdom acquisitions from their respective acquisition dates. F-12 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (3) ACQUISITION OF THEME PARKS PRIOR TO JANUARY 1998 (CONTINUED) On February 5, 1997, the Company acquired all of the outstanding common stock of Stuart Amusement Company (Stuart), the owner of Riverside Park and an adjacent multi-use stadium, for a purchase price of $22,200,000 ($1,000,000 of which was paid through issuance of 32,129 of the Company's common shares). The transaction was accounted for as a purchase. As of the acquisition date and after giving effect to the purchase, $6,623,000 of deferred tax liabilities were recognized for the tax consequences attributable to the differences between the financial statement carrying amounts and the tax basis of Stuart's assets and liabilities. Approximately $10,484,000 of cost in excess of the fair value of the net assets acquired was recorded as intangible assets, primarily goodwill. On November 7, 1997, the Company acquired all of the interests of a limited liability company which owned substantially all of the theme park assets of Kentucky Kingdom--The Thrill Park (Kentucky Kingdom), located in Louisville, Kentucky, for a purchase price of $64,000,000 of which $4,831,000 was paid through the issuance of 121,671 shares of the Company's common stock. The Company may be required to issue additional shares of common stock based upon the level of revenues at Kentucky Kingdom during 1998, 1999, and 2000. The acquisition was accounted for as a purchase. The purchase price was primarily allocated to property and equipment with $4,592,000 of costs recorded as intangible assets, primarily goodwill. The value of the additional shares, if any, will be recognized as additional goodwill. The accompanying 1997 consolidated statement of operations reflects the results of Stuart and Kentucky Kingdom from their respective acquisition dates. The following summarized pro forma results of operations assumes that for the year ended December 31, 1997, the Stuart and Kentucky Kingdom acquisitions and related transactions occurred as of the beginning of 1997 and for the year ended December 31, 1996, assumes that these acquisitions, the Elitch Gardens, The Great Escape and Splash Water Kingdom, and Waterworld/USA acquisitions, and the related transactions occurred as of the beginning of 1996.
1997 1996 -------------- -------------- (UNAUDITED) (IN THOUSANDS) Total revenues............................................... $ 215,620 175,224 Net income................................................... 15,210 12,436 Income per weighted average common share outstanding--basic......................................... .81 .66
F-13 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (4) PROPERTY AND EQUIPMENT Property and equipment, at cost, are classified as follows:
1997 1996 -------------- ------------- Land.......................................................... $ 40,099,000 27,760,000 Buildings and improvements.................................... 159,661,000 106,302,000 Rides and attractions......................................... 254,969,000 112,379,000 Equipment..................................................... 31,137,000 16,734,000 -------------- ------------- Total......................................................... 485,866,000 263,175,000 Less accumulated depreciation................................. (35,610,000) (17,845,000) -------------- ------------- $ 450,256,000 245,330,000 -------------- ------------- -------------- -------------
Included in property and equipment are costs and accumulated depreciation associated with capitalized leases as follows:
1997 1996 ------------ ---------- Cost............................................................... $ 6,386,000 6,069,000 Accumulated depreciation........................................... (826,000) (577,000) ------------ ---------- $ 5,560,000 5,492,000 ------------ ---------- ------------ ----------
(5) LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS At December 31, 1997 and 1996, long-term debt and capitalized lease obligations consist of:
1997 1996 -------------- ------------- Long term debt: Senior notes due 2003 (a)................................... $ 90,000,000 90,000,000 Senior notes due 2007 (b)................................... 125,000,000 -- Credit facility (c)......................................... -- 57,574,000 -------------- ------------- Total long-term debt........................................ 215,000,000 147,574,000 Capitalized lease obligations: Capitalized lease obligations maturing 1998 through 2000, requiring aggregate annual lease payments ranging from approximately $20,000 to $548,000 including implicit interest at rates ranging from 9.875% to 14% and secured by equipment with a net book value of approximately $5,560,000 as of December 31, 1997........................ 2,026,000 3,260,000 -------------- ------------- Total................................................... $ 217,026,000 150,834,000 -------------- ------------- -------------- -------------
F-14 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (5) LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED) - ------------------------ (a) The notes are senior unsecured obligations of the Company, with a $90,000,000 aggregate principal amount, and mature on August 15, 2003. The notes bear interest at 12% per annum payable semiannually on August 15 and February 15 of each year, commencing February 15, 1996. The notes are redeemable, at the Company's option, in whole or part, at any time on or after August 15, 1999, at varying redemption prices. Additionally, at any time prior to August 15, 1998, the Company may redeem in the aggregate up to 33 1/3% of the original aggregate principal amount of notes with the proceeds of one or more public equity offerings at a redemption price of 110% of the principal amount. These notes are guaranteed on a senior, unsecured, joint and several basis by all of the Company's principal operating subsidiaries. The proceeds of the notes were used in the Funtime acquisition and in the refinancing of previously existing indebtedness. The Company recognized a $230,000 loss on early extinguishment of debt during 1995. The loss was recorded, net of tax effect, as an extraordinary item. The indenture under which the notes were issued was amended January 21, 1997, in contemplation of the Company's January 1997 senior debt and equity offerings. The indenture places limitations on operations and sales of assets by the Company or its subsidiaries, permits incurrence of additional debt only in compliance with certain financial ratios, and limits the Company's ability to pay cash dividends or make other distributions to the holders of its capital stock or to redeem such stock. The indenture, as amended, permits the Company, subject to certain limitations, to incur additional indebtedness, including the $125,000,000 of indebtedness issued January 31, 1997 described below and secured senior revolving credit facility indebtedness of up to $75,000,000. All of the Company's subsidiaries, except for one indirect wholly owned subsidiary, Funtime-Famous Recipe, Inc., are full, unconditional, and joint and several guarantors of the notes. The assets and operations of Funtime-Famous Recipe, Inc. are inconsequential to the Company and its consolidated financial position and results of operations. Condensed financial statement information for the guarantors is not included herein, as the Company does not believe such information would be material to the understanding of the Company and its direct and indirect subsidiaries. (b) On January 31, 1997, the Company issued $125,000,000 of 9 3/4% senior notes due January 2007. The notes are senior unsecured obligations of the Company and equal to the Company's 2003 notes in priority upon liquidation. Interest is payable on January 15 and July 15 of each year, commencing July 15, 1997. The notes are redeemable, at the Company's option, in whole or in part, at any time on or after January 15, 2002, at varying redemption prices. Additionally, at any time prior to January 15, 2000, the Company may redeem in the aggregate up to 33 1/3% of the original aggregate principal amount of notes with the proceeds of one or more public equity offerings at a redemption price of 110% of the principal amount. The notes are guaranteed on a senior, unsecured, joint and several basis by all of the Company's principal operating subsidiaries. The indenture under which the notes were issued places limitations substantially similar to those of the Company's senior notes due in 2003. A portion of the proceeds were used to fully pay amounts outstanding under the Company's Credit Facility. F-15 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (5) LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED) (c) In connection with the 1996 acquisitions described in note 3, in October 1996 the Company entered into a senior secured credit facility (the "Credit Facility") with a syndicate of banks. The Credit Facility had an aggregate availability of $115,000,000 of which (i) up to $30,000,000 under the revolving credit facility (the "Revolving Credit Facility") was for working capital and general corporate purposes; (ii) up to $25,000,000 ("Facility A") was to finance capital expenditures prior to April 30, 1998; and (iii) up to $60,000,000 ("Facility B") was to finance certain acquisitions by the Company (including the acquisitions described in note 3), provided that at least 50% of the consideration for any such acquisition or improvements under Facility A or Facility B (collectively, the "Term Loan Facility") was required to have been funded by the Company. Interest rates per annum under the Credit Facility were equal to a base rate equal to the higher of the Federal Funds Rate plus 1/2% or the prime rate of Citibank N.A., in each case plus the Applicable Margin (as defined thereunder) or the London Interbank Offered Rate plus the Applicable Margin. Commitment fees approximated $620,000 and $53,000 in 1997 and 1996, respectively. The Revolving Credit Facility was to terminate October 31, 2002 (reducing to $15,000,000 on October 31, 2001) and borrowings under the Term Loan Facility were to mature October 31, 2001; however, aggregate principal payments of $7,500,000, $20,000,000 and $25,000,000 were to be required under the Term Loan Facility during 1998, 1999 and 2000, respectively. Borrowings under the Revolving Credit Facility were required to be fully paid for at least 30 days each year and were secured by substantially all of the Company's assets (other than real estate) and guarantees of the Company's principal subsidiaries. Borrowings under the Term Loan Facility were secured by the assets acquired with the proceeds thereof, and limited guarantees of the Company's principal subsidiaries. The Credit Facility contained restrictive covenants that, among other things, limited the ability of the Company and its subsidiaries to dispose of assets; incur additional indebtedness or liens; pay dividends; repurchase stock; make investments; engage in mergers or consolidations and engage in certain transactions with subsidiaries and affiliates. In addition, the Credit Facility required that the Company comply with certain specified financial ratios and tests, including ratios of total debt to earnings before interest, taxes and depreciation and amortization (EBITDA), interest expense to EBITDA, and fixed charges to EBITDA. On January 31, 1997, the Company and the syndicate of banks agreed to amend the Credit Facility. The $30,000,000 Revolving Credit Facility has a maturity date of December 31, 2001 (without reduction prior to that date). Additionally, following repayment of amounts that were then outstanding under the Term Loan Facility through the use of proceeds from the Company's January 1997 debt and equity offerings, the Term Loan Facility was converted into an $85,000,000 reducing revolving credit facility. The Term Loan Facility, as amended, will be available to fund acquisitions and make capital improvements. The amount available under the Term Loan Facility reduces to $75,000,000 on December 31, 1999, to $45,000,000 on December 31, 2000, and matures on December 31, 2001. Borrowings under the amended Credit Facility are secured by substantially all the assets of the Company and its subsidiaries (other than real estate) and are guaranteed by the Company's operating subsidiaries. The restrictive covenants are essentially the same as those of the original October 1996 credit facility. On February 9, 1998, the Company terminated the Credit Facility. No amounts were outstanding as of December 31, 1997 or as of the termination date. F-16 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (5) LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED) Annual maturities of long-term debt and capitalized lease obligations, adjusted to reflect the payment of the amounts outstanding under the Credit Facility through use of proceeds of the January 1997 note issuance, during the five years subsequent to December 31, 1997, are as follows: 1998.......................................................... $ 795,000 1999.......................................................... 412,000 2000.......................................................... 723,000 2001.......................................................... 67,000 2002 and thereafter........................................... 215,029,000 ----------- $217,026,000 ----------- -----------
The fair value of the Company's long-term debt is estimated by using quoted prices or discounted cash flow analyses based on current borrowing rates for debt with similar maturities. Under the above assumptions the estimated fair value of long-term debt and capitalized lease obligations at December 31, 1997 and 1996, is approximately $236,000,000 and $160,000,000, respectively. (6) TERMINATION FEE During October 1997, the Company entered into an agreement with the limited partner of the partnership that owns the Six Flags Over Texas theme park. The general terms of the agreement were for the Company to become the managing general partner of the partnership, to manage the operations of the park, to receive a portion of the income from such operations, and to purchase limited partnership units over the term of the agreement. The provisions of the agreement also granted the Company an option to purchase all of the partnership interests in the partnership at the end of the agreement. The agreement was non-exclusive and contained a termination fee of $10,750,000 payable to the Company in the event the agreement was terminated. Subsequent to the Company's agreement with the limited partnership, the prior operator of the theme park also reached an agreement with the limited partnership. The Company received the termination fee in December 1997 and has included the termination fee, net of $2,386,000 of expenses associated with the transaction, as a component of other income (expense) in the accompanying 1997 consolidated statement of operations. F-17 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (7) INCOME TAXES Income tax expense (benefit) allocated to operations for 1997, 1996 and 1995 consists of the following:
CURRENT DEFERRED TOTAL ------------ ---------- ---------- 1997: U.S. Federal............................................................ $ 2,505,000 6,060,000 8,565,000 State and local......................................................... 373,000 677,000 1,050,000 ------------ ---------- ---------- $ 2,878,000 6,737,000 9,615,000 ------------ ---------- ---------- ------------ ---------- ---------- 1996: U.S. Federal............................................................ -- 1,335,000 1,335,000 State and local......................................................... 64,000 98,000 162,000 ------------ ---------- ---------- $ 64,000 1,433,000 1,497,000 ------------ ---------- ---------- ------------ ---------- ---------- 1995: U.S. Federal............................................................ (44,000) (508,000) (552,000) State and local......................................................... -- (210,000) (210,000) ------------ ---------- ---------- $ (44,000) (718,000) (762,000) ------------ ---------- ---------- ------------ ---------- ----------
Recorded income tax expense (benefit) allocated to operations differed from amounts computed by applying the U.S. federal income tax rate of 35% in 1997 and 34% in 1996 and 1995 to pretax income (loss) approximately as follows:
1997 1996 1995 ------------ ---------- ---------- Computed "expected" federal income tax expense (benefit)................... $ 8,300,000 1,109,000 (614,000) Amortization of goodwill................................................... 327,000 180,000 78,000 Other, net................................................................. 200,000 87,000 (68,000) Effect of state and local income taxes, net of federal tax benefit......... 788,000 121,000 (158,000) ------------ ---------- ---------- $ 9,615,000 1,497,000 (762,000) ------------ ---------- ---------- ------------ ---------- ----------
Substantially all of the Company's future taxable temporary differences (deferred tax liabilities) relate to the different financial accounting and tax depreciation methods and periods for property and equipment. The Company's net operating loss carryforwards, alternative minimum tax carryforwards, and deferred compensation amounts represent future income tax deductions (deferred tax assets). The tax effects of these temporary differences as of December 31, 1997 and 1996, are presented below:
1997 1996 ------------- ------------ Deferred tax assets before valuation allowance....................................... $ 21,891,000 11,496,000 Less valuation allowance............................................................. 1,196,000 1,196,000 ------------- ------------ Net deferred tax assets.............................................................. 20,695,000 10,300,000 Deferred tax liabilities............................................................. 54,232,000 30,878,000 ------------- ------------ Net deferred tax liability........................................................... $ 33,537,000 20,578,000 ------------- ------------ ------------- ------------
F-18 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (7) INCOME TAXES (CONTINUED) The Company's deferred tax liability results from the financial carrying value for property and equipment being substantially in excess of the Company's tax basis in the corresponding assets. The Company's property and equipment are being depreciated primarily over a 7-year period for tax reporting purposes and a longer 20- to 25-year period for financial purposes. The faster tax depreciation has resulted in tax losses which can be carried forward to future years to offset future taxable income. Because most of the Company's depreciable assets' financial carrying value and tax basis difference will reverse before the expiration of the Company's net operating loss carryforwards and taking into account the Company's projections of future taxable income over the same period, management believes that it will more likely than not realize the benefits of these net future deductions. The Company has experienced ownership changes within the meaning of the Internal Revenue Code Section 382 and the regulations thereunder. As a result of the ownership changes, net operating loss carryforwards generated before the ownership changes can be deducted in subsequent periods only in certain limited situations. Accordingly, it is probable that the Company will not be able to use most of the net operating loss carryforwards generated prior to October 30, 1992. A valuation allowance for the pre-October 1992 net operating loss carryforwards has been established. The Company experienced an additional ownership change on June 4, 1996, as a result of the issuance of shares of common stock and the conversion of preferred stock into additional shares of common stock. This ownership change may limit the use of the Company's November 1992 through June 1996 net operating loss carryforwards in a given year; however, it is more likely than not that the post-October 1992 carryforwards will be fully utilized by the Company before their expiration. As of December 31, 1997, the Company has approximately $36,709,000 of net operating loss carryforwards available for federal income tax purposes which expire through 2012. Included in that total are pre-October 30, 1992, net operating loss carryforwards of which $3,400,000 are not expected to be utilized. Additionally, the Company has approximately $4,370,000 of alternative minimum tax credits which have no expiration date. (8) STOCKHOLDERS' EQUITY PREFERRED STOCK The Company has authorized 500,000 shares of preferred stock, $1 par value. During 1995, the Company issued 200,000 shares of Series A, 7% cumulative convertible preferred stock at $100 per share. During June 1996, the shares, including all dividends thereon, were converted into 2,560,928 common shares. The Company has agreed to provide the former preferred stockholders certain registration rights relative to the common stock issued upon conversion of the preferred stock. Holders of Series A preferred stock were entitled to receive cumulative dividends at an annual rate of $7 per share. At the Company's election, dividends were payable in cash and/or in additional Series A preferred stock. The terms of the Company's senior notes and credit facility limit the Company's ability to pay cash dividends. All dividends paid to the preferred stockholders were made by additional issuances of common stock at the time of the conversion into shares of common stock as described above. All shares of preferred stock rank senior and prior in right to all of the Company's now or hereafter issued common stock with respect to dividend payments and distribution of assets upon liquidation or dissolution of the Company. F-19 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (8) STOCKHOLDERS' EQUITY (CONTINUED) COMMON STOCK In August 1995, the Company issued 1,175,063 common shares in full exchange for the Company's $7,000,000 senior subordinated convertible notes and 310,370 common shares in full exchange for the Company's $2,095,000 junior subordinated term loan. The Company has agreed to provide the stockholders certain registration rights in the future. On April 4, 1996, a majority of the Company's common and preferred shareholders and the Company's board of directors approved a one-for-five reverse stock split effective May 6, 1996. The par value of common stock was increased to $.05 per share from $.01 per share. Additionally, the authorized common shares of the Company were changed to 30,000,000. The accompanying consolidated financial statements and notes to the consolidated financial statements reflect the reverse stock split as if it had occurred as of the earliest date presented. On June 4, 1996, and June 6, 1996, the Company issued 3,425,000 and 513,750, respectively, of its common shares resulting in net proceeds to the Company of $65,306,000. Additionally, on June 4, 1996, the Company exchanged 2,560,928 of its common shares for all 200,000 shares of its previously outstanding preferred stock. On January 31, 1997, the Company issued 6,900,000 of its common shares resulting in net proceeds to the Company of approximately $189,530,000. STOCK OPTIONS AND WARRANTS In 1996, 1995, 1994, and 1993, certain members of the Company's management were issued seven-year options to purchase 337,500, 248,000, 36,000, and 145,200 of its common shares, at an exercise price of $22.00, $8.25, $7.50, and $5.00 per share, respectively, under the Company's 1996, 1995 and 1993 Stock Option and Incentive Plans (the Plans). No stock options were issued during 1997. Stock options are granted with an exercise price equal to the stock's fair market value at the date of grant. These options may be exercised on a cumulative basis with 20% of the total exercisable on date of issuance and with an additional 20% being available for exercise on each of the succeeding anniversary dates. Any unexercised portion of the options will automatically and without notice terminate upon the seventh anniversary of the issuance date or upon termination of employment. At December 31, 1997, there were 503,300 additional shares available for grant under the Plans. The per share weighted-average fair value of stock options granted during 1996 and 1995 was $14.97 and $5.56 on the date of grant using the Black--Scholes option-pricing model with the following weighted-average assumptions: 1996--expected dividend yield 0%, risk-free interest rate of 6.25%, and an expected life of 5 years; 1995--expected dividend yield 0%, risk-free interest rate of 5.5%, and an expected life of 5 years. The Company applies APB Opinion No. 25 in accounting for its stock options and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options F-20 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (8) STOCKHOLDERS' EQUITY (CONTINUED) under SFAS No. 123, the Company's net income (loss) would have been changed to the pro forma amounts indicated below:
1997 1996 1995 ------------- ---------- ----------- Net income (loss) applicable to common stock: As reported $ 14,099,000 1,162,000 (1,714,000) Pro forma 13,325,000 390,000 (1,880,000) Income (loss) per average common share outstanding--basic: As reported $ .79 .14 (.44) Pro forma .74 .05 (.48)
Pro forma net income (loss) applicable to common stock reflects only options granted in 1996 and 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income (loss) amounts presented above because compensation cost is reflected over the options' vesting period of 4 years and compensation cost for options granted prior to January 1, 1995 is not considered. Stock option activity during the periods indicated is as follows:
NUMBER OF WEIGHTED-AVERAGE SHARES EXERCISE PRICE ----------- ----------------- Balance at December 31, 1994........................................................ 181,200 $ 5.50 Granted........................................................................... 248,000 8.25 Exercised......................................................................... -- -- Forfeited......................................................................... -- -- Expired........................................................................... -- -- ----------- ------ Balance at December 31, 1995........................................................ 429,200 7.09 Granted........................................................................... 337,500 22.00 Exercised......................................................................... -- -- Forfeited......................................................................... -- -- Expired........................................................................... -- -- ----------- ------ Balance at December 31, 1996........................................................ 766,700 13.65 Granted........................................................................... -- -- Exercised......................................................................... -- -- Forfeited......................................................................... (2,000) 5.00 Expired........................................................................... -- -- ----------- ------ Balance at December 31, 1997........................................................ 764,700 $ 13.67 ----------- ------ ----------- ------
At December 31, 1997, the range of exercise prices and weighted-average remaining contractual life of outstanding options was $5.00 to $22.00 and 5.01 years, respectively. F-21 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (8) STOCKHOLDERS' EQUITY (CONTINUED) At December 31, 1997, 1996, and 1995, the number of options exercisable was 455,800, 304,460 and 151,120, respectively, and weighted-average exercise price of those options was $11.25, $10.01 and $6.30, respectively. In 1989, the Company's current chairman was issued a ten-year warrant to purchase 26,346 common shares (currently being held as treasury stock) at an exercise price of $1.00 per share and a ten-year warrant to purchase 18,693 common shares at an exercise price of $1.00 per share. SHARE RIGHTS PLAN On December 10, 1997, the Company's board of directors authorized a share rights plan. Under the plan, stockholders have one right for each share of common stock held. The rights become exercisable ten business days after (a) an announcement that a person or group of affiliated or associated persons has acquired beneficial ownership of 15% or more of the voting shares outstanding, or (b) the commencement or announcement of a person's or group's intention to commence a tender or exchange offer that could result in a person or group owning 15% or more of the voting shares outstanding. Each right entitles its holder (except a holder who is the acquiring person) to purchase 1/100 of a share of a junior participating series of preferred stock designated to have economic and voting terms similar to those of one share of common stock for $250.00, subject to adjustment. In the event of certain merger or asset sale transactions with another party or transactions which would increase the equity ownership of a shareholder who then owned 15% or more of the Company, each right will entitle its holder to purchase securities of the merging or acquiring party with a value equal to twice the exercise price of the right. The rights, which have no voting power, expire in 2008. The rights may be redeemed by the Company for $.01 per right until the right becomes exercisable. RESTRICTED STOCK GRANT The Company has issued 450,000 restricted common shares to members of the Company's senior management. The restrictions on the stock lapse ratably over a six-year term commencing January 1, 1998, generally based upon the continued employment of the members of management. The restrictions also lapse if any or all members are terminated without cause or if a change in control of the Company occurs. The fair value of the restricted shares, as determined at the date of grant, approximated $14,625,000 and will be recognized as an expense over the vesting term. (9) 401(K) PLAN The Company has a qualified, contributory 401(k) plan (the Plan). All regular employees are eligible to participate in the Plan if they have completed one full year of service and are at least 21 years old. The Company matches 100% of the first 2% and 25% of the next 6% of salary contributions made by employees. The accounts of all participating employees are fully vested. The Company recognized approximately $377,000, $150,000 and $32,000 of expense in the years ended December 31, 1997, 1996 and 1995, respectively. F-22 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (10) MARINE WORLD In April 1997, the Company became manager of Marine World, a marine and exotic wildlife park located in Vallejo, California, pursuant to a contract with an agency of the City of Vallejo under which the Company is entitled to receive an annual base management fee of $250,000 and up to $250,000 annually in additional fees based on park performance. In November 1997, the Company exercised its option to lease approximately 40 acres of land within the site for nominal rent and an initial term of 55 years (plus four ten-year and one four-year renewal options). At December 31, 1997, the Company is in the process of adding theme park rides and attractions on the leased land, which is located within the existing park, in order to create one fully-integrated regional theme park at the site. The Company is entitled to receive, in addition to the management fee, 80% of the cash flow generated by the combined operations at the park, after combined operating expenses and debt service on outstanding debt obligations relating to the park. The Company also has an option to purchase the entire site commencing in February 2002 at a purchase price equal to the greater of the then principal amount of certain debt obligations of the seller (expected to aggregate $52.0 million at February 2002) or the then fair market value of the seller's interest in the park (based on a formula relating to the seller's 20% share of Marine World's cash flow). The Company currently expects to exercise this purchase option when it becomes exercisable. (11) COMMITMENTS AND CONTINGENCIES The Company leases office space under a lease agreement which expires April 30, 2001. The lease requires minimum monthly payments over its term and also escalation charges for proportionate share of expenses as defined in the lease. An affiliate of the Company shares office space with the Company and has agreed to pay 50% of the rental payments. Rent expense recognized by the Company (after deduction of amounts paid by the affiliate) for the years ended December 1997, 1996 and 1995, aggregated $64,000, $64,000, and $68,000, respectively. The Company leases the sites of Wyandot Lake and each of the two Waterworld/USA locations with rent based upon percentages of revenues earned by each park. During 1997, 1996, and 1995, the Company recognized approximately $1,110,000, $385,000 and $100,000, respectively, of rental expense under these rent agreements. Total rental expense, including office space and park sites, was approximately $2,229,000, $1,227,000, and $550,000 for the years ended December 31, 1997, 1996, and 1995, respectively. On June 2, 1997, a water slide collapsed at the Company's Waterworld/USA park in Concord, California, resulting in one fatality and the park's closure for twelve days. Although the collapse and the resulting closure had a material adverse impact on that park's operating performance for 1997, as well as a lesser impact on the Company's Sacramento water park (which is also named "Waterworld/USA"), located approximately seventy miles from the Concord park, the Company's other parks were not adversely affected. The Company has recovered all of the Concord park's operating shortfall under its business interruption insurance. In addition, the Company believes that its liability insurance coverage should be adequate to provide for any personal injury liability which may ultimately be found to exist in connection with the collapse. The Company is party to various legal actions arising in the normal course of business. Matters that are probable of unfavorable outcome to the Company and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, the Company's estimates of the F-23 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (11) COMMITMENTS AND CONTINGENCIES (CONTINUED) outcomes of such matters and its experience in contesting, litigating and settling similar matters. None of the actions are believed by management to involve amounts that would be material to consolidated financial condition, operations, or liquidity after consideration of recorded accruals. (12) CERTAIN TRANSACTIONS During 1995, in connection with the acquisition of Funtime and the issuance of the $90,000,000 senior notes, the Company paid investment banking and financial advisory fees in the amount of $800,000 and $475,000 to Lepercq, de Neuflize & Co. Incorporated (Lepercq) and Hanseatic Corporation (Hanseatic), respectively. Two directors of the Company are director and treasurer, respectively, of Lepercq and Hanseatic. (13) PROPOSED ACQUISITIONS OF ADDITIONAL THEME PARKS On December 15, 1997, the Company entered into an agreement with the majority shareholders of Walibi, S.A. (Walibi), to purchase the outstanding stock of Walibi held by the majority shareholders. The purchase agreement commits the Company to tender for the remaining stock. The estimated aggregate purchase price of the Walibi common stock plus the debt of Walibi to be assumed by the Company will approximate $140,000,000. The acquisition will be accounted for using the purchase method of accounting and is expected to be completed in March 1998. On February 9, 1998, the Company agreed to purchase 100% of the capital stock of Six Flags Entertainment Corporation for $965,000,000 (subject to adjustment) and the assumption of approximately $770,000,000 of indebtedness. The purchase price is payable in cash or, at the Company's option, cash and up to $200,000,000 of preferred stock. The Company has filed registration statements to offer equity and debt securities to fund the cash portion of the purchase price. The acquisition will be accounted for using the purchase method of accounting and is expected to be completed in April 1998. If the agreement to purchase Six Flags is terminated, except as a result of legal or governmental restrictions or by mutual consent, the Company may be required to pay a termination fee of $25,000,000. F-24 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (14) QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Following is a summary of the unaudited interim results of operations for the years ended December 31, 1997 and 1996:
1997 ---------------------------------------------------------------------- FIRST SECOND THIRD FOURTH FULL QUARTER QUARTER QUARTER QUARTER YEAR ------------- ------------ ------------- ----------- ------------- Revenue......................................... $ 4,264,000 62,468,000 120,014,000 7,158,000 193,904,000 Net income (loss) applicable to common stock.... (9,742,000) 5,698,000 27,237,000 (9,094,000) 14,099,000 Net income (loss) applicable to common stock per share: Basic..................................... $ (.61) .31 1.49 (.48) .79 Diluted................................... $ (.61) .30 1.45 (.48) .76
1996 ------------------------------------------------------------------- FIRST SECOND THIRD FOURTH FULL QUARTER QUARTER QUARTER QUARTER YEAR ------------ ------------ ------------ ----------- ------------ Revenue..................................... $ 2,430,000 26,953,000 60,409,000 3,655,000 93,447,000 Net income (loss) applicable to common stock..................................... (5,584,000) (744,000) 16,238,000 (8,748,000) 1,162,000 Net income (loss) applicable to common stock per share: Basic................................. $ (1.15) (.11) 1.43 (.77) .14 Diluted............................... $ (1.15) (.11) 1.39 (.77) .13
F-25 EXHIBIT INDEX
PAGE --------- (3) Article of Incorporation and By-Laws: (a) Certificate of Incorporation of Registrant dated March 24, 1981 -- incorporated by reference from Exhibit 3 to Form 10-Q of Registrant for the quarter ended June 30, 1987. (b) Plan and Agreement of Merger of Registrant and Tierco, a Massachusetts business trust, dated March 31, 1981 -- incorporated by reference from Exhibit 3 to Form 10-Q of Registrant for the quarter ended June 30, 1987. (c) Certificate of Amendment of Certificate of Incorporation of Registrant dated April 14, 1985 -- incorporated by reference from Exhibit 3 to Form 10-Q of Registrant for the quarter ended June 30, 1987. (d) Certificate of Amendment of Certificate of Incorporation of Registrant dated May 8, 1987 --incorporated by reference from Exhibit 3 to Form 10-Q of Registrant for the quarter ended June 30, 1987. (e) Certificate of Amendment of Certificate of Incorporation of Registrant dated June 11, 1987 -- incorporated by reference from Exhibit 3 to Form 10-Q of Registrant for the quarter ended June 30, 1987. (f) Certificate of Amendment of Certificate of Incorporation of Registrant dated April 30, 1991 -- incorporated by reference from Exhibit 3(f) to Form 10-K of Registrant for the year ended December 31, 1991. (g) Certificate of Amendment of Certificate of Incorporation of Registrant dated June 30, 1992 -- incorporated by reference from Exhibit 3(g) to Form 10-K of Registrant for the year ended December 31, 1992. (h) Certificate of Amendment of Certificate of Incorporation of Registrant dated June 23, 1993 -- incorporated by reference from Exhibit 3(a) to Form 10-Q of Registrant for the quarter ended June 30, 1993. (i) Certificate of Amendment to Certificate of Incorporation dated October 7, 1994 -- incorporated by reference from Exhibit 3(i) to Form 10-K of Registrant for the year ended December 31, 1994. (j) Certificate of Designation of Series A 7% Cumulative Convertible Preferred Stock (the "Preferred Stock") of Registrant -- incorporated by reference from Exhibit 3(10) to Registrant's Registration Statement on Form S-1 (Reg. No. 33-62225) declared effective on November 9, 1995 (the "Registration Statement"). (k) By-laws of Registrant, as amended --incorporated by reference from Exhibit 3(k) to Form 10-K of Registrant for the year ended December 31, 1996. (l) Certificate of Amendment to Certificate of Incorporation dated May 6, 1996 -- incorporated by reference from Exhibit 3(l) to Form 10-K of Registrant for the year ended December 31, 1996. (m) Certificate of Designation of Series A Junior Preferred Stock of Registrant -- incorporated by reference from Exhibit 2(1.C) to Registrant's Registration Statement on Form 8-A dated January 21, 1998. *(n) Certificate of Amendment to Certificate of Incorporation dated June 16, 1997.
PAGE --------- (4) Instruments Defining the Rights of Security Holders, Including Indentures: (a) Indenture dated as of August 15, 1995, among the Registrant, the subsidiaries of the Registrant named therein and United States Trust Company of New York, as trustee (including the form of Notes) -- incorporated by reference from Exhibit 4(2) to the Registration Statement. (b) Form of First Supplemental Indenture dated as of November 9, 1995 -- incorporated by reference from Exhibit 4(2.1) to the Registration Statement. (c) Purchase Agreement, dated August 10, 1995, among the Registrant, the subsidiaries of the Registrant named therein and Chemical Securities Inc. -- incorporated by reference from Exhibit 4(3) to the Registration Statement. (d) Exchange and Registration Rights Agreement, dated August 15, 1995, among the Registrant, the subsidiaries of the Registrant named therein and Chemical Securities Inc. -- incorporated by reference from Exhibit 4(4) to the Registration Statement. (e) Form of Subscription Agreement between the Registrant and each of the purchasers of shares of Preferred Stock -- incorporated by reference from Exhibit 4(10) to the Registration Statement. (f) Convertible Note Purchase Agreement, dated as of March 3, 1993, between the Registrant and the purchasers named therein (including forms of Senior Subordinated Convertible Note and Registration Rights Agreement) -- incorporated by reference from Exhibit 4(i) to Form 10-K of the Registrant for the year ended December 31, 1992. (g) Form of Subscription Agreement, dated October 1992, between the Registrant and certain investors --incorporated by reference from Exhibit 4(a) to the Registrant's Current Report on Form 8-K dated October 30, 1992. (h) Stock Purchase and Warrant Issuance Agreement, dated October 16, 1989, between The Tierco Group, Inc. and Kieran E. Burke -- incorporated by reference from Exhibit 4(i) to Form 10-K of Registrant for the year ended December 31, 1989. (i) Warrant, dated October 16, 1989, to purchase 131,728 shares of Common Stock issued by The Tierco Group, Inc. to Kieran E. Burke -- incorporated by reference from Exhibit 4(k) to Form 10-K of Registrant for the year ended December 31, 1989. (j) Warrant, dated October 16, 1989, to purchase 93,466 shares of Common Stock issued by The Tierco Group, Inc. to Kieran E. Burke -- incorporated by reference from Exhibit 4(1) to Form 10-K of Registrant for the year ended December 31, 1989. (k) Form of Common Stock Certificate -- incorporated by reference from Exhibit 4(l) to Registrant's Registration Statement on form S-2 (Reg. No. 333-08281) declared effective on May 28, 1996. (l) Form of Registration Rights Agreement among Registrant, Edward J. Carroll, Jr. and the Carroll Family Limited Partnership -- incorporated by reference from Exhibit 4(m) to Registrant's Registration Statement on Form S-2 (Reg. No. 333-16763) declared effective on January 27, 1997.
ii
PAGE --------- (m) Form of Indenture dated as of February 1, 1997, among the Registrant and the Bank of New York, as trustee (including the form of Notes) -- incorporated by reference from Exhibit 4(l) to Registrant's Registration Statement on Form S-2 (Reg. No. 333-16763) declared effective on January 27, 1997. (n) Form of Second Supplemental Indenture dated January 21, 1997 -- incorporated by reference form Exhibit 4(n) to Registrant's Registration Statement on Form S-2 (Reg. No. 333-16763) declared effective on January 27, 1997. (10) Material Contracts: (a) Agreement of Limited Partnership of 229 East 79th Street Associates LP dated July 24, 1987, together with amendments thereto dated, respectively, August 31, 1987, October 21, 1987, and December 21, 1987 -- incorporated by reference from Exhibit 10(i) to Form 10-K of Registrant for year ended December 31, 1987. (b) Agreement of Limited Partnership of Frontier City Partners Limited Partnership, dated October 18, 1989, between Frontier City Properties, Inc. as general partner, and the Registrant and Frontier City Properties, Inc. as limited partners -- incorporated by reference from Exhibit 10(g) to the Registrant's Current Report on Form 8-K dated October 18, 1989. (c) Asset Purchase Agreement, dated December 10, 1990, between Registrant and Silver Dollar City, Inc., -- incorporated by reference from Exhibit 10(c) to the Registrant's Current Report on Form 8-K dated February 6, 1991. (d) Asset Purchase Agreement, dated December 16, 1991, among the Registrant, Tierco Maryland, RWP, John J. Mason and Stuart A. Bernstein -- incorporated by reference from Exhibit 10(a) to the Registrant's Current Report on Form-8K dated January 31, 1992. (e) Asset Transfer Agreement, dated as of June 30, 1992, by and among the Registrant, B&E Holding Company and the creditors referred to therein -- incorporated by reference from Exhibit 10(a) to the Registrant's Current Report on Form 8-K dated July 20, 1992. (f) Purchase Agreement, dated September 30, 1992, among the Registrant, Palma Real Estate Management Company, First Stratford Life Insurance Company and Executive Life Insurance Company -- incorporated by reference to Exhibit 2(a) to the Registrant's Current Report on Form 8-K dated September 30, 1992. (g) Lease Agreement, dated January 18, 1993, among Registrant, Frontier City Partners Limited Partnership and Fitraco N.V. -- incorporated by reference from Exhibit 10(k) to Form 10-K of Registrant for the year ended December 31, 1992. (h) Lease Agreement, dated January 18, 1993, among Registrant, Tierco Maryland, Inc. and Fitraco N.V. -- incorporated by reference from Exhibit 10(l) to Form 10-K of Registrant for the year ended December 31, 1992.
iii
PAGE --------- (i) Security Agreement and Conditional Sale Contract, between Chance Rides, Inc. and Tierco Maryland, Inc. and Guaranty of Registrant in favor of Chance Rides, Inc. -- incorporated by reference from Exhibit 10(m) to Form 10-K of Registrant for the year ended December 31, 1992. (j) Registrant's 1993 Stock Option and Incentive Plan -- incorporated by reference from Exhibit 10(k) to Form 10-K of Registrant for the year ended December 31, 1993. (k) Agreement and Plan of Merger, dated as of June 30, 1995 among the Registrant, Premier Parks Acquisition Inc., Funtime Parks, Inc. ("Funtime") and its shareholders -- incorporated by reference from Exhibit 10(11) to the Registration Statement. (l) Escrow Agreement, dated as of August 15, 1995, among the Registrant, certain shareholders of Funtime and First National Bank of Ohio, Trust Division -- incorporated by reference from Exhibit 10(12) to the Registration Statement. (m) Consulting Agreement, dated as of August 15, 1995, between Registrant and Bruce E. Walborn -- incorporated by reference from Exhibit 10(13) to the Registration Statement. (n) Consulting Agreement, dated as of August 15, 1995, between Registrant and Gaspar C. Lococo --incorporated by reference from Exhibit 10(14) to the Registration Statement. (o) Lease Agreement dated December 22, 1995 between Darien Lake Theme Park and Camping Resort, Inc. and The Metropolitan Entertainment Co., Inc. -- incorporated by reference from Exhibit 10(o) to Form 10-K of Registrant for the year ended December 31, 1995. (p) Asset Purchase Agreement dated August 23, 1996, among the Registrant, a subsidiary of the Registrant, Storytown USA, Inc., Fantasy Riders Corporation and Charles R. Wood -- incorporated by reference from Exhibit 10(p) to Registrant's Registration Statement on Form S-2 (Reg. No. 333-16573) declared effective on January 27, 1997. (q) Asset Purchase Agreement dated September 23, 1996, among the Registrant, a subsidiary of the Registrant, Elitch Gardens Company, Hensel Phelps Construction Co. and Chilcott Entertainment Company -- incorporated by reference from Exhibit 10(a) to the Company's Current Report on Form 8-K, dated November 13, 1996. (r) Asset Purchase Agreement dated as of October 10, 1996, among the Registrant, a subsidiary of the Registrant, FRE, Inc. (Family Recreational Enterprises, Inc.) ("FRE") and the shareholders of FRE listed on the signature page thereof -- incorporated by reference from Exhibit 10(r) to Registrant's Registration Statement on Form S-2 (Reg. No. 333-16573) declared effective on January 27, 1997.
iv
PAGE --------- (s) Asset Purchase Agreement dated as of October 10, 1996, among the Registrant, a subsidiary of the Registrant, FRE, Concord Entertainment Company, R&B Entertainment, LLC, the shareholders of FRE listed on the signature page thereof and the members of R&B listed on the signature page thereof -- incorporated by reference from Exhibit 10(s) to Registrant's Registration Statement on Form S-2 (Reg. No. 333-16573) declared effective on January 27, 1997. (t) Amended and Restated Credit Agreement, dated as of January 31, 1997, among the Registrant, the Subsidiary Guarantors thereof, the lenders party thereto and the Bank of New York, as Administrative Agent and Issuing Lender -- incorporated by reference from Exhibit 10(t) to Form 10-K of Registrant for the year ended December 31, 1996. (u) Consulting and Non-Competition Agreement, dated October 30, 1996, between Registrant and Arnold S. Gurtler -- incorporated by reference from Exhibit 10(u) to Registrant's Registration Statement on Form S-2 (Reg. No. 333-16573) declared effective on January 27, 1997. (v) Non-Competition Agreement, dated as of October 30, 1996 between the Registrant and Ascent Entertainment Group, Inc. -- incorporated by reference from Exhibit 10(s) to Registrant's Registration Statement on Form S-2 (Reg. No. 333-16573) declared effective on January 27, 1997. (w) Consulting Agreement, dated December 4, 1996, between the Registrant and Charles R. Wood -- incorporated by reference from Exhibit 10(b) to the Registrant's Current Report on Form 8-K, dated December 13, 1996. (x) Non-Competition Agreement dated as of December 4, 1996 between the Registrant and Charles R. Wood --incorporated by reference from Exhibit 10(c) of the Registrant's Current Report on Form 8-K, dated December 13, 1996. (y) Stock Purchase Agreement dated as of December 4, 1996, among the Registrant, Stuart Amusement Company, Edward J. Carroll, Jr., and the Carroll Family Limited Partnership -- incorporated by reference from Exhibit 10(y) to Registrant's Registration Statement on Form S-2 (Reg. No. 333-16573) declared effective on January 27, 1997. *(z) Registrant's 1996 Stock Option and Incentive Plan. *(aa) 1997 Management Agreement Relating to Marine World, by and between the Marine World Joint Powers Authority and Park Managment Corp, dated as of the 1st day of February, 1997. *(ab) Purchase Option Agreement Among City of Vallejo, Marine World Joint Powers Authority and Redevelopment Agency of the City of Vallejo, and Park Management Corp., dated as of August 29, 1997. *(ac) Letter Agreement, dated November 7, 1997, amending 1997 Management Agreement Relating to Marine World, by and between the Marine World Joint Powers Authority and Park Managment Corp., dated as of the 1st day of February, 1997.
v
PAGE --------- *(ad) Reciprocal Easement Agreement between Marine World Joint Powers Authority and and Park Management Corp., dated as of November 7, 1997. *(ae) Parcel Lease between Marine World Joint Powers Authority and and Park Management Corp., dated as of November 7, 1997. *(af) Employment Agreement, dated as of July 31, 1997, between Premier Parks Inc. and Kieran E. Burke. *(ag) Employment Agreement, dated as of July 31, 1997, between Premier Parks Inc. and Gary Story. *(ah) Employment Agreement, dated as of July 31, 1997, between Premier Parks Inc. and James F. Dannhauser. (ai) Stock Purchase Agreement dated as of September 26, 1997, among Registrant, Kentucky Kingdom, Inc., Hart-Lunsford Enterprises, LLC, and Edward J. Hart -- incorporated by reference from Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. (aj) Employment Agreement dated as of November 7, 1997, between Registrant and Edward J. Hart -- incorporated by reference from Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. (ak) Rights Agreement dated as of January 12, 1998 between Premier Parks Inc. and Bank One Trust Company, N.A., as Rights Agent -- incorporated by reference from Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated December 15, 1997. (al) Stock Purchase Agreement dated as of December 15, 1997, between the Registrant and Centrag S.A., Karaba N.V. and Westkoi N.V. -- incorporated by reference from Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated December 15, 1997. (am) Agreement and Plan of Merger dated as of February 9, 1998, by and among the Registrant, Six Flags Entertainment Corporation and others -- incorporated by reference from Exhibit 10(a) to the Registrant's Current Report on Form 8-K dated February 9, 1998. *(21) Subsidiaries of the Registrant. *(23) Consent of KPMG Peat Marwick LLP
- ------------------------ * Filed herewith. vi EX-3.(N) 2 CERT OF AMEND TO CERT OF INCORP 6/16/97 EXHIBIT 3(n) CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF PREMIER PARKS INC. PREMIER PARKS INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: that the Board of Directors of the Corporation at a meeting of the Board of Directors, adopted a resolution proposing and declaring the advisability of the following amendment to the Certificate of Incorporation. RESOLVED, that the Certificate of Incorporation of the Corporation be amended so that Article IV shall read in its entirety as follows: "The total number of shares of stock which the Corporation shall have authority to issue is 90,500,000 shares, of which 500,000 shares shall be Preferred Stock with a par value of $1.00 per share and 90,000,000 shares shall be Common Stock with a par value of $.05 per share. The Preferred Stock is to be issued in one or more series, with each series to have such designations, preferences, and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions provided for the issue of each series adopted by the Board of Directors of the Corporation, subject to the limitations prescribed by law and in accordance with the provisions hereof, the Board of Directors being hereby expressly vested with authority to adopt any such resolution or resolutions. The authority of the Board of Directors with respect to each series shall include, but not be limited to, the determination or fixing of the following: (1) the number of shares to constitute the series and the distinctive designation thereof; (2) The amount or rate of dividends on the shares of the series, whether dividends shall be cumulative and, if so, from what date or dates; (3) Whether the shares of the series shall be redeemable and, if redeemable, the terms and provisions upon which the shares of the series may be redeemed and the premium, if any, and any dividends accrued thereon which the shares of the series shall be entitled to receive upon the redemption thereof; (4) Whether the shares of the series shall be subject to the operations of a retirement or sinking fund to be applied to the purchase or redemption of the shares for retirement and, if such retirement or sinking fund be established, the annual amount thereof and the terms and provisions relative to the operation thereof; (5) Whether the shares of the series shall be convertible into shares of any class or classes, with or without par value, or of any other series of the same class, and if convertible, the conversion price or prices or the rate at which the conversion may be made and the method, if any, of adjusting the same; (6) The rights of the shares of the series in the event of the voluntary or involuntary liquidation, dissolution, or winding up of the Corporation; (7) The restrictions, if any, on the payment of the dividends upon, and the making of distributions to, any class of stock ranking junior to the shares of the series, and the restrictions, if any, on the purchase or redemption of the shares of any such junior class; (8) Whether the series shall have voting rights in addition to the voting rights provided by law, and, if so, the terms of such voting rights; and (9) Any other relative rights, preferences, and limitations of that series. The holders of the Common Stock shall be entitled to one vote for each share of Common Stock held. The amount of the authorized stock of any class may be increased or decreased by the affirmative vote of the holders of a majority of the total number of outstanding shares of any series of Preferred Stock entitled to vote, and of Common Stock, voting as a single class." SECOND: that such Amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware by the holders of a majority of the outstanding shares of Common Stock of the Corporation entitled to vote thereon at a meeting of the stockholders of the Corporation called and held upon notice in accordance with Section 222 of the Delaware General Corporation Law. IN WITNESS WHEREOF, Premier Parks Inc. has caused this Certificate to be signed and attested by a duly authorized officer this 16th day of June, 1997. PREMIER PARKS INC. By: /s/ Kieran E. Burke ----------------------------- Kieran E. Burke Chairman and Chief Executive Officer -2- EX-10.(Z) 3 REG'S 96 STCK OPTION & INCENTIVE PLAN EXHIBIT 10(z) PREMIER PARKS INC. 1996 STOCK OPTION AND INCENTIVE PLAN I. THE PLAN There is hereby established the 1996 Stock Option and Incentive Plan (the "Plan") for Premier Parks Inc. (the "Company"), under which options may be granted to purchase shares of the common stock, $.05 par value, of the Company, under which shares of such common stock may be sold at incentive prices below the market price at the time of sale, and under which stock appreciation rights may be granted. II. AMOUNT OF STOCK An aggregate of Seven Hundred and Fifty Thousand (750,000) shares of the Company's common stock may be issued upon exercises of options or stock appreciation rights or upon purchases at incentive prices. Such shares may be authorized but unissued shares, shares held in the treasury or outstanding shares purchased from their owners on the market or otherwise. If any option or stock appreciation right granted under the Plan terminates for any reason or expires before the option or stock appreciation right is exercised in full or if any shares sold under the Plan are reacquired by the Company by reason of any right to reacquire such shares established at the time the shares were initially sold, the shares previously reserved for issuance upon exercise of such option or stock appreciation right or the shares so reacquired shall count toward the maximum number of shares that may be issued under the plan, as adjusted pursuant to next paragraph, and such shares shall not again be available to be issued under the Plan. A reduction of the exercise price of an option shall be treated for purposes of the preceding sentence as the expiration of the option and the issuance of a new option. If the outstanding shares of the Company's common stock are from time to time increased, decreased, changed into or exchanged for a different number or kind of shares of the Company through merger, consolidation, reorganization, split-up, split-off, spin-off, recapitalization, reclassification, stock dividend, stock split or reverse stock split, an appropriate and proportionate adjustment shall be made in the number and kind of shares which may be issued upon purchases made under the Plan and an appropriate and proportionate adjustment shall be made in the number and kind of shares and/or other property which may be issued upon exercise of options or stock appreciation rights granted under the Plan such that each such option or stock appreciation right shall thereafter be exercisable for such securities, cash and/or other property as would have been received in respect of the shares subject to the option or stock appreciation right had such option or right been exercised in full immediately prior to such increase, decrease or change. Such adjustment shall be made successively each time that any such increase, decrease or change is made. In addition, in the event of any such increase, decrease or change, the Board of Directors or the Committee shall make such further adjustments as are appropriate to the maximum number of shares subject to the Plan or to the other provisions of the Plan or of incentive stock issued or options or stock appreciation rights granted thereunder. Notwithstanding the foregoing, each such increase, decrease, change or other adjustment with respect to an incentive stock option, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") (hereafter, an "Incentive Stock Option") (i) shall comply with the requirements to be an issuance or assumption of a stock option in a transaction to which Section 424(a) of the Code applies and (ii) shall not be made if, as a result, an Incentive Stock Option granted hereunder would not be an Incentive Stock Option. To the extent that the aggregate fair market value of stock subject to one or more Incentive Stock Options first exercisable by any individual in any calendar year under this Plan (or under all such plans of the Company and its subsidiary corporations) exceeds $100,000, determined as of the time the option is granted, such options shall be treated as options that are not Incentive Stock Options. This limitation will be applied by taking into account options in the order in which they were granted and without taking into account Incentive Stock Options granted before 1987. III. ADMINISTRATION (a) The Plan shall be administered by the Board of Directors of the Company or by a Committee appointed by the Board of Directors which shall include not less than two Directors of the Company, each of whom shall be a disinterested person' within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, and an 'outside director' within the meaning of Treasury Regulation Section 1.162-27(e)(3) promulgated under Section 162(m) of the Code. The Board of Directors may from time to time remove members from or add members to the Committee. Vacancies on the Committee, however caused, shall be filled by the Board of Directors. Acts of the Committee may be authorized by a vote of the members if (i) at a meeting, held at a time and place and in accordance with rules adopted by the Committee, at which a majority of the members of the Committee are present and acting, or (ii) reduced to and approved in writing by a majority of the members of the Committee. (b) Subject to the express terms and conditions of the Plan, the Board of Directors and the Committee, if it exists, shall have full power to construe the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan and to make all other determinations necessary or advisable for the administration of the Plan. The exercise of these powers by the Board of Directors or the Committee, as the case may be, shall be conclusive and binding upon all present, past and future participants in the Plan. (c) The Board of Directors or the Committee may from time to time determine to which officers or other employees eligible for selection as participants in the Plan, if any, options shall be granted or shares shall be sold under the Plan, the number of shares which may be issued upon exercise of any such option or which may be sold to any such -2- participant, the period during which any option or stock appreciation right may be exercised, the exercise price of any option or the purchase price of any shares, and the means of payment upon exercise of any option or for any shares, determined in each case in accordance with the provisions of the Plan. (d) The Board of Directors or the Committee may from time to time, with the consent of the participant, adjust or reduce the option prices of options held by such participant by cancelling such options and granting options to purchase the same or a lesser number of shares at lower option prices or by modifying, extending or renewing such options, as those terms are defined in Section 424(h) of the Code, and the applicable regulations thereunder. The Board of Directors or the Committee may, from time to time, conditionally or unconditionally accelerate, in whole or in part, rights to exercise any option granted under the Plan. (e) The Board of Directors or the Committee shall report in writing to the Secretary of the Company the names of the officers or other employees selected as participants in the Plan, and the terms and conditions of the options to be granted or the shares to be sold to each of them. IV. ELIGIBILITY FOR PARTICIPATION All officers and key employees of the Company and its subsidiary corporations (including officers or employees who are members of the Company's Board of Directors, but excluding directors who are not officers or employees) shall be eligible for selection as participants in the Plan. For this purpose a "subsidiary corporation" is a corporation so defined under Section 424(f) of the Code. V. TERMS AND CONDITIONS OF OPTIONS The terms and conditions of each option granted under the Plan shall be evidenced by a Stock Option Agreement executed by the Company and the participant, which shall contain the following provisions, if applicable: (a) The number of shares which may be issued upon exercise of the option, the period during which the option may be exercised, the purchase price or prices per share to exercise the option, and the means of payment for the shares; provided, however, that notwithstanding any other provision of the Plan to the contrary, an Incentive Stock Option shall not be exercisable after the expiration of ten (10) years from the date it is granted, and, provided, further, that in the case of an Incentive Stock Option granted to a person who, at the time such Incentive Stock Option is granted, owns shares of the Company or any of its subsidiary corporations which possess more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of such subsidiary corporations, such Incentive Stock Option shall not be exercisable after the expiration of five (5) years from the date such option is granted, and, provided, further, -3- that the purchase price or prices of each share of the Company's common stock subject to any option under the Plan shall be determined as follows: (i) The price of each share subject to an Incentive Stock Option under the Plan shall be not less than one hundred percent (100%) of the fair market value of such share on the date the option is granted; provided, however, that in the case of an Incentive Stock Option granted to a person who, at the time such Incentive Stock Option is granted, owns shares of the Company or any of its subsidiary corporations which possess more then ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of such subsidiary corporations, the price of each share subject to such Incentive Stock Option shall be not less than one hundred and ten percent (110%) of the fair market value of such share on the date the option is granted. In determining stock ownership of an employee for any purposes under the Plan, the rules of Section 424(d) of the Code shall apply, and the Board of Directors or the Committee may rely on the representations of fact made to it by the employee and believed by it to be true. (ii) The purchase price of each share subject to a nonqualified stock option under the Plan shall be determined by the Board of Directors or the Committee prior to granting the option. The Board of Directors or the Committee shall set the purchase price for each share subject to a nonqualified stock option at either the fair market value of such share on the date the option is granted, or at such other price as the Board of Directors or the Committee in its sole discretion shall determine; provided, however, that in no event shall the purchase price of a share subject to a nonqualified stock option under the Plan be less than 50% of the fair market value of such share on the date the option is granted. (iii) The fair market value of a share on a particular date shall be deemed to be the average (mean) of the reported "high" and "low" sales prices on the largest national securities exchange (based on the aggregate dollar value of securities listed) on which such shares are then listed or traded. If such shares are not listed or traded on any national securities exchange, then, in each case, to the extent the Board of Directors or the Committee determines in good faith that the following prices arise out of a bona fide, established trading market for the shares, (i) the average of the reported "high" and "low" sales prices for such shares in the over-the-counter market, as reported on the National Association of Securities Dealers Automated Quotations System, or, if such prices shall not be reported thereon, the average between the closing bid and asked prices reported, or (ii) if such prices shall not be reported, then the average closing bid and asked prices reported by the National Quotation Bureau Incorporated. In all other cases, the fair market value of a share shall be established by the Board of Directors or the Committee in good faith. (b) Such terms and conditions of exercise as may be set by the Board of Directors or the Committee and specified in the Stock Option Agreement. (c) That the option is not transferable other than by will or the laws of descent and distribution and that the option is exercisable during the grantee's lifetime only by the grantee or, if the grantee is disabled, by his guardian or legal representative. -4- (d) In addition to the restrictions set forth in (c) above, such restrictions on transfer of the option, and such restrictions on transfer of the shares acquired upon exercise of the option, as may be set by the Board of Directors or the Committee. (e) Such other terms and conditions not inconsistent with the Plan as may be set by the Board of Directors or the Committee, including provisions allowing acceleration of options upon a change of control of the Company or otherwise. (f) In the discretion of the Board of Directors or the Committee, any option granted hereunder may provide that such option may be exercised by the holder's surrender of all or part of such option to the Company in exchange for a number of shares of the Company's common stock having a total market value, as of the date of surrender, equal to the excess of (i) the market value, as of the date of surrender, of the number of shares that could be acquired by the exercise of that portion of the option which is surrendered, over (ii) the aggregate exercise price which would otherwise be paid to the Company upon a normal exercise of the option as to the number of shares surrendered. In the event the foregoing calculation would require the issuance of a fractional share, the Company shall, in lieu thereof, pay cash in an amount equal to the fair market value of such fraction as of the date of surrender. (g) The Board of Directors or the Committee may, in its discretion, grant stock appreciation rights to participants who are concurrently being granted, or previously have been granted, options under the Plan. A stock appreciation right shall be related to a particular option (either an option previously granted to a participant or an option granted concurrently with the stock appreciation right) and shall entitle the participant, at such time or times as the related option is exercisable, and upon surrender of the then exercisable option, or part thereof, and exercise of the stock appreciation right, to receive payment of an amount determined pursuant to paragraph (ii) below. Stock appreciation rights shall be subject to the following terms and conditions, to the terms of subsection (c) above regarding transferability, and to such other terms and conditions not inconsistent with this Plan as the Board of Directors or Committee may approve and direct: (i) A stock appreciation right shall be exercisable by a participant at such time or times, and to such extent, as the option to which it relates shall be then exercisable; provided, however, that a stock appreciation right may be exercised for cash only during the period beginning on the third business day following the date of release for publication by the Company of quarterly or annual summary statements of earnings and ending on the twelfth business day following such date and that the Board of Directors or Committee may impose such other conditions on exercise as may be required to satisfy the requirements of Rule 16b-3 under the Exchange Act (or and successor provision in effect at that time). -5- (ii) Upon exercise of the stock appreciation right and surrender of an exercisable portion of the related option, a participant shall be entitled to receive payment of an amount determined by multiplying: A. the difference obtained by subtracting the option exercise price per share of common stock subject to the related option from the fair market value of a share of common stock of the Company on the date of exercise of the stock appreciation right, by B. the number of shares subject to the related option with respect to which the stock appreciation right shall have been exercised. (iii) Unless otherwise provided, payment of the amount determined under paragraph (ii) above shall be made one-half in cash and one-half in shares of common stock of the Company valued at their fair market value on the date of exercise of the stock appreciation right, provided, however, that the Board of Directors or the Committee, in its sole discretion, may either require or allow the holder of the stock appreciation right to elect for such stock appreciation right to be settled solely in such shares, solely in cash, or in some other proportion of shares and cash, and provided, further, however, that cash shall, in any event, be paid in lieu of fractional shares. (iv) A stock appreciation right shall in no event be exercisable unless and until six months have elapsed from the date of grant of such stock appreciation right. (v) The shares and/or cash delivered or paid to a participant upon exercise of the stock appreciation right shall be issued or paid in consideration of services performed for the Company or for its benefit by the participant. (h) Notwithstanding anything herein to the contrary, no participant may be granted options or other rights to purchase, including stock appreciation rights with respect to, more than 662/3% in the aggregate of the number of shares of common stock authorized to be issued under the Plan, counted as provided in and as adjusted pursuant to, Section 2 above. In the event of an increase in the number of shares authorized under the Plan, the 662/3% limitation will apply to the increased number of shares so authorized. VI. LIMITATION ON PRICE FOR SHARES No option shall be granted under the Plan, and no stock shall be sold under the Plan, at an exercise price in the case of options or a purchase price in the case of direct sales of stock that is less than the par value of the shares optioned or sold. -6- VII. PROCEEDS FROM SALES OF SHARES The proceeds from the sale of shares under the Plan, upon the exercise of options or directly, shall be added to the general funds of the Company and may thereafter be used from time to time for such corporate purposes as the Board of Directors may determine and direct. VIII. AMENDMENT SUSPENSION OR TERMINATION OF PLAN The Board of Directors may at any time amend, suspend or terminate the Plan. However, no such action by the Board of Directors may be taken without the approval of the stockholders of the Company if such action would increase the aggregate number of shares subject to the Plan (other than pursuant to Section II of the Plan), change the provisions regarding eligibility for participation in the Plan, reduce the exercise price of an Incentive Stock Option to below the price required by Section V(a)(i) of the Plan or materially increase the benefit accruing to participants under the Plan. No amendment, suspension or termination of the Plan shall alter or impair any rights or obligations under any outstanding Stock Option Agreement without the consent of the holder. IX. PROVISIONS FOR EMPLOYEES OF SUBSIDIARIES In connection with the granting of an option or the sale of any shares to a participant who is an employee of a subsidiary corporation, as defined in Section IV of the Plan, the Company may sell the shares to be optioned or sold to such employee to the subsidiary corporation which is his employer, at a price which shall be not less than the option exercise price or the purchase price of the shares to such participant, but which may be more, in order that the shares sold to the participant, or issued to the participant upon exercise of an option may be issued or sold to him directly by his employer corporation. X. EFFECTIVE DATE AND TERMINATION OF THE PLAN (a) The Plan shall be submitted for a vote at a meeting of the stockholders of the Company or shall be approved by written consent of the stockholders, in either case in accordance with and only to the extent permitted by the requirements of Rule 16b-3 of the Exchange Act, by the Company's charter and by-laws and by applicable state laws prescribing the method and degree of stockholder approval required for the issuance of corporate stock or options; provided, that if applicable state law does not provide a method and degree of required approval, the Plan must be approved by a majority of the votes cast at a duly held stockholders' meeting at which a quorum representing a majority of all outstanding voting stock is, either in person or by proxy, present and voting on the Plan. (b) If approved by the stockholders of the Company within 12 months before or after adoption of the Plan by the Board, the Plan shall become effective on the date of such -7- stockholder approval (the "Effective Date"). Unless sooner terminated by the Board, the Plan shall terminate on the date ten (10) years after the earlier of (i) the date the Plan is adopted by the Board or (ii) the Effective Date. After termination of the Plan, no further options may be granted or shares sold under the Plan (other than upon the exercise of options previously granted under the Plan); provided, however, that such termination will not affect any options granted or shares sold prior to termination of the Plan. XI. MISCELLANEOUS (a) The invalidity or illegality of any provision of the Plan shall not affect the validity or legality of any other provision of the Plan. (b) The Plan, any options or stock appreciation rights granted or shares sold thereunder and all related matters shall be governed by, and construed and enforced in accordance with, the laws of the state of Delaware from time to time obtaining. -8- EX-10.(AA) 4 1997 MANAGEMENT AGREEMENT EXHIBIT 10(aa) 1997 MANAGEMENT AGREEMENT RELATING TO MARINE WORLD THIS 1997 MANAGEMENT AGREEMENT RELATING TO MARINE WORLD (the "Agreement") is made and entered into as of the 1st day of February, 1997, by and between the MARINE WORLD JOINT POWERS AUTHORITY, a joint exercise of powers authority duly created under the laws of the State of California (the "Authority"), and PARK MANAGEMENT CORP., a California corporation (the "Manager"). RECITALS: A. The Authority owns various animals, facilities, leasehold interests and other assets related to the facility known as Marine World/Africa USA in Vallejo, California ("Marine World"). B. The Manager has expertise in the operation of recreational facilities similar in scope to that of Marine World, and is willing to provide management services in connection with the operation of Marine World on the terms and subject to the conditions set forth herein. C. The Authority and the Manager now wish to enter into this Agreement in order to set forth the rights and obligations of the parties with respect to the provision of management services by the Manager for the period commencing February 24, 1997. AGREEMENT: In consideration of the foregoing and the mutual promises herein set forth, the parties hereto hereby agree as follows: SECTION 1 REPRESENTATIONS AND RESPONSIBILITIES OF THE AUTHORITY 1.1 FULL POWER AND AUTHORITY. The Authority warrants and represents to the Manager that it has full power and authority to enter into this Agreement and to perform its obligations hereunder. As of the date hereof, and at all times prior to commencement by the Manager of its services hereunder, Marine World has, and will have, been operated in compliance in all material respects with all applicable federal, state and local laws, regulations, ordinances, orders, and contracts and leases, including, without limitation, those relating to employment, wages, hours and working conditions. 1.2 APPROVALS AND LICENSES FOR MARINE WORLD. The Authority warrants and represents that it has all rights, interests, approvals, licenses, consents, permits and agreements necessary to operate Marine World as it was operated immediately prior to the effective date of this Agreement. 1.3 RESPONSIBILITIES OF THE AUTHORITY. As between the Authority and the Manager (in its capacity as manager of Marine World hereunder), the Authority shall have the direct and primary responsibility for: 1 (i) the review and approval of all operating and capital budgets for Marine World; (ii) the appointment and supervision of an independent certified public accountant (the "Auditor") to review all financial matters concerning Marine World deemed relevant or appropriate by the Authority; (iii) overall responsibility for all activities and facilities at Marine World; and (iv) the supervision and approval of all development and licensing of intellectual property rights owned by the Authority. 1.4 BANK ACCOUNTS AND DISBURSEMENTS. The Authority shall establish appropriate bank accounts for the deposit of gross receipts generated by, and for cash disbursements required for, the operations of Marine World. The Manager shall deposit all gross receipts in Authority accounts designated for such purpose by the Authority, such deposits to be made as frequently as determined prudent by the Manager with the approval of the Executive Director of the Authority. The Manager is hereby authorized to disburse such receipts pursuant to Section 2.9 below, subject to the provisions of Section 1.3(i) and (iii) above and 2.2.3 below. SECTION 2 REPRESENTATIONS AND RESPONSIBILITIES OF THE MANAGER 2.1 FULL POWER AND AUTHORITY. The Manager warrants and represents that it has full power and authority to enter into this Agreement and perform its obligations hereunder, and that it has conducted its own review of Marine World prior to its execution of this Agreement and it is not relying on any representation (other than as expressly set forth herein) of the Authority, the City of Vallejo, the Redevelopment Agency of the City of Vallejo or the Vallejo Public Financing Authority in connection with its execution of this Agreement and its agreeing to act as Manager hereunder. The Manager warrants and represents that it is a wholly-owned subsidiary of Premier Parks Inc., that its sole business is acting as Manager under this Agreement, and that it is authorized to transact business in the State of California to the extent necessary to discharge its obligations hereunder. 2.2 RESPONSIBILITIES OF THE MANAGER. 2.2.1 As between the Manager and the Authority, the Manager (in its capacity as manager of Marine World) shall have the direct responsibility within the budgets approved by the Authority under Section 1.3(i) hereof and subject to any specific direction by the Authority consistent with the provisions hereof, for: (i) the production and direction of all exhibitions at Marine World; (ii) the care, feeding and training of all marine mammals, exotic land animals and other living creatures in captivity ("Animals") at Marine World; 2 (iii) the coordination of the activities of the Authority and the Manager as necessary to achieve the efficient management and operation of Marine World; (iv) the maintenance and repair of all facilities, landscaping and vegetation at Marine World, including, without limitation, elements of the electrical and mechanical systems, all furniture, fixtures and equipment, plumbing systems, building exteriors, drains, roofs, sidewalks, entrance ways, exterior lighting, interior promenades and walkways (such maintenance shall include custodial cleaning services, pest control and trash removal, repairs, routine preventative maintenance, and any other activities necessary to maintain Marine World in first class condition and usable on all occasions as a recreational facility), and the design and installation of any additional landscaping and vegetation; (v) the organization and management of all admissions, concessions, merchandising, security systems and parking facilities at Marine World in a manner not inconsistent with the budgets and operational reports referred to in Section 4; (vi) the organization and management of all advertising and public relations programs relating to Marine World, including the preparation and submission to the Authority of an annual marketing plan for Marine World to be submitted within sixty (60) days of the effective date of this Agreement and on or about each January 31st thereafter during the term of this Agreement, which shall set forth in detail the Manager's strategy for marketing and promoting Marine World for the next year, including attendance goals and other relevant information; (vii) providing all assistance reasonably requested by the Authority in connection with the preparation of budgets and operating policies for Marine World, and the preparation of operating and capital budgets as specified in Section 4 hereof; (viii) establishing cash flow management and control systems and financial reporting systems for Marine World in conjunction with the Authority's representatives and the Auditor; (ix) the use, protection and licensing of all intellectual property rights of the Authority; (x) coordination with the Authority as to and the maintenance of ongoing fundraising, sponsorship and membership programs (taking into consideration the provisions of Section 2.16(iii) hereof); and (xi) the employment and management of all persons, and the acquisition of all materials and equipment, necessary to carry out the foregoing responsibilities (taking into consideration the provisions of Section 2.16(ii) hereof). In discharging its responsibilities described above, the Manager shall have full authority to act within the operating and capital budgets approved by Authority, and otherwise consistent with the marketing, maintenance and security plans approved by the Authority. In addition, (i) in the event of an emergency, the Manager shall contact the Executive Director of the Authority as soon as practicable as to the Manager's response to the situation, and the Manager may act as it deems necessary and as described to the Executive Director until such time as it can obtain approval of the Authority as to any additional actions, and (ii) in all 3 other instances, the Manager may deviate up to ten percent (10%) from any specific expense portion of the Authority-approved budget upon notice to the Executive Director of the Authority and a showing of the means by which such additional expense will be paid. Any material deviations by the Manager from the Authority-approved budgets and plans for Marine World not described in the preceding sentence must be approved by the Authority, or in exigent circumstances by the Executive Director or another authorized representative of the Authority. 2.2.2 The Manager and the Authority shall cause any governmental licenses necessary and otherwise pertaining to Marine World (including but not limited to any related to the sale of alcoholic beverages) to be transferred to and maintained in the Manager's name, or, if the Authority shall request in writing, in the name of the Authority. 2.2.3 Within the provisions of this Agreement, the Authority shall retain direct authority over all activities at Marine World. The Authority may appoint a subcommittee of its Board of Directors, and the Manager shall meet and confer with such subcommittee and any duly authorized representative of the Authority (including but not limited to the Executive Director of the Authority) as soon as reasonably practicable following delivery to the Manager of a request for such a meeting. 2.2.4 The Manager shall be permitted to review the personnel files of all individuals who were employed at Marine World prior to the date of this Agreement who apply for employment with the Manager. The Manager shall have sole discretion as to all decisions relating to hiring of employees, the employment of employees and the direction of the work force. The Manager shall have the sole discretion to set all terms and conditions of employment for all personnel the Manager will employ to operate Marine World. It is hereby acknowledged that the Manager will not employ any persons associated with Marine World prior to the commencement of the Manager's services hereunder until such person's prior employment has been terminated. The Authority hereby acknowledges that it has terminated the existing manager for Marine World effective upon the commencement of the activities of the Manager hereunder. The Authority shall have terminated or laid off any employees of the Authority related to Marine World prior to the commencement of Manager's services under this Agreement. 2.3 DESIGN AND CONSTRUCTION ADVISORY SERVICES. The Manager shall act as the liaison between the Authority and the architects, engineers, contractors, construction managers and construction lenders responsible for the design and construction of any improvements to the Marine World facilities (the "Construction"). The Manager shall monitor the progress, plans, budgets and reports of the architects, engineers, contractors, construction manager and construction lenders for the Marine World facilities and shall make written and verbal reports regarding the design and construction to the Authority on a regular basis as required by the Authority. In addition, and without limiting the foregoing, the Authority hereby appoints the Manager as its agent, and the Manager accepts appointment as agent of the Authority, to carry out all phases of any improvements to the Marine World facilities, and the Manager, as agent of the Authority, subject to the provisions hereof, assumes all rights, duties and responsibilities of the Authority regarding supervision of the acquisition, construction and installation of any improvements to the Marine World facilities. Without in any way limiting the duties of the Manager under this paragraph, in discharging its duties under this paragraph, the Manager shall within the approved budgets and subject to Section 1.3 hereof: (i) negotiate, enter into and administer all agreements for architectural, contracting, engineering, testing or consulting services related to the Construction, and any agreements for the 4 furnishing of any supplies, materials, machinery or equipment relating to the Construction, or any amendments to any such agreements; provided that no agreement shall be executed on behalf of or be binding on the Authority unless (a) such agreement is within the capital budget approved by the Authority, or (b) the terms and conditions thereof and the party with whom the agreement is to be made have been approved in writing by the Authority; (ii) receive and audit, together with the appropriate supporting documentation, all requests for payment in connection with the Construction; (iii) apply for and maintain in full force and effect any and all governmental permits and approvals required for the lawful completion of the Construction; (iv) ensure compliance with all public bidding and prevailing wage requirements related to any Construction, and all terms and conditions contained in any governmental permit or approval required or obtained for the lawful completion of the Construction, or in any insurance policy affecting or covering the Construction, or in any surety bond obtained in connection with the Construction; (v) keep the Authority fully informed on a regular basis of the progress of the Construction, including the preparation of such reports as may from time to time be reasonably requested by the Authority; (vi) inspect the progress of the course of the Construction, including verification of the materials and labor furnished so as to be competent to approve or disapprove requests for payment made by any persons with respect to the Construction, and, in addition, verify that the Construction is being carried out substantially in accordance with the plans and specifications approved by the Authority, or, in the event that the Construction is not being so carried out, to take corrective action and promptly notify the Authority; (vii) subject to the provisions of Section 2.5 hereof, hire and retain as its employees and not as employees of the Authority, such qualified personnel as may be required to fully perform the Manager functions hereunder; (viii) not permit (a) any change to the plans and specifications relating to the Construction originally approved by the Authority if such change would have the effect of materially scaling back, reducing, eliminating or adversely affecting the quality of the facilities to be constructed as contemplated by the capital budget approved by the Authority with respect to the Construction, or (b) any change to the plans and specifications originally approved by the Executive Director which would require an additional expenditure in excess of $100,000; and (ix) provide to the Authority upon its request copies of all documents relating to the Construction including copies of all agreements with contractors, subcontractors and material or equipment suppliers and all correspondence between the Manager and such contractors, subcontractors or suppliers. Notwithstanding the foregoing, no portion of the Construction shall be undertaken unless (a) it is expressly 5 contemplated by and within the limitations of the capital budget approved by the Authority and otherwise within the parameters of Section 2.3(viii) above, and/or (b) the Manager has obtained the express prior written approval of the Authority as to the scope and cost thereof. 2.4 PROFESSIONAL MANNER. The Manager shall fulfill its responsibilities hereunder in a professional and diligent manner within the budgetary and operating policy limitations established from time to time by the Authority and in compliance in all material respects with all applicable federal, state and local laws, regulations, ordinances, orders, contracts and leases governing the operation of Marine World. 2.5 SUBCONTRACTORS. The Manager may subcontract the whole or any part of the performance of its obligations and duties herein described to any affiliate of the Manager or to any other person, firm or corporation approved in writing by the Authority, which approval shall not be unreasonably withheld. The subcontracting of the whole or any part of its obligations and duties as aforesaid shall not relieve the Manager from liability and responsibility for the performance of such obligations and duties. The Manager shall provide to the Authority upon its request a list of any subcontractors performing services at Marine World. 2.6 INSURANCE. The Manager shall recommend insurance coverage on behalf of the Authority as is required pursuant to all leases governing the operation of Marine World or is otherwise prudent in the judgment of the Manager, and the Authority shall obtain and maintain such insurance coverage as it deems necessary or reasonable for the operation of Marine World. Notwithstanding the foregoing, the Manager shall at all times keep in full force and effect at least such insurance coverage for Marine World as is required under the 1997 Second Sublease Agreement Relating to Marine World, dated as of January 1, 1997, between the Authority and the Redevelopment Agency of the City of Vallejo (the "Second Sublease Agreement") as in effect on the date hereof. 2.7 FIDELITY COVERAGE. The Manager shall provide blanket fidelity insurance coverage in an amount of at least $100,000, and otherwise in form and substance satisfactory to the Authority, covering all personnel with access to cash or with the ability or authority to make expenditures on behalf of the Authority. 2.8 LIMITATION OF CONTRACTS. The Authority acknowledges that unless otherwise provided herein or unless the Manager is otherwise directed by the Authority, all contracts and agreements obligating the Authority with a term (including any renewals or extensions) of not more than one (1) year from the date of execution of the contract or the date hereof, whichever is later, with respect to the duties of the Manager under Section 2.2, and otherwise consistent with the approved budget for that year and the written operating policies (if any) of the Authority (to the extent a written copy of which policies has been provided to the Manager), may be entered into by the Manager and in the name of the Authority without the further approval of the Authority, except that no portion of the compensation under any such contract or agreement may be based upon net profits from all or part of the operations of Marine World, and all compensation under any such contract must be reasonable for the services rendered, and any such contract shall be subject to termination at the option of the Authority upon termination of this Agreement. Notwithstanding the foregoing, the Manager may negotiate and enter into a collective bargaining agreement with any union representing the Manager's employees and/or establish the terms of employment of such employees without the need for any approval of the Authority. Notwithstanding any provision to the contrary contained in this Agreement, the Manager shall not enter into any agreement on behalf of the Authority which shall not be in compliance with Internal Revenue 6 Service Revenue Procedure 93-19, or any successor Internal Revenue Service regulation or procedure which may be applicable in the future, unless otherwise expressly approved in writing by the Authority or its Executive Director. The Manager agrees to take all actions necessary to evidence all contracts entered into on behalf of the Authority and to assist the Authority in the enforcement thereof. The Manager shall provide the Authority with copies of all contracts and agreements which are binding upon or obligate the Authority. 2.9 COLLECTION OF REVENUES AND PAYMENT OF EXPENSES. The Manager is authorized for and on behalf of the Authority to receive all cash receipts and other revenues from Marine World and to make all disbursements necessary to carry out the obligations of the Authority and the Manager hereunder within the budgetary and policy limits approved or agreed to in writing by the Authority. Within such limits and subject to Section 2.2.3, the Manager shall be entitled to reimbursement from the Authority for all reasonable costs and expenses incurred by the Manager to carry out such obligations, which shall include without limitation all costs of the Manager which reasonably are allocable to the services provided by the Manager under this Agreement. Notwithstanding the foregoing, the Manager shall be entitled to reimbursement from the Authority for all reasonable costs and expenses incurred by it in connection with the commencement of its services hereunder, other than fees and expenses relating to the negotiation, execution and delivery of (i) this Agreement, (ii) any option to lease land within or adjacent to Marine World, or (iii) any option to purchase all or any portion of Marine World. 2.10 FINANCIAL RESPONSIBILITY OF AUTHORITY. Except as otherwise provided herein, it is hereby acknowledged that no payment shall be made under Section 2.9 or otherwise by the Authority to the Manager in respect of the compensation and employee benefit expenses of the executive officers (and any overhead expense) of Premier Parks Inc. incident to provision of management services under this Agreement, except for the Management Fee referred to in Section 3.1 hereof. Notwithstanding the foregoing, in performing its obligations hereunder, the Manager shall act solely as agent of Authority and, in that connection, all operating expenses of Marine World and all expenses of Manager incurred in the performance of its obligations hereunder (including, without limitation, all compensation or employee benefits expenses of all employees of any prior manager of Marine World, all employees of the Authority and all employees of the Manager providing services at or to Marine World, except as otherwise provided in Section 2.12 hereof) in accordance with this Agreement, shall be borne by the Authority, except that the Authority shall not pay or otherwise be responsible for the payment of amounts referred to in the preceding paragraph (except for the Management Fee). Without limiting the generality of the foregoing, all debts and liabilities to third parties incurred by Manager in the course of providing its services hereunder and within the limitations herein provided shall be the debts and liabilities of Authority, and Manager may so inform any such third party. To the extent funds necessary therefor are not generated by the operation of Marine World or by any working capital financing of the Authority, the Authority agrees to supply such funds. The Authority agrees to use its best efforts to obtain working capital financing for Marine World consistent with past practices of the Authority. The Manager shall, in no event, be required to advance any of its funds for the operation of Marine World nor to incur any liability in connection therewith, unless the Authority shall have furnished the Manager with funds necessary for the discharge therefor. However, the Manager shall have the right (exercisable after three weeks prior written notice to the Authority), but not the obligation, to advance on 7 behalf of the Authority its own funds to the extent required to pay any such obligation or liability of Marine World or the Authority. The Authority agrees to repay the Manager on written demand any such advance, plus interest thereon from the date of advancement at the prime rate. 2.11 COOPERATION. The Manager shall cooperate fully with and assist the Authority in attempting to achieve the Authority's goals and objectives with respect to Marine World. 2.12 TRANSITION OF MANAGEMENT AND OPERATION OF MARINE WORLD. Upon the termination of this Agreement pursuant to Section 6 hereof, the Manager agrees and covenants to cooperate fully with the Authority in the smooth and businesslike transition of the management and operation of Marine World. The Manager shall provide any prospective manager identified in writing by the Authority with access to all activities at Marine World, and shall assist any entity designated by the Authority to be the successor manager of Marine World in employing any employee of the Manager whose primary duties are related to Marine World, in connection with the future operation of Marine World on such terms and conditions as shall be agreed to by each employee and such new manager. The Authority shall in no way be responsible for any severance or termination compensation to any employee of the Manager that is not employed by the successor manager, to the extent that such severance or termination compensation has accrued under arrangements contractually offered or negotiated by the Manager from and after the date hereof without the prior written consent of the Authority as to the specific employees and amounts involved. The Manager shall, on the date of termination of this Agreement, (i) transfer all licenses, permits and agreements of the Manager that relate to Marine World to the new manager, (ii) transfer possession of any and all Authority property to such new manager or as otherwise directed in writing by the Authority, and (iii) vacate the Marine World site. The Authority shall reimburse the Manager for any reasonable costs or expenses borne by the Manager in connection with its performance of any obligations under this Section 2.12. 2.13 ALTERATIONS AND LIENS. The Manager shall not make, or suffer to be made, any material alterations to any facility at Marine World without the prior written consent of the Authority. The Manager shall not permit the assets of the Authority to become subject to any lien arising out of the responsibilities of the Manager hereunder. 2.14 NO DISCRIMINATION. The Manager shall not discriminate against any employee or applicant for employment because of race, color, citizenship status, national origin, ancestry, sex, sexual orientation, age, religion, creed, physical or mental disability, marital status, veteran status, or any other factor protected by law. The Manager shall not discriminate because of race, color, citizenship status, national origin, ancestry, sex, sexual orientation, age, religion, creed, physical or mental disability, marital status, veteran status or any other factor protected by law against any person by refusing to furnish such person any service or privilege offered to or enjoyed by the general public, nor shall the Manager or its employees publicize Marine World in any manner that would directly or inferentially reflect on the acceptability of the patronage of any person because of race, color, citizenship status, national origin, ancestry, sex, sexual orientation, age, religion, creed, physical or mental disability, marital status, veteran status, or any other factor protected by law. The Manager shall take no action which would cause the Authority to violate the provisions of Section 7.6(b) of the Second Sublease Agreement referred to in Section 2.6 hereof. 8 2.15 COOPERATION WITH FINANCING. The Manager agrees to cooperate, in accordance with the terms of this Agreement, with the Authority in its efforts to obtain financing to pay for the working capital needs of Marine World, the refunding or payment of debt relating to Marine World, and/or the construction of improvements at Marine World, and to sign such documents or take such actions as reasonably may be requested by the Authority or the lenders of such financing. The Authority shall be responsible for the repayment of any such financing, and the Authority acknowledges that the Manager (in its capacity as Manager hereunder) shall have no liability or responsibility whatsoever for the repayment of any debt incurred to finance Marine World or the inability of the Authority to obtain any such financing. As of the date of execution of this Agreement, the Manager acknowledges that it has supplied no equipment to the Authority and that it has no interest, legal or equitable, including security interests, in or to any item of real property, any fixture or any item of personal property located at Marine World. The Manager shall inform the Authority in writing as to any such equipment or interest that may be supplied or arise in the course of its performance hereunder. 2.16 PROMOTION OF VALLEJO. The Manager shall include references to the City of Vallejo in marketing and promotional materials related to Marine World, and use its best efforts to (i) use contractors, vendors and service providers located in the City of Vallejo in discharging its responsibilities under Section 2.2.1 hereof, and to give preference to such contractors, vendors and service providers in the event of equivalent quality and price, and (ii) include in its annual operating budgets under Section 4.1 and otherwise to implement reduced price admission and/or other programs targeted towards allowing access to Marine World for economically disadvantaged residents of Vallejo, especially families and children. SECTION 3 MANAGEMENT FEE 3.1 MANAGEMENT FEE. The Manager shall be entitled to receive a management fee (the "Management Fee") consisting of: (i) $250,000 annually, payable in equal monthly installments of $20,833.33, commencing on the first business day of the calendar month which first commences after the effective date of this Agreement and continuing on the first business day of each month thereafter so long as this Agreement remains in effect; plus (ii) an annual fee equal to twenty percent (20%) of the gross revenues arising from Marine World in excess of $35,000,000 during each twelve month period from November 1 through October 31 (but in the case of the period commencing on the date hereof and ending on October 31, 1997, $31,700,000); provided that any compensation payable under the preceding clause (ii) shall not be more than the compensation paid during the applicable twelve month period to which such compensation relates under the preceding clause (i). Not later than January 31 of each year during the term of this Agreement, commencing January 31, 1998 and otherwise following the completion of the annual financial audit of Marine World, the Manager shall submit to the Authority a request for any compensation due to it under clause (ii) of the first sentence of this Section 3.1, providing supporting detail for the amount owed. The Authority shall promptly review such information and make payment of any amount owed to the Manager under said clause (ii) by the succeeding February 28. 3.2 MANAGEMENT FEE REASONABLE. The Authority and the Manager acknowledge and agree that the amount of the Management Fee is reasonable in relation to the services to be performed by the Manager 9 hereunder. 3.3 PAYMENT ABSOLUTE. Payment of the Management Fee shall be made without regard to the financial status of Marine World. SECTION 4 ANNUAL BUDGETS AND REPORTS 4.1 OPERATING BUDGET. Within sixty (60) days of the effective date of this Agreement and on or about January 31 of each year during the term of this Agreement, the Manager shall prepare operating programs and a budget for Marine World for the remainder of the then current operating year in the case of the first budget, and for the succeeding operating year in the case of all other budgets, and shall submit them to the Authority by such date. Such budgets shall include detailed line items with respect to (i) projected attendance, (ii) revenues (including expected prices and/or pricing policies for admission, parking, concessions and merchandise), (iii) expenses and (iv) capital improvements, and shall otherwise set forth the Manager's general strategy for reducing expenses and increasing revenues. 4.2 CAPITAL BUDGET. Within sixty (60) days of the effective date of this Agreement and on or about January 31 of each year during the term of this Agreement, the Manager shall submit to the Authority an annual capital expenditure request and cash flow projection as well as a projected capital and operating reserves report. The reports due on each January 31 shall include a summary five year capital improvement plan for Marine World. 4.3 OTHER PLANNING DOCUMENTS. The Manager shall, in addition to the other budgets and reports required under this Section 4, submit to the Authority for its review and approval, within ninety (90) days of the effective date of this Agreement and on or about each January 31 during the term of this Agreement, (i) the marketing plan referred to in Section 2.2.1(vi) and consistent with Section 2.16(i), (ii) a maintenance plan for Marine World consistent with Section 2.2.1(iv), (iii) a security plan consistent with Section 2.2.1(v), and including both emergency and non emergency protocols to be followed by management employees, and (iv) a list of insurance maintained for Marine World consistent with Section 2.6. In addition, the Manager shall prepare a cash flow budget and otherwise assist the Authority in connection with the annual cash flow borrowing by the Authority for Marine World, which budget must be prepared and refined in late September or early October of each year so that such cash flow borrowing can be completed by November 1 of each year. 4.4 AUTHORITY REVIEW AND APPROVAL. The Authority shall notify the Manager of its approval or disapproval of any budgets or reports submitted to it pursuant to Section 4.1, 4.2 and 4.3 with thirty (30) days of any such submittal. Failure of the Authority to disapprove of any such report or budget, or any portion thereof, within said thirty day period shall be deemed to be approval by the Authority. If the Authority disapproves a portion of any report or budget, the Manager may act under the portions thereof not so disapproved, and shall revise the portion that was disapproved until satisfactory to the Authority. With respect to any portion thereof not approved or deemed approved by the Authority, the prior period's budget or report shall remain in effect with respect to such portion until a new budget or report with respect thereto shall have been so approved. The Manager shall revise reports from time to time to reflect Authority comments or concerns, and material changes in the operations of Marine World. 10 4.5 ANNUAL DISCLOSURE. The Manager shall assist the Authority and promptly provide any information requested by the Authority in connection with, the annual disclosure responsibilities of the Authority under Section 7.9 of the Second Sublease Agreement referred to in Section 2.6, or otherwise in connection with the annual cash flow borrowing of the Authority. 4.6 ASSISTANCE CONCERNING MEETINGS. The Manager shall provide such information or assistance to the Authority as the Authority may request in relation to preparing for meetings of the Board of Directors of the Authority. SECTION 5 RECORDS; ACCOUNTS AND MONTHLY REPORTS 5.1 MAINTENANCE OF RECORDS. The Manager shall cause to be kept at Marine World full, true and accurate, in all material respects, books, accounts and records of the management and operations of Marine World and of all transactions relating thereto as such operations extend to the responsibilities of the Manager hereunder. 5.2 ACCOUNTING METHOD; AVAILABILITY. Such books, accounts and records shall be kept on the accrual basis of accounting in accordance with generally accepted accounting principles and practices and shall be available for inspection by the Auditor, the Authority and their respective agents and employees. 5.3 FINANCIAL STATEMENTS AND INFORMATION. The Manager shall provide the Authority with monthly financial statements, in a form reasonably acceptable to the Executive Director of the Authority, respecting the operations of Marine World, including a balance sheet, cash flow report, statement of operations, budget variance to date and other pertinent financial data reasonably requested by the Authority, no later than twenty (20) days following the end of each month. The Manager shall provide to the Authority for its review a list of warrants representing amounts disbursed in furtherance of the activities and operations at Marine World on a monthly basis, or as otherwise requested by the Authority. In addition, the Manager shall cause to be prepared such other management and financial reports concerning Marine World as the Authority may reasonably request from time to time. 5.4 RIGHT TO INSPECT. The Authority has the right to inspect and to audit all the books and records relating to the management and operation of Marine World which rights shall remain in effect for the duration of this Agreement and for five (5) years thereafter. SECTION 6 TERM AND TERMINATION 6.1 TERM OF AGREEMENT. This Agreement shall commence on the date of termination of the Interim Management Agreement Relating to Marine World, entered into as of November 1, 1996, between the Authority and Marine World/Africa USA Partners, a California Limited Partnership, and shall terminate on February 1, 2002, unless sooner terminated as set forth in paragraph 6.3. 11 6.2 DEFAULT. 6.2.1 Failure by either party hereto to pay or deposit sums due by one party to the other, or as otherwise required under this Agreement, within five (5) days notice by the other of such failure shall be a default hereunder, provided that if the default is of a nature that it cannot be cured within five (5) days, then the defaulting party shall not be deemed in default if it takes reasonable steps to commence to cure the default within such five (5) day period and proceeds with due diligence thereafter to cure its default within ten (10) days of notice of default. 6.2.2 Violation in any material respect by the Manager of any laws, ordinances, rules and regulations or orders of any public authority having jurisdiction over Marine World and failure by the Manager to cure the applicable violation within five (5) days following notice of any violation thereof from the Authority, any officer thereof or the applicable governmental agency shall be a default by the Manager hereunder; provided, however, that the Manager shall not be in default hereunder if such cure cannot be reasonably accomplished within such period so long as the Manager commences cure within such five (5) day period and proceeds with due diligence thereafter to cure said default within (i) thirty (30) days of notice thereof; or (ii) if not so cured during such period, so long as a failure to cure the violation does not have a material adverse effect on the operations or financial condition of the Park, such longer period as is necessary to effect such cure. 6.2.3 Either party shall be deemed in default under this Agreement in the event of an uncured material breach of any provision of this Agreement not otherwise referred to in Sections 6.2.1 or 6.2.2. The nondefaulting party must give written notice to the defaulting party specifying the full particulars of the breach alleged. The defaulting party shall have thirty (30) days from the date of the notice to cure the breach or take steps reasonably acceptable to the nondefaulting party to cure the breach which actions must be diligently pursued and concluded in a reasonable period. 6.2.4 The occurrence of any affirmative act by the Manager (i) which directly causes an Event of Default (as such term is defined in the Second Sublease Agreement referred to in Section 2.6 hereof) with respect to any obligation of the Authority under Sections 5.2, 5.3, 5.4, 5.5, 5.7, 5.9, 6.1, 7.2 or 7.6 of said Second Sublease Agreement as the same exists on the date hereof, or an Event of Default (as such term is defined in the Trust Agreement referred to in said Second Sublease Agreement) in Section 10.06 of said Trust Agreement as the same exists on the date hereof, and (ii) which has a material adverse effect on the operations or financial condition of Marine World. 6.3 EARLIER TERMINATION. Notwithstanding the provisions of Section 6.1 hereof, this Agreement shall be terminated sooner: (i) at the option of either party hereto, if the Authority and Premier Parks Inc. (or a wholly-owned subsidiary thereof) have not entered into an option agreement in respect of a lease of property adjacent to or within Marine World which is mutually satisfactory to them by April 1, 1997, upon ninety (90) days prior written notice to the other party, provided that any such termination by the Manager shall not be effective until the earlier of (a) at the option of the Authority, two hundred seventy (270) days from the receipt by the Authority of such notice, or (b) the appointment of and assumption of duties by a new manager for Marine World; 12 (ii) at the option of the Manager, if the Authority and Premier Parks Inc. (or a wholly-owned subsidiary thereof) have not entered into an option agreement in respect of a purchase by Premier Parks Inc. (or a wholly-owned subsidiary thereof) of Marine World by September 1, 1997, upon not less than ninety (90) days prior written notice by the Manager to the Authority; (iii) at any time by mutual agreement between the Manager and the Authority; (iv) at the option of either party hereto, upon substantial destruction or taking by eminent domain of such portions of Marine World so as to make the operation of Marine World, in the opinion of the Authority, economically infeasible; (v) subject to the provisions of Section 6.4, immediately upon a default under Section 6.2 at the election of the nondefaulting party; (vi) at the option of the Authority with thirty days prior written notice to the Manager, and effective upon appointment of and assumption of duties by a new manager for Marine World, (a) on the date which is three (3) years from the date of this Agreement, and (b) following notice to the Authority by Premier Parks Inc. (or its wholly owned subsidiary which is the holder of the option) that it will not exercise an option to lease land adjacent to Marine World as such option is contemplated by the option agreement referred to in clause (i) above; or (vii) at the option of the Manager, if the Manager in good faith has a material disagreement with the Authority over (a) changes mandated by the Authority to budgets previously approved by the Authority under Section 4.4 hereof or (b) the Authority's operating policies with respect to Marine World, upon ninety days written notice from the Manager to the Authority as to the substance of such disagreement, provided that any such termination by the Manager shall not be effective until the earlier of (a) at the option of the Authority, one hundred fifty (150) days from the receipt by the Authority of such notice, or (b) the appointment of and assumption of duties by a new manager for Marine World. 6.4 AGENCY RIGHT TO CURE. The Redevelopment Agency of the City of Vallejo (the "Agency") shall have the right to receive from the Manager notice of and have the right to cure any breach by or default of the Authority under this Agreement, on behalf of and at the expense of the Authority during any period that Authority is in default thereunder; provided that, except in case of an emergency requiring earlier action, the Agency shall give Authority not less than fifteen (15) days prior written notice of the Agency's intent to cure on behalf of Authority. The Agency shall have a reasonable period of time (considering the nature of the default) to cure any default of Authority, following the expiration of all periods (including any extensions of time and period during which performance is waived) allowed for Authority's cure of such default, in the event that Authority has failed to cure. 6.5 PRORATION OF MANAGEMENT FEE UPON TERMINATION. If this Agreement is terminated prior to the end of its term (as described in Section 6.1), the Authority shall pay to the Manager, within thirty (30) days after such termination and after deducting any amounts owed by the Manager to the Authority hereunder, any compensation due under Section 4.1(i), and a pro rata amount to be agreed upon by the Authority and the Manager in respect of Section 4.1(ii) based upon the operations of Marine World to the date of termination as compared to the immediately preceding two years; provided that no such compensation 13 shall be owing in respect of Section 4.1(ii) in the event of a termination by the Authority by reason of a default by the Manager of the character described in Section 6.2. SECTION 7 INDEMNIFICATION 7.1 INDEMNIFICATION BY AUTHORITY. The Authority shall indemnify and hold the Manager harmless from any and all claims, costs, damages and liabilities, including reasonable attorneys fees and expenses ("Loss"), as and when incurred by reason of or arising out of (i) any and all debts, liabilities or obligations, whether direct or contingent, of any party relating to Marine World, existing on, or arising out of the operation or ownership of Marine World prior to, the commencement of Manager's services hereunder or (ii) the performance by the Manager of its duties and responsibilities hereunder or its status as "manager" of Marine World, except for those arising out of: (a) the negligence or willful misconduct of the Manager or its officers, directors, agents or employees; or (b) a breach by the Manager or its employees, agents, subcontractors or assigns of its duties or obligations hereunder. 7.2 INDEMNIFICATION BY THE MANAGER. The Manager shall indemnify, defend (with counsel approved by the Authority) and hold the Authority and its officers, directors, employees and agents harmless from any and all claims, costs, damages or liabilities, including reasonable attorneys fees and expenses ("Loss") as and when incurred by reason of or arising from: (i) the gross negligence or willful misconduct of the Manager or its employees, agents or subcontractors; or (ii) a breach by the Manager or its employees, agents, subcontractors or assigns of its duties or obligations hereunder. 7.3 INSURANCE PROCEEDS. Any loss to be indemnified under this Section 7 shall be after deducting any insurance proceeds received in connection with such loss by the party suffering the loss. SECTION 8 FORCE MAJEURE 8.1 OBLIGATIONS SUSPENDED. If the Manager or the Authority is unable by reason of Force Majeure (as herein defined) to carry out any obligation under this Agreement, such obligation shall be suspended only so far as it is physically affected by such Force Majeure during the continuance thereof. The party unable to perform shall give the other party prompt notice of such Force Majeure with reasonably full particulars thereof and, insofar as is known, the probable extent to which it will be unable to perform or be delayed in performing such obligation. The party unable to perform shall use all possible diligence to remove such Force Majeure as quickly as possible. 14 8.2 REMOVAL OF FORCE MAJEURE. The requirement that any Force Majeure shall be removed with all possible diligence shall not require the settlement by the party unable to perform of strikes, lockouts or other labor disputes or the meeting of any claims of or demands by any supplier or government entity which reasonably may be harmful to the best interests of the Authority or the Manager. 8.3 DEFINITION. For the purpose of paragraphs 8.1 and 8.2 hereof, "Force Majeure" shall mean an act of God, strike, lockout or other industrial disturbance, act of a public enemy, war, blockade, public riot, lightning, fire, storm, earthquake, flood, explosion, governmental restraint, breakage, or accidents to equipment and any other cause whether of the kind specifically enumerated above or otherwise, which shall not reasonably be within the control of the party claiming suspension. SECTION 9 MISCELLANEOUS 9.1 NO PRIVATE BUSINESS USE. The Manager shall take all reasonable steps in connection with this Agreement as may be requested by the Authority to ensure that Marine World is not deemed to be used for a private business use within the meaning of Section 141(b) of the Internal Revenue Code of 1986 and applicable rulings, procedures and regulations of the Internal Revenue Service, so as to cause the City of Vallejo or the Authority to violate the covenant in Section 10.05(a) of the 1997 Trust Agreement Relating to Marine World, dated as of January 1, 1997, among the City of Vallejo, the Authority and BNY Western Trust Company. 9.2 NO WAIVER. No delay or failure on the part of any party in exercising any right hereunder shall impair any such right or any remedy of the party so delaying or failing, nor shall it be construed to be a waiver of any continuing breach or default hereunder or any acquiescence therein or of any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default hereunder be deemed a waiver of any other breach or default theretofore or thereafter occurring. 9.3 AMENDMENTS. This Agreement may be amended, modified, waived, released or discharged only by a written amendment executed by the parties hereto. 9.4 SEVERABILITY. If any court of competent jurisdiction holds that any provision of this Agreement is void, voidable, illegal or unenforceable, or that this Agreement would be void, voidable, illegal or unenforceable unless any provision hereof were severed herefrom, that provision shall be severable from and shall not affect the continued operation of the rest of this Agreement; provided that if the provision to be severed is a material part of this Agreement, the foregoing shall not apply, and the parties shall in good faith renegotiate such provision. 9.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding on all parties hereto and their respective successors and permitted assigns. A party may not assign its rights or be released from its obligations in, to or under, this Agreement except as may expressly be approved in writing by the other party hereto in its sole and absolute discretion; provided that the Authority may at any time assign this Agreement to the City of Vallejo, the Agency, the Vallejo Public Financing Authority or another agency of either the City or the Agency which has the use and possession of Marine World. The experience and capabilities of the 15 Manager were of primary importance to the Authority in entering into this Agreement, and the Authority shall be under no obligation whatsoever to approve any prospective assignee of the Manager hereunder. 9.6 COUNTERPARTS. This Agreement may be executed in counterparts, each of which, when so executed, shall be deemed to be an original and all of which, when taken together, shall constitute one agreement. 9.7 NOTICES. Any notice, document or other item to be given, delivered, furnished or received under this Agreement shall be deemed given, delivered, furnished or received when given in writing and personally delivered to an officer of the applicable party or, after the same is deposited with the United States Postal Service, postage prepaid, registered or certified first class mail, return receipt requested, addressed to such applicable party at the address or addresses indicated herein therefor, or at such other address or addresses as such party may from time to time designate by written notice to the other, at the time of delivery shown on such return receipt: (a) If to the Authority: Marine World Joint Powers Authority, c/o City of Vallejo, City Hall, 555 Santa Clara Street, Vallejo, California 94590, Attention: City Manager, with a copy to City Attorney of the City of Vallejo, City Hall, 555 Santa Clara Street, Vallejo, California 94590. (b) If to the Manager: Park Management Corp., c/o Premier Parks Inc., 122 East 42nd Street, 49th Floor, New York, New York 10168, Attention: Chief Financial Officer, with a copy to Baer Marks & Upham LLP, 805 Third Avenue, 20th Floor, New York, New York 10022, Attention: James M. Coughlin. 9.8 INDEPENDENT CONTRACTOR. The relationship between the Manager and the Authority is that of an independent contractor and, except as herein expressly provided, neither party is granted any right or authority to assume or create any obligation or responsibility, express or implied, on behalf of or in the name of the other or to bind the other in any manner or thing whatsoever. 9.9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the management and operation of Marine World by the Manager during the term of this Agreement. 9.10 ARBITRATION OF DISPUTES. 9.10.1 Any disputes between the parties arising out of or related to this Agreement which cannot be resolved by good faith negotiation shall be resolved through binding arbitration. Any party may elect to commence arbitration at any time by giving notice to the other party. The parties then shall attempt to agree on the appointment of a panel of three independent arbitrators. Each party may select one of the arbitrators for such panel, and if they do not identify their respective arbitrator to the other party or they cannot agree on the third arbitrator within twenty (20) days of the notice electing arbitration, such arbitrator(s) shall be appointed through the procedures of the American Arbitration Association. Any arbitrator selected to serve shall be qualified by training and experience for the matters for which such arbitrator is designated to serve. The arbitration shall be conducted in Vallejo, California under the commercial arbitration rules then in effect of the American Arbitration Association. The written decision and findings of a majority of the panel of 16 arbitrators shall be final, binding and conclusive as between the parties and may be entered in any court having jurisdiction. The parties hereby consent to the jurisdiction and venue of the federal courts located in the Eastern District of the State of California and state courts located in Solano County, California for this purpose. 9.10.2 The parties each shall advance one-half (1/2) of the costs of any arbitration. However, the prevailing party in any arbitration proceeding or legal action arising out of, or in connection with, this Agreement shall be entitled to recover its reasonable attorney's fees and its costs and expenses incurred in connection with such arbitration proceeding or legal action. The arbitrators shall specify the prevailing party or parties in its award. If more than one arbitrable dispute is adjudicated then the costs and expenses of the arbitration shall be apportioned by the arbitrators in the arbitration award to each separate dispute. 9.11 REMEDIES NOT EXCLUSIVE. The remedies provided herein for breach of this Agreement are not exclusive, and in event of breach, the parties hereto shall have all the remedies provided by law. 9.12 NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to and does not create any rights or interests in any person not a party hereto, except the Agency, as provided in Section 6.4 hereof. 9.13 AUTHORITY CONSENTS AND APPROVALS. No consents, authorization or approval required by this Agreement to be given by the Authority will be unreasonably withheld. Unless otherwise provided herein, all matters submitted by the Manager for approval by the Authority shall be deemed approved by the Authority unless the Authority notifies Manager in writing of its disapproval thereof within the time period specified herein for such approval or, if no such time period is specified, within thirty (30) days after such matter is so submitted in writing by the Manager to the Authority. 9.14 LIMITATION ON MANAGER'S ACTIVITIES. The Manager hereby acknowledges and agrees that it is a single purpose corporation whose sole corporate purpose is to act as Manager hereunder, and that it will not engage in any activities unrelated to its performance as Manager hereunder without the prior written consent of the Authority. 17 9.15 APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made and performed in such State, and Solano County, California, shall be the county of venue in the event of any legal proceedings with respect to this Agreement. IN WITNESS WHEREOF the parties have executed this Agreement effective as of the date first above written. MARINE WORLD JOINT POWERS AUTHORITY By: /s/ -------------------------------- Executive Director PARK MANAGEMENT CORP. By: /s/ -------------------------------- Chairman and Chief Executive Officer Premier Parks Inc. hereby fully and unconditionally guarantees the performance by Park Management Corp. of its obligations under Sections 2, 4, 5 and 7.2 of the foregoing Agreement. PREMIER PARKS INC. By: /s/ ------------------------------ Chairman and Chief Executive Officer 18 EX-10.(AB) 5 PURCH OPT AGREEMENT MWJPA/RACV/PARK MGT EXHIBIT 10(ab) ================================================================================ PURCHASE OPTION AGREEMENT Among CITY OF VALLEJO, MARINE WORLD JOINT POWERS AUTHORITY and REDEVELOPMENT AGENCY OF THE CITY OF VALLEJO, collectively, as Optionor and PARK MANAGEMENT CORP., as Optionee Property: Marine World Park and Adjacent Property City of Vallejo Solano County, California Dated as of August 29, 1997 ================================================================================ Prepared by: Baer Marks & Upham LLP 805 Third Avenue New York, New York 10022 PURCHASE OPTION AGREEMENT THIS PURCHASE OPTION AGREEMENT ("Agreement") is entered into as of this 29th day of August, 1997 by and among the CITY OF VALLEJO, a municipal corporation organized and existing under the laws of the State of California (the "City"), the MARINE WORLD JOINT POWERS AUTHORITY, a joint exercise of powers authority organized and existing under the laws of the State of California (the "Authority") and the REDEVELOPMENT AGENCY OF THE CITY OF VALLEJO, a public body, corporate and politic, organized and existing under the laws of the State of California (the "Agency"); and PARK MANAGEMENT CORP., a California corporation (the "Corporation"). R E C I T A L S: A. The City owns fee simple title to approximately one hundred thirty-eight (138) acres of land located in the City of Vallejo, County of Solano, State of California, and more particularly described in Exhibit A attached hereto and made a part hereof (the "Land"). The City also owns or controls the right to use the surface of Lake Chabot, a flood control and drainage reservoir consisting of approximately fifty-five (55) acres ("Lake Chabot"). B. The City has entered into a 1997 Site Lease Relating to Marine World dated as of January 1, 1997, whereby the City has leased the Land and rights to use a portion of the surface of Lake Chabot to the Authority (the "1997 City-Marine World Lease"). C. In connection with the Certificates of Participation Financing (as defined in Section 7.14), the Authority and the City have entered into a 1997 Lease Agreement Relating to Marine World dated as of January 1, 1997 (the "1997 Marine World-City Lease"), whereby the Authority leased back to the City a portion of the Land more particularly described in Exhibit B attached hereto and made a part hereof (the "Public Parcel", which Public Parcel shall be hereinafter deemed to include all Improvements thereon) and rights to use a portion of the surface of Lake Chabot, the City and the Agency have entered into a 1997 First Sublease Agreement Relating to Marine World dated as of January 1, 1997 (the "1997 City-Agency Lease"), whereby the City subleased to the Agency the Public Parcel and the rights to use a portion of the surface of Lake Chabot, and the Agency and the Authority have entered into a 1997 Second Sublease Agreement Relating to Marine World, dated as of January 1, 1997, whereby the Agency subleased to the Authority the Public Parcel and the rights to use a portion of the surface of Lake Chabot (the "1997 Agency-Marine World Lease"). The 1997 City-Marine World Lease, the 1997 Marine World-City Lease, the 1997 City-Agency Lease and the 1997 Agency-Marine World Lease are collectively referred to herein as the "Public Leases" and the City, the Agency and the Authority are hereinafter, as their interests may appear, collectively referred to as the "Optionor." D. Pursuant to that certain Option Agreement (Parcel Lease) dated as of May 30, 1997, among the Authority, the Agency and the Corporation, the Authority granted to the Corporation an option to lease a portion of the Land identified in Exhibit C attached hereto and made a part hereof (the "Private Parcel," which Private Parcel shall be hereinafter deemed to include all Improvements thereon), to enable the Corporation to construct and operate facilities on the Private Parcel compatible with those on the Public Parcel. E. Optionor desires to grant to the Corporation an option (the "Option") to acquire all of the right, title and interest of Optionor in and to the Option Property on the terms, and subject to the conditions, set forth herein, and the Agency and the Authority desire to relinquish, transfer and assign all of their respective right, title and interest thereto and under the Public Leases, on the terms, and subject to the conditions, set forth herein. F. The Corporation desires to acquire the Option upon the terms and conditions hereinafter set forth. A G R E E M E N T In consideration of the promises set forth herein and for other good and valuable consideration, including but not limited to, amounts expended and to be expended by or on behalf of the Corporation in connection with the making of certain Improvements to the Option Property, the receipt and sufficiency of which the parties hereto hereby acknowledge, the parties hereto hereby agree as follows (refer to Section 7.14 for definitions of capitalized terms): ARTICLE 1 TERMS OF OPTION SECTION 1.1 Sale of Option. Optionor hereby grants to the Corporation, and the Corporation hereby accepts from Optionor, the Option for the consideration recited above, and on the terms set forth herein. In the event the Corporation exercises the Option in accordance with Section 1.4, the parties shall, at the Corporation's election, either execute and deliver a contract of sale for the Option Property in form and substance reasonably acceptable to Optionor and the Corporation, including but not limited to, and otherwise consistent with, the terms set forth herein (the "Contract of Sale"), or consummate the Closing in accordance with the terms hereof. SECTION 1.2 Term. The term of the Option shall begin as of the date hereof and expire on the date which is the soonest to occur of (i) the Closing Date, (ii) the expiration of the Option in accordance with the terms hereof, (iii) February 1, 2007 and (iv) the expiration by its terms of the Option under and as defined in the Lease Option without exercise thereof by the Corporation (such period shall hereinafter be referred to as the "Term"). If the Option is not exercised in accordance herewith on or prior to the last day of the Term, the Option shall 2 automatically and without requiring further documentation, terminate and cease to be of force and effect. SECTION 1.3 Exclusivity. The Option to purchase the Option Property shall be exclusive during the Term; provided, however, the parties shall have the right to assign the Option and all of their respective right, title and interest hereunder in accordance with Section 7.3 below. SECTION 1.4 Exercise; Rescission. (a) Exercise of the Option herein granted shall be by written notice thereof given by the Corporation to Optionor not more than one hundred twenty (120) days prior to the prospective Closing in the manner hereinafter provided during the Term (the "Exercise Notice"). Notwithstanding the foregoing, the Option may only be exercised (i) if the Corporation has theretofore exercised the Option under and as defined in the Lease Option and (ii) if the Exercise Notice is delivered more than one hundred twenty (120) days prior to February 1, 2002, the Corporation shall have obtained an opinion of a nationally recognized bond counsel acceptable to the Optionor to the effect that the exercise of the Option will not cause the interest component of the Lease Payments under the 1997 Marine World-City Lease to be includable in the gross incomes of the owners of the related Certificates of Participation. (b) Notwithstanding any provision of this Agreement to contrary, at any time after delivery of the Exercise Notice, and on or before the thirty-fifth (35th) day prior to the prospective Closing Date, for any reason or for no reason and without the necessity of any explanation, the Corporation may give Optionor a written notice in the manner hereinafter provided during the Term (the "Rescission Notice") whereby the Corporation elects to rescind the Exercise Notice, whereupon this Agreement and the obligations of the parties hereunder shall continue in force and effect as if such Exercise Notice had not been delivered. In the event that the Corporation delivers any such Rescission Notice, the Corporation shall promptly pay, upon receipt of an invoice therefor, all costs incurred by Optionor related to actions taken by Optionor in response to the Exercise Notice reasonably related to preparing for the Closing. SECTION 1.5 Time and Place of Closing. Upon timely and proper exercise of the Option as herein provided, the purchase and sale of the Option Property shall be consummated at a closing (the "Closing") to occur on a date (the "Closing Date") selected by the Corporation in the Exercise Notice, which is not less than sixty (60) days following the delivery of such Exercise Notice. The Closing shall occur at the office of the City Manager or at such other location as shall be mutually acceptable to the Corporation and the Optionor. ARTICLE 2 CLOSING SECTION 2.1 Purchase Price. If the Option is exercised by the Corporation in accordance with the terms hereof, the Corporation shall pay to, or as directed by, the Authority on or prior to the Closing Date as consideration for the acquisition of the Option Property, an amount (the "Purchase Price") equal to the greater of (i) the sum of (A) the then 3 applicable Assessment Bond Amount and (B) the outstanding principal amount of the Certificates of Participation as of the Closing Date or (ii) the Fair Market Value. Except as otherwise provided herein, the Purchase Price shall be paid in immediately available funds by federal funds wire transfer, or as otherwise directed by Optionor in writing at least five (5) business days' prior to the Closing. The Purchase Price shall be allocated among the Option Property as set forth on a schedule prepared by the Corporation, reasonably acceptable to the Optionor and delivered on or prior to the Closing. Each party shall make all appropriate tax and other filings on a basis consistent with such allocation. SECTION 2.2 The Corporation's Closing Conditions. Upon the Corporation's exercise of the Option, the Corporation shall effectuate the Closing on the Closing Date in accordance with the terms hereof or the Contract of Sale (if any), provided the following conditions have been satisfied or waived by the Corporation on or prior to such Closing Date: (a) Optionor's Closing Documents (as described in Section 2.4 hereof) shall have been duly executed and delivered to the Corporation. (b) The Corporation shall have received all Governmental Approvals and such other permits, licenses, reports, including but not limited to an environmental report with soil samples, and such other evidence reasonably required by the Corporation, showing that the Option Property and the Business are in substantial compliance with all applicable Laws, including but not limited to Environmental Laws, except to the extent that any non-compliance does not have a material adverse effect on the Option Property or the Condition of the Business. (c) All of the representations and warranties of Optionor set forth herein and in any Contract of Sale shall have been true and correct in all material respects on the date hereof or thereof, as the case may be, and on the Closing Date, and Optionor shall have performed and complied with all agreements, obligations and covenants required by this Agreement or any Contract of Sale to be performed or complied with by it at or prior to the Closing Date. (d) The Corporation shall have received an A.L.T.A. form of owner's policy of title insurance issued by a title company acceptable to it (the "Title Company"), insuring fee simple marketable title in the Realty in the name of the Corporation (or its nominee or designee) subject to the Permitted Encumbrances. (e) The Certificates of Participation and all other indebtedness or other liabilities secured by all or any part of the Option Property or any interest therein, other than Assumed Liabilities and Permitted Encumbrances, shall have been paid in full by, or on behalf of, Optionor or shall have been duly called for prepayment in full on the Closing Date and the Corporation shall have received evidence satisfactory to it that such prepayment shall have been made or will be made on the Closing Date from the Purchase Price received by the Authority. (f) If, on the Closing Date, the Corporation shall not be the manager of the Business, the Corporation shall have received evidence, satisfactory to it, that any Contract between Optionor and any third party, pursuant to which such party acts as manager of the Business shall terminate on the Closing Date. 4 (g) All accounts payable relating to the Business and other Retained Liabilities existing as of the Closing Date shall have been paid by Optionor, duly provided for under the RSA or paid by the Corporation on behalf of Optionor out of the Purchase Price. (h) All Optionor Required Consents (as defined in Section 3.1(j)) shall have been obtained and the Corporation shall have received evidence, reasonably satisfactory to it, to that effect. (i) Optionor shall have delivered to the Corporation at the Closing possession and control of the Option Property. (j) No change shall have occurred subsequent to the Exercise Notice but prior to the Closing to all or any part of the Option Property which alone or in the aggregate has a material adverse effect on the Option Property, the Business or the Fair Market Value, nor has any event occurred or condition exist at or prior to the Closing which may give rise to such change. (k) No Claim (as defined in Section 3.1(d)) instituted by any person (other than the Corporation or its Affiliates) shall have been commenced or be pending against Optionor, the Corporation or any of their Affiliates, which Claim seeks to restrain, prevent, change or delay in any material respect the transactions contemplated hereby or seeks to challenge any of the material terms or provisions of this Agreement or seeks material damages in connection with any of such transactions. SECTION 2.3 Optionor's Closing Conditions. Upon the Corporation's exercise of the Option, Optionor shall effectuate the Closing on the Closing Date in accordance with, the terms hereof or with the Contract of Sale (if any), provided (a) the Corporation shall have paid, or caused to be paid, the Purchase Price and (b) the Corporation's Closing Documents (as described in Section 2.4) shall have been executed and delivered to Optionor. SECTION 2.4 Closing Deliveries. (a) Optionor shall deliver, or cause to be delivered, at Closing, the following (collectively, the "Optionor's Closing Documents"): (i) The City shall have executed and delivered to the Corporation a general warranty deed in the form generally in use in California and otherwise acceptable to the Corporation and reasonably approved by counsel to Optionor (the "Deed") conveying fee simple marketable title to the Realty to the Corporation (or a nominee or designee thereof), free and clear of all liens, claims, encumbrances and other matters affecting such title, except those set forth in Exhibit D attached hereto and made a part hereof (the "Permitted Encumbrances"). (ii) Each Optionor shall have executed and delivered to the Corporation such bills of sale, assignments and other instruments of transfer, in form and substance acceptable to the Corporation and reasonably approved by counsel to Optionor, as shall be necessary or desirable to vest in the Corporation all of its respective right, title and interest in, to and under the Option Property and to consummate the transactions contemplated hereby. 5 (iii) Evidence, reasonably acceptable to the Corporation, of Optionor's due formation, good standing and authorization to effectuate the transactions contemplated herein, and such certificates of duly authorized representatives of Optionor as the Corporation shall reasonably request with respect to such transactions. (iv) Evidence, reasonably acceptable to the Corporation, of the satisfaction and discharge of the Certificates of Participation and the other Retained Liabilities referred to in Section 2.2(e) and (g). (v) Any and all other documentation required or reasonably requested by the Title Company in order to issue a title policy in the form required under Section 2.2(d) hereof in order to effectuate the transactions contemplated herein and in the Contract of Sale (if any). (b) The Corporation shall deliver, or cause to be delivered, at the Closing, the following (collectively, the "Corporation's Closing Documents"): (i) An assumption agreement of the Corporation, in form and substance acceptable to Optionor, with respect to the Assumed Liabilities. (ii) Evidence, reasonably acceptable to Optionor, of the Corporation's due formation, good standing and authorization to effectuate the transactions contemplated herein. SECTION 2.5 Closing Costs. (a) Optionor shall pay, or cause to be paid, the following in connection with the Closing: (i) all revenue, documentary, and/or transfer stamps or taxes, if any, incident to the Deed or conveyance thereupon; (ii) fifty percent (50%) of all costs, fees and expenses of the Appraiser; and (iii) all of its attorneys' fees and disbursements. (b) The Corporation shall pay, or cause to be paid, the following in connection with the Closing: (i) fifty percent (50%) of all costs, fees and expenses of the Appraiser; (ii) one hundred percent (100%) of all title insurance, survey and environmental report costs; and (iii) all of its attorneys' fees and disbursements. ARTICLE 3 REPRESENTATIONS AND COVENANTS SECTION 3.1 Representations and Warranties of Optionor. Each Optionor jointly and severally represents, warrants and covenants as follows: (a) The City is the owner in fee simple of the Realty, free and clear of all liens, claims, encumbrances and other matters affecting title, except for the Permitted Encumbrances. 6 (b) Optionor owns, or has a valid leasehold interest in and to, the Option Property (other than the Realty) free and clear of all liens, claims and encumbrances, except for Assumed Liabilities and the Permitted Encumbrances. (c)(i) If the Corporation is not then the manager of the Business, within twenty (20) days after delivery of the Exercise Notice, Optionor will deliver to the Corporation an accurate and complete list as of the date of the Exercise Notice (the "Contract Schedule") of all Contracts relating to the Business to which Optionor is a party or by which Optionor or the Option Property are bound or subject, except for those Contracts with persons who are not affiliates of Optionor relating solely to the purchase or sale of property (other than the Realty) or services by or on behalf of Optionor in the ordinary course of the Business which (x) require Optionor to make or receive payments not in excess of $40,000 and (y) have a remaining term of less than twelve months on the Closing Date or are terminable by Optionor without penalty during such period. True and correct copies of all written Contracts listed on such Schedule and summaries of the material provisions of all oral Contracts so listed will accompany the Contract Schedule. (ii) As of the Closing Date, all Contracts listed on the Contract Schedule will be valid, subsisting, in full force and effect and binding upon Optionor and the other parties thereto in accordance with their terms. Optionor will not be in default under any such Contract in any material respect, nor will any other party thereto be in default thereunder in any material respect. (d) If the Corporation is not then the manager of the Business, within twenty (20) days after delivery of the Exercise Notice, Optionor will deliver to the Corporation an accurate and complete list as of the date of the Exercise Notice (the "Claims Schedule") of (i) all outstanding Orders of any Governmental Authority against or involving the Option Property or the Business, and (ii) all actions, suits, claims or counterclaims or legal, administrative, governmental, arbitral or other proceedings or investigations (collectively, "Claims") (whether or not the defense thereof or liabilities in respect thereof are covered by insurance), pending or to the knowledge of Optionor threatened on such date, against or involving the Option Property or the Business. At the Closing there will be no such Orders or Claims pending or threatened, other than Orders or Claims that, individually or in the aggregate, could not reasonably be expected to have a material adverse effect on the Condition of the Business. As of the Closing, there will exist no such fact, event or circumstance known to Optionor that would give rise to any Claim that, if pending or threatened on the Closing Date, could reasonably be expected to have a material adverse effect on the Condition of the Business. (e) Optionor is not in violation in any material respect of any order, judgment, injunction, award, citation, decree, consent decree or writ (collectively, "Orders") applicable to the Option Property or the Business, or any material Law affecting the Option Property or the Business. All Permits material to the use and occupancy of the Option Property and the conduct of the Business are in full force and effect and the Optionor is in compliance in all material respects therewith. If the Corporation shall not then be the manager of the Business, within twenty (20) days after delivery of the Exercise Notice, Optionor will deliver 7 to the Corporation an accurate and complete list of all Permits, indicating thereon which Permits are then non-transferable to the Corporation. (f) To the best of Optionor's knowledge, (i) the Realty has never been used to store, bury, deposit, place, dump, discharge, spill, release, incinerate or otherwise dispose of any Hazardous Materials (as hereinafter defined); (ii) there are no existing Environmental Conditions affecting the Option Property or Environmental Compliance Liability with respect thereto, nor is Optionor aware of the existence of any event or condition which may give rise thereto; and (iii) Optionor has not received any notice of any violation of any Environmental Law. (g) If the Corporation is not then the manager of the Business, within twenty (20) days after delivery of the Exercise Notice, Optionor will deliver to the Corporation an accurate and complete list as of the date of the Exercise Notice (i) all Intellectual Property Rights, including a copy of all registrations and applications with respect thereto filed with or issued by any Governmental Authority, and (ii) a list of all employees of the Business and a description of all employee benefit plans, Contracts or arrangements with respect to employment, applicable to such employees. The transactions contemplated by this Agreement will not have an adverse effect on the right, title and interest of the Corporation as of the Closing Date in and to the Intellectual Property Rights. (h) Optionor has not dealt with any real estate broker which has been involved in the granting of the Option or the execution of this Agreement, and no broker's or real estate commission is due as a result thereof or of the consummation of the transactions contemplated herein. The Authority shall be solely responsible and liable for any broker's or real estate commission which may be payable in consequence of the execution of this Option and/or the sale and purchase of the Option Property pursuant to the exercise of the Option herein granted. (i) Each Optionor is duly formed and in good standing in the State of California and each Optionor and each person executing this Agreement on behalf thereof, is duly and validly authorized to do so, and has full power and authority to do so and has taken all necessary corporate, municipal or other governmental action on its part in connection with the performance of its obligations hereunder and under the Contract of Sale (if any). Each of this Agreement and the Contract of Sale, if any, is a legal, valid and binding obligation of Optionor. (j) No consents from, notice to, filings with, approvals by, or other permission of any third party is, or at the Closing will be, required, under Law, Contract or otherwise, in order for Optionor to execute and deliver this Agreement or the Contract of Sale and to perform its obligations hereunder or thereunder or otherwise effectuate the transactions contemplated thereby, except such that have been obtained or made on or prior to the Closing (the "Optionor Required Consents"). The execution, delivery and performance by Optionor of this Agreement and each other agreement or instrument executed and delivered hereunder to which each is or will be a party or the consummation of the transactions contemplated hereby does not and will not (i) violate any provision of the organizational documents of Optionor; (ii) require Optionor to obtain any consent, approval or action of or waiver from, or make any 8 filing with, or give any notice to, any Governmental Authority or any other person, except for Optionor Required Consents; (iii) if Optionor Required Consents are obtained prior to Closing, violate, conflict with or result in a breach or default under (after the giving of notice or the passage of time or both), or permit the termination of, any Contract of a type required to be listed on the Contract Schedule to which Optionor is a party or by which it, the Option Property or the Business may be bound or subject, or result in the creation of any lien upon the Option Property pursuant to the terms of any such Contract; (iv) if Optionor Required Consents are obtained prior to Closing, violate any Law or Order of any Governmental Authority against, or binding upon, Optionor, the Option Property or the Business; or (v) if Optionor Required Consents are obtained prior to Closing, violate or result in the revocation or suspension of any Permit. (k) As of the Closing, the Option Property will be sufficient and adequate to permit the continued conduct of the Business as it was theretofore conducted by Optionor. SECTION 3.2 Covenants. (a) In the event the purchase and sale of the Option Property will result in a subdivision of the Option Property or otherwise requires Governmental Approval, the Authority agrees to use its best efforts to cause such Governmental Approvals to be granted. The Authority shall cooperate with the Corporation in order that any such Governmental Approvals shall be issued. The costs and expenses of obtaining any Governmental Approval required to consummate the transactions contemplated hereby shall be borne equally by the parties. (b) Within thirty (30) days from the date of execution of this Option by Optionor, Optionor will furnish, or cause to be furnished, or as directed by, the Corporation, at Optionor's sole expense, copies of all existing title insurance policies and reports covering the Option Property, all topographic and boundary surveys and legal descriptions of the Option Property, all engineering and environmental reports and all appraisals with respect to the Option Property, to the extent in the possession of the City or the Authority. (c) Except as may otherwise be expressly permitted under any Other Agreement, Optionor shall not sell, assign, transfer, convey, mortgage, pledge or otherwise encumber the Realty during the Term. Subsequent to the date of the Exercise Notice, Optionor shall not sell, assign, transfer, convey, mortgage, pledge or otherwise encumber any Assets, except in the ordinary course of the Business, consistent with past practice. (d) Except as may be expressly permitted under any Other Agreement, Optionor shall not cause, create, permit or otherwise consent to any event, condition, action or documentation which may have which alone or in the aggregate has a material adverse effect on the Option Property or the Condition of the Business, and shall promptly notify the Corporation of any event or condition which may give rise to such change. (e) Optionor shall comply with its obligations under the Other Agreements, including but not limited to any obligations with respect to the payment of Impositions and other sums and maintenance of the Option Property. 9 (f) The Authority shall not request or consent to any change or variance in the current zoning or use (including uses permitted by any approved master plan) permitted by Governmental Authorities of all or any part of the Option Property without the prior written consent of the Corporation, to be exercised in its sole discretion. This covenant shall survive the Closing. (g) Subsequent to the date of this Agreement and, except in the ordinary course of the Business, the Optionor will not, without the prior written consent of the Corporation, enter into any Contract relating to the Business or the Option Property of the type required to be included on the Contract Schedule or exercise any rights to renew or extend any such Contract if the term of such Contract (including any renewal or extension periods) ends after February 1, 2002. (h) All Impositions, general and special assessments and general and special utility charges and other operating expenses relating to the Business shall be duly provided for under the RSA or apportioned at the Closing as of the Closing Date. At the Closing, the Corporation and Optionor shall reimburse the other party, as appropriate, for amounts payable pursuant to this Section. (i) Except as otherwise contemplated under the RSA, Optionor agrees to pay and discharge when due all claims of creditors of Optionor or other Retained Liabilities that may be asserted against the Corporation or any Affiliate thereof in their capacities as such under this Agreement, except with respect to the Assumed Liabilities. (j) Subsequent to the date of the Exercise Notice, Optionor will not increase the compensation of, or make any change in any employee benefit plans, Contracts or arrangements applicable to, any employee of the Business and will operate the Business only in the ordinary course of the Business, consistent with past practice, or as otherwise consented to by the Corporation. (k) Subject to the terms and conditions herein, each of the Optionor and the Corporation shall take or cause to be taken all action and shall do or cause to be done all things necessary, proper or advisable to consummate and make effective, as soon as reasonably practicable after the date of the Exercise Notice, the transactions contemplated hereby, including, but not limited to, the obtaining of all Optionor Required Consents and Permits or consents of any third party, whether private or governmental, required in connection with such party's performance of such transactions and each party hereto shall cooperate with the other in all of the foregoing. Without limiting the generality of the foregoing, the Optionor covenants and agrees to take or cause to be taken all action and to do or cause to be done all things necessary, proper or advisable in order to cause the representations and warranties of Optionor herein and in any Contract of Sale to be true and correct on and as of the Closing Date. 10 ARTICLE 4 INSPECTION; ACCESS During the Term, in the event the Corporation is no longer the manager of the Business, upon reasonable prior written notice to the City Manager, the Corporation shall have the right to go upon all or any part of the Realty to make such investigation of the Option Property and the Business, as such examination of the books and records relating thereto, as the Corporation shall deem necessary or desirable in order to determine whether to exercise the Option. Such investigation may include surveys, appraisals, engineering studies, test borings, and inspections (including subsurface inspections), and as may otherwise be required in order to obtain Governmental Approvals; provided, however, in the exercise of the rights herein given, the Corporation shall not unreasonably interfere with the use by Optionor of the Option Property, subject to its rights under the Other Agreements, if same is then being used thereby. ARTICLE 5 CONDEMNATION; CASUALTY If, prior to the Closing, all or any part of the Option Property shall be damaged or destroyed by fire or other casualty, or taken in any proceeding by any Governmental Authority vested with the power of eminent domain, by condemnation or otherwise, or shall be acquired for public or quasi-public purposes, or condemnation proceedings therefor shall have been threatened or instituted, then the Corporation shall have the right and election of sending a Rescission Notice in accordance with this Agreement with the effect being as set forth in Section 1.4(b). If the Option is exercised in accordance herewith, then at the election of the Corporation, Optionor shall assign, transfer and set over to the Corporation all of its right, title and interest in and to any proceeds and award that may be made for such damage, destruction or taking, in which event the Purchase Price of the Option Property shall remain unchanged. ARTICLE 6 EVENT OF DEFAULT SECTION 6.1 Rights Upon Default. (a) If, following delivery of an Exercise Notice and if no Rescission Notice is delivered, Optionor does not close the purchase of the Option Property in accordance with the terms of this Agreement (including without limitation the nonsatisfaction of the conditions to Closing specified in Section 2.2), or shall otherwise fail or refuse to observe and keep the terms of this Agreement or the Contract of Sale, then the Corporation shall have the right, at its sole option, to (i) elect to declare this Agreement cancelled, whereupon, the Corporation shall be entitled to exercise any and all rights and remedies available to it by contract, at law or in equity, which rights and remedies shall be cumulative, or (ii) elect to affirm this Agreement and enforce its specific performance or recover against the Authority for its breach. The Authority shall be liable for and agrees to pay all damages, costs and expenses incurred by the Corporation arising out of or in connection with 11 or resulting from the failure or refusal of Optionor to close the purchase and observe and keep the terms of this Agreement or the Contract of Sale, as aforesaid, including reasonable attorneys' and other experts' fees and disbursements. (b) If, having given the Exercise Notice and not having given a Rescission Notice, the Corporation does not close the purchase of the Option Property in accordance with the terms of this Agreement or shall otherwise fail or refuse to observe and keep the terms of this Agreement or the Contract of Sale, then Optionor shall be entitled to exercise any and all rights and remedies available to it by contract, at law or in equity. The Corporation shall be liable for and agrees to pay all damages, costs and expenses incurred by Optionor arising out of or in connection with or resulting from the failure or refusal of the Corporation to close the purchase and observe and keep the terms of this Agreement or the Contract of Sale, as aforesaid, including reasonable attorneys' and other experts' fees and disbursements. (c) In furtherance of the foregoing, the parties acknowledge that (i) it will be impossible to measure in money the damage to the Corporation of any failure by Optionor to comply with any of the obligations imposed by this Agreement, including its failure to cause the conditions to Closing specified in Section 2.2 to be satisfied, (ii) every such restriction and obligation is material, and (iii) in the event of any such failure, the Corporation will not have an adequate remedy at law or in damages. Therefore, each Optionor hereby consents to the issuance of an injunction or the enforcement of other equitable remedies against it upon the suit of the Corporation, without bond or other security, to compel performance of any term hereof, and waives any defenses to any such suit in the nature of failure of consideration, breach of any other provision of this Agreement (other than the failure by the Corporation to tender payment of the Purchase Price as provided herein), and availability of relief in damages; provided, however, that the foregoing shall not be deemed to constitute a waiver of any claim for damages that Optionor may have under Section 6.1(b) above or otherwise. (d) In the event that any condition to Closing specified in Section 2.2 shall not have been satisfied on or prior to the Closing Date, the Corporation shall have the right, which shall be in addition to any other rights or remedies it may have hereunder, at law or in equity, to postpone the Closing for a reasonable period and, during such period, the Corporation shall have the right, in the name, on behalf and at the expense of Optionor, to take such action or do such things as shall be necessary, proper or advisable to cause all such conditions to Closing to be satisfied. In such event, all references herein to the Closing Date shall be to the actual date on which the Closing occurs. SECTION 6.2 Attorneys' Fees. Should litigation be commenced between the parties hereto concerning this Agreement, the Contract of Sale or the rights and duties of the parties in relation thereto or otherwise with respect to the Option Property, whether it be an action for damages or equitable or declaratory relief, the prevailing party in such litigation shall be entitled, in addition to all other relief as may be granted by a court of competent jurisdiction, reasonable sums as and for attorneys' fees and disbursements. If any court proceeding hereunder embraces more than one dispute and one party is the prevailing party with respect to one but not all of those disputes, the court shall apportion the costs and expenses and the reasonable attorneys' fees and disbursements incurred by the parties to the separate disputes 12 embraced by the proceeding, and thereby equitably determine the amount thereof to be borne by each party. ARTICLE 7 GENERAL PROVISIONS SECTION 7.1 Notices. For purposes of serving notices, or requesting or granting approvals or authorizations under this Agreement, as well as for purposes of transmitting correspondence concerning this Agreement and all of the activities of the parties hereunder, the addresses of the parties shall be as follows: If to the Corporation: c/o Premier Parks Inc. 122 East 42nd Street, 49th Floor New York, New York 10168 Attention: Kieran E. Burke Chairman and CEO with a copy to: Baer Marks & Upham LLP 805 Third Avenue, 20th Floor New York, New York 10022 Attention: James M. Coughlin, Esq. If to the City: City of Vallejo City Hall 555 Santa Clara Street Vallejo, California 94590 Attention: City Manager If to the Agency: The Redevelopment Agency of the City of Vallejo c/o City of Vallejo City Hall 555 Santa Clara Street Vallejo, California 94590 Attention: Executive Director If to the Authority: Marine World Joint Powers Authority c/o City Manager City of Vallejo City Hall 555 Santa Clara Street Vallejo, California 94590 Any party may change its address as stated above upon written notice to the other parties. Any notice or other communication under this Agreement shall be deemed given (i) upon personal delivery, (ii) upon receipt by each other party as evidenced by a written receipt of the United 13 States Postal Service or any reputable courier service, (iii) three (3) days after deposit, postage prepaid and correctly addressed, with the United States Postal Service, registered or certified, or with a reputable courier service, (iv) one (1) day after delivery, postage prepaid and correctly addressed, with a reputable courier service guaranteeing overnight delivery, or (v) upon receipt of a telecopy provided a confirmation of delivery is sent via first class, registered or certified mail with the United States Postal Service or with a reputable courier service. SECTION 7.2 Additional Actions and Documents. The parties agree to execute and deliver such further documents and take such actions as may be required to carry out the intent and purposes of this Agreement and to comply with any Laws which may be applicable to this Agreement. Optionor shall cooperate with the Corporation in connection with the Corporation's full exercise of its rights hereunder, such cooperation to be at the Corporation's cost and expense (but the Corporation shall not be obligated to pay Optionor for any of Optionor's overhead), Optionor's cooperation to include but not be limited to the furnishing of information required under Section 3.2(b) and such other information as reasonably requested by the Corporation from time to time during the Term. SECTION 7.3 Successors and Assigns. This Agreement shall inure to the benefit of and apply to and bind the respective heirs, successors, executors, administrators and assigns of the parties to this Agreement. Notwithstanding the foregoing, no party may assign its rights or obligations under this Agreement, other than (a) in connection with a Permitted Sale under, and in accordance with, the Private Parcel Lease, (b) the Corporation to Premier Parks Inc. (or a wholly-owned subsidiary thereof), (c) the Authority to the Agency or City, or (d) the Agency to the City; provided, however, that no assignment (whether or not so permitted) shall be effective unless and until the assignee expressly assumes in writing all of the obligations of assignor hereunder; and further provided that no such assignment shall relieve any assignor from its obligations and liabilities hereunder. Notwithstanding anything to the contrary set forth herein or in any Public Lease or Other Agreement, any assignment by a party of its interest hereunder or in the Option Property shall be expressly made subject to this Agreement and the rights of the Corporation and the Optionor hereunder and shall have no effect thereupon. SECTION 7.4 Counterparts. This Agreement may be executed in counterparts, each of which when taken together shall constitute one agreement. SECTION 7.5 Captions; Gender; Phrases. The captions used in this Agreement are for convenience only and shall not be considered in the construction or interpretation of any provision hereof. When the context of this Agreement requires, the neuter gender includes the masculine, the feminine, a partnership or corporation or joint venture, and the singular includes the plural. The terms "shall," "will" and "agree" are mandatory. The term "may" is permissive. When a party is required to do something by this Agreement, it shall do so at its sole cost and expense without right of reimbursement from the other party unless specific provision is made therefor. SECTION 7.6 Invalidity. Where any party is obligated not to perform any act, such party is also obligated to restrain any others within its control from performing such act, including its agents, invitees, contractors, subcontractors, and employees. Should any provision of this Agreement prove to be invalid or illegal, such invalidity or illegality shall in no way 14 affect, impair or invalidate any other provision hereof, and such remaining provisions shall remain in full force and effect. SECTION 7.7 Entire Agreement; Modifications. This Agreement and the Exhibits attached hereto, which are incorporated herein by this reference, shall constitute the entire agreement between the parties and shall supersede all other agreements respecting the Option. No subsequent change or addition to this Agreement shall be binding unless it is in writing and is signed by the parties hereto. SECTION 7.8 Arbitration of Disputes. Any disputes between Optionor and the Corporation arising out of or related to this Agreement which cannot be resolved by good faith negotiation shall be resolved through binding arbitration. Any such party may elect to commence arbitration at any time by giving notice to the other party. The parties then shall attempt to agree on the appointment of a panel of three independent arbitrators. Each of Optionor and the Corporation may select one of the arbitrators for such panel, and if they do not identify their respective arbitrator to the other party or they cannot agree on the third arbitrator within twenty (20) days of the notice electing arbitration, such arbitrators) shall be appointed through the procedures of the American Arbitration Association. Any arbitrator selected to serve shall be qualified by training and experience for the matters for which such arbitrator is designated to serve. The arbitration shall be conducted in Vallejo, California under the commercial arbitration rules then in effect of the American Arbitration Association. The written decision and findings of a majority of the panel of arbitrators shall be final, binding and conclusive as between the parties and may be enforced on the application by any party or by order or judgment entered in any court having jurisdiction. The parties hereby consent to the jurisdiction and venue of the federal courts located in the Eastern District of the State of California and state courts located in Solano County, California for this purpose. The parties shall use all commercially practicable efforts to cause arbitrator or arbitrators so selected to furnish Optionor and the Corporation with a written decision within forty-five (45) days of the date of selection of the last of the arbitrators to be so selected. Any decision so submitted shall be signed by a majority of the arbitrators. The Corporation and Optionor each shall advance one-half (1/2) of the costs of any arbitration. However, the prevailing party in any arbitration proceeding or legal action arising out of, or in connection with, this Agreement shall be entitled to recover its reasonable attorneys' and experts' fees and disbursements and its costs and expenses incurred in connection with such arbitration proceeding or legal action. The arbitrators shall specify the prevailing party or parties in its award. If more than one arbitrable dispute is adjudicated then the costs and expenses of the arbitration shall be apportioned by the arbitrators in the arbitration award to each separate dispute. SECTION 7.9 No Joint Venture. This Agreement is not intended, nor shall it be deemed, to create a joint venture between the Corporation and any or all Optionors or to grant any existing right of ownership of the Corporation in or to the Public Parcel or the Improvements thereon. SECTION 7.10 Waiver of Personal Liability. No member, officer, agent or employee of the Authority, the Agency or the Corporation shall be individually or personally 15 liable for the obligations of the Authority, the Agency or the Corporation, respectively, hereunder; but nothing herein contained shall relieve any such member, officer, agent or employee of any Optionor from the performance of any official duty provided by law or this Agreement. SECTION 7.11 Controlling Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California. SECTION 7.12 Survival. Any provision herein contained which by its nature and effect if required to be observed, kept or performed after the Closing shall survive the Closing and remain binding upon and for the benefit of the parties hereto their heirs, assigns, successors and legal or personal representatives until fully observed, kept or performed. SECTION 7.13 Recording of Option. Optionor shall execute, acknowledge, deliver and file with the Recorder's Office for Solano County a short form of this Agreement suitable for recording, which instrument shall not reveal the purchase price and/or any other dollar amounts herein mentioned. SECTION 7.14 Certain Definitions. For purposes of this Agreement, the following terms shall have the meaning ascribed thereto below: Affiliate of any person means any other person directly or indirectly through one or more intermediary persons, controlling, controlled by or under common control with such person. Appraiser has the meaning set forth in the definition of "Fair Market Value." Assessment Bond Amount means (i) if the Exercise Notice is delivered on or before January 31, 2003, $1,000,000 or (ii) if the Exercise Notice is delivered after that date, $2,000,000; less, in each case, the outstanding principal amount of the Assessment Bonds which are secured by a lien on the Option Property as of the Closing Date. In no event shall the Assessment Bond Amount be less than zero. Assessment Bonds mean the portion of the principal amount of the City's Assessment Bonds (Fairground Drive Assessment District No. 65), the repayment of which is payable from parking revenues at the Option Property and which are secured by a lien on the Option Property, which portion of such principal amount equals $4,810,410.46 on the date of this Agreement. Assets means all of the property, assets and rights (other than the Realty) used or held for use in the Business, including: (i) the rides, machinery, equipment, tools, supplies, spare parts, rolling stock, furniture and other tangible personal property of Optionor used or held for use in the Business on the Closing Date; 16 (ii) all of Optionor's patents, patent applications, trade names, trademarks, copyrights, servicemarks, trademark and servicemark registrations and applications (including, without limitation, the name "Marine World Africa USA" and any derivation thereof), used in the Business; (iii) all trade secrets, formulae and specifications and technical know-how, whether being used or under development, including engineering and other drawings, data, design and specifications, product literature and related materials, in each case which relate to the Business and are owned or licensed by Optionor as of the Closing Date and all books, records and computer programs relating thereto (together with the items referred to in clause (ii) above, the "Intellectual Property Rights"); (iv) the goodwill of Optionor in the Business; (v) Optionor's rights under all Transferred Contracts and all prepaid expenses, claims and other prepayments, including security deposits and other retentions held by third parties, with respect to the Transferred Contracts as of the Closing Date; (vi) all inventory, wherever located, of Optionor with respect to the Business as such exists on the Closing Date; (vii) all of Optionor's rights under all Permits relating to or necessary to the conduct of the Business as of the Closing Date, to the extent such items are transferable; (viii) all transferable warranties and guarantees owned by or for the benefit of Optionor pertaining to the Assets; (ix) all proceeds from the sale of passes or tickets to customers of the Business to the extent applicable to periods after the Closing; and (x) all books and records of the Authority relating to the Business and the Option Property (whether kept or maintained by Optionor or any third party) including, without limitation, copies of lists of customers and suppliers; admission tickets, season passes, records with respect to costs, inventory and equipment; business development plans; advertising materials, catalogues, correspondence, mailing lists, photographs, sales materials and records; purchasing materials and records; personnel records with respect to employees of the Business; media materials and plates; sales order files; ledgers and other books of account; plans, specifications, surveys, reports and other materials relating to the Realty; other records of the Authority required to continue the Business as then being conducted by or on behalf of the Authority; and all software programs, computer printouts, databases and related items of the Authority used in the Business. The term Assets shall exclude the following assets and property: (i) all of Optionor's rights, title and interest in and to this Agreement; 17 (ii) except as contemplated by clause (ix) above, cash on hand, cash equivalents, investments (including, without limitation, stock, debt instruments, options and other instruments and securities) and bank deposits of Optionor as of the Closing Date; (iii) all of the accounts receivable of Optionor as of the Closing Date; (iv) tax refunds and recoveries and similar benefits of Optionor which relate to any period prior to the Closing Date and all of Optionor's income tax returns and records as of the Closing Date; and (v) all assets of Optionor not related to the Business. Assumed Liabilities means the liabilities and obligations of Optionor arising and to be performed after the Closing under the Transferred Contracts, other than any such liability or obligation arising out of a breach or default by Optionor thereunder at or prior to the Closing Date (including any event occurring prior to the Closing that with the passage of time or giving of notice, or both, would become a breach or default under any Transferred Contract). Business means the ownership and operation of Marine World Africa USA conducted on the Public Parcel and, to the extent of Optionor's interest therein, the Private Parcel. Certificates of Participation means those certain certificates of participation, the proceeds of which refinanced certain improvements on the Public Parcel, delivered on January 30, 1997 in the original aggregate principal amount of $63,465,000, as the same exist on the date of this Agreement, together with any refinancing thereof and any other debt financing obtained by, or debt obligations of, an Optionor in lieu thereof, or in addition thereto to the extent secured by or otherwise encumbering all or any part of the Option Property or any interest therein. Condition of the Business means the condition (financial or otherwise), results of operations or prospects of the Business. Contract means any contract, agreement, indenture, note, bond, lease, conditional sale contract, mortgage, license, franchise, instrument, commitment or other binding arrangement, whether written or oral, and all modifications and amendments thereto and substitutes thereof, to which Optionor is a party or a beneficiary, relating to the Business. Easements means all easements, rights-of-way, sidewalks, gores of land, streets, ways, alleys, passages, passageways, sewer rights, waters, water courses, water rights and powers, air, light and other rights, estates, titles, interests, privileges, liberties, servitudes, licenses, tenements, hereditaments and appurtenances whatsoever, in any way belonging, relating or appertaining to the Realty or any part thereof, or which hereafter shall in any way belong, relate or be appurtenant thereto, and all reversions, remainders and rents thereof. Environmental Compliance Liability means any obligation or liability arising as the result of any default, violation or breach by Optionor of its affiliates or previous tenants of 18 the Option Property or adjoining tenants during the Term of: (i) environmental permits and other approvals, consents, licenses, certificates and authorizations applicable to such Option Property of the operation of prior tenant's or other occupant's business and activities thereon which are required by Environmental Laws; (ii) any environmental regulatory compliance requirements applicable to such Option Property or operations conducted on or from such Option Property under Environmental Laws; or (iii) other Environmental Laws, except, in each case, for any obligation or liability arising out of the negligence or willful misconduct of the Corporation. Environmental Condition means circumstances with respect to soil, land surface, subsurface strata, surface waters, groundwaters, stream sediments, air and similar environmental media both on and off the Option Property resulting from any activity, inactivity, operations or Release occurring on or off the Option Property, which under Environmental Laws require investigatory, corrective and/or remedial measures and/or that may result in claims or demands or give rise to liabilities of any Optionor or the Corporation or to third parties including, but not limited to, Governmental Authorities. Environmental Laws means any and all Laws concerning air, water, solid waste, Hazardous Materials, Releases, worker and community right-to-know, hazard communication, noise, resource protection, subdivision, inland wetlands and watercourses, health protection and similar environmental, health, safety, and land use concerns in all cases at any time, from time to time in effect during the Term. Fair Market Value means the aggregate fair market value of the Business, valued as a going concern as determined below by an investment banking firm selected by the Corporation and reasonably acceptable to Optionor (the "Appraiser"). The parties agree that Fair Market Value shall be determined as encumbered by the Other Agreements (including without limitation, the RSA) and any other obligations of Optionor relating to the Option Property. In order to give effect to such determination, the parties hereby instruct the Appraiser to determine Fair Market Value using an income approach, by (a) multiplying (i) the cash flow received by Optionor under clause (v) of Section 1.3(c) of the RSA with respect to the last full fiscal year of the Authority immediately preceding the date on which the Option is exercised, plus any amounts paid during such fiscal year in respect of the regularly scheduled debt service on the debt obligations relating to the Business referred to in clause (iv) of such Section 1.3(c)) by (ii) five (or such other multiple that is determined by the Appraiser to represent the then prevailing multiple of cash flow used to value businesses comparable to the Business in connection with the purchase and sale thereof), and (b) subtracting from such product the outstanding principal amount of the debt referred to in clause (iv) of such Section 1.3(c). Governmental Approvals means all approvals, permits, licenses consents, authorizations, waivers, variances, acknowledgments and the like by Governmental Authorities which are a condition to the consummation of the transactions contemplated hereunder at Closing. Governmental Approvals will not be deemed to have been secured unless all of same are final and unappealable. The Corporation may, at its sole option, but without obligation, waive any or all Governmental Approvals. 19 Governmental Authority means any government, any department of any government or any entity controlled by any of the foregoing directly or indirectly (federal, state, county, town or local) and includes utility and telephone companies and any other entity with the power of eminent domain or with jurisdiction over, or which could impact, affect or stop, the Business. Hazardous Materials means an petroleum, petroleum products, fuel oil, derivatives of petroleum products or fuel oil, explosives, reactive materials, ignitable materials, corrosive materials, hazardous chemicals, hazardous wastes, hazardous substances, extremely hazardous substances, toxic substances, toxic chemicals, radioactive materials, medical waste, biomedical waste, infectious materials and any other element, compound mixture, solution or substance which may pose a present or potential hazard to human health or safety or to the environment. Imposition means all taxes (including possessory interest taxes associated with the Option Property), assessments (including all assessments for public improvements or benefits, fees, water, sewer or similar rents, rates and charges, excises, levies, license fees, permit fees, inspection fees and other authorization fees and other governmental charges of any kind or nature whatsoever, whether general or special, ordinary or extraordinary, foreseen or unforeseen, or hereafter levied or assessed in lieu of or in substitution of any of the foregoing of every character (including all interest and penalties thereon), which at any time during or in respect of the Term may be assessed, levied, confirmed or imposed on or in respect of or be a lien upon the Option Property, or any part thereof or interest therein, on the leasehold estate created by any lease or which may be imposed upon any taxable interest of an Optionor acquired pursuant to a Public Lease or on account of any taxable possessory right which an Optionor may have acquired pursuant to a Public Lease, or any part thereof or which may be levied upon or measured by the rent payable thereunder. Notwithstanding anything to the contrary set forth above, "Impositions" shall not include any income, excess profit, estate, inheritance, successions transfer, franchise, capital or other tax assessment upon the interest of any other party in the Option Property. Improvements means any buildings, improvements, fixtures, additions, signs, rides and attractions built, installed or constructed upon, or affixed to, the Land. Laws means all applicable present and future laws, ordinances, rules, regulations, permits, authorizations, orders and requirements, including, without limitation, all consents or approvals required to be obtained from, and all rules and regulations of, and all building and zoning laws of, all federal, state county and municipal governments, the departments, bureaus, agencies or commissions thereof, authorities, board of officers, any national or local board of fire underwriters, or any other body or bodies exercising similar functions, having or acquiring jurisdiction of, or which may affect or be applicable to the Option Property. Lease Option means that certain Option Agreement (Parcel Lease) dated as of May 30, 1997 among the Authority, the Agency and the Corporation. Option Property means all of Optionor's right, title and interest in and to, all of the following: (a) the Realty, (b) the rights to use the portion of the surface of Lake Chabot identified in Exhibit E hereto and (c) the Assets. 20 Other Agreements mean the Private Parcel Lease, Lease Option, REA and RSA. Permits means all licenses, permits and approvals for the ownership, construction, maintenance, operation, use and occupancy of the Option Property, the conduct of the Business or any part thereof and any amendments, renewals and replacements thereof. Private Parcel Lease means that certain Parcel Lease between the Authority and the Corporation which may be entered into pursuant to the Lease Option. REA means that certain Reciprocal Easement Agreement between the Authority and the Corporation, which may from time to time be in effect during the Term pursuant to the Private Parcel Lease. Realty means the Land, all Improvements and all Easements, including the Public Parcel and the Private Parcel. Release means releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping, or as otherwise defined under the Resource Conservation and Recovery Act (42 U.S.C. Section 6901), et seq.) ("RCA"), the Comprehensive Environmental Response, Compensation and Liability Act (42 US.C. Section 9601, et seq.) ("CERCLA"), or any other federal, state or local Environmental Law, including Laws relating to emissions, discharges, releases or threatened releases or pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemical, or industrial, toxic or hazardous substances or wastes as may be amended from time to time, or other Environmental Laws. Rescission Notice has the meaning set forth in Section 1.4(b). Retained Liabilities means any and all duties, responsibilities, obligations or liabilities of Optionor of any kind or nature, known, unknown, contingent or otherwise ("Liabilities"), other than Assumed Liabilities. Without limiting the generality of the foregoing, except as otherwise provided in this Agreement, Retained Liabilities shall include: (i) any Liabilities of Optionor or their Affiliates relating to the ownership or operation of the Option Property or the Business on or prior to the Closing Date; (ii) all accounts payable relating to the Business incurred on or prior to the Closing Date; (iii) any Environmental Compliance Liabilities arising out of the ownership of the Option Property or the operation of the Business on or prior to the Closing; (iv) Liabilities and obligations with respect to any Claims, whether existing on the Closing Date or arising thereafter, arising out of the ownership of the Option 21 Property or the operation of the Business on or prior to the Closing, except for Claims arising out of the negligence or willful misconduct of the Corporation; (v) Liabilities and obligations to persons employed by Optionor in connection with the Business at any time prior to the Closing (or any of such employee's beneficiaries, heirs or assignees) arising out of such employee's employment; (vi) Liabilities and obligations with respect to any federal, state, local or foreign income, profits, franchise, sales or similar tax relating to the ownership of the Option Property or the conduct of the Business on or prior to the Closing or arising out of the transactions contemplated hereby; and (vii) any Liabilities in respect of any debt of Optionor. RSA means that certain Revenue Sharing Agreement among the Authority, the Agency and the Corporation which may, from time to time during the Term be in effect pursuant to the Private Parcel Lease. Transferred Contracts means all Contracts existing on the Closing Date, other than (i) if at the time of the delivery of the Exercise Notice, the Corporation shall not be the manager of the Business, any Contract listed on the Contract Schedule that the Corporation has notified Optionor in writing prior to the Closing that the Corporation will not assume, (ii) any Contract of a type required to be listed on the Contract Schedule and not so listed, (iii) any Contract entered into after the date of the Contract Schedule, except as permitted hereby and (iv) any Contract that cannot be transferred to or assumed by the Corporation under applicable law or the transfer or assignment thereof would result in debt obligations of the City losing their tax-exempt status (i.e., bonds related to the assessment district for the parking area). SECTION 7.15 Exhibits. The parties acknowledge that the Exhibits hereto have not been finalized on the date of execution hereof. The parties agree to finalize such Exhibits promptly following confirmation of certain matters relating to title and existing encumbrances in respect of the Option Property, and this Agreement shall be the legal and binding obligation of the parties at all times after execution hereof unless all such Exhibits have not been mutually agreed to within thirty (30) days after the date hereof. 22 IN WITNESS WHEREOF, Optionor and the Corporation have executed this Agreement as of the date set forth hereinafter. OPTIONOR: PARK MANAGEMENT CORP. CITY OF VALLEJO By: /s/ James F. Dannhauser By: /s/ --------------------------------- ------------------------------------ James F. Dannhauser City Manager Vice President and Chief Financial Officer MARINE WORLD JOINT POWERS AUTHORITY By: /s/ ---------------------------------- Executive Director REDEVELOPMENT AGENCY OF THE CITY OF VALLEJO By: /s/ ---------------------------------- Executive Director 23 STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On August 28, 1997 before me, Jan P. Goode, Notary Public, personally appeared James F. Dannhauser, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument, the person, or the entity on behalf of which the person acted, executed the instrument. Witness my hand and notarial seal. - ------------------------------------ Signature of Notary Public (Seal) STATE OF ) ) ss.: COUNTY OF ) On August __, 1997 before me, ________________, Notary Public personally appeared ____________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature on the instrument, the person(s), or the entity on behalf of which the person(s) acted, executed the instrument. Witness my hand and notarial seal. - ------------------------------------ Signature of Notary Public (Seal) STATE OF ) ) ss.: COUNTY OF ) On August __, 1997 before me, ________________, Notary Public personally appeared ____________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature on the instrument, the person(s), or the entity on behalf of which the person(s) acted, executed the instrument. Witness my hand and notarial seal. - ------------------------------------ Signature of Notary Public (Seal) STATE OF ) ) ss.: COUNTY OF ) On August __, 1997 before me, ________________, Notary Public personally appeared ____________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature on the instrument, the person(s), or the entity on behalf of which the person(s) acted, executed the instrument. Witness my hand and notarial seal. - ------------------------------------ Signature of Notary Public (Seal) Exhibit A Legal Description of Land Exhibit B Legal Description of Public Parcel Exhibit C Legal Description of Private Parcel REAL PROPERTY in the City of Vallejo, County of Solano, State of California, being a portion of Parcel One described in Exhibit A to this Agreement, described as follows: Exhibit D Schedule of Permitted Encumbrances Exhibit E Portion of Surface of Lake Chabot CERTAIN PROPERTY, and the rights therein and incidental thereto, in the City of Vallejo, County of Solano, State of California, described as follows: EX-10.(AC) 6 LTR OF AGREEMENT 11/7/97 EXHIBIT 10(ac) November 7, 1997 Park Management Corp. Marine World Parkway Vallejo, CA 94589 Attn: Kieran E. Burke, Chairman Dear Sirs: The undersigned, Marine World Joint Powers Authority (the "Authority") and Park Management Corp., are parties to the 1997 Management Agreement Relating to Marine World, dated as of February 1, 1997, as amended (the "Management Agreement"). The parties wish to amend Section 6.3(vi) of the Management Agreement in its entirety to provide as follows: "(vi) at the option of the Authority with thirty days prior written notice to the Manager, and effective upon appointment of and assumption of duties by a new manager for Marine World, (a) on the date which is three (3) years from November 7, 1997, and (b) following notice to the Authority by Premier Parks Inc. (or its wholly owned subsidiary which is the holder of the option) that it will not exercise an option to lease land adjacent to Marine World as such option is contemplated by the option agreement referred to in clause (i) above; or" Except as provided above, the Management Agreement shall remain in full force and effect. If the foregoing sets forth our agreement, please sign this letter where indicated below. Very truly yours, MARINE WORLD JOINT POWERS AUTHORITY By: /s/ --------------------------------- Executive Director Agreed and Accepted: PARK MANAGEMENT CORP. By: /s/ ------------------------------- EX-10.(AD) 7 RECIPROCAL EASEMENT AGREEMENT EXHIBIT 10(ad) RECIPROCAL EASEMENT AGREEMENT between MARINE WORLD JOINT POWERS AUTHORITY and PARK MANAGEMENT CORP. Dated as of November 7, 1997 TABLE ON CONTENTS ARTICLE 1 OPERATION AND MAINTENANCE - GENERAL SECTION 1.1. Operation and Maintenance. . . . . . . . . . . . . . . . 2 SECTION 1.2. Damage or Destruction to Improvements on any Parcel. . . 3 SECTION 1.3. Clearing Debris from Razed Improvements. . . . . . . . . 3 SECTION 1.4. Miscellaneous Repairs and Alterations. . . . . . . . . . 3 SECTION 1.5. Liability of Mortgagee . . . . . . . . . . . . . . . . . 4 SECTION 1.6. Limitation on Detrimental Characteristics. . . . . . . . 4 SECTION 1.7. Parking. . . . . . . . . . . . . . . . . . . . . . . . . 4 SECTION 1.8. Compliance With Laws . . . . . . . . . . . . . . . . . . 5 SECTION 1.9. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . 5 SECTION 1.10. Environmental Matters. . . . . . . . . . . . . . . . . . 5 SECTION 1.11. Conflict with Article 2. . . . . . . . . . . . . . . . . 5 ARTICLE 2 OPERATION AND MAINTENANCE OF PUBLIC AREAS SECTION 2.1. Operation and Maintenance of Public Areas. . . . . . . . 5 SECTION 2.2. Rules and Regulations. . . . . . . . . . . . . . . . . . 6 SECTION 2.3. Restrictions on Public Areas and Otherwise . . . . . . . 6 SECTION 2.4. Failure of Performance . . . . . . . . . . . . . . . . . 6 SECTION 2.5. Damage to or Destruction of Public Areas . . . . . . . . 6 SECTION 2.6. Operation of the Public Parking. . . . . . . . . . . . . 7 SECTION 2.7. Noninterference with Permittee Circulation . . . . . . . 7 SECTION 2.8. Fences . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 2.9. Signs and Banners. . . . . . . . . . . . . . . . . . . . 7 ARTICLE 3 RECIPROCAL EASEMENTS SECTION 3.1. Definitions and Documentation. . . . . . . . . . . . . . 8 SECTION 3.2. Nature of Easements. . . . . . . . . . . . . . . . . . . 8 SECTION 3.3. General Easements. . . . . . . . . . . . . . . . . . . . 9 SECTION 3.4. Easements for Utility Facilities . . . . . . . . . . . . 10 SECTION 3.5. Temporary Construction Easements . . . . . . . . . . . . 11 SECTION 3.6. Termination and Abandonment of Easements.. . . . . . . . 11 ARTICLE 4 GENERAL CONSTRUCTION REQUIREMENTS SECTION 4.1. "Construction" Defined.. . . . . . . . . . . . . . . . . 12 SECTION 4.2. Construction to Proceed in Reasonable Manner.. . . . . . 12 SECTION 4.3. Construction Barricades. . . . . . . . . . . . . . . . . 12 SECTION 4.4. Safety Matters . . . . . . . . . . . . . . . . . . . . . 12 SECTION 4.5. Workmanship. . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 4.6. Liens. . . . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE 5 OTHER AGREEMENTS 2 SECTION 5.1. Covenant to Perform. . . . . . . . . . . . . . . . . . . 13 SECTION 5.2. Subordination of Leases. . . . . . . . . . . . . . . . . 13 SECTION 5.3. Indemnification by Parties . . . . . . . . . . . . . . . 13 SECTION 5.4. Liability Insurance and Waiver of Subrogation. . . . . . 14 SECTION 5.5. Casualty Insurance . . . . . . . . . . . . . . . . . . . 15 SECTION 5.6. Condemnation . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 5.7. Fire or Other Casualty . . . . . . . . . . . . . . . . . 16 SECTION 5.8. Application of Proceeds and Awards . . . . . . . . . . . 16 ARTICLE 6 REAL ESTATE TAXES OR IMPOSITIONS SECTION 6.1. Payment of Taxes or Impositions. . . . . . . . . . . . . 17 SECTION 6.2. Contesting Impositions.. . . . . . . . . . . . . . . . . 17 SECTION 6.3. Failure to Pay Impositions.. . . . . . . . . . . . . . . 17 SECTION 6.4. Additional Provisions Regarding Impositions. . . . . . . 17 SECTION 6.5. Other Governmental Charges . . . . . . . . . . . . . . . 19 SECTION 6.6. Exceptions from Impositions; Charges in Lieu of Impositions. . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE 7 ARBITRATION SECTION 7.1. Disputes Subject to Arbitration. . . . . . . . . . . . . 19 SECTION 7.2. Arbitration Procedures.. . . . . . . . . . . . . . . . . 19 SECTION 7.3. Proceedings. . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE 8 NOTICES AND APPROVALS SECTION 8.1. Notices to Parties.. . . . . . . . . . . . . . . . . . . 19 SECTION 8.2. Time and Form of Approvals.. . . . . . . . . . . . . . . 20 SECTION 8.3. Notice to Mortgagees and Opportunity to Cure . . . . . . 20 ARTICLE 9 AMENDMENT SECTION 9.1. Amendment. . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE 10 EXPIRATION DATE SECTION 10.1. Term.. . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE 11 MISCELLANEOUS SECTION 11.1. Limited Liability of Parties.. . . . . . . . . . . . . . 21 SECTION 11.2. Exhibits.. . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 11.3. References to Articles, Sections and Subsections.. . . . 22 SECTION 11.4. Table of Contents and Captions.. . . . . . . . . . . . . 22 SECTION 11.5. Locative Adverbs.. . . . . . . . . . . . . . . . . . . . 22 SECTION 11.6. REA for Exclusive Benefit of the Parties.. . . . . . . . 22 SECTION 11.7. Waiver of Default. . . . . . . . . . . . . . . . . . . . 22 SECTION 11.8. Payment on Default.. . . . . . . . . . . . . . . . . . . 23 SECTION 11.9. No Partnership Joint Venture or Principal Agent Relationship.. . . . . . . . . . . . . . . . . . . . . . 23 3 SECTION 11.10. Successors.. . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 11.11. Severability.. . . . . . . . . . . . . . . . . . . . . . 23 SECTION 11.12. Governing Laws.. . . . . . . . . . . . . . . . . . . . . 23 SECTION 11.13. Release. . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 11.14. No Dedication. . . . . . . . . . . . . . . . . . . . . . 24 SECTION 11.15. Written Consent Required.. . . . . . . . . . . . . . . . 24 SECTION 11.16. Covenants Run With the Land. . . . . . . . . . . . . . . 24 SECTION 11.17. Rules. . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 11.18. Default Shall Not Permit Termination of REA. . . . . . . 24 SECTION 11.19. Right to Enjoin. . . . . . . . . . . . . . . . . . . . . 25 SECTION 11.20. Rights, Privileges, and Easements with Respect to Liens. 25 SECTION 11.21. Identification of Utility Facilities.. . . . . . . . . . 25 SECTION 11.22. Generally Accepted Accounting Principles.. . . . . . . . 25 SECTION 11.23. Counterparts.. . . . . . . . . . . . . . . . . . . . . . 25 SECTION 11.24. Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . 25 SECTION 11.25. Breach Shall Not Defeat Mortgage.. . . . . . . . . . . . 25 SECTION 11.26. Estoppel Certificate.. . . . . . . . . . . . . . . . . . 25 SECTION 11.27. Time of Essence. . . . . . . . . . . . . . . . . . . . . 26 SECTION 11.28. Liability of Mortgagees. . . . . . . . . . . . . . . . . 26 ARTICLE 12 DEFINITIONS SECTION 12.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . 26 EXHIBIT A DESCRIPTION OF THE LAND EXHIBIT B DESCRIPTION OF THE PRIVATE PARCEL EXHIBIT C DESCRIPTION OF THE PUBLIC PARCEL EXHIBIT D DESCRIPTION OF PUBLIC AREAS EXHIBIT E RULES AND REGULATIONS 4 RECIPROCAL EASEMENT AGREEMENT This Reciprocal Easement Agreement, dated as of November 7, 1997 (the "REA"), is made by and between the Marine World Joint Powers Authority, a joint exercise of powers authority organized and existing under the laws of the State of California (the "Authority"), and Park Management Corp., a California corporation (the "Corporation"). RECITALS A. All capitalized terms used herein and not defined in the section where first used in this REA are defined in Article 12 hereof or the definition of such capitalized term is referenced in Article 12 hereof. B. The City of Vallejo (the "City") owns approximately one hundred thirty-eight (138) acres of land located in the County of Solano, State of California, described in Exhibit A attached hereto (the "Land"). The City also owns or controls the right to use the surface of Lake Chabot, a flood control and drainage reservoir consisting of approximately fifty-five (55) acres. C. Certain improvements to the portion of the Land identified as the "Public Parcel" below were refinanced on January 30, 1997, with the proceeds of certificates of participation in the aggregate principal amount of $63,465,000 (the "Certificates of Participation Financing"). D. In connection with the Certificates of Participation Financing, (i) the City entered into a 1997 Site Lease Relating to Marine World dated as of January 1, 1997 whereby the City leased the Land and rights to use Lake Chabot to the Authority (the "1997 City-Marine World Lease"), (ii) the Authority and the City entered into a 1997 Lease Agreement Relating to Marine World, dated as of January 1, 1997, whereby the Authority leased back to the City a portion of the Land identified in Exhibit C hereto (the "Public Parcel," which Public Parcel shall be hereinafter deemed to include, as appropriate, all Improvements thereon) and rights to use Lake Chabot, (iii) the City and the Redevelopment Agency of the City of Vallejo (the "Agency") entered into a 1997 First Sublease Agreement Relating to Marine World, dated as of January 1 1997, whereby the City subleased to the Agency the Public Parcel and the rights to use Lake Chabot, and (iv) the Agency and the Authority entered into a 1997 Second Sublease Agreement Relating to Marine World, dated as of January 1, 1997, whereby the Agency subleased to the Authority the Public Parcel and the rights to use Lake Chabot (the "1997 Agency-Marine World Lease") to enable the Authority to operate and maintain a park under the name "Marine World/Africa U.S.A." E. The Authority and the Corporation have entered into a 1997 Management Agreement Relating to Marine World as of February 1, 1997 (said agreements, together with any successor agreement with respect to the management of the improvements on the Public Parcel, being herein called the "Management Agreement") pursuant to which the Corporation acts as the manager of the improvements located on the Public Parcel (the manager under the initial Management Agreement, and any manager of the Improvements on the Public Parcel under any successor Management Agreement, being herein called the "Manager"). F. The Authority, as landlord, and the Corporation, as Tenant, have entered into a Parcel Lease of even dated herewith (the "Parcel Lease") pursuant to which the Authority has leased to the Corporation the land identified in Exhibit B hereto (the "Private Parcel," which Private Parcel shall be hereinafter deemed to 1 include, as appropriate, all Improvements thereon). G. The Improvements to the Public Parcel include parking facilities from time to time maintained on or used in connection with the Public Parcel (the "Parking Areas"), an entry area which includes ticket sales and admission facilities, various public walkways, paths, restrooms, dining facilities, picnic areas and other related or similar areas that are intended for use by patrons of the Public Parcel and/or the Private Parcel in connection with, or are otherwise integral to, the operations of the Public Parcel and the Private Parcel (together with any similar Improvements on or later constructed on the Private Parcel, and all as more completely described in Exhibit D hereto, collectively herein call the "Public Areas"). The Public Areas shall not include any stadia, rides, exhibit facilities or other attractions that relate specifically to the theme and character of the operation of the respective Parcel or which such Public Area is located. H. The parties to this REA desire to provide for the maintenance and operation of the Public Areas and of the Improvements, and to otherwise create and provide for certain rights, privileges and easements and to impose certain restrictions and covenants on the Public Parcel, the Private Parcel and the Public Areas as hereinafter more specifically set forth, including, but not limited to, certain rights of ingress, egress, and access as specifically set forth herein to and among the Public Areas, various portions of the Private Parcel and various portions of the Public Parcel. I. It is hereby agreed by the parties hereto that this REA shall run with the Private Parcel and the Public Parcel and shall govern and be binding upon all Persons who shall succeed to any interest in any portion or portions of the Land and any improvements thereon, whether by lease, sublease, or any other conveyance, succession upon default, foreclosure, or operation of law until such time as this REA shall terminate in accordance with its own terms or unless and until every Party and the City, the Agency and every Mortgagee, if any, shall execute and acknowledge a declaration of termination of this REA and cause such declaration to be duly recorded in the Official Records, County of Solano, State of California. AGREEMENT ARTICLE 1 OPERATION AND MAINTENANCE - GENERAL SECTION 1.1 OPERATION AND MAINTENANCE. The Authority shall have full responsibility to operate and maintain the Public Parcel, including any Improvements thereon and any Public Areas therein in a manner consistent with the manner of operations thereof, as a whole, during the two year period preceding the date of this REA, and the Corporation shall have full responsibility to operate and maintain the Private Parcel, including any Improvements thereon and any Public Areas therein in a manner consistent with other regional theme parks operated by PPI or related entities. Each Party shall operate and maintain, at its sole cost and expense, the Improvements on such Party's Parcel in accordance with this REA, the Leases to which it is a party, as applicable, and the Revenue Sharing Agreement. Each Party shall operate and maintain the Improvements on such Party's Parcel in a manner which does not unreasonably impede access between the Public Areas of the Parcels, or otherwise materially interfere with the use or operation of the Public Areas or the respective Parcels on which such Public Areas are located, and in a manner which is otherwise compatible with the uses of the Public Areas as permitted under this REA. 3 The Authority has retained the Manager to operate and maintain the Public Parcel as described in the Management Agreement. The Corporation acknowledges receipt of a copy of the Management Agreement in effect on the date hereof, and assents to its terms as they relate to the operation and maintenance of the Public Parcel. The Authority shall provide the Corporation with any proposed amendment to the Management Agreement and any proposed successor Management Agreement at least two weeks prior to its effective date, and shall not enter into any such amendment or successor agreement to which the Corporation shall reasonably object, provided that said objections are delivered in writing during such two week period by the Corporation to the Authority and that said objection or objections relate to: (a) the standards of operation or maintenance of the Public Parcel and the Improvements thereon and the Public Areas therein, or (b) the compensation to be paid to the proposed manager, if such compensation is materially in excess of the then prevailing rate of compensation for managers of regional, non-destination theme parks of comparable size and with comparable annual attendance. If either Party shall fail to properly maintain its Parcel in accordance with this Section 1.1, then the other Party (or, in the case of the Authority, the Manager on its behalf) shall have the rights under the provisions of Section 2.4 to take action to correct such failures and to collect the costs of such corrective action in the manner provided in Section 11.8. SECTION 1.2 DAMAGE OR DESTRUCTION TO IMPROVEMENTS ON ANY PARCEL. Unless provided otherwise herein or in any Lease, each Party severally covenants to and with the other Party that in the event of any damage to or destruction of all or any portion of the Improvements, such Party shall, within a reasonable period of time commence and complete (subject to Unavoidable Delays) the restoration, replacement, or rebuilding of the Improvements with such alterations and additions as may be made at the Party's election pursuant to and subject to the terms of the applicable Lease (such restoration, replacement, rebuilding, alterations and additions, together with any temporary repairs and property protection pending completion of the work, being hereinafter called "Restoration"); provided, however, the Party's obligations with respect to such Restoration are limited to the amount of insurance proceeds which are payable to such Party on account of such damage or destruction. Subject to the provisions of the applicable Lease and Article 5 hereof, in the event such damage or destruction is to or of all or substantially all of the Improvements on a Party's Parcel, or if the insurance proceeds payable to the Party are not sufficient to complete Restoration or if there are no insurance proceeds, or if in the opinion of the Party it is not commercially practicable to undertake Restoration, then such Party shall promptly as practicable either (a) commence and complete (subject to Unavoidable Delays) Restoration of the damaged Improvements, subject to the limitation with respect to insurance proceeds set forth herein, or (b) remove any unusable Improvements and cause the portion of the Parcel occupied by the damaged Improvements as to which the Party has not elected to undertake Restoration to be returned to a safe condition, and thereafter proceed in accordance with Section 1.3. SECTION 1.3 CLEARING DEBRIS FROM RAZED IMPROVEMENTS. If a Party who owns or leases an Improvement is not obligated herein or in any Lease to which it is a party to rebuild, replace or repair an Improvement that has been damaged or destroyed, and if such Party elects not to do so, then (unless otherwise required hereunder or under a Lease) it shall raze such Improvement (or such part thereof as has been damaged or destroyed) and clear the area of all debris. After such razing has been completed, the area shall be landscaped and shall be so improved by the Party performing the razing so as to match adjacent landscaping and Improvements until such time as rebuilding may occur thereon. All activities that are 3 performed by the Party razing the Improvements and constructing the landscaping shall be at such Party's sole cost and expense. SECTION 1.4 MISCELLANEOUS REPAIRS AND ALTERATIONS. Subject to the preceding Sections of this Article and the other provisions of this REA, each Party may make such repairs, alterations, reconstructions or additions to its Improvements as it deems necessary or advisable under the circumstances. SECTION 1.5 LIABILITY OF MORTGAGEE. Anything in this Article 1 to the contrary notwithstanding, it is expressly understood and agreed that the provisions of Sections 1.2, 1.3 and 2.5 shall be applicable to any Mortgagee of any Parcel only in the following instances: (a) where any such Mortgagee acquires title by reason of foreclosure, or deed in lieu of foreclosure, or by termination for default of a leaseback in a sale and leaseback transaction or a sublease in a sublease and leaseback transaction, such Mortgagee or the purchaser at a foreclosure sale shall only be liable for such reconstruction for damage (whether or not such damage is caused by a peril included within the risks required to be insured against under this REA) which occurs subsequent to such foreclosure, sale, conveyance or termination of leaseback; or (b) where damage or destruction is either (i) caused by a peril required to be insured against under this REA; or (ii) is caused by a peril actually insured against; and occurs prior to such foreclosure sale, any such Mortgagee who acquires title by reason of foreclosure or deed in lieu of foreclosure or termination for default of a leaseback, or the purchaser at the foreclosure sale, shall be liable for such reconstruction but only to the extent of the insurance proceeds actually received by the Mortgagee under such insurance. If a purchaser at the foreclosure sale is not required pursuant to the foregoing subparagraphs to restore, repair or rebuild any Improvement that has been damaged or destroyed and elects not to do so then such purchaser at the foreclosure sale shall promptly raze such Improvement or such part thereof that has been so damaged or destroyed, and clear the premises of all debris. After the area has been cleared, it shall be landscaped and shall be so improved by the Person performing the razing so as to match adjacent landscaping until such time as rebuilding may occur thereon. Nothing in this Section 1.5 shall be construed to relieve a Party of its obligations under Sections 1.2 and 1.3. SECTION 1.6 LIMITATION ON DETRIMENTAL CHARACTERISTICS. No use or operation will be made, conducted or permitted on any part of the Land which use or operation is clearly detrimental to the development or operation of the Improvements, as provided herein and in the Leases. No portion of any Parcel may be leased, used or occupied as a funeral parlor; industrial manufacturing facility; automobile dealership; adult bookstore or establishment selling, exhibiting or distributing pornographic or obscene materials; massage parlor; so-called "head shop"; body and fender shop; car wash; or off-track betting parlor. Also included among the uses or operations which are prohibited are uses or operations which produce or are accompanied by the following characteristics, which list is not intended to be all-inclusive: (a) any noise, vibration, litter, odor or other activity which constitutes a public or private nuisance or interferes in a material adverse way with the normal conduct of the business of any Party; or (b) any dangerous firing, explosion or other damaging hazards; provided, however, all attractions, amusements and other activities conducted at other theme parks operated by PPI (to the extent permitted under applicable Law including but not limited to any local zoning and land use regulations) shall be permitted notwithstanding the foregoing. 4 SECTION 1.7 PARKING. The Authority hereby grants and conveys to the Corporation, for the benefit of the Private Parcel and the Public Parcel, a non-exclusive easement and right to the use, during the Term (as defined in the Parcel Lease) of the Parking Areas for purposes of vehicular parking for the benefit of the Parcels. Notwithstanding the foregoing easements, the Authority shall maintain the Parking Areas as described in Section 2.6 hereof, and shall not obstruct or unreasonably interfere with access, ingress or egress thereto.; SECTION 1.8 COMPLIANCE WITH LAWS. Each Party shall cause the Public Areas and all buildings and Improvements located on its Parcel to comply in all material respects with all applicable Laws; provided however, that a Party may contest any such Law so long as such contest does not create any material danger of a loss of title to, or material impairment in any way of the use of, all or any portion of the Public Areas for their intended purposes. SECTION 1.9 MISCELLANEOUS. The easements granted hereby shall be for the benefit of, but not restricted solely to, the Parties and each such Party may grant the benefit of such easement to tenants of the Public Parcel and the Private Parcel for the duration of such occupancy (but not longer than this REA is in effect), and to the customers, employees, agents and business invitees thereof; but same is not intended nor shall it be construed as creating any rights in or for the benefit of the general public nor shall it affect any real property outside of the Parcels (except for the Parking Areas). Such easement areas are reserved for said use so long as this REA is in effect. SECTION 1.10 ENVIRONMENTAL MATTERS. The Authority represents and warrants that it shall not create, place, store, transport, or dispose of any Environmental Condition or Hazardous Materials in, on, at, around or under or affecting all or any part of the Private Parcel, and further, that the Authority shall be responsible for all Environmental Compliance Liability with respect to the Private Parcel which, and solely to the extent that it, results from the Authority's negligence or willful misconduct or that of its agents, employees or contractors. The Corporation represents and warrants that it shall not create, place, store, transport, or dispose of any Environmental Condition or Hazardous Materials in, on, at, around or under or affecting all or any part of the Public Parcel, and further, that the Corporation shall be responsible for all Environmental Compliance Liability with respect to the Public Parcel which, and solely to the extent that it, results from the Corporation's negligence or willful misconduct or that of its agents, employees or contractors. SECTION 1.11 CONFLICT WITH ARTICLE 2. In the event of any conflict or inconsistency between the provisions of this Article 1 and Article 2 below, the provisions of Article 2 shall govern. ARTICLE 2 OPERATION AND MAINTENANCE OF PUBLIC AREAS SECTION 2.1 OPERATION AND MAINTENANCE OF PUBLIC AREAS. Each Party shall, at its own cost and expense (subject to the Revenue Sharing Agreement) operate, provide policing and adequate lighting and security for, maintain, repair, and to the extent provided for herein, replace, including, to the extent required under any Lease, the provision of adequate reserves to cover the cost of maintenance and repairs, that portion of the Public Areas which are within the Party's Parcel in good order, and sanitary condition and repair in a 5 manner at least comparable to those standards generally in effect from time to time in other regional, non-destination theme parks (including those operated by PPI and its subsidiaries), and in accordance with any Rules and Regulations. The Corporation shall advise the Authority in writing of any such standards at parks operated by PPI of which it considers the Authority in violation, and the Authority will advise the Corporation in writing of any such standard at other regional, non-destination theme parks of which it considers the Corporation in violation. The Authority shall have full responsibility to operate and maintain the Public Parcel, including any Improvements thereon and any Public Areas therein in the manner required hereunder and under the Leases to which it is a party, and the Corporation shall have full responsibility to operate and maintain the Private Parcel, including any Improvements thereon and any Public Areas therein in the manner required hereunder and under the Leases to which it is a party. If either Party shall fail to properly maintain its Parcel in accordance with this Section 2.1, then the other Party (or, in the case of the Authority, the Manager on its behalf) shall have the rights under the provisions of Section 2.4 to take action to correct such failures and to collect the costs of such corrective action in the manner provided in Section 11.8. SECTION 2.2 RULES AND REGULATIONS. The Parties agree that the maintenance and operation of the Parcels and the Public Areas shall be subject to the Rules and Regulations. Any amendment or supplement to the Rules and Regulations must be in writing, consented to and executed by each of the Parties. Each Party agrees to consider in good faith any amendment or supplement to the Rules and Regulations requested in writing by the other Party, and which does not materially adversely affect or interfere with the use or operation of its Parcel. SECTION 2.3 RESTRICTIONS ON PUBLIC AREAS AND OTHERWISE. The Parcels and Parking Areas shall be subject to the following restrictions which shall be binding on each Party and each of its tenants, occupants, employees, agents or invitees: (a) No obstruction to the free flow of traffic and joint use of the parking and delivery facilities shall be permitted except to the extent, if at all, expressly provided in this REA. (b) Any construction shall be conducted by or on behalf of a Party in a manner which will limit to the maximum extent practicable any interference with the operation of the other Party's Parcel, and shall be performed diligently in a good workmanlike manner and in compliance in all material respects with all applicable Laws, and completed as expeditiously as possible. (c) Except as otherwise permitted in this REA, there shall be no activities in the Public Areas which would materially interfere with the use of the Parcels and the Improvements for their intended purposes. SECTION 2.4 FAILURE OF PERFORMANCE. If either Party fails to perform any of its duties or obligations provided for in this REA, any other Party (if it is not the Person failing to perform) may at any time give a written notice to the failing Party, setting forth the specific failures to comply, and if such failures are: (a) not corrected within thirty (30) days after receipt of such notice (or such sooner period as may be required elsewhere herein or by Law), or (b) such that they cannot be corrected within such time and the Party receiving such notice fails to commence the correction of such failures within such period and diligently prosecute the same thereafter, then, in the case of either (a) or (b), the Party giving such notice shall have the right to correct such failures, including the right to enter upon any Parcel to correct such failures, and the Party receiving such notice shall pay the reasonable costs thereof. The defaulting Party shall pay any amounts so expended with interest in accordance with Section 11.8; provided, however, these provisions shall be without prejudice to the right of the Party receiving such notice to contest the right of the other Party to make such repairs or expend such monies and to withhold such amounts. Notwithstanding anything hereinabove 6 contained to the contrary, in the event of any emergency situation, a Party not in default may without notice cure any such default and, thereafter, shall be entitled to the benefits of this Section 2.4. In addition to the remedies set forth above or elsewhere, a party shall be entitled to the following additional remedies: (a) to seek specific performance; and (b) to seek injunctive relief. SECTION 2.5 DAMAGE TO OR DESTRUCTION OF PUBLIC AREAS. Except as otherwise provided herein or in the Lease pertaining to a Parcel, if any of the Improvements located in any of the Public Areas are damaged or destroyed by fire or any other cause whatsoever, whether insured or uninsured, during the term of this REA, the Party upon whose Parcel any portion of the damaged Improvements are located shall, at its own expense, be responsible for all necessary repairs, including foundations, supports, roof, exterior and interior bearing walls and all necessary repairs or replacements of any kind on such Improvements and shall promptly rebuild, replace or repair such damaged or destroyed Improvements to the same condition and to the same general appearance as existed immediately prior to such damage or destruction. Except as otherwise provided herein or in the Lease pertaining to a Parcel, any changes in the location of such restored Improvements in any of the Public Areas shall be in accordance with plans reasonably acceptable to the other Party, and any Improvements located in any of the Pubic Areas which any Person is required to rebuild, replace or repair shall be diligently prosecuted to completion and such Person shall, prior to commencing such rebuilding, replacement or repair, comply with the requirements set forth in Article 4. SECTION 2.6 OPERATION OF THE PUBLIC PARKING. The Authority shall have the right and obligation to manage and operate or oversee the management and operation of the Parking Areas in accordance with policies and standards adopted by the Authority and the Rules and Regulations, as applicable, and may at any time and from time to time designate one or more other Persons (including the Manager) to manage and operate the Parking Areas upon such terms and conditions and for such periods of time as the Authority deems reasonable, subject, however, to any specific requirements set forth elsewhere in this REA. The Authority, at its cost (which shall constitute Operating Expenses under the Revenue Sharing Agreement) shall cause the Parking Areas to be: (a) maintained in good order and repair, in a clean and sanitary condition and in a manner consistent with first-class standards of theme park practices; (b) kept properly drained and reasonably free from snow, ice and debris; (c) provided with adequate lighting and security during the hours of operation of the Parcels; and (d) kept open, unobstructed and completely accessible to vehicles and pedestrian traffic during the hours of operation of the Parcels. SECTION 2.7 NONINTERFERENCE WITH PERMITTEE CIRCULATION. Except as otherwise provided herein, there shall be no selling or other activities conducted in the Public Areas so as to unreasonably interfere with efficient pedestrian traffic flow between any Party's Improvements and all other areas in the Parcels, except as may be incident to restaurant or food services operations. SECTION 2.8 FENCES. Except as otherwise permitted herein including but not limited to in connection with any construction done pursuant to Section 3.5 or Article 4, no fence, structure or other obstruction of any kind (except for a perimeter fence around the Improvements and as may be specifically permitted herein, or except for decorative features and customer conveniences) shall be placed, kept, permitted or maintained in the Public Areas in a manner which unreasonably interferes with pedestrian traffic flow over the Public Areas or otherwise with the use and operation by a Party of its Parcel. SECTION 2.9 SIGNS AND BANNERS. The Parties shall negotiate in good faith from time to time 7 to establish and adjust, as necessary or desirable, the criteria for all signs, banners, balloons, inflated figures and other lighter-than-air devices to be installed anywhere on the Parcels, except for signs located within individual Parcel not visible from the exterior of such Parcel. The sign criteria will be subject to the provisions of any Lease entered into prior to the date hereof. No such signs, banners, balloons, inflated figures and other lighter-than-air devices shall be installed on the Parcels that do not conform to the agreed-upon sign criteria. Notwithstanding anything to the contrary set forth in this Section 2.9, the Corporation shall be permitted to install on the Private Parcel any and all signs, banners, balloons, inflated figures, other lighter than air devices and other identification materials which are similar to those then being used at other theme parks operated by or on behalf of PPI so long as no such materials that are visible beyond the exterior of the Private Parcel are materially misleading as to the ownership of the respective Parcels, and the Authority shall be permitted to install on the Public Parcel any and all signs, banners, balloons, inflated figures, and other lighter than air devices and other identification materials which are similar to those in use on the Public Parcel prior to the date of this REA. ARTICLE 3 RECIPROCAL EASEMENTS SECTION 3.1 DEFINITIONS AND DOCUMENTATION. For the purposes of this Article, the following will apply: (a) The Party granting an easement is called the "Grantor", it being intended that the grant shall thereby bind and include not only the Party but also its successors and assigns. (b) The Party to whom the easement is granted is called the "Grantee", it being intended that the grant shall benefit and include not only such Party but its permitted successors in interest hereunder. (c) The word "in" with respect to an easement granted "in" a particular Parcel means, as the context may require, "in", "to", "on", "over", "through", "upon", "across" and "under", or any one or more of the foregoing. (d) The term "Separate Utility Facilities" means sewers (including, without limitation, storm drainage and sanitary and septic sewer systems), domestic water systems, natural gas systems and mains, electrical systems, safety systems, fire protection water systems and water mains, telephone systems, data or other communication systems, and all other utility systems and facilities which serve only one Parcel or which connect Common Utility Facilities to the Improvements. (e) The grant of an easement by a Grantor shall bind and burden its ownership or leasehold interest, for the purpose of this REA, be deemed to be the servient tenement. (f) The grant of an easement to a Grantee shall benefit and bind its ownership or leasehold interest, for the purpose of this REA, be deemed to be the dominant tenement. (g) Unless provided otherwise, all easements granted hereunder are non-exclusive and irrevocable. 8 SECTION 3.2 NATURE OF EASEMENTS. All easements granted hereunder shall exist by virtue of this REA, without the necessity of confirmation by any other document. Likewise, upon the termination of any easement (in whole or in part) or its release in respect of all or any part of a Parcel, the same shall be deemed to have been terminated or released without the necessity of confirmation by any other document. However, upon the request of any Party, the other Party will sign and acknowledge a document memorializing the existence (including the location and any conditions to the granting or exercise), or the termination (in whole or in part), or the release (in whole or in part), as the case may be, of any easement, if the form and substance of the document is acceptable to the Party requesting the same. Any Grantor may, and at the written request of a Party hereto shall, at the Grantor's expense (which shall constitute Operating Expenses under and as defined in the Revenue Sharing Agreement) cause to be prepared and recorded a survey showing the location of the permanent easements granted hereunder in the Grantor's Parcel. SECTION 3.3 GENERAL EASEMENTS. Each Party hereby grants and conveys to the other Party for the benefit of the Parcel owned, leased and/or operated by such other Party, a non-exclusive easement and the right to the use during the term of this REA of the Public Areas, and the common curb cuts, roadways, driveways, aisles, walkways and sidewalks located on the Public Parcel and the Private Parcel, the location of which is shown or described on Exhibit D attached hereto, and in any other area designated or set aside herein or in the future under a written amendment to this REA for the use by others on its respective Parcel for: (a) ingress to and egress from the Grantee's Parcel; (b) the passage and delivery of vehicles through areas designated for that purpose; (c) the passage and delivery and accommodation of pedestrians; and (d) any such other purposes as are herein expressly authorized to be done in all of the Public Areas designated for the use by others under this REA; provided, however, that such easements are limited to such portions of the Public Areas designated for the use by others on the Grantor's Parcel as are now or hereafter under a written amendment to this REA set aside, maintained and authorized for such use under this REA, on those portions of the Land designated as Public Areas in Exhibit D. Each Party hereby grants and conveys to the Manager, and to any successor Manager, a non-exclusive easement and right to the use of the Public Areas, as they may exist from time to time, for purposes of ingress and egress and for purposes of enforcement of the provisions of this REA and of the Rules and Regulations adopted hereunder. Each Party hereby reserves the right to eject from the Public Areas designated for the use by others on its Parcel any Persons not authorized to use the same and Persons using the same in a manner which violates this REA (including the Rules and Regulations) or the provisions of any Lease pertaining to its Parcel. In addition, each Party reserves the right to close off the Public Areas designated for the use by others on its Parcel for such reasonable periods of time as may be required for serious security situations or as legally necessary to prevent the acquisition of prescriptive rights by anyone; provided, however, before closing off any part of the Public Areas designated for the use by others as provided above, such Party must 9 give at least 14 days' prior written notice to the Manager and the other Party of its intention to do so and must coordinate its closing with the activities of the other Party so that no unreasonable interference with the use or operation of the Improvements occurs, and such Party shall use commercially practicable efforts to minimize the time of such closure and interruption of business. The easements provided for in this Section are subject to the rights to use the Public Areas or other areas designated for the use by others for other purposes provided for in this REA; however, except as otherwise herein provided, no changes shall be made by a Party in the Public Areas or in the location or design of the Improvements on the Public Areas without the prior written approval of the other Party (which approval shall not be unreasonably withheld or delayed), when any such change shall substantially adversely affect such other Party. Each Party hereby grants to each tenant, subtenant, licensee, concessionaire and permitted occupant of a Parcel a non-exclusive license for reasonable pedestrian circulation across open areas that may exist from time to time to circulate between the various Parcels. However, no Party shall have the right to designate specific areas for such reasonable circulation. SECTION 3.4 EASEMENTS FOR UTILITY FACILITIES. Each Party hereby grants and conveys to each of the other Parties for the benefit of the Private Parcel and the Public Parcel, a non-exclusive easement in its Parcel, for the installation, use, operation, maintenance, repair, replacement, relocation and removal of Separate Utility Facilities and the Common Utility Facilities existing at any time. The installation of Separate Utility Facilities and Common Utility Facilities shall be subject, as to location, to the approval of the Grantor, which approval shall not be unreasonably withheld or delayed. Except as otherwise provided herein, the Grantee of any easement for Separate Utility Facilities under this Section shall be responsible, as between such Grantee and the Grantor, for the installation, maintenance, repair and removal of all Separate Utility Facilities installed by the Grantee within such easements, as well as for all Separate Utility Facilities installed by the Grantee on its own Parcel and shall complete same as expeditiously as possible. The Party so obligated to perform such repair, installation, maintenance and/or removal shall, at its sole cost and expense, repair any damage to any Improvements caused thereby. After initial installation thereof is completed, any permitted installation, maintenance, repair, replacement, relocation and removal of Separate Utility Facilities that is required to be performed by Grantee must be performed by Grantee and then only after two (2) weeks' advance written notice to Grantor of Grantee's intention to do such work. However, in the case of an emergency, any such work may be immediately performed after such advance notice to Grantor as is reasonably practicable under the circumstances. In addition, the Parties agree that all such installation, maintenance, repair and removal shall be performed in a manner that causes as little disturbance to the Parties and their use and operation of their respective Parcels as may be reasonably practicable under the circumstances and any and all portions of the surface area of Grantor's Parcel which may have been excavated, damaged or otherwise disturbed as a result of such work shall be restored at the sole cost and expense of Grantee to essentially the same condition as the same were in prior to the commencement of any such work. The Grantor of any easement for Separate Utility Facilities under this Section may use the Separate Utility Facilities as so installed, provided the increase in costs incurred in order to make such Separate Utility Facilities adequate to serve such additional use shall be borne by such Grantor, unless otherwise provided under the Revenue Sharing Agreement, and, provided, further, that Grantor complies with the requirements 10 of subparagraphs (a), (b), (c), and (d) of this Section 3.4. The Grantor of any easement under this Section may, if reasonably required, relocate on its premises any Separate Utility Facilities, or Common Utility Facilities installed thereon under any easement granted by it, provided such relocation: (a) may be performed only after Grantor has given Grantee thirty (30) days' prior written notice of its intention to relocate such facilities and has set forth in such notice the reasons why such relocation is required; (b) shall not interfere with or diminish the utility services to the Grantee; however, temporary interferences with and diminutions in utility services shall be permitted if: (i) they occur during the non-business hours of Grantee or during the off-season of the operations of the Parcels, and (ii) Grantor promptly reimburses Grantee for all cost, expense and loss (excluding any estimated unrealized operating profits) incurred by Grantee as a result of such interferences or diminutions, or both, unless otherwise provided under the Revenue Sharing Agreement; (c) shall not reduce or unreasonably impair the usefulness or function of the facilities in question; and (d) shall be performed at the sole cost of Grantor, and (e) Grantee approves such relocation, which approval shall not be unreasonably withheld or delayed. All Common Utility Facilities lying within any of the Public Areas shall, depending upon their location, for all purposes be deemed to be included within the definition of the Improvements for the specific Public Areas so affected. SECTION 3.5 TEMPORARY CONSTRUCTION EASEMENTS. In connection with any construction (as defined in Section 4.1) each Party hereby grants to each of the other Parties a non-exclusive, temporary easement for incidental encroachments upon those portions of the Land included in its Parcel which may occur as a result of construction, and so long as such encroachments are kept within the reasonable requirements of construction work, expeditiously pursued, and so long as customary insurance is maintained protecting the Grantor from the risks involved and evidence thereof is delivered to the affected Parties. Except as otherwise provided for herein the location of all temporary easements under this Section shall be subject to the approval of Grantor (which approval shall not be unreasonably withheld or delayed). The plans and specifications showing the Improvements to be constructed, together with the location of the required construction easements, shall be submitted to the Grantor and approval thereof by Grantor shall constitute designation by the Grantor of the portions of its Parcel to be used for such temporary easements; 11 any such approval of Grantor shall not be unreasonably withheld or delayed. The use of the temporary easements under this Section must not result in damage or injury to the Improvements of the other Parcel and shall not materially adversely affect or otherwise unreasonably interfere with or interrupt the business operations conducted on the other Parcel. In addition, each Grantee, at its expense, shall promptly repair, replace or restore any and all Improvements of Grantor which have been damaged or destroyed by Grantee in the use of the temporary easements granted under this Section or the activities of the Grantee thereupon or in connection therewith. SECTION 3.6 TERMINATION AND ABANDONMENT OF EASEMENTS. Any easement granted pursuant to this Article 3, or any part thereof, may be abandoned and terminated if: (a) all Grantors and Grantees mutually agree; or (b) the use thereof shall have been abandoned by the Grantee thereof and continues to be abandoned for a period of two (2) consecutive years after the Grantor of such easement gives the Grantee thereof prior written notice in accordance with Article 8 to the then Grantee benefited by such easement and the then record owner, if any, of any leasehold interest in such benefited Parcel, stating that such easement has been abandoned, and places of record in the Recorder's Office in Solano County, California, an affidavit that such abandonment has taken place and that such notice has been properly given, and any record owner of the fee of or leasehold interest in the benefited Parcel within such two (2) year period fails to place of record in the Recorder's Office in Solano County, California, an affidavit that such easement has been used within such two (2) year period. Notwithstanding the foregoing, no easement may be abandoned as aforesaid if the Grantee thereof delivers to Grantor within 15 days after delivery by Grantor of its notice as aforesaid written notice that such easement has not been abandoned, and that such Grantee intends to use such easement and such Grantee does use such easement within six (6) months thereafter, then such Grantor shall not terminate the easement as aforesaid. ARTICLE 4 GENERAL CONSTRUCTION REQUIREMENTS SECTION 4.1 "CONSTRUCTION" DEFINED. As used in Section 3.5 and this Article the word "construction" includes initial construction of Improvements, work performed in connection with any Restoration and, except where otherwise specified, subsequent construction carried on under this REA. SECTION 4.2 CONSTRUCTION TO PROCEED IN REASONABLE MANNER. Each Party agrees that construction shall not be performed so as to (a) unreasonably interfere with construction being performed by the other Party, (b) cause any unreasonable increase in the cost of construction being performed by the other Party, or (c) unreasonably interfere with the other Party's operations and rights as contemplated by this REA. Notwithstanding the foregoing, or anything else in this Article, including Section 4.3, no Party shall perform construction or erect such barricades in a manner which materially adversely affects, or otherwise substantially interferes with, the use and operation by any other Party of its Parcel, except to the extent specifically permitted elsewhere herein. SECTION 4.3 CONSTRUCTION BARRICADES. If any Party begins or continues construction after the Improvements of any other Party have opened for business to the general public, then the Party carrying on the construction shall erect adequate, painted construction barricades substantially enclosing the area of its construction. All barricades shall be painted in colors reasonably approved by the other Party. Such Party 12 shall maintain these construction barricades until the construction has been substantially completed (to the extent reasonably necessary to remove the hazardous construction conditions). This Section 4.3 applies only to construction that can be reasonably be deemed to constitute a hazardous condition for Permittees; however, each Party may erect construction barricades, as hereinabove specified, at the time of any construction and maintain in accordance with this Article the same until the building surrounded is secure from unauthorized intrusion. SECTION 4.4 SAFETY MATTERS. Each Party initiating or being responsible for the construction shall take all safety measures reasonably required to protect each of the other Parties and all Permittees and the property of each from injury or damage caused by or resulting from the performance of its construction. SECTION 4.5 WORKMANSHIP; EVIDENCE OF COMPLIANCE WITH CONSTRUCTION REQUIREMENTS. Each Party agrees that all construction to be performed hereunder by such Party shall be done in a diligent, good and workmanlike manner, with materials at least comparable to those used in other regional, non-destination theme parks (including those operated by PPI) and in accordance with all applicable Laws. Each Party shall pay all costs, expenses, liabilities and liens arising out of or in any way connected with such construction. After it has completed any construction, each Party shall, within sixty (60) days after the written request of the other Party, deliver to the requesting Party evidence that the construction has been completed in compliance with all applicable Laws. A certificate of occupancy (or the equivalent thereof) issued by the governmental body having jurisdiction thereof shall be deemed satisfactory evidence of compliance with the requirements of this Section. SECTION 4.6 LIENS. Each Party agrees that in the event any mechanic's lien or other statutory lien shall be filed during the term of this REA against the ownership or leasehold interest of the other Party in the Public Areas by reason of work, labor, services, or materials supplied to or at the request of said Party or pursuant to any construction, it shall pay and discharge the same of record within thirty (30) days after receiving notice of the filing thereof, subject also to the provisions of the following sentence. Each such Party shall have the right to contest the validity, amount or applicability of any such respective liens by appropriate legal proceedings, and so long as it shall furnish bond or indemnity as hereinafter provided, and be prosecuting such contest in good faith, the requirement that it pay and discharge such items within said thirty (30) day period shall not be applicable; provided, however, that in any event such Party shall within thirty (30) days after receiving notice of the filing thereof bond or indemnify against such liens in amount and form satisfactory to induce the title insurance company which insured title to the respective Parcel to each of the Parties hereto to insure over such liens or to reissue or update its existing policy, binder or commitment without showing any title exception by reason of such liens. In the event such legal proceedings shall be finally concluded (so that no further appeal may be taken) adversely to the Party contesting such liens, such Party shall, within five (5) business days thereafter, cause the lien(s) to be discharged of record. ARTICLE 5 OTHER AGREEMENTS SECTION 5.1 COVENANT TO PERFORM. (a) Each Party covenants and agrees to and for the benefit of each other Party that: 13 (i) it shall not enter into any agreement, amendment, cancellation or other modification of any agreement that will preclude such Party from fully complying with this REA; and (ii) it shall not enter into any agreement, amendment, cancellation or other modification of any agreement that will preclude any other Party from exercising and enjoying all rights granted in this REA to such other Party. (b) Each Party covenants and agrees to and for the benefit of each other Party that it shall provide in each grant deed or other instrument or agreement conveying any ownership or security interest in its ownership or leasehold interest, that each successor to such interest shall be bound by and become a Party to this REA. SECTION 5.2 SUBORDINATION OF LEASES. The Parties acknowledge and agree that the terms and provisions of this REA are superior and prior to the 1997 Agency-Marine World Lease and the Parcel Lease, and, to the extent there is a conflict in a Party's obligations hereunder and under the foregoing Leases, the terms of this REA shall govern and control. The City, by the execution of this REA, acknowledges and agrees that all of the real property included in Parcels, including the City's fee interest therein and any other security interest therein, will be subject to the terms and provisions of this REA. SECTION 5.3 INDEMNIFICATION BY PARTIES. (a) Each Party ("Indemnitor") agrees to indemnify and save harmless the other Party, its officers, directors, shareholders, successors, assigns and agents (collectively, the "Indemnified Parties") from and against (i) all claims of whatever nature against each Indemnified Party arising from any willful misconduct or gross negligence of Indemnitor, its contractors, licensees, agents, servants, employees, invitees, customers, concessionaires or visitors, including any claims arising from such act (including, without limitation, any thing whatsoever done or any condition created), (ii) all claims against each Indemnified Party arising from any accident, injury or damage whatsoever caused to any person or to the property of any person and occurring during, or (if Indemnitor shall continue to use and occupy its Parcel) after the expiration of the Term of this REA, in or about the Parcel owned or leased and operated by or on behalf of Indemnitor, (iii) all claims arising against each Indemnified Party relating to the imposition of any liens of mechanics or materialmen or otherwise relating to construction done or services provided to, for, at the request, or on behalf of Indemnitor, and (iv) any breach, violation or non-performance of any representation, covenant, condition or agreement in this REA set forth and contained on the part of Indemnitor to be fulfilled, kept, observed and performed. This indemnity and hold harmless agreement shall include indemnity from and against any and all liability, fines, suits, damages, losses, demands, costs and expenses of any kind or nature incurred in or in connection with any such claim or proceeding brought thereon, and the defense thereof with counsel reasonably approved by Indemnified Party in writing, which approval shall not be unreasonably withheld or delayed; provided, however, that the counsel designated by Indemnitor's insurance carrier shall be deemed approved by Indemnified Party, and the office of the City Attorney shall be deemed approved by the Corporation. Th Indemnified Party agrees to give prompt notice to Indemnitor of any such claim or proceeding, and the opportunity to defend such claim or proceeding if Indemnified Party does not elect to do so. This Section 5.3 shall survive the expiration or termination of this REA. (b) No provision in this REA providing for the indemnification of any Indemnified Party shall apply in any instances arising out of the gross negligence or willful misconduct of such Indemnified Party, its agents, servants, employees, contractors or other tenants of such Indemnified Party, their agents, servants, 14 employees, contractors, or other licensees or invitees. SECTION 5.4 LIABILITY INSURANCE AND WAIVER OF SUBROGATION. (a) Each Party shall maintain or cause to be maintained so long as this REA is in effect public liability and property damage insurance insuring against claims on account of loss of life, bodily injury or property damage that may arise from, or be occasioned by the condition, use or occupancy of the Public Areas by the Party and the tenants, agents, contractors, employees, licensees, customers and invitees, of such Party or the occupants of its Parcel except as herein provided. Said insurance shall be carried by a reputable insurance company or companies under insurance policies having limits for loss in the minimum amounts, and otherwise under the material terms and conditions, as are contained in insurance policies from time to time carried by operators of other regional theme parks of comparable size and attendance (including other theme parks owned or operated by or on behalf of PPI); provided, however, in no event shall the minimum amount of coverage per occurrence be less than $5,000,000, nor the deductible in connection therewith exceed $50,000 and the Authority shall maintain insurance for the Public Parcel reasonably comparable to that maintained by the Corporation for the Private Parcel. Notwithstanding the foregoing, any Party responsible to maintain such insurance that has a net worth in excess of $100,000,000 or is part of a governmental joint insurance pool may "self insure", or provide for a deductible from said coverage related to the Parcel to the extent of one percent (1 %) of the net worth of said Party in its last annual or fiscal year as certified by an independent certified public accountant and computed in accordance with generally accepted accounting principles consistently applied. Such insurance may be carried under a "blanket" policy or policies covering other properties of the party and its subsidiaries, controlling or affiliated corporations. Each Party shall, upon written request from the other Party, furnish to the Party making such request certificates of insurance or other ocumentation evidencing the existence of the insurance required to be carried pursuant to this Article or evidence of a self-insurance capacity as hereinabove provided, as the case may be. All such insurance shall include provisions denying to the insurer subrogation rights against the other parties to the extent such rights have been waived by the insured prior to the occurrence of damage or loss, so long as such coverage is obtainable and includable at no additional cost. (b) To the extent permitted by Law, each Party hereby waives any rights of recovery against any other Party, its directors, officers, employees, agents and tenants and occupants for any damage or consequential loss covered by said policies (or "deemed policy" in the case of self-insurance), against which such Party is protected (or deemed protected) by insurance (or self-insurance), to the extent of the proceeds payable under such policies (or to the extent of the deemed self-insurance), whether or not such damage or loss shall have been caused by any acts or omissions of the other Party or its directors, officers, employees, agents, tenants or occupants. SECTION 5.5 CASUALTY INSURANCE. In order to assure performance of their respective obligations under this REA, each Party shall also cause to be carried fire and extended coverage insurance on all Improvements on their respective Parcels or interest therein as follows: (a) with respect to the Corporation, in minimum amounts and otherwise under the terms and conditions required by the Parcel Lease; and (b) with respect to the Authority, in the minimum amount, and otherwise under terms, required under Section 5.4 of the 1997 Agency - Marine World Lease (but the percentage in clause (i) of the first sentence of said Section 5.4 shall be deemed to be seventy-five percent (75%) instead of ninety percent (90%), and otherwise without giving effect to clause (ii) or (iii) of the first sentence of said Section 5.4), subject to the right of each such Party, or other party responsible for any required restorations, to "self insure" pursuant to Section 5.4. Any such insurance shall otherwise conform to the provisions with respect to insurance contained in Section 5.4. 15 SECTION 5.6 CONDEMNATION. For purposes of this Section 5.6: (a) "Condemnation" means: (i) the taking of all or any part of the Land or Improvements or the possession thereof under the power of eminent domain; or (ii) the voluntary sale (with the consent of the Party then in possession, the other Party and any other Persons having a permitted interest therein) of all or any part of the Land or Improvements to any Person having the power of eminent domain, provided that the Land or Development or such part thereof is then under the threat of condemnation from such Person. (b) Condemnation Date means the earlier of: (i) the date when possession of the condemned Parcel (or any part thereof) is taken by the condemning authority; or (ii) the date when title to the condemned Parcel (of any part thereof) vests in the condemning authority. If any part of the Improvements situated on any Party's Parcel is taken by condemnation, such Party shall reconstruct said Improvements as nearly as possible to the condition thereof as existed immediately prior to such taking in accordance with the requirements and subject to the conditions of this Section 5.6, and only to the extent of any condemnation award with respect thereto. All reconstruction hereunder shall include rebuilding and restoring the same to a complete architectural unit. In the event of any such rebuilding of any Improvements, the same shall be done in accordance with the provisions set forth in Article 4 hereof. Notwithstanding anything to the contrary contained in this Section 5.6, in no event shall any tenant or Mortgagee be required to rebuild, replace or restore any Improvements beyond the extent it would be required to so rebuild, replace or restore pursuant to Sections 1.2, 1.5 and 2.5, as the case may be. In the event a Parcel, or any part thereof, is taken by condemnation, each Party waives, in favor of the Party whose property or any part thereof is taken by condemnation, any value of the condemnation award attributable to any easements which any other Party holds in the property of such other Party; and no part of such award shall be payable to the holder of the dominant tenement by virtue of such easement. However, a waiver under this Section shall not preclude the holder of any interest in another Parcel from claiming and collecting the severance and consequential damages to its own Parcel resulting from the taking of the condemned portion of the other Parcel. No termination under this Article of any Party's obligations to restore, operate, and maintain as provided in this REA shall affect the existence of the easements granted under Article 3, except to the extent such easements burden the land taken by condemnation. Nothing herein contained shall be deemed to prohibit any Mortgagee from participating in any eminent domain proceedings on behalf of any Party, or in conjunction with any Party. The provisions of this Section 5.6 are subject to any applicable provisions of the Leases. SECTION 5.7 FIRE OR OTHER CASUALTY. (a) If any of the Improvements located on any Parcel are damaged or destroyed by fire or other cause, the owner or lessee of such Improvement ("NOTIFYING PARTY") shall exercise its election under clause (a) or (b) of the second paragraph of Section 1.2 within 45 days after the occurrence of such fire or other casualty, by delivering written notice thereof (the "CASUALTY NOTICE") to the other Party, which Casualty Notice shall set forth the Notifying Party's election to pursue either of the following, subject to its obligations elsewhere in this REA and in the Leases to which it is a party: (i) the repair, Restoration, or rebuilding of the Improvement so damaged or destroyed, or (ii) the razing of any damaged Improvement, the filling of any excavation, and performance of any other work necessary to put 16 such portion of the applicable Parcel in a clean, sightly and safe condition, blacktopped or planted with grass. The Notifying Party shall promptly commence and diligently pursue completing whichever of the foregoing options it elects. (b) Notwithstanding the foregoing, in the event (i) the Notifying Party does not send the Casualty Notice as required above, or (ii) does send a Casualty Notice but does not complete the work elected therein in material compliance with all Laws within a reasonable period after the Casualty Notice, or (iii) fails to complete any Restoration for which it is responsible under this REA, then the other Party ("ELECTING PARTY") shall have the right (in addition to any other rights it may have), following written notice to the Notifying Party given: (1) within 15 days after receipt of the Casualty Notice, (2) within 15 days after the last date on which the Casualty Notice should have been delivered, if it is not so delivered, or (3) within a reasonable time with respect to any Restoration under clauses (ii) or (iii) above, to effect the Restoration of the Improvements so damaged or destroyed, at its sole cost and expense (to the extent the insurance proceeds payable to it are insufficient), whereupon, it shall promptly commence and diligently pursue completion of such work, including but not limited to, submitting all plans and specifications to the Notifying Party for its prior written approval, not to be unreasonably withheld or delayed. In such event, the Electing Party shall have the right to receive any insurance proceeds payable in connection with such damage or destruction to be used for such Restoration. The Notifying Party shall cooperate with the Electing Party in connection with any such repair or restoration. Upon completion of the Restoration, the Electing Party shall have the right to reimbursement for reasonable amounts expended under this Section 5.7(b) from the amount otherwise payable to the Notifying Party under clause (v) of Section 1.3(c) of the Revenue Sharing Agreement. SECTION 5.8 APPLICATION OF PROCEEDS AND AWARDS. Except to the extent otherwise required under the Leases in effect from time to time, to the extent a Party is required to commence the repair and restoration as aforesaid or under Section 5.6 hereof and/or under any Lease, all insurance proceeds or condemnation awards, respectively, shall be paid over to such Party to be used in connection therewith and shall be so used by such Party. ARTICLE 6 REAL ESTATE TAXES OR IMPOSITIONS SECTION 6.1 PAYMENT OF TAXES OR IMPOSITIONS. Subject to the provisions of Section 6.3, each Party shall pay (or cause to be paid) before delinquency all Impositions levied on its respective ownership or leasehold interest (including the Improvements and personalty situated thereon), provided, however, that (a) if, by Law, any Imposition may, at the option of the Person on whom it is imposed, be paid in installments, the Party may exercise such option, and shall pay all such installments (and interest, if any) becoming due as the same respectively become due and before any further interest or any penalty, fine or cost may be added thereto; and (b) any Imposition relating to a fiscal period of the taxing authority, a part of which period occurs prior to the date upon which the leasehold or fee title to such interest is conveyed to such Party, and a part of which period occurs after the date of such conveyance, shall be adjusted between the Person transferring such leasehold or fee and such Party so that the Person transferring such leasehold or fee shall pay that portion of such Impositions allocable to the period prior to the date of such conveyance and such Party shall pay the remainder thereof. Each Party shall upon the request of any other Party exhibit to such other Party for examination receipts for all Impositions required to be paid by the Party pursuant to this Article 6. 17 SECTION 6.2 CONTESTING IMPOSITIONS. Each Party may, at its own cost and after notice to the other Parties of its intention to contest Impositions, by appropriate proceedings conducted in good faith and with due diligence contest the validity, applicability and/or the amount of any Impositions. Nothing in this Article requires a Party to pay any Impositions as long as it contests the validity, applicability or the amount thereof in good faith in accordance with this REA and so long as it does not allow the affected Parcel to be forfeited to the imposer of such Impositions as a result of its non-payment. The contesting Person shall within a reasonable period of time given notice to the other Party of the commencement of any such contest and of the final determination of such contest. SECTION 6.3 FAILURE TO PAY IMPOSITIONS. If a Party fails to comply with this Article, the other Party may pay the Imposition in question in accordance with this REA and shall be entitled to prompt reimbursement from the defaulting Party for the sums so expended with interest thereon as stated in Section 11.8. SECTION 6.4 ADDITIONAL PROVISIONS REGARDING IMPOSITIONS. Notwithstanding anything to the contrary set forth above, Impositions shall be payable as follows: (a) The Corporation and the Authority shall each be responsible for the payment of that portion of the Impositions which are due and payable as assessed against their interests in their respective Parcel and Improvements in which each has a possessory interest. The Parties shall take all reasonable efforts to arrange, to the extent permitted under applicable law, for the relevant taxing authorities to send all tax bills for any tax year directly to the Corporation and the Authority, and to accept payment of their respective portions directly from the Corporation and the Authority. The amount of Impositions payable by each of the Parties hereunder for any tax year (or portion thereof) shall be timely paid by each party directly to the taxing authority for said tax year (or portion thereof) so as to avoid the accrual of interest or the payment of a penalty or creation of a lien, and evidence of each such payment shall be provided upon request to the other Party. (b) The Impositions upon a Parcel for any tax year shall mean such amounts as shall be finally determined after deducting net reductions or abatements, refunds or rebates, if any, to be the Impositions payable with respect to the Parcel for said tax year. For the purposes of determining payments due from each of the Corporation and the Authority in accordance with the provisions of this Article, the Impositions upon a Parcel for any tax year shall be deemed to be the Impositions assessed for such year until such time as a reduction, abatement, refund or rebate shall be made for such tax year, and, if any reduction, abatement, rebate or refund shall be made for any tax year, an appropriate refund shall be made with respect to the amount paid by each of the Corporation and the Authority on account of Impositions dependent upon the amount of such reduction, abatement, rebate or refund, less the cost and expense of obtaining the same. (c) If the Land, or any part thereof, is entitled to any abatements, exemptions or credits of or against Impositions and same are granted, each of the Parties hereto, including the Agency, hereby agrees that thereafter it shall use commercially reasonable efforts to ensure that said abatements, exemptions or credits of Impositions shall not be terminated, rescinded or otherwise lost due to its willful misconduct or gross negligence (whether or not such willful misconduct is permitted by this REA). (d) Notwithstanding the foregoing, or anything to the contrary set forth herein, each Party shall 18 have the right, exercisable following at least ten (10) business days prior written notice to the other Party, to make any payment of the other Party's share of the Impositions in order to avoid the accrual of interest or other late fees or the imposition of a penalty or creation of a lien upon the Parcel of the noticed Party if such noticed Party does not pay same within said ten (10) business days from the date of delivery of such notice. In the event that a Party makes any such payment or otherwise incurs any cost or expense in accordance with this Section 6.4 as a result of the non-payment of the share of the Impositions allocated to another Party, such first Party shall have the right to be reimbursed therefore as a component of Operating Expenses under the Revenue Sharing Agreement, (e) Each Party shall also pay before any fine, penalty, interest or cost may be added thereto or become due or be imposed by operation of Law for the non-payment thereof, all excises, levies, licenses and permit fees and other governmental charges, general and special, ordinary and extraordinary, unforeseen and foreseen, of any kind and nature whatsoever which at any time during the Term, with respect to the Corporation, and prior to or during the Term of this REA with respect to the other Parties, may be assessed, levied, confirmed, imposed upon, or grow or become due and payable out of or in respect of or become a lien on, their respective Parcels or any part thereof or any appurtenance thereto as the result of or in connection with the use to which the Parcels are put by such Party (notwithstanding that such use may be for the purposes herein permitted or may have been consented to by the other Party). (f) The Corporation and the Authority shall each have the right to employ a tax consulting firm, reasonably acceptable to the other Party, to attempt to assure a fair tax burden on each of the Parcels. Each Party shall pay fifty percent (50%) of the cost of such service. Additionally, the Parties shall in their reasonable determination have the right to contest, at their sole expense, any tax assessment, valuation or levy against all or any portion of their respective parcel, and to retain legal counsel and expert witnesses to assist in such contest. In the event such contest results in a refund of Impositions in any year, the other Party shall be entitled to receive its proportionate share of such refund, pro-rated for the period with respect to which the Party paid its share of Impositions for such year, after deducting from the refund all fees, expenses and costs incurred in connection with such contest. (g) Any payment to be made pursuant to this Section with respect to the real estate tax year in which this REA commences or terminates shall bear the same ratio to the payment which would be required to be made for the full tax year as that part of such tax year covered by the Term of this REA bears to a full tax year. SECTION 6.5 OTHER GOVERNMENTAL CHARGES. Each party shall also pay before any fine, penalty, interest or cost may be added thereto or become due or be imposed by operation of Law for the non-payment thereof, all excises, levies, licenses and permit fees and other governmental charges, general and special, ordinary and extraordinary, unforeseen and foreseen, of any kind and nature whatsoever which during the Term, with respect to the Corporation, and at any time prior to or during the Term, with respect to the other Parties may be assessed, levied, confirmed, imposed upon, or grow or become due and payable out of or in respect of or become a lien on, their interests in respective Parcels, or any part thereof or any appurtenance thereto as the result of or in connection with the use to which the Parcels are put by such Party (notwithstanding that such use may be for the purposes herein permitted or may have been consented to by the other Party). SECTION 6.6 EXCEPTIONS FROM IMPOSITIONS; CHARGES IN LIEU OF IMPOSITIONS. Nothing herein 19 contained shall require either Party to pay any portion of any estate, inheritance, succession, capital levy, corporate franchise, gross receipts, transfer or income tax of any other Party, nor shall any of the same be deemed to be included within the term "Impositions" as defined herein, unless the same shall be imposed in lieu of any Impositions referred to in this Article 6. ARTICLE 7 ARBITRATION SECTION 7.1 DISPUTES SUBJECT TO ARBITRATION. Any dispute under this REA shall be resolved by arbitration under this Article. SECTION 7.2 ARBITRATION PROCEDURES. Any arbitration shall be conducted in the manner provided in Section 20.01 of the Parcel Lease. SECTION 7.3 PROCEEDINGS. To the extent permitted by Law, but subject to the exception described in the second sentence of Section 7.1 above, compliance with this Article 7 is a condition precedent to the commencement by any Party of any judicial proceeding arising out of a dispute subject to arbitration. The decision of the arbitrator may be entered as a judgment in a court of competent jurisdiction. ARTICLE 8 NOTICES AND APPROVALS SECTION 8.1 NOTICES TO PARTIES. For purposes of serving notices, or requesting or granting approvals or authorizations under this REA, as well as for purposes of transmitting correspondence concerning this REA and all of the activities of the parties hereunder, the addresses of the parties shall be as follows: If to the Corporation or the Manager: Premier Parks Inc. 122 East 42nd Street, 49th Floor New York, New York 10168 Attention: Kieran E. Burke Chairman and CEO with a copy to: Baer Marks & Upham LLP 805 Third Avenue, 20th Floor New York, New York 10022 Attention: James M. Coughlin, Esq. 20 If to the Agency: Executive Director, Redevelopment Agency of the City of Vallejo City of Vallejo City Hall 555 Santa Clara Street Vallejo, California 94590 If to the Authority: Marine World Joint Powers Authority c/o City Manager City of Vallejo City Hall 555 Santa Clara Street Vallejo, California 94590 Any party may change its address as stated above upon written notice to the other parties. Any notice or other communication under this Agreement shall be deemed given (a) upon personal delivery, (b) upon receipt by each other party as evidenced by a written receipt of the United States Postal Service or any reputable courier service, (c) three (3) business days after deposit, postage prepaid and correctly addressed, with the United States Postal Service, registered or certified, or with a reputable courier service, (d) one (1) business day after delivery, postage prepaid and correctly addressed, with a reputable courier service guaranteeing overnight delivery, or (e) upon receipt of a telecopy provided a confirmation of delivery is sent via first class, registered or certified mail with the United States Postal Service or with a reputable courier service. The attorneys for any Party may, but shall not be required to, give any notice on behalf of its respective client. SECTION 8.2 TIME AND FORM OF APPROVALS. Wherever in this REA approval of a Party is required, and unless a different time limit is provided herein, such approval or disapproval shall be given in writing within thirty (30) days following the receipt of the item to be so approved or disapproved, or the same shall be conclusively deemed to have been approved by such Party. Any disapproval which requires objective reasonableness shall specify with particularity the reasons therefor. The item to be so approved shall be clearly marked (or shall be accompanied by a cover letter which is clearly marked) "Request for Approval" and indicate the Section of this REA under which approval is required. Wherever in this REA a lesser period of time for approval or disapproval is provided for than the thirty (30) day period specified in this Section, such lesser time limit shall not be applicable unless the notice to the Person whose consent, approval or disapproval is required contains a specific statement of the period of time within which such Person shall act. Failure to specify such time shall not invalidate the notice but simply shall require the action of such Person to be taken within thirty (30) days. SECTION 8.3 NOTICE TO MORTGAGEES AND OPPORTUNITY TO CURE. The Mortgagee under any Mortgage affecting ownership or leasehold interest of any Party shall be entitled to receive notice of any default by any Party, provided that such Mortgagee shall have delivered a copy of a notice in the form hereinafter contained to both Parties and to the Manager. The form of such 21 notice shall be as follows: The undersigned, whose address is __________________________, does hereby certify that it is a Mortgagee of _____________'s interest in the ________________ Parcel(s), a legal description of which is attached hereto as Exhibit A and made a part hereof. In the event that any notice shall be given of the default of any Party to this REA, a copy thereof shall be delivered to the undersigned. In the event the Party in default, as specified in such notice, is _____________________, then the undersigned shall have all rights of such Party to cure such default with a period to cure equivalent to that given to the defaulting Party. Failure to deliver a copy of such notice to the undersigned shall in no way affect the validity of the notice of default as it respects any Party, but shall make the same invalid as it respects the interest of the undersigned and its Mortgage upon said Parcel(s). Any such notice to a Mortgagee shall be given in the same manner as provided in Article 8.1 hereof. Giving of any notice of default or the failure to deliver a copy to any Mortgagee shall in no event create any liability on the part of the Party so declaring a default. In the event that any notice shall be given of the default of a Party and such defaulting Party has failed to cure or commence to cure such default as provided in this REA, then and in that event the Mortgagee under the Mortgage affecting the defaulting Party's interest shall be entitled to receive an additional notice given in the manner provided in Article 8.1 hereof, that the defaulting Party has failed to cure such default and such Mortgagee shall have thirty (30) days after the receipt of said additional notice (but shall not be required) to cure any such default, or, if such default cannot be cured within thirty (30) days, to diligently commence curing within such time and diligently cure within a reasonable time thereafter. ARTICLE 9 AMENDMENT SECTION 9.1 AMENDMENT;. Except as otherwise provided for herein, this REA may be amended or otherwise modified only by a writing signed and acknowledged by all of the Parties and recorded in the office of the Recorder for Solano County, California. Each Party agrees to consent to any changes in this REA reasonably required by a Mortgagee, provided the Party is not materially adversely affected by the change. ARTICLE 10 EXPIRATION DATE SECTION 10.1 TERM. This REA shall remain in full force and effect so long as the Parcel Lease is in effect. This REA shall in all events terminate at such date as may be required in order that this REA will not be invalidated or be subject to invalidation by reason of a limitation imposed by Law on the duration hereof. Notwithstanding the foregoing, this REA is intended by the Parties to run with the Land for the benefit of the Parties and their successors and assigns unless and until this REA terminates in accordance with the terms hereof. ARTICLE 11 22 MISCELLANEOUS SECTION 11.1 LIMITED LIABILITY OF PARTIES. Except as otherwise expressly set forth in this REA, the liability of any Party under this REA shall be limited solely to the interest of the Party in its Parcel. No partner, officer, agent or employee of any Party, nor any of such Person's separate property shall be personally liable for any claim arising out of or related to this REA. Notwithstanding any provision hereof to the contrary, and except as otherwise provided below, any monetary obligations of the City hereunder shall be limited to funds available from insurance proceeds, condemnation proceeds or amounts obtained by City in respect of such obligations hereunder. Any obligations of the City hereunder shall be special limited obligations payable solely from amounts obtained under the REA, the Revenue Sharing Agreement, insurance proceeds, or condemnation proceeds, and in no event shall the City's general fund or taxing power be called upon to satisfy its obligations hereunder. The provisions of this Section 11.1 shall not relieve the City from fully and completely discharging its obligations under the Leases to which it is a party. Furthermore, notwithstanding any other provision of this REA or this Section 11.29, this Section 11.29 shall not limit City's liability for intentional or negligent actions or omissions, and shall not limit the City's liability for failure to perform any obligation hereunder in the event that funds for the City's performance thereof were made available to the City on a timely basis from the REA, the Revenue Sharing Agreement insurance proceeds, or condemnation proceeds, but City nevertheless failed to discharge such obligation as required hereby. SECTION 11.2 EXHIBITS. Each reference herein to an Exhibit refers to the applicable Exhibit that is attached to this REA, which Exhibit may be amended by the Parties from time to time in accordance with the provisions of Article 9. All such Exhibits constitute a part of this REA and by this Section are expressly made a part hereof. SECTION 11.3 REFERENCES TO ARTICLES, SECTIONS AND SUBSECTIONS. All references herein to a given Article, Section, subsection or subparagraph refer to the Article, subsection or subparagraph of this REA. SECTION 11.4 TABLE OF CONTENTS AND CAPTIONS. The table of contents and captions of this REA are inserted only as a matter of convenience and for reference. They do not define, limit or describe the scope or intent of this REA and they shall not affect the interpretation hereof. For example, there are substantive agreements of the Parties contained within Article 12, which is entitled "Definitions". SECTION 11.5 LOCATIVE ADVERBS. The locative adverbs "herein", "hereunder", "hereto", "hereby", "hereinafter", and like words wherever the same appear herein, mean and refer to this REA in its entirety and not to any specific Article, Section or Subsection hereof. SECTION 11.6 REA FOR EXCLUSIVE BENEFIT OF THE PARTIES. Except for provisions herein for the benefit of a Mortgagee, the provisions of this REA are for the exclusive benefit of the Parties, their successors and assigns, and not for the benefit of any third Person, and this REA shall not be deemed to have conferred any rights upon any third Person. 23 SECTION 11.7 WAIVER OF DEFAULT. A waiver of any default by a Party must be in writing and no such waiver shall be implied from any omission by a Party to take any action in respect of such default. No express written waiver of any default shall affect any default or cover any period of time other than the default and period of time specified in such express waiver. One or more written waivers of any default in the performance of any provision of this REA shall not be deemed to be a waiver of any subsequent default in the performance of the same provision or any other term or provision contained herein. The consent or approval by a Party to or of any act or request by another Party requiring consent or approval shall not be deemed to waive or render unnecessary the consent or approval to or of any subsequent similar acts or requests. The rights and remedies given to a Party by this REA shall be deemed to be cumulative and no one of such rights and remedies shall be exclusive of any of the others, or of any other right or remedy at law or in equity which a Party might otherwise have by virtue of a default under this REA, and the exercise of one such right or remedy by a Party shall not impair such Party's standing to exercise any other right or remedy. SECTION 11.8 PAYMENT ON DEFAULT. If under this REA a Party is compelled or elects to pay any sum of money or do any acts that require the payment of money by reason of the other Party's failure or inability to perform any of the provisions of this REA to be performed by such other Party, the defaulting Party shall promptly upon demand reimburse the paying Party for such sums, and all such sums shall bear interest at the rate of two percent (2%) per annum over the then existing prime rate of interest charged by the Bank of America National Trust and Savings Association, San Francisco, California (but in no event exceeding the maximum rate per annum permitted by California law) from the date of expenditure until the date of such reimbursement. Any other sums payable by any Party to any other Party under this REA that shall not be paid when due shall bear interest at the rate of two percent (2%) per annum over the then existing prime rate of interest charged by said Bank of America (but in no event exceeding said maximum lawful annual rate) from the due date of payment thereof. Whenever a Party hereto is entitled to reimbursement or compensation by another Party hereto and said amount is not paid when due, if such obligation is not of a character such that it is included in the definition of Operating Expenses under the Revenue Sharing Agreement and entitled to be paid as such, the amount so owing shall be paid from said Party's share under clause (v) of Section 1.3(c) of the Revenue Sharing Agreement prior to the remission of any amount otherwise to be disbursed to the delinquent party under said clause (v). Any Party desiring to avail itself of the foregoing provision, shall send written notice of the amount owing (and the specific obligation giving rise to the debt) to the Treasurer (as defined in the Revenue Sharing Agreement) with a copy to the delinquent Party. SECTION 11.9 NO PARTNERSHIP JOINT VENTURE OR PRINCIPAL AGENT RELATIONSHIP. Neither anything in this REA nor any acts of the Parties shall be deemed by the Parties, or by any third Person, to create the relationship of principal and agent, or of partnership, or of joint venture, or of any association between the Parties and no provisions of this REA are intended to create or constitute any Person a third party beneficiary hereof. SECTION 11.10 SUCCESSORS. This REA shall be binding upon and inure to the benefit of the respective successors and assigns of the Parties and the Mortgagees. SECTION 11.11 SEVERABILITY. If any provision of this REA shall to any extent be invalid or unenforceable, the remainder of this REA (or the application of such provision to Persons or circumstances other than those in respect of which it is invalid or unenforceable) shall not be affected thereby, and each 24 provision of this REA, unless specifically conditioned upon such invalid or unenforceable provision shall be valid and enforceable to the fullest extent permitted by law. SECTION 11.12 GOVERNING LAWS. This REA shall be construed and enforced in accordance with the laws of the State of California applicable to contracts made and performed in California. SECTION 11.13 RELEASE. If a Party or other Person obligated to comply with any provisions of this REA sells, transfers or otherwise conveys its Parcel, or any part thereof, such Party or Person shall, as respects the Parcel or part thereof so conveyed, be released from all liabilities of thereafter complying with the provisions of this REA provided: (a) it gives prior written notice to the other Party of its sale, transfer or other conveyance promptly after the filing for record of the instrument effecting the same; (b) all amounts that are then due and payable by such Party or Person to the other Parties have been paid to such other Parties; (c) such Party or Person delivers to the other Party an instrument signed by its assignee in recordable form that acknowledges such assignee's assumption of the duties, responsibilities and obligations imposed on such Party or Person by this REA and assumed by such assignee's, which instrument must be in a form reasonably satisfactory to said other Party; and (d) such sale, transfer or other conveyance complies with the Leases to which such Person is a Party. Notwithstanding such Party's or Person's failure to provide the other Party with the document described above in Subsection 11.13(c), the grantee of any sale, transfer or other conveyance of such Parcel, or any part thereof, shall be deemed to have automatically assumed all provisions of this REA that such Party or Person was theretofore obligated to perform. SECTION 11.14 NO DEDICATION. Nothing herein contained shall be deemed to be a gift or dedication of any part of the Land, the Parcels or the Public Areas to the general public, or for the general public or for any public purpose whatsoever, it being the intention of the Parties that this REA shall be strictly limited to and for the purposes herein expressed. A Party shall not dedicate any part of its Parcel for public purposes without the consent of the other Party and any Mortgagee whose Mortgage encumbers that Parcel. All or a part of the Public Areas may be closed from time to time to such extent as may be sufficient in the opinion of the legal counsel to the Parties to prevent a dedication thereof or the accrual of rights of any person or of the public therein. SECTION 11.15 WRITTEN CONSENT REQUIRED. Whenever a Party is requested to consent to or approve of any matter with respect to which its consent or approval is required by this REA, such consent or approval shall be given in writing, and shall (except as otherwise provided in this REA) not be unreasonably delayed or withheld. SECTION 11.16 COVENANTS RUN WITH THE LAND. It is intended that the covenants, easements, 25 agreements, promises and duties of each Party as set forth in this REA shall be construed as covenants and not as conditions, and that, to the fullest extent legally possible, all such covenants shall run with the land or constitute equitable servitudes as between the Parcel of the respective Grantor, as the servient tenement, and the Parcel of the respective Grantee as the dominant tenement. Unless the context indicates otherwise, every covenant, easement, agreement and promise of each Party as set forth in this REA shall be deemed a covenant, easement, agreement and promise made for the joint and severable benefit of the other Party and every duty of each Party as set forth in this REA shall be deemed to run to and for the joint and severable benefit of the other Party. SECTION 11.17 RULES. Each Party shall observe and shall use all commercially practicable efforts to cause its Permittees to observe the Rules and Regulations. SECTION 11.18 DEFAULT SHALL NOT PERMIT TERMINATION OF REA. No default under this REA shall entitle any Party to cancel or otherwise rescind this REA, provided, however, that this limitation shall not affect any other rights or remedies that the Parties may have by reason of any default under this REA. SECTION 11.19 RIGHT TO ENJOIN. In the event of any violation or threatened violation of any of the provisions of this REA by a Party, any other party shall have the right, to apply to a court of competent jurisdiction for an injunction against such violation or threatened violation, but nothing in this Section 11.19 shall be deemed to affect whether or not injunctive relief is available on account of such violation or threatened violation. SECTION 11.20 RIGHTS, PRIVILEGES, AND EASEMENTS WITH RESPECT TO LIENS. This REA and the rights, privileges and easements of each Party with respect to the other Party and their respective ownership and leasehold interests shall in all events be superior and senior to any lien placed upon any Parcel, including the lien of any Mortgages. Subject to Article 9, any amendments or modification hereof, whenever made, shall be deemed superior and senior to any and all liens, including the lien of Mortgages and any lien or encumbrance created or arising out of a Party's Lease or this REA, the same as if the same had been executed concurrently herewith. SECTION 11.21 IDENTIFICATION OF UTILITY FACILITIES. Upon the written request of the Manager or the other Party hereto, a Party shall provide, at its sole cost and expense, a copy of any "as-built" construction drawings which have been prepared so as to appropriately identify the type and location of each Separate Utility Facility and Common Utility Facility. SECTION 11.22 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Whenever in this REA there is a provision requiring the determination of the cost or expense of any construction, replacement, repair, maintenance or operation such costs or expense shall be determined on the basis of generally accepted accounting principles, consistently applied, provided that the cash basis may be used. SECTION 11.23 COUNTERPARTS. This REA may be signed in several counterparts, each of which shall be deemed an original, and all such counterparts shall constitute one and the same instrument. The signature of a Party to any counterpart may be removed and attached to any other counterpart. Any counterpart to which is attached the signatures of all Parties shall constitute an original of this REA. 26 SECTION 11.24 ATTORNEYS' FEES. In the event any Party shall institute any action, arbitration or proceeding against the other relating to the provisions of this REA, or any default hereunder, the unsuccessful litigant(s) in such action, arbitration or proceeding agree(s) to reimburse the successful litigant(s) therein for the reasonable expenses of attorneys' fees (including the reasonable cost of outside counsel and the cost allocable to in-house counsel), expert's fees and disbursements incurred therein by the successful litigant(s) as determined by the court or arbitrator. SECTION 11.25 BREACH SHALL NOT DEFEAT MORTGAGE. A breach of any of the terms, conditions, covenants, or restrictions of this REA shall not defeat or render invalid the lien of any Mortgage made in good faith and for value, but, subject to the provisions of Section 8.3 hereof (with respect to the cure of defaults by Mortgagees), such term, condition, covenant or restriction shall be binding upon and effective against any Person who becomes a Party by acquiring title to said Parcel or any portion thereof by foreclosure, trustee's sale or otherwise. SECTION 11.26 ESTOPPEL CERTIFICATE. Each Party hereby severally covenants that within 10 business days after a written request of the other Party or the Manager, it will issue to such other Party, or to any Mortgagee, or the Manager or to any permitted prospective purchaser or prospective Mortgagee specified by such requesting Party or the Manager, an estoppel certificate stating: (a) whether the Party to whom the request has been directed knows of any default under the REA, or any event or condition that with notice and/or the passage of time would be a default under the REA, and if any are known, then specifying the nature thereof; (b) whether the REA has been modified or amended in any way (or if it has, then stating the nature thereof; (c) that to the Party's knowledge the REA as of that date is in full force and effect; and (d) the status of any other condition, covenant or requirement under the REA. Such statement shall act as a waiver of any claim by the Party furnishing it to the extent such claim is based upon facts contrary to those asserted in the statement and to the extent the claim is asserted against a bona fide encumbrancer or purchaser for value who has acted in reasonable reliance upon the statement. However, such statement shall in no event subject the Party furnishing it to any liability whatsoever, notwithstanding the inadvertent failure of such Party to disclose correct and/or relevant information. SECTION 11.27 TIME OF ESSENCE. Time is of the essence with respect to the performance of each of the covenants and agreements contained in this REA. SECTION 11.28 LIABILITY OF MORTGAGEES. (a) Whether before or after a Mortgagee takes title to the property covered by its Mortgage (the "mortgaged property") whether by foreclosure or by deed or assignment in lieu of foreclosure, by a new lease, or otherwise, the Parties shall look only to, and their sole and exclusive recourse against the Mortgagee shall be against the proceeds received upon execution of judgment against the Mortgagee's right, title and interest in and to the mortgaged property (including the rents or other income therefrom and the consideration from the sale or other disposition thereof) for the satisfaction of a judgment, arbitration award, or other judicial process requiring the payment of money by the Mortgagee in the event of any default by the Mortgagee under this REA and no other property or assets of the Mortgagee (nor of any officer, employee, shareholder, partner or tenant in common of or with the Mortgagee or any other person or entity related to or having an interest in the Mortgagee, none of whom, including the Mortgagee, shall be personally liable for any deficiency in the payment of such judgment, arbitration award, or other judicial process) shall be subject to any execution or other enforcement procedure for the satisfaction of a judgment or other judicial process or a Party's remedies under or with respect to this REA, the relationship of the Parties hereunder or a Party's use or occupancy of the Land. Nothing herein shall be 27 construed as to prohibit a Party from obtaining an equitable decree requiring the performance by a Mortgagee of any of the Mortgagee's obligations under this REA. The provisions of this Section 11.28 shall inure to the benefit of the successors and assigns of each Mortgagee. (b) Subject to the provisions of Section 1.5 and 11.28(a), if any Mortgagee or any purchaser at any foreclosure sale acquires title to the mortgaged property, whether by foreclosure, or by deed or assignment in lieu of foreclosure, by a new lease, or otherwise, such Mortgagee or purchaser shall only be liable for the obligations of the Party which granted or executed the applicable Mortgage and which accrue under this REA from and after the earlier of (i) the date of its acquisition of title, or (ii) the date upon which such Mortgagee takes possession of the mortgaged property personally (and not by a receiver). ARTICLE 12 DEFINITIONS SECTION 12.1 DEFINITIONS. As used in this REA, the following terms have the following meanings: "Accounting Period" means any period beginning on November 1 and ending on the next following October 31. "Authority" is defined in the introductory paragraph of this REA. "Certificate of Participation Financing" is defined in Recital B. "City" is defined in Recital A. "Common Utility Facilities" means all storm drainage facilities, sanitary sewer systems, natural gas systems, domestic water systems, fire life safety detection/protection systems, electrical systems, emergency light, lighting, telephone systems, data or other communication systems, cable television systems and all other utility systems and facilities located or situated on the Land designed to be used by more than one Parcel. "Construction" is defined in Section 4.1. "Corporation" is defined in the introductory paragraph of this REA. "Environmental Laws" means any and all Laws concerning air, water, solid waste, Hazardous Materials, Releases, worker and community right-to-know, hazard communication, noise, resource protection, subdivision, inland wetlands and watercourses, health protection and similar environmental, health, safety, and land use concerns in all cases at any time, from time to time in effect during the Term of this REA. "Environmental Condition" means circumstances with respect to soil, land surface, subsurface strata, surface waters, groundwaters, stream sediments, air and similar environmental media both on and off the respective Parcel resulting from any activity, inactivity, operations or Release occurring on or off the respective Parcel, which under Environmental Laws require investigatory, corrective and/or remedial 28 measures and/or that may result in claims or demands or give rise to liabilities of the Authority or the Corporation or to third parties including, but not limited to, governmental entities. "Environmental Compliance Liability" means any obligation or liability arising as the result of any default, violation or breach by a Party or its affiliates or previous tenants of such Party's Parcel or adjoining tenants during the Term of this REA of: (i) environmental permits and other approvals, consents, licenses, certificates and authorizations applicable to such Party's Parcel of the operation of prior tenant's or other occupant's business and activities thereon which are required by Environmental Laws; (ii) any environmental regulatory compliance requirements applicable to such Party's Parcel or operations conducted on or from such Party's Parcel under Environmental Laws; or (iii) other Environmental Laws. "Expiration Date" means the date on which this REA shall terminate pursuant to Article 10 hereof. "Grantee" means any Party hereto being granted the benefit of any easement pursuant to the terms hereof, its successors and assigns to its interest in a Parcel. "Grantor" means any Party hereto granting any easement pursuant to the terms hereof, its successors and assigns to its interest in a Parcel. "Hazardous Materials" means any petroleum, petroleum products, fuel oil, derivatives of petroleum products or fuel oil, explosives, reactive materials, ignitable materials, corrosive materials, hazardous chemicals, hazardous wastes, hazardous substances, extremely hazardous substances, toxic substances, toxic chemicals, radioactive materials, medical waste, biomedical waste, infectious materials and any other element, compound mixture, solution or substance which may pose a present or potential hazard to human health or safety or to the environment. "Impositions" means all taxes, (including possessory interest taxes associated with a Parcel and the execution of any Lease), assessments (including all assessments for public improvements or benefits, fees, water, sewer or similar rents, rates and charges, excises, levies, license fees, permit fees, inspection fees and other authorization fees and other governmental charges of any kind or nature whatsoever, whether general or special, ordinary or extraordinary, foreseen or unforeseen, or hereafter levied or assessed in lieu of or in substitution of any of the foregoing of every character (including all interest and penalties thereon), which at any time during or in respect of the Term may be assessed, levied, confirmed or imposed on or in respect of or be a lien upon a Parcel, any Improvements, any personal Property now or hereafter located thereon, on the leasehold estate created by any lease or which may be imposed upon any taxable interest of a Party acquired pursuant to a Lease or on account of any taxable possessory right which a Party may have acquired pursuant to a Lease, or any part thereof or which may be levied upon or measured by the rent payable thereunder. Notwithstanding anything to the contrary set forth above, "Impositions" shall not include any income, excess profit, estate, inheritance, successions transfer, franchise, capital or other tax assessment upon the interest of any other Party in a Parcel or upon the rentals payable under a Lease. "Improvements" means any buildings, outbuildings, structures, plazas, walkways, rides, attractions, improvements, fixtures, signs or anything else (including renewals and replacements thereof) now or hereafter erected, built, placed, installed or constructed upon either of the Parcels. "Land" is defined in Recital A. 29 "Law" shall mean all applicable present and future laws, ordinances, rules, regulations, permits, authorizations, orders and requirements, including, without limitation, all consents or approvals required to be obtained from, and all rules and regulations of, and all building and zoning laws of, all federal, state, county and municipal governments, the departments, bureaus, agencies or commissions thereof, authorities, board or officers, any national or local board of fire underwriters, or any other body or bodies exercising similar functions, having or acquiring jurisdiction of, or which may affect or be applicable to the Parcels. "Lease" means any or all, as the context requires, of the 1997 Agency-Marine World Lease, the Parcel Lease, or any of the other Public Leases (as defined in the Parcel Lease). "Management Agreement" is defined in Recital D. "Manager" is defined in Recital D. "Mortgagee" means a mortgagee and/or a trustee and beneficiary under a Mortgage as hereinafter defined. Except as expressly otherwise provided in this REA, the term "Mortgagee" shall not refer to any of the foregoing Persons when in possession of the Parcel of any Party; provided, however, this sentence shall not be deemed a limitation upon any rights or benefits conferred by this REA upon a Mortgagee with respect to the period after such Mortgagee takes title to or possession of the Parcel of any Party. "Mortgage" means any first mortgage, indenture of first mortgage, or first deed of trust of the interest, of a Party in a Parcel. Any notice given under this REA to a Person which is a Mortgagee in more than one capacity shall be deemed a notice given in accordance with the terms hereof to such Person in all such capacities if the address for notice to such Mortgagee in all such capacities is the same. "1997 Agency-Marine World Lease" is defined in Recital C. "PPI" means Premier Parks Inc. and its wholly-owned subsidiaries. "Parcel" means, individually, the Public Parcel and the Private Parcel, and collectively, both of such parcels. "Parcel Lease" is defined in Recital F. "Parking Areas" is defined in Recital G. "Patrons" means all Persons using the Parcels as customers, guests, visitors or other invitees. "Party" means the Authority, the Corporation and their permitted successors in interest and assigns hereunder. "Permittees" means all Persons entitled by sublease, license or contract to use and occupy any portion of the Parcels, and their respective officers, directors, employees, agents, partners, contractors, licensees and concessionaires and Patrons. "Person" or "Persons" mean individuals, partnerships, associations, corporations and any other form 30 of business organization, or one or more of them, as the context may require. "Private Parcel" is defined in Recital F. "Public Areas" is defined in Recital G, and are more particularly described in Exhibit D hereto. "Public Parcel" is defined in Recital C and includes the Parking Areas. "REA" means this Reciprocal Easement Agreement. "Release" means releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping, or as otherwise defined under the Resource Conservation and Recovery Act (42 U.S.C. Section 6901, et seq.) ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601, et seq.) ("CERCLA"), or any other federal, state or local Environmental Law, including Laws relating to emissions, discharges, releases or threatened releases or pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes as may be amended from time to time, or other Environmental Laws. "Restoration" is defined in Section 1.2. "Rules and Regulations" means those rules and regulations pertaining to the Parcels and/or the Public Areas, as applicable, set forth in Exhibit E hereto, as such Exhibit is amended or supplemented in accordance with the provisions of Section 2.2 and 11.30 hereof. "Second Sublease" means that certain 1997 Second Sublease Agreement Relating to Marine World, dated as of January 1, 1997 by and between the Redevelopment Agency of the City of Vallejo, as lessor, and the Authority, as lessee. "Separate Utility Facilities" is defined in Section 3.1. "Subsequent Construction" or "subsequent construction" means any and all work, construction or improvements in connection with any repairs, reconstructions, replacements, additions, expansions, restorations, alterations or modifications. "Unavoidable Delays" means delays or defaults due to war; insurrection; strikes; lock-outs; riots; floods; earthquakes; fires; casualties; acts of God; acts of the public enemy; epidemics; quarantine restrictions; freight embargoes; lack of transportation, government restrictions or priority; unusually severe weather; inability to secure necessary labor; materials or tools; acts of the other party; acts or failure to act of the City or any other public or governmental agency or entity (other than an act or failure to act by the Authority, which shall not excuse performance by the Authority), or any other causes beyond the control or without the fault of the Party claiming an extension of time to perform; provided that failure to lease or sell or to finance or inability to make a payment is not an Unavoidable Delay. An extension of time for any such cause shall be for the period of the enforced delay and shall commence to run from the time of the 31 commencement of the cause if notice by the Party claiming such extension is given to the other Party or Parties within thirty (30) days after the commencement of the cause. 32 IN WITNESS WHEREOF, the Authority and the Corporation have caused this REA to be signed by their duly authorized officers as of the day and year first above written, but this REA shall not be effective until it is recorded in the Official Records of Solano County, California. "AUTHORITY" MARINE WORLD JOINT POWERS AUTHORITY By: /s/ -------------------------------- Executive Director "CORPORATION" PARK MANAGEMENT CORP. By: /s/ -------------------------------- Its: The foregoing REA and all easements granted hereunder by the Parties are hereby consented to. CITY OF VALLEJO By: /s/ -------------------------- City Manager REDEVELOPMENT AGENCY OF THE CITY OF VALLEJO By: /s/ -------------------------- Executive Director 33 STATE OF CALIFORNIA ) ) ss COUNTY OF ___________) On _________________, 1997 before me, _____________________, Notary Public, personally appeared _________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature of Notary (Seal) STATE OF CALIFORNIA ) ) ss COUNTY OF____________) On _______________________, 1997 before me, _______________, Notary Public, personally appeared _____________________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature of Notary (Seal) STATE OF CALIFORNIA ) ) ss COUNTY OF ) On ___________________, 1997 before me, ___________________________, Notary Public, personally appeared _____________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature of Notary (Seal) STATE OF CALIFORNIA ) ) ss COUNTY OF ) On ___________________, 1997 before me, ___________________________, Notary Public, personally appeared _____________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature of Notary (Seal) EXHIBIT A DESCRIPTION OF THE LAND The real property constituting the Site consists of that certain land located in the City of Vallejo, County of Solano, State of California, more fully described as follows: REAL PROPERTY in the City of Vallejo, County of Solano, State of California, described as follows: PARCEL ONE: A portion of the Parcel of land described in the Deed to the City of Vallejo, recorded February 16, 1946 in Book 337 of Official Records, Page 337, Series No. 2545, and being a portion of Section 6, Township 3 North, Range 3 West, Mount Diablo Base and Meridian, described as follows: Beginning at the Northeasterly corner of Lot 13, Lewis Ranch Estates, Unit No. 3, as shown in Book 22 of Maps at Page 19, Solano County Records; thence along the Northerly line of said Lewis Ranch Estates, Unit No. 3 and Lewis Ranch Estates, Unit No. 1 shown in Book 19 of Maps at Page 24, Solano County Records, North 89 Degrees 28'32" West, 1,500.00 feet; thence North 15 Degrees 40'00" East, 758.00 feet; thence North 23 Degrees 22'00" East, 223.00 feet; thence North 41 Degrees 08'00" East, 382.00 feet; thence North 45 Degrees 24'00" East, 230.21 feet; thence North 85 Degrees 55'13" East, 215.99 feet; thence North 4 Degrees 04'47" West, 350.00 feet; thence South 85 Degrees 55'13" West, 889.86 feet; thence North 38 Degrees 23'17" West, 2,260.00 feet; thence North 51 Degrees 36'43" East, 189.51 feet; thence North 41 Degrees 55'09" West, 427.75 feet to a point on the proposed new Southerly right-of-way line of State Highway No. 37; thence along said Southerly line, South 84 Degrees 57'14" East, 1,180.93 feet; thence East 265.00 feet; thence South 84 Degrees 46'02" East, 348.45 feet; thence South 80 Degrees 54'00" East 229.08 feet; thence South 82 Degrees 55'13" East, 217.44 feet to the intersection of the proposed Westerly line of Fairgrounds Drive; thence South 36 Degrees 18'50" East, 93.97 feet; thence South 37 Degrees 19'48" East, 215.15 feet; thence South 10 Degrees 15'18" East, 73.76 feet to the beginning of a curve to the left with a radius of 86.00 feet; thence along said curve, through a central angle of 27 Degrees 04'27", an arc distance of 40.64 feet; thence South 37 Degrees 19'45" East, 85.33 feet to the beginning of a A-1 curve to the left with a radius of 44.00 feet; thence along said curve, through a central angle of 90 Degrees 00'00" an arc distance of 69.12 feet; thence South 32 Degrees 30'00" East 142.51 feet; thence South 37 Degrees 19'53" East, 40.96 feet to the beginning of a curve to the right with a radius of 978.00 feet; thence along said curve, through a central angle of 5 Degrees 24'00", an arc distance of 92.17 feet to a point of compound curvature; thence along a curve to the right with a radius of 170.00 feet, through a central angle of 32 Degrees 15'00", an arc distance of 95.69 feet; thence South 20 Degrees 30'53" East, 101.30 feet to the beginning of a curve to the right with a radius of 941.00 feet; thence along said curve, through a central angle of 16 Degrees 57'00", an arc distance of 278.37 feet; thence South 3 Degrees 33'55" East, 52.43 feet; thence South 86 Degrees 26'14" West, 46.99 feet; thence South 31 Degrees 13'02" East, 123.95 feet; thence South 6 Degrees 34'05" East, 639.79 feet; thence South 4 Degrees 43'59" East, 800.07 feet; thence South 5 Degrees 26'51" East, 400.12 feet; thence South 4 Degrees 40'07" East, 440.03 feet; thence South 12 Degrees 55'17" West, 162.65 feet to the point of beginning. EXCEPTING FROM PARCEL ONE ABOVE: That portion of the premises conveyed to the State of California, by Deed recorded November 29, 1973 in Book 1866 of Official Records, Page 536, Series No. 28896, Solano County Records, and as modified by the State of California Relinquishment to the City of Vallejo in Instrument recorded July 12, 1979 in Book 1979 at Page 57270, Series No. 33917, Solano County Official Records. FURTHER EXCEPTING THEREFROM: All those portions of Parcel One above conveyed by Marine World Foundation, a California non-profit public benefit corporation to Richard A. Hyland, etal, by the following Corporation Grant Deeds, recorded June 26, 1987 t Book 1987, Pages 86969, 86974, 87009, 86979, 87049, 87004, 87044, 87039, 86984, 87014, 87019, 87024, 87029, 87034, 86989, 86994 and 86999, Solano County Records. FURTHER EXCEPTING THEREFROM: All those portions of Parcel One above conveyed by Marine World Foundation, a California nonprofit public benefit corporation, to the State of California, by Quitclaim Deed recorded December 11, 1989, Series No. 890088359, and by Quitclaim Deed recorded February 6, 1990, Series No. 900009554, Solano County Records. PARCEL TWO: A-2 An easement as an appurtenance to Parcel One above for the surface use of Lake Chabot and being a portion of the parcel of land described in the Deed to the City of Vallejo, recorded February 16, 1946 in Book 337 of Official Records, Page 337, Series No. 2545, and being a portion of Section 6, Township 3 North, Range 3 West, Mount Diablo Base and Meridian, described as follows: Commencing at the Northeasterly corner of Lot 13, Lewis Ranch Estates Unit No. 3 as shown in Book 22 of Maps at Page 19, Solano County Records, thence along the Northerly line of Lewis Ranch Estates Unit No. 3 and the Northerly line of Lewis Ranch Estates Unit No. 1, said Unit No. 1 being shown in Book 19 of Maps at Page 24, Solano County Records, North 89 Degrees 28'32" West, 1,500.00 feet; thence along the Easterly fence of Dan Foley Park, North 15 Degrees 40'00" East, 758.00 feet; thence North 23 Degrees 22'00" East, 223.00 feet; thence North 41 Degrees 08'00" East, 382.00 feet; thence North 45 Degrees 24'00" East, 230.21 feet; thence North 85 Degrees 55'13" East to its intersection with the 72.5 foot contour line on the Southerly shore of Lake Chabot (City of Vallejo Datum) shown on Topographic Map showing the boundaries of Parcel 1, Flosden Acres Redevelopment Plan, Amendment No. 3-857023, Schwafel Engineers-Bissell & Karn, and as amended by the site rough grading lakeshore development drawing C-2.1 of April 1985, said point of intersection being the true point of beginning; thence following said 72.5 foot contour line in a Northwesterly, Northeasterly, Southeasterly, Southerly and Westerly direction around the shore of Lake Chabot to the point of beginning. A-3 EXHIBIT B DESCRIPTION OF THE PRIVATE PARCEL All that certain property situated in the City of Vallejo, County of Solano, State of California, described as follows: REAL PROPERTY in the City of Vallejo, County of Solano, State of California, described as follows: PARCEL ONE: A portion of the Parcel of land described in the Deed to the City of Vallejo, recorded February 16, 1946 in Book 337 of Official Records, Page 337, Series No. 2545, and being a portion of Section 6, Township 3 North, Range 3 West, Mount Diablo Base and Meridian, described as follows: Beginning at the Northeasterly corner of Lot 13, Lewis Ranch Estates, Unit No. 3, as shown in Book 22 of Maps at Page 19, Solano County Records; thence along the Northerly line of said Lewis Ranch Estates, Unit No. 3 and Lewis Ranch Estates, Unit No. 1 shown in Book 19 of Maps at Page 24, Solano County Records, North 89 Degrees 28'32" West, 1,500.00 feet; thence North 15 Degrees 40'00" East, 758.00 feet; thence North 23 Degrees 22'00" East, 223.00 feet; thence North 41 Degrees 08'00" East, 382.00 feet; thence North 45 Degrees 24'00" East, 230.21 feet; thence North 85 Degrees 55'13" East, 215.99 feet; thence North 4 Degrees 04'47" West, 350.00 feet; thence South 85 Degrees 55'13" West, 889.86 feet; thence North 38 Degrees 23'17" West, 2,260.00 feet; thence North 51 Degrees 36'43" East, 189.51 feet; thence North 41 Degrees 55'09" West, 427.75 feet to a point on the proposed new Southerly right-of-way line of State Highway No. 37; thence along said Southerly line, South 84 Degrees 57'14" East, 1,180.93 feet; thence East 265.00 feet; thence South 84 Degrees 46'02" East, 348.45 feet; thence South 80 Degrees 54'00" East 229.08 feet; thence South 82 Degrees 55'13" East, 217.44 feet to the intersection of the proposed Westerly line of Fairgrounds Drive; thence South 36 Degrees 18'50" East, 93.97 feet; thence South 37 Degrees 19'48" East, 215.15 feet; thence South 10 Degrees 15'18" East, 73.76 feet to the beginning of a curve to the left with a radius of 86.00 feet; thence along said curve, through a central angle of 27 Degrees 04'27", an arc distance of 40.64 feet; thence South 37 Degrees 19'45" East, 85.33 feet to the beginning of a B-1 curve to the left with a radius of 44.00 feet; thence along said curve, through a central angle of 90 Degrees 00'00" an arc distance of 69.12 feet; thence South 32 Degrees 30'00" East 142.51 feet; thence South 37 Degrees 19'53" East, 40.96 feet to the beginning of a curve to the right with a radius of 978.00 feet; thence along said curve, through a central angle of 5 Degrees 24'00", an arc distance of 92.17 feet to a point of compound curvature; thence along a curve to the right with a radius of 170.00 feet, through a central angle of 32 Degrees 15'00", an arc distance of 95.69 feet; thence South 20 Degrees 30'53" East, 101.30 feet to the beginning of a curve to the right with a radius of 941.00 feet; thence along said curve, through a central angle of 16 Degrees 57'00", an arc distance of 278.37 feet; thence South 3 Degrees 33'55" East, 52.43 feet; thence South 86 Degrees 26'14" West, 46.99 feet; thence South 31 Degrees 13'02" East, 123.95 feet; thence South 6 Degrees 34'05" East, 639.79 feet; thence South 4 Degrees 43'59" East, 800.07 feet; thence South 5 Degrees 26'51" East, 400.12 feet; thence South 4 Degrees 40'07" East, 440.03 feet; thence South 12 Degrees 55'17" West, 162.65 feet to the point of beginning. EXCEPTING FROM PARCEL ONE ABOVE: That portion of the premises conveyed to the State of California, by Deed recorded November 29, 1973 in Book 1866 of Official Records, Page 536, Series No. 28896, Solano County Records, and as modified by the State of California Relinquishment to the City of Vallejo in Instrument recorded July 12, 1979 in Book 1979 at Page 57270, Series No. 33917, Solano County Official Records. FURTHER EXCEPTING THEREFROM: All those portions of Parcel One above conveyed by Marine World Foundation, a California non-profit public benefit corporation to Richard A. Hyland, etal, by the following Corporation Grant Deeds, recorded June 26, 1987 t Book 1987, Pages 86969, 86974, 87009, 86979, 87049, 87004, 87044, 87039, 86984, 87014, 87019, 87024, 87029, 87034, 86989, 86994 and 86999, Solano County Records. FURTHER EXCEPTING THEREFROM: All those portions of Parcel One above conveyed by Marine World Foundation, a California nonprofit public benefit corporation, to the State of California, by Quitclaim Deed recorded December 11, 1989, Series No. 890088359, and by Quitclaim Deed recorded February 6, 1990, Series No. 900009554, Solano County Records. FURTHER EXCEPTING THEREFROM: The portion of Parcel One described as follows: beginning at a point that bears North 12 Degrees 55'17" East,. 51.21 feet from the Northeasterly corner of Lot 13, Lewis Ranch B-2 Estates, Unit No. 3, as shown in Book 22 of Maps at page 19, Solano County Records; thence North 89 Degrees 28'32" West, 1497.46 feet; thence North 15 Degrees 40'00" East, 706.20 feet; thence North 23 Degrees 22'00" East, 223.00 feet; thence North 41 Degrees 08'00" East, 382.00 feet; thence North 45 Degrees 24'00" East, 230.21 feet; thence North 85 Degrees 55'13" East, 215.99 feet; thence North 4 Degrees 04'47" West, 925.66 feet; thence North 86 Degrees 08'44" East, 251.21 feet; thence South 89 Degrees 46'55" East, 189.52 feet; thence South 2 Degrees 20'41" East, 63.55 feet; thence South 89 Degrees 44'56" East, 38.69 feet; thence South 6 Degrees 34'05" East, 499.35 feet; thence South 4 Degrees 43'59" East, 800.07 feet; thence South 5 Degrees 26'51" East, 400.12 feet;thence South 4 Degrees 40'07" East, 440.03 feet; thence South 12 Degrees 55'17" West, 111.44 feet to the point of beginning, containing 48.54 acres more or less. FURTHER EXCEPTING THEREFROM: The portions of Parcel One described as Parcels A, B, C, D and E in the attachment hereto. PARCEL TWO: An easement as an appurtenance to Parcel One above for the surface use of Lake Chabot and being a portion of the parcel of land described in the Deed to the City of Vallejo, recorded February 16, 1946 in Book 337 of Official Records, Page 337, Series No. 2545, and being a portion of Section 6, Township 3 North, Range 3 West, Mount Diablo Base and Meridian, described as follows: Commencing at the Northeasterly corner of Lot 13, Lewis Ranch Estates Unit No. 3 as shown in Book 22 of Maps at Page 19, Solano County Records, thence along the Northerly line of Lewis Ranch Estates Unit No. 3 and the Northerly line of Lewis Ranch Estates Unit No. 1, said Unit No. 1 being shown in Book 19 of Maps at Page 24, Solano County Records, North 89 Degrees 28'32" West, 1,500.00 feet; thence along the Easterly fence of Dan Foley Park, North 15 Degrees 40'00" East, 758.00 feet; thence North 23 Degrees 22'00" East, 223.00 feet; thence North 41 Degrees 08'00" East, 382.00 feet; thence North 45 Degrees 24'00" East, 230.21 feet; thence North 85 Degrees 55'13" East to its intersection with the 72.5 foot contour line on the Southerly shore of Lake Chabot (City of Vallejo Datum) shown on Topographic Map showing the boundaries of Parcel 1, Flosden Acres Redevelopment Plan, Amendment No. 3-857023, Schwafel Engineers-Bissell & Karn, and as amended by the site rough grading lakeshore development drawing C-2.1 of April 1985, said point of intersection being the true point of beginning; thence following said 72.5 foot contour line in a Northwesterly, Northeasterly, Southeasterly, Southerly and Westerly direction around the shore of Lake Chabot to the point of beginning. B-3 [ATTACH HERE DESCRIPTION OF PARCELS A, B, C, D AND E] B-4 EXHIBIT C DESCRIPTION OF THE PUBLIC PARCEL All of the real property described in Exhibit A to this Reciprocal Easement Agreement, other than the real property described in Exhibit B to this Reciprocal Easement Agreement. C-1 EXHIBIT D DESCRIPTION OF PUBLIC AREAS The Public Areas include the following facilities or improvements located on the Public Parcel, the present locations of some of which are identified on the map attached hereto: Front Entrance System Ticket Booths Restrooms Merchandise Shop First Aid Center/Main Gate Cash Room Food Commissary Warehouse Merchandise Warehouse Security/Employee Entrance Walkways/Paths/Driveways Food Services Areas Parking Areas Maintenance Shop Office and Administrative Areas The Public Areas also include the following facilities or improvements now located or when constructed on the Private Parcel: Walkways/Paths/Driveways Restrooms Restaurants Food Service Areas Parking Areas D-1 Merchandise Shop Office and Administrative Areas D-2 EXHIBIT E RULES AND REGULATIONS 1. All local, state, and federal Laws will be adhered to and enforced (in all material respects), subject to and otherwise in compliance with this REA. 2. Non-motorized strollers must be stored in the appropriate storage areas, located in the Public Areas. 3. There shall be no unreasonable obstructions or obstacles to parking in the Parking Areas and the passage and circulation of pedestrians and vehicles to and from the Parking Areas, at all times, except as otherwise expressly permitted in this REA. 4. Carrying fire arms of any type or open sheath knife (regardless of size) in violation of Law is prohibited. 5. Use of all Public Areas by Patrons will be restricted to the time period commencing one (1) hour before the Parcels are open for business and ending one (1) hour after the Parcels are closed for business. 6. Access to Patrons of the Parcels to all portions of the Public Areas shall be provided. Said access shall not grant priority to any one person over that of another person based upon race, color, religion, gender, or national origin, and shall also be subject to any applicable Local, State and Federal Law. E-1 EX-10.(AE) 8 PARCEL LEASE (PARK MANAGEMENT) EXHIBIT 10(ae) PARCEL LEASE BETWEEN MARINE WORLD JOINT POWERS AUTHORITY , LANDLORD AND PARK MANAGEMENT CORP., TENANT DATED AS OF NOVEMBER 7, 1997 TABLE OF CONTENTS ARTICLE 1 DEMISE; TERM SECTION 1.01. Demise of the Private Parcel. . . . . . . . . . . . . . . . . .2 SECTION 1.02. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 SECTION 1.03. Renewal Option. . . . . . . . . . . . . . . . . . . . . . . . .2 SECTION 1.04. Rule Against Perpetuities . . . . . . . . . . . . . . . . . . .2 ARTICLE 2 RENT SECTION 2.01. Minimum Annual Rent . . . . . . . . . . . . . . . . . . . . . .2 SECTION 2.02. Payment of Rent . . . . . . . . . . . . . . . . . . . . . . . .3 SECTION 2.03. No Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . .3 ARTICLE 3 USE; ACCESS SECTION 3.01. Use of Private Parcel . . . . . . . . . . . . . . . . . . . . l3 SECTION 3.02. Limitation on Use . . . . . . . . . . . . . . . . . . . . . . .4 SECTION 3.03. Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . .4 SECTION 3.04. Other Agreements. . . . . . . . . . . . . . . . . . . . . . . .4 SECTION 3.05. Minimum Investment. . . . . . . . . . . . . . . . . . . . . . .5 SECTION 3.06. Title to Improvements . . . . . . . . . . . . . . . . . . . . .5 SECTION 3.07. Use by Vendors; Parking . . . . . . . . . . . . . . . . . . . .6 SECTION 3.08. Access to Private Parcel. . . . . . . . . . . . . . . . . . . .6 SECTION 3.09. Signs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 SECTION 3.10. Tenant's Property . . . . . . . . . . . . . . . . . . . . . . .6 ARTICLE 4 IMPOSITIONS SECTION 4.01. Tenant's Obligation to Pay Impositions. . . . . . . . . . . . .7 SECTION 4.02. Segregation and Payment of Impositions. . . . . . . . . . . . .8 SECTION 4.03. Taxes Imposed Upon Creation of Leasehold. . . . . . . . . . . .9 ARTICLE 5 INSURANCE SECTION 5.01. Extended Coverage and Liability . . . . . . . . . . . . . . . .9 SECTION 5.02. Carriers; Policies. . . . . . . . . . . . . . . . . . . . . . 10 SECTION 5.03. Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 5.04. Certificate of Insurance. . . . . . . . . . . . . . . . . . . 10 SECTION 5.05. Release and Waiver of Subrogation . . . . . . . . . . . . . . 10 SECTION 5.06. Title Insurance . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 5.07. Landlord's Insurance. . . . . . . . . . . . . . . . . . . . . 11 ARTICLE 6 MAINTENANCE OF PROPERTY SECTION 6.01. No Waste. . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 6.02. Tenant's Maintenance Obligations. . . . . . . . . . . . . . . 11 2 ARTICLE 7 ALTERATIONS BY TENANT SECTION 7.01. Alterations . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 7.02. Tenant Improvements . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE 8 UTILITY SERVICES SECTION 8.01. Utility Services. . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE 9 DAMAGE TO THE PROPERTY SECTION 9.01. Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 9.02. Restoration or Termination. . . . . . . . . . . . . . . . . . 13 SECTION 9.03. Effect of Lease Termination . . . . . . . . . . . . . . . . . 14 SECTION 9.04. Insurance Proceeds. . . . . . . . . . . . . . . . . . . . . . 14 SECTION 9.05. Restoration . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE 10 CONDEMNATION SECTION 10.01. Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 10.02. Total Taking. . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 10.03. Partial Taking. . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 10.04. Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 10.05. Abatement of Rent . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 10.06. Landlord's Condemnation Covenant. . . . . . . . . . . . . . . 16 ARTICLE 11 LIENS SECTION 11.01. No Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 11.02. Mechanics' Liens. . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE 12 INSPECTION OF PREMISES BY LANDLORD SECTION 12.01. Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 12.02. Exhibit for Sale or Lease . . . . . . . . . . . . . . . . . . 17 ARTICLE 13 ASSIGNMENT AND SUBLEASING SECTION 13.01. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 13.02. Permitted Assignee. . . . . . . . . . . . . . . . . . . . . . 18 SECTION 13.03. Subleases . . . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 13.04. Provisions Applicable to Both Assignments and Subleases . . . 19 ARTICLE 14 LEASEHOLD MORTGAGES SECTION 14.01. Tenant's Right to Create Leasehold Mortgages. . . . . . . . . 19 SECTION 14.02. Insurance and Condemnation Proceeds . . . . . . . . . . . . . 20 SECTION 14.03. Permitted Leasehold Mortgagees. . . . . . . . . . . . . . . . 20 3 SECTION 14.04. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 14.05. Time to Cure Defaults . . . . . . . . . . . . . . . . . . . . 20 SECTION 14.06. Right to Cure . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 14.07. No Amendment of Lease . . . . . . . . . . . . . . . . . . . . 21 SECTION 14.08. Foreclosure Permitted . . . . . . . . . . . . . . . . . . . . 21 SECTION 14.09. Right to Assign Following Foreclosure . . . . . . . . . . . . 22 SECTION 14.10. New Lease . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 14.11. Additional Leasehold Mortgagee Requirements . . . . . . . . . 22 ARTICLE 15 TRANSFER BY LANDLORD SECTION 15.01. Limitation of Landlord's Liability. . . . . . . . . . . . . . 23 SECTION 15.02. Limitation on Encumbrance by Landlord . . . . . . . . . . . . 23 SECTION 15.03. Other Limitations . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE 16 INDEMNIFICATION SECTION 16.01. Indemnification of Landlord . . . . . . . . . . . . . . . . . 23 SECTION 16.02. Indemnification of Tenant . . . . . . . . . . . . . . . . . . 24 ARTICLE 17 TENANT'S DEFAULT AND LANDLORD'S REMEDIES SECTION 17.01. Tenant Default. . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 17.02. Notice From Landlord. . . . . . . . . . . . . . . . . . . . . 25 SECTION 17.03. Termination of Tenant's Right to Possession . . . . . . . . . 25 SECTION 17.04. Termination . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 17.05. Landlord's Equitable Relief . . . . . . . . . . . . . . . . . 26 SECTION 17.06. Landlord's Right to Perform Tenant's Covenants. . . . . . . . 26 SECTION 17.07. No Waiver by Landlord or Tenant . . . . . . . . . . . . . . . 26 SECTION 17.08. Landlord's Remedies Cumulative. . . . . . . . . . . . . . . . 26 SECTION 17.09. Counterclaims by Tenant in Action to Recover Possession . . . 27 SECTION 17.10. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE 18 LANDLORD'S DEFAULT AND TENANT'S REMEDIES SECTION 18.01. Landlord's Default. . . . . . . . . . . . . . . . . . . . . . 27 SECTION 18.02. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 18.03. Tenant's Remedies . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 18.04. No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 28 ARTICLE 19 ESTOPPEL CERTIFICATES; NON-DISTURBANCE SECTION 19.01. Estoppel Certificate by Tenant. . . . . . . . . . . . . . . . 28 SECTION 19.02. Estoppel Certificate by Landlord. . . . . . . . . . . . . . . 28 SECTION 19.03. Estoppel Non-Disturbance. . . . . . . . . . . . . . . . . . . 28 ARTICLE 20 ARBITRATION; APPRAISAL SECTION 20.01. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . 29 4 SECTION 20.02. Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 20.03. No Alteration of Lease. . . . . . . . . . . . . . . . . . . . 30 ARTICLE 21 END OF TERM; TERMINATION SECTION 21.01. End of Term . . . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 21.02. Holding Over. . . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 21.03. Acceptance of Surrender . . . . . . . . . . . . . . . . . . . 30 SECTION 21.04. Compensation to Tenant Upon Certain Events of Termination . . 30 SECTION 21.05. General Effect of Termination . . . . . . . . . . . . . . . . 31 ARTICLE 22 GENERAL PROVISIONS SECTION 22.01. Provisions Subject to Applicable Law. . . . . . . . . . . . . 31 SECTION 22.02. Time is of the Essence. . . . . . . . . . . . . . . . . . . . 31 SECTION 22.03. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 22.04. Invalidity of Particular Provisions . . . . . . . . . . . . . 32 SECTION 22.05. Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 22.06. No Joint Venture. . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 22.07. Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 22.08. Net Lease . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 22.09. Source of Payment of Obligations Incurred Under this Lease. . 32 SECTION 22.10. Successors. . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 22.11. No Merger of Title. . . . . . . . . . . . . . . . . . . . . . 32 SECTION 22.12. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 22.13. Contests. . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 22.14. Nondiscrimination . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 22.15. Interpretation. . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 22.16. Integration . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 22.17. Memorandum of Lease for Recording . . . . . . . . . . . . . . 34 SECTION 22.18. Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE 23 ENVIRONMENTAL MATTERS SECTION 23.01. Landlord's Environmental Obligations. . . . . . . . . . . . . 34 SECTION 23.02. Tenant's Environmental Obligations. . . . . . . . . . . . . . 35 SECTION 23.03. Legal Contests. . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 23.04. Additional Landlord Responsibilities; Termination of Lease. . 36 ARTICLE 24 SALE OF PRIVATE PARCEL; REPURCHASE OF TENANT'S ESTATE SECTION 24.01. Landlord's Right to Sell. . . . . . . . . . . . . . . . . . . 36 SECTION 24.02. Repurchase of Tenant's Estate . . . . . . . . . . . . . . . . 37 ARTICLE 24A ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF LANDLORD SECTION 24A.01.Landlord's Additional Representations and Warranties. . . . . 38 5 ARTICLE 25 DEFINITION OF CERTAIN TERMS SECTION 25.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 39 EXHIBITS - -------- EXHIBIT A - DESCRIPTION OF THE LAND EXHIBIT B - DESCRIPTION OF THE PRIVATE PARCEL EXHIBIT C - PERMITTED EXCEPTIONS EXHIBIT D - RECIPROCAL EASEMENT AGREEMENT EXHIBIT E - REVENUE SHARING AGREEMENT PARCEL LEASE This Parcel Lease, dated as of November 7, 1997 (the "Lease"), is made by and between Marine World Joint Powers Authority, a joint exercise of powers authority organized and existing under the laws of the State of California (hereinafter called "Landlord"), whose address is City Hall, 555 Santa Clara Street, Vallejo, California 94590, and Park Management Corp., a California corporation (hereinafter called "Tenant"), whose address is Marine World Parkway, Vallejo, California 94590. RECITALS A. All capitalized terms used herein and not defined in the section where first used in this Lease are defined in Article 25 hereof or the definition of such capitalized term is referenced in Article 25 hereof. B. The City of Vallejo (the "City") owns approximately one hundred thirty-eight (138) acres of land located in the County of Solano, State of California, described in Exhibit A attached hereto (the "Land"). The City also owns or controls the right to use the surface of Lake Chabot, a flood control and drainage reservoir consisting of approximately fifty-five (55) acres. C. Certain improvements to the portion of the Land identified as the "Public Parcel" below were refinanced on January 30, 1997, with the proceeds of certificates of participation in the aggregate principal amount of $63,465,000 (the "Certificates of Participation Financing"). 1 D. In connection with the Certificates of Participation Financing, (i) the City entered into a 1997 Site Lease Relating to Marine World dated as of January 1, 1997 whereby the City leased the Land and rights to use Lake Chabot to the Landlord (the "1997 City-Marine World Lease"), (ii) the Landlord and the City entered into a 1997 Lease Agreement Relating to Marine World, dated as of January 1, 1997, whereby the Landlord leased back to the City a portion of the Land (the "Public Parcel") and rights to use Lake Chabot (the "1997 Marine World-City Lease), (iii) the City and the Redevelopment Agency of the City of Vallejo (the "Agency") entered into a 1997 First Sublease Agreement Relating to Marine World, dated as of January 1 1997, whereby the City subleased to the Agency the Public Parcel and the rights to use Lake Chabot (the "1997 City-Agency Lease"), and (iv) the Agency and the Landlord entered into a 1997 Second Sublease Agreement Relating to Marine World, dated as of January 1, 1997, whereby the Agency subleased to the Landlord the Public Parcel and the rights to use Lake Chabot (the "1997 Agency-Marine World Lease") to enable the Landlord to operate and maintain a park under the name "Marine World/Africa U.S.A." E. In connection with the exercise of an option (the "Option") granted by the Landlord under the Option Agreement (Parcel Lease), dated as of May 30, 1997, between the Landlord and the Tenant, the Landlord and the Tenant now desire to provide for a lease of the portion of the land identified in Exhibit B attached hereto (the "Private Parcel," which Private Parcel shall be hereinafter deemed to include, as appropriate, all Improvements thereon), to enable the Tenant to construct and operate facilities on the Private Parcel compatible with those on the Public Parcel. ARTICLE 1 2 DEMISE TERM SECTION 1.01. DEMISE OF THE PRIVATE PARCEL. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, on the terms and conditions set forth herein and subject only to the exceptions to title described in Exhibit C attached hereto (the "Permitted Exceptions"), the Private Parcel together with any buildings, structures, facilities, fixtures, equipment, paving, surfacing, sewers, storm drains and other improvements which may now or hereafter be located thereon belonging to or leased by Landlord, and all easements, rights of way and other rights therein and appurtenances thereto. Tenant has no rights under this Lease to the use of the surface or any part of Lake Chabot. Landlord warrants that the Land is subject only to the Permitted Exceptions. SECTION 1.02. TERM. The term of this Lease (the "Term") shall be for a period of fifty-five (55) years commencing on the date of exercise of the Option (the "Term Commencement Date") and ending on the date which is fifty-five (55) years after the Term Commencement Date, unless this Lease is terminated on an earlier date, or renewed in accordance with Section 1.03 below. Landlord shall deliver possession of the Private Parcel to Tenant under this Lease on the Term Commencement Date, and no other person or entity shall be in possession of any thereof. SECTION 1.03. RENEWAL OPTION. Tenant shall have the right, at its election, to extend the original term of this Lease for four (4) extension periods of ten (10) years each, and a final extension period of four (4) years (each a "Renewal Option"). Each Renewal Option shall commence upon the expiration of the original term or the prior Renewal Option (as the case may be), provided that Tenant shall give to Landlord notice of the exercise of its selection at least four (4) months prior to the expiration of the original 3 term or such prior Renewal Option (as the case may be). Prior to the exercise by Tenant of any of said elections to extend the original term, the expression "the term of this Lease" or any equivalent expression shall mean the original term; after the exercise by Tenant of any of the aforesaid elections, the expression "the term of this Lease" or equivalent expression shall mean the original term as it may have been extended. Except as expressly otherwise provided in this Lease, all the agreements and conditions in this Lease contained shall apply to the additional period or periods to which the original term shall be extended as aforesaid, the term shall be extended upon the giving of the notice without the requirement of any action on the part of Landlord. SECTION 1.04. RULE AGAINST PERPETUITIES. If and to the extent that any of the options, rights and privileges granted to Tenant under the provisions of this Lease would, in the absence of the limitation imposed by this Section, be invalid or unenforceable as being in violation of the rule against perpetuity or any other rule of law relating to the vesting of interests in property or the suspension of the power of alienation of property, then it is agreed that notwithstanding any other provision of this Lease, said options, rights and privileges, subject to the respective conditions governing the exercise of such options, rights and privileges, shall be exercisable by Tenant only during a period which shall end no later than twenty (20) years after the date of execution of this Lease in which event, Tenant shall have the right, to the extent permitted by Law, to exercise any or all of its Renewal Options prior to the expiration of such period. ARTICLE 2 RENT 4 SECTION 2.01. MINIMUM ANNUAL RENT. Commencing on the Rent Commencement Date and continuing throughout the remainder of the Term, Tenant shall pay an annual fixed rent of One Dollar ($l.00) (the "Minimum Annual Rent"). Tenant's obligation to pay Minimum Annual Rent on the Private Parcel under this Lease shall commence on the date of exercise of the Option (the "Rent Commencement Date"). SECTION 2.02. PAYMENT OF RENT. The Minimum Annual Rent shall be paid in advance on the Rent Commencement Date and on each one year anniversary thereof during the Term. SECTION 2.03. NO SETOFF. Tenant covenants to pay the Minimum Annual Rent herein reserved and all other sums which may become due hereunder or be payable by Tenant hereunder, at the times and in the manner provided in this Lease without notice or demand except as otherwise expressly provided herein. The Minimum Annual Rent and any other amounts required to be paid by Tenant hereunder are sometimes collectively referred to as, and shall constitute, "rent". ARTICLE 3 USE ACCESS SECTION 3.01. USE OF PRIVATE PARCEL. Tenant shall develop the Private Parcel with various Improvements, which may include, without limitation, thrill rides, water attractions, themed areas, concert facilities, restaurants and other food outlets, courts or other areas for preparation and/or service or dispensing of food, game venues, theater and other show areas and merchandise shops, all of which shall be compatible with the Improvements located on the Public Parcel as of the date hereof. Tenant shall also in good faith 5 consider the construction of a conference center in connection with its development of the Private Parcel. Landlord shall cooperate with and assist Tenant (at the written request and cost of the Tenant), in effecting development of the Private Parcel. Tenant shall furnish and equip the Improvements constructed on the Private Parcel with all fixtures, furniture, furnishings, and other equipment and other personal property (collectively, "Personal Property") of a quantity and quality necessary to operate the Private Parcel in a manner at least comparable to the operation of the other theme parks operated by PPI (the "Premier Parks"); provided, however, that Tenant, in its sole discretion, shall determine the nature and quantity of attractions to be located at the Private Parcel at any time during the Term. Tenant further agrees to maintain the Improvements and such Personal Property and keep the same in good order and condition ordinary wear and tear excepted, and promptly make all necessary repairs, replacements and renewals thereof, except as otherwise expressly provided in this Lease (including, but not limited to, Section 6.02). The Private Parcel shall at all times be used as a theme and/or amusement park and/or other entertainment venue, and/or in any other manner consistent with the use of the Public Parcel, and shall be generally open for admission by patrons at the same times as are the facilities on the Public Parcel, except as otherwise expressly provided in this Lease; provided, however, it is expressly understood and agreed that nothing in this Lease shall be deemed or construed to require that all or any of the Private Parcel be continuously operated. Tenant shall have the right to close all or any portion of the Private Parcel during all or any such portion of the off season as Tenant shall determine. The Landlord will implement as soon as practicable any substitution of property between the Private 6 Parcel and the Public Parcel which is requested by the Tenant in writing and is otherwise consistent with the provisions of the 1997 Marine World-City Lease and not adverse in any material respect to the operations conducted on the Public Parcel. Upon any such substitution, the property transferred to the Private Parcel shall for all purposes hereof be deemed part of the Private Parcel and subject to the provisions of this Lease as if such property were originally part of the Private Parcel. In connection with any such substitution, Tenant shall promptly arrange for the recordation of a supplement to the description of the Private Parcel in Exhibit B hereto in the real property records of Solano County, California consistent therewith. Once commenced, all construction, alteration or repair work permitted herein shall be accomplished as expeditiously and diligently as is commercially practicable. Tenant shall take all reasonably necessary measures to minimize any damage, disruption or inconvenience to the Public Parcel caused by such work and make adequate reasonable and customary provision for the safety and convenience of all persons affected thereby, including but not limited to using commercially practicable methods to control all objectionable or unpleasant dust, noise, odor and other materially adverse effects thereof, upon the Public Parcel and/or the normal use thereof. Tenant shall repair, at its own cost and expense, any and all damage caused by such work, except as otherwise expressly provided in this Lease. Any work performed by or on behalf of Landlord or by or on behalf of Tenant or any occupant or sublessee to connect to, repair, relocate, maintain or install any storm drain, sanitary sewer, water line, gas-line, telephone conduit or any other public utility service shall be performed so as to minimize interference with the provision of such services to occupants, sublessees and other persons. SECTION 3.02. LIMITATION ON USE. Tenant shall not use or permit to be used any part of the 7 Private Parcel for any illegal purposes and will not cause or maintain any nuisance in, at or on the Private Parcel. Tenant shall not do anything, or permit anything to be done, in or about the Private Parcel which will: (i) invalidate or be in conflict in any material way with the provisions of any fire or other insurance policies covering the Private Parcel; or (ii) result in an inability of Tenant to obtain fire insurance from reputable companies for the Improvements on the Private Parcel as required by Article 5. SECTION 3.03. COMPLIANCE. Throughout the Term Tenant shall timely comply in all material respects with all Laws and the requirements of all policies of insurance which may be applicable to the Private Parcel, including the making of any required Improvements on the Private Parcel; provided, however, that notwithstanding the foregoing Tenant shall have the right to use the Private Parcel for the uses permitted pursuant to Sections 3.01 and 3.02 even if there is a change in Laws applicable to the Private Parcel, and further provided that Landlord shall be responsible for any and all violations of Law existing on the Term Commencement Date. Landlord agrees, within thirty (30) days (or such sooner period as may be required by Law) after delivery by Tenant of written notice to Landlord which notice is delivered within one year of the Term Commencement Date, to either (a) cure any such violation(s) existing on the Term Commencement Date in compliance with Laws or (b) to notify Tenant in writing of Landlord's desire that Tenant effect such cure and its commitment to reimburse Tenant for all reasonable costs expended by Tenant in order to effectuate such cure; provided, however, if Landlord fails to either: (i) effect such cure at least ten (10) business days prior to the expiration of the period prescribed by Law to do so; or (ii) notify Tenant of its election of subparagraph (b) above within ten (10) business days of receipt of Tenant's notice, then Tenant may effectuate such cure and be promptly reimbursed by Landlord. SECTION 3.04. OTHER AGREEMENTS. Landlord and Tenant acknowledge and agree that there 8 shall be no merger of this Lease and any of the Master Lease, the 1997 City-Marine World Lease, the 1997 Marine World-City Lease, the 1997 City-Agency Lease or the 1997 Agency-Marine World Lease (collectively, the "Public Leases"). Notwithstanding the foregoing, Landlord and Tenant acknowledge that they will benefit from a common plan of operation of improvements on the Public Parcel and the Improvements on the Private Parcel, and by allowing patrons of the Public Parcel free access to the public areas of the Private Parcel, and patrons of the Private Parcel free access to the public areas of the Public Parcel, subject to the terms and conditions of this Lease and the Reciprocal Easement Agreement. To that end, Landlord and Tenant have entered into the Reciprocal Easement Agreement and the Revenue Sharing Agreement (the "Other Agreements"), and acknowledge and agree that the terms of the Other Agreements and the Public Leases are integral to Tenant's use of the Private Parcel and Landlord's use of the Public Parcel. SECTION 3.05. MINIMUM INVESTMENT. Tenant hereby agrees to expend at least an aggregate $7,000,000 towards the construction of Improvements (which shall include at least one major attraction) on the Private Parcel (the "Minimum Investment") during the two year period commencing with the Term Commencement Date. Notwithstanding the foregoing, (a) the Minimum Investment shall be reduced by an amount equivalent to the amount, if any, by which the amounts expended by Tenant under that certain Option Agreement exceeds the "Purchase Amount" as defined therein (and as referenced in clause (i)(b) of Section 1.05 thereof), provided that, in any event, the Improvements to be so constructed shall include a major attraction or attractions; (b) Tenant shall not expend in excess of $50,000,000 (exclusive of any costs of Restoration, replacement of damaged or obsolescent Improvements) towards construction of Improvements on the Private Parcel during the Term, unless it shall first obtain an opinion of nationally-recognized bond counsel acceptable to the Landlord to the effect that expenditures in excess of such amount will not result in 9 the interest component of the Certificates of Participation Financing being included in the gross incomes of the owners of the certificates of participation for federal income tax purposes or otherwise result in a breach of the Landlord's covenants in Section 10.05 of the Trust Agreement referenced in the Agency-Marine World Lease, and (c) Landlord will reasonably consider any proposal in writing by Tenant to include the cost of any of Tenant's Property towards the Minimum Investment, and if such Tenant's Property is ever removed from the Private Parcel, it is replaced with other property of equal or greater value. From time to time (but not less than annually), and otherwise upon written request of Landlord, Tenant shall provide Landlord with a written report as to the extent of its investment in Improvements to the Private Parcel and the then value thereof, which value shall be based on the actual cost of such Improvements less depreciation thereof determined in accordance with generally accepted accounting principles and less the value (after depreciation determined as aforesaid) of any such damaged, destroyed or taken Improvements which are not replaced or reconstructed during the period covered by the report. Each annual report shall, at a minimum, show any additional Investment during the immediately preceding year. The amounts actually expended, from time to time, by Tenant towards the construction of Improvements in accordance with the preceding paragraph, as may be adjusted in accordance with the terms hereof and valued in accordance with the preceding sentence, shall be referred to herein as the "Investment." SECTION 3.06. TITLE TO IMPROVEMENTS. If Improvements are constructed by Tenant on the Private Parcel under this Lease, title to such Improvements shall remain the property of Tenant during the remainder of the Term and, upon expiration of the Term, title to all Improvements then vested in Tenant which have not been removed from the Private Parcel within twenty (20) days after expiration shall vest in Landlord and the same shall become the property of Landlord at that time without notice or execution of 10 further instruments and without cost, expense or obligation of any kind or nature to Landlord; provided, however, notwithstanding anything to the contrary in any Public Lease or in any Other Agreement, the parties acknowledge that Tenant may remove any and all Improvements at any time prior to the expiration or earlier termination of this Lease either: (a) in connection with any Restoration; or (b) at any other time Tenant determines, in its sole discretion, so long as the Minimum Investment has been made and is being maintained in accordance with the terms of this Lease. Upon expiration or termination of this Lease (other than termination arising out of a Total Taking or a Landlord's Default), Tenant agrees to not remove Improvements selected by Tenant (which shall include at least one major attraction) with an original cost to Tenant equal to the Minimum Investment. Tenant agrees to execute, deliver, and if necessary, cause to be recorded, such instruments as Landlord shall reasonably request to cause title to all Improvements located on the Private Parcel upon the expiration or earlier termination of this Lease to be so vested in Landlord if not removed by Tenant as aforesaid. SECTION 3.07. USE BY VENDORS; PARKING. (a) At any time during the term of this Lease, Tenant may lease or license departments, grant concessions or enter into space/occupancy leases granting third parties the right to sell goods, wares, merchandise, food and services and/or provide games, attractions, arcades and other entertainment in or at the Private Parcel. The foregoing shall not be considered a subletting or assignment for purposes of this Lease, including but not limited to Article 13 hereof nor shall such licensee or concessionaire be considered a subtenant within the meaning of this Lease, provided that such party's business is not in the eyes of the public separately identifiable from Tenant's business at the Private Parcel, and the subletting is not for more than an insubstantial portion of the area of the Private Parcel. Tenant shall assure that any such leases, licenses or concessions are subordinate to this Lease, and terminate upon termination of this Lease. 11 (b) Tenant (including any subtenant, licensee and concessionaire thereof) shall be entitled to the use of parking spaces in the parking lot serving the Public Parcel for its employees, agents, guests and other invitees on the same terms as employees, agents, guests and other invitees of Landlord with respect to the Public Parcel, subject to the Rules and Regulations (as defined in the REA) and the other terms of the REA. SECTION 3.08. ACCESS TO PRIVATE PARCEL. Landlord agrees that Tenant shall have sole and exclusive access to all of the Private Parcel at all times during the term of this Lease, except to the extent otherwise expressly provided herein or in the Reciprocal Easement Agreement, and that Landlord shall not permit or create, or cause to be permitted or created, any event or condition which results in preventing or restricting Tenant from, or otherwise materially interfering with, the use and enjoyment by Tenant of the Private Parcel for its intended purpose, including but not limited to impairing its access thereto. SECTION 3.09. SIGNS. Tenant may install and maintain a sign or signs at the Private Parcel provided same are in compliance with any and all applicable Laws. Landlord shall cooperate with Tenant (including, without limitation, execution of all applications) in connection with any Permits which are required in connection with the installation or maintenance of said signs. Landlord shall not erect any signs at the Private Parcel without Tenant's prior written consent. SECTION 3.10. TENANT'S PROPERTY. (a) All stock-in-trade, personal property, furniture, furnishings, machinery, equipment and movable trade fixtures (not constituting Improvements) supplied by or installed by or on behalf of Tenant at Tenant's sole cost and expense, including Personal Property ("Tenant's Property"), shall remain the property of Tenant and Tenant may remove Tenant's Property from 12 the Private Parcel at anytime during the Term so long as such removal does not otherwise cause a Tenant's Default, and at the end of the Term or upon sooner termination as aforesaid. (b) Tenant shall have the right, without obtaining Landlord's prior written consent, to enter into various leasing or other financing arrangements with respect to such Tenant's Property ("Equipment Financing"), whether such Equipment Financing is in the form of conditional sale contract, chattel mortgage, lease or other like security interest. Neither the Landlord nor any party claiming by, through or under Landlord shall have any lien for the performance of any obligations of Tenant upon any Tenant's Property and Landlord, for itself and any party claiming by, through or under Landlord, hereby expressly waives the provisions of any Law giving to it such a lien. Landlord agrees, if requested by or on behalf of any lender to which Tenant shall grant a security interest in the Tenant's Property or any lessor of Tenant's Property in connection with such Equipment Financing (collectively, the "Equipment Lessor"), to promptly execute, acknowledge and deliver such waivers or other instruments reasonably required by Tenant and/or the Equipment Lessor to confirm that Landlord: (i) has waived any such lien, (ii) agrees that the Equipment Lessor shall have the right to enter upon the Private Parcel for the purposes of removing Tenant's Property, and (iii) shall not hinder or delay such removal, provided that Tenant or the Equipment Lessor shall agree to (A) repair any damage to the Improvements caused by such removal, and (B) otherwise comply with the terms of this Lease in connection with such removal. Landlord shall use all commercially reasonable efforts to require the holder of any mortgage affecting Landlord's interest in the Private Parcel to agree to do likewise (or in lieu thereof deliver a non-disturbance agreement containing appropriate provision therefor). Anything herein to the contrary notwithstanding, the existence or continuance of any such security interest in connection with Tenant's Property shall not be deemed a Tenant Default hereunder. 13 ARTICLE 4 IMPOSITIONS SECTION 4.01. TENANT'S OBLIGATION TO PAY IMPOSITIONS. Tenant shall pay, before any fine, penalty, interest or cost may be added thereto for the non-payment thereof, all Impositions which are hereafter assessed, imposed or become a lien upon the Private Parcel or any part thereof during the Term; provided, however, that Tenant shall only be obligated to pay Impositions assessed against its possessory interest created by this Lease and not against the fee and reversion, or any other interest or property or other asset retained by Landlord. If, by Law, any such Imposition may be paid in installments, Tenant may pay the same (and, to the extent required, any accrued interest thereon) in installments before any fine, penalty, interest or cost may be added thereto for the nonpayment thereof and Tenant shall only be required to pay those installments coming due during the Term. "Impositions" shall be defined as all taxes (including possessory interest taxes associated with the Private Parcel and the execution of this Lease), assessments (including all assessments for public improvements or benefits, fees, water, sewer or similar rents, rates and charges, excises, levies, license fees, permit fees, inspection fees and other authorization fees and other governmental charges of any kind or nature whatsoever, whether general or special, ordinary or extraordinary, foreseen or unforeseen, or hereafter levied or assessed in lieu of or in substitution of any of the foregoing of every character (including all interest and penalties thereon), which at any time during or in respect of the Term may be assessed, levied, confirmed or imposed on or in respect of or be a lien upon the Private Parcel, any Improvements, any of Tenant's Personal Property now or hereafter located thereon, on the leasehold estate created hereby or which may be imposed 14 upon any taxable interest of Tenant acquired pursuant to this Lease or on account of any taxable possessory right which Tenant may have acquired pursuant to this Lease, or any part thereof or which may be levied upon or measured by the rent payable hereunder. Notwithstanding anything to the contrary set forth above or elsewhere in this Lease, "Impositions" shall not include any income, excess profit, estate, inheritance, successions transfer, franchise, capital or other tax assessment upon the fee interest of Landlord in the Private Parcel or upon the rentals payable under this Lease, all of which shall be the obligation of Landlord. Tenant will pay or reimburse Landlord, as the case may be, for any fine, penalty, interest or cost which may be added by the collecting authority for the late payment or nonpayment of any Imposition required to be paid by Tenant hereunder. All Impositions imposed for the tax year in which this Lease shall commence, and the tax year in which this Lease shall terminate, shall be apportioned between Tenant and Landlord. Notwithstanding the foregoing, Tenant shall have the right to contest any Imposition or other assessment, valuation or levy against all or any part of the Private Parcel, or any interest therein, in accordance with applicable Laws and the provisions of Section 22.13 hereof. SECTION 4.02. SEGREGATION AND PAYMENT OF IMPOSITIONS. Notwithstanding the foregoing or anything in the REA to the contrary: (a) If Tenant, in its sole discretion, desires that the parties' respective interests in the Private Parcel and the Public Parcel be separately assessed with respect to the assessment of Impositions (and abatements, exemptions and credits available with respect thereto), based on the value of the relevant parties' respective interests therein, then Tenant (or, if required by Law, promptly after written notice from Tenant, Landlord) 15 shall make application to the assessor's office therefore and Landlord shall execute and deliver, or cause to be executed and delivered, all such documents, instruments, applications or other forms which may be necessary in connection therewith, and otherwise cooperate with Tenant, at Tenant's expense, in connection with such application. (b) If Tenant's interest in the Private Parcel is not separately assessed as aforesaid, then Tenant's share of the Impositions shall be deemed to be the Impositions which are due and payable as assessed against Tenant's possessory interest in the Private Parcel and the Improvements only. The parties shall arrange for the relevant taxing authorities to send copies of all tax bills for any tax year related to the Private Parcel or the Improvements to Tenant and, if legally permissible, to accept payment of their respective portions directly from Tenant and Landlord. The amount of Impositions payable by each of the parties hereunder related to the Private Parcel or the Improvements for any tax year shall be timely paid by each party directly to the taxing authority for said tax year so as to avoid the accrual of interest or the payment of a penalty. (c) The Imposition upon the Private Parcel and the Improvements for any tax year shall mean such amounts as shall be finally determined after deducting net reductions or abatements, refunds or rebates, if any, to be the Impositions payable with respect to the Private Parcel and the Improvements for said tax year. For the purposes of determining payments due from each of Tenant and Landlord in accordance with the provisions of this Article, the Impositions upon the Private Parcel and the Improvements for any tax year shall be deemed to be the Impositions assessed for such year until such time as a reduction, abatement, refund or rebate shall be made for such tax year, and, if any reduction, abatement, rebate or 16 refund shall be made for any tax year, an appropriate refund shall be made with respect to the amount paid by each of Tenant and Landlord on account of Impositions dependent upon the amount of such reduction, abatement, rebate or refund, less the cost and expense of obtaining the same. (d) If the Private Parcel and the Improvements, or any part thereof is entitled to any abatements, exemptions or credits of or against Impositions and same are granted, each of the parties hereto hereby agrees that thereafter it shall use commercially reasonable efforts to ensure that said abatements, exemptions or credits of Impositions shall not be terminated, rescinded or otherwise lost due to its wrongful acts or omissions (whether or not acts or omissions are permitted by this Lease). (e) If Tenant is required to escrow Impositions with a Leasehold Mortgagee, then, at Tenant's request and upon reasonable evidence of such requirement, Landlord shall pay to Tenant on the first day of each month during the term of this Lease that Tenant is required to so escrow Impositions, a sum equal to one twelfth (1/12) of amount, if any, payable by Landlord in respect of Impositions against the fee and reversion retained by Landlord in the Private Parcel hereunder. (f) Notwithstanding the foregoing, or anything to the contrary set forth herein or anything in the REA to the contrary, Tenant shall have the right, exercisable upon written notice to Landlord, to make any payment of Landlord's share of the Impositions in order to avoid the accrual of interest or other late fees or the imposition of a penalty or creation of a lien upon the Private Parcel if Landlord does not pay same on or before the later of 3 business days: (i) from the date of delivery of such notice, or (ii) prior to the date such payment is due to in order to avoid the accrual of interest or other late fees or the imposition of a penalty or creation of a lien upon the Private Parcel. In the event Tenant makes any such payment or otherwise incurs any cost or expense as a result of the non-payment of the share of the Impositions allocated to the Landlord, Tenant shall have the right to immediate repayment of the same from Landlord together with interest thereon 17 until paid at the Interest Rate. (g) Notwithstanding the foregoing, or anything to the contrary set forth herein, Landlord shall have the right, exercisable upon written notice to Tenant, to make any payment of Tenant's share of the Impositions in order to avoid the accrual of interest or other late fees or the imposition of a penalty or creation of a lien upon the Private Parcel if Tenant does not pay same on or before the later of 3 business days: (i) from the date of delivery of such notice, or (ii) prior to the date such payment is due to in order to avoid the accrual of interest or other late fees or the imposition of a penalty or creation of a lien upon the Private Parcel. In the event Landlord makes any such payment or otherwise incurs any cost or expense as a result of the non-payment of the share of the Impositions allocated to the Tenant, Landlord shall have the right to immediate repayment of the same from Tenant together with interest thereon until paid at the Interest Rate. SECTION 4.03. TAXES IMPOSED UPON CREATION OF LEASEHOLD. Landlord shall be solely responsible for and shall pay all realty transfer taxes and similar taxes imposed by any governmental authority upon or in connection with the execution and delivery of this Lease or the recording of a short form hereof, or both, and Landlord and Tenant shall timely execute any realty transfer tax return or similar instruments required in connection therewith. ARTICLE 5 INSURANCE SECTION 5.01. EXTENDED COVERAGE AND LIABILITY. Tenant shall, throughout the Term, maintain 18 with respect to the Private Parcel and Tenant's Personal Property insurance of the following character: (a) A policy of fire and extended coverage insurance on the Improvements in an amount not less than 75% of the actual replacement cost of all of the Improvements on the Private Parcel with diminution of such cost for depreciation or obsolescence. (b) Comprehensive public liability and property damage insurance covering the Private Parcel and the Improvements with combined single limit coverage in an amount not less than that customarily, from time to time carried by other regional, nondestination theme parks of comparable size and with comparable facilities at such time, which shall be conclusively evidenced by a certificate of Tenant to the effect that the insurance maintained hereunder is not less than that maintained at Premier Parks and other comparable regional, non destination theme parks. (c) A policy or policies of worker's compensation insurance and any other employee benefit insurance sufficient to comply with all Laws. (d) Such other insurance, in such amounts and against such other risks, as is not less than that customarily, from time to time carried by other regional, nondestination theme parks of comparable size and with comparable facilities at such time, which shall be conclusively evidenced by a certificate of Tenant to the effect that the insurance maintained hereunder is not less than that maintained at Premier Parks and other comparable regional, non destination theme parks. SECTION 5.02. CARRIERS; POLICIES. All insurance provided for pursuant to Section 5.01 hereof 19 shall: (a) Be effected under a valid and enforceable policy or policies issued by insurers of recognized responsibility; provided, however, it is acknowledged and agreed that [to be completed prior to execution of this Parcel Lease] is an acceptable insurer; (b) Name Landlord and Tenant as insured parties thereunder, as their respective interests may appear; (c) Provide that (i) no cancellation, modification (to the extent of a modification to coverage which results in non-compliance hereunder) or termination thereof on account of nonpayment of premiums or any other reason shall be effective until at least twenty (20) days after delivery of written notice thereof to Landlord, and (ii) to the extent obtainable without additional premium, such insurance shall not be invalidated as to the interest of Landlord by any act, omission or neglect of Tenant, any Leasehold Mortgagee, their respective employees or agents or any occupant of the Private Parcel which might otherwise result in a forfeiture or suspension of such insurance; and (d) Have, at Tenant's election, deductibles not greater than those for insurance carried by Premier Parks and other regional, non destination theme parks generally, as certified by Tenant to Landlord. Tenant shall be permitted to effect any of the insurance coverage required under this Article to be procured and maintained by Tenant by means of a "blanket" or "umbrella" policy or policies of insurance or 20 to self-insure as to any of the insurance required by the terms of this Article 5 for so long as Tenant's net worth, computed in accordance with generally accepted accounting principles consistently applied, exceeds one hundred million dollars ($100,000,000) and Tenant otherwise has liquid assets in excess of one million dollars ($1,000,000). If Tenant so elects to self-insure, Tenant shall give Landlord written notice of its election and shall simultaneously furnish to Landlord proof of its net worth at the time of such election and, thereafter, at least once a year. SECTION 5.03. PROCEEDS. Fire and extended coverage insurance proceeds and boiler and machinery insurance proceeds paid to Tenant by reason of damage to the Improvements, subject to the provisions of Article 9 hereof, shall be used by Tenant to restore the Improvements if Tenant elects to do so under Article 9. SECTION 5.04. CERTIFICATE OF INSURANCE. Tenant shall furnish to Landlord a certificate of insurance, insurance binders or other reasonable evidence as set forth in Section 5.02 or otherwise herein, issued by the insurance provider, or its authorized agent (or if there is no insurance provider, other evidence of applicable coverage), evidencing Tenant's compliance with the insurance coverage requirements of this Article upon the execution and delivery of this Lease, and thirty (30) days before the expiration of any insurance policy required hereunder. SECTION 5.05. RELEASE AND WAIVER OF SUBROGATION. To the extent permitted by Law, Landlord and Tenant hereby waive all rights of recovery and causes of action, and each releases the other from any liability (provided such party's right of full recovery under the applicable policy is not adversely affected), from all claims it might otherwise have (including a claim for negligence) which it might have against the 21 other party for losses, damages or destruction occasioned during the Term to the property of each located within or upon or constituting a part of the Private Parcel, which losses and damages are of the type covered under the policies required by this Article or actually carried. The policies required by this Article shall provide for waivers of any right of subrogation that the insurer of such party may acquire against the other party hereto with respect to any such losses so long as the same is obtainable at no significant additional cost. Notwithstanding the foregoing, nothing shall be deemed to release either party hereto from liability for damages resulting from the fault or negligence of said party or its agents. SECTION 5.06. TITLE INSURANCE. Landlord shall provide to Tenant, on the Term Commencement Date, a title insurance policy (or irrevocable commitment to issue same subject to no conditions) issued by a title company designated by Landlord and reasonably acceptable to Tenant, which shall insure that a valid leasehold interest in the entire Private Parcel has been created under this Lease in favor of Tenant, subject only to the Permitted Exceptions in a form and containing such endorsements as are reasonably acceptable to Tenant and customary in the circumstances. The amount of the title insurance shall be not less than $7,000,000; provided that Landlord shall obtain an endorsement thereto to the effect that coverage thereunder shall increase such that it is always equivalent to the Investment. SECTION 5.07. LANDLORD'S INSURANCE. (a) Landlord agrees that at all time during the term of this Lease, it will maintain with respect to the Public Parcel, insurance in an amount not less than that required under the 1997 Agency-Marine World Lease (without giving effect to clause (ii) and (iii) of the first sentence of Section 5.4 thereof, but the percentage in clause (i) of the first sentence of said Section 5.4 shall be deemed to be seventy-five percent (75%) instead of ninety percent (90%) for purposes of this Parcel Lease). Landlord agrees that, upon the written request of Tenant, Landlord shall furnish Tenant with 22 evidence of insurance required under the foregoing provision. (b) It is expressly understood and agreed that at such times (if any) as Landlord or Landlord's contractors, agents, employees or representatives are in or about the Private Parcel in connection with Tenant's work and/or any work being performed by or on behalf of Landlord, Landlord's commercial general liability insurance or the commercial general liability insurance maintained by Landlord's contractors shall in all events be deemed to be the primary coverage (regardless of any requirement that Tenant be named, for some purposes, as an additional insured on such policies, and regardless of any other insurance that Tenant may maintain or elect to obtain) with respect to any and all injury, loss or damage or claims for injury, death, loss or damage, of whatever nature, to any person or property in the Private Parcel or resulting from any occurrence in, on or about the Private Parcel directly attributable to Landlord or Landlord's contractors, agents, employees or representatives. ARTICLE 6 MAINTENANCE OF PROPERTY SECTION 6.01. NO WASTE. Tenant shall not commit waste or damage the Private Parcel. SECTION 6.02. TENANT'S MAINTENANCE OBLIGATIONS;. Except as specifically provided herein or in the REA, Landlord shall not be obligated to make repairs or replacements of any kind or to maintain the Private Parcel. Throughout the Term, Tenant shall maintain the Improvements, if any, in such operating condition and repair as may be necessary at any time to maintain the Private Parcel in a manner at least 23 comparable to other Premier Parks and other regional, non destination theme parks of comparable size and attendance. Except as otherwise provided in this Lease or the Reciprocal Easement Agreement, Tenant shall make all necessary repairs and replacements to the Improvements, whether structural or nonstructural, interior or exterior, ordinary or extraordinary, foreseen or unforeseen as are necessary to comply with the preceding sentence. Except as otherwise provided herein or the REA, Tenant hereby expressly waives all right to make repairs at Landlord's expense under Section 1941 of the California Civil Code, as it may from time to time be amended, replaced or restated. ARTICLE 7 ALTERATIONS BY TENANT SECTION 7.01. ALTERATIONS. At any time and from time to time during the Term, Tenant may, but is not obligated to, construct or otherwise make new Improvements on any part of the Private Parcel and to demolish, remove, replace, alter, relocate, reconstruct, or add to any existing Improvements in whole or in part, to modify or change the contour or grade, or both, of the Private Parcel (any of which activities is referred to herein as an "Alteration"), provided that all of the following conditions are satisfied with respect to the Alteration in question: (a) Once commenced, each Alteration shall be effected with due diligence, in a good workmanlike manner, and in material compliance with all Laws and insurance requirements. (b) The expenses for any Alteration shall be timely and-fully paid or shall be adequately 24 provided for by Tenant; provided, however, that Tenant shall be permitted to contest the validity and/or amount of any such expense provided that it does not result in the imposition of a lien against the Private Parcel unless either: (i) such lien is removed within 60 days from the date Tenant receives notice thereof, or (ii) such lien is adequately bonded, or otherwise provided for in a manner acceptable to Landlord. (c) Prior to making any Alteration which costs in excess of One Hundred Thousand Dollars ($100,000), Landlord shall have received at least ten (10) days prior written notice from Tenant of the proposed Alteration; provided that notice may be given such lesser period of time in advance as is required by Law or emergency. SECTION 7.02. TENANT IMPROVEMENTS. (a) Landlord shall cooperate with Tenant (including its architects and contractors), which shall include but not be limited to, executing all documents, providing all information, appearing before governmental boards and authorities and such other actions as may be required or otherwise reasonably requested by Tenant in connection with obtaining all building permits, licensees and other governmental approvals and authorizations which may be required to commence or complete Improvements and other work at the Private Parcel, proposed by Tenant (collectively, the "Permits"), at Tenant's written request and at Tenant's expense. (b) If, within six (6) months after the Term Commencement Date, despite prompt application to and diligent prosecution with the appropriate governmental authorities, Tenant is unable to obtain the Permit(s) necessary to enable Tenant to construct such Improvements necessary to satisfy Tenant's obligations under Section 3.05 hereof, Tenant shall be entitled, at is sole discretion, to either (i) terminate this Lease, or (ii) 25 continue to attempt to obtain same within the next ensuing twenty-four (24) months. Notwithstanding the foregoing, if (x) the Permit(s) are refused, or (y) the Permit(s) have not been issued by the expiration of said additional twenty-four (24) month period, or (z) the City is required to advance monies to make regularly scheduled Lease Payments under the 1997 Marine World-City Lease from its own funds at any time during any such twenty-four (24) month period, then at any time after the occurrence of any of such events (but prior to the issuance of said Permit(s)), either Landlord or Tenant may cancel this Lease by written notice to the other, effective on the tenth (10th) day following the date of such notice. In such event, this Lease shall thereupon be terminated, and neither party shall have any further liability to the other hereunder, except as may otherwise be expressly provided herein. (c) Landlord hereby grants to Tenant for use by Tenant and its servants, agents, employees and independent contractors working on, or in connection with, Improvements proposed by Tenant, any replacement, restoration, alteration, improvement, or repair thereof, and the installation, replacement or repair of Tenant's Property, trade fixtures, furniture and equipment, all necessary or appropriate rights of access, ingress and egress across the Public Areas (as defined in the REA) to and from the Private Parcel, and the right to do all such other things as may be incidental thereto. During the course of such work there shall be made available to those working on or in the Improvements, for the parking of trucks and delivery and workmen's vehicles and storage of materials, those portions of Public Parcel as are required for such purpose under the REA. ARTICLE 8 UTILITY SERVICES 26 SECTION 8.01. UTILITY SERVICES. Subject to any applicable provisions of the Reciprocal Easement Agreement, Tenant shall (i) pay as the same become due all charges for all public and private utility services at any time rendered to or for the benefit of the Private Parcel, (ii) comply in all material respects with all contracts relating to such services, and (iii) do all other things reasonably required for the maintenance and continuance of all such services. Tenant hereby expressly waives any and all claims for compensation, damages, payments or offset against Landlord based upon or with respect to any and all loss or damage now or hereafter sustained by Tenant by reason of any defect, deficiency, failure or impairment of whatever kind or nature in any service or utility furnished or supplied to or used by Tenant or any other party in connection with the use, occupancy, maintenance, or operation of the Private Parcel, except for any damage caused by Landlord's act or failure to act with respect to supplying any utility. ARTICLE 9 DAMAGE TO THE PROPERTY SECTION 9.01. NOTICE. In the event of any material damage to the Private Parcel caused by fire or other peril, Tenant shall promptly give written notice thereof to Landlord generally describing the nature and extent of such damage. SECTION 9.02. RESTORATION OR TERMINATION. (a) Except as provided to the contrary elsewhere in this Lease, in the event of any damage to the 27 Improvements for which insurance proceeds are made available to Tenant, Tenant shall, within a reasonable period of time, commence and complete such restoration, replacement, or rebuilding of the Improvements as Tenant determines, in its sole discretion, to make, so long as and on condition that upon the completion of such restoration, replacement and/or rebuilding Tenant's obligations to maintain the Minimum Investment are met, to the extent possible with the available insurance proceeds (such restoration, replacement, and rebuilding, together with any temporary repairs pending completion of the work, being hereinafter called "Restoration"). In the event of any Major Damage to the Improvements, Tenant shall, at Tenant's option upon written notice to Landlord, as promptly as practicable, either (i) commence and complete Restoration, (ii) so long as the Minimum Investment is then maintained by Tenant, elect to operate with the remaining Improvements; or (iii) elect to terminate this Lease. If Tenant elects to so terminate this Lease and there are any insurance proceeds made available to Tenant, then such proceeds shall be payable to Tenant, except as may otherwise be provided under any Leasehold Mortgage. (b) For purposes hereof, "Major Damage" to the Improvements shall mean such damage that the cost of Restoration by reason thereof will exceed twenty-five percent (25%) of the cost to replace the Improvements on the Land in their entirety as of the date of the damage. "Major Damage" shall also include damage, destruction or casualty to the Private Parcel or the Improvements thereat which: (i) is total or substantially total; (ii) renders such Private Parcel, the Improvements or the use thereof untenantable or substantially untenantable; or (iii) cannot be repaired or restored at least two years prior to the expiration of the Term. For purposes hereof, "untenantable" shall mean that Tenant is prevented or prohibited from using the Private Parcel or the Improvements in a manner substantially comparable to that existing on the date immediately preceding the subject damage, destruction or casualty. In the event Landlord and Tenant cannot mutually agree upon such replacement cost or the percentage of such damage, such matter or matters shall 28 be submitted to arbitration pursuant to Section 20.01. SECTION 9.03. EFFECT OF LEASE TERMINATION. If Tenant elects to terminate this Lease pursuant to this Article, the following shall apply: (a) If Landlord so elects, Tenant shall raze that part of the Improvements that have been damaged and clear the area of all debris; provided that Tenant shall have no obligation under this Section 9.03(a) if the damage, destruction or other casualty resulted from or was related to the negligence, fraud or willful misconduct of Landlord, its agents, employees, contractors or licensees. (b) This Lease shall terminate and the parties shall thereupon be released from their obligations under this Lease, except for those obligations which have accrued prior to the effective date of such termination, upon either: (i) the date set forth in Tenant's notice of termination, or (ii) if Landlord makes the election under subparagraph (a) above, the date on which such demolition and clearing is completed. SECTION 9.04. INSURANCE PROCEEDS. Any loss in excess of Five Hundred Thousand Dollars ($500,000) that results in the aggregate value of the Improvements being less than the Minimum Investment, which is covered by the insurance required to be carried hereunder shall be payable to a trustee (which shall be a bank or trust company, designated by Landlord and approved by Tenant, having an office in San Francisco, California and which has capital and surplus of at least Fifty Million Dollars ($50,000,000) or to a Leasehold Mortgagee of Tenant that is the holder of any first mortgage or deed of trust which is a lien against the Improvements which have been damaged, at the option of such Leasehold Mortgagee; provided, 29 however, such payment shall be made to a bank or trust company, in trust, if there is no Leasehold Mortgagee. All amounts collected on any such policies shall be made available to Tenant, and shall be paid out by the said trustee or Leasehold Mortgagee from time to time as the Restoration shall progress, in amounts designated by certification by architects licensed to do business in the State of California, showing the application of said amounts as payment for such Restoration; provided, however, that such trustee or Leasehold Mortgagee, as applicable, shall first be satisfied that the amount necessary to provide for the Restoration, according to the plans adopted therefor, which may be in excess of the amount received upon such policies, has been provided by the insured for such purposes and its application for such purposes is assured. If the damage is such that the insurance award is for less than Five Hundred Thousand Dollars ($500,000), or if the Minimum Investment has been satisfied or, to the extent not satisfied deposited into escrow in accordance with this Lease, then the insurance award shall be paid directly over to Tenant. Tenant shall pay all reasonable fees of the trustee for its services. Any excess of monies received from insurance remaining with the trustee or Leasehold Mortgagee after the reconstruction or repairof the Improvements shall be paid to Tenant. SECTION 9.05. RESTORATION. All Restoration undertaken by Tenant pursuant to this Article 9 and pursuant to Article 10 shall be effected with due diligence, in a good workmanlike manner, in material compliance with all Laws and insurance requirements. ARTICLE 10 CONDEMNATION 30 SECTION 10.01. NOTICE. In the event of a Taking of all or any part of the Private Parcel, or the commencement of any proceedings or negotiations which might result in such Taking, Tenant shall, within a reasonable period of time, give written notice thereof to Landlord. SECTION 10.02. TOTAL TAKING. In the event of a Taking of the entire Private Parcel and/or Improvements, this Lease shall terminate as of the date title vests in the condemning authority or the date the condemning authority is entitled to possession, whichever first occurs (the "Date of Taking"). In case of a Taking of such a substantial part of the Private Parcel and/or Improvements as shall result in the Private Parcel remaining after such Taking (even if Restoration were made) being unsuitable or economically unfeasible for the use to which the Private Parcel had been put by Tenant prior to such Taking, Tenant may, at its option, terminate this Lease by written notice to Landlord given within ninety (90) days after the Date of Taking, such termination to be effective as of a date specified in such notice within one hundred twenty (120) days after the Date of Taking; provided, however, Tenant shall be relieved of all monetary obligations and other liabilities arising under this Lease from and after the date of such Taking, except for any such obligation or liability which arises solely as a result of Tenant's gross negligence or willful misconduct. Any Taking of the Private Parcel of the character referred to in this Section which results in the termination of this Lease is referred to herein as a "Total Taking". If Tenant elects to terminate this Lease pursuant to the provisions hereof, then the parties shall be released thereby without further obligations to the other party as of the effective date of such termination subject to (i) the indemnification provisions hereof with respect to events occurring prior to termination, and (ii) the payment to Landlord by Tenant of all accrued obligations of Tenant to Landlord hereunder as of the effective date of such termination. SECTION 10.03. PARTIAL TAKING. In case of a Taking of the Private Parcel and/or the 31 Improvements other than a Total Taking (a "Partial Taking"), (i) this Lease shall remain in full force and effect as to the portion of the Private Parcel remaining immediately after such Taking, and (ii) Tenant shall promptly commence and complete Restoration of the Private Parcel provided that (so long as Tenant's obligations hereunder as to the Minimum Investment are satisfied) Tenant shall not be obligated to expend more for the Restoration than the amount awarded for such Restoration by the condemning authority, which amount shall be paid to Tenant for use in completing such Restoration. SECTION 10.04. AWARD. Any award and other payments on account of a Taking, less costs, fees and expenses incurred in the collection thereof ("Net Award") shall be applied as follows: (a) In case of a Partial Taking (except a Taking for temporary use) , Tenant shall furnish to Landlord evidence satisfactory to Landlord of the total estimated cost of the Restoration required by Section 10.03. (b) The Net Award received on account of a Partial Taking (except a Taking for temporary use) shall be held by Tenant and applied to pay the cost of Restoration. The balance, if any, shall be paid as follows: (i) first, an amount equivalent to the Investment made by Tenant as of the date immediately prior to such Taking shall be paid to Tenant and (ii) then, the balance, if any, shall be divided between Landlord and Tenant in the ratio, as nearly as practicable, which (i) the then value of Landlord's interest in the Private Parcel valued as unimproved and encumbered by this Lease, bears to (ii) the then value of Tenant's interest in this Lease for the remainder of the Term (including the period of all Renewal Options and the full value of all Improvements), each as determined by appraisal conducted pursuant to Section 20.02. 32 (c) Any Net Award received on account of a Taking for temporary use shall be paid as follows: (i) each party shall attempt to obtain a separate award for its own damages resulting from such temporary Taking; (ii) if the condemning authority fails or refuses to grant separate awards to each party, then the Net Award for a Taking for temporary use-shall be divided between Landlord and Tenant based on the then existing value of their respective interests in the Private Parcel. If the parties are unable to agree on the amount to be so paid, the dispute shall be submitted to arbitration pursuant to Section 20.01; provided, however, that (A) if any portion of any such award is paid by the condemnor by reason of any damage to the Improvements, such portion shall be held for the benefit of Tenant and applied as provided in the first sentence of subsection (b) of this Section; and (B) if any portion of an award or payment on account of a Taking for temporary use relates to a period beyond the date of termination of the Term, such portion shall be paid to Landlord. (d) The Net Award received on account of a Total Taking shall be allocated as set forth in the second sentence of subsection (b) of this Section. SECTION 10.05. ABATEMENT OF RENT;. In the event of a Partial Taking, effective as of the Date 33 of Taking the Minimum Annual Rent shall be permanently reduced to that amount which bears the same relationship to the Minimum Annual Rent due as of the Rent Commencement Date as the fair market value of the Private Parcel which remains after the taking bears to the fair market value of all of the Private Parcel immediately prior to the Taking. In the event of a Taking for temporary use, the Minimum Annual Rent shall be temporarily abated during the period of such Taking in proportion to the degree to which Tenant's use of the Private Parcel is impaired by such Taking. If the parties are unable to agree on the amount of any abatement required by this Section, the dispute shall be submitted to arbitration pursuant to Section 20.01. SECTION 10.06. LANDLORD'S CONDEMNATION COVENANT;. Landlord hereby covenants and agrees to refrain from consenting to, or permitting, any Taking without obtaining Tenant's prior written consent thereto and further, that Tenant shall, at its option, to be exercised in its sole discretion, be entitled to participate in any proceedings and negotiations in connection with any such Taking and other agreements relating or incidental thereto. ARTICLE 11 LIENS SECTION 11.01. NO LIENS. Tenant will not create any mortgage, deed of trust, lien, security interest, encumbrance or charge on, pledge of or conditional sale or other title retention agreement with respect to the Private Parcel, other than (i) this Lease, subleases and other agreements permitted by Article 13, and Leasehold Mortgages permitted by Article 14, (ii) liens for Impositions not yet payable, or payable without the addition of any fine, penalty, interest or cost for nonpayment, or being contested as permitted by 34 Section 22.13, (iii) liens of mechanics, materialmen, suppliers or vendors, or rights thereto, for sums which under the terms of the related contracts are not at the time due or which are being contested as permitted by Section 22.13, (iv) the Reciprocal Easement Agreement and as may be expressly permitted thereunder, (v) the granting of easements, restrictions and rights of way necessary or desirable in connection with the construction of the Improvements or otherwise granted in the ordinary course of business; or (vi) liens on and in connection with any Equipment Financing or otherwise in connection with the acquisition of Tenant's Property. SECTION 11.02. MECHANICS' LIENS. Nothing contained in this Lease shall be construed as a requirement of Landlord for the performance of any labor or the furnishing of any materials for any specific improvements, alterations or repairs of or to the Private Parcel. Tenant agrees that Tenant will, at all times when the same may be necessary, or in Tenant's opinion desirable, and subject to Tenant's rights under Section 22.13, take such action as may be required under any Law then in existence which will prevent the enforcement of any mechanics' or similar liens against the fee of the Private Parcel for or on account of labor, services or materials furnished to Tenant, or furnished at Tenant's request. Tenant will allow Landlord from time to time to post a notice of nonresponsibility on the Private Parcel. ARTICLE 12 INSPECTION OF PREMISES BY LANDLORD SECTION 12.01. ENTRY. Tenant shall permit Landlord and the authorized representatives of Landlord to enter the Private Parcel at all reasonable times after at least twenty-four (24) hours prior notice 35 to Tenant (and at any time in the event of emergencies) for the purpose of (a) inspecting the same, and (b) performing any work therein that may be necessary by reason of a Tenant Default, which work shall be performed in material compliance with all applicable Laws. Nothing herein shall imply any duty upon the part of Landlord to do any such work which, under any provision of this Lease, Tenant may be required to perform, nor to place upon Landlord any obligation for the care, supervision or repair of the Private Parcel except as otherwise specified in this Lease. Landlord may, during the progress of any work on the Private Parcel, keep and store therein all necessary materials, tools and equipment. Landlord's entry shall not unreasonably interfere with Tenant's use of the Private Parcel. Landlord shall indemnify, defend and hold Tenant harmless from and against any and all loss, claim, cost expense and other liability incurred or suffered by Tenant as a result of the presence of Landlord on the Private Parcel or the work performed thereby. SECTION 12.02. EXHIBIT FOR SALE OR LEASE. Landlord is hereby given the right during usual business hours to enter the Private Parcel and to exhibit the same in a reasonable manner for the purpose of sale, and during the last twenty-four (24) months of the Term of this lease to exhibit the same to any prospective tenant provided, in both cases, Landlord complies with the requirements of Section 12.01 and so long as any applicable conditions in Article 24 have been satisfied. ARTICLE 13 ASSIGNMENT AND SUBLEASING SECTION 13.01. ASSIGNMENT. Tenant shall have the absolute right to assign or otherwise transfer Tenant's interest in this Lease, the Improvements and any of Tenant's Property ("Tenant's Estate") 36 (i) to any persons or entities so long as Tenant first obtains Landlord's consent, which consent shall not be unreasonably withheld or delayed, and/or (ii) to a Permitted Assignee. The following provisions shall apply to any assignment by Tenant: (a) Any proposed assignee, by instrument in writing, shall expressly assume all of the obligations of Tenant to be performed under this Lease, the Reciprocal Easement Agreement and the Revenue Sharing Agreement from and after the effective date of the assignment. (b) Following any assignment made in accordance with the provisions of this Section, the assignor shall have no further obligations under this Lease and shall be released from all liability therefor except for the performance of obligations under this Lease accruing before the effective date of the assignment. (c) The provisions of this Section regarding assignment shall not apply to any Leasehold Mortgage, which shall be governed by the provisions of ARTICLE 14. SECTION 13.02. PERMITTED ASSIGNEE;. As used herein, the term "Permitted Assignee" shall mean any of the following: (a) An assignee which at the time of the proposed assignment (i) has such financial standing and responsibility as to give reasonable assurance that all of Tenant's obligations under the Lease, the Reciprocal Easement Agreement and the Revenue Sharing Agreement following the assignment will be performed, and (ii) has such experience and reputation in the operation of the 37 business then being operated on the Private Parcel to give reasonable assurance that such business will continue to be operated at the level and in accordance with the standards maintained prior to the assignment, or such proposed assignee has entered into a management agreement with an entity that has such experience and reputation, and (iii) certifies to the Landlord in writing to the effect that (A) it is not then nor has ever been the subject of a voluntary bankruptcy or insolvency proceeding or any involuntary such proceeding that was not dismissed within 120 days of the filing thereof, (B) it is not the subject of any state or federal investigation with respect to its management, financial statements or operations (nor is any manager referred to in the preceeding clause (ii)), (C) it is not in violation of any State or federal rule or regulation applicable to it, and (D) no litigation is pending or known to be threatened against it which could materially adversely affect its financial condition or operations.; or (b) A successor or affiliate of the assigning Tenant, which is defined as (i) any corporation that controls, is controlled by, or is under common control with the assigning Tenant (ii) the surviving corporation in connection with a corporate reorganization, or the merger of Tenant into, or the consolidation of Tenant with, another corporation or corporations, or (iii) any successor owner of all or substantially all of Tenant's business or assets located on the Private Parcel. SECTION 13.03. SUBLEASES. Tenant shall have the absolute right to sublet all or any part of the Private Parcel so long as either: (x) the total aggregate area affected by all subleases then in effect does not constitute more than twenty percent (20%) of the Private Parcel; or (b) such sublease is to an entity described in Section 13.02 (a) or (b). In addition, Tenant may enter into other subleases which would not qualify under the preceding sentence with the approval of Landlord, which approval shall not be unreasonably withheld 38 or delayed. Each of the following provisions shall apply to any sublease entered into in compliance with this Section: (a) Tenant shall remain primarily obligated to perform Tenant's obligations under this Lease. (b) Each sublease shall contain a provision requiring the subtenant to attorn to Landlord in the event this Lease is terminated. (c) With respect to any sublease between unrelated parties requiring the subtenant to pay a fair market rent and which is otherwise on market terms and complies with this Section, Landlord shall, upon request by such subtenant, enter into a recognition and nondisturbance agreement which provides for the following: (i) Landlord shall recognize the sublease and not disturb the subtenant's possession only so long as such subtenant shall not be in default under its sublease: (ii) the subtenant will attorn to Landlord; and (iii) Landlord shall not be responsible to the subtenant under the sublease except for obligations accruing subsequent to the date of such attornment. SECTION 13.04. PROVISIONS APPLICABLE TO BOTH ASSIGNMENTS AND SUBLEASES. The following provisions shall apply to any assignment or sublease proposed by Tenant: (a) Tenant shall give Landlord at least thirty (30) days prior written notice of any desire to enter into any assignment or sublease, unless such assignee or sublessee is an entity under Section 13.02(b), which notice shall describe in reasonable detail the proposed terms of such transfer, 39 along with identity of the proposed assignee or subtenant, and sufficient financial information about the proposed assignee or subtenant to enable Landlord to reasonably evaluate the financial condition of the proposed assignee or subtenant. If Landlord fails to approve or disapprove the proposed transfer within thirty (30) days after receipt of Tenant's written notice requesting such approval, Landlord shall be deemed to have approved the transfer in question. (b) Any attempted assignment or sublease that does not comply with the provisions of this Article shall be voidable at Landlord's option within 30 days after delivery of written notice thereof to Landlord. (c) Landlord's consent to any one assignment or sublease shall not constitute a waiver of the provisions of this Article as to any subsequent proposed assignment or sublease. (d) In the event a dispute arises between Landlord and Tenant as to whether or not Landlord is obligated to approve an assignment or sublease proposed by Tenant, such dispute shall be settled by arbitration conducted in accordance with the procedures described in Section 20.01. ARTICLE 14 LEASEHOLD MORTGAGES SECTION 14.01. TENANT'S RIGHT TO CREATE LEASEHOLD MORTGAGES. At any time and from time to time during the Term, Tenant may assign or encumber all or any part of Tenant's Estate by way of one or 40 more deeds of trust, mortgages, or other security devices (a "Leasehold Mortgage", the holder of which is referred to herein as a "Leasehold Mortgagee"); provided, that any such Leasehold Mortgage shall be subject and subordinate to the rights of Landlord hereunder. Any Leasehold Mortgage shall cover no interest in any real property other than Tenant's Estate. Any Leasehold Mortgage shall be subordinate to Landlord's interest in the Private Parcel and Landlord's rights under Section 17.10. SECTION 14.02. INSURANCE AND CONDEMNATION PROCEEDS. Any Leasehold Mortgage shall contain provisions permitting the disposition and application of insurance proceeds and condemnation awards in the manner provided in this Lease to the extent necessary to maintain the Minimum Investment; and if not so necessary, insurance proceeds and condemnation awards may be disposed of and applied as required under any such Leasehold Mortgage. Upon the written request of any Leasehold Mortgagee, the Leasehold Mortgagee shall be named as an additional insured on all policies of insurance carried by Tenant pursuant to Article 5 as its interests appear. Each Leasehold Mortgagee shall have the right to participate in any settlement or adjustment of insurance proceeds or condemnation awards. If an institutional lender is the holder of a Leasehold Mortgage which is a first lien on Tenant's Estate and if such lender so requires, all insurance proceeds and condemnation proceeds shall be paid to such lender to be held in trust for disbursal in accordance with the provisions of this Lease. SECTION 14.03. PERMITTED LEASEHOLD MORTGAGEES. Any Leasehold Mortgage may be given only to (i) an institutional lender, which shall include a bank or trust company, savings bank, insurance company, pension or retirement fund, credit company, or real estate investment trust having assets of not less than Twenty-Five Million Dollars ($25,000,000), or (ii) such other type of lender as may be approved by Landlord, which approval shall not be unreasonably withheld or withheld. 41 SECTION 14.04. NOTICES. If a Leasehold Mortgagee shall have given to Landlord a notice specifying its name and address, Landlord shall give to such Leasehold Mortgagee a copy of any and all notices from time to time given to Tenant by Landlord (including, without limitation, any notice of default) at the same time and manner as and whenever any such notice shall thereafter be given by Landlord to Tenant, addressed to such Leasehold Mortgagee at the address last furnished to Landlord;. No such notice of any kind by Landlord shall be deemed to have been given to Tenant unless and until a copy thereof shall have been so given to such Leasehold Mortgagee. SECTION 14.05. TIME TO CURE DEFAULTS. In the case of any notice of default given by Landlord to Tenant, the Leasehold Mortgagee shall thereupon have the same concurrent grace periods as are given Tenant for remedying a default or causing it to be remedied, plus, in each case, an additional period of thirty (30) days after the expiration thereof or after Landlord has served such notice of default upon each Leasehold Mortgagee, whichever is later. Provided that all monetary obligations of Tenant under this Lease shall be duly performed, these grace periods shall be extended as set forth in the respective circumstances below. (a) In those instances which reasonably require the Leasehold Mortgagee to be in possession of the Private Parcel to cure any default by Lessee, the time therein allowed the Leasehold Mortgagee to cure any default by Tenant shall be deemed extended to include the period of time required by the Leasehold Mortgagee to obtain such possession with due diligence. (b) In those instances in which a Leasehold Mortgagee is prohibited by any process or injunction issued by any court or by reason of any action by any court having jurisdiction of any 42 bankruptcy or insolvency proceeding involving Tenant or by the provisions of the bankruptcy laws from commencing or prosecuting foreclosure or other appropriate proceedings in the nature thereof, the time herein allowed a Leasehold Mortgagee to prosecute such foreclosure or other proceeding shall be extended for the period of such prohibition. SECTION 14.06. RIGHT TO CURE. During the continuation of a Tenant Default, a Leasehold Mortgagee shall, without prejudice to its rights against Tenant, without payment of any penalty to Landlord and within the period and as otherwise provided herein, have the right, but not the obligation, to do any of the following if Tenant has failed to do so within applicable notice and cure periods: pay all of the rents due hereunder, to effect any insurance, to pay any Impositions, to make any repairs and improvements, to do any other act or thing required of Tenant hereunder or which may be necessary and proper to be done in the performance and observance of the agreements, covenants and conditions hereof, to remedy any default of Tenant or cause the same to be remedied, to acquire Tenants Estate, or to commence foreclosure or other appropriate proceedings. For such purposes Landlord and Tenant hereby authorize a Leasehold Mortgagee to enter upon the Private Parcel and to exercise any of Tenant's rights and powers under this Lease, and, subject to the provisions of this Lease, under the Leasehold Mortgage. Landlord shall accept performance by the Leasehold Mortgagee of any covenant, condition or agreement on Tenant's part to be performed hereunder with the same force and effect as though performed by Tenant. No Tenant Default shall be deemed to exist and this Lease shall not be terminated by Landlord so long as any Leasehold Mortgagee shall, in good faith, have commenced to rectify any claimed Tenant Default or to exercise its rights to acquire Tenant's Estate or commence foreclosure or other appropriate proceedings, and to prosecute the same to completion with diligence and continuity; provided, however, that the Leasehold Mortgagee shall not be required to continue such foreclosure proceedings if such Tenant Default be cured. Notwithstanding anything 43 contained in this Lease to the contrary, Landlord may not terminate this Lease as a result of any Tenant Default relating to bankruptcy or other act of insolvency described in subparagraphs (c), d), (e), (f), or (g) of SECTION 17.01 if any Leasehold Mortgagee commences or has commenced and thereafter is continuously pursuing the foreclosure of its Leasehold Mortgage but only so long as such Leasehold Mortgagee performs, or otherwise causes to be performed, in accordance with Section 14.05 all obligations of Tenant under the Lease which are susceptible of being performed by such Leasehold Mortgagee (including the payment of rent and all other monetary obligations) until such time as the interest of Tenant under this Lease is so acquired or sold upon foreclosure or by way of other appropriate proceedings in the nature thereof. SECTION 14.07. NO AMENDMENT OF LEASE. From and after receiving notice from any Leasehold Mortgagee that a Leasehold Mortgage has been created and continues in effect, if and to the extent required under said Leasehold Mortgage, neither Landlord nor Tenant shall cancel, terminate, surrender, modify or amend this Lease in any respect which materially adversely affects the Leasehold Mortgagee without the prior written consent of the Leasehold Mortgagee. No Leasehold Mortgagee shall become liable under the provisions of this Lease unless and until such time as it becomes, and then only for so long as it remains, the owner of Tenant's Estate, and such liability shall be limited to the rights and insurances required to be carried hereunder (whether or not so carried) and to its interest in the Private Parcel. SECTION 14.08. FORECLOSURE PERMITTED. Foreclosure of a Leasehold Mortgage, or any sale thereunder, whether by judicial proceedings or by virtue of any power contained in the Leasehold Mortgage, or any conveyance of Tenant's Estate from Tenant to a Leasehold Mortgagee, its nominee, designee, successor and/or assign through, or in lieu of, foreclosure or other appropriate proceedings in the nature thereof, shall not require the consent of Landlord nor shall it constitute a breach of any provision of or a 44 default under this Lease, and upon such foreclosure, sale or conveyance Landlord shall recognize the Leasehold Mortgagee as Tenant hereunder. SECTION 14.09. RIGHT TO ASSIGN FOLLOWING FORECLOSURE. If a Leasehold Mortgagee, its nominee, designee, successor and/or assign shall acquire Tenant's Estate as a result of a sale under a Leasehold Mortgage pursuant to a power of sale contained therein, pursuant to a judgment of foreclosure, through any transfer in lieu of foreclosure, or through settlement of or arising out of any pending or contemplated foreclosure action, or in the event a Leasehold Mortgagee, its nominee, designee, successor and/or assign becomes Tenant under this Lease or any new lease obtained pursuant to SECTION 14.10, such Leasehold Mortgagee's right thereafter to assign or transfer this Lease or such new lease shall be subject to the reasonable approval of the Landlord, which approval may be conditioned upon a showing that the assignee or transferee satisfies the requirements for a "Permitted Assignee" under Section 13.02(a) hereof. Upon an assignment by a Leasehold Mortgagee, its nominee, designee, successor and/or assign of Tenant's Estate, such Leasehold Mortgagee, its nominee, designee, successor and/or assign shall be released from any further liability for the performance of the obligations of the Tenant under this Lease. Any purchaser at a foreclosure sale, other than a Leasehold Mortgagee, its nominee, designee, successor and/or assign, must be conditioned upon the factors described in clauses (i) and (ii) of the preceding sentence, and must assume this Lease and Tenant's obligations under the Reciprocal Easement Agreement and the Revenue Sharing Agreement, and it shall have no right in respect to the Private Parcel unless it has obtained such approval and so assumes and delivers a duplicate original of the assumption agreement (to be executed in form for recording) within ten (10) days after such purchaser acquires title to the Tenant's Estate. SECTION 14.10. NEW LEASE. In the event that this Lease is terminated by Landlord on account 45 of a Tenant Default (and provided that an unsatisfied Leasehold Mortgage stands of record) or in the event Tenant's Estate shall be sold, assigned or transferred pursuant to the exercise of any remedy of a Leasehold Mortgagee, or pursuant to judicial or other proceedings, subject to compliance with Section 14.09, Landlord shall execute and deliver a new lease of the premises leased hereby to the Leasehold Mortgagee or its nominee, designee, purchaser, assignee or transferee, upon written request by such person or entity given within sixty (60) days after such termination, sale, assignment or transfer for the remainder of the Term with the same agreements, covenants and conditions (except for any requirements which have been fulfilled by Tenant prior to termination) as are contained herein and with priority equal to that of this Lease; provided, however, that the Leasehold Mortgagee shall promptly cure, or cause to be cured, any existing Tenant Default hereunder, and provided further that if more than one Leasehold Mortgagee requests such new lease, the Leasehold Mortgagee holding the most senior Leasehold Mortgage shall prevail. Upon execution and delivery of such new lease, Landlord shall cooperate with the new tenant thereunder, at the expense of the said new tenant, in taking such action as shall be necessary to cancel and discharge this Lease and to remove Tenant named herein from the Private Parcel. In such event the ownership of the Improvements shall be deemed to have been transferred directly to such transferee of Tenant's Estate and the provisions of this Lease causing such Improvements to become the property of Landlord in the event of termination of this Lease shall be ineffective as applied to any such transfer. Landlord shall, at no expense to Landlord, execute such deed or other instrument of conveyance as may be necessary for fee simple title to the Improvements, but not the Private Parcel, to be insured upon such transfer of enant's Estate. SECTION 14.11. ADDITIONAL LEASEHOLD MORTGAGEE REQUIREMENTS. Landlord and Tenant shall cooperate in including in this Lease by suitable amendment from time to time any provision consistent with the provisions of this Lease which may reasonably be requested by any proposed Leasehold Mortgagee for 46 the purpose of implementing the mortgagee protection provisions contained in this Lease and allowing such Leasehold Mortgagee reasonable means to protect or preserve the validity or enforceability of the lien the Leasehold Mortgage on the occurrence of a Tenant Default under the terms of this Lease. Landlord and Tenant each agree to execute and deliver (and to acknowledge, if necessary, for recording purposes) any agreement necessary to effect any such amendment; provided, however, that any such amendment shall not in any way affect the term or rent under this Lease nor otherwise in any material respect adversely affect any rights of Landlord under this Lease. Tenant shall, on or about October 1st of each year that this Lease in in effect, provide Landlord with a written list of all Leasehold Mortgages then in effect and setting forth the identity of each Leasehold Mortgagee, the lease assets and the term of each such Leasehold Mortgage. Upon written request of the Landlord, Tenant shall provide Landlord with a copy of any Leasehold Mortgage then in effect. ARTICLE 15 TRANSFER BY LANDLORD SECTION 15.01. LIMITATION OF LANDLORD'S LIABILITY. The term "Landlord" as used in this Lease shall be limited to mean only the Landlord named herein, its successors and assigns. In the event of any transfer of all of Landlord's interest in and to the premises leased hereby in accordance with the terms of this Lease, including but not limited to, Article 24 hereof, the Landlord named herein (and in case of any subsequent transfers, the then transferor) shall be automatically freed and relieved from and after the date of such transfer of all liability with regard to the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed, provided that any funds in the hands of, under 47 the control of, or being held for the benefit of Landlord (or the then transferor at the time of such transfer) in which Tenant has an interest shall be turned over to the transferee, in trust, for application pursuant to the provisions hereof, and any amount then due and payable to Tenant by Landlord or the then transferor under any provision of this Lease shall be paid to Tenant and such transfer is made in compliance with this Lease. SECTION 15.02. LIMITATION ON ENCUMBRANCE BY LANDLORD. This Lease shall automatically and without further documentation be prior and superior to any lease (other than the Public Leases), mortgage, deed of trust, hypothecate, pledge or other encumbrance made, created, or permitted by Landlord or resulting from actions or omissions of Landlord (including tax liens or judgment liens), and Landlord shall not cause or permit any such hypothecation, pledge, deed of trust or other encumbrance to be made (whether arising voluntarily, by operation of Law or otherwise) unless such hypothecation, pledge, deed of trust or other encumbrance specifically by its terms provides that it is subject and subordinate to this Lease in a manner and in a form approved by Tenant. SECTION 15.03. OTHER LIMITATIONS. Landlord covenants and agrees with Tenant that it shall not cause, create or permit (whether voluntarily, by operation of Law or otherwise) any lien, claim, charge or attachment to be filed against all or any portion of the Private Parcel, the Improvements and/or any interest created by this Lease. ARTICLE 16 INDEMNIFICATION 48 SECTION 16.01. INDEMNIFICATION OF LANDLORD. Tenant shall protect, indemnify, defend and hold Landlord harmless from and against all liabilities, obligations, claims, damages, penalties, causes of action, judgments, settlements, orders and other costs and expenses (including, without limitation, attorneys' fees and expenses) imposed upon or incurred by or asserted against Landlord or the Private Parcel by reason of the occurrence or existence of any of the following: (i) any accident, injury to or death of persons (including workmen) or loss of or damage to property occurring on the Private Parcel or any part thereof; (ii) any use, non-use, possession, occupation, operation, maintenance, management or condition of the Private Parcel or any part thereof during the Term; (iii) any failure on the part of Tenant to perform or comply with any of the terms of this Lease; (iv) the performance of any labor or services or the furnishing of any materials or other property in respect of the Private Parcel or any part thereof by or on behalf of Tenant; or (v) any gross negligence or willful misconduct on the part of Tenant or any of its agents, contractors, servants, employees, sublessees, licensees or invitees; except in each case described in the preceding clauses (i) through (v) to the extent caused by a breach by Landlord or by the gross negligence or willful misconduct of Landlord, its agents, servants, employees, sublessees contractors, licensees, invitees, representatives or assigns. SECTION 16.02. INDEMNIFICATION OF TENANT. Landlord shall protect, indemnify, defend and hold Tenant harmless from and against all liabilities, obligations, claims, damages, penalties, causes of action, judgments, settlements, orders and other costs and expenses (including, without limitation, reasonable attorneys fees and expenses) imposed upon or incurred by or asserted against Tenant or the Private Parcel by reason of the occurrence or existence of any death, bodily injury, personal injury or property damage resulting from the gross negligence or willful misconduct of Landlord, its agents servants, employees, sublessees, contractors, licensees, invitees, representatives or assigns or resulting from any failure on the part of Landlord to perform or comply with any of the terms of this Lease or the breach of any representation 49 made by Landlord in this Lease. ARTICLE 17 TENANT'S DEFAULT AND LANDLORD'S REMEDIES SECTION 17.01. TENANT DEFAULT. The occurrence and continuation beyond the expiration of applicable notice and cure periods of any one or more of the following events shall be a "Tenant Default": (a) Tenant shall fail to pay any sum due to Landlord hereunder within thirty (30) days after written notice that the same is past due and payable. (b) Tenant shall fail to perform or comply with any other term hereof, such failure shall continue for more than thirty (30) days after notice thereof from Landlord, and Tenant shall not within such period commence with due diligence and dispatch the curing of such default, or having so commenced, shall thereafter fail or neglect to prosecute or complete with diligence and dispatch the curing of such default. (c) The filing by or against Tenant, of any proceedings under any state or federal insolvency or bankruptcy law, or any comparable law that is now or hereafter may be in effect, whether for liquidation or reorganization, where such proceedings are not dismissed within ninety (90) days after filing. 50 (d) The entry of an order for relief against Tenant under any bankruptcy, insolvency or reorganization case. (e) The appointment of a receiver, trustee, liquidator, custodian or similar officer of all or any part of the property of Tenant if such appointment is not discharged within sixty (60) days after such appointment. (f) The assignment of all or substantially all of the property of Tenant for the benefit of creditors. (g) A writ of attachment or execution is levied on Tenant's interest in this Lease which writ is not discharged within sixty (60) days after attachment or execution. (h) Tenant shall default in the performance of any of its obligations under the Reciprocal Easement Agreement or the Revenue Sharing Agreement and such default continues for more than thirty (30) days after notice from Landlord, and Tenant shall not within such period commence with due diligence and dispatch the curing of such default, or having so commenced, shall thereafter fail or neglect to prosecute or complete with diligence and dispatch the curing of such default. (i) Failure by Tenant to complete the Minimum Investment within two years of the Term Commencement Date, provided that so long as Tenant is proceeding in good faith no such default shall occur by reason of delays arising out of compliance with any Laws applicable to construction of Improvements incident to the Minimum Investment or other Force Majeure and; PROVIDED FURTHER, 51 that no Tenant Default shall occur and be continuing hereunder if, prior to the end of such two-year period, Tenant has deposited into escrow, on terms reasonably acceptable to Landlord, an amount equal to the unexpended portion of the Minimum Investment. SECTION 17.02. NOTICE FROM LANDLORD. Subject to the terms of Article 14 of this Lease, if there exists a Tenant Default Landlord, at any time thereafter while such Tenant Default exists, may give a written termination notice to Tenant, and on the date specified in such notice (which shall be at least ten business days after the delivery of such notice) this Lease shall terminate unless Tenant has cured such Tenant Default and, subject to any equitable or other rights available at law to prevent or mitigate a forfeiture, the Term shall expire and terminate and all rights of Tenant under this Lease shall cease. If there exists a Tenant Default, Landlord may elect not to terminate this Lease and may continue to enforce all of its rights and remedies under this Lease, including the right to recover the rent as it becomes due as provided by California Civil Code Section 1951.4. Tenant shall reimburse Landlord for all costs and expenses incurred by or on behalf of Landlord (including, without limitation, reasonable attorneys' fees and expenses) occasioned by any Tenant Default under this Lease. SECTION 17.03. TERMINATION OF TENANT'S RIGHT TO POSSESSION. If there exists a Tenant Default, then, subject to the terms of Article 14 of this Lease, Landlord shall have the immediate right to re-enter the Private Parcel and terminate Tenant's right to possession of the Private Parcel, in which event Tenant shall promptly surrender possession of the Private Parcel and pay to Landlord all amounts due Landlord hereunder. Landlord may, but shall have no obligation to, remove all persons and property therefrom, subject to Tenant's rights to remove and retain same under Sections 3.06 and 3.10 above. Such property may be removed and stored in a warehouse or elsewhere at the expense and risk of and for the account of Tenant. Should Landlord 52 elect, in accordance with this Lease, to re-enter, or should Landlord terminate Tenant's right to possession pursuant to legal proceedings or to any notice provided for by law, this Lease shall terminate. SECTION 17.04. TERMINATION. If this Lease is terminated by Landlord in accordance with the terms hereof because of the occurrence of a Tenant Default, Landlord may recover from Tenant: (a) The worth at the time of award of the unpaid rent and all other sums payable hereunder which are due, owing and unpaid by Tenant to Landlord at the time of termination; (b) The worth at the time of award of the unpaid rent and all other sums payable hereunder which would have come due after termination until the time of award, reduced by the amount, if any, of such loss which Tenant proves could have been reasonably avoided; (c) All other amounts necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease; and (d) At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by the laws of the State of California. As used in subsections (a) and (b) above, the term "worth at the time of award" is computed by allowing interest at a rate equal to the lesser of (i) two percent (2%) over the reference rate announced from time to time by Bank of America National Trust and Savings Association, or (ii) the maximum rate an individual is permitted by law to charge (the "Interest Rate"). As used in subsection (c) above, the term "worth at the time of award" is computed by discounting such amount at the discount rate of the Federal 53 Reserve Bank of San Francisco at the time of award, plus one percent (1%). SECTION 17.05. LANDLORD'S EQUITABLE RELIEF. No expiration or termination of this Lease pursuant to Section 17.04, or by operation of Law or otherwise in the event of a Tenant Default, and no repossession of the Private Parcel pursuant to Section 17.03 or otherwise, shall relieve Tenant of its liabilities and obligations arising prior to such termination or repossession, all of which shall survive such expiration, termination or repossession, including, without limitation, the right of Landlord under Section 16.01 to indemnification for liability, arising prior to termination of this Lease to the extent provided for therein, for personal injuries or property damage, nor shall anything in this Lease be deemed to affect the right of Landlord to equitable relief where such relief is permitted at Law. SECTION 17.06. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS. Tenant covenants and agrees that if Tenant shall at any time fail to perform any act, covenant, term, condition or agreement on Tenant's part to be performed under this Lease, Landlord may, but shall not be obligated to do so, after ten (10) business days prior written notice, or such longer notice as may be required to be given pursuant to the terms hereof, or such lesser notice as required to comply with applicable Law or by reason of an emergency, if Tenant has not cured such failure, perform any such act, covenant, term, condition or agreement for and on behalf of Tenant, and Tenant shall reimburse Landlord for all sums so paid by Landlord, and all necessary incidental costs and expenses in connection with the performance of any such act by Landlord, including reasonable attorneys' fees, together with interest thereon at the Interest Rate from the date of the making of such expenditure by Landlord. SECTION 17.07. NO WAIVER BY LANDLORD OR TENANT. No failure by Landlord or Tenant to insist 54 upon the strict performance of any term hereof or to exercise any right, power or remedy consequent upon a breach thereof, and no submission by Tenant or acceptance by Landlord of full or partial rent during the continuance of any such breach shall constitute a waiver of any such breach or of any such term. No waiver of any breach shall affect or alter this Lease, which shall continue in full force and effect, or the respective rights of Landlord or Tenant with respect to any other then existing or subsequent breach. The failure of Landlord to insist upon strict performance of any of the obligations of Tenant hereunder in one or more instances shall not be deemed a waiver of Landlord's right to insist upon the full and strict performance of the same or any other obligation of Tenant at a subsequent times nor shall the failure of Landlord to seek redress for the violation of any obligation or covenant of Tenant be deemed to preclude Landlord from seeking redress for any subsequent violation nor to prevent a subsequent act which would originally have constituted a violation from having all the force and effect of an original violation. SECTION 17.08. LANDLORD'S REMEDIES CUMULATIVE. Each right, power and remedy of Landlord provided for in this Lease or existing at Law or in equity shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Lease or existing at Law or in equity, and the exercise or beginning of the exercise by Landlord of any one or more of the rights, powers or remedies provided for in this Lease or existing at Law or in equity shall not preclude the simultaneous or later exercise by Landlord of any or all such other rights, powers or remedies. SECTION 17.09. COUNTERCLAIMS BY TENANT IN ACTION TO RECOVER POSSESSION. Anything to the contrary contained in this Lease notwithstanding, nothing contained herein shall be deemed to preclude Tenant from interposing any counterclaim in a summary proceeding instituted by Landlord to recover 55 possession of the Private Parcel if Tenant's failure to do so would operate as a bar to or waiver of Tenant's right to raise such claim in another action or proceeding. SECTION 17.10. FORCE MAJEURE. Anything to the contrary contained in this Lease notwithstanding, Tenant shall not be deemed to be in default of any such obligations if it shall be prevented from or delayed in performing such obligation by reason of the occurrence of a Force Majeure, and Tenant's time for such performance shall be extended by the number of days during which any condition of Force Majeure prevails. ARTICLE 18 LANDLORD'S DEFAULT AND TENANT'S REMEDIES SECTION 18.01. LANDLORD'S DEFAULT. A "Landlord's Default" shall have occurred hereunder thereby entitling Tenant to exercise each right, power and remedy to which it is entitled under this Lease, at Law or in equity, if Landlord breaches any representation or warranty (when made) or covenant on its part to be performed under this Lease or any Other Agreement which is not cured within thirty (30) days (or such sooner period as may be required by Law, or by virtue of an emergency) after written notice by Tenant to Landlord and the City specifying wherein Landlord has failed to perform such obligation; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are reasonably required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty-day period and thereafter diligently prosecutes the same to completion. 56 SECTION 18.02. FORCE MAJEURE. Anything to the contrary contained in this Lease notwithstanding, Landlord shall not be deemed to be in default of any of its obligations hereunder if it shall be prevented from or delayed in performing such obligation by reason of Force Majeure and Landlord's time for such performance shall be extended by the number of days during which any condition of Force Majeure prevails. SECTION 18.03. TENANT'S REMEDIES. If a Landlord's Default occurs, then Tenant shall have the right, in addition to any and all other remedies to which it is entitled under this Lease, including but not limited to Section 21.04 (a) after ten (10) business days' (or such sooner period as may be required by Law, or by virtue of an emergency) written notice to Landlord and the City of its intent to do so, to perform any obligation of Landlord and to either, at Tenant's option: (i) obtain immediate reimbursement of all costs of performing such obligation plus interest at the Interest Rate from the date any sum is expended until Landlord reimburses Tenant, or (ii) deduct the cost of performing such obligations plus interest at the Interest Rate from the date so incurred from its next installment of rent, or (b) seek specific performance. Tenant shall also have any other remedy available to it at Law or in equity under California law, which remedies shall be cumulative in the manner described by Section 17.08 for Landlord's remedies. SECTION 18.04. NO WAIVER. The failure of Tenant to insist upon strict performance of any of the obligations of Landlord hereunder in one or more instances shall not be deemed a waiver of Tenant's right to insist upon the full and strict performance of the same or any other obligation of Landlord at a subsequent times nor shall the failure of Tenant to seek redress for the violation of any obligation or covenant of Landlord be deemed to preclude Tenant from seeking redress for any subsequent violation nor to prevent a subsequent act which would originally have constituted a violation from having all the force and effect of 57 an original violation. ARTICLE 19 ESTOPPEL CERTIFICATES; NON-DISTURBANCE SECTION 19.01. ESTOPPEL CERTIFICATE BY TENANT. Tenant will execute, acknowledge and deliver to Landlord within twenty (20) days after a written request therefor a certificate certifying that (i) this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect, as modified and stating the modifications), (ii) the dates, if any, to which any rent and other sums payable hereunder have been paid, and (iii) no notice has been received by Tenant of any default which has not been cured, and to the knowledge of Tenant no defaults by Landlord then exist, except in either case as to defaults specified in said certificate. Any such certificate may be relied upon by any prospective purchaser or mortgagee of the Land or any part thereof, so long as such sale or mortgage is made in compliance with this Lease, including but not limited to Article 24 below. SECTION 19.02. ESTOPPEL CERTIFICATE BY LANDLORD. Landlord will execute, acknowledge and deliver to Tenant or any sublessee within twenty (20) days after a written request therefor, a certificate certifying (i) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect as modified, and stating the modifications), (ii) that the dates, if any, to which rent and other sums payable hereunder have been paid, and (iii) whether or not, to the knowledge of Landlord, there are then existing any defaults under this Lease (and if so, specifying the same). Any such certificate may be relied upon by any prospective transferee, mortgagee, or sublessee of Tenant's interest 58 under this Lease. SECTION 19.03. ESTOPPEL NON-DISTURBANCE. (a) Landlord shall cause the lessor of each and every ground, overriding or underlying lease of the Private Parcel, now or hereafter in effect, whether or not such lease shall cover other lands or buildings or leases, and all renewals, extensions, supplements, modifications, consolidations and replacements thereof or thereto and substitutions therefor (each, a "Superior Lease"), and the holder of each and every trust indenture and mortgage, whether or not such trust indenture or mortgage shall cover other lands or buildings or leases, which affects all or any part of the Private Parcel, the Improvements or any such Superior Lease and the leasehold interest created thereby, and all renewals, extensions, supplements, modifications, consolidations and replacements thereof or thereto and substitutions therefor (each a "Superior Mortgage") to execute, acknowledge and deliver an agreement to the effect that the leasehold estate granted to Tenant under this Lease and the rights of Tenant to quiet and peaceful possession under this Lease will not be terminated or disturbed by reason of any termination of such Superior Lease(s) or the foreclosure of any such Superior Mortgage(s), so long as there shall not be then existing a Tenant Default under this Lease (b) In the event of any act or omission of Landlord which would give the lessor of a Superior Lease (each, a "Superior Lessor") the right, immediately or after lapse of a period of time, to cancel or terminate the Superior Lease, or to otherwise recover possession of all or any part of the Private Parcel, Superior Lessor shall not exercise such right until: (i) it has given written notice of such act or omission to Tenant and a reasonable period for remedying such act or omission (which reasonable period shall in no event be less than the period to which Landlord would be entitled under Superior Lease or otherwise, plus an additional 30 days); and (ii) Tenant shall not have cured, or caused to be cured, such act or omission within such reasonable 59 period following the giving of such notice and following the time when such Superior Lessor shall have become entitled under the Superior Lease to remedy the same; provided, however, that if Tenant has given written notice of intention to, and commenced to, remedy such act or omission within said reasonable period, Tenant shall be entitled to a reasonable amount of time to complete curing same. ARTICLE 20 ARBITRATION APPRAISAL SECTION 20.01. ARBITRATION. Whenever in this Lease it is provided that a dispute shall be determined by arbitration or if any of the Parties shall otherwise desire arbitration, the arbitration shall be conducted as provided in this Article. The party desiring such arbitration shall give written notice thereof to the other specifying the dispute to be arbitrated. Within thirty (30) days after the date on which the arbitration procedure is invoked, each party shall appoint an experienced arbitrator and notify the other party of the arbitrator's name and address. The two arbitrators so appointed shall appoint a third experienced arbitrator. If the three arbitrators to be so appointed are not appointed within forty-five (45) days of the date the arbitration procedure is invoked, then either Landlord or Tenant shall be entitled to apply to the Presiding Judge of the Superior Court of the County of Solano for the selection of a third arbitrator who shall then participate in the arbitration. The arbitration shall be conducted in Solano County, California under the commercial arbitration rules then in effect of the American Arbitration Association. The written decision and findings of a majority of the panel of arbitrators shall be final, binding and conclusive as between the parties and may be enforced on the application of either party or by the order or judgment entered in any court having jurisdiction. The parties hereby consent to the jurisdiction and venue of the federal courts located in 60 the Eastern District of the State of California and state courts located in Solano County, California for this purpose. The parties hereto shall use all commercially practicable efforts to cause the arbitrator or arbitrators so selected to furnish Landlord and Tenant with a written decision within forty-five (45) days of the date of selection of the last of the arbitrators to be so selected. Any decision so submitted shall be signed by a majority of the arbitrators. Landlord and Tenant each shall advance one-half (1/2) of the costs of any arbitration. However, the prevailing party in any arbitration proceeding or legal action arising out of, or in connection with, this Lease shall be entitled to recover its reasonable attorney's fees and its costs and expenses incurred in connection with such arbitration proceeding or legal action. The arbitrators shall specify the prevailing party or parties in its award. If more than one arbitrable dispute is adjudicated then the costs and expenses of the arbitration shall be apportioned by the arbitrators in the arbitration award to each separate dispute. SECTION 20.02. APPRAISAL. Any appraisal required or permitted hereunder shall be made in the manner described in this Section. Within thirty (30) days of the event giving rise the need for an appraisal, Landlord and Tenant shall each appoint one appraiser to determine the fair market value of the interest or property to be appraised, and notice of such appointment shall be given to the other party. If either party shall fail or refuse so to appoint an appraiser and give notice thereof within such period, the appraiser appointed by the other party shall within fifteen (15) days thereafter individually make such determination. If the parties have each so appointed an appraiser within such thirty (30) day period and the appraisers thus appointed shall be unable to agree on such value within sixty (60) days of such appointment, they shall, within fifteen (15) days thereafter, join to appoint a third appraiser and, if they fail so to appoint such third appraiser within such period, the third appraiser shall be appointed by the Presiding Judge of the Superior 61 Court for the County of Solano, and such third appraiser shall then individually determine such value, such determination to be binding upon each of the parties. All appraisers appointed hereunder shall be competent, qualified by training and experience in the County of Solano, disinterested and independent and shall be members in good standing of the American Institute of Real Estate Appraisers or its successor and all appraisal reports shall be rendered in writing and signed by the appraiser or appraisers making the report. All costs, fees and expenses of the appraisers appointed by each party shall be borne by the party appointing such appraiser, and all costs, fees and expenses of the third appraiser, if any, shall be borne equally by Tenant and Landlord. SECTION 20.03. NO ALTERATION OF LEASE. The arbitrator or arbitrators, or appraiser or appraisers, shall have the right only to interpret and apply the terms of this Lease, and may not change any such terms or deprive any party to this Lease of any right or remedy expressly or impliedly provided in this Lease. ARTICLE 21 END OF TERM TERMINATION SECTION 21.01. END OF TERM. Upon the expiration of the Term or other termination of the Lease, Tenant shall quit and surrender to Landlord the Private Parcel in good order and condition, ordinary wear and tear and damage by fire and other perils excepted. If Landlord shall so require and notifies Tenant in writing of such requirement at least one hundred eighty (180) days before the end of the Term, Tenant shall at its sole cost remove any Improvements designated by Landlord for removal and clear the Private Parcel 62 of all debris. Tenant agrees to execute all documents reasonably necessary to evidence any such termination. The foregoing is not intended and shall not be construed to derogate in any way Tenant's rights to remove its Improvements and Tenant's Property under Sections 3.06 and 3.10 above. SECTION 21.02. HOLDING OVER. Any holding over by Tenant after the expiration or termination of this Lease shall not constitute renewal hereof or give Tenant any rights hereunder or in the Private Parcel, except with the prior written consent of Landlord. Any holding over after the expiration or termination of this Lease with the consent of Landlord shall be construed to be a tenancy from month to month at a rent equal to the rent payable by Tenant hereunder prior to such expiration or termination (prorated on a monthly basis) and shall otherwise be on the terms and conditions herein specified so far as applicable. Any holding over without Landlord's consent shall constitute a default by Tenant and entitle Landlord to exercise any or all of its remedies as provided herein. SECTION 21.03. ACCEPTANCE OF SURRENDER. No modification, termination or surrender of this Lease or surrender of the Private Parcel by Tenant shall be valid or effective unless agreed to and accepted in writing by Landlord, and no act by any representative or agent of Landlord, other than such a written agreement and acceptance by Landlord, shall constitute an acceptance thereof. SECTION 21.04. COMPENSATION TO TENANT UPON CERTAIN EVENTS OF TERMINATION. In the event of (a) a Landlord's Default, and (b) such Landlord's Default has a material adverse effect on the value and/or operation of the Tenant's business conducted on the Private Parcel, and (c) no adequate remedy at Law or in equity exists to cure the Landlord's Default or fully compensate Tenant for its detriment as a result thereof, and (d) no Tenant Default has occurred and is then continuing hereunder, and (e) Tenant elects to terminate 63 this Lease and so terminates this Lease in accordance with its terms, Tenant shall be entitled to receive, as liquidated damages (it being agreed that Tenant's damages in such event are not as certainable) an amount equal to the sum of : (i) the then value of the Investment as determined under Section 3.05, (ii) the Purchase Price (as defined in the Option Agreement) plus any investment made by Tenant towards improvement of the Public Parcel in accordance with the procedure set forth in Section 1.05 of the Option Agreement, but less fifteen percent 15% of such amount (but not more than a total of 100%) for each Lease Year that has elapsed since the Rent Commencement Date (so that no amount will be added by reason of this clause (ii) after the seventh Lease Year), and (iii) interest on the amounts set forth in clauses (i) and (ii) at the Interest Rate from the date each such amount was expended by Tenant to the date of payment or such earlier date, if any, as the Improvement was destroyed, taken or rendered obsolete and not replaced; reduced by an amount equal to the fair market value of any Improvements removed by Tenant in connection with such termination (less any expenses incurred by Tenant in connection with such removal); but not to exceed, in total, the then going concern value of Tenant's business conducted on the Private Parcel prior to such Landlord Default and termination as determined by an investment banking firm selected by Tenant and reasonably acceptable to Landlord. The provisions of Section 11.1 of the REA shall in no way limit Tenant's rights under this Section 21.04. SECTION 21.05. GENERAL EFFECT OF TERMINATION. Whenever in this Lease provision is made that either party shall have the right to terminate this Lease, then unless in said provision it is expressly provided otherwise (including, without limitation, as is provided in this Article 21), neither party hereto shall thereafter have any claim against the other under this Lease or on account of the termination hereof, except for those accruing prior to the effective date of such termination. It is intended by the parties hereto that all of the obligations and liabilities of Landlord and Tenant which shall have accrued as the date of termination of this 64 Lease shall survive termination of the Lease, except as specifically set forth in this Lease. Termination of this Lease shall also result in a concurrent termination of the REA and the Revenue Sharing Agreement. ARTICLE 22 GENERAL PROVISIONS SECTION 22.01. PROVISIONS SUBJECT TO APPLICABLE LAW. All rights, powers and remedies provided herein may be exercised only to the extent that the exercise thereof does not violate any applicable Law, and are intended to be limited to the extent necessary so that they will not render this Lease invalid, unenforceable or not entitled to be recorded under any applicable Law. SECTION 22.02. TIME IS OF THE ESSENCE. Time is of the essence in the performance of all of the terms and provisions of this Lease; provided, however, that any prevention or delay due to Force Majeure shall excuse the performance, for a period equal to the period of any such prevention or delay, of any obligation hereunder. SECTION 22.03. NOTICES. All notices, demands, consents, and requests which may or are to be given by any party to the other shall be in writing. All notices, demands, consents and requests to Tenant shall be deemed to have been properly given if served personally on Tenant during business hours, or if by United States registered or certified mail, return receipt requested, postage prepaid, or via nationally recognized overnight mail carrier addressed to Tenant at its address first set forth above, or at such other place or places as Tenant may from time to time designate by written notice to Landlord. All notices, 65 demands, consents and requests to Landlord shall be deemed to have been properly given if served personally on Landlord, or if sent by United States registered or certified mail, return receipt requested, postage prepaid, or via nationally recognized overnight mail carrier addressed to Landlord at its address first set forth above, or at such place or places as Landlord may from time to time designate by written notice to Tenant. Notices, demands, consents and requests which are served upon either party in the manner aforesaid shall be deemed sufficiently served or given for all purposes hereunder as follows: (a) on the date delivered, if served personally; (b) the third business day after being mailed, if served by certified or registered mail; or (c) the next business day, if served by overnight mail. Copies of all notices to Tenant shall be sent in the same manner and at the same time to Tenant's attorneys, Baer Marks & Upham, LLP, 805 Third Avenue, New York, NY 10022, Attention: James M. Coughlin, Esq. SECTION 22.04. INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of this Lease or the application thereof to any persons or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by Law. SECTION 22.05. APPLICABLE LAW. This Lease and the rights of the parties hereunder shall be governed by the Laws of the State of California, applicable to contracts made and performed in such State. SECTION 22.06. NO JOINT VENTURE. It is agreed that no thing contained in this Lease shall be deemed or construed as creating a partnership or joint venture between Landlord and Tenant or between Landlord and any other party, or cause Landlord to be responsible in any way for the debts or obligations of 66 Tenant or any other party. SECTION 22.07. ATTORNEYS' FEES. Should any party here to institute any action or proceeding in court or before an arbitrator to enforce any provision hereof or for damages by reason of an alleged breach of any provision of this Lease, the prevailing party shall be entitled to receive from the losing party, in addition to the court or arbitration costs incurred by the prevailing party, such amount as the court or arbitrator may adjudge to be reasonable attorneys' fees for the services rendered the prevailing party in such action or proceeding. SECTION 22.08. NET LEASE. This Lease is a net lease, and payments due and payable hereunder to or on behalf of Landlord shall be paid without notice or demand and without offset, counterclaim, abatement, suspension, deferment, deduction or defense, except as otherwise expressly provided herein. SECTION 22.09. SOURCE OF PAYMENT OF OBLIGATIONS INCURRED UNDER THIS LEASE. Whenever a party hereto is entitled to reimbursement or compensation by the other party hereto and said amount is not paid when due, if such obligation is not of a character such that it is included in the definition of Operating Expenses under the Revenue Sharing Agreement and entitled to be paid as such, the amount so owing shall be paid from said party's share under clause (v) of Section 1.3(c) of the Revenue Sharing Agreement prior to the remission of any amount otherwise to be disbursed to the delinquent party under said clause (v). Any party desiring to avail itself of the foregoing provision, shall send written notice of the amount owing (and the specific obligation giving rise to the debt) to the Treasurer (as defined in the Revenue Sharing Agreement) with a copy to the delinquent party. 67 SECTION 22.10. SUCCESSORS. The terms and conditions contained in this Lease shall run with the Land and shall bind and inure the benefit of Landlord and Tenant, and to their respective successors and assigns. SECTION 22.11. NO MERGER OF TITLE. There shall be no merger of the leasehold estate created by this Lease with the fee estate in the Private Parcel by reason of the fact that the same person may own or hold (i) the leasehold estate created by this Lease or any interest in such leasehold estate, and (ii) any interest in such fee estate, unless Tenant is such holder and Tenant desires title to so merge. No such merger shall occur unless and until all persons having any interest in the leasehold estate created by this Lease and the fee estate in the Private Parcel shall join in a written instrument effecting such merger. SECTION 22.12. QUIET ENJOYMENT. This Lease is subject to the 1997 City-Marine World Lease. Landlord represents that this Lease does not violate any provision of the Public Leases, and that no provision of this Lease is in conflict with any of the provisions of any of the Public Leases. As long as a Tenant Default does not exist, Landlord shall be obligated to perform all of its obligations under any of the Public Leases to which it is a party, and during the Term Tenant shall have quiet enjoyment of the premises leased hereby. If Landlord is given the right under any of the Public Leases to terminate any such Public Lease (other than for reasons related to a Tenant Default), Landlord shall not exercise such right of termination without the prior written consent of Tenant which consent shall not be unreasonably withheld or delayed. Landlord shall not enter into, and shall not consent to any amendment, modification, extension or other agreement with respect to any or all Public Leases to which it is a party which adversely affects Tenant's interest in the Private Parcel, the Improvements or this Lease. 68 SECTION 22.13. CONTESTS. Tenant shall have the right, after at least ten (10) days prior written notice to Landlord (or such shorter period as may be required at Law in order to preserve the right to do so), to contest the amount or validity of any Imposition or Law or lien by appropriate proceedings conducted in good faith and with due diligence, at its sole cost and expense. If Tenant has not yet made the Minimum Investment, or deposited into escrow under terms and conditions reasonably satisfactory to Landlord the amount by which the Minimum Investment then exceeds the Investment, then, Tenant shall furnish to Landlord security reasonably satisfactory to Landlord against any claim, loss, liability or expense incurred as a result of such nonpayment or delay therein. In the event of any such contest, if the final determination thereof is adverse to Tenant, then Tenant shall pay fully the amounts involved in such contest, together with any penalties, fines, interests, costs and expenses that may have accrued thereon or that may result from any such contest by Tenant, and after such payment by Tenant, Landlord will promptly return to Tenant such security as Landlord shall have received in connection with such contest, unless such adverse determination results directly from or is otherwise directly related to Landlord's failure to comply with its obligations under this Lease, or Landlord's negligence or misconduct, in which event, Landlord shall immediately after written notice of such adverse determination return such deposit to Tenant. Landlord shall join in any such proceeding if any Law now or hereafter in effect shall require that such proceedings be brought by and/or in the name of Landlord or any owner of the Private Parcel. Neither Landlord nor the Private Parcel shall be subjected to any liability for the payment of any costs, fees, including attorneys' fees, or expenses in connection with any such proceeding (except to the extent that such adverse determination results from or is otherwise related to Landlord's failure tocomply with its obligations under this Lease, or Landlord's negligence or misconduct). Tenant shall be entitled to any refund of any such Imposition and penalties or interest thereon, which shall have been paid by Tenant or paid by Landlord, for which Landlord shall have been fully reimbursed. 69 SECTION 22.14. NONDISCRIMINATION. Tenant covenants by and for itself, its heirs, executors, administrators and assigns and all persons claiming under or through it, and this Lease is made and accepted upon and subject to the condition, that there shall be no discrimination against or segregation of any person or group of persons on account of sex, marital status, race, color, religion, creed, national origin or ancestry, in the leasing, subleasing, transferring, use, or enjoyment of the premises herein leased nor shall Tenant, or any person claiming under or through it, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, subtenants, licensees, vendees invitees, or customers with respect to the Private Parcel or the operation of any business thereon. SECTION 22.15. INTERPRETATION. The language in all parts of this Lease shall be construed as a whole according to its fair meaning, and not strictly for or against either Landlord or Tenant. The captions used in this Lease are for convenience only and shall not be considered in the construction or interpretation of any provision hereof. When the context of this Lease requires, the neuter gender includes the masculine, the feminine, a partnership or corporation or joint venture, and the singular includes the plural. The terms "shall," "will," and "agree" are mandatory. The term "may" is permissive. When a party is required to do something by thin Lease, it shall do so at its sole cost and expense without right of reimbursement from the other party unless a specific provision is made therefor. SECTION 22.16. INTEGRATION. This Lease, together with the Reciprocal Easement Agreement and the Revenue Sharing Agreement and their respective exhibits and documents incorporated by reference, constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and there 70 are no conditions, representations or agreements regarding the matters covered by this Lease which are not expressed herein or in the Reciprocal Easement Agreement and the Revenue Sharing Agreement. SECTION 22.17. MEMORANDUM OF LEASE FOR RECORDING. Landlord and Tenant shall, upon the Term Commencement Date, execute a memorandum or "short form" of this Lease in a form prepared by Landlord and reasonably acceptable to Tenant, for purposes of, and in a form suitable for, being recorded. The memorandum or "short form" of this Lease shall describe the parties, Landlord and Tenant, set forth a description of the Lease Premises, specify the term of this Lease, and shall incorporate this Lease by reference. Said memorandum shall be recorded in the office of the County Recorder of the County of Solano as soon as practicable after the date of execution of this Lease. SECTION 22.18. CONSENTS. Whenever any consent or approval is required under the terms of this Lease, except as otherwise specifically provided herein such consent shall not unreasonably be withheld, conditioned or delayed. In the event that a party shall fail to give written notice of its intention not to give consent or approval, together with the reason(s) therefor, within fifteen (15) days after written request for such consent or approval, the consent or approval shall be deemed to have been given. ARTICLE 23 ENVIRONMENTAL MATTERS SECTION 23.01. LANDLORD'S ENVIRONMENTAL OBLIGATIONS. Landlord represents and warrants that it has not created, placed, stored, transported, or disposed of, nor is it aware of, any Environmental 71 Condition or Hazardous Materials in, on, at, around or under or affecting all or any part of the Private Parcel, and further, that Landlord shall be responsible for all Environmental Compliance Liability with respect to the Private Parcel, unless resulting from Tenant's breach of any obligation hereunder, or from Tenant's gross negligence or willful misconduct, subject to the provisions of Section 3.03 hereof. Landlord further represents, warrants, covenants and agrees that no portion of the land constituting the Private Parcel (including the surface and subsurface thereof) was ever used for the dumping or storage of any Hazardous Materials. Notwithstanding anything to the contrary contained elsewhere herein, Landlord agrees to be responsible for and indemnify, defend and hold harmless Tenant and its officers, directors and employees, affiliates and its successors and assigns, at Landlord's sole cost and expense, from and against any and all losses, claims, liabilities, damages, judgments, expenses (including reasonable attorneys' fees and disbursements), fees, fines and other costs (whether relating to or arising out of actions or claims by governmental authorities or private parties), relating to or arising out of the existence of any Environmental Compliance Liability or other Environmental Condition existing in, on, at, around or under or affecting the Private Parcel on the Term Commencement Date (subject to the provisions of Section 3.03 hereof), or otherwise arising from the gross negligence or willful misconduct of Landlord its agents, servants, employees, contractors, sublessees or other tenants, occupants, or licensees (or their guests and invitees) of the Public Parcel. Landlord represents and warrants that it shall not permit any dumping or storage on, in, around, under, or about the Private Parcel of any Hazardous Materials, or otherwise cause, create, permitor suffer an Environmental Condition, during the Term of this Lease. In the event at any time during the Term Tenant should desire to make any alterations, additions or improvements to the Private Parcel, including the Improvements, and is forced to incur any identifiable charges or expenses arising as a result of Hazardous Materials or other Environmental Condition in or at the 72 Private Parcel which existed as of the Term Commencement Date, then, notwithstanding anything to the contrary set forth in this Lease or the REA Landlord shall be fully responsible for and shall reimburse Tenant for such expenses upon demand of Tenant that were caused by the existence of such Hazardous Materials or other Environmental Condition. SECTION 23.02. TENANT'S ENVIRONMENTAL OBLIGATIONS. Tenant represents and warrants that it shall not create, place, store, transport, or dispose of any Environmental Condition or Hazardous Materials in, on, at, around or under or affecting all or any part of the Private Parcel, and further, that Tenant shall be responsible for all Environmental Compliance Liability with respect to the Private Parcel which results from Tenant's gross negligence or willful misconduct or that of its agents, employees or contractors. Notwithstanding anything to the contrary contained elsewhere herein, Tenant agrees to be responsible for and indemnify, defend and hold harmless Landlord and its officers, directors and employees, and its successors and assigns, at Tenant's sole cost and expense, from and against any and all losses, claims, liabilities, damages, judgments, expenses (including reasonable attorneys' fees and disbursements), fees, fines and other costs (whether relating to or arising out of actions or claims by governmental authorities or private parties), relating to or arising out of the existence of any Environmental Condition created in, on, at or under the Private Parcel during the Term of this Lease (except to the extent resulting or arising from the gross negligence or willful misconduct of Landlord or its officers, employees, agents, contractors, licensees, guests or invitees), or otherwise arising from the gross negligence or willful misconduct of Tenant or other tenants, occupants, or licensees (or their guests) of Tenant. It is a condition to Tenant's obligations under this subparagraph that Tenant shall receive reasonably prompt notice of any claim against Landlord. SECTION 23.03. LEGAL CONTESTS. For purposes of this Article, any party entitled to be 73 indemnified under subparagraphs (a) or (b) above shall be referred to as the "Indemnified Party;" and any party required to so indemnify another party shall be referred to as an "Indemnifying Party." The Indemnified Party shall have the right to contest, by appropriate legal proceedings, but without cost, liability or expense to the Indemnifying Party, the validity of any Environmental Law provided that such contest will not result in any lien, charge or liability, civil or criminal, or result in a default under any Leasehold Mortgage. In addition, if compliance with such Environmental Law may be legally held in abeyance without the occurrence of any danger to persons or property or threat thereof, lien, charge or liability, civil or criminal, or a default under any Leasehold Mortgage, for a failure to comply during such contest, the Indemnifying Party may postpone compliance therewith until the final determination of any such proceedings, provided that such proceedings are pursued in good faith and with due diligence. The provisions of this Section shall survive the expiration or sooner termination of this Lease. SECTION 23.04. ADDITIONAL LANDLORD RESPONSIBILITIES; TERMINATION OF LEASE. If, as a result of the presence of any Environmental Compliance Liability, Hazardous Materials or other Environmental Condition within, on, under, about or otherwise affecting the Private Parcel which existed as of the Term Commencement Date or is directly attributable to the breach by Landlord of its obligations under this Article or the gross negligence or willful misconduct of Landlord, any of the following shall occur, then Tenant shall have the right to terminate this Lease upon sixty (60) days written notice sent to Landlord if: (i) Tenant shall be unable to conduct, or shall be prohibited by public authorities from conducting, its normal business operations within the Private Parcel, (ii) normal business operations within the Private Parcel or normal pedestrian and vehicular access to the Private Parcel shall be unreasonably interfered with as a result of any work of removal, repair, restoration or other construction work performed in connection with the removal and/or remediation of any such Environmental Compliance Liability, Hazardous Materials or other 74 Environmental Condition, or (iii) Landlord shall have failed to do either of the following, at Tenant's option, within the specified periods: (A) to promptly initiate and diligently prosecute to completion any action which may be necessary to abate and remediate such event or conditions, to Tenant's satisfaction based on an environmental report prepared by a licensed environmental engineer selected by Tenant (and reasonably acceptable to Landlord), showing the abatement and remediation of such event or condition in compliance with applicable Law, the cost for which shall be paid by Landlord promptly after written request therefor from Tenant, or (B) pay to Tenant, within fifteen (15) days after written request therefor, the amount reasonably estimated by Tenant to be required for Tenant to complete the abatement and remediation of such event or conditions, which estimate shall be based on a Phase I environmental site assessment prepared by a licensedenvironmental engineer selected by Tenant (and reasonably acceptable to Landlord), the cost for which shall be borne by Landlord and included in such payment. ARTICLE 24 SALE OF PRIVATE PARCEL REPURCHASE OF TENANT'S ESTATE SECTION 24.01. LANDLORD'S RIGHT TO SELL. (a) Notwithstanding anything to the contrary set forth elsewhere in this Lease, neither Landlord nor the Agency shall cause or permit (whether voluntarily, by operation of Law or otherwise) the sale, transfer or conveyance (collectively, a "TRANSFER") of any of their respective interests in either the Public Parcel or the Private Parcel, without the prior written consent of Tenant, to be given or withheld in its sole discretion, prior to or during the month following, the date on which Tenant (or any affiliate thereof) may exercise an option (the "PURCHASE OPTION") to purchase the Public Parcel and the Private Parcel for a purchase price not exceeding the greater of (i) the principal amount 75 of the Certificates of Participation Financing as of the date of the exercise of the Purchase Option or (ii) the aggregate fair market value of the Public Parcel and the Private Parcel on such date (determined without regard to Tenant's Investment), and otherwise under mutually acceptable terms. (b) Subject to the restrictions set forth in Section 24.01(a), Landlord shall have the right to transfer to any person its leasehold estate in the Private Parcel and assign its interest in this Lease (a "Permitted Sale") without limitation; provided, however, that any such transfer shall also include the simultaneous transfer to, and assumption by, such person of all of Landlord's rights, title and obligations in and to the Reciprocal Easement Agreement and the Revenue Sharing Agreement, and further provided that such Permitted Sale shall be subject to this Lease and any Purchase Option then in effect and transferee shall assume in writing, in form and substance reasonably acceptable to Tenant, the obligations of Landlord under this Lease, the Revenue Sharing Agreement and the REA. Upon any such Permitted Sale in accordance with the foregoing, Landlord shall automatically be relieved of any obligations under this Lease, other than those obligations which accrued prior to the date thereof. (c) In the event Landlord desires to effect a Permitted Sale, it shall first submit to Tenant in writing the terms of the proposed sale (the "Sale Terms"). Tenant shall have forty-five (45) days after receipt of Landlord's written notice of the Sale Terms (the "Refusal Period") within which to accept the Sale Terms in writing to Landlord. If Tenant does not accept the Sale Terms as aforesaid within such Refusal Period, then Landlord shall have the right effect the Permitted Sale on the Sale Terms within 120 days after the end of the Refusal Period (the "Third Party Period"), without any further notice or other obligation to Tenant. If the Permitted Sale is not effected within such Third Party Period, then, prior to any Permitted Sale after the expiration of such Third Party Period (a "New Permitted Sale") (regardless of whether the Terms of such 76 New Permitted Sale are the same or different from those of the Permitted Sale), the Terms of the New Permitted Sale shall first be submitted to Tenant as aforesaid, and the provisions of this Section again shall apply. (d) The foregoing provisions shall not apply to any transfer by Landlord of its interest in the Private Parcel to the Agency, the City or the Vallejo Public Financing Authority, which transfer may be made at any time at the discretion of Landlord without the consent of Tenant, provided that the transfer shall be subject to all of the obligations of Landlord under this Lease, the Purchase Option, the Reciprocal Easement Agreement and the Revenue Sharing Agreement and the transferee shall assume in writing, in form and substance reasonably acceptable to Tenant, the obligations of Landlord under this Lease, the Revenue Sharing Agreement, the Purchase Option and the REA. (e) In addition to any other rights or remedies set forth herein, including but not limited to those at Law or in equity, the breach of any of the obligations of Landlord or the Agency under this Section 24.01 shall entitle Tenant to terminate this Lease upon written notice to Landlord, whereupon the Lease shall have no further force and effect and such termination shall have the effect more particularly set forth in Article 21 including but not limited to Section 21.04. SECTION 24.02. REPURCHASE OF TENANT'S ESTATE. Notwithstanding any other provision of this Lease but subject to the restrictions set forth in Section 24.01(a), Landlord shall have the right to purchase from Tenant all of Tenant's right, title and interest in and to Tenant's Estate, the Reciprocal Easement Agreement and the Revenue Sharing Agreement (the "Repurchase") on the following terms and conditions: 77 (i) The Repurchase shall be incident to a Permitted Sale to a transferee totally independent of, unrelated to, Landlord, the City, the Agency or the Vallejo Public Financing Authority. (ii) Tenant shall have failed to exercise its right of purchase under Section 24.01 within the Refusal Period. (iii) The price of the Repurchase (the "Repurchase Price") shall be equal to the fair market value of the operations of Tenant (as reflected in this Lease, the Reciprocal Easement Agreement and the Revenue Sharing Agreement), valued as a going concern, as determined by an investment banking firm selected by Tenant and reasonably approved in writing by Landlord. Tenant shall promptly provide to the investment banking firm such information as is reasonably requested by such firm to determine said fair market value. The Repurchase Price shall be payable in immediately available funds from Landlord to Tenant on the earlier of the date of the Repurchase or the closing of the Permitted Sale. (iv) Tenant shall execute and deliver such documents evidencing reconveyance of Tenant's Estate as shall be reasonably requested by Landlord, and shall vacate the Private Parcel, upon receipt by Tenant of the Repurchase Price. (v) Any Repurchase shall not occur if the same shall cause the Authority to breach any term or provisions of the 1997 Agency-Authority Lease, or otherwise result in a default under any of the documents related to the Certificates of Participation Financing, in which case the related Permitted Sale shall not occur. ARTICLE 24A 78 ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF LANDLORD: SECTION 24A.01. LANDLORD'S ADDITIONAL REPRESENTATIONS AND WARRANTIES. Landlord represents and warrants to Tenant (upon which warranties and representations Tenant has relied in executing and delivering this Lease) that: (a) With respect to each of the Public Leases to which Landlord is a party , the following is true and correct: (i) it is in full force and effect; (ii) there are no defaults by Landlord or the other parties thereto existing thereunder beyond the expiration of applicable notice and cure periods; (iii) all rent and other amounts due thereunder have been paid to the last day of the month preceding the month in which this Lease is executed; and (iv) there have been no amendments, modifications, supplement, extensions or other agreement entered into between Landlord and the other parties thereto affecting the matters set forth therein, except as have been disclosed to Tenant in writing; (b) A valid certificate of occupancy exists for the improvements currently existing on the Private Parcel and Landlord has not done and is not aware of any work, improvements or other acts taken with respect to the Private Parcel requiring an amendment or modification of such certificate, or the issuance of a new certificate; (c) No work has been done or materials or services provided to or on behalf of Landlord which may entitle a mechanic, materialman or warehouseman to file a lien against or affecting all or any part of the Private Parcel; 79 (d) Landlord has no knowledge of pending or contemplated condemnation proceedings affecting the Private Parcel or any part thereof; and (e) There are no portions of the Private Parcel which lie within areas designated by any governmental authority as "wetlands". Landlord's breach of any of the foregoing representations shall entitle Tenant to terminate this Lease upon prior written notice to Landlord whereupon this Lease shall automatically terminate on the date set forth in such notice, which date shall be deemed to be the expiration of the Term hereof, and the parties shall have no further rights or obligations hereinafter except as otherwise expressly provided herein, including under Article 21. ARTICLE 25 DEFINITION OF CERTAIN TERMS SECTION 25.01. DEFINITIONS. The meanings of the following terms when used in this Lease shall be determined as follows: ALTERATION is defined in SECTION 7.01. CERTIFICATES OF PARTICIPATION FINANCING is defined in RECITAL C. 80 CITY is defined in RECITAL B. DATE OF TAKING is defined in SECTION 10.02. ENVIRONMENTAL LAWS means any and all Laws concerning air, water, solid waste, Hazardous Materials, Releases, worker and community right-to-know hazard communication, noise, resource protection, subdivision, inland wetlands and watercourses, health protection and similar environmental, health, safety, and land use concerns in all cases at any time, from time to time in effect at or prior to the commencement of the term of this Lease. ENVIRONMENTAL CONDITION means circumstances with respect to soil, land surface, subsurface strata, surface waters, groundwaters, stream sediments, air and similar environmental media both on and off the Private Parcel resulting from any activity, inactivity, operations or Release occurring on or off such Private Parcel, which under Environmental Laws require investigatory, corrective and/or remedial measures and/or that may result in claims or demands or give rise to liabilities of Landlord or Tenant or to third parties including, but not limited to, governmental entities. ENVIRONMENTAL COMPLIANCE LIABILITY means any obligation or liability arising as the result of any default, violation or breach by Landlord or its affiliates or previous tenants of the demised premises or adjoining tenants prior to the commencement of the term of this Lease of: (i) environmental Permits and other approvals, consents, licenses, certificates and authorizations applicable to the Private Parcel of 81 the operation of prior tenant's or other occupant's business and activities thereon which are required by Environmental Laws; (ii) any environmental regulatory compliance requirements applicable to the Private Parcel or operations conducted on or from the Private Parcel under Environmental Laws; or (iii) other Environmental Laws. EQUIPMENT FINANCING is defined in SECTION 3.10. EQUIPMENT LESSOR is defined in SECTION 3.10. FORCE MAJEURE shall mean delays or defaults due to war; insurrection; strikes, lockouts; riots; floods; earthquakes; fires; casualties; acts of God; acts of the public enemy; epidemics; quarantine restrictions; unusually severe weather; or other causes beyond the reasonable control of the party obligated to perform (except financial inability). An extension of time for any such cause shall be for the period of the enforced delay and shall commence to run from the time of the commencement of the cause if notice by the party claiming such extension is given to the other party or parties within thirty (30) days after the commencement of the cause. HAZARDOUS MATERIALS means any petroleum, petroleum products, fuel oil, derivatives of petroleum products or fuel oil, explosives, reactive materials, ignitable materials, corrosive materials, hazardous chemicals, hazardous wastes, hazardous substances, extremely hazardous substances, toxic substances, toxic chemicals, radioactive materials, medical waste, biomedical waste, infectious materials and any other element, compound mixture, solution or substance which may pose a present or potential hazard to human health or safety or to the environment. IMPOSITIONS is defined in SECTION 4.01. 82 IMPROVEMENTS shall mean any buildings, improvements, fixtures, signs, rides, attractions, and any renewals and replacements thereof, erected, built, installed or constructed upon the Private Parcel during the Term. INTEREST RATE is defined in SECTION 17.04. INVESTMENT is defined in SECTION 3.05. LAKE CHABOT is defined in RECITAL B. LAND is defined in RECITAL B. LANDLORD is defined in the introductory paragraph to this Lease. LANDLORD'S DEFAULT is defined in SECTION 18.01. LAWS shall mean all applicable present and future laws, ordinances, rules, regulations, permits, authorizations, orders and requirements, including, without limitation, all consents or approvals required to be obtained from, and all rules and regulations of, and all building and zoning laws of, all federal, state, county and municipal governments, the departments, bureaus, agencies or commissions thereof, authorities, board or officers, any national or local board of fire underwriters, or any other body or bodies exercising similar functions, having or acquiring jurisdiction of, or which may affect or be applicable to the Private 83 Parcel. LEASE shall mean this Parcel Lease. LEASE YEAR shall mean (i) the period from the Rent Commencement Date to and including the day prior to the Rent Commencement Date next following, (ii) each successive twelve (12) month period thereafter during the Term, and (iii) the period ending on the date on which this Lease terminates and beginning on the anniversary of the Rent Commencement Date preceding such termination date. LEASEHOLD MORTGAGE is defined in SECTION 14.01 and (shall exclude any Equipment Financing). LEASEHOLD MORTGAGEE is defined in Section 14.01 and (shall exclude any Equipment Lessor). MAJOR DAMAGE is defined in SECTION 9.02. MASTER LEASE means the Master Lease dated December 20, 1974 between the City and the Greater Vallejo Recreation District. MINIMUM ANNUAL RENT is defined in SECTION 2.01. MINIMUM INVESTMENT is defined in SECTION 3.05. NET AWARD is defined in SECTION 10.04. 84 1997 CITY - MARINE WORLD LEASE is defined in RECITAL D. 1997 MARINE WORLD - CITY LEASE is defined in RECITAL D. 1997 CITY - AGENCY LEASE is defined in RECITAL D. 1997 AGENCY - MARINE WORLD LEASE is defined in RECITAL D. NEW PERMITTED SALE is defined in SECTION 24.01. OPTION is defined in RECITAL E. OTHER AGREEMENTS is defined in SECTION 3.04. PPI means Premier Parks Inc. and/or its wholly-owned subsidiaries. PARTIAL TAKING is defined in SECTION 10.03. PERMITTED ASSIGNEE is defined in SECTION 13.02. PERMITTED EXCEPTIONS is defined in SECTION 1.01. 85 PERMITTED SALE is defined in SECTION 24.01. PERSONAL PROPERTY shall mean all fixtures, furniture, furnishings, and other equipment and other personal property, excluding Improvements, placed on the Private Parcel by Tenant. PREMIER PARKS is defined in SECTION 3.01. PRIVATE PARCEL shall mean the portion of the Land leased hereby. PUBLIC LEASE is defined in SECTION 3.04. PUBLIC PARCEL is defined in RECITAL D. PURCHASE OPTION is defined in SECTION 24.01(A). RECIPROCAL EASEMENT AGREEMENT or REA shall mean the Reciprocal Easement Agreement between the Landlord and the Tenant in the form attached hereto as EXHIBIT D. REFUSAL PERIOD is defined in SECTION 24.01. RELEASE means releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping, or as otherwise defined under the Resource Conservation and Recovery Act (42 U.S.C. Section 6901, et seq.) ("RCRA"), the Comprehensive Environmental Response, 86 Compensation and Liability Act (42 U.S.C. Section 9601, et seq.) ("CERCLA"), or any other federal, state or local Environmental Law, including Laws relating to emissions, discharges, releases or threatened releases or pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes as may be amended from time to time, or other Environmental Laws. RENT COMMENCEMENT DATE is defined in SECTION 2.01. REPURCHASE is defined in SECTION 24.02. REPURCHASE PRICE is defined in SECTION 24.02. REVENUE SHARING AGREEMENT shall mean the agreement by that name between the Landlord and the Tenant in the form attached hereto as EXHIBIT E. RESTORATION is defined in SECTION 9.02. SALE TERMS is defined in SECTION 24.01. SUPERIOR LEASE is defined in SECTION 19.03. 87 SUPERIOR LESSOR is defined in SECTION 19.03. SUPERIOR MORTGAGE is defined in SECTION 19.03. TAKING shall mean the taking of all or any part of the Private Parcel or the possession thereof under the power of eminent domain or voluntary sale of all or any part of the Private Parcel to any person having the power of eminent domain, provided that the Private Parcel or such part thereof is then under the threat of condemnation. TENANT DEFAULT is defined in SECTION 17.01. TENANT'S ESTATE is defined in SECTION 13.01. TENANT'S PROPERTY is defined in SECTION 3.10. TERM is defined in SECTION 1.02. TERM COMMENCEMENT DATE is defined in SECTION 1.02. 88 THIRD PARTY PERIOD is defined in SECTION 24.01. TOTAL TAKING is defined in SECTION 10.02. LANDLORD: MARINE WORLD JOINT POWERS AUTHORITY By: /s/ --------------------------- Executive Director TENANT: PARK MANAGEMENT CORP. By: /s/ ----------------------------- Chairman and Chief Executive Officer 89 The undersigned hereby acknowledges and consents to the foregoing Parcel Lease and all of the terms and conditions set forth therein. CITY OF VALLEJO By: /s/ ---------------------------- City Manager REDEVELOPMENT AGENCY OF THE CITY OF VALLEJO By: /s/ ---------------------------- Executive Director EXHIBIT A DESCRIPTION OF THE LAND The real property constituting the Site consists of that certain land located in the City of Vallejo, County of Solano, State of California, more fully described as follows: REAL PROPERTY in the City of Vallejo, County of Solano, State of California, described as follows: PARCEL ONE: A portion of the Parcel of land described in the Deed to the City of Vallejo, recorded February 16, 1946 in Book 337 of Official Records, Page 337, Series No. 2545, and being a portion of Section 6, Township 3 North, Range 3 West, Mount Diablo Base and Meridian, described as follows: Beginning at the Northeasterly corner of Lot 13, Lewis Ranch Estates, Unit No. 3, as shown in Book 22 of Maps at Page 19, Solano County Records; thence along the Northerly line of said Lewis Ranch Estates, Unit No. 3 and Lewis Ranch Estates, Unit No. 1 shown in Book 19 of Maps at Page 24, Solano County Records, North 89 degree 28'32" West, 1,500.00 feet; thence North 15 degree 40'00" East, 758.00 feet; thence North 23 degree 22'00" East, 223.00 feet; thence North 41 degree 08'00" East, 382.00 feet; thence North 45 degree 24'00" East, 230.21 feet; thence North 85 degree 55'13" East, 215.99 feet; thence North 4 degree 04'47" West, 350.00 feet; thence South 85 degree 55'13" West, 889.86 A-2 feet; thence North 38 degree 23'17" West, 2,260.00 feet; thence North 51 degree 36'43" East, 189.51 feet; thence North 41 degree 55'09" West, 427.75 feet to a point on the proposed new Southerly right-of-way line of State Highway No. 37; thence along said Southerly line, South 84 degree 57'14" East, 1,180.93 feet; thence East 265.00 feet; thence South 84 degree 46'02" East, 348.45 feet; thence South 80 degree 54'00" East 229.08 feet; thence South 82 degree 55'13" East, 217.44 feet to the intersection of the proposed Westerly line of Fairgrounds Drive; thence South 36 degree 18'50" East, 93.97 feet; thence South 37 degree 19'48" East, 215.15 feet; thence South 10 degree 15'18" East, 73.76 feet to the beginning of a curve to the left with a radius of 86.00 feet; thence along said curve, through a central angle of 27 degree 04'27", an arc distance of 40.64 feet; thence South 37 degree 19'45" East, 85.33 feet to the beginning of a curve to the left with a radius of 44.00 feet; thence along said curve, through a central angle of 90 degree 00'00" an arc distance of 69.12 feet; thence South 32 degree 30'00" East 142.51 feet; thence South 37 degree 19'53" East, 40.96 feet to the beginning of a curve to the right with a radius of 978.00 feet; thence along said curve, through a central angle of 5 degree 24'00", an arc distance of 92.17 feet to a point of compound curvature; thence along a curve to the right with a radius of 170.00 feet, through a central angle of 32 degree 15'00", an arc distance of 95.69 feet; thence South 20 degree 30'53" East, 101.30 feet to the beginning of a curve to the right with a radius of 941.00 feet; thence along said curve, through a central angle of 16 degree 57'00", an arc distance of 278.37 feet; thence South 3 degree 33'55" East, 52.43 feet; thence South 86 degree 26'14" West, 46.99 feet; thence South 31 degree 13'02" East, 123.95 feet; thence South 6 degree 34'05" East, 639.79 feet; thence South 4 degree 43'59" East, 800.07 feet; thence South 5 degree 26'51" East, 400.12 feet; thence South 4 degree 40'07" East, 440.03 feet; thence South 12 degree 55'17" West, 162.65 feet to the point of beginning. EXCEPTING FROM PARCEL ONE ABOVE: That portion of the premises conveyed to the State of California, by Deed recorded November 29, 1973 in Book 1866 of Official Records, Page 536, Series No. 28896, Solano County Records, and as modified by the State of California Relinquishment to the City of A-3 Vallejo in Instrument recorded July 12, 1979 in Book 1979 at Page 57270, Series No. 33917, Solano County Official Records. FURTHER EXCEPTING THEREFROM: All those portions of Parcel One above conveyed by Marine World Foundation, a California non-profit public benefit corporation to Richard A. Hyland, etal, by the following Corporation Grant Deeds, recorded June 26, 1987 t Book 1987, Pages 86969, 86974, 87009, 86979, 87049, 87004, 87044, 87039, 86984, 87014, 87019, 87024, 87029, 87034, 86989, 86994 and 86999, Solano County Records. FURTHER EXCEPTING THEREFROM: All those portions of Parcel One above conveyed by Marine World Foundation, a California nonprofit public benefit corporation, to the State of California, by Quitclaim Deed recorded December 11, 1989, Series No. 890088359, and by Quitclaim Deed recorded February 6, 1990, Series No. 900009554, Solano County Records. PARCEL TWO: An easement as an appurtenance to Parcel One above for the surface use of Lake Chabot and being a portion of the parcel of land described in the Deed to the City of Vallejo, recorded February 16, 1946 in Book 337 of Official Records, Page 337, Series No. 2545, and being a portion of Section 6, Township 3 North, Range 3 West, Mount Diablo Base and Meridian, described as follows: Commencing at the Northeasterly corner of Lot 13, Lewis Ranch Estates Unit No. 3 as shown in Book 22 of Maps at Page 19, Solano County Records, thence along the Northerly line of Lewis Ranch Estates Unit A-4 No. 3 and the Northerly line of Lewis Ranch Estates Unit No. 1, said Unit No. 1 being shown in Book 19 of Maps at Page 24, Solano County Records, North 89 degree 28'32" West, 1,500.00 feet; thence along the Easterly fence of Dan Foley Park, North 15 degree 40'00" East, 758.00 feet; thence North 23 degree 22'00" East, 223.00 feet; thence North 41 degree 08'00" East, 382.00 feet; thence North 45 degree 24'00" East, 230.21 feet; thence North 85 degree 55'13" East to its intersection with the 72.5 foot contour line on the Southerly shore of Lake Chabot (City of Vallejo Datum) shown on Topographic Map showing the boundaries of Parcel 1, Flosden Acres Redevelopment Plan, Amendment No. 3-857023, Schwafel Engineers-Bissell & Karn, and as amended by the site rough grading lakeshore development drawing C-2.1 of April 1985, said point of intersection being the true point of beginning; thence following said 72.5 foot contour line in a Northwesterly, Northeasterly, Southeasterly, Southerly and Westerly direction around the shore of Lake Chabot to the point of beginning. A-5 EXHIBIT B DESCRIPTION OF THE PROPERTY [to come Y description to include all or a portion of the real property described in the 1997 Site Lease Relating to Marine World, that was not leased under the 1997 Lease Agreement Relating to Marine World] B-1 EXHIBIT C PERMITTED EXCEPTIONS [to be completed prior to execution of the Parcel Lease, based upon a title report, acceptable to the parties, done prior to execution] C-1 EXHIBIT D RECIPROCAL EASEMENT AGREEMENT D-1 EXHIBIT E REVENUE SHARING AGREEMENT E-2 EX-10.(AF) 9 EMPLOYMENT AGREEMENT 7/31/97 PREMIER PARKS/KIEREN EXHIBIT 10(af) EMPLOYMENT AGREEMENT THIS AGREEMENT ("Agreement"), dated as of July 31, 1997, between PREMIER PARKS INC., a Delaware corporation (the "Company"), and KIERAN E. BURKE (the "Executive"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Executive is and has been for more than seven years the Chief Executive Officer of the Company; WHEREAS, the Executive possesses an intimate knowledge of the business and affairs of the Company; WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the Executive's contribution as Chairman of the Board and Chief Executive Officer to the growth and success of the Company has been substantial and desires to assure the Company the continued employment of the Executive as Chairman of the Board and Chief Executive Officer of the Company and to compensate him therefor; and WHEREAS, the Executive desires to continue to serve as Chairman of the Board and Chief Executive Officer of the Company, on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual promises, representations and warranties set forth herein, and for other good and valuable consideration, it is hereby agreed as follows: 1. CERTAIN DEFINITIONS. As used herein, the following terms shall have the following meanings: "ACTUAL EBITDA" for any year means EBITDA for such year, PROVIDED that (i) if, during such year, the Company or any Subsidiary acquires (A) capital stock (or other equity interests) of any person (other than a person which was, prior thereto, a Subsidiary), whether by acquisition, merger, consolidation or otherwise, and, by virtue of such acquisition, the results of operations of such person for any portion of such year were consolidated with those of the Company and its Subsidiaries in the preparation of the Company's consolidated financial statements for such year or (B) all or substantially all of the assets of any person or any operating unit of any person, and, in either case, such acquisition was not contemplated in the preparation of Budgeted EBITDA for such year, the results of operations of such person or attributable to such assets and the costs and expenses (including financing costs) incurred by the Company or any Subsidiary in connection with, or arising out of, such acquisition shall be disregarded in the calculation of Actual EBITDA for such year, and (ii) in determining Actual EBITDA for any year, the Committee may (but will not be required to) increase (but not decrease) EBITDA by an amount that the Committee reasonably deems to be appropriate to eliminate or offset the effects upon EBITDA for such year of events the Committee deems extraordinary or unusual in nature. "AFFILIATE" of a person shall mean any other person that directly or indirectly controls, is controlled by, or is under common control with the person specified. For the purposes of this Agreement, "CONTROL," when used with respect to any person, shall mean the power to direct the management and policies of such person, whether through the ownership of securities, by contract or otherwise. "BASE SALARY" shall have the meaning provided in Section 5(a). "BOARD" shall have the meaning provided in the third recital to this Agreement. "BONUS" shall have the meaning provided in Section 5(b). "BUDGETED EBITDA" for any year means the amount of EBITDA that the Company projects to achieve during such year, as specified in the definitive annual budget of the Company for such year approved by the Board. For the year ending December 31, 1997, Budgeted EBITDA means $52 million. "CAUSE" shall mean (i) the willful or repeated failure of the Executive to perform his obligations hereunder as provided herein, PROVIDED that such Cause shall not exist unless the Company shall first have provided the Executive with written notice specifying in reasonable detail the factors constituting such failure and such failure shall not have been cured by the Executive within 30 days after such notice; (ii) the conviction of the Executive of a crime which constitutes a felony involving moral turpitude under applicable law or the entering by him of a plea of guilty or NOLO CONTENDERE with respect thereto; (iii) the commission by the Executive of any act involving fraud, misappropriation of Company funds or other gross misconduct injurious to the Company; (iv) the good faith determination by the Board that the Executive is dependent upon alcohol or drugs; or (v) the determination by the Board that the Executive has violated in any material respect the provisions of Sections 4(c) or 13(c) hereof. "CHANGE OF CONTROL" shall have the meaning provided in the Indenture, dated as of January 15, 1997, between the Company and The Bank of New York, as trustee, as the same exists on the date of this Agreement. "COMMITTEE" shall mean the Compensation Committee of the Board. "CONSTRUCTIVE TERMINATION WITHOUT CAUSE" shall mean a termination of the Executive's employment at his initiative as provided in Section 10(d) below following the -2- occurrence, without the Executive's prior written consent, of one or more of the following events (except in consequence of a prior termination): (i) a reduction in the Executive's then current Base Salary or in the Bonus payable to him under Section 5(b) (except pursuant to the terms thereof) or the termination or material reduction of any employee material benefit or perquisite enjoyed by him during the term of this Agreement; (ii) the failure to elect or reelect the Executive to any of the positions in the Company described in Section 4(a) below or removal of him from any such position; (iii) a material diminution in the Executive's duties or the assignment to the Executive of duties which are materially inconsistent with his other duties or which materially impair the Executive's ability to function as the Chairman of the Board and Chief Executive Officer of the Company; (iv) the relocation of the Company's executive office, or the Executive's own office location as assigned to him by the Company, to a location more than 50 miles from New York, New York; (v) the failure of the Company to obtain the assumption in writing of its obligations under this Agreement by any successor to the business of the Company on or prior to the date of a merger, consolidation, sale or similar transaction; or (vi) the failure by the Company to offer the Executive a new employment agreement with compensation and benefit provisions on terms at least as favorable to the Executive as those set forth herein (other than those provided in Section 9 hereof). "DISABILITY" shall mean the Executive's inability by reason of physical or mental illness to substantially perform his duties and responsibilities under this Agreement for a period of 180 consecutive days or a period of in excess of 180 days during any calendar year during the Term. "EBITDA" for any period means the income before extraordinary items and/or cumulative effect of change in accounting principles of the Company and its Subsidiaries for such period, plus the sum of the following, to the extent deducted in calculating such income, of (i) income tax expense (or, in the case of income tax benefit, minus the amount thereof), (ii) interest expense, net of interest income, and (iii) depreciation and amortization expense, in each case for such period. All components of EBITDA shall be determined on a consolidated basis in accordance with generally acceptable accounting principles in the United States as in effect as of the date of the determination of Budgeted EBITDA for such period, consistently applied by the Company for all periods during the Term. Notwithstanding the foregoing, EBITDA shall for all purposes of this Agreement be calculated for each year without recognition of any expense incurred in connection with (i) any bonuses paid or payable to the Executive, the President and Chief Operating Officer, or the Chief Financial Officer of the Company or (ii) any Restricted Shares and Additional Restricted Shares (as defined herein) now or hereafter granted to those officers. "PERSON" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any other entity. -3- "SUBSIDIARY" shall mean, in respect of any person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of capital stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such person, (ii) such person and one or more Subsidiaries of such person or (iii) one or more Subsidiaries of such person. "TERM" shall mean the period specified in Section 3 below. 2. EMPLOYMENT. The Company hereby agrees to continue to employ the Executive, and the Executive hereby accepts such employment, upon the terms and conditions set forth herein. 3. TERM. Unless sooner terminated in accordance with the provisions of Section 10 hereof, the term of the Executive's employment under this Agreement shall commence on the date hereof and shall end on the third anniversary hereof (the "Term"). 4. POSITION AND DUTIES. (a) During the Term, the Executive shall serve as the Chairman of the Board and Chief Executive Officer of the Company and shall have the authority, functions, duties, powers and responsibilities normally associated with such positions and as from time to time may be prescribed by the Board. The Executive agrees, subject to his election as such and without additional compensation, to serve during the Term in such additional offices of comparable stature and responsibility to which he may be elected from time to time in the Company's Subsidiaries and to serve as a director and as a member of any committee of the Board and as a director of the Company's Subsidiaries. (b) During the Term and subject to the provisions of Section 4(c), (i) the Executive's services shall be rendered on a full-time, exclusive basis, (ii) he will apply on a full-time basis all of his skill and experience to the performance of his duties in such employment, and shall report only to the Board, (iii) he shall have no other employment or outside business activities and (iv) unless the Executive otherwise consents, the headquarters for the performance of his services shall be the executive offices of the Company in the greater New York City area, subject to such reasonable travel as the performance of his duties in the business of the Company may require. (c) During the Term, the Executive shall not, directly or indirectly, without the prior written consent of the Board, render any services to any person (other than the Company and its Subsidiaries and other persons in which the Company may have an interest), or acquire any interest of any type in any such other person that is in competition with the Company or any of its Subsidiaries or in conflict with his full-time, exclusive position as a senior executive officer of the Company; PROVIDED, HOWEVER, that the foregoing shall not be deemed to prohibit the Executive from (i) acquiring, solely as an -4- investment, securities of any person which are registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and which are publicly traded, so long as he is not part of any group required to make any filing under Section 13(d) of the Exchange Act in respect of such person and such securities do not constitute 2% or more of any class of outstanding securities of such person, (ii) acquiring, solely as an investment, any securities of any person (other than a person that has outstanding securities covered by the preceding clause (i)) so long as he remains a passive investor in such person and does not become part of any control group thereof and so long as such person is not, directly or indirectly, in competition with the Company or any of its Subsidiaries or (iii)(A) serving on the boards of directors of a reasonable number of other corporations (none of which are in competition with the Company or its Subsidiaries) or the boards of a reasonable number of trade associations and/or charitable organizations or, with the prior written consent of the Committee, to provide consulting services for any such corporation, trade association and/or charitable organization, (B) engaging in charitable activities and community affairs and (C) managing his personal investments and affairs, PROVIDED that the activities referred to in this clause (iii) do not in the aggregate interfere in any material respect with the proper performance of his duties and responsibilities as the Company's Chairman of the Board and Chief Executive Officer. For purposes of the foregoing, a person shall be deemed to be in competition with the Company or any of its Subsidiaries if it (or its Subsidiaries or Affiliates) is then engaged in any line of business that is substantially the same as any line of business in which the Company or any of its Subsidiaries is engaged. (d) The Company shall use its best efforts to cause the Executive to be a member of the Board throughout the Term and shall include him in the management slate for election as a director at every stockholders' meeting at which his term as a director would otherwise expire. 5. COMPENSATION. (a) BASE SALARY. The Company shall pay or cause to be paid to the Executive a base salary (the "Base Salary") of (i) during the balance of the year ending December 31, 1997, $400,000 per annum, and (ii) during each succeeding calendar year (or portion thereof) during the Term an amount per annum equal to $30,000 plus the Base Salary in effect at the end of the immediately preceding calendar year. The Company may increase, but not decrease, the Base Salary at any time and from time to time during the Term. The Base Salary shall be payable in monthly or more frequent installments in accordance with the Company's regular payroll practices for senior executives. (b) BONUS. In addition to the Base Salary, the Executive shall be entitled to receive an annual cash bonus (the "Bonus") in an amount equal to the sum of (a) .00778 multiplied by the Budgeted EBITDA for the applicable year plus (b) .02723 multiplied by the amount, if any, by which the Actual EBITDA for such year exceeded the Budgeted EBITDA for such year; PROVIDED, HOWEVER, that if in any year, the Actual EBITDA is less than 95% of the amount of the Budgeted EBITDA for such year, the product obtained by clause (a) above shall be multiplied by the Applicable Percentage set forth on Exhibit A in -5- determining the amount of the Bonus payable with respect to such year. The Bonus will be payable with respect to each of the Company's fiscal years ending December 31, 1997, December 31, 1998 and December 31, 1999 and, except as provided in Section 5(c), will be payable as follows: (i) 75% of the estimated Bonus will be paid to the Executive in the immediately succeeding January; and (ii) the remaining amount of the Bonus over the amount previously paid in January of that year will be paid to the Executive not later than 120 days after the end of the preceding year. Within 95 days following the end of each applicable year during the Term, the independent public accountants of the Company shall deliver to the Committee a certificate setting forth the calculation of EBITDA for such year based on the Company's audited financial statements for such year and, if applicable, an agreed upon procedure report on all adjustments to EBITDA required by clause (i) of the definition of Actual EBITDA. Within 100 days after the end of each such year, the Committee shall deliver to the Executive a notice, in reasonable detail, showing the calculation of Actual EBITDA for such year, the Bonus payable to the Executive under this Section 5(b) with respect to such year and the number of Restricted Shares with respect to which the Restriction Period has expired by virtue of such Actual EBITDA pursuant to Section 9(c)(ii) hereof. (c) DEFERRED COMPENSATION. The Executive by timely notice delivered to the Committee may elect to defer any portion of the Base Salary or Bonus with respect to any year on terms reasonably acceptable to the Company, PROVIDED such deferral does not result in the Company incurring any additional expense. 6. EMPLOYEE BENEFIT PROGRAMS. During the Term, the Executive shall be entitled to participate in all employee pension and welfare benefit plans and programs made available to the Company's senior level executives or its employees generally, as such plans or programs may be in effect from time to time, including without limitation, pension, savings and other retirement plans or programs, medical, dental, hospitalization, short-term and long-term disability and life insurance plans, and any other employee benefit plans or programs that may be sponsored by the Company from time to time, whether funded or unfunded. 7. REIMBURSEMENT OF EXPENSES. During the Term, the Company shall pay or reimburse the Executive for all reasonable travel, entertainment and other business expenses actually incurred or paid by the Executive in the performance of his duties hereunder upon presentation of expense statements or vouchers or such other supporting information as the Company may reasonably require. 8. VACATIONS. In addition to customary paid holidays, the Executive shall be entitled to four (4) weeks of paid vacation during each year of the Term (and a pro rata portion thereof for any portion of the Term that is less than a full year). Any unused vacation days during any year shall not be carried forward to subsequent years, nor shall the Executive receive any additional compensation for such unused vacation days. -6- 9. THE SHARES. (a) On the date hereof, and in consideration of services to be performed by the Executive hereunder, the Company has granted to the Executive, subject to the provisions of this Section 9, 170,010 shares (the "Restricted Shares") of the Company's Common Stock, par value $.05 per share (the "Common Stock"). In addition, on the date hereof, the Company shall reserve for future grant to the Executive, at the sole and absolute discretion of the Committee taking into account EBITDA and other factors, an additional 170,010 shares of Common Stock (the "Additional Restricted Shares" and together with the Restricted Shares, the "Shares"). (b) During the Restriction Period (as defined below) relating to any Restricted Shares, such Restricted Shares may not be sold, assigned, transferred, pledged or otherwise encumbered by the Executive. Except as provided in this Section 9, the Executive, as the owner of Restricted Shares, shall have all the rights of a holder of Common Stock, including but not limited to the right to receive all cash dividends or distributions paid on and the right to vote such Restricted Shares until such date as such Restricted Shares shall have been forfeited pursuant to Section 9(g). (c) The restrictions contained in this Section 9 on the rights of the Executive to sell, assign, transfer or encumber the Restricted Shares and on his ability to hold the certificates representing the Restricted Shares pursuant to Section 9(d) shall expire as follows: (i) the restrictions on 28,335 Restricted Shares shall expire on each of January 1, 1998, January 1, 1999, January 1, 2000, January 1, 2001, January 1, 2002 and January 1, 2003, PROVIDED that the Executive's employment hereunder has not been terminated pursuant to Section 10(c) of this Agreement or the equivalent provision of any successor agreements prior to such date. (ii) The period during which the restrictions set forth in this Section 9(c) as to the ownership, transfer and disposition by the Executive of any Restricted Shares shall be in effect shall be referred to herein as the "Restriction Period." (d) Each certificate representing Restricted Shares or Additional Restricted Shares shall be registered in the name of the Executive, deposited by him with the Company together with a stock power endorsed in blank and bear the following, or a substantially similar, legend: "The transferability of this Certificate and the Common Stock represented hereby is subject to the terms and conditions, including forfeiture, contained in the Employment Agreement, dated July __, 1997, between the Company and Kieran E. Burke. A copy of the Employment Agreement is on file in the executive offices of Premier Parks Inc., 11501 Northeast Expressway, Oklahoma City, Oklahoma 73131." -7- (e) The Executive hereby represents and warrants that he (i) is acquiring the Restricted Shares for his own account and not with a view to the sale or distribution thereof except in compliance with the Securities Act of 1933, as amended (the "Securities Act") and applicable state securities laws and (ii) is an "accredited investor" as such term is defined in Regulation D under the Securities Act. (f) After the Restriction Period relating to any Restricted Shares has expired, upon the written request of the Executive, or the Executive's legal representative, permitted successor or heir, the Company shall deliver to the Executive, or such legal representative, permitted successor or heir, a certificate or certificates, without the legend referred to in Section 9(d), for the number of such Restricted Shares. Notwithstanding the foregoing, any certificate or certificates so delivered shall bear such legends as the Company may deem advisable to reflect restrictions which may be imposed by law, including, without limitation, the Securities Act or any state "blue sky" or other applicable securities laws. (g) The Executive's rights to any Restricted Shares shall be forfeited on the first date on which it can be determined that the Restriction Period with respect to such Restricted Shares is incapable of expiring pursuant to the provisions of Section 9(c). Any Restricted Shares with respect to which the Restriction Period has not expired shall be forfeited as of the last day thereof. Certificates representing any forfeited Restricted Shares shall be cancelled by the Company, and the Executive shall have no rights with respect to any such forfeited Shares. (h) If the Company shall be consolidated or merged with another corporation, and such consolidation or merger is not a Change of Control, the Executive will deposit with the successor corporation the certificates for the stock or securities or the other property that the Executive is entitled to receive by reason of his ownership of Restricted Shares in a manner consistent with Section 9(d), and such stock, securities or other property shall become subject to the restrictions and requirements imposed by this Section 9, and the certificates therefor or other evidence thereof shall bear a legend similar in form and substance to the legend set forth in Section 9(d). (i) In the event of a stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, reorganization, liquidation or other comparable changes or transactions of or by the Company, an appropriate adjustment to the number of Shares shall be made to give proper effect to such event. 10. TERMINATION OF EMPLOYMENT. (a) TERMINATION DUE TO DEATH. The Executive's employment shall immediately terminate upon his death. In such event, his estate or his beneficiaries, as the case may be, shall be entitled to: -8- (i) Base Salary (at the applicable rate in effect on the date of his death) for a period of 365 days; (ii) a Bonus for the year in which the Executive's death occurs in an amount equal to the Bonus (if any) that would have been payable to the Executive with respect to such year had his death not occurred, multiplied (in the event such death occurs before June 30 of such year) by a fraction the numerator of which shall be the number of days elapsed during such year prior to the date of the Executive's death and the denominator of which shall be 181, payable as provided in Section 5(b); (iii) all Restricted Shares with respect to which the Restriction Period had expired prior to the date of this death, all Restricted Shares as to which the Restriction Period under Section 9(c) hereof has not yet expired (as to which the restriction shall then automatically expire), and such Additional Restricted Shares as the Committee may in its discretion grant; (iv) unless otherwise required by any plan, the continued right to exercise any then vested stock option for the remainder of its term; (v) any amounts earned, accrued or owing but not yet paid under Sections 5, 6 or 7 above; and (vi) other or additional benefits in accordance with applicable plans and programs of the Company. (b) TERMINATION DUE TO DISABILITY. The Company may terminate the Executive's employment, by written notice delivered to him, due to his Disability. In such event, he shall be entitled to: (i) an amount equal to 100% of Base Salary, at the rate in effect at the date of such termination of his employment, for a period of 365 days following the date of termination, less the amount of any disability benefits provided to the Executive under any disability plan or policy; (ii) a Bonus for the year in which such termination occurs in an amount equal to the Bonus that would have been payable to the Executive with respect to such year had such termination not occurred, multiplied (in the event such termination occurs before June 30 of such year) by a fraction the numerator of which shall be the number of days elapsed during such year prior to the date of such termination and the denominator of which shall be 181, payable as provided in Section 5(b); (iii) all Restricted Shares with respect to which the Restriction Period had expired prior to the date of termination due to his Disability and all Restricted Shares as to which the Restriction Period under Section 9(c) hereof has not yet expired (as -9- to which the restriction shall automatically expire), and such Additional Restricted Shares as the Committee may in its discretion grant; (iv) unless otherwise required by any plan, the continued right to exercise any then vested stock option for the remainder of its term; (v) any amounts earned, accrued or owing but not yet paid under Sections 5, 6 or 7 above; (vi) continued participation at the expense of the Company in medical, dental and hospitalization insurance coverage in which he was participating on the date of termination of his employment for a period equal to the longest of (x) 12 months from the date of such termination, (y) the minimum period prescribed by applicable law or (z) the period set forth in the applicable plan or program of the Company; and (vii) other or additional benefits in accordance with applicable plans and programs of the Company. (c) TERMINATION BY THE COMPANY FOR CAUSE. In the event the Company proposes to terminate the Executive's employment for Cause, it shall so notify the Executive in writing, which notice shall include (A) in reasonable detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Cause is based and (B) the date (which shall not be earlier than 21 days following the date of such notice), time and location of a Board meeting at which the Executive shall be entitled to a hearing as to such grounds. If, within five days after such hearing, the Executive is furnished written notice that a majority of all then members of the Board (excluding the Executive) have confirmed that, in their judgment, grounds for Cause exist, his employment shall thereupon terminate for Cause. In such event, he shall be entitled to: (i) the Base Salary then in effect through the date of the termination of his employment for Cause; (ii) all Restricted Shares with respect to which the Restriction Period had expired prior to the date of such termination; (iii) any amounts earned, accrued or owing but not yet paid under Sections 5, 6 or 7 above; and (iv) other or additional benefits in accordance with applicable plans or programs of the Company. (d) TERMINATION WITHOUT CAUSE OR CONSTRUCTIVE TERMINATION WITHOUT CAUSE. In the event the Executive's employment is terminated by the Company without -10- Cause, other than due to his Disability or death, or is terminated by the Executive due to a Constructive Termination Without Cause, the Executive shall be entitled to: (i) the Base Salary through the date of termination of the Executive's employment; (ii) the Bonus for the year in which such termination occurs in an amount equal to the Bonus that would have been payable to the Executive with respect to such year had such termination not occurred, multiplied (in the event such termination occurs before June 30 of such year) by a fraction, the numerator of which shall be the number of days elapsed during such year prior to the date of such termination and the denominator of which shall be 181, payable immediately; (iii) an amount equal to the product obtained by multiplying three times the aggregate amount paid or payable to the Executive as Base Salary and Bonus with respect to the calendar year immediately preceding the year in which such termination occurs, payable in one lump sum within ten Business Days after such termination; (iv) (a) all Restricted Shares with respect to which the Restriction Period had expired prior to the date of termination and all Restricted Shares as to which the Restriction Period under Section 9(c) hereof has not yet expired (as to which the restriction shall then automatically expire), and (b) such Additional Restricted Shares as the Committee in its discretion has theretofore granted to the Executive (as to which all restriction periods related thereto shall then automatically terminate); (v) exercise any stock option to the extent exercisable at the date of his termination without Cause or Constructive Termination Without Cause, for a period of 90 days after such termination; (vi) any amounts earned, accrued or owing but not yet paid under Sections 4, 5 or 6 above; (vii) continued participation at the Company's expense in medical, dental and hospitalization insurance coverage and in all other employee benefit plans and programs in which he was participating on the date of termination of his employment for a period equal to of the longest of (x) 6 months from the date of such termination, (y) the minimum period prescribed by applicable law or (z) the period set forth in the applicable plan or program of the Company; and (viii) other or additional benefits in accordance with applicable plans and programs of the Company. (e) CHANGE OF CONTROL. (i) In the event of a Change of Control (whether or not the Executive's employment is terminated), the Executive shall be entitled to (A) all -11- Restricted Shares with respect to which the Restriction Period had expired prior to the date of the Change of Control and all Restricted Shares as to which the Restriction Period under Section 9(c) hereof has not yet expired (as to which the restriction shall then automatically expire), and (b) such Additional Restricted Shares as the Committee in its discretion has theretofore granted to the Executive (as to which all restriction periods related thereto shall then automatically terminate); and (B) all Additional Restricted Shares not theretofore granted to the Executive, as to which all restriction periods related thereto shall automatically expire, subject, however, as to the Additional Restricted Shares not theretofore granted to the Executive to the condition that the Market Price (as defined herein) of the Common Stock is not less than $40.00 per share, subject to appropriate adjustments for stock dividends, stock splits, share combinations, exchanges of shares, recapitalizations or comparable changes or transactions by the Company to give proper effect to this provision. For purposes hereof, the term "Market Price" shall mean the average of the daily closing prices of the Common Stock on the principal securities exchange or market in which such stock is traded or quoted for 20 consecutive trading days commencing 30 trading days prior to the consummation of such Change of Control or in the event the Common Stock is not so traded or quoted at that time, the fair value of the Common Stock as determined by the Committee. (ii) If during the 180 day period following a Change of Control, the Executive's employment is terminated by the Company (other than due to his Disability or death) or is terminated due to a Constructive Termination Without Cause, the Executive shall be entitled to (A) the payments and benefits provided in Section 10(d); (B) all Additional Restricted Shares, whether or not theretofore granted to the Executive, and as to which all restriction periods related thereto shall then automatically expire; and (C) all amounts, entitlements or benefits under all employee benefit plans as to which the Executive is not yet vested shall become fully vested except to the extent such vesting would be inconsistent with the terms of the relevant plan. (f) VOLUNTARY TERMINATION. In the event of a termination of employment by the Executive on his own initiative other than a termination due to a Construction Termination Without Cause, the Executive shall have the same entitlements as provided in Section 10(c) for a termination for Cause. A voluntary termination under this Section 10 shall be effective upon not less than 90 days prior notice written to the Company. (g) LIMITATION FOLLOWING A CHANGE OF CONTROL. In the event that the termination of the Executive's employment is pursuant to Section 10(e) above and the aggregate of all payments or benefits made or provided to the Executive under Section 10(e) above and under all other plans and programs of the Company (the "Aggregate Payment") is determined to constitute a Parachute Payment, as such term is defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code"), then the Company shall pay the Executive such additional amounts as are required to be paid by such Executive for any excise taxes imposed on the Executive in connection with such Aggregate Payments pursuant to Section 4999 of the Code. -12- (h) NO MITIGATION. In the event of any termination of employment under this Section 10, the Executive shall be under no obligation to seek other employment. (i) NATURE OF PAYMENTS. Any amounts due under this Section 10 are in the nature of severance payments considered to be reasonable by the Company and are not in the nature of a penalty. (j) NOTICE OF TERMINATION. Except as otherwise provided in this Section 10 and except in the case of a termination due to the Executive's death, the Company or the Executive (as the case may be) shall deliver written notice of termination of employment to the other party hereto which notice shall specify the effective date of termination in accordance herewith. 11. INDEMNIFICATION. (a) The Executive shall be entitled to the benefit of the indemnification provisions contained on the date hereof in the Certificate of Incorporation and By-Laws of the Company (not including any amendments or additions hereafter that limit or narrow, but including any that add to or broaden, the protection afforded to the Executive by those provisions), to the fullest extent permitted by applicable law at the time of the assertion of any liability against the Executive in respect of any matter relating to the period during which the Executive is employed by the Company, no matter when arising. (b) During the period in which the Executive is employed by the Company, the Company agrees to maintain a directors' and officers' liability insurance policy covering the Executive to the extent the Company provides such coverage for its other executive officers, which policy shall be maintained on a claims occurred, rather than claims made, basis. 12. EFFECT OF AGREEMENT ON OTHER BENEFITS. Except as specifically provided in this Agreement, the existence of this Agreement shall not prohibit or restrict the Executive's entitlement to full participation in the employee benefit and other plans or programs in which senior executives of the Company are eligible to participate. 13. COVENANT NOT-TO-COMPETE. During the two years following the end of the Executive's employment by the Company (the "Covenant Period"): (a) The Executive agrees that he will not, directly or indirectly, as a partner, officer, employee, director, stockholder, proprietor, consultant, representative, agent or otherwise become or be interested in, or associate with or render assistance to (i) any person engaged in the ownership, operation and/or management of any water park, amusement park, theme park, marine or wildlife park, outdoor mini-theme park or family amusement or entertainment center (collectively, "Parks") located within the United States of America (or in the event the Company owns or otherwise operates any Park outside the United States of America, in any location within a 250 mile radius of such location) or -13- (ii) if during the Term, the Company commences any line of business, in addition to the ownership, operation and/or management of Parks, and if, during the last full fiscal year of the Company preceding the date of the termination of the Executive's employment, such other line of business accounted for at least 10% of the Company's revenue during such year, any person engaged in such other line of business within a 250 mile radius of any location at which the Company is then engaged therein. The foregoing provisions shall not, however, prohibit the ownership by any Executive of securities in accordance with Section 4(c)(i). (b) The Executive agrees that he will not, directly or indirectly, during the Covenant Period, for his own benefit or for the benefit of any other person knowingly solicit the professional services of any employee of the Company or any Subsidiary or any person who had been such an employee within three months prior thereto or otherwise interfere with the relationship between the Company or any Subsidiary and any of such persons. (c) The Executive recognizes and acknowledges that, in connection with his employment with the Company, he has had and will continue to have access to valuable trade secrets and confidential information of the Company and its Subsidiaries and Affiliates including, but not limited to, customer and supplier lists, business methods and processes, marketing, promotional, pricing and financial information and data relating to employees and agents (collectively, "Confidential Information") and that such Confidential Information is being made available to the Executive only in connection with the furtherance of his employment with the Company. The Executive agrees that during the Term and thereafter, he will not use or disclose any of such Confidential Information to any person, except that disclosure of Confidential Information will be permitted: (i) to the Company, its Subsidiaries and Affiliates and their respective advisors; (ii) if such Confidential Information has previously become available to the public through no fault of the Executive; (iii) if required by any court or governmental agency or body or is otherwise required by law; (iv) if necessary to establish or assert the rights of the Executive hereunder; or (v) if expressly consented to by the Company. (d) The parties agree that a violation of the foregoing agreements not to compete or disclose, or any provision thereof, will cause irreparable damage to the Company, and the Company shall be entitled (without any requirement of posting a bond or other security), in addition to any other rights and remedies which it may have, at law or in equity, to an injunction enjoining and restraining the Executive from doing or continuing to do any such act or any other violations or threatened violations of this Section 13. (e) The Executive acknowledges and agrees that the restrictive covenants set forth in this Section 13 (the "Restrictive Covenants") are reasonable and valid in geographical and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder -14- of the Restrictive Covenants shall not thereby be affected and shall be given full force and effect, without regard to the invalid or unenforceable parts. (f) If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable for any reason, such court shall have the power to modify such Restrictive Covenant, or any part thereof, and, in its modified form, such Restrictive Covenant shall then be valid and enforceable. 14. SEVERABILITY. Should any provision of this Agreement be held, by a court of competent jurisdiction, to be invalid or unenforceable, such invalidity or unenforceability shall not render the entire Agreement invalid or unenforceable, and this Agreement and each individual provision hereof shall be enforceable and valid to the fullest extent permitted by law. 15. SUCCESSORS AND ASSIGNS. (a) This Agreement and all rights under this Agreement are personal to the Executive and shall not be assignable other than by will or the laws of descent. All of the Executive's rights under the Agreement shall inure to the benefit of his heirs, personal representatives, designees or other legal representatives, as the case may be. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. Any person succeeding to the business of the Company by merger, purchase, consolidation or otherwise shall assume by contract or operation of law the obligations of the Company under this Agreement. 16. GOVERNING LAW. This Agreement shall be construed in accordance with and governed by the laws of the State of New York, without regard to the conflicts of laws rules thereof. 17. NOTICES. All notices, requests and demands given to or made upon the respective parties hereto shall be deemed to have been given or made three (3) business days after the date of mailing when mailed by registered or certified mail, postage prepaid, or on the date of delivery if delivered by hand, or by any nationally-recognized overnight delivery service, addressed to the parties at their addresses set forth below or to such other addresses furnished by notice given in accordance with this Section 17: (a) if to the Company, 122 East 42nd Street, New York, New York 10168, Attn: Board of Directors, and (b) if to the Executive, 69 Prospect Street, Summit, New Jersey 07901. 18. WITHHOLDING. All payments required to be made by the Company to the Executive under this Agreement shall be subject to withholding taxes, social security and other payroll deductions in accordance with the Company's policies applicable to senior executives of the Company and the provisions of any applicable employee benefit plan or program of the Company. -15- 19. COMPLETE UNDERSTANDING. This Agreement supersedes any prior contracts, understandings, discussions and agreements relating to employment between the Executive and the Company and constitutes the complete understanding between the parties with respect to the subject matter hereof. No statement, representation, warranty or covenant has been made by either party with respect to the subject matter hereof except as expressly set forth herein. 20. MODIFICATION; WAIVER. (a) This Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by the Company and the Executive or in the case of a waiver, by the party against whom the waiver is to be effective. Any such waiver shall be effective only to the extent specifically set forth in such writing. (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 21. MUTUAL REPRESENTATIONS. (a) The Executive represents and warrants to the Company that the execution and delivery of this Agreement and the fulfillment of the terms hereof (i) will not constitute a default under or conflict with any agreement or other instrument to which he is a party or by which he is bound and (ii) do not require the consent of any person. (b) The Company represents and warrants to the Executive that this Agreement has been duly authorized, executed and delivered by the Company and that such execution and delivery and the fulfillment of the terms hereof (i) will not constitute a default under or conflict with any agreement or other instrument to which it is a party or by which it is bound and (ii) do not require the consent of any person. (c) Each party hereto represents and warrants to the other that this Agreement constitutes the valid and binding obligation of such party enforceable against such party in accordance with its terms. 22. HEADINGS. The headings in this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of this Agreement. 23. COUNTERPARTS. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by the other party hereto. -16- IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed in its corporate name, and the Executive has manually signed his name hereto, all as of the day and year first above written. PREMIER PARKS INC. By: /s/ -------------------------------- Paul A. Biddelman Chairman of the Compensation Committee /s/ ----------------------------------- KIERAN E. BURKE -17- EXHIBIT A --------- If the quotient of Actual EBITDA for the applicable year - ----------------------------------------- Budgeted EBITDA for the applicable year Applicable Percentage --------------------- (rounded to the nearest thousandths) equals: between (and including) .945 and (but excluding) .950 95% between .940 and (but excluding) .945 90% between .935 and (but excluding) .940 85% between .930 and (but excluding) .935 80% between .925 and (but excluding) .930 75% between .920 and (but excluding) .925 70% between .915 and (but excluding) .920 65% between .910 and (but excluding) .915 60% between .905 and (but excluding) .910 55% between .900 and (but excluding) .905 50% between .895 and (but excluding) .900 45% between .890 and (but excluding) .895 40% between .885 and (but excluding) .890 35% between .880 and (but excluding) .885 30% between .875 and (but excluding) .880 25% between .870 and (but excluding) .875 20% between .865 and (but excluding) .870 15% between .860 and (but excluding) .865 10% between .850 and (but excluding) .860 5% less than .850 0% -1- EX-10.(AG) 10 EMPLOYMENT AGREEMENT 7/31/97 PREMIER PARKS/GS EXHIBIT 10(ag) EMPLOYMENT AGREEMENT THIS AGREEMENT ("Agreement"), dated as of July 31, 1997, between PREMIER PARKS INC., a Delaware corporation (the "Company"), and GARY STORY (the "Executive"). W I T N E S S E T H: WHEREAS, the Executive is and has been for more than three years the President of the Company; WHEREAS, the Executive possesses an intimate knowledge of the business and affairs of the Company; WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the Executive's contribution as President and Chief Operating Officer to the growth and success of the Company has been substantial and desires to assure the Company the continued employment of the Executive as President and Chief Operating Officer of the Company and to compensate him therefor; and WHEREAS, the Executive desires to continue to serve as President and Chief Operating Officer of the Company, on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual promises, representations and warranties set forth herein, and for other good and valuable consideration, it is hereby agreed as follows: 1. Certain Definitions. As used herein, the following terms shall have the following meanings: "Actual EBITDA" for any year means EBITDA for such year, provided that (i) if, during such year, the Company or any Subsidiary acquires (A) capital stock (or other equity interests) of any person (other than a person which was, prior thereto, a Subsidiary), whether by acquisition, merger, consolidation or otherwise, and, by virtue of such acquisition, the results of operations of such person for any portion of such year were consolidated with those of the Company and its Subsidiaries in the preparation of the Company's consolidated financial statements for such year or (B) all or substantially all of the assets of any person or any operating unit of any person, and, in either case, such acquisition was not contemplated in the preparation of Budgeted EBITDA for such year, the results of operations of such person or attributable to such assets and the costs and expenses (including financing costs) incurred by the Company or any Subsidiary in connection with, or arising out of, such acquisition shall be disregarded in the calculation of Actual EBITDA for such year, and (ii) in determining Actual EBITDA for any year, the Committee may (but will not be required to) increase (but not decrease) EBITDA by an amount that the Committee reasonably deems to be appropriate to eliminate or offset the effects upon EBITDA for such year of events the Committee deems extraordinary or unusual in nature. "Affiliate" of a person shall mean any other person that directly or indirectly controls, is controlled by, or is under common control with the person specified. For the purposes of this Agreement, "control," when used with respect to any person, shall mean the power to direct the management and policies of such person, whether through the ownership of securities, by contract or otherwise. "Base Salary" shall have the meaning provided in Section 5(a). "Board" shall have the meaning provided in the third recital to this Agreement. "Bonus" shall have the meaning provided in Section 5(b). "Budgeted EBITDA" for any year means the amount of EBITDA that the Company projects to achieve during such year, as specified in the definitive annual budget of the Company for such year approved by the Board. For the year ending December 31, 1997, Budgeted EBITDA means $52 million. "Cause" shall mean (i) the willful or repeated failure of the Executive to perform his obligations hereunder as provided herein, provided that such Cause shall not exist unless the Company shall first have provided the Executive with written notice specifying in reasonable detail the factors constituting such failure and such failure shall not have been cured by the Executive within 30 days after such notice; (ii) the conviction of the Executive of a crime which constitutes a felony involving moral turpitude under applicable law or the entering by him of a plea of guilty or nolo contendere with respect thereto; (iii) the commission by the Executive of any act involving fraud, misappropriation of Company funds or other gross misconduct injurious to the Company; (iv) the good faith determination by the Board that the Executive is dependent upon alcohol or drugs; or (v) the determination by the Board that the Executive has violated in any material respect the provisions of Sections 4(c) or 13(c) hereof. "Change of Control" shall have the meaning provided in the Indenture, dated as of January 15, 1997, between the Company and The Bank of New York, as trustee, as the same exists on the date of this Agreement. "Committee" shall mean the Compensation Committee of the Board. "Constructive Termination Without Cause" shall mean a termination of the Executive's employment at his initiative as provided in Section 10(d) below following the -2- occurrence, without the Executive's prior written consent, of one or more of the following events (except in consequence of a prior termination): (i) a reduction in the Executive's then current Base Salary or in the Bonus payable to him under Section 5(b) (except pursuant to the terms thereof) or the termination or material reduction of any employee material benefit or perquisite enjoyed by him during the term of this Agreement; (ii) the failure to elect or reelect the Executive to any of the positions in the Company described in Section 4(a) below or removal of him from any such position; (iii) a material diminution in the Executive's duties or the assignment to the Executive of duties which are materially inconsistent with his other duties or which materially impair the Executive's ability to function as the President and Chief Operating Officer of the Company; (iv) the relocation of the Company's executive office, or the Executive's own office location as assigned to him by the Company, to a location more than 50 miles from Oklahoma City, Oklahoma; (v) the failure of the Company to obtain the assumption in writing of its obligations under this Agreement by any successor to the business of the Company on or prior to the date of a merger, consolidation, sale or similar transaction; or (vi) the failure by the Company to offer the Executive a new employment agreement with compensation and benefit provisions on terms at least as favorable to the Executive as those set forth herein (other than those provided in Section 9 hereof). "Disability" shall mean the Executive's inability by reason of physical or mental illness to substantially perform his duties and responsibilities under this Agreement for a period of 180 consecutive days or a period of in excess of 180 days during any calendar year during the Term. "EBITDA" for any period means the income before extraordinary items and/or cumulative effect of change in accounting principles of the Company and its Subsidiaries for such period, plus the sum of the following, to the extent deducted in calculating such income, of (i) income tax expense (or, in the case of income tax benefit, minus the amount thereof), (ii) interest expense, net of interest income, and (iii) depreciation and amortization expense, in each case for such period. All components of EBITDA shall be determined on a consolidated basis in accordance with generally acceptable accounting principles in the United States as in effect as of the date of the determination of Budgeted EBITDA for such period, consistently applied by the Company for all periods during the Term. Notwithstanding the foregoing, EBITDA shall for all purposes of this Agreement be calculated for each year without recognition of any expense incurred in connection with (i) any bonuses paid or payable to the Executive, the President and Chief Operating Officer, or the Chief Financial Officer of the Company or (ii) any Restricted Shares and Additional Restricted Shares (as defined herein) now or hereafter granted to those officers. "person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any other entity. -3- "Subsidiary" shall mean, in respect of any person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of capital stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such person, (ii) such person and one or more Subsidiaries of such person or (iii) one or more Subsidiaries of such person. "Term" shall mean the period specified in Section 3 below. 2. Employment. The Company hereby agrees to continue to employ the Executive, and the Executive hereby accepts such employment, upon the terms and conditions set forth herein. 3. Term. Unless sooner terminated in accordance with the provisions of Section 10 hereof, the term of the Executive's employment under this Agreement shall commence on the date hereof and shall end on the third anniversary hereof (the "Term"). 4. Position and Duties. (a) During the Term, the Executive shall serve as the President and Chief Operating Officer of the Company and shall have the authority, functions, duties, powers and responsibilities normally associated with such positions and as from time to time may be prescribed by the Board. The Executive agrees, subject to his election as such and without additional compensation, to serve during the Term in such additional offices of comparable stature and responsibility to which he may be elected from time to time in the Company's Subsidiaries and to serve as a director and as a member of any committee of the Board and as a director of the Company's Subsidiaries. (b) During the Term and subject to the provisions of Section 4(c), (i) the Executive's services shall be rendered on a full-time, exclusive basis, (ii) he will apply on a full-time basis all of his skill and experience to the performance of his duties in such employment, and shall report only to the Board, (iii) he shall have no other employment or outside business activities and (iv) unless the Executive otherwise consents, the headquarters for the performance of his services shall be the executive offices of the Company in the greater Oklahoma City area, subject to such reasonable travel as the performance of his duties in the business of the Company may require. (c) During the Term, the Executive shall not, directly or indirectly, without the prior written consent of the Board, render any services to any person (other than the Company and its Subsidiaries and other persons in which the Company may have an interest), or acquire any interest of any type in any such other person that is in competition with the Company or any of its Subsidiaries or in conflict with his full-time, exclusive position as a senior executive officer of the Company; provided, however, that the foregoing shall not be deemed to prohibit the Executive from (i) acquiring, solely as an investment, securities of any person which are registered under Section 12(b) or 12(g) of the -4- Securities Exchange Act of 1934, as amended (the "Exchange Act") and which are publicly traded, so long as he is not part of any group required to make any filing under Section 13(d) of the Exchange Act in respect of such person and such securities do not constitute 2% or more of any class of outstanding securities of such person, (ii) acquiring, solely as an investment, any securities of any person (other than a person that has outstanding securities covered by the preceding clause (i)) so long as he remains a passive investor in such person and does not become part of any control group thereof and so long as such person is not, directly or indirectly, in competition with the Company or any of its Subsidiaries or (iii)(A) serving on the boards of directors of a reasonable number of other corporations (none of which are in competition with the Company or its Subsidiaries) or the boards of a reasonable number of trade associations and/or charitable organizations or, with the prior written consent of the Committee, to provide consulting services for any such corporation, trade association and/or charitable organization, (B) engaging in charitable activities and community affairs and (C) managing his personal investments and affairs, provided that the activities referred to in this clause (iii) do not in the aggregate interfere in any material respect with the proper performance of his duties and responsibilities as the Company's President and Chief Operating Officer. For purposes of the foregoing, a person shall be deemed to be in competition with the Company or any of its Subsidiaries if it (or its Subsidiaries or Affiliates) is then engaged in any line of business that is substantially the same as any line of business in which the Company or any of its Subsidiaries is engaged. (d) The Company shall use its best efforts to cause the Executive to be a member of the Board throughout the Term and shall include him in the management slate for election as a director at every stockholders' meeting at which his term as a director would otherwise expire. 5. Compensation. (a) Base Salary. The Company shall pay or cause to be paid to the Executive a base salary (the "Base Salary") of (i) during the balance of the year ending December 31, 1997, $300,000 per annum, and (ii) during each succeeding calendar year (or portion thereof) during the Term an amount per annum equal to $30,000 plus the Base Salary in effect at the end of the immediately preceding calendar year. The Company may increase, but not decrease, the Base Salary at any time and from time to time during the Term. The Base Salary shall be payable in monthly or more frequent installments in accordance with the Company's regular payroll practices for senior executives. (b) Bonus. In addition to the Base Salary, the Executive shall be entitled to receive an annual cash bonus (the "Bonus") in an amount equal to the sum of (a) .006660 multiplied by the Budgeted EBITDA for the applicable year plus (b) .02331 multiplied by the amount, if any, by which the Actual EBITDA for such year exceeded the Budgeted EBITDA for such year; provided, however, that if in any year, the Actual EBITDA is less than 95% of the amount of the Budgeted EBITDA for such year, the product obtained by clause (a) above shall be multiplied by the Applicable Percentage set forth on Exhibit A in determining the amount of the Bonus payable with respect to such year. The Bonus will be payable with respect to each of the Company's fiscal years ending December 31, 1997, -5- December 31, 1998 and December 31, 1999 and, except as provided in Section 5(c), will be payable as follows: (i) 75% of the estimated Bonus will be paid to the Executive in the immediately succeeding January; and (ii) the remaining amount of the Bonus over the amount previously paid in January of that year will be paid to the Executive not later than 120 days after the end of the preceding year. Within 95 days following the end of each applicable year during the Term, the independent public accountants of the Company shall deliver to the Committee a certificate setting forth the calculation of EBITDA for such year based on the Company's audited financial statements for such year and, if applicable, an agreed upon procedure report on all adjustments to EBITDA required by clause (i) of the definition of Actual EBITDA. Within 100 days after the end of each such year, the Committee shall deliver to the Executive a notice, in reasonable detail, showing the calculation of Actual EBITDA for such year, the Bonus payable to the Executive under this Section 5(b) with respect to such year and the number of Restricted Shares with respect to which the Restriction Period has expired by virtue of such Actual EBITDA pursuant to Section 9(c)(ii) hereof. (c) Deferred Compensation. The Executive by timely notice delivered to the Committee may elect to defer any portion of the Base Salary or Bonus with respect to any year on terms reasonably acceptable to the Company, provided such deferral does not result in the Company incurring any additional expense. 6. Employee Benefit Programs. During the Term, the Executive shall be entitled to participate in all employee pension and welfare benefit plans and programs made available to the Company's senior level executives or its employees generally, as such plans or programs may be in effect from time to time, including without limitation, pension, savings and other retirement plans or programs, medical, dental, hospitalization, short-term and long-term disability and life insurance plans, and any other employee benefit plans or programs that may be sponsored by the Company from time to time, whether funded or unfunded. 7. Reimbursement of Expenses. During the Term, the Company shall pay or reimburse the Executive for all reasonable travel, entertainment and other business expenses actually incurred or paid by the Executive in the performance of his duties hereunder upon presentation of expense statements or vouchers or such other supporting information as the Company may reasonably require. 8. Vacations. In addition to customary paid holidays, the Executive shall be entitled to four (4) weeks of paid vacation during each year of the Term (and a pro rata portion thereof for any portion of the Term that is less than a full year). Any unused vacation days during any year shall not be carried forward to subsequent years, nor shall the Executive receive any additional compensation for such unused vacation days. -6- 9. The Shares. (a) On the date hereof, and in consideration of services to be performed by the Executive hereunder, the Company has granted to the Executive, subject to the provisions of this Section 9, 150,000 shares (the "Restricted Shares") of the Company's Common Stock, par value $.05 per share (the "Common Stock"). In addition, on the date hereof, the Company shall reserve for future grant to the Executive, at the sole and absolute discretion of the Committee taking into account EBITDA and other factors, an additional 150,000 shares of Common Stock (the "Additional Restricted Shares" and together with the Restricted Shares, the "Shares"). (b) During the Restriction Period (as defined below) relating to any Restricted Shares, such Restricted Shares may not be sold, assigned, transferred, pledged or otherwise encumbered by the Executive. Except as provided in this Section 9, the Executive, as the owner of Restricted Shares, shall have all the rights of a holder of Common Stock, including but not limited to the right to receive all cash dividends or distributions paid on and the right to vote such Restricted Shares until such date as such Restricted Shares shall have been forfeited pursuant to Section 9(g). (c) The restrictions contained in this Section 9 on the rights of the Executive to sell, assign, transfer or encumber the Restricted Shares and on his ability to hold the certificates representing the Restricted Shares pursuant to Section 9(d) shall expire as follows: (i) the restrictions on 25,000 Restricted Shares shall expire on each of January 1, 1998, January 1, 1999, January 1, 2000, January 1, 2001, January 1, 2002 and January 1, 2003, provided that the Executive's employment hereunder has not been terminated pursuant to Section 10(c) of this Agreement or the equivalent provision of any successor agreements prior to such date. (ii) The period during which the restrictions set forth in this Section 9(c) as to the ownership, transfer and disposition by the Executive of any Restricted Shares shall be in effect shall be referred to herein as the "Restriction Period." (d) Each certificate representing Restricted Shares or Additional Restricted Shares shall be registered in the name of the Executive, deposited by him with the Company together with a stock power endorsed in blank and bear the following, or a substantially similar, legend: "The transferability of this Certificate and the Common Stock represented hereby is subject to the terms and conditions, including forfeiture, contained in the Employment Agreement, dated July __, 1997, between the Company and Gary Story. A copy of the Employment Agreement is on file in the executive offices of Premier Parks Inc., 11501 Northeast Expressway, Oklahoma City, Oklahoma 73131." -7- (e) The Executive hereby represents and warrants that he (i) is acquiring the Restricted Shares for his own account and not with a view to the sale or distribution thereof except in compliance with the Securities Act of 1933, as amended (the "Securities Act") and applicable state securities laws and (ii) is an "accredited investor" as such term is defined in Regulation D under the Securities Act. (f) After the Restriction Period relating to any Restricted Shares has expired, upon the written request of the Executive, or the Executive's legal representative, permitted successor or heir, the Company shall deliver to the Executive, or such legal representative, permitted successor or heir, a certificate or certificates, without the legend referred to in Section 9(d), for the number of such Restricted Shares. Notwithstanding the foregoing, any certificate or certificates so delivered shall bear such legends as the Company may deem advisable to reflect restrictions which may be imposed by law, including, without limitation, the Securities Act or any state "blue sky" or other applicable securities laws. (g) The Executive's rights to any Restricted Shares shall be forfeited on the first date on which it can be determined that the Restriction Period with respect to such Restricted Shares is incapable of expiring pursuant to the provisions of Section 9(c). Any Restricted Shares with respect to which the Restriction Period has not expired shall be forfeited as of the last day thereof. Certificates representing any forfeited Restricted Shares shall be cancelled by the Company, and the Executive shall have no rights with respect to any such forfeited Shares. (h) If the Company shall be consolidated or merged with another corporation, and such consolidation or merger is not a Change of Control, the Executive will deposit with the successor corporation the certificates for the stock or securities or the other property that the Executive is entitled to receive by reason of his ownership of Restricted Shares in a manner consistent with Section 9(d), and such stock, securities or other property shall become subject to the restrictions and requirements imposed by this Section 9, and the certificates therefor or other evidence thereof shall bear a legend similar in form and substance to the legend set forth in Section 9(d). (i) In the event of a stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, reorganization, liquidation or other comparable changes or transactions of or by the Company, an appropriate adjustment to the number of Shares shall be made to give proper effect to such event. 10. Termination of Employment. (a) Termination Due to Death. The Executive's employment shall immediately terminate upon his death. In such event, his estate or his beneficiaries, as the case may be, shall be entitled to: -8- (i) Base Salary (at the applicable rate in effect on the date of his death) for a period of 365 days; (ii) a Bonus for the year in which the Executive's death occurs in an amount equal to the Bonus (if any) that would have been payable to the Executive with respect to such year had his death not occurred, multiplied (in the event such death occurs before June 30 of such year) by a fraction the numerator of which shall be the number of days elapsed during such year prior to the date of the Executive's death and the denominator of which shall be 181, payable as provided in Section 5(b); (iii) all Restricted Shares with respect to which the Restriction Period had expired prior to the date of this death, all Restricted Shares as to which the Restriction Period under Section 9(c) hereof has not yet expired (as to which the restriction shall then automatically expire), and such Additional Restricted Shares as the Committee may in its discretion grant; (iv) unless otherwise required by any plan, the continued right to exercise any then vested stock option for the remainder of its term; (v) any amounts earned, accrued or owing but not yet paid under Sections 5, 6 or 7 above; and (vi) other or additional benefits in accordance with applicable plans and programs of the Company. (b) Termination Due to Disability. The Company may terminate the Executive's employment, by written notice delivered to him, due to his Disability. In such event, he shall be entitled to: (i) an amount equal to 100% of Base Salary, at the rate in effect at the date of such termination of his employment, for a period of 365 days following the date of termination, less the amount of any disability benefits provided to the Executive under any disability plan or policy; (ii) a Bonus for the year in which such termination occurs in an amount equal to the Bonus that would have been payable to the Executive with respect to such year had such termination not occurred, multiplied (in the event such termination occurs before June 30 of such year) by a fraction the numerator of which shall be the number of days elapsed during such year prior to the date of such termination and the denominator of which shall be 181, payable as provided in Section 5(b); (iii) all Restricted Shares with respect to which the Restriction Period had expired prior to the date of termination due to his Disability and all Restricted Shares as to which the Restriction Period under Section 9(c) hereof has not yet expired (as -9- to which the restriction shall automatically expire), and such Additional Restricted Shares as the Committee may in its discretion grant; (iv) unless otherwise required by any plan, the continued right to exercise any then vested stock option for the remainder of its term; (v) any amounts earned, accrued or owing but not yet paid under Sections 5, 6 or 7 above; (vi) continued participation at the expense of the Company in medical, dental and hospitalization insurance coverage in which he was participating on the date of termination of his employment for a period equal to the longest of (x) 12 months from the date of such termination, (y) the minimum period prescribed by applicable law or (z) the period set forth in the applicable plan or program of the Company; and (vii) other or additional benefits in accordance with applicable plans and programs of the Company. (c) Termination by the Company for Cause. In the event the Company proposes to terminate the Executive's employment for Cause, it shall so notify the Executive in writing, which notice shall include (A) in reasonable detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Cause is based and (B) the date (which shall not be earlier than 21 days following the date of such notice), time and location of a Board meeting at which the Executive shall be entitled to a hearing as to such grounds. If, within five days after such hearing, the Executive is furnished written notice that a majority of all then members of the Board (excluding the Executive) have confirmed that, in their judgment, grounds for Cause exist, his employment shall thereupon terminate for Cause. In such event, he shall be entitled to: (i) the Base Salary then in effect through the date of the termination of his employment for Cause; (ii) all Restricted Shares with respect to which the Restriction Period had expired prior to the date of such termination; (iii) any amounts earned, accrued or owing but not yet paid under Sections 5, 6 or 7 above; and (iv) other or additional benefits in accordance with applicable plans or programs of the Company. (d) Termination Without Cause or Constructive Termination Without Cause. In the event the Executive's employment is terminated by the Company without -10- Cause, other than due to his Disability or death, or is terminated by the Executive due to a Constructive Termination Without Cause, the Executive shall be entitled to: (i) the Base Salary through the date of termination of the Executive's employment; (ii) the Bonus for the year in which such termination occurs in an amount equal to the Bonus that would have been payable to the Executive with respect to such year had such termination not occurred, multiplied (in the event such termination occurs before June 30 of such year) by a fraction, the numerator of which shall be the number of days elapsed during such year prior to the date of such termination and the denominator of which shall be 181, payable immediately; (iii) an amount equal to the product obtained by multiplying three times the aggregate amount paid or payable to the Executive as Base Salary and Bonus with respect to the calendar year immediately preceding the year in which such termination occurs, payable in one lump sum within ten Business Days after such termination; (iv) (a) all Restricted Shares with respect to which the Restriction Period had expired prior to the date of termination and all Restricted Shares as to which the Restriction Period under Section 9(c) hereof has not yet expired (as to which the restriction shall then automatically expire), and (b) such Additional Restricted Shares as the Committee in its discretion has theretofore granted to the Executive (as to which all restriction periods related thereto shall then automatically terminate); (v) exercise any stock option to the extent exercisable at the date of his termination without Cause or Constructive Termination Without Cause, for a period of 90 days after such termination; (vi) any amounts earned, accrued or owing but not yet paid under Sections 4, 5 or 6 above; (vii) continued participation at the Company's expense in medical, dental and hospitalization insurance coverage and in all other employee benefit plans and programs in which he was participating on the date of termination of his employment for a period equal to of the longest of (x) 6 months from the date of such termination, (y) the minimum period prescribed by applicable law or (z) the period set forth in the applicable plan or program of the Company; and (viii) other or additional benefits in accordance with applicable plans and programs of the Company. (e) Change of Control. (i) In the event of a Change of Control (whether or not the Executive's employment is terminated), the Executive shall be entitled to (A) all -11- Restricted Shares with respect to which the Restriction Period had expired prior to the date of the Change of Control and all Restricted Shares as to which the Restriction Period under Section 9(c) hereof has not yet expired (as to which the restriction shall then automatically expire), and (b) such Additional Restricted Shares as the Committee in its discretion has theretofore granted to the Executive (as to which all restriction periods related thereto shall then automatically terminate); and (B) all Additional Restricted Shares not theretofore granted to the Executive, as to which all restriction periods related thereto shall automatically expire, subject, however, as to the Additional Restricted Shares not theretofore granted to the Executive to the condition that the Market Price (as defined herein) of the Common Stock is not less than $40.00 per share, subject to appropriate adjustments for stock dividends, stock splits, share combinations, exchanges of shares, recapitalizations or comparable changes or transactions by the Company to give proper effect to this provision. For purposes hereof, the term "Market Price" shall mean the average of the daily closing prices of the Common Stock on the principal securities exchange or market in which such stock is traded or quoted for 20 consecutive trading days commencing 30 trading days prior to the consummation of such Change of Control or in the event the Common Stock is not so traded or quoted at that time, the fair value of the Common Stock as determined by the Committee. (ii) If during the 180 day period following a Change of Control, the Executive's employment is terminated by the Company (other than due to his Disability or death) or is terminated due to a Constructive Termination Without Cause, the Executive shall be entitled to (A) the payments and benefits provided in Section 10(d); (B) all Additional Restricted Shares, whether or not theretofore granted to the Executive, and as to which all restriction periods related thereto shall then automatically expire; and (C) all amounts, entitlements or benefits under all employee benefit plans as to which the Executive is not yet vested shall become fully vested except to the extent such vesting would be inconsistent with the terms of the relevant plan. (f) Voluntary Termination. In the event of a termination of employment by the Executive on his own initiative other than a termination due to a Construction Termination Without Cause, the Executive shall have the same entitlements as provided in Section 10(c) for a termination for Cause. A voluntary termination under this Section 10 shall be effective upon not less than 90 days prior notice written to the Company. (g) Limitation Following a Change of Control. In the event that the termination of the Executive's employment is pursuant to Section 10(e) above and the aggregate of all payments or benefits made or provided to the Executive under Section 10(e) above and under all other plans and programs of the Company (the "Aggregate Payment") is determined to constitute a Parachute Payment, as such term is defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code"), then the Company shall pay the Executive such additional amounts as are required to be paid by such Executive for any excise taxes imposed on the Executive in connection with such Aggregate Payments pursuant to Section 4999 of the Code. -12- (h) No Mitigation. In the event of any termination of employment under this Section 10, the Executive shall be under no obligation to seek other employment. (i) Nature of Payments. Any amounts due under this Section 10 are in the nature of severance payments considered to be reasonable by the Company and are not in the nature of a penalty. (j) Notice of Termination. Except as otherwise provided in this Section 10 and except in the case of a termination due to the Executive's death, the Company or the Executive (as the case may be) shall deliver written notice of termination of employment to the other party hereto which notice shall specify the effective date of termination in accordance herewith. 11. Indemnification. (a) The Executive shall be entitled to the benefit of the indemnification provisions contained on the date hereof in the Certificate of Incorporation and By-Laws of the Company (not including any amendments or additions hereafter that limit or narrow, but including any that add to or broaden, the protection afforded to the Executive by those provisions), to the fullest extent permitted by applicable law at the time of the assertion of any liability against the Executive in respect of any matter relating to the period during which the Executive is employed by the Company, no matter when arising. (b) During the period in which the Executive is employed by the Company, the Company agrees to maintain a directors' and officers' liability insurance policy covering the Executive to the extent the Company provides such coverage for its other executive officers, which policy shall be maintained on a claims occurred, rather than claims made, basis. 12. Effect of Agreement on Other Benefits. Except as specifically provided in this Agreement, the existence of this Agreement shall not prohibit or restrict the Executive's entitlement to full participation in the employee benefit and other plans or programs in which senior executives of the Company are eligible to participate. 13. Covenant Not-to-Compete. During the two years following the end of the Executive's employment by the Company (the "Covenant Period"): (a) The Executive agrees that he will not, directly or indirectly, as a partner, officer, employee, director, stockholder, proprietor, consultant, representative, agent or otherwise become or be interested in, or associate with or render assistance to (i) any person engaged in the ownership, operation and/or management of any water park, amusement park, theme park, marine or wildlife park, outdoor mini-theme park or family amusement or entertainment center (collectively, "Parks") located within the United States of America (or in the event the Company owns or otherwise operates any Park outside the United States of America, in any location within a 250 mile radius of such location) or -13- (ii) if during the Term, the Company commences any line of business, in addition to the ownership, operation and/or management of Parks, and if, during the last full fiscal year of the Company preceding the date of the termination of the Executive's employment, such other line of business accounted for at least 10% of the Company's revenue during such year, any person engaged in such other line of business within a 250 mile radius of any location at which the Company is then engaged therein. The foregoing provisions shall not, however, prohibit the ownership by any Executive of securities in accordance with Section 4(c)(i). (b) The Executive agrees that he will not, directly or indirectly, during the Covenant Period, for his own benefit or for the benefit of any other person knowingly solicit the professional services of any employee of the Company or any Subsidiary or any person who had been such an employee within three months prior thereto or otherwise interfere with the relationship between the Company or any Subsidiary and any of such persons. (c) The Executive recognizes and acknowledges that, in connection with his employment with the Company, he has had and will continue to have access to valuable trade secrets and confidential information of the Company and its Subsidiaries and Affiliates including, but not limited to, customer and supplier lists, business methods and processes, marketing, promotional, pricing and financial information and data relating to employees and agents (collectively, "Confidential Information") and that such Confidential Information is being made available to the Executive only in connection with the furtherance of his employment with the Company. The Executive agrees that during the Term and thereafter, he will not use or disclose any of such Confidential Information to any person, except that disclosure of Confidential Information will be permitted: (i) to the Company, its Subsidiaries and Affiliates and their respective advisors; (ii) if such Confidential Information has previously become available to the public through no fault of the Executive; (iii) if required by any court or governmental agency or body or is otherwise required by law; (iv) if necessary to establish or assert the rights of the Executive hereunder; or (v) if expressly consented to by the Company. (d) The parties agree that a violation of the foregoing agreements not to compete or disclose, or any provision thereof, will cause irreparable damage to the Company, and the Company shall be entitled (without any requirement of posting a bond or other security), in addition to any other rights and remedies which it may have, at law or in equity, to an injunction enjoining and restraining the Executive from doing or continuing to do any such act or any other violations or threatened violations of this Section 13. (e) The Executive acknowledges and agrees that the restrictive covenants set forth in this Section 13 (the "Restrictive Covenants") are reasonable and valid in geographical and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder -14- of the Restrictive Covenants shall not thereby be affected and shall be given full force and effect, without regard to the invalid or unenforceable parts. (f) If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable for any reason, such court shall have the power to modify such Restrictive Covenant, or any part thereof, and, in its modified form, such Restrictive Covenant shall then be valid and enforceable. 14. Severability. Should any provision of this Agreement be held, by a court of competent jurisdiction, to be invalid or unenforceable, such invalidity or unenforceability shall not render the entire Agreement invalid or unenforceable, and this Agreement and each individual provision hereof shall be enforceable and valid to the fullest extent permitted by law. 15. Successors and Assigns. (a) This Agreement and all rights under this Agreement are personal to the Executive and shall not be assignable other than by will or the laws of descent. All of the Executive's rights under the Agreement shall inure to the benefit of his heirs, personal representatives, designees or other legal representatives, as the case may be. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. Any person succeeding to the business of the Company by merger, purchase, consolidation or otherwise shall assume by contract or operation of law the obligations of the Company under this Agreement. 16. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York, without regard to the conflicts of laws rules thereof. 17. Notices. All notices, requests and demands given to or made upon the respective parties hereto shall be deemed to have been given or made three (3) business days after the date of mailing when mailed by registered or certified mail, postage prepaid, or on the date of delivery if delivered by hand, or by any nationally-recognized overnight delivery service, addressed to the parties at their addresses set forth below or to such other addresses furnished by notice given in accordance with this Section 17: (a) if to the Company, 122 East 42nd Street, New York, New York 10168, Attn: Board of Directors, and (b) if to the Executive, 2532 Sweetbriar, Edmond, Oklahoma 73034. 18. Withholding. All payments required to be made by the Company to the Executive under this Agreement shall be subject to withholding taxes, social security and other payroll deductions in accordance with the Company's policies applicable to senior executives of the Company and the provisions of any applicable employee benefit plan or program of the Company. -15- 19. Complete Understanding. This Agreement supersedes any prior contracts, understandings, discussions and agreements relating to employment between the Executive and the Company and constitutes the complete understanding between the parties with respect to the subject matter hereof. No statement, representation, warranty or covenant has been made by either party with respect to the subject matter hereof except as expressly set forth herein. 20. Modification; Waiver. (a) This Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by the Company and the Executive or in the case of a waiver, by the party against whom the waiver is to be effective. Any such waiver shall be effective only to the extent specifically set forth in such writing. (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 21. Mutual Representations. (a) The Executive represents and warrants to the Company that the execution and delivery of this Agreement and the fulfillment of the terms hereof (i) will not constitute a default under or conflict with any agreement or other instrument to which he is a party or by which he is bound and (ii) do not require the consent of any person. (b) The Company represents and warrants to the Executive that this Agreement has been duly authorized, executed and delivered by the Company and that such execution and delivery and the fulfillment of the terms hereof (i) will not constitute a default under or conflict with any agreement or other instrument to which it is a party or by which it is bound and (ii) do not require the consent of any person. (c) Each party hereto represents and warrants to the other that this Agreement constitutes the valid and binding obligation of such party enforceable against such party in accordance with its terms. 22. Headings. The headings in this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of this Agreement. 23. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by the other party hereto. -16- IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed in its corporate name, and the Executive has manually signed his name hereto, all as of the day and year first above written. PREMIER PARKS INC. By: /s/ --------------------------------- Paul A. Biddelman Chairman of the Compensation Committee /s/ ------------------------------------ GARY STORY -17- EXHIBIT A If the quotient of Actual EBITDA for the applicable year - --------------------------------------- Budgeted EBITDA for the applicable year Applicable Percentage --------------------- (rounded to the nearest thousandths) equals: between (and including) .945 and (but excluding) .950 95% between .940 and (but excluding) .945 90% between .935 and (but excluding) .940 85% between .930 and (but excluding) .935 80% between .925 and (but excluding) .930 75% between .920 and (but excluding) .925 70% between .915 and (but excluding) .920 65% between .910 and (but excluding) .915 60% between .905 and (but excluding) .910 55% between .900 and (but excluding) .905 50% between .895 and (but excluding) .900 45% between .890 and (but excluding) .895 40% between .885 and (but excluding) .890 35% between .880 and (but excluding) .885 30% between .875 and (but excluding) .880 25% between .870 and (but excluding) .875 20% between .865 and (but excluding) .870 15% between .860 and (but excluding) .865 10% between .850 and (but excluding) .860 5% less than .850 0% -1- EX-10.(AH) 11 EMPLOYMENT AGREEMENT 7/31/97 PREMIER PARKS/JFD EXHIBIT 10(ah) EMPLOYMENT AGREEMENT THIS AGREEMENT ("Agreement"), dated as of July 31, 1997, between PREMIER PARKS INC., a Delaware corporation (the "Company"), and JAMES F. DANNHAUSER (the "Executive"). W I T N E S S E T H: WHEREAS, the Executive is and has been for more than two years the Chief Financial Officer of the Company; WHEREAS, the Executive possesses an intimate knowledge of the business and affairs of the Company; WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the Executive's contribution as Chief Financial Officer to the growth and success of the Company has been substantial and desires to assure the Company the continued employment of the Chief Financial Officer of the Company and to compensate him therefor; and WHEREAS, the Executive desires to continue to serve as Chief Financial Officer of the Company, on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual promises, representations and warranties set forth herein, and for other good and valuable consideration, it is hereby agreed as follows: 1. Certain Definitions. As used herein, the following terms shall have the following meanings: "Actual EBITDA" for any year means EBITDA for such year, provided that (i) if, during such year, the Company or any Subsidiary acquires (A) capital stock (or other equity interests) of any person (other than a person which was, prior thereto, a Subsidiary), whether by acquisition, merger, consolidation or otherwise, and, by virtue of such acquisition, the results of operations of such person for any portion of such year were consolidated with those of the Company and its Subsidiaries in the preparation of the Company's consolidated financial statements for such year or (B) all or substantially all of the assets of any person or any operating unit of any person, and, in either case, such acquisition was not contemplated in the preparation of Budgeted EBITDA for such year, the results of operations of such person or attributable to such assets and the costs and expenses (including financing costs) incurred by the Company or any Subsidiary in connection with, or arising out of, such acquisition shall be disregarded in the calculation of Actual EBITDA for such year, and (ii) in determining Actual EBITDA for any year, the Committee may (but will not be required to) increase (but not decrease) EBITDA by an amount that the Committee reasonably deems to be appropriate to eliminate oroffset the effects upon EBITDA for such year of events the Committee deems extraordinary or unusual in nature. "Affiliate" of a person shall mean any other person that directly or indirectly controls, is controlled by, or is under common control with the person specified. For the purposes of this Agreement, "control," when used with respect to any person, shall mean the power to direct the management and policies of such person, whether through the ownership of securities, by contract or otherwise. "Base Salary" shall have the meaning provided in Section 5(a). "Board" shall have the meaning provided in the third recital to this Agreement. "Bonus" shall have the meaning provided in Section 5(b). "Budgeted EBITDA" for any year means the amount of EBITDA that the Company projects to achieve during such year, as specified in the definitive annual budget of the Company for such year approved by the Board. For the year ending December 31, 1997, Budgeted EBITDA means $52 million. "Cause" shall mean (i) the willful or repeated failure of the Executive to perform his obligations hereunder as provided herein, provided that such Cause shall not exist unless the Company shall first have provided the Executive with written notice specifying in reasonable detail the factors constituting such failure and such failure shall not have been cured by the Executive within 30 days after such notice; (ii) the conviction of the Executive of a crime which constitutes a felony involving moral turpitude under applicable law or the entering by him of a plea of guilty or nolo contendere with respect thereto; (iii) the commission by the Executive of any act involving fraud, misappropriation of Company funds or other gross misconduct injurious to the Company; (iv) the good faith determination by the Board that the Executive is dependent upon alcohol or drugs; or (v) the determination by the Board that the Executive has violated in any material respect the provisions of Sections 4(c) or 13(c) hereof. "Change of Control" shall have the meaning provided in the Indenture, dated as of January 15, 1997, between the Company and The Bank of New York, as trustee, as the same exists on the date of this Agreement. "Committee" shall mean the Compensation Committee of the Board. "Constructive Termination Without Cause" shall mean a termination of the Executive's employment at his initiative as provided in Section 10(d) below following the -2- occurrence, without the Executive's prior written consent, of one or more of the following events (except in consequence of a prior termination): (i) a reduction in the Executive's then current Base Salary or in the Bonus payable to him under Section 5(b) (except pursuant to the terms thereof) or the termination or material reduction of any employee material benefit or perquisite enjoyed by him during the term of this Agreement; (ii) the failure to elect or reelect the Executive to any of the positions in the Company described in Section 4(a) below or removal of him from any such position; (iii) a material diminution in the Executive's duties or the assignment to the Executive of duties which are materially inconsistent with his other duties or which materially impair the Executive's ability to function as the Chief Financial Officer of the Company; (iv) the relocation of the Company's executive office, or the Executive's own office location as assigned to him by the Company, to a location more than 50 miles from New York, New York; (v) the failure of the Company to obtain the assumption in writing of its obligations under this Agreement by any successor to the business of the Company on or prior to the date of a merger, consolidation, sale or similar transaction; or (vi) the failure by the Company to offer the Executive a new employment agreement with compensation and benefit provisions on terms at least as favorable to the Executive as those set forth herein (other than those provided in Section 9 hereof). "Disability" shall mean the Executive's inability by reason of physical or mental illness to substantially perform his duties and responsibilities under this Agreement for a period of 180 consecutive days or a period of in excess of 180 days during any calendar year during the Term. "EBITDA" for any period means the income before extraordinary items and/or cumulative effect of change in accounting principles of the Company and its Subsidiaries for such period, plus the sum of the following, to the extent deducted in calculating such income, of (i) income tax expense (or, in the case of income tax benefit, minus the amount thereof), (ii) interest expense, net of interest income, and (iii) depreciation and amortization expense, in each case for such period. All components of EBITDA shall be determined on a consolidated basis in accordance with generally acceptable accounting principles in the United States as in effect as of the date of the determination of Budgeted EBITDA for such period, consistently applied by the Company for all periods during the Term. Notwithstanding the foregoing, EBITDA shall for all purposes of this Agreement be calculated for each year without recognition of any expense incurred in connection with (i) any bonuses paid or payable to the Executive, the President and Chief Operating Officer, or the Chief Financial Officer of the Company or (ii) any Restricted Shares and Additional Restricted Shares (as defined herein) now or hereafter granted to those officers. "person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any other entity. -3- "Subsidiary" shall mean, in respect of any person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of capital stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such person, (ii) such person and one or more Subsidiaries of such person or (iii) one or more Subsidiaries of such person. "Term" shall mean the period specified in Section 3 below. 2. Employment. The Company hereby agrees to continue to employ the Executive, and the Executive hereby accepts such employment, upon the terms and conditions set forth herein. 3. Term. Unless sooner terminated in accordance with the provisions of Section 10 hereof, the term of the Executive's employment under this Agreement shall commence on the date hereof and shall end on the third anniversary hereof (the "Term"). 4. Position and Duties. (a) During the Term, the Executive shall serve as the Chief Financial Officer of the Company and shall have the authority, functions, duties, powers and responsibilities normally associated with such positions and as from time to time may be prescribed by the Board. The Executive agrees, subject to his election as such and without additional compensation, to serve during the Term in such additional offices of comparable stature and responsibility to which he may be elected from time to time in the Company's Subsidiaries and to serve as a director and as a member of any committee of the Board and as a director of the Company's Subsidiaries. (b) During the Term and subject to the provisions of Section 4(c), (i) the Executive's services shall be rendered on a full-time, exclusive basis, (ii) he will apply on a full-time basis all of his skill and experience to the performance of his duties in such employment, and shall report only to the Board, (iii) he shall have no other employment or outside business activities and (iv) unless the Executive otherwise consents, the headquarters for the performance of his services shall be the executive offices of the Company in the greater New York City area, subject to such reasonable travel as the performance of his duties in the business of the Company may require. (c) During the Term, the Executive shall not, directly or indirectly, without the prior written consent of the Board, render any services to any person (other than the Company and its Subsidiaries and other persons in which the Company may have an interest), or acquire any interest of any type in any such other person that is in competition with the Company or any of its Subsidiaries or in conflict with his full-time, exclusive position as a senior executive officer of the Company; provided, however, that the foregoing shall not be deemed to prohibit the Executive from (i) acquiring, solely as an investment, securities of any person which are registered under Section 12(b) or 12(g) of the -4- Securities Exchange Act of 1934, as amended (the "Exchange Act") and which are publicly traded, so long as he is not part of any group required to make any filing under Section 13(d) of the Exchange Act in respect of such person and such securities do not constitute 2% or more of any class of outstanding securities of such person, (ii) acquiring, solely as an investment, any securities of any person (other than a person that has outstanding securities covered by the preceding clause (i)) so long as he remains a passive investor in such person and does not become part of any control group thereof and so long as such person is not, directly or indirectly, in competition with the Company or any of its Subsidiaries or (iii)(A) serving on the boards of directors of a reasonable number of other corporations (none of which are in competition with the Company or its Subsidiaries) or the boards of a reasonable number of trade associations and/or charitable organizations or, with the prior written consent of the Committee, to provide consulting services for any such corporation, trade association and/or charitable organization, (B) engaging in charitable activities and community affairs and (C) managing his personal investments and affairs, provided that the activities referred to in this clause (iii) do not in the aggregate interfere in any material respect with the proper performance of his duties and responsibilities as the Company's Chief Financial Officer. For purposes of the foregoing, a person shall be deemed to be in competition with the Company or any of its Subsidiaries if it (or its Subsidiaries or Affiliates) is then engaged in any line of business that is substantially the same as any line of business in which the Company or any of its Subsidiaries is engaged. (d) The Company shall use its best efforts to cause the Executive to be a member of the Board throughout the Term and shall include him in the management slate for election as a director at every stockholders' meeting at which his term as a director would otherwise expire. 5. Compensation. (a) Base Salary. The Company shall pay or cause to be paid to the Executive a base salary (the "Base Salary") of (i) during the balance of the year ending December 31, 1997, $250,000 per annum, and (ii) during each succeeding calendar year (or portion thereof) during the Term an amount per annum equal to $30,000 plus the Base Salary in effect at the end of the immediately preceding calendar year. The Company may increase, but not decrease, the Base Salary at any time and from time to time during the Term. The Base Salary shall be payable in monthly or more frequent installments in accordance with the Company's regular payroll practices for senior executives. (b) Bonus. In addition to the Base Salary, the Executive shall be entitled to receive an annual cash bonus (the "Bonus") in an amount equal to the sum of (a) .005560 multiplied by the Budgeted EBITDA for the applicable year plus (b) .01946 multiplied by the amount, if any, by which the Actual EBITDA for such year exceeded the Budgeted EBITDA for such year; provided, however, that if in any year, the Actual EBITDA is less than 95% of the amount of the Budgeted EBITDA for such year, the product obtained by clause (a) above shall be multiplied by the Applicable Percentage set forth on Exhibit A in determining the amount of the Bonus payable with respect to such year. The Bonus will be payable with respect to each of the Company's fiscal years ending December 31, 1997, -5- December 31, 1998 and December 31, 1999 and, except as provided in Section 5(c), will be payable as follows: (i) 75% of the estimated Bonus will be paid to the Executive in the immediately succeeding January; and (ii) the remaining amount of the Bonus over the amount previously paid in January of that year will be paid to the Executive not later than 120 days after the end of the preceding year. Within 95 days following the end of each applicable year during the Term, the independent public accountants of the Company shall deliver to the Committee a certificate setting forth the calculation of EBITDA for such year based on the Company's audited financial statements for such year and, if applicable, an agreed upon procedure report on all adjustments to EBITDA required by clause (i) of the definition of Actual EBITDA. Within 100 days after the end of each such year, the Committee shall deliver to the Executive a notice, in reasonable detail, showing the calculation of Actual EBITDA for such year, the Bonus payable to the Executive under this Section 5(b) with respect to such year and the number of Restricted Shares with respect to which the Restriction Period has expired by virtue of such Actual EBITDA pursuant to Section 9(c)(ii) hereof. (c) Deferred Compensation. The Executive by timely notice delivered to the Committee may elect to defer any portion of the Base Salary or Bonus with respect to any year on terms reasonably acceptable to the Company, provided such deferral does not result in the Company incurring any additional expense. 6. Employee Benefit Programs. During the Term, the Executive shall be entitled to participate in all employee pension and welfare benefit plans and programs made available to the Company's senior level executives or its employees generally, as such plans or programs may be in effect from time to time, including without limitation, pension, savings and other retirement plans or programs, medical, dental, hospitalization, short-term and long-term disability and life insurance plans, and any other employee benefit plans or programs that may be sponsored by the Company from time to time, whether funded or unfunded. 7. Reimbursement of Expenses. During the Term, the Company shall pay or reimburse the Executive for all reasonable travel, entertainment and other business expenses actually incurred or paid by the Executive in the performance of his duties hereunder upon presentation of expense statements or vouchers or such other supporting information as the Company may reasonably require. 8. Vacations. In addition to customary paid holidays, the Executive shall be entitled to four (4) weeks of paid vacation during each year of the Term (and a pro rata portion thereof for any portion of the Term that is less than a full year). Any unused vacation days during any year shall not be carried forward to subsequent years, nor shall the Executive receive any additional compensation for such unused vacation days. -6- 9. The Shares. (a) On the date hereof, and in consideration of services to be performed by the Executive hereunder, the Company has granted to the Executive, subject to the provisions of this Section 9, 129,990 shares (the "Restricted Shares") of the Company's Common Stock, par value $.05 per share (the "Common Stock"). In addition, on the date hereof, the Company shall reserve for future grant to the Executive, at the sole and absolute discretion of the Committee taking into account EBITDA and other factors, an additional 129,990 shares of Common Stock (the "Additional Restricted Shares" and together with the Restricted Shares, the "Shares"). (b) During the Restriction Period (as defined below) relating to any Restricted Shares, such Restricted Shares may not be sold, assigned, transferred, pledged or otherwise encumbered by the Executive. Except as provided in this Section 9, the Executive, as the owner of Restricted Shares, shall have all the rights of a holder of Common Stock, including but not limited to the right to receive all cash dividends or distributions paid on and the right to vote such Restricted Shares until such date as such Restricted Shares shall have been forfeited pursuant to Section 9(g). (c) The restrictions contained in this Section 9 on the rights of the Executive to sell, assign, transfer or encumber the Restricted Shares and on his ability to hold the certificates representing the Restricted Shares pursuant to Section 9(d) shall expire as follows: (i) the restrictions on 21,665 Restricted Shares shall expire on each of January 1, 1998, January 1, 1999, January 1, 2000, January 1, 2001, January 1, 2002 and January 1, 2003, provided that the Executive's employment hereunder has not been terminated pursuant to Section 10(c) of this Agreement or the equivalent provision of any successor agreements prior to such date. (ii) The period during which the restrictions set forth in this Section 9(c) as to the ownership, transfer and disposition by the Executive of any Restricted Shares shall be in effect shall be referred to herein as the "Restriction Period." (d) Each certificate representing Restricted Shares or Additional Restricted Shares shall be registered in the name of the Executive, deposited by him with the Company together with a stock power endorsed in blank and bear the following, or a substantially similar, legend: "The transferability of this Certificate and the Common Stock represented hereby is subject to the terms and conditions, including forfeiture, contained in the Employment Agreement, dated July __, 1997, between the Company and James F. Dannhauser . A copy of the Employment Agreement is on file in the executive offices of Premier Parks Inc., 11501 Northeast Expressway, Oklahoma City, Oklahoma 73131." -7- (e) The Executive hereby represents and warrants that he (i) is acquiring the Restricted Shares for his own account and not with a view to the sale or distribution thereof except in compliance with the Securities Act of 1933, as amended (the "Securities Act") and applicable state securities laws and (ii) is an "accredited investor" as such term is defined in Regulation D under the Securities Act. (f) After the Restriction Period relating to any Restricted Shares has expired, upon the written request of the Executive, or the Executive's legal representative, permitted successor or heir, the Company shall deliver to the Executive, or such legal representative, permitted successor or heir, a certificate or certificates, without the legend referred to in Section 9(d), for the number of such Restricted Shares. Notwithstanding the foregoing, any certificate or certificates so delivered shall bear such legends as the Company may deem advisable to reflect restrictions which may be imposed by law, including, without limitation, the Securities Act or any state "blue sky" or other applicable securities laws. (g) The Executive's rights to any Restricted Shares shall be forfeited on the first date on which it can be determined that the Restriction Period with respect to such Restricted Shares is incapable of expiring pursuant to the provisions of Section 9(c). Any Restricted Shares with respect to which the Restriction Period has not expired shall be forfeited as of the last day thereof. Certificates representing any forfeited Restricted Shares shall be cancelled by the Company, and the Executive shall have no rights with respect to any such forfeited Shares. (h) If the Company shall be consolidated or merged with another corporation, and such consolidation or merger is not a Change of Control, the Executive will deposit with the successor corporation the certificates for the stock or securities or the other property that the Executive is entitled to receive by reason of his ownership of Restricted Shares in a manner consistent with Section 9(d), and such stock, securities or other property shall become subject to the restrictions and requirements imposed by this Section 9, and the certificates therefor or other evidence thereof shall bear a legend similar in form and substance to the legend set forth in Section 9(d). (i) In the event of a stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, reorganization, liquidation or other comparable changes or transactions of or by the Company, an appropriate adjustment to the number of Shares shall be made to give proper effect to such event. 10. Termination of Employment. (a) Termination Due to Death. The Executive's employment shall immediately terminate upon his death. In such event, his estate or his beneficiaries, as the case may be, shall be entitled to: -8- (i) Base Salary (at the applicable rate in effect on the date of his death) for a period of 365 days; (ii) a Bonus for the year in which the Executive's death occurs in an amount equal to the Bonus (if any) that would have been payable to the Executive with respect to such year had his death not occurred, multiplied (in the event such death occurs before June 30 of such year) by a fraction the numerator of which shall be the number of days elapsed during such year prior to the date of the Executive's death and the denominator of which shall be 181, payable as provided in Section 5(b); (iii) all Restricted Shares with respect to which the Restriction Period had expired prior to the date of this death, all Restricted Shares as to which the Restriction Period under Section 9(c) hereof has not yet expired (as to which the restriction shall then automatically expire), and such Additional Restricted Shares as the Committee may in its discretion grant; (iv) unless otherwise required by any plan, the continued right to exercise any then vested stock option for the remainder of its term; (v) any amounts earned, accrued or owing but not yet paid under Sections 5, 6 or 7 above; and (vi) other or additional benefits in accordance with applicable plans and programs of the Company. (b) Termination Due to Disability. The Company may terminate the Executive's employment, by written notice delivered to him, due to his Disability. In such event, he shall be entitled to: (i) an amount equal to 100% of Base Salary, at the rate in effect at the date of such termination of his employment, for a period of 365 days following the date of termination, less the amount of any disability benefits provided to the Executive under any disability plan or policy; (ii) a Bonus for the year in which such termination occurs in an amount equal to the Bonus that would have been payable to the Executive with respect to such year had such termination not occurred, multiplied (in the event such termination occurs before June 30 of such year) by a fraction the numerator of which shall be the number of days elapsed during such year prior to the date of such termination and the denominator of which shall be 181, payable as provided in Section 5(b); (iii) all Restricted Shares with respect to which the Restriction Period had expired prior to the date of termination due to his Disability and all Restricted Shares as to which the Restriction Period under Section 9(c) hereof has not yet expired (as -9- to which the restriction shall automatically expire), and such Additional Restricted Shares as the Committee may in its discretion grant; (iv) unless otherwise required by any plan, the continued right to exercise any then vested stock option for the remainder of its term; (v) any amounts earned, accrued or owing but not yet paid under Sections 5, 6 or 7 above; (vi) continued participation at the expense of the Company in medical, dental and hospitalization insurance coverage in which he was participating on the date of termination of his employment for a period equal to the longest of (x) 12 months from the date of such termination, (y) the minimum period prescribed by applicable law or (z) the period set forth in the applicable plan or program of the Company; and (vii) other or additional benefits in accordance with applicable plans and programs of the Company. (c) Termination by the Company for Cause. In the event the Company proposes to terminate the Executive's employment for Cause, it shall so notify the Executive in writing, which notice shall include (A) in reasonable detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Cause is based and (B) the date (which shall not be earlier than 21 days following the date of such notice), time and location of a Board meeting at which the Executive shall be entitled to a hearing as to such grounds. If, within five days after such hearing, the Executive is furnished written notice that a majority of all then members of the Board (excluding the Executive) have confirmed that, in their judgment, grounds for Cause exist, his employment shall thereupon terminate for Cause. In such event, he shall be entitled to: (i) the Base Salary then in effect through the date of the termination of his employment for Cause; (ii) all Restricted Shares with respect to which the Restriction Period had expired prior to the date of such termination; (iii) any amounts earned, accrued or owing but not yet paid under Sections 5, 6 or 7 above; and (iv) other or additional benefits in accordance with applicable plans or programs of the Company. (d) Termination Without Cause or Constructive Termination Without Cause. In the event the Executive's employment is terminated by the Company without -10- Cause, other than due to his Disability or death, or is terminated by the Executive due to a Constructive Termination Without Cause, the Executive shall be entitled to: (i) the Base Salary through the date of termination of the Executive's employment; (ii) the Bonus for the year in which such termination occurs in an amount equal to the Bonus that would have been payable to the Executive with respect to such year had such termination not occurred, multiplied (in the event such termination occurs before June 30 of such year) by a fraction, the numerator of which shall be the number of days elapsed during such year prior to the date of such termination and the denominator of which shall be 181, payable immediately; (iii) an amount equal to the product obtained by multiplying three times the aggregate amount paid or payable to the Executive as Base Salary and Bonus with respect to the calendar year immediately preceding the year in which such termination occurs, payable in one lump sum within ten Business Days after such termination; (iv) (a) all Restricted Shares with respect to which the Restriction Period had expired prior to the date of termination and all Restricted Shares as to which the Restriction Period under Section 9(c) hereof has not yet expired (as to which the restriction shall then automatically expire), and (b) such Additional Restricted Shares as the Committee in its discretion has theretofore granted to the Executive (as to which all restriction periods related thereto shall then automatically terminate); (v) exercise any stock option to the extent exercisable at the date of his termination without Cause or Constructive Termination Without Cause, for a period of 90 days after such termination; (vi) any amounts earned, accrued or owing but not yet paid under Sections 4, 5 or 6 above; (vii) continued participation at the Company's expense in medical, dental and hospitalization insurance coverage and in all other employee benefit plans and programs in which he was participating on the date of termination of his employment for a period equal to of the longest of (x) 6 months from the date of such termination, (y) the minimum period prescribed by applicable law or (z) the period set forth in the applicable plan or program of the Company; and (viii) other or additional benefits in accordance with applicable plans and programs of the Company. -11- (e) Change of Control. (i) In the event of a Change of Control (whether or not the Executive's employment is terminated), the Executive shall be entitled to (A) all Restricted Shares with respect to which the Restriction Period had expired prior to the date of the Change of Control and all Restricted Shares as to which the Restriction Period under Section 9(c) hereof has not yet expired (as to which the restriction shall then automatically expire), and (b) such Additional Restricted Shares as the Committee in its discretion has theretofore granted to the Executive (as to which all restriction periods related thereto shall then automatically terminate); and (B) all Additional Restricted Shares not theretofore granted to the Executive, as to which all restriction periods related thereto shall automatically expire, subject, however, as to the Additional Restricted Shares not theretofore granted to the Executive to the condition that the Market Price (as defined herein) of the Common Stock is not less than $40.00 per share, subject to appropriate adjustments for stock dividends, stock splits, share combinations, exchanges of shares, recapitalizations or comparable changes or transactions by the Company to give proper effect to this provision. For purposes hereof, the term "Market Price" shall mean the average of the daily closing prices of the Common Stock on the principal securities exchange or market in which such stock is traded or quoted for 20 consecutive trading days commencing 30 trading days prior to the consummation of such Change of Control or in the event the Common Stock is not so traded or quoted at that time, the fair value of the Common Stock as determined by the (ii) If during the 180 day period following a Change of Control, the Executive's employment is terminated by the Company (other than due to his Disability or death) or is terminated due to a Constructive Termination Without Cause, the Executive shall be entitled to (A) the payments and benefits provided in Section 10(d); (B) all Additional Restricted Shares, whether or not theretofore granted to the Executive, and as to which all restriction periods related thereto shall then automatically expire; and (C) all amounts, entitlements or benefits under all employee benefit plans as to which the Executive is not yet vested shall become fully vested except to the extent such vesting would be inconsistent with the terms of the relevant plan. (f) Voluntary Termination. In the event of a termination of employment by the Executive on his own initiative other than a termination due to a Construction Termination Without Cause, the Executive shall have the same entitlements as provided in Section 10(c) for a termination for Cause. A voluntary termination under this Section 10 shall be effective upon not less than 90 days prior notice written to the Company. (g) Limitation Following a Change of Control. In the event that the termination of the Executive's employment is pursuant to Section 10(e) above and the aggregate of all payments or benefits made or provided to the Executive under Section 10(e) above and under all other plans and programs of the Company (the "Aggregate Payment") is determined to constitute a Parachute Payment, as such term is defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code"), then the Company shall pay the Executive such additional amounts as are required to be paid by -12- such Executive for any excise taxes imposed on the Executive in connection with such Aggregate Payments pursuant to Section 4999 of the Code. (h) No Mitigation. In the event of any termination of employment under this Section 10, the Executive shall be under no obligation to seek other employment. (i) Nature of Payments. Any amounts due under this Section 10 are in the nature of severance payments considered to be reasonable by the Company and are not in the nature of a penalty. (j) Notice of Termination. Except as otherwise provided in this Section 10 and except in the case of a termination due to the Executive's death, the Company or the Executive (as the case may be) shall deliver written notice of termination of employment to the other party hereto which notice shall specify the effective date of termination in accordance herewith. 11. Indemnification. (a) The Executive shall be entitled to the benefit of the indemnification provisions contained on the date hereof in the Certificate of Incorporation and By-Laws of the Company (not including any amendments or additions hereafter that limit or narrow, but including any that add to or broaden, the protection afforded to the Executive by those provisions), to the fullest extent permitted by applicable law at the time of the assertion of any liability against the Executive in respect of any matter relating to the period during which the Executive is employed by the Company, no matter when arising. (b) During the period in which the Executive is employed by the Company, the Company agrees to maintain a directors' and officers' liability insurance policy covering the Executive to the extent the Company provides such coverage for its other executive officers, which policy shall be maintained on a claims occurred, rather than claims made, basis. 12. Effect of Agreement on Other Benefits. Except as specifically provided in this Agreement, the existence of this Agreement shall not prohibit or restrict the Executive's entitlement to full participation in the employee benefit and other plans or programs in which senior executives of the Company are eligible to participate. 13. Covenant Not-to-Compete. During the two years following the end of the Executive's employment by the Company (the "Covenant Period"): (a) The Executive agrees that he will not, directly or indirectly, as a partner, officer, employee, director, stockholder, proprietor, consultant, representative, agent or otherwise become or be interested in, or associate with or render assistance to (i) any person engaged in the ownership, operation and/or management of any water park, amusement park, theme park, marine or wildlife park, outdoor mini-theme park or family -13- amusement or entertainment center (collectively, "Parks") located within the United States of America (or in the event the Company owns or otherwise operates any Park outside the United States of America, in any location within a 250 mile radius of such location) or (ii) if during the Term, the Company commences any line of business, in addition to the ownership, operation and/or management of Parks, and if, during the last full fiscal year of the Company preceding the date of the termination of the Executive's employment, such other line of business accounted for at least 10% of the Company's revenue during such year, any person engaged in such other line of business within a 250 mile radius of any location at which the Company is then engaged therein. The foregoing provisions shall not, however, prohibit the ownership by any Executive of securities in accordance with Section 4(c)(i). (b) The Executive agrees that he will not, directly or indirectly, during the Covenant Period, for his own benefit or for the benefit of any other person knowingly solicit the professional services of any employee of the Company or any Subsidiary or any person who had been such an employee within three months prior thereto or otherwise interfere with the relationship between the Company or any Subsidiary and any of such persons. (c) The Executive recognizes and acknowledges that, in connection with his employment with the Company, he has had and will continue to have access to valuable trade secrets and confidential information of the Company and its Subsidiaries and Affiliates including, but not limited to, customer and supplier lists, business methods and processes, marketing, promotional, pricing and financial information and data relating to employees and agents (collectively, "Confidential Information") and that such Confidential Information is being made available to the Executive only in connection with the furtherance of his employment with the Company. The Executive agrees that during the Term and thereafter, he will not use or disclose any of such Confidential Information to any person, except that disclosure of Confidential Information will be permitted: (i) to the Company, its Subsidiaries and Affiliates and their respective advisors; (ii) if such Confidential Information has previously become available to the public through no fault of the Executive; (iii) if required by any court or governmental agency or body or is otherwise required by law; (iv) if necessary to establish or assert the rights of the Executive hereunder; or (v) if expressly consented to by the Company. (d) The parties agree that a violation of the foregoing agreements not to compete or disclose, or any provision thereof, will cause irreparable damage to the Company, and the Company shall be entitled (without any requirement of posting a bond or other security), in addition to any other rights and remedies which it may have, at law or in equity, to an injunction enjoining and restraining the Executive from doing or continuing to do any such act or any other violations or threatened violations of this Section 13. -14- (e) The Executive acknowledges and agrees that the restrictive covenants set forth in this Section 13 (the "Restrictive Covenants") are reasonable and valid in geographical and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full force and effect, without regard to the invalid or unenforceable parts. (f) If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable for any reason, such court shall have the power to modify such Restrictive Covenant, or any part thereof, and, in its modified form, such Restrictive Covenant shall then be valid and enforceable. 14. Severability. Should any provision of this Agreement be held, by a court of competent jurisdiction, to be invalid or unenforceable, such invalidity or unenforceability shall not render the entire Agreement invalid or unenforceable, and this Agreement and each individual provision hereof shall be enforceable and valid to the fullest extent permitted by law. 15. Successors and Assigns. (a) This Agreement and all rights under this Agreement are personal to the Executive and shall not be assignable other than by will or the laws of descent. All of the Executive's rights under the Agreement shall inure to the benefit of his heirs, personal representatives, designees or other legal representatives, as the case may be. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. Any person succeeding to the business of the Company by merger, purchase, consolidation or otherwise shall assume by contract or operation of law the obligations of the Company under this Agreement. 16. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York, without regard to the conflicts of laws rules thereof. 17. Notices. All notices, requests and demands given to or made upon the respective parties hereto shall be deemed to have been given or made three (3) business days after the date of mailing when mailed by registered or certified mail, postage prepaid, or on the date of delivery if delivered by hand, or by any nationally-recognized overnight delivery service, addressed to the parties at their addresses set forth below or to such other addresses furnished by notice given in accordance with this Section 17: (a) if to the Company, 122 East 42nd Street, New York, New York 10168, Attn: Board of Directors, and (b) if to the Executive, 4 Oval Court, Bronxville, New York 10708. 18. Withholding. All payments required to be made by the Company to the Executive under this Agreement shall be subject to withholding taxes, social security and -15- other payroll deductions in accordance with the Company's policies applicable to senior executives of the Company and the provisions of any applicable employee benefit plan or program of the Company. 19. Complete Understanding. This Agreement supersedes any prior contracts, understandings, discussions and agreements relating to employment between the Executive and the Company and constitutes the complete understanding between the parties with respect to the subject matter hereof. No statement, representation, warranty or covenant has been made by either party with respect to the subject matter hereof except as expressly set forth herein. 20. Modification; Waiver. (a) This Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by the Company and the Executive or in the case of a waiver, by the party against whom the waiver is to be effective. Any such waiver shall be effective only to the extent specifically set forth in such writing. (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 21. Mutual Representations. (a) The Executive represents and warrants to the Company that the execution and delivery of this Agreement and the fulfillment of the terms hereof (i) will not constitute a default under or conflict with any agreement or other instrument to which he is a party or by which he is bound and (ii) do not require the consent of any person. (b) The Company represents and warrants to the Executive that this Agreement has been duly authorized, executed and delivered by the Company and that such execution and delivery and the fulfillment of the terms hereof (i) will not constitute a default under or conflict with any agreement or other instrument to which it is a party or by which it is bound and (ii) do not require the consent of any person. (c) Each party hereto represents and warrants to the other that this Agreement constitutes the valid and binding obligation of such party enforceable against such party in accordance with its terms. 22. Headings. The headings in this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of this Agreement. 23. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective -16- when each party hereto shall have received counterparts hereof signed by the other party hereto. -17- IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed in its corporate name, and the Executive has manually signed his name hereto, all as of the day and year first above written. PREMIER PARKS INC. By: /s/ ------------------------------- Paul A. Biddelman Chairman of the Compensation Committee /s/ ---------------------------------- JAMES F. DANNHAUSER -18- EXHIBIT A If the quotient of Actual EBITDA for the applicable year ------------------------------------- Budgeted EBITDA for the applicable year Applicable Percentage --------------------- (rounded to the nearest thousandths) equals: between (and including) .945 and (but excluding) .950 95% between .940 and (but excluding) .945 90% between .935 and (but excluding) .940 85% between .930 and (but excluding) .935 80% between .925 and (but excluding) .930 75% between .920 and (but excluding) .925 70% between .915 and (but excluding) .920 65% between .910 and (but excluding) .915 60% between .905 and (but excluding) .910 55% between .900 and (but excluding) .905 50% between .895 and (but excluding) .900 45% between .890 and (but excluding) .895 40% between .885 and (but excluding) .890 35% between .880 and (but excluding) .885 30% between .875 and (but excluding) .880 25% between .870 and (but excluding) .875 20% between .865 and (but excluding) .870 15% between .860 and (but excluding) .865 10% between .850 and (but excluding) .860 5% less than .850 0% -1- EX-21 12 SUBSIDIARIES OF PREMIER PARKS INC EXHIBIT 21 SUBSIDIARIES OF PREMIER PARKS INC. 1. FUNTIME, INC. [an Ohio corporation] 2. FUNTIME PARKS, INC. [an Ohio corporation] 3. DARIEN LAKE THEME PARK AND CAMPING RESORT, INC. [a New York corporation] 4. GREAT ESCAPE HOLDING INC. [a New York corporation] 5. GREAT ESCAPE LLC [a New York limited liability company] 6. GREAT ESCAPE THEME PARK LLC [a New York limited liability company] 7. ELITCH GARDENS L.P. [a Colorado limited partnership] 8. PREMIER PARKS OF COLORADO INC. [a Colorado corporation] 9. PREMIER WATERWORLD CONCORD INC. [a California corporation] 10. PREMIER WATERWORLD SACRAMENTO INC. [a California corporation] 11. WYANDOT LAKE, INC. [an Ohio corporation] 12. TIERCO MARYLAND, INC. [a Delaware corporation] 13. TIERCO WATER PARK, INC. [an Oklahoma corporation] 14. FRONTIER CITY PROPERTIES, INC. [an Oklahoma corporation] 15. FRONTIER CITY PARTNERS LIMITED PARTNERSHIP [an Oklahoma limited partnership] 16. STUART AMUSEMENT COMPANY [a Massachusetts corporation] 17. RIVERSIDE PARK ENTERPRISES, INC. [a Massachusetts corporation] 18. RIVERSIDE PARK FOOD SERVICES, INC. [a Massachusetts corporation] 19. PARK MANAGEMENT CORP. [a California corporation] 20. INDIANA PARKS, INC. [an Indiana corporation] 21. AURORA CAMPGROUND, INC. [an Ohio corporation] 22. OHIO CAMPGROUNDS INC. [an Ohio corporation] 23. KKI, LLC [a Delaware limited liability company] 24. PREMIER INTERNATIONAL HOLDINGS, INC. [a Delaware corporation] 25. PREMIER PARKS HOLDINGS CORPORATION [a Delaware corporation] ("Holdco") 26. PREMIER PARKS MERGER CORPORATION* [a Delaware corporation] 27. PPSTAR I, INC.* [a Delaware corporation] - -------- * wholly-owned subsidiary of Holdco EX-23.1 13 CONSENT OF KPMG EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT The Board of Directors Premier Parks Inc.: We consent to incorporation by reference in the registration statements (Nos. 333-21627, 333-40703, 333-45859, 333-46167, and 333-46897) on Form S-3 of Premier Parks Inc. of our report dated February 23, 1998, relating to the consolidated balance sheets of Premier Parks Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1997, which report appears in the December 31, 1997, annual report on Form 10-K of Premier Park Inc. KPMG Peat Marwick LLP Oklahoma City, Oklahoma March 23, 1998 -----END PRIVACY-ENHANCED MESSAGE-----