-----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, SGi3BWuS1Xk9EpCFgg9BIqMCWD+xu2aklY6AsT0+yHcmhjhM69ozv0y2I82or8Yf aueCKdWmhDZi2U0kVT5a7g== 0000898430-95-002300.txt : 19951119 0000898430-95-002300.hdr.sgml : 19951119 ACCESSION NUMBER: 0000898430-95-002300 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOLLYWOOD PARK INC/NEW/ CENTRAL INDEX KEY: 0000356213 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-RACING, INCLUDING TRACK OPERATION [7948] IRS NUMBER: 953667491 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10619 FILM NUMBER: 95590711 BUSINESS ADDRESS: STREET 1: P O BOX 369 CITY: INGLEWOOD STATE: CA ZIP: 90301 BUSINESS PHONE: 3104191500 MAIL ADDRESS: STREET 1: P O BOX 369 CITY: INGLEWOOD STATE: CA ZIP: 90306 10-Q 1 FORM 10-Q 09/30/95 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1995 Commission file number 0-10619 HOLLYWOOD PARK, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 95-3667491 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1050 South Prairie Avenue, Inglewood, California 90301 (Address of Principal Executive Offices) (Zip Code) (310) 419-1500 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant: (a) 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, and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] The number of outstanding shares of the registrant's common stock, as of the date of the close of business on November 10, 1995: 18,369,634. Hollywood Park, Inc. Table of Contents Part I Item 1. Financial Information Consolidated Balance Sheets as of September 30, 1995 and December 31, 1994....................... 1 Consolidated Statements of Operations for the three months ended September 30, 1995 and 1994... 2 Consolidated Statements of Operations for the nine months ended September 30, 1995 and 1994.... 3 Consolidated Statements of Cash Flows for the nine months ended September 30, 1995 and 1994.... 4 Notes to Consolidated Financial Statements........ 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 9 Part II Item 1. Legal Proceedings....................................... 14 Item 3. Default Upon Senior Securities.......................... 16 Item 5. Other Information....................................... 16 Item 6.a. Exhibits................................................ 16 Other Financial Information............................. 19 Signatures.............................................. 25
HOLLYWOOD PARK, INC. Consolidated Balance Sheets
September 30, December 31, 1995 1994 ------------ ------------ (unaudited) ASSETS Current Assets: Cash and cash equivalents $ 20,789,000 $ 37,122,000 Restricted cash 872,000 699,000 Short term investments 6,210,000 0 Casino lease and related interest receivable, net 18,690,000 11,745,000 Other receivables, net of allowance for doubtful accounts of $215,000 in 1995 and $159,000 in 1994 3,807,000 8,224,000 Prepaid expenses and other assets 9,630,000 5,243,000 Deferred tax assets 4,612,000 4,827,000 Current portion of notes receivable 33,000 31,000 ------------ ------------ Total current assets 64,643,000 67,891,000 Notes receivable 866,000 891,000 Property, plant and equipment, net 164,154,000 160,264,000 Lease with TRAK East, net 1,212,000 1,110,000 Goodwill, net 5,713,000 5,813,000 Deferred tax assets 851,000 1,103,000 Other assets 9,572,000 9,501,000 ------------ ------------ $247,011,000 $246,573,000 ============ ============ - ---------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 7,425,000 $ 6,833,000 Accrued lawsuit settlement 5,200,000 0 Accrued liabilities 9,530,000 7,703,000 Accrued workers' compensation 2,211,000 2,117,000 Accrued slip and fall claims 1,411,000 1,273,000 Amounts due to horsemen for purses, stakes and awards 37,000 516,000 Amounts payable to charities 271,000 501,000 Outstanding pari-mutuel tickets 1,021,000 1,546,000 Current portion of notes payable 28,945,000 5,299,000 Deferred tax liabilities 671,000 288,000 ------------ ------------ Total current liabilities 56,722,000 26,076,000 Notes payable 15,629,000 42,800,000 Deferred tax liabilities 10,218,000 10,442,000 ------------ ------------ Total liabilities 82,569,000 73,318,000 Commitments and contingencies - - Stockholders' Equity: Capital stock-- Preferred--$1.00 par value, authorized 250,000 shares; 27,499 issued and outstanding 28,000 28,000 Common--$.10 par value, authorized 40,000,000 shares; 18,369,634 issued and outstanding in 1995 and 1994 1,837,000 1,837,000 Capital in excess of par value 166,896,000 166,892,000 Accumulated deficit (4,319,000) (1,502,000) ------------ ------------ Total stockholders' equity 164,442,000 167,255,000 ------------ ------------ $247,011,000 $246,573,000 ============ ============
- --------- See accompanying notes to consolidated financial statements. 1 HOLLYWOOD PARK, INC. Consolidated Statements of Operations
For the three months ended September 30, ---------------------------------------- 1995 1994 ---------------- ------------------ (unaudited) REVENUES: Pari-mutuel commissions $10,066,000 $ 9,425,000 Lease and management fee - Sunflower 1,199,000 2,404,000 Lease - Casino 5,394,000 5,528,000 Admissions, programs, and other racing income 3,754,000 4,883,000 Concession sales 4,554,000 6,131,000 Other income 1,628,000 1,733,000 ------------ ------------ 26,595,000 30,104,000 ------------ ------------ EXPENSES: Salaries, wages and employee benefits 9,281,000 9,470,000 Operations of facilities 2,688,000 2,663,000 Cost of concession sales 6,038,000 7,965,000 Professional services 1,137,000 1,705,000 Rent 223,000 331,000 Utilities 1,493,000 1,798,000 Marketing 1,044,000 1,475,000 Administrative 2,675,000 2,728,000 ------------ ------------ 24,579,000 28,135,000 ------------ ------------ Operating income 2,016,000 1,969,000 Lawsuit settlement 5,627,000 0 Casino pre-opening and training expenses 0 723,000 Turf Paradise acquisition costs 0 446,000 ------------ ------------ Income (loss) before interest, income taxes, depreciation and amortization (3,611,000) 800,000 Depreciation and amortization 2,824,000 2,862,000 Interest expense 958,000 881,000 ------------ ------------ Loss before income tax benefit (7,393,000) (2,943,000) Income tax benefit 1,756,000 545,000 ------------ ------------ Net loss $ (5,637,000) $ (2,398,000) ============ ============ ================================================================================================= Dividend requirements on convertible preferred stock $ 481,000 $ 481,000 Net loss allocated to common shareholders $ (6,118,000) $ (2,879,000) Per common share: Net loss - primary $(0.33) $(0.16) Net loss - fully diluted $(0.33) $(0.16) Cash dividend per common share $ 0.00 $ 0.00 Number of shares - primary 18,369,634 18,369,607 Number of shares - fully diluted 20,661,126 20,661,099
- -------------- See accompanying notes to consolidated financial statements. 2 HOLLYWOOD PARK, INC. Consolidated Statements of Operations
For the nine months ended September 30, --------------------------------------- 1995 1994 ----------- ------------ (unaudited) REVENUES: Pari-mutuel commissions $37,745,000 $35,332,000 Lease and management fee - Sunflower 4,344,000 6,102,000 Lease - Casino 18,064,000 5,528,000 Admissions, programs, and other racing income 13,026,000 14,192,000 Concession sales 15,359,000 13,692,000 Other income 5,341,000 4,139,000 ----------- ----------- 93,879,000 78,985,000 ----------- ----------- EXPENSES: Salaries, wages and employee benefits 29,718,000 25,602,000 Operations of facilities 8,268,000 6,924,000 Cost of concession sales 19,504,000 14,446,000 Professional services 5,657,000 5,019,000 Rent 901,000 1,226,000 Utilities 3,642,000 3,462,000 Marketing 3,728,000 4,101,000 Administrative 6,486,000 4,838,000 ----------- ----------- 77,904,000 65,618,000 ----------- ----------- Operating income 15,975,000 13,367,000 Lawsuit settlement 5,627,000 0 Casino pre-opening and training expenses 0 2,337,000 Turf Paradise acquisition costs 0 627,000 ----------- ----------- Income before interest, income taxes, depreciation and amortization 10,348,000 10,403,000 Depreciation and amortization 8,478,000 6,883,000 Interest expense 2,886,000 1,842,000 ----------- ----------- Income (loss) before income tax expense (1,016,000) 1,678,000 Income tax expense 358,000 642,000 ----------- ----------- Net income (loss) $(1,374,000) $ 1,036,000 =========== =========== ========================================================================================================= Dividend requirements on convertible preferred stock $ 1,443,000 $ 1,443,000 Net loss allocated to common shareholders $(2,817,000) $ (407,000) Preferred common share: Net loss - primary $(0.15) $(0.02) Net loss - fully diluted $(0.15) $(0.02) Cash dividend per common share $ 0.00 $ 0.00 Number of shares - primary 18,369,634 18,175,191 Number of shares - fully diluted 20,661,126 20,466,683
- -------------- See accompanying notes to consolidated financial statements. 3 HOLLYWOOD PARK, INC. Consolidated Statements of Cash Flows
For the nine months ended September 30, --------------------------------------- 1995 1994 ---------------- ----------------- (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (1,374,000) $ 1,036,000 Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 8,495,000 6,886,000 Unrealized gain on short term bond investing 4,000 0 Changes in assets and liabilities, net of the effects of the purchase of a business: Increase in restricted cash (173,000) (1,157,000) Increase in casino lease and related interest receivable, net (6,945,000) (6,358,000) Decrease (increase) in other receivables, net 4,417,000 (866,000) Increase in prepaid expenses and other assets (4,901,000) (5,879,000) Decrease (increase) in deferred tax assets 467,000 (646,000) Increase (decrease) in accounts payable 592,000 (1,524,000) Increase in accrued lawsuit settlement 5,200,000 0 Increase in accrued liabilities 1,670,000 766,000 Increase in accrued workers' compensation 94,000 215,000 Increase in slip and fall claims 138,000 0 (Decrease) increase in amounts due to horsemen for purses, stakes and awards (479,000) 650,000 Decrease in amounts payable to charities (230,000) (463,000) Decrease in outstanding pari-mutuel tickets (525,000) (95,000) Increase (decrease) in deferred tax liabilities 159,000 (61,000) Loss on sale or disposal of property, plant and equipment 64,000 0 ------------ ------------ Net cash provided by (used in) operating activities 6,673,000 (7,496,000) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (11,959,000) (25,681,000) Receipts from sale of property, plant and equipment 108,000 0 Principal collected on notes receivable 23,000 23,000 Purchase of short term investments (19,829,000) (92,205,000) Proceeds from short term investments 13,619,000 104,346,000 Cash acquired in the purchase of a busineess, net of transaction and other costs 0 288,000 ------------ ------------ Net cash used in investing activities (18,038,000) (13,229,000) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from unsecured notes payable 1,681,000 1,579,000 Payment of unsecured notes payable (3,820,000) (5,841,000) Payment of secured notes payable (1,333,000) (1,459,000) Payments under capital lease obligations (53,000) (45,000) Turf Paradise equity transactions 0 15,000 Dividends paid to preferred stockholders (1,443,000) (1,443,000) ------------ ------------ Net cash used for financing activities (4,968,000) (7,194,000) ------------ ------------ Decrease in cash and cash equivalents (16,333,000) (27,919,000) Cash and cash equivalents at the beginning of the period 37,122,000 60,625,000 ------------ ------------ Cash and cash equivalents at the end of the period $ 20,789,000 $ 32,706,000 ============ ============
- ------------ See accompanying notes to consolidated financial statements. 4 Hollywood Park, Inc. Notes to Consolidated Financial Statements NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial information included herein has been prepared in conformity with generally accepted accounting principles as reflected in the financial statements included in the consolidated annual report on Form 10-K of Hollywood Park, Inc. (the "Company" or "Hollywood Park") filed with the Securities and Exchange Commission for the year ended December 31, 1994. This financial information does not include certain footnotes and financial presentations normally presented annually, and therefore, should be read in conjunction with the 1994 Form 10-K. The information furnished herein is unaudited; however, in the opinion of management it reflects all normal recurring adjustments that are necessary to present a fair statement of the results for the interim periods. It should be understood that accounting measurements at the interim dates inherently involve greater reliance on estimates than at year end. The interim racing results of operations are not indicative of the results for the full year due to the seasonality of the racing business. ACQUISITION OF SUNFLOWER RACING, INC. On March 23, 1994, the Company finalized the transaction to acquire Sunflower Racing, Inc. ("Sunflower"), a greyhound and thoroughbred racing facility located in Kansas City, Kansas. Sunflower, operating as the Woodlands, became a wholly owned subsidiary of Hollywood Park, with the transaction accounted for under the purchase method of accounting. The acquisition price was $15,000,000; paid for with 591,715 shares of Hollywood Park common stock, with a then market price of $25.35 per share. For financial reporting purposes, the transaction was valued at $19.00 per Hollywood Park common share, based on the size of the block of shares issued in the acquisition relative to the current trading volume. Immediately following the acquisition, the Company contributed $5,000,000 in cash to Sunflower to repay a portion of the subordinated debt Sunflower owed to Mr. Hubbard, Chief Executive Officer of the Company, in return for more favorable terms on the balance of the subordinated debt. In December 1994, Sunflower received notice that it was to receive a refund of property taxes paid during periods before the acquisition of approximately $1,484,000 (at December 31, 1994, the estimated refund was $1,641,000). The Sunflower financial statements as of the date of acquisition were restated to include receipt of the $1,484,000. Of the approximately $6,782,000 of restated excess acquisition cost over the recorded value of the assets acquired, $1,310,000 was allocated to the racing facility lease and management agreement Sunflower has with The Racing Association of Kansas East ("TRAK East") and will be amortized over the remaining 20 years of the lease, with the balance of $5,472,000 allocated to goodwill to be amortized over 40 years. An additional 55,574 shares of Hollywood Park common stock were issued to Mr. Richard Boushka, a former Sunflower shareholder, as required by the agreement of merger, because the market price of Hollywood Park's common stock 180 days after the close of the acquisition, was more than 10% less than the market price on the closing date of the acquisition. The agreement of merger also provided that under certain circumstances the former Sunflower shareholders were entitled to receive additional shares of Hollywood Park common stock. As of March 23, 1995, the former Sunflower shareholders transferred their rights to such additional consideration to Hollywood Park for nominal consideration, and have no further entitlements to additional consideration. ACQUISITION OF TURF PARADISE, INC. On August 11, 1994, the shareholders of Turf Paradise, Inc. ("Turf Paradise") approved the Agreement of Merger, entered into on March 30, 1994, by Hollywood Park and Turf Paradise and as amended on May 27, 1994, pursuant to which Turf Paradise became a wholly owned subsidiary of Hollywood Park. Turf Paradise owns and operates a thoroughbred race track in Phoenix, Arizona. The transaction was accounted for under the pooling of interests method of accounting, with approximately $627,000 of merger related costs incurred in total and expensed by both the Company and Turf Paradise. In 5 connection with the merger, the Company paid a total of 1,498,016 newly issued shares of Hollywood Park common stock, valued as of the date of issuance at approximately $33,800,000. Each share of Turf Paradise common stock was valued at $13.00 and was converted to approximately 0.577 shares of Hollywood Park common stock, which had a then fair market value of $22.53 based on the weighted average of all trades on the NASDAQ National Market System for the twenty trading days up to and including August 10, 1994. As required under the pooling of interests method of accounting, the consolidated financial statements for the periods before the acquisition have been restated to include the accounts and results of operations of Turf Paradise. PRO FORMA RESULTS OF OPERATIONS The following pro forma results of operations were prepared under the assumption that the acquisition of Sunflower had occurred at the beginning of each of the periods shown. The historical results of operations for both Sunflower and Turf Paradise were combined with the Company's operating results and pro forma adjustments were made for the following: amortization of the excess purchase price allocated to the lease with TRAK East and to goodwill; interest expense reduction related to the reduction in both the principal and interest rate on Sunflower's subordinated debt; the termination of the management agreement Sunflower had with a former shareholder; the wages and payroll taxes paid to a former Sunflower shareholder; directors fees and income taxes. Hollywood Park, Inc. Unaudited Pro Forma Combined Consolidated Results of Operations
For the three months ended September 30, --------------------------------- 1995 (a) 1994 (a) ------------ ------------ Revenues $ 26,595,000 $ 30,104,000 Operating income 2,016,000 1,969,000 Income (loss) before interest, income taxes, depreciation and amortization (3,611,000) 800,000 Net loss ($5,637,000) ($2,398,000) =========== =========== Dividend requirements on convertible preferred stock 481,000 481,000 Net loss allocated to common shareholders ($6,118,000) ($2,879,000) Per common share: Net loss - primary ($0.33) ($0.16) Net loss - fully diluted ($0.33) ($0.16) For the nine months ended September 30, --------------------------------- 1995 (a) 1994 ------------ ------------ Revenues $ 93,879,000 $ 84,212,000 Operating income 15,975,000 14,146,000 Income before interest, income taxes, depreciation and amortization 10,348,000 11,393,000 Net income (loss) ($1,374,000) $ 1,209,000 =========== =========== Dividend requirements on convertible preferred stock 1,443,000 1,443,000 Net loss allocated to common shareholders ($2,817,000) ($234,000) Per common share: Net loss - primary ($0.15) ($0.01) Net loss - fully diluted ($0.15) ($0.01)
_____ (a) The results for these periods are actual. PRE-OPENING EXPENSES The Company expensed pre-opening costs associated with the Hollywood Park Casino (the "Casino") which opened on July 1, 1994, under a third party leasing agreement with Pacific Casino 6 Management, Inc. ("PCM"), as incurred. These costs included such items as project salaries, hiring costs and other pre-opening services. EARNINGS PER SHARE Primary earnings per share were computed by dividing income (loss) available to (allocated to) common shareholders (net income (loss) less preferred dividend requirements) by the weighted average number of common shares outstanding during the period. Fully diluted per share amounts were similarly computed, but include the effect, when dilutive, of the conversion of the convertible preferred stock and stock options. The Company issued 1,498,016 shares of common stock to acquire Turf Paradise. Earnings per share have been restated for prior periods as if these shares had been outstanding during each period presented. CASH FLOWS Cash and cash equivalents consisted of certificates of deposit and short term investments with remaining maturities of 90 days or less. RECLASSIFICATIONS Certain reclassifications have been made to the 1994 balances to be consistent with the 1995 financial statement presentation. NOTE 2 -- SHORT TERM INVESTMENTS As of September 30, 1995, the Company had short term investments of $6,210,000. Included in the short term portfolio were commercial paper investments of $1,006,000, with a maturity of approximately six months, with ratings of Aaa by Moodys and AAA by Standard and Poors. The balance of the short term investments, $5,204,000, was invested in corporate bonds, with an average maturity of three years. The portfolio consisted of bonds rated from Ba3 to Caa by Moodys and from BB- to B- by Standard and Poors, with some bonds not rated by either agency. Investments in corporate bonds typically carry a greater amount of principal risk than investments previously made by the Company and yield a correspondingly higher return. The Company holds short term investments as available for sale as needed. On the basis of the short term nature of the assets and their relative liquidity, market value approximates cost. NOTE 3 -- CASINO LEASE AND RELATED INTEREST RECEIVABLE On August 3, 1995, California Governor Pete Wilson signed Senate Bill 100 ("SB" 100), which was effective upon signing, allowing Hollywood Park (and all other pari-mutuel wagering facilities, which are public companies) to operate a card club on the premises of the race track. Additionally, SB 100 places a state- wide, three year moratorium (beginning January 1, 1996) on public votes or referendums to approve the enactment of any city ordinance to allow additional card clubs, and prohibits the amendment of any existing ordinances. With the passage of SB 100, the Company has given notice, to PCM, of cancellation under the terms of its lease agreement and intends to assume operations of the Casino in the immediate future. As of September 30, 1995, the Company had received all necessary approvals to operate the Casino; a provisional gaming Registration from the California Attorney General and a provisional Operations Certificate from the city of Inglewood. The Casino opened on July 1, 1994, under a third party leasing arrangement between Hollywood Park and PCM. Under current California law the lease rent must be at a fixed amount. Recognizing that there was a maturing process for the business, the lease allowed unpaid rent to accrue for up to nine months, or $27,000,000, as computed under the original lease, and for PCM to retain a cash reserve equivalent to six months of operating expenses. PCM elected to defer all the lease rent due during the Casino's first nine months of operations. In April 1995, the Company and PCM executed the First Amended and Restated Lease Agreement, which retroactively lowered the monthly fixed lease payment from $3,000,000 to $2,000,000 (or from $27,000,000 as computed under the original lease down to $18,000,000 as computed under the revised 7 lease, for the first nine months of operations). In addition, PCM executed a promissory note to Hollywood Park for $18,690,000, representing nine months of revised fixed monthly rent of $18,000,000 (formerly $27,000,000 as computed under the original lease) with related interest at 8.0%, and approximately $197,000 of additional rent. In August 1995, the Second Amended and Restated Lease Agreement was executed which lowered the fixed monthly rent to $1,500,000 effective July 1, 1995. On April 17, 1995, PCM paid Hollywood Park $3,000,000 for additional rent related to PCM's use of food and beverage services from Hollywood Park for the nine months ended March 31, 1995. PCM paid Hollywood Park $6,000,000 of rent during the three months ended June 30, 1995, and $4,500,000 of rent during the three months ended September 30, 1995. For the nine months ended September 30, 1995, $18,064,000 of lease revenue was recognized representing $12,000,000 of rent, accounted for under the First Amended and Restated Lease, of which PCM paid $6,000,000, and other miscellaneous rent of $1,064,000 (of which $434,000 was paid as of September 30, 1995); and $4,500,000 of lease rent revenue due and paid by PCM for the three months ended September 30, 1995, under the Second Amended and Restated Lease. Also recorded was $500,000 of lease rent related to the July 1994 valuation allowance. Lease rent of $3,000,000 less a valuation allowance of $1,500,000, was recorded for July 1994, but with the April 1995 signing of the First Amended and Restated Lease monthly lease rent was retroactively lowered to $2,000,000, generating $500,000 of excess valuation allowance. NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment held at September 30, 1995, and December 31, 1994, consisted of the following:
September 30, December 31, 1995 1994 ------------- ------------ Land and land improvements $ 34,782,000 $ 29,621,000 Buildings and building improvements 175,292,000 166,516,000 Equipment 35,507,000 31,286,000 Construction in progress 4,064,000 983,000 ------------ ------------ 249,645,000 228,406,000 Less accumulated depreciation 85,491,000 68,142,000 ------------ ------------ $164,154,000 $160,264,000 ============ ============
NOTE 5 -- SECURED AND UNSECURED NOTES PAYABLE
September 30, December 31, 1995 1994 ------------- ------------ Secured notes payable (a) $28,666,000 $30,011,000 Unsecured notes payable (a) 15,575,000 15,825,000 Unsecured notes payable 0 1,850,000 Capital lease obligations 0 52,000 Unsecured note payable - Gold Cup 333,000 361,000 ------------ ------------ 44,574,000 48,099,000 Less current maturities 28,945,000 5,299,000 ------------ ------------ $15,629,000 $42,800,000 ============ ============
_____ (a) These notes relate to Sunflower and are non-recourse to Hollywood Park. NOTE 6 -- SUPPLEMENTAL BALANCE SHEET INFORMATION In 1995, Statement of Financial Accounting Standards No. 121 ("SFAS" 121) was issued which establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets. SFAS 121, which will be effective in 1996, addresses when impairment losses should be recognized and how impairment losses should be measured. If the Kansas Legislature does not approve other forms of gaming at Sunflower, it is probable that Sunflower's assets will suffer an impairment that will 8 require a significant asset write down that will have a materially adverse effect on the Company's consolidated financial statements. NOTE 7 - DEVELOPMENT EXPENSES Included in Administrative expenses for the three and nine months ended September 30, 1995, was $1,293,000 and $1,636,000 of development expenses, respectively. These expenses, for both the three and the nine months ended September 30, 1995, consisted primarily of costs related to the following projects currently under evaluation: the environmental impact study for a proposed stadium at Hollywood Park, and card clubs under consideration in the cities of Stockton, Pomona and South San Francisco. Included in Administrative expenses for the three and nine months ended September 30, 1994, was $373,000 and $605,000 of development costs, respectively. Development expense included the following projects then under consideration: the initial financial and economic analysis of the proposed stadium, numerous card clubs, and the music dome. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATIONS - ------------- RESULTS OF OPERATIONS Three months ended September 30, 1995 compared to the three months ended ------------------------------------------------------------------------ September 30, 1994 ------------------ Total revenues decreased by $3,509,000, or 11.7%, for the three months ended September 30, 1995, compared to the three months ended September 30, 1994, with $2,339,000, or 66.7% of the decrease attributable to revenue short-falls at Sunflower, where Missouri riverboat gaming continues to have a seriously negative impact on Sunflower's operating results. Pari-mutuel commissions increased by $641,000, or 6.8%, due primarily to the recognition of unclaimed pari-mutuel winning tickets from the 1994-1995 Turf Paradise race meet that ended in May. Under Arizona law, Turf Paradise retains the revenue from uncashed winning pari-mutuel tickets. In California the unclaimed outstanding pari-mutuel winnings are paid to the state. Lease and management fee-Sunflower decreased by $1,205,000, or 50.1%. Sunflower's live pari-mutuel handle, both greyhounds and horses, was $13,470,000 for the three months ended September 30, 1995, a $14,420,000, or 51.7% decrease as compared to the three months ended September 30, 1994. Lease-Casino revenue consisted of fixed lease rent of $1,500,000 per month as of July 1995 per the Second Amended and Restated Lease signed on August 31, 1995, and $500,000 of lease valuation allowance from July 1994. Lease rent recorded in July 1994, was $3,000,000 less a valuation allowance of $1,500,000; with the April 1995 signing of the First Amended and Restated Lease, lease rent was retroactively lowered to $2,000,000, generating $500,000 of excess valuation allowance. Under the terms of the original 1994 lease, PCM was not required to make the lease rent payments during the first nine months of operations and interest was accrued on the unpaid portions. PCM paid the $4,500,000 of rent due for the three months ended September 30, 1995. Admissions, programs and other racing income decreased by $1,129,000, or 23.1%, due primarily to a 38.5% decline in attendance at Sunflower, one fewer live race day at Hollywood Park, three fewer live race days at Turf Paradise, and fewer Hollywood Park Advanced Training Program ("ATP") days in 1995 than in 1994. During ATP Hollywood Park allows the horsemen to utilize the facility when there is no live racing to train young horses and, in return, receives a daily fee. Concession sales decreased by $1,577,000, or 25.7%, with 47.7% of the decrease associated with attendance declines at Sunflower. The remainder of the decrease primarily related to declines in on-track attendance at Hollywood Park and less time to purchase concessions between pari-mutuel wagering opportunities, due to the increase in simulcast races, and at the Casino under the First and Second Amended and Restated Leases with PCM additional rent is no longer charged for discounts offered to card players at the gaming tables. Generally the prices charged on the gaming floor are 50% lower than the restaurant prices and under the terms of the original 1994 lease PCM was billed for the discount. Total operating expenses were $24,579,000 for the three months ended September 30, 1995, compared to $28,135,000 for the same period in 1994, a $3,556,000, or 12.6% decrease. Cost of concession sales 9 decreased by $1,927,000, or 24.2%, due to attendance decreases at Sunflower and Hollywood Park, and labor reductions at the Casino made after the first operating quarter of 1994. Professional services decreased by $568,000, or 33.3%, primarily because of lower legal costs related to the Class Action lawsuits and other related matters (see Item 1. Legal Proceedings) than accrued for earlier in 1995. Utilities decreased by $305,000, or 17.0%, due primarily to savings at the Casino related to turning off the outdoor signs during the daylight hours in 1995, which were left on during the 1994 grand opening period. Marketing costs decreased by $430,000, or 29.2%, due primarily to cost reductions at Sunflower and savings at the Casino, where in 1994 live music was provided, but not in 1995 due to increased evening pari-mutuel simulcasting. As previously reported by the Company, six purported class actions (the "Class Actions") are presently pending against the Company and certain of its directors and officers (see Item 1. Legal Proceedings). In addition, on September 15, 1995, a Derivative Action was commenced against certain of the Company's directors and officers. On September 19, 1995, the parties to the Class Actions and the Derivative Action, executed Memoranda of Understanding, confirming the parties' agreement in principle to settle the claims asserted and threatened with respect to the Class Actions and the Derivative Action, subject to the approval by the Company's Board of Directors (which was subsequently obtained) and approval by each of the courts in the Class Actions and the Derivative Action. Under the proposed settlement of the Class Actions, a total settlement fund of $5,800,000 will be created for the benefit of the alleged class of shareholders. Hollywood Park will contribute $3,450,000 to the settlement fund, and the insurance carrier for the Company's directors and officers will contribute $2,350,000. The proposed settlement of the Derivative Action provides for a $2,000,000 payment to the Company from the insurance carrier for the Company's directors and officers. With $1,000,000 of that amount paid to the plaintiffs' attorneys as fees, costs and expenses; the remaining $1,000,000 will defray the Company's payment in the settlement of the Class Actions. The Company also expects to complete a separat settlement with the former controlling shareholder of Turf Paradise. Under this proposed settlement, the Company will pay the former controlling shareholder of Turf Paradise $2,750,000, in full settlement of all purported claims against the Company and its directors and officers. The Company does not believe that the settlement with the former controlling shareholder of Turf Paradise is preferential to the amounts being paid to other Turf Paradise shareholders under the Class Actions. Hollywood Park denies any wrongdoing or liability with respect to the claims asserted in the Class Actions, the Derivative Action, and the purported claims of the former controlling shareholder of Turf Paradise. If a resolution of the Class Actions, the Derivative Action and the purported claims of the former controlling shareholder of Turf Paradise cannot be achieved on terms acceptable and not materially adverse to the Company, the Company will assert various defenses and contest vigorously all purported claims and allegations. Also included in lawsuit settlement expense was $427,000 of legal costs incurred, by the Company related to the Class Actions, the Derivative Action and the purported claims of the former controlling shareholder of Turf Paradise. The 1994 Casino pre-opening and training costs of $723,000 were chiefly related to wages paid during the on-the-job training of staff hired to open the Casino on July 1, 1994. There were no similar costs in 1995. The Turf Paradise acquisition costs were a result of the August 11, 1994, acquisition of Turf Paradise by Hollywood Park; there were no similar costs in 1995. Income tax benefit increased by $1,211,000, due to the additional accrued expense of the lawsuit settlement. Nine months ended September 30, 1995 compared to the nine months ended ---------------------------------------------------------------------- September 30, 1994 ------------------ The 1995 consolidated financial statements include the results of operations at Hollywood Park, Sunflower, Turf Paradise and the Casino. Sunflower was a newly acquired subsidiary as of March 23, 1994, accounted for under the purchase method of accounting, and Hollywood Park's historical results of operations were not restated to include Sunflower's operating results; therefore, the 1994 statement of operations does not include Sunflower's results for the first quarter. Turf Paradise was a newly acquired subsidiary as of August 11, 1994, accounted for under the pooling of interests method of accounting, and as required under this method of reporting the 1994 results have been restated to include the operating results of Turf Paradise. The Casino began operations on July 1, 1994; therefore, there are no comparable results of operations for the nine months ended September 30, 1994. 10 Total revenues increased by $14,894,000, or 18.9%, during the nine months ended September 30, 1995, as compared to the nine months ended September 30, 1994. Included in the 1995 revenues was $18,064,000 of Casino fixed lease rent revenue compared to $5,528,000 in 1994, which covers just three months of operations in the comparable 1994 period. Pari-mutuel commissions increased by $2,413,000, or 6.8%. The 1995 Hollywood Park Spring/Summer race meet was run under the new California racing law that removed all restrictions on simulcasting between northern and southern California, generating a significant increase in simulcast and off-track pari-mutuel commissions. Lease and management fee - Sunflower continues to be severely negatively impacted by riverboat gaming in Missouri. For the nine months ended September 30, 1995, as compared to the nine months ended September 30, 1994, Sunflower's total live pari-mutuel handle decreased by $49,637,000, or 54.9%. On April 29, 1995, the Kansas Legislature adjourned, leaving Senate Bill 27 ("SB" 27), which would have permitted slot machines at race tracks, including Sunflower, in conjunction with the Kansas Lottery, in the Senate Federal and State Affairs Committee. SB 27 passed the House of Representatives and carries over to the 1996 legislative session, which runs from January 8, 1996, through April 6, 1996. The Company continues to rigorously examine its legislative, legal and operational options with the goal of enabling Sunflower to sustain itself through the next legislative session and compete with riverboat gaming in the longer term. This requires the continued co-operation of employees, horsemen, dogmen, regulators, bankers and creditors (see Liquidity and Capital Resources, Sunflower). Casino lease revenue of $18,064,000 was recorded for the nine months ended September 30, 1995, which included lease rent of $2,000,000 for each of the six months ended June 30, 1995, per the First Amended and Restated Lease, which retroactively lowered the monthly lease rent to $2,000,000 from $3,000,000; and lease rent of $1,500,000 for each of the three months ended September 30, 1995, per the Second Amended and Restated Lease, signed in August 1995, which further lowered the monthly rent, as of July 1, 1995, to $1,500,000. Also recorded was $500,000 of lease rent related to the July 1994 valuation allowance. Lease rent recorded for July 1994 was $3,000,000 less a valuation allowance of $1,500,000, but with the April 1995 signing of the First Amended and Restated Lease monthly lease rent was retroactively lowered to $2,000,000, generating $500,000 of excess valuation allowance. For the nine months ended September 30, 1995, PCM made lease rent payments of $10,500,000. Admissions, programs and other racing income decreased by $1,166,000, or 8.2%, due primarily to declines in 1995 on-track attendance at Sunflower of 44.0%, one fewer live race day at Hollywood Park and fourteen fewer live race days in 1995 at Turf Paradise. Concession sales increased by $1,667,000, or 12.2%. Racing generated concession sales decreased due to declines in on-track attendance, with the net increase attributable to sales at the Casino. Other income increased by $1,202,000, or 29.0%. Revenue declines at Hollywood Park due to the cancellation of the Forum Parking Agreement, were offset primarily due to Casino gift shop and health club sales. A new Forum Parking Agreement was executed on October 24, 1995, covering the one year period from October 1, 1995, through September 30, 1996, with a minimum annual rent of $1,200,000, compared to $1,800,000 per the prior agreement. The new Forum Parking Agreement is for a shorter time period than the original Forum Parking Agreement, which covered twelve years, to provide flexibility regarding the proposed stadium development and other cross marketing benefits. Total operating expenses, exclusive of acquisition costs associated with Turf Paradise and Casino pre-opening and training expenses and inclusive of $8,178,000 of Casino operating expenses (representing nine months of operations, for which there were just three months of activity in the comparable period in 1994), increased by $12,287,000, or 18.7%, during the nine months ended September 30, 1995, as compared to the nine months ended September 30, 1994. Salaries, wages and employee benefits increased by $4,116,000, or 16.1%, primarily due to Casino operations. Operations of facilities increased by $1,344,000, or 19.4%, primarily because of increased slip and fall insurance reserves and Casino operations. Cost of Concession sales increased by $5,058,000, or 35.0%; cost reductions at the race tracks, due to declines in on- track attendance, were exceeded by cost of concession sales at the Casino. Professional services increased by $638,000, or 12.7%, essentially due to legal costs incurred related to the Company's expansion projects, including the proposed stadium. All costs associated with projects in the evaluation stages are expensed as incurred. Rent expense decreased by $325,000, or 26.5%, primarily due to the conclusion of Hollywood Park's lease on the infield message board. Marketing costs decreased by $372,000, or 9.1%, due primarily to savings related to reductions in advertising for Friday night racing at Hollywood Park. Administrative costs increased by $1,648,000, or 34.1%, principally because of costs incurred related to card club initiative campaign costs for 11 South San Francisco (which was defeated in September) and Pomona (which was defeated in November), the 1994 receipt of a refund of overpayment of purses (there was no similar refund in 1995) and costs generated by Casino operations. Lawsuit settlement expense for the nine months ended September 30, 1995, was the same as for the three months ended September 30, 1995, (see Results of Operations - Three months ended September 30, 1995, compared to the three months ended September 30, 1994). The 1994 Casino pre-opening and training costs of $1,614,000 were primarily related to wages and benefits for senior management and the on-the-job training of staff hired to open the Casino on July 1, 1994. There were no similar costs in 1995. The Turf Paradise acquisition costs were a result of the August 11, 1994, acquisition by Hollywood Park; there were no similar costs in 1995. Depreciation expense increased by $1,595,000, or 23.2%, a result of Casino operations and costs associated with the first quarter of 1995 at Sunflower with no corresponding amount in 1994. Interest expense increased by $1,044,000, or 56.7%, due to interest from the first quarter of 1995 on Sunflower's debt obligations with no corresponding amount in 1994. Income tax expense decreased by $284,000, primarily due to the additional expense of the lawsuit settlement. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased by $16,333,000 during the nine months ended September 30, 1995, as compared to the nine months ended September 30, 1994. The decrease was primarily related to land acquisitions, purchases of short term investments, debt service payments on the secured and unsecured loan facilities, capital expenditures and dividends paid on the Company's convertible preferred stock. Cash and cash equivalents decreased by $27,919,000 during the nine months ended September 30, 1994, as compared to the corresponding period in the prior year, primarily because of capital expenditures for the construction of the Casino and the acquisition of Sunflower. HOLLYWOOD PARK On August 2, 1995, the final agreements were signed to begin the construction phase of development of a card club in an existing hotel and adjoining convention center in Compton, California. Hollywood Park paid the city of Compton approximately $2,006,000 to acquire the convention center parcel, which will be renovated to house the card club. On August 3, 1995, the Company paid Compton Entertainment, Inc. ("CEI") $2,000,000 for the assignment of the development agreement CEI had with the city of Compton (see Item 5. Other Information) and an additional $500,000 for a five year option to purchase CEI's gaming license. On September 15, 1995, Hollywood Park paid approximately $3,411,000 to purchase 5.92 acres adjacent to the Inglewood property. On October 27, 1995, Hollywood Park finalized the acquisition of an additional 37.33 acres, also adjacent to the Inglewood property, for a total cost of approximately $7,500,000. Upon execution of the purchase of the 37.33 acres, Hollywood Park paid the seller $4,100,000 and signed a non-interest bearing, promissory note, with a single payment due on September 1, 1996. The additional acreage may be used for development projects currently under evaluation. Other capital expenditures of approximately $6,600,000 for the nine months ended September 30, 1995, included initial costs for the Compton card club and normal and necessary improvements at the Hollywood Park, Sunflower and Turf Paradise properties. During the nine months ended September 30, 1995, Hollywood Park did not draw any funds from its various credit facilities with Bank of America National Trust and Savings Association ("Bank of America"). On April 14, 1995, the Company executed an unsecured loan of up to $75,000,000 with Bank of America. The loan facility consists of a $60,000,000 line of credit (the "Line of Credit") and a $15,000,000 revolver (the "Revolver"). 12 The Line of Credit is an interest only, one year revolving facility, under which the Company may borrow, pay and reborrow principal amounts without penalty. On or before April 14, 1996, the Company has the option to convert the Line of Credit to a term repayment line of credit, at a maximum amount of $60,000,000, with a seven year term period from the date of conversion, which would require repayment in eighty-four successive equal monthly installments. The Line of Credit has a maximum interest rate equal to Bank of America's prime rate plus 0.25%. The Revolver, inclusive of a within line facility for standby letters of credit of up to a maximum of $5,000,000, is available for two years, ending May 1, 1997, during which the Company can borrow, pay and reborrow principal amounts without penalty. The Revolver has an interest rate equal to Bank of America's prime rate. The Casino opened on July 1, 1994, under a third party lease agreement with PCM. With the August 3, 1995, signing of SB 100 (see Item 5. Other Information) the Company has given notice of cancellation under the terms of its lease and intends to assume operation of the Casino in the immediate future. Consistent with the terms of the original 1994 lease, PCM deferred all the original lease rent due of $27,000,000 through March 31, 1995. In April 1995, Hollywood Park and PCM executed the First Amended and Restated Lease Agreement, which retroactively lowered the monthly lease rent from $3,000,000 to $2,000,000. In addition, PCM executed a promissory note to Hollywood Park for $18,690,000, representing nine months of revised monthly rent of $18,000,000, (formerly $27,000,000 as computed under the original lease) with related interest at 8.0%, and approximately $197,000 of additional rent. In August 1995 the Second Amended and Restated Lease was signed that lowered the fixed monthly rent to $1,500,000, as of July 1, 1995. On April 17, 1995, PCM paid Hollywood Park $3,000,000 for additional rent related to PCM's use of food and beverage services from Hollywood Park for the nine months ended March 31, 1995. PCM paid the Company $6,000,000 for lease rent due for the three months ended June 30, 1995, and $4,500,000 for lease rent due the three months ended September 30, 1995. During the nine months ended September 30, 1995, the Company paid dividends of $1,443,000 on its convertible preferred stock. Dividend payments of $481,000 were made on February 15, 1995, May 15, 1995, and August 18, 1995, representing $17.50 per share ($0.175 per depositary share) per payment date. On October 1, 1995, Hollywood Park declared a quarterly dividend of $481,000, or $17.50 per share of convertible preferred stock ($0.175 per depositary share), payable November 15, 1995, to holders of record on October 15, 1995. Dividends of $1,443,000 were paid during the nine months ended September 30, 1994. On April 20, 1995, Hollywood Park Operating Company purchased a U.S. Treasury Security with a par value of $2,401,000, as security for its self-insurance workers' compensation program with the state of California. On June 12, 1995, the Company began investing in corporate bonds, ($5,204,000 invested as of September 30, 1995) with a Moodys rating of Ba3 to Caa and Standard & Poors rating of BB- to B-, though some of the bonds are not rated by either agency. Investments in corporate bonds carry a greater amount of principal risk than investments historically made by the Company and yield a correspondingly higher return. SUNFLOWER In 1991, Sunflower converted a $40,000,000 construction loan to a term note payable with a group of five local and national banks (the "Banks"). On March 24, 1994, an Amended and Restated Credit and Security Agreement (the "Senior Credit") was executed due to the change in ownership of Sunflower. The Senior Credit has been amended three times, most recently in October 1995 by the Standstill Agreement (discussed below); on December 19, 1994, to allow for the Sunflower promissory note (discussed below), and for the waiver of the default or event of default resulting from the failure to maintain a fixed charge coverage ratio as of December 31, 1994; and on August 1, 1994, to amend the definition of fixed charge coverage. The Senior Credit is non-recourse to Hollywood Park, except with respect to the guarantee under the Standstill Agreement. During the nine months ended September 30, 1995, Sunflower continued to experience intense competition from riverboat gaming in Missouri, which has had a very significant negative impact on Sunflower's earnings, and thus its ability to meet its obligations on the Senior Credit. On December 19, 1994, in anticipation of insufficient cash flow from daily operations, Sunflower executed a promissory note to Hollywood Park, 13 allowing for the advancement of up to $3,000,000, for the payment of its Senior Credit obligations. On January 3, 1995, and again on March 31, 1995, Hollywood Park advanced $1,250,000, to Sunflower, for total advances of $2,500,000. As of September 30, 1995, the outstanding balance of the Senior Credit was $28,666,000. On March 31, 1995, though current on principal and interest due on the Senior Credit, Sunflower was in technical default of the fixed charge coverage ratio covenant; however, Sunflower was unable to pay the July 3, 1995, Senior Credit principal and interest due of approximately $1,200,000. On April 29, 1995, the Kansas Legislature adjourned, leaving SB 27, which would have permitted slot machines at race tracks, including Sunflower, in conjunction with the Kansas Lottery, in the Senate Federal and State Affairs Committee. SB 27 passed the House of Representatives and now carries over to the 1996 legislative session, which runs from January 8, 1996, through April 6, 1996. The Company is currently conducting a rigorous examination of its legislative, legal and operational options with the goal of enabling Sunflower to sustain itself through the next legislative session and get other gaming approved which will allow it to compete with riverboat gaming in the longer term. If the Kansas Legislature does not approve other forms of gaming at Sunflower, it is probable that Sunflower's assets will suffer an impairment that will require a significant asset write down that will have a materially adverse effect on the Company's consolidated financial statements. As of October 27, 1995, Sunflower and the Banks executed a Standstill Agreement, which among other things, provides for the extension of the Senior Credit maturity. The Senior Credit maturity has been extended to the termination date of the Standstill Agreement, which is the earlier of July 1, 1996; default of the Standstill Agreement; or the close of the 1996 Kansas Legislative session without the adoption, and full approval, of legislation permitting slot machines or other casino gaming at Kansas race tracks, including Sunflower. The Standstill Agreement also provides for the deferral of 100% of the principal payments and 50% of the interest payments due under the Senior Credit from April 1995 through the termination date of the Standstill Agreement. Sunflower has paid approximately $560,000 to cover the 50% interest obligations for the period April 1, 1995, through September 30, 1995. Hollywood Park has executed a guarantee of Sunflower's 50% interest obligations, effective only if Sunflower does not pay the 50% interest obligations, but has not guaranteed any of Sunflower's principal payment obligations. TURF PARADISE On April 13, 1995, Turf Paradise repaid the outstanding balance of its unsecured revolving loan facility with Bank One of Arizona, and terminated the $2,500,000 facility. On June 1, 1995, Turf Paradise executed a $2,500,000 promissory note to Hollywood Park. As of October 31, 1995, Turf Paradise's outstanding balance on the promissory note was $1,000,000. Hollywood Park is continually evaluating future growth opportunities in the gaming and entertainment industry. The Company expects that funding for growth opportunities, dividend requirements on the convertible preferred stock, payments on notes payable or capital expenditure needs will come from existing cash balances, cash generated from operating activities and borrowings from the credit facilities. In the opinion of management, these resources will be sufficient to meet the Company's anticipated cash requirements. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------------------------- As previously reported by the Company, and described in the Company's Form 10-Q for the quarterly period ended June 30, 1995, six purported class actions are presently pending against the Company and certain of its directors and officers in the United States District Court, Central District of California (the "District Court") and consolidated in a single action entitled In re Hollywood --------------- Park Securities Litigation, Master File No. CV-94-6551- - -------------------------- 14 ABC (GHKx). The plaintiffs in the Class Actions purport to assert violations of the federal securities laws based upon, among other things, the allegation that the defendants made overly optimistic statements and projections concerning the Company. Counsel for certain plaintiffs in the Class Actions advised the Company of such plaintiffs' intention to add or pursue purported derivative claims against certain of the Company's directors and officers in connection with, among other things, the matters alleged in the Class Actions. By order of the District Court, dated February 27, 1995, the parties engaged in an extensive mediation process in an effort to settle the Class Actions and all related potential and threatened claims. The Company denied all liability and advised the plaintiffs of its intent to assert various defenses and to contest vigorously all purported claims and allegations. After engaging in the court-ordered mediation process, the parties reached an agreement in principle to settle all pending and threatened claims, including the Class Actions. On September 15, 1995, an action entitled William R. Barney, Jr. v. Randall D. ------------------------------------ Hubbard, et al., Case No. 692583 (the "Derivative Action"), was commenced in the - --------------- Superior Court of the State of California for the County of San Diego. The Derivative Action is a purported stockholder derivative action allegedly brought on behalf of the Company against certain of the Company's directors and officers, and based, in part, on the allegation that such directors and officers breached their fiduciary duties in connection with matters alleged in or relating to the Class Actions. On September 19, 1995, the parties to the Class Actions and the Derivative Action executed Memoranda of Understanding confirming their earlier agreement in principle to settle the claims asserted and threatened with respect to the Class Actions and the Derivative Action. Under the proposed settlement of the Class Actions, a settlement fund of $5,800,000 will be created for the benefit of the alleged class of shareholders, with contributions from the Company and the insurance carrier for the Company's directors and officers. After giving consideration to an additional cash payment to be made to the Company from the insurance carrier for the Company's directors and officers in the settlement of the Derivative Action, the Company's net settlement payment in the Class Actions is expected to be less than $2,500,000. The proposed settlement of the Derivative Action provides for a $2,000,000 payment to the Company from the insurance carrier for the Company's directors and officers. With $1,000,000 of that amount paid to the plaintiffs' attorneys as fees, costs and expenses; the remaining $1,000,000 will defray the Company's payment in the settlement of the Class Actions. The proposed settlement of the Derivative Actions includes provisions enhancing the Company's financial controls and modifying certain terms to its acquisition of Sunflower. The Company also expects to consummate a separate settlement with the former controlling stockholder of Turf Paradise, which was acquired by the Company on August 11, 1994. Other former Turf Paradise shareholders will be entitled to participate in the settlement of the Class Actions, but the former controlling stockholder of Turf Paradise has agreed to be excluded from that settlement. The Company does not believe that the settlement with the former controlling shareholder of Turf Paradise is preferential to the amounts being paid to other Turf Paradise shareholders under the Class Action. Under the proposed settlement with the former controlling stockholder of Turf Paradise, the Company will pay to such stockholder, in full settlement of all purported claims against the Company and its directors and officers, $2,750,000. The Company is currently in the process of finalizing and evaluating the above settlements. If final settlements are reached and approved by the Company's Board of Directors (which was subsequently obtained), the proposed settlements would be conditioned upon approval by each of the courts in the Class Actions and in the Derivative Action. If a resolution of the purported claims of the former controlling stockholder of Turf Paradise, the Class Actions and in the Derivative Action cannot be achieved on terms acceptable and not materially adverse to the Company, then the Company will assert various defenses and vigorously defend any and all claims against it relating to such matters. ITEM 2. CHANGE IN SECURITIES - ---------------------------- None 15 ITEM 3. DEFAULT UPON SENIOR SECURITIES - -------------------------------------- As of September 30, 1995, the outstanding balance of Sunflower's Senior Credit was $28,666,000. The Senior Credit is non-recourse to the parent company, Hollywood Park, Inc., except with respect to the guarantee under the Standstill Agreement (described below). On March 31, 1995, though current on principal and interest due on the Senior Credit, Sunflower was in technical default of the fixed charge coverage ratio covenant; however, Sunflower was unable to pay the July 3, 1995, Senior Credit principal and interest payment of approximately $1,200,000. As of October 27, 1995, Sunflower and the Banks executed a Standstill Agreement, which, among other things, provides for the extension of the Senior Credit maturity. The Senior Credit maturity has been extended to the termination date of the Standstill Agreement, which is the earlier of July 1, 1996; default of the Standstill Agreement; or the close of the 1996 Kansas Legislative session, without the adoption, and full approval of legislation permitting slot machines or other casino gaming at Kansas race tracks, including Sunflower. The Standstill Agreement also provides for the deferral of 100% of the principal payments and 50% of the interest payments under the Senior Credit, from April 1995 through the termination date of the Standstill Agreement. Sunflower has paid approximately $560,000 to cover the 50% interest obligations for the period April 1, 1995, through September 30, 1995. Hollywood Park has executed a guarantee of Sunflower's 50% interest obligations, effective only if Sunflower does not pay the 50% interest obligations, but has not guaranteed any of Sunflower's principal payment obligations. ITEM 5. OTHER INFORMATION - ------------------------- On August 3, 1995, California Governor Pete Wilson signed SB 100, which was effective upon signing, allowing Hollywood Park (and all other pari-mutuel wagering facilities, which are public companies) to operate a card club on the premises of the race track. Additionally, SB 100 places a state-wide, three year moratorium (beginning January 1, 1996) on public votes or referendums to approve the enactment of any city ordinance to allow additional card clubs, and prohibits the amendment of any existing ordinances. The Hollywood Park Casino opened on July 1, 1994, under a third party lease arrangement with PCM. The Company has given notice of cancellation under its lease agreement and intends to assume operation of the Casino in the immediate future. In April 1995, the Company and PCM executed the First Amended and Restated Lease Agreement, which retroactively lowers the fixed monthly lease rent payment from $3,000,000 to $2,000,000. PCM executed a promissory note to Hollywood Park for $18,690,000, representing nine months of revised fixed monthly lease rent of $18,000,000 (formerly $27,000,000 under the original lease) with related interest at 8.0%, and approximately $197,000 of additional rent. On April 17, 1995, PCM paid Hollywood Park $3,000,000 for additional rent related to PCM's use of food and beverage services from Hollywood Park for the nine months ended March 31, 1995. PCM paid Hollywood Park $6,000,000 of lease rent during the three months ended June 30, 1995. In August 1995, the Company and PCM executed the Second Amended and Restated Lease Agreement subject to approval by the Attorney General, which lowered the fixed monthly rent payment from $2,000,000 to $1,500,000 effective July 1, 1995. PCM paid $4,500,000 in rent for the three months ended September 30, 1995. As of September 30, 1995, the Company had received all necessary approvals to operate the Casino; a provisional gaming Registration from the California Attorney General, and a provisional Operations Certificate from the city of Inglewood. ITEM 6.A EXHIBITS - -----------------
Exhibit Number Description of Exhibit - ------ ---------------------- 2.1 Agreement of Merger by and among Hollywood Park, Inc., HP Acquisition, Inc., Sunflower Racing, Inc., R.D. Hubbard and Richard J. Boushka, dated February 24, 1994, executed on March 23, 1994, is hereby incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993.
16 2.2 Agreement of Merger by and among Hollywood Park, Inc., HP Acquisition, Inc., and Turf Paradise, Inc., dated March 30, 1994, is hereby incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994. 3.1 Certificate of Incorporation of Hollywood Park, Inc., is hereby incorporated by reference to the Company's Registration Statement on Form S-1 dated January 29, 1993. 3.2 Amended By-laws of Hollywood Park, Inc., are hereby incorporated by reference to the Company's Registration Statement on Form S-1 dated January 29, 1993. 4.5 Convertible Preferred Stock Depository Stock Agreement between Hollywood Park, Inc. and Chemical Trust Company of California, dated February 9, 1993, is hereby incorporated by reference to the Company's Registration Statement on Form S-1 dated January 29, 1993. 4.6 Hollywood Park Stock Option Plan is hereby incorporated by reference to Exhibit A to the Notice of Annual Meeting of Stockholders and Proxy Statement relating to the Annual Meeting of Stockholders of Hollywood Park, Inc., held on May 17, 1993. 10.1 Directors Deferred Compensation Plan for Hollywood Park, Inc. is hereby incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.2 Lease Agreement dated January 1, 1989, by and between Hollywood Park Realty Enterprises, Inc. and Hollywood Park Operating Company, as amended, is hereby incorporated by reference to the Joint Annual Report on Form 10-K for the fiscal year ended December 31, 1989, of Hollywood Park Operating Company and Hollywood Park Realty Enterprises, Inc. 10.3 Aircraft rental agreement dated November 1, 1993, by and between Hollywood Park, Inc., and R.D. Hubbard Enterprises, Inc., is hereby incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.4 Hollywood Park Casino lease agreement dated June 15, 1994, by and between Hollywood Park, Inc. and Pacific Casino Management, Inc., is hereby incorporated by reference to the Current Report on Form 8-K dated June 15, 1994. 10.5 Amended and Restated Credit Agreement dated March 23, 1994, by and between Sunflower Racing, Inc. and First Union National Bank of North Carolina, Bank One Lexington, Texas Commerce Bank, Home State Bank of Kansas City and Intrust Bank, N.A., is hereby incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994. 10.6 Pledge Agreement dated March 23, 1994, by and between Hollywood Park, Inc., First Union National Bank of North Carolina, (as agent for the ratable benefit of itself and the Banks named in the Amended and Restated Credit Agreement included as Exhibit 10.6) is hereby incorporated by reference to the Company's Quarterly Report on Form 10-Q for quarter ended June 30, 1994. 10.7 Subordination and Amendment Agreement dated March 23, 1994, by and between R.D. Hubbard and Sunflower Racing, Inc., is hereby incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994. 10.8 Ground Lease Agreement dated August 4, 1994, by and between Hollywood Park, Inc. and QBM Investment Corporation, is hereby incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 10.9 Agreement Respecting Pyramid Casino dated December 3, 1994, by and between Hollywood Park, Inc. and Compton Entertainment, Inc., is hereby incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 10.10 Amendment of Oil and Gas Lease dated January 10, 1995, by and among Hollywood Park, Inc., and Casex Co., Nunn Ltd., and Votex Energy & Mineral is hereby incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 10.11 Agreement to sell contingent rights to additional consideration payable by Hollywood Park, Inc. related to the Agreement of Merger by and among Hollywood Park, Inc., HP Acquisition Inc., Sunflower Racing, Inc., R.D. Hubbard and Richard J. Boushka, dated February 24, 1994, executed on March 23 1994, by and among Hollywood Park, Inc., R.D. Hubbard and Richard J. Boushka, dated March 23, 1995, is hereby incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
17 10.12 Business Loan Agreement dated April 14, 1995, by and between Hollywood Park, Inc., and Bank of America National Trust and Savings Association, is hereby incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. 10.13 Amendment to Agreement Respecting Pyramid Casino dated April 14, 1995, by and between Hollywood Park, Inc., and Compton Entertainment, Inc., is hereby incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. 10.14 Amended and Restated Lease dated August 31, 1995, by and between Hollywood Park, Inc., and Pacific Casino Management. 10.15 Amended and Restated Agreement Respecting Pyramid Casino dated July 14, 1995, by and between Hollywood Park, Inc. and Compton Entertainment, Inc. 10.16 Amended and Restated Disposition and Development Agreement of Purchase and Sale, and Lease with Option to Purchase, dated August 2, 1995, by and between The Community Redevelopment Agency of the City of Compton and Compton Entertainment, Inc. 10.17 Guaranty, dated July 31, 1995, by Hollywood Park, Inc. in favor of the Community Redevelopment Agency of the City of Compton. 10.18 Lease by and between HP Compton, Inc. and Compton Entertainment, Inc., dated August 3, 1995. 10.19 Standstill Agreement, dated October 27, 1995, by and between Sunflower Racing, Inc., and First Union National Bank of Florida, Bank One Lexington, N.A., Bank Midwest, N.A., Intrust Bank, N.A., and FCLT Loans, L.P. 22.1 Subsidiaries of Hollywood Park, Inc.: HP Compton, Inc., a California corporation, HP Casino, Inc., a California corporation, Hollywood Park Operating Company, a Delaware corporation (and its subsidiaries: Hollywood Park Fall Operating Company, a Delaware corporation and Hollywood Park Food Services, Inc., a California corporation): Sunflower Racing, Inc., a Kansas corporation (and its subsidiary Sunflower Food and Beverage, Inc., a Kansas corporation): and Turf Paradise, Inc., an Arizona corporation. 27.1 Financial Data Schedule (b) Reports on Form 8-K There were no Reports on Form 8-K filed during the quarter.
18 Hollywood Park, Inc. Racing Data HOLLYWOOD PARK RACE TRACK
1995 1994 ------------------------ ------------------------ LIVE RACING DATES: Spring/Summer meeting ("S/S") April 28 through July 24 April 27 through July 25 Autumn meeting ("A") Nov. 15 through Dec. 24 Nov. 9 through Dec. 24 LIVE RACE DAYS INCLUDING CHARITY DAYS (A): Spring/Summer meeting 67 68 Autumn meeting 30 34 -- --- 97 102 == === LIVE RACE DAYS BY QUARTER: First quarter 0 0 Second quarter (S/S) 48 48 Third quarter (S/S) 19 20 Fourth quarter (A) 30 34 -- --- 97 102 == === SIMULCAST RACE DAYS BY QUARTER 1995: 1Q 2Q 3Q 4Q TOTAL --- --- --- --- ----- Santa Anita thoroughbred 65 19 0 6 90 Del Mar thoroughbred 0 0 43 0 43 Fairplex Pomona thoroughbred 0 0 17 2 19 Oak Tree from Santa Anita thoroughbred 0 0 0 32 32 Los Alamitos Harness - night races 36 0 0 0 36 Los Alamitos Quarter Horse - night races 0 45 53 53 151 Cal Expo Harness - night races 1 36 11 0 48 Bay Meadows - northern California (b) 21 11 28 46 106 Golden Gate Fields - northern California (b) 44 47 0 15 106 Fairs - northern California (b) 0 16 60 12 88 --- --- --- --- --- TOTAL 167 174 212 166 719 === === === === === SIMULCAST RACE DAYS BY QUARTER 1994: 1Q 2Q 3Q 4Q TOTAL --- --- --- --- ----- Santa Anita thoroughbred 66 19 0 5 90 Del Mar thoroughbred 0 0 43 0 43 Fairplex Pomona thoroughbred 0 0 16 3 19 Oak Tree from Santa Anita thoroughbred 0 0 0 27 27 Los Alamitos Harness - night races 36 2 0 2 40 Los Alamitos Quarter Horse - night races 0 48 49 44 141 Cal Expo Harness - night races -- -- -- -- -- Bay Meadows - northern California (b) -- -- -- -- -- Golden Gate Fields - northern California (b) -- -- -- -- -- Fairs - northern California (b) -- -- -- -- -- --- --- --- --- --- TOTAL 102 69 108 81 360 === === === === ===
______ (a) There are three charity days in both the Spring/Summer and Autumn meetings, for a total of six charity days per year. (b) Simulcasting from northern California runs year round and is simulcast concurrently with either live on-track racing or with southern California simulcasting. 19 SUNFLOWER -- OPERATING AS THE WOODLANDS Sunflower, operating as the Woodlands race track, under Kansas racing law is not granted any race days and does not generate any pari-mutuel commissions. The Kansas Racing Commission granted Sunflower the facility ownership and manager licenses, with all race days until 2014 granted to TRAK East, a Kansas not-for- profit corporation. Sunflower has an agreement with TRAK East to provide the physical race tracks along with management and consulting services for twenty- five years with options to renew for one or more successive five year terms. The Agreement and Restatement of Lease and Management Agreement was entered into as of September 14, 1989. Sunflower had guaranteed that the minimum net revenues to be retained by TRAK East, which are for distribution to charities, would not be less than $500,000, but in the absence of legislative relief (see Part II, Item 5. Other Information) Sunflower is currently having discussions with TRAK East to reduce the amount retained for charities. 1995 RACE DAYS AND PERFORMANCES BY QUARTER:
Live On-track Simulcast ------------------------ --------- Race Days Performances Race Days --------- ------------ --------- GREYHOUNDS First quarter 73 103 44 Second quarter 78 104 77 Third quarter 76 101 76 Fourth quarter 65 78 65 --- --- --- 292 386 262 === === === THOROUGHBREDS First quarter 0 -- 63 Second quarter 0 -- 66 Third quarter 32 -- 64 Fourth quarter 13 -- 66 --- --- --- 45 -- 259 === === ===
1994 RACE DAYS AND PERFORMANCES BY QUARTER:
Live On-track Simulcast ------------------------ --------- Race Days Performances Race Days --------- ------------ --------- GREYHOUNDS First quarter 69 104 68 Second quarter 82 123 80 Third quarter 78 107 71 Fourth quarter 71 102 69 --- --- --- 300 436 288 === === === THOROUGHBREDS First quarter 0 -- 60 Second quarter 0 -- 76 Third quarter 36 -- 77 Fourth quarter 26 -- 65 --- --- --- 62 -- 278 === === ===
The following pari-mutuel wagering data is related to TRAK East at Sunflower. Sunflower does not generate any pari-mutuel wagering related revenue, but instead receives a lease and management fee from TRAK East. 20 TRAK EAST - AT SUNFLOWER
For the three months ended September 30, ----------------------------------------------------- 1995 1994 1995 1994 ----------- ----------- ----------- ----------- GREYHOUNDS HORSES ------------------------- ------------------------- Pari-mutuel handle: On-track $10,944,000 $23,654,000 $ 2,526,000 $ 4,236,000 Simulcast 3,067,000 2,230,000 6,805,000 7,559,000 ----------- ----------- ----------- ----------- $14,011,000 $25,884,000 $ 9,331,000 $11,795,000 =========== =========== =========== =========== Pari-mutuel commissions: On-track $ 1,408,000 $ 2,910,000 $ 211,000 $ 418,000 Simulcast 328,000 219,000 719,000 792,000 ----------- ----------- ----------- ----------- $ 1,736,000 $ 3,129,000 $ 930,000 $ 1,210,000 =========== =========== =========== =========== For the nine months ended September 30, ----------------------------------------------------- 1995 1994 1995 1994 ----------- ----------- ----------- ----------- GREYHOUNDS HORSES ------------------------- ------------------------- Pari-mutuel handle: On-track $38,264,000 $86,190,000 $ 2,526,000 $ 4,237,000 Simulcast 7,648,000 7,785,000 22,567,000 26,932,000 ----------- ----------- ----------- ----------- $45,912,000 $93,975,000 $25,093,000 $31,169,000 =========== =========== =========== =========== Pari-mutuel commissions: On-track $ 4,902,000 $10,614,000 $ 211,000 $ 418,000 Simulcast 816,000 752,000 2,350,000 2,811,000 ----------- ----------- ----------- ----------- $ 5,718,000 $11,366,000 $ 2,561,000 $ 3,229,000 =========== =========== =========== ===========
TURF PARADISE Turf Paradise has one continuous live thoroughbred race meet that starts in September and runs through May. During 1995 Turf Paradise raced live for the period January 1 through May 22 and resumed live racing on September 30 and will run through December 31. Turf Paradise operates as a simulcast facility for Arizona's Prescott Downs during the period May 26 through September 4. In 1994, Turf Paradise raced live from January 1 through May 23 and resumed live racing on September 23 running through December 31. Turf Paradise operated as a simulcast facility for the period May 27 through September 5, in 1994. In addition to running live thoroughbred races, Turf Paradise offers two quarter horse races a day during the first three months of the live meet (September through November) and a limited number of Arabian races each spring. Turf Paradise also accepts simulcast signals during live racing on Fridays, Saturdays and Sundays. As of September 1994, Turf Paradise began operating as a simulcast facility during the two dark days (days without live racing during the live race meet) of each week during the live on-track racing season.
LIVE ON-TRACK RACE DAYS DARK DAY SIMULCASTING SIMULCASTING - PRESCOTT ----------------------- --------------------- ----------------------- 1995 1994 1995 1994 1995 1994 ---- ---- ---- ---- ---- ---- First quarter 67 75 23 0 0 0 Second quarter 37 40 14 0 30 29 Third quarter 1 4 18 11 56 56 Fourth quarter 66 65 25 25 0 0 --- --- -- -- -- -- 171 184 80 36 86 85 === === == == == ==
21 HOLLYWOOD PARK, INC. Calculation of Earnings Per Share
For the three months ended September 30, --------------------------------------------------------- Primary Assuming full dilution (a) -------------------------- -------------------------- 1995 1994 1995 1994 ---------- ---------- ---------- ---------- Average number of common shares outstanding 18,369,634 18,369,607 18,369,634 18,369,607 Average common shares due to assumed conversion of convertible preferred shares 0 0 2,291,492 2,291,492 ----------- ----------- ----------- ----------- Total shares 18,369,634 18,369,607 20,661,126 20,661,099 =========== =========== =========== =========== Net loss $(5,637,000) $(2,398,000) $(5,637,000) $(2,398,000) Less dividend requirements on convertible preferred shares 481,000 481,000 0 0 ----------- ----------- ----------- ----------- Net loss allocated to common shareholders $(6,118,000) $(2,879,000) $(5,637,000) $(2,398,000) =========== =========== =========== =========== Net loss per share $(0.33) $(0.16) $(0.27) $(0.12) =========== =========== =========== =========== For the nine months ended September 30, --------------------------------------------------------- Primary Assuming full dilution (a) --------------------------------------------------------- 1995 1994 1995 1994 ---------- ---------- ---------- ---------- Average number of common shares outstanding 18,369,634 18,175,191 18,369,634 18,175,191 Average common shares due to assumed conversion of convertible preferred shares 0 0 2,291,492 2,291,492 ----------- ----------- ----------- ----------- Total shares 18,369,634 18,175,191 20,661,126 20,466,683 =========== =========== =========== =========== Net income (loss) $(1,374,000) $ 1,036,000 $(1,374,000) $ 1,036,000 Less dividend requirements on convertible preferred shares 1,443,000 1,443,000 0 0 ----------- ----------- ----------- ----------- Net income (loss) available to (allocated to) common shareholders $(2,817,000) $ (407,000) $(1,374,000) $ 1,036,000 =========== =========== =========== =========== Net income (loss) per share $(0.15) $(0.02) $(0.07) $(0.05) =========== =========== =========== ===========
- ------------ (a) The computed values assuming full dilution are anti-dilutive; therefore, the primary share values are presented on the face of the consolidated statements of operations. 22 HOLLYWOOD PARK, INC. Selected Financial Data by Operational Location (unaudited)
For the nine months ended For the three months ended September 30, September 30, ---------------------------- ---------------------------- 1995 1994 1995 1994 ----------- ----------- ----------- ----------- REVENUES: Hollywood Park, Inc. and Race Track $48,078,000 $48,142,000 $14,750,000 $16,058,000 Sunflower Racing, Inc. 7,858,000 10,931,000 2,385,000 4,724,000 Turf Paradise, Inc. 11,547,000 11,567,000 1,480,000 977,000 Hollywood Park, Inc. - Casino Division 26,396,000 8,345,000 7,980,000 8,345,000 ----------- ----------- ----------- ----------- 93,879,000 78,985,000 26,595,000 30,104,000 ----------- ----------- ----------- ----------- EXPENSES: Hollywood Park, Inc. and Race Track 41,848,000 40,128,000 13,634,000 13,655,000 Lawsuit settlement 5,627,000 0 5,627,000 0 Casino pre-opening and training costs 0 2,337,000 0 723,000 Turf Paradise acquisition costs 0 627,000 0 446,000 Sunflower Racing, Inc. 7,146,000 7,519,000 2,544,000 3,961,000 Turf Paradise, Inc. 9,537,000 9,207,000 1,859,000 1,755,000 Hollywood Park, Inc. - Casino Division 19,373,000 8,764,000 6,542,000 8,764,000 ----------- ----------- ----------- ----------- 83,531,000 68,582,000 30,206,000 29,304,000 ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE INTEREST, INCOME TAXES, DEPRECIATION AND AMORTIZATION: Hollywood Park, Inc. and Race Track 6,230,000 8,014,000 1,116,000 2,403,000 Lawsuit settlement (5,627,000) 0 (5,627,000) 0 Casino pre-opening and training costs 0 (2,337,000) 0 (723,000) Turf Paradise acquisition costs 0 (627,000) 0 (446,000) Sunflower Racing, Inc. 712,000 3,412,000 (159,000) 763,000 Turf Paradise, Inc. 2,010,000 2,360,000 (379,000) (778,000) Hollywood Park, Inc. - Casino Division 7,023,000 (419,000) 1,438,000 (419,000) ----------- ----------- ----------- ----------- 10,348,000 10,403,000 (3,611,000) 800,000 ----------- ----------- ----------- ----------- DEPRECIATION AND AMORTIZATION: Hollywood Park, Inc. and Race Track 4,097,000 4,042,000 1,378,000 1,363,000 Sunflower Racing, Inc. 1,853,000 1,350,000 616,000 645,000 Turf Paradise, Inc. 1,009,000 941,000 311,000 304,000 Hollywood Park, Inc. - Casino Division 1,519,000 550,000 519,000 550,000 ----------- ----------- ----------- ----------- 8,478,000 6,883,000 2,824,000 2,862,000 ----------- ----------- ----------- ----------- INTEREST EXPENSE: Hollywood Park, Inc. and Race Track 142,000 96,000 44,000 28,000 Sunflower Racing, Inc. 2,723,000 1,659,000 913,000 836,000 Turf Paradise, Inc. 21,000 87,000 1,000 17,000 Hollywood Park, Inc. - Casino Division 0 0 0 0 ----------- ----------- ----------- ----------- 2,886,000 1,842,000 958,000 881,000 ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT): Hollywood Park, Inc. and Race Track 1,991,000 3,876,000 (306,000) 1,012,000 Lawsuit settlement (5,627,000) 0 (5,627,000) 0 Casino pre-opening and training costs 0 (2,337,000) 0 (723,000) Turf Paradise acquisition costs 0 (627,000) 0 (446,000) Sunflower Racing, Inc. (3,864,000) 403,000 (1,688,000) (718,000) Turf Paradise, Inc. 980,000 1,332,000 (691,000) (1,099,000) Hollywood Park, Inc. - Casino Division 5,504,000 (969,000) 919,000 (969,000) ----------- ----------- ----------- ----------- (1,016,000) 1,678,000 (7,393,000) (2,943,000) Income tax expense (benefit) 358,000 642,000 (1,756,000) (545,000) ----------- ----------- ----------- ----------- Net income (loss) $(1,374,000) $ 1,036,000 $(5,637,000) $(2,398,000) =========== =========== =========== =========== Dividend requirements on convertible preferred stock $ 1,443,000 $ 1,443,000 $ 481,000 $ 481,000 ----------- ----------- ----------- ----------- Net income (loss) available to (allocated to) common shareholders $(2,817,000) $ (407,000) $(6,118,000) $(2,879,000) =========== =========== =========== =========== Per common share: Net income (loss) - primary $ (0.15) $ (0.02) $ (0.33) $ (0.16) Net income (loss) - fully diluted $ (0.15) $ (0.02) $ (0.33) $ (0.16) Number of shares - primary 18,369,634 18,175,191 18,369,634 18,369,607 Number of shares - fully diluted 20,661,126 20,466,683 20,661,126 20,661,099
23 HOLLYWOOD PARK, INC. Pari-mutuel Wagering Data (unaudited)
For the nine months ended For the three months ended September 30, September 30, ----------------------------- ----------------------------- 1995 1994 1995 1994 ------------ ------------ ------------ ------------ HOLLYWOOD PARK - ------------------------------------- Pari-mutuel handle: On-track $135,461,000 $195,435,000 $ 41,110,000 $ 76,954,000 Off-track - shared handle wagering 325,247,000 385,081,000 95,597,000 150,047,000 Simulcast 299,217,000 228,933,000 105,175,000 100,692,000 ------------ ------------ ------------ ------------ Total $759,925,000 $809,449,000 $241,882,000 $327,693,000 ============ ============ ============ ============ Pari-mutuel commissions: On-track $ 8,567,000 $ 10,130,000 $ 2,582,000 $ 3,353,000 Off-track - shared handle wagering 10,544,000 11,660,000 3,108,000 3,837,000 Off-track - independent handle 1,524,000 827,000 448,000 120,000 Simulcast 8,605,000 4,419,000 2,811,000 1,538,000 ------------ ------------ ------------ ------------ Total $ 29,240,000 $ 27,036,000 $ 8,949,000 $ 8,848,000 ============ ============ ============ ============ TURF PARADISE - ------------------------------------- Pari-mutuel handle: On-track $ 18,609,000 $ 24,605,000 $ 341,000 $ 663,000 Off-track - shared handle wagering 46,772,000 36,650,000 280,000 474,000 Simulcast 38,152,000 29,330,000 9,028,000 6,918,000 ------------ ------------ ------------ ------------ Total $103,533,000 $ 90,585,000 $ 9,649,000 $ 8,055,000 ============ ============ ============ ============ Pari-mutuel commissions: On-track $ 2,550,000 $ 3,059,000 $ 67,000 $ 83,000 Off-track - shared handle wagering 2,993,000 3,089,000 37,000 64,000 Off-track - independent handle 507,000 159,000 0 0 Simulcast 2,455,000 1,989,000 1,013,000 430,000 ------------ ------------ ------------ ------------ Total $ 8,505,000 $ 8,296,000 $ 1,117,000 $ 577,000 ============ ============ ============ ============ COMBINED - ------------------------------------- Pari-mutuel handle: On-track $154,070,000 $220,040,000 $ 41,451,000 $ 77,617,000 Off-track - shared handle wagering 372,019,000 421,731,000 95,877,000 150,521,000 Simulcast 337,369,000 258,263,000 114,203,000 107,610,000 ------------ ------------ ------------ ------------ Total $863,458,000 $900,034,000 $251,531,000 $335,748,000 ============ ============ ============ ============ Pari-mutuel commissions: On-track $ 11,117,000 $ 13,189,000 $ 2,649,000 $ 3,436,000 Off-track - shared handle wagering 13,537,000 14,749,000 3,145,000 3,901,000 Off-track - independent handle 2,031,000 986,000 448,000 120,000 Simulcast 11,060,000 6,408,000 3,824,000 1,968,000 ------------ ------------ ------------ ------------ Total $ 37,745,000 $ 35,332,000 $ 10,066,000 $ 9,425,000 ============ ============ ============ ============
24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOLLYWOOD PARK, INC. (Registrant) By: /s/ R.D. Hubbard Dated: November 10, 1995 ----------------------------------- R.D. Hubbard Chairman of the Board and Chief Executive Officer (Principal Executive Officer) By: /s/ G. Michael Finnigan Dated: November 10, 1995 ----------------------------------- G. Michael Finnigan Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 25 Hollywood Park, Inc. Exhibit Index
Exhibit Description Page - ------- ----------- ---- 10.14 Amended and Restated Lease dated August 31, 1995, by and between Hollywood Park, Inc. and Pacific Casino Management, Inc. 1 10.15 Amended and Restated Agreement Respecting Pyramid Casino dated July 14, 1995, by and between Hollywood Park, Inc. and Compton Entertainment, Inc. 66 10.16 Amended and Restated Disposition and Development Agreement of Purchase and Sale, and Lease with Option to Purchase, dated August 2, 1995, by and between The Community Redevelopment Agency of the City of Compton and Compton Entertainment, Inc. 96 10.17 Guaranty, dated July 31, 1995, by Hollywood Park in favor of the Community Redevelopment Agency of the City of Compton. 177 10.18 Lease by and between HP Compton, Inc. and Compton Entertainment, Inc., dated August 3, 1995. 187 10.19 Standstill Agreement, dated October 27, 1995, by and between Sunflower Racing, Inc., and First Union National Bank of Florida, Bank One Lexington, N.A., Bank Midwest, N.A., Intrust Bank, N.A. and FCLT Loans, L.P. 236 27.1 Financial Data Schedule
26 EX-10.14 2 HOLLYWOOD PARK/PACIFIC AGREEMENT Exhibit 10.14 AMENDED AND RESTATED LEASE by and between HOLLYWOOD PARK, INC., a Delaware corporation, as "Landlord" and PACIFIC CASINO MANAGEMENT, INC., a California corporation, as "Tenant" Dated: August 31, 1995 TABLE OF CONTENTS -----------------
Page ---- AMENDED AND RESTATED LEASE............................................... 1 RECITALS................................................................. 1 Article 1. LEASE OF PREMISES............................................ 1 1.01 Premises..................................................... 1 1.02 Landlord's Obligations....................................... 2 Article 2. TERM; POSSESSION; ACCEPTANCE................................. 2 2.01 Term......................................................... 2 2.02 Termination Right............................................ 2 2.03 Intentionally Deleted........................................ 2 2.04 Acceptance of Premises; Premises Remodeling.................. 3 Article 3. RENT......................................................... 3 3.01 Monthly Rent................................................. 3 3.02 Initial Monthly Rent......................................... 3 3.03 Rent Arrearages.............................................. 3 3.04 Legal Tender................................................. 4 3.05 Additional Rent; Rent Defined................................ 4 3.06 Interest on Late Payments.................................... 4 Article 4. RECORDS AND ACCOUNTING....................................... 4 4.01 Reports...................................................... 4 4.02 Landlord's Audit............................................. 5 4.03 Independent Business......................................... 5 Article 5. USE AND OPERATION OF PREMISES................................ 5 5.01 Specific Use of Premises..................................... 5 5.02 Conduct of Business.......................................... 5 5.03 Compliance with Restrictions and Laws........................ 6 5.04 Prohibited Uses.............................................. 6 5.05 Restrictions on Activities................................... 7 5.06 Rules and Regulations........................................ 7 Article 6. MAINTENANCE, REPAIRS and ALTERATIONS......................... 8 6.01 Landlord's Maintenance and Repair Obligations................ 8 6.02 Tenant's Maintenance and Repair Obligations.................. 8
2 6.03 Damage to Premises........................................... 8 6.04 Damage to Building or Other Premises......................... 9 6.05 Repair of Damage; Rent Abatement............................. 9 6.06 Alterations; Improvements; Additions......................... 10 6.07 Ownership of Improvements, Fixtures, Furnishings and Equipment.................................................... 10 6.08 Mechanic's Liens............................................. 11 Article 7. INSURANCE, EXONERATION and INDEMNITY......................... 11 7.01 Liability Insurance.......................................... 11 7.02 Fire and Extended Coverage Insurance......................... 12 7.03 Insurance Policies........................................... 12 7.04 Waiver of Subrogation........................................ 13 7.05 Exoneration and Indemnity.................................... 14 Article 8. ASSIGNMENT, SUBLETTING, HYPOTHECATION........................ 15 8.01 Consent Required............................................. 15 8.02 Indirect Transfers........................................... 15 8.03 Obligations of Transferees and Subtenants.................... 15 8.04 Continued Liability; No Waiver............................... 16 Article 9. EMINENT DOMAIN............................................... 16 9.01 Effect on Lease.............................................. 16 9.02 Award........................................................ 17 9.03 Rebuilding................................................... 17 Article 10. TENANT'S BREACH; LANDLORD'S REMEDIES......................... 17 10.01 Tenant's Breach.............................................. 17 10.02 Landlord's Remedies.......................................... 18 10.03 Right to Cure Tenant's Default............................... 20 10.04 Landlord's Remedies Not Exclusive............................ 20 10.05 Receipt of Rents............................................. 20 10.06 Limitation on Landlord's Remedies; Personal Obligations of LeBaron and Klosterman....................................... 20 Article 11. LANDLORD'S DEFAULT; TENANT'S REMEDIES........................ 21 11.01 Landlord's Default........................................... 21 11.02 Tenant's Remedies............................................ 21 11.03 Limitation on Tenant's Remedies.............................. 22 11.04 Tenant's Remedies Not Exclusive.............................. 22 11.05 Payment of Rents............................................. 22 Article 12. MORTGAGE OF LANDLORD'S INTEREST.............................. 22 12.01 Subordination................................................ 22 12.02 Tenant's Obligations With Respect to Landlord's Mortgage..... 22 12.03 Definition of Landlord's Mortgage and Landlord's Mortgagee... 23
3 Article 13. COMMON AREAS................................................. 23 13.01 Definition of Common Areas................................... 23 13.02 Maintenance of Common Areas.................................. 24 13.03 Use of Common Areas.......................................... 24 Article 14. PARKING...................................................... 24 14.01 Parking Area................................................. 24 14.02 Valet Parking Charges........................................ 24 14.03 Validations.................................................. 24 14.04 Employee Parking............................................. 25 Article 15. TAXES AND OTHER CHARGES...................................... 25 15.01 Tenant's Taxes............................................... 25 Article 16. UTILITY AND OTHER SERVICES................................... 25 16.01 Furnishing of Services....................................... 25 Article 17. SIGNS; DISPLAYS; ADVERTISING................................. 26 17.01 Signs........................................................ 26 17.02 Displays..................................................... 26 17.03 Advertised Name.............................................. 26 Article 18. GENERAL PROVISIONS........................................... 26 18.01 Estoppel Certificates........................................ 26 18.02 Landlord's Right of Entry.................................... 27 18.03 Landlord's Installations, Access and Food Services........... 27 18.04 Changes in the Center........................................ 28 18.05 Waiver....................................................... 28 18.06 Surrender of Premises; Holding Over.......................... 28 18.07 Notices...................................................... 29 18.08 Partial Invalidity; Construction............................. 29 18.09 Captions..................................................... 30 18.10 Short Form Lease............................................. 30 18.11 Brokers' Commissions......................................... 30 18.12 Attorneys' Fees.............................................. 30 18.14 Counterparts................................................. 31 18.15 Sole Agreement............................................... 31 18.16 Successors and Assigns....................................... 31 18.17 Time is of the Essence....................................... 31 18.18 Survival of Covenants........................................ 31 18.19 Landlord's Consent or Approval............................... 31 18.20 Joint and Several Obligations................................ 32 18.21 No Offer..................................................... 32 18.22 Corporate Resolution......................................... 32 18.23 Relationship to Original Lease............................... 32
4 AMENDED AND RESTATED LEASE THIS AMENDED AND RESTATED LEASE is made and entered into this 31 day of August, 1995, by and between HOLLYWOOD PARK, INC., a Delaware corporation, hereinafter called "Landlord", and PACIFIC CASINO MANAGEMENT, INC., a California corporation, hereinafter called "Tenant". RECITALS -------- A. Landlord is the owner of a sports and entertainment center on approximately 335 acres (the "Property") of land in Inglewood, California, commonly known as Hollywood Park (the "Center"). The Center is depicted on the site plan attached hereto as Exhibit "A-1". B. Landlord has developed a portion of the Pavilion Building at the Center (the "Pavilion"), as a card club (the "Premises"). C. Tenant is a California corporation formed for the primary purpose of operating a card club on the Premises and is licensed as a card club operator. D. Landlord and Tenant entered into that certain Lease, dated June 15, 1994 (the "Original Lease"), pursuant to which Landlord is leasing the Premises to Tenant, together with all fixtures, furniture, equipment and supplies required to operate a card club, until it can obtain its own license to operate a card club. E. Landlord and Tenant now desire to amend and restate the Lease in its entirety. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: Article 1. LEASE OF PREMISES ----------------- 1.01 Premises -------- (a) Subject to the terms and conditions and reservations provided herein, Landlord hereby grants, demises and leases to Tenant, and Tenant hereby hires from Landlord, the premises in the Center identified on Exhibit "A-2" with all fixtures, furniture, equipment, supplies and all replacements thereof necessary to operate a card club (collectively, the "Premises"). (b) Notwithstanding anything contained herein to the contrary, Tenant hereby acknowledges and agrees that the exterior walls of the building of which the Premises are a part, as well as the area above the finished ceilings and the area below the finished floors, including the real property underlying the Center, have not been demised or leased hereby and the use thereof, together with the right to install, maintain, use, repair and replace pipes, ducts, conduits and wires leading through, under or above the Premises are hereby excepted and reserved unto Landlord, at Landlord's sole cost and expense. (c) This Lease is subject to the terms, covenants and conditions herein set forth and each party covenants, as a material part of the consideration for this Lease, to keep and perform each and all of said terms, covenants and conditions by it to be kept and performed. 1.02 Landlord's Obligations. ---------------------- Prior to the Commencement Date, as that term is hereinafter defined, Landlord shall, to Tenant's reasonable satisfaction, fully improve, equip, fixture, furnish and provide all necessary supplies for the Premises, at Landlord's sole cost and expense, to enable Tenant to operate a casino card club on the Premises in a first class manner. During the Term (as hereinafter defined) hereof, Landlord, at its sole cost and expense, shall replenish the equipment and supplies described on Exhibit "C" attached hereto on an as needed basis in order for Tenant to operate its business on the Premises as provided in this Lease "(but Tenant may, at its option and expense, replace any of such equipment and supplies from other sources)." The performance of each and every one of Landlord's obligations under this Section 1.02(a) shall, at all times during the Term, comply with any and all Applicable Laws (as hereinafter defined) and shall be at Landlord's sole cost and expense. Article 2. TERM; POSSESSION; ACCEPTANCE ---------------------------- 2.01 Term ---- The term of this Lease shall commence on the date upon which Tenant opens for business to the general public (the "Commencement Date") and shall continue until midnight on the Expiration Date which is the date twenty seven (27) months after the Commencement Date unless sooner terminated pursuant to any provision hereof (the "Term" or "the term of this Lease"). Landlord and Tenant acknowledge and agree that the Commencement Date occurred on July 1, 1994, and accordingly, the Expiration Date shall be September 30, 1996. 2.02 Termination Right ----------------- (a) Tenant and Landlord agree that at any time after the date hereof, Landlord shall hav e the right, in its sole discretion, to terminate this Lease upon the giving of at least ten (10) days' prior written notice to Tenant (or such shorter period as the parties may agree in writing) specifying the effective date of such termination of this Lease. (b) Tenant and Landlord agree that Tenant shall have the right, in its sole discretion, to terminate this Lease, without liability to Landlord therefor, upon the giving of at least ten (10) days' written notice to Landlord (or such shorter period as the parties may agree in writing) specifying the effective date of such termination of this Lease. (c) The termination of this Lease by Landlord or Tenant pursuant to this Article 2.02 or otherwise shall not operate to relieve Tenant of the obligation to pay any accrued but unpaid Rent (as that term is hereinafter defined) as of the effective date of termination. All such Rent shall be due and payable on the effective date of termination and shall be paid without deduction or offset. 2.03 Intentionally Deleted --------------------- 2.04 Acceptance of Premises; Premises Remodeling ------------------------------------------- All improvements constructed and maintained by or under the direction of Landlord or its Affiliates (as that term is hereinafter defined) shall be constructed and maintained in accordance with "Applicable Laws," as that term is defined in Section 5.03 hereof. Tenant agrees to accept the Premises subject to all Applicable Laws regulating or in any manner applicable to any use or occupancy thereof by Tenant (as limited by this Lease) and to all liens, encumbrances, easements, rights of way, covenants, conditions, restrictions, servitudes, licenses and other matters which have been disclosed in writing to Tenant prior to the execution of this Lease. For the purposes of this Lease, the term "Affiliate" means Landlord or any parent corporation, subsidiary or brother-sister corporation of Landlord or any entity owned or controlled, whether in whole or in part by Landlord or by any parent, subsidiary or brother-sister corporation of Landlord, or any individual or entity which owns or controls, whether in whole or in part, Landlord or any parent corporation, subsidiary or brother-sister corporation of Landlord, including, without limitation, Hollywood Park Operating Company. Article 3. RENT ---- 3.01 Monthly Rent ------------ (a) Except as otherwise expressly provided in Article 3.03 below, Tenant shall pay to Landlord the amounts specified herein as Monthly Rent (the "Monthly Rent"), in arrears on or before the last day of each calendar month during the Term hereof, without any deduction or offset, prior notice or demand, as the monthly rent for the Premises. Tenant's obligation to pay Monthly Rent shall commence on the Commencement Date. If the Term shall commence on a day other than the first day of a calendar month or shall end on a day other than the last day of a calendar month, then the Monthly Rent for the first and/or last partial calendar month of the Term, as the case may be, shall be prorated on a per diem basis. 3.02 Initial Monthly Rent -------------------- Commencing upon the Commencement Date and extending through June 30, 1995, the Monthly Rent shall be Two Million Dollars ($2,000,000.00) per month. For the period commencing July 1, 1995, the Monthly Rent shall be $1,500,000. 3.03 Rent Arrearages --------------- (a) All Rent accrued but unpaid as of the date hereof shall be paid by Tenant strictly in accordance with the promissory note attached hereto as Exhibit "D" and incorporated herein by this reference, except that if this Lease terminates for any reason, all accrued but unpaid Rent shall be due and payable upon the effective date of termination. Tenant's obligation to pay the accrued but unpaid Rent as of the date hereof shall be evidenced by a promissory note (the "Promissory Note") in the form attached hereto as Exhibit "D". Until such Promissory Note has been paid in full, no amount shall be paid or accrued (whether in the form of compensation, dividends, loans or otherwise) directly or indirectly to or on behalf of Ed LeBaron or Don Klosterman in excess of the amount determined pursuant to Section 3.03(b). (b) So long as Tenant owes Landlord any Rent which is due but has not been paid, Tenant shall not pay to Ed LeBaron and Don Klosterman any compensation, dividend or other amount if the aggregate amount so paid during the Term of this Lease exceeds the sum of (i) $83,333 multiplied by the number of months elapsed after June 30, 1994, (ii) all amounts paid for the reimbursement of expenses reasonably incurred by Messrs. LeBaron or Klosterman on behalf of Tenant and (iii) all amounts properly paid or advanced to or on behalf of Messrs. LeBaron and Klosterman pursuant to the Articles of Incorporation or ByLaws of Tenant or any indemnification agreement between Tenant and Messrs. LeBaron or Klosterman. 3.04 Legal Tender ------------ Rent and all other sums payable under this Lease must be paid in lawful money of the United States of America, without demand, offset or deduction. 3.05 Additional Rent; Rent Defined ----------------------------- (a) Subject to the limitations of Section 18.03, in addition to the Monthly Rent, Tenant shall also pay as additional rent ("Additional Rent"), without deduction or offset, all other charges, fees, costs, taxes, impositions, expenses and other sums required to be paid by Tenant under the provisions of this Lease whether or not the same shall be designated as additional rent. In the event of nonpayment of any Additional Rent when due, Landlord shall have all of the rights and remedies provided hereunder or by law for the nonpayment of Rent. (b) As used in this Lease, the term "Rent" shall include Monthly Rent for the Premises and Additional Rent. 3.06 Interest on Late Payments ------------------------- Any Rents or other amounts due from Tenant to Landlord hereunder which are not paid within five (5) days of when due shall bear interest at a rate (the "Agreed Rate") equal to two percent (2%) per annum in excess of the "reference rate" as announced by Bank of America, NT&SA, Los Angeles main office, as such rate may change from time to time, from the date due until the date paid, regardless of whether a notice of default or any other notice is given by Landlord; provided, however, if such rate is greater than the maximum rate of interest then permitted to be charged by law, the Agreed Rate shall be the maximum rate of interest then permitted to be charged by law. In the event that Bank of America, NT&SA, shall cease to exist or shall cease to announce a "reference rate" (or equivalent prime rate) or shall cease to have a Los Angeles office, there shall be substituted such alternative bank, alternative rate or alternative office as Landlord shall select. Acceptance of interest by Landlord shall not constitute a waiver of Tenant's default with respect to the overdue amount, or prevent Landlord from exercising any other rights or remedies. Article 4. RECORDS AND ACCOUNTING ---------------------- 4.01 Reports ------- For so long as there remains any accrued but unpaid Rent, Tenant shall submit to Landlord on or before the fifteenth (15th) day following the end of each calendar month during the Term during which any accrual exists (including the 15th day of the calendar month following the end of the Term, if applicable), a written statement signed by Tenant, and certified by it (or if Tenant is a corporation or a partnership, by a duly authorized corporate officer or general partner of Tenant) to be true and correct, showing in reasonable, accurate detail financial information reasonably requested by Landlord. The certification of each such statement shall be satisfactory to Landlord, acting reasonably, in scope and substance and without qualification except as may be expressly permitted by Landlord, acting reasonably. The statements referred to herein shall be in such form and style and contain such details and breakdown as Landlord may reasonably require. 4.02 Landlord's Audit. ---------------- For so long as there remains any accrued but unpaid Rent, during regular business hours and upon two (2) business days notice, Landlord or Landlord's representatives may examine the books of account and related records of Tenant during regular business hours. Landlord may, upon reasonable notice, cause an audit of such books and records of Tenant to be made by a person or persons of Landlord's selection. Tenant shall pay for the cost of the audit if the audit reveals that statements made to Landlord are inaccurate by more than three percent (3%) in Tenant's favor. Except to the extent required by law, Landlord agrees to keep information acquired by it pursuant to this Section 4.02 confidential. 4.03 Independent Business -------------------- By this Lease, neither party acquires any right, title or interest in or to any property of the other party except such rights as are specifically stated in this Lease. The relationship between Landlord and Tenant is solely that of landlord and tenant, and is not and shall not be deemed to be a partnership or joint venture. Article 5. USE AND OPERATION OF PREMISES ----------------------------- 5.01 Specific Use of Premises ------------------------ Tenant shall use and occupy the Premises as a card club and for no other use or purpose. 5.02 Conduct of Business ------------------- (a) Landlord and Tenant acknowledge that Tenant's obligation to operate a business in conformance with this Article 5 is a material inducement to Landlord to enter into this Lease, without which Landlord would not have entered into this Lease. Accordingly, except as expressly provided elsewhere herein, Tenant agrees to conduct business continuously at the Premises during the entire Term of this Lease, except when prevented from doing so by reason of the acts or omissions of Landlord or any Affiliate or any other tenant or occupant of the Center or the Property, strikes, lockouts, casualty damage, the order of any governmental agency having jurisdiction over the Premises and/or the conduct of Tenant's business therein or other reasons (other than financial inability) beyond Tenant's reasonable control or during such periods that alterations or repairs are being made to the Premises which make it impracticable to keep the Premises open. Tenant agrees that, commencing with the Commencement Date and continuing for the remainder of the Term, Tenant shall be open for business on a 24-hour a day basis. Tenant shall at all times actively and diligently operate its business on the Premises in a commercially reasonable manner. (b) During the Term hereof, Tenant shall not, directly or indirectly, operate, own, or have a material interest in any business similar to that conducted on the Premises by Tenant located within a radius of fifty (50) miles from the Center. (c) In the event that Landlord consents to any subleasing, Tenant shall cause all Subtenants to comply with all of the requirements of subsections (a) and (b) of this Section 5.02 to the same extent as if each such Subtenant were the Tenant hereunder. (d) Tenant acknowledges that Landlord has made certain commitments to the City of Inglewood regarding the operations to be conducted within the Premises. Landlord and Tenant shall comply fully with all such commitments including without limitation, those contained in the ordinances of the City of Inglewood regarding the operation of a card club in the Premises. Landlord and Tenant acknowledge that compliance with such obligations is a material inducement to the other party to enter into this Lease without which the other party would not enter into this Lease. 5.03 Compliance with Restrictions and Laws ------------------------------------- Upon written notice thereof from Landlord to Tenant, Tenant shall comply with all of the requirements of all covenants, conditions and restrictions of record applicable to its use of the Premises and shall faithfully observe all such covenants, conditions and restrictions. Each of Landlord and Tenant, to the extent required to fulfill their respective obligations under this Lease, shall comply with all federal, state and local laws, regulations, rules, ordinances, zoning variances, conditional use permits and orders now in force or which may hereafter be in force applicable to the Premises, the Center or the Property or the respective conduct of Landlord and Tenant's business therein or thereon ("Applicable Laws"), provided that Tenant is informed in writing of any zoning variances, conditional use permits or orders. Tenant shall cause any Subtenants to comply with and observe all such covenants, conditions, restrictions and Applicable Laws which are applicable to Tenant by the terms of this Lease. 5.04 Prohibited Uses --------------- Tenant shall not use the Premises or any part thereof for any purpose in violation of any Applicable Law, or in a manner that will tend to create a nuisance or tend to disturb or interfere with the quiet enjoyment of the patrons or other tenants of the Center or tend to injure or damage the reputation of the Center. Neither Landlord nor Tenant shall do anything which would violate, suspend, void, cancel or serve to increase the premium rate of or make inoperative any policy or policies of insurance at any time carried on any property, buildings or other improvements in the Center or any part thereof provided each party has received written notice thereof. Tenant shall have the right to establish reasonable rules regarding the conduct of Landlord's employees, invitees or customers while such individuals are present in and about the Premises. Notwithstanding the foregoing, however, or anything to the contrary contained herein, Tenant shall not have any liability whatsoever for any prohibited use of the Premises described in this Section 5.04 by any employee, invitee or customer of Landlord or any Affiliate of Landlord. 5.05 Restrictions on Activities -------------------------- Tenant shall not: (a) Use any portion of the Premises for storage or warehouse purposes except as may be reasonably required for the storing of property to be used in the immediate future in connection with Tenant's business on the Premises; (b) Use any portion of the Premises as living quarters, sleeping apartments or lodging rooms; (c) Burn any papers, trash or garbage of any kind in or about the Premises or any other part of the Center; (d) Distribute handbills or other advertising matter in or about the Premises or any other part of the Center without Landlord's prior written consent; (e) Use any sidewalks, walkways or areaways or any of the "Common Areas" (as such term is hereinafter defined) of the Center for display of any material; (f) Other than monument and other exterior signage to be installed by Landlord for the benefit of Tenant, place any fence, structure, building, improvement, division rail, sign or other advertising or display device or obstruction of any type or kind upon the Common Areas or any part thereof; (g) Park, operate, load or unload any truck or other delivery vehicle within the Center other than that portion thereof from time to time designated by Landlord for such purpose, without Landlord's prior written consent; or (h) Sell or otherwise provide any food or beverage service from the Premises. 5.06 Rules and Regulations --------------------- Tenant shall comply and shall use reasonable efforts to cause its Subtenants, and its and their respective employees, agents, customers and invitees to comply at all times with the Rules and Regulations attached hereto as Exhibit "B". Landlord shall have the sole and exclusive right from time to time to amend such Rules and Regulations and to make other and different reasonable rules and regulations for the safety, care and cleanliness of and the preservation of good order in the Premises and the other parts of the Center, provided any such amendment shall not materially or adversely affect Tenant's rights or obligations under this Lease. All such amended and additional rules and regulations shall, after written notice thereof to Tenant, be binding upon Tenant and shall become conditions of Tenant's tenancy and covenants on the part of and to be performed by Tenant. In the event of any conflict between the provisions of this Lease and the provisions of any of such rules and regulations, the provisions of this Lease shall control. Article 6. MAINTENANCE, REPAIRS and ALTERATIONS ------------------------------------ 6.01 Landlord's Maintenance and Repair Obligations --------------------------------------------- During the Term, Landlord, at its sole cost and expense (except as set forth in Section 6.02 hereof), shall keep in first-class order, condition and repair the Premises and the Common Areas (as that term is hereinafter defined) and the foundations, exterior walls (excluding the interior surface of exterior walls, and all windows, doors, and plate glass), downspouts, gutters and roof of the building of which the Premises are a part, except for reasonable wear and tear. Landlord shall also maintain, repair and replace, upon demand by Tenant acting reasonably, and at Landlord's sole cost and expense, the fixtures, furniture, supplies and equipment leased to Tenant pursuant to Article 1 of this Lease. 6.02 Tenant's Maintenance and Repair Obligations ------------------------------------------- Tenant shall use due care with respect to the Premises in order to keep the Premises in a safe, clean, sanitary, orderly and attractive condition. Unless otherwise expressly indicated, all maintenance to the Premises shall be made by Landlord. Tenant shall notify Landlord promptly in the event of the need to make any repairs to the Premises and Landlord promptly shall make said repairs. Notwithstanding anything to the contrary contained in this Lease, to the extent the need for any maintenance or repair is the result of Tenant's negligence or willful misconduct, the costs incurred by Landlord for said maintenance or repair to the Premises, together with interest thereon at the Agreed Rate from the date of payment thereof by Landlord, shall be deemed Additional Rent hereunder and shall be payable by Tenant to Landlord promptly upon Tenant's receipt of a written statement therefor. Landlord, at Landlord's expense, shall arrange for the maintenance of plumbing, electrical, heating and air conditioning and other mechanical systems for the Premises. Tenant shall not be liable for the cost of any and all additions to or alterations or repairs in and about the Premises which may be required by any and all Applicable Laws now or hereafter in effect or for construction or design defects or deficiencies or as a result of Landlord's breach of any of its obligations under this Lease. 6.03 Damage to Premises ------------------ Except as otherwise provided in this Section 6.03, or elsewhere in this Article VI, if the Premises are damaged and such damage was caused by fire or other peril covered by Landlord's insurance, Landlord agrees to repair such damage to the extent set forth in Section 6.05 hereof, and this Lease shall continue in full force and effect. If (a) the Premises are damaged as the result of any cause other than perils covered by Landlord's insurance, or (b) the Premises are damaged as the result of fire or other peril covered by Landlord's insurance, but the cost to repair such damage, as determined by Landlord in good faith, shall exceed the insurance proceeds available for such repair (treating any so-called "deductible" as available insurance), then Landlord may, at Landlord's option, either (i) repair such damage as soon as reasonably practicable at Landlord's expense (to the extent set forth in Section 6.05 hereof), in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice of termination to Tenant not later than thirty (30) days after the date of occurrence of such damage. In the event Landlord duly elects to terminate this Lease, this Lease shall be deemed to have been terminated as of the date of occurrence of such damage. If the Premises are damaged to the extent that Tenant is unable to operate a first class card club therein and such damage cannot be repaired within sixty (60) days from the date of damage, either party may terminate this Lease by giving written notice to the other party no later than ten (10) days after the date of occurrence of such damage. In the event either party duly elects to terminate this Lease, this Lease shall be deemed to have been terminated as of the date of occurrence of such damage. 6.04 Damage to Building or Other Premises ------------------------------------ Notwithstanding anything to the contrary contained in this Article VI, in the event that (a) the building of which the Premises are a part shall be damaged to the extent of thirty-three and one-third percent (33-1/3%) or more of the then full replacement cost thereof (as estimated by Landlord in good faith), whether or not the Premises are damaged, and whether or not such damage is covered by Landlord's insurance, either Landlord or Tenant may, at such party's option, terminate this Lease by giving written notice to the other party of its election to do so not later than thirty (30) days after the date of occurrence of such damage, in which event this Lease shall be deemed to have been terminated as of the date of occurrence of such damage. 6.05 Repair of Damage; Rent Abatement -------------------------------- (a) If this Lease is terminated pursuant to any of the provisions of Sections 6.03 or 6.04 hereof, the Monthly Rent, Additional Rents and other payments provided for herein shall be paid by Tenant through the date of damage, and advance rents and other payments made by Tenant to Landlord shall be appropriately prorated through the date of termination. (b) If this Lease is not terminated pursuant to any of the provisions of Sections 6.03 or 6.04 hereof, Landlord shall, as soon as reasonably practicable (and subject to (i) the requirements of Applicable Laws, (ii) the provisions of any Landlord's mortgage (if any) concerning the application of insurance proceeds and (iii) delays beyond Landlord's reasonable control, including delays in the adjustment of insurance claims), restore and repair the Premises to the same condition, to the extent practicable, they were in immediately prior to the occurrence of the damage. (c) If the Premises are damaged or destroyed by any casualty covered by Landlord's casualty insurance and, by reason of such damage or destruction, the use of the Premises for the conduct of the business theretofore carried on in the Premises is materially impaired, and such condition continues for more than three (3) days, then (i) Tenant's obligation to pay Monthly Rent shall abate from the date of damage or destruction until the earlier of (A) the date Tenant (or any Subtenant) reopens for business in the Premises, or (B) four (4) days after the date that Landlord completes such repairs to the Premises which Landlord is required to make pursuant to Section 6.05(b) hereof. 6.06 Alterations; Improvements; Additions ------------------------------------ Tenant shall not make or permit the making of any alterations, improvements, additions or installations ("Alterations") in, on or about the Premises without Landlord's prior written consent and unless and until the drawings, plans and specifications for such Alteration shall have been first submitted in triplicate to and approved by Landlord and, if required, by any and all mortgagees of Landlord. Landlord may, as a condition to its consent pursuant to this Section 6.06, require Tenant to furnish Landlord, prior to the commencement of any work that could constitute the basis for a mechanic's lien on the Premises and before any building materials are delivered to the Premises, with a bond by a responsible surety company licensed to do business in California, in a form and with a company satisfactory to Landlord, in an amount equal to one and one-half times the estimated cost of the work to be done and the materials to be supplied, such bond to remain in effect until all such costs shall have been fully paid and the improvements fully insured by Tenant as herein provided. Such bond, if required, shall secure completion by Tenant, or on its default by the surety, of all work free from any and all liens of contractors, subcontractors, materialmen, laborers or others and shall defend and indemnify Landlord from and against any loss, damage or liability in any manner arising out of or connected with such work. Landlord may also impose additional reasonable conditions upon its consent pursuant to this Section 6.06, including, but not limited to, a requirement that any work be supervised by a qualified engineer or architect approved by Landlord and that appropriate "builder's risk" insurance be obtained. Notwithstanding anything contained herein to the contrary, Landlord shall have the absolute right to withhold its consent to any proposed Alteration which is contrary to such design criteria for the Center which Landlord may establish (and amend, from time to time, in Landlord's sole discretion) or which would affect the structural soundness or integrity of the building of which the Premises are a part or which Landlord finds, in its sole discretion, to be objectionable, distasteful or not in accord with the standards which Landlord desires to maintain for the Center. Any Alterations made in, on or about the Premises by or at the direction of Tenant (or any Subtenant), shall be made and completed with due diligence, in a good and workmanlike manner, in strict compliance with the requirements of all Applicable Laws and all conditions of Landlord's consent and otherwise in accordance with Landlord's design criteria for the Center. Tenant agrees to carry such insurance as required by Section 7.02 hereof covering each and every such Alteration. So long as there exist any restrictions on the square footage of improvements on the Property, Tenant shall not, under any circumstances, do anything which would increase the square footage of the Premises. 6.07 Ownership of Improvements, Fixtures, Furnishings and Equipment -------------------------------------------------------------- All improvements, alterations, additions and installations constructed, installed, affixed or otherwise made in, on or about the Premises by or at the direction of either Landlord or Tenant (or any Subtenant) at any time prior to or during the term of this Lease, including, without limitation, any and all carpeting, floor coverings, wall coverings, lighting and hardware fixtures, window treatments and ceilings, trade fixtures whether or not permanently affixed to the Premises, furniture, business equipment and stock in trade paid for by Landlord, shall at once become a part of the realty, if applicable and, in any event belong to Landlord, without any obligation on the part of Landlord to compensate Tenant or any other person therefor. 6.08 Mechanic's Liens ---------------- Tenant shall promptly pay and discharge all claims for work or labor done or goods or materials furnished by third parties, at the request of Tenant or any Subtenant and shall keep the Premises, the Center and the Property free and clear of all mechanic's and materialman's liens in connection therewith. If any mechanic's or materialman's lien is filed for work done on behalf of Tenant or any Subtenant at, or materials supplied to, the Premises by a third party, Tenant shall remove such lien by payment or bond (regardless of whether Tenant contests the claim made by the person asserting such lien and regardless of whether such claim is valid or has any basis in fact or law) not later than fifteen (15) days after written demand for such removal is made by Landlord. If Tenant shall fail to discharge any such lien within such 15-day period, then in addition to any other right or remedy of Landlord, Landlord may, but shall not be obligated to, take such action or pay such amount as Landlord, in its sole discretion, shall deem appropriate to remove such lien, and Tenant shall pay to Landlord as Additional Rent all amounts (including attorneys' fees) paid or incurred by Landlord in connection therewith within five (5) days after demand by Landlord, together with interest at the Agreed Rate from the date of payment by Landlord. Except for Landlord's express obligations relating to the improvement, maintenance and repair of the Premises, nothing in this Lease shall be deemed to be, or construed in any way as constituting, the consent or request of Landlord, express or implied, to or for the performance of any labor or the furnishing of any materials for any construction, rebuilding, alteration or repair of or to the Premises or any part thereof by any person or as giving Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials which might in any way give rise to the right to assert any lien against Landlord's interest in any property. Landlord shall have the right to post and keep posted at any and all times on the Premises any notices for the protection of Landlord and the Premises from any such lien. Tenant shall, before the commencement of any work, or the delivery of any materials, which might result in any such lien, give to Landlord written notice of its (or any Subtenant's) intention to perform such work or obtain such materials in sufficient time to enable the posting of such notices. Article 7. INSURANCE, EXONERATION and INDEMNITY ------------------------------------ 7.01 Liability Insurance ------------------- At all times during the term of this Lease, and during any period of occupancy of, or access to, the Premises by Tenant prior to the commencement of the Term, Tenant shall, at Tenant's sole cost and expense provide and keep in force (a) workers' compensation insurance policies as required by law for all of Tenant's employees and (b) comprehensive general liability insurance policies, in standard form (on an occurrence basis), protecting Tenant (and naming Landlord and, if requested by Landlord, any mortgagee of Landlord, as additional insureds) against liability for injury to or death of any person or persons, or damage to property arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto and the usage of the remainder of the Center by Tenant and its Subtenants and their agents, employees and invitees. Such insurance shall be in the amount of not less than $10,000,000 combined single limit per occurrence. 7.02 Fire and Extended Coverage Insurance ------------------------------------ During the Term, Landlord shall procure and maintain in full force and effect with respect to the Premises, a policy or policies of all risk insurance (including sprinkler, vandalism and malicious mischief coverage, and any other endorsements required by the holder of any fee or leasehold mortgage) in an amount equal to at least 80% (and at Landlord's election up to 100%) of the full insurance replacement value (replacement cost new, including debris removal, and demolition) thereof. During the Term, Tenant at its sole cost shall procure and maintain in full force and effect a similar policy of all risk insurance insuring all alterations and leasehold improvements paid for by Tenant and all equipment, inventory, trade fixtures and other personal property in or about the Premises for the full replacement cost thereof. In addition, Landlord may elect to procure and maintain with respect to the Premises earthquake/volcanic action and flood and/or surface water insurance, including rental value insurance against abatement or a loss of rent in the case of damage or loss covered under such earthquake/ volcanic and flood and/or surface water insurance, in an amount up to 100% of the full insurance replacement value (including debris removal and demolition) thereof. Unless this Lease is terminated, as provided in Sections 6.03 or 6.04 hereof, all proceeds of Tenant's fire and extended coverage insurance shall be held by the insurance carriers, or, at Tenant's option exercised by written notice to such insurance carriers and to Landlord, by a trust company selected by Tenant, and approved by Landlord, and shall be disbursed by such insurance carriers or trust company in progress payments in reimbursement or payment of the costs incurred in repairing or restoring the Premises. If this Lease is terminated pursuant to Section 6.03 or 6.04 hereof, proceeds of insurance payable with respect to property belonging to Landlord (including property belonging to Landlord by reason of Section 6.07 hereof) shall be paid directly to Landlord. 7.03 Insurance Policies ------------------ All policies of insurance provided herein by Tenant shall be issued by financially responsible insurance companies with a general policy holder's ratings of not less than A, and financial ratings of not less than Class XII, as rated in the most current available "Best's" Insurance Reports, and shall name Tenant as insured and Landlord, and at the request of Landlord, any mortgagee of Landlord, as additional insureds or loss payees. Such policies shall further provide that they may not be cancelled by the insurer for nonpayment of premiums or otherwise, or be revised in a manner so as to decrease coverage thereunder, or be terminated or lapse of their own accord or by their own terms until at least thirty (30) days after service by mail of notice of the proposed cancellation upon all parties named in such policies as additional insureds or loss payees, unless such cancellation is due to the nonpayment of premiums, in which event only ten (10) days' notice shall be required. All public liability, property damage and other casualty policies shall contain a provision that one party, although named as an additional insured or loss payee, shall nevertheless be entitled to recovery under said policies for any loss occasioned to it by reason of the negligence of the other party, and that Landlord or Tenant, as the case may be, shall be entitled to the benefits of such insurance notwithstanding any willful act or other misconduct by the other party or its agents or employees. Each liability insurance policy shall include a "cross liability" endorsement, providing coverage for claims brought by another insured under such policy. All public liability, property damage and other casualty policies shall be written as primary policies, not contributing with any coverage which Landlord may carry. Tenant shall deliver to Landlord copies of the policies for all the insurance required to be carried hereunder, or certificates evidencing the existence and the amounts of such insurance, or renewals thereof or binders thereto, if applicable, (a) at least ten (10) days prior to the date insurance is required to be carried hereunder, (b) at least ten (10) days prior to the expiration of any such policies, (c) within fifteen (15) days following any change in the policy limits or coverage of any such policies. Tenant shall permit Landlord to inspect the policies of insurance required by this Lease at all reasonable times, and, upon the Landlord's request at any time, Tenant shall provide Landlord with satisfactory evidence that such policies are in full force. The insurance provided for herein may be brought within the coverage of a so-called "blanket" policy or policies of insurance carried and maintained by Tenant if (i) Landlord and, if requested by Landlord, any mortgagee of Landlord shall be named as additional insureds or loss payees thereunder as required in this Article VII, (ii) the coverage afforded Landlord and Tenant shall not be reduced or diminished by reason of the use of such "blanket" policy or policies and (iii) all of the other requirements set forth in this Article VII are satisfied. Tenant shall use reasonable efforts to obtain business interruption insurance if economically feasible. 7.04 Waiver of Subrogation --------------------- To the extent permitted by law and without affecting the coverage provided by insurance required to be maintained hereunder, Landlord and Tenant each waives any right to recover against the other (a) damages for injury to or death of persons, (b) damages to property, (c) damage to the Premises or any part thereof, and (d) claims arising by reason of any of the foregoing, but only to the extent that any of the foregoing damages and/or claims are covered (then only to the extent of such coverage) by insurance actually carried, or required by this Lease to be carried, by either Landlord or Tenant. This provision is intended to waive fully, and for the benefit of each party, any rights and/or claims which might give rise to a right of subrogation in any insurer. Each party shall cause each insurance policy obtained by it to permit such waiver of subrogation or to provide that the insurer waives all right of recovery by way of subrogation against either party in connection with any damage covered by such policy. If any insurance policy cannot be obtained permitting or providing for a waiver of subrogation, or is obtainable only by the payment of an additional premium charge above that charged by insurers issuing policies not permitting or providing for a waiver of subrogation, the party undertaking to obtain such insurance shall notify the other party in writing of this fact. The other party shall have a period of fifteen (15) days after receiving the notice either to place the insurance with an insurer that is reasonably satisfactory to the other party and that will carry the insurance permitting or providing for a waiver of subrogation, or to agree to pay the additional premium if such a policy is obtainable at additional cost. If such insurance cannot be obtained or the party in whose favor a waiver of subrogation is desired refuses to pay the additional premium charged, the other party shall be relieved of the obligation to obtain a waiver of subrogation rights with respect to the particular insurance involved during the policy period of such insurance, but such obligation shall revive (subject to the provisions of this Section 7.04) upon the expiration of such policy period. Nothing in this Section 7.04 shall be deemed to diminish in any way the rights of Tenant pursuant to Section 2.02(a) hereof and any losses incurred by Tenant as contemplated above shall be deemed Losses under Section 2.02(a). 7.05 Exoneration and Indemnity ------------------------- (a) Tenant shall indemnify Landlord and its Affiliates, and each of their respective agents, contractors, officers, shareholders and employees and hold each of them harmless from and against any and all losses, liabilities, judgments, settlements, causes of action, suits, costs and expenses (including reasonable attorneys' fees and other costs of investigation and defense) which they may suffer or incur by reason of any claim asserted by any person arising out of, or related to (or allegedly arising out of or related to): any failure by Tenant to perform any material obligation to be performed by Tenant under the terms of this Lease; or any wrongful act, wrongful omission, negligence or willful misconduct of Tenant or any of its agents, employees, representatives, officers, directors or independent contractors. If any action or proceeding is brought against Landlord or any of its Affiliates (or any of their respective agents, contractors, officers, shareholders or employees) by reason of any such claim, Tenant, upon Landlord's request, shall defend the same by counsel reasonably satisfactory to Landlord, at Tenant's expense. (b) Landlord shall indemnify Tenant and its affiliates, and each of their respective agents, contractors, officers, shareholders and employees and hold each of them harmless from and against any and all losses, liabilities, judgments, settlements, causes of action, suits, costs and expenses (including reasonable attorneys' fees and other cost of investigation and defense) which they may suffer or incur by reason of any claim asserted by any person arising out of, or related to (or allegedly or arising out of or related to): (i) any failure by Landlord to perform any material obligation to be performed by Landlord under the terms of this Lease; (ii) any act or event occurring in, upon or about the Property, the Center or the Premises conducted solely by the Landlord, any Affiliate of Landlord, or any of its or their agents, employees, officers, directors or representatives; or (iii) any wrongful act, wrongful omission, negligence or misconduct of Landlord or any Affiliate of Landlord or any of its or their agents, employees, representatives, officers, or directors. If any action or proceeding is brought against Tenant or any of its affiliates (or any of their respective agents, contractors, officers, shareholders or employees) by reason of any such claim, Landlord upon Tenant's request, shall defend the same by counsel satisfactory to Tenant at Landlord's expense. Article 8. ASSIGNMENT, SUBLETTING, HYPOTHECATION ------------------------------------- 8.01 Consent Required ---------------- Except as hereinafter provided in this Article VIII and Section 18.03, Tenant shall not voluntarily, involuntarily or by operation of law assign, transfer, mortgage, pledge, hypothecate or otherwise encumber or transfer (collectively, a "Transfer") all or any part of Tenant's interest in this Lease or in the Premises or sublet the whole or any part of the Premises, or permit any other person, firm or corporation (a "Subtenant") to occupy by license, concession or otherwise any portion of the Premises (collectively, a "Subletting"), without first obtaining in each and every instance the prior written consent of Landlord. Any Transfer or further subletting by a Subtenant shall be considered a Subletting or Transfer hereunder and shall require the prior written consent of Landlord. Consent to any type of Transfer may be withheld in Landlord's sole discretion. Any purported Transfer or Subletting without Landlord's prior written consent shall be null and void and have no force or effect whatever and shall constitute an incurable breach of this Lease. 8.02 Indirect Transfers ------------------ If, at any time during the Term, Tenant is a partnership, the death, insolvency, withdrawal, substitution, addition or change in the identity of any general partner of Tenant (including, without limitation, any transfer of any stock of any corporation which is a partner of Tenant) following the date such partnership becomes the Tenant hereunder shall be deemed a Transfer within the meaning of this Lease. If, at any time during the Term, Tenant is a corporation, the transfer of the stock of Tenant to any person who is not as of the date hereof a shareholder of Tenant shall be considered a Transfer for purposes of this Lease whether such change occurs by reason of transfer, redemption, issuance of additional stock, operation of law, or any other cause whatever. Notwithstanding the foregoing, Tenant may not transfer any stock if the proposed transferee is not compatible with the licensing, permitting, regulatory and other governmental restrictions applicable to Tenant, Landlord or Landlord's Affiliates. 8.03 Obligations of Transferees and Subtenants ----------------------------------------- (a) Each person or entity obtaining ownership of the interest of Tenant hereunder, or any portion thereof, by reason of a Transfer (a "Transferee"), shall unqualifiedly agree in writing, for the benefit of Landlord, to perform all of the obligations of Tenant under this Lease. Such agreement shall be in form and substance satisfactory to Landlord and shall be delivered to Landlord no later than the date of such Transfer. (b) In connection with any Subletting, Tenant shall use only such form of agreement with a Subtenant concerning such Subletting (a "Sublease") as shall have been approved, as to form and substance, by Landlord, acting reasonably and after approval, such Sublease shall not be amended or modified if any material respect without the prior written consent of Landlord. Each Subtenant shall, by reason of having entered into such Sublease, be deemed to have agreed, for the benefit of Landlord (i) to the provisions specified in Section 10.05 hereof, and (ii) to comply with each and every obligation to be performed by Tenant hereunder (specifically including Section 5.02 hereof and this Article VIII), except Tenant's obligation to pay Rent to Landlord. Concurrently with any Subletting, Tenant shall provide Landlord with written notice of the name and address of any Subtenant for the purpose of giving notices to such Subtenant. 8.04 Continued Liability; No Waiver ------------------------------ Any consent to any Transfer or Subletting which may be given by Landlord shall not constitute a waiver by Landlord of the provisions of this Article, or a consent to any other or further Transfer or Subletting, or, in the event of a Subletting, a release of Tenant from primary liability for the full performance by it of the provisions of this Lease. Notwithstanding any Subletting, Tenant shall continue to be liable for the full performance of each and every obligation under this Lease to be performed by Tenant, regardless of whether Tenant is in possession of the Premises or has any power or legal ability to perform such obligations. Notwithstanding any Transfer (or multiple Transfers) the person named herein as Tenant (and any Transferee) shall continue to be primarily liable in any and all events for the full performance of each and every obligation under this Lease to be performed by Tenant, and the obligations under this Lease of the person named herein as Tenant and any and all Transferees shall be joint and several. Article 9. EMINENT DOMAIN -------------- 9.01 Effect on Lease --------------- If the Premises or any portion thereof are taken or damaged, including severance damage, under the power of eminent domain or by inverse condemnation or for any public or quasi-public use, or voluntarily conveyed or transferred in lieu of an exercise of eminent domain or while condemnation proceedings are pending (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If as a result of a taking by condemnation, the volume of Tenant's business is materially reduced, Tenant shall have the option, exercisable only by written notice to Landlord within thirty (30) days after Landlord shall have given Tenant written notice of such taking (or in the absence of such notice, within thirty (30) days after the condemning authority shall have taken title or possession, whichever first occurs), to terminate this Lease as of the earlier of the date the condemning authority takes such title or possession (whichever first occurs) or the date Tenant vacates the Premises. In the event of such termination, the provisions of Section 2.02(a) shall apply. Notwithstanding anything to the contrary contained in this Section 9.01, in the event that (a) more than twenty-five percent (25%) of the floor area of the building of which the Premises are a part, (b) more than fifteen percent (15%) of the "Parking Area" (as such term is hereinafter defined), shall be taken by condemnation, whether or not any portion of the Premises is taken, then either Landlord or Tenant may, at such party's option, to be exercised by written notice to the other party not later than ninety (90) days after the date the condemning authority shall take title or possession, whichever first occurs, terminate this Lease, in which event this Lease shall terminate as of the date of such party's notice. In the event of such termination, the provisions of Section 2.02(a) shall apply. 9.02 Award ----- In the event of a taking by condemnation, each of Landlord and Tenant shall be entitled to the award attributable to their respective interests in this Lease. Notwithstanding the foregoing provisions of this Section 9.02, Landlord shall not be entitled to any award (a) for loss of or damage to Tenant's (or any Subtenant's) trade fixtures and removable personal property (except that any award for the fixtures, furniture and equipment owned by Landlord and leased to Tenant pursuant to this Lease shall belong solely to Landlord), (b) for damages for cessation or interruption of Tenant's (or any Subtenant's) business, or (c) for the cost of removal or relocation of Tenant's (or any Subtenant's) property or business. 9.03 Rebuilding ---------- In the event that this Lease is not terminated by reason of such condemnation, Landlord shall, to the extent of the severance damages applicable to the building of which the Premises are a part actually received by Landlord in connection with such condemnation, and subject to the provisions of any Landlord's mortgage concerning the application of condemnation proceeds, cause such restoration and repair to the remaining portion of the Premises and the building of which they are a part to be done as may be necessary to restore them to an architectural and usable whole reasonably suitable for the conduct of the business of Tenant and the other occupants of the remaining portion of such building. Landlord shall indemnify and hold Tenant harmless from and against any Losses by reason of a condemnation. Article 10. TENANT'S BREACH; LANDLORD'S REMEDIES ------------------------------------ 10.01 Tenant's Breach --------------- The occurrence of any one of the following events shall constitute an "Event of Default" and a breach of this Lease by Tenant: (a) The failure by Tenant to make any payment of Monthly Rent, Additional Rent or other payment required to be made by Tenant hereunder (including, without limitation, payments of Monthly Rent pursuant to the Promissory Note), as and when due, where such failure shall continue for a period of ten (10) business days after written notice thereof from Landlord to Tenant. (b) The failure by Tenant to observe or perform any of the material covenants or obligations under this Lease to be observed or performed by Tenant, other than as specified in subsection (a) of this Section 10.01, where such failure shall continue for a period of thirty (30) days after written notice thereof from Landlord to Tenant; provided, however, that if the nature of such failure is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be in default if Tenant shall commence such cure within said 30-day period and thereafter diligently prosecutes such cure to completion. (c) The abandonment of the Premises by Tenant. (d) The failure by Tenant to remain fully licensed as a "Card Club Operator" in good standing at all times during the Term of this Lease, as a result of the negligence or willful misconduct of Tenant. (e) The appointment by any court of a receiver, interim trustee or trustee to take possession of any asset or assets of Tenant, said receivership or trusteeship remaining undischarged for a period of thirty (30) days. (f) A general assignment by Tenant for the benefit of creditors. (g) The filing of a voluntary petition by Tenant in bankruptcy or any other petition under any section or chapter of the Bankruptcy Code or any similar law, whether state, federal or foreign, for the relief of debtors. (h) The filing against Tenant of an involuntary petition or any other petition under any section or chapter of the Bankruptcy Code or any similar law, whether state, federal or foreign, for the relief of debtors by the creditors of Tenant, said petition remaining undischarged for a period of sixty (60) days. (i) The attachment, execution or judicial seizure of all or any part of the properties and assets of Tenant, such attachment, execution or other seizure remaining undismissed or undischarged for a period of fifteen (15) days after the levy thereof. (j) The admission in writing by Tenant of its inability to pay its respective debts or perform its obligations as they become due. (k) The calling of a meeting of the creditors representing a significant portion of the unsecured liabilities of Tenant for the purpose of effecting a moratorium, extension, composition or any of the foregoing. (l) The occurrence of any of the events specified in subsections (e) through (l), inclusive, with respect to any general partner of Tenant (if Tenant is a partnership) or any guarantor of Tenant's obligations under this Lease. The notices specified in subsections (a) and (b) of this Section 10.01 shall be in lieu of, and not in addition to, any notices required under California Code of Civil Procedure Section 1161 or any successor statute. 10.02 Landlord's Remedies ------------------- In the event of an Event of Default under Section 10.01 then Landlord, in addition to any other rights or remedies it may have at law, in equity or otherwise, shall have the following rights: (a) Landlord shall have the right to terminate this Lease and Tenant's right to possession of the Premises by giving written notice of termination to Tenant. No act by Landlord other than giving express written notice to Tenant shall terminate this Lease or Tenant's right to possession of the Premises. Should Landlord at any time terminate this Lease for any breach, in addition to any other remedy it may have, it is hereby agreed by Landlord and Tenant that the damages Landlord shall be entitled to recover under this Lease shall include without limitation: (i) The worth, at the time of award, of the unpaid Rent that has been earned at the time of the termination of this Lease; (ii) The worth, at the time of award, of the amount by which the unpaid Rent that would have been earned after the date of termination of this Lease until the time of award exceeds the amount of the loss of Rent that Tenant proves could have been reasonably avoided; (iii) The worth, at the time of award, of the amount by which the unpaid Rent for the balance of the stated term hereof (determined without regard to the termination of this Lease for Tenant's breach) after the time of award exceeds the amount of the loss of Rent that Tenant proves could be reasonably avoided; and (iv) Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's breach, including, but not limited to, the costs and expenses (including attorneys' fees, court costs, advertising costs and brokers' commissions) of recovering possession of the Premises, removing persons or property therefrom, placing the Premises in good order, condition and repair, preparing and altering the Premises for reletting and all other costs and expenses of reletting. "The worth, at the time of award," as used in subparagraphs (i) and (ii) above shall be computed by allowing interest at the Agreed Rate. "The worth at the time of award," as referred to in subparagraph (iii) above shall be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award, plus one percent (1%). The terms "Rent" and "Rents" as used in this Section 10.02 shall include the Monthly Rent, and all Additional Rent and all other fees and charges required to be paid by Tenant pursuant to the provisions of this Lease. (b) Even though Tenant has breached or defaulted under this Lease and abandoned the Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession, and Landlord may enforce all of its rights and remedies under this Lease, including but not limited to the right to recover all Rents as they become due hereunder. Tenant's right to possession of the Premises shall not be deemed to have been terminated by Landlord unless express written notice to such effect is given by Landlord to Tenant, and Tenant's right to possession of the Premises shall in no event be deemed terminated without such notice on account of acts of maintenance or preservation of or efforts to relet the Premises by Landlord or by reason of the appointment of a receiver upon the initiative of Landlord. 10.03 Right to Cure Tenant's Default ------------------------------ If, after the expiration of any cure or notice period, Tenant has failed to do any act required to be done by Tenant hereunder, Landlord may (but without being obligated to do so) cure such failure at Tenant's cost. If Landlord at any time, by reason of Tenant's failure to comply with the provisions of this Lease, pays any sum or does any act that requires the payment of any sum, the sum paid by Landlord shall be due immediately from Tenant to Landlord at the time the sum is paid and, if paid at a later date, shall bear interest at the Agreed Rate from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant. Such sum, together with interest thereon, shall be Additional Rent hereunder. 10.04 Landlord's Remedies Not Exclusive --------------------------------- Except as expressly limited herein, the several rights and remedies herein granted to Landlord shall be cumulative and in addition to any others to which Landlord is or may be entitled by law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of any other rights or remedies which Landlord may have and shall not be deemed a waiver of any of Landlord's rights or remedies or to be a release of Tenant from any of Tenant's obligations, unless such waiver or release is expressed in writing and signed by Landlord. 10.05 Receipt of Rents ---------------- Landlord's acceptance of full or partial payment of Rent following any Event of Default shall not constitute a waiver of such Event of Default. 10.06 Limitation on Landlord's Remedies; Personal Obligations of LeBaron ------------------------------------------------------------------ and Klosterman -------------- (a) In consideration of the benefits accruing to it hereunder but subject to Section 10.06(b), Landlord acknowledges, covenants and agrees that, in the event of any actual or alleged failure, breach or default hereunder by Tenant, the sole and exclusive remedy of Landlord shall be against the assets of Tenant and not against the assets of any officer, director, employee, agent, attorney, shareholder or partner of Tenant or of any partnership now or in the future constituting Tenant and that: (i) No partner, officer, director, shareholder, agent, attorney or employee of Tenant (individually and collectively "Insider") shall be sued or named as a party in any suit or action hereunder. It is understood and agreed that, in the event of the bankruptcy of Tenant, Landlord will not make or support any claim which seeks repayment by any Insider of amounts paid by Tenant and, in the event any third party successfully makes such a claim, Landlord agrees not to participate in or accept any share of any amount recovered; (ii) No judgment will be taken against any partner of Tenant or any officer, director, shareholder, agent, attorney or employee of Tenant; and (iii) The covenants and agreements contained in this Section 10.06(a) shall be enforceable by Tenant and also by any partner of Tenant and any officer, director, shareholder, agent, attorney or employee of Tenant. (b) Section 10.06(a) to the contrary notwithstanding, Ed LeBaron and Don Klosterman shall be personally liable, in an amount equal to their Pro Rata Interest in Tenant, for any Rent owed but not paid for the period which begins September 1, 1995 and ends on the first date they no longer own any equity or voting interests in Tenant. This Section 10.06(b) shall in no way create any personal liability for Messrs. LeBaron and Klosterman with respect to Rent owed for any period before September 1, 1995 or after the first date they no longer own any equity or voting interests in Tenant or, during the period after September 1, 1995 during which they own any equity or voting interests in Tenant, in an amount in excess of their Pro Rata Interest. "Pro Rata Interest" shall mean the ratio of the number of equity and voting securities of Tenant held by LeBaron or Klosterman, as the case may be, to the total number of shares of outstanding equity and voting securities of Tenant. Messrs. LeBaron and Klosterman shall not be deemed to own or hold any equity or voting interest in Tenant by virtue of their ownership of up to five percent of the outstanding equity or voting securities of any publicly traded company. Article 11. LANDLORD'S DEFAULT; TENANT'S REMEDIES ------------------------------------- 11.01 Landlord's Default ------------------ The occurrence of any one of the following events shall constitute a default of this Lease by Landlord: (a) The failure by Landlord to observe or perform any of the material covenants or obligations under this Lease to be observed or performed by Landlord where such failure shall continue for a period of thirty (30) days after written notice thereof from Tenant to Landlord; provided, however, that if the nature of such failure is such that more than thirty (30) days are reasonably required for its cure, then Landlord shall not be in default if Landlord shall commence such cure within said 30-day period and thereafter diligently prosecutes such cure to completion. (b) The failure by Landlord to observe or perform any of the covenants or obligations under this Lease to be performed by Landlord where such failure materially interferes with or adversely affects the operation of Tenant's business, and where such failure shall continue for five (5) business days after written notice from Tenant to Landlord. 11.02 Tenant's Remedies ----------------- In the event of Landlord's default under Section 11.01 then Tenant, after the expiration of any applicable cure period, in addition to any other rights or remedies it may have at law, in equity or otherwise, shall have all of the following rights: (a) Tenant shall have the right to terminate this Lease by giving written notice of termination to Landlord; (b) Tenant, acting reasonably, shall have the right but not the obligation to cure Landlord's default, at Landlord's expense. If Tenant at any time, by reason of Landlord's failure to comply with the provisions of this Lease, pays any sum or does any act that requires the payment of any sum, the sum paid by Tenant, at Tenant's option, shall be offset against future Rent or shall be due immediately from Landlord to Tenant at the time the sum is paid and, if paid at a later date, shall bear interest at the Agreed Rate from the date the sum is paid by Tenant until Tenant is reimbursed by Landlord. 11.03 Limitation on Tenant's Remedies ------------------------------- In consideration of the benefits accruing to it hereunder, Tenant acknowledges, covenants and agrees that, in the event of any actual or alleged failure, breach or default hereunder by Landlord, the sole and exclusive remedy of Tenant shall be against the assets of Landlord and not against the assets of any director, officer, shareholder, employee, agent, attorney or partner of Landlord or of any partnership now or in the future constituting Landlord and that: (a) No partner of Landlord or any officer, director, shareholder, agent, attorney or employee of Landlord shall be sued or named as a party in any suit or action; (b) No judgment will be taken against any partner of Landlord or any officer, director, shareholder, agent, attorney or employee of Landlord; and (c) The covenants and agreements contained in this Section 11.03 shall be enforceable by Landlord and also by any partner of Landlord and any officer, director, shareholder, agent, attorney or employee of Landlord. 11.04 Tenant's Remedies Not Exclusive ------------------------------- The several rights and remedies herein granted to Tenant shall be cumulative and in addition to any others to which Tenant is or may be entitled by law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of any other rights or remedies which Tenant may have and shall not be deemed a waiver of any of Tenant's rights or remedies or to be a release of Landlord from any of Landlord's obligations, unless such waiver or release is expressed in writing and signed by Tenant. 11.05 Payment of Rents ---------------- Tenant's payment of full or partial payment of Rent following any default of Landlord under this Lease shall not constitute a waiver of such default. Article 12. MORTGAGE OF LANDLORD'S INTEREST ------------------------------- 12.01 Subordination ------------- The rights of Tenant hereunder shall be subject and subordinate to the lien or interest of any Landlord's mortgage but only upon execution and delivery to Tenant of a subordination, non-disturbance and attornment agreement executed by Landlord's mortgagee in form and substance reasonably acceptable to Tenant. 12.02 Tenant's Obligations With Respect to Landlord's Mortgage -------------------------------------------------------- Tenant shall at any time and from time to time, upon not less than twenty (20) days' prior written request by Landlord, deliver to Landlord either or both of the following: (a) Such financial information concerning Tenant and Tenant's operations as reasonably may be required by any mortgagee or prospective mortgagee under any Landlord's mortgage; provided, however, that any such financial information shall be required and used only for bona fide business reasons related to such mortgage or the obtaining thereof; and (b) An executed and acknowledged instrument amending this Lease in such respect as may be reasonably required by any mortgagee or prospective mortgagee under any Landlord's mortgage; provided, however, that any such amendment shall not materially alter or impair any of the rights and remedies of Tenant under this Lease. 12.03 Definition of Landlord's Mortgage and Landlord's Mortgagee ---------------------------------------------------------- As used in this Lease, the term "Landlord's mortgage" refers to each mortgage or deed of trust which may in the future encumber, the Premises, the Center or the Property, or any part thereof, and each lease of which Landlord is the lessee which covers, or may in the future cover, the Premises or any part thereof. As used in this Lease, the terms "Landlord's mortgagee" and "mortgagee of Landlord" include the mortgagee under each such mortgage, the beneficiary under each such deed of trust and the lessor under each such lease. Article 13. COMMON AREAS ------------ 13.01 Definition of Common Areas -------------------------- As used herein, the term "Common Areas" shall mean and refer to all areas from time to time located on or within the exterior boundaries of the Center (whether above, below or at ground level and whether or not presently in existence) which are not leased to tenants or offered for lease to tenants or exclusively used by Landlord or Landlord's Affiliates or invitees of Landlord's or Landlord's Affiliates' business operations (including the Race Track, horse racing areas and the non-gaming businesses referred to in Section 18.03 hereof, all of which are excluded from the Common Areas). "Common Areas" shall include, but are not limited to, walkways, parking areas, driveways, escalators, elevators, delivery passages, loading areas, storage areas, corridors, tunnels, bridges, all access and egress roads, courts and malls, landscaped and planted areas and all buildings and structures on the Property, whether now existing or hereafter created (excluding only the interior portions thereof which are leased or offered for lease to tenants or exclusively used by Landlord or Landlord's Affiliates and invitees of Landlord's or Landlord's Affiliates' business operations (including the Race Track, horse racing areas and the non-gaming businesses referred to in Section 18.03 hereof)), and all building systems which directly service the Center (and no others) (including, but not limited to, electrical, heating and air conditioning systems) but excluding any and all such building systems which service, in whole or in part, the Premises. Landlord shall have the right to make changes at any time and from time to time in the size, shape, location, number and extent of the "Common Areas" or any of them, provided that such changes do not materially interfere with the operation of Tenant's business on the Premises. 13.02 Maintenance of Common Areas --------------------------- Subject to Article 6 hereof, Landlord shall maintain the Common Areas in good order and condition during the Term hereof and in a manner consistent with the operation of a first class card club. 13.03 Use of Common Areas ------------------- Except as otherwise provided herein, except to the extent limited by Landlord in its reasonable discretion, Tenant and its employees and invitees shall be entitled to use the Common Areas during the Term hereof, in common with Landlord and other persons authorized by Landlord from time to time, subject to Landlord's right to close any or all of the Common Areas for maintenance or to avoid the accrual of prescriptive rights or for any other proper purpose; provided, however, that the foregoing shall not entitle Tenant, its employees, agents or invitees to use any portion of the Common Areas not generally open to the public. Article 14. PARKING ------- 14.01 Parking Area ------------ Landlord shall supply an area or areas consisting of 2,000 parking stalls (the "Parking Area") for the use by Tenant's customers in common with others, and upon the conditions specified below, for use by employees of Tenant. Landlord shall cause such Parking Area to be open for business on all days and at all times during which the Premises are open for business; provided, however, that Landlord may cause the Parking Area or portions thereof to be closed at any time and from time to time when reasonably deemed necessary by Landlord to avoid the acquisition by anyone of prescriptive rights therein or to reflect the fact that portions of the center are closed. The Parking Area or portions thereof may also be closed from time to time for maintenance, repairs or construction or by reason of matters beyond the reasonable control of Landlord, including, but not limited to, labor disputes, governmental orders and acts of God. If Tenant requires more than 2,000 parking stalls for use by its customers, Landlord shall provide such stalls to Tenant at Landlord's expense. 14.02 Valet Parking Charges --------------------- Landlord may impose a charge for valet parking in the Parking Area which charge shall be determined by Landlord from time to time in the exercise of its sole judgment and which amounts shall be retained by Landlord. The charges applicable to parking shall be posted in the Parking Area. Landlord shall cooperate with Tenant in the event Tenant elects to provide valet parking to its patrons on a complimentary basis, provided Tenant promptly pays the charges therefor. 14.03 Validations ----------- Landlord may establish a reasonable system for validating parking tickets and may change or eliminate such system from time to time in its sole discretion. 14.04 Employee Parking ---------------- (a) Landlord shall make available in a portion of the Parking Area or in another area in reasonable proximity to the Center designated from time to time by Landlord, a sufficient number of parking spaces for parking by Tenant's employees. Tenant shall pay, as Additional Rent, monthly in arrears, without deduction or offset, such charges for each such parking space as Landlord shall determine and modify from time to time; provided, however, that such monthly charges for employee parking shall not exceed the prevailing rate for monthly parking charged by private owners of parking facilities in the vicinity of the Center. Tenant shall not impose any charge upon its employees for parking in the Parking Area. Tenant and its employees shall park their cars only in those areas, if any, designated for that purpose by Landlord. (b) Tenant shall cooperate with Landlord in implementing plans to reduce automobile usage by employees at no cost or expense to Tenant. Article 15. TAXES AND OTHER CHARGES ----------------------- 15.01 Tenant's Taxes -------------- Tenant agrees that it will pay and discharge, punctually as and when the same shall become due and payable without penalty, all personal property taxes, excise taxes and all other governmental taxes, fees, impositions and charges payable by Tenant of every kind and nature, whether or not now customary or within the contemplation of the parties hereto, which shall be or become due and payable under or by virtue of any law, statute, ordinance, regulation or other requirement of any governmental authority, whether federal, state, county, municipal or otherwise (all of such taxes, charges, assessments and other governmental impositions being hereinafter collectively referred to as "Tenant's Tax" or "Tenant's Taxes") which shall be levied, assessed or imposed, or shall be or become liens, upon or against any personal property of Tenant or any interest of Tenant therein or under this Lease. Notwithstanding the foregoing provisions of this Section 15.01, nothing contained in this Lease shall require Tenant to pay any franchise, estate, inheritance, succession, capital levy or transfer tax of Landlord or any net income or excess profits tax which is in fact personal to Landlord. Article 16. UTILITY AND OTHER SERVICES -------------------------- 16.01 Furnishing of Services ---------------------- Landlord shall arrange and pay for water, sewer, gas, electricity, light, power, telephone and any other utility services necessary and appropriate to the operations of Tenant's business on the Premises. Article 17. SIGNS; DISPLAYS; ADVERTISING ---------------------------- 17.01 Signs ----- Subject to the requirements of Applicable Laws, Landlord shall affix and maintain signage subject to the reasonable approval of Tenant. 17.02 Displays -------- Tenant shall not install or use in or about the Premises any device or advertising medium which may be heard, seen or experienced outside the Premises, such as flashing lights, searchlights, loudspeakers, phonographs or radio broadcasts. 17.03 Advertised Name --------------- The name of the Center is "Hollywood Park". Landlord may change the name of the Center at any time upon written notice to Tenant. Landlord, as a material part of the consideration of this Lease, hereby grants to Tenant the use of the name "Hollywood Park Casino" during the Term of this Lease. Tenant shall not, however, acquire any property right in or to any name which contains said word combinations of "Hollywood Park" as a part thereof. Any permitted use by Tenant of the words "Hollywood Park" (or such other name for the Center as Landlord may adopt) during the term of this Lease shall not permit Tenant to use, and Tenant shall not use, such words either after the termination of this Lease or at any other location. Article 18. GENERAL PROVISIONS ------------------ 18.01 Estoppel Certificates --------------------- Either party shall, without charge, at any time and from time to time, within ten (10) business days after request by the other party, deliver a written certificate duly executed and acknowledged, certifying to the requesting party, or any other person or entity specified by the requesting party: (a) That this Lease is unmodified and in full force and effect, or if there has been any modification, that the same is in full force and effect as so modified, and identifying any such modification; (b) Whether or not to the knowledge of the certifying party there are then existing any offsets or defenses in favor of such party against the enforcement of any of the terms, covenants and conditions of this Lease and, if so, specifying the same, and also whether or not to the knowledge of the certifying party, the requesting party has observed and performed all of the terms, covenants and conditions on its part to be observed and performed, and, if not, specifying the same; (c) The dates to which Monthly Rent, Additional Rent and all other charges hereunder have been paid; and (d) Any other matter which reasonably relates to the tenancy created hereby and the contractual relationship between Landlord and Tenant. The failure of the certifying party to deliver such certificate within five (5) business days after a second written request shall constitute a default hereunder and shall be conclusive upon Landlord, Tenant and any other person, firm or corporation for whose benefit the certificate was requested, that this Lease is in full force and effect without modification except as may be represented by the requesting party, and that there are no uncured defaults on the part of the requesting party. If the certifying party does not deliver such certificate to the requesting party or such person designated by the requesting party within such 10-day period, the certifying party shall be liable to the requesting party for all damages, losses, costs and expenses proximately resulting from the certifying party's failure to timely deliver such certificate. If the certifying party makes any false statement or claim in any such certificate, the certifying party shall be liable to the requesting party for all damages, losses, costs and expenses proximately resulting therefrom. 18.02 Landlord's Right of Entry ------------------------- Provided that Landlord does not unreasonably interfere with the operation of Tenant's business on the Premises, Landlord and its agents shall have the right: (a) To display the Premises to prospective tenants. If Tenant vacates the Premises prior to the expiration of the Term, Landlord, at its sole cost and expense, may from and after Tenant's vacation decorate, remodel, repair, alter, improve or otherwise prepare the Premises for reoccupancy. (b) To enter the Premises at any reasonable time for inspections, to exhibit the Premises to others, such as prospective purchasers and insurance, building and lender's inspectors, and for any purpose whatsoever reasonably related to the safety, protection or preservation of the Premises or Landlord's interest therein, without being deemed guilty of an eviction or disturbance of Tenant's use and possession, provided that Landlord shall not unreasonably interfere with Tenant's business operation. (c) At any reasonable time and from time to time, to do any maintenance or make any repairs, alterations, additions or improvements, whether structural or otherwise, in or to the Premises or any other portion of the building of which the Premises are a part or the Center but Landlord shall use best efforts to minimize interruption to the operation of Tenant's business. Landlord shall exercise its best efforts when making any repairs to minimize any disruption of Tenant's business and shall attempt to schedule any repairs at times when there are a minimum number of patrons on the Premises, provided the need to make such repairs does not constitute an emergency. Tenant shall deliver to Landlord all keys necessary to unlock all of the doors in, on or about the Premises, except Tenant's vaults and safes, and Landlord shall have the right to use any and all means which Landlord may deem proper in order to obtain entry in an emergency. 18.03 Landlord's Installations, Access and Food Services -------------------------------------------------- (a) Landlord, throughout the Term of the Lease, shall operate, at its sole cost, non-gaming businesses in the building in which the Premises are located, including, without limitation, dining services. Tenant agrees to cooperate and assist Landlord with such businesses and acknowledges that Landlord's right to operate such businesses are material inducements to Landlord to enter into this Lease, without which Landlord would not have entered into this Lease. If Tenant desires to offer any such services to its patrons on a complimentary basis, Landlord and Tenant shall agree on appropriate procedures to accomplish same. All dining and other non-gaming services shall be operated by Landlord in a first-class manner. (b) Landlord, at its sole cost, shall comply with all of the requirements of all covenants, conditions and restrictions of and applicable to the operations of the business referred to in subparagraph (a) above. In conducting such businesses, Landlord shall not create a nuisance or disturb or interfere with the quiet enjoyment of Tenant. 18.04 Changes in the Center --------------------- (a) From time to time and at any time during the Term, Landlord may add or withdraw property to or from the Center. Any property so added shall thereafter be subject to the provisions of this Lease and shall thereafter be included in the terms "Center" and "Property" for all purposes hereof. Any property so withdrawn by Landlord shall thereafter cease to be subject to the provisions of this Lease and shall thereafter be specifically excluded from the terms "Center" and "Property" for all purposes hereof. Landlord shall not make any changes to the Center or the Property which materially interfere with the operation of Tenant's business on the Premises. 18.05 Waiver ------ No waiver of any breach of any covenant or condition herein contained shall be effective unless such waiver is in writing, signed by the aggrieved party and delivered to the breaching party. The waiver by the aggrieved party of any such breach or breaches, or the failure by the aggrieved party to exercise any right or remedy in respect of any such breach or breaches, shall not constitute a waiver or relinquishment for the future of any such covenant or condition or of any subsequent breach of any such covenant or condition nor bar any right or remedy of the aggrieved party in respect of any such subsequent breach. The receipt of any Rent after the expiration of any cure period provided for in this Lease (regardless of any endorsement on any check or any statement in any letter accompanying any payment of Rent) by Landlord shall not operate as an accord and satisfaction or a waiver of the right of Landlord to enforce the payment of Rents previously due or as a bar to the termination of this Lease or the enforcement of any other remedy for default in the payment of such Rents previously due, or for any other breach of this Lease by Tenant. 18.06 Surrender of Premises; Holding Over ----------------------------------- Subject to Landlord's obligations to maintain and repair the Premises, Tenant agrees on the last day of the Term or on the earlier termination of this Lease to surrender the Premises, in good order, condition and repair, reasonable wear and tear excepted. Tenant acknowledges that upon termination of this Lease (including without limitation pursuant to Section 2.02 hereof) it is anticipated the Premises will be immediately occupied by another card club operator with little if any disruption in operation and, as such, Tenant's agreement to promptly return the Premises in good order is a material inducement for Landlord's execution of this Lease. If Tenant fails to surrender the Premises upon the termination of this Lease, Tenant agrees to and shall indemnify and hold harmless Landlord from and against any loss or liability, including costs and attorneys' fees, resulting from such failure to surrender the Premises, including but not limited to, any claims made by, or loss of rent from, any succeeding tenant based on or resulting from such failure to surrender. Nothing contained herein shall be construed as a consent to Tenant's occupancy or possession of the Premises beyond the expiration or earlier termination of this Lease. Tenant expressly acknowledges that except as set forth in Section ?, it has no right express or implied to renew this Lease beyond the Term and that absent a mutually executed extension agreement or a new Lease, Tenant shall promptly vacate at the end of the Term and leave the Premises in good order as provided in this Section 18.06. 18.07 Notices ------- Wherever in this Lease one party to this Lease is required or permitted to give or serve a notice, statement, request or demand to or on the other, such notice, statement, request or demand shall be given or served upon the party to whom directed in writing and shall be delivered personally or forwarded by registered or certified mail, postage prepaid, return receipt requested, addressed to Landlord or Tenant, as the case may be, at the address of that party set forth below with copies to be sent concurrently as follows: If to Tenant: Pacific Casino Management, Inc. 2220 Avenue of the Stars Suite 2502 Los Angeles, California 90067 Attn: Donald Klosterman With a copy to: Peter V. Leparulo, Esq. Pillsbury, Madison & Sutro 725 S. Figueroa Street Suite 1200 Los Angeles, California 90017 If to Landlord: Hollywood Park, Inc. 1050 So. Prairie Ave. Inglewood, California 90301 Attn: G. Michael Finnigan With a copy to: Sandra G. Kanengiser, Esq. Irell & Manella 1800 Avenue of the Stars Suite 900 Los Angeles, California 90067 Either party may change its address for notice by written notice given to the other in the manner hereinabove provided. Any such notice, statement, request or demand shall be deemed to have been duly given or served on the date personally delivered or two (2) business days after the date deposited in the United States mail in accordance with this Section 18.07. 18.08 Partial Invalidity; Construction -------------------------------- If any term or provision of this Lease or the application thereof to any person or circumstance shall to any extent be held to 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 has been 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. This Lease shall be governed by and construed under the laws of the State of California. When required by the context of this Lease, the singular shall include the plural, and the neuter shall include the masculine and feminine. 18.09 Captions -------- The captions and headings in this Lease are inserted only as a matter of convenience and for reference, and they in no way define, limit or describe the scope of this Lease or the intent of any provision hereof. 18.10 Short Form Lease ---------------- At the request of Landlord, Tenant agrees to join in the execution and delivery of a short form memorandum of this Lease to be recorded in the Official Records of Los Angeles County, California. The terms, covenants and conditions of this Lease shall control over any such memorandum. In no event shall Tenant have this Lease recorded without the prior written consent of Landlord, which consent may be withheld in Landlord's sole and absolute discretion. 18.11 Brokers' Commissions -------------------- Each party represents and warrants to the other party that it has had no dealings with any broker, finder or agent in connection with the subject matter of this Lease or any of the transactions contemplated hereby. Each party agrees to defend, indemnify and hold harmless the other party from any claim, suit, liability, cost or expense (including attorneys' fees) with respect to brokerage or finder's fees or commissions or other similar compensation alleged to be owing on account of such party's dealings (or alleged dealings) with any real estate broker, agent, finder or other person. 18.12 Attorneys' Fees --------------- (a) In the event of any litigation between Landlord and Tenant alleging a breach of this Lease by either party, or seeking a declaration of the rights of the parties hereunder, the losing party shall pay to the prevailing party its costs of litigation including reasonable attorneys' fees. (b) Each party shall reimburse the other party, upon demand, for all costs and expenses (including attorneys' fees) incurred by such party in connection with any bankruptcy proceeding, or other proceeding under Title 11 of the United States Code (or any successor or similar law) involving the other party. 18.13 Arbitration of Disputes ----------------------- Any dispute or claim in law or equity arising out of this Lease shall be decided by neutral binding arbitration in accordance with the rules of the American Arbitration Association, and not by court action except as provided by California law for judicial review of arbitration proceedings. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The parties shall have the right to discovery in accordance with California Code of Civil Procedure, Section 1283.05. Tenant expressly acknowledges and agrees that an action for unlawful detainer shall not be subject to arbitration and in no event shall Landlord be precluded from or delayed in initiating such an action by virtue of this Section 19.13. 18.14 Counterparts ------------ This Lease may be executed in two or more counterparts, each of which may be deemed an original, but all of which together shall constitute one and the same instrument. 18.15 Sole Agreement -------------- This Lease contains all of the agreements of the parties hereto with respect to the matters covered hereby, and no prior agreements, oral or written, or understandings or representations of any nature whatsoever pertaining to any such matters shall be effective for any purpose unless specifically incorporated in the provisions of this Lease. 18.16 Successors and Assigns ---------------------- Subject to the provisions hereof relative to assignment, this Lease shall be binding upon and inure to the benefit of the successors and assigns of the respective parties hereto, and the terms "Landlord" and "Tenant" shall include the respective successors and assigns of such parties. 18.17 Time is of the Essence ---------------------- Time is of the essence with respect to the performance or observance of each of the obligations, covenants and agreements of each of Landlord and Tenant under this Lease. 18.18 Survival of Covenants --------------------- Except with respect to those conditions, covenants and agreements of this Lease which by their express terms are applicable only to, or which by their nature could only be applicable after, a certain date or time during the term hereof, all of the conditions, covenants and agreements of this Lease shall be deemed to be effective as of the date of this Lease. Any obligation arising during the Term of this Lease under any provision hereof, which by its nature would require Landlord and/or Tenant to take certain action after the expiration of the Term or other termination of this Lease, including any termination resulting from the breach of this Lease by Landlord or Tenant, shall be deemed to survive the expiration of the Term or other termination of this Lease to the extent of requiring any action to be performed after the expiration of the Term or other termination hereof which is necessary to fully perform the obligation that arose prior to such expiration or termination. 18.19 Landlord's Consent or Approval ------------------------------ Where any provision of this Lease requires the consent or approval of Landlord to any action to be taken or of any instrument or document submitted or furnished by Tenant or otherwise, such consent or approval shall not be unreasonably withheld or delayed by Landlord unless such provision entitles Landlord to the discretionary withholding of any such consent or approval required thereby. The consent or approval of Landlord to or of any such act, instrument or document shall not be deemed a waiver of, or render unnecessary, Landlord's consent or approval to or of any subsequent similar or dissimilar acts to be taken or instruments or documents to be submitted or furnished by Tenant hereunder. 18.20 Joint and Several Obligations ----------------------------- If more than one person or entity is Tenant or Landlord, the obligations imposed on that party shall be joint and several. If either Landlord or Tenant is a partnership, the obligations of each general partner shall be joint and several. 18.21 No Offer -------- The submission of this document for examination and discussion does not constitute an offer to lease, or a reservation of, or option for, the Premises. This document will become effective and binding only upon execution and delivery by Landlord and Tenant. 18.22 Corporate Resolution -------------------- If Tenant is a corporation, Tenant shall deliver to Landlord, upon execution of this Lease, a certified copy of a resolution of its board of directors authorizing the execution of this Lease and naming the officer or officers who are authorized to execute this Lease on behalf of the corporation. 18.23 Relationship to Original Lease ------------------------------ This Amended and Restated Lease supersedes and replaces the Original Lease, from and after the date hereof, the original Lease shall be of no further force or effect. IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of the day and year first above written. LANDLORD: HOLLYWOOD PARK, INC., a Delaware corporation By: /s/ G. Michael Finnigan Title:_________________________ TENANT: PACIFIC CASINO MANAGEMENT, INC., a California corporation By: /s/ Edward LaBaron Title: Chairman - CEO EX-10.15 3 PYRAMID AGREEMENT Exhibit 10.15 AMENDED AND RESTATED AGREEMENT RESPECTING PYRAMID CASINO This AMENDED AND RESTATED AGREEMENT (this "Agreement") is entered into as of this 14 day of July, 1995, by and between HOLLYWOOD PARK, INC., a Delaware corporation ("HPI" or "Buyer"), COMPTON ENTERTAINMENT, INC., a California corporation ("CEI" or "Seller") and ROUBEN KANDILIAN, the sole shareholder of Seller ("Shareholder"), with reference to the following facts and circumstances: A. CEI has entered into an Amended and Restated Disposition and Development Agreement, Agreement of Purchase and Sale, and Lease with Option to Purchase (the "DDA") with The Community Redevelopment Agency of the City of Compton (the "Agency") to lease and purchase certain property located in the area known as the Alameda Auto Plaza in the City of Compton (the "City") as more particularly described on Exhibits 1 and 2 to the DDA (the "Card Club Site"). B. CEI and each of its officers, directors and shareholders have been licensed by the City to own and operate a card club to be known as the Pyramid Casino or such other name as the parties may agree (the "Card Club") to be located at the Card Club Site. C. CEI and HPI have entered into an Agreement of Principle dated April 29, 1994, as amended (the "AIP") and an Agreement Respecting Pyramid Casino dated December 5, 1994, as amended April 14, 1995, with respect to the development, ownership and operation of the Card Club and now desire to amend and restate this Agreement as provided herein. NOW, THEREFORE, in consideration of these premises, the mutual agreements and representations contained herein and other good and valuable consideration the receipt and adequacy of which is hereby acknowledged, each party hereto (consisting of Buyer, on the one hand, and Seller and Shareholder, on the other), agrees as follows: I. DEFINITIONS FOR ALL PURPOSES OF THIS AGREEMENT, THE FOLLOWING ADDITIONAL DEFINITIONS SHALL APPLY: 1.1 "CARD CLUB OPENING" shall mean the opening of the Card Club for business to the general public. 1.2 "CLOSING" and "CLOSING DATE" shall have the meanings ascribed in Article IV. 1.3 "LEASE" shall mean the Lease to be entered into between HPI and CEI pursuant to Section 2.3 in the form attached hereto as Exhibit A. 1.4 "LICENSE RIGHTS" shall mean CEI's City license to operate the Card Club, as amended (the "License Amendment"). 1.5 "LICENSE RIGHTS OPTION" shall have the meaning ascribed in Section 2.2. 1.6 "PARTNERSHIP AGREEMENT" shall mean the Partnership Agreement or the Limited Liability Company Operating Agreement, as the case may be, to be entered into between HPI and CEI pursuant to Section 5.4.1 in the form attached hereto as Exhibit B-1 and B-2, respectively. "PARTNERSHIP" shall mean the general partnership or the limited liability company, as the case may be, of HPI and CEI formed and/or governed by the Partnership Agreement. 1.7 "PLANS" shall mean the plans and specifications to construct the Card Club heretofore submitted to the City for its approval by CEI. 1.8 "PURCHASED ASSETS" shall mean the Real Property Rights, the Plans and all other assets, real or personal, tangible or intangible, pertaining to the Card Club other than the License Rights. 1.9 "REAL PROPERTY RIGHTS" shall mean CEI's rights in and to the Card Club Site, including its rights under the DDA. II. PURCHASE, OPTION AND LEASE 2.1 PURCHASE AND SALE OF PURCHASED ASSETS. For the consideration ------------------------------------- and subject to the terms and conditions contained herein, Seller shall sell, convey, assign and deliver to Buyer at the Closing, and Buyer shall purchase and accept the conveyance, assignment and delivery of, the Purchased Assets, on the terms and conditions set forth herein. 2.2 LICENSE RIGHTS OPTION. --------------------- 2 2.2.1 GRANT OF LICENSE RIGHTS OPTION. For the consideration ------------------------------ and subject to the terms and conditions contained herein, Seller shall grant to Buyer at the Closing an option to purchase the License Rights (the "License Rights Option") and Buyer shall purchase the License Rights Option on the terms and conditions set forth herein. 2.2.2 TERM AND EXERCISABILITY. The License Rights Option ----------------------- shall be exercisable by HPI or, at HPI's election, by the Partnership at any time during the period commencing with the Closing Date and ending on the later of (i) the fifth anniversary thereof or (ii) the Expiration Date of the Lease; provided that the License Rights Option shall be exercisable only if at the time - ------------- of exercise HPI is then qualified to be licensed by the State of California and the City as an operator of a card club. 2.2.3 EXERCISE PRICE OF LICENSE RIGHTS OPTION. The exercise --------------------------------------- price of the License Rights Option shall be Two Million Dollars ($2,000,000), of which One Million Five Hundred Thousand Dollars ($1,500,000) is payable at the time the License Rights Option is exercised, and the remaining Five Hundred Thousand Dollars ($500,000) shall be applied from the purchase price of the License Rights Option pursuant to Section 3.1.3. The exercise price shall be paid upon the Card Club Opening, if HPI is then licensed as an operator of the Card Club. If HPI is not licensed as an operator of the Card Club at the time of the Card Club Opening, it shall pay CEI an extension fee of One Million Four Hundred Ninety Nine Thousand Dollars ($1,499,000) upon the Card Club Opening and the exercise price thereupon shall be reduced to Five Hundred and One Thousand Dollars ($501,000), payable by application of the purchase price of the License Rights Option as aforesaid and One Thousand Dollars ($1,000) upon exercise thereof. 2.3 LEASE. At the Closing, CEI and HPI shall enter into the Lease. ----- III. PURCHASE PRICE 3.1 PURCHASE PRICE OF PURCHASED ASSETS AND LICENSE RIGHTS OPTION. ------------------------------------------------------------ The purchase price ("Purchase Price") for the Purchased Assets and License Rights Option shall be as follows: 3.1.1 REAL PROPERTY RIGHTS. Two Million Dollars -------------------- ($2,000,000). 3.1.2 PLANS. One Million Dollars ($1,000,000). ----- 3 3.1.3 LICENSE RIGHTS OPTION. Five Hundred Thousand Dollars --------------------- ($500,000), which amount will be applied to the exercise price of the License Rights Option at the time of exercise. 3.2 PAYMENT TERMS. The Purchase Price shall be paid as follows: ------------- 3.2.1 AT CLOSING. At the Closing, HPI shall pay CEI the ---------- following: (a) $2,000,000 for the Real Property Rights; and (b) $500,000 for the License Rights Option. 3.2.2 CARD CLUB OPENING. The remainder of the Purchase Price ----------------- and the exercise price of the License Rights Option shall be paid on the date of Card Club Opening as follows: (a) $1,000,000 for the Plans; and (b) $1,500,000 for the balance of the exercise price of the License Rights Option, or $1,499,000 as a license extension fee, as applicable pursuant to Section 2.2.3. provided, however, that any advances made by HPI pursuant to Section 3.4 shall - ----------------- be deducted from the payment made pursuant to this Section 3.2.2. 3.3 CEI REPRESENTATION. CEI represents and warrants that the ------------------ actual out-of-pocket expenses incurred by CEI in connection with the Card Club equal or exceed the aggregate amount to be paid by HPI at the Closing pursuant to Section 3.2.1 and has provided HPI an itemization of such expenses. HPI shall have the right, at any reasonable time, to audit such expenses and to obtain from CEI such additional information or documentation with respect thereto as HPI shall reasonably request in order to confirm the proper relationship of such expenses to the Card Club. 3.4 ADVANCES BY HPI. HPI has agreed to pay the following costs and --------------- expenses of CEI on or prior to the Closing, which amounts will be treated as advances to CEI of the amounts otherwise due and payable on Card Club Opening pursuant to Section 3.2.2, and shall be deducted from the payment thereof: 4 3.4.1 Attorneys' fees of Twenty-Six Thousand Dollars ($26,000) to Murray Kane, Esq.; 3.4.2 Consulting fees of Seven Thousand Dollars ($7,000) to Kathy Head; 3.4.3 Attorneys' fees to Mitchell, Silberberg & Knupp of Sixty-One Thousand Five Hundred Ninety-Two Dollars ($61,592); and 3.4.4 Twenty Thousand Dollars ($20,000) to CEI for reimbursement of miscellaneous expenses. IV. CLOSING The closing of the transactions contemplated by Article II of this Agreement (the "Closing") shall be held concurrently with the closing of the transactions contemplated by the DDA, as specified in Section 1(c) thereof (but no later than October 31, 1995 (the "Closing Date"), at _______________________ ____________________________________________________________ California, subject to postponement or acceleration as agreed upon in writing by Buyer and Seller. V. OTHER AGREEMENTS 5.1 EQUITY CONTRIBUTION. ------------------- 5.1.1 It is expected that the aggregate cost of constructing, developing and furnishing the Card Club (including the purchase price of the Purchased Assets and the purchase and exercise price of the License Rights Option) and related start-up matters will be approximately Twenty Million Dollars ($20,000,000) (the "Equity Contribution"). Subject to the provisions of Section 5.1.2, HPI agrees to make the entire Equity Contribution in installments as needed. It is understood and agreed that all taxes, insurance or other operating expenses incurred by HPI from the Closing Date to the commencement of the Lease shall be part of and credited to HPI's Equity Contribution. Notwithstanding the foregoing, CEI understands and agrees that certain other investors previously approved by CEI may participate with HPI in making the Equity Contribution. To the extent such other investors make an Equity Contribution, they shall share pro-rata with HPI in all distributions to HPI which relate to the Equity Contribution and shall have a pro-rata ownership interest in HPI's interest in the Card Club Site and any improvements thereon. Concurrently with such investment by any such other investor, HPI shall obtain the agreement of such investor to be bound by all of the provisions of this Agreement, specifically including the provisions of Section 10.2 with respect to the 5 transferability of such investors' interests hereunder. In such event, except where the context otherwise requires, references to HPI in this Agreement and in the Exhibits hereto shall include HPI and such other investors. 5.1.2 At CEI's option, any fees, costs or other expenses which are due and payable prior to Card Club Opening, including any Periodic License Fees (as hereinafter defined), may be paid by CEI and, to the extent such amounts, when added to the amounts expended by CEI and accounted for pursuant to Section 3.3 or otherwise approved in advance by HPI, exceed Five Million Dollars ($5,000,000), shall be deemed an Equity Contribution made by CEI. To the extent CEI has made such an Equity Contribution, it will share pro rata with HPI in all distributions referable to the Equity Contribution and shall have a pro-rata ownership interest in the Card Club Site and any improvements thereon. If CEI does not elect to pay any such fees, costs or other expenses itself, HPI shall pay such fees, costs or other expenses as part of its Equity Contribution. For purposes of this Section 5.1.2, "Periodic License Fees" shall mean the $12,500 quarterly license fee described in Section 2.B.1 of the City License and the "additional" Gross Revenue License Fees required by Section 2.B.2(c)(ii) of the City License (i.e., the $5,000 per month ---- interest payment on the $125,000 accrual). 5.2 CONSTRUCTION OF CARD CLUB. Following the Closing and the ------------------------- transfer of the Purchased Assets and the License Rights Option to HPI as contemplated herein, HPI shall construct and furnish the Card Club pursuant to the Lease in accordance with the Plans. 5.3 CARD CLUB OPENING; BUY-OUT PROVISIONS. ------------------------------------- 5.3.1 The parties shall use their best efforts to obtain all necessary consents and approvals from the City, the California Attorney General and any other applicable authority for the Card Club Opening as soon as practicable following the construction and furnishing of the Card Club. 5.3.2 In the event the Card Club cannot be opened by CEI by October 31, 1996, HPI shall have the right to own and operate the Card Club itself if it can then be licensed, or to lease the Card Club to another Card Club operator licensed by the City. If HPI cannot then be licensed or cannot transfer the license to another operator which can operate the Card Club within one hundred eighty (180) days after such date, then subject to Section 5.3.3 below, CEI shall have the right to acquire all of HPI's right, title and interest to the Card Club Site and all improvements thereon, the Plans and the License Rights Option for an amount equal to 6 HPI's Equity Contribution, with no profit or interest payable to HPI. In such event, CEI shall assume all remaining obligations of "Redeveloper" under the DDA and shall cause Agency to fully release HPI from all obligations thereunder. If HPI operates the Card Club itself or leases the Card Club to a third party operator pursuant to this Section 5.3.2, then at such time as CEI or Shareholder is licensed to operate the Card Club, CEI and HPI shall form the Partnership if HPI is then licensed, or in the event HPI is not then licensed, CEI shall have the right to operate the Card Club pursuant to the terms of the Lease upon the expiration of the existing operating agreement with the third party operator. Any lease of the Card Club to a third party operator by HPI hereunder shall be terminable upon HPI's becoming licensed to operate the Card Club. 5.3.3 In the event the Card Club cannot be opened by CEI because of the denial or revocation of CEI's state or City license, or in the event of a material breach of this Agreement by CEI which is incapable of cure (including a material breach of CEI's representations and warranties set forth in Article VI) then HPI shall pay CEI any remaining balance of the Purchase Price of the Purchased Assets, including but not limited to, the payment for the Real Property Rights, the Plans and both the purchase price and exercise price of the License Rights Option, whereupon all of CEI's rights and obligations hereunder to the Card Club shall terminate and be of no further force or effect. Thereafter, HPI shall have the right to own and operate the Card Club itself (if then eligible pursuant to applicable state and City law) or to lease the Card Club to another operator licensed by the City and to assign all necessary rights and obligations to such other operator in substitution and in lieu of CEI. 5.4 LLC AGREEMENT; LEASE TERMINATION. -------------------------------- 5.4.1 CEI and HPI each agree at such time as HPI is licensed as an operator of the Card Club under applicable California law and City ordinances, the Lease shall terminate as provided therein and CEI and HPI shall enter into the Partnership Agreement in substantially the form attached hereto as Exhibit B-1 for the ownership and operation of the Card Club (or, if at such time a limited liability company may legally operate a card club, a Limited Liability Company Operating Agreement in substantially the form attached hereto as Exhibit B-2). CEI and the Shareholder shall fully cooperate with HPI in its efforts to be so licensed. 5.4.2 In the event that HPI is not licensed prior to the expiration of the Lease term, then, at CEI's election: 7 (i) the parties shall negotiate: (A) a new lease for the continued operation of the Card Club on the same terms as the Lease (except that the monthly rent shall equal the greater of the "Monthly Rent", as defined in the Lease, or the "Fair Market Rental Value"); and (B) an extension of the License Rights Option; or (ii) CEI may acquire from HPI its rights to the Card Club Site together with the improvements thereon for a purchase price equal to the "Fair Market Sale Value" thereof. In such event, CEI will assume all obligations of "Redeveloper" under the DDA and shall cause HPI to be fully released by the Agency from all obligations under the DDA, and the License Rights Option shall terminate in accordance with its terms. If other investors have participated in HPI's Equity Contribution in the Card Club Site pursuant to Section 5.1.1, and CEI elects to acquire HPI's rights under this clause (ii), CEI also shall be entitled to acquire all rights of such other investors to the Card Club Site and any improvements thereon together with HPI's rights. 5.4.3 For purposes of Section 5.4.2, the "Fair Market Rental Value" and the "Fair Market Sale Value", as the case may be, shall be determined as follows: In determining the Fair Market Rental Value or the Fair Market Sale Value, as the case may be, the parties shall negotiate in good faith in order to reach agreement; and in the event the parties are unable to reach agreement during the period that is not more than four (4) months and not less than three (3) months prior to the expiration date of the Lease, ("Negotiation Period"), the determination of Fair Market Rental Value or the Fair Market Sale Value, as the case may be, shall be made by appraisal as provided in Section 5.4.4. 5.4.4 APPRAISAL PROCEDURE. The parties shall use their best ------------------- efforts to complete the appraisal process within sixty (60) days after the expiration of the Negotiation Period and shall instruct their appraisers to do likewise. (i) Each party shall, within ten (10) days following the expiration of the Negotiation Period, appoint a licensed, disinterested M.A.I. Appraiser having substantial experience with comparable buildings in the County of Los Angeles (a "Qualified Appraiser") and give written notice of such appointment to the other. If either party fails to notify the other of the appointment of its Qualified Appraiser within the time period specified above, then the Qualified Appraiser appointed shall be the sole appraiser to 8 determine Fair Market Rental Value or the Fair Market Sale Value, as the case may be; (ii) In the event two (2) Qualified Appraisers are chosen as herein provided, the Qualified Appraisers so chosen shall meet within ten (10) business days after they are appointed as aforesaid, and, if within ten (10) business days after such first meeting, the two (2) Qualified Appraisers fail to come to a mutual determination as to the appropriate Fair Market Rental Value or the Fair Market Sale Value, as the case may be, they themselves shall appoint a third Qualified Appraiser, who shall be a competent and disinterested person with qualifications similar to those required of the first two (2) Qualified Appraisers as herein provided. In the event the first two (2) Qualified Appraisers fail to agree upon and select a third Qualified Appraiser within ten (10) days after the expiration of said ten (10) day period, the third Qualified Appraiser shall be selected by the Presiding Judge of the Superior Court for the County of Los Angeles and the parties shall not raise any questions or objections as to such Judge's full power, jurisdiction, and authority to select said Qualified Appraiser; (iii) Within ten (10) days after appointment of the third Qualified Appraiser, each of the three (3) Qualified Appraisers selected shall state in writing his or her respective opinion as to the appropriate Fair Market Rental Value or Fair Market Sale Value, as the case may be, supported by the reasons therefor with counterpart copies to each party; (iv) The Qualified Appraisers shall arrange for a simultaneous exchange of such determinations promptly. The opinion which is the furthest from the middle value shall be excluded and the Fair Market Rental Value or Fair Market Sale Value, as the case may be, for purposes hereof shall be the average of the remaining two (2) opinions and shall constitute the decision of the Qualified Appraisers and be final and binding on the parties. The Qualified Appraisers shall give written notice to the parties stating their determination, and shall furnish to each party a signed copy of such determination. The Qualified Appraisers shall have no power to modify the provisions of the Lease. (v) In the event of a failure, refusal or inability of any Qualified Appraiser to act, a successor shall be appointed by the party who originally appointed the Qualified Appraiser, but in the case of the third Qualified Appraiser, the third Qualified Appraiser's successor shall be appointed in the same manner as provided for appointment of the third Qualified Appraiser. Each party shall pay the fees and expenses of the party's own Qualified Appraiser and shall share equally the fees and expenses of the 9 third Qualified Appraiser and all other expenses of the appraisal. 5.4.5 With the exception of an "Event of Default" made in bad faith or the revocation of CEI's state or City license as a result of such bad faith, no "Event of Default" under the Lease or termination of the Lease shall act as a bar against CEI entering into the Partnership at such time as HPI can be licensed. In the event of the termination of the Lease or the revocation of CEI's state or City license as a result of CEI's bad faith, all of CEI's rights and obligations hereunder to the Card Club shall terminate and be of no further force or effect provided that HPI has paid CEI the full Purchase Price of the Purchased Assets hereunder. In the event either party's license is revoked after the Partnership has been formed, the rights and obligations of the parties shall be determined in accordance with Section 2.2 of the Partnership Agreement. 5.4.6 In the event the Lease terminates for any reason other than as provided in Section 5.4.5 above, CEI shall have the right, but not the obligation, for a period of ninety (90) days following such termination, to purchase a one-third (1/3) interest in HPI's interest in the Card Club, for a purchase price equal to one-third (1/3) of HPI's total cost thereof. Concurrently with CEI's purchase of such interest, CEI and HPI shall enter into a partnership or limited liability company in form and terms mutually agreed upon to own the Card Club Site and all improvements thereon and such partnership or limited liability company shall assume all obligations of HPI as landlord under HPI's lease with any third party operator. At such time as HPI is licensed to operate the Card Club and the lease with the third party operator terminates, HPI and CEI shall enter into the Partnership Agreement, with appropriate changes to the Partnership Agreement relating to capital accounts and distributions so that CEI shall be entitled to receive the same rate of return on its purchased interest hereunder as HPI is entitled to receive on its Initial Capital Account as provided in Section 5.2(a) of the Partnership Agreement. Each of the parties hereto agree that if CEI elects to purchase such interest hereunder, it will execute such further documents and take such further action as may be necessary or appropriate to implement the foregoing. 5.5 EMPLOYMENT AGREEMENTS. CEI agrees that any employment --------------------- agreements which are entered into with any individuals (including Shareholder) for Card Club employment during the term of the Lease shall, by their terms, terminate no later than the termination date of the Lease so that upon formation of the Partnership, the Partnership may enter into whatever employment arrangements it believes are desirable at 10 such time. HPI acknowledges and agrees that it is intended that Shareholder will be employed by the Partnership on mutually acceptable terms and that certain other employees of CEI also may be employed by the Partnership. 5.6 OPTION FOR OTHER CARD CLUBS. CEI hereby grants HPI the right --------------------------- and option (but not the obligation) during the term of the Lease and the Partnership Agreement to participate with CEI and Shareholder in the ownership of any card club in the State of California (including the City of South El Monte and the City of Norwalk) in which CEI or Shareholder secure an opportunity to own a majority interest (directly or through affiliated entities). Should HPI elect to participate in any such opportunity, such participation shall be on the following basis: (a) CEI will secure the site and license to operate the card club in exchange for a one-third interest in the venture and reimbursement of its costs and expenses plus an amount equal to two-thirds (2/3) of such costs and expenses; and (b) HPI will provide up to one-half of the financing required for land acquisition and construction of the card club in exchange for a two- thirds (2/3) interest in CEI's interest in the venture. Should HPI elect to participate in any such opportunity, the parties shall enter into either a lease arrangement or a new partnership or limited liability company (depending on whether or not HPI is then qualified to be licensed as a card club operator and whether or not a limited liability company can then legally operate a card club) substantially identical in form and substance to the Lease or Partnership Agreement contemplated by this Agreement, as the case may be, whereupon HPI or such partnership or limited liability company, as the case may be, shall avail itself of such opportunity and, subject to the availability of the remaining necessary financing, acquire ownership of such card club in its name. Notwithstanding the foregoing, HPI shall not be under any obligation to offer CEI or Shareholder the opportunity to participate in the ownership or operation of any other card club in which HPI obtains an ownership interest. 5.7 GROSS REVENUE LICENSE FEE. ------------------------- 5.7.1 PAYMENT. CEI has previously paid the City an initial ------- gross revenue license fee in the amount of One Million Five Hundred Thousand Dollars ($1,500,000) as acknowledged by the City in Section 2.B.2(a) of the City License and included in CEI's itemization of expenses pursuant to Section 3.3 hereof (the "Initial License Fee") and is obligated to pay an additional gross license fee of Two Hundred Fifty Thousand Dollars ($250,000) upon Card Club Opening (the "Additional License Fee"). CEI hereby agrees to pay the Additional License Fee pursuant to the City License 11 when due whether or not the City License has been assigned to HPI or the Partnership. 5.7.2 REFUND. Pursuant to Section 2.B.2(e) of the City ------ License, if in any license year the gross revenue license fee paid by the holder of the City License exceeds Three Million Dollars ($3,000,000), the City shall refund the Initial License Fee and the Additional License Fee to CEI (but not to any assignee). CEI and HPI agree that upon such refund: (a) CEI shall retain the Additional License Fee and HPI shall have no claim or rights thereto; and (b) With respect to the Initial License Fee: (i) If such refund is made to CEI at any time after HPI has received all distributions contemplated by Section 5.2(a) of the Partnership Agreement, such amount shall be remitted to the Partnership as part of its operating income and no adjustments on account thereof shall be made to the capital accounts of either of the Partners; and (ii) If such refund is made to CEI at any time prior to such time as HPI has received all distributions contemplated by Section 5.2(a) of the Partnership Agreement, CEI shall promptly remit the same to HPI, and CEI shall have no further claims or rights thereto. In such event, the amount of HPI's Equity Contribution (or HPI's Initial Capital Account after formation of the Partnership) shall be adjusted accordingly. VI. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER As an inducement for Buyer entering into this Agreement, each of Seller and Shareholder, jointly and severally, represents and warrants as follows: 6.1 ORGANIZATION. Seller is a corporation duly organized, validly ------------ existing and in good standing under the laws of the State of California. Seller has all necessary corporate power and authority to enter into, be bound by the terms and conditions of, and perform its obligations under, this Agreement, and to transfer the Purchased Assets and to grant the License Rights Option to Buyer pursuant hereto. 6.2 SECURITIES OF CEI. All of the outstanding shares of capital ----------------- stock of CEI (the "Shares") (i) are duly 12 authorized, validly issued, fully paid and non-assessable, (ii) were issued in compliance with all applicable state, federal and foreign securities laws, and (iii) are owned beneficially and of record by Shareholder, free and clear of all liens, charges, security interests, encumbrances or adverse claims of any nature whatsoever. There are no outstanding securities convertible into, or any options, warrants, rights, calls or other commitments of any nature relating to, the shares of the capital stock or other securities of CEI. 6.3 AUTHORIZATION; NO CONFLICT. All requisite corporate action on -------------------------- the part of Seller has been taken to authorize and approve the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by Seller and Shareholder and constitutes a legal, valid and binding obligation of Seller and Shareholder, and each instrument contemplated by this Agreement, when executed and delivered by Seller and/or Shareholder, as the case may be, in accordance with the provisions hereof, will be a legal, valid and binding obligation of Seller and/or Shareholder, in each case enforceable against Seller and/or Shareholder in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws from time to time in effect which affect creditors' rights generally and by legal and equitable limitations on the availability of equitable remedies). Neither the execution, delivery or performance of this Agreement nor the consummation of the transactions contemplated hereby will (i) conflict with or result in the breach of any provision of the Articles of Incorporation or Bylaws of Seller, (ii) constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under the terms, conditions or provisions of any note, bond, mortgage, indenture, license, lease, agreement or other material instrument or obligation to which Seller or Shareholder is a party or by which Seller or Shareholder is bound, (iii) result in the creation of any lien, charge, security interest or other encumbrance upon the Purchased Assets or the License Rights pursuant to the terms of any such note, bond, mortgage, indenture, license, agreement or other material instrument or obligation, (iv) violate any judgment, order, injunction, decree, or award of any court, administrative agency or governmental body against, or binding upon, Seller or Shareholder, or (v) constitute a violation by Seller or Shareholder of any law or regulation of any jurisdiction applicable to Seller or Shareholder. 6.4 GOVERNMENTAL APPROVALS. Schedule 6.4 sets forth all approvals, ---------------------- authorizations, consents or orders or actions of any governmental authority required to be obtained 13 by Seller and/or Shareholder in connection with their execution and delivery of this Agreement and the consummation of the transactions contemplated hereby or performance of the obligations undertaken herein. Except as set forth on Schedule 6.4, no approval, authorization, consent or order or action of or filing with any court, administrative agency or other governmental authority is required to be obtained by Seller or Shareholder for the execution and delivery by Seller and Shareholder of this Agreement or the consummation of the transactions contemplated hereby or for the operation of the Card Club. 6.5 OWNERSHIP OF PURCHASED ASSETS AND LICENSE RIGHTS. Seller has ------------------------------------------------ good title to the Purchased Assets and the License Rights free and clear of any claim, lien, charge, security interest or encumbrance whatsoever and neither Seller nor Shareholder has any legal obligation, absolute or contingent, to any other person or entity to sell or transfer any interest in any portion of the Purchased Assets or the License Rights. Upon Seller's transfer and sale of the Purchased Assets to Buyer pursuant to this Agreement, Buyer will have good title to all of the Purchased Assets, free and clear of any claim, lien, charge, security interest or encumbrance whatsoever. Upon grant of the License Rights Option by Seller to Buyer and the exercise thereof by Buyer (or the Partnership) as provided herein (subject to any required State and City approvals), Buyer or the Partnership, as the case may be, will have good and marketable title to all of the License Rights, free and clear of any claim, lien, charge, security interest or encumbrance whatsoever. 6.6 CARD CLUB LICENSE. Each of Shareholder, Seller and each of ----------------- Seller's officers and directors is duly and validly licensed by the City to operate and own the Card Club. 6.7 COMPLIANCE WITH LAWS. To the best of each of Seller's and -------------------- Shareholder's knowledge, without independent investigation, this Agreement, the Lease, the Partnership Agreement and all other instruments and agreements contemplated hereby comply in all material respects with all applicable requirements of applicable City ordinances. 6.8 FULL DISCLOSURE. No representation or warranty by Seller or --------------- Shareholder in this Agreement or in any certificate or other document or instrument furnished or to be furnished by Seller or Shareholder to Buyer or its representatives pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements made therein not misleading. VII. REPRESENTATIONS AND WARRANTIES OF BUYER 14 As an inducement for Seller and Shareholder to enter into this Agreement, Buyer represents and warrants as follows: 7.1 ORGANIZATION. Buyer is a corporation duly organized, validly ------------ existing and in good standing under the laws of the State of Delaware. Buyer has all necessary corporate power and authority to enter into, be bound by the terms and conditions of, and perform its obligations under, this Agreement. 7.2 AUTHORIZATION; NO CONFLICT. All requisite corporate action on -------------------------- the part of Buyer has been duly taken to authorize and approve the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by Buyer and constitutes a legal, valid and binding obligation of Buyer, and each instrument contemplated by this Agreement, when executed and delivered by Buyer in accordance with the provisions hereof, will be a legal, valid and binding obligation of Buyer, in each case enforceable against Buyer in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws from time to time in effect which affect creditors' rights generally and by legal and equitable limitations on the availability of equitable remedies). Neither the execution, delivery and performance of this Agreement nor the consummation of the transactions contemplated hereby will (i) conflict with or result in the breach of any provision of the Certificate of Incorporation or Bylaws of Buyer, (ii) constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under the terms, conditions or provisions of any note, bond, mortgage, indenture, license, lease, agreement or other material instrument or obligation to which Buyer is a party or by which Buyer is bound, (iii) violate any judgment, order, injunction, decree or award of any court, administrative agency or governmental body against, or binding upon, Buyer, or (iv) constitute a violation by Buyer of any law or regulation of any jurisdiction applicable to Buyer. 7.3 GOVERNMENTAL APPROVALS. Except to the extent that Buyer's ---------------------- participation is required for the approvals listed on Schedule 6.4, no approval, authorization, consent or order or action of or filing with any court, administrative agency or other governmental authority is required to be obtained by Buyer for the execution and delivery by Buyer of this Agreement or the consummation of the transactions contemplated hereby or for the operation of the Card Club. 15 7.4 COMPLIANCE WITH LAWS. To the best of Buyer's knowledge, -------------------- without independent investigation, this Agreement, the Lease, the Partnership Agreement and all other instruments and agreements contemplated hereby comply in all material respects with all applicable requirements of applicable City ordinances. 7.5 FULL DISCLOSURE. No representation or warranty by Buyer in --------------- this Agreement or in any certificate or other document or instrument furnished or to be furnished by Buyer to Seller or its representatives pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements made therein not misleading. VIII. CONDITIONS TO OBLIGATIONS OF BUYER The obligations of Buyer hereunder are subject, at its election, to the satisfaction, at or prior to the Closing Date, of the following conditions: 8.1 CARD CLUB SITE. All conditions to the closing of the -------------- transactions contemplated by the DDA as set forth in Section 2(b) thereof shall have been satisfied or waived by HPI. All exceptions to title and other contingencies to be approved by Redeveloper thereunder shall be acceptable to and approved by HPI. 8.2 CONSENTS. There shall have been obtained all requisite -------- consents of governmental or other regulatory agencies, foreign or domestic, and of any other third parties, required to be received by or on the part of Buyer, Seller or Shareholder in connection with the consummation of the transactions contemplated hereby, including but not limited to any and all consents or approvals of the City. 8.3 REPRESENTATIONS AND WARRANTIES. Seller's and Shareholder's ------------------------------ representations and warranties contained herein shall be true and correct in all material respects, on and as of the Closing Date as though made on and as of the Closing Date. 8.4 COMPLIANCE. Seller and Shareholder shall have performed and ---------- complied with all agreements, covenants and conditions required by this Agreement to be performed or complied with by them prior to the Closing Date. 8.5 SUITS, PROCEEDINGS, INVESTIGATIONS. No suit, action or other ---------------------------------- proceeding shall be pending or, to the knowledge of Seller or Buyer, threatened, before any court or governmental agency wherein an unfavorable judgment, decree or 16 order would prevent the carrying out of this Agreement or any of the transactions or events contemplated hereby, or declare unlawful the transactions or events contemplated by this Agreement or cause such transactions to be rescinded, or would otherwise have a material adverse effect on the Purchased Assets, the License Rights and/or the business of the Card Club. 8.6 OTHER DOCUMENTS. Seller and Shareholder shall have delivered --------------- all such certified resolutions, certificates, documents and instruments with respect to Seller as Buyer's counsel may reasonably request prior to the Closing Date to carry out the intent and purpose of this Agreement and the form of all such documents shall be satisfactory in all reasonable respects to Buyer and its counsel. 8.7 INSTRUMENTS OF CONVEYANCE. Seller shall have executed and ------------------------- delivered, or caused to be executed and delivered, to Buyer any necessary instruments of conveyance for the transfer of the Purchased Assets and the grant of the License Rights Option, and executed copies of all consents, if any, of third parties which may be required for any assignment, transfer or recording contemplated hereby, which instruments and consents shall be in form and substance reasonably satisfactory to Buyer and its counsel. IX. CONDITIONS TO OBLIGATIONS OF SELLER AND SHAREHOLDER The obligations of Seller and Shareholder hereunder are subject, at its or his election, to the satisfaction, at or prior to the Closing Date, of the following conditions: 9.1 CARD CLUB SITE. All conditions to the closing of the -------------- transactions contemplated by the DDA as set forth in Section 2(b) thereof shall have been satisfied or waived by CEI. All exceptions to title and other contingencies to be approved by Redeveloper thereunder shall be acceptable to and approved by CEI. 9.2 GOVERNMENTAL CONSENTS. There shall have been obtained all --------------------- requisite consents of governmental or other regulatory agencies, foreign or domestic, and of any other third parties required to be received by or on the part of Buyer, Seller or Shareholder in connection with the consummation of the transactions contemplated hereby, including but not limited to any and all consents or approvals of the City. 9.3 REPRESENTATIONS AND WARRANTIES. Buyer's representations and ------------------------------ warranties contained herein shall be true 17 and correct in all material respects on and as of the Closing Date as though made on and as of the Closing Date. 9.4 COMPLIANCE. Buyer shall have performed and complied with all ---------- agreements and conditions required by this Agreement to be performed or complied with by it prior to the Closing Date. 9.5 SUITS, PROCEEDINGS, INVESTIGATIONS. No suit, action or other ---------------------------------- proceeding shall be pending or, to the knowledge of Seller or Buyer, threatened, before any court or governmental agency wherein an unfavorable judgment, decree or order would prevent the carrying out of this Agreement or any of the transactions or events contemplated hereby, or declare unlawful the transactions or events contemplated by this Agreement or cause such transactions to be rescinded or would otherwise have a material adverse effect on the Purchased Assets, the License Rights, and/or the business of the Card Club. 9.6 OTHER DOCUMENTS. Buyer shall have delivered all such certified --------------- resolutions, certificates, documents and instruments with respect to Buyer as Seller's counsel may reasonably request prior to the Closing Date to carry out the intent and purpose of this Agreement and the form of all such documents shall be satisfactory in all reasonable respects to Seller and its counsel. X. RESTRICTIONS ON ISSUANCE AND TRANSFER 10.1 CEI STOCK. --------- 10.1.1 RESTRICTION ON ADDITIONAL ISSUANCES. Each of CEI and ----------------------------------- Shareholder covenants and agrees that during the period from the date hereof through the term of the Lease and the Partnership Agreement, except as permitted by Section 8.02 of the Lease, CEI will not issue any additional shares of its capital stock or other securities or grant any options, warrants, rights, calls or other commitments of any nature relating to shares of capital stock or other securities of CEI without the prior written consent of HPI. 10.1.2 RESTRICTION ON TRANSFER BY SHAREHOLDER. Shareholder -------------------------------------- agrees that during the period from the date hereof through the term of the Lease and the Partnership Agreement, except as permitted by Section 8.02 of the Lease, he will not sell, transfer, convey or otherwise hypothecate any of the Shares owned by him without the prior written consent of HPI. 18 10.1.3 LEGEND OF CERTIFICATES. Concurrently with execution of ---------------------- this Agreement, CEI shall cause the certificates representing the Shares held by the Shareholder to bear a legend substantially as follows: "THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN TRANSFER RESTRICTIONS PROVISIONS CONTAINED IN AN AGREEMENT BETWEEN THE HOLDER AND THE ISSUER HEREOF AND HOLLYWOOD PARK, INC., A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE ISSUER. ANY TRANSFER OF SHARES IN VIOLATION OF SUCH PROVISIONS SHALL BE NULL AND VOID AB INITIO." --------- 10.1.4 ADDITIONAL RESTRICTIONS; RIGHT OF FIRST REFUSAL. ----------------------------------------------- Notwithstanding the foregoing, no issuance or transfer of Shares may be made unless and until the issuee or transferee has obtained all required licenses and approvals from the City and any other necessary or applicable licensing authorities and has executed an agreement (i) to be bound by all provisions of this Agreement, including a restriction on the further transfer of such shares and (ii) granting a right of first refusal to HPI with respect to future transfers of such Shares by such issuee or transferee in substantially the form heretofore agreed upon by Shareholder and HPI. Any purported issuance or transfer of Shares not permitted by this Agreement shall be void ab initio and --------- of no effect. 10.2 HPI AND HPI INVESTORS. HPI agrees, on behalf of itself and --------------------- each of the investors, if any, participating in HPI's Equity Contribution pursuant to Section 5.1.1 (the "HPI Investors") that, during the period from the date hereof through the terms of the Lease and the Partnership Agreement (subject to the provisions of the Lease, the Partnership Agreement and applicable law): (a) FIRST OPPORTUNITY OFFER. Subject to the provisions of ----------------------- Paragraphs (c) and (d) below, prior to any transfer by HPI or any of the HPI Investors of its interest hereunder, it will first offer CEI the right to purchase such interest (the "Transferable Interest") on the same terms and conditions as HPI or such HPI Investor (the "Transferor") intends to sell such interest, or on the same terms and conditions as the offer from a prospective purchaser, as the case may be, (herein, the "First Opportunity Offer"). The First Opportunity Offer, once made, shall constitute an irrevocable binding offer by the Transferor to sell the Transferable Interest to CEI. CEI shall have thirty (30) days after receipt of the First Opportunity Offer within which to 19 accept same in writing. If CEI timely accepts the First Opportunity Offer, the Transferor shall sell the Transferable Interest to CEI in accordance with the terms and conditions of the First Opportunity Offer; provided, however, that such sale shall be consummated within ninety (90) days of acceptance of the First Opportunity Offer. (b) SALES UNDER PURCHASE PRICE FLOOR. If CEI fails to timely -------------------------------- accept the Transferor's First Opportunity Offer, CEI shall be deemed to have rejected same, and the Transferor shall be free to sell the Transferable Interest to any third party on any terms (subject to applicable restrictions in any agreement amongst HPI and the HPI Investors); provided, however, that if the sale price to such third party is more than ten percent (10%) lower than that stated in the First Opportunity Offer (the "Purchase Price Floor"), then prior to entering into a binding agreement with such third party for an amount below the Purchase Price Floor, the transferor shall afford CEI five (5) business days notice to agree, in writing, to purchase the Transferable Interest on the terms offered by the third party, without any qualifications. (c) LIMITATIONS ON TRANSFER BY HPI GROUP. Notwithstanding the ------------------------------------ foregoing, in no event shall the aggregate interests transferred by HPI and the HPI Investors (collectively, the "HPI Group") to a third party pursuant to this Section 10.2 exceed 49% of the total interests held by the HPI Group without the prior written consent of CEI. (d) PERMITTED TRANSFERS. Notwithstanding the foregoing, CEI ------------------- acknowledges and agrees that (i) the restrictions on transfer by HPI contained in this Section 10.2 shall not apply to the investment by the HPI Investors in HPI's Equity Contribution prior to Card Club Opening and the resultant transfer of a portion of HPI's interest hereunder to the HPI Investors pursuant to Section 5.1.1 and (ii) each of the HPI Investors shall have the right, at any time (subject to the provisions of the Lease, the Partnership Agreement and applicable law) to transfer all or any portion of its interest hereunder to HPI or, so long as HPI remains the Managing Partner or Member of the HPI Group, to any other of the HPI Investors on any terms (subject to applicable restrictions in any agreement amongst HPI and the HPI Investors) without any obligation to offer such interest to CEI or to obtain its consent thereto. XI. OTHER COVENANTS 11.1 ACTIONS WITH RESPECT TO CLOSING. Each party agrees to use his ------------------------------- or its best efforts to bring about the 20 satisfaction of the conditions precedent to the Closing, including satisfaction of all conditions to the closing of the transactions contemplated by the DDA and obtaining all necessary City and other consents and approvals, and to cause the covenants and agreements contained in this Agreement to be satisfied and performed hereunder by each of them. 11.2 EXPENSES. Seller and Shareholder, on the one hand, and Buyer, -------- on the other hand, shall each bear their own direct and indirect expenses incurred in connection with the negotiation and preparation of this Agreement and the consummation and performance of the transactions contemplated hereby; provided however, that HPI shall bear all reasonable expenses related to the Card Club after the date of this Agreement, as approved in advance by HPI, other than the costs incurred by Seller and Shareholder pursuant to Section 11.3 and Seller's overhead expenses. 11.3 ATTORNEY GENERAL CONSENT. Seller and Shareholder each agrees ------------------------ to use his or its best efforts to obtain all necessary licenses and other consents and approvals from the California Attorney General and other gaming authorities for the ownership and operation of the Card Club prior to the Card Club Opening. 11.4 COOPERATION. Each party hereto agrees, both before and after ----------- the Closing, to execute any and all further documents and writings and perform such other reasonable actions which may be or become necessary or expedient to effectuate and carry out the transactions contemplated hereby. 11.5 ANNOUNCEMENTS. Except as required by applicable provisions of ------------- the federal securities laws, each party agrees not to make, nor cause to be made, any news releases or other public announcements pertaining to the transactions contemplated hereby without first consulting the other party and attempting to formulate a mutually satisfactory arrangement for such disclosure. XII. TERMINATION 12.1 TERMINATION. Anything herein or elsewhere to the contrary ----------- notwithstanding, this Agreement may be terminated and the transactions contemplated hereby abandoned at any time prior to the Closing Date: 12.1.1 By mutual consent of Seller, Shareholder and Buyer; 21 12.1.2 By Buyer, if any of the conditions set forth in Section 8 shall have become incapable of fulfillment and shall not have been waived by Buyer; 12.1.3 By Seller or Shareholder, if any of the conditions set forth in Section 9 shall have become incapable of fulfillment and shall not have been waived by Seller and Shareholder; 12.1.4 By Buyer, on the one hand, or Seller or Shareholder, on the other, if the Closing has not occurred on or before October 31, 1995, and if the failure to consummate such transactions on or before such date did not result from the failure by the party seeking such termination to fulfill any condition set forth in Section 8 or 9, as the case may be, which is a condition precedent to the obligation of the other party to this Agreement to consummate the transactions contemplated hereby; 12.1.5 By Buyer, on the one hand, or Seller or Shareholder, on the other hand, upon a material breach of this Agreement provided that the party seeking such termination shall not be in material breach of this Agreement and if such breach shall continue for a period of fifteen (15) days after written notice thereof; provided, however, that if the nature of such breach is such that more than fifteen (15) days are reasonably required for its cure, then such cure is commenced within said 15-day period and is thereafter diligently prosecuted to completion, this Agreement may not be terminated hereunder by reason of such breach. 12.2 MANNER AND EFFECT OF TERMINATION. -------------------------------- 12.2.1 Termination shall be effected by the giving of notice to that effect by one party to the other. 12.2.2 If this Agreement is terminated pursuant to this Article XII and the transactions contemplated hereby are not consummated, this Agreement shall become null and void and of no further force and effect and neither party shall be obligated to the other hereunder. Nothing contained in this Section 12.2 shall relieve any party of liability for any breach of this Agreement which occurred prior to the date of termination of this Agreement. 12.3 RIGHTS TO PROCEED. Notwithstanding anything contained in this ----------------- Agreement to the contrary, if any of the conditions specified in Section 8 have not been satisfied, HPI shall have the right to proceed with the transactions contemplated by this Agreement without waiving any of its rights hereunder; and if any of the conditions specified in Section 9 have not been satisfied, CEI shall have the right to 22 proceed with the transactions contemplated by this Agreement without waiving any of its rights hereunder. XIII. EQUITABLE REMEDIES; ARBITRATION 13.1 EQUITABLE REMEDIES. Seller, Shareholder and Buyer acknowledge ------------------ that the remedy at law for any breach, or threatened breach, of their respective covenants to consummate the transactions contemplated hereby will be inadequate and, accordingly, each of Seller, Shareholder and Buyer covenants and agrees that, with respect to any such breach or threatened breach, the non-breaching party will, in addition to any other rights or remedies that it may have and regardless of whether such other rights or remedies have been previously exercised, be entitled to such equitable and injunctive relief as may be available. 13.2 ARBITRATION. ----------- 13.2.1 Any claim (regardless of the legal theory involved) arising out of or relating to this Agreement, including, without limitation, its validity, interpretation, enforceability or breach, which is not settled by agreement between the parties (the "Dispute"), shall be submitted to a two-step dispute resolution process involving, first, mediation before a retired jurist from the panel of Judicial Arbitration & Mediation Services, Inc. or any successor entity ("JAMS") followed, if necessary, by final and binding arbitration before the same or, upon request of any party, another mutually agreed upon jurist from said panel. The mediation process is to be considered settlement negotiation for the purpose of all State and Federal rules protecting disclosures made during such conferences from later being discovered or used in evidence. The entire procedure is confidential, and no stenographic or other record shall be made except to memorialize a settlement record. All conduct, statements, promises, offers, views and opinions, oral or written, made in the course of the mediation by any party or their agent, employee, or attorney, are confidential and, where appropriate, are to be considered to be work product and privileged. Such conduct, statements, promises, offers, views and opinions shall not be discoverable or admissible for any purpose, including, impeachment, in any litigation or other proceeding involving the parties; provided, however, that evidence otherwise discoverable or admissible is not excluded from discovery or admission in evidence simply as a result of it being used in connection with the settlement process. These alternative dispute resolution proceedings shall be administered by and conducted in conformity with the then obtaining Rules of Practice and Procedure for the Arbitration of Commercial Disputes of JAMS, except as such Rules of Practice and Procedure are expressly modified by the 23 provisions of this Paragraph. A Dispute shall be deemed to include any issue or question regarding whether any matter submitted by a party to arbitration is arbitrable within the scope of this Section 13.2. Each of the parties hereto acknowledges and agrees that the use of these alternative dispute resolution proceedings necessarily results in the waiver of the party's right to a jury trial and of its right to appeal under standard appellate procedures; however, nothing herein shall bar a party from seeking provisional relief from a court in aid of these proceedings. 13.2.2 Either HPI or CEI may initiate arbitration of a Dispute by providing written notice to the other party of a demand for arbitration. The party initiating the arbitration shall file a copy of the demand therefor with the Los Angeles regional office of JAMS, not later than one business day following the day on which written notice of the demand is provided to the responding party. The Dispute shall be submitted to a single arbitrator (the "Arbitrator") chosen by the parties from the JAMS panel of arbitrators, so long as the person chosen meets the qualifications set forth below. If the parties do not, for any reason, mutually select the Arbitrator from the JAMS panel within five business days after the filing of the demand for arbitration, either party may submit a written request to JAMS for a list of five persons qualified to serve as the Arbitrator. A person shall be deemed qualified to serve as the Arbitrator if such person is (a) impartial; (b) a lawyer or retired judge; and (c) willing and able to conduct the arbitration in accordance with the provisions of this Section 13.2. A copy of this Section 13.2 shall be included with the request submitted to JAMS. Within three business days after the last party actually receives the list from JAMS, the parties (or their authorized representatives) shall meet and take turns striking names from the list, with the party striking first chosen by a coin toss, until one name remains. The person whose name remains on the list shall serve as the Arbitrator. If the parties do not, for any reason, meet to strike names from the list within the foregoing period, the Arbitrator shall be selected by JAMS within three business days after the expiration of the foregoing period, and the selection of the Arbitrator by JAMS shall be final and binding and shall not be subject to challenge for any reason whatsoever. Within five business days after the selection of the Arbitrator, the arbitration shall be conducted in Los Angeles, California. The award, which shall be made in writing and shall set forth in general the reasons therefor, shall be a final and binding determination of the Dispute and judgment thereon may be entered by any court of competent jurisdiction. Each party shall bear such party's own attorney's fees and expenses in connection with the arbitration and shall bear one-half of the 24 Arbitrator's fees and expenses and the cost of a transcript of the arbitration proceedings. 13.2.3 In any arbitration proceeding hereunder, the parties hereto hereby EXPRESSLY, KNOWINGLY AND VOLUNTARILY FULLY AND FINALLY WAIVE AND RELINQUISH any and all provisions of, and rights and benefits that may arise under, Section 1281.9 of the Code of Civil Procedure of the State of California (the "Statute") and hereby DISCHARGE AND EXONERATE any person(s) proposed for nomination as neutral arbitrator(s) from any duty to comply with any of the provisions of the statute in any such arbitration proceeding hereunder. In connection with such waiver, relinquishment, exoneration and discharge, the parties acknowledge that they have read and are familiar with the provisions of the Statute and have had adequate opportunity to consult with legal counsel with respect thereto and with respect to any other pertinent provisions of law. All parties, with the advice of their respective legal counsel, agree that the Statute is unnecessary and burdensome as to them and that it is in their best interests to enter into this Agreement, so that the arbitration process provided for by this Agreement shall proceed as if the Statute did not exist. However, this waiver, relinquishment, exoneration and discharge is not intended to apply to any judicial appointment of arbitrators, nor is it intended to discharge or exonerate any potential arbitrator from any other duty imposed by law or equity, including without limitation, the disclosure of any information relating to the bias or interest or potential bias or interest of the potential arbitrator. XIV. MISCELLANEOUS 14.1 ENTIRE AGREEMENT. This Agreement, including the Lease, the ---------------- Partnership Agreement and other agreements specifically referred to herein, constitutes the entire agreement between the parties and supersedes all prior agreements, representations, warranties, statements and understandings, whether oral or written, with respect to the subject matter hereof. 14.2 NOTICES. All notices, demands, elections, or requests provided ------- for or permitted to be given pursuant to this Agreement must be in writing. All notices, demands, elections, and requests shall be deemed to have been duly given on the date delivered personally or on the date of receipt if sent by overnight delivery services, facsimile transmission, or registered or certified U.S. Mail with return 25 receipt requested, to the following addresses, or such other addresses as may be subsequently designated in writing and delivered to the other parties hereto: To HPI: Hollywood Park, Inc. 1050 S. Prairie Avenue Inglewood, CA 90301 Attention: G. Michael Finnigan President, Gaming and Entertainment Division Fax: (310) 673-2582 with a copy to: Sandra G. Kanengiser, Esq. Irell & Manella 1800 Avenue of the Stars, Suite 900 Los Angeles, California 90067 Fax: (310) 203-7199 To CEI and Shareholder: Compton Entertainment, Inc. P. O. Box 90038 City of Industry, CA 91715-0038 Attention: Rouben Kandilian President Fax: (818) 333-7754 with a copy to: Jerry Neuman, Esq. Mitchell, Silberberg & Knupp 11377 West Olympic Blvd. Los Angeles, CA 90064 Fax: (310) 312-3100 14.3 GOVERNING LAW; ATTORNEYS' FEES. This Agreement and the rights ------------------------------ and obligations of the parties hereunder, shall be interpreted, construed, and enforced in accordance with the laws of the State of California without regard to principles of law (such as "conflicts of laws") that might make the law of some other jurisdiction applicable. In the event any legal action or arbitration is instituted to construe or enforce this Agreement or the rights or obligations of any party, the prevailing party shall be entitled to reasonable attorneys' fees, costs and expenses incurred in such legal action. Attorneys' fees incurred in enforcing any judgment in respect of this Agreement are recoverable as a separate item. The preceding sentence is 26 intended to be severable from the other provisions of this Agreement and to survive any judgment and, to the maximum extent permitted by law, shall not be deemed merged into any such judgment. 14.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon ---------------------- and inure to the benefit of the parties and their respective successors and assigns. Except as expressly provided in Article X hereof, neither this Agreement nor any of the rights hereunder shall be assignable by HPI, CEI or Shareholder without the prior written consent of the other party. No such assignment shall relieve the parties hereto of his or its obligations hereunder. 14.5 AMENDMENTS, SUPPLEMENTS. This Agreement may be amended or ----------------------- supplemented at any time by the mutual written consent of the parties. 14.6 WAIVERS. Either party may, by written notice to the other, (a) ------- extend the time for the performance of any of the obligations or other actions of the other party under this Agreement; (b) waive any inaccuracies in the representations or warranties of the other party contained in this Agreement or in any document delivered pursuant to this Agreement; (c) waive compliance with any of the conditions or covenants of the other contained in this Agreement; or (d) waive performance of any of the obligations of the other under this Agreement. With regard to any power, remedy or right provided herein or otherwise available to any party hereunder, (i) no waiver or extension of time will be effective unless expressly contained in a writing signed by the waiving party, and (ii) no alteration, modification or impairment will be implied by reason of any previous waiver, extension of time, or delay or omission in the exercise of rights or other indulgence. 14.7 EXHIBITS AND SCHEDULES. All exhibits annexed hereto, and all ---------------------- schedules referred to herein, are hereby incorporated in and made a part of this Agreement as if set forth in full herein. 14.8 CAPTIONS. All section titles or captions contained in this -------- Agreement or in any schedule or exhibit annexed hereto or referred to herein are for convenience only, shall not be deemed a part of this Agreement and shall not affect the meaning or interpretation of this Agreement. All references herein to sections shall be deemed references to such parts of this Agreement, unless the context shall otherwise require. 27 14.9 SEVERABILITY. If any provision of this Agreement or the ------------ application thereof to any person or circumstances shall be held to be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. 14.10 NO THIRD PARTY BENEFICIARIES. Nothing contained in this ---------------------------- Agreement is intended to and nothing contained herein shall be interpreted to confer on any party not a party hereto or a successor or assign thereof the rights of a third party beneficiary. 14.11 EXECUTION REPRESENTATIVE. Each person executing this Agreement ------------------------ on behalf of a party warrants and represents that he has full right, power, and authority to enter into this Agreement on behalf of such party and to bind such party to the terms and provisions thereof. 14.12 COUNTERPARTS. This Agreement may be executed in any number of ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 14.13 CONFLICT WITH AIP. In the event of any conflict between this ----------------- Agreement and the AIP, this Agreement shall control. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above. COMPTON ENTERTAINMENT, INC. ("CEI" or "Seller") By: /s/ Rouben Kandilian ----------------------- Rouben Kandilian, President /s/ Rouben Kandilian ----------------------- ROUBEN KANDILIAN ("Shareholder") HOLLYWOOD PARK, INC., ("HPI" or "Buyer") 28 By: /s/ G. Michael Finnigan ---------------------------- G. Michael Finnigan President, Gaming and Entertainment Division 29 SCHEDULE 6.4 CONSENTS AND APPROVALS TO BE OBTAINED BY ---------------------------------------- SELLER AND SHAREHOLDER ---------------------- 1. City approval of transfer of License Rights. 2. Approval of the City and the Community Redevelopment Agency of the City of the transfer of the Real Property Rights. 3. Approval of the Attorney General of the State of California of the Agreement respecting Pyramid Casino, the Lease and the Partnership Agreement, and the rights and obligations of the parties thereunder and under all ancillary agreements and documents. 4. Approval and licensing of CEI and Shareholder by California Attorney General. 5. Building permits, entitlements, etc. necessary for construction of the Card Club pursuant to the DDA and the Plans. 30 EX-10.16 4 COMM RED. & COMPTON AGREEMENT Exhibit 10.16 AMENDED AND RESTATED -------------------- DISPOSITION AND DEVELOPMENT AGREEMENT, AGREEMENT OF --------------------------------------------------- PURCHASE AND SALE, AND LEASE WITH OPTION TO PURCHASE ---------------------------------------------------- between THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF COMPTON, a public body, corporate and politic, and COMPTON ENTERTAINMENT, INC., a California corporation Walnut Industrial Park Redevelopment Project AMENDED AND RESTATED -------------------- DISPOSITION AND DEVELOPMENT AGREEMENT, AGREEMENT OF --------------------------------------------------- PURCHASE AND SALE, AND LEASE WITH OPTION TO PURCHASE ---------------------------------------------------- THIS AMENDED AND RESTATED DISPOSITION AND DEVELOPMENT AGREEMENT (this "DDA" or "Lease") is made as of this 4th day of April, 1995, by and between the COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF COMPTON, a public body corporate and politic ("Agency") and COMPTON ENTERTAINMENT, INC., a California corporation ("Redeveloper"). RECITALS -1- A. The purpose of this DDA is to effectuate the Agency's Redevelopment Plan, as amended (the "Redevelopment Plan") for the Walnut Industrial Park Project Area (the "Project Area") in the City of Compton (the "City") by facilitating the development, rehabilitation and operation of all or some portion of an existing hotel structure (the "Hotel") and entertainment center (the "Entertainment Center") containing one or more restaurants and a card club (the "Card Club"), and parking (and which may contain a nightclub/sports lounge, gift shop, meeting facilities/theater, corporate business lounge, and assorted concession venues), on a parcel of real property of approximately 24.45 acres (the "Property") located within the Project Area. The Property is legally described in Exhibit 1 attached hereto, and is depicted on the Site Plan attached hereto as Exhibit 2. B. Agency is the owner of the Property. C. Redeveloper desires to purchase a portion of the Property and to lease the remainder of the Property for the purpose of developing and operating the Hotel and Entertainment Center thereon. D. Agency desires to lease the Property to Redeveloper in accordance with the terms and conditions set forth hereinbelow. E. The Property contains four elements: 1. A portion of the Property (the "Convention Center Parcel") currently improved with a convention center and parking structure, including the underlying land, all of which is subject to easements for access to, support of and parking for the Hotel Parcel. 2. A portion of the Property (the "Hotel Parcel") consisting of a parcel of air space which includes a nine (9) story hotel containing 290 guest rooms and ancillary areas such as lobbies, restaurant, kitchen, bars, commercial areas and the like. 3. A portion of the Property (the "Parking Parcels") will be improved with parking to support the Hotel and the Entertainment Center. 4. A portion of the Property consists of additional land (the "Expansion Parcels") upon which Redeveloper shall have the right to expand by construction of an additional casino or card club. The Hotel Parcel, the Parking Parcels and the Expansion Parcels are referred to herein collectively as the "Leasehold Parcels" or the "balance of the Property." F. This DDA consists of an agreement of purchase and sale of a portion of the Property, a lease of the balance of the Property to Redeveloper and, if Redeveloper complies with the terms thereof, an option to purchase the balance of the Property. -2- G. The parties hereto are parties to that certain Disposition and Development Agreement dated as of December 10, 1992, concerning real property adjacent to the Property (the "Prior DDA"). By this DDA, the parties shall amend and restate such Disposition and Development Agreement on the terms provided herein. H. Redeveloper has obtained a license (the "License") from the City of Compton ("City") to operate within the City of Compton a Card Club pursuant to Section 9-10 of the Compton Municipal Code, on the terms and conditions set forth in the City's Resolution No. 17,087. Such license has been extended and amended by City Resolution Nos. 17,617 and 17,831. More or less concurrently herewith, Redeveloper is applying for an amendment to the license to cover the entire Property so as to permit expansion of the Card Club. I. Redeveloper proposes to: (i) construct improvements to complete and rehabilitate the Hotel so that it can be operated, in whole or in part, as a full service hotel lodging facility, (ii) construct improvements to the Property so that the Entertainment Center, including the Card Club, can be operated therefrom, (iii) construct additional parking needed to support the Hotel and Entertainment Center, and (iv) subject to Section 29 hereof, within fifteen (15) years after the date hereof, construct, open and operate an expansion of the Card Club facility on the Expansion Parcels and/or other portions of the Property. Construction of such improvements and operation of the Hotel and Entertainment Center from the Property, and construction of the expansion facility on the Expansion Parcels are referred to herein as the "Project." J. The Project will assist in the elimination of blight in the Project Area, will provide additional jobs, and will substantially improve the economic and physical conditions in the Project Area in accordance with the purposes and goals of the Redevelopment Plan. NOW THEREFORE, the parties agree as follows: 1. Purchase and Sale of the Convention Center Parcel. ------------------------------------------------- (a) Redeveloper hereby agrees to purchase from Agency, and Agency agrees to sell to Redeveloper, the Convention Center Parcel, including the underlying land and parking structure, subject to easements of support and for parking for the benefit of the Hotel Parcel, on the terms and conditions set forth hereinbelow. (b) The purchase price shall be $2,000,000 cash, payable in full at closing. (c) Closing shall occur at such time as the contingencies set forth in Section 2(b) hereof have been satisfied, but in no case later than July 31, 1995; provided, however, if the closing has not occurred by July 31, 1995 due to the fact that the bonds described in Section 5 have not theretofore been defeased, then -3- the closing date may be extended for up to 90 additional days, and if the closing has not occurred by October 31, 1995, then either party hereto may terminate this DDA if the terminating party has not defaulted hereunder. Notwithstanding the foregoing, if the sole reason that the closing has not occurred is due to the fact that the lis pendens recorded on April 10, 1995, as Instrument No. 95-496676, Official Records, Los Angeles County (the "Lis Pendens") has not been expunged, then the closing date may be extended until such time as the Lis Pendens has been expunged as an exception to title; provided, however, if the Lis Pendens is not expunged as a title exception by April 30, 1996, then either party may thereafter terminate this Agreement. (d) In addition to other matters of title, as provided in Section 3 hereof, title shall be subject to the following matters: (i) Existing easements of access, support and for parking referred to hereinabove. (ii) The Grant Deed pursuant to which Redeveloper or its successor in interest takes title shall contain a deed covenant in favor of Agency and City obligating the grantee, its successors and assigns to continuously and uninterruptedly operate the Hotel, Card Club and Entertainment Center (except for necessary interruptions which shall not exceed six consecutive months). If any such use becomes unfeasible or is rendered illegal (other than as the result of voluntary action on the part of Redeveloper or a successor in interest), the parties shall negotiate in good faith to substitute appropriate uses for the Property. Said covenant shall become ineffective from and after the date that is fifty years after the Rent Commencement Date (as defined below). (iii) A deed of trust (the "deed of trust"), in favor of Agency securing Redeveloper's performance under the Lease hereinafter provided for, shall be recorded at closing; provided, however, that the foreclosure of such deed of trust shall not extinguish the Agency's obligation to deliver the sum set forth in Section 1(e) hereof upon the conditions set forth in Section 1(e). (e) Anything in Section 1(d)(iii) hereinabove or in the Lease to the contrary notwithstanding, if, for any reason other than the exercise by Redeveloper of the option to purchase the Leasehold Parcels, as provided herein, the Lease is terminated, including a voluntary termination under Section 4(c) hereof or a termination for breach on the part of Redeveloper or any successor to Redeveloper, Agency shall be obligated to pay to Redeveloper or to its successor in interest, the original $2,000,000.00 purchase price of the Convention Center Parcel, and Redeveloper shall be obligated to reconvey the Convention Center Parcel to Agency. The failure of Redeveloper to reconvey the Convention Center Parcel to Agency shall be deemed an event of default under the deed of trust referred to in Section 1(d)(iii) hereof. Such repurchase price shall be paid over such -4- period of time as shall be determined by binding negotiations of the parties during the 90 day period following the termination of the Lease. Upon the exercise of by Redeveloper of the option topurchase the Property which is subject to the Lease and the payment of the purchase price thereof, the provisions of this Section 1(e) shall be ineffective, and the deed of trust referred to in Section 1(d)(iii) shall be reconveyed. The effect of the covenants referred to in Section 1(d)(ii) and this Section 1(e) shall survive the transfer of title to the optioned property to Redeveloper or its permitted successor in interest. (f) The purchase price shall be paid in all cash through the close of escrow. Agency will pay the cost of a CLTA policy of title insurance, any documentary transfer tax, and one half of the escrow fees. Redeveloper will pay the cost of recording, the additional premium and any expenses (including survey costs) in the event Redeveloper desires to obtain an extended coverage policy of title insurance, and the other half of the escrow fees. In connection therewith, the parties shall execute normal and necessary escrow instructions and all documents reasonably called for thereunder, so long as such instructions and documents are not inconsistent herewith. 2. Lease of the Hotel and Other Parcels. ------------------------------------ (a) Agency hereby leases the Leasehold Parcels to Redeveloper, and Redeveloper leases the Leasehold Parcels from Agency (the "Lease"), for the term set forth in Section 8 hereof, subject to and on the terms and conditions set forth in this Lease. (b) Notwithstanding the foregoing, this Lease, including the parties' obligations hereunder, is subject to the satisfaction or waiver of each of the following conditions on or before the Effective Date (as hereinafter defined): (i) Agency's receipt of an opinion from bond counsel to be selected and approved by Agency that this transaction will not adversely affect the tax exempt status of any bonds or other obligations issued to finance the acquisition and/or construction of the Property or any part thereof (including any improvements thereon) to be leased or conveyed to Redeveloper. This condition is inserted for the sole benefit of Agency and may be waived or deferred by an instrument in writing signed by Agency. The parties shall use their best efforts to resolve any bond issues raised by such opinion letter; (ii) Redeveloper's execution and delivery of the deed of trust and other security instruments and a recordable Memorandum of Lease, in substantially the form approved by Agency and Redeveloper's title insurance company; (iii) The City of Compton's adoption of an amendment to the License providing that Hollywood Park, Inc., may be a licensee upon a change in state law allowing Hollywood Park, Inc., (or a joint -5- venture of Hollywood Park, Inc., and the Redeveloper) to hold such license, and subject to Hollywood Park, Inc. (or such joint venture) qualifying as a licensee pursuant to Subsections 9-10.1 through 9-10.10, and 9-10.13, of the Compton Municipal Code, and any other applicable provisions of the Compton Municipal Code; (iv) Agency's delivery to Redeveloper of Redeveloper's Policies of Title Insurance described in Section 6 hereof. This condition is inserted for the sole benefit ofRedeveloper and may be waived, in whole or in part, or deferred by Redeveloper by an instrument in writing signed by Redeveloper. If the foregoing conditions are not satisfied or waived by the time permitted for closing under Section 1(c) hereof, then this Lease may be terminated by either party on ten (10) days prior written notice to the other party, and this Lease shall thereafter be of no further force or effect. 3. Title and Survey. ---------------- (a) Within ten (10) business days following execution hereof, Agency shall deliver to Redeveloper a Preliminary Title Report issued by Old Republic Title Company. Redeveloper's fee interest in the Convention Center Parcel shall be insured by a standard form, CLTA Owners Policy of title insurance, and Redeveloper's leasehold interest in the balance of the Property shall be insured as of the Effective Date by a CLTA Policy of Leasehold Title Insurance (the "Leasehold Policy") to be purchased and paid for by Agency. The Policy shall insure Redeveloper's leasehold interest in the Leasehold Parcels free and clear of all liens, encumbrances, restrictions, and rights-of-way of record, subject only to the following permitted conditions of title ("Permitted Title Exceptions"): (i) Agency's fee interest in the Leasehold Parcels; -6- (ii) The applicable zoning, building and development regulations of any city, county, state or federal jurisdiction affecting the Property; and (iii) Those exceptions approved by Redeveloper by May 31, 1995. If Redeveloper unconditionally disapproves any exceptions, this DDA shall thereupon terminate and shall be of no further force or effect, unless the sole disapproved exception is the Lis Pendens, in which case this DDA shall terminate if the Lis Pendens is not expunged by April 30, 1996. If Redeveloper conditionally disapproves any exceptions, then Agency shall have ten (10) business days after receipt from Redeveloper of a written specification of the title exceptions to which Redeveloper is taking objection within which to either agree to remove the exceptions to which objection was taken or to notify Redeveloper that it is unwilling or unable to do so. In the event that Agency gives notice that it is unwilling or unable to remove any exception to which objection was taken, then Redeveloper shall have ten (10) business days within which to give notice that either (A) it will accept title subject to the exceptions as to which the Agency is unwilling or unable to remove, or (B) to terminate this DDA forthwith, in which instance each of the parties shall be relieved of all further liability hereunder, provided that no such termination shall affect the License for the Card Club or any liability of Redeveloper to City in connection therewith. The failure of Agency to give notice as provided hereinabove within the ten (10) day period shall be deemed to be a notice that it is unwilling or unable to cure the title exceptions to which Redeveloper took exception, and the failure of Redeveloper to give notice within the subsequent ten (10) day period that it will either accept title subject to such matters or to terminate this DDA shall be deemed an election on the part of Redeveloper to terminate this DDA. If Agency gives notice that it intends to remove a title defect, it shall use its best efforts to complete such action within thirty (30) daysthereafter, but, in any case, Agency shall proceed diligently to cause such title exceptions to be removed. (iv) With respect to the Convention Center Parcel, those matters set forth in Section 1(d) hereof. (v) Should a title exception which Agency is unwilling or unable to cure and which Redeveloper is unwilling to accept apply only to one or more the Expansion Parcels, then Redeveloper may elect to defer or sever the affected parcel by giving written notice thereof to Agency. In the event that the affected parcel is severed therefrom, there shall be an equitable reduction in the rental and the option price pursuant to Section 30 hereof. In the event that the parcel is merely deferred, no such adjustments shall be made until such time as Redeveloper elects to sever the particular parcel or parcels and gives notice thereof as provided herein. -7- (b) Redeveloper has elected to obtain an ALTA Extended Coverage Title Insurance Policy for the Convention Center Parcel and the Leasehold Parcels. Redeveloper shall cause a licensed surveyor or civil engineer to conduct a survey of the Property, to prepare from the survey a legal description satisfactory to the title company insuring Redeveloper's title, and to prepare a plot plan showing the location of any streets, easements, and rights of way over or in favor of the Property, by June 7, 1995. Redeveloper shall approve or disapprove any survey by June 15, 1995. Any survey and any premiums for endorsements or extended coverage shall be paid by Redeveloper. 4. Term. ---- (a) Effective Date of Agreement. This Lease shall become effective --------------------------- (the "Effective Date") on the close of escrow on the purchase and sale of the Convention Center Parcel. If escrow has not closed by July 31, 1995, then (subject to the extensions of time for the reasons set forth in Subsection ) either party may terminate this Agreement. Redeveloper shall have the right, on five (5) days prior notice in writing, to enter into the entire Property (including both the Convention Center Parcel and the Leasehold Parcels) at any time prior to the Effective Date for the purposes of undertaking preconstruction inspection, testing and planning studies, and Redeveloper's obligation to indemnify Agency, pursuant to Section 17 hereof, shall commence on the date which is five (5) days after such notice is given (but the insurance obligations set forth in Section 17 shall not commence until the Effective Date). Redeveloper shall not commence any work of improvement or other construction prior to the Effective Date. -8- (b) Term of Lease. The term of this Lease (the "Term") shall commence ------------- on the Effective Date, and shall end on the date that is fifty (50) years after the Rent Commencement Date; unless sooner terminated as provided for herein. The Rent Commencement Date shall be the earlier of (i) the date that the Card Club or Hotel open for business or (ii) the date that is two (2) years after the Effective Date. Notwithstanding the foregoing, if the rehabilitation of the Hotel and Entertainment Center has not been completed by the date set forth in the Schedule of Performance, then the Agency shall have the right to terminate this Lease upon giving Redeveloper thirty (30) days written notice, and all rights of Redeveloper hereunder or in the Property (including the Initial Improvements (as defined below)) shall thereupon cease and shall be of no further force or effect,provided however, that within such thirty (30) day notice period, Redeveloper shall have the right to exercise its option to purchase the Property, as provided in Section 30 hereof. If the Card Club has not opened for business within 5 years after the Effective Date, or if the Redeveloper has not purchased the Property by the date that is 5 years after the Effective Date, then the Agency shall have the right to bring forth a substitute developer or operator for the Card Club, and in such event the Redeveloper shall negotiate in good faith with such party for either an operating agreement or a buy-out, on reasonable and fair terms, of the Redeveloper's interest in this DDA. For the purposes hereof, a "Lease Year" shall be the period commencing on the Rent Commencement Date or any anniversary thereof and ending on the day prior to the next anniversary of the Rent Commencement Date. (c) Redeveloper's Right to Terminate the Lease. Redeveloper shall ------------------------------------------ have the right, at any time either (i) prior to issuance of any building permits for the Property, or (ii) after issuance of the Certificate of Completion as described in Section 22 hereof, to terminate this DDA; provided, however, in the event of such termination, Redeveloper shall remain liable for any accrued obligations hereunder arising prior to the date of termination, and any rights of Agency which are intended to survive the termination of this Lease shall continue in full force and effect. Redeveloper shall provide 90 days prior written notice to Agency of any election to terminate this DDA. Redeveloper shall not have the right to terminate this DDA during the period (i) from and after issuance of any building permit for the Property and (ii) prior to the issuance of the Certificate of Completion. In the event of such termination, Redeveloper shall be released of any further obligation to pay rent (other than rent accrued prior to the date of termination). -9- (d) Personalty. Upon termination of the Lease for any reason other ---------- than the exercise by Redeveloper or its permitted successor in interest of the option to purchase the Property as provided herein, Redeveloper shall deliver possession of the Property (including both the Convention Center Parcel (subject to Section 1(e)) and the Leasehold Parcels) to Agency in a good and workable state of repair (ordinary wear and tear excepted), together with full inventories of furniture, fixtures and equipment of the type for which Redeveloper was entitled to Rent Reduction/Credit under Section 6 hereof, including all additions to or replacements of such items installed after the initial rehabilitation of the Property. 5. Rent. Redeveloper shall pay to Agency, without demand, prior ---- notice, deduction, or set-off (except as provided in Section 10 hereof) base rent ("Base Rent"), in the following sums: Lease Years 1 through 5 - $ 600,000 per year Lease Years 6 through 10 - $ 850,000 per year Lease Years 11 through 15 - $1,100,000 per year Lease Years 16 through 20 - $1,350,000 per year Lease Years 21 through 25 - $1,600,000 per year Lease Years 26 through 30 - $1,850,000 per year Lease Years 31 through 35 - $2,100,000 per year Lease Years 36 through 40 - $2,350,000 per year Lease Years 41 through 45 - $2,600,000 per year Lease Years 46 through the end of the Lease - $2,850,000 per year Base Rent shall be payable in advance on the first day of each Lease Year, in legal currency of the United States, commencing on the Rent Commencement Date. 6. Rent Reduction/Credit. Redeveloper shall receive a credit --------------------- against any Base Rent obligation of Redeveloper set forth in Section 10 in an amount equal to the actual verified costs of the Initial Improvements constructed or installed by Redeveloper for the Hotel and the Convention Center, including the actual verified costs of furnishing and equipping the Hotel and Entertainment Center pursuant to Section 18 hereof and Exhibit 4 hereto, such costs of construction, furnishings and equipage including but not limited to inventories of china, glassware and linens, ("Initial Improvement Costs") to be consistent with budgets prepared by Redeveloper and submitted to and approved by Agency, provided however that the cost of remedying defects, certified as latent defects by the City Engineer, which existed at the Effective Date and which Redeveloper would have included in the budgets had their existence been known at the Effective Date, shall be eligible for reimbursement even if not included in the approved budgets. For purposes hereof, the "Initial Improvements" are the improvements to the Hotel and Convention Center approved by Agency and provided pursuant to the Scope of Development, and the furniture, fixtures and equipment having a useful life of one year or more reasonably required to open the Hotel and Card Club for -10- business, where first approved by Agency and described in the Scope of Development, constructed or acquired prior to the earlier of (i) the issuance of the Certificate of Occupancy, or (ii) issuance of the Certificate of Completion, or (iii) the opening of the Hotel or Card Club for business. Except as specifically provided herein, no capital investment after the Initial Improvement Costs shall be eligible for such credit. Expendables, and other personalty having a useful life of one year or less, shall not be deemed to be part of the furniture, fixtures and equipment the cost of which is eligible for such credit, unless otherwise approved by Agency's Board of Directors. Redeveloper's allowable credit shall be on a dollar for dollar basis and shall be applied to the first Base Rent due hereunder. Any unused credit in any Lease Year shall be carried forward to the next ensuing Lease Year. Redeveloper shall not receive the credit against Base Rent unless and until (i) Redeveloper is entitled to receive a Certificate of Completion, and (ii) the Hotel and Entertainment Center (including the Card Club) are complete and free of mechanics' and materialmen's liens which concern an amount, in the aggregate, of $100,000.00 (or any such liens are released through counterbonding pursuant to California Civil Code Section 3143). No credit shall be available for costs incurred after the Hotel or Card Club receives a Certificate of Occupancy or opens for business unless the Agency's Board of Directors agrees to provide such additional credit. -11- 7. Additional Consideration. Compton Entertainment, Inc. ("CEI"), ------------------------ shall, as additional consideration, deliver to with Agency the sum of $1,000,000. Such additional consideration shall be delivered by CEI to Agency in ten installments as follows: The sum of $100,000 shall be paid on the first day of the third Lease Year, and the sum of $100,000 shall be paid by CEI to Agency on the first day of each subsequent Lease Year through the 12th Lease Year, for an aggregate maximum of $1,000,000.00. The payments of additional consideration provided for herein shall not be subject to the Rent Reduction/Credit provided for in Section 6 hereof, and shall remain the obligation of CEI and shall not become the obligation of any assignee of this DDA. 8. Taxes. ----- (a) Covenant to Pay Taxes. As additional rent, Redeveloper shall pay --------------------- directly to the appropriate taxing authorities all Taxes (as defined in Section 8(b)). All Taxes shall be paid at least 10 days before delinquency and before any fine, interest or penalty shall become due or be imposed by operation of law for their non-payment. Redeveloper shall furnish to Agency at least 10 days prior to the date when any Taxes would become delinquent receipts or other appropriate evidence establishing such payment. Notwithstanding the foregoing, so long as Redeveloper is fully operating the Card Club and the Hotel, Redeveloper shall not be obligated to pay or shall be entitled to receive a refund or rebate of that portion of any possessory interest taxes, or real property taxes relating to the Property, to the extent payable or allocable to Agency or City during the first ten (10) Lease Years of the Term. Provided, however, that if Redeveloper or Redeveloper's successor in interest has not obtained a State of California Gaming License for the Card Club within one year after the Effective Date, Redeveloper shall be obligated to pay the full possessory interest tax or real property tax (or any prorated portion thereof), and shall not be entitled to any rebate or refund thereof, until the date upon which the California Gaming License is obtained. -12- (b) Definition of Taxes. The term "Taxes" shall include all real ------------------- property taxes (including increases in real property taxes caused by reappraisals that are the result of changes in the ownership of Agency's interest), possessory interest taxes, personal property taxes, charges and assessments, (including but not limited to street improvement liens) which are levied, assessed upon or imposed by any governmental authority or political subdivision thereof during or with respect to any portion of the Term hereof with respect to the Property or any improvements, fixtures, equipment or other property of Redeveloper or Agency, real or personal, located on the Property or used in connection with the operation of the Project, and any tax which shall be levied or assessed in addition to or in lieu of such real or personal property taxes, and any license fees, taxes measured by or imposed upon rents, or other taxes or charges upon Agency's leasing of the Property or the receipt of rent hereunder. All assessments, taxes, fees, levies and charges imposed by governmental agencies for services such as fire protection, street, sidewalk and road maintenance, refuse removal and other public services generally provided without charge to owners or occupants prior to the adoption of Proposition 13 by the voters of the State of California in the June 1978 election, also shall be deemed included within the definition of "Taxes" for the purposes of this Lease. Provided, however, that the definition of "Taxes" shall not include (i) any taxes imposed by City (other than gaming tax) unless such taxes are of general application over the City as a whole, or (ii) any special assessments or special taxes hereafter adopted by City against the Property unless Redeveloper shall have been granted the right of a property owner to protest the inclusion of the Property in the Special District in question. (c) Proration of Redeveloper's Tax Liability. Redeveloper's liability ---------------------------------------- to pay Taxes shall be prorated on the basis of a 365-day year to account for any fractional portion of a fiscal tax year included in the Term at its commencement or expiration. 9. Use and Compliance with Laws. ---------------------------- (a) Redeveloper or an operator under contract to Redeveloper shall use and operate the Property solely for the following purposes: (i) the construction and operation of the Hotel in whole or in part. (ii) the construction and operation of the Card Club containing the maximum number of gaming tables permitted, subject to health and safety codes and marketing consideration, in order to maximize revenues. (iii) operation of one or more restaurants (the "Restaurants"). -13- (b) Redeveloper shall have the obligation to provide ancillary facilities which may include but need not be limited to a night club, a sports bar and other entertainment facilities. The parties recognize that public demand for such matters may vary from time to time as public tastes and technology change, and Redeveloper agrees to consult with Agency with respect to the installation, commencement and termination of operation, substitution and other modification or replacement of such ancillary facilities. Redeveloper covenants to and for the benefit of Agency that, subject to Section 32 hereof, Redeveloper shall continuously and uninterruptedly, throughout the Term of this Lease, operate the Hotel, in whole or in part, the Card Club and one or more Restaurants on the Property, following completion of the Initial Improvements constituting the Project, subject to temporary closures for repairs or remodeling which are reasonable in frequency and duration. Redeveloper shall diligently pursue obtaining the requisite permission from the State of California for operation of the Card Club. (c) At all times from and after opening for business, Redeveloper shall at all times during the Term hereof obtain, keep and maintain all licenses and permits required by state and local governmental authorities necessary to operate the Hotel and the Entertainment Center from the Property. Redeveloper hereby agrees to comply with all obligations under the Card Club License issued by the City of Compton, and Redeveloper's breach thereof or the termination thereof shall be a breach of this Lease. (d) Redeveloper shall at all times provide such security for operation of the Hotel and Entertainment Center as shall reasonably be required to provide all necessary protection for the customers, employees, guests, contractors and other invitees of the Entertainment Center. Redeveloper shall fully comply with the security requirements of the City of Compton Card Club Ordinance and with the Security Plan submitted to and approved by the City in connection with the issuance of the Card Club License. Neither Agency nor Agency's Executive Director shall have any duty or obligation to review, evaluate, or direct the security of the Hotel and Entertainment Center operation, it being the intent hereof that Redeveloper shall be solely responsible for providing all necessary security. Redeveloper shall indemnify, hold harmless and defend Agency and City against any and all loss, cost or obligation with respect to any claim that any injury to person or property arising out of or in connection with the operation of the Property was the result of or was aggravated by any lack of security or defect in the security plan or the implementation thereof,except for matters caused by the sole active negligence or to the extent of the wilful misconduct of Agency or City. -14- (e) Redeveloper shall, at Redeveloper's expense, comply promptly with all applicable statutes, ordinances, rules, regulations, orders, covenants, conditions, and restrictions of record, and requirements of any governmental authority or the local Insurance Services Office in effect during the Term hereof, regulating the Property, the improvements thereon, or Redeveloper's use of the Property. Redeveloper shall keep and maintain in full force and effect, and in good standing, all permits and licenses required from state and local governmental authorities for operation of the Hotel and Entertainment Center (including the Card Club), and termination of any permit or license shall be a material breach hereof. If the Insurance Services Office or any other similar body or any bureau, department or official of the state, county or city government or any other governmental authority having jurisdiction requires that any changes, modifications, replacements, alterations, or additional equipment necessary to life safety be made or supplied in or to any portion of the Property by reason of Redeveloper's use thereof, Redeveloper shall, at Redeveloper's cost and expense, make and supply such changes, modifications, replacements, alterations or additional equipment. Redeveloper shall not use nor permit the use of the Property in any manner that will tend to create waste or a nuisance. (f) At present, the Property conforms to the Redevelopment Plan. This Lease is conditioned upon, and Redeveloper shall at all times operate the Property, in conformity with the Redevelopment Plan. (g) Notwithstanding anything provided herein to the contrary, the parcels identified as Parcels 2, 3 and 4 of Parcel Map 10784, recorded in Book 112, Pages 96 and 97, of Parcel Maps, Official Records, Los Angeles County, California, Parcels 1 and 2 of Parcel Map 8669, recorded in Book 87, Page 9, of Parcel Maps, Official Records, Los Angeles County, California, and Parcels 2, 7, and 11 of Parcel Map 7899, recorded in Book 79, Page 47-49, of Parcel Maps, Official Records, shall be used by Redeveloper only for surface parking (unless redesignated at the request of Redeveloper and approved by the Agency), and Parcels 8 and 9 of Parcel Map No. 7899 shall be used by Redeveloper only for purposes of expansion of the Card Club and/or for a Casino pursuant to an approved plan of expansion, provided that such plan makes provision for, and Redeveloper in fact provides, not less than 14 gross acres of surface parking on the Property for the benefit of the Hotel and Entertainment Center and for no other purpose whatsoever. The Agency shall not unreasonably withhold consent to redesignation of the parcels for development of the expansion of the Card Club, and no fee shall be charged for such redesignation except as may be necessary to cover any of the Agency's reasonable expenses (including attorneys fees) in effectuating such redesignation. 10. Physical Condition of the Property. ---------------------------------- -15- (a) "As-Is" Condition. Except as provided herein below to its ----------------- contrary, Agency disclaims any and all covenants or warranties respecting the condition of the soil or subsoil or any other physical or environmental condition of the Property. Redeveloper is purchasing and leasing the entire Property in their "as-is" condition. Prior to the date set forth in the Schedule ofPerformance attached hereto as Exhibit 3 (the "Schedule of Performance"), Redeveloper may, at Redeveloper's expense, conduct examinations, soils tests or an environmental site assessment on the Property (in connection with which Redeveloper shall indemnify and hold Agency and the Property free and harmless from any and all costs, expenses, liabilities and charges resulting from Redeveloper's entry onto the Property). If the examination or soils tests reveal that the Property is not suitable (or cannot be made suitable at reasonable cost) for construction of the Initial Improvements thereon, Redeveloper may elect to cancel this DDA upon written notice to Agency given within ten (10) days after Redeveloper's receipt of the completed soils reports or environmental site assessments, but in any event such notice shall be delivered to Agency no later than June 15, 1995. Agency hereby assigns to Redeveloper any and all causes of action which it may have against prior developers, builders, contractors, subcontractors or suppliers of labor and/or materials to the Hotel Parcel and the Convention Center Parcel for design and construction defects, negligent construction or other causes of action of a similar nature resulting in damage to the Hotel Parcel and/or the Convention Center Parcel, it being understood that (i) all costs of any litigation (including attorneys' fees) shall be borne solely by Redeveloper and (ii) the proceeds from any recovery with respect to such litigation, after payment of the costs thereof (including attorneys' fees), shall be credited against the cost of the Initial Improvement Costs, thus reducing the Rent Reduction/Credit referred to in Section 6 hereof. (b) Environmental Conditions of Property Prior to Commencement of ------------------------------------------------------------- Lease. Agency shall be solely responsible for the costs of clean up or - ----- remediation of any deposit or discharge of Hazardous Materials on or from the Property which occurred prior to the Effective Date, and Agency shall indemnify, hold harmless and defend Redeveloper against any and all loss, cost or obligation with respect thereto (including attorneys fees and costs), provided, however, that Agency shall not be liable to Redeveloper for any consequential damages suffered by Redeveloper by reason of the existence of any Hazardous Waste on the Property which existed prior to the Effective Date and which could have reasonably been discovered by a competent environmental assessment of the Property. -16- (c) Environmental Condition of the Property During Lease Term. --------------------------------------------------------- Redeveloper shall indemnify, protect, defend and hold harmless Agency from and against any and all claims, liabilities, suits, losses, costs, expenses and damages, including but not limited to attorneys' fees and costs, arising out of any claim for loss or damage to any property, including the Property (including both the Convention Center Parcel and the Leasehold Parcels), injuries to or death of persons, or for the cost of cleaning up the Property, and removing hazardous or toxic substances, materials and waste therefrom, by reason of contamination or adverse effects on the environment, or by reason of any statutes, ordinances, orders, rules or regulations of any governmental entity or agency requiring the clean-up of the Property caused by or resulting from any hazardous material, substance or waste introduced to the Property during the Term of this Lease. The foregoing indemnity shall survive the expiration or termination of this Lease, and the close of escrow in the event of Redeveloper's exercise of the option to purchase the Leasehold Parcels set forth below. However, Redeveloper shall not be liable on account of this indemnity if, prior to the date set forth in the Schedule of Performance, Redeveloper elects to terminate this Lease on account of Redeveloper's disapproval of the condition of the Property as provided in Section 10(a) hereof. Moreover, upon the expiration of this Lease, if Redeveloper has not purchased theLeasehold Parcels, then Redeveloper shall not thereafter be liable on account of this indemnity as a result of hazardous or toxic substances, materials, or waste that were located on the Leasehold Parcels prior to the Effective Date, except to the extent such hazardous or toxic substances, materials, or waste were deposited on the Property prior to the Effective Date by Redeveloper or Redeveloper's agents, officers, employees, contractors, sublessees, or assignees. (d) Other Conditions of Property. Redeveloper, on behalf itself and ---------------------------- its successors, affiliates, partners, and assigns, hereby fully and entirely release and discharge the City (as a third party beneficiary hereof) and Agency (including the City's and Agency's servants, employees, agents, representatives, successors, descendants, heirs, executors, administrators, assigns, and attorneys), and of each of them alone, of and from any and all claims, causes of action, or demands, liabilities, damages, and losses, of whatever nature, anticipated or unanticipated, known or unknown, or in connection with, or in any way related to, the Property, or for the physical condition of the Property or any portion thereof, other than as provided hereinabove with respect to Hazardous Wastes. This release constitutes an explicit waiver by Redeveloper of each and all of the provisions of California Civil Code Section 1542, which states as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." -17- Redeveloper's Initials: _____________________________________________ Redeveloper hereby declares and represents that Redeveloper is effecting and executing this release of the City and Agency after having read all of this release and with full understanding of its meaning and effect and after having received full legal advice as to Redeveloper's rights from an attorney. 11. Construction by Redeveloper. --------------------------- (a) Approval of Financing. Within ninety (90) days after the --------------------- Effective Date, Redeveloper shall deliver to Agency, for Agency's approval, evidence of Redeveloper's construction and take-out financing for the Initial Improvement Costs for the Initial Improvements to be constructed or installed by Redeveloper on the Property pursuant to this Section 11 including any plan of self financing, which approval shall not be unreasonably withheld or delayed. In order to enable Agency to evaluate Redeveloper's financing, Redeveloper shall provide to Agency evidence of such financing including at a minimum Redeveloper's proforma and line-item budget, a copy of a binding commitment obtained by Redeveloper for a leasehold mortgage loan or loans financing, if applicable, (together with any equity capital contribution of Redeveloper) the hard and soft costs of constructing the Project, financial statements of Redeveloper and the lender, and other evidence satisfactory to Agency of sources of loans or capital, sufficient to demonstrate that Redeveloper has or will have adequate funds to cover all development and construction costs of the entire Project. The terms and conditions of such commitments, and the identity of the construction lender itself, shall be subject to Agency's approval, which approval shall not unreasonably be withheld, provided,however, that should the lender be a bank, savings and loan association, insurance company or other institutional lender, no approval of the identity of the lender or other source of funds shall be required. (b) Scope of Development. The Initial Improvements shall consist -------------------- of the matters described in the Scope of Development attached hereto as Exhibit 5. The Initial Improvements shall include high quality landscaping as approved by Agency pursuant to the terms hereof (including, but not limited to, the Conditions of Construction set forth in Exhibit 4). -18- (c) Construction Schedule. Redeveloper shall diligently comply --------------------- with all performance dates, including dates for submitting and obtaining approvals for plans and specifications, as set forth in the Schedule of Performance attached hereto as Exhibit 3 and incorporated herein by this reference (the "Schedule of Performance"). Redeveloper shall diligently seek approval of all plans and specifications, and permits, required to construct the improvements described in the Scope of Development. (d) Anti-discrimination During Construction. Redeveloper, for --------------------------------------- itself and its successors and assigns, agrees that it shall not discriminate against any employee or applicant for employment because of age, sex, marital status, race, handicap, color, religion, creed, ancestry, or national origin in the construction of the improvements constituting the Property. (e) Commencement of Construction. ---------------------------- (i) Redeveloper shall commence construction and installation of the Initial Improvements, notwithstanding any other Section of this Lease to the contrary (including but not limited to Section 32), within the time period set forth in the Schedule of Performance. (ii) When necessary for Redeveloper to commence construction of the Initial Improvements, Redeveloper may use, sell, demolish, remove, or otherwise dispose of any improvements existing on the Property at the commencement of the Term of this Lease. Agency shall receive no compensation for such improvements other than the performance of Redeveloper's covenants expressed in this Lease, provided, however, that the proceeds from such disposition shall be credited against the Initial Improvement Costs, for purposes of computing the Rent Reduction/Credit under Section 6 hereof. (iii) After commencement of construction, Redeveloper shall diligently prosecute such construction to completion. Such construction shall comply with the Conditions of Construction set forth in Exhibit 4 attached hereto and incorporated herein by this reference. All work shall be performed in a good and workmanlike manner, shall substantially comply with the plans and specifications submitted to and approved by Agency and shall comply with all applicable governmental licenses, permits, laws, ordinances and regulations. (iv) No materials, equipment, fixtures, carpets, appliances, or any other part of the Initial Improvements shall be purchased or installed under conditional salesagreements, leases, or under other arrangements wherein the right is reserved or accrues to anyone to remove or to repossess any such items. Agency may, in the exercise of its good faith -19- business judgment, permit certain specialized equipment to be leased for the Project but only with its prior written approval and, then, only upon Redeveloper's execution and delivery of an assignment of the lease to Agency, together with the original lease and the equipment lessor's written approval of such assignment, in form satisfactory to Agency. (f) Completion Of Construction. Construction of the Initial -------------------------- Improvements shall be completed and the Hotel and Entertainment Center (including the Card Club) ready for occupancy and open for business by the date set forth in the Schedule of Performance; provided that the time for completion shall be extended for as long as Redeveloper shall be prevented from completing the construction by delays beyond Redeveloper's reasonable control, including but not limited to flood, earthquake, fire, acts of God, war, epidemic and civil commotion; provided, further, however, Redeveloper's failure to complete construction and equipage of the Card Club and Hotel and to open the Hotel for business within one year after Effective Date (subject to the term of any reasonable delay caused by force majeure) shall, at Agency's election, trigger Agency's right to terminate the Lease as provided herein; however, if this Lease is so terminated, then Redeveloper shall be released from liability for rent under this Lease accruing thereafter. (g) Minor Field Changes. The parties acknowledge that it is ------------------- common practice in the construction industry to make minor changes during the course of construction without substantially altering the plans and specifications previously approved by Agency. On completion of the work, Redeveloper shall give Agency notice of all changes in plans and specifications made during the course of the work and shall, at the same time, supply Agency with "as built" drawings accurately reflecting all such changes. -20- (h) Easements, Zoning and Other Restrictions. ---------------------------------------- (i) Easements and Dedications. In order to provide for the ------------------------- more orderly development of the Property, it may be necessary that street, water, sewer, drainage, gas, power line and other easements and dedications, and similar rights be granted or dedicated over or within portions of the Property. Agency shall, upon request of Redeveloper, join with Redeveloper in executing and delivering such documents as may reasonably be necessary for the purpose of granting such easements and dedications. (ii) Zoning. If necessary or appropriate to the Project, ------ Agency agrees, from time to time upon request of Redeveloper, to execute such documents, petitions, applications and authorizations as may reasonably be appropriate or required for the purposes of obtaining conditional use permits, zoning and rezoning, tentative and final map approval, precise plan approval, and similar government approvals with respect to the Property or any part thereof. This paragraph shall apply to Agency solely in its capacity as owner of the Property and shall not in any way restrict or bind Agency acting in its governmental capacity. (iii) Street Vacation. If requested by Redeveloper and if --------------- consistent with the approved plan of development, Agency will apply for vacation of internal streets within the Property, provided that such vacation does not result in the creation of land locked parcels. (iv) Expenses. In each of the foregoing instances, Agency -------- shall be without expense therefor. Redeveloper shall pay all costs and expenses thereof (including reimbursement of normal application and processing fees and other normal and necessary out-of-pocket costs) incurred by Agency. -21- (i) Ownership of Improvements. The Initial Improvements on the ------------------------- Property constructed or installed by Redeveloper shall be owned by Redeveloper until the expiration or sooner termination of the Term of this Lease; provided, however, if Redeveloper exercises the option described in Section 30 hereof and purchases the Property, then Redeveloper shall retain ownership of the Initial Improvements (in addition to all other Improvements, furniture, fixtures, and equipment) on the Property notwithstanding the termination of this Lease. Redeveloper shall not, however, remove any improvements from the Property (without Agency's prior written consent), nor waste, destroy or modify any improvements on the Property, except as permitted by this Lease. Anything in this Section 11(i) to the contrary notwithstanding, Redeveloper shall have the right to demolish or remove existing improvements on the Property if necessary or appropriate to permit development of the Property in accordance with the approved plans. The parties covenant and agree for themselves and all persons claiming under them that the improvements are real property. Upon expiration or sooner termination of the Term of this Lease (other than by reason of Redeveloper's exercise of its option to purchase under Section 30 hereof), all improvements on the Property, and all furniture, fixtures and equipment used by Redeveloper in operating the Property (including operation of the Hotel and Entertainment Center) shall, without additional compensation to Redeveloper, thereupon become Agency's property free and clear of all claims and encumbrances to or against them by Redeveloper or any third person, unless within ninety (90) days after such expiration or termination Agency requires that all or certain improvements or property be removed by Redeveloper at Redeveloper's expense or Redeveloper exercises the option described in Section 30 hereof and purchases the Leasehold Parcels. 12. Certificate of Completion. ------------------------- -22- (a) After completion of construction, development, and installation by Redeveloper of the Initial Improvements, Agency shall, promptly following written request by Redeveloper therefor, furnish Redeveloper with a Certificate of Completion, for such completed Initial Improvements. After issuance of a Certificate of Completion for such completed Initial Improvements, any party then owning or thereafter purchasing, leasing or otherwise acquiring any interest in the Project shall not (because of such ownership, purchase, lease or acquisition) incur any obligation or liability under this DDA as to such portion of the Project, except that such party shall be bound by any covenants, conditions or restrictions contained in this Lease, or other instruments executed in accordance with theprovisions of this Lease. Neither Agency nor any other person, after recordation of a Certificate of Completion, shall have any rights, remedies or controls that it would otherwise have or be entitled to exercise as a result a breach of Redeveloper's construction obligations under this Lease, except that said Certificate of Completion shall have no effect on any other separate instrument signed by Redeveloper in favor of the City or Agency, nor shall it have any effect on Redeveloper's obligations under the environmental warranties and other indemnities provided herein, nor shall it waive any obligations of Redeveloper included hereunder to survive issuance of a Certificate of Completion. (b) If Agency refuses or fails to furnish a Certificate of Completion after written request from Redeveloper, Agency shall, within thirty (30) days after the written request, provide Redeveloper with a written statement of the reasons Agency refused or failed to furnish such Certificate of Completion. The statement shall also contain Agency's opinion of the action Redeveloper must take to obtain such Certificate of Completion. If the reason for such refusal is confined to the immediate availability of specific items or material for landscaping, and the estimated cost of completion does not exceed $250,000.00 and the particular item or matter is not essential to the operation of the Property, then Agency will issue its Certificate of Completion upon the posting by Redeveloper with Agency of a bond or other collateral satisfactory to Agency in an amount equal to 125% of the reasonable cost of completing the work not yet completed, but the posting of such bond shall not excuse Redeveloper from obligation to complete the work, and Redeveloper shall not be entitled to any Rental Credit for such work until it has, in fact, been completed. -23- (c) Such Certificate of Completion shall not constitute evidence of compliance with or satisfaction of any obligation of Redeveloper to any holder of a mortgage, trust other than with respect to Redeveloper's right to claim the Rent Reduction/Credit for work actually completed. Such Certificate of Completion shall not be construed as a notice of completion as described in California Civil Code Section 3093. 13. Utilities and Services. Redeveloper shall make all ---------------------- arrangements for and pay for all utilities and services furnished to or used by it or its licensees or subtenants, including, without limitation, gas, electricity, water, telephone service, communications, cable television, and trash collection, and for all connection charges. 14. Maintenance. ----------- (a) Throughout the Term, Redeveloper shall, at Redeveloper's sole cost and expense, maintain the Property in safe and first class condition and repair (ordinary wear and tear excepted) and in accordance with (i) all applicable laws, rules, ordinances, orders and regulations of federal, state, county, municipal, and other governmental agencies and bodies having or claiming jurisdiction and all their respective departments, bureaus, and officials; (ii) the insurance underwriting board or Insurance Services Office having jurisdiction over the Property; and (iii) all insurance companies insuring all or any part of the Property. Agency shall not have any responsibility to maintain the Property whatsoever. (b) Except as provided in Section 25 hereof, Redeveloper shall promptly and diligently repair, restore, and replace as required to maintain or comply as above, or to remedy all damage to or destruction of all or any part of the Property. The completed work of maintenance, compliance, repair, restoration, or replacement shall be equal in value, quality and use to the condition of the Property before the event giving rise to the work. Agency's election to perform any obligation of Redeveloper under this section on Redeveloper's failure or refusal to do so shall not constitute a waiver of any right or remedy for Redeveloper's default, and Redeveloper shall promptly reimburse, defend and indemnify Agency against all liability, loss, cost and expense arising from such election. (c) Redeveloper waives the provisions of California Civil Code sections 1941 and 1942 with respect to Agency's obligations for tenantability of the Leasehold Parcels and Redeveloper's right to make repairs and deduct the expenses of such repairs from rent. -24- 15. Alterations. Redeveloper shall not make any alterations or ----------- additions to the Leasehold Parcels (other than interior, non-structural, non- systemic alterations costing not more than $250,000 in any one instance) without the prior written consent of Agency's executive director, which shall not be unreasonably withheld. In constructing alterations or additions that exceed the cost of $250,000, or which affect the exterior or structural portions or the systems of the Leasehold Parcels, Redeveloper shall comply with (a) the Conditions of Construction set forth in Exhibit 4 and (b) the provisions of Section 11 hereof. If Redeveloper makes any alterations to the Leasehold Parcels as provided in this Section, the alterations or additions shall not be commenced until 20 days after Agency's executive director has received written notice from Redeveloper stating the date the construction of the alterations or additions is to commence so that Agency's executive director, on behalf of Agency, can post and record an appropriate notice of nonresponsibility. The provisions of this Section 15 shall not apply to the construction or installation of the Initial Improvements. 16. Destruction. ----------- (a) Partial Destruction; Restoration by Redeveloper. If less than ----------------------------------------------- fifty percent (50%) of the floor area of the improvements on the Property are rendered unusable by a casualty during the Term of this Lease and the proceeds of the casualty insurance are sufficient to do so or, if Redeveloper has failed to maintain the full amount of casualty insurance required by Section 17(c) hereof, whether or not the proceeds of the insurance are sufficient, then Redeveloper shall restore the Improvements on the Property to substantially the same condition as they were in immediately before such damage or destruction, in accordance with the original plans and specifications (except for changes as may be required by changed building and safety codes). Such damage or destruction shall not terminate this Lease. In reconstructing the improvements, Redeveloper shall comply with (i) the Conditions of Construction set forth in Exhibit 4 and (ii) the provisions of Section 11. In the event that, notwithstanding the fact that Redeveloper has maintained the full amount of casualty insurance required, the insurance proceeds are not adequate to fund the restoration of the Property, then Redeveloper may terminate the Lease in the manner providedhereinbelow with respect to a destruction of more than 50% of the Property, as provided in Section 16(b) hereinbelow. -25- (b) Major Damage or Destruction; Redeveloper's Right to Terminate. ------------------------------------------------------------- If more than fifty percent (50%) of the floor area of the improvements on the Property are rendered unusable by a casualty during the Term of this Lease, then Redeveloper shall have the option of either repairing and reconstructing the Property or of terminating this Lease. If Redeveloper elects to repair and reconstruct, Redeveloper shall promptly do so and shall comply with (i) the Conditions of Construction set forth in Exhibit 4 and (ii) the provisions of Section 11. During the period of reconstruction, Redeveloper may continue to conduct business from the Property from temporary facilities such as a tent or temporary structures (subject to compliance with local building and safety codes or other applicable municipal codes). To exercise its right of termination, Redeveloper must comply with all of the following conditions: (i) Give Agency notice of termination within 30 days after the damage or destruction, specifying the date of termination which shall be not less than 60 days nor more than 120 days after the date such notice of termination is given; (ii) Prior to the termination date, cure any defaults on Redeveloper's part under this Lease; (iii) Continue to make all payments when due (including without limitation the prorated portion of any annual Base Rent becoming due after Redeveloper has given the notice of termination but prior to the date of termination), if any, as required by the provisions of this Lease until the date of termination, if Redeveloper continues to use the Property after the casualty but prior to the date of termination; (iv) Prior to the termination date, pay in full any outstanding indebtedness incurred by Redeveloper and secured by an encumbrance or encumbrances on the Property or any part thereof or an interest therein, or alternatively, deliver to Agency the written consent of the holders of all such encumbrances to the early termination of this Lease and extinguishment of their liens; (v) Prior to the termination date, cause to be discharged all liens and encumbrances encumbering the Property or Redeveloper's interest in the Leasehold Parcels resulting from any act or omission of Redeveloper; (vi) On or before the termination date, deliver possession of the Property to Agency, quitclaim all right, title and interest in the Property to Agency and cease to do business on the Property, and vacate the Property; -26- (vii) Prior to the termination date, effectively relinquish, assign, and deliver to Agency Agency's share of insurance proceeds resulting from the casualty as provided in subparagraph (d) below. In the event of any such termination, any Base Rent paid in advance for such Lease Year, if any, shall be pro-rated through the date the Lease is terminated. If Redeveloper does not either (i) terminate the Lease as provided herein, or (ii) restore the Property in a timely fashion, then the Redeveloper shall be in breach hereof. (c) No Abatement or Reduction of Rent. In case of any damage or --------------------------------- destruction where this Lease is not terminated, there shall be no abatement or reduction of rent except to the extent such rent is paid through a rental continuation policy or rider. (d) Insurance Proceeds. ------------------ (i) If Redeveloper is obligated or elects to restore the Property pursuant to this Section, the proceeds of any insurance maintained under this Lease or pursuant to the deed of trust (other than rental continuation insurance) shall be made available to Redeveloper for payment of costs and expenses of repair. If the insurance proceeds are insufficient to cover the cost of repair, then Redeveloper shall deposit the amount of the deficiency with Agency or shall otherwise provide assurances to Agency's reasonable satisfaction that such funds are and will be available, and such funds shall be disbursed by Redeveloper first, and the balance of the construction costs shall be disbursed from the insurance proceeds by Agency. (ii) In the event that the Lease is terminated by reason of the destruction of all or some part of the improvements on the Property, then the casualty insurance proceeds shall be divided between Agency and Redeveloper as follows: (A) Redeveloper shall receive the portion of the casualty insurance proceeds which bears the same relationship to the total casualty insurance proceeds as the value of the Initial Improvements not amortized through the Rent Reduction/Credit bears to the value of all of the improvements on the Property, both measured prior to the casualty loss. -27- (B) Any proceeds of fire and extended coverage insurance attributable to improvements on the Expansion Parcel, or any improvements that were purchased by Redeveloper, and that were constructed by Redeveloper at Redeveloper's cost and expense shall be retained by Redeveloper, except and to the extent of the credit, if any, given to Redeveloper by Agency on account of such improvements. (C) Agency shall receive the balance of the casualty insurance proceeds. Anything herein to the contrary notwithstanding, Agency alone shall be entitled to any rent continuation insurance proceeds. In the event that Redeveloper exercises its option to purchase under Section 30 hereof and, in fact, consummates such purchase, Redeveloper shall be entitled to all of the casualty insurance proceeds. (e) Lease to Govern Redeveloper's Rights. Redeveloper waives the ------------------------------------ provisions of Civil Code (S)1932(2) and Civil Code (S)1933(4), or any successor statutes, with respect to any destruction of the Leasehold Parcels, and agrees that Redeveloper's rights in case of destruction shall be governed solely by the provisions of this Lease. The provisions of this Lease shall also govern the Redeveloper's obligations with respect to insurance and restoration of casualty losses under the deed of trust. 17. Insurance and Indemnity. ----------------------- (a) Liability Insurance. ------------------- -28- (i) Redeveloper shall procure at its sole cost and expense, and keep in effect from the date of this Lease and at all times until the end of the Term, Commercial General Public Liability Insurance applying to the use and occupancy of the Property, or any part thereof, and the business operated by Redeveloper, its sublessees, licensees, employees, agents, or any other occupant, on the Property. Such insurance shall include Broad Form Contractual liability insurance coverage insuring all of Redeveloper's indemnity obligations under this Lease. Such coverage shall have a minimum combined single limit of liability or the equivalent thereof of at least Five Million Dollars ($5,000,000). Redeveloper's public liability insurance shall include dram shop liability insurance or liquor liability insurance. All of Redeveloper's public liability insurance policies shall be written to apply to all bodily injury, property damage, personal injury and other covered loss, however occasioned, occurring during the policy term, shall be endorsed to provide that such coverage shall be primary and that any insurance maintained by Agency shall be excess insurance only. Such coverage shall also contain endorsements: (i) deleting any employee exclusion on personal injury coverage; (ii) deleting any liquor liability exclusion; and (iii) providing for coverage of employer's automobile non-ownership liability. All such insurance shall provide for severability of interests or a cross-liability endorsement; shall provide that an act or omission of one of the named insureds shall not reduce or avoid coverage to the other named insureds; and shall afford coverage for all claims based on acts, omissions, injury and damage, which claims occurred or arose (or the onset of which occurred or arose) in whole or in part during the policy period. The policy shall be endorsed to waive the insurer's rights of subrogation against Agency. (b) Workers' Compensation Insurance. Redeveloper shall also ------------------------------- maintain Workers' Compensation insurance in accordance with California law, and an employer's liability insurance endorsement with customary limits. The policy shall be endorsed with a waiver of subrogation clause for Agency and the City and their members, council members, officers, employees, and agents. (c) Property Insurance. ------------------ -29- (i) Redeveloper shall at Redeveloper's expense obtain and keep in force during the Term of this Lease a policy of Broad Form (fire and extended coverage) insurance covering loss or damage to the Property (including the Improvements), and all furniture, fixtures, equipment, and other personal property of Redeveloper, in the amount of the Full Replacement Cost Value thereof, as the same may exist from time to time, against all perils included within the classification of fire, extended coverage, builder's risk, vandalism, malicious mischief, and special extended perils ("Special Form," as that term is known in the insurance industry). Agency and Redeveloper shall be named as the loss payees on such policy, and any such coverage for the Convention Center Parcel shall include a Lender's Loss Payable endorsement in favor of Agency, but Agency's rights shall be subject to the provisions of this Lease. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $100,000 per occurrence, and Redeveloper shall be liable for such deductible amount. Redeveloper shall, in addition, obtain and keep in force during the Term of this Lease a policy of rental interruption insurance covering a period of one year, with loss payable to Agency, which insurance shall also cover all Base Rent, Taxes and insurance premiums for said period. (ii) The "Full Replacement Cost Value" of the property to be insured under this Section shall be determined by Redeveloper subject to Redeveloper's exercise of its reasonable discretion. Not more frequently than once every three (3) years, either party shall have the right to notify the other party that it elects to have the Full Replacement Cost Value redetermined by an independent party. The determination and redeterminations shall be made promptly and in accordance with the rules and practices of the Insurance Services Office, or a like board recognized and generally accepted in the industry, and each party shall be promptly notified of the results by the party making the determination. The insurance policy shall be adjusted according to the redetermination. (d) Insurance Policies. ------------------ (i) Not more frequently than once every three (3) years, if in the reasonable opinion of Agency the amount or type of any insurance at that time is not adequate, Redeveloper shall either acquire or increase the insurance coverage as reasonably required by Agency. -30- (ii) All insurance required under this Lease shall be issued by companies having a Best's rating of B++vi or better and otherwise reasonably satisfactory to Agency. Redeveloper shall deliver to Agency copies of policies of such insurance or certificates evidencing the existence and amounts of such insurance with loss payable clauses as required by this Section 28. No such policy shall be cancelable or subject to reduction of coverage or other modification except after thirty (30) days' prior written notice to Agency. Redeveloper shall, at least thirty (30) days prior to the expiration of such policies, furnish Agency with renewals or "binders" thereof. Redeveloper shall not do or permit to be done anything which shall invalidate the insurance policies referred to in this Section 28. All policies of insurance shall name Agency and the City and their members, council members, officers, employees and agents, and any additional parties designated by Agency, as additional insureds (except to the extent Agency is the loss payee or a Lenders Loss Payable endorsee). (iii) Redeveloper shall not use the Property in any manner, even if the use is for the purposes permitted herein, that will result in the cancellation of any insurance required under this Lease. Redeveloper further agrees not to keep on the Property or permit to be kept, used, or sold thereon, anything prohibited by any fire or other insurance policy covering the Property. (iv) If Redeveloper shall fail to obtain any insurance required under this Lease, Agency may, at its election, obtain such insurance and Redeveloper shall, as additional rent, reimburse Agency for the cost thereof plus a handling charge equal to Agency's costs in obtaining such insurance including but not limited to staff salaries and overhead, within five (5) days following demand therefor. If Redeveloper fails or refuses to maintain insurance as required hereunder, or fails to provide the proof of insurance, or fails to reimburse Agency for all costs of insurance including the handling charges, Agency shall have the right to declare this Lease in default without further notice to Redeveloper, and Agency shall be entitled to exercise all legal remedies for breach of this Lease. (v) All insurance required to be provided hereunder is in addition to, and not in lieu of, the indemnity provisions of Sections 17(f) and 17(g) hereof. The procuring of such required policies of insurance shall not be construed to limit Redeveloper's liability hereunder, nor to fulfill the indemnification provisions and requirements of this Lease. -31- (vi) Redeveloper shall maintain the insurance described herein from and after the earlier of (A) the close of escrow for the Convention Center Parcel or (B) the date Redeveloper accepts possession of any Parcel, through and until the expiration or sooner termination hereof. (e) Waiver of Subrogation. Redeveloper and Agency each hereby --------------------- release and relieve each other and the City, and waive their entire right of recovery against the other and the City for loss or damage arising out of or incident to the perils insured against under Section 17(c), which perils occur in, on or about the Property, whether due to the negligence of Agency, the City or Redeveloper or their agents, employees, contractors and/or invitees. Redeveloper shall, upon obtaining the policies of insurance required hereunder, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease and obtain the insurance carrier's consent thereto. -32- (f) Indemnity. Redeveloper shall indemnify, defend, protect, and --------- hold harmless Agency and the City (and Agency's and the City's members, employees, agents and contractors) from and against any and all claims, losses, proceedings, damages, causes of action, liability, costs and expenses (including reasonable attorneys' fees), arising from or inconnection with, or caused by (i) any act, omission or negligence of Redeveloper or any sublessee of Redeveloper, or their respective contractors, licensees, invitees, agents, servants or employees, wheresoever on or adjacent to the Property the same may occur; (ii) any use of the Property, or any accident, injury, death or damage to any person or property occurring in, on or about the Property, or any part thereof, or from the conduct of Redeveloper's business or from any activity, work or thing done, permitted or suffered by Redeveloper or its sublessees, contractors, employees, or invitees, in or about the Property (other than to the extent arising as a result of Agency's or the City's sole active negligence or to the extent of any wilful misconduct of the Agency or the City, but excluding any matter with respect to which Agency or City has or enjoys the benefit of sovereign immunity); and (iii) any breach or default in the performance of any obligations on Redeveloper's part to be performed under the terms of this Lease, or arising from any negligence of Redeveloper, or any such claim or any action or proceeding brought thereon; and in case any action or proceeding be brought against Agency or the City (or Agency's or the City's agents, members, employees, agents and contractors) by reason of any such claim, Redeveloper upon notice from Agency shall defend the same at Redeveloper's expense by counsel satisfactory to Agency. Redeveloper, as a material part of the consideration to Agency, hereby assumes all risk of damage to property or injury to persons in, upon or about the Property arising from any cause other than Agency's gross negligence or intentional acts, and Redeveloper hereby waives all claims in respect thereof against Agency. These provisions are in addition to, and not in lieu of, the insurance required under this Section 17. Agency shall indemnify, defend, protect, and hold harmless Redeveloper from and against any and all claims, losses, proceedings, damages, causes of action, liability, costs and expenses (including attorneys' fees), arising from or in connection with, or caused by (i) any matter arising prior to the Effective Date (except when arising as a result of any inspection, investigation, entry or other activity of Redeveloper on the Property), or (ii) any litigation arising as the result of or in connection with a purported prior sale of the Property. -33- (g) Exemption of Agency from Liability. Except as provided to the ---------------------------------- contrary in Section 10(b) hereof, Redeveloper hereby assumes all risks and liabilities of a landowner in the possession, use or operation of the Property. Redeveloper hereby agrees that, Agency shall not be liable for injury to Redeveloper's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Redeveloper, Redeveloper's employees, invitees, customers, contractors, workers, or any other person in or about the Property, including any liability arising from the physical condition of the Property or the presence of any hazardous or toxic materials or substances on the Property, nor shall Agency be liable for injury to the person of Redeveloper, Redeveloper's employees, agents or contractors, whether such damage or injury is caused by or results from hazardous or toxic materials or substances, fire, steam, electricity, gas, water, or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said damage or injury results from conditions arising upon the Property or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Redeveloper. 18. Condemnation. ------------ (a) Definitions. ----------- (i) "Condemnation" means (A) the exercise of any governmental power, whether by legal proceedings or otherwise, by a Condemnor and (B) a voluntary sale or transfer by Agency to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending. (ii) "Date of Taking" means the date the Condemnor has the right to possession of the property being condemned. (iii) "Award" means all compensation, sums, or anything of value awarded, paid, or received on a total or partial condemnation. (iv) "Condemnor" means any public or quasi-public authority, or private corporation or individual, having the power of condemnation or eminent domain. -34- (b) Rights and Obligations Governed by Lease. If during the Term ---------------------------------------- there is any taking of all or any part of the Property (including the Convention Center Parcel) or any interest in this Lease by Condemnation, the rights and obligations of the parties shall be determined pursuant to this Section. Each party waives the provisions of California Code of Civil Procedure Section 1265.130 allowing either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the Property. (c) Total Taking. If the Property is totally taken by Condemnation, ------------ this Lease shall terminate on the Date of Taking. In the event of any such termination, any Base Rent paid in advance shall be pro-rated through the date the Lease is terminated. (d) Partial Taking. If any portion less than all of the Property is -------------- taken by Condemnation, this Lease shall remain in effect, except that Redeveloper can elect to terminate this Lease if the portion of the Property not so taken cannot be so repaired or reconstructed, taking into consideration the amount of the award available for repair, so as to be suitable for Redeveloper's continued use of the Property for the same use as the Property is being used immediately prior to the taking and the remaining premises would not be economically feasibly usable by Redeveloper. If Redeveloper elects to terminate this Lease, Redeveloper must exercise its right to terminate by giving notice to Agency within 90 days after the nature and the extent of the taking have been finally determined. If Redeveloper elects to terminate this Lease, Redeveloper also shall notify Agency of the date of termination, which date shall not be later than 180 days after Redeveloper has notified Agency of its election to terminate; except that this Lease shall terminate on the Date of Taking if the Date of Taking falls on a date before the date of termination as designated by Redeveloper. If Redeveloper does not terminate this Lease within the ninety-day period, this Lease shall continue in full force and effect. (e) Restoration of Property. If there is a partial taking of the ----------------------- Property and this Lease remains in full force and effect and pursuant to Section 18(d), Redeveloper shall accomplish all necessary restoration. -35- (f) Temporary Taking. On any taking of the temporary use of all or ---------------- any part or parts of the Property for a period, or of any estate less than a fee, ending on or before the expiration date of the Term, the Term shall not be reduced, extended, or affected in any way, and Redeveloper shall be entitled to any Award for the use or estate taken. If a result of the taking is to necessitate expenditures for changes, repairs, alterations, modifications, or reconstruction of the improvements, Redeveloper shall accomplish all necessary changes, repairs, alterations, modifications, or reconstruction of the improvements at Redeveloper's sole cost and expense in accordance with Section 11 hereof. If any such taking is for a period extending beyond the expiration date of the Term, the taking shall be treated under the foregoing provisions for total and partial takings, depending upon whether the temporary taking is of all or only a part of the Property. (g) Effect on Rent. If any portion of the Property is taken by -------------- Condemnation and this Lease remains in full force and effect, there shall be no effect on or reduction of the Base Rent or other rent payable hereunder unless such Condemnation materially affects Redeveloper's ability to conduct business from the Property, in which case Base Rent shall be adjusted in a reasonable proportion reflecting the impact on Redeveloper's business by such Condemnation. -36- (h) Application of Award. Any award for any entire taking shall be -------------------- apportioned between Agency and Redeveloper as their interests may appear. In the event of a partial taking, any part of the award attributable to improvements shall be divided between the parties in the manner provided in Section 16(d)(ii) hereof, and, in consideration of the abatement of rent, any part of the award attributable to land shall be paid to Agency; provided, however, that nothing contained herein shall be deemed to give Agency any interest in or require Redeveloper to assign to Agency any award made to Redeveloper for the unamortized value of any improvements or furniture, fixtures, or equipment or other personal property on the Property constructed or provided by Redeveloper at Redeveloper's sole cost and expense in accordance with this Lease (amortized on a straight line basis over the period in which the cost of such improvements or furniture, fixtures or equipment or personal property are credited to Base Rent), taking of personal property and fixtures belonging to Redeveloper and removable by Redeveloper at the expiration of the Term hereof (except to the extent Redeveloper has received a rent credit therefor), as provided hereunder, or for the interruption of, or damage to, Redeveloper's business or for relocation expenses recoverable against the condemning authority, or in the event of a partial taking, the cost of restoring the Property to a usable condition. Anything herein to the contrary notwithstanding, in the event of a termination of the Lease by reason of any such taking, Agency shall be relieved of any obligation to repay to Redeveloper the initial purchase price of the Convention Center Parcel, it being understood and agreed by the parties that Redeveloper's rights shall be limited to the allocation of the award or settlement in lieu thereof. (i) Waiver of Right to Take By Eminent Domain. Agency hereby waives ----------------------------------------- its right to acquire the Property or any material part thereof by exercise of the power of eminent domain, for the five year period from and after the Effective Date, and any time after the opening of the Card Club for business. 19. Assignment, Subletting and Encumbering. -------------------------------------- -37- (a) Prohibition Against Voluntary Assignment, Subletting, and --------------------------------------------------------- Encumbering. Except as provided in this Section to the contrary, Redeveloper ----------- shall not, without Agency's prior written consent, voluntarily assign or encumber Redeveloper's interest in this Lease or in the Leasehold Parcels, or sublease substantially all or any part of the Leasehold Parcels, or allow any other person or entity (except Redeveloper's authorized representatives) to occupy or use all or any part of the Property. For the purposes hereof, an "encumbrance" shall mean mortgage, deed of trust, land sale contract, lease or other financing device. Any attempted assignment, encumbrance, or sublease shall be voidable by Agency and, at Agency's election, shall constitute a default hereunder. No consent to any assignment, encumbrance, or sublease shall constitute a further waiver of the provisions of this Section. Any sale or transfer of the Convention Center Parcel other than as permitted hereunder shall void the Agency's obligation to repurchase the Convention Center Parcel upon termination of the Lease but not its right to do so at its option. (b) Special Exceptions. Anything in Section 19(a) to the contrary ------------------ notwithstanding, Agency hereby acknowledges that: (i) Redeveloper intends, immediately upon the commencement of the Term of the Lease, to convey the Convention Center Parcel and assign this Lease to Hollywood Park, Inc., and Hollywood Park, Inc., intends to let the operation of the Card Club to Compton Entertainment Inc., or a third party. Subject to Hollywood Park, Inc., assuming all obligations under this Lease, Agency hereby consents to said conveyance and assignment of this Lease and agrees that the original Redeveloper shall thereupon be relieved of all obligations hereunder other than those obligations which accrued prior to the date of the assignment, and other than those obligations specifically not assumed by Hollywood Park, Inc. (ii) At such time as Hollywood Park, Inc. qualifies to hold a gaming license, it intends to convey the Convention Center Parcel and assign this Lease to a joint venture composed of itself and CEI, and CEI intends to assign its rights under the lease of the Card Club and the City of Compton Gaming License to said joint venture. Provided that Hollywood Park, Inc., then holds a majority in interest in equity ownership and managerial control of the joint venture, Agency hereby consents to said conveyance and assignments. (iii) Nothing herein shall be deemed to waive Agency's rights under Section 19(a) with respect to any other or additional assignments or sublettings, whether of a similar or dissimilar nature. -38- (iv) The Agency shall not unreasonably withhold its consent to a sublease of the Hotel. No consent by the Agency to any sublease or assignment shall operate to release the Redeveloper or any assignee from any of obligations hereunder undertaken by Redeveloper or assumed by such assignee, except as provided in Section to the contrary. (c) Right to Sublease Restaurant, Bar, Night Club, and Parking Area. --------------------------------------------------------------- Notwithstanding the provisions of Section 19(a) hereof, Redeveloper shall have the right, without Agency's consent, to lease or sublease discrete portions of the Property, such as a restaurant, bar, nightclub, and parking areas, to an operator, provided that Redeveloper shall provide to Agency thirty (30) days prior written notice of the name of the sublessee and the name of the operator of the restaurant, bar or nightclub. Redeveloper shall not sublease or otherwise assign this DDA or the right to operate the Card Club area to any person or entity that has not qualified under Municipal Code 9-10 with respect to obtaining a license to operate a card club. (d) Corporate Reorganization. Any dissolution, merger, ------------------------ consolidation, or other reorganization of Redeveloper, or the sale or other transfer of a controlling percentage of the capital stock of Redeveloper, shall be deemed a voluntary assignment hereof. The phase "controlling percentage" means the ownership of, or the right to vote, stock possessing 50% or more of the total combined voting power of all classes of Redeveloper's capital stock issued, outstanding, and entitled to vote for the election of directors. As to any issuance or transfer of shares whatsoever, Redeveloper shall promptly notify the Agency of (i) the number of shares issued or transferred, (ii) the name of the recipient or transferee of such shares, and (iii) the number of all shares of Redeveloper then issued and outstanding, and the percentage of all shares so transferred or changed. In the event a corporation whose stock is publicly traded shall become a successor in interest to Redeveloper, then this preceding sentence shall apply only to a transfer of 5% more of the voting securities of such corporation. If Redeveloper changes to a partnership, the foregoing provisions shall similarly apply to partnership interests so transferred or created. (e) Encumbrance or Assignment as Security. ------------------------------------- -39- (i) Notwithstanding any other provision contained in this Lease, Redeveloper shall have the right to encumber or assign Redeveloper's interest in the Convention Center Parcel and in this Lease to any bank, savings and loan, insurance company, or other institutional lender for the purpose of financing the construction of the Initial Improvements or for purposes of expansion on the Property and for the purpose of providing a take-out loan (in a principal amount not to exceed the actual total cost of constructing such Initial Improvements or of constructing the expansion facilities), provided only that upon execution of such encumbrance (or any amendment, supplement or modification thereto) a true copy of such instrument and the obligation secured thereby be promptly delivered to Agency together with a written notice of the name and mailing address of the lender, the date and place of recording or filing of record thereof and recorder'sinstrument number, book and page reference or other recorder's index reference. Until such true copies and notice are delivered to Agency any such instrument shall have no force or effect whatsoever on the enforcement by Agency of any provisions of this Lease or any rights or remedies hereunder. During the existence of a permitted encumbrance and following delivery thereof there shall be no cancellation, surrender, acceptance of surrender or modification of this Lease except (i) by a written instrument executed by Agency, Redeveloper and the lender, (ii) by reason of Redeveloper's exercise of the option provided for in Section 30 hereof, or (iii) default under the Lease that is not timely cured by Redeveloper or the lender. Lessor's interest in this Lease shall at all times remain senior and superior to the lien of any deed of trust or mortgage securing any such loan, and any such deed of trust or mortgage shall be subject to Agency's right to reacquire the Convention Center Parcel upon termination of the Lease, as hereinbefore provided. (ii) All financing described in the preceding paragraph shall provide that Agency shall have the right but not the obligation to assume Redeveloper's financing for any improvement of the Property. Redeveloper shall cause the lender to execute all documentation necessary to facilitate this right. Agency's exercise of this right shall not constitute a waiver of any other right Agency may have against Redeveloper. 20. Default. ------- (a) Redeveloper's Default. The occurrence of any of the following --------------------- shall constitute a default by Redeveloper: -40- (i) Failure to pay rent or any other payment required to be made by Redeveloper hereunder as and when due and the continuation of such failure to pay rent for ten (10) days after delivery by Agency to Redeveloper of written of such failure (in which event a Notice to Pay Rent or Quit provided in accordance with Code of Civil Procedure Section 1161 (or any successor statute) shall constitute the notice required for this purpose). (ii) Failure to pay any Taxes which Redeveloper is obligated to pay, other than possessory interest taxes to be paid by Agency pursuant to Section 8(a) hereof, on a timely basis, or the failure to provide any insurance required hereunder, and the continuation of such failure for ten (10) days after delivery by Agency of written of such failure to Redeveloper (in which event a notice provided in accordance with Code of Civil Procedure Section 1161 (or any successor statute) shall constitute the notice required for this purpose). (iii) Abandonment or surrender of the Property or the leasehold estate by Redeveloper. (iv) Cessation in a material fashion of either the Hotel or Card Club business for thirty (30) consecutive days. As used herein, cessation of operation of the Hotel shall mean the failure to operate the main floor and at least one floor of guest rooms, including service to said rooms. Said thirty (30) day period shall be subject to Section 32 hereof and shall not include any reasonably necessary periods of closure for repair or remodeling. (v) Failure to comply timely with the obligations set forth in the Schedule of Performance attached hereto as Exhibit 3, and the continuation of such failure or the failure to commence performance and diligently pursue the same to completion for thirty (30) days after receipt of written notice thereof from Agency. (vi) Failure to perform any other covenant or provision of this Lease, if the failure to perform is not cured within thirty (30) days after written notice. If the failure to perform cannot reasonably be cured within thirty (30) days, Redeveloper shall not be in default of this Lease if Redeveloper commences to cure the failure to perform within the thirty (30) day period and thereafter diligently and in good faith prosecutes the cure to completion. (vii) The subjection of any right or interest to attachment, execution, or other levy, or to seizure under legal process, if not released within ninety (90) days after such levy. -41- (viii) An assignment by Redeveloper for the benefit of creditors or the filing of a voluntary or involuntary petition by or against Redeveloper under any law for the purpose of adjudicating Redeveloper a bankrupt; or for extending time for payment, adjustment, or satisfaction of Redeveloper's liabilities; or for reorganization, dissolution, or arrangement on account of or to prevent bankruptcy or insolvency; unless the assignment or proceeding, and all consequent orders, adjudications, custodies, and supervisions are dismissed, vacated, or otherwise permanently stayed or terminated within ninety (90) days after the assignment, filing, or other initial event. (ix) The appointment of a receiver, unless such receivership is terminated within ninety (90) days after the appointment of the receiver, to take possession of Redeveloper's interest in the Property or of Redeveloper's interest in the leasehold estate or of Redeveloper's operations on the Property for any reason, including but not limited to, assignment for benefit of creditors or voluntary or involuntary bankruptcy proceedings, but not including receivership (A) pursuant to a permitted first leasehold encumbrance, or (B) instituted by Agency, the event of default being not the appointment of a receiver at Agency's instance but the event justifying the receivership, or (C) commenced pursuant to any license dispute. (x) Failure to pay when due any license fee for the Card Club License as required by Section 9-10 of the Compton Municipal Code, or any additional sums set forth in the City's Resolution No. 17,087, as amended, and the continuation of such failure to pay such fee or sums for ten (10) days after delivery by the City of Compton or Agency to Redeveloper of written notice of such failure. -42- (xi) Termination, annulment, cancellation, revocation, repeal, or rescission of any of Redeveloper's licenses or permits to operate a Card Club from the Project, or any other failure of Redeveloper to keep in full force and effect any license or permit required to operate the Card Club from the Project, and the expiration of all appeals thereof or the expiration of the time period for applying for an appeal or other procedure to reinstate the license or permit pursuant to the terms of any applicable ordinances, statutes, or regulations and the entry of a fraud judgment, supporting such termination, punishment, cancellation, revocation, etc., of such licenses if judicially reviewed; provided, however, notwithstanding the foregoing, if the reason for the termination, annulment, cancellation, revocation, repeal, or rescission is Redeveloper's failure to pay any fees to the City of Compton or the State of California as and when due, then Redeveloper shall be in default hereunder if such fees are not paid within sixty (60) days after their due date. Anything herein to the contrary notwithstanding, in this event that the then Redeveloper is not also the operator of the Card Club, the Redeveloper shall have ninety (90) days within which to substitute an approved operator for the Card Club, provided that the Agency shall extend such period for a reasonable time upon a creditable showing that the reason for delay is a matter not within the control of Redeveloper or its successor in interest. (b) Security for Performance of Redeveloper's Duties. As additional ------------------------------------------------ collateral security for Redeveloper's performance of its obligations under this Lease, Redeveloper shall execute and deliver to Agency: (i) As provided in Section 1(d)(iii) hereof, a first deed of trust and fixture filing encumbering the Convention Center Parcel, all improvements thereon, and all rights attendant thereto. (ii) A security agreement and a Financing Statement (UCC 1) covering all furniture, fixtures and equipment and other personal property installed on or used in connection with the Convention Center Parcel and any and all replacements therefor or additions thereto. (iii) A security agreement and a Financing Statement (UCC 1) covering all furniture, fixtures and equipment and other personal property installed on or used in connection with the Leasehold Parcels and any and all replacements therefor or additions thereto. -43- Redeveloper, or its successors in interest, shall, at the request of Agency, execute any additional financing statements or continuation statements required to perfect and maintain the lien of such security agreements on the personalty so encumbered, including any replacements therefor or additions thereto, whether or not the filing period for any such continuation statement may have expired. (c) Remedies. -------- (i) Cumulative Nature of Remedies. If any default by Redeveloper ----------------------------- shall continue uncured, following notice of default as required by this Lease, for the period, if any, applicable to the default under the applicable provision of this Lease, Agency shall have the remedies described in this subsection (c) in addition to all other rights and remedies provided by the security instruments referred to in subsection (b) above or otherwise provided by law or equity, to which Agency may resort cumulatively or in the alternative. (ii) Termination for Breach. Agency may at Agency's election ---------------------- terminate this Lease for breach by giving Redeveloper written notice of termination. In the event Agency terminates this Lease, Agency may recover possession of the Property (which Redeveloper shall surrender and vacate upon demand) and remove all persons and property therefrom, and Agency shall be entitled to recover as damages all of the following: (A) The worth at the time of the award of any unpaid rent or other charges which have been earned at the time of termination; (B) The worth at the time of the award of the amount by which the unpaid rent and other charges which would have been earned after termination until the time of the award exceeds the amount of the loss of such rental or other charges that Redeveloper proves could have been reasonably avoided; (C) The worth at the time of the award of the amount by which the unpaid rent and other charges for the balance of the term after the time of the award exceeds the amount of the loss of such rental and other charges that Redeveloper proves could have been reasonably avoided; and (D) Any other amount necessary to compensate Agency for the detriment proximately caused by Redeveloper's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom. -44- As used in subsections (A) and (B) above, the "worth at the time of the award" shall be computed by allowing interest at the rate of 10 percent per annum. As used in subsection (C) above, the "worth at the time of the award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent. (iii) Continuation of the Lease. Even though Redeveloper has ------------------------- breached this Lease and abandoned the Property, at Agency's option this Lease shall continue in effect for so long as Agency does not terminate Redeveloper's right to possession, and Agency may enforce all of its rights and remedies hereunder, including the right to recover rent as it comes due under this Lease, and in such event Agency will permit Redeveloper to sublet the Property or to assign its interest in the Lease, or both, with the consent of Agency,which consent will not unreasonably be withheld provided the proposed assignee or sublessee is reasonably satisfactory to Agency as to credit and reputation and will occupy the Property for the same purposes specified herein. For purposes of this subsection, the following shall not constitute a termination of Redeveloper's right to possession: (i) acts of maintenance or preservation or efforts to relet the Property; or (ii) the appointment of a receiver under the initiative of Agency to protect Agency's interest under this Lease. (iv) Use of Redeveloper's Personal Property. In the event of -------------------------------------- termination of the Lease for breach, Agency may at Agency's election use Redeveloper's personal property and trade fixtures located on, about or appurtenant to the Property or any of such property and fixtures without compensation and without liability for use or damage, or store them for the account and at the cost of Redeveloper. The election of one remedy for any one item shall not foreclose an election of any other remedy for another item or for the same item at a later time. -45- (v) Assignment of Subrents. Redeveloper assigns to Agency all ---------------------- subrents and other sums falling due from tenants, subtenants, licensees, and concessionaires (herein collectively called "subtenants") during any period in which Agency has the right under this Lease, whether exercised or not, to reenter the Property for Redeveloper's default, and Redeveloper shall not have any right to such sums during that period. This assignment is subject and subordinate to any and all assignments of the same subrents and other sums to the lender under a permitted first leasehold encumbrance. Agency may at Agency's election upon the breach hereof by Redeveloper reenter the Property with or without process of law, without terminating this Lease, and either or both collect these sums or bring action for the recovery of the sums directly from such obligors. Agency shall receive and collect all subrents and proceeds from reletting, applying them: first, to the payment of reasonable expenses (including attorneys' fees or brokers' commissions or both) paid or incurred by or on behalf of Agency in recovering possession, placing the Property in good condition, and preparing or altering the Property for reletting; second, to the reasonable expense of securing new tenants or subtenants; third, to the fulfillment of Redeveloper's covenants to the end of the Term; and fourth, to Agency's uses and purposes. Redeveloper shall nevertheless pay to Agency on the due dates specified in this Lease the equivalent of all sums required of Redeveloper under this Lease, plus Agency's expenses, less the proceeds of the sums assigned and actually collected under this provision. (d) Late Charge. Redeveloper hereby acknowledges that late payment ----------- by Redeveloper to Agency of rent and other charges due under this Lease will cause Agency to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to processing and accounting charges, and late charges which may be imposed on Agency by the terms of any mortgage or trust deed covering the Property, or bond issues of Agency. Accordingly, if any installment of rent or any other charge due from Redeveloper is not received by Agency or Agency's designee within ten (10) days after such amount shall be due, then, at Agency's election and upon Agency's demand, Redeveloper shall pay to Agency a late charge equal to five percent (5%) of such overdue amount. The parties hereby agree that such late charge represents afair and reasonable estimate of the costs Agency will incur by reason of the late payment by Redeveloper. No late charge may be imposed more than once for the same late rental payment. Acceptance of such late charge by Agency shall in no event constitute a waiver of Redeveloper's default with respect to such overdue amount, nor prevent Agency from exercising any other rights and remedies granted to it hereunder. (e) Lender's Right to Cure Defaults. ------------------------------- -46- (i) Notice of Default. Concurrently with giving notice of default ----------------- to Redeveloper under Section 20(a), above, Agency shall deliver a copy of such notice of default to the lender under a permitted encumbrance at its address as furnished to Agency in accordance with Section 19(e). (ii) Lender's Right to Cure. During the continuance in effect of a ---------------------- permitted encumbrance, Agency will not terminate this Lease because of any default on the part of Redeveloper if the lender, within 30 days after Agency has sent a written notice pursuant to Section 20(a): (A) Cures such default, if the default can be cured by the payment of money, or, if the default is not curable by the payment of money, commences or causes the trustee under the encumbrance to commence, and thereafter diligently pursues to completion proceedings to foreclose the encumbrance; and (B) Keeps and performs all of the covenants and conditions of this Lease requiring the payment or expenditure of money by Redeveloper until such time as Redeveloper's leasehold interest is sold upon foreclosure pursuant to the encumbrance, or transferred by an assignment in lieu of foreclosure. (iii) Transfer by Lender. Notwithstanding the provisions of ------------------ Section 19(a) hereof restricting assignment of this Lease, this Lease may be assigned to the lender by judicial or non-judicial foreclosure or by assignment in lieu of foreclosure (without, however, releasing Redeveloper from any of its obligations hereunder) without further consent of Agency or any assumption agreement by the lender, the liability of the lender being limited to the period of its possession or ownership of this Lease. No other or further assignment shall be made except in accordance with the provisions of Section 19(a) of this Lease. (f) Waiver of Rights. Redeveloper hereby waives any right of ---------------- redemption or relief from forfeiture under California Code of Civil Procedure Sections 1174 or 1179, or under any other present or future law, in the event Redeveloper is evicted or Agency takes possession of the Property by reason of any default by Redeveloper hereunder. -47- (g) Agency's Default. Agency shall not be deemed to be in default ---------------- in the performance of any obligation required to be performed by it hereunder unless and until it has failed to perform such obligation within ninety (90) days after written notice by Redeveloper to Agency specifying wherein Agency has failed to perform such obligation; provided, however, that if the nature of Agency's obligation is such that more than ninety (90) days are required for its performance, then Agency shall not be deemed to be in default if it shall commence such performance within such ninety (90) day period and thereafter diligently and in good faith prosecute the cure to completion. 21. Agency's Entry on Property. Agency and its authorized -------------------------- representatives shall have the right to enter the Property at all reasonable times upon reasonable notice to Redeveloper for any of the following purposes: (a) To determine whether the Property is in good condition and whether Redeveloper is complying with its obligations under this Lease; (b) To do any necessary maintenance and to make any restoration to the Property that Agency has the right to perform; (c) To serve, post, or keep posted any legal notices required or allowed under the provisions of this Lease; (d) During the last two years of the Term hereof, to show the Property to prospective brokers, agents, buyers, lenders, or persons interested in an exchange, at any time during the Term. Agency shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance, or other damage arising out of Agency's entry on the Property as provided in this Section, except damage resulting from the acts or omissions of Agency or its authorized representatives. Redeveloper shall not be entitled to an abatement or reduction of rent if Agency exercises any rights reserved in this Section. Agency shall conduct its activities on the Property as allowed in this Section in a manner that reasonably attempts to minimize any inconvenience, annoyance, or disturbance to Redeveloper's construction or business operations. -48- 22. Notices. Any notice, demand, request, consent, approval or ------- communication that either party desires or is required to give to the other party shall be in writing and shall be given to the addresses set forth below, and shall be deemed delivered three days after deposit into the United States mail, postage prepaid, by registered or certified mail, return receipt requested. Unless notice of a different address has been given in accordance with this Section, all such notices shall be addressed as follows: If to Agency, to: Community Redevelopment Agency of the City of Compton 205 South Willowbrook Avenue Compton, California 90220 Attn: Executive Director With a copy to: Richards, Watson & Gershon 333 South Hope Street, 38th Floor Los Angeles, California 90071 Attn: William L. Strausz If to Redeveloper, to: Compton Entertainment, Inc. 15045 Salt Lake Avenue Industry, California 91746 Attn: President With a copy to: Mitchell, Silberberg & Knupp 11377 West Olympic Boulevard Los Angeles, California 90064 Attn: Jerry Neuman 23. Interest on Past-due Obligations. Any amount due to Agency -------------------------------- which not paid when due shall bear interest at the maximum rate then allowable to be charged by non-exempt lenders under the usury and other applicable laws of the State of California from the date due until paid. Payment of such interest shall not excuse or cure any default by Redeveloper under this Lease. 24. Attorneys' Fees. --------------- (a) If either party becomes a party to any litigation concerning this Lease or the Property, by reason of any act or omission of the other party or its authorized representatives, the other party shall be liable to such party for such party's actual attorney's fees and court costs incurred by it in the litigation. In the event of any litigation is undertaken against Agency concerning the validity of this DDA, Redeveloper shall indemnify, defend, and hold harmless Agency for all costs and expenses incurred by Agency on account of such litigation. Such defense shall be undertaken by legal counsel mutually selected by Agency and Redeveloper. Provided, however, -49- if Agency shall become a defendant to any lawsuit concerning the validity of this DDA, and Redeveloper informs Agency that it does not wish to indemnify, hold harmless and defend Agency, then Agency may immediately cancel and terminate this DDA without any liability to Redeveloper whatsoever, and Redeveloper shall be relieved of all liability hereunder other than liability for matters (other than the defense of such litigation) which arose prior to such termination. -50- (b) If either party commences an action against the other party arising out of or in connection with this Lease, the prevailing party shall be entitled to have and recover from the losing party reasonable attorneys' fees and costs of suit. 25. Estoppel Certificates. At any time and from time to time, --------------------- within thirty (30) days after notice of request by either party, the other party shall execute, acknowledge, and deliver to the requesting party, or to such other recipient as the notice shall direct, a statement certifying that this Lease is unmodified and in full force and effect; or, if there have been modifications, that it is in full force and effect as modified in the manner specified in the statement and acknowledging that there are no uncured defaults or failures to perform any covenant or provision of this Lease on the part of the requesting party or specifying any such defaults or failures which are claimed to exist. The statement shall also state the dates to which the rent and any other charges have been paid in advance. The statement shall be such that it can be relied on by any auditor, creditor, commercial banker, and investment banker of either party and by any prospective purchaser or the lender of the Property or all or any part or parts of Redeveloper's or Agency's interests under this Lease. Either party's failure to execute, acknowledge, and deliver, on request, the certified statement described above within the specified time shall constitute a breach of this Lease. 26. Surrender of Property. At the expiration or earlier --------------------- termination of the Term (other than by reason of the exercise of the option set forth in Section 30 hereof), Redeveloper shall surrender to Agency the possession of the Property. Surrender or removal of improvements, fixtures and trade fixtures shall be as directed in the provisions of this Lease on ownership of improvements, fixtures and trade fixtures at expiration or termination. Except as provided in Section 25 hereof to the contrary, Redeveloper shall leave the surrendered property and any other property in good and broom clean condition. All personal property that Redeveloper is not required to surrender but that Redeveloper does abandon shall, at Agency's election, become Agency's property at the expiration or the sooner termination of this Lease. 27. Form of Nondiscrimination and Nonsegregation Clauses; Local ----------------------------------------------------------- Hiring and Affirmative Action. ----------------------------- (a) Redeveloper shall refrain from restricting the rental, sale or lease of the Property, or any portion thereof, on the basis of sex, age, handicap, marital status, race, color, religion, creed, ancestry or national origin of any person. All deeds, leases or contracts of sale shall contain or be subject to substantially the following nondiscrimination or nonsegregation clauses: -51- 1. In deeds: "The grantee herein covenants by and for himself, his heirs, executors, administrators and assigns, and all persons claiming under or through them, that there shall be no discrimination against or segregation of, any person or group of persons on account of sex, marital status, race, age, handicaps color, religion, creed, national origin or ancestry in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the land herein conveyed, nor shall the grantee himself or any person claiming under or through him, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees in the land herein conveyed. The foregoing covenants shall run with the land." 2. In leases: "The lessee herein covenants by and for himself, his heirs, executors, administrators and assigns, and all persons claiming under or through him, and this lease is made and accepted upon and subject to the following conditions: 'That there shall be no discrimination against or segregation of any person or group of persons on account of sex, marital status, race, age, handicap, color, religion, creed, national origin or ancestry, in the leasing, subleasing, transferring, use, or enjoyment of the land herein leased, nor shall the lessee himself, or any person claiming under or through him, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy, of tenants, lessees, sublessees, subtenants or vendees in the land herein leased.'" 3. In contracts relating to the sale or transfer of the Property or any interest therein: "There shall be no discrimination against or segregation of any person or group of persons on account of sex, marital status, race, age, handicap, color, religion, creed, national origin or ancestry in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the land, nor shall the transferee himself or any person claiming under or through him, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy, of tenants, lessees, subtenants, sublessees or vendees of the land." -52- (b) Redeveloper further understands and agrees that in fulfillment of the provisions of this DDA, including this Lease, and in complying with the request of the Agency and the City Council of the City, that the creation of new jobs from this Project shall be filled with residents of the City of Compton who have lived in the City of Compton for more than one year, to the extent that it is practical and reasonable. Redeveloper shall make every reasonable effort to fulfill the provisions of this DDA, including the Lease, by complying with Ordinance No. 1667 of the City of Compton, relating to an Affirmative Action Program. Redeveloper shall work with local institutions to establish training programs to assist in ensuring a qualified local applicant base is established for all levels of employment at the Hotel, the Entertainment Center, and any related enterprises. Further, preferences shall be given to local residents when such residents demonstrate equal capability relative to other applicants for the same job. The covenants and agreements set forth in this subsection (b) shall survive the expiration or termination of this Lease after acquisition of title to the Property by Redeveloper, whether by exercise of the Option to purchase or otherwise. 28. Local Contractors. Redeveloper shall make commercially ----------------- reasonable efforts to allocate the work associated with the construction of the Initial Improvements in a manner which provides local contractors with an opportunity to participate in such work. Contracts for the Initial Improvements shall be let on the basis of price, quality of service and reputation. Further, preferences shall be give to local contractors and minority owned businesses when such contractors demonstrate equal capability and bondability relative to other contractors for the scope of work to be performed. 29. Expansion Parcels. ----------------- -53- (a) Subject to the provisions of Section 29(b), during the first fifteen (15) years Lease Years of the Term, Agency shall have the full right to use the Expansion Parcels, without payment of consideration to Redeveloper. Any such use shall be of a type which shall not disturb Redeveloper's quiet enjoyment of the balance of the Property or otherwise adversely affect the use thereof. Agency shall retain all rentals and other revenues payable on account of the Expansion Parcels. Provided, however, that Redeveloper shall have the right, upon ninety (90) days notice in writing to Agency, to terminate Agency's use of the Expansion Parcels. Redeveloper shall terminate Agency's use of the Expansion Parcels only upon delivery to Agency of plans and specifications and financing commitments, as described in Section 11 hereof, for a new card club or casino or other use permitted by the Agency on the Expansion Parcels, together with reasonable evidence satisfactory to Agency that Redeveloper shall open the new card club or casino or other use permitted by the Agency for business within nine (9) months after the termination date of Agency's right to use the Expansion Parcels. (b) If Redeveloper does not open the new card club or casino or other use permitted by the Agency for business on the Expansion Parcels or another portion of the Property in compliance with Section 9(g) hereof prior to the expiration of the 15th Lease Year, and Agency receives a bona fide proposal, from a reputable third party developer with the capacity to perform, which proposal Agency wishes to accept, Agency shall give notice in writing thereof to Redeveloper. Unless, within said ninety (90) day notice period, Redeveloper irrevocably commits to either (i) open a new casino or card club or other permitted use on the Expansion Parcels within one year thereafter, or (ii) undertake the same type of development as has been proposed by the offeror or one meeting or exceeding the benefit to the Agency of that of the offeror, Agency shall have the right to proceed with the other transaction, and, upon the closing thereof, all Redeveloper's rights in the Expansion Parcels shall terminate and shall be of no further force or effect. In such event, the purchase price set forth in the Option (described below), shall be reduced as provided in Section 30(e) hereof, and the Base Rent shall be equitably reduced (based upon the values established in the Agency's original appraisal for the parcels comprising the Property), effective upon the closing of the transaction between Agency and the third party developer. Any attempt by Redeveloper to wrongfully interfere with the other transaction or the closing thereof, other than by committing to the expansion as provided hereinabove, may, at the option of Agency, be deemed default hereunder. -54- 30. Option to Purchase. Agency hereby grants to Redeveloper the ------------------ option to purchase the Leasehold Parcels, including all buildings, furniture, furnishings and equipment and inventory of food, beverages and other supplies (the "Option"), subject to the following terms and conditions: (a) Subject to the provisions hereof, Redeveloper may deliver a written notice of Redeveloper's election exercise the Option at any time during the Term hereof. Escrow shall close on or before ninety (90) days after receipt by Agency of Redeveloper's written notice of Redeveloper's election to exercise the Option, and Agency shall deliver to Redeveloper marketable title to the Leasehold Parcels free and clear of any encumbrances other than those (i) in existence at the Effective Date, (ii) approved by Redeveloper pursuant to this Lease, or (iii) created or incurred by Redeveloper; provided, however, the Property shall be free and clear of all monetary liens in existence on the Effective Date other than those created by Redeveloper (including, without limitation, deeds of trust executed by the Redeveloper, its successors and assigns, and mechanics liens resulting from work performed at the request of the Redeveloper). Agency agrees that it will not voluntarily encumber title to the Leasehold Parcels without Redeveloper's prior written consent. At the closing, Agency shall deliver to Redeveloper a good and sufficient grant deed with respect to the Leasehold Parcels. (b) Redeveloper shall have no right to exercise the Option, notwithstanding any provision in the grant of option to the contrary (i) at any time when Redeveloper is in default hereunder and continuing until the default is cured, or (ii) during the period of time commencing on the day after a monetary obligation to Agency is due from Redeveloper and unpaid (without any necessity for notice thereof to Redeveloper) and continuing until the obligation is paid, or (iii) in the event that this Lease has been terminated for any reason, or (iv) during any time Redeveloper's payment of license fees required by Section 9-10 of the Compton Municipal Code, or additional sums set forth in the City's Resolution No. 17,087, as amended, is due and unpaid, or (v) during any time any license or permit of Redeveloper or any subtenant or operator to operate a Card Club from the Property is suspended and has not been reinstated, subject, however, to the right of Redeveloper to replace an operator pursuant to Section 20(a)(xi) hereof. -55- (c) All rights of Redeveloper under this Section shall terminate and be of no further force or effect, if this Lease is terminated for any reason, or if any license or permit from the City of Compton or the State of California to operate a Card Club from the Property is terminated, annulled, canceled, revoked, repealed, or rescinded, or any other failure of Redeveloper or an operator claiming under Redeveloper to keep in full force and effect any license or permit required to operate the Card Club from the Project, and the expiration of all appeals thereof or the expiration of the time period for applying for an appeal or other procedure to reinstate the license or permit pursuant to the terms of any applicable ordinances, statutes, or regulations; provided, however, notwithstanding the foregoing, if the reason for the termination, annulment, cancellation, revocation, repeal, or rescission is Redeveloper's failure to pay any fees to the City of Compton or the State of California as and when due, then Redeveloper's rights under this Option shall terminate if such fees are not paid within 60 days after their due date. (d) The Option granted to Redeveloper in this Lease is personal to Redeveloper, and may not be assigned voluntarily or involuntarily, or be exercised by any person or entity other than Redeveloper or a permitted assignee of Redeveloper. (e) Redeveloper shall have the right to elect to purchase only the Hotel Parcel and the Parking Parcels at the time Redeveloper exercises the Option. In such case,at the time Redeveloper exercises the Option, Redeveloper may elect either (i) to terminate this Lease as to the Expansion Parcels, or (ii) continue this Lease with respect to the Expansion Parcels. If Redeveloper elects to continue this Lease with respect to the Expansion Parcels, then upon the close of escrow for the Hotel Parcel and Parking Parcels, the Base Rent for the Expansion Parcels shall be fifty-nine percent (59%) of the Base Rent set forth in Section 10, and there shall be a termination of any remaining Rent Reduction/Credit pursuant to Section 10. Thereafter, the Redeveloper shall continue to have the option to purchase the Expansion Parcels, subject to the provisions hereof. -56- (f) (i) If Redeveloper purchases all the Leasehold Parcels at once, then the purchase price of the Leasehold Parcels shall be the sum of $8,082,500.00, increased at the rate of two percent (2%) per annum, simple interest, from the Effective Date, and decreased in an amount equal to interest at the rate of five percent (5%) per annum, simple interest, calculated on the purchase price of the Convention Center Parcel from the Effective Date to the date of closing of the purchase under the Option; provided, however, that the purchase price as so adjusted shall not be greater than the fair market value of the Property but, in no case, shall the ultimate purchase price be less than $8,082,500.00. (ii) If Redeveloper purchases only the Hotel Parcel and the Parking Parcels (whether due to the severing of the Expansion Parcel from this Lease due to the provisions of Section , or Redeveloper's election to purchase only the Hotel Parcel and Parking Parcels, as provided in Section ), then the purchase price of the Hotel Parcel and the Parking Parcels shall be the sum of $3,350,000.00, regardless of when purchased./1/ (iii) If upon acquisition of the Hotel Parcel and Parking Parcels Redeveloper has elected to continue this Lease, and thereafter purchases the Expansion Parcels, then the purchase price of the Expansion Parcels shall be calculated pursuant to the following formula: EPPP = 4,732,500 + (8,082,500 x .01 x (HPPD - ED)) + (4,732,500 x .02 x (EPPD - HPPD)) utilizing the following definitions: EPPP = Expansion Parcels Purchase Price HPPD = Hotel Parcel and Parking Parcels Date of Purchase ED = Effective Date EPPD = Expansion Parcels Date of Purchase utilizing the number of years, and any fraction thereof, between the HPPD, the ED, and the EPPD for the purpose of calculating the resulting factors. - ----------- /1/ This is due to the fact that the parties had agreed to a base price of the Hotel Parcels and Parking Parcels in the sum of $3,350,000, increased at the rate of 2% per annum from the Effective Date, and reduced by the sum of the credit of 5% of the $2,000,000 purchase price for the Convention Center Parcel. However, due to the fact that such amount would result in a purchase price of less than $3,350,000, the parties have agreed to fix the purchase price of the Hotel Parcels and the Parking Parcels at $3,350,000. -57- (g) The purchase price shall be paid in all cash through the close of escrow. Agency will pay the cost of a CLTA policy of title insurance, any documentary transfer tax, and one half of the escrow fees. Redeveloper will pay cost of recording, the additional premium and any expenses (including survey costs) in the event Redeveloper desires to obtain an extended coverage policy of title insurance, and the other half of the escrow fees. In connection therewith, the parties shall execute normal and necessary escrow instructions and all documents reasonably called for thereunder, so long as such instructions and documents are not inconsistent herewith. 31. Holding Over. If Redeveloper, with Agency's consent, remains ------------ in possession of the Leasehold Parcels or any part thereof after the expiration or termination of the Term of this Lease, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Redeveloper, except that the annual Base Rent shall be 150% of the annual Base Rent set forth in Section 10, above (as, and if, adjusted pursuant hereto), and shall be payable monthly, in advance, in installments equal to 1/12th of the annual Base Rent so calculated. 32. Force Majeure; Extension of Times of Performance. ------------------------------------------------ (a) Force Majeure. Except as otherwise provided in this Lease, ------------- delay in performance by any party hereunder shall not be a default where delays or defaults are 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; shortages of transportation; unusually severe weather; or any other causes (other than financial inability) beyond the reasonable control or without the fault of the party claiming an extension of time to perform. An extension of time for any such cause shall only be for the period of the delay, which period shall commence to run from the time of the commencement of the cause, if written notice by the party claiming such extension is delivered to the other party within ten (10) days after commencement of the cause, and shall otherwise commence to run from the date of delivery of such notice. (b) Extension of Time. If prior to a date which is three months ----------------- after the Effective Date, any lawsuit is filed by a third party against Agency on account of the California Environmental Quality Act ("CEQA") or otherwise challenging Agency's ability to enter into this transaction to lease the Property for the purposes hereof, or against the City of Compton on account of the card club license in favor of Redeveloper, then, to the extent permitted by law, the time periods provided herein shall be tolled until resolution of such lawsuits in favor of Agency or City, as the case may be or until there has been -58- compliance with CEQA, and the parties shall cooperate in the defense of such action, with the costs ofsuch defense being borne as hereinabove provided, and/or shall take all steps necessary to comply with the requirements of CEQA. 33. Sale or Transfer by Agency. In the event of any transfer or -------------------------- transfers of Agency's interest in the Property, other than a transfer for security purposes only, the transferor shall automatically be relieved of any and all obligations and liabilities on the part of the Agency accruing from and after the date of such transfer; provided, however, that any funds in the hands of Agency in which Redeveloper has an interest, at the time of such transfer, shall be turned over to the transferee and upon such transfer, Agency shall be discharged from any further liability with reference to such funds. The covenants and obligations of Agency contained in this Lease shall be binding upon Agency, its successors and assigns only during their respective periods of ownership. Any transferee must, however, comply with the requirements of the Gaming Laws of the State of California to the extent applicable. 34. Limitation on Recourse Against Agency. Redeveloper agrees to ------------------------------------- look solely to Agency's interest in the Property and the real property of which it is a part (or the proceeds thereof) for the satisfaction of any remedy of Redeveloper, for the collection of a judgment (or other judicial process) requiring the payment of money by Agency in the event of any default by Agency hereunder (other than with respect to Agency's obligations pursuant to Section 10(b) hereof), and no other property or assets of Agency shall be subject to levy, execution, or other enforcement procedure for the satisfaction of Redeveloper's remedies under or with respect to this Lease, the relationship of Agency and Redeveloper hereunder, or Redeveloper's use or occupancy of the Property. Under no circumstances shall Redeveloper have any recourse against any tax increment revenues of Agency. Any obligations of Agency hereunder to deliver any funds to Redeveloper shall not be secured by any lien upon or pledge of the Agency's tax increment, and such obligations shall be subordinate and inferior to any and all rights, including but not limited to a pledge of any such moneys, created by (A) any bonded indebtedness now or hereafter created by the Agency, and (B) any loan agreement, lease agreement, or other obligation or agreement now or hereafter entered into by the Agency, or otherwise from time to time outstanding that is secured by a pledge of tax increment. 35. Redeveloper's Representations and Warranties. Redeveloper -------------------------------------------- makes the following representations and warranties as of the date of this Lease and agrees that such representations and warranties shall survive and continue thereafter: -59- (a) Status. If Redeveloper is a corporation, it is duly organized, ------ validly existing, in good standing under the laws of the state of its incorporation, has stock outstanding, which has been duly and validly issued, and is qualified to do business and is in good standing in the State of California with full power and authority to perform the obligations contemplated hereby. If Redeveloper is a partnership, it is duly formed and validly existing and has all power and authority to consummate the transactions contemplated hereby. If Redeveloper is a limited liability company, it is duly formed and validly existing and has all power and authority to perform the obligations contemplated hereby. (b) Authority. Redeveloper has complied with all laws and --------- regulations concerning its organization, existence and transaction of business. Redeveloper has the right and power to own and develop the Project and Initial Improvements thereon as contemplated in this Lease. (c) No Litigation. There is no litigation, action, suit, or other ------------- proceeding pending or threatened against Redeveloper, the Property, or the Project which may in any manner whatsoever substantially adversely affect the validity, priority, or enforceability of this Lease or the construction, use, occupancy or operation of the Project. (d) Enforceability. Redeveloper has full right, power and authority -------------- to execute and deliver this Lease and all instruments executed pursuant hereto, and to perform the undertakings of Redeveloper contained in this Lease and all agreements executed pursuant hereto. This Lease and all agreements executed pursuant hereto constitute valid and binding obligations of Redeveloper which are legally enforceable in accordance with their terms, subject to the laws of bankruptcy, creditor's rights exceptions, and equity. (e) No Breach. None of the undertakings of Redeveloper contained in --------- this Lease and all agreements executed pursuant hereto violates or any applicable statute, law, regulation or ordinance or any order or ruling of any court or governmental entity, or conflicts with, or constitutes a breach or default under, any agreement by which Redeveloper is, or the Project and Improvements thereon are, bound or regulated. (f) Financial Information. All financial information delivered to --------------------- Agency by Redeveloper, including, without limit, information relating to Redeveloper, the Property, the Project, and the Improvements thereon, fairly and accurately represents such financial condition. No material adverse change in such financial condition has occurred. (g) Proceedings. To the best of Redeveloper's knowledge, ----------- Redeveloper is not in violation of any statute, law, -60- regulation or ordinance, or of any order of any court or governmental entity. (h) Accuracy. To the best of Redeveloper's knowledge, all -------- documents, reports, instruments, papers, data, information and forms of evidence delivered to Agency by Redeveloper with respect to this Lease and all agreements executed pursuant hereto are accurate and correct, are complete insofar as completeness may be necessary to give Agency true and accurate knowledge of the subject matter thereof, and do not contain any material misrepresentation or omission. Agency may rely on such reports, documents, instruments, papers, data, information and forms of evidence without any investigation or inquiry. (i) Taxes. To the best of Redeveloper's knowledge, Redeveloper has ----- filed all federal, state, county and municipal tax returns required to have been filed by Redeveloper, and has paid all taxes which have become due pursuant to such returns or toany notice of assessment received by Redeveloper. Redeveloper has no knowledge of any basis for additional assessment with respect to such taxes. 36. Agency's Representations and Warranties. Agency makes the --------------------------------------- following representations and warranties as of the date of this Lease and agrees that such representations and warranties shall survive and continue thereafter: (a) No Litigation. There is no litigation, action, suit, or other ------------- proceeding pending or threatened against Agency, the Property, or the Project which may in any manner whatsoever substantially adversely affect the validity, priority, or enforceability of this Lease or the construction, use, occupancy or operation of the Project. (b) Enforceability. Agency has full right, power and authority to -------------- execute and deliver this Lease and all instruments executed pursuant hereto, and to perform the undertakings of Agency contained in this Lease and all agreements executed pursuant hereto. This Lease and all agreements executed pursuant hereto constitute valid and binding obligations of Agency which are legally enforceable in accordance with their terms, subject to the laws of bankruptcy, creditor's rights exceptions, and equity. (c) No Breach. None of the undertakings of Agency contained in this --------- Lease and all agreements executed pursuant hereto violates or any applicable order or ruling of any court or governmental entity, or conflicts with, or constitutes a breach or default under, any agreement by which Agency is, or the Project and Improvements thereon are, bound or regulated. -61- (d) Entitlements. The proposed development and use of the Property ------------ is consistent with City's General Plan and all applicable zoning and land use ordinances and regulations. 37. Miscellaneous. ------------- (a) Governing Law. This Lease shall be construed and interpreted in ------------- accordance with the laws of the State of California. (b) Time of Essence. Time is of the essence herein. --------------- (c) Additional Rent. Any monetary obligations of Redeveloper to --------------- Agency under the terms of this Lease shall be deemed to be rent. (d) Quiet Enjoyment. Upon Redeveloper's paying the Base Rent and --------------- other sums provided hereunder when due, and observing and performing all of the covenants, conditions, and provisions on Redeveloper's part to be observed and performed hereunder, Redeveloper shall enjoy the quiet possession of the Leasehold Parcels for the entire term hereof, subject to all of the provisions of this Lease. (e) Transfer of Agency's Interest. In the event of any transfer or ----------------------------- transfers of Agency's interest in the Property, the transferor shall be automatically relieved of any and all obligations and liabilities on the part of Agency accruing from and after the date of such transfer. (f) Waiver. The waiver by Agency or Redeveloper of any breach by ------ the other party of any term, covenant, or condition herein contained shall not be deemed to be a waiver of such term, covenant, or condition or any subsequent breach of the same or any other term, covenant, or condition herein contained. The subsequent acceptance of all or part of the rent due hereunder by Agency shall not be deemed to be a waiver of any preceding breach by Redeveloper of any term, covenant, or condition of this Lease, other than the failure to pay the particular rent so accepted, regardless of Agency's knowledge of such preceding breach at the time of acceptance of such rent. Acceptance by Agency of a part payment of the rent due shall not be construed as a waiver by Agency of any rights to collect the balance of the rent due. (g) Brokers. Each party warrants to and for the benefit of the ------- other that it has had no dealings with any real estate broker or other agent (attorneys excepted) in connection with the negotiation or making of this Lease. Agency shall indemnify Redeveloper for breaches by Agency of this warranty, -62- and Redeveloper shall indemnify Agency for any breaches by Redeveloper of this warranty. (h) Headings. The captions of the various sections of this Lease -------- are for convenience and ease of reference only and do not define, limit, augment, or describe the scope, content, or intent of this Lease or of any part or parts of this Lease. (i) Inspection Of Books and Records. Agency shall have the right at ------------------------------- all reasonable times to inspect the books and records of Redeveloper relevant to the purposes of this Lease. (j) Merger. The voluntary or other surrender of this Lease by ------ Redeveloper, or a mutual cancellation thereof, or a termination by Agency, shall not work a merger, but instead, at the option of Agency, shall either terminate all or any existing subtenancies, or at the option of Agency, operate as an assignment to Agency of any or all of such subtenancies. (k) Gender; Number. The neuter gender includes the feminine and -------------- masculine, the masculine includes the feminine and neuter, and the feminine includes the masculine and neuter, and each includes corporations, partnerships and other legal entities whenever the context so requires. The singular number includes the plural whenever the context so requires. (l) No Joint Venture. Nothing contained herein shall be construed ---------------- to render the Agency in any way or for any purpose a partner, joint venturer, or associated inany relationship with Redeveloper other than that of Agency and Redeveloper, nor shall this Lease be construed to authorize either party to act as agent for the other. (m) Exhibits. All exhibits to which reference is made in this Lease -------- are hereby incorporated by reference. Any reference to "this Lease" includes matters incorporated by reference. (n) Entire Agreement; Modification. This Lease contains the entire ------------------------------ agreement between the parties. No verbal agreement or implied covenant shall be held to vary the provisions hereof, any statements, law or custom to the contrary notwithstanding. No promise, representation, warranty, or covenant not included in this Lease has been or is relied on by either party. Each party has relied on its own inspection of the Property and examination of this Lease, the counsel of its own advisors, and the warranties, representations, and covenants in this Lease itself. The failure or refusal of either party to inspect the Property, to read this Lease or other documents, or to obtain legal or other advice relevant to this transaction constitutes a waiver of any objection, contention, or claim that -63- might have been based on such reading, inspection, or advice. No provision of this Lease may be amended or varied except by an agreement in writing signed by the parties hereto and the lender under a permitted first leasehold encumbrance or their respective permitted successors. (o) Joint and Several Obligations. "Party" shall mean Agency or ----------------------------- Redeveloper; and if more than one person is Agency or Redeveloper, the obligations imposed on that party shall be joint and several. (p) Severability. The invalidity or illegality of any provision ------------ shall not affect the remainder of this Lease and all remaining provisions shall, notwithstanding any such invalidity or illegality, continue in full force and effect. (q) Consents of Agency. Neither Agency's execution of this Lease ------------------ nor any consent or approval given by Agency hereunder in its capacity as Agency shall waive, abridge, impair or otherwise affect Agency's powers and duties as a governmental body. Any requirements under this Lease that Redeveloper obtain consents or approvals of Agency or the City are in addition to and not in lieu of any requirements of law that Redeveloper obtain approvals, licenses, or permits. (r) Records. Agency or any representative or designee thereof may ------- at any time during normal business hours, upon 48 hours' notice, examine the books and records of Redeveloper, or any officer, employee, agent, contractor, affiliate, related person, assignee or franchise, to the extent that such books and records relate, directly or indirectly, to the operation and income of the Card Club from the Property. Redeveloper shall keep all such records at the Property or at another location in Los Angeles County approved by Agency. (s) Recordation of Memorandum of Lease With Option to Purchase. This ---------------------------------------------------------- Lease shall not be recorded. A memorandum of the Lease with Option to Purchase shall be recorded. The parties shall execute the memorandum in form and substance approved by Agency and as required by the title insurance company insuring Redeveloper's leasehold estate, and sufficient to give constructive notice of this Lease and the option to purchase set forth herein to subsequent purchasers and lenders. (t) Execution in Counterparts. This Lease, or the memorandum of ------------------------- this Lease, or both, may be executed in two or more counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument. IN WITNESS WHEREOF, the undersigned have executed this Agreement at Compton, California, as of the date first written above. -64- COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF COMPTON ("Agency") By:__________________________________________ Chairman ATTEST: ___________________________ Secretary COMPTON ENTERTAINMENT, INC., a California corporation ("Redeveloper") By:__________________________________________ ROUBEN KANDILIAN, President -65- EXHIBIT 1 LEGAL DESCRIPTIONS ENTIRE PROPERTY - --------------- Parcels 2, 7, 8, 9, and 11, of Parcel Map No. 7899, in the City of Compton, per map recorded in Book 79, Pages 47-49, of Parcel Maps, Official Records, Los Angeles County, California. Parcels 1 and 2 of Parcel Map No. 8669, in the City of Compton, per map recorded in Book 87, Page 9, of Parcel Maps, Official Records, Los Angeles County, California. Parcels 1, 2, 3, and 4 Parcel Map No. 10784, in the City of Compton, per map recorded in Book 112, Pages 96 and 97, of Parcel Maps, Official Records, Los Angeles County, California. Convention Center Parcel/2/ - ------------------------ Parcel 1 of Parcel Map No. 10784, in the City of Compton, per map recorded in Book 112, Pages 96 and 97, of Parcel Maps, Official Records, Los Angeles County, California, reserving and excepting therefrom easements for access to, support of and parking for the Hotel Parcel. Hotel Parcel/1/ - ------------ A parcel of air space which includes a nine (9) story hotel containing 290 guest rooms and ancillary areas such as lobbies, restaurant, kitchen, bars, commercial areas and the like, on Parcel 1 of Parcel Map No. 10784, in the City of Comptom, per map recorded in Book 112, Pages 96 and 97, of Parcel Maps, Official Records, Los Angeles County, California. Parking Parcels - --------------- Parcels 2, 3, and 4 Parcel Map No. 10784, in the City of Compton, per map recorded in Book 112, Pages 96 and 97, of Parcel Maps, Official Records, Los Angeles County, California. Expansion Parcels - ----------------- - ----------- /2/ The legal descriptions of the Hotel Parcel and the Convention Center Parcel are subject to change based upon legal descriptions prepared by a licensed civil engineer and approved by Agency and Redeveloper prior to the close of escrow for the Convention Center Parcel. -66- Parcels 2, 7, 8, 9, and 11, of Parcel Map No. 7899, in the City of Compton, per map recorded in Book 79, Pages 47-49, of Parcel Maps, Official Records, Los Angeles County, California. Parcels 1 and 2 of Parcel Map No. 8669, in the City of Compton, per map recorded in Book 87, Page 9, of Parcel Maps, Official Records, Los Angeles County, California. -67- EXHIBIT 2 SITE PLAN [to be inserted] -68- EXHIBIT 3 SCHEDULE OF PERFORMANCE 1. Execution of the DDA by Agency and Within 15 days of Agency Redeveloper approval 2. Amendment of Redeveloper's Card Club Within 60 days of Agency License from the City of Compton and approval the City's adoption of an ordinance to waive transient occupancy taxes and valet taxes until the valet parking operation at the Hotel is profitable 3. Redeveloper's Approval of Preliminary By May __, 1995 Title Report 4. Redeveloper's Approval of ALTA Survey By June 15, 1995 5. Redeveloper's approval of Physical By June 15, 1995 Condition of the Property 6. Recordation of Memorandum of Lease for On the close of escrow for the the Project and issuance of leasehold Convention Center Parcel or policy of title insurance July 31, 1995, whichever first occurs (the "Effective Date") 7. Redeveloper's submission of Design Within 45 days after Agency's Development Drawings execution of the DDA 8. Agency's approval or disapproval of Within 30 days after receipt of Design Development Drawings same from Redeveloper 9. Redeveloper's delivery to Agency of Within 90 days after the financing commitments for the Project Effective Date 10. Agency's approval of Redeveloper's Within 30 days from submittal financing for the Project 11. Redeveloper's Submission of the Final Within 120 days after the Construction Plans for Development Effective Date of the Project (including construction drawings) sufficient to obtain building permits for the Initial Improvements 12. Agency's Approval of Final Construction 60 days after delivery of same Plans (including construction drawings, to City and Agency, provided and final grading and landscaping plans) they are acceptable to City and Agency 13. Payment of fees and issuance of permits Within 30 days of approval of for grading and site work, and plans commencement of grading and site work -69- 14. Payment of fees and issuance of building Within 10 days after issuance permits and commencement of construction of grading permit of the Initial Improvements 15. Commencement of Construction of Within 10 days from approval of remaining work any construction plans 16. Completion of Construction of the Initial Within 12 months after the Improvements and rehabilitation of Hotel, Effective Date, subject to the and opening of the Hotel for business length of any delays by the Agency or City in approving plans or specifications from the time periods set forth herein, and subject to Force Majeure 17. Opening of the Card Club for business Within 30 days of issuance of a state license -70- EXHIBIT 4 CONDITIONS OF CONSTRUCTION 1. Submittal of Design Development Drawings and Preliminary Construction --------------------------------------------------------------------- Budgets. Redeveloper shall prepare and deliver to Agency Design Development - ------- Drawings and a Preliminary Construction Budget for the proposed Initial Improvements to the Property. Upon Agency's reasonable approval of both the Design Development Drawings and the Preliminary Budget, Redeveloper shall have the right to partition the work represented by the Design Drawings in a manner which will promote the most expeditious construction and completion of the Initial Improvements. Notwithstanding the foregoing Redeveloper shall not commence construction as to any portion of the work until such time as Agency has approved complete Final Construction Plans, or if applicable, Final Interior Design Documents, and the Budget relative to the portion of work for which Redeveloper desires to commence construction. "Design Development Drawings" shall be prepared by a licensed architect or engineer, and shall include, but not be limited to, preliminary grading and drainage plans, soil tests, utilities, sewer and service connections, locations of ingress and egress to and from public thoroughfares, curbs, gutters, parkways, street lighting, designs and locations for outdoor signs, storage areas, and landscaping. The Design Development Drawings shall be based upon the Scope of Development, and shall enable Agency to make an informed judgment about the design and quality of construction. They shall also include delineation of landscape and architectural features, floor plans, sections and elevations, site treatment, proposed building materials and proposed colors, and other features. The Design Development Drawings shall describe all major design features, as well as the size, character and quality of the Project as to architectural and structural systems. Key details of the Project will be provided and samples of key materials to be used in public visible areas shall accompany the drawings. With the Design Development Drawings, Redeveloper shall deliver to Agency the certificate of the person who prepared the plans and specifications certifying that Agency has fully paid for them or waiving payment and waiving any right to a lien for preparing them and permitting Agency to use the Design Development Drawings without payment for purposes relevant to and consistent with this DDA. "Final Interior Design Documents" are those Final Construction Plans relating to the interior design of the Initial Improvements. -71- 2. Submittal of Final Construction Plans and Final Interior Design --------------------------------------------------------------- Documents. Prior to the commencement of construction of any portion of the - --------- Initial Improvements, Redeveloper shall prepare complete Final Construction Documents or, if applicable, Final Interior Design Documents, and submit such documents to Agency for its approval. Upon receipt of approval from Agency, Redeveloper may commence construction in a manner consistent with the approved Final Construction Plans or Final Interior Design Documents. 3. Submittal of Construction Budgets. Upon obtaining bids relative to --------------------------------- approved Construction Documents or Interior Design Documents, Redeveloper shall submit to Agency a "bid based" Construction Budget outlining specific costs associated with the work to be performed pursuant to the approved Construction Documents or Interior Design Documents. Agency shall have the right to review such bid based budgets and request any additional information reasonably necessary to ascertain the appropriateness and reasonableness of the items contained within such bid based Construction Budget. Agency may, in the exercise of its reasonable, good faith judgment, determine whether the proposed budget is unreasonable, and in such case, then the unreasonable portion shall not be included in the Rent Reduction/Credit, unless such cost is shown to be reasonable pursuant to the arbitration provisions of this paragraph. If the parties cannot agree on a final budget, the question of whether such charge is appropriate and reasonable shall be submitted to binding arbitration in accordance with the Construction Industry Rules of the American Arbitration Association. In no case shall payments be made to affiliates of the Redeveloper without the Agency's prior written consent. 4. Final Construction Plan Documents. Redeveloper shall submit to Agency --------------------------------- all Final Construction Plans approved by the appropriate governmental agencies for issuance of the necessary permits to complete the Initial Improvements. Changes from the Final Construction Plans may be made without the prior written approval by Agency only if: a) they are not substantial or are made to comply with exceptions, requests or requirements of any governmental agency or official in connection with the inspection or approval of the work undertaken; or b) if they do not materially depart in size, utility or value from the Initial Improvements described in the Construction Documents or, if applicable, the Interior Design Documents previously submitted to Agency. -72- 5. Final Cost Breakdowns. Upon completion of the Initial Improvements, --------------------- Redeveloper shall deliver to Agency a Final Cost Breakdown relative to the Initial Improvements for which Redeveloper is requesting a rent credit pursuant to Section 6 of the DDA. The form and content of the Final Cost Breakdown shall be subject to Agency's reasonable approval and shall not deviate materially from the Construction Budget absent good cause therefor (other than negligence or mismanagement on the part of Redeveloper) being shown. Any dispute with respect to such deviation shall be submitted to arbitration as provided herein above. 6. Procedure for Qualification of Rent Credits. As a condition precedent to ------------------------------------------- Agency's, application of the rent credit described in Section 6 of the DDA, Redeveloper shall provide to Agency evidence verifying the expenditures represented in the Final Cost Breakdown. Such evidence may include, but not be limited to, original paid invoices, names and addresses of persons or firms who have furnished any work, labor or materials in connection with items contained in the Final Cost Breakdown and/or receipts indicating full payment of particular items contained in the Final Cost Breakdown. Agency reserves the right to refuse to provide a rent credit as to particular items for which Agency has evidence that such item was either not expended or paid in full; provided, however, that Redeveloper shall have the right to cure any alleged misallocation by presenting any contrary evidence to Agency. Redeveloper shall pay for and may include in the cost of the Initial Improvements any construction manager, project manager, accountants, auditors or supervisors hired by Agency, at Agency's reasonable discretion, for the purposes of reviewing and inspecting the course of construction and determining or confirming the appropriate rent credit to be applied. Agency's representatives shall have the right to attend regular construction meetings held by Redeveloper and its superintendents, contractors and subcontractors. Redeveloper shall not be entitled to receive any rent credit for materials or labor not actually incorporated into or used for the Initial Improvements. During the course of construction, Redeveloper shall provide Agency's representative (or Agency's Executive Director if no representative has been appointed) with copies of all periodic or special reports with respect to the work received by Redeveloper from its contractors, subcontractors, architects, engineers or other consultants and, at least monthly, with a statement of expenditures made to date. 7. Performance Bonds. Redeveloper shall ----------------- -73- provide a labor and material payment bond and a performance bond acceptable to the Agency naming the Agency as co-obligee thereon; provided, however, if Hollywood Park, Inc., shall guaranty to the Agency's satisfaction completion of the Initial Improvements, then the Redeveloper shall not be required to provide a labor and material payment bond or performance bond. 8. City and Other Governmental Agency Permits and Approvals. Before -------------------------------------------------------- commencement of construction, Redeveloper shall secure, or cause to be secured, any and all permits which may be required by the City of Compton or any other governmental agency having jurisdiction over the construction or development of the Project. Redeveloper shall carry out the construction of the Initial Improvements in conformity with all applicable laws, including all applicable Federal, State and local occupation, safety and health laws, rules, regulations and standards. 9. Selection of Consultants. Redeveloper shall have the sole right to ------------------------ select architects, landscape architects, consultants, engineers, interior designers, and contractors for the Project, provided such selection does not in any way violate or contradict any portion of the DDA. Agency shall select any consultants to perform the services described in Section 6 hereof. 10. Cooperation of Agency. Agency shall cooperate with Redeveloper in --------------------- providing a "fast track" basis of construction to expedite the design, construction and furnishing of the Initial Improvements. Additionally, Agency shall cooperate with Redeveloper in expediting any necessary permits or approvals on the part of the City of Compton for any portions of the work to be performed. 11. Plans and Data. If the DDA is terminated for any reason, Redeveloper -------------- shall deliver to Agency, without a cost or expense to Agency, copies of any and all maps, architectural designs, engineering plans, drawings, studies, reports, surveys or data pertaining to the Project, provided Redeveloper has title to such items and the right to transfer such items free of claims or interest of any third party. Additionally, upon completion of the work, Redeveloper shall provide Agency with a set of "as built" plans for the Project. 12. Notification of Commencement of Work. Redeveloper shall notify Agency ------------------------------------ of Redeveloper's intention to commence a work of improvement at least twenty (20) days before commencement of any such work or delivery of any materials in connection therewith. The notice shall -74- specify the approximate location and nature of the intended improvements. Agency shall have the right to post and maintain on the Property any notices of nonresponsibility provided for under applicable law, and to inspect the property in relation to the construction at all reasonable times. 13. Cost of Construction; Mechanics' Liens. Except to the extent of any credit to Base Rent received by Redeveloper, the entire cost of constructing the Initial Capital Improvements shall be borne by Redeveloper. Redeveloper shall keep the Property free and clear of all mechanics' and materialmen's liens resulting from construction done by or for Redeveloper. Redeveloper shall have the right to contest the correctness or the validity of any such lien if, immediately on demand by Agency, Redeveloper procures and records a lien release bond issued by a corporation authorized to issue surety bonds in California in an amount equal to one and one-half times the amount of the claim of lien. The bond shall meet the requirements of Civil Code (S)(S)3143 and shall provide for the payment of any sum that the claimant may recover on the claim (together with costs of suit, if it recovers in the action). Redeveloper shall hold harmless, defend and indemnify Agency and the Property and the property against all liability and loss of any type arising out of work performed on the Property by Redeveloper, together with reasonable attorneys' fees and all costs and expenses reasonably incurred by Agency in negotiating, settling, defending or otherwise protecting against such claims. If Redeveloper does not cause to be recorded the bond described in California Civil Code Section 3142 or otherwise protect the Property under any alternative or successor statue, and a final judgment has been rendered against Redeveloper by a court of competent jurisdiction for the foreclosure of a mechanics' materialman's, contractor's or subcontractor's lien claim, and if Redeveloper fails to stay the execution of the judgment by lawful means or to pay the judgment, Agency shall have the right, but not the duty, to pay or otherwise discharge, stay or prevent the execution of any such judgment or lien or both. Redeveloper shall reimburse Agency for all sums paid by Agency under this section, together with all Agency's attorneys fees and costs, plus interest on those sums, fees, and costs, at the maximum legal rate that may be charged by non-exempt lenders under the usury laws of the State of California. On completion of any substantial work of improvement during the term, Redeveloper shall file or cause to be filed a notice of completion. Redeveloper hereby appoints Agency as Redeveloper's attorney-in-fact to file the notice of completion on Redeveloper's failure to do so after the work of improvement has been substantially completed. -75- EXHIBIT 5 SCOPE OF DEVELOPMENT [To Be Inserted] -76- TABLE OF CONTENTS
Page ---- RECITALS 1. Purchase and Sale of the Convention Center Parcel 2 2. Lease of the Hotel and Other Parcels 4 3. Title and Survey 5 4. Term 6 5. Rent 7 6. Rent Reduction/Credit 8 7. Additional Consideration 9 8. Taxes 9 9. Use and Compliance with Laws 10 10. Physical Condition of the Property 12 11. Construction by Redeveloper 14 12. Certificate of Completion 17 13. Utilities and Services 18 14. Maintenance 18 15. Alterations 19 16. Destruction 19 17. Insurance and Indemnity 22 18. Condemnation 26 19. Assignment, Subletting and Encumbering 28 20. Default 30 21. Agency's Entry on Property 36 22. Notices 37 23. Interest on Past-due Obligations 37 24. Attorneys' Fees 37
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Page ---- 25. Estoppel Certificates 38 26. Surrender of Property 38 27. Form of Nondiscrimination and Nonsegregation Clauses; Local Hiring and Affirmative Action 39 28. Local Contractors 40 29. Expansion parcels 40 30. Option to Purchase 41 31. Holding Over 43 32. Force Majeure; Extension of Times of Performance 44 33. Sale or Transfer by Agency 44 34. Limitation on Recourse Against Agency 44 35. Redeveloper's Representations and Warranties 45 36. Agency's Representations and Warranties 46 37. Miscellaneous 47 (a) Governing Law 47 (b) Time of Essence 47 (c) Additional Rent 47 (d) Quiet Enjoyment 47 (e) Transfer of Agency's Interest 47 (f) Waiver 47 (g) Brokers 48 (h) Headings 48 (i) Inspection Of Books and Records 48 (j) Merger 48 (k) Gender; Number 48 (l) No Joint Venture 48 (m) Exhibits 48 (n) Entire Agreement; Modification 48 (o) Joint and Several Obligations 49 (p) Severability 49 (q) Consents of Agency 49 (r) Records 49 (s) Recordation of Memorandum of Lease With Option to Purchase 49 (t) Execution in Counterparts 49
-78- EXHIBIT 1 LEGAL DESCRIPTIONS 1 EXHIBIT 2 SITE PLAN 1 EXHIBIT 3 SCHEDULE OF PERFORMANCE 1 EXHIBIT 4 CONDITIONS OF CONSTRUCTION 1 EXHIBIT 5 SCOPE OF DEVELOPMENT 1 -79- EX-10.17 5 GUARANTY Exhibit 10.17 GUARANTY -------- THIS GUARANTY is made this 31st day of July, 1995, by HOLLYWOOD PARK, INC., a Delaware corporation ("Guarantor") in favor of the COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF COMPTON, a public body, corporate and politic ("Agency"). RECITALS A. The Agency (as the "Agency" therein) and Compton Entertainment, Inc., a California corporation ("CEI") (as the "Redeveloper" therein), are parties to that certain Amended and Restated Disposition and Development Agreement, Agreement of Purchase and Sale, and Lease with Option to Purchase dated as of April 4, 1995 (the "DDA"), covering the real property (the "Property") described in Exhibit A hereto. The DDA provides, among other things, for the development of a hotel and card club (the "Project") on the Property. B. CEI has agreed to complete the construction and development of certain improvements and the development of the Project on the Property consistent with the Scope of Development attached as Exhibit 5 to the DDA, and within the times specified in the Schedule of Performance attached as Exhibit 3 to the DDA. C. Concurrently herewith, CEI is assigning all of its rights under the DDA to HP/Compton, Inc., a California corporation ("HP/Compton"), and HP/Compton is assuming all of CEI's obligations as Redeveloper under the DDA, pursuant to an Assignment, Assumption and Consent Agreement (the "Assignment"). D. HP/Compton is a wholly owned subsidiary of Guarantor. E. Guarantor is substantially and financially interested in the business and affairs of HP/Compton; and it will be of substantial economic benefit to Guarantor for HP/Compton to construct, develop and operate the Project and perform all other obligations of Redeveloper pursuant to the DDA. F. Agency would be unwilling to consent to the Assignment absent assurances and guarantees from Guarantor that the construction of the Project will be completed and the other obligations of the Redeveloper shall be performed in accordance with the DDA. NOW, THEREFORE, to induce Agency to consent to the assignment of the DDA, Guarantor hereby guaranties, represents, warrants and covenants as follows: -1- 1. Guaranty -------- The Guarantor unconditionally promises and agrees to perform and comply with all provisions and conditions of the DDA and any modifications, additions, amendments and supplements thereto, and the agreements, provisions and conditions of any rider or exhibit thereto now or hereafter existing, or to cause the same to be performed and complied with. The words "perform and comply with" are used in their most comprehensive sense and include (i) payment of any and all rental and other obligations of Redeveloper to pay money to Agency arising under the DDA, including, without limitation, the obligation to pay any and all interest on past due obligations of Redeveloper, any and all costs advanced by Redeveloper, and all expenses (including, without limitation, court costs and reasonable attorney's fees) that may arise in consequence of Redeveloper's default under the DDA, (ii) payment and performance of all obligations of Redeveloper to purchase the Property arising under the DDA, and (iii) construction of the Project within the times and in the manner provided for in or contemplated by the provisions of the DDA, including, to the extent required by the DDA, payment of all costs and expenses thereof and payment of and satisfaction or discharge of all liens, charges or claims that are or may be imposed upon or claimed against the Property or any portion thereof. As a condition to the Guarantor's obligations under this Guaranty, Agency shall confer upon Guarantor all rights and benefits of Redeveloper under the DDA, including, without limitation, the right to occupy and operate the Property and the Project and any business thereon, notwithstanding any breach or default by Redeveloper under the DDA. If within thirty (30) days following written demand from the Agency, Guarantor fails to commence performance of and compliance with all provisions and conditions of the DDA and thereafter to diligently perform and comply therewith, Agency may, but shall have no obligation to, take such actions as Agency deems appropriate with respect to the Project and the Property, and Guarantor shall be liable to Agency as if Guarantor were the Redeveloper under the DDA for failure to perform and comply with the provisions and conditions of the DDA. 2. General ------- (a) Guarantor authorizes Agency, without notice or demand and without affecting Guarantor's liability under this Guaranty, to: -2- (i) consent to any extensions, accelerations, or other changes in the time for any payment or performance of obligations provided for in the DDA, or consent to any other alteration of any covenant, term, or condition of the DDA in any respect, and to consent to any assignment, subletting, or reassignment of the DDA; (ii) take and hold security for any payment provided for in the DDA or for the performance of any covenant, term, or condition of the DDA, or exchange, subordinate, waive, or release any security; and (iii) apply this security and direct the order or manner of its sale as Agency may determine. (b) Notwithstanding any termination, renewal, extension or holding over of the DDA, this Guaranty shall continue until all of the covenants and obligations on the part of Redeveloper to be performed have been fully and completely performed by Redeveloper and Guarantor shall not be released of any obligation or liability under this Guaranty so long as there is any claim against Redeveloper arising out of the DDA that has not been settled or discharged in full. (c) The liability of Guarantor hereunder shall be unaffected by (i) any amendment or modification of the provisions of the DDA or any other instrument delivered to or made with Agency by Redeveloper (including, without limitation, the deed of trust described in Section 1(d)(iii) of the DDA (the "Deed of Trust")), (ii) the release of Redeveloper from the performance or observance of any of the agreements, covenants, terms or conditions contained in any of said instruments by operation of law, foreclosure, deed in lieu of foreclosure, termination of lease, or otherwise, (iii) the release, substitution or addition of any one or more guarantors or endorsers, or (iv) the assignment of this Guaranty in whole or in part, irrespective of the terms and conditions upon which such actions are taken and whether made with or without the consent of or notice to Guarantor. -3- 3. Independent Obligations. The obligations of Guarantor under this ----------------------- Guaranty are independent of, and may exceed, the obligations of Redeveloper. A separate action may, at Agency's option, be brought and prosecuted against Guarantor, whether or not any action is first or subsequently brought against Redeveloper, or whether or not Redeveloper is joined in any action, and Guarantor may be joined in any action or proceeding commenced by Agency against Redeveloper arising out of, in connection with, or based upon the DDA. Agency's rights hereunder shall not be exhausted by its exercise of any of its rights or remedies or by any such action or by any number of successive actions until and unless all indebtedness and obligations hereby guaranteed have been paid and fully performed. All of Agency's remedies against Guarantor are cumulative. 4. Waivers. Guarantor waives any right to: ------- (a) require Agency to proceed against Redeveloper or any other person or entity or pursue any other remedy in Agency's power before proceeding against Guarantor; (b) complain of delay or failure by Agency to exercise any right, power or privilege under the DDA, this Guaranty, or any other document made to or with Agency by Redeveloper; and (c) require Agency to proceed against or exhaust any security held by Agency. -4- Guarantor waives any defense arising by reason of any disability or other defense of Redeveloper or by reason of the cessation from any cause of the liability of Redeveloper. Guarantor waives all demands upon and notices to Redeveloper and to Guarantor, including, without limitation, demands for performance, notices of nonperformance, notices of non-payment, and notices of acceptance of this Guaranty. Guarantor waives (i) the defense of all statutes of limitations in any action hereunder or for the performance of any obligation hereby guaranteed; (ii) any defense that may arise by reason of the incapacity, lack of authority, or disability of Redeveloper, or by Agency's failure to file or enforce a claim against the estate (either in bankruptcy or any other proceeding) of Redeveloper or any other person; (iv) any defense based upon or arising out of any defense which Redeveloper may have to the payment or performance of any part of the obligations hereby guaranteed; (v) presentment, demand, protest and notice of any kind, including, without limiting the generality of the foregoing, notice of the existence, creation or incurring of any new or additional obligation or indebtedness or of any action or non-action on the part of Redeveloper, Agency, any creditor of Redeveloper or any other person whomsoever, in connection with any obligation or evidence of indebtedness held by Agency as collateral or in connection with any obligation hereby guaranteed; (vi) any defense based upon an election of remedies by Agency, including, without limitation, an election to proceed by non-judicial rather than judicial foreclosure, or to terminate the leasehold or other interests in the DDA which destroys or otherwise impairs the subrogation rights of Guarantor or the right of Guarantor to proceed against Redeveloper for reimbursement, or both; (viii) diligence by Agency in the collection of the obligations set forth in the DDA; (ix) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (x) any defense based upon, or upon the effect of, California Code of Civil Procedure Sections 580a, 580b, 580d, and 726 or California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2849, 2850, 2899, 2924 and 3433 et seq.; (xi) any duty on Agency's part to disclose to Guarantor any facts Agency may now or hereafter know about Redeveloper regardless of whether Agency has reason to believe that any such facts materially increase the risk beyond that which Guarantor intends to assume or whether Agency has reason to believe that such facts are unknown to Guarantor and whether Agency has a reasonable opportunity to communicate such facts to Guarantor, it being understood and agreed that Guarantor is fully responsible for being and keeping informed of the financial condition of Redeveloper and of all circumstances bearing on the risk of non-performance of any obligations hereby guaranteed; (xii) any defense arising because of Agency's election, in any proceeding instituted under the federal Bankruptcy Code, of the application of Section 1111(b)(2) of the -5- federal Bankruptcy Code; and (xiii) any defense based on any borrowing or grant of a security interest under Section 364 of the federal Bankruptcy Code, it being agreed by the Guarantor that this Guaranty is an absolute guaranty of payment and not of collection, that the failure of Agency to exercise any rights or remedies it has or may have against Redeveloper shall in no way impair the obligation of such guaranty and that the liability of the Guarantor hereunder is and shall be direct and unconditional. 5. No Reporting Duty. Guarantor assumes full responsibility for ----------------- keeping fully informed of the financial condition of Redeveloper and all other circumstances affecting Redeveloper's ability to perform Redeveloper's obligations under the DDA, and agrees that Agency will have no duty to report to Guarantor any information that Agency receives about Redeveloper's financial condition or any circumstances bearing on Redeveloper's ability to perform such obligations. 6. Continuing Guaranty. This Guaranty shall remain in full force ------------------- notwithstanding the appointment of a receiver to take possession of all or substantially all of the assets of Redeveloper, or an assignment by Redeveloper for the benefit of creditors, or any action taken or suffered by Redeveloper under any insolvency, bankruptcy, reorganization, moratorium, or other debtor relief act or statute, whether now existing or later amended or enacted, or the disaffirmance of the DDA in any action or otherwise. 7. Joint and Several Obligations. If this Guaranty is signed, or if ----------------------------- the obligations of Redeveloper are otherwise guaranteed, by more than one party, their obligations shall be joint and several, and the release or limitation of liability of any one or more of the guarantors shall not release or limit the liability of any other guarantors. 8. Successors and Assigns. This Guaranty shall be binding upon ---------------------- Guarantor and Guarantor's heirs, administrators, personal and legal representatives, successors, and assigns, and shall inure to the benefit of Agency and Agency's successors and assigns. Agency may, without notice, assign this Guaranty, the DDA, or the rents and other sums payable under the DDA, in whole or in part. 9. Guaranty of Costs and Fees. In addition to the amounts -------------------------- guaranteed, Guarantor agrees to pay reasonable attorney fees and all other costs and expenses incurred by Agency in enforcing this Guaranty or in any action or proceeding arising out of, or relating to, this Guaranty, whether or not any suit is filed. Until paid to Agency such sums shall bear interest at the rate of two (2) percentage points per annum in excess of the Bank of America Reference Rate. -6- 10. Governing Law. This Guaranty shall be deemed to be made under ------------- and shall be governed by California law in all respects, including matters of construction, validity, and performance, and the terms and provisions of this Guaranty may not be waived, altered, modified, or amended except in a writing signed by an authorized officer of Agency and by Guarantor. 11. Waiver of Subrogation Rights. Guarantor waives all rights and ---------------------------- defenses arising out of an election remedies by the Agency, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed the Guarantor's rights of subrogation and reimbursement against the Guarantor by the operation of Section 580d of the Code of Civil Procedure or otherwise. 12. Bankruptcy Claims. Guarantor shall file in any bankruptcy or ----------------- other proceeding in which the filing of claims is required by law all claims which Guarantor may have against Redeveloper relating to any indebtedness of Redeveloper to Guarantor and will assign to Agency all rights of Guarantor thereunder. If Guarantor does not file any such claim, Agency, as attorney-in- fact for Guarantor, is hereby authorized to do so in the name of Guarantor or, in Agency's discretion, to assign the claim to a nominee and to cause proof of claim to be filed in the name of Agency's nominee. The foregoing power of attorney is coupled with an interest and cannot be revoked. Agency or its nominee shall have the sole right to accept or reject any plan proposed in such proceeding and to take any other action which a party filing a claim is entitled to do. In all such cases, whether in administration, bankruptcy or otherwise, the person or persons authorized to pay such claim shall pay to Agency the amount payable on such claim and, to the full extent necessary for that purpose, Guarantor hereby assigns to Agency all of Guarantor's rights to any such payments or distributions to which Guarantor would otherwise be entitled; provided, however, Guarantor's obligations hereunder shall not be satisfied except to the extent that Agency receives cash by reason of any such payment or distribution in such amount as is necessary to satisfy all amounts due under the DDA; and provided further that Agency or its nominee shall remit to Guarantor any amounts received which exceed the amounts owed to Agency under the terms of the DDA. However, should any dispute arise as between Guarantor and any third party (including the principal obligor) with respect to the rights to such funds, Agency may interplead such funds and shall thereupon be released from any obligation to pay such funds to Guarantor and shall be entitled to all costs, including attorney's fees, incurred in the filing of such interpleader action. If Agency receives anything hereunder other than cash, the same shall be held as collateral for amounts due under this Guaranty. -7- 13. Change of Title. Guarantor agrees that no change of ownership or --------------- legal title to the Property, whether effected with or without the consent of the Agency, shall affect or change or discharge the obligations of the Guarantor hereunder. 14. Receipt of DDA. Guarantor acknowledges receipt of a copy of the -------------- DDA, and all of the instruments described therein, or attached thereto as exhibits. All of the terms defined in the DDA, when used herein, shall have the same meanings as defined in the DDA. 15. Warranties. Guarantor hereby represents and warrants to Agency ---------- that: (a) Any financial statements and other information concerning Guarantor heretofore delivered by Guarantor to Agency are true and correct in all respects, have been prepared in accordance with generally accepted accounting practices consistently applied, fairly present the financial condition of Guarantor as of the dates thereof, and no material adverse change has occurred in the financial condition of Guarantor reflected therein since the respective dates thereof. Guarantor shall deliver to Agency updated financial statements annually or upon the happening of any material adverse change in the financial condition of Guarantor. (b) The assumption by Guarantor of the obligations of the DDA will result in direct financial and material benefits to Guarantor. (c) The assumption of the DDA by HP/Compton has been duly authorized and executed by HP/Compton and is a legal, valid and binding instrument, enforceable against HP/Compton in accordance with its terms. (d) Guarantor (i) is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware; (ii) has the power and authority to own its properties and assets to carry on its business as now being conducted (and as now contemplated); and (iii) has the power to execute and perform all the undertakings of this Guaranty. -8- (e) The execution and performance of this Guaranty by Guarantor (i) has been duly authorized by all requisite corporate action, (ii) will not violate any provision of law, rule, or regulation, any order of any court or other agency of government, any provision of any charter document, or by-law of Guarantor, and (iii) will not violate any provision of any indenture, agreement, or other instrument, binding upon Guarantor or result in the creation or imposition of any lien, charge or encumbrance of any nature on any asset of Guarantor. 16. Severance. If any of the provisions of this Guaranty shall --------- contravene or be held invalid under the laws of any jurisdiction, this Guaranty shall be construed as if it did not contain those provisions, and the rights and obligations of the parties shall be construed and enforced accordingly. 17. Successors. The provisions of this Guaranty shall bind and inure ---------- to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of Agency and Guarantor. Whenever the context requires, all terms used in the singular will be construed in the plural and vice-versa. The term "Redeveloper" as used herein refers to both named Redeveloper and any other person or entity at any time assuming or otherwise becoming primarily liable on all or any part of the obligations of the DDA. IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date first written above. HOLLYWOOD PARK, INC., a Delaware corporation By: /s/ G. Michael Finnigan -------------------------------- President Gaming & Entertainment By: /s/ Donald M. Robbins -------------------------------- Assistant Secretary "Guarantor" -9- EX-10.18 6 COMPTON/COMPTON AGREEMENT EXHIBIT 10.18 LEASE by and between HP/COMPTON, INC., a California corporation, as "Landlord" and COMPTON ENTERTAINMENT, INC., a California corporation, as "Tenant" Dated: August 3, 1995 TABLE OF CONTENTS -----------------
Page ---- LEASE................................................ 1 RECITALS............................................. 1 Article 1. LEASE OF PREMISES......................... 1 1.01 Premises............................ 1 1.02 Landlord's Obligations.............. 1 Article 2. TERM; POSSESSION; ACCEPTANCE.............. 2 2.01 Term................................ 2 2.02 Termination Right................... 2 2.03 Possession.......................... 3 2.04 Acceptance of Premises; Premises Remodeling........................ 3 Article 3. RENT...................................... 4 3.01 Monthly Rent........................ 4 3.02 Security Deposit; Account........... 4 3.03 Legal Tender........................ 5 3.04 Additional Rent; Rent Defined....... 5 3.05 Interest on Late Payments........... 5 Article 4. RECORDS AND ACCOUNTING.................... 6 4.01 Records................................ 6 4.02 Monthly Reports........................ 6 4.03 Audited Financial Statements........... 6 4.04 Landlord's Right to Audit.............. 7 Article 5. USE AND OPERATION OF PREMISES............ 7 5.01 Specific Use of Premises............... 7 5.02 Conduct of Business.................... 7 5.03 Compliance with Restrictions and Laws................................. 8 5.04 Independent Business................... 8 Article 6. MAINTENANCE, REPAIRS AND ALTERATIONS..... 8 6.01 Tenant's Obligations to Repair......... 8
Page ---- 6.02 Landlord's Option to Make Major Repairs.............................. 9 6.03 Damage to Premises..................... 9 6.04 Repair of Damage; Rent Abatement....... 10 6.05 Alterations; Improvements; Additions............................ 10 6.06 Ownership of Improvements, Fixtures, Furnishings and Equipment............ 11 6.07 Mechanic's Liens....................... 11 Article 7. INSURANCE, EXONERATION AND INDEMNITY..... 13 7.01 Liability Insurance.................... 13 7.02 Property Insurance..................... 13 7.03 Tenant's Property Insurance............ 14 7.04 Landlord's Insurance................... 14 7.05 Insurance Policies..................... 14 7.06 Waiver of Subrogation.................. 15 7.07 Exoneration and Indemnity.............. 15 Article 8. ASSIGNMENT, SUBLETTING, HYPOTHECATION.... 16 8.01 Consent Required....................... 16 8.02 Indirect Transfers..................... 17 8.03 Obligations of Transferees and Subtenants........................... 17 8.04 Continued Liability; No Waiver......... 18 Article 9. EMINENT DOMAIN............................ 19 9.01 Effect on Lease........................ 19 9.02 Award.................................. 19 9.03 Rebuilding............................. 19 Article 10. TENANT'S BREACH; LANDLORD'S REMEDIES..... 20 10.01 Tenant's Breach....................... 20 10.02 Landlord's Remedies................... 21 10.03 Right to Cure Tenant's Default........ 22 10.04 Landlord's Remedies Not Exclusive..... 22 10.05 Right to Rents, Issues and Profits.... 23
Page ---- 10.06 Receipt of Rents...................... 23 Article 11. LANDLORD'S DEFAULT; TENANT'S REMEDIES... 23 11.01 Landlord's Default.................... 23 11.02 Tenant's Remedies..................... 24 11.03 Tenant's Remedies Not Exclusive....... 24 11.04 Payment of Rents...................... 24 Article 12. MORTGAGE OF LANDLORD'S INTEREST......... 24 12.01 Subordination......................... 24 12.02 Tenant's Obligations With Respect to Landlord's Mortgage.............. 25 12.03 Definition of Landlord's Mortgage and Landlord's Mortgagee............ 25 Article 13. OPERATING EXPENSES...................... 25 13.01 Definitions........................... 25 13.02 Survival.............................. 26 Article 14. TAXES AND OTHER CHARGES.................. 26 14.01 Tenant's Taxes........................ 26 Article 15. UTILITY AND OTHER SERVICES............... 27 15.01 Utility Charges....................... 27 15.02 Compliance With Governmental Regulations......................... 27 15.03 Security; Landlord Nonresponsibility; Indemnity........ 27 Article 16. GENERAL PROVISIONS....................... 28 16.01 Estoppel Certificates................. 28 16.02 Landlord's Right of Entry............. 29 16.03 Waiver................................ 29 16.04 Surrender of Premises; Holding Over................................ 29 16.05 Notices............................... 30 16.06 Partial Invalidity; Construction...... 30 16.07 Captions.............................. 31 16.08 Short Form Lease...................... 31
Page ---- 16.09 Brokers' Commissions.................. 31 16.10 Attorneys' Fees....................... 31 16.11 Counterparts.......................... 31 16.12 Sole Agreement........................ 31 16.13 Successors and Assigns................ 32 16.14 Time is of the Essence................ 32 16.15 Survival of Covenants................. 32 16.16 Landlord's Consent or Approval........ 32 16.17 Joint and Several Obligations......... 32 16.18 No Offer.............................. 32 16.19 Corporate Resolution.................. 33
LEASE THIS LEASE is made and entered into this 3rd day of August, 1995 by and between HP/COMPTON, INC., a California corporation, hereinafter called "Landlord", and COMPTON ENTERTAINMENT, INC., a California corporation, hereinafter called "Tenant". RECITALS -------- A. Landlord is the owner and the lessee of real property in the City of Compton, California (the "City"), which property is more particularly described on Exhibit A attached hereto (the "Property"). B. Landlord intends to cause to be constructed on a portion of the Property a casino card club (which may include restaurant and retail uses) to be known as Pyramid Casino (the "Card Club") pursuant to certain plans and specifications therefor (the "Plans"). C. Landlord desires to lease the Card Club portion of the Property to a licensed card club operator, together with all fixtures, furniture, equipment and supplies required to operate a card club, until it can obtain its own license to operate the Card Club. D. Tenant is a California corporation which is in the process of being licensed by the State of California to operate the Card Club and Tenant is licensed by the City to operate the Card Club. Article 1. LEASE OF PREMISES ----------------- 1.01 Premises -------- (a) Subject to the terms and conditions and reservations provided herein, Landlord hereby grants, demises and leases to Tenant, and Tenant hereby hires from Landlord, the Property and all fixtures, furniture, equipment, supplies and all replacements thereof necessary to operate the Card Club (collectively, the "Premises"). (b) This Lease is subject to the terms, covenants and conditions herein set forth and each party covenants, as a material part of the consideration for this Lease, to keep and perform each and all of said terms, covenants and conditions by it to be kept and performed. 1.02 Landlord's Obligations. ---------------------- Prior to the Commencement Date, as that term is hereinafter defined, Landlord shall, to Tenant's reasonable satisfaction, fully improve, equip, fixture, furnish and provide all necessary supplies for the Premises, at Landlord's sole cost and expense, in accordance with the Plans to enable Tenant to operate the Card Club on the Premises in a first class manner. The performance of Landlord's obligations under this Section 4 shall comply with any and all Applicable Laws (as hereinafter defined) and shall be at Landlord's sole cost and expense; provided that Landlord shall not be required to expend more than Twenty Million Dollars ($20,000,000) of its own funds for the purchase, development and furnishing of the Premises. Article 2. TERM; POSSESSION; ACCEPTANCE ---------------------------- 2.01 Term ---- The term of this Lease shall commence on the date upon which Tenant opens the Card Club for business to the general public (the "Commencement Date") and shall continue until midnight on the date sixty (60) months after the Commencement Date (the "Expiration Date") unless sooner terminated pursuant to any provision hereof (the "Term" or "the term of this Lease"). Upon determination of the actual Commencement Date, Landlord and Tenant mutually will execute a written instrument specifying the Commencement Date and the Term. 2.02 Termination Right ----------------- (a) Tenant and Landlord agree that at any time after the date hereof, should either Landlord or any Affiliate (as hereinafter defined) become eligible to be licensed to operate a card club in the State of California, and if all necessary state and local governmental approvals are first obtained, then Landlord and Tenant shall execute a partnership agreement in substantially the form of the partnership agreement attached hereto as Exhibit "B" (the "Partnership Agreement"), in which event this Lease shall terminate and from and after such termination, the use of the Premises shall be governed by the terms of the Partnership Agreement; provided, however, that the foregoing shall in any event be subject to the following conditions and limitations: (i) This Lease may not be terminated, and the Partnership Agreement shall not be entered into or otherwise become effective, until such time as the following conditions have been satisfied: (A) the City has taken all actions legally necessary to approve Landlord or its Affiliate as the owner of an interest in the Card Club operated by Tenant on the Premises and otherwise approves the partial transfer of ownership of the Card Club that would be effected by entering into the Partnership Agreement; (B) such transfer is in compliance with all applicable provisions of the Compton Municipal Code, as amended from time to time; and (C) Landlord (or an Affiliate) is eligible under the laws of the State of California to own an interest in and otherwise participate in the Card Club and has been duly licensed by the Attorney General of the State of California to own such interest. (ii) Unless and until all appropriate governmental approvals as described above have been obtained, the Partnership Agreement shall be of no force or effect. (iii) For the purposes of this Lease, the term "Affiliate" means any parent corporation, subsidiary or brother-sister corporation of Landlord or any entity owned or controlled by Landlord or by any parent, subsidiary or brother- sister corporation of Landlord, or any individual or entity which owns or controls Landlord or any parent corporation, subsidiary or brother-sister corporation of Landlord, including, without limitation, Hollywood Park Operating Company. (iv) Tenant hereby covenants and agrees to use its best efforts to ensure that no provisions of the Compton Municipal Code are enacted that would preclude or limit the rights of Landlord or its Affiliate to become an owner and operator of the Card Club and further agrees to fully cooperate with Landlord and the City in Landlord's efforts to become licensed as such owner and operator. (b) The failure by Tenant at any time to be licensed under state or local law to operate a card club or the disqualification of Tenant as such card club operator for any reason, including a suspension of license which continues for a period of five (5) days, shall constitute an Event of Default (as defined in Section 10.01). Tenant and Landlord agree that in such event, in addition to and not in limitation of Landlord's remedies under Article 10, Landlord shall have the right to terminate this Lease without liability upon written notice to Tenant and thereafter this Lease shall be of no further force or effect. 2.03 Possession ---------- Any access to or possession of the Premises by Tenant prior to the commencement of the Term shall be on and subject to all of the terms, provisions, covenants and conditions of this Lease except that no Rent shall be due and except as otherwise expressly herein provided. Landlord shall not have any control over Tenant and shall not direct or control the operation of the business of the Card Club on the Premises throughout the Term of this Lease or any extension thereof. 2.04 Acceptance of Premises; Premises Remodeling ------------------------------------------- All improvements constructed and maintained by or under the direction of Landlord or its Affiliates shall be constructed and maintained in accordance with "Applicable Laws," as that term is defined in Section 13 hereof. Tenant agrees to accept the Premises subject to (i) all Applicable Laws regulating or in any manner applicable to any use or occupancy thereof by Tenant (as limited by this Lease); (ii) the provisions of that certain Disposition and Development Agreement, dated December 10, 1992, between Tenant and the Community Redevelopment Agency ("CRA") of the City (the "Old DDA"); (iii) the provisions of that certain Disposition and Development Agreement, dated June 20, 1995, between Landlord (as Tenant's assignee) and the CRA of the City (the "New DDA"); and (iv) all liens, encumbrances, easements, rights of way, covenants, conditions, restrictions, servitudes, licenses and other matters of record or which have been disclosed in writing to Tenant prior to the execution of this Lease. Article 3. RENT ---- 3.01 Monthly Rent ------------ Tenant shall pay to Landlord as monthly rent, a monthly amount equal to 2.65% of HPI's Total Investment in the Property (as that term is defined in that certain Agreement in Principle, dated April 29, 1994, by and between Tenant and Landlord, as amended and referred to herein as the"AIP") as the monthly rent for the Premises (the "Monthly Rent"). Upon the determination of the exact amount of the Monthly Rent, Landlord and Tenant mutually will execute a written instrument specifying the exact amount of the Monthly Rent. The Monthly Rent shall be paid in arrears for the immediately preceding month on or before the last day of each calendar month during the Term hereof, without any deduction or offset, prior notice or demand. Tenant's obligation to pay Monthly Rent shall commence on the Commencement Date. If the Term shall commence on a day other than the first day of a calendar month or shall end on a day other than the last day of a calendar month, then the Monthly Rent for the first and/or last partial calendar month of the Term, as the case may be, shall be prorated on a per diem basis. This Lease is a "Triple Net Lease," it being understood that Landlord shall receive the Monthly Rent free and clear of any and all Operating Expenses and any and all other charges or expenses of any nature whatsoever incurred by Landlord or Tenant in connection with the ownership and operation of the Premises. 3.02 Security Deposit; Account ------------------------- (a) In order to provide Landlord with adequate security for the faithful performance by Tenant of all of the terms, covenants and conditions of this Lease during the Term, on a monthly basis, Tenant will deposit into an account (the "Account") an amount equal to 66.667% of the Card Club's "net after-tax income" (the "Monthly Security Deposit"). The term "net after-tax income" shall mean net income before taxes, reduced by an amount equal to 47% of such income as an allowance for federal and state income taxes; provided, however, if the Monthly Rent paid for a particular month exceeds the Monthly Security Deposit for that month, no payment under this Section 3.02 shall be due. By way of example, if the "net after-tax income" for a full month equals $7,000,000 and Tenant has paid Monthly Rent for such month in the amount of $6,000,000, the Monthly Security Deposit would equal $4,666,690 and no Monthly Security Deposit would be due for that month. If the "net after-tax income" for a full month equals $12,000,000.00 and Tenant has paid Monthly Rent for such month in the amount of $6,000,000, the Monthly Security Deposit shall equal $2,000,040 (i.e. (12,000,000 x 66.667) (-) 6,000,000). Tenant shall be entitled to withdraw an amount equal to 47% of the annual earnings of the Account as an allowance for federal and state income taxes on such earnings; the balance of the earnings of the Account shall be retained in the Account. (b) If, on audit, any portion of the Rent paid by Tenant to Landlord under this Lease is held not to be deductible by Tenant for federal or state tax purposes, thereby resulting in Tenant or its principal shareholder owing any tax deficiency, then Tenant shall give prompt notice thereof to Landlord and Landlord shall have the right to participate with Tenant in contesting such holding. Tenant shall bear all costs and expenses of any such contest. If Tenant and/or its principal shareholder are held liable for such tax deficiency, then the amount of such tax deficiency, plus any interest due thereon, may be paid out of the Account. If the amount of such federal and/or state tax deficiency plus interest thereon exceeds the amount in the Account, then Landlord shall pay Tenant an amount equal to such excess amount as a refund of Monthly Rent and any such amount shall be subject to the Monthly Rent accrual provisions of Section 3.02 hereof. (c) Pursuant to a separate Security Agreement to be executed between Landlord and Tenant concurrently with the establishment of the Account, Landlord shall have a security interest in the Account during the Term. Tenant agrees to take all necessary action and execute all instruments and documents necessary for Landlord to have a perfected security interest in the Account during the Term of this Lease. (d) If an Event of Default of Tenant occurs under this Lease, including, but not limited to, Tenant's failure to pay any Rent, Landlord, at its option, may require Tenant to apply all or any part of the Account to the payment of any Rent or any other sum then due, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant's failure. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it and any Events of Default have been cured, any remaining balance in the Account may be withdrawn by Tenant upon termination of this Lease whether the Partnership Agreement is entered into or not. 3.03 Legal Tender ------------ Rent and all other sums payable under this Lease must be paid in lawful money of the United States of America, without demand, offset or deduction. 3.04 Additional Rent; Rent Defined ----------------------------- (a) In addition to the Monthly Rent, Tenant shall also pay as additional rent ("Additional Rent"), without deduction or offset, all Operating Expenses, other charges, fees, costs, taxes, impositions, expenses and other sums required to be paid by Tenant under the provisions of this Lease whether or not the same shall be designated as Additional Rent. In the event of nonpayment of any Additional Rent when due, Landlord shall have all of the rights and remedies provided hereunder or by law for the nonpayment of rent. (b) As used in this Lease, the term "Rent" shall include Monthly Rent for the Premises and Additional Rent. 3.05 Interest on Late Payments ------------------------- Any Rent or other amounts due from Tenant to Landlord hereunder which are not paid within five (5) days of when due shall bear interest at a rate (the "Agreed Rate") equal to two percent (2%) per annum in excess of the "reference rate" as announced by Bank of America, NT&SA, Los Angeles main office, as such rate may change from time to time, from the date due until the date paid, regardless of whether a notice of default or any other notice is given by Landlord; provided, however, if such rate is greater than the maximum rate of interest then permitted to be charged by law, the Agreed Rate shall be the maximum rate of interest then permitted to be charged by law. In the event that Bank of America, NT&SA, shall cease to exist or shall cease to announce a "reference rate" (or equivalent prime rate) or shall cease to have a Los Angeles office, there shall be substituted such alternative bank, alternative rate or alternative office as Landlord shall select. Acceptance of interest by Landlord shall not constitute a waiver of Tenant's default with respect to the overdue amount, or prevent Landlord from exercising any other rights or remedies. Article 4. RECORDS AND ACCOUNTING ---------------------- 4.01 Records ------- For the purposes of ascertaining compliance by Tenant of its obligations under Article 3.02 and Article 5 hereof, Tenant agrees to prepare and keep or cause to be prepared and kept on the Premises (or at such other location approved by Landlord, which approval shall not be unreasonably withheld) for a period of not less than thirty-six (36) months following the end of the Term adequate records which shall show all receipts at the Premises, as well as all charges, fees, costs, taxes, impositions, expenses and other sums paid or required to be paid by Tenant in connection with its operation of the Premises ("expenses") and other information reasonably requested by Landlord from all sales and other transactions on the Premises by Tenant and by all Subtenants (as hereinafter defined) in the event Landlord were to approve any other Subtenancy (as hereinafter defined). The requesting or obtaining of information by Landlord shall not be deemed to make Landlord responsible for verifying the accuracy of any such information or make the Landlord responsible for compliance of Tenant's obligations under Articles 3 and 5, which shall remain the obligations of Tenant. 4.02 Monthly Reports --------------- Tenant shall submit to Landlord on or before the fifteenth (15th) day following the end of each calendar month during the Term (including the 15th day of the calendar month following the end of the Term), a written statement of income and expense signed by Tenant, and certified by it (or if Tenant is a corporation or a partnership, by a duly authorized corporate officer or general partner of Tenant) to be true and correct, showing in reasonable, accurate detail the amount of Tenant's receipts, expenses and other information requested pursuant to Section 4.01 for the immediately preceding period. The certification of each such statement shall be satisfactory to Landlord in scope and substance and without qualification except as may be expressly permitted by Landlord. The statements referred to herein shall be in such form and style and contain such details and breakdown as Landlord may reasonably determine. 4.03 Audited Financial Statements ---------------------------- Promptly following the end of each calendar year, Tenant shall cause to be conducted, at its sole cost and expense, an annual audit of its books and records by Arthur Andersen & Co., Inc. or such other "Big Six" accounting firm selected by Tenant and acceptable to Landlord. Within sixty (60) days after the end of each such calendar year, Tenant shall deliver audited financial statements for the business conducted at the Premises, certified without qualification by such auditors. Such audited financial statements shall be the conclusive determination for all calculations required under Article 3. 4.04 Landlord's Right to Audit ------------------------- If Tenant omits to prepare and deliver promptly any statement, report or financial statements required by the provisions of this Article 4, Landlord shall have the right, in addition to all other rights available to Landlord upon Tenant's default, to make, or cause to be made, an audit of all books and records of Tenant and any Subtenants, including their respective bank accounts which in any way pertain to or show Tenant's activities, and to prepare, or cause to be prepared, the statement, report or financial statements which Tenant has failed to prepare and deliver; Tenant shall give Landlord and its designated representatives access to such books and records at all reasonable times for purposes of making any such audit and preparing any such statement, report or financial statements. Such audit shall be made and such statements and reports shall be prepared by a person or persons selected by Landlord. The statements or reports so prepared shall be conclusive on Tenant, and Tenant shall pay all expenses of the audit and other costs incurred by Landlord in connection therewith. If any such audit shall disclose any willful inaccuracy of Tenant, such inaccuracy shall constitute an incurable breach of this Lease. Article 5. USE AND OPERATION OF PREMISES ----------------------------- 5.01 Specific Use of Premises ------------------------ Tenant shall use and occupy the Premises as the Card Club and for no other use or purpose. 5.02 Conduct of Business ------------------- (a) Landlord and Tenant acknowledge that Tenant's obligation to operate a business in conformance with this Article 5 is a material inducement to Landlord to enter into this Lease, without which Landlord would not have entered into this Lease. Accordingly, except as expressly provided elsewhere herein, Tenant agrees to conduct business continuously at the Premises during the entire Term of this Lease, except when prevented from doing so by reason of the acts or omissions of Landlord or any Affiliate, strikes, lockouts, casualty damage, the order of any governmental agency having jurisdiction over the Premises and/or the conduct of Tenant's business therein or other reasons (other than financial inability) beyond Tenant's reasonable control or during such periods that alterations or repairs are being made to the Premises which make it impracticable to keep the Premises open. Tenant agrees that, commencing with the Commencement Date and continuing for the remainder of the Term, Tenant shall be open for business on a 24-hour a day basis except to the extent prohibited by law. Tenant shall at all times actively and diligently operate its business on the Premises in a commercially reasonable manner. Selection and termination of a Card Club General Manager shall be subject to Landlord's prior approval. (b) In the event that Landlord consents to any subleasing, Tenant shall cause all Subtenants to comply with all of the requirements of this Section 12 to the same extent as if each such Subtenant were the Tenant hereunder. (c) Tenant shall at all times during the Term of this Lease remain fully licensed as a "card club operator" in good standing. 5.03 Compliance with Restrictions and Laws ------------------------------------- Tenant shall, at its sole cost, comply with all of the requirements of all covenants, conditions and restrictions of record applicable to the Premises or any part thereof and shall faithfully observe all such covenants, conditions and restrictions. Tenant shall, at its sole cost, comply with all federal, state and local laws, regulations, rules, ordinances, zoning variances, conditional use permits and orders now in force or which may hereafter be in force applicable to Tenant, any Subtenant, the Premises, and/or the use or occupancy of the Premises or the conduct of business therein or thereon, including all applicable provisions of the DDA ("Applicable Laws"). Tenant acknowledges that it is familiar with such conditions, and agrees that all of such conditions (and all additional conditions which may be imposed in the future) constitute "Applicable Laws" within the meaning of this Lease. Tenant shall cause any Subtenants to comply with and observe all such covenants, conditions, restrictions and Applicable Laws. 5.04 Independent Business -------------------- By this Lease, neither party acquires any right, title or interest in or to any property of the other party except such rights as are specifically stated in this Lease. The relationship between Landlord and Tenant is solely that of landlord and tenant, and is not and shall not be deemed to be a partnership or joint venture. Article 6. MAINTENANCE, REPAIRS AND ALTERATIONS ------------------------------------ 6.01 Tenant's Obligations to Repair ------------------------------ Tenant shall at its sole cost and expense, maintain in clean and safe condition, and make all repairs and replacements to the Premises and every part thereof, structural and non-structural, so as to keep, maintain and preserve the Premises in first class condition and repair, including, without limitation, the roof, the foundation, the heating, ventilation and air conditioning system ("HVAC"), elevators, if any, all plumbing and sewage facilities, fire sprinklers, electrical and lighting facilities, systems, appliances, and equipment within the Premises, fixtures, interior and exterior walls, floors, ceilings, windows, doors, entrances, all interior and exterior glass (including plate glass), and skylights located within the Premises, and all sidewalks, service areas, parking areas and landscaping comprising part of the Premises. All repairs and replacements required to be made by Tenant shall be made promptly with new materials of like kind and quality to those used in the original construction of the Premises. If the repair or replacement work affects the structural parts of the Premises, or if the estimated cost of any item or repair or replacement exceeds $10,000, then Tenant shall first obtain Landlord's written approval of the scope of work, plans therefor, and materials to be used. Any such work shall be performed by Landlord's contractor or by such contractor as Tenant may choose from an approved list to be submitted by Landlord. Landlord shall have the right to make any repairs or replacements which are not promptly made by Tenant and charge Tenant, as Additional Rent, for the cost thereof together with interest thereon at the Agreed Rate from the date of payment thereof by Landlord. Without limiting any of Tenant's obligations hereunder, during the Lease Term Tenant, at its expense, shall obtain and keep in force an HVAC service contract and a roof maintenance program satisfactory to Landlord. Tenant hereby waives the benefit of any statute now or hereafter in effect which would otherwise afford Tenant the right to make repairs at Landlord's expense or to terminate this Lease because of Landlord's failure to keep the Premises in good condition, order and repair. Tenant specifically waives all rights it may have under Sections 1932(1), 1941 and 1942 of the California Civil Code, and any similar or successor statute or law. Notwithstanding anything to the contrary contained herein, Landlord shall exercise its rights under any guaranties or warranties relating to the original construction of the Premises if the need to make repairs arises due to a defect therein; provided, however, Landlord shall not have any liability or be required to expend any funds if such guaranties or warranties are not honored by the makers hereof. 6.02 Landlord's Option to Make Major Repairs. --------------------------------------- Notwithstanding anything to the contrary herein, in lieu of Tenant making any repairs to or replacements of the structural roof, exterior or load- bearing walls or foundation, or any replacement or resurfacing of the parking area, which Tenant would otherwise be obligated to make pursuant to Section 6.01 hereof, Landlord instead may elect to perform any or all such repairs or replacements itself, in which case Tenant shall pay to Landlord the full cost thereof within 15 days after Landlord's submission of a bill therefor. 6.03 Damage to Premises ------------------ In the case of damage to or destruction of the Premises by fire or other casualty, Tenant's rental obligation shall continue as provided in Article 3 above to the extent of rental loss insurance and/or business interruption insurance proceeds, and Tenant shall rebuild and restore such casualty damage, unless Tenant elects to terminate the Lease pursuant to the further terms of this Article 6. In the event that Tenant undertakes any restoration and/or repair work, such work shall be done in accordance with the provisions of Section 6.05 hereof and Landlord shall make the casualty insurance proceeds available to Tenant for that purpose. If the Premises are damaged to the extent that Tenant is unable to operate a first class card club therein and such damage cannot be repaired within one hundred eighty (180) days from the date of damage, Tenant may terminate this Lease by giving written notice to Landlord no later than ten (10) days after the date of occurrence of such damage. In the event either party duly elects to terminate this Lease, this Lease shall be deemed to have been terminated as of the date of occurrence of such damage and neither party shall have any further liability under this Lease except for the provisions herein, which by their terms survive the expiration or earlier termination of this Lease. 6.04 Repair of Damage; Rent Abatement -------------------------------- (a) If this Lease is terminated pursuant to any of the provisions of Section 6.03 hereof, the Monthly Rent, Additional Rent and other payments provided for herein shall be paid by Tenant through the date that Tenant closes the Card Club and all rents and other payments made by Tenant to Landlord shall be appropriately prorated through the date of such closure. 6.05 Alterations; Improvements; Additions ------------------------------------ Tenant shall not make or permit the making of any alterations, improvements, additions or installations ("Alterations") in, on or about the Premises without Landlord's prior written consent and unless and until the drawings, plans and specifications for such Alteration shall have been first submitted in triplicate to and approved by Landlord and, if required, by any and all mortgagees of Landlord. Landlord's approval to any such Alteration shall not be unreasonably withheld or delayed. Landlord, acting reasonably, may, as a condition to its consent pursuant to this Section 6.05, require Tenant to furnish Landlord, prior to the commencement of any work that could constitute the basis for a mechanic's lien on the Premises and before any building materials are delivered to the Premises, with a bond by a responsible surety company licensed to do business in California, in a form and with a company satisfactory to Landlord, in an amount equal to one and one-half times the estimated cost of the work to be done and the materials to be supplied, such bond to remain in effect until all such costs shall have been fully paid and the improvements fully insured by Tenant as herein provided. Such bond, if required, shall secure completion by Tenant, or on its default by the surety, of all work free from any and all liens of contractors, subcontractors, materialmen, laborers or others and shall defend and indemnify Landlord from and against any loss, damage or liability in any manner arising out of or connected with such work. Landlord may also impose additional reasonable conditions upon its consent pursuant to this Section 6.05, including, but not limited to, a requirement that any work be supervised by a qualified engineer or architect approved by Landlord and that appropriate "builder's risk" insurance be obtained. Any Alterations made in, on or about the Premises by or at the direction of Tenant (or any Subtenant), shall be made and completed with due diligence, in a good and workmanlike manner, in strict compliance with the requirements of all Applicable Laws and all conditions of Landlord's consent. Tenant agrees to carry such insurance as required by Section 7.02 hereof covering each and every such Alteration. So long as there exist any restrictions on the square footage of improvements on the Property, Tenant shall not, under any circumstances, do anything which would increase the square footage of the Premises. 6.06 Ownership of Improvements, Fixtures, Furnishings and Equipment -------------------------------------------------------------- All improvements, alterations, additions and installations constructed, installed, affixed or otherwise made in, on or about the Premises by or at the direction of either Landlord or Tenant (or any Subtenant) at any time prior to or during the term of this Lease, including, without limitation, any and all carpeting, floor coverings, wall coverings, lighting and hardware fixtures, window treatments and ceilings, trade fixtures whether or not permanently affixed to the Premises, furniture, business equipment and stock in trade, shall at once become a part of the realty, if applicable and, in any event belong to Landlord, without any obligation on the part of Landlord to compensate Tenant or any other person therefor, except as expressly set forth in the AIP and that certain Amended and Restated Agreement Respecting Pyramid Casino, dated July 14, 1995, executed by Landlord and Tenant (the "Amended and Restated Agreement". Any damage to the Premises resulting from the removal of any items permitted or required to be removed by Tenant hereunder shall be promptly repaired by Tenant at its sole cost and expense. 6.07 Mechanic's Liens ---------------- Tenant shall promptly pay and discharge all claims for work or labor done or goods or materials furnished by third parties, at the request of Tenant or any Subtenant and shall keep the Premises free and clear of all mechanic's and materialman's liens in connection therewith. If any mechanic's or materialman's lien is filed for work done on behalf of Tenant or any Subtenant at, or materials supplied to, the Premises by a third party, Tenant shall remove such lien by payment or bond (regardless of whether Tenant contests the claim made by the person asserting such lien and regardless of whether such claim is valid or has any basis in fact or law) not later than fifteen (15) days after written demand for such removal is made by Landlord. If Tenant shall fail to discharge any such lien within such 15-day period, then in addition to any other right or remedy of Landlord, Landlord may, but shall not be obligated to, take such action or pay such amount as Landlord, in its sole discretion, shall deem appropriate to remove such lien, and Tenant shall pay to Landlord as Additional Rent all amounts (including attorneys' fees) paid or incurred by Landlord in connection therewith within five (5) days after demand by Landlord, together with interest at the Agreed Rate from the date of payment by Landlord. Notwithstanding the foregoing, Tenant shall have the right to contest the correctness or the validity of any such lien if, immediately upon demand by Landlord, Tenant procures and records a lien release bond issued by a corporation authorized to issue surety bonds in California in an amount equal to one and one-half times the amount of the claim of lien. The bond shall meet the requirements of Civil Code (S) 3143 or any similar or successor statute and shall provide for the payment of any sum that the claimant may recover on the claim (together with costs of suit, if it recovers in the action). Except for Landlord's express obligations relating to the improvement, maintenance and repair of the Premises, nothing in this Lease shall be deemed to be, or construed in any way as constituting, the consent or request of Landlord, express or implied, to or for the performance of any labor or the furnishing of any materials for any construction, rebuilding, alteration or repair of or to the Premises or any part thereof by any person or as giving Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials which might in any way give rise to the right to assert any lien against Landlord's interest in any property. Landlord shall have the right to post and keep posted at any and all times on the Premises any notices for the protection of Landlord and the Premises from any such lien. Tenant shall, before the commencement of any work, or the delivery of any materials, which might result in any such lien, give to Landlord written notice of its (or any Subtenant's) intention to perform such work or obtain such materials in sufficient time to enable the posting of such notices. Article 7. INSURANCE, EXONERATION AND INDEMNITY ------------------------------------ 7.01 Liability Insurance. ------------------- Tenant shall obtain and keep in force during the Term of this Lease a Commercial General Liability policy of insurance protecting Tenant and Landlord (as an additional insured) against claims for bodily injury, personal injury or personal advertising injury, and property damage based upon, involving, or arising out of the ownership, use, occupancy, or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than Ten Million Dollars and No Cents ($10,000,000.00) per occurrence. Such insurance shall be with an "Additional Insured-Managers or Landlords of Property" Endorsement and contain the "Amendment of the Pollution Exclusion" for damage caused by heat, smoke, or fumes from a hostile fire. Such policy shall not contain any intra-insured exclusions as between insured persons or entities, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Tenant's indemnity obligations under this Lease. The limits of insurance required by this Lease or otherwise carried by Tenant shall not, however, limit the liability of Tenant nor relieve Tenant of any obligation hereunder. All insurance to be carried by Tenant shall be primary to and not contributory with any similar insurance carried by Landlord, whose insurance shall be considered excess insurance only. During the construction, alteration, or repair of any improvements on the Premises, the party contracting for said construction shall provide and maintain workers' compensation and employers' liability insurance covering all persons employed in connection with such construction, alteration, or repair and with respect to whom death or personal injury claims could be asserted against Landlord, Tenant, or the Premises. 7.02 Property Insurance. ------------------ (a) Building and Improvements. Tenant shall obtain and keep in force ------------------------- during the Term a policy or policies of insurance in the name of Landlord, with loss payable to Landlord insuring against damage to, or destruction of any improvements comprising the Premises, together with all fixtures, machinery and equipment therein and thereon. The amount of such insurance shall be equal to the full replacement cost of the improvements comprising the Premise, as such cost shall change from time to time, or such greater amount as may be required pursuant to Applicable Laws. Such policy or policies shall insure against all risks of direct physical loss or damage (including, if mutually approved of by Landlord and Tenant, the perils of flood and/or earthquake; provided, however, that Tenant shall consent to Landlord's request to carry such insurance if Landlord reasonably determines, from time to time, taking into account Tenant's financial condition, that the value of minimizing the risk of loss outweighs the financial burden of carrying such insurance), including, without limitation, coverage for any additional costs resulting from debris removal and coverage for the enforcement of any ordinance or law regulating the reconstruction or replacement of any undamaged sections of the Premises required to be demolished or removed by reason of the enforcement of any Applicable Law as the result of a covered cause of loss. Such policy or policies shall also contain an agreed valuation provision (in lieu of any coinsurance clause), and waiver of subrogation. If such insurance coverage has a deductible clause, the deductible amount shall not exceed Five Thousand Dollars and No Cents ($5,000.00) per occurrence, and Tenant shall be liable for such deductible amount in the event of an insured loss. (b) Rental Value. Tenant shall, in addition, obtain and keep in force ------------ during the Term (or if only available to Landlord, reimburse Landlord) for the costs of a policy or policies in the name of Landlord, with loss payable to Landlord, insuring the loss of the Monthly Rent for one (1) year. Such insurance shall provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one (1) full year's loss of rental revenues from the date of any such loss. Such insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Monthly Rent otherwise payable by Tenant, for the next one (1) year. Tenant shall be liable for any deductible amount in the event of such loss. Tenant shall also obtain business interruption insurance, in form and substance reasonably acceptable to Landlord. 7.03 Tenant's Property Insurance. --------------------------- Tenant, at its sole cost, shall either by separate policy or, at Landlord's option, by endorsement to a policy already carried, maintain insurance coverage on all of Tenant's personal property in, on, under, or about the Premises similar in coverage to that carried under Paragraph 7.2 hereof. Such insurance shall be full replacement cost coverage with a deductible of not to exceed Five Thousand Dollars and No Cents ($5,000.00) per occurrence. The proceeds from any such insurance shall be used by Tenant for the replacement of personal property. 7.04 Landlord's Insurance. Landlord, at its expense, may obtain and -------------------- keep in force during the Term of this Lease a blanket policy of public liability insurance covering the Premises. 7.05 Insurance Policies. Insurance required hereunder shall be kept ------------------ in companies duly licensed to transact business in the State of California and maintaining during the policy term a "General Policyholders Rating" of at least A, VIII or other rating as may be required by Landlord, as set forth in the most current issue of "Best's Insurance Guide." Tenant shall not do or permit to be done anything which shall invalidate the insurance policies referred to in this Article. With respect to insurance required of Tenant hereunder, Tenant shall cause to be delivered to Landlord certified copies of policies of insurance or certificates evidencing the existence and amounts of such insurance with the insureds and loss payable clauses as required by this Lease. No such policy shall be cancelable or subject to modification except after thirty (30) days prior written notice to Landlord. Tenant shall, at least thirty (30) days prior to the expiration of such policies, furnish Landlord with evidence of renewals or "insurance binders" evidencing renewal thereof, or else Landlord may order such insurance and charge the cost thereof to Tenant, which amount shall be payable by Tenant to Landlord upon demand. If Tenant shall fail to procure and maintain the insurance required to be carried by Tenant under this Article, Landlord may, but shall not be required to, procure and maintain such insurance, but at Tenant's expense. The insurance provided for herein may be brought within the coverage of a so-called "blanket" policy or policies of insurance carried and maintained by Tenant if (i) Landlord and, if requested by Landlord, any mortgagee of Landlord shall be named as additional insureds or loss payees thereunder as required in this Article 7, (ii) the coverage afforded Landlord and Tenant shall not be reduced or diminished by reason of the use of such "blanket" policy or policies and (iii) all of the other requirements set forth in this Article VII are satisfied. 7.06 Waiver of Subrogation --------------------- To the extent permitted by law and without affecting the coverage provided by insurance required to be maintained hereunder, Landlord and Tenant each waives any right to recover against the other (a) damages for injury to or death of persons, (b) damages to property, (c) damage to the Premises or any part thereof, and (d) claims arising by reason of any of the foregoing, but only to the extent that any of the foregoing damages and/or claims are covered (then only to the extent of such coverage) by insurance actually carried, or required by this Lease to be carried, by either Landlord or Tenant. This provision is intended to waive fully, and for the benefit of each party, any rights and/or claims which might give rise to a right of subrogation in any insurer. Each party shall cause each insurance policy obtained by it to permit such waiver of subrogation or to provide that the insurer waives all right of recovery by way of subrogation against either party in connection with any damage covered by such policy. If any insurance policy cannot be obtained permitting or providing for a waiver of subrogation, or is obtainable only by the payment of an additional premium charge above that charged by insurers issuing policies not permitting or providing for a waiver of subrogation, the party undertaking to obtain such insurance shall notify the other party in writing of this fact. The other party shall have a period of fifteen (15) days after receiving the notice either to place the insurance with an insurer that is reasonably satisfactory to the other party and that will carry the insurance permitting or providing for a waiver of subrogation, or to agree to pay the additional premium if such a policy is obtainable at additional cost. If such insurance cannot be obtained or the party in whose favor a waiver of subrogation is desired refuses to pay the additional premium charged, the other party shall be relieved of the obligation to obtain a waiver of subrogation rights with respect to the particular insurance involved during the policy period of such insurance, but such obligation shall revive (subject to the provisions of this Section 22) upon the expiration of such policy period. 7.07 Exoneration and Indemnity ------------------------- (a) Tenant shall indemnify Landlord and its Affiliates, and each of their respective agents, contractors, officers, shareholders and employees and hold each of them harmless from and against any and all losses, liabilities, judgments, settlements, causes of action, suits, costs and expenses (including reasonable attorneys' fees and other costs of investigation and defense) which they may suffer or incur by reason of any claim asserted by any person arising out of, or related to (or allegedly arising out of or related to): (i) any failure by Tenant to perform any material obligation to be performed by Tenant under the terms of this Lease; or (ii) any wrongful act, wrongful omission, negligence or wilful misconduct of Tenant or any of its agents, employees, representatives, officers, directors or independent contractors. If any action or proceeding is brought against Landlord or any of its Affiliates (or any of their respective agents, contractors, officers, shareholders or employees) by reason of any such claim, Tenant, upon Landlord's request, shall defend the same by counsel reasonably satisfactory to Landlord, at Tenant's expense. (b) Landlord shall indemnify Tenant and its affiliates, and each of their respective agents, contractors, officers, shareholders and employees and hold each of them harmless from and against any and all losses, liabilities, judgments, settlements, causes of action, suits, costs and expenses (including reasonable attorneys' fees and other cost of investigation and defense) which they may suffer or incur by reason of any claim asserted by any person arising out of, or related to (or allegedly or arising out of or related to): (i) any failure by Landlord to perform any material obligation to be performed by Landlord under the terms of this Lease; or (ii) any wrongful act, wrongful omission, negligence or misconduct of Landlord or any Affiliate of Landlord or any of its or their agents, employees, representatives, officers, directors or independent contractors. If any action or proceeding is brought against Tenant or any of its affiliates (or any of their respective agents, contractors, officers, shareholders or employees) by reason of any such claim, Landlord upon Tenant's request, shall defend the same by counsel satisfactory to Tenant at Landlord's expense. Article 8. ASSIGNMENT, SUBLETTING, HYPOTHECATION ------------------------------------- 8.01 Consent Required ---------------- Except as hereinafter provided in this Article 8, Tenant shall not voluntarily, involuntarily or by operation of law assign, transfer, mortgage, pledge, hypothecate or otherwise encumber or transfer (collectively, a "Transfer") all or any part of Tenant's interest in this Lease or in the Premises or sublet the whole or any part of the Premises, or permit any other person, firm or corporation (a "Subtenant") to occupy by license, concession or otherwise any portion of the Premises (collectively, a "Subletting"), without first obtaining in each and every instance the prior written consent of Landlord. Any Transfer or further subletting by a Subtenant shall be considered a Subletting or Transfer hereunder and shall require the prior written consent of Landlord. Consent to any type of Transfer may be withheld in Landlord's sole discretion. Any purported Transfer or Subletting without Landlord's prior written consent shall be null and void and have no force or effect whatever and shall constitute an incurable breach of this Lease. 8.02 Indirect Transfers ------------------ If, at any time during the Term, Tenant is a partnership, the death, insolvency, withdrawal, substitution, addition or change in the identity of any general partner of Tenant (including, without limitation, any transfer of any stock of any corporation which is a partner of Tenant) following the date such partnership becomes the Tenant hereunder shall be deemed a Transfer within the meaning of this Lease. If, at any time during the Term, Tenant is a corporation, the transfer of the stock of Tenant to any person who is not as of the date hereof a shareholder of Tenant shall be considered a Transfer for purposes of this Lease whether such change occurs by reason of transfer, redemption, issuance of additional stock, operation of law, or any other cause whatever, except that Mikael Aloyan shall be permitted to own stock in Tenant equivalent to a nine percent (9%) ownership interest and each of Tom Atoyan and Art Atoyan shall be permitted to own stock in Tenant equal to a two and one-half percent (2 1/2%) ownership interest. Notwithstanding any of the foregoing, Tenant may not transfer any stock if the proposed transferee (including, without limitation, the permitted transferees referred to above) is not compatible with the licensing, permitting, regulatory and other governmental restrictions applicable to Tenant, Landlord or Landlord's Affiliates. 8.03 Obligations of Transferees and Subtenants ----------------------------------------- (a) Each person or entity obtaining ownership of Tenant's interest in this Lease, or any portion thereof, by reason of a Transfer (a "Transferee"), shall unqualifiedly agree in writing, for the benefit of Landlord, to perform all of the obligations of Tenant under this Lease. Such agreement shall be in form and substance satisfactory to Landlord and shall be delivered to Landlord no later than the date of such Transfer. (b) In connection with any Subletting, Tenant shall use only such form of agreement with a Subtenant concerning such Subletting (a "Sublease") as shall have been approved, as to form and substance, by Landlord, acting reasonably and after approval, such Sublease shall not be amended or modified in any material respect without the prior written consent of Landlord. Each Subtenant shall, by reason of having entered into such Sublease, be deemed to have agreed, for the benefit of Landlord (i) to the provisions specified in Section 33 hereof, and (ii) to comply with each and every obligation to be performed by Tenant hereunder (specifically including Section 12 hereof and this Article 8), except (i) Tenant's obligation to pay Rent to Landlord; and (ii) the minimum policy limits of any insurance to be carried by a Subtenant. Concurrently with any Subletting, Tenant shall provide Landlord with written notice of the name and address of any Subtenant for the purpose of giving notices to such Subtenant. 8.04 Continued Liability; No Waiver ------------------------------ Any consent to any Transfer or Subletting which may be given by Landlord shall not constitute a waiver by Landlord of the provisions of this Article, or a consent to any other or further Transfer or Subletting, or, in the event of a Subletting, a release of Tenant from primary liability for the full performance by it of the provisions of this Lease. Notwithstanding any Subletting, Tenant shall continue to be liable for the full performance of each and every obligation under this Lease to be performed by Tenant, regardless of whether Tenant is in possession of the Premises or has any power or legal ability to perform such obligations. Notwithstanding any Transfer (or multiple Transfers) the person named herein as Tenant (and any Transferee) shall continue to be primarily liable in any and all events for the full performance of each and every obligation under this Lease to be performed by Tenant, and the obligations under this Lease of the person named herein as Tenant and any and all Transferees shall be joint and several. 8.05 Right of First Opportunity to Purchase. Provided an Event of -------------------------------------- Default of Tenant has not occurred, Tenant shall be afforded, during the Term of this Lease, the right of first opportunity to acquire the Premises pursuant to the terms and in accordance with Section 10.2 of the Amended and Restated Agreement. 8.06 Transfer of Landlord's Interest. The term "Landlord" as used ------------------------------- herein shall mean and include only the owner or owners, at the time in question, of the fee title to the Premises. In the event of any transfer, assignment or other conveyance or transfers of any such title to any party other than an Affiliate, Landlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) shall be automatically freed and relieved from and after the date of such transfer, assignment or conveyance of all liability as respects the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed and, without further agreement, the transferee of such title or interest shall be deemed to have assumed and agreed to observe and perform any and all obligations of Landlord hereunder, during its ownership of the Premises. Landlord may transfer its interest in the Premises and/or this Lease without Tenant's consent and such transfer or subsequent transfer shall not be deemed a violation by Landlord of any of the terms and conditions hereof. Concurrently with a transfer by Landlord of its interest in this Lease, Landlord shall also assign all of its right, title and interest in and to the AIP and the Agreement Respecting Pyramid Casino. Article 9. EMINENT DOMAIN -------------- 9.01 Effect on Lease --------------- If the Premises or any portion thereof are taken or damaged, including severance damage, under the power of eminent domain or by inverse condemnation or for any public or quasi-public use, or voluntarily conveyed or transferred in lieu of an exercise of eminent domain or while condemnation proceedings are pending (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If so much of the Premises is taken by condemnation that the remainder is unsuitable for Tenant's continued occupancy for the uses and purposes for which the Premises are leased, Tenant shall have the option, exercisable only by written notice to Landlord within thirty (30) days after Landlord shall have given Tenant written notice of such taking (or in the absence of such notice, within thirty (30) days after the condemning authority shall have taken title or possession, whichever first occurs), to terminate this Lease as of the later of the date the condemning authority takes such title or possession (whichever first occurs) or the date Tenant vacates the Premises; provided, however, that if Landlord disagrees with Tenant's determination that the portion of the Premises remaining after condemnation is unsuitable for Tenant's occupancy, such controversy shall be settled by arbitration in Los Angeles, California in accordance with the commercial arbitration rules of the American Arbitration Association then in effect. In the event that less than all of the Premises shall be taken by condemnation and Tenant does not elect to terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Monthly Rent and applicable Additional Rent shall be reduced in the same ratio that the floor area of the portion of the Premises taken by such condemnation bears to the floor area of the Premises immediately before such condemnation. 9.02 Award ----- In the event of any Taking, whether whole or partial, Landlord and Tenant shall be entitled to receive and retain such separate awards and portions of lump sum awards as may be allocated to their respective interests in any condemnation proceedings. In the event the condemning authority does not make separate awards, Landlord and Tenant agree that any award shall be allocated first to Landlord to take into account any unreturned portion of HPI's Total Investment (determined in accordance with Exhibit "A" to the AIP, with the months for which rent (including Additional Rent) was not fully paid deemed "Remaining", less any amounts equal to any partial payments of Monthly Rent. Any award remaining after Landlord's recovery of the foregoing amounts shall be allocated two-thirds (2/3) to Landlord and one-third (1/3) to Tenant. 9.03 Rebuilding ---------- In the event that this Lease is not terminated by reason of such condemnation, Landlord shall, to the extent of the severance damages applicable to the building of which the Premises are a part actually received by Landlord and Tenant in connection with such condemnation, and subject to the provisions of any Landlord's mortgage concerning the application of condemnation proceeds, cause such restoration and repair to the remaining portion of the Premises to be done as may be necessary to restore them to an architectural and usable whole reasonably suitable for the conduct of the business of Tenant. Article 10. TENANT'S BREACH; LANDLORD'S REMEDIES ------------------------------------ 10.01 Tenant's Breach --------------- The occurrence of any one of the following events shall constitute an "Event of Default" and a breach of this Lease by Tenant: (a) The failure by Tenant to make any payment of Monthly Rent, Additional Rent or other payment required to be made by Tenant hereunder, as and when due, where such failure shall continue for a period of five (5) days after written notice thereof from Landlord to Tenant. (b) The failure by Tenant to observe or perform any of the material covenants or obligations under this Lease to be observed or performed by Tenant, other than as specified in subsections (a) and (d) of this Section 29, where such failure shall continue for a period of thirty (30) days after written notice thereof from Landlord to Tenant; provided, however, that if the nature of such failure is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be in default if Tenant shall commence such cure within said 30-day period and thereafter diligently prosecutes such cure to completion. (c) The abandonment of the Premises by Tenant. (d) The failure by Tenant to remain fully licensed as a "card club operator" in good standing at all times during the Term of this Lease which failure shall continue for a period of five (5) days. (e) The appointment by any court of a receiver, interim trustee or trustee to take possession of any asset or assets of Tenant, said receivership or trusteeship remaining undischarged for a period of sixty (60) days. (f) A general assignment by Tenant for the benefit of creditors. (g) The filing of a voluntary petition by Tenant in bankruptcy or any other petition under any section or chapter of the Bankruptcy Code or any similar law, whether state, federal or foreign, for the relief of debtors. (h) The filing against Tenant of an involuntary petition or any other petition under any section or chapter of the Bankruptcy Code or any similar law, whether state, federal or foreign, for the relief of debtors by the creditors of Tenant, said petition remaining undischarged for a period of sixty (60) days. (i) The attachment, execution or judicial seizure of all or any part of the properties and assets of Tenant, such attachment, execution or other seizure remaining undismissed or undischarged for a period of fifteen (15) days after the levy thereof. (j) The admission in writing by Tenant of its inability to pay its respective debts or perform its obligations as they become due. (k) The calling of a meeting of the creditors representing a significant portion of the unsecured liabilities of Tenant for the purpose of effecting a moratorium, extension, composition or any of the foregoing. (l) The occurrence of any of the events specified in subsections (e) through (l), inclusive, with respect to any general partner of Tenant (if Tenant is a partnership) or any guarantor of Tenant's obligations under this Lease. (m) The occurrence of any event which expressly constitutes an incurable breach of this Lease. The notices specified in subsections (a) and (b) of this Section 29 shall be in lieu of, and not in addition to, any notices required under California Code of Civil Procedure Section 1161 or any successor statute. 10.02 Landlord's Remedies ------------------- In the event of an Event of Default under Section 29 then Landlord, in addition to any other rights or remedies it may have at law, in equity or otherwise, shall have the following rights: (a) Landlord shall have the right to terminate this Lease and Tenant's right to possession of the Premises by giving written notice of termination to Tenant. No act by Landlord other than giving express written notice to Tenant shall terminate this Lease or Tenant's right to possession of the Premises. Should Landlord at any time terminate this Lease for any breach, in addition to any other remedy it may have, it is hereby agreed by Landlord and Tenant that the damages Landlord shall be entitled to recover under this Lease shall include without limitation: (i) The worth, at the time of award, of the unpaid Rent that has been earned at the time of the termination of this Lease; (ii) The worth, at the time of award, of the amount by which the unpaid Rent that would have been earned after the date of termination of this Lease until the time of award exceeds the amount of the loss of Rent that Tenant proves could have been reasonably avoided; (iii) The worth, at the time of award, of the amount by which the unpaid Rent for the balance of the stated term hereof (determined without regard to the termination of this Lease for Tenant's breach) after the time of award exceeds the amount of the loss of Rent that Tenant proves could be reasonably avoided; and (iv) Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's breach, including, but not limited to, the costs and expenses (including attorneys' fees, court costs, advertising costs and brokers' commissions) of recovering possession of the Premises, removing persons or property therefrom, placing the Premises in good order, condition and repair, preparing and altering the Premises for reletting and all other costs and expenses of reletting. "The worth, at the time of award," as used in subparagraphs (i) and (ii) above shall be computed by allowing interest at the Agreed Rate. "The worth at the time of award," as referred to in subparagraph (iii) above shall be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award, plus one percent (1%). The terms "Rent" and "Rents" as used in this Section 31 shall include the Monthly Rent, and all Additional Rent and all other fees and charges required to be paid by Tenant pursuant to the provisions of this Lease. (b) Even though Tenant has breached or defaulted under this Lease and abandoned the Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession, and Landlord may enforce all of its rights and remedies under this Lease, including but not limited to the right to recover all Rents as they become due hereunder. Tenant's right to possession of the Premises shall not be deemed to have been terminated by Landlord unless express written notice to such effect is given by Landlord to Tenant, and Tenant's right to possession of the Premises shall in no event be deemed terminated without such notice on account of acts of maintenance or preservation of or efforts to relet the Premises by Landlord or by reason of the appointment of a receiver upon the initiative of Landlord. 10.03 Right to Cure Tenant's Default ------------------------------ If, after the expiration of any cure or notice period, Tenant has failed to do any act required to be done by Tenant hereunder, Landlord may (but without being obligated to do so) cure such failure at Tenant's cost. If Landlord at any time, by reason of Tenant's failure to comply with the provisions of this Lease, pays any sum or does any act that requires the payment of any sum, the sum paid by Landlord shall be due immediately from Tenant to Landlord at the time the sum is paid and, if paid at a later date, shall bear interest at the Agreed Rate from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant. Such sum, together with interest thereon, shall be Additional Rent hereunder. 10.04 Landlord's Remedies Not Exclusive --------------------------------- The several rights and remedies herein granted to Landlord shall be cumulative and in addition to any others to which Landlord is or may be entitled by law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of any other rights or remedies which Landlord may have and shall not be deemed a waiver of any of Landlord's rights or remedies or to be a release of Tenant from any of Tenant's obligations, unless such waiver or release is expressed in writing and signed by Landlord. 10.05 Right to Rents, Issues and Profits ---------------------------------- In the event this Lease is terminated pursuant to the provisions of this Article 10, all of the right, title, estate and interest of Tenant in and to (a) the Premises; (b) all rents, issues and profits of the Premises whether then accrued or to accrue; (c) all insurance policies and all insurance monies paid or payable to Tenant with respect to the Premises, any property thereon and any business conducted thereon; and (d), at the election of Landlord, all Subleases then in existence for any part or parts of the Premises, shall, without compensation being paid therefor, pass unto and vest in and become the property of Landlord, free of any trust or claim thereto by Tenant. Tenant hereby assigns to Landlord all subrents and other sums falling due from Subtenants during any period in which Landlord has the right under this Lease, whether exercised or not, to reenter the Premises upon Tenant's breach of this Lease, and Tenant shall not have any right, interest or claim in or to such sums during any such period. By its acceptance of an interest subject to this Lease, each Subtenant shall be deemed to have agreed, and Tenant shall require each Subtenant to expressly agree in writing (i) upon receipt of written notice from Landlord that Tenant has breached this Lease, to make all payments of subrents directly to Landlord, which payments shall be received by Landlord without any liability or obligation to such Subtenant or otherwise (except to credit such payments against the rents and other sums due under this Lease from Tenant), and (ii) at the election of Landlord in its sole discretion, to attorn to Landlord in the event this Lease is terminated as the result of Tenant's breach. Each Sublease shall terminate upon the termination of this Lease for Tenant's breach unless Landlord shall expressly elect by written notice to the Subtenant thereunder to continue such Sublease in effect following a termination of the Lease. Neither Landlord's consent to such Sublease, nor Landlord's receipt of subrents from the Subtenant thereunder, nor any other act or omission by Landlord other than Landlord's express written election to keep such Sublease in effect following termination of this Lease, shall be construed as a consent to the continued use or occupancy of the Premises by the Subtenant thereunder following the termination of this Lease for Tenant's breach. 10.06 Receipt of Rents ---------------- Landlord's acceptance of full or partial payment of Rent following any Event of Default shall not constitute a waiver of such Event of Default. Article 11. LANDLORD'S DEFAULT; TENANT'S REMEDIES ------------------------------------- 11.01 Landlord's Default ------------------ The failure by Landlord to observe or perform any of the material covenants or obligations under this Lease to be observed or performed by Landlord where such failure shall continue for a period of thirty (30) days after written notice thereof from Tenant to Landlord shall constitute a default of this Lease by Landlord; provided, however, that if the nature of such failure is such that more than thirty (30) days are reasonably required for its cure, then Landlord shall not be in default if Landlord shall commence such cure within said 30-day period and thereafter diligently prosecutes such cure to completion. 11.02 Tenant's Remedies ----------------- In the event of Landlord's default under Section 11.01 after the expiration of any applicable cure period, in addition to any other rights or remedies it may have at law, in equity or otherwise, Tenant, acting reasonably, shall have the right but not the obligation to cure Landlord's default, at Landlord's expense. If Tenant at any time, by reason of Landlord's failure to comply with the provisions of this Lease, pays any sum or does any act that requires the payment of any sum, the sum paid by Tenant, at Tenant's option, shall be offset against future Rent or shall be due immediately from Landlord to Tenant at the time the sum is paid and, if paid at a later date, shall bear interest at the Agreed Rate from the date the sum is paid by Tenant until Tenant is reimbursed by Landlord. 11.03 Tenant's Remedies Not Exclusive ------------------------------- The several rights and remedies herein granted to Tenant shall be cumulative and in addition to any others to which Tenant is or may be entitled by law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of any other rights or remedies which Tenant may have and shall not be deemed a waiver of any of Tenant's rights or remedies or to be a release of Landlord from any of Landlord's obligations, unless such waiver or release is expressed in writing and signed by Tenant. 11.04 Payment of Rents ---------------- Tenant's payment of full or partial payment of Rent following any default of Landlord under this Lease shall not constitute a waiver of such default. Article 12. MORTGAGE OF LANDLORD'S INTEREST ------------------------------- 12.01 Subordination ------------- The rights of Tenant hereunder shall be subject and subordinate to the lien or interest of any Landlord's mortgage but only upon execution and delivery to Tenant of a subordination, non-disturbance and attornment agreement executed by Landlord's mortgagee in form and substance reasonably acceptable to Tenant. 12.02 Tenant's Obligations With Respect to Landlord's Mortgage -------------------------------------------------------- Tenant shall at any time and from time to time, upon not less than twenty (20) days' prior written request by Landlord, deliver to Landlord either or both of the following: (a) Such financial information concerning Tenant and Tenant's operations as reasonably may be required by any mortgagee or prospective mortgagee under any Landlord's mortgage; provided, however, that any such financial information shall be required and used only for bona fide business reasons related to such mortgage or the obtaining thereof; and (b) An executed and acknowledged instrument amending this Lease in such respect as may be reasonably required by any mortgagee or prospective mortgagee under any Landlord's mortgage; provided, however, that any such amendment shall not materially alter or impair any of the rights and remedies of Tenant under this Lease. 12.03 Definition of Landlord's Mortgage and Landlord's Mortgagee ---------------------------------------------------------- As used in this Lease, the term "Landlord's mortgage" refers to each mortgage or deed of trust which may in the future encumber, the Premises or any part thereof, and each lease of which Landlord is the lessee which covers, or may in the future cover, the Premises or any part thereof. As used in this Lease, the terms "Landlord's mortgagee" and "mortgagee of Landlord" include the mortgagee, or bondholder under each such mortgage, the beneficiary under each such deed of trust and the lessor under each such lease. Article 13. OPERATING EXPENSES ------------------ 13.01 Definitions. ----------- (a) "Operating Expenses" shall include all expenses and costs of every kind and nature (including without limitation, payments to independent contractors) which Landlord shall pay or become obligated to pay because of or in connection with the ownership and operation of the Premises and surrounding property and supporting facilities, and additional facilities (as such additional facilities may be determined by Landlord to be reasonably necessary in subsequent years), including, without limitation: (i) all Tax Costs; (ii) all Insurance Costs; (iii) any deductible portion of an insured loss occurring to the Premises; (iv) expenses payable for the Premises under any reciprocal easement agreement or other expense sharing arrangement with adjacent property owner(s); and (v) all other expenses incurred by Landlord in connection with the Premises. (b) As used herein, the term "Insurance Costs" shall mean and refer to all insurance premiums paid by Landlord with respect to insuring the Premises or any portion thereof or the interest of Landlord or any mortgagee of Landlord therein, including, without limitation, premiums for fire, extended coverage, earthquake, business interruption, loss of rents and liability insurance, and any other insurance which Landlord deems necessary or advisable. (c) As used herein, the term "Tax Costs" shall mean and refer to all real estate taxes, personal property taxes, privilege taxes, gross income taxes assessed on the income of the Card Club, excise taxes, gross sales or use taxes, water charges, sewer charges, assessments (including, but not limited to, assessments for public improvements or benefits) and all other governmental taxes, fees, impositions and charges of every kind and nature, whether or not now customary or within the contemplation of the parties hereto, which shall be or become due and payable under or by virtue of any law, statute, ordinance, regulation or other requirement of any governmental authority, whether federal, state, county, city, municipal or otherwise, (i) which shall be levied, assessed or imposed upon Landlord or the owner of the Premises, or (ii) which shall be or become liens upon or against the Premises or any portion thereof, or any interest of Landlord or Tenant, or (iii) which shall be levied, assessed or imposed or shall be or become liens upon or against any personal property used in connection with the Premises or (iv) which shall be levied or imposed upon or with respect to the ownership, possession, leasing, operation, management, maintenance, improvement, alteration, repair, use or occupancy of the Premises or any portion thereof. Landlord and Tenant recognize that there may be imposed new forms of taxes, assessments, charges, levies or fees, or there may be an increase in certain existing taxes, assessments, charges, levies or fees placed on, or levied in connection with the ownership, leasing, occupancy or operation of the Premises and its facilities. All such new or increased taxes, assessments, charges, levies or fees which are imposed or increased, including, but not limited to, any taxes, assessments, charges, levies and fees assessed or imposed due to the existence of this Lease or for the purpose of funding services or special assessment districts theretofore funded by real property taxes, shall also be included within the meaning of "Tax Costs" as used herein. "Tax Costs" shall also include any costs incurred in negotiating or contesting any of the foregoing taxes, fees, impositions and charges. "Tax Costs" shall not include estate, inheritance, gift or franchise taxes of Landlord or the federal or state net income tax imposed on Landlord. 13.02 Survival. Any sum payable by Tenant under this Article 13 which -------- would not otherwise be due until after the termination of this Lease, shall, if the exact amount is uncertain when this Lease terminates, be paid by Tenant to Landlord upon such termination in an amount to be estimated by Landlord with an adjustment to be made once the exact amount in known. Article 14. TAXES AND OTHER CHARGES ----------------------- 14.01 Tenant's Taxes -------------- Tenant agrees that it will pay and discharge, punctually as and when the same shall become due and payable without penalty, all personal property taxes, excise taxes and all other governmental taxes, fees, impositions and charges payable by Tenant of every kind and nature, whether or not now customary or within the contemplation of the parties hereto, which shall be or become due and payable under or by virtue of any law, statute, ordinance, regulation or other requirement of any governmental authority, whether federal, state, county, municipal or otherwise (all of such taxes, charges, assessments and other governmental impositions being hereinafter collectively referred to as "Tenant's Tax" or "Tenant's Taxes") which shall be levied, assessed or imposed, or shall be or become liens, upon or against any personal property of Tenant or any interest of Tenant therein or under this Lease. Notwithstanding the foregoing provisions of this Section 14.01, nothing contained in this Lease shall require Tenant to pay any franchise, estate, inheritance, succession, capital levy or transfer tax of Landlord or any net income or excess profits tax which is in fact personal to Landlord. Article 15. UTILITY AND OTHER SERVICES -------------------------- 15.01 Utility Charges --------------- Tenant shall make application and otherwise arrange, and pay or cause to be paid all charges for water, sewer, gas, electricity, light, power, telephone and any other utility services used in or on or supplied to or for the Premises, or any part thereof. 15.02 Compliance With Governmental Regulations. ---------------------------------------- Landlord and Tenant shall comply with all rules, regulations and requirements promulgated by national, state or local government agencies or utility suppliers concerning the use of utility services, including any rationing, limitation, or other control. Landlord may cooperate voluntarily in any reasonable manner with the efforts of all governmental agencies or utility suppliers in reducing consumption of energy or other resources. Tenant shall not be entitled to terminate this Lease nor to any reduction or abatement of Rent by reason of such compliance or cooperation. Tenant agrees at all times to cooperate fully with Landlord and to abide by all rules, regulations and requirements which Landlord may prescribe in order to maximize the efficiency of the HVAC system and all other utility systems. 15.03 Security; Landlord Nonresponsibility; Indemnity ----------------------------------------------- Tenant expressly agrees that Tenant shall have the sole responsibility for providing surveillance and security relating to the Premises and the persons therein and the activities conducted in and about Premises, including, without limitation, surveillance necessary to maintain the integrity of the casino activities, and Landlord shall have no responsibility with respect thereto. Under no circumstances, and in no event, shall Landlord be liable to Tenant, any Subtenant or any other person by reason of any theft, burglary, robbery, assault, trespass, arson, unauthorized entry, vandalism, or any other act of any person (other than a duly authorized agent of Landlord) occurring in or about the Premises, and Tenant shall indemnify Landlord and its agents, contractors and employees and hold each of them harmless from and against any and all losses, liabilities, judgments, costs or expenses (including reasonable attorneys' fees and other costs of investigation or defense) which they may suffer or incur by reason of any claim asserted by any person arising out of, or related to, any of the foregoing. Article 16. GENERAL PROVISIONS ------------------ 16.01 Estoppel Certificates --------------------- Either party shall, without charge, at any time and from time to time, within ten (10) business days after request by the other party, deliver a written certificate duly executed and acknowledged, certifying to the requesting party, or any other person or entity specified by the requesting party: (a) That this Lease is unmodified and in full force and effect, or if there has been any modification, that the same is in full force and effect as so modified, and identifying any such modification; (b) Whether or not to the knowledge of the certifying party there are then existing any offsets or defenses in favor of such party against the enforcement of any of the terms, covenants and conditions of this Lease and, if so, specifying the same, and also whether or not to the knowledge of the certifying party, the requesting party has observed and performed all of the terms, covenants and conditions on its part to be observed and performed, and, if not, specifying the same; (c) The dates to which Monthly Rent, Additional Rent and all other charges hereunder have been paid; and (d) Any other matter which reasonably relates to the tenancy created hereby and the contractual relationship between Landlord and Tenant. The failure of the certifying party to deliver such certificate within five (5) business days after a second written request shall constitute a default hereunder and shall be conclusive upon Landlord, Tenant and any other person, firm or corporation for whose benefit the certificate was requested, that this Lease is in full force and effect without modification except as may be represented by the requesting party, and that there are no uncured defaults on the part of the requesting party. If the certifying party does not deliver such certificate to the requesting party or such person designated by the requesting party within such 10-day period, the certifying party shall be liable to the requesting party for all damages, losses, costs and expenses proximately resulting from the certifying party's failure to timely deliver such certificate. If the certifying party makes any false statement or claim in any such certificate, the certifying party shall be liable to the requesting party for all damages, losses, costs and expenses proximately resulting therefrom. 16.02 Landlord's Right of Entry ------------------------- Provided that Landlord does not unreasonably interfere with the operation of Tenant's business on the Premises, Landlord and its agents shall have the right: (a) To display the Premises to prospective tenants. If Tenant vacates the Premises prior to the expiration of the Term, Landlord, at its sole cost and expense, may from and after Tenant's vacation decorate, remodel, repair, alter, improve or otherwise prepare the Premises for reoccupancy. (b) To enter the Premises at any reasonable time for inspections, to exhibit the Premises to others, such as prospective purchasers and insurance, building and lender's inspectors, to perform its obligations under this Lease and for any purpose whatsoever reasonably related to the safety, protection or preservation of the Premises or Landlord's interest therein, without being deemed guilty of an eviction or disturbance of Tenant's use and possession, provided that Landlord shall not unreasonably interfere with Tenant's business operation. Tenant shall deliver to Landlord all keys necessary to unlock all of the doors in, on or about the Premises, except Tenant's vaults and safes, and Landlord shall have the right to use any and all means which Landlord may deem proper in order to obtain entry in an emergency. 16.03 Waiver ------ No waiver of any breach of any covenant or condition herein contained shall be effective unless such waiver is in writing, signed by the aggrieved party and delivered to the breaching party. The waiver by the aggrieved party of any such breach or breaches, or the failure by the aggrieved party to exercise any right or remedy in respect of any such breach or breaches, shall not constitute a waiver or relinquishment for the future of any such covenant or condition or of any subsequent breach of any such covenant or condition nor bar any right or remedy of the aggrieved party in respect of any such subsequent breach. The receipt of any Rent after the expiration of any cure period provided for in this Lease (regardless of any endorsement on any check or any statement in any letter accompanying any payment of Rent) by Landlord shall not operate as an accord and satisfaction or a waiver of the right of Landlord to enforce the payment of Rents previously due or as a bar to the termination of this Lease or the enforcement of any other remedy for default in the payment of such Rents previously due, or for any other breach of this Lease by Tenant. 16.04 Surrender of Premises; Holding Over ----------------------------------- Subject to Landlord's obligations to maintain and repair the Premises, Tenant agrees on the last day of the Term or on the earlier termination of this Lease to surrender the Premises, in good order, condition and repair, reasonable wear and tear excepted. If Tenant fails to surrender the Premises upon the termination of this Lease, Tenant agrees to and shall indemnify and hold harmless Landlord from and against any loss or liability, including costs and attorneys' fees, resulting from such failure to surrender the Premises, including but not limited to, any claims made by, or loss of rent from, any succeeding tenant based on or resulting from such failure to surrender. Nothing contained herein shall be construed as a consent to Tenant's occupancy or possession of the Premises beyond the expiration or earlier termination of this Lease. 16.05 Notices ------- Wherever in this Lease one party to this Lease is required or permitted to give or serve a notice, statement, request or demand to or on the other, such notice, statement, request or demand shall be given or served upon the party to whom directed in writing and shall be delivered personally or forwarded by registered or certified mail, postage prepaid, return receipt requested, addressed to Landlord or Tenant, as the case may be, at the address of that party set forth below with copies to be sent concurrently as follows: If to Tenant: Compton Entertainment, Inc. P. O.Box 90038 City of Industry, CA 91715-0038 Attention: Rouben Kandilian With a copy to: Jerry Neuman, Esq. Mitchell, Silberberg & Knupp 11377 West Olympic Blvd. Los Angeles, CA 90064 Fax: (310) 312-3100 If to Landlord: Hollywood Park, Inc. 1050 So. Prairie Ave. Inglewood, California 90301 Attn: G. Michael Finnigan With a copy to: Sandra G. Kanengiser, Esq. Irell & Manella 1800 Avenue of the Stars Suite 900 Los Angeles, California 90067 Either party may change its address for notice by written notice given to the other in the manner hereinabove provided. Any such notice, statement, request or demand shall be deemed to have been duly given or served on the date personally delivered or two (2) business days after the date deposited in the United States mail in accordance with this Section 18.05. 16.06 Partial Invalidity; Construction -------------------------------- If any term or provision of this Lease or the application thereof to any person or circumstance shall to any extent be held to 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 has been 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. This Lease shall be governed by and construed under the laws of the State of California. When required by the context of this Lease, the singular shall include the plural, and the neuter shall include the masculine and feminine. 16.07 Captions -------- The captions and headings in this Lease are inserted only as a matter of convenience and for reference, and they in no way define, limit or describe the scope of this Lease or the intent of any provision hereof. 16.08 Short Form Lease ---------------- At the request of Landlord, Tenant agrees to join in the execution and delivery of a short form memorandum of this Lease to be recorded in the Official Records of Los Angeles County, California. The terms, covenants and conditions of this Lease shall control over any such memorandum. In no event shall Tenant have this Lease recorded without the prior written consent of Landlord, which consent may be withheld in Landlord's sole and absolute discretion. 16.09 Brokers' Commissions -------------------- Each party represents and warrants to the other party that it has had no dealings with any broker, finder or agent in connection with the subject matter of this Lease or any of the transactions contemplated hereby. Each party agrees to defend, indemnify and hold harmless the other party from any claim, suit, liability, cost or expense (including attorneys' fees) with respect to brokerage or finder's fees or commissions or other similar compensation alleged to be owing on account of such party's dealings (or alleged dealings) with any real estate broker, agent, finder or other person. 16.10 Attorneys' Fees --------------- (a) In the event of any litigation between Landlord and Tenant alleging a breach of this Lease by either party, or seeking a declaration of the rights of the parties hereunder, the losing party shall pay to the prevailing party its costs of litigation including reasonable attorneys' fees. (b) Each party shall reimburse the other party, upon demand, for all costs and expenses (including attorneys' fees) incurred by such party in connection with any bankruptcy proceeding, or other proceeding under Title 11 of the United States Code (or any successor or similar law) involving the other party. 16.11 Counterparts ------------ This Lease may be executed in two or more counterparts, each of which may be deemed an original, but all of which together shall constitute one and the same instrument. 16.12 Sole Agreement -------------- This Lease, together with the Agreement Respecting Pyramid Casino and the AIP, contains all of the agreements of the parties hereto with respect to the matters covered hereby, and no prior agreements, oral or written, or understandings or representations of any nature whatsoever pertaining to any such matters shall be effective for any purpose unless specifically incorporated in the provisions of this Lease or said agreements. 16.13 Successors and Assigns ---------------------- Subject to the provisions hereof relative to assignment, this Lease shall be binding upon and inure to the benefit of the successors and assigns of the respective parties hereto, and the terms "Landlord" and "Tenant" shall include the respective successors and assigns of such parties. 16.14 Time is of the Essence ---------------------- Time is of the essence with respect to the performance or observance of each of the obligations, covenants and agreements of each of Landlord and Tenant under this Lease. 16.15 Survival of Covenants --------------------- Except with respect to those conditions, covenants and agreements of this Lease which by their express terms are applicable only to, or which by their nature could only be applicable after, a certain date or time during the term hereof, all of the conditions, covenants and agreements of this Lease shall be deemed to be effective as of the date of this Lease. Any obligation arising during the Term of this Lease under any provision hereof, which by its nature would require Landlord and/or Tenant to take certain action after the expiration of the Term or other termination of this Lease, including any termination resulting from the breach of this Lease by Landlord or Tenant, shall be deemed to survive the expiration of the Term or other termination of this Lease to the extent of requiring any action to be performed after the expiration of the Term or other termination hereof which is necessary to fully perform the obligation that arose prior to such expiration or termination. 16.16 Landlord's Consent or Approval ------------------------------ Where any provision of this Lease requires the consent or approval of Landlord to any action to be taken or of any instrument or document submitted or furnished by Tenant or otherwise, such consent or approval shall not be unreasonably withheld or delayed by Landlord unless such provision entitles Landlord to the discretionary withholding of any such consent or approval required thereby. The consent or approval of Landlord to or of any such act, instrument or document shall not be deemed a waiver of, or render unnecessary, Landlord's consent or approval to or of any subsequent similar or dissimilar acts to be taken or instruments or documents to be submitted or furnished by Tenant hereunder. 16.17 Joint and Several Obligations ----------------------------- If more than one person or entity is Tenant or Landlord, the obligations imposed on that party shall be joint and several. If either Landlord or Tenant is a partnership, the obligations of each general partner shall be joint and several. 16.18 No Offer -------- The submission of this document for examination and discussion does not constitute an offer to lease, or a reservation of, or option for, the Premises. This document will become effective and binding only upon execution and delivery by Landlord and Tenant. 16.19 Corporate Resolution -------------------- If Tenant is a corporation, Tenant shall deliver to Landlord, upon execution of this Lease, a certified copy of a resolution of its board of directors authorizing the execution of this Lease and naming the officer or officers who are authorized to execute this Lease on behalf of the corporation. IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of the day and year first above written. LANDLORD: HOLLYWOOD PARK, INC., a Delaware corporation By:____________________________ Title:_________________________ TENANT: COMPTON ENTERTAINMENT, INC., a California corporation By:____________________________ Title:_________________________ EX-10.19 7 STANDSTILL AGREEMENT EXHIBIT 10.19 STANDSTILL AGREEMENT THIS STANDSTILL AGREEMENT (the "Agreement") is made as of the 27th day --------- of October, 1995, by and among FIRST UNION NATIONAL BANK OF FLORIDA ("FUNB"), ---- BANK ONE LEXINGTON, N.A. ("B-One"), BANK MIDWEST, N.A. ("B-MW"), INTRUST BANK, ----- ---- N.A. ("INTRUST"), FCLT LOANS, L.P., a Texas limited partnership ("FCLT") (FUNB, ------- ---- B-One, B-MW, INTRUST and FCLT sometimes being collectively referred to herein as the "Bank Group" and FUNB, as agent for itself and the other members of the Bank ---------- Group, sometimes being referred to herein as the "Agent") and SUNFLOWER RACING, ----- INC., a Kansas corporation ("Sunflower"). --------- WITNESSETH: WHEREAS, the parties hereto were parties to, or are successors in interest to parties to, a certain Amended and Restated Credit And Security Agreement dated March 23, 1994 which was made by and among Sunflower, B-One, Texas Commerce Bank National Association (the interests of which in the loan transaction described in such document having since been assigned to FCLT), Home State Bank of Kansas City (now known as B-MW), INTRUST and First Union National Bank of North Carolina (the interests of which in the loan transaction described in such document having since been assigned to FUNB), as since amended in writing by that certain First Amendment dated August 1, 1994 made by and among the same parties and that certain Second Amendment and Waiver dated December 19, 1994 made by and among the same parties (such agreement as so amended in writing being referred to herein as the "Credit Agreement"); ---------------- WHEREAS, the Credit Agreement and certain other "Loan Documents" [such -------------- term being used herein with the same definition as in the Credit Agreement except that such term shall also refer to this Agreement, the Credit Agreement itself (including without limitation the aforesaid First Amendment and the aforesaid Second Amendment and Waiver), any documents executed or delivered subsequent to the date of the Credit Agreement but which fit within said definition, and the documents executed by any party hereto or delivered to the Bank Group or Agent pursuant to or in conjunction with the execution of any of the foregoing, including, without limitation, that certain December 19, 1994 Subordination Agreement executed by Sunflower and the party hereinafter defined as the "Guarantor" and those documents hereinafter defined as the "Inducement Certificates"] relate to the obligations and indebtedness of Sunflower to members of the Bank Group which are evidenced, created or secured by the Loan Documents (such indebtedness and obligations provided for in the Loan Documents, including without limitation, any provided for -1- herein or in any document executed pursuant hereto, being collectively referred to herein as the "Debt"); ---- WHEREAS, the Debt is secured by the liens, pledges and security interests which are evidenced, described, created, granted or perfected in and by the Loan Documents, including without limitation the lien of a mortgage on that certain real property located in Wyandotte County, Kansas which is more fully described in Exhibit A, which is attached hereto and incorporated herein --------- by this reference (such real property together with all fixtures and improvements thereon being referred to herein as the "Real Property") (all such ------------- liens, pledges and security interests which secure the Debt and the property encumbered thereby being collectively referred to herein sometimes as the "Collateral"); - ----------- WHEREAS, the members of the Bank Group have not received the quarterly installments of interest and principal which were due to them on or before July 1, 1995 under the "Notes" which constitute the "Term Loan" (as those capitalized ----- --------- terms are defined in the Credit Agreement and hereinafter used) and the failure to pay such amounts could be declared by the Agent or the Bank Group to be an "Event of Default" (as that capitalized term is defined under Section 7.1 of the - ----------------- Credit Agreement and, as amended in Subsection 9(b) hereof, is hereinafter used); WHEREAS, Sunflower has requested that the Agent and the Bank Group refrain from declaring the failure to pay said quarterly installments to be an Event of Default and also has requested that the Bank Group and the Agent refrain from exercising the remedies to collect the Debt which would only be available to them after declaring an Event of Default under the Loan Documents until the "Termination Date" (as that term is hereinafter defined); and WHEREAS, the Agent and Bank Group, after negotiations which Sunflower acknowledges were conducted in good faith, are willing to so refrain from either declaring an Event of Default or exercising such remedies as would only be available to them under the Loan Documents after such a declaration until the "Termination Date" (as that term is hereinafter defined), upon the terms and conditions herein set forth. NOW, THEREFORE, upon the request of Sunflower and in consideration of the foregoing premises and the mutual agreements and promises and other good and valuable consideration herein exchanged and received, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Incorporation of Recitals. -------------------------- -2- The foregoing recitals, and the Exhibit, defined terms and Loan Documents referenced therein, are hereby incorporated herein by this reference. 2. Forbearance by Bank Group and Agent. ------------------------------------ (a) Bank Group hereby agrees that until the soonest to occur of: (i) a default hereunder, as defined in Section 9 hereof; (ii) the passage of the end of the so-called "veto session" of the 1996 Session of the Kansas Legislature without the adoption by both the Kansas House of Representatives and the Kansas Senate of legislation which would permit slot machine or casino gambling to occur at pari-mutuel racetrack facilities in Kansas which (with necessary licensing) would include at least the Real Property, with or without first being approved in local or statewide elections or if such legislation passes by such date but approval by the Governor of Kansas after such date is necessary thereafter, then passage of the deadline for such approval by the Governor without such approval being given; and (iii) the passage of July 1, 1996; (the soonest of such dates being referred to herein as the "Termination Date"), ---------------- neither any member of the Bank Group nor Agent shall, directly or indirectly, institute or cause to be instituted any judicial proceedings against Sunflower or SR Food & Beverage Company, a Kansas corporation ("SRF&B") to enforce the ----- Loan Documents or to collect the Debt, seek the appointment of a receiver for all or part of the Collateral, seek foreclosure of all or part of the Collateral or exercise any other rights or remedies otherwise permitted to be exercised by the Loan Documents or applicable law only upon an Event of Default under the Loan Documents. (b) Until the Termination Date, neither any member of the Bank Group nor Agent shall, directly or indirectly, institute or cause to be instituted any judicial proceedings against Hollywood Park, Inc., a Delaware corporation (the "Guarantor") to enforce the Guaranty (as that term is defined in Subsection 7(a) - ---------- hereof). (c) Nothing in this Agreement shall be construed as in any way limiting, waiving or otherwise affecting any rights, remedies or liens which the Agent or the Bank Group may have in -3- order to collect any portion or all of the Debt or to foreclose upon any portion or all of the Collateral on or after the Termination Date, if the Debt is not satisfied in full by the Termination Date. Without limiting the generality of the foregoing, neither the Bank Group nor the Agent is waiving the right to declare the failure to make payments due on July 1, 1995 or any other events of which the Agent is or is not presently aware, to be an Event of Default, but rather, the Agent and Bank Group hereby expressly reserve the right, subject to the express terms hereof, to declare hereafter that any or all such circumstances constitute an Event of Default under the terms of the Credit Agreement and the other Loan Documents; provided that no default rate of interest or late fee permitted under the Loan Documents shall be assessed for time periods prior to the Termination Date. Also, without limiting the generality of the first sentence of this Subsection 2(c), the Bank Group and the Agent hereby reserve all of the rights of the Bank Group and of the Agent to pursue Sunflower, SRF&B or both for all or any portion of the Debt, to pursue Guarantor for liability under the Guaranty or any other Loan Document to which Guarantor is a party and also to pursue any and all Collateral which is pledged, mortgaged, assigned or otherwise liable for all or any portion of the Debt under the terms of the Loan Documents. (d) Nothing in this Agreement shall be construed as preventing the Agent or the Bank Group from participating in any hearing or proceeding in any judicial, bankruptcy or other proceeding of any type instituted by any other person or entity, including without limitation by the judge presiding therein. (e) Nothing in this Agreement shall be construed as in any way limiting, waiving or otherwise affecting any rights which the Agent or Bank Group would have under the Loan Documents or otherwise with respect to administering or enforcing the Loan Documents in the absence of a default hereunder or an Event of Default under any other Loan Documents. (f) Nothing in this Agreement shall be construed as an agreement by the Bank to provide any additional funding whatsoever to Sunflower or any other party. (g) Upon the Termination Date occurring without the Debt being satisfied in full, notwithstanding any contrary provisions of any of the Loan Documents, without any notice, demand, declaration, or grace period from the Agent or the Bank Group: (i) Sunflower shall be deemed to be in default under the respective terms of this Agreement, as well as the Loan Documents; (ii) the Bank Group, and the Agent acting on its behalf, shall be entitled to the full payment and performance of all of the indebtedness and other obligations constituting the Debt immediately; and (iii) the Bank Group, and the Agent acting on its behalf, can immediately exercise any or all of its rights -4- or remedies provided for by law, this Agreement and the Loan Documents, including without limitation the rights to seek a judgment against Sunflower and any other person or entity which either is itself, or which has an interest in property that is, liable for the payment or performance of all or some portion of the Debt, subject, in the case of the Guarantor, to the limitations set forth in the Guaranty (as that term is hereinafter defined), to enforce any such judgment rendered, to exercise any non-judicial remedies which the Bank Group or the Agent acting on its behalf may have, whether hereunder, under the Loan Documents or under applicable law, and to foreclose upon or obtain a receivership for any or all of the Collateral. 3. Acknowledgments by Sunflower. ----------------------------- (a) In order to induce Agent and Bank Group to enter into this Agreement, Sunflower specifically agrees and acknowledges that: (i) Now and after the execution hereof and of any document executed pursuant hereto Sunflower is and will be absolutely and unconditionally liable for the full payment and performance of all and of each and every portion of the Debt notwithstanding anything to the contrary in any of the Loan Documents and notwithstanding any actions or omissions heretofore taken by the Bank Group, the Agent, or the predecessors in interest of either; (ii) But for the forbearance provided for in Section 2 hereof, Bank Group and the Agent acting on its behalf would now be entitled to declare that an Event of Default had occurred under the Loan Documents and to enforce the indebtedness and obligations constituting the Debt by any legal means, including, without limitation, by taking steps to foreclose upon any or all of the Collateral and by instituting suit against Sunflower and such other persons and entities as are necessary in order to realize upon the Collateral; and (iii) as of the date hereof, the sum of the unpaid principal balances of the Notes constituting the Term Loan is $28,666,666.69 and, prior to the partial payments of interest provided for in Section 4 hereof, the sum of the accrued but unpaid interest due thereunder as of August 31, 1995, was $933,981.49. -5- (b) Sunflower acknowledges and agrees that, in entering into this Agreement, Bank Group and Agent are, among other things, relying upon: (i) the execution and performance of the terms hereof by Sunflower; (ii) the representations and warranties of Sunflower set forth herein; (iii) the fact that this Agreement does not constitute a novation or extinguishment of the Debt and that the Loan Documents remain in full force and effect, subject to the terms hereof and of the Loan Documents executed pursuant to the terms hereof; and (iv) the execution and delivery of any other documents or consents to the Agent or Bank Group pursuant hereto, including, without limitation, the Guarantor's execution of the Guaranty (as that term is hereinafter defined) and the execution and delivery of the inducement certificates referred to in Section 7 hereof by the parties identified therein. (c) Sunflower acknowledges and agrees that FUNB has succeeded to all of the interests in the Loan Documents heretofore held by FUNB or by First National Bank of North Carolina, including the rights thereof to act as Agent for the Bank Group. (d) Sunflower acknowledges and agrees that FCLT has, subject to the final approval by the Kansas Racing Commission ("KRC") of a background check by --- the Kansas Bureau of Investigation of Shawmut Bank Connecticut, succeeded to all of the interests in the Loan Documents heretofore held by Texas Commerce Bank National Association. 4. Payments. --------- (a) On the first day of each calendar month which occurs after the date hereof and prior to the Termination Date, monthly payments consisting of one-half of the interest calculated in accordance with Section 6(a) hereof which has accrued on the outstanding principal balance of the "Notes" (as that term is ----- defined in the Credit Agreement and hereinafter used) during the preceding calendar month (each singly a "Monthly Installment" and one or more, ------------------- collectively, the "Monthly Installments") shall be due and payable by Sunflower -------------------- to the Agent (on behalf of the Bank Group); provided that, except as is otherwise specifically provided in this Agreement, all other interest, whether heretofore accrued or hereafter accruing, all principal and all other monetary and non-monetary obligations constituting the Debt shall be due and payable on the Termination Date. Notwithstanding anything else in this Subsection 4(a) to the contrary, Sunflower shall not be in default for failure to pay any Monthly Installment unless and until Sunflower fails to make such payment on or before the later of the first day of the calendar month on which such Monthly Installment was to have been paid and five days after Bank Group or Agent gives Sunflower -6- written notice of the amount thereof and the method by which Bank Group or Agent calculated said amount. (b) In addition to all other payments from Sunflower provided for under this Agreement, upon the date hereof Sunflower shall pay to the Agent (on behalf of the Bank Group) the sum of $92,569.44 representing one-half of the interest which accrued on the outstanding principal balance of the Notes during the month of September, 1995. (c) In addition to all other payments from Sunflower provided for under this Agreement, upon the date hereof Sunflower shall pay to the Agent (on behalf of the Bank Group) the sum of $466,990.75, representing one-half of the interest which had accrued on the outstanding principal balance of the Notes but which remained unpaid as of August 31, 1995; provided that Sunflower shall do so by cooperating with Agent so as to cause Boatmen's Trust Company/Kansas City Division (the "Escrow Agent") to pay the amounts then in the "Escrow Account" ------------ -------------- [as that term is defined in that certain Escrow Agreement dated September 13, 1995 made by and among Escrow Agent, Sunflower and Agent, as the same may be extended in written documents signed by the parties thereto (the "Interest -------- Escrow Agreement") and is hereinafter used] to the Agent (on behalf of the Bank - ---------------- Group). (d) In addition to all other payments from Sunflower provided for under this Agreement, Sunflower shall cooperate with Agent in causing the Escrow Agent to pay any interest earned on the Escrow Account, less any fees charged by the Escrow Agent to Agent (on behalf of the Bank Group), all in accordance with the terms of the Interest Escrow Agreement, for a credit against the then accrued but unpaid interest due on the Debt. For purposes hereof, in cooperating with the Agent, Sunflower shall take such steps, and execute such documents, as the Agent shall reasonably request from time to time. (e) In addition to all other payments from Sunflower provided for under this Agreement, Sunflower will, within fifteen (15) days after every third fiscal month of Sunflower (the first calculation being done after the fiscal month of Sunflower ending in December, 1995), (for purposes of this Subsection 4(e), the three fiscal months ending on such date and each succeeding set of three fiscal months each being referred to as a "Quarter") pay to the Agent (on ------- behalf of the Bank Group) sixty percent (60%) of Sunflower's "Excess Cash Flow after Operational Expenses" (as hereinafter defined), based upon the "Operational Program" dated June, 1995 prepared by Sunflower, with later adjustments made as a result of the modifications thereafter made in the horse and dog racing schedules at the Real Property which were approved by the KRC. For purposes of this Subsection 4(e) only, the following terms shall have the following meanings: -7- (i) "Accounts Attributable to Sunflower and SRF&B" shall mean the -------------------------------------------- Sunflower operational account, the SRF&B operational account, purse accounts, exchange accounts, and the TRAK East operational account. (ii) "Purse Payments and Purse Supplements" shall mean any accrued ------------------------------------ obligation for payment or actual payment by Sunflower or TRAK East to accounts maintained for the ultimate distribution and payment of greyhound, horse or simulcast purses. (iii) "Host Track Payments" shall mean actual payments or accrued ------------------- obligations for payments to track facilities simulcasting a live race signal to the Woodlands racetrack facility. (iv) "Inter-Track Payments" shall mean any reconciliation payments or -------------------- accrued obligations for reconciliation payments between racetrack facilities and arising out of wagering payoffs from simulcast wagering. (v) "Breakage" shall mean those obligations for payment as defined by -------- K.S.A. 74-8802(a). (vi) "Outs" shall mean the obligations for payment of unclaimed winning ---- tickets referred to in K.S.A. 74-8822. (vii) "Payroll" shall mean the normal weekly payroll obligations of TRAK ------- East, Sunflower and SRF&B for their permanent, part-time and temporary work forces. (viii) "Taxes" shall mean those payments and accruals of payments for ----- personal property taxes, real property taxes and special assessments upon the real property. (ix) "Bank Interest Payments" shall mean those payments made or accrued for ---------------------- payment hereunder to the Agent for the Bank Group. For purposes of the calculation contemplated by this Subsection 4(e), "Excess ------ Cash Flow After Operational Expenses" shall be determined by a mathematical - ------------------------------------ calculation commencing with a determination of the ending balance for the Quarter of all Accounts Attributable to Sunflower and SRF&B and subtracting therefrom all accrued or outstanding obligations associated with greyhound, horse and simulcast Purse Payments and Purse Supplements, Host Track Payments, Inter-Track Payments, Breakage, Outs, Payroll, Taxes, Bank Interest Payments and all operations and vendor payables normally referenced upon the business ledgers of said companies. Any positive quarterly calculation shall be deemed to be Excess Cash Flow after Operational Expenses subject -8- to percentage division and payment as described herein. Within ten (10) days from the date hereof, Sunflower will prepare and deliver to Agent a certain Schedule (the "Schedule"), reasonably satisfactory in form and content to Agent -------- given the provisions hereof which shall consist of some past financial statements of Sunflower on which the specific accounts and amounts which would have constituted the terms defined hereinabove, as of the date of such statements, are designated. In order to identify the Schedule for future reference, when a Schedule reasonably satisfactory to Agent has been delivered, Agent and Sunflower shall attach thereto a certificate executed by Sunflower and Agent which makes reference to this Subsection 4(e). The parties agree that subject to the terms of this Subsection 4(e) the corresponding accounts and amounts on future financial statements of Sunflower will constitute the foregoing defined terms and that the sample calculation included within such Schedule is the method of calculation contemplated hereunder. The parties agree that notwithstanding any other accounting treatment which Sunflower may give various payments and accruals: Sunflower will not be able to double count any item as both an accrual and as a payment made within a quarter in making the calculations provided for in this Subsection 4(e); the forty percent (40%) of the Excess Cash Flow after Operational Expenses for any Quarter not paid to the Agent will be retained by Sunflower or SRF&B, as the case may be, and shall be excluded from future calculations made under this Subsection 4(e); and, except for property taxes, purse related items, Breakage and Outs, accruals cannot be made except for items due no later than the next succeeding Quarter. Any payments made to the Agent under this Subsection 4(e) will be applied as a credit against the then accrued but unpaid interest due on the Debt. 5. Property Taxes. --------------- (a) The amount of property taxes for 1995 on the Real Property, as calculated by the government of Wyandotte County, Kansas (the "County") (such ------ amount being referred to as the "1995 Tax Deposit"), will be paid to the County ---------------- or deposited into escrow with the Escrow Agent in accordance with the terms of this Section 5 pursuant to the form of escrow agreement attached hereto as Exhibit B, which exhibit is hereby incorporated herein by reference (the "Tax - --------- --- Escrow Agreement"). On or before December 20, 1995, Sunflower will pay the - ---------------- County, or escrow in the Tax Escrow Account, pursuant to the Tax Escrow Agreement, no less than $400,000.00 of the total of the 1995 property taxes on the Real Property, as calculated by the County. On or before March 31, 1996, Sunflower will pay to the County, or escrow in the Tax Escrow Account, pursuant to the Tax Escrow Agreement, at least the balance of the first half of the 1995 property taxes on the Real Property. On or before June 20, 1996, Sunflower will pay the County, or escrow in the Tax Escrow Account, pursuant to the Tax Escrow Agreement, no less than the then unpaid balance of -9- the 1995 property taxes on the Real Property, as calculated by the County. Unless hereafter otherwise agreed by the parties to the Tax Escrow Agreement, the 1995 Tax Deposit will be held in the Tax Escrow Account until the date (the "1995 Determination Date") that Agent or Sunflower notifies the other and Escrow ----------------------- Agent that the amount of property taxes due on the Real Property for 1995 has been determined, whether by means of the execution of a written stipulation or settlement between Sunflower and the County or the issuance of a final order of the Kansas Board of Tax Appeals or of a court of competent jurisdiction, which order is either non-appealable or for which the time to appeal has expired without the filing of an appeal. Upon the 1995 Determination Date, the principal of the 1995 Tax Deposit, and any earnings thereon shall be applied in the following order, to-wit: first, to the County to the extent necessary to fully pay the 1995 property taxes on the Real Property; and second, any excess then remaining being delivered to Sunflower. Any earnings in the Escrow Account on the 1995 Tax Deposit, less any fees to the Escrow Agent earned thereon pursuant to the Tax Escrow Agreement, will be applied in the same order as the principal. (b) In order to secure the Debt further, Sunflower hereby pledges and grants a security interest in the amounts escrowed in the Tax Escrow Account, from time to time, to the Bank Group and agrees that, notwithstanding anything else herein to the contrary, if the Termination Date occurs without the full payment and performance of the Debt having occurred, the Bank Group, acting through the Agent, will be entitled to the immediate payment of the entire amount then in the Tax Escrow Account, less the fees theretofore earned by the Escrow Agent under the Tax Escrow Agreement. Any amount so obtained by the Bank Group will be applied to the Debt in such manner as the Bank Group shall determine. 6. Modification of Loan Documents. ------------------------------- (a) Notwithstanding anything to the contrary herein or in the Loan Documents, from and after September 1, 1995 until the Termination Date, interest will accrue on the principal portion of the Debt at a rate calculated as being LIBOR plus 1.75% per annum on each of the dates that the interest rate is able to change under the terms of the Loan Documents without reference to this Agreement; provided that the method of determining the applicable LIBOR rate shall be the same as that which was used in setting LIBOR interest rates under the Credit Agreement prior to the execution hereof. (b) By execution of this Agreement, the Loan Documents are hereby modified in all respects necessary to implement the terms and provisions of this Agreement, and hereafter all references herein and in any of the Loan Documents to any of the Loan Documents shall refer to such Loan Documents as amended hereby. -10- 7. Additional Guaranty, Inducement Certificates and Subordinations. ---------------------------------------------------------------- (a) Within five (5) days of the date hereof, Sunflower shall deliver to the Bank Group a guaranty executed by the Guarantor in the form attached hereto as Exhibit C, which is hereby incorporated herein by reference (the --------- "Guaranty"); provided that on the date hereof Sunflower shall fax to Agent a - --------- copy of the signature page executed by Guarantor. (b) Within sixty (60) days from the execution hereof, Sunflower shall deliver to the Bank Group a certificate executed by The Racing Association of Kansas East, a Kansas not-for-profit corporation ("TRAK East"), which shall have --------- been approved by the KRC by said date, in the form attached hereto as Exhibit D, --------- which is hereby incorporated herein by reference, or such other substantially similar form as the Bank Group may approve, in which TRAK East shall agree that, notwithstanding the execution hereof, TRAK East's covenants and agreements for the benefit of the Bank Group in any of the Loan Documents, including without limitation that certain Consent to Collateral Assignment of Lease and Management Agreement dated March 23, 1994, remain in full force and effect. (c) Contemporaneously with the execution hereof, Sunflower shall deliver to the Bank Group a certificate executed by SRF&B which shall be in the form attached hereto as Exhibit E, which is hereby incorporated herein by --------- reference, or such other substantially similar form as the Bank Group may approve, in which SRF&B shall agree that, notwithstanding the execution hereof, SRF&B's covenants and agreements for the benefit of the Bank Group in any of the Loan Documents, including without limitation that certain Unconditional Guaranty Agreement (the "1994 Guaranty") and that certain Security Agreement, both of ------------- which are dated March 23, 1994, remain in full force and effect. (d) Within five (5) days of the date hereof, Sunflower shall deliver to the Bank Group a certificate executed by the Guarantor which shall be in the form attached hereto as Exhibit F, which is hereby incorporated herein by --------- reference, or such other substantially similar form as the Bank Group may approve, in which Guarantor shall agree that, notwithstanding the execution hereof, Guarantor's covenants and agreements for the benefit of the Bank Group that certain Pledge Agreement dated March 23, 1994, remain in full force and effect; provided that on the date hereof Sunflower shall fax to Agent a copy of the signature page thereof, executed by Guarantor. (e) Within five (5) days of the date hereof, Sunflower shall deliver to the Bank Group a certificate executed by R.D. Hubbard ("Hubbard") which shall ------- be in the form attached hereto as -11- Exhibit G, which is hereby incorporated herein by reference, or such other - --------- substantially similar form as the Bank Group may approve, in which Hubbard shall agree that, notwithstanding the execution hereof, Hubbard's covenants and agreements for the benefit of the Bank Group in that certain Subordination and Amendment Agreement dated March 23, 1994 and that certain Certificate of R.D. Hubbard dated March 23, 1994, remain in full force and effect. (f) Within the respective time periods referenced in Subsections 7(a) through (e) hereof, Sunflower will deliver to the Bank Group one or more certificates executed, and containing representations and warranties, by Sunflower, TRAK East, SRF&B, Guarantor, Hubbard and all other persons or entities with debts from Sunflower which have been subordinated to the Debt, and shall certify that there have been no payments, directly or indirectly, made in violation of any such subordinations. (g) Contemporaneously with the execution hereof, and from time to time within thirty (30) days of the Bank Group's request therefor prior to the Termination Date, Sunflower shall deliver to the Bank Group one or more certificates, in such form(s), executed by either or both of Sunflower and SRF&B, or their successors, as the Bank Group may request, in which such persons or entities will certify that such persons' or entity's obligations to the Bank Group under any of the Loan Documents to which such person or entity is a party or successor remain in full force and effect, that as of said date neither such person or entity nor Sunflower has committed any defaults under such Loan Documents, other than the "Known Current Defaults" (as that term is hereinafter defined); provided that Sunflower's execution of this Agreement constitutes its contemporaneous certificate required hereunder. (h) Within five (5) days from Agent's request therefor, Sunflower shall deliver to the Bank Group subordinations or other similar documents, from such persons and entities as are designated by, and in such forms as are acceptable to, the Bank Group in order to preserve, or to document the preservation of, the priority of all liens, encumbrances and security interests in property constituting Collateral, as such priority was provided for in the Loan Documents without reference to this Agreement, notwithstanding the execution hereof. 8. Draft of Petition. ------------------ (a) Without limiting the generality of the acknowledgements made by Sunflower herein, Sunflower hereby acknowledges and agrees that that certain form of Petition (the "Petition"), to which a certificate executed by Sunflower -------- and Agent which makes reference to this Section 8 is attached and which names the members of the Bank Group as plaintiffs and -12- Sunflower, SRF&B, Guarantor and the others named therein as defendants, accurately alleges a cause of action which, if a valid Event of Default was declared by the Agent or the Bank Group by reason of one of the Known Current Defaults (as that term is hereinafter defined), would exist against the defendants named therein and the Collateral for their respective liabilities, or that of their property, as the case may be, for the payment and performance of all or any portion of the Debt. (b) Sunflower hereby agrees that if the Termination Date occurs without the Debt being fully paid or performed, the Bank Group and Agent acting on its behalf will not be precluded from filing the Petition or, in its discretion, a different form of petition, in a court of competent jurisdiction. (c) Sunflower hereby waives any claim for defamation or libel which it might otherwise have a right to make by reason of the making of the allegations set forth in the Petition in a document not filed in a court of competent jurisdiction. 9. Default. -------- (a) Sunflower acknowledges and agrees that, in the sole discretion of the Bank Group, exercisable without notice, Sunflower shall be deemed to be in default under the terms of this Agreement, and the full performance and satisfaction of all of the indebtedness and obligations to the Bank Group, the Agent or third parties hereunder, or under the Loan Documents, including without limitation those to pay and perform the Debt in full, shall be immediately due, payable and performable, without any notice, right to cure period or declaration from or by Bank Group or the Agent, if: (i) any statement, representation, recital or warranty set forth herein, in any inducement or estoppel certificate contemporaneously herewith or hereafter pursuant hereto, including, without limitation, any provided for in Section 7 hereto (collectively, the "Inducement Certificates"), or in any ----------------------- financial statement, projection or other report or statement given to Bank Group or Agent by or on behalf of Sunflower or the maker of such certificate is knowingly false or intentionally incomplete on a date as of which it is made; or (ii) Bank Group or Agent hereafter learns of any material default in any obligation of the Loan Documents in existence as of the date hereof, other than the failure to make payments to the Bank Group and the Agent when heretofore due under the Loan Documents and those defaults which have heretofore occurred and are specifically listed in -13- that certain letter dated October 31, 1995 written by counsel for Sunflower to counsel for the Bank Group and Agent (collectively, the "Known Current Defaults"); or ---------------------- (iii) Sunflower or a party (other than the Agent or a member of the Bank Group) to a Loan Document (or the successor of such party) hereafter defaults in any of its respective obligations set forth herein or any obligations in any of the Loan Documents (as modified hereby) or commits or permits to continue, beyond any period of time specified in the applicable Loan Documents (as modified by the terms hereof), a default under the applicable Loan Documents; provided that the mere passage of the "Loan Maturity Date" (as that term is defined in the Credit Agreement) and the continuing existence of the Known Current Defaults shall not constitute a default for purposes hereof until the Termination Date occurs pursuant to the terms hereof; or (iv) the KRC fails to approve the Inducement Certificate to be executed by TRAK East and delivered to the Bank Group within sixty (60) days from the date hereof. (b) From and after the date hereof, the term "Event of Default" shall also include, in addition to any matters already contained within such term's definition, the occurrence of any of the matters which would constitute a default under the provisions of Subsection 9(a) hereof. 10. General Warranties and Representations. --------------------------------------- Sunflower represents and warrants to the Bank Group, which representations and warranties shall continue and survive so long as any part of the Debt remains unsatisfied, that: (a) each of Sunflower and SRF&B is a legal entity, duly created and validly existing and in good standing under the laws of the State of Kansas, and has full power and authority to enter into this Agreement and any other document into which it enters, or into which Sunflower is required to cause it to enter, pursuant to the terms hereof, to incur all obligations for which it could be liable as provided for herein, in the Inducement Certificates or in any of the other Loan Documents to which it is a party and to take all of the actions referred to herein, in the Inducement Certificates or the Loan Documents to which it is a party. The execution and performance of the terms hereof and of the Inducement Certificates have been duly authorized by any and all necessary corporate, administrative, judicial or other -14- action, and will not violate any provision of law or of any applicable articles of incorporation, bylaws or judicial or administrative ruling or decree. Except for filing this Agreement and other documents to be executed pursuant hereto with the KRC which Sunflower agrees to accomplish, and to provide the Bank Group with reasonable written evidence of, within thirty (30) days of the date hereof, no other consent or approval of, or filing with, any public authority, regulatory agency or other person or entity whatsoever is required as a condition to the validity of the obligations of Sunflower or SRF&B under this Agreement, the Inducement Certificates or any of the other Loan Documents to which it is a party; provided that Sunflower makes no representation or warranty as to the necessity of any member of the Bank Group to obtain any consent or approval for such member of the Bank Group to enter into this Agreement from any public authority, regulatory agency or other person or entity whatsoever or as to the effect on Sunflower's obligations if such a consent or approval is needed but not obtained by such member of the Bank Group. (b)(i) This Agreement and all other documents contemplated hereby, when signed and delivered pursuant hereto, will, and (ii) each of the Loan Documents and the Debt do, constitute valid and legally binding indebtedness and obligations of Sunflower, SRF&B (but subject to, and limited by, the terms of the 1994 Guaranty) and Guarantor (but subject to, and limited by, the terms of the Guaranty), supported by good, valuable, adequate and sufficient consideration, enforceable in accordance with the respective terms thereof (but subject to the terms hereof). Neither Sunflower nor SRF&B has any meritorious defense, right of set-off, dispute, claim, counterclaim, argument or contention whatsoever as against the enforceability of said indebtedness and obligations. (c) This Agreement and the Loan Documents to which any of Sunflower and SRF&B are parties, were, and will have been, as the case may be, duly and properly executed by persons authorized to do so on behalf of the respective person or entity or their predecessor or successor in interest. (d) Except for the Known Current Defaults, neither Sunflower nor SRF&B knows of any event that has occurred or condition existing which, with the giving of notice, the passage of time or both, could constitute an Event of Default under the Loan Documents. (e) All of the statements, acknowledgments, representations and warranties of facts, status or effect which are made by Sunflower, SRF&B or both and which are set forth in this Agreement, or any document to be executed or delivered pursuant to the terms hereof, are, to the best of Sunflower's and SRF&B's knowledge, true and complete. -15- (f) None of the representations or warranties contained in this Agreement or in any of the financial statements required to be furnished to the Bank Group pursuant hereto or pursuant to the Loan Documents, or in any other document, certificate or statement which has been furnished to the Bank Group by any one or more of Sunflower and SRF&B, does or shall hereafter, on a date as of which it is made, knowingly contain any untrue statement of a fact or omit to state a material fact necessary in order to make the statements contained therein true. (g) The extension of credit which created the indebtedness that constitutes a portion of the Debt was for business purposes (other than agricultural purposes) only, and not for consumer, family or household purposes. (h) Sunflower has all licenses which it is required to have in order to conduct the operations which it is permitted to conduct, or to permit other persons or entities to conduct, on the Real Property or with any items of the Collateral under the Loan Documents. (i) Until the Debt is satisfied in full, no payments will be made, or property conveyed in lieu of payments, to or for the benefit of any of SRF&B, TRAK East, Guarantor or Hubbard, directly or indirectly, by Sunflower, SRF&B or any party acting on their respective behalf except for: (i) any payments to TRAK East by Sunflower or SRF&B which are required to be made by Kansas law or a written agreement between Sunflower, SRF&B and TRAK East (provided that the latter cannot exceed amounts due and payable under the September 14, 1989 Agreement and Restatement of Lease and Management Agreement to which Sunflower, SRF&B and TRAK East are parties, as modified by the Loan Documents); (ii) any payments made between Sunflower and SRF&B in the ordinary course of business; (iii) any reimbursements (except to the extent, if any, that reimbursements of any such advances would have been subordinated under the Loan Documents to which the Guarantor is a party) to Guarantor for amounts actually theretofore advanced by the Guarantor to pay indebtedness of Sunflower or SRF&B to third parties (other than Bruce Rimbo or entities in which Guarantor, directly or indirectly, has an ownership interest) incurred for services or goods theretofore actually received by Sunflower or SRF&B; and (iv) reimbursements of out of pocket ordinary course of business, travel expenses actually theretofore incurred and paid by Hubbard in hereafter performing services for Sunflower, of the type, if any, which are currently being paid by Sunflower to Hubbard. Except as expressly permitted above, if any of such entities has received since July 1, 1995 (or earlier in violation of any subordination agreement), or hereafter receives, any sum or property from or for Sunflower or SRF&B, they, and each of them, shall be deemed to hold all such sums in trust for benefit of the Bank Group and -16- Sunflower shall cause them to promptly deliver the same to the Bank Group which, upon receipt, shall apply the same on the Debt. 11. Waiver of Previous Rights. -------------------------- (a) Sunflower, for itself and SRF&B, and for their respective representatives, beneficiaries, trustees, successors, assigns, general partners, shareholders, directors, officers, agents and employees, hereby releases, acquits and forever discharges FUNB (both as a member of the Bank Group and as Agent), B-One, B-MW, INTRUST, FCLT and their respective stockholders, directors, officers, representatives, agents, employees, attorneys, predecessors in interest (including, without limitation, Texas Commerce Bank National Association, First City National Bank of Houston, First Union National Bank of North Carolina, Kansas State Bank & Trust Company, Home State Bank and the Federal Deposit Insurance Corporation), successors and assigns of and from any and all actions, causes of action, claims, counterclaims, cross claims, debts, demands, executions, garnishments, judgments, lawsuits, proceedings, and suits of every kind and character, previously or now existing, whether known or unknown, and relating in any manner whatsoever to, or arising in any manner whatsoever from, the dealings or negotiations, of any of such persons or entities being released hereby, with Sunflower, SRF&B, TRAK East, Guarantor, Hubbard and any of the other persons on behalf of whom Sunflower is making this covenant through the date hereof, including, without limitation, those dealings which are evidenced by or relate to the Debt, including without limitation this Agreement and the other Loan Documents. (b) Sunflower, for itself and SRF&B, waives the benefit of any "antideficiency", res judicata, marshalling of assets or one action legislation, doctrine or rule which might otherwise bar any recovery against either of them or any of the Collateral because of Bank Group's election of remedies, including but not limited to an exercise of power of sale under any mortgage, deed of trust, assignment or other security agreement. Sunflower agrees that notwithstanding any foreclosure of any lien created or evidenced by any of the Loan Documents with respect to any or all of any real or personal property constituting all or any portion of the Collateral, which secures the Debt, whether by the exercise of the power of sale contained therein, by an action for judicial foreclosure or by an acceptance of a deed or bill of sale in lieu of foreclosure, Sunflower and SRF&B shall remain bound under their respective obligations to the Bank Group. Sunflower, for itself and SRF&B, expressly acknowledges their obligations under each and every agreement they have heretofore executed, as those agreements have heretofore been amended in a writing executed by Bank Group or any of its member's predecessors in interest, and further acknowledges that Sunflower -17- and SRF&B hereby waive any defenses existing as of the date hereof to any of their respective obligations. (c) Sunflower hereby waives any rights of redemption which it might otherwise have by operation of law or pursuant to the terms of any of the Loan Documents with respect to any of the Collateral. 12. Further Assurances. ------------------- (a) If Agent hereafter requests, within thirty (30) days thereafter, Sunflower shall furnish to Bank Group, for each of Sunflower, SRF&B, Guarantor and TRAK East, certified copies of resolutions of the directors (or, in Guarantor's case, its Executive Committee) and (except in Guarantor's case) shareholders of said corporation, ratifying all of the terms of each of the Loan Documents to which such corporation is a party or for the performance of which such corporation or at least some of its property is liable and also authorizing or ratifying the execution and performance of the terms of this Agreement and of any other documents contemplated hereby to which such corporation is a party. (b) If Agent hereafter requests, within thirty (30) days thereafter, Sunflower shall deliver to Bank Group Certificates of Good Standing issued by the Secretary of State of Kansas indicating that Sunflower is in good standing in such state and similar certificates from the secretaries of state (or equivalent public official) of the states of incorporation of each of SRF&B, Guarantor and TRAK East. (c) Within thirty (30) days after Agent's request therefor, Sunflower shall furnish to the Bank Group a written opinion(s) issued by counsel representing each of said party and SRF&B (the form of said opinion to be subject to the reasonable approval of the Bank Group) stating: (i) that each of Sunflower and SRF&B is a legal entity, duly created and validly existing under the laws of the jurisdiction in which it was created, has full power and authority to enter into this Agreement, to incur all obligations provided for herein, and to take all of the actions referred to herein; (ii) that the execution and performance of the terms hereof by Sunflower and SRF&B have been duly authorized or ratified by any and all necessary corporate or administrative action and has not, and that the execution, and to the best of counsel's knowledge, the performance hereof, will not, violate any provision of law or of any applicable charter, bylaws, articles of incorporation, or judicial or administrative ruling or decree; (iii) that no other consent or approval of any public authority, regulatory agency or of any other person or entity whatsoever, excepting the action of the KRC referred to in Section 7(b), is then required as a condition to the validity of the obligations of Sunflower and SRF&B under the Loan Documents -18- to which they are already parties as modified by this Agreement and any documents contemplated hereby to which they shall become parties; (iv) that this Agreement and the Loan Documents constitute the valid and legally binding obligations of Sunflower, enforceable against Sunflower and its successors and assigns and all of the Collateral in accordance with the respective terms thereof. (d) Sunflower agrees that, at the option of the Bank Group, Sunflower shall execute and the Bank Group may record in the office of the Register of Deeds of the County or any other public office, such form(s) of recordable instrument and financing statements which the Bank Group may require, which reasonably describes the provisions hereof, in order to modify or amend any or all of the Loan Documents which are of record in such office(s) or to perfect any security interests granted herein or in any of the Loan Documents. 13. Bank Group's Continuing Rights and Remedies. -------------------------------------------- (a) Notwithstanding the execution hereof and of any documents executed contemporaneously with the execution hereof, it is expressly understood and agreed that, except as otherwise provided by any directly conflicting terms of this Agreement, the terms of the Loan Documents and all of the Agent's or Bank Group's liens, security interests, rights and remedies contained in, evidenced by or created by the Loan Documents shall not in any way be considered to have been modified, diminished, decreased or to have lost any priority as against Sunflower, SRF&B, the pledged property of any of them, the Collateral or any third parties or the property thereof, as the case may be, and shall be considered to have been in continuous force and effect since the execution of such documents and agreements and the granting of such liens, security interests, rights and remedies in the original notes, deeds of trust, mortgages, guaranties and other agreements and documents. The parties acknowledge that, except as otherwise provided by any directly conflicting terms of this Agreement, neither Bank Group nor the Agent does hereby intend to modify, diminish, decrease or subordinate the Loan Documents or any liens, security interests, rights or remedies which the Agent or Bank Group would otherwise have as against Guarantor, Hubbard, any other third parties or the property thereof, as the case may be. (b) To the extent that any term or provision thereof, or of the Loan Documents as now or previously amended, is or is held or deemed to be inconsistent with any other term or provision hereof or thereof, the term(s) or provision(s) Bank Group or Agent acting for the Bank Group may elect to enforce from time to time in the sole discretion of Bank Group and Agent, in such order and manner as Agent determines may provide Bank Group the fullest security for the Debt and afford Bank Group and -19- the Agent acting therefor the maximum legal and financial protection, shall control. (c) The Bank Group and Agent acknowledge that neither Guarantor nor Hubbard is personally liable for the Debt, except, in Guarantor's case, to the extent that Guarantor guarantees the Monthly Installments under the Guaranty; provided that nothing in this sentence should be construed as releasing any of the Collateral, including any portions thereof in which Guarantor or Hubbard has any interest, from any lien, pledge, security interest or other encumbrance which secures all or any portion of the Debt or as releasing Guarantor or Hubbard from the obligations they respectively do have to Bank Group or Agent under the Loan Documents to which Guarantor or Hubbard is a party, respectively. The Bank Group and Agent acknowledge that effective upon the execution hereof by all parties hereto and timely delivery to the Agent of the Inducement Certificate to be executed by Hubbard pursuant to, and in the form provided for by, Subsection 7(e) hereof (the "Hubbard Inducement Certificate"), Hubbard shall ------------------------------ have no obligations or liabilities to any of the Bank Group and Agent relating to the Loan Documents and/or the loan transaction contemplated therein except those provided for in the Subordination Agreement (as defined in the Hubbard Inducement Certificate) and in the Hubbard Inducement Certificate (collectively, "Hubbard's Documents"); provided that Bank Group and Agent are making this ------------------- acknowledgment in reliance upon the material truthfulness and completeness of all material representations and warranties heretofore made in writing for the benefit of the Bank Group and Agent (and their respective predecessors in interest) in Hubbard's Documents by Hubbard and, if any such material representations or warranties are or were materially false or incomplete so as to make them materially misleading as of the time that such representations and warranties were effective by their terms this sentence shall not be construed as a waiver of any claim that Bank Group or Agent might otherwise have had against Hubbard or any other person or entity which arises from or is related to the matter which makes such representation or warranty materially false or misleading. The Bank Group and Agent acknowledge that effective upon the execution hereof by all parties hereto and timely delivery to the Agent of the Inducement Certificate to be executed by Guarantor pursuant to, and in the form provided for by, Subsection 7(d) hereof (the "Guarantor Inducement -------------------- Certificate"), the Guarantor shall have no obligations or liabilities to any of - ----------- the Bank Group and Agent relating to the Loan Documents and/or the loan transaction contemplated therein except those provided for in the Guarantor Inducement Certificate, the documents listed on Schedule F-1 thereto and the Guaranty (collectively, the "Guarantor Documents"); provided that Bank Group and ------------------- Agent are making this acknowledgment in reliance upon the material truthfulness and completeness of all material representations and warranties heretofore made in writing for the benefit of the Bank -20- Group and Agent (and their respective predecessors in interest) in the Guarantor Documents by Guarantor and, if any such material representations or warranties are or were materially false or incomplete so as to make them materially misleading as of the time that such representations and warranties were effective by their terms, this sentence shall not be construed as a waiver of any claim that Bank Group or Agent might otherwise have had against Guarantor or any other person or entity which arises from or is related to the matter which makes such representation or warranty materially false or misleading. In making the acknowledgements in this Subsection the Bank Group and Agent are acting in reliance upon the material truthfulness and completeness of all material representations and warranties heretofore made in writing for the benefit of the Bank Group and Agent (and their respective predecessors in interest) in the Loan Documents by any party thereto (other than the Bank Group, Agent and their respective predecessors in interest) and, if any such material representations or warranties are or were materially false or incomplete so as to make them materially misleading as of the time that such representations and warranties were effective by their terms, this sentence shall not be construed as a waiver of any claim (arising from or related to the matter which makes such representation or warranty materially false or misleading) that Bank Group or Agent might otherwise have had against any person or entity who or which knowingly and materially participated in, or knowingly and materially benefitted from, the matter which makes such representation or warranty materially false or misleading. 14. Financial Information. ---------------------- (a) At such times as are provided for in the Loan Documents, Sunflower shall provide to Bank Group financial statements prepared in accordance with the terms of the Loan Documents for Sunflower and SRF&B. In addition to any specific new requirements made herein or requested pursuant hereto, the financial statements and information to be provided by Sunflower and SRF&B shall include statements and information substantially similar in scope, content, format and frequency to that previously given to the Bank Group for Sunflower. Without limiting the generality hereof, Sunflower shall also provide Agent with financial statements for Sunflower and SRF&B within twenty days of the end of each fiscal month of Sunflower which shall include an accounts payable aging summary in a form reasonably satisfactory to Agent. (b) From time to time during regular business hours, and five business days after notice is given by the Agent, Sunflower shall give the Agent's personnel and agents access to all books and records which reflect any information pertinent to an evaluation of the accuracy or completeness of the financial statements previously provided, or hereafter to be provided by Sunflower or SRF&B pursuant to the terms hereof and of any -21- representations or covenants made by Sunflower herein or in any of the Loan Documents. At Agent's request, Sunflower shall disclose to Agent the names of such of Sunflower's and SRF&B's accountants and officers who have knowledge of Sunflower's or SRF&B's financial condition or the accuracy or completeness of the financial statements and of such representations and covenants provided to the Bank Group or Agent. Sunflower shall instruct, and cause, all such persons to disclose all information which they have concerning the accuracy or completeness of said financial statements, representations and covenants to the Bank Group or Agent if and when such persons are requested to provide such information by the Agent or Bank Group. 15. Future Licenses. In the event that a slot or casino license can be ---------------- applied for at Sunflower's Woodlands facility prior to the Termination Date, Sunflower agrees to reasonably promptly either apply for the same in Sunflower's own name or otherwise to use best efforts to cause any other party which so applies to enter into such agreements as would provide the Bank Group with the equivalent collateral for the Debt as having the license in the name of Sunflower would provide. 16. Costs and Expenses. Without limiting any covenants by Sunflower ------------------- contained in any of the Loan Documents to pay similar or different items of cost or expense, within thirty (30) days of the Agent or Bank Group sending a statement therefor or notice thereof to Sunflower, Sunflower shall pay all expenses and fees incurred by Bank Group or the Agent acting on its behalf in enforcing this Agreement, and in enforcing all prior Loan Documents, including, without limitation, all recording, filing, registration and UCC or title search fees and taxes, all attorney fees and disbursements, and all expenses incurred by Agent or Bank Group in connection with the enforcement of the Debt after the Termination Date, the foreclosure of any lien provided for herein or in any of the Loan Documents and participation in any bankruptcy or other insolvency proceedings, including without limitation the consideration of any plan, cash collateral order, motions to lift or modify stay or otherwise. 17. Notices. Notwithstanding any other provisions to the contrary in any -------- of the Loan Documents, hereafter all notices and other correspondence required or permitted under this Agreement (except that interest amounts and calculations provided for in Subsection 4(a) which need only be given to Sunflower by telefax at the number specified hereinbelow) or any Loan Documents, shall be deemed to have been given if put in writing and personally delivered or sent by first class registered or certified mail, return receipt requested and postage and registration or certification fees prepaid, and transmitted by telefax, to the respective parties at the respective addresses and telefax numbers specified hereinbelow, on or before the dates such notice or other correspondence must otherwise be given: -22- If to any member of the Bank Group or the Agent: First Union National Bank of Florida Attention: Mr. Marinus Otte Suite 400 4299 Northwest 36 Street Miami Springs, Florida 33166 Telefax Number: 305-883-4141 with a copy to: Harry E. Wigner, Jr. Lathrop & Norquist, L.C. 9401 Indian Creek Parkway, Suite 1050 Overland Park, Kansas 66210 Telefax Number: 913-451-0875 If to Sunflower: Sunflower Racing, Inc. Attention: Bruce Rimbo P.O. Box 12036 99th & Leavenworth Road Kansas City, Kansas 66112 Telefax Number: 913-596-5943 with copies to: Hollywood Park, Inc. Attention: G. Michael Finnigan 1050 South Prairie Avenue Inglewood, California 90301 Telefax Number: 310-673-2582 and R. Scott Beeler Gage & Tucker L.C. 9401 Indian Creek Parkway, Suite 400 Overland Park, Kansas 66210 Telefax Number: 816-292-2150 or to such other address as may be specified by notice given as herein provided; provided, however, that a notice of a change of address shall be effective upon a party hereto only upon receipt by said party. 18. General. Each party agrees to perform any further acts and to deliver -------- any additional documents that may be reasonably requested and necessary to carry out the provisions of this Agreement. Should any part, term, or provision of this Agreement -23- be declared illegal or in conflict with any law, rule, or regulation, the validity of the remaining portions, terms, or provisions shall not be affected thereby. The captions used herein are used for convenience only and are not to be used in attempting to construe any part of this Agreement. Unless the context indicates otherwise, words importing the singular number shall include the plural and vice versa, words importing person shall include firms, associations, general and limited partnerships and corporations, including public bodies and entities, as well as natural persons, and words of masculine gender shall be deemed and construed to include correlative words of the feminine and neuter genders and vice versa. None of the provisions of this Agreement may be amended without the written consent of Sunflower and the Required Banks (as defined in the Credit Agreement and hereinafter used). Any waiver of any provision or condition of this Agreement shall only be in writing and shall not be construed or deemed to be a waiver of any other provision or condition of this Agreement, nor a waiver of a subsequent breach of the same provision or condition, unless such waiver be so expressed in writing and signed by the party so waiving. Any waiver by the Bank Group, Agent or Required Banks of any performance by any party to any of the Loan Documents shall not affect the liability of any other party or the Collateral to the Bank Group. This Agreement and the documents required to be executed or delivered pursuant hereto, shall be construed under, and governed by, Kansas law, regardless of the choice of law provisions of Kansas law or of any other jurisdictions. This Agreement shall be binding upon and inure to the benefit of, and be enforceable by, the heirs, legal representatives, successors and assigns of the parties as the case may be. This Agreement may be executed in any number of originals or counterparts, each of which shall be deemed an original, but all of which together shall constitute only one instrument. The terms and conditions contained herein and in the documents incorporated herein or executed pursuant to the terms hereof constitute the entire agreement of the parties with respect to the Debt and the Collateral and supersede all prior written and oral agreements and understandings relating to the subject matter hereof, including, without limitation, that certain letter of intent dated September 8, 1995 written by counsel for the Bank Group to Sunflower. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (SUNFLOWER) AND US (BANK GROUP AND AGENT) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING AND THE OTHER LOAN DOCUMENTS EXPRESSLY REFERRED TO HEREIN WHICH ARE THE COMPLETE AND EXCLUSIVE -24- STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT. THIS DOCUMENT, TOGETHER WITH ALL OTHER LOAN DOCUMENTS BETWEEN THE AGENT OR THE MEMBERS OF THE BANK GROUP OR THEIR RESPECTIVE PREDECESSORS IN INTEREST AND SUNFLOWER IS THE FINAL EXPRESSION OF THE CREDIT AGREEMENT BETWEEN SUCH PARTIES. THIS DOCUMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR OR CONTEMPORANEOUS ORAL CREDIT AGREEMENTS OR PRIOR WRITTEN CREDIT AGREEMENTS OTHER THAN WRITTEN LOAN DOCUMENTS BETWEEN SUCH PARTIES. ANY ADDITIONAL TERMS OF THE CREDIT AGREEMENT BETWEEN SUCH PARTIES ARE SET FORTH BELOW. THERE ARE NO UNWRITTEN CREDIT AGREEMENTS BETWEEN SUCH PARTIES. (INITIAL) ________ SUNFLOWER RACING, INC. ________ FIRST UNION NATIONAL BANK OF FLORIDA ________ BANK ONE LEXINGTON, N.A. ________ BANK MIDWEST, N.A. ________ INTRUST BANK, N.A. ________ FCLT LOANS, L.P. IN WITNESS WHEREOF, the parties hereto have executed this Agreement, effective as of the date first set forth above. SUNFLOWER RACING, INC., a Kansas corporation By: Name: Title: STATE OF _______________) ) ss COUNTY _________________) Before me, a notary public in and for said County and State personally appeared ____________________, personally known to me to be the __________________, of SUNFLOWER RACING, INC., a Kansas corporation, and who, as such officer, executed the foregoing instrument this date and personally appeared before me and -25- acknowledged before me that he had executed said instrument freely and voluntarily for the uses and purposes therein expressed and with full authority of and on behalf of said corporation, as an authorized officer thereof. (SEAL) Name: Title: Notary Public My Commission Expires: - ---------------------- FIRST UNION NATIONAL BANK OF FLORIDA By: Name: Title: STATE OF _______________) ) ss COUNTY _________________) Before me, a notary public in and for said County and State personally appeared ____________________, personally known to me to be the __________________, of FIRST UNION NATIONAL BANK OF FLORIDA, and who, as such officer, executed the foregoing instrument this date and personally appeared before me and acknowledged before me that he had executed said instrument freely and voluntarily for the uses and purposes therein expressed and with full authority of and on behalf of said national bank, as an authorized officer thereof. (SEAL) Name: Title: Notary Public My Commission Expires: - ---------------------- BANK ONE LEXINGTON, N.A. -26- By: Name: Title: STATE OF _______________) ) ss COUNTY _________________) Before me, a notary public in and for said County and State personally appeared ____________________, personally known to me to be the __________________, of BANK ONE LEXINGTON, N.A., and who, as such officer, executed the foregoing instrument this date and personally appeared before me and acknowledged before me that he had executed said instrument freely and voluntarily for the uses and purposes therein expressed and with full authority of and on behalf of said national bank, as an authorized officer thereof. (SEAL) Name: Title: Notary Public My Commission Expires: - ---------------------- INTRUST BANK, N.A. By: Name: Title: STATE OF _______________) ) ss COUNTY _________________) Before me, a notary public in and for said County and State personally appeared ____________________, personally known to me to be the __________________, of INTRUST BANK, N.A., and who, as such officer, executed the foregoing instrument this date and personally appeared before me and acknowledged before me that he had executed said instrument freely and voluntarily for the uses -27- and purposes therein expressed and with full authority of and on behalf of said national bank, as an authorized officer thereof. (SEAL) Name: Title: Notary Public My Commission Expires: - ---------------------- BANK MIDWEST, N.A. By: Name: Title: STATE OF _______________) ) ss COUNTY _________________) Before me, a notary public in and for said County and State personally appeared ____________________, personally known to me to be the __________________, of BANK MIDWEST, N.A., and who, as such officer, executed the foregoing instrument this date and personally appeared before me and acknowledged before me that he had executed said instrument freely and voluntarily for the uses and purposes therein expressed and with full authority of and on behalf of said national bank, as an authorized officer thereof. (SEAL) Name: Title: Notary Public My Commission Expires: - ---------------------- FCLT LOANS, L.P., a Texas limited partnership By: FCLT Loans Asset Corp., a Texas corporation -28- By: Name: Title: STATE OF _______________) ) ss COUNTY _________________) Before me, a notary public in and for said County and State personally appeared ____________________, personally known to me to be the __________________, of FCLT LOANS ASSET CORP., a Texas corporation, in its capacity as the general partner of FCLT LOANS, L.P., a Texas limited partnership, and who, as such officer, executed the foregoing instrument this date and personally appeared before me and acknowledged before me that he had executed said instrument freely and voluntarily for the uses and purposes therein expressed and with full authority of and on behalf of said corporation in its capacity as the general partner of such limited partnership, as an authorized officer thereof. (SEAL) Name: Title: Notary Public My Commission Expires: - ---------------------- EXHIBIT A --------- LEGAL DESCRIPTION ----------------- EXHIBIT B --------- ESCROW AGREEMENT ---------------- THIS ESCROW AGREEMENT (the "Escrow Agreement") is made as of the _____ day ---------------- of _______________, 1995, by and among BOATMEN'S TRUST COMPANY / KANSAS CITY DIVISION ("Escrow Agent"), SUNFLOWER RACING, INC., a Kansas corporation ------------ ("Sunflower") and FIRST UNION NATIONAL BANK OF FLORIDA ("FUNB") as agent for - ----------- ---- itself and the other following lenders (which together with FUNB are collectively sometimes referred to herein as the "Bank Group"), to-wit: BANK ---------- ONE LEXINGTON, N.A. ("Bank One"); FCLT LOANS, L.P. ("FCLT"); BANK MIDWEST, N.A. -------- ---- ("Bank Midwest"); and INTRUST BANK, ------------ -29- N.A. ("Intrust") (FUNB as such agent being referred to herein sometimes as the ------- "Bank Group Agent"). ---------------- WITNESSETH: WHEREAS, Sunflower and the members of the Bank Group or their predecessors in interest were parties to that certain Standstill Agreement dated ____________________, 1995 (the "Standstill Agreement") and certain related loan -------------------- documents defined therein as the "Loan Documents"; WHEREAS, Sunflower and the Bank Group desire that certain sums of money be placed into an escrow account with the Escrow Agent and that the same be held and disbursed in accordance with the terms and conditions hereof; and WHEREAS, Escrow Agent is willing to handle such sums in accordance with the terms and conditions hereof; NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Escrow Account. Escrow Agent hereby agrees to open an escrow account -------------- to be held and disbursed pursuant to the terms and conditions hereof (the "Escrow Account"). - --------------- 2. Deposits. Sunflower agrees to make the following deposits into the -------- Escrow Account, or, in the alternative as to any portion or all of any of them, to pay said amount to the Treasurer of Wyandotte County, Kansas, as a payment upon the 1995 property taxes on the Real Property (as that term is defined in the Standstill Agreement and used herein) as calculated by Wyandotte County, Kansas (the amount of such taxes, as calculated by said county, being referred to as the "Billed Taxes") on or before the dates indicated, to-wit: (a) on or ------------ before December 20, 1995, the sum of $400,000.00; (b) on or before March 31, 1996, an amount equal to the balance of the first half of the Billed Taxes; and (c) on or before June 20, 1996, the then unpaid balance of the Billed Taxes (such payments being collectively referred to herein as the "Deposits"). 3. Investment of Deposits. Unless hereafter otherwise directed by both ---------------------- Sunflower and the Bank Group Agent in writing, Escrow Agent agrees to invest and re-invest the Deposits and any other sums deposited into the Escrow Account or earned on the sums in the Escrow Account, from time to time, in Escrow Agent's "Pilot Treasury Fund". Escrow Agent represents that such "Pilot Treasury Fund" is, and, unless the other parties hereto are notified otherwise by Escrow Agent, during the term hereof, will be, an investment in "Treasuries" which are obligations of the United States of America and fully collateralized REPOS. Escrow Agent represents that the annualized rate of return of such "Treasury Fund" on September 8, 1995 was 5.542%. -30- 4. Escrow Agent's Incorporated Terms and Fees. The terms and conditions ------------------------------------------ attached hereto as Exhibit A are hereby incorporated herein by reference. As --------- full compensation for the performance of Escrow Agent's obligations hereunder, the parties agree that Escrow Agent will charge a one time fee of $500.00 plus the sweep fee referred to in Exhibit A (the "Cash Sweep Fee"); provided that the -------------- parties agree that the Cash Sweep Fee will only be assessed one time and only on the interest or earnings of the Escrow Account, as such interest and earnings, are posted. The $500.00 fee will be deducted by Escrow Agent from the Escrow Account at the time the principal therein is disbursed in accordance with Section 5 hereof. 5. Term and Disbursements. Unless extended by the written agreement of ---------------------- the parties hereto, the escrow provided for herein will terminate upon that date (the "Escrow Termination Date") on which either Sunflower or Bank Group Agent ----------------------- notifies the Escrow Agent that the amount of property taxes due on the Real Property for 1995 has been determined, whether by means of the execution of a written stipulation or settlement between Sunflower and Wyandotte County, Kansas, or the issuance of a final order of the Board of Tax Appeals of Kansas or of a court of competent jurisdiction, which order is either non-appealable or for which the time to appeal has expired without the filing of an appeal. Upon the next business day after the Escrow Termination Date, the principal of the Deposits and, no later than the first banking calendar month following the month in which the Escrow Termination Date occurs, any earnings thereon, less the Escrow Agent's fees provided for herein, shall be applied in the following order, to-wit: first, to the extent necessary to pay that portion of the 1995 property taxes then due and payable on the Real Property, to Wyandotte County, Kansas, and, second, any excess in the Escrow Account, to Sunflower. Notwithstanding the passage of the deadlines specified in the preceding sentence, Escrow Agent will not be in default under its obligations to disburse the funds in the Escrow Account until it has received written transfer instructions from the party(ies) giving Escrow Agent notice that the Escrow Termination Date has occurred. 6. Notices. All notices to Escrow Agent will be deemed delivered when ------- given in accordance with the provisions of Section 5 of Exhibit A hereto. All notices and other correspondence required or permitted to be given to Sunflower or Bank Group Agent under this Escrow Agreement shall be in writing and shall be deemed to have been given if personally delivered or sent by first class registered or certified mail, return receipt requested and postage and registration or certification fees prepaid, to the respective parties at the following addresses on or before the date such notice or other correspondence must be given: -31- If to Sunflower: Sunflower Racing, Inc. P.O. Box 12036 99th and Leavenworth Road Kansas City, Kansas 66112 Attention: Bruce Rimbo with a copy to: R. Scott Beeler Gage & Tucker L.C. 9401 Indian Creek Parkway Suite 400 Overland Park, KS 66210 If to Bank Group Agent: First Union National Bank of Florida 4299 Northwest 36 Street Suite 400 Miami Springs, FL 33166 Attention: Marinus Otte with a copy to: Harry E. Wigner, Jr. Lathrop & Norquist, L.C. 9401 Indian Creek Parkway Suite 1050 Overland Park, KS 66210 or to such other address as may be specified by notice given as herein provided; provided, however, that notice of a change of address shall be effective only upon receipt by the other party. 7. Miscellaneous. This Escrow Agreement contains the entire agreement of ------------- the parties relating to the subject matter hereof and replaces any prior or contemporaneous agreement or understandings unless specifically incorporated herein. No modification of this Escrow Agreement shall be valid unless made in accordance with any applicable laws and in a writing signed by the parties hereto. The captions appearing in this Escrow Agreement are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope and intent of this Escrow Agreement or any of the provisions hereof. Should any part, term or provisions of this Escrow Agreement be declared to be illegal or in conflict with any law, rule or regulation, the validity of the remaining portions, terms or provisions shall not be affected thereby. This Escrow Agreement may be executed in any number of counterparts, each of which -32- shall be deemed an original but all of which together shall constitute only one instrument. IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as of the date first above set forth. BOATMEN'S TRUST COMPANY SUNFLOWER RACING, INC. /KANSAS CITY DIVISION By:____________________ By:___________________ Name:__________________ Name:_________________ Title:_________________ Title:________________ FIRST UNION NATIONAL BANK OF FLORIDA AS AGENT FOR ITSELF, BANK ONE LEXING- TON, N.A., FCLT LOANS, L.P., BANK MIDWEST, N.A. AND INTRUST BANK, N.A. By:____________________ Name:__________________ Title:_________________ EXHIBIT C --------- UNCONDITIONAL GUARANTY AGREEMENT -------------------------------- THIS UNCONDITIONAL GUARANTY AGREEMENT (this "Guaranty") is dated as of -------- October _____, 1995, by HOLLYWOOD PARK, INC., a Delaware corporation (the "Guarantor"), in favor of FIRST UNION NATIONAL BANK OF FLORIDA ("FUNB"), BANK - ---------- ---- ONE LEXINGTON, N.A. ("B-One"), BANK MIDWEST, N.A. ("B-MW") INTRUST BANK, N.A. ----- ---- ("INTRUST"), FCLT LOANS, L.P., a Texas limited partnership ("FCLT") (FUNB, B- - --------- ---- One, B-MW, INTRUST and FCLT sometimes being collectively referred to herein as the "Bank Group" and FUNB, as agent for itself and the other members of the Bank ---------- Group, sometimes being referred to herein as the "Agent"). ----- Statement Of Purpose -------------------- The Bank Group and Sunflower Racing, Inc., a Kansas corporation (the "Borrower") entered into a Standstill Agreement of even date (the "Standstill - --------- ---------- Agreement"). Through its ownership of the Borrower, Guarantor will benefit both - --------- directly and indirectly from the transactions contemplated by the Standstill Agreement and as a condition precedent thereto, the Bank Group -33- has requested, and the Guarantor has agreed to execute and deliver, this Guaranty. NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth herein, and to induce the Bank Group to enter into and consent to the transactions contemplated by the Standstill Agreement, it is agreed as follows: SECTION 1. Definitions. Capitalized terms used herein (including the ----------- preamble hereto) shall have the meaning assigned to them in the Standstill Agreement, unless the context otherwise requires or unless otherwise defined herein. References in the Standstill Agreement to the "Guaranty" or herein to this "Guaranty" shall include and mean this Guaranty, including all amendments and supplements hereto now or hereafter in effect. SECTION 2. Guaranty of Obligations of Borrower. ----------------------------------- (a) The Guarantor hereby unconditionally guarantees to each of the members of the Bank Group the prompt payment (whether at stated maturity, by acceleration or otherwise) by the Borrower of all Monthly Installments that would be due under Section 4(a) of the Standstill Agreement if it expired on July 1, 1996 [i.e., this is a guarantee of the fifty percent of the interest accruing, at the LIBOR plus 1.75% per annum rate provided for in Subsection 6(a) of the Standstill Agreement (the "Standstill Rate") on the outstanding principal --------------- balance of the Notes, which portion of interest Borrower is to pay currently during the time that the Standstill Agreement is in effect], whether now existing or hereafter arising, whether or not from time to time reduced or extinguished (except by payment thereof), whether or not recovery may be or hereafter become barred by the statute of limitations, whether or not discharged, stayed or otherwise affected by any bankruptcy, insolvency or other similar law or proceeding, whether created directly with the Agent or with any member of the Bank Group or acquired by the Agent or the Bank Group through assignment, endorsement or otherwise, whether matured or unmatured, whether joint or several, as and when the same becomes due and payable (whether at maturity or earlier) in accordance with the terms of the Notes, as modified by the Standstill Agreement, evidencing any such Monthly Installments, including all renewals, extensions or modifications thereof (all such obligations of the Borrower to any member of the Bank Group, including all of the foregoing, being hereinafter collectively referred to as the "Guaranteed Obligations"); provided ---------------------- -------- that this Guaranty shall not be a guarantee of any Monthly Installments which would first be due after the Agent's or Bank Group's declaration of a default, that causes the Termination Date to occur prior to July 1, 1996, for reasons other than non-payment of sums due from the Borrower to the Agent or Bank Group under the Notes or Subsections 4(a), (b) or (c) of the Standstill Agreement; provided further, that the amount of the Guarantor's - ---------------- -34- obligations with respect to the Guaranteed Obligations shall be limited to the extent and in the manner set forth in subsection (b) below; provided further, ---------------- that the Guaranteed Obligations shall not include a guaranty of interest in excess of the amount that would accrue at the Standstill Rate. (b) The amount of the Guarantor's obligations with respect to the Guaranteed Obligations shall be in, but not in excess of, the maximum amount thereof not subject to avoidance or recovery by operation of applicable law governing bankruptcy, reorganization, arrangement, adjustment of debts, relief of debtors, dissolution, insolvency, fraudulent transfers or conveyances or other similar laws (including, without limitation, 11 U.S.C. (S)547, (S)548, (S)550 and other "avoidance" provisions of Title 11 of the United States Code) applicable at any time to the Guarantor and this Guaranty (collectively, "Applicable Insolvency Laws"). To that end, but only in the event and to the - --------------------------- extent that the Guarantor's obligations with respect to the Guaranteed Obligations or any payment made pursuant to the Guaranteed Obligations would, but for the operation of this Section 2(b), be subject to avoidance or recovery under Applicable Insolvency Laws, the amount of the Guarantor's obligations with respect to the Guaranteed Obligations shall be limited to the largest amount which, after giving effect thereto, would not, under Applicable Insolvency Laws, render the Guarantor's obligations with respect to such Guaranteed Obligations unenforceable or avoidable or otherwise subject to recovery under Applicable Insolvency Laws. To the extent any payment actually made pursuant to the Guaranteed Obligations exceeds the limitation of this Section 2(b), then the amount of such excess shall, from and after the time of payment by Guarantor, be reimbursed by the Bank Group upon demand by Guarantor. This Section 2(b) is intended solely to preserve the rights of the Bank Group and Agent hereunder against the Guarantor to the maximum extent permitted by Applicable Insolvency Laws and neither the Borrower or any other guarantor under the Credit Agreement or the Standstill Agreement nor any other Person or Persons (as these terms are defined in the Credit Agreement and hereinafter used) shall have any right or claim under this Section 2(b) that would not otherwise be available under Applicable Insolvency Laws. SECTION 3. Nature of Guaranty. The Guarantor agrees that this Guaranty is ------------------ a continuing, unconditional guaranty of payment and performance and not of collection, and that its obligations under this Guaranty shall be primary, absolute and unconditional, irrespective of, and unaffected by: (a) the genuineness, validity, regularity, enforceability or any future amendment of, or change in, the Standstill Agreement or any other Loan Document or any other agreement, document or instrument to which the Borrower is or may become a party; -35- (b) the absence of any action to enforce this Guaranty, the Standstill Agreement or any other Loan Document or the waiver or consent by the Bank Group or Agent with respect to any of the provisions of this Guaranty, the Standstill Agreement or any other Loan Document; (c) the existence, value or condition of, or failure to perfect its Lien (as defined in the Credit Agreement and hereinafter used) against, any security for or other guaranty of the Guaranteed Obligations or any action, or the absence of any action, by the Agent or any member of the Bank Group in respect of such security or guaranty (including, without limitation, the release of any such security or guaranty); or (d) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor; it being agreed by the Guarantor that, subject to Section 2(b) hereof, its obligations under the Guaranty shall not be discharged until the final payment and performance, in full, of the Guaranteed Obligations. The Guarantor expressly waives all rights it may now or in the future have under any "antideficiency" or other statute (including without limitation North Carolina General Statutes Section 26-7, et seq. or similar law), or at law or in equity, ------- or otherwise, to compel the Agent or any member of the Bank Group to proceed in respect of the Guaranteed Obligations against the Borrower or any other party or against any security for or other guaranty of the payment and performance of the Guaranteed Obligations before proceeding against, or as a condition to proceeding against, the Guarantor. The Guarantor further expressly waives and agrees not to assert or take advantage of any defense based upon the failure of the Agent or any member of the Bank Group to commence an action in respect to the Guaranteed Obligations against the Borrower, the Guarantor or any other party or any security for the payment and performance of the Guaranteed Obligations. The Guarantor agrees that any notice or directive given at any time to the Agent or any member of the Bank Group which is inconsistent with the waivers in the preceding two sentences shall be null and void and may be ignored by the Agent or such member of the Bank Group and, in addition, may not be pleaded or introduced as evidence in any litigation relating to this Guaranty for the reason that such pleading or introduction would be at variance with the written terms of this Guaranty, unless the Required Banks (as defined in the Credit Agreement and hereinafter used) have specifically agreed otherwise in writing. The foregoing waivers are of the essence of the transaction contemplated by the Loan Documents and, but for this Guaranty and such waivers, the Agent and -36- members of the Bank Group would decline to enter into the Standstill Agreement. SECTION 4. Demand by the Bank Group or Agent. In addition to the terms --------------------------------- set forth in Section 3, and in no manner imposing any limitation on such terms, if all or any portion of the then outstanding Guaranteed Obligations under the Standstill Agreement are declared to be immediately due and payable, then the Guarantor shall, after the notice provided for in this Section and upon demand in writing therefor by the Agent to the Guarantor, pay all or such portion of the outstanding Guaranteed Obligations then declared due and payable. Payment by the Guarantor shall be made to the Agent, to be credited and applied upon the Guaranteed Obligations, in immediately available federal funds to an account designated by the Agent or at the address referenced herein for the giving of notice to the Agent or at any other address that may be specified in writing from time to time by the Agent. No demand for payment of the Guaranteed Obligations shall be effective unless and until Borrower has failed to pay any Monthly Installments theretofore due but unpaid within three (3) days after notice to Guarantor that Borrower has failed to pay such Monthly Installments when due. SECTION 5. Waivers. In addition to the waivers contained in Section 3, ------- the Guarantor waives, and agrees that it shall not at any time insist upon, plead or in any manner whatever claim or take the benefit or advantage of, any appraisal, valuation, stay, extension, one action, res judicata, marshalling of assets or redemption laws or doctrines, or exemption, whether now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance by the Guarantor of its obligations under, or the enforcement by the Agent or any member of the Bank Group of this Guaranty. The Guarantor further hereby waives diligence, presentment, demand, protest and notice of whatever kind or nature with respect to any of the Guaranteed Obligations and waives the benefit of all provisions of law which are or might be in conflict with the terms of this Guaranty. The Guarantor represents, warrants and agrees that its obligations under the Guaranty are not and shall not be subject to any counterclaims, offsets or defenses of any kind against the Agent, any member of the Bank Group or the Borrower whether now existing or which may arise in the future. SECTION 6. Benefits of Guaranty. The provisions of this Guaranty are for -------------------- the benefit of the Agent, the members of the Bank Group and their respective successors, transferees, endorsees and assigns, and nothing herein contained shall impair, as between the Borrower and the Agent or the Bank Group, the obligations of the Borrower under the Loan Documents. In the event all or any part of the Guaranteed Obligations are transferred, endorsed or assigned by the Agent or any member of the Bank Group to any Person or Persons, any reference to the -37- "Agent" or "member of the Bank Group" herein shall be deemed to refer equally to such Person or Persons. SECTION 7. Modification of Loan Documents etc. If the Agent or the ---------------------------------- members of the Bank Group shall at any time or from time to time, with or without the consent of, or notice to, the Guarantor: (a) Change or extend the manner, place or terms of payment of, or renew or alter all or any portion of, the Guaranteed Obligations; (b) Take any action under or in respect of the Loan Documents in the exercise of any remedy, power or privilege contained therein or available to it at law, in equity or otherwise, or waive or refrain from exercising any such remedies, powers or privileges; (c) Amend or modify, in any manner whatsoever, the Loan Documents; (d) Extend or waive the time for performance by the Guarantor, the Borrower or any other Person of, or compliance with, any term, covenant or agreement on its part to be performed or observed under a Loan Document (other than this Guaranty), or waive such performance or compliance or consent to a failure of, or departure from, such performance or compliance; (e) Take and hold security or collateral for the payment of the Guaranteed Obligations or sell, exchange, release, dispose of, or otherwise deal with, any property pledged, mortgages or conveyed, or in which the Agent or the members of the Bank Group have been granted a lien, to secure any indebtedness or liability of the Guarantor or the Borrower to the Agent or the members of the Bank Group; (f) Release anyone who may be liable in any manner for the payment of any amounts owed by the Guarantor or the Borrower to the Agent or any member of the Bank Group; (g) Modify or terminate the terms of any intercreditor or subordination agreement pursuant to which claims of other creditors of the Guarantor or the Borrower are subordinated to the claims of the Agent or any member of the Bank Group; or (h) Apply any sums by whomever paid or however realized to any amounts owing by the Guarantor or the Borrower to the Agent or member of the Bank Group in such manner as the Agent or any member of the Bank Group shall determine in its discretion; -38- then neither the Agent nor any member of the Bank Group shall incur any liability to the Guarantor as a result thereof, and no such action shall impair or release the obligations of the Guarantor under the Guaranty. SECTION 8. Reinstatement. The Guarantor agrees that, if any payment made ------------- by the Borrower or any other Person applied to the Debt is at any time annulled, set aside, rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to be refunded or repaid, or the proceeds of collateral are required to be returned by the Agent or any member of the Bank Group to the Borrower, its estate, trustee, receiver or any other party, including, without limitation, the Guarantor, under any applicable law or equitable cause, then, to the extent of such payment or repayment, the Guarantor's liability hereunder (and any lien or collateral securing such liability) shall be and remain in full force and effect, as fully as if such payment had never been made, and, if prior thereto, this Guaranty shall have been canceled or surrendered (and if any lien or collateral securing the Guarantor's liability hereunder shall have been released or terminated by virtue of such cancellation or surrender), this Guaranty (and such lien or collateral) shall be reinstated in full force and effect, and such prior cancellation or surrender shall not diminish, release, discharge,impair or otherwise affect the obligations of the Guarantor in respect of the amount of such payment (or any lien or collateral securing such obligation). SECTION 9. Waiver of Subrogation and Contribution. Until the Debt is -------------------------------------- fully paid and performed, the Guarantor hereby irrevocably waives any claims or other rights which it may now or hereafter acquire against the Borrower that arise from the existence or performance of the Guarantor's obligations under this Guaranty, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, indemnification, any right to participate in any claim or remedy of the Agent or the members of the Bank Group against the Borrower or any security or collateral which the Agent or any member of the Bank Group now has or may hereafter acquire, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, by any payment made hereunder or otherwise, including without limitation, the right to take or receive from the Borrower, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. SECTION 10. Representations and Warranties. To induce the Bank Group to ------------------------------ execute the Standstill Agreement, the Guarantor hereby represents and warrants that: -39- (a) The Guarantor has the corporate power, authority and legal right to execute, deliver and perform this Guaranty and has taken all necessary corporate action to authorize its execution, delivery and performance of, this Guaranty; (b) This Guaranty constitutes the legal, valid and binding obligation of the Guarantor enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by the availability of equitable remedies; (c) The execution, delivery and performance of this Guaranty will not violate any provision of any applicable law or contractual obligation of the Guarantor and will not result in the creation or imposition of any lien on any of the properties or revenues of the Guarantor pursuant to any applicable law or contractual obligation; (d) Except for the filing of this Guaranty with the Kansas Racing Commission, no consent or authorization of, filing with or other act by or in respect of, any arbitrator or Governmental Authority (as defined in the Credit Agreement and hereinafter used) and no consent of any other Person (including, without limitation, any stockholder or creditor of the Guarantor), is required in connection with the execution, delivery, performance, validity or enforceability of this Guaranty, except for any which have been obtained; and (e) No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Guarantor, threatened by or against the Guarantor or against any of its properties or revenues with respect to this Guaranty or any of the transactions contemplated hereby. SECTION 11. Remedies. -------- (a) Upon the occurrence of any Event of Default under the Standstill Agreement, with the consent of the Required Banks, the Agent may, at its option, enforce against the Guarantor its obligations and liabilities hereunder and exercise such other rights and remedies as may be available to the Agent hereunder, under the Loan Documents or otherwise. Without limiting any other provisions of this Guaranty, the Agent, with the consent of the Required Banks, shall be entitled, from time to time, with or without declaring that a default has occurred under the Standstill Agreement, to give notice and make demand in accordance with Section 4 hereof, and, if so demanded, the -40- Guarantor shall each time immediately pay, all of any one or more Monthly Installments which then remain unpaid after the due date thereof. (b) No right or remedy herein conferred upon the Agent is intended to be exclusive of any other right or remedy contained herein or in any other Loan Document or otherwise, and every such right or remedy contained herein and therein or now or hereafter existing at law, or in equity, or by statute, or otherwise shall be cumulative. The Required Banks may instruct the Agent to pursue, or refrain from pursuing, any remedy available to the Agent at such times and in such order as the Required Banks shall determine, and the Required Banks' election as to such remedies shall not impair any remedies against the Guarantor not then exercised. In addition, any election of remedies which results in the denial or impairment of the right of the Agent to seek a deficiency judgment against the Borrower shall not impair the Guarantor's obligation to pay the full amount of the Guaranteed Obligations. SECTION 12. Miscellaneous. ------------- (a) Entire Agreement; Amendments. This Guaranty, together with those other ---------------------------- Loan Documents to which Guarantor is a party, constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements with respect to the subject matter hereof and may not be amended or supplemented except by a writing signed by the Guarantor and the Required Banks or the members of the Bank Group, as determined under the Credit Agreement. (b) Headings. The headings in this Guaranty are for convenience of -------- reference only and are not part of the substance of this Guaranty. (c) Severability. In the event that any one or more of the provisions ------------ contained in this Guaranty shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision or provisions in every other respect and the remaining provisions of this Guaranty shall not be in any way impaired. (d) Notices. All notices and communications hereunder shall be given in ------- the manner provided for giving notices in the Standstill Agreement and in the case of the Guarantor, addressed to the Guarantor at the address set forth below beside its signature. (e) Binding Effect. This Guaranty shall bind the Guarantor and shall inure -------------- to the benefit of the Agent and the members of the Bank Group and their respective successors and assigns. The -41- Guarantor may not assign this Guaranty or delegate any of its duties hereunder. (f) Non-Waiver. The failure of the Agent or any member of the Bank Group ---------- to enforce any right or remedy hereunder, or promptly to enforce any such right or remedy, shall not constitute a waiver thereof, nor give rise to any estoppel against the Agent or any Bank, nor excuse the Guarantor from its obligations hereunder. Any waiver of any such right or remedy by the Bank Group must be in writing and signed by the Agent and the Required Banks. (g) Termination. This Guaranty shall terminate and be of no further force ----------- or effect on the date when the Guaranteed Obligations have been paid in full. (h) Governing Law. This Guaranty shall be governed by and construed and ------------- enforced in accordance with the laws of the State of Kansas, without reference to the conflicts or choice of law principles thereof. (i) Consent to Jurisdiction. The Guarantor hereby irrevocably consents to ----------------------- the personal jurisdiction of the state and federal courts located in Wyandotte County, Kansas, in any action, claim or other proceeding arising out of any dispute in connection with this Guaranty, any rights or obligations hereunder, or the performance of such rights and obligations. The Guarantor hereby irrevocably consents to the service of a summons and complaint and other process in any action, claim or proceeding brought by the Agent or any member of the Bank Group in connection with this Guaranty, any rights or obligations hereunder, or the performance of such rights and obligations, on behalf of itself or its property, in the manner referenced in Section 12(d). Nothing in this Section 12(i) shall affect the right of the Agent or any member of the Bank Group to serve legal process in any other manner permitted by applicable law or affect the right of the Agent or any member of the Bank Group to bring any action or proceeding against the Guarantor or its properties in the courts of any jurisdictions. (j) Waiver of Jury Trial. THE AGENT, EACH MEMBER OF THE BANK GROUP AND THE -------------------- GUARANTOR HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS GUARANTY, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. (k) Expenses. The Guarantor agrees that it will reimburse the Agent and -------- each member of the Bank Group for all expenses (including reasonable attorneys fees and expenses) incurred by the Agent or such member of the Bank Group in connection with the enforcement of this Guaranty. -42- (l) Limitation of Liability. Neither the Agent, any member of the Bank ----------------------- Group, nor any Affiliate (as defined in the Credit Agreement) thereof shall have any liability with respect to, and the Guarantor hereby waives, releases and agrees not to sue upon, any claim arising through the date of the execution of this Guaranty for any special, indirect, punitive, exemplary or consequential damages suffered by the Guarantor in connection with, arising out of, or in any way related to this Guaranty and the other Loan Documents, the transactions contemplated herein or therein, or any act, omission or event occurring in connection herewith or therewith; provided that the limitation set forth herein will not restrict or impair any claim which arises subsequent to the date hereof. IN WITNESS WHEREOF, the Guarantor has executed and delivered this Guaranty as of the date first above written. [CORPORATE SEAL] HOLLYWOOD PARK, INC. By:_______________________________ Name:_____________________________ Title:____________________________ Address: Hollywood Park, Inc. Attention: G. Michael Finnigan 1050 South Prairie Avenue Inglewood, CA 90301 Fax Number 310-673-2582 EXHIBIT D --------- TRAK EAST INDUCEMENT CERTIFICATE ---------------------- The undersigned, to induce FIRST UNION NATIONAL BANK OF FLORIDA ("FUNB"), ---- BANK ONE LEXINGTON, N.A. ("B-One"), BANK MIDWEST, N.A. ("B-MW"), INTRUST BANK, ----- ---- N.A. ("INTRUST"), FCLT LOANS, L.P., a Texas limited partnership ("FCLT") (FUNB, ------- ---- B-One, B-MW, INTRUST and FCLT sometimes being collectively referred to herein as the "Bank Group" and FUNB, as agent for itself and the other members of the Bank ---------- Group, sometimes being referred to herein as the "Agent") to enter into, with ----- each other and SUNFLOWER RACING, INC., a Kansas corporation ("Sunflower"), a --------- certain Standstill Agreement dated _____________________, 1995 (the "Standstill ---------- Agreement"), does hereby approve and consent to the Standstill Agreement and - --------- acknowledge, represent and agree to and with Bank Group that: (a) Notwithstanding the execution of the Standstill Agreement and of the other documents executed pursuant thereto, the undersigned's covenants and agreements for the benefit of the Bank Group in any of the "Loan Documents" (as -------------- that term is -43- defined in the Standstill Agreement and hereinafter used), including without limitation under that certain Consent Collateral Assignment of Lease and Management Agreement dated March 23, 1994 (the "Consent"), as modified hereby, ------- by the Standstill Agreement, remain in full force and effect and that the Agent and the above-listed present members of the Bank Group are the parties entitled to enforce the provisions of such covenants and agreements as parties thereto or the respective successors in interest of a party thereto. (b) The undersigned is entitled to the payment and performance of certain debt and obligations of Sunflower, of SR Food & Beverage Company, a Kansas corporation ("SRFB") or both, including, without limitation, under and by virtue ---- of that certain Agreement and Restatement of Lease and Management Agreement dated September 14, 1989, and any amendments, modifications, addenda, renewals, extensions or substitutes therefor (such agreement and any others, whether oral or in writing, similar or dissimilar, directly or indirectly with Sunflower or SRFB, or their respective predecessors or successors in interest, which relate to the operation of the "Woodlands" or the subject matter of the Loan Documents is referred to herein collectively as the "Subordinated Obligations"). The ------------------------ undersigned's rights to payment and performance of said debt and obligations created or evidenced by the Subordinated Obligations, whether presently existing or hereafter arising, by or from Sunflower, SRFB, both or their respective predecessors or successors, has previously been, or hereby is, expressly made subordinate to the debts and obligations of Sunflower and SRFB to the Agent and the Bank Group, including without limitation the "Debt" (as that term is defined ---- in the Standstill Agreement and hereinafter used). The undersigned's rights in the property described on Exhibit A to the Standstill Agreement and the improvements thereon are, or hereby are, subordinated to the rights therein, and to the liens thereon, of the Agent and the Bank Group which are evidenced, created or secured by the Loan Documents. Notwithstanding anything to the contrary in the Consent, hereafter the Agent and Bank Group shall be entitled to the same notices and rights to cure with respect to the failure of Sunflower, SRFB or both to make payments to the undersigned as Agent and Bank Group are entitled to under the Consent with respect to non-payment defaults by Sunflower, SRFB or both; provided that if Agent or the Bank Group has greater rights (whether to notice or opportunity to cure) with respect to a payment default than a non-payment default under any of the Loan Documents or any doctrine or statute, then, at the discretion of Agent and the Bank Group, the greater rights shall apply to any such payment default. (c) The undersigned has not heretofore and, so long as any of the Debt is unsatisfied, shall not assign(ed), pledge(d) or otherwise transfer(red) the Subordinated Obligations or any -44- interest therein or indicia thereof to any other person or entity. (d) Until the Debt is satisfied in full, the undersigned waives any and all rights to declare any default or to exercise any rights or remedies due or attributable to or arising out of any lack of payment or performance of the Subordinated Obligations, including without limitation, the right to revoke Sunflower's authority to draw on accounts of the undersigned, except after first giving Agent and Bank Group notice and right to cure as is provided in the Consent and subparagraph (b) hereof. (e) The undersigned acknowledges that either it has no claim, cause of action, or rights, against, or, acting for itself and for its successors, assigns, members, directors, officers, agents and employees, hereby releases, acquits and forever discharges, FUNB (both as a member of the Bank Group and as Agent), B-One, B-MW, INTRUST, FCLT and their respective stockholders, directors, officers, representatives, agents, employees, attorneys, predecessors in interest (including, without limitation, Texas Commerce Bank National Association, First City National Bank of Houston, First Union National Bank of North Carolina, Kansas State Bank & Trust Company, Home State Bank and the Federal Deposit Insurance Corporation), successors and assigns with respect to any and all actions, causes of action, claims, counterclaims, cross claims, debts, demands, executions, garnishments, judgments, lawsuits, proceedings, and suits of every kind and character, previously or now existing, whether known or unknown, and relating in any manner whatsoever to, or arising in any manner whatsoever from, the dealings or negotiations, of any of such persons or entities being released hereby, with the undersigned, Sunflower, SRFB, Hollywood Park, Inc. and R.D. Hubbard and any of the other persons on behalf of whom the undersigned is making this covenant through the date of this Inducement Certificate, including, without limitation, those dealings or negotiations which are evidenced by or relate to the Debt or the Loan Documents. (f) The undersigned waives the benefit of any "antideficiency", res judicata, marshalling of assets or one action legislation, doctrine or other rule of law which might otherwise bar any recovery against any property which constitutes "Collateral" (as that term is defined in the Standstill Agreement ---------- and hereinafter used) because of Bank Group's election of remedies, including but not limited to an exercise of power of sale under any mortgage, deed of trust, assignment or other security agreement. The undersigned agrees that notwithstanding any foreclosure of any lien created or evidenced by any of the Loan Documents with respect to any or all of any real or personal property constituting all or any portion of the Collateral, which secures the Debt, whether by the exercise of the power of sale -45- contained therein, by an action for judicial foreclosure, by an acceptance of a deed or bill of sale in lieu of foreclosure, or by any other means, the undersigned shall remain bound under its respective obligations to the Bank Group, in accordance with the Loan Documents to which the undersigned is a party. (g) The undersigned is a legal entity, duly created and validly existing and in good standing under the laws of the State of Kansas and has full power and authority to enter into this document on behalf of itself and to take all of the actions referred to herein, the execution and performance of the terms hereof have been duly authorized by any and all necessary administrative, judicial or other action, and will not violate any provision of law or of any articles of incorporation, bylaws or judicial or administrative ruling or decree and, with the exception of the approval of the terms hereof by the Kansas Racing Commission, which the undersigned represents it has obtained, no other consent or approval of, or filing with, any public authority, regulatory agency or other person or entity whatsoever is required as a condition to the validity of the obligations of the undersigned hereunder. (h) Nothing contained in the Standstill Agreement shall be a waiver of any rights or remedies the Bank Group may otherwise have under the Loan Documents or affect the relative priorities of interests of the undersigned and the Bank Group or Agent in any collateral for indebtedness owed by Sunflower to any of them. (i) If, from time to time, the Agent, Bank Group or the "Required Banks" -------------- (as defined in the "Credit Agreement", as that term is defined in the Standstill ---------------- Agreement), acting in its sole discretion, hereafter agrees in writing to extend the "Termination Date" (as that term is defined in the Standstill Agreement and ---------------- hereinafter used) to a date(s) beyond the date set forth in the Standstill Agreement, to waive performance of any provision of the Standstill Agreement or the other Loan Documents or to refrain from declaring a default under the Standstill Agreement and other Loan Documents, the provisions hereof shall apply and bind the undersigned and its respective successors and assigns with respect to such extension(s), waiver(s) or forbearance as if such document(s), waiver(s) or forbearance were expressly referred to herein, unless, prior to executing such document(s), Bank Group shall have received, by certified or registered mail sent to the address specified for notices to be sent to the Bank Group in the Standstill Agreement, written notice to the contrary from the undersigned, in which case solely this paragraph shall not apply solely as to the sender of such notice, and its respective successors or assigns, with respect to any such extension(s), waiver(s) or forbearance agreed to by Bank Group after receipt of such notice. -46- IN WITNESS WHEREOF, the undersigned has executed this instrument as of the _________ day of ________________, 1995. THE RACING ASSOCIATION OF KANSAS EAST, A KANSAS NOT- FOR-PROFIT CORPORATION BY:______________________ NAME:____________________ TITLE:___________________ EXHIBIT E --------- SRF&B INDUCEMENT CERTIFICATE ---------------------- The undersigned, to induce FIRST UNION NATIONAL BANK OF FLORIDA ("FUNB"), ---- BANK ONE LEXINGTON, N.A. ("B-One"), BANK MIDWEST, N.A. ("B-MW"), INTRUST BANK, ----- ---- N.A. ("INTRUST"), FCLT LOANS, L.P., a Texas limited partnership ("FCLT") (FUNB, ------- ---- B-One, B-MW, INTRUST and FCLT sometimes being collectively referred to herein as the "Bank Group" and FUNB, as agent for itself and the other members of the Bank ---------- Group, sometimes being referred to herein as the "Agent") to enter into, with ----- each other and SUNFLOWER RACING, INC., a Kansas corporation ("Sunflower"), a --------- certain Standstill Agreement dated _____________________, 1995 (the "Standstill ---------- Agreement"), does hereby approve and consent to the Standstill Agreement and - --------- acknowledge, represent and agree to and with Bank Group that: (a) Notwithstanding the execution of the Standstill Agreement and of the other documents executed pursuant thereto, the undersigned's covenants and agreements for the benefit of the Bank Group in any of the "Loan Documents" (as -------------- that term is defined in the Standstill Agreement and hereinafter used), including without limitation under those certain documents listed on Schedule E- 1 attached hereto, remain in full force and effect and that the present members of the Bank Group are the parties entitled to enforce the provisions of such covenants and agreements as parties thereto or the respective successors in interest of a party thereto. Without limiting the generality of the foregoing, the undersigned acknowledges that notwithstanding the execution of the Standstill Agreement, the undersigned is absolutely liable for the "Debt" (as ---- that term is defined in the Standstill Agreement and hereinafter used). (b) Until the Debt is satisfied in full, if the undersigned receives any sum from or for Sunflower, other than in the ordinary course of business, the undersigned shall be deemed to hold all such sums in trust for benefit of the Bank Group and shall promptly deliver the same to Agent to apply on the Debt. -47- The undersigned represents and warrants that, except for granting the Agent and Bank Group a security interest in any sums due to the undersigned from Sunflower and except for payments made to third parties in the ordinary course of business (but subject to Subsection (c) hereof with respect to the persons and entities defined therein as Hollywood Park, Hubbard and TRAK East), the undersigned has not, and will not, assign(ed), pledge(d), grant(ed) a security interest in, or otherwise transfer(ed) any interest in any sum due to the undersigned from Sunflower. (c) Until the Debt is satisfied in full, the undersigned will not, directly or indirectly, make any payments, or transfer any property, to or for the benefit of any of Hollywood Park, Inc. ("Hollywood Park"), The Racing -------------- Association of Kansas East ("TRAK East"), R.D. Hubbard ("Hubbard") or Sunflower, --------- ------- except for: (i) any payments to TRAK East which are required to be made by Kansas law or a written agreement between the undersigned, Sunflower and TRAK East (provided that the latter cannot exceed amounts due and payable under the September 14, 1989 Agreement and Restatement of Lease and Management Agreement to which Sunflower, TRAK East and the undersigned are parties, as modified by the Loan Documents); (ii) any payments made to Sunflower in the ordinary course of business; and (iii) any reimbursements (except to the extent, if any, that reimbursements of any such advances would have been subordinated under the Loan Documents to which Hollywood Park is a party) to Hollywood Park for amounts actually theretofore advanced by Hollywood Park to pay indebtedness of Sunflower or the undersigned to third parties (other than Bruce Rimbo, entities in which Hollywood Park, directly or indirectly, has an ownership interest) incurred for services or goods theretofore actually received by Sunflower or the undersigned. (d) The undersigned acknowledges that either it has no claim, cause of action, or rights, against, or acting for itself and for its respective successors, assigns, shareholders, members, directors, officers, agents and employees, hereby releases, acquits and forever discharges, FUNB (both as a member of the Bank Group and as Agent), B-One, B-MW, INTRUST, FCLT and their respective stockholders, directors, officers, representatives, agents, employees, attorneys, predecessors in interest (including, without limitation, Texas Commerce Bank National Association, First City National Bank of Houston, First Union National Bank of North Carolina, Kansas State Bank & Trust Company, Home State Bank and the Federal Deposit Insurance Corporation), successors and assigns with respect to any and all actions, causes of action, claims, counterclaims, cross claims, debts, demands, executions, garnishments, judgments, lawsuits, proceedings, and suits of every kind and character, previously or now existing, whether known or unknown, and relating in any manner whatsoever to, or arising in any manner whatsoever from, the dealings or negotiations, of any of such persons or entities -48- being released hereby, with the undersigned, Sunflower, Hollywood Park, TRAK East and Hubbard, and any of the other persons on behalf of whom the undersigned is making this covenant (as enumerated above in this Subsection (d)) through the date of this Inducement Certificate, including, without limitation, those dealings or negotiations which are evidenced by or relate to the Debt or the Loan Documents. (e) The undersigned waives the benefit of any "antideficiency", res judicata, marshalling of assets or one action legislation, doctrine or other rule of law which might otherwise bar any recovery against any property which constitutes "Collateral" (as that term is defined in the Standstill Agreement ---------- and hereinafter used) because of Bank Group's election of remedies, including but not limited to an exercise of power of sale under any mortgage, deed of trust, assignment or other security agreement. The undersigned agrees that until the Debt is satisfied in full, any mortgage, collateral assignment, pledge, lien, security interest or other encumbrance which the undersigned now or hereafter holds on or in any item of the Collateral shall be subordinate to any mortgage, collateral, assignment, pledge, lien, security interest or other encumbrance which any of the Agent or members of the Bank Group may now or hereafter have thereon or therein, whether perfected or not. The undersigned agrees to execute and deliver to Agent or Bank Group, from time to time, within fifteen (15) days of when requested to do so by Agent or a member of the Bank Group, by notice to the undersigned at the address set forth below, such forms of subordination or amendment as Agent or Bank Group may request to document said subordination. The undersigned agrees that notwithstanding any foreclosure of any lien created or evidenced by any of the Loan Documents with respect to any or all of any real or personal property constituting all or any portion of the Collateral, which secures the Debt, whether by the exercise of the power of sale contained therein, by an action for judicial foreclosure, by an acceptance of a deed or bill of sale in lieu of foreclosure, or by any other means, the undersigned shall remain bound under its respective obligations to the Bank Group, in accordance with the Loan Documents to which the undersigned is a party. (f) The undersigned is a legal entity, duly created and validly existing and in good standing under the laws of the State of Kansas and has full power and authority to enter into this document, on behalf of itself and to take all of the actions referred to herein, the execution and performance of the terms hereof have been duly authorized by any and all necessary administrative, judicial or other action, and will not violate any provision of law or of any articles of incorporation, bylaws or judicial or administrative ruling or decree and, with the exception of the filing hereof with the Kansas Racing Commission, no other consent or approval of, or filing with, any public -49- authority, regulatory agency or other person or entity whatsoever is required as a condition to the validity of the obligations of the undersigned hereunder. (g) Nothing contained in the Standstill Agreement shall be a waiver of any rights or remedies the Bank Group may otherwise have under the Loan Documents or affect the relative priorities of interests of the undersigned and the Bank Group or Agent in any collateral for indebtedness owed by Sunflower to any of them. (h) If, from time to time, the Agent, the Bank Group or the "Required -------- Banks" (as defined in the "Credit Agreement", as that term is defined in the - ----- ---------------- Standstill Agreement), acting in its sole discretion, hereafter agrees in writing to extend the "Termination Date" (as that term is defined in the ---------------- Standstill Agreement and hereinafter used) to a date(s) beyond the date set forth in the Standstill Agreement, to waive performance of any provision of the Standstill Agreement or the other Loan Documents or to refrain from declaring a default under the Standstill Agreement and other Loan Documents, the provisions hereof shall apply and bind the undersigned and its respective successors and assigns with respect to such extension(s), waiver(s) or forbearance as if such document(s), waiver(s) or forbearance were expressly referred to herein, unless, prior to executing such document(s), Bank Group shall have received, by certified or registered mail sent to the address specified for notices to be sent to the Bank Group in the Standstill Agreement, written notice to the contrary from the undersigned, in which case solely this paragraph shall not apply solely as to the sender of such notice, and its respective successors or assigns, with respect to any such extension(s), waiver(s) or forbearance agreed to by Bank Group after receipt of such notice. IN WITNESS WHEREOF, the undersigned has executed this instrument in one or more counterparts as of the _________ day of ________________, 1995. SR FOOD & BEVERAGE, COMPANY, A KANSAS CORPORATION BY:______________________ NAME:____________________ TITLE:___________________ EXHIBIT F --------- HOLLYWOOD PARK INDUCEMENT CERTIFICATE ---------------------- The undersigned, to induce FIRST UNION NATIONAL BANK OF FLORIDA ("FUNB"), ---- BANK ONE LEXINGTON, N.A. ("B-One"), BANK ----- -50- MIDWEST, N.A. ("B-MW"), INTRUST BANK, N.A. ("INTRUST"), FCLT LOANS, L.P., a ---- ------- Texas limited partnership ("FCLT") (FUNB, B-One, B-MW, INTRUST and FCLT ---- sometimes being collectively referred to herein as the "Bank Group" and FUNB, as ---------- agent for itself and the other members of the Bank Group, sometimes being referred to herein as the "Agent") to enter into, with each other and SUNFLOWER ----- RACING, INC., a Kansas corporation ("Sunflower"), a certain Standstill Agreement --------- dated _____________________, 1995 (the "Standstill Agreement"), does hereby -------------------- approve and consent to the Standstill Agreement and acknowledge, represent and agree to and with Bank Group that: (a) Notwithstanding the execution of the Standstill Agreement and of the other documents executed pursuant thereto, the undersigned's covenants and agreements for the benefit of the Bank Group in any of the "Loan Documents" (as -------------- that term is defined in the Standstill Agreement and hereinafter used) to which the undersigned is a party, including without limitation under those certain documents listed on Schedule F-1 attached hereto, remain in full force and effect and that the present members of the Bank Group are the parties entitled to enforce the provisions of such covenants and agreements as parties thereto or the respective successors in interest of a party thereto. (b) The undersigned presently holds and owns solely for its own account debt of Sunflower (the "Subordinated Debt") which is subordinated to the "Debt" ----------------- ---- (as that term is defined in the Standstill Agreement and hereinafter used) pursuant to the subordination provisions of the Loan Documents to which the undersigned is a party or successor in interest to a party ("the Documents") and --------- certifies that there have been no payments, directly or indirectly, in violation of the subordination provisions of the Documents. The undersigned hereby reaffirms all of its obligations and agreements under the Documents. (c) The undersigned has not heretofore and, so long as any of the Debt is unsatisfied, shall not assign(ed), pledge(d) or otherwise transfer(red) the Subordinated Debt or any interest therein or indicia thereof to any other person or entity. (d) Until the Debt is satisfied in full, the undersigned waives any and all rights to declare any default or to exercise any rights or remedies due or attributable to or arising out of any lack of payment or performance of the Subordinated Debt. (e) Until the Debt is satisfied in full, if the undersigned receives any sum from or for Sunflower or SR Food & Beverage Company ("SRFB"), the ---- undersigned shall be deemed to hold all such sums in trust for benefit of the Bank Group and shall promptly deliver the same to Agent to apply on the Debt; provided that, except to the extent, if any, that reimbursement of any such advances would have been subordinated under the Documents -51- without reference to the Standstill Agreement or this Inducement Certificate, this subparagraph (e) will not apply to any sum received from Sunflower or SRFB as reimbursement for amounts actually theretofore advanced by the undersigned to pay indebtedness of Sunflower or SRFB to third parties (other than Bruce Rimbo or entities in which the undersigned, directly or indirectly, has an ownership interest) incurred for services or goods theretofore actually received by Sunflower or SRFB. (f) The undersigned acknowledges that it has no claim, cause of action, or, rights, against, and acting for itself and for its respective successors, assigns, shareholders, members, directors, officers, agents and employees, hereby releases, acquits and forever discharges, FUNB (both as a member of the Bank Group and as Agent), B-One, B-MW, INTRUST, FCLT and their respective stockholders, directors, officers, representatives, agents, employees, attorneys, predecessors in interest (including, without limitation, Texas Commerce Bank National Association, First City National Bank of Houston, First Union National Bank of North Carolina, Kansas State Bank & Trust Company, Home State Bank and the Federal Deposit Insurance Corporation), successors and assigns with respect to any and all actions, causes of action, claims, counterclaims, cross claims, debts, demands, executions, garnishments, judgments, lawsuits, proceedings, and suits of every kind and character, previously or now existing, whether known or unknown, and relating in any manner whatsoever to, or arising in any manner whatsoever from, the dealings or negotiations of any of such persons or entities being released hereby, with the undersigned, Sunflower, SRFB or R.D. Hubbard and any of the other persons on behalf of whom the undersigned is making this covenant through the date of this Inducement Certificate which are evidenced by or relate to the Debt or the Loan Documents. (g) The undersigned waives the benefit of any "antideficiency", res judicata, marshalling of assets or one action legislation, doctrine or other rule of law which might otherwise bar any recovery against any property which constitutes "Collateral" (as that term is defined in the Standstill Agreement ---------- and hereinafter used) because of Bank Group's election of remedies, including but not limited to an exercise of power of sale under any mortgage, deed of trust, assignment or other security agreement. The undersigned agrees that until the Debt is satisfied in full, any mortgage, collateral assignment, pledge, lien, security interest or other encumbrance which the undersigned now or hereafter holds on or in any item of the Collateral shall be subordinate to any mortgage, collateral, assignment, pledge, lien, security interest or other encumbrance which any of the Agent or members of the Bank Group may now or hereafter have thereon or therein, whether perfected or not. The undersigned agrees to execute and deliver to Agent or Bank Group, from time to time, within fifteen (15) days of when requested to -52- do so by Agent or a member of the Bank Group, by notice to the undersigned at the address set forth below, such forms of subordination or amendment as Agent or Bank Group may request to document said subordination. The undersigned agrees that notwithstanding any foreclosure of any lien created or evidenced by any of the Loan Documents with respect to any or all of any real or personal property constituting all or any portion of the Collateral, which secures the Debt, whether by the exercise of the power of sale contained therein, by an action for judicial foreclosure, by an acceptance of a deed or bill of sale in lieu of foreclosure, or by any other means, the undersigned shall remain bound under its respective obligations to the Bank Group, in accordance with the Loan Documents to which the undersigned is a party. (h) The undersigned is a legal entity, duly created and validly existing and in good standing under the laws of the State of Delaware and has full power and authority to enter into this document on behalf of itself and to take all of the actions referred to herein, the execution and performance of the terms hereof have been duly authorized by any and all necessary administrative, judicial or other action, and will not violate any provision of law or of any articles of incorporation, bylaws or judicial or administrative ruling or decree and no other consent or approval of any public authority, regulatory agency or other person or entity whatsoever is required as a condition to the validity of the obligations of such respective person or entity except those which have been obtained. (i) Nothing contained in the Standstill Agreement shall be a waiver of any rights or remedies the Bank Group may otherwise have under the Loan Documents or affect the relative priorities of interests of the undersigned and the Bank Group or Agent in any collateral for indebtedness owed by Sunflower to any of them. (j) If, from time to time, the Agent, the Bank Group or the "Required -------- Banks" (as defined in the "Credit Agreement", as that term is defined in the ---------------- Standstill Agreement), acting in its sole discretion, hereafter agrees in writing to extend the "Termination Date" (as that term is defined in the ---------------- Standstill Agreement and hereinafter used) to a date(s) beyond the date set forth in the Standstill Agreement, to waive performance of any provision of the Standstill Agreement or the other Loan Documents or to refrain from declaring a default under the Standstill Agreement and other Loan Documents, the provisions hereof shall apply and bind the undersigned and its respective successors and assigns with respect to such extension(s), waiver(s) or forbearance as if such document(s), waiver(s) or forbearance were expressly referred to herein, unless, prior to executing such document(s), Bank Group shall have received, by certified or registered mail sent to the address specified for notices to be sent to the Bank Group in the Standstill Agreement, written -53- notice to the contrary from the undersigned, in which case solely this paragraph shall not apply solely as to the sender of such notice, and its respective successors or assigns, with respect to any such extension(s), waiver(s) or forbearance agreed to by Bank Group after receipt of such notice. (k) This Inducement Certificate is executed by the undersigned in reliance upon the acknowledgements and agreements of the Bank Group and Agent set forth in Subsection 13(c) of the Standstill Agreement. IN WITNESS WHEREOF, the undersigned has executed this instrument in one or more counterparts as of the _________ day of ________________, 1995. HOLLYWOOD PARK, INC., A DELAWARE CORPORATION BY:______________________ NAME:____________________ TITLE:___________________ EXHIBIT G --------- HUBBARD INDUCEMENT CERTIFICATE ---------------------- The undersigned, to induce FIRST UNION NATIONAL BANK OF FLORIDA ("FUNB"), ---- BANK ONE LEXINGTON, N.A. ("B-One"), BANK MIDWEST, N.A. ("B-MW"), INTRUST BANK, ----- ---- N.A. ("INTRUST"), FCLT LOANS, L.P., a Texas limited partnership ("FCLT") (FUNB, ------- ---- B-One, B-MW, INTRUST and FCLT sometimes being collectively referred to herein as the "Bank Group" and FUNB, as agent for itself and the other members of the Bank ---------- Group, sometimes being referred to herein as the "Agent") to enter into, with ----- each other and SUNFLOWER RACING, INC., a Kansas corporation ("Sunflower"), a --------- certain Standstill Agreement dated _____________________, 1995 (the "Standstill Agreement"), does hereby approve and consent to the execution and delivery of the Standstill Agreement by the parties thereto, and acknowledges, represents and agrees to and with Bank Group that: (a) Notwithstanding the execution of the Standstill Agreement and of the other documents executed pursuant thereto, , the undersigned's covenants and agreements for the benefit of the Bank Group in the Subordination and Amendment Agreement dated as of March 23, 1994 and the Certificate of R.D. Hubbard dated as of March 23, 1994 (collectively, the "Subordination Agreement"), remain in ----------------------- full force and effect and that the present members of the Bank Group are the parties entitled to enforce the provisions -54- of such covenants and agreements as parties thereto or the respective successors in interest of a party thereto. (b) The undersigned presently holds and owns solely for his own account debt of Sunflower which is subordinated to the "Debt" (as that term is defined ---- in the Standstill Agreement and hereinafter used), pursuant to the provisions of the Subordination Agreement (and which is defined therein as the "Subordinated ------------ Indebtedness") and certifies that there have been no payments, directly or - ------------ indirectly, in violation of the subordination provisions of the Subordination Agreement. The undersigned hereby reaffirms all of his obligations and agreements under the Subordination Agreement. (c) The undersigned has not heretofore and, so long as any of the Debt is unsatisfied, shall not assign(ed), pledge(d) or otherwise transfer(red) the Subordinated Indebtedness or any interest therein or indicia thereof to any other person or entity. (d) In addition to the undersigned's obligations under the Subordination Agreement, the undersigned agrees from and after the date hereof that the term Subordinated Indebtedness, both hereunder and in the Subordination Agreement, shall include all sums now or hereafter due and owing to the undersigned from Sunflower, SR Food & Beverage Company ("SRFB") or both, and that until the Debt ---- is satisfied in full, if the undersigned receives any sum from or for Sunflower or SRFB, the undersigned shall be deemed to hold all such sums in trust for benefit of the Bank Group and shall promptly deliver the same to Agent to apply on the Debt; provided that this Subsection (d) shall not apply to those reimbursements referred to in Subsection 10(i)(iv) of the Standstill Agreement. (e) The undersigned acknowledges that either he has no claim, cause of action, or rights, against, or acting for himself and for his respective heirs, executors, personal representatives, beneficiaries, trustees, successors, assigns, agents and employees, hereby releases, acquits and forever discharges, FUNB (both as a member of the Bank Group and as Agent), B-One, B-MW, INTRUST, FCLT and their respective stockholders, directors, officers, representatives, agents, employees, attorneys, predecessors in interest (including, without limitation, Texas Commerce Bank National Association, First City National Bank of Houston, First Union National Bank of North Carolina, Kansas State Bank & Trust Company, Home State Bank and the Federal Deposit Insurance Corporation), successors and assigns with respect to any and all actions, causes of action, claims, counterclaims, cross claims, debts, demands, executions, garnishments, judgments, lawsuits, proceedings, and suits of every kind and character, previously or now existing, whether known or unknown, and relating in any manner whatsoever -55- to, or arising in any manner whatsoever from, the dealings or negotiations, of any of such persons or entities being released hereby, with the undersigned, Sunflower, SRFB or Hollywood Park, Inc. and any of the other persons on behalf of whom the undersigned is making this covenant through the date of this Inducement Certificate, which are evidenced by or relate to the Debt or the Loan Documents (including, without limitation, this Inducement Certificate and the Subordination Agreement). (f) The undersigned waives the benefit of any "antideficiency", res judicata, marshalling of assets or one action legislation, doctrine or other rule of law which might otherwise bar any recovery against any property which constitutes "Collateral" (as that term is defined in the Standstill Agreement ---------- and hereinafter used) because of Bank Group's election of remedies, including but not limited to an exercise of power of sale under any mortgage, deed of trust, assignment or other security agreement. The undersigned agrees that notwithstanding any foreclosure of any lien created or evidenced by any of the Loan Documents with respect to any or all of any real or personal property constituting all or any portion of the Collateral, which secures the Debt, whether by the exercise of the power of sale contained therein, by an action for judicial foreclosure, by an acceptance of a deed or bill of sale in lieu of foreclosure, or by any other means, the undersigned shall remain bound under his respective obligations to the Bank Group and Agent, in accordance with the Subordination Agreement. (g) The undersigned is an individual of legal age with full power and authority to enter into this document, on behalf of himself and to take all of the actions referred to herein, the execution and performance of the terms hereof have been duly authorized by any and all necessary administrative, judicial or other action, and will not violate any provision of law or of any judicial or administrative ruling or decree and no other consent or approval of any public authority, regulatory agency or other person or entity whatsoever is required as a condition to the validity of his obligations hereunder. (h) Nothing contained in the Standstill Agreement shall be a waiver of any rights or remedies the Bank Group may otherwise have under the Loan Documents or affect the relative priorities of interests of the undersigned and the Bank Group or Agent in any collateral for indebtedness owed by Sunflower to any of them. (i) If, from time to time, the Agent, the Bank Group or the "Required -------- Banks" (as defined in the Credit Agreement, as defined in the Standstill - ----- Agreement), acting in its sole discretion, hereafter agrees in writing to extend the "Termination Date" (as that term is defined in the Standstill Agreement and ---------------- hereinafter used) to a date(s) beyond the date set forth in the Standstill Agreement, to waive performance of any provision of the -56- Standstill Agreement or the other Loan Documents or to refrain from declaring a default under the Standstill Agreement and other Loan Documents, the provisions hereof shall apply and bind the undersigned and his respective heirs, legal representatives, successors and assigns with respect to such extension(s), waiver(s) or forbearance as if such document(s), waiver(s) or forbearance were expressly referred to herein, unless, prior to executing such document(s), Bank Group shall have received, by certified or registered mail sent to the address specified for notices to be sent to the Bank Group in the Standstill Agreement, written notice to the contrary from the undersigned, in which case solely this paragraph shall not apply solely as to the sender of such notice, and his respective heirs, successors, or assigns, with respect to any such extension(s), waiver(s) or forbearance agreed to by Bank Group after receipt of such notice. (j) The provisions of this document shall become effective only in the event the Standstill Agreement has been executed and delivered by all parties thereto and has become effective in accordance with its terms. (k) This Inducement Certificate is executed by the undersigned in reliance upon the acknowledgements and agreements of the Bank Group and Agent set forth in Subsection 13(c) of the Standstill Agreement. IN WITNESS WHEREOF, the undersigned has executed this instrument in one or more counterparts as of the _________ day of ________________, 1995. R. D. HUBBARD -57- EX-27 8 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1994 SEP-30-1995 20,789,000 6,210,000 23,396,000 215,000 0 64,643,000 249,645,000 85,491,000 247,011,000 56,722,000 44,574,000 1,837,000 0 28,000 162,577,000 247,011,000 15,539,000 93,879,000 19,504,000 77,904,000 14,105,000 1,000 2,886,000 (1,016,000) 358,000 (1,374,000) 0 0 0 (1,374,000) (0.15) (0.15)
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