-----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, BRcYM4fj9HQOjSNAEtrXL09iujZJL6t0qDOdc2MXm+p6hGZZKnMYN7l0cxE4LKqj jf5QxXb7shSyXCR20tLgBg== 0000906477-98-000007.txt : 19980331 0000906477-98-000007.hdr.sgml : 19980331 ACCESSION NUMBER: 0000906477-98-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHOWBOAT INC CENTRAL INDEX KEY: 0000089966 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 880090766 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07123 FILM NUMBER: 98579386 BUSINESS ADDRESS: STREET 1: 2800 FREMONT ST CITY: LAS VEGAS STATE: NV ZIP: 89104 BUSINESS PHONE: 7023859123 FORMER COMPANY: FORMER CONFORMED NAME: NEW HOTEL SHOWBOAT INC DATE OF NAME CHANGE: 19690122 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 --------------------------------- OR [X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------ ------------ Commission file number 1-7123 --------------------- Showboat, Inc. - ----------------------------------------------------------------- (Exact name of registrant as specified in its charter) Nevada 88-0090766 - ---------------------- ------------------------- (State or other (I.R.S. employer jurisdiction of identification no.) incorporation or organization) 2800 Fremont Street, Las Vegas, Nevada 89104 - ----------------------------------------------------------------- (Address of principal executive (Zip code) offices) Registrant's telephone number, including area code (702) 385-9141 - ----------------------------------------------------------------- Securities registered pursuant to section 12(b) of the Act: Name of each exchange on Title of each class which registered ---------------------------- ------------------------------ Common Stock, $1.00 par New York Stock Exchange value and 9 1/4% First Mortgage Bonds New York Stock Exchange due 2008 13% Senior Subordinated Notes New York Stock Exchange due 2009 Securities registered pursuant to section 12(g) of the Act: None -1- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non- affiliates of the registrant, based on the closing price of registrant's common stock on the New York Stock Exchange on March 18, 1998, was approximately $424,998,033. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of March 18, 1998: 16,548,765. DOCUMENTS INCORPORATED BY REFERENCE Not Applicable. -2- PART I ITEM 1.BUSINESS GENERAL Showboat, Inc., through subsidiaries (collectively, the "Company"), is an international gaming company that (i) owns and operates the Showboat Casino Hotel fronting the Boardwalk in Atlantic City, New Jersey (the "Atlantic City Showboat"), (ii) owns and operates the Showboat Hotel, Casino and Bowling Center in Las Vegas, Nevada (the "Las Vegas Showboat"), (iii) beneficially owns a 55% interest in, and manages, the Showboat Mardi Gras Casino in East Chicago, Indiana (the "East Chicago Showboat") and (iv) beneficially owns a 24.6% interest in, and manages, the Star City casino and entertainment complex in Sydney, New South Wales, Australia ("Star City"). The Company commenced operations in Las Vegas, Nevada in September 1954 and was incorporated as a Nevada corporation in 1960. The Company became a publicly traded company on December 9, 1968 and its common stock has been traded on the New York Stock Exchange since 1984. Unless the context otherwise requires, the "Company" or "Showboat," as applicable, refers to Showboat, Inc. and its subsidiaries. The Company's executive offices are located at 2800 Fremont Street, Las Vegas, Nevada 89104, and its telephone number is (702) 385-9141. FISCAL YEAR 1997 DEVELOPMENTS SHOWBOAT MERGER On December 18, 1997, the Company entered a definitive Agreement and Plan of Merger (the "Showboat Merger Agreement") with Harrah's Entertainment, Inc., a Delaware corporation ("Harrah's"), and HEI Acquisition Corp., a Nevada corporation and wholly-owned, indirect subsidiary of Harrah's ("Harrah's Sub"), whereby Harrah's Sub will merge with and into the Company and the Company consequently will become a wholly-owned, indirect subsidiary of Harrah's (the "Showboat Merger"). The Company will hold a special meeting of shareholders on April 23, 1998 for the Company's shareholders to consider the Showboat Merger. If the Showboat Merger is approved, and other conditions to the Showboat Merger are satisfied or waived, articles of merger will be filed with the Nevada Secretary of State and the Company's shareholders will become entitled to receive $30.75 in cash per share of common stock of the Company (the day on which the articles of merger become effective is hereafter referred to as the "Closing Date"). In the event the Company's shareholders approve the Showboat Merger, the Company anticipates that the Closing Date would occur during the second quarter 1998. Notwithstanding the foregoing, no assurance can be given that the Company's shareholders will approve the Showboat Merger. The respective obligations of the Company and Harrah's to effect the Showboat Merger are subject to the satisfaction (or waiver) of the following conditions: (a) the Showboat Merger and the Showboat Merger Agreement shall have been approved and adopted by the shareholders of the Company; (b) no order, executive order, stay, decree, judgment or injunction or statute, -3- rule or regulation shall be in effect that makes the Showboat Merger illegal or otherwise prohibits the consummation of the Showboat Merger; and (c) all governmental authorizations, consents, orders or approvals shall have been obtained (including under all gaming laws), all statutory waiting periods in respect thereof (including under the Hart Scott Rodino Act ("HSR Act")) shall have expired and no such approval shall contain any material conditions, limitations or restrictions. The applicable waiting periods for the Company and Harrah's under the HSR Act expired on February 11, 1998, and no request for additional information was made. Harrah's has filed applications for approval from, and initiated discussions with, the gaming authorities in the four jurisdictions in which the Company operates. These applications remain pending and are awaiting consideration from the respective regulatory authorities. The obligation of the Company to effect the Showboat Merger is also subject to the satisfaction (or waiver) of the following conditions: (a) the representations and warranties of Harrah's and Harrah's Sub in the Showboat Merger Agreement shall be true and correct in all material respects (except for those qualified as to materiality or a Harrah's Material Adverse Effect (as defined below) which shall be true and correct) as of the date of the Showboat Merger Agreement and, except to the extent such representations speak as of an earlier date, as of the Closing Date as though made on and as of the Closing Date, except for changes contemplated by the Showboat Merger Agreement; (b) Harrah's shall have performed in all material respects all obligations required to be performed by it under the Showboat Merger Agreement at or prior to the Closing Date; and (c) Harrah's shall have received all third-party consents and approvals and approvals required to be obtained by Harrah's, except for such third-party consents and approvals as to which the failure to obtain, individually or in the aggregate, would not reasonably be expected to impair or delay the consummation of the Showboat Merger. A "Harrah's Material Adverse Effect" means a material adverse effect on the business, properties, condition (financial or otherwise), results of operations or prospects of Harrah's and its subsidiaries, taken as a whole. In addition, the obligations of Harrah's and Harrah's Sub to effect the Showboat Merger are also subject to the satisfaction (or waiver) of the following conditions: (a) the representations and warranties of the Company in the Showboat Merger Agreement shall be true and correct in all material respects (except for those qualified as to materiality or a Showboat Material Adverse Effect (as defined below), which shall be true and correct) as of the date of the Showboat Merger Agreement and, except to the extent such representations and warranties speak as of an earlier date, as of the Closing Date as though made on and as of the Closing Date, except for changes contemplated by the Showboat Merger Agreement; (b) the Company shall have performed in all material respects all obligations required to be performed by it under the Showboat Merger Agreement at or prior to the Closing Date; (c) between the date of the Showboat Merger Agreement and the Effective Date, there shall have been no material adverse change in the business, properties, assets, liabilities, operations, condition (financial or otherwise) or prospects of the Company and its subsidiaries, taken as a whole; (d) Harrah's and the Company shall have received all third-party consents and approvals required to be obtained by Harrah's or the Company, except for such third-party consents and approvals as to which the failure to obtain, either individually or in the aggregate, would not reasonably be expected to result in (i) a material adverse change in the business, properties, assets, liabilities, operations, condition (financial or otherwise) or prospects of the Company and its subsidiaries, taken as a whole, or (ii) a Harrah's Material Adverse Effect, as the case may be; and (e) no event has occurred that has or would -4- result in the triggering of any right or entitlement of the Company's shareholders under the Company's Rights Agreement dated October 5, 1995, or will occur as a result of the consummation of the Merger. A "Showboat Material Adverse Effect" means a material adverse effect on the business, properties, condition (financial or otherwise), results of operations or prospects of the Company and its subsidiaries, taken as a whole, or any of the three separate businesses operated as the Atlantic City Showboat, East Chicago Showboat and Star City. The Company has agreed that, during the period from the date of the Showboat Merger Agreement until the earlier of the termination of the Showboat Merger Agreement or the Effective Time (defined in the Showboat Merger Agreement), except as otherwise consented to in writing by Harrah's or as contemplated by the Showboat Merger Agreement, it and each of its subsidiaries will: (a) carry on its business in the usual, regular and ordinary course in substantially the same manner as previously conducted; (b) pay its debts and taxes when due subject to good faith disputes over such debts or taxes, and pay or perform other obligations when due; (c) use reasonable efforts consistent with past practices and policies to preserve intact its present business organization, keep available the services of its present officers and key employees and preserve its relationships with customers, suppliers, distributors and others having business dealings with it; (d) not amend its Articles of Incorporation or Bylaws; (e) not issue, pledge or sell, or authorize the issuance, pledge or sale of additional shares of its capital stock (other than upon exercise of the Options outstanding on the date of the Showboat Merger Agreement) or securities convertible into capital stock, or any rights, warrants or options to acquire any convertible securities or capital stock, or any other securities in substitution for outstanding shares of Common Stock; (f) not amend or waive any terms of any option, warrant or stock option plan of the Company or any of its subsidiaries; (g) not declare or pay any dividends on or make other distributions in respect of any of its capital stock (other than between any wholly-owned subsidiary of the Company and the Company or any other wholly- owned subsidiary of the Company and other than regular quarterly dividends on shares of Common Stock not to exceed $.025 per share); (h) not effect certain other changes in its capitalization, and not purchase or otherwise acquire, directly or indirectly, any shares of its capital stock; (i) not increase the compensation or fringe benefits payable to its directors, officers or employees or pay any benefit not required by any existing plan or arrangement or grant any severance or termination pay (except pursuant to existing agreements or policies, which will be interpreted and implemented in a manner consistent with past practice), enter into employment or severance agreements, or establish, adopt, enter into, or amend any plan or policy for the benefit of any directors, officers, or current or former employees, subject to certain exceptions; (j) not sell, pledge, lease, dispose of, grant, encumber, or otherwise authorize the sale, pledge, disposition, grant or encumbrance of any properties or assets of the Company or any of its subsidiaries, except for sales of assets in the ordinary course of business in connection with the Company's gaming operations in an amount not to exceed $500,000 individually or $2,000,000 in the aggregate or other sales which individually do not exceed $100,000 and in the aggregate do not exceed $250,000; (k) not acquire any corporation, partnership, other business organization or any division thereof or any other assets, except for acquisitions of assets in the ordinary course of business in connection with the Company's gaming operations in an amount individually not to exceed $500,000 or other acquisitions which individually do not exceed $100,000 and in the aggregate do not exceed $250,000; (l) not incur, assume or prepay long-term debt or incur or assume any short-term debt, assume, guarantee or become liable for the -5- obligations of any other person, or make any loans, advances of capital contributions to or investments in any other person, in each case other than in the ordinary course of business consistent with past practice; (m) not adopt or announce any intention to adopt a plan of complete or partial liquidation or dissolution of the Company or any of its subsidiaries; (n) not make or rescind any material tax elections, settle any tax claims or make any material change in its accounting methods; (o) not pay, discharge or satisfy any material claims, liabilities or obligations, or waive any rights of substantial value, in each case other than in the ordinary course of business and consistent with past practice of liabilities reflected or reserved against in the consolidated financial statements of the Company; (p) not fail to maintain its existing insurance coverage; (q) not enter into any new or successor collective bargaining agreement other than agreements covering employees at the Las Vegas Showboat on terms consistent with those agreed to by the majority of casinos in downtown Las Vegas; (r) not take any action inconsistent with the ordinary course of business and past practice with respect to accounting policies, unless required by generally accepted accounting principles or the United States Securities and Exchange Commission; (s) not modify, amend or terminate, or waive, release or assign any rights with respect to, any of the Company's material contracts except in the ordinary course of business consistent with past practice; (t) not take any action that would make any of its representations or warranties set forth in the Showboat Merger Agreement inaccurate in any respect at, or as of any time prior to, the Effective Time; (u) not engage in any transactions with any of the Company's affiliates other than pursuant to agreements, arrangements or understandings existing on the date of the Showboat Merger Agreement; (v) not close or shut down any of the casinos owned or operated by the Company or any of its subsidiaries unless required by law or due to acts of God or other force majeure events; or (w) not enter into any agreement or announce any intention to take any of the actions described in (d) through (v) above. SYDNEY, AUSTRALIA On November 26, 1997, the Company, through its partially owned subsidiary, commenced operations at Star City, the permanent casino and entertainment complex, located in Sydney, New South Wales, Australia. Star City features 153,000 square feet of casino space. The casino features 200 table games, 1,500 slot machines and a Totalizator Agency. The complex also includes a 352 room hotel, 139 serviced apartments, a lyric theatre, a cabaret theatre, restaurants and bars, a nightclub, convention and retail facilities, 2,500 underground car spaces and a light rail link to the city. Star City entered into an eight-year agreement with Lord Andrew Lloyd Webber's Really Useful Theatres Pty Ltd. for the management of the Lyric Theatre. Upon the commencement of operations at Star City, the interim casino ceased operations. The interim casino had commenced operations in September 1995 and contained 500 slot machines and 150 table games. The interim casino shall hereafter be referred to as "Sydney Harbor Casino." The total aggregate cost of the permanent and interim casinos was approximately A$1.4 billion. (As used in this Form 10-K amounts in Australian dollars are denoted as "A$." As of December 31, 1997, the exchange rate was approximately $0.6516 for each A$1.00.) The New South Wales Casino Control Commission (the "NSWCCA") commenced its first required three-year investigation to determine that the casino operator is a suitable person, to continue to give effect to the casino license and to determine that it is in the public interest that the casino license should continue in force. The NSWCCA commenced its investigation on -6- November 8, 1996. The investigation was completed on December 14, 1997. The Minister of Racing & Gaming issued a press release on December 18, 1997 stating that the NSWCCA had found that the licensee was a suitable person, to continue to give effect to the casino license and that it was in the public interest that the casino license should continue in force. In the fall of 1996, the Company was approached by several parties with respect to the sale of the Company's interest in Sydney Harbour Casino Holdings Limited ("SHCH") and the assignment of the Company's interest in the management of Star City. In January 1997, the Company entered into a letter of intent with Publishing & Broadcasting Limited ("PBL") to sell 55 million ordinary shares of SHCH, or approximately 10% of the outstanding shares, for A$1.85 per share and PBL would succeed to the management of Star City for which PBL would pay a A$240 million fee of which the Company would be entitled to 85%. In May 1997, the Company announced that it had been advised by PBL that PBL would let the letter of intent lapse and PBL announced that it was no longer interested in pursuing a purchase of the Company's interest in SHCH or Star City. In the months following the termination of the letter of intent with PBL, the Company had contacts with various gaming industry participants and others in the United States and Australia regarding the potential sale of the Company's interests in SHCH or Star City. The Company also had various discussions with representatives of the board of directors of SHCH as to the possible termination of the management contract for Star City in consideration for cash payments. As of the date hereof, the Company has continued its discussions with SHCH regarding a potential transaction. However, there can be no assurance that discussions will continue or that any agreement will be reached and, if any agreement is reached, that it will be approved by the NSWCCA or otherwise completed. EAST CHICAGO, INDIANA The Indiana Gaming Commission issued an owner's license to Showboat Marina Casino Partnership, an Indiana general partnership ("SMCP"), on April 15, 1997 to operate the East Chicago Showboat subject to the completion of certain regulatory inspections. Following successful completion of the regulatory inspections, SMCP commenced public operations on April 18, 1997. The East Chicago Showboat consists of a state-of-the-art cruising gaming vessel and a land based facility that includes an approximately 100,000 square foot pavilion, a 1,800 space parking garage and 1,200 surface parking spaces. The East Chicago Showboat features 53,000 square feet of gaming area, containing approximately 82 table games (including poker tables) and approximately 1,700 slot machines. Showboat beneficially owns, through subsidiaries, a 55% interest in SMCP. See "Item 1. Business - East Chicago Showboat Operations." ATLANTIC CITY, NEW JERSEY On January 28, 1998, a special purpose subsidiary of the Company borrowed $100.0 million from Column Financial, Inc. to acquire 10 1/2 leased acres of real property (the Atlantic City Property") located at 801 Boardwalk, Atlantic City, New Jersey and the lease pursuant to which the Atlantic City Property is leased to Atlantic City Showboat, Inc. ("ACSI") from Sun International, Inc. for a total purchase price of $110.0 million. The loan will mature on February -7- 1, 2028. Interest accrues on the loan at an interest rate of 7.09% until February 1, 2008, at which time, unless paid off as of such date, the loan will accrue a second tranche of interest at a rate equal to the lesser of (i) the positive excess (if any) of (A) the 20 Year Treasury Rate plus 2.0% per annum over (B) 7.09%, and (ii) 5.0% per annum. The loan is secured by the Atlantic City Property. FUTURE EXPANSION The Company evaluates and pursues potential expansion and acquisition opportunities in both domestic and international markets. Such opportunities may include the ownership, management and operation of gaming and entertainment facilities, either alone or with joint venture partners. Currently, the Company has announced a gaming opportunity in Rockingham Park in Salem, New Hampshire. See "Item 1. Business - Narrative Description of Business - Development Activities" "- Rockingham Park, New Hampshire." During February 1997, the Company entered into a tribal management agreement and related documents with the Lummi Indian Nation for the financing, development and operation of a Class III casino to be located between Bellingham, Washington and Vancouver, British Columbia, Canada. Prior to submitting the agreements to the National Indian Gaming Commission for approval, the Company withdrew from the pursuit of the tribal gaming opportunity in June 1997 due to the announcement by the British Columbia government that it was proposing to expand the scope of authorized casino gaming in British Columbia. The Company concluded, following a review of the proposed legislation, that such legislation would have a detrimental effect on the proposed tribal casino. Additionally, in December 1997, the Company transferred its wholly-owned subsidiary Showboat Lemay, Inc. to Futuresouth, Inc., a corporation formed by a group of St. Louis investors. Showboat Lemay, Inc. was a general partner in a limited partnership which was developing a riverboat casino and related amenities in Lemay, Missouri. The limited partnership had previously filed the necessary gaming applications with the Missouri Gaming Commission and had entered into a Lease and Development Agreement with the St. Louis County Port Authority to develop the project in Lemay, St. Louis County, Missouri. The transfer of the Company's interest terminated its involvement in the Lemay project. The Company withdrew from this opportunity, in part, because of increased market saturation and reduced operating performance of the existing facilities in the St. Louis market. Development and operation of any gaming facility is subject to numerous contingencies, several of which are outside of the Company's control and may include the enactment of appropriate gaming legislation, the issuance of requisite permits, licenses and approvals, the availability of appropriate financing and the satisfaction of other conditions. There can be no assurance that the Company will elect or be able to consummate any such acquisition or expansion opportunity. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." -8- NARRATIVE DESCRIPTION OF BUSINESS ATLANTIC CITY OPERATIONS The Company's subsidiary, ACSI, owns and operates the Atlantic City Showboat, which commenced operations in March 1987. ACSI is a wholly-owned subsidiary of Ocean Showboat, Inc. ("OSI"), which is a wholly-owned subsidiary of the Company. The Atlantic City Showboat is located at the eastern end of the Boardwalk on approximately 12 acres, 10 1/2 acres of which is the leased Atlantic City Property. On January 28, 1998, the Company through a subsidiary, Showboat Land LLC, a Nevada limited liability company ("Land LLC"), purchased the Atlantic City Property and the lease of the Atlantic City Property for $110 million. As a result, Land LLC assumed the ACSI lease and became the landlord of ACSI. ACSI will continue to make the lease payments to Land LLC. Additionally, ACSI owns approximately nine acres of land adjacent to the Atlantic City Showboat which are zoned for non-casino development and which are currently used as surface parking lots. The Atlantic City Showboat is a New Orleans-themed casino- hotel featuring, as of March 1, 1998, approximately 102,000 square feet of casino space. The casino, the other public areas and administrative offices are located on the first four floors of a 24-story hotel tower. A 16-story hotel tower, constructed in 1994, is adjacent to the 24-story hotel tower. The Atlantic City Showboat has been designed to promote ease of customer access to the casino and all other public areas of the hotel- casino. Access to the Atlantic City Showboat's casino is provided by two main entrances, one on the Boardwalk and one on Pacific Avenue, which runs parallel to the Boardwalk. The Atlantic City Showboat contains two public levels. Two pairs of large escalators, which are directly accessible from the two ground level entrances, and elevators provide easy access to the second public level. Public areas located on the ground level, in addition to the casino space, include ancillary facilities such as a show lounge, restaurants, cocktail lounge, and retail shopping. Public areas located on the second level include a buffet, a coffee shop, a private players club, a beauty salon, a health spa, a video game arcade, approximately 27,000 square feet of meeting rooms, convention and exhibition space and a 60-lane bowling center, including a snack bar and cocktail lounge. As of March 1, 1998, the casino offered approximately 3,700 slot machines, 95 table games and a horse race simulcast facility. The second and fourth floors of the 24-story hotel tower are occupied by kitchens, storage for food, beverage and other perishables, surveillance and security areas, an employee cafeteria, computer equipment and executive and administrative offices. The two hotel towers feature a total of 800 hotel rooms. Many of the hotel rooms have a view of the ocean. Included in the number of hotel rooms are 59 suites, 40 of which have ocean- front decks. A nine-story parking garage is located on-site at the Pacific Avenue entrance. The facility provides self-parking for approximately 2,000 cars and a 14-bus depot integrated with the 24-story hotel tower. In addition, on-site underground parking accommodates valet parking for approximately 500 cars. This design permits Atlantic City Showboat's customers to enter the casino hotel protected from the weather. The Atlantic City Showboat also has surface level self-parking for approximately 950 cars adjacent to the parking garage. -9- Adjacent to the Atlantic City Showboat is the Taj Mahal Casino Hotel (the "Taj Mahal"). The Taj Mahal is connected to both the Atlantic City Showboat and Resorts International Casino Hotel by pedestrian passageways. These three properties form an "uptown casino complex" in which patrons can pass from property to property, either on the ocean-front Boardwalk or through the pedestrian connectors. Additionally, MGM Grand, Inc. has announced plans to construct a hotel-casino on property adjacent to the Atlantic City Showboat. ATLANTIC CITY EMPLOYEES AND LABOR RELATIONS As of March 1, 1998, the Atlantic City Showboat employed approximately 2,950 persons on a full-time basis and approximately 270 persons on a part-time basis. Approximately 1,100 or 37% of the Atlantic City Showboat's full-time employees are covered by collective bargaining agreements. Approximately 1,000 or 33.9% of the full-time employees are covered by a collective bargaining agreement that expires in September 1999. The number of employees at the Atlantic City Showboat is expected to fluctuate, with the highest number during the summer months and the lowest number during the winter months. All employees of the Atlantic City Showboat whose responsibilities involve or relate to the casino or the simulcast area must be licensed by or registered with the applicable New Jersey regulatory authorities before commencing work at the Atlantic City Showboat. The Company considers its current labor relations to be satisfactory. LAS VEGAS OPERATIONS The Las Vegas Showboat is owned by the Company and it commenced operations in September 1954. The Las Vegas Showboat is managed by Showboat Operating Company ("SBOC"), a wholly-owned subsidiary of the Company. The Las Vegas Showboat, which covers approximately 26 acres, is located near the Boulder Highway approximately two and one-half miles from the hotel-casinos in downtown Las Vegas or on the Las Vegas Strip. The Las Vegas Showboat is a New Orleans-themed hotel casino in an 18-story hotel tower and low-rise complex. The Las Vegas Showboat features an approximately 75,000 square foot casino, 451 hotel rooms, a 106-lane bowling center, an approximately 1,300- seat bingo parlor garden and various ancillary facilities such as specialty restaurants, a buffet, a coffee shop, and a lounge. In addition, 8,300 square feet of meeting room area is available with a seating capacity of 1,000 persons. As of March 1, 1998, the Las Vegas Showboat's casino offered approximately 1,540 slot machines, 25 table games, a race and sports book and a keno facility. The Las Vegas Showboat offers a recreational vehicle park with approximately 80 spaces on leased property contiguous to the Las Vegas Showboat. LAS VEGAS EMPLOYEES AND LABOR RELATIONS As of March 1, 1998, the Las Vegas Showboat employed approximately 1,200 persons. Approximately 750 or 62.5% of the employees were represented by collective bargaining agreements. One of the collective bargaining agreements covering 585 or 48.8% of the employees expired on June 1, 1997. Consistent with prior practice, the Company and the affected -10- employees are operating in accordance with the terms of the expired collective bargaining agreement. The Company considers its current labor relations to be satisfactory. SYDNEY OPERATIONS The Company's wholly-owned subsidiary, Showboat Australia Pty Limited ("SA"), invested approximately $100.0 million for 135 million shares, or approximately 24.6% equity interest, in SHCH, which, through wholly-owned subsidiaries, owns Star City. SA also has an 85% interest in the management company which manages Star City. In December 1994, the NSWCCA granted the only full- service casino license in the State of New South Wales to Star City Pty Ltd, formerly known as Sydney Harbour Casino Pty Limited ("SCPL"), a wholly-owned subsidiary of SHCH. Upon issuance of the license, SCPL paid an aggregate of A$376.0 million as a one time license fee and prepaid rent for the casino site. Star City commenced gaming operations at the permanent casino facility on November 26, 1997, after operating the Sydney Harbor Casino from September 13, 1995 to November 26, 1997. SHCH formed a wholly-owned subsidiary, Sydney Harbour Casino Properties Pty Limited ("SHCP"), to lease the land for the Sydney Harbour Casino from the NSWCCA and to construct Star City. Star City is located at Pyrmont Bay adjacent to Darling Harbour, approximately one mile from the Sydney central business district. Star City features approximately 153,000 square feet of casino space that includes an approximately 22,000 square foot private area located on a separate level designated to service a premium clientele. Star City operates 1,500 slot machines and 200 table games. Star City also contains several themed restaurants, cocktail lounges, a 2,000 seat lyric theatre, a 900 seat cabaret style theatre and extensive public areas. Star City entered into an eight-year agreement with Lord Andrew Lloyd Webber's Really Useful Theatres Pty Ltd. for the management of the lyric theatre. Star City complex includes a 352 room hotel tower and an adjacent condominium tower containing 139 units with full hotel services. (Of the 139 units, 52 units have been contracted to be sold as of March 1, 1998.) When available, most of the 139 units will be used by the hotel for its guests. The complex includes extensive retail facilities, a station for Sydney's light rail system, a bus terminal, docking facilities for commuter ferries and parking for approximately 2,500 cars. Pursuant to the terms of the casino license, upon opening of the permanent casino, the interim casino ceased operations. While in operation, the interim casino had approximately 60,000 square feet of casino space, and was located at Pyrmont Bay adjacent to the location of the permanent casino site. An existing building had been renovated to permit the operation of the interim casino which contained 500 slot machines and 150 table games. Until November 26, 1997, the interim casino had been open 24 hours per day, every day of the year. The interim casino also featured 3 restaurants, 5 bars, a sports lounge and a gift shop. The opening of the Sydney Harbour Casino marked the beginning of SHCH's 12-year monopoly as the only full-service casino in the State of New South Wales. The 12-year monopoly period shall expire in September 2007. This exclusive 12-year period is included in the 99-year casino license awarded to SCPL. The New South Wales Casino Control Act provides that every three years, the NSWCCA will review the suitability of the casino license holder and whether it is in the public's interest that the casino license should continue. Such review occurred -11- in 1997 and on December 18, 1997, the New South Wales Minister of Gaming and Racing announced that the NSWCCA had formed the opinion that Star City was a suitable person to continue to hold the casino license and that it was in the public interest that the casino license should continue in force. The total aggregate project costs of Star City and the Sydney Harbour Casino were approximately A$1.4 billion. In addition to its 24.6% equity interest in SHCH, SA has an option to purchase an additional 37,446,553 ordinary shares of SHCH at an exercise price of A$1.15 per share which if exercised, would increase the Company's ownership percentage to approximately 29.4%. SA's option may be exercised no earlier than July 1, 1998 and expires June 30, 2000. SA is restricted to remain the beneficial owner of not less than 10% of the issued capital of SHCH for a period of not less than five years after completion of Star City and remain the beneficial owner of not less than 5% of the issued capital of SHCH for an additional two years thereafter. SHCH became a publicly listed company on the Australian Stock Exchange in June 1995. As of March 18, 1998 the price of a share of SHCH ordinary share was A$1.23. Sydney Casino Management Pty Limited (the "Manager"), a company which is 85% owned by SA and 15% owned by National Mutual Trustees Limited in trust for Leighton Properties Pty Limited ("Leighton Properties"), manages Star City, and previously managed Sydney Harbour Casino, pursuant to a 99-year management agreement (the "Management Agreement"). The terms of the Management Agreement required the Manager to advise SCPL or SHCP as to the casino design and configuration and the placement of all gaming equipment. The Manager also agreed to train all employees of Star City and to manage a high quality international class casino in accordance with the operating standards required by the NSWCCA. The NSWCCA requires a service audit to be conducted yearly by a third party so that areas of non-compliance can be identified and remedied by the Manager. The service audit for 1997 has not yet been completed and is anticipated to be completed during the second quarter of 1998. The Manager will be paid a management fee equal to the sum of (i) 1 1/2% of casino revenue, (ii) 6% of casino gross operating profit, (iii) 3 1/2% of total non-casino revenue, and (iv) 10% of total gross non- casino operating profit, for each fiscal year for services rendered by the Manager pursuant to the Management Agreement. In conjunction with the bid for the license and the related financing for the project, SA agreed to forego the first A$19.1 million of its 85% portion of the fees due under the Management Agreement, which amount was satisfied during the second quarter of 1997. Gaming revenue from Star City is taxed at a rate of (i) 22.5% of slot machine revenue and (ii) 20% of the first A$225.4 million (as adjusted) of gross table game revenue with the rate increasing by 1.0% for each additional A$5.0 million of gross table game revenue up to a maximum rate of 45.0% payable on gross table game revenue in excess of A$360.7 million per annum. The A$225.4 million of base gross table game revenue will be adjusted annually in accordance with changes in the Consumer Price Index (Sydney All Groups) from the first week in July each year. The base year of the index is 1992. SCPL is also required to pay a community benefit levy of 2.0% of gross gaming revenue. In the fall of 1996, the Company was approached by several parties with respect to the sale of the Company's interest in SHCH and the assignment of the Company' s interest in the -12- management of Star City. In January 1997, the Company entered into a letter of intent with PBL to sell a portion of its interest in SHCH and to assign its management rights to PBL. In May 1997, the Company announced that it had been advised by PBL that PBL would let the letter of intent lapse and PBL announced that it was no longer interested in pursuing a purchase of the Company's interest in SHCH or Star City. PBL had offered the Company a per share price of A$1.85 for 55 million ordinary shares, or an approximate 10% interest, in SHCH and offered to purchase the right to manage Star City for A$240.0 million to Sydney Casino Management Pty Limited, a partnership in which the Company has an 85% partnership interest. In the months following the termination of the letter of intent with PBL, the Company had contacts with various gaming industry participants and others in the United States and Australia regarding the potential sale of the Company's interests in SHCH and Star City. The Company also had various discussions with representatives of the board of directors of SHCH as to the possible termination of the management contract for Star City in consideration for cash payments. As of the date hereof, the Company has continued its discussions with SHCH regarding a potential transaction. However, there can be no assurance that discussions will continue or that any agreement will be reached and, if any agreement is reached, that it will be approved by the NSWCCA or otherwise completed. The Company's participation in foreign operations in New South Wales, Australia involves a number of risks. These risks include, without limitation, currency and exchange control problems, operating in highly inflationary environments, fluctuations in monetary exchange rates, the possible inability to execute and enforce agreements, the future regulations governing the repatriation of funds, political, regulatory and economic instability or changes in policies of the foreign government, and the dependence on other future events which can influence the success or failure of such foreign operations. There can be no assurance that these factors will not have an adverse impact on the Company's operating results. SYDNEY EMPLOYEES AND LABOR RELATIONS As of March 18, 1998, Star City employed approximately 5,100 persons, of which approximately 4,000 or 78.4% of the employees were represented by a collective bargaining agreement which expired February 1998. The employees covered by the expired collective bargaining agreement have approved a new agreement, which agreement will become effective upon certification by the Australia Industrial Relations Commission. The new agreement will be for a period of two years from the date of certification. Star City considers its current labor relations to be satisfactory. EAST CHICAGO SHOWBOAT OPERATIONS On April 18, 1997, the East Chicago Showboat commenced gaming operations. Prior to April 18, 1997, SMCP activities had been limited to applying for appropriate gaming licenses and securing the land for, arranging for construction of, finalizing the design of, construction and developing and obtaining financing for the East Chicago Showboat. -13- The East Chicago Showboat is located on approximately 27 acres of leased land at the Pastrick Marina, approximately 12 miles from Chicago, Illinois. The Pastrick Marina, previously used only for private pleasure craft docking, was expanded to serve as a marina for the East Chicago Showboat and a mooring facility for SMCP's state-of-the-art cruising gaming vessel. The East Chicago Showboat is located directly off Indiana State Highway 912, a six-lane divided highway which connects 3.5 miles south to Interstate Highway 90 and 5.5 miles south to Interstate Highway 80/94. The East Chicago Showboat consists of an approximately 100,000 square foot five level state-of-the-art cruising gaming vessel, an approximately 100,000 square foot land-based pavilion (the "Pavilion"), an approximately 1,800 space parking garage and surface parking for an additional 1,200 automobiles. As of March 1, 1998, the casino gaming vessel included approximately 53,000 square feet of gaming space on four of its five levels, featured approximately 1,700 slot machines and approximately 82 table games (includes poker tables), and accommodates approximately 3,750 passengers. The casino gaming vessel resembles a modern vacation cruise vessel, with escalators, elevators, eleven foot to twelve and one-half foot high ceilings, and state-of-the-art design features intended to provide customers with a smooth and comfortable ride during cruises on Lake Michigan. The East Chicago Showboat offers gaming 365 days per year and provides its customers a wide variety of table games and slot machines of varying types and denominations. SMCP operates the casino gaming vessel approximately 20 hours each day in a series of excursions lasting two hours each. A festive Mardi Gras party atmosphere is replicated through the use of murals, street performers and entertainers. Customers can enter the casino gaming vessel through its second or third floor via enclosed ramps from the adjacent Pavilion. Of the casino gaming vessel's five levels, the top four levels are used for gaming with three of the four gaming levels divided into two distinct gaming areas separated by a lobby. The fourth gaming level of the vessel contains a single gaming area, passenger lounge, snack bar and cocktail lounge. The lowest level of the casino gaming vessel is utilized for administrative support functions. EAST CHICAGO LABOR RELATIONS As of March 1, 1998, the East Chicago Showboat employed approximately 1,400 persons, of which approximately 190 or 13.5% are represented by a collective bargaining agreement that expires on June 30, 2001. The East Chicago Showboat considers its current labor relations to be satisfactory. The East Chicago Showboat's marine service provider, however, is involved in a dispute with its maritime employees, who maintain, operate and navigate the casino gaming vessel on its cruises. On March 18, 1997 the Marine Engineers Beneficial Association filed a petition with the National Labor Relations Board seeking to represent certain employees of the marine service provider. On August 21, 1997, the petition was amended to name the East Chicago Showboat as a joint employer of the employees in the petitioned for unit. The petition was withdrawn by the Union on November 18, 1997. The day prior to the scheduled hearing at the Regional Office of the Board regarding the petition has not been refiled. -14- FINANCIAL INFORMATION ABOUT THE COMPANY The primary source of revenue and income to the Company is its casinos, although the hotels, restaurants, bars, buffets, shops, bowling, sports and other special events and services are important adjuncts to the casinos. At December 31, 1997, casinos either owned or managed by the Company featured in the aggregate approximately 8,450 slot machines and 400 table games. Slot machines have been the principal source of casino revenues at the Atlantic City Showboat, the Las Vegas Showboat and the East Chicago Showboat. At the Atlantic City Showboat, slot machines accounted for 78.7%, 76.1% and 73.9% of casino revenues for the years ended December 31, 1997, 1996 and 1995, respectively. At the Las Vegas Showboat, slot machines accounted for 84.5%, 85.2% and 85.5% of casino revenues for the years ended December 31, 1997, 1996 and 1995, respectively. At the East Chicago Showboat, slot machines accounted for 71.2% of casino revenues from the commencement of operations to December 31, 1997. In contrast, table games have been the principal source of casino revenues at Star City and the Sydney Harbour Casino. For the years ended December 31, 1997 and 1996 and for the period from commencement of operations to December 31, 1995, table games accounted for 76.9%, 82.2% and 86.1%, respectively, of casino revenues at Star City and the Sydney Harbour Casino. Gaming operations at the Atlantic City Showboat, the Las Vegas Showboat and Star City are each conducted 24 hours a day, every day of the year and gaming operations at the East Chicago Showboat are conducted 20 hours a day, every day of the year. The following table sets forth the contribution to total net revenues on a dollar and percentage basis of the Company's major activities at the Atlantic City Showboat and the Las Vegas Showboat and the East Chicago Showboat for the years ended December 31, 1997, 1996 and 1995. Net revenues for Star City, the Sydney Harbour Casino and the Showboat Star Casino (which ceased operations in March 1995) are not included in the table since the Company accounts for its investment in SHCH and the Showboat Star Partnership, the owner of the Showboat Star Casino ("SSP"), respectively, under the equity method of accounting. For the year ended December 31, 1997, the Company's equity in the loss of SHCH, net of intercompany elimination was $3,504,000. The Company's equity in the income of SHCH, net of intercompany elimination, was $4,086,000 for the year ended December 31, 1996. For the year ended December 31, 1995, the Company reported no earnings for SHCH due to the write off of preopening costs. The Company's equity in the loss of SSP, net of intercompany elimination, was -15- $22,000 through March 31, 1995. For additional financial information, see the Company's financial statements contained in "Item 8. Financial Statements and Supplementary Data."
Year Ended Year Ended Year Ended December 31, 1997 December 31, 1996 December 31, 1995 --------------------- -------------------- -------------------- (dollar amounts in thousands) Amount Percent Amount Percent Amount Percent -------- ------- -------- ------- --------- ------- Revenues: Casino $497,124 89.3 $382,980 88.3 $379,494 88.5 Food and beverage 62,720 11.3 56,916 13.1 53,894 12.6 Rooms 25,395 4.5 26,147 6.0 25,694 6.0 Sports and special events 3,498 0.6 3,682 0.9 3,924 1.0 Management Fees 5,671 1.0 0 0.0 190 0.0 Other 7,156 1.3 5,876 1.4 5,189 1.2 -------- ------- -------- ------- -------- ------ Total gross revenues 601,564 108.0 475,601 109.7 468,385 109.3 Less complimentaries 44,748 8.0 41,896 9.7 39,793 9.3 -------- ------- -------- ------- -------- ------ Total net revenues $556,816 100.0 $433,705 100.0 $428,592 100.0 ____________________ Casino revenues are the net difference between the sums paid as winnings and the sums received as losses. Complimentaries consist primarily of rooms, food and beverages furnished gratuitously to customers. The sales value of such services is included in the respective revenue classifications and is then deducted as complimentaries. Complimentary rates are periodically reviewed and adjusted by management. See Note 1 of Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. Does not include interest income.
The Atlantic City Showboat offers complimentary meals, drinks and room accommodations to a larger percentage of customers than the other Showboat properties. Such promotional allowances (complimentary services) at the Atlantic City Showboat were 10.3%, 10.1%, and 9.7% of total net revenues for the years ended December 31, 1997, 1996 and 1995, respectively. Such promotional allowances (complimentary services) at the Las Vegas Showboat were 6.1%, 7.0% and 6.8% of total net revenues for the years ended December 31, 1997, 1996 and 1995, respectively. At Star City and the Sydney Harbour Casino, such complimentary services were 5.2% and 3.6% for the years ended December 31, 1997 and 1996, respectively and 2.7% of the total net revenues for the period from commencement of operations to December 31, 1995. At the East Chicago Showboat, complimentary services were 2.2% of the total net revenues for the period from commencement of operations to December 31, 1997. GAMING CREDIT POLICY A relatively minimal dollar amount of credit is extended to a limited number of gaming customers at the Las Vegas Showboat and at the East Chicago Showboat. Star City is prohibited by regulation from extending any credit to its gaming customers. However, Star City may bank local checks under A$5,000 the next banking day and can hold local checks for greater than A$5,000 for up to 10 banking days. Checks from international patrons can be held for up to 20 banking days. The Atlantic City Showboat, however, offers substantially more credit to a greater number of customers than the other Showboat properties. At the Atlantic City Showboat, gaming -16- receivables were $7.1 million, before deducting the allowance for doubtful accounts of approximately $2.9 million for the year ended December 31, 1997. The Atlantic City Showboat, gaming receivables were approximately $6.3 million at December 31, 1996, before deducting allowance for doubtful accounts of approximately $2.2 million. The Atlantic City Showboat's gaming credit, as a percentage of total gaming revenues, is at a level which is consistent with that of the average credit levels for all other hotel-casinos in Atlantic City. Overall, the Company's gaming receivables were, as of the year ended December 31, 1997, approximately $8.2 million, before deducting the allowance for doubtful accounts of approximately $3.0 million. In comparison, the Company's gaming receivables were approximately $7.2 million at December 31, 1996, before deducting allowance for doubtful accounts of approximately $2.6 million. The non-collectibility of gaming receivables can have a material adverse effect on results of operations, depending upon the amount of credit extended and the size of uncollected amounts. The Company maintains strict controls over the issuance of credit and aggressively pursues collection of its customer receivables. These collection efforts parallel those procedures commonly followed by most large corporations, including the mailing of statements and delinquency notices, personal contacts, the use of outside collection agencies and civil litigation. Gaming debts evidenced by credit instruments are enforceable under the laws of New Jersey and Nevada, respectively. The Company believes that it is reasonable to conclude that gaming debts evidenced by credit instruments, under credit policies approved by the Indiana Commission, should be enforceable under the laws of Indiana. All other states are required to enforce a judgment on a gaming debt incurred in New Jersey or Nevada pursuant to the Full Faith and Credit Clause of the United States Constitution. Although gaming debts are not legally enforceable in some foreign countries, the United States assets of foreign debtors may be reached to satisfy a judgment entered in the United States. Annual gaming bad debt expense at the Atlantic City Showboat was approximately 0.6% of casino revenues for the year ended December 31, 1997, as compared to approximately 0.4% for the years ended December 31, 1996 and 1995. Annual gaming bad debt expense at the Las Vegas Showboat was approximately 0.2% of casino revenues for the year ended December 31, 1997, as compared to approximately 0.3% and 0.2% of casino revenues for the years ended December 31, 1996 and 1995, respectively. Annual gaming bad debt expense at the East Chicago Showboat was 0.05% of casino revenues for the period from April 18, 1997 to December 31, 1997. At Star City and the Sydney Harbour Casino, as a result of the permitted check holding practice, SHCH recorded bad debt expense of 0.43% of casino revenues for the year ended December 31, 1997, as compared to 0.32% for the year ended December 31, 1996 and 0.52% for the period from commencement of operations in the interim facility to December 31, 1995. CONTROL PROCEDURES In connection with its gaming activities, the Company follows a policy of stringent internal controls, cross-checks and recording of all receipts and disbursements in accordance with industry practice. The audit and cash controls developed and utilized by the Company include locked cash boxes, independent counters, checkers and observers to perform the daily cash and coin counts, floor observation of the gaming areas, closed- circuit television observation of certain areas, daily computer tabulation of receipts and disbursements for each slot machine, table and other games, and the rapid identification, analysis and resolution of discrepancies or deviations from normal -17- performance. Dealers and other personnel are trained by the Company. Gaming operations are subject to risk of loss as a result of employee or customer dishonesty due to the large amount of cash and gaming chips handled. However, the Company has not experienced significant losses related to employee dishonesty. SEASONAL FACTORS The Company does not believe that the gaming and hotel revenues in Las Vegas, Nevada and the gaming and hotel revenues in Sydney, Australia are significantly seasonal. In contrast, the Company believes that gaming and hotel revenues are seasonal in Atlantic City, New Jersey and the Company anticipates that gaming will be seasonal in East Chicago, Indiana, due to the harsher weather in the mid-eastern seaboard and the great lakes area, respectively, during winter months. COMPETITION The gaming industry includes land-based casinos, dockside casinos, riverboat casinos, casinos located on Native American land, card parlors, state-sponsored lotteries, on-track and off- track wagering and other forms of legalized gaming in the United States and internationally. Competition is intense among companies in the gaming industry, and the Company expects it to remain so in the future. In recent years, many states legalized casino gaming. Additional states may in the future consider casino gaming. ATLANTIC CITY, NEW JERSEY The Atlantic City Showboat competes with 11 other hotel- casinos in Atlantic City containing a total of approximately 1.2 million square feet of gaming space and approximately 11,150 casino hotel rooms as of December 31, 1997 (including the Atlantic City Showboat). According to the New Jersey Convention and Visitors Authority, eight expansions of existing hotel- casinos have been announced and are expected to be open and could be completed within the next four years, which will add approximately 6,800 more hotel rooms. There are several sites on the Boardwalk and in the Marina Area of Atlantic City on which hotel-casino facilities could be built in the future. Several established gaming companies, are at various stages in the licensing process with the New Jersey Casino Control Commission to obtain licenses and permits to develop major casino resorts in Atlantic City. Hotel-casinos in Atlantic City generally compete on the basis of promotional allowances, bus programs and packages, entertainment, advertising, service provided to patrons, caliber of personnel, attractiveness of the hotel-casino areas and related amenities. The Atlantic City Showboat targets slot machine customers by utilizing a variety of marketing techniques. The Atlantic City Showboat also competes with Foxwood's High Stakes Bingo and Casino on the Mashantucket Pequot Indian Reservation in Ledyard, Connecticut, the Mohegan Sun Casino near Montville, Connecticut, Delaware's three racetracks operating 2,500 slot machines, in the aggregate, and, more recently, gaming boats operating in international waters that dock in the New York Metropolitan area. To a lesser extent, the Atlantic City Showboat competes with casinos in Nevada and other states of the United States and internationally. The Company believes that the commencement or expansion of casino and other gaming ventures in -18- states close to New Jersey, particularly, Delaware, Maryland, New York or Pennsylvania, could have an adverse effect on the Company's Atlantic City operations. LAS VEGAS, NEVADA The Las Vegas Showboat competes with casinos located in the Las Vegas area, including competitors located on the Boulder Strip, on the Las Vegas Strip, in downtown Las Vegas and at the Nevada-California stateline. Such competition includes a number of hotel-casinos, as well as numerous non-hotel gaming facilities, targeted toward slot machine players and local residents. Several of the Company's direct competitors have opened new hotel-casinos or have commenced or completed major expansion projects, and other expansions are in progress or are planned. Two new hotel-casinos targeting a similar market as the Las Vegas Showboat opened (one in June 1997 and the other in February 1998) in Henderson, Nevada, approximately eight miles from the Las Vegas Showboat. As a result of increased competition primarily for slot machine players and Las Vegas area residents, the Las Vegas Showboat has experienced limited growth in revenues and earnings from operations. The Company has expanded marketing and customer service programs in response to increased casino capacity in the Las Vegas market. There can be no assurance that the expanded marketing and customer service programs will attract customers to the Las Vegas Showboat. To a lesser extent, the Las Vegas Showboat competes with casinos located in Mesquite, Laughlin and Reno-Lake Tahoe areas of Nevada, casinos located on tribal lands in Arizona and California and casinos located in New Jersey, other states of the United States and internationally and tribal casinos located principally in California and Arizona. The Company believes that the commencement or expansion of casino and other gaming ventures in states close to Nevada, particularly California, could have a material adverse effect on the Company's Las Vegas operations. SYDNEY, NEW SOUTH WALES Star City competes with casinos in Australia and other casinos located within the Pacific Rim. Currently, 15 full- service casinos operate in Australia and New Zealand. Star City will remain the only full-service casino in the State of New South Wales until September 2007. While only 23.1% of casino revenues were generated by slot machines, in excess of approximately 76,000 slot machines were permitted in approximately 1,820 hotels and approximately 1,450 non-profit private clubs in New South Wales. Beginning April 1, 1997, hotels are limited to a maximum of thirty slot machines each, which represents an increase from the previous per hotel limit of ten slot machines. In 1995, over 75% of the private clubs contained 50 slot machines or less; however, the largest private club contained in excess of 800 slot machines (the most recently available public information). Star City competes with the local slot clubs and with the casinos throughout Australia and the Pacific Rim by offering excellent service and an attractive facility containing hotel operations, bars and restaurants, sports and recreation facilities, entertainment centers, car parking, theaters, convention facilities and retail shopping. -19- EAST CHICAGO, INDIANA SMCP competes in the Chicago Gaming Market, an area covering approximately 120-mile radius from the East Chicago Showboat, with eight other operating riverboat casinos, four of which are located in Indiana and four of which are located in Illinois. The four riverboat casinos operating in Illinois are located within fifty miles of the East Chicago Showboat, but these riverboat casinos are limited to 1,200 gaming positions each by Illinois gaming law. To a lesser extent, the East Chicago Showboat competes with casinos located in Nevada, New Jersey, Wisconsin, Michigan, Iowa, and other states of the United States as well as internationally, with casinos located in Windsor, Ontario, Canada. SMCP competes with the riverboat casinos in the Chicago Gaming Market based on its wide variety of table games and slot machines of varying types and denominations, its spacious comfortable environment, and its Mardi Gras atmosphere. Additionally, the players slot club and special promotions are utilized to attract customers to the East Chicago Showboat. The legalization of additional or larger casino gaming operations in jurisdictions in close proximity to the East Chicago Showboat would have a material adverse effect on SMCP. In the future, SMCP may face competition from the Pokagon Band of Potawatomi Indians (the "Pokagon Band") of southern Michigan and northern Indiana, a federally recognized Indian tribe. In February 1995, the Pokagon Band voted to build at least one land- based casino in southern Michigan and, in April 1995, voted to accept a casino development proposal from a national casino operator. The Governor of Michigan signed a compact with the Pokagon Band in November 1995. As of March 1, 1998, the Governor of Indiana has not yet begun compact negotiations with the Pokagon Band with respect to a land-based casino in Indiana. MARKETING The Company's revenues and operating income depend primarily upon the level of gaming activity at its casinos, although the Company also seeks to maximize revenues from food and beverage, lodging and other retail operations. Therefore, the primary goal of the Company's marketing efforts is to attract profitable gaming customers to its casinos. Specifically, the Company's marketing strategy at the Atlantic City Showboat, the Las Vegas Showboat and the East Chicago Showboat is to develop a high volume of traffic through the casinos, emphasizing slot machine play which accounted for 78.7%, 84.5% and 71.2% of casino revenues of the Atlantic City Showboat, the Las Vegas Showboat and the East Chicago Showboat, respectively, in 1997. The Atlantic City Showboat and the East Chicago Showboat target slot machine customers by providing competitive games and excellent service in an attractive convenient facility and by using a variety of marketing techniques. Customers are attracted to the Las Vegas Showboat by competitive slot machines, bingo, moderately priced food and accommodations, a friendly "locals" atmosphere and a 106-lane bowling center. Star City targets gaming patrons by positioning itself as a complete entertainment venue with restaurants, bars, free live entertainment and gaming. The Company advertises its hotel-casinos on television and radio, in newspapers and magazines and on outdoor signs and billboards. The Company markets to its slot machine customers by means of play based rebates and promotions, including players' clubs, and direct mailings. The Company also sponsors special events designed to attract its target customers. -20- DEVELOPMENT ACTIVITIES In 1993, the Company created a Development and Management Services Division to investigate and secure new properties in the United States and the world. The Company's development strategy is to identify new and existing gaming opportunities with strong demographics, in attractive and accessible locations, and which the Company believes will exceed the Company's return on investment objectives. Such opportunities may include the ownership, management and operation of gaming and entertainment facilities, either alone or with joint venture partners. The Company's Development and Management Services Division also provides management services to support new facilities upon opening, including human resources, marketing, design and construction, management information systems, regulatory compliance and operating and financial services. The following is a listing of the Company's announced expansion opportunities: ROCKINGHAM PARK, NEW HAMPSHIRE In July 1995, the Company, through its wholly-owned subsidiary, Showboat New Hampshire, Inc. ("SNHI"), entered into definitive agreements with Rockingham Venture, Inc. ("RVI") regarding the proposed development and management of a non-racing gaming project ("Showboat Rockingham Park") at Rockingham Park in Salem, New Hampshire. RVI is the owner and operator of Rockingham Park which is a thoroughbred racetrack. In December 1994, the Company loaned approximately $8.9 million to RVI accruing interest at 8.3% and having an initial term of sixty months, which loan is secured by a second mortgage on Rockingham Park. As of the date hereof, RVI has made all payments required to be made by the promissory note. The development of Showboat Rockingham Park, among other things, is subject to the passage of enabling gaming legislation by the State of New Hampshire and the Town of Salem. SNHI owns a 50% interest in Showboat Rockingham Company, L.L.C. ("SRC") that was formed for the purpose of developing and owning Showboat Rockingham Park. Depending upon the number and types of games, if any, legalized by the necessary authorities, SNHI and RVI will make certain capital contributions to SRC. At a minimum, the Company will contribute the promissory note representing the loan. If enabling gaming legislation permits more than 500 slot machines or any combination of slot machines and table games, the Company, subject to available financing, will contribute funds not to exceed 30% of the cash funds required for the project. At this time, the cost of the project has not been determined nor has the State of New Hampshire enacted any gaming legislation. Pursuant to the terms of a management agreement, an administrative services agreement and a trademark license agreement, each dated June 1995, the Company has agreed to manage and to provide other services to the proposed operations at Showboat Rockingham Park. The Company will receive an aggregate fee equal to (i) 1.5% of gross gaming revenue up to a maximum fee of $1.0 million per year, and (ii) 7% of earnings before any interest expense, income taxes, capital lease rentals, depreciation and amortization. The horse racing activities will continue to be operated by RVI. -21- LEMAY, MISSOURI On May 1, 1995, Southboat Limited Partnership ("SLP") was formed by Showboat Lemay, Inc. ("Showboat Lemay"), a corporation wholly-owned by the Company, and Futuresouth, Inc. ("Futuresouth"), an unrelated corporation, for the purpose of designing, developing, constructing, owning and operating a riverboat casino and related facilities (collectively, the "Southboat Casino Project"). In December 1997, the Company transferred Showboat Lemay to Futuresouth, thereby terminating its involvement in the Southboat Casino Project. LUMMI INDIAN NATION In February 1997, the Company entered into a tribal management agreement and related documents with the Lummi Indian Nation for the financing, development and operation of a Class III casino located between Bellingham, Washington and Vancouver, British Columbia. Prior to submitting the agreements to the National Gaming Commission for approval, the Company withdrew from the pursuit of the tribal gaming opportunity in June 1997 due to the announced increase in authorized casino gaming in British Columbia. REGULATION AND LICENSING NEW JERSEY GAMING Casino gaming activities in Atlantic City are subject to the New Jersey Casino Control Act ("New Jersey Act") and the regulations of the New Jersey Casino Control Commission (the "New Jersey Commission"). No casino may operate unless the required licenses and approvals are obtained from the New Jersey Commission. The New Jersey Commission is authorized under the New Jersey Act to adopt regulations covering a broad spectrum of gaming, gaming-related activities and non-gaming-related activities and to prescribe the methods and forms of applications for licenses. The New Jersey Commission: (i) approves license applications; (ii) regulates the design of casino facilities and determines the allowable amount of casino space based upon the number of hotel rooms; (iii) monitors operating methods and financial accounting practices of licensees; and (iv) determines and imposes sanctions for violations of the New Jersey Act and the New Jersey Commission regulations. The New Jersey Act also establishes a Division of Gaming Enforcement (the "Division") which is a branch of the New Jersey Attorney General's office. The Division investigates all applications for the granting and renewal of licenses, enforces the provisions of the New Jersey Act and prosecutes before the New Jersey Commission proceedings for violations of the New Jersey Act. The Division conducts audits and continuing reviews of all casino operations. The New Jersey Commission has extremely broad discretion with regard to the issuance, renewal and revocation or suspension of licenses. A casino license is not transferable and must be renewed by the licensee at certain intervals. The casino licenses may be renewed for up to four years, subject to the New Jersey Commission's authority to reconsider license eligibility during any term. A casino license may be revoked or suspended at any time by the New Jersey Commission upon a finding of disqualification or noncompliance. The holder of a casino license -22- must also obtain an operation certificate which may be revoked or suspended at any time by the New Jersey Commission upon a finding of noncompliance. In order to obtain or renew a casino license, an applicant must demonstrate to the New Jersey Commission: (i) its financial stability, integrity and responsibility; (ii) its business ability and casino experience; (iii) its good character, honesty and integrity; and (iv) the qualification of all its financial sources, security holders and holding and intermediate companies. Moreover, each officer, director, principal employee, lender or person directly or indirectly holding any beneficial interest or ownership of the securities of the corporate licensee, and any person deemed by the New Jersey Commission as having the ability to control the corporate licensee or elect a majority of the board of directors of the corporate licensee or other person deemed appropriate by the New Jersey Commission must be found qualified. ACSI's casino license was granted on March 27, 1987, effective April 2, 1987. ACSI's casino license was renewed on January 22, 1997 for the period commencing February 1, 1997 and ending January 31, 2001. In connection therewith, the Company and OSI were required to satisfy the licensure standards set forth above. The New Jersey Commission imposes certain restrictions upon the ownership of securities issued by a corporation which holds a casino license or is a holding company of a corporate casino licensee. Among other restrictions, the sale, assignment, transfer, pledge or other disposition of any security issued by a corporation which holds a casino license is subject to approval by the New Jersey Commission. If the New Jersey Commission finds an individual owner or holder of any security of a corporate casino licensee or any of its holding companies or a "financial source," or any of its security holders to be disqualified, the New Jersey Commission may take any necessary remedial action, including requiring divestiture by the disqualified security holder. If disqualified security holders of either the corporate licensee or the holding company fail to divest themselves of such security interests, the New Jersey Commission may revoke or suspend ACSI's casino license. Disqualified security holders are prohibited from: (i) receiving any dividends or interest on their securities; (ii) exercising, directly or through any trustee or nominee, any rights conferred by such securities; and (iii) receiving any remuneration in any form from the corporate licensee for services rendered or otherwise. The corporate licensee and its non-publicly traded holding companies are required to include in their charter or articles of incorporation a provision establishing the right of prior approval by the New Jersey Commission with regard to transfers of securities, shares and other interests in the corporation. The corporate licensees' publicly traded holding companies are required to provide in their charter or articles of incorporation a provision that any securities of the corporation are held subject to the condition that if a holder thereof is disqualified, such holder shall dispose of his interest. The Company and OSI are holding companies of ACSI, a New Jersey casino licensee. The Company, OSI and ACSI have charters or articles of incorporation that comply with these regulatory requirements. In connection with the Showboat Merger, Harrah's or its affiliate will need the prior approval of the New Jersey Commission to effect the merger, and an application for such approval has been filed. The New Jersey Commission regulations include detailed provisions concerning, among others: (i) the rules of games, including minimum and maximum wagers, and methods of supervision of games and of selling and redeeming gaming chips; (ii) the granting and duration of credit, the operation of junkets, and the extension of and accounting for complimentary services; (iii) the manufacture, distribution and sale of gaming equipment; (iv) the security standards, -23- management control procedures, accounting and cash control methods and the reporting of such matters to gaming authorities; (v) casino advertising; (vi) the deposit of checks from patrons of casinos; (vii) the reporting of currency transactions with patrons in amounts exceeding $10,000 to the Division; and (viii) the standards for entertainment and distribution of alcoholic beverages in hotel-casinos. All contracts and leases entered into by a casino licensee are subject to the review of the New Jersey Commission and, if reviewed and found unacceptable, may be voided. All enterprises providing gaming-related equipment or services to a casino licensee must be licensed or good cause must be shown for a waiver of such licensing requirements. All other enterprises dealing with a casino licensee must register with the New Jersey Commission, which may require that they be licensed if they regularly engage in business with casino licensees. The New Jersey Commission could appoint a conservator upon the revocation of or failure to renew a casino license. A conservator would be vested with title to the hotel-casino of the former or suspended licensee, subject to valid liens and encumbrances. The conservator would act subject to the general supervision of the New Jersey Commission and would be charged with the duty of conserving, preserving and continuing the operation of the hotel-casino. During the period of any such conservatorship, the conservator may not make any distributions of net earnings without the prior approval of the New Jersey Commission. The New Jersey Commission may direct that all or a portion of such net earnings be paid to the Casino Revenue Fund, provided, however, that a suspended or former licensee is entitled to a fair rate of return out of net earnings, if any. Except during the pendency of a suspension or during any appeal from any action precipitating the appointment of a conservator, and after appropriate consultations with the former licensee, a conservator, subject to the prior approval of the New Jersey Commission, would be authorized to sell, assign, convey or otherwise dispose of the hotel-casino of a former licensee subject to all valid liens, claims and encumbrances, and to remit the net proceeds to the former licensee. After completion of its first full year of operation, and continuing for 30 years thereafter, a casino licensee is subject to a New Jersey investment obligation. ACSI will fulfill its investment obligation in 2015. To satisfy this obligation, the Company may either: (i) pay an investment alternative tax equal to 2 1/2% ofits annual gross revenues from gaming operations; or (ii) purchase bonds issued by, or invest in other development projects approved by, the Casino Reinvestment Development Authority, a state agency, in an amount equal to 1 1/4% of its annual gross revenues from gaming operations net of provision for bad debt. All corporations doing business in New Jersey are subject to a corporate franchise tax, based on allocated net income, at a 9% annual rate. Interest on indebtedness is deductible under New Jersey law. There is also an 8% tax on the gross win revenues of New Jersey casinos, in addition to an annual $500 fee for each slot machine. Atlantic City imposes a real property tax and a luxury tax applicable to certain sales, including, but not limited to, the sale of alcoholic beverages, tickets to entertainment events and rental of hotel rooms. The state of New Jersey imposes a fee of $2.00 per occupied casino hotel room per day ($1.00 for non-casino hotel rooms). These fees are dedicated exclusively to a fund -24- to market Atlantic City as a tourist destination and resort. In addition, the state of New Jersey also imposes a $1.50 per day fee for each patron's car that is parked at an Atlantic City casino. Unlike a majority of other Atlantic City casinos, ACSI has elected to absorb the parking fee as a marketing expense and not to collect the fee from patrons. From time to time new laws and regulations, as well as amendments to existing laws and regulations, relating to gaming activities in New Jersey are proposed or adopted. In addition, the New Jersey casino regulatory authorities from time to time may change their laws, regulations or procedures, including their procedures for renewing licenses. The Company cannot predict what effect, if any, new or amended laws, regulations or procedures would have on the Company. While in the last few years the changes to New Jersey gaming laws, regulations or procedures have generally not been restrictive to New Jersey licenses, changes in such laws, regulations or procedures could have an adverse effect on the Company. NEVADA GAMING The ownership and operation of casino gaming facilities in Nevada are subject to: (i) the Nevada Gaming Control Act and the regulations promulgated thereunder (collectively "Nevada Act"); and (ii) various local regulations. The Company's gaming operations are subject to the licensing and regulatory control of the Nevada Gaming Commission ("Nevada Commission"), the Nevada State Gaming Control Board ("Nevada Board"), and the City Council of the City of Las Vegas ("City Board"). The Nevada Commission, the Nevada Board, and the City Board are collectively referred to as the "Nevada Gaming Authorities." The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy which are concerned with, among other things: (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent practices; and (v) to provide a source of state and local revenues through taxation and licensing fees. Change in such laws, regulations and procedures could have an adverse effect on the Company's gaming operations. SBOC, which operates the Las Vegas Showboat, is required to be licensed by the Nevada Gaming Authorities. The gaming license requires the periodic payment of fees and taxes and is not transferable. The Company is registered by the Nevada Commission as a publicly traded corporation ("Registered Corporation") and as such, it is required periodically to submit detailed financial and operating reports to the Nevada Commission and furnish any other information which the Nevada Commission may require. No person may become a shareholder of, or receive any percentage of profits from, SBOC without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Company and SBOC have obtained from the Nevada Gaming -25- Authorities the various registrations, approvals, permits and licenses required in order to engage in gaming activities in Nevada. The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, the Company or SBOC in order to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Officers, directors and certain key employees of SBOC must file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. Officers, directors and key employees of the Company who are actively and directly involved in gaming activities of SBOC may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. The applicant for licensing or a finding of suitability must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a corporate position. If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with the Company or SBOC, the companies involved would have to sever all relationships with such person. In addition, the Nevada Commission may require the Company or SBOC to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada. The Company and SBOC are required to submit detailed financial and operating reports to the Nevada Commission. Substantially all material loans, leases, sales of securities and similar financing transactions by SBOC must be reported to, or approved by, the Nevada Commission. If it were determined that the Nevada Act was violated by SBOC the gaming licenses it holds could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, SBOC, the Company, and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act at the discretion of the Nevada Commission. Further, a supervisor could be appointed by the Nevada Commission to operate the Company's gaming properties and, under certain circumstances, earnings generated during the supervisor's appointment (except for the reasonable rental value of the Company's gaming properties) could be forfeited to the state of Nevada. Limitation, conditioning or suspension of any gaming license or the appointment of a supervisor could (and revocation of any gaming license would) materially adversely affect the Company's gaming operations. Any beneficial holder of the Company's voting securities, regardless of the number of shares owned, may be required to file an application, be investigated, and have his suitability as a beneficial holder of the Company's voting securities determined if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies -26- of the state of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation. The Nevada Act requires any person who acquires more than 5% of the Company's voting securities to report the acquisition to the Nevada Commission. The Nevada Act requires that beneficial owners of more than 10% of the Company's voting securities apply to the Nevada Commission for a finding of suitability within thirty days after the Chairman of the Nevada Board mails the written notice requiring such filing. Under certain circumstances, an "institutional investor," as defined in the Nevada Act, which acquires more than 10%, but not more than 15%, of the Company's voting securities may apply to the Nevada Commission for a waiver of such finding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the Company, any change in the Company's corporate charter, bylaws, management, policies or operations of the Company, or any of its gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding the Company's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with such investment intent. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation. Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Commission, or the Chairman of the Nevada Board, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any shareholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock of the Company beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense. The Company is subject to disciplinary action if, after it receives notice that a person is unsuitable to be a shareholder or to have any other relationship with the Company or SBOC, the Company (i) pays that person any dividend or interest upon voting securities of the Company, (ii) allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person, (iii) pays remuneration in any form to that person for services rendered or otherwise, or (iv) fails to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities, including, if necessary, the immediate purchase of said voting securities for cash at fair market value. The Nevada Commission may, in its discretion, require the holder of any debt security of a Registered Corporation to file applications, be investigated and be found suitable to own the debt security of a Registered Corporation. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the Registered Corporation can -27- be sanctioned, including the loss of its approvals, if without the prior approval of the Nevada Commission, it: (i) pays to the unsuitable person any dividend, interest, or any distribution whatsoever, (ii) recognizes any voting right by such unsuitable person in connection with such securities, (iii) pays the unsuitable person remuneration in any form, or (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation, or similar transaction. The Company is required to maintain a current stock ledger in Nevada which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make such disclosure may be grounds for finding the record holder unsuitable. The Company is also required to render maximum assistance in determining the identity of the beneficial owner. The Nevada Commission has the power at any time to require the Company's stock certificates to bear a legend indicating that the securities are subject to the Nevada Act. However, to date, the Nevada Commission has not imposed such a requirement on the Company. The Company may not make a public offering of its securities without the prior approval of the Nevada Commission if the securities or the proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada, or retire or extend obligations incurred for such purposes. In November 1997, the Nevada Commission granted the Company prior approval to make public offerings for a period of one year, subject to certain conditions ("Shelf Approval"). The Shelf Approval also applies to any affiliated company wholly owned by the Company (a "Gaming Affiliate") which is a publicly traded corporation or would thereby become a publicly traded corporation pursuant to a public offering. The Shelf Approval also includes approval for the Company's licensed Nevada subsidiaries to guaranty any security issued by, or to hypothecate their assets to secure the payment or performance of any obligations issued by the Company or a Gaming Affiliate in a public offering under the Shelf Approval. However, the Shelf Approval may be rescinded for good cause without prior notice upon the issuance of an interlocutory stop order by the Chairman of the Nevada Board. The Shelf Approval does not constitute a finding, recommendation or approval by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities offered. Any representation to the contrary is unlawful. Changes in control of the Company through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby he obtains control, may not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of a Registered Corporation must satisfy the Nevada Board and Nevada Commission in a variety of stringent standards prior to assuming control of such Registered Corporation. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction. The Showboat Merger requires the prior approval of the Nevada Commission upon recommendation of the Nevada Board. Harrah's has filed an application for approval of the Showboat Merger. -28- The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada gaming licensees, and Registered Corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the financial stability of corporate gaming operators and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Nevada Commission before the Company can make exceptional repurchases of voting securities above the current market price thereof and before a corporate acquisition opposed by management can be consummated. The Nevada Act also requires prior approval by the Nevada Commission of a plan of recapitalization proposed by the Company's Board of Directors in response to a tender offer made directly to its shareholders for the purpose of acquiring control of the Company. The sale of alcoholic beverages by the casino is subject to licensing, control and regulation by the City Board. All licenses are revocable and are not transferable. The agencies involved have full power to limit, condition, suspend or revoke any such license, and any such disciplinary action could (and revocation would) have a material adverse affect upon the operations of the casino. License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the state of Nevada and to the counties and cities in which the Nevada licensee's respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon either: (i) a percentage of the gross revenues received; (ii) the number of gaming devices operated; or (iii) the number of table games operated. A casino entertainment tax is also paid by casino operations where entertainment is furnished in connection with the serving or selling of food or refreshments or the selling of any merchandise. Nevada licensees that hold a license as an operator of a slot route, or a manufacturer's or distributor's license, also pay certain fees and taxes to the state of Nevada. Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such persons (collectively, "Licensees"), and who proposes to become involved in a gaming venture outside of Nevada is required to deposit with the Nevada Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation of the Nevada Board of their participation in such foreign gaming. The revolving fund is subject to increase or decrease in the discretion of the Nevada Commission. Thereafter, Licensees are required to comply with certain reporting requirements imposed by the Nevada Act. Licensees are also subject to disciplinary action by the Nevada Commission if it knowingly violates any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fails to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engages in activities that are harmful to the state of Nevada or its ability to collect gaming taxes and fees, or employs a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the ground of personal unsuitability. -29- NEW SOUTH WALES GAMING The NSWCCA was created pursuant to the Casino Control Act 1992 (NSW) ("Casino Act") to maintain and administer systems for licensing, supervision and control of a casino. In considering an application for a casino license, Section 11 of the Casino Act requires the NSWCCA to have regard to the following matters: (i) the suitability of applicants and close associates of applicants; (ii) the standard and nature of the proposed casino, and the facilities to be provided in, or in conjunction with, the proposed casino; (iii) the likely impact of the use of the premises concerned as a casino on tourism, employment and economic development generally in the place or region in which the premises are located; (iv) the expertise of the applicant, having regard to the obligations of the holder of a casino license under the Casino Act; and (v) such other matters as the NSWCCA considers relevant. The NSWCCA is to determine an application by either granting a casino license to the applicant or declining to grant a casino license. The casino license may be granted subject to such conditions as the NSWCCA thinks fit and is granted for the location specified in the casino license. A casino license confers no right of property and cannot be assigned or mortgaged, charged or otherwise encumbered. The conditions of a casino license may be amended by being substituted, varied, revoked or added to by the NSWCCA subject to the right of the licensee to make submissions to the NSWCCA in regard to any such proposal. The NSWCCA may also cancel or suspend, or amend the terms or conditions, of a casino license where there are grounds for disciplinary action, including: (i) the casino license being improperly obtained; (ii) the casino operator, a person in charge of the casino, an agent of the casino operator or a casino employee contravening a provision of the Casino Act or a condition of the license; (iii) the casino premises no longer being suitable for the conduct of the casino operations; (iv) the licensee being considered to be no longer a suitable person to give effect to the casino license and the Casino Act; and (v) the public interest that the casino license should no longer remain in force. No right of compensation against the government arises for the cancellation, suspension or variation of the terms and conditions of the casino license. The NSWCCA must not grant an application for a casino license unless it is satisfied that the applicant and each close associate is a suitable person to be concerned in or associated with the management and operation of a casino. In making the determination as to the suitability of the applicant, the NSWCCA must consider whether: (a) the applicant and each close associate are of good repute, having regard to character, honesty and integrity; (b) the applicant and each close associate is of sound and stable financial background; (c) in the case of an applicant that is not a natural person, the applicant has or has arranged a satisfactory ownership, trust or corporate structure; (d) the applicant has or is able to obtain financial resources that are both suitable and adequate for insuring the financial viability of the proposed casino; (e) the applicant has or is able to obtain the services of persons who have sufficient experience in the management and operation of a casino; (f) the applicant has sufficient business ability to establish and maintain a successful casino; (g) the applicant or any close associate who has any business association with any person, body or association who, in the opinion of the NSWCCA is not of good repute, having regard to -30- character, honesty and integrity or has undesirable or unsatisfactory financial sources; and (h) each director, partner, trustee, executive officer and secretary and any other officer or person determined by the NSWCCA to be associated or connected with the ownership, administration or management of the operations or business of the applicant or a close associate of the applicant is a suitable person to act in that capacity. Additionally, the Showboat Merger requires the approval of the NSWCCA and Harrah's or its affiliate will need to be found suitable. The necessary applications for such approval and findings of suitability have been filed by Harrah's. Following the commencement of the Showboat Merger, the NSWCCA announced that it will conduct an independent statutory inquiry into Harrah's. The inquiry is part of the process of approval of the Showboat Merger by the NSWCCA. On receiving an application for a casino license, the NSWCCA must carry out all such investigations and inquiries as it deems necessary. The costs of the investigation by the NSWCCA are payable to the NSWCCA by the applicant unless the NSWCCA determines otherwise. The NSWCCA may give written direction to a casino operator as to the conduct, supervision or control of operations of the casino. The NSWCCA may investigate a casino from time to time at the discretion of the NSWCCA. Not later than three years after the grant of the casino license, and thereafter in intervals not exceeding three years, the NSWCCA must investigate and form an opinion as to whether or not the casino operator is a suitable person to continue to give effect to the casino license and determine that it is in the public interest that the casino license should continue in force. The NSWCCA commenced its investigation on November 8, 1996. The NSWCCA announced that the investigation would include public hearings. On February 13, 1997, the NSWCCA announced that it had received 31 submissions in relation to its investigation and made all of the submissions available to the public. The investigation was completed on December 14, 1997. The Minister for Racing & Gaming issued a press release on December 18, 1997 stating that the NSWCCA had found that the licensee was a suitable person, to continue to give effect to the casino license and that it was in the public interest that the casino license should continue in force. The NSWCCA report was made public on March 3, 1998 and contained no material adverse recommendations. A casino operator must not enter into a controlled contract without first notifying the NSWCCA. A controlled contract is a contract that relates wholly or partly to the supply of goods or services to a casino, but does not include a contract that relates solely to the construction of the casino or to the alteration of premises used or to be used as a casino, or such other contracts as may be defined by the NSWCCA. Gaming is not to be conducted in the casino unless the facilities provided in relation to the conduct and monitoring of operations of the casino are in accordance with the plans, diagrams and specifications that are approved by the NSWCCA. The NSWCCA may approve the games to be played in the casino. A casino operator must not conduct a game in a casino unless there is an order in force approving the game and the game is conducted in accordance with the rules approved by such order. Additionally, a directive by the Minister for Racing & Gaming limits the number of table games and slot machines which may be placed in Star City to 200 games and 1,500 slot machines. -31- The casino is to be open to the public on such days and at such times as are directed by the NSWCCA in writing. The casino must be closed on days and at times that are not days or times specified by the NSWCCA. A casino operator must not (i) accept a wager made otherwise than by means of money or chips, (ii) lend money, chips or any other valuable thing; provide money or chips as part of a transaction involving a credit card or debit card, (iii) extend any other form of credit, or (iv) wholly or partly discharge any debt. The casino operator may issue chips in exchange for checks if the person has established a deposit account with the casino operator. Checks accepted by the casino operator must be presented to the bank within one working day after the check is accepted by the casino operator. Notwithstanding the foregoing, the NSWCCA agreed to vary the presentment requirement so that Star City may hold checks drawn on an Australian bank/branch in an amount of or over A$5,000 for up to 10 banking days and may hold checks drawn on a non-Australian bank/branch for up to 20 banking days regardless of the amount of the check prior to presenting the checks for payment. INDIANA GAMING In 1993, the State of Indiana passed a Riverboat Gambling Act which created the Indiana Commission. The Indiana Commission is given extensive powers and duties for the purposes of administering, regulating and enforcing the system of riverboat gaming. It is authorized to award no more than 11 gaming licenses (five to counties contiguous to Lake Michigan, five to counties contiguous to the Ohio River and one to a county contiguous to Patoka Lake). The Indiana Commission has jurisdiction and supervision over all riverboat gaming operations in Indiana and all persons on riverboats where gaming operations are conducted. These powers and duties include authority to (1) investigate all applicants for riverboat gaming licenses, (2) select among competing applicants those that promote the most economic development in a home dock area and that best serve the interest of the citizens of Indiana, (3) establish fees for licenses, and (4) prescribe all forms used by applicants. The Indiana Commission shall adopt rules pursuant to statute for administering the gaming statute and the conditions under which riverboat gaming in Indiana may be conducted. The Indiana Commission has promulgated certain final rules and has proposed additional rules governing the application procedure and all other aspects of riverboat gaming in Indiana. The Indiana Commission may suspend or revoke the license of a licensee or a certificate of suitability or impose civil penalties, in some cases without notice or hearing for any act in violation of the Riverboat Gambling Act or for any other fraudulent act or if the licensee or holder of such certificate of suitability has not begun regular riverboat excursions prior to the end of the twelve month period following the Indiana Commission's approval of the application for an owner's license. In addition, the Indiana Commission may revoke an owner's license if it is determined by the Indiana Commission that revocation is in the best interests of the state of Indiana. The Indiana Commission will (1) authorize the route of the riverboat and stops that the riverboat may make, (2) establish minimum amounts of insurance and (3) after consulting with the Corps of Engineers, determine which waterways are navigable waterways for purposes of the Riverboat Gambling Act and determine which navigable waterways are suitable for the operation of riverboats. -32- The Riverboat Gambling Act requires an extensive disclosure of records and other information concerning an applicant, including disclosure of all directors, officers and persons holding one percent (1%) or more direct or indirect beneficial interest. In determining whether to grant an owner's license to an applicant, the Indiana Commission shall consider (1) the character, reputation, experience and financial integrity of the applicant and any person who (a) directly or indirectly controls the applicant, or (b) is directly or indirectly controlled by either the applicant or a person who directly or indirectly controls the applicant, (2) the facilities or proposed facilities for the conduct of riverboat gaming, (3) the highest total prospective revenue to be collected by the state from the conduct of riverboat gaming, (4) the good faith affirmative action plan to recruit, train and upgrade minorities in all employment classifications, (5) the financial ability of the applicant to purchase and maintain adequate liability and casualty insurance, (6) whether the applicant has adequate capitalization to provide and maintain the riverboat for the duration of the license and (7) the extent to which the applicant meets or exceeds other standards adopted by the Indiana Commission. The Indiana Commission may also give favorable consideration to applicants for economically depressed areas and applicants who provide for significant development of a large geographic area. Each applicant must pay an application fee of $50,000 and additional fees may be assessed for the background investigation. If the applicant is selected, the applicant must pay an initial license fee of $25,000 and post a bond, and thereafter, pay an annual license renewal fee of $5,000. The Indiana Commission has issued eight of these eleven licenses--four in Lake County Indiana; one in LaPorte County; one in Vanderburgh County; one in Ohio County; and one in Dearborn County. In addition, the Indiana Commission has issued a certificate of suitability to an applicant in Harrison County. The Indiana Commission has decided to delay a determination for the tenth license, which if issued, would be located on the Ohio River. Additionally, the Indiana Commission has not considered applicants for the eleventh license since the Patoka Lake site has been determined by the U.S. Army Corp. of Engineers as an unsuitable site for development of a casino vessel project. A person holding an owner's gaming license issued by the Indiana Commission may not own more than a 10% interest in another such license. An owner's license expires five years after the effective date of the license; however, after three years the holder of an owner's license will undergo a reinvestigation to ensure continued suitability for licensure. Unless the license has been terminated, expired or revoked, the gaming license may be renewed if the Indiana Commission determines that the licensee has satisfied all statutory and regulatory requirements. In connection with the issuance of the license to SMCP, Showboat Marina Partnership, an Indiana general partnership ("SMP"), Waterfront and Showboat and its affiliates declared to the Indiana Commission that if SMCP received a riverboat owner's license, they shall not commence more than one other casino gaming operation within a fifty-mile radius of East Chicago Showboat for a period of five years beginning on the date of issuance of an owner's license by the Indiana Commission to SMCP. Adherence to the non-competition declaration is a condition of the owner's license. A gaming license is a revocable privilege and is not a property right. Minimum and maximum wagers on games are not established by regulation but are left to the discretion of the licensee. Wagering may not be conducted with money or other negotiable currency. Riverboat gaming excursions shall be at least two hours, but not more than four hours -33- in duration unless expressly approved by the Indiana Commission. No gaming may be conducted while the boat is docked except (1) for 30-minute time periods at the beginning and end of a cruise while the passengers are embarking and disembarking, (2) if the master of the riverboat reasonably determines that specific weather or water conditions present a danger to the riverboat, its passengers and crew, (3) if either the vessel or the docking facility is undergoing mechanical or structural repair, (4) if water traffic conditions present a danger to (A) the riverboat, riverboat passengers, and crew, or (B) other vessels on the water, or (5) if the master has been notified that a condition exists that would cause a violation of federal law if the riverboat were to cruise. The Indiana Commission has adopted rules governing cruising on Lake Michigan by a riverboat casino. The period of time during which passengers embark and disembark constitutes a portion of the gambling excursion if gambling is allowed. At the conclusion of the thirty-minute embarkation period, the gangway or its equivalent must be closed. However, a riverboat licensee must allow patrons to disembark at anytime the riverboat remains at the dock and gambling continues. A standard excursion schedule for a casino vessel on Lake Michigan must include at least one full excursion (a cruise into the open water on Lake Michigan, not more than three statute miles from the dock site July through September and not more than one statute mile October through June) and one intermediate excursion during which the vessel cruises in protected navigable water on or accessible to Lake Michigan. An intermediate excursion is to be conducted if the statutory conditions that permit dockside gaming are not present and if sea conditions or weather conditions, or both, do not permit a full excursion. If a casino vessel remains dockside because of statutory conditions, the embarkation and disembarkation rules still apply. An admission tax of $3.00 for each person admitted to the gaming excursion is imposed upon the license owner. The admissions tax is paid by the riverboat licensee for each excursion or part of an excursion the patron remains on board. An additional 20% tax is imposed on the adjusted gross receipts received from gaming operations, which is defined as the total of all cash and property (including checks received by the licensee whether collected or not) received, less the total of all cash paid out as winnings to patrons and uncollectible gaming receivables (not to exceed 2%). The gaming license owner shall remit the admission and wagering taxes before the close of business on the day following the day on which the taxes were incurred. Riverboats are assessed for property tax purposes as real property and are taxed at rates to be determined by local taxing authorities of the jurisdiction in which a riverboat operates. SMCP is contesting the timing of the initial assessment of property taxes by Lake County on the riverboat vessel. The Riverboat Gambling Act requires a riverboat owner licensee to directly reimburse the Indiana Commission for the costs of inspectors and agents required to be present during the conduct of gaming operations. Pursuant to agreements with the City, and as reflected in the owner's license, SMCP has agreed to (1) provide certain fixed incentives of approximately $16.4 million to the City of East Chicago and its agencies for transportation, job training, home buyer assistance and discrete economic development initiatives, (2) pay 3% of adjusted gross receipts divided equally among the City and two not-for-profit foundations for infrastructure improvements, education and community development, and (3) pay 0.75% of adjusted gross receipts for community development projects, including the Washington High School Site town home development with a total projected cost of $5.0 million, to East Chicago Second Century, Inc., a for-profit corporation owned by SMP ("Second Century"). Funding for the Washington High School Site -34- project will be derived from contributions to Second Century from SMCP as well as funds from other third-party sources. The Indiana Commission is authorized to license suppliers and certain occupations related to riverboat gaming. Gaming equipment and supplies customarily used in conducting riverboat gaming may be purchased or leased only from licensed suppliers. The Indiana Commission has adopted a rule requiring employees working on the riverboat to have a valid merchant marine document issued by the United States Coast Guard. The Indiana Riverboat Gambling Act places special emphasis upon minority and women's business enterprise participation in the riverboat industry. Any person issued a riverboat owner's license must establish goals of expending at least 10% of the total dollar value of the licensee's contracts for goods and services with minority business enterprises and 5% of the total dollar value of the licensee's contracts for goods and services with women's business enterprises. The East Chicago Showboat did not achieve these goals primarily due to the construction of the East Chicago Showboat during the first quarter of 1997. The Indiana Commission may suspend, limit or revoke the gaming owner's license or impose a fine for failure to comply with statutory requirements. An institutional investor which acquires 5% or more of any class of voting securities of a holding company of a licensee is required to notify the Indiana Commission and to provide additional information, and may be subject to a finding of suitability. A person who acquires 5% or more of any class of voting securities of a holding company of a licensee is required to apply to the Indiana Commission for a finding of suitability. Under the Showboat Merger, Harrah's filed the necessary application for a transfer of Showboat's beneficial interest in SMCP, including an investigatory fee of $50,000, and the Indiana Commission will investigate the key persons and substantial owners of Harrah's, and must thereafter find that Harrah's meets the criteria for licensing and suitability of riverboat owner licensees. A riverboat owner licensee may not enter into or perform any contract or transaction in which it transfers or receives consideration which is not commercially reasonable or which does not reflect the fair market value of the goods or services rendered or received. All contracts are subject to disapproval by the Indiana Commission. A riverboat owner licensee or an affiliate may not enter into a debt transaction of $1 million or more without the prior approval of the Indiana Commission. A riverboat owner licensee or any other person may not lease, hypothecate, borrow money against or loan money against a riverboat owner's license. The Indiana Commission has a rule requiring the reporting of certain currency transactions which is similar to that required by federal authorities. See "Item 1. Business - Other Federal, State and Local Legislation and Regulation." The Riverboat Gambling Act prohibits contributions to a candidate for a state, legislative, or local office, or to a candidate's committee or to a regular party committee by the holder of a riverboat owner's license or a supplier's license, by an officer of a licensee, by an officer of a -35- person that holds at least a 1% interest in the licensee, or by a person holding at least a 1% interest in the licensee. The Indiana Commission has promulgated a rule requiring quarterly reporting by the holder of a riverboat owner's license or a supplier's license of officers of the licensee, officers of persons that hold at least a 1% interest in the licensee, and of persons who directly or indirectly own a 1% interest in the licensee. The Indiana Commission adopted a rule that prohibits a distribution by a riverboat licensee to its partners, shareholders, itself, or any affiliated entity, if the distribution would impair the financial viability of the riverboat gambling operation. The Indiana Commission has proposed another rule, which would if adopted, require riverboat licensees to maintain on a quarterly basis a cash reserve in the amount of the actual payout for three days, and the cash reserve would include cash in the casino cage, cash in a bank account in Indiana, or cash equivalents not committed or obligated. The Governor of Indiana has appointed a Gaming Impact Study Commission chaired by the Attorney General to review the impact of all forms of gaming in Indiana, and to issue its final report by December 31, 1999. A lawsuit was filed on October 25, 1996, in Harrison County Indiana by three individuals residing in counties abutting the Ohio River, which challenges the constitutionality of the Riverboat Gambling Act on grounds that (i) it allegedly creates an unequal privilege because under the Act supporters of riverboat casino gambling, having lost a county-wide vote, are allowed to resubmit a proposal to county voters for approval of riverboat casino gambling while opponents of riverboat casino gambling, having lost a county-wide vote, are not allowed to resubmit a proposal; and (ii) it was enacted as a provision attached to a state budget bill allegedly in violation of an Indiana constitutional provision requiring legislative acts to be confined to one subject and matters properly connected with the subject. The State of Indiana filed an answer to the complaint. The Indiana Supreme Court has previously upheld the constitutionality of the Riverboat Gambling Act, although the prior challenge was on different grounds than those contained in the recently filed lawsuit. If the Riverboat Gambling Act ultimately was held unconstitutional it would, absent timely corrective legislation, have a material adverse effect on SMCP's operations. U.S. COAST GUARD Each riverboat also is regulated by the U.S. Coast Guard, whose regulations affect vessel design, construction, operation (including requirements that each vessel be operated by a minimum complement of licensed personnel) and maintenance, in addition to restricting the number of persons who can be aboard the boat at any one time. The East Chicago Showboat vessel must hold a Certificate of Inspection. Loss of the Certificate of Inspection of a vessel would preclude its use as an operating riverboat. A vessel is subject to annual, quarterly, as well as unannounced, inspection by the U.S. Coast Guard and must be drydocked every five years for inspection of the hull. Such drydockings remove the vessel from service for a period of time and can result in required repairs. The Company believes that these regulations, and the requirements of operating and managing cruising gaming vessels generally, make it more expensive to conduct riverboat gaming than to operate land-based casinos. -36- All shipboard employees of the East Chicago Showboat, even those who have nothing to do with the actual operation of the vessel, such as dealers, cocktail hostesses and security personnel, may be subject to the Jones Act which, among other things, exempts those employees from state limits on workers' compensation awards. The East Chicago Showboat has obtained such insurance which it believes to be adequate to cover employee claims. SHIPPING ACT OF 1916; MERCHANT MARINE ACT OF 1936 In order for the East Chicago Showboat vessel to have United States flag registry, the Company must maintain "United States citizenship" as defined in the Merchant Marine Act of 1920, as amended, and the Shipping Act of 1916. A corporation or partnership operating any vessel in the coastwise trade is not considered a United States citizen unless United States citizens own 75% of the equity of the Company or the partnership and, if a partnership, all general partners must be United States citizens. OTHER FEDERAL, STATE AND LOCAL LEGISLATION AND REGULATIONS The Company is subject to various other federal, state and local laws and regulations and, on a periodic basis, has to obtain various licenses and permits, including those required to sell alcoholic beverages. In particular, the United States Department of the Treasury has adopted regulations pursuant to which a casino is required to file a report of each deposit, withdrawal or exchange of currency or other payment or transfer by, through or to a casino which involves a transaction in currency of more than a predetermined amount ($10,000 for 1996) per gaming day. Such reports are required to be made on forms prescribed by the Secretary of the Treasury and must be filed with the Commissioner of the Internal Revenue Service. In addition, a casino is required to maintain detailed records (including the names, addresses, social security numbers or other information with respect to its customers) dealing with, among other items, a customer's deposit and withdrawal of funds and the maintenance of a line of credit. Additionally, various federal, state and local legislation and regulations relating to safety, health and environmental matters that apply to businesses in general, such as the Clean Air Act, the Clean Water Act, the Occupational Safety and Health Act, the Resource Conservation Recovery Act and the Comprehensive Environmental Response, Compensation and Liability Act, apply to the Company as well. In addition, certain legislation and regulations apply generally to vessels operating in United States waters, such as the Oil Pollution Act of 1990 (which among other things, deals with liability for oil spills and requires a certificate of financial responsibility for vessels operating in United States waters), or within the jurisdiction of various states apply to SMCP. One major development in federal legislation was the passage of the Coast Guard Authorization Act of 1996 which amends a provision of the Johnson Gambling Devices- Transportation Act of 1951 prohibiting gaming on federal waters, including Lake Michigan. As a result of this amendment, riverboat casinos, such as the casino gaming vessel operated by SMCP, are able to conduct cruises on Lake Michigan within boundaries of the State of Indiana and "mock cruises" will only be permitted pursuant to the exceptions authorized by the Riverboat Gambling Act. -37- In addition, Congress enacted a bill that established a National Gambling Impact and Policy Commission (the "Policy Commission") to study the economic impact of gambling on the United States, the individual States and Native American tribes. Additional federal regulation may occur due to the initiation of hearings by the Policy Commission. Any new federal legislation could have a material adverse effect on the Company. Although the Company does not anticipate making material expenditures with respect to such laws and regulations, the applicability of such laws and regulations may result in additional costs to the Company. ITEM 2. PROPERTIES. The Company believes that its properties are generally in good condition, are well maintained, and are generally suitable and adequate to carry on the Company's business. In 1997, the Company's gaming properties operated at satisfactory levels of utilization. ATLANTIC CITY FACILITIES The Atlantic City Showboat is located at the eastern end of the Boardwalk on approximately 12 acres, 10 1/2 acres of which was leased until January 28, 1998 from Sun International, Inc., successor in interest to Resorts International, Inc. ("Sun International") pursuant to a 99-year lease dated October 26, 1983 (as amended, "Lease"). On January 29, 1998, Land LLC acquired the underlying fee interest of the Atlantic City Property and the Lease was assigned by Sun International (the "Land Purchase Agreement") to Land LLC. Pursuant to the Land Purchase Agreement, Land LLC assumed Sun International's duties under the Lease (Sun International and Land LLC shall be respectively referred to hereafter as "Lessor"). The remaining acreage of the Atlantic City Showboat is held in fee by ACSI. In addition, ACSI owns approximately nine acres of land adjacent to the Atlantic City Showboat which are zoned for non-casino development and which are currently used as surface level parking lots. Under the New Jersey Act, both Lessor and ACSI, because of their lessor-lessee relationship, are jointly and severally liable for the acts of the other with respect to any violations of the New Jersey Act by the other. In order to limit the potential liability which could result from this provision, ACSI, OSI, and Lessor have agreed to indemnify each other from all liabilities and losses which may arise as a result of the joint and several liability imposed by the New Jersey Act. However, the New Jersey Commission could determine that the party seeking indemnification is not entitled to or is barred from such indemnification. Pursuant to the New Jersey Act, the New Jersey Commission approved, subject to certain changes, an Assumption Agreement ("Assumption Agreement") executed by Trump Taj Mahal Associates Limited Partnership and Trump Taj Mahal Realty Corp. (collectively, "Trump Taj"), ACSI and Resorts International, Inc., in connection with Trump Taj's acquisition of the land on which the Taj Mahal Casino Hotel is constructed and pursuant to which Trump Taj assumed some ____________________ (1) Resorts International, Inc. and the Company had entered into the Lease and certain other documents relating to the Atlantic City Showboat (the "Atlantic City Showboat Agreements"). As a result of Sun International's acquisition of Resorts International, Inc. during 1996, Sun International succeeded to the rights, duties and obligations of Resorts International, Inc. under the Atlantic City Showboat Agreements. (2) Land LLC is a special purpose bankruptcy remote subsidiary of the Company. -38- of Lessor's obligations in the Lease. The New Jersey Commission ruled that the Assumption Agreement is a lease under the New Jersey Act for casino regulatory purposes. As a result, for casino regulatory purposes, a lessor-lessee relationship is deemed to exist among ACSI, Lessor, and Trump Taj making them jointly and severally liable for the acts of the other with respect to any violations of the New Jersey Act by the others. In order to limit their potential liability, ACSI, Lessor and Trump Taj have entered into an agreement to indemnify each other from all liabilities and losses which may arise as a result of the joint and several liability imposed upon them by the New Jersey Act. However, the New Jersey Commission could determine that the party seeking indemnification is not entitled to or is barred from such indemnification. The Lease and all amendments thereto are subject to review and approval by the New Jersey Commission, and Lessor and ACSI have agreed that they will accept any reasonable modification to the Lease that may be required by the New Jersey Commission. If either party determines that the requested Lease modifications are unduly burdensome, the Lease may be terminated, subject to arbitration in the case of disagreement. The Lease, as amended to date, has been approved by the New Jersey Commission. In addition, Lessor pursuant to a ruling by the New Jersey Commission, in its capacity as lessor of the site of the Atlantic City Showboat, must obtain a casino service industry license. On January 28, 1998, Land LLC obtained a casino service industry license, which is coextensive with ACSI's license which is up for renewal 2001. The 9 1/4% First Mortgage Bonds due 2008 (the "9 1/4% Bonds") and the Company's $35.0 million revolving loan ("$35.0 Million Revolving Loan") from Fleet Bank, N.A. are each secured by leasehold mortgages on (i) ACSI's interest in the Lease, (ii) the Atlantic City Showboat (including the 24-story hotel tower as well as certain personal property therein) and future improvements on the leased real property, (iii) the 16-story hotel tower as well as certain personal property therein and the underlying real property held in fee, and (iv) the two surface parking lots held in fee. Such mortgages are subject and subordinate to Lessor's rights under the Lease and its fee interest in the Atlantic City Property. Subject to certain limited exceptions, the Lease may not be amended without the consent of the trustee under the Indenture governing the 9 1/4% Bonds unless certain opinions are delivered to the effect that the amendment does not materially impair the security of the mortgage. An event of default under the Lease constitutes an event of default under the respective mortgage and Indenture. In addition to its rental payment obligations under the Lease, ACSI is obligated to contribute up to one-third of the costs of certain infrastructure improvements to be constructed on a 56-acre tract ("Urban Renewal Tract"). ACSI is obligated to contribute only toward improvements of which it is the beneficiary or which are expected to benefit ACSI and all future occupants of the Urban Renewal Tract. ACSI has contributed to infrastructure improvements involving the construction of certain sewer and water lines and the realigning of a portion of Delaware Avenue to permit direct ingress and egress from the Delaware Avenue to the Atlantic City Showboat, which improvements have been completed. ACSI leases a 63,200 square-foot warehouse and office in Egg Harbor Township, New Jersey, approximately 15 miles from the Atlantic City Showboat. The lease term is through July 31, 2001. ACSI holds an option to purchase the warehouse for $1.9 million. This option may be exercised by ACSI on or after January 1, 1996, and shall remain in effect until March 31, 2001. -39- ACSI leases a parking area for its employees for approximately 300 parking spaces. The lease term may be terminated upon 90 days written notice by ACSI. Only in the event that the property is condemned may the lease be terminated by either party before September 15, 1998. ACSI provides, through an independent contractor, a shuttle service for its employees between the employee parking area and the Atlantic City Showboat. LAS VEGAS FACILITIES The Las Vegas Showboat is located at the northern end of the Boulder Strip and approximately 2 1/2 miles from the downtown - Fremont Street - corridor. The Company holds fee title to approximately 26 acres which comprises the Las Vegas Showboat. Of the 26 acres, 19.25 acres are used for buildings and improvements at the Las Vegas Showboat, which secures the Company's 9 1/4% Bonds and the $35.0 Million Revolving Loan. The Company leases such property, buildings and improvements to SBOC. The facilities at the Las Vegas Showboat are constantly monitored to make sure that the needs of the Company's business and customers are met. The Las Vegas Showboat developed a recreational vehicle park with approximately 80 spaces on leased property contiguous to the Las Vegas Showboat. The recreational vehicle park became operational in March 1997. SYDNEY FACILITIES SHCP entered into a lease with the NSWCCA for the Star City site, which site is located on 8.4 acres on Pyrmont Bay adjacent to Darling Harbour. Star City is approximately one mile from Sydney's central business district and within walking distance of a monorail station. Star City has a light rail station and has access to a ferry wharf. Star City is also close to four major parking garages in Darling Harbour and has good access to arterial road routes. The lease for the Star City site has a term of 99 years commencing on December 14, 1994. SHCP prepaid the net rent to the NSWCCA for the first 12 years under the lease with a payment of A$120.0 million. For the remaining term, the net annual rent is A$250,000. Upon termination of the lease, title to the improvements reverts to the NSWCCA without payment or compensation. Alternatively, SHCP could be directed by the NSWCCA to demolish any and all improvements erected on the land, leaving it in a safe condition. EAST CHICAGO FACILITIES The East Chicago Showboat is located on Lake Michigan approximately 12 miles from downtown Chicago, Illinois. On October 19, 1995, SMP entered into a Redevelopment Project Lease (the "Redevelopment Lease") with the City of East Chicago, Department of Redevelopment, pursuant to which the City of East Chicago granted SMP a leasehold interest for approximately 27 acres in East Chicago, Indiana on which to construct and operate the East Chicago Showboat for a period of thirty (30) years from the date SMP received the certificate of suitability from the Indiana Commission (the "Commencement Date"). SMP transferred all of its assets to SMCP, including the Redevelopment Lease on March 28, 1996. SMCP may elect to renew the term for two additional thirty year terms. The Redevelopment Lease obligates SMCP to pay the City of East Chicago $400,000 in annual rent with an adjustment every three years by the same percentage as the percentage increase in the Consumer Price Index over the previous -40- three years not to exceed 105% of the previous annual rental. The interests of SMCP in the Redevelopment Lease are subject to a leasehold mortgage executed by it in conjunction with the issuance by it and Showboat Marina Finance Corporation ("SMFC") of the 13 1/2% First Mortgage Notes due 2003 (the "East Chicago Notes"). In addition to these leasehold interests, SMCP owns the casino gaming vessel. SMCP's interests in the casino gaming vessel is also subject to a first preferred ship mortgage executed in conjunction with the East Chicago Notes. All of the assets of SMCP, other than certain equipment which is pledged as security in two equipment financings, secures the East Chicago Notes. ITEM 3.LEGAL PROCEEDINGS. WILLIAM H. AHERN V. CAESARS WORLD, INC., ET AL., Case No. 94-532-Civ-Orl-22, instituted on May 10, 1994 in the United States District Court for the Middle District of Florida, transferred to the United States District Court for the District of Nevada, Southern Division (the "United States District Court of Nevada"); WILLIAM POULOS V. CAESARS WORLD, INC., ET AL., Case No. 94-0478-Civ. Orl-22, instituted on April 26, 1994 in the United States District Court for the Middle District of Florida, transferred to the United States District Court of Nevada; LARRY SCHREIER V. CAESARS WORLD, INC., ET AL., Case No. 95-923-LDG (RJJ), instituted on September 26, 1995, in the United States District Court of Nevada. Plaintiffs in these actions, each purportedly representing a class, filed complaints (the "Complaints") against manufacturers, distributors and casino operators of video poker and electronic slot machines, including the Company, alleging that the defendants have engaged in a course of conduct intended to induce persons to play such games based on a false belief concerning how the gaming machines operate, as well as the extent to which there is an opportunity to win on a given play. The Complaints charge defendants with violations of the Racketeer Influenced and Corrupt Organizations Act, as well as claims of common law fraud, unjust enrichment and negligent misrepresentation, and seek damages in excess of $1 billion without any substantiation of that amount. The United States District Court of Nevada dismissed the Complaints following consideration of defendants' motions to dismiss, granting leave to Plaintiffs to re-file. The Plaintiffs filed an amended complaint on or about May 31, 1996. Subsequently, the United States District Court of Nevada consolidated the actions (and one other action styled WILLIAM POULOS V. AMERICAN FAMILY CRUISE LINE, N.V. ET AL., Case No. CV -S-95-936-LDG (RLH), in which the Company is not a named defendant), ordered Plaintiffs to file a consolidated amended complaint on or before February 14, 1997, and ordered all defense motions, including those of the Company, withdrawn without prejudice. The parties have established a steering committee to address motion practice, scheduling and discovery matters. Plaintiffs filed their consolidated amended complaint on February 14, 1997. The Company renewed its motions to dismiss and joined in motions to dismiss filed by other defendants. In late December 1997, the Court granted in part and denied in part Defendants' Motions to Dismiss for Failure to Plead Fraud with Particularity and for Failure to State a Claim; granted in part and denied in part Defendants' Motion to Strike Changes Made in Plaintiffs' Consolidated Amended Complaint; denied Cruise Ship Defendant's Motion to Dismiss for Lack of Subject Matter Jurisdiction; denied Defendant Princess Hotel's Motion to Dismiss Under the Act of State Doctrine; and denied Defendants' Motion for a Stay on Primary Jurisdiction and Abstention Grounds. In addition, the United States District Court of Nevada requested additional briefing from the parties with respect to -41- Defendants' Motion to Dismiss for Lack of Personal Jurisdiction. Plaintiffs filed their Second Consolidated Amended Complaint on or about January 8, 1998. The Answer to the Second Consolidated Amended Complaint was filed on February 11, 1998. Management believes that the substantive allegations in the Complaints are without merit and intends vigorously to defend the allegations. GLOBAL GAMING TECHNOLOGY, INC. V. TRUMP PLAZA FUNDING, INC., ET AL., Case No. 94-2021 (JHR), instituted on May 5, 1994, in the United States District Court for the District of New Jersey. The plaintiff, Global Gaming Technology, Inc., filed a complaint against eight casino operators in Atlantic City, New Jersey. The complaint alleges a patent infringement with respect to certain of the electronic slot machines used by the defendants, including the Atlantic City Showboat. The plaintiff seeks to recover damages for copyright infringement in excess of $500 million. The manufacturers of the slot machines in question have assumed the defense and have indemnified the Atlantic City Showboat and other casinos in this matter. The manufacturers filed a complaint against the plaintiff in the United States District Court for the District of Nevada, Southern District. The United States District Court for the District of New Jersey stayed the New Jersey action pending resolution of the issues in the pending Nevada action. Several of the manufacturers have reached a settlement with the plaintiff for the release of all claims. The United States District Court for the District of Nevada issued its decision in February 1997 which found that although the manufacturers infringed on Global Gaming Technology's patent, no liability occurred since the manufacturers sold the slot machines more than one year before Global Gaming Technology, Inc. filed its patent application. Global Gaming Technology has filed a motion for reconsideration of the Court's February 1997 decision. PROGRESSIVE GAMES, INC. V. ARIZONA CHARLIE'S ET AL., Case No. CV-S-96-00489-PMP (RJJ), instituted on June 5, 1996 in the United States District Court for the District of Nevada. The plaintiff filed a Complaint against 62 casinos located in Nevada, including the Las Vegas Showboat. The complaint alleges a patent infringement in connection with a live casino game including an electronic jackpot feature known as "Let It Ride the Tournament" used by the defendants. The plaintiff seeks to recover damages for patent infringement, including punitive damages. The licensor of the casino game has assumed the defense and has agreed to indemnify the Las Vegas Showboat and other casinos in this matter. On July 28, 1996, the licensor filed a motion to dismiss the action against the casino defendants until such time as certain issues in the pending action between plaintiff and licensor have been resolved. The licensor's motion to dismiss was denied on March 25, 1997. DOUG GRANT, INC. ET AL. V. GREAT BAY CASINO CORPORATION ET AL., instituted on July 28, 1997, in the Superior Court of New Jersey, Middlesex County, Law Division. The Company was served with the Complaint on July 31, 1997. The casino operators in Atlantic City, including the Company, and others were named defendants in the action, which alleges that the casino operators treated plaintiffs differently due to the fact they were known or suspected "card counters" and that the operators shared information on such individuals. The action is ostensibly based on purported violations of state and federal RICO and antitrust laws and various common law causes of action and state consumer protections law. This matter was transferred to the United States District Court, District of New Jersey, Camden, New Jersey, and assigned Docket Number 97CV 4291(JEI). Pursuant to the order of the United States Magistrate managing the -42- case, the defendants filed a motion to dismiss the complaint on February 20, 1998. No date for the Court's consideration of the Motion has been as yet set; however, the Court has indicated that it expects to consider the application in mid-April 1998. Until a resolution of the motion to dismiss, no answer is due and discovery is stayed. The Company is currently reviewing the complaint and intends to vigorously defend the action. The Company (including its subsidiaries) is also a defendant in various other lawsuits, most of which relate to routine matters incidental to its business. Management does not believe that the outcome of such pending litigation, in the aggregate, will have a material adverse effect on the Company. ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of security holders during the fourth quarter of 1997. -43- PART II ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's common stock is listed on the New York Stock Exchange ("NYSE") under the symbol SBO. The range of high and low sales prices for the Company's common stock for each quarter in the last two years is as follows:
Dividends High Low Declared -------- -------- ----------- First quarter (through March 17, 1998) 29 13/16 29 1/8 .025 1997 First quarter 23 3/4 17 1/4 .025 Second quarter 20 7/8 17 5/16 .025 Third quarter 20 3/4 15 5/8 .025 Fourth quarter 29 3/4 17 7/8 .025 1996 First quarter 28 1/2 21 .025 Second quarter 35 1/2 24 1/2 .025 Third quarter 30 5/8 18 3/4 .025 Fourth quarter 22 5/8 17 .025
On December 18, 1997, the last trading day before public announcement of the execution of the Showboat Merger Agreement, the closing price of the Common Stock as reported on the NYSE was $21 1/8 with a high sales price of $21 1/2 and a low sales price of $20. On March 17, 1998, the closing price of the Company's common stock on the New York Stock Exchange was $29 1/2. The Company has paid quarterly dividends since 1970. The declaration and payment of dividends is at the discretion of the Board of Directors. The Board of Directors considers, among other factors, the Company's earnings, financial condition and capital spending requirements in determining an appropriate dividend. Pursuant to the Showboat Merger Agreement and until such time as the earlier of the termination of the Showboat Merger Agreement or the Effective Time, the Company has agreed not to declare or pay any dividends on or make other distributions in respect of its Capital Stock, other than the regular quarterly dividend of $0.25 per share and distributions between wholly owned subsidiaries of the Company and the Company. -44- Additionally, the Company is restricted in the payment of dividends, loans or other similar transactions by the terms of the Indentures executed by it in connection with the issuance of 9 1/4% Bonds and the 13% Senior Subordinated Notes due 2009 (the "13% Notes"), respectively. Under both of the Indentures, the declaration and making of a dividend is a Restricted Payment. The Company may declare and make a dividend as long as (a) no default or event of default exists under the Indentures and (b) the sum of all Restricted Payments, including dividends, since May 18, 1993 (the "Issue Date") is less than (x) 50% of the Consolidated Net Income (defined in the Indentures) from April 1, 1993 to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available, plus (y) 100% of the aggregate net cash proceeds from the sale of equity interests (other than Disqualified Stock), plus (z) Excess Non-Recourse Subsidiary Proceeds (defined in the Indentures) after the Issue Date. See Note 6 to the Consolidated Financial Statements for additional discussion of the restrictions contained in the Indentures and see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Under the Indenture executed in connection with the East Chicago Notes (the "East Chicago Indenture"), SMCP cannot make a Restricted Payment, including distributions to the holders of its partnership interests, unless, among other things, SMCP has a Fixed Charge Coverage Ratio of 2.0 to 1.0 for the most recently ended four full fiscal quarters, after giving effect to such Restricted Payment. Notwithstanding the foregoing, the East Chicago Indenture permits SMCP to distribute good faith estimates of maximum payments for state and federal income tax liabilities of the Company and Waterfront. See also "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." In addition, distributions by SMCP are subject to rules of the Indiana Commission. See "Item 1. Business - Regulation and Licensing - Indiana Gaming." The approximate number of shareholders of record of the common stock as of March 17, 1998 was 1,283. -45- ITEM 6. SELECTED FINANCIAL DATA.
Year Ended December 31, ------------------------------------------------------------ 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- STATEMENT OF (In thousands, except per share data) OPERATIONS DATA: Net revenues $556,816 $433,705 $428,592 $401,333 $375,727 Income from operations 26,101 42,121 46,674 51,828 45,419 Income (loss) before (18,453) 6,003 13,175 15,699 13,464 extraordinary items and cumulative effect of change in method of accounting for income taxes (a)(b)(c)(e) Net income (loss) (18,453) 6,003 13,175 15,699 7,341 Income (loss) before (1.14) 0.37 0.85 1.03 0.90 extraordinary items and cumulative effect of change in method of accounting for income taxes per share- basic (a)(b)(c)(d)(e) Net income (loss) per share- (1.14) 0.37 0.85 1.03 0.49 basic Income (loss) before (1.14) 0.37 0.84 1.02 0.89 extraordinary items and cumulative effect of change in method of accounting for income taxes per share- diluted (a)(b)(c)(d)(e) Net income (loss) per share- (1.14) 0.37 0.84 1.02 0.49 diluted Cash dividends declared per 0.10 0.10 0.10 0.10 0.10 common share
December 31, ------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA: (In thousands) Total assets (d) $800,547 $814,669 $649,395 $623,691 $470,700 Long-term recourse debt (including current maturities) (d) 393,094 392,744 392,391 392,035 280,617 Long-term nonrecourse debt (including current maturities (f) 157,522 140,000 -- -- -- Shareholders' equity (d) 162,943 192,145 173,941 157,461 135,158 Shares outstanding at year- end (d) 16,351 16,181 15,720 15,369 14,980
(a) The Company adopted FAS 109 in 1993 and reported the cumulative effect of $.6 million from the change in method of accounting for income taxes as of January 1, 1993 in the 1993 Consolidated Statement of Income. (b) In the year ended December 31, 1993, the Company recognized an extraordinary loss of $6.7 million, net of tax, as a result of the redemption of all of its outstanding Mortgage-Backed Bonds. (c) In 1993, the Company acquired a 30% equity interest in SSP which was engaged in the development of a riverboat casino on Lake Pontchartrain in New Orleans, Louisiana. Operation of the riverboat casino commenced on November 8, 1993. The Company's share of the partnership's loss from the commencement of operations through December 31, 1993, is included in income from operations for the year ended December 31, 1993, including the write-off of preopening costs, of $1.3 million. In March 1994, the Company increased its equity interest in SSP to 50%. The Company's share of the net income of the partnership was $12.8 million and is included in income from operations for the year ended December 31, 1994. In March 1995, the Company acquired the remaining 50% of the equity of SSP. In March 1995, SSP sold certain of its assets, and the Company sold all of its equity in SSP, resulting in a pretax gain of $2.6 million to the Company which is included in the 1995 Consolidated Statement of Income as gain on sale of affiliate. (d) In the year ended December 31, 1992, the Company sold 3.45 million shares of its common stock in a public offering. Net proceeds of the offering were $50.4 million. Proceeds of the offering were used in January 1993 to redeem all of the Company's Debentures and to prepay the outstanding balance of its construction and term loan. (e) See Item 7. Management Discussion and Analysis of Financial Conditions and Results of Operations for a discussion of factors affecting income. (f) In March 1996, SMCP and SMFC issued $140.0 million East Chicago Notes for the development of the East Chicago Showboat. ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL Showboat, Inc. and its subsidiaries (collectively, the "Company" or "SBO"), is an international gaming company that owns and operates the Atlantic City Showboat Casino Hotel in Atlantic City, New Jersey (the "Atlantic City Showboat"), the Las Vegas Showboat Casino, Hotel and Bowling Center in Las Vegas, Nevada (the "Las Vegas Showboat"), beneficially owns 24.6% of, and manages, Star City, a casino and entertainment complex located in Sydney, New South Wales, Australia, ("Star City" or "Sydney Harbour Casino") and owns a 55% interest in, and manages, the Showboat Mardi Gras Casino located in East Chicago, Indiana (the "East Chicago Showboat"). The consolidated financial statements include all domestic and foreign subsidiaries which are more than 50% owned and controlled by the Company. Investments in unconsolidated affiliates which are at least 20% owned by the Company are carried at cost plus equity in -47- undistributed earnings or loss since acquisition. All material intercompany balances have been eliminated in consolidation. As used in this management's discussion and analysis of financial condition and results of operations, amounts in Australian dollars are denoted as "A$". The exchange rate was approximately $0.6516 and $0.7940 for each A$1.00 as of December 31, 1997 and 1996, respectively. MATERIAL CHANGES IN RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (1997) COMPARED TO YEAR ENDED DECEMBER 31, 1996 (1996) Financial Highlights - Comparison of Operating Results
Year Ended December 31, (Unaudited) (Dollars in thousands) ------------------------------------------------------------- 1997 1996 Variance Percent ------------------------------------------------------------- Gross revenues Atlantic City $ 410,577 $ 408,010 $ 2,567 0.6% Las Vegas 67,278 67,591 (313) (0.5%) Showboat Australia Mgt. Fees 5,671 - 5,671 N/A East Chicago Showboat 118,038 - 118,038 N/A ------------- --------------- -------------- ------------- $ 601,564 $ 475,601 $ 125,963 26.5% Net revenues ------------- --------------- -------------- ------------- Atlantic City $ 372,175 $ 370,537 $ 1,638 0.4% Las Vegas 63,420 63,168 252 0.4% Showboat Australia Mgt. Fees 5,671 - 5,671 N/A East Chicago Showboat 115,550 - 115,550 N/A ------------- --------------- -------------- ------------- $ 556,816 433,705 $ 123,111 28.4% Income from operations ------------- --------------- -------------- ------------- Atlantic City $ 60,155 $ 63,687 $ (3,532) (5.5%) Las Vegas (5,657) (10,064) 4,407 43.8% Corporate and Development (24,470) (15,420) (9,050) (58.7%) Showboat Australia - Mgt. Fee 5,189 (168) 5,357 3188.7% Sydney Harbour Casino 3,656 4,501 (845) (18.8%) Sydney Harbour Casino - preopening (7,160) (415) (6,745) (1625.3%) East Chicago Showboat 3,965 - 3,965 N/A East Chicago Showboat - preopening (9,577) - (9,577) N/A ------------- --------------- -------------- ------------- Consolidated $ 26,101 $ 42,121 $ (16,020) (38.0%) ------------- --------------- -------------- -------------
-48- Financial Highlights (continued)
Year Ended December 31, (Unaudited) (Dollars in thousands) ------------------------------------------------------------ 1997 1996 Variance Percent ------------------------------------------------------------ EBITDA* Atlantic City $ 86,182 $ 90,184 $ (4,002) (4.4%) Las Vegas 811 (4,118) 4,929 119.7% Corporate and Development (24,047) (15,045) (9,002) (59.8%) Showboat Australia - Mgt. Fee 5,189 (168) 5,357 3188.7% Sydney Harbour Casino 3,656 4,501 (845) (18.8%) Sydney Harbour Casino - preopening (7,160) (415) (6,745) (1625.3%) East Chicago Showboat 12,768 - 12,768 N/A East Chicago Showboat - preopening (9,577) - (9,577) N/A ------------- --------------- -------------- ------------ Consolidated $ 67,822 $ 74,939 $ (7,117) (9.5%) ------------- --------------- -------------- ------------ Net of operating expenses and amortization of equity and debt costs at Showboat, Inc.
*EBITDA is defined as income from operations before depreciation and amortization. EBITDA should not be construed as a substitute for income from operations, net earnings (loss) and cash flows from operating activities determined in accordance with Generally Accepted Accounting Principles ("GAAP"). The Company has included EBITDA because it believes it is commonly used by certain investors and analysts to analyze and compare gaming companies on the basis of operating performance, leverage and liquidity and to determine a company's ability to service debt. REVENUES The Company's gross revenues for the year ended December 31, 1997, increased $126.0 million or 26.5% compared to 1996. This increase is primarily attributable to the $118.0 million of gross revenues from the East Chicago Showboat which commenced operations in April 1997. For the first time, the Company recorded a management fee of $5.7 million from Sydney Harbour Casino. Due to an agreement with the Sydney Harbour Casino, the first A$19.1 million of management fees were forgone, which amount was satisfied during the second quarter of 1997 following approximately 20 months of operations by Sydney Harbour Casino in its interim facility. Star City, the permanent casino and entertainment complex, commenced its operations on November 26, 1997. Complimentaries rose $2.9 million in 1997, primarily due to the operations of the East Chicago Showboat, slightly offsetting the increase in gross revenues, resulting in a $123.1 million or 28.4% increase in net revenues. The Atlantic City Showboat's gross revenues increased $2.6 million or 0.6% during 1997 compared to 1996. This increase is principally attributed to a $4.3 million or 1.3% increase in casino revenues tied to the $12.1 million or 4.7% growth in slot revenue, at the Atlantic City casino which compared favorably to a 3.6% growth in the Atlantic City market. Table games revenue declined $7.3 million or 9.4% in 1997 compared to 1996 due primarily to a decline in table games hold percent to 14.3% in 1997 compared to 15.8% in 1996. Other gaming revenues -49- also declined $.5 million or 15.8% due principally to a decline in poker revenue. Poker was discontinued at the Atlantic City Showboat in November, 1997. The increase in gross revenues was partially offset by the $.9 million or 2.5% increase in complimentaries, resulting in a $1.6 million or 0.4% increase in net revenues. The Company recognized consolidated net revenues of $115.6 million from the East Chicago Showboat which were derived principally from the casino operation that produced $77.6 million of slot revenue, $28.2 million of table game revenue and $3.2 million of poker revenue. Revenues at the Las Vegas Showboat were relatively unchanged during the comparative year end periods. INCOME FROM OPERATIONS The Company's income from operations for the year ended December 31, 1997, decreased $16.0 million or 38.0% compared to 1996. The decrease is primarily attributable to the following unusual items: (i) $9.6 million of expenses related to the opening of the East Chicago Showboat; (ii) $12.0 million of expenses related to the opening of Showboat's 24.6% owned subsidiary in Sydney, Australia (Star City); (iii) $4.9 million of charges associated with the proposed merger with Harrah's Entertainment, Inc. and evaluating the potential sale of the management contract for Star City and a portion of the Company's equity in SHCH; and (iv) $1.1 million for the write-off of the investment made to develop a riverboat casino project on the Mississippi River near Lemay, Missouri ("Lemay Riverboat"). In comparison, the 1996 corporate and development results reflected a loss of $3.8 million for the write-down of the Company's investment in a riverboat casino operation in Randolph, Missouri. The unusual costs recorded in 1997 were partially offset by the net management fee contribution of $5.2 million from Star City and the recognition of $4.0 million of income from operations (before preopening write-off) from the East Chicago Showboat. The Atlantic City Showboat's income from operations decreased $3.5 million or 5.5% during 1997 compared to 1996. The decrease is primarily attributable to the decline in table games revenue and a $5.1 million or 1.7% increase in operating costs. The increase in operating expenses is primarily attributed to increased marketing and advertising costs for slot patrons and increased casino operating expenses. These increases were partially offset by a decline in payroll and related costs. The Las Vegas Showboat's loss from operations decreased $4.4 million or 43.8% for the year ended December 31, 1997 compared to the same period in 1996. This was realized principally through cost control programs implemented at the property and more targeted marketing programs. The equity contribution by Star City (before preopening write-off) decreased $.8 million or 18.8% in 1997 compared to 1996. This decline is primarily attributable to payment of management fees to the Company, a decline in table games hold percent to 16.3% in 1997 compared to 17.4% in 1996 and the decline in the average exchange rate from $0.7874 in 1996 to $0.7546 in 1997. -50- NET INCOME The Company recorded a net loss of $18.5 million or $1.14 per share for the year ended December 31, 1997. Net income in 1997 was negatively impacted due to the recognition of several unusual items totaling $35.8 million (before tax) and an increased effective tax rate attributable to these unusual items. The unusual items recorded in 1997 were for: (i) $17.8 million of expenses related to the opening of the East Chicago Showboat and the minority partner's share of losses; (ii) $12.0 million of expenses related to the opening of Star City; (iii) $4.9 million of charges associated with the proposed merger with Harrah's Entertainment, Inc. and evaluating the potential sale of the management contract for Star City and a portion of the Company's equity in SHCH; and (iv) $1.1 million for the write-off of the investment for the Lemay Riverboat. Regarding the East Chicago Showboat, generally accepted accounting principles require the Company to recognize the minority partner's losses as a result of the deficit in the minority partner's capital account. However, the Company will recognize in future periods more than its 55% ownership interest of East Chicago Showboat's net income, until the Company has recovered the minority partner's share of losses absorbed by the Company. The effective tax rate for 1997 was approximately 11.4%. The lower than expected tax benefit is attributable to the losses incurred that did not generate a tax benefit for state income taxes and the preopening losses associated with the opening of the permanent Star City which do not generate a state or federal tax benefit. The Company's 1997 annual tax rate excluding unusual items is approximately 38.9%. Exclusive of the above listed unusual items, the Company would have reported net income of $9.1 million or $.57 per share for the year ended December 31, 1997. In 1996, the Company realized net income of $6.0 million or $.37 per share. The 1996 results included unusual items totaling $5.6 million (before tax). These items included: (i) $3.8 million for the write-down of the Company's investment in a riverboat development project in Randolph, Missouri; (ii) $2.4 million related to the opening of the East Chicago Showboat; and (iii) $.4 million related to the opening of the interim Sydney Harbour Casino. The unusual charges were partially offset by a $.8 million CRDA credit recognized at the Atlantic City Showboat. As a result, net income, excluding unusual items was $9.7 million or $.60 per share. YEAR ENDED DECEMBER 31, 1996 (1996) COMPARED TO YEAR ENDED DECEMBER 31, 1995 (1995) REVENUES Net revenues for the Company increased to $433.7 million in 1996 from $428.6 million in 1995, an increase of $5.1 million or 1.2%. Casino revenues increased $3.5 million or 0.9% to $383.0 million in 1996 from $379.5 million in 1995. Nongaming revenues, which consist principally of room, food, beverage, management fee and bowling revenues, were $92.6 million in 1996 compared to $88.7 million in 1995, an increase of $3.9 million or 4.4%. The Company received no management fees in 1996 due to the Company's agreement to forgive the first A$19.1 -51- million of management fees due it from Sydney Harbour Casino. As of December 31, 1996, approximately A$4.6 million of management fees remain to be forgiven. The $.2 million management fee received in 1995 was attributable to the Company's investment in the SSP which was sold in March of 1995. Revenues
Year Ended December 31, (Unaudited) (Dollars in thousands) ---------------------------------------------------------------- 1996 1995 Variance Percent ---------------------------------------------------------------- Consolidated: Casino revenues $ 382,980 $ 379,494 $ 3,486 0.9% Non casino revenues 92,621 88,701 3,920 4.4% Management fees 190 (190) (100.0%) Less complimentaries (41,896) (39,793) (2,103) 5.3% ------------- --------------- --------------- -------------- Net revenues Consolidated $ 433,705 $ 428,592 $ 5,113 1.2% ------------- --------------- --------------- -------------- Atlantic City: Table game revenues $ 77,822 $ 82,887 $ (5,065) (6.1%) Slot revenues 258,892 249,161 9,731 3.9% Other gaming revenues 3,312 5,104 (1,792) (35.1%) ------------- --------------- --------------- -------------- Total casino 340,026 337,152 2,874 0.9% ------------- --------------- --------------- -------------- Non casino revenues 67,984 67,449 535 0.8% Less complimentaries (37,473) (35,731) (1,742) 4.9% ------------- --------------- --------------- -------------- Net revenues Atlantic City $ 370,537 $ 368,870 $ 1,667 .4% ------------- --------------- --------------- -------------- Las Vegas: Table game revenues $ 5,310 $ 4,532 $ 778 17.2% Slot revenues 36,521 36,195 326 0.9% Other gaming revenues 1,123 1,614 (491) (30.4%) ------------- --------------- --------------- -------------- Total casino 42,954 42,341 613 1.4% ------------- --------------- --------------- -------------- Non casino revenues 24,637 21,252 3,385 15.9% Less complimentaries (4,423) (4,062) (361) 8.9% ------------- --------------- --------------- -------------- Net revenues Las Vegas $ 63,168 $ 59,531 $ 3,637 6.1% ------------- --------------- --------------- --------------
The Atlantic City Showboat generated $370.5 million of net revenues in the year ended December 31, 1996 compared to $368.9 million for the same period in the prior year, an increase of $1.7 million or 0.5%. Casino revenues were $340.0 million for the year ended December 31, 1996 compared to $337.2 million for the same period in the prior year, an increase of $2.9 million or 0.9%. The increase in casino revenues was due primarily to an increase in slot revenues of $9.7 million or 3.9% which was attributable to an 11.6% increase in average slot units at the -52- Atlantic City Showboat. The increase in slot revenues at the Atlantic City Showboat compares to a 2.1% growth in slot revenues in the Atlantic City market for the year ended December 31, 1996 and a 10.5% increase in average slot units in the Atlantic City market. The increase in slot revenues at the Atlantic City Showboat was partially offset by a table game revenue decrease of $5.1 million or 6.1% to $77.8 million for the year ended December 31, 1996 compared to $82.9 million for the same period in the prior year. This decline in table game revenues is attributable to a reduction in table games marketing. The Company's table game revenue decline compares to a 1.4% growth in table game revenues in the Atlantic City market for the year ended December 31, 1996. The Las Vegas Showboat achieved net revenues of $63.2 million for the year ended December 31, 1996, compared to $59.5 million in the same period in 1995, an increase of $3.6 million or 6.1%. Casino revenues increased $0.6 million or 1.4% in 1996 to $42.9 million compared to $42.3 million in 1995. The 1995 revenues reflect a reduced casino capacity due to the property's renovation project in the last six months of 1995. During 1996 the Las Vegas Showboat increased marketing to attempt to recapture its market share of slot machine players and local area residents lost to competitors during the 1995 renovation. The Company expects that the recapture, if it occurs at all, will occur over a period of years. Non-casino revenues increased to $24.6 million for the year ended December 31, 1996 from $21.3 million in the same period in 1995, an increase of $3.4 million or 15.9%. The increases in revenues were attributable to increased food and beverage capacity in 1996 as compared to the same period in the prior year. The coffee shop was closed during a portion of the renovation of the Las Vegas Showboat during 1995. INCOME FROM OPERATIONS The Company's income from operations declined $4.6 million or 9.8% to $42.1 million in 1996 from $46.7 million in 1995. The decrease is attributable to the decline in income from operations at both the Atlantic City Showboat and the Las Vegas Showboat. These declines were partially offset by the $3.9 million contribution from Sydney Harbour Casino and the $6.5 million or 29.5% decrease in operating expenses for the Company's corporate and development functions.
Year Ended December 31, (Unaudited) (Dollars in thousands) ------------------------------------------------------------- 1996 1995 Variance Percent ------------------------------------------------------------- Income from operations Atlantic City $ 63,687 $ 72,450 $ (8,763) (12.1%) Las Vegas (10,065) (3,749) (6,316) (168.5%) Australia 3,918 (150) 4,068 2712.0% Corporate and development (15,419) (21,877) 6,458 29.5% ------------- ------------- -------------- --------------- Consolidated $ 42,121 $ 46,674 $ (4,553) (9.8%) ------------- ------------- -------------- ---------------
-53-
Year Ended December 31, (Unaudited) (Dollars in thousands) ------------------------------------------------------------- 1996 1995 Variance Percent ------------------------------------------------------------- EBITDA:* Atlantic City $ 90,184 $ 99,747 $ (9,563) (9.6%) Las Vegas (4,119) 229 (4,348) (1898.7%) Australia 3,918 (150) 4,068 2712.0% Corporate and development (15,044) (21,619) 6,575 30.4% ------------- ------------- -------------- --------------- Consolidated $ 74,939 $ 78,207 $ (3,268) (4.2%) ------------- ------------- -------------- --------------- Net of operating expenses and amortization of equity and debt costs at Showboat, Inc.
*EBITDA is defined as income from operations before depreciation and amortization. EBITDA should not be construed as a substitute for income from operations, net earnings (loss) and cash flows from operating activities determined in accordance with Generally Accepted Accounting Principles ("GAAP"). The Company has included EBITDA because it believes it is commonly used by certain investors and analysts to analyze and compare gaming companies on the basis of operating performance, leverage and liquidity and to determine a company's ability to service debt. Atlantic City Showboat's income from operations, before management fees, decreased to $63.7 million in the year ended December 31, 1996 compared to $72.4 million from the same period in 1995, a decrease of $8.7 million or 12.1%. This decrease is attributable to an increase in operating expenses at the Atlantic City Showboat of $10.4 million or 3.5% to $306.9 million. The increase in operating expenses is primarily attributable to increased marketing expenses, which consisted mostly of an $8.6 million increase in slot coin expense in response to aggressive competition for slot patrons in the Atlantic City market during 1996. The Atlantic City Showboat's operating margin, before management fees, decreased to 17.2 % in 1996 compared to 19.6% in 1995. The negative variance caused by the increase in operating expenses in 1996 was partially offset by the $1.6 million increase in net revenues for 1996 as compared to 1995. For the year ended December 31, 1996, the Las Vegas Showboat had a loss from operations, before management fees and intercompany rent, of $10.1 million compared to a loss of $3.7 million in the same period in 1995. This decline is due principally to an increase in operating expenses, partially offset by an increase in net revenues. Operating expenses increased $9.6 million to $73.2 in 1996 compared to $63.6 million for the same period in 1995, an increase of 15.1%. The increase in operating expense is due primarily to the property operating at full capacity for the entire year in 1996 and increased marketing costs to offset the intensified competition for slot players in the local market. During the last six months of 1995, the casino was operating at approximately 60% of capacity due to the property's renovation project. Income from operations in 1996 included, for the first time, a contribution from Sydney Harbour Casino of $3.9 million. This compared to a $0.2 million loss in 1995 due to the write-off of preopening costs, and administrative costs incurred. -54- Corporate and development expenses totaled $15.4 million for the year ended December 31, 1996 compared to $21.9 million for the year ended December 31, 1995. This $6.5 million decrease is attributable to a reduction in the scope of development activities and general and administrative expenses in 1996 as compared to 1995. OTHER (INCOME) EXPENSE In 1996, other (income) expense consisted of $57.6 million of gross interest expense, $17.1 million of capitalized interest and $9.6 million of interest income. Interest expense increased due to the East Chicago Showboat's interest expense of $14.3 million, capitalized interest of $5.0 million and interest income of $4.9 million. The East Chicago Showboat's net interest expense was offset by the $2.0 million minority interest share of loss. The write-down of the investment in Showboat Mardi Gras, L.L.C. (the "Randolph Project") was $3.8 million in 1996. In 1995, other (income) expense consisted of $42.8 million of gross interest expense, $13.1 million of capitalized interest and $6.2 million of interest income. During 1995, the Company realized a net gain on the sale and write-down of affiliates totaling $1.1 million. In connection with the Company's investment in Sydney Harbour Casino, the Company capitalized interest of $12.1 million in 1996 compared to $12.6 million in 1995. INCOME TAXES In 1996, the Company incurred income taxes of $3.5 million, or an effective tax rate of 36.7% compared to $11.4 million or an effective tax rate of 46.5% in 1995. Differences between the Company's effective tax rate and the statutory federal tax rates are due to permanent differences between financial and tax reporting, state income taxes and the impact of foreign earnings which were not subjected to U.S. taxes. NET INCOME In 1996, the Company realized net income of $6.0 million or $.37 per share compared to net income of $13.2 million or $.84 per share in 1995. The 1996 results reflect an after tax loss of $2.4 million or $.15 per share for the write down of the Company's investment in a riverboat casino operation in Randolph, Missouri and the after tax increase in interest expense, net of interest income, capitalized interest and minority interest, totaling $1.5 million or $.09 per share caused by the East Chicago Showboat project financing. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1997 the Company held cash and cash equivalents of $67.1 million and short term investments of $21.8 compared to cash and cash equivalents of $60.3 million and short term investments of $28.8 million at December 31, 1996. The cash balances include the funds of the East Chicago Showboat ($7.2 million) that are not available for use other than to support the East Chicago Showboat. In addition, the Company's cash balances include $3.0 million of restricted cash that has been pledged as collateral for the East Chicago Showboat, line of credit with Fleet Bank. As of December 31, 1997 no funds were drawn against the facility, -55- however, in March 1998 all available funds were drawn by the East Chicago Showboat on this line of credit. The Company's cash flow from operations was $36.4 million in 1997 compared to $50.9 million in 1996. The decrease in cash flow from operations is primarily due to the operations of the East Chicago Showboat, including the write-off of preopening costs, and the charges associated with the proposed merger with Harrah's Entertainment, Inc. and evaluating the potential sale of the management contract for Star City and a portion of the Company's equity in SHCH. Cash used in investing activities was $34.5 million in 1997 compared to $235.2 million in 1996. The decrease in investing activities is due primarily to the utilization of funds in the construction of the East Chicago Showboat during 1996 and the decrease in short term investments. Cash provided from financing activities was $5.0 million in 1997 compared to $137.7 million in 1996. In 1997, the East Chicago Showboat obtained $11.0 million of lease financing and a $9.6 million equipment loan, whereas in 1996 the increase in financing activities was primarily due to the March 1996 issuance by the East Chicago Showboat of the $140.0 million, 13 1/2% First Mortgage Notes due 2003 (the "East Chicago Notes"). In 1997, the Company expended approximately $35.4 million on capital improvements at the Atlantic City Showboat and the Las Vegas Showboat which were funded by operations. In addition, the Company expended approximately $55.9 million on construction costs at the East Chicago Showboat which were principally funded from the proceeds of the East Chicago Notes in March of 1996. Management has developed a capital budget for the Atlantic City Showboat and the Las Vegas Showboat for 1998 totaling approximately $26.0 million and $2.9 million, respectively. The Company is eligible to receive approximately $5.9 million in funding credits reserved by the New Jersey Casino Reinvestment Development Authority ("CRDA"), as a result of the completion of the hotel expansion program at the Atlantic City Showboat in 1994. As of December 31, 1997, approximately $4.9 million in funding credits is available for distribution to the Company. The remaining $1.0 million of reserved funding credits will be distributed in the future. The Company renewed and increased it's two year secured line of credit for general working capital purposes to $35.0 million with Fleet Bank N.A. effective as of July 1997. At the end of the two year term, any outstanding funds may convert to a three year term loan. The bank received security pari passu with the holders of the Company's $275.0 million 9 1/4% First Mortgage Bonds due 2008. As of December 31, 1997, all of the funds under this line of credit were available for use by the Company. On May 18, 1993, the Company issued $275.0 million of 9 1/4% First Mortgage Bonds due 2008 (the "9 1/4% Bonds"). Interest on the Bonds is payable semi-annually on May 1 and November 1 of each year. The 9 1/4% Bonds are not redeemable prior to May 1, 2000. The 9 1/4% Bond Indenture was amended in July, 1994 and permitted the Company to issue up to $150.0 million of debt. On August 10, 1994, the Company issued $120.0 million of 13% Senior Subordinated Notes due 2009 (the "13% Notes"). Interest on the 13% Notes is payable semi-annually on February 1 and August 1 of each year commencing on February 1, 1995. The 13% -56- Notes are not redeemable prior to August 1, 2001. The 13% Note Indenture permits the issuance of an additional $30.0 million of Notes at the discretion of the Company. As of December 31, 1997 the Company had not issued the additional $30.0 million of Notes. The 9 1/4% Bond Indenture and the 13% Note Indenture contain customary financial and other covenants which, among other things, govern the Company's ability to incur indebtedness. Included in the covenants to the 9 1/4% Bond Indenture and the 13% Note Indenture is a covenant requiring the Company to offer to the holders of the 9 1/4% Bonds and the 13% Notes to purchase such bonds and notes at a purchase price equal to 101% of the principal amount plus accrued interest at a date which is no later than 30 days after such change in control. The announced merger between Harrah's and Showboat will result in a change in control. No assurance can be given that the Company will have sufficient funds available to purchase the bonds and notes tendered by holders in the event such holders desire to accept the change in control offer. On March 28, 1996, the Company's 55% owned subsidiaries, Showboat Marina Casino Partnership ("SMCP") and Showboat Marina Finance Corporation ("SMFC"), sold the East Chicago Notes to support the development of the East Chicago Showboat. Additionally, the Company contributed $40.7 million to SMCP through intermediary partnerships. The Company will receive a 12% preferred return on its $40.0 million investment. In addition to its $40.0 million investment, subject to certain qualifications and exceptions, the Company entered into a standby equity commitment which requires that if, during any of the first three Operating Years (as defined), SMCP's Combined Cash Flow (as defined) is less than $35.0 million, the Company will be required to make additional capital contributions to SMCP in the lesser of (a) $15.0 million, or (b) the difference between the $35.0 million and the Operating Year's Combined Cash Flow. The Company's aggregate potential obligation under the standby equity commitment is $30.0 million. SMCP anticipates that the Combined Cash Flow of SMCP for the first full four quarters of operation will not achieve $35.0 million threshold and Showboat will be required to contribute approximately $15.0 million under the standby equity commitment. As of March 15, 1998, the Company has contributed $1.0 million to SMCP as part of this standby equity commitment. There can be no assurance that the Combined Cash Flow for any future Operating Year will exceed $35.0 million and that the Company will not be required to make additional capital contributions to SMCP in accordance with the standby equity commitment. The Standby Equity Commitment is subject to certain limitations, qualifications, and exceptions. Waterfront Entertainment and Development, Inc. ("Waterfront"), the Company's 45% partner, in the East Chicago Showboat agreed to compensate the Company $5.2 million for the standby equity commitment. The $5.2 million due the Company shall accrue interest at 12% per annum until paid from Waterfront's share of distributable cash from SMCP. The East Chicago Note Indenture contains restrictions on payments to affiliates, including the Company, by SMCP. As a result of these restrictions, the distributable cash flow from SMCP is limited to good faith estimates of maximum payments for state and federal income tax liabilities of the Company and Waterfront, until certain financial ratios are met by SMCP. There can be no assurance that SMCP will meet their required financial ratios in order to distribute cash flow to the Company in excess of the federal and state tax liabilities. On January 28, 1998, a special purpose subsidiary of the Company borrowed $100.0 million from Column Financial, Inc. to acquire 10 1/2 leased acres of real property (the "Atlantic -57- City Property") located at 801 Boardwalk, Atlantic City, New Jersey and the lease pursuant to which the Atlantic City Property is leased to Atlantic City Showboat, Inc. from Sun International, Inc. for a total purchase price of $110.0 million. The loan will mature on February 1, 2028. Interest accrues on the loan at an interest rate of 7.09% until February 1, 2008, at which time, unless paid off as of such date, the loan will accrue a second tranche of interest at a rate equal to the lesser of (i) the positive excess (if any) of (A) the 20 Year Treasury Rate plus 2.0% over (B) 7.09%, and (ii) 5.0%. The loan is secured by the Atlantic City Property. The Company and Rockingham Venture, Inc. ("RVI"), which owns the Rockingham Park, a thoroughbred racetrack in New Hampshire, entered into agreements to develop and manage any additional gaming that may be authorized at Rockingham Park. In December 1994, the Company loaned RVI approximately $8.9 million, which loan is secured by a second mortgage on Rockingham Park (as of December 31, 1997 the loan balance was approximately $7.8 million). At this time, casino gaming is not permitted in the State of New Hampshire. If casino gaming is legalized, the Company will, at a minimum, contribute the promissory note as a capital contribution. Should enabling legislation permit more than 500 slot machines or any combination of slot machines and table games, then the Company, subject to available financing, will contribute funds not to exceed 30% of cash funds required for the project. At this time, the cost of the project has not been determined. During 1997, the Company evaluated its various systems to determine whether or not those systems were year 2000 compliant. Based upon this review, the Company has identified those systems which are not compliant and has implemented a plan to update those systems. The Company expects the cost to update the affected systems will not exceed $7 million. The Company is currently evaluating the effect a failure to bring its systems into compliance will have on the Company. The Company believes that it has sufficient capital resources, including its existing cash balances, cash provided by operations and existing borrowing capacity, to cover the cash requirements of its existing operations. The ability of the Company to satisfy its cash requirements, however, will be dependent upon the future performance of its casino hotels which will continue to be influenced by prevailing economic conditions and financial, business and other factors, certain of which are beyond the control of the Company. As the Company realizes expansion opportunities, the Company will need to make significant capital investments in such opportunities and additional financing will be required. The Company anticipates that additional funds will be obtained through loans or public offerings of equity or debt securities, although no assurance can be made that such funds will be available or at interest rates acceptable to the Company. All statements contained herein that are not historical facts, including but not limited to, statements regarding the Company's current business strategy, the Company's prospective joint ventures, expansions of existing projects, and the Company's plans for future development and operations, are based upon current expectations. These statements are forward-looking in nature and involve a number of risks and uncertainties. Actual results may differ materially. Among the factors that could cause actual results to differ materially are the following: the availability of sufficient capital to finance the Company's business plan on terms satisfactory to the Company; -58- competitive factors, such as legalization of gaming in jurisdictions from which the Company draws significant numbers of patrons and an increase in the number of casinos serving the markets in which the Company's casinos are located; changes in labor, equipment and capital costs; the ability of the Company to consummate its contemplated joint ventures on terms satisfactory to the Company and to obtain necessary regulatory approvals therefore; changes in regulations affecting the gaming industry; the ability of the Company to comply with its Indentures for its 9 1/4% Bonds and 13% Notes; future acquisitions or strategic partnerships; general business and economic conditions; and other factors described from time to time in the Company's reports filed with the Securities and Exchange Commission. The Company wishes to caution the readers not to place undue reliance on any such forward-looking statements, which statements are made pursuant to the Private Litigation Reform Act of 1995 and, as such, speak only as of the date made. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable as of the date of this filing. ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Independent Auditors' Report; Consolidated Balance Sheets as of December 31, 1997 and 1996; Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995; Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1997, 1996 and 1995; Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995; and Notes to Consolidated Financial Statements -59- INDEPENDENT AUDITORS' REPORT The Shareholders and Board of Directors Showboat, Inc. We have audited the accompanying consolidated balance sheets of Showboat, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Showboat, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. Las Vegas, Nevada KPMG PEAT MARWICK LLP March 13, 1998 -60-
SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 ASSETS 1997 1996 - ---------------------------------------------- --------------- --------------- (In thousands) Current assets: Cash and cash equivalents $ 67,145 $ 60,287 Short term investments 21,755 28,848 Receivables, net 15,748 12,402 Income tax receivable 2,361 2,396 Inventories 3,328 2,785 Prepaid expenses 6,027 4,470 Current deferred income taxes 6,603 7,802 --------------- --------------- Total current assets 122,967 118,990 --------------- --------------- Property and equipment: Land 12,005 11,545 Land improvements 14,505 14,461 Buildings 392,451 332,265 Vessel 82,528 - Furniture and equipment 234,762 191,872 Construction in progress 8,139 101,343 --------------- --------------- 744,390 651,486 Less accumulated depreciation and amortization 243,414 211,298 --------------- --------------- 500,976 440,188 --------------- --------------- Other assets: Restricted cash and investments 3,000 69,601 Investment in unconsolidated affiliate 125,148 138,964 Deposits and other assets 33,906 30,963 Debt issuance costs, net of accumulated amortization of $4,193,000 and $2,942,000 at December 31, 1997 and December 31, 1996, respectively 14,550 15,963 --------------- --------------- 176,604 255,491 --------------- --------------- $ 800,547 $ 814,669 =============== =============== (continued)
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SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 (continued) LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996 - ---------------------------------------------------------- --------------- --------------- (In thousands) Current liabilities: Current maturities of long-term debt - with recourse $ 28 $ 25 Current maturities of long-term debt - without recourse 5,554 - Accounts payable 16,756 17,688 Dividends payable 402 405 Accrued liabilities 51,905 41,933 --------------- --------------- Total current liabilities 74,645 60,051 --------------- --------------- Long-term debt, excluding current maturities Debt with recourse 393,066 392,719 Debt without recourse 151,968 140,000 --------------- --------------- 545,034 532,719 --------------- --------------- Other liabilities 6,184 4,753 --------------- --------------- Deferred income taxes 11,741 24,888 --------------- --------------- Minority interest - 113 --------------- --------------- Commitments and contingencies Shareholders' equity: Preferred stock, $1 par value; 1,000,000 shares authorized; none issued Common stock, $1 par value; 50,000,000 shares authorized; issued 16,350,849 and 16,181,199 shares at December 31,1997 and 1996, respectively 16,351 16,181 Additional paid-in capital 91,145 87,698 Retained earnings 64,761 84,828 --------------- --------------- 172,257 188,707 Cumulative foreign currency translation adjustment (8,437) 4,773 Unearned compensation for restricted stock (877) (1,335) --------------- --------------- Total shareholders' equity 162,943 192,145 --------------- --------------- 800,547 $ 814,669 =============== =============== See accompanying notes to consolidated financial statements.
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SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (In thousands except per share data) 1997 1996 1995 ------------ ------------ ------------ Revenues: Casino $ 497,124 $ 382,980 $ 379,494 Food and beverage 62,720 56,916 53,894 Rooms 25,395 26,147 25,694 Sports and special events 3,498 3,682 3,924 Management fees 5,671 - 190 Other 7,156 5,876 5,189 ------------ ------------ ------------ 601,564 475,601 468,385 Less complimentaries 44,748 41,896 39,793 ------------ ------------ ------------ Net revenues 556,816 433,705 428,592 ------------ ------------ ------------ Operating costs and expenses: Casino 252,827 193,537 177,644 Food and beverage 37,410 32,287 32,150 Rooms 6,585 7,261 8,339 Sports and special events 2,925 2,774 3,206 General and administrative 149,838 117,355 119,568 Selling, advertising and 26,328 9,638 9,456 promotion Depreciation and amortization 41,721 32,818 31,533 Preopening costs 9,577 - - ------------ ------------ ------------ 527,211 395,670 381,896 ------------ ------------ ------------ Income from operations from 29,605 38,035 46,696 consolidated subsidiaries Equity in income (loss) of (3,504) 4,086 (22) unconsolidated affiliates ------------ ------------ ------------ Income from operations $ 26,101 $ 42,121 $ 46,674 ------------ ------------ ------------ (continued)
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SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS EXCEPT PER SHARE DATA) (CONTINUED) 1997 1996 1995 -------------- -------------- -------------- Income from operations $ 26,101 $ 42,121 $ 46,674 Other (income) expense: Interest income (5,427) (9,572) (6,225) Gain on sale of affiliate - - (2,558) Write-down of investment in - 3,789 1,426 affiliate Foreign currency transaction 353 (100) (271) (gain) loss Interest expense, net of amounts 49,362 40,510 29,692 capitalized -------------- -------------- -------------- 44,288 34,627 22,064 -------------- -------------- -------------- Income (loss) before income tax expense (benefit) and minority interest (18,187) 7,494 24,610 Minority interest (2,636) 1,987 - -------------- -------------- -------------- Income (loss) before income tax (20,823) 9,481 24,610 expense (benefit) Income tax expense (benefit) (2,370) 3,478 11,435 -------------- -------------- -------------- Net income (loss) $ (18,453) $ 6,003 $ 13,175 ============== ============== ============== Basic earnings (loss) per share $ (1.14) $ 0.37 $ 0.85 ============== ============== ============== Diluted earnings (loss) per share $ (1.14) $ 0.37 $ 0.84 ============== ============== ==============
See accompanying notes to consolidated financial statements. -64-
SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS) Cumulative foreign Additional currency Unearned Common paid - in Retained translation Treasury compen- Stock capital earnings adjustment stock sation Total --------- ------------ ---------- ------------- ---------- ---------- ----------- Balance, December 31, 1994 $ 15,795 $ 76,845 $68,809 $ 3,490 $ (3,364) $ (4,114) $ 157,461 Net income - - 13,175 - - - 13,175 Cash dividends ($.10 per share) - - (1,550) - - - (1,550) Share transactions under stock plans - 3,233 - - 2,777 (116) 5,894 Amortization of unearned compensation - - - - - 2,166 2,166 Foreign currency trans- lation adjustment, net of tax - - - (3,205) - - (3,205) --------- ------------ ---------- ------------- ---------- ---------- ----------- Balance, December 31, 1995 15,795 80,078 80,434 285 (587) (2,064) 173,941 Net income - - 6,003 - - - 6,003 Cash dividends ($.10 per share) - - (1,609) - - - (1,609) Share transactions under stock plans 386 7,620 - - 587 (912) 7,681 Amortization of unearned compensation - - - - - 1,641 1,641 Foreign currency trans- lation adjustment, net of tax - - - 4,488 - - 4,488 --------- ------------ ---------- ------------- ---------- ---------- ----------- Balance, December 31, 1996 16,181 87,698 84,828 4,773 - (1,335) 192,145 Net loss - - (18,453) - - - (18,453) Cash dividends ($.10 per share) - - (1,614) - - - (1,614) Purchase of 152,100 shares of treasury stock - - - - (3,043) - (3,043) Share transactions under stock plans 170 3,447 - - 3,043 (713) 5,947 Amortization of unearned compensation - - - - - 1,171 1,171 Foreign currency trans- lation adjustment, net of tax - - - (13,210) - - (13,210) --------- ------------ ---------- ------------- ---------- ---------- ----------- Balance, December 31, 1997 $ 16,351 $ 91,145 $ 64,761 $ (8,437) $ - $ (877) $ 162,943 ========= ============ ========== ============= ========== ========== ===========
See accompanying notes to consolidated financial statements. -65-
SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS) 1997 1996 1995 ------------ ------------ ----------- Cash flows from operating activities: Net income (loss) $ (18,453) $ 6,003 $ 13,175 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts 2,447 1,557 1,605 Depreciation and amortization 41,721 32,818 31,533 Amortization of original issue discount and debt issuance costs 2,167 1,458 1,281 Provision for deferred income taxes (4,840) 2,094 2,069 Amortization of unearned compensation 1,171 1,641 2,166 Provision for loss on Casino Reinvestment Development Authority obligation 865 497 1,414 (Earnings) loss of unconsolidated affiliate, net of distributions 3,504 (4,086) 2,768 (Gain) loss on sale and write-down of affiliates - 3,789 (1,132) (Gain) loss on disposition of property and equipment 466 147 (36) Increase in receivables, net (3,312) (2,695) (2,492) Decrease (increase) in inventories and prepaid expenses (2,100) 281 (209) Decrease (increase) in deposits and other assets 857 (202) (656) Pension costs, net of payments 1,519 1,954 882 Increase (decrease) in accounts payable (957) 2,096 4,566 Increase (decrease) in income taxes (payable)/receivable 1,456 1,849 (5,168) Increase in accrued liabilities 9,974 3,644 1,384 Minority interest share of loss (113) (1,987) - ------------- ----------- ----------- Net cash provided by operating activities $ 36,372 $ 50,858 $ 53,150 ------------- ----------- ----------- (continued)
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SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (CONTINUED) (IN THOUSANDS) 1997 1996 1995 ------------ ------------ ------------ Cash flows from investing activities: Acquisition of property and equipment $ (91,418) ($115,038) ($ 49,573) Proceeds from sale of property and equipment 513 477 1,065 Proceeds from sale of affiliate - - 51,366 Investments in unconsolidated affiliates (10,514) (11,647) (36,551) (Advances to) repayments from unconsolidated affiliates (188) 390 1,210 (Increase) decrease in restricted cash 66,601 (69,601) - Increase in deposits and other assets (2,237) (6,762) (4,639) Deposit for Casino Reinvestment Development Authority obligation, net of refunds (4,366) (4,140) (4,052) Purchase of short-term investments (67,758) (70,677) - Sales of short-term investments 74,851 41,829 - ------------ ------------ ------------ Net cash used in investing activities (34,516) (235,169) (41,174) ------------ ------------ ------------ Cash flows from financing activities: Principal payments of long-term debt (3,123) (22) (20) Proceeds from issuance of long-term debt 9,636 140,000 - Proceeds from employee stock option exercises 3,528 5,510 - Debt issuance costs (379) (6,297) (542) Payment of dividends (1,617) (1,597) (1,543) Issuance of common stock - - 4,604 Purchases of treasury stock (3,043) - - Minority interest contributions - 77 2,023 ------------ ------------ ------------ Net cash provided by financing activities 5,002 137,671 4,522 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 6,858 (46,640) 16,498 Cash and cash equivalents at beginning of year 60,287 106,927 90,429 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 67,145 $ 60,287 $ 106,927 ============ ============ ============ (continued)
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SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (CONTINUED) (IN THOUSANDS) 1997 1996 1995 ------------ ------------ ------------ Supplemental disclosures of cash flow information and non-cash investing and financing activities: Cash paid (refunded) during the year for: Interest, net of amount capitalized $ 46,448 $ 33,306 $ 28,021 Income taxes 1,010 (465) 14,533 Foreign currency translation adjustment (13,210) 4,488 (3,205) Equipment acquired under capital lease 10,984 - -
See accompanying notes to consolidated financial statements. -68- SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION Showboat, Inc. and Subsidiaries (collectively, the "Company" or "SBO"), is an international gaming company that owns and operates the Atlantic City Showboat Casino Hotel in Atlantic City, New Jersey (the "Atlantic City Showboat"), the Las Vegas Showboat Casino, Hotel and Bowling Center in Las Vegas, Nevada (the "Las Vegas Showboat"), owns a 24.6% equity interest in, and manages through subsidiaries, the Star City Casino located in Sydney, New South Wales, Australia, ("Star City" or "Sydney Harbour Casino") and owns through subsidiaries a 55% interest in, and manages, the Showboat Mardi Gras Casino located in East Chicago, Indiana (the "East Chicago Showboat"). Until March 31, 1995, the Company owned an equity interest in and managed a riverboat casino on Lake Pontchartrain in New Orleans, Louisiana (Star Casino). The consolidated financial statements include all domestic and foreign subsidiaries which are more than 50% owned and controlled by Showboat, Inc. Investments in unconsolidated affiliates which are at least 20% owned by Showboat, Inc. are carried at cost plus equity in undistributed earnings or loss since acquisition. All material intercompany balances have been eliminated in consolidation. CASINO REVENUE AND COMPLIMENTARIES Casino revenues represent the net win from gaming wins and losses. Revenues include the retail value of room, food, beverage, and other goods and services provided to customers without charge. Such amounts are then deducted as promotional allowances. The estimated cost of providing these promotional allowances was charged to the casino department in the following amounts: Year Ending December 31, ------------------------------------------ 1997 1996 1995 ------------ --------------- ----------- (In thousands) Food and beverage $29,566 $28,421 $27,119 Room 8,484 8,559 7,197 Other 1,331 1,249 1,346 ------------ --------------- ----------- Total $39,381 $38,229 $35,662 ============ =============== =========== CASH EQUIVALENTS AND RESTRICTED CASH The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of December 31, 1997, restricted cash consists of short-term investments pledged to secure a line of credit for the East Chicago Showboat. As of December 31, 1996, restricted cash consisted of cash and short-term investments held by the East Chicago Showboat for construction and development. -69- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SHORT-TERM INVESTMENTS Short-term investments as of December 31, 1997 and 1996 consist of U.S. Treasury bills, mortgage-backed corporate debt securities and certificates of deposit with financial institutions which have an average maturity date of approximately seven months. The Company classifies these securities as available-for-sale as they will be liquidated as needed to fund cash requirements of the Company. These securities are recorded at fair value as of December 31, 1997 and 1996. SFAS 115 requires unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities to be excluded from earnings and to be reported as a separate component of shareholders' equity until realized. Unrealized gains (losses) of approximately $(64,000) and $6,000 as of December 31, 1997 and 1996 were not material and were therefore included in interest income. Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. FAIR VALUE OF CERTAIN FINANCIAL INSTRUMENTS The carrying amount of cash equivalents, receivables and all current liabilities approximates fair value because of the short term maturity of these instruments. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. See Notes 5 and 6 for additional fair value disclosures. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation, including amortization of capitalized leases, is computed using the straight-line method. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized. Estimated useful lives for property and equipment are 5 to 15 years for land improvements, 10 to 40 years for buildings and vessel, and 2 to 10 years for furniture and equipment. INTEREST COSTS Interest is capitalized in connection with the construction of major facilities. Further, interest is capitalized on investments in unconsolidated companies accounted for by the equity method of accounting during the period the investee company is undergoing activities necessary to start its planned principal operations. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset's estimated useful life. For the years ended December 31, 1997, 1996, and 1995, $14,932,000, $17,081,000, and $13,148,000, respectively, of interest cost was capitalized. -70- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PREOPENING AND DEVELOPMENT COSTS Costs incurred during the preopening phase are capitalized. Types of costs capitalized include salaries and wages, temporary office expenses, marketing expenses, professional fees, training costs and related travel costs. The 1997 expense of $9,577,000 consists largely of $6,000,000 of salaries and wages. Effective January 1, 1997, the Company changed its method of accounting for preopening costs. Preopening costs are now immediately expensed when a new facility opens for business rather than amortized over a period not to exceed one year as was previously done. Expensing these costs at the date of opening is a general industry practice and will provide a better comparison of the Company's operations to other gaming companies. There is no cumulative effect as of January 1, 1997 for this accounting change. If the new method of accounting for preopening costs had been applied as of January 1, 1995, the equity in income of unconsolidated affiliate would have resulted in the following consolidated net income for the Company: 1996 1995 -------- -------- (In thousands except per share amounts) Net Income $6,418 $12,760 Earnings per share-Basic 0.40 0.83 Earnings per share Diluted 0.39 0.81 INCOME TAXES Under the asset and liability method of accounting for income taxes, deferred tax assets and liabilities are recognized for the future tax consequences attributable to carryforward items and differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. The Company and its domestic subsidiaries file a consolidated federal income tax return. The Company filed for and received a change in tax year-end with the Internal Revenue Service. The Company's tax year-end has been changed from June 30 to December 31 effective December 31, 1996. AMORTIZATION OF ORIGINAL ISSUE DISCOUNT AND DEBT ISSUANCE COSTS Original issue discount is amortized over the life of the related indebtedness using the effective interest method. -71- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Costs associated with the issuance of debt have been deferred and are being amortized over the life of the related indebtedness using the straight line method which approximates the effective interest method. INCOME PER BASIC AND DILUTED SHARE In February, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share," (Statement 128) which establishes standards for computing and presenting earnings per share (EPS). It replaces the presentation of primary and fully diluted EPS with a presentation of basic and diluted EPS. Statement 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997. All prior periods have been restated to apply the provisions of Statement 128. Income per basic and diluted share is based on the weighted average number of shares outstanding. Basic shares outstanding were 16,127,135, 16,042,518 and 15,453,798 for the years ended December 31, 1997, 1996, and 1995, respectively. Diluted shares outstanding were 16,127,135, 16,347,058, and 15,730,478 for the years ended December 31, 1997, 1996, and 1995, respectively. Diluted shares include stock options and warrants when dilutive. STOCK BASED COMPENSATION Prior to January 1, 1996, the Company accounted for its stock option plans in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock-Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide proforma net income and proforma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. FOREIGN CURRENCY TRANSLATION The financial statements of foreign subsidiaries are adjusted to U.S. generally accepted accounting principles. Balance sheet accounts are then translated into U.S. dollars at current exchange rates in effect at the balance sheet date. Items of revenue and expense are translated at average exchange rates during the reporting period. -72- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Gains and losses resulting from translation of financial statements are excluded from the Consolidated Statements of Operations and are credited or charged directly to a separate component of Shareholders' Equity, net of taxes. Gains and losses resulting from foreign currency transactions are included in income currently. LONG-LIVED ASSETS In March 1995, the FASB issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flow estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company adopted Statement 121 in the first quarter of 1996 and there are no write-down of assets for the years ended December 31, 1997 and 1996. USE OF ESTIMATES Management of the Company has made estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. RECLASSIFICATIONS Certain prior year balances have been reclassified to conform to the current year's presentation. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130 requires companies to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position, and is effective for financial statements issued for fiscal years beginning after December 15, 1997. The Company is currently assessing the impact of this pronouncement on the Company's financial statements and notes that foreign currency translation adjustments and unearned compensation will be shown under comprehensive income. -73- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 establishes additional standards for segment reporting in the financial statements and is effective for fiscal years beginning after December 15, 1997. The Company believes there is no impact of this pronouncement on the Company's financial statements. 2. RECEIVABLES, NET Receivables, net consist of the following: Year Ending December 31, ---------------------------- 1997 1996 ------------- ------------- (In thousands) Casino $ 8,157 $ 6,524 Hotel 520 760 Other 10,154 7,535 ------------- ------------- 18,831 14,819 Less allowance for doubtful accounts 3,083 2,417 ------------- ------------- Receivables, net $ 15,748 $ 12,402 ============= ============= 3. ACCRUED LIABILITIES Accrued liabilities consist of the following: Year Ending December 31, ---------------------------- 1997 1996 ------------- ------------- (In thousands) Interest $ 16,252 $ 16,296 Salaries and wages 15,644 11,985 Taxes, other than taxes on income 6,398 2,346 Medical and liability claims 3,584 4,572 Advertising and promotion 3,231 2,326 Outstanding chips and tokens 1,609 1,692 Other 5,187 2,716 ------------- ------------- Total accrued liabilities $ 51,905 $ 41,933 ============= ============= 4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES The Company's wholly-owned subsidiary, Showboat Australia Pty. Ltd., (SA), invested approximately $100.0 million for 135,000,000 shares (approximately 24.6% interest) in Sydney Harbour Casino Holdings Limited, (SHCH), which through its wholly owned subsidiaries, owns the Sydney Harbour Casino and holds the casino license required to operate the Sydney Harbour -74- 4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES (CONTINUED) Casino. SA also owns 85% of the company engaged to manage the Star City casino and entertainment complex for a management fee. On November 26, 1997, the Sydney Harbour Casino commenced gaming operations in its permanent casino facility after operating out of an interim facility since September 13, 1995. For the years ended December 31, 1997 and 1996, $(3,504,000) and $4,086,000 of net income (loss) from the casino is included in equity in income (loss) of unconsolidated affiliates in the Consolidated Statement of Income. The loss from the casino in 1997 is due to the write- off of approximately $7,160,000 (net of Australian tax) of pre- opening costs upon the opening of the permanent casino in November of 1997. In 1997, for the first time, the Company recorded a management fee of $5,671,000 from Sydney Harbour Casino. Due to an agreement with the Sydney Harbour Casino the first A$19.1 million of management fees were forgiven, which amount was satisfied during the second quarter of 1997 following approximately 20 months of operations by the Sydney Harbour Casino in its interim facility. In addition to its 24.6% equity interest in SHCH, SA has an option to purchase an additional 37,446,553 ordinary shares of the fully diluted equity of SHCH at an exercise price of A$1.15 per share. SA's option may be exercised no earlier than July 1, 1998 and expires June 30, 2000. In March 1995, the Company, with an unrelated corporation, formed Showboat Mardi Gras, L.L.C. (SMG) to own and operate, subject to licensing, a riverboat casino near Kansas City, Missouri. The Company invested approximately $5.2 million in a combination of both equity and advances to SMG. SMG was not selected by the Missouri Gaming Commission for investigation for a gaming license. Due to a decline in the market value of the assets of SMG, principally a riverboat, the Company recorded a pre-tax write-down of $3,789,000 and $1,426,000 in the years ended December 31, 1996 and 1995, respectively, which is included in the Consolidated Statements of Income as write-down of investment in affiliate. The 1996 write-down includes the Company's remaining investment in SMG, and the Company has no further obligations to SMG. -75- 4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES (CONTINUED) Summarized condensed financial information of SHCH as of and for the years ending December 31, 1997 and 1996 is as follows:
1997 1996 --------------- -------------- (In thousands) Sydney Harbour Casino Holdings Ltd. (Unaudited) Income statement data Net revenues $ 249,900 $ 295,600 Net income (loss) (12,800) 17,700 Company's share of net income (loss) $ (3,504) $ 4,086 Balance sheet data: Assets: Property and equipment, net $ 613,400 $ 460,300 Other assets 279,200 349,400 --------------- -------------- Total assets $ 892,600 $ 809,700 =============== ============== Liabilities and shareholders' equity: Liabilities $ 523,100 $ 342,400 Shareholders' equity: Company's 90,800 115,000 Other shareholders' 278,700 352,300 --------------- -------------- Total liabilities and shareholders' equity $ 892,600 $ 809,700 =============== ============== Amounts calculated using average exchange rate for the years ending December 31, 1997 and 1996.
The difference between the Company's equity in SHCH shown above and the amounts reported as investment in unconsolidated affiliate in the Company's Consolidated Balance Sheets is primarily due to capitalized interest of approximately $34,300,000 and $24,200,000 in 1997 and 1996, respectively. 5. NEW JERSEY INVESTMENT OBLIGATION The New Jersey Casino Control Act (Act) provides, among other things, for an assessment on a gaming licensee based upon 1 1/4% of its gross casino revenues. This assessment is satisfied by investing in qualified direct investments or purchasing bonds issued by the Casino Reinvestment Development Authority (CRDA). In order for direct investments to be eligible, they must be approved by the CRDA. -76- 5. NEW JERSEY INVESTMENT OBLIGATION (CONTINUED) Deposits with the CRDA bear interest at two-thirds of market rates resulting in a current value lower than cost. At December 31, 1997 and 1996, deposits and other assets include $9,146,000 and $7,009,000, respectively, representing the Company's bond purchases and deposits with the CRDA of $13,616,000 as of December 31, 1997 and $10,616,000 as of December 31, 1996, net of a valuation allowance of $4,471,000 and $3,607,000, respectively. The carrying value of these deposits, net of the valuation allowance, approximates fair value. The Company is eligible to receive approximately $8,800,000 in funding credits reserved by the Casino Reinvestment Development Authority (CRDA), as a result of the completion of the hotel expansion program at the Atlantic City Showboat, completed in 1994. To date, the Company has received approximately $2,900,000. As of December 31, 1997, approximately $4,900,000 in funding credits is available for distribution to the company. The remaining $1,000,000 of reserved funding credits is expected to be distributed in the future. 6. LONG-TERM DEBT The Company's debt is categorized separately as debt guaranteed by the Company (generally known as recourse debt) and debt not guaranteed by the Company (generally known as non- recourse debt). Long-term debt consists of the following:
December 31, 1997 1996 -------------- -------------- (In thousands) Recourse Debt: 9 1/4% First Mortgage Bonds (Bonds) due 2008 net of unamortized discount of $3,881,000 and $4,257,000 at December 31, 1997 and 1996, respectively $ 271,119 $ 270,743 13% Senior Subordinated Notes(Notes) due 2009 120,000 120,000 Capital lease obligations 1,974 2,001 Non-recourse Debt: 13 1/2% First Mortgage Notes(East Chicago Notes) due 2003 140,000 140,000 Equipment loan 8,244 - Capital lease obligations 9,279 - -------------- -------------- 550,616 532,744 Less current maturities 5,582 25 -------------- -------------- $ 545,034 $ 532,719 ============== ==============
-77- 6. LONG-TERM DEBT (CONTINUED) The Bonds are secured by substantially all of the Company's assets and are unconditionally guaranteed by Ocean Showboat, Inc. (OSI), Atlantic City Showboat, Inc. (ACSI) and Showboat Operating Company (SOC), subsidiaries effectively owned 100% by the Company. Interest on the Bonds is payable semi-annually on May 1 and November 1 of each year. The Bonds are not redeemable prior to May 1, 2000. Thereafter, the Bonds will be redeemable, in whole or in part, at redemption prices specified in the Bond Indenture. The Bonds are senior secured obligations of the Company and rank senior in right of payment to all existing and future subordinated indebtedness of the Company and pari passu with the Company's senior indebtedness. The Bonds are collateralized by substantially all the assets of the Company. The Bond Indenture, as amended, places significant restrictions on the incurrence of additional indebtedness by SBO and its subsidiaries, the creation of additional liens on the collateral securing the Bonds, transactions with affiliates and payment of certain restricted payments (as defined), including certain investments made by SBO and its subsidiaries. The Company was in compliance with the Bond Indenture Covenants as of December 31, 1997. The Notes are unsecured and unconditionally guaranteed by OSI, ACSI and SOC. Interest on the Notes is payable semi- annually on February 1 and August 1 of each year. The Notes will be redeemable, in whole or in part, at the option of the company at any time on or after August 1, 2001 at redemption prices specified in the Indenture for the Notes (Note Indenture). The Notes are general obligations of the Company, subordinated in right of payment to all Senior Debt (as defined in the Note Indenture) of the Company. The Note Indenture permits the issuance of an additional $30,000,000 of Notes at the discretion of the Company. The Note Indenture places significant restrictions on the Company, many of which are substantially similar to the restrictions placed on the Company by the Bond Indenture, as amended. The Company was in compliance with all the Note Indenture Covenants as of December 31, 1997. Included in the covenants to the Bond Indenture and the Note Indenture is a covenant requiring the Company to offer to the holders of the Bonds and the Notes to purchase such bonds and notes at a purchase price equal to 101% of the principal amount plus accrued interest at a date which is no later than 30 days after such change in control. The announced merger between Harrah's and Showboat will result in a change in control. No assurance can be given that the Company will have sufficient funds available to purchase the bonds and notes tendered by holders in the event such holders desire to accept the change in control offer. On March 28, 1996 the Company's 55% owned subsidiaries, Showboat Marina Casino Partnership (SMCP) and Showboat Marina Finance Corporation (SMFC), sold its $140.0 million 13 1/2% East Chicago Notes. The net proceeds from the sale were $133,700,000 net of financing costs. The funds were raised to support the development of the East Chicago Showboat. -78- 6. LONG-TERM DEBT (CONTINUED) The East Chicago Notes are senior secured obligations of SMCP and rank senior in right of payment to all existing and future subordinated indebtedness of SMCP and pari passu with SMCP's senior indebtedness. Interest is payable semi-annually on March 15, and September 15, of each year. The East Chicago Notes will be redeemable at the option of SMCP, in whole or in part, on or after March 15, 2000, at the redemption prices set forth in the Indenture. The East Chicago Notes are without recourse to the Company. In June 1997, SMCP obtained a loan of approximately $9,636,000 from FINOVA Capital Corporation secured by certain equipment. The loan is for a term of 36 months with a fixed rate of 11.1%. The Company renewed and increased its two year secured line of credit for general working capital purposes to $35.0 million with Fleet Bank N.A. effective as of July 1997. At the end of the two year term, any outstanding funds may convert to a three year term loan. The bank received security pari passu with the holders of the Company's $275.0 million 9 1/4% First Mortgage Bonds due 2008. As of December 31, 1997, all of the funds under this line of credit were available for use by the Company. In October 1997, SMCP entered into a line of credit with Fleet Bank in the amount of $3.0 million. The line of credit is secured by the Company with funds on deposit with Fleet Bank. The term of the line is for a period of one year, renewable annually at an interest rate of LIBOR plus 75 basis points. As of December 31, 1997, all of the funds under this line of credit were available for use by SMCP. On March 13, 1998, SMCP borrowed the entire $3.0 million for the payment of the interest on the East Chicago Notes due March 15, 1998. Maturities of the Company's long-term debt exclusive of unamortized discount are as follows: Year Ending December 31, (in thousands) 1998 $ 5,582 1999 6,205 2000 4,951 2001 2,759 2002 - Thereafter 535,000 --------- $ 554,497 ========= The fair value of the Company's Bonds, Notes and East Chicago Notes were $294,250,000, $144,300,000 and $166,600,000 respectively, at December 31, 1997 based on the quoted market prices. The carrying amount of capital leases and the equipment loan approximates fair value at December 31, 1997. -79- 7. LEASES The Company leases certain furniture and equipment and a warehouse under long-term capital lease agreements. The leases covering furniture and equipment expire in 1999 and 2001 and the warehouse lease expires in 2001. The Company has an option to purchase the warehouse from January 1, 1996 through March 31, 2001 at an option price of approximately $1,928,000. Property leased under capital leases by major classes are as follows: December 31, 1997 1996 ------------ ------------ (In thousands) Building - warehouse $ 2,050 $2,050 Furniture and equipment 11,136 152 ------------ ------------ 13,186 2,202 Less accumulated amortization 2,918 1,520 ------------ ------------ $ 10,268 $ 682 ============ ============ ACSI is leasing 10 1/2 acres of Boardwalk property in Atlantic City, New Jersey for a term of 99 years which commenced October 1983. Annual rent payments, which are payable monthly, commenced upon opening of the Atlantic City Showboat. The rent is adjusted annually based upon changes in the Consumer Price Index. In April 1997, the annual rent increased $242,000 to $9,047,000. ACSI is responsible for taxes, assessments, insurance and utilities. On January 28, 1998, a special purpose subsidiary of the Company acquired the 10 1/2 acres of Boardwalk property and the lease. SMCP is obligated to pay East Chicago $400,000 annual rent with such rentals being adjusted every 3 years based upon changes in the Consumer Price Index subject to a maximum of 5% increase for each adjustment. SMCP also holds a leasehold interest in certain property in East Chicago, Indiana for land used for offsite employee parking. The lease is for a term of three years and may be renewed at the option of SMCP for two additional five year terms. Payments of $5,000 are due monthly with an adjustment on the first of May of each year of the lease term to reflect changes in real estate taxes. -80- 7. LEASES (CONTINUED) The following is a schedule of future minimum lease payments for capital leases and operating leases (with initial or remaining terms in excess of one year) as of December 31, 1997:
Capital Operating Year ending December 31, Leases Leases ---------------- ---------------- (In thousands) 1998 $ 3,668 $ 11,571 1999 3,654 10,170 2000 3,634 9,807 2001 2,773 9,447 2002 - 9,447 Thereafter - 732,930 ---------------- ---------------- Total minimum lease payments 13,729 $ 783,372 Less amount representing interest (10.4% to 12.9%) 2,476 ================ ---------------- Present value of net minimum capital lease payments $ 11,253 Less current installments of obligations under capital leases 2,556 ---------------- Obligations under capital leases excluding current portion $ 8,697 ================
Rent expense for all operating leases was $11,751,000, $11,356,000 and $11,241,000 for the years ended December 31, 1997, 1996 and 1995, respectively. 8. INCOME TAXES Total income tax expense (benefit) was allocated as follows:
Year Ending December 31, ------------------------------------ 1997 1996 1995 ---------- ---------- ---------- (In thousands) Continuing operations ($ 2,370) $ 3,478 $ 11,435 Shareholders' equity, related to cumulative foreign currency translation adjustment (7,113) 2,417 (1,726) Shareholders' equity, primarily due to the tax benefit related to the exercise of stock options (1,421) (2,170) (1,471) ---------- ---------- ---------- ($ 10,904) $ 3,725 $ 8,238 ========== ========== ==========
-81- 8. INCOME TAXES (CONTINUED) Income tax expense (benefit) attributable to income from continuing operations consists of:
Year Ending December 31, --------------------------------------------- 1997 1996 1995 ------------ ------------ ------------ (In thousands) U.S. federal Current ($ 419) ($ 587) $ 5,489 Deferred (4,581) 1,786 2,477 ------------ ------------ ------------ (5,000) 1,199 7,966 ------------ ------------ ------------ State and foreign Current 2,889 1,971 3,877 Deferred (259) 308 (408) ------------ ------------ ------------ 2,630 2,279 3,469 ------------ ------------ ------------ Total Current 2,470 1,384 9,366 Deferred (4,840) 2,094 2,069 ------------ ------------ ------------ ($ 2,370) $ 3,478 $ 11,435 ============ ============ ============
Income tax expense (benefit) attributable to income from continuing operations differed from the amounts computed by applying the U.S. federal income tax rate of 35% for the years ended December 31, 1997, 1996 and 1995 to pretax income from continuing operations as a result of the following:
Year Ending December 31, ---------------------------------------- 1997 1996 1995 ------------ ------------ ----------- (In thousands) Computed "expected" tax expense (benefit) ($ 7,288) $ 3,318 $ 8,614 Increase (reduction) in income tax from: Equity in income (loss) from foreign unconsolidated affiliate not subject to US tax 1,111 (1,413) - State and foreign income taxes, net of federal tax benefit 1,821 1,523 2,174 Permanent difference for employee cafeteria costs 1,102 - - Other, net 884 50 647 ------------ ------------ ----------- Income tax expense (benefit) ($ 2,370) $ 3,478 $ 11,435 ============ ============ ============
-82- 8. INCOME TAXES (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1997 and 1996 are as follows:
December 31, -------------------------- 1997 1996 ------------ ------------ (In thousands) Deferred tax assets: Alternative minimum tax credit carryforwards $ 8,092 $ 5,496 Partnership loss attributable to minority partners 4,080 - Accrued vacations 1,945 1,992 Executive deferred compensation 1,912 1,370 General business credit carryforwards 1,868 113 Interest income from partnership 1,653 702 Casino Reinvestment Development Authority obligation 1,334 1,085 Allowance for doubtful accounts 1,235 984 Bonus accrual 936 382 Long-term incentive plan 908 1,064 Accrued liability claims 690 697 Accrued medical claims 597 1,022 Cumulative foreign currency translation adjustment 4,543 - Other 2,718 3,232 ------------ ------------ Total gross deferred tax assets 32,511 18,139 ------------ ------------ Deferred tax liabilities: Depreciation and amortization 22,215 20,639 Capitalized interest 14,396 11,056 Cumulative foreign currency translation adjustment - 2,570 Other 1,038 960 ------------ ------------ Total gross deferred tax liabilities 37,649 35,225 ------------ ------------ Net deferred tax liabilities $ 5,138 $ 17,086 ============ ============
At December 31, 1997, the Company had available $8,092,000 of alternative minimum tax credit carryforwards which are available to reduce future federal regular income taxes, if any, over an indefinite period. -83- 9. EMPLOYEE BENEFIT PLANS The Company maintains a retirement and savings plan for eligible employees who are not covered by a collective bargaining agreement or by another plan to which the Company contributes. Under the terms of the plan, eligible employees may defer up to 3% of their compensation, as defined, of which 100% of the deferral is matched by the Company. Eligible employees may contribute an additional 12% of their compensation which will not be matched by the Company. Contributions by the Company vest over a five-year period. The Company contributed an aggregate of $2,384,000, $1,947,000 and $1,932,000 to this plan for the years ended December 31, 1997, 1996 and 1995, respectively. The Company's union employees are covered by union- sponsored, collectively-bargained, multi-employer pension plans. The Company contributed and charged to expense $1,339,000, $1,315,000 and $1,326,000 during the years ended December 31, 1997, 1996 and 1995, respectively. These contributions are determined in accordance with the provisions of negotiated labor contracts and generally are based on the number of hours worked. In August 1994, the Company implemented a Supplemental Executive Retirement Plan (SERP) for a select group of management personnel to ensure that the Company's overall executive compensation program will attract, retain and motivate qualified senior management personnel. The participants receive benefits based on years of service and final compensation. This defined benefit plan is noncontributory and unfunded. The pension costs are determined actuarially and are based on the assumption that all eligible personnel will participate in the SERP. The net pension cost for the years ended December 31, 1997, 1996 and 1995 consists of the following:
December 31, -------------------------------------- 1997 1996 1995 ------------ ------------ ------------ (In thousands) Service costs of benefits earned $ 346 $ 391 $ 368 Interest cost on projected benefit obligation 428 422 387 Amortization of unrecognized prior service costs 284 284 284 ------------ ------------ ------------ $1,058 $1,097 $1,039 ============ ============ ============
-84- 9. EMPLOYEE BENEFIT PLANS (CONTINUED) The status of the defined benefit plan at December 31, 1997 and 1996 is as follows:
December 31, 1997 1996 ------------ ------------ (In thousands) Fair value of plan assets $ - $ - ------------ ------------ Actuarial present value of benefit obligation: Vested benefit obligation 2,871 2,489 Non-vested benefit obligation 1,566 1,210 ------------ ------------ Accumulated benefit obligation 4,437 3,699 Effect of projected future salary increases 1,199 1,955 ------------ ------------ Projected benefit obligation 5,636 5,654 ------------ ------------ Plan assets less than projected benefit obligation (5,636) (5,654) Unrecognized prior service costs 3,124 3,408 Unrecognized gain (1,092) (531) Adjustment to recognize minimum liability (833) (922) ------------ ------------ Accrued pension cost included in other liabilities ($ 4,437) ($ 3,699) ------------ ------------
Prior service costs to be recognized in income in future years of $833,000 and $922,000 at December 31, 1997 and 1996, respectively, are included in deposits and other assets in the Consolidated Balance Sheets. The assumptions used in computing the information above were as follows: 1997 1996 ------ ------ Discount rate 7.00% 7.25% Future compensation growth rate 4.50% 4.50% -85- 10. STOCK PLANS The Company has various incentive plans under which stock options or restricted shares may be granted to key employees, members of the Board of Directors and all other full and part- time employees. A total of 3,720,000 shares have been reserved for issuance as stock options or restricted shares under these plans. Restricted shares and options granted to key employees vest over a five-year period. All other options vest over a one- year period. The options are exercisable, subject to vesting, over ten years at option prices not less than 100% of the fair market value of the Company's common stock determined on the date of grant of the options. In addition, all unvested shares and options will vest upon a change in control of the Company. The Showboat Merger discussed at Note 16 would be considered a change in control of the Company. Unearned compensation in connection with restricted stock issued for future services is recorded on the date of grant at the fair market value of SBO's common stock and is being amortized ratably from the date of grant over the five-year vesting period as it is earned. Compensation expense of $1,066,000, $1,641,000, and $2,166,000 was recognized for the years ended December 31, 1997, 1996, and 1995, respectively. Unearned compensation has been shown as a reduction of shareholders' equity in the accompanying Consolidated Balance Sheets. The Company has four fixed option plans. Under the 1989 Long Term Incentive Plan, the Company may grant options and restricted shares to its employees for up to 600,000 shares of stock. Under the Directors Plan, the Company may grant options to the directors for up to 120,000 shares of stock. Under the 1994 Long Term Incentive Plan, the Company may grant options and restricted shares to its employees for up to 2,000,000 shares of stock. Under the 1992 Employee Plan, The Company may grant options and restricted shares to its employees for up to 1,000,000 shares of stock. As required by SFAS 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option- pricing model with the following weighted average assumptions: dividend yield of .34%, expected volatility of 45%, risk free interest rate of 5.60%, and expected life of 5 years for the options. -86- 10. STOCK PLANS (CONTINUED) A summary of the status of the Company's fixed stock option plans as of December 31, 1997, 1996 and 1995, and changes during the years then ended is presented below:
1997 1996 1995 Shares Shares Shares -------- -------- -------- (In thousands) Outstanding at beginning of year 1,444 1,646 1,916 Granted 342 306 240 Exercised (290) (355) (345) Forfeited (217) (153) (165) -------- -------- -------- Outstanding at end of year 1,279 1,444 1,646 ================================= Options exercisable at year-end 627 630 670 Weighted average fair value of options granted during the year $9.47 $11.49 $6.71
1997 1996 1995 -------- -------- -------- Weighted Weighted Weighted Avg. Avg. Avg. exercise exercise exercise price price price -------- -------- -------- Outstanding at beginning of year $19 $17 $17 Granted 20 25 15 Exercised 16 16 13 Forfeited 21 20 19 Outstanding at end of year $20 $19 $17
-87- 10. STOCK PLANS (CONTINUED) The following table summarizes information about fixed stock options outstanding at December 31, 1997:
Options Outstanding Options Exercisable - ---------------------------------------------------- ------------------------ Weighted Number Average Weighted Number Weighted Range of Outstanding Remaining Average Exercisable Average Exercise at Contractual Exercise at Exercise Price 12/31/97 Life Price 12/31/97 Price - ------------ ----------- ----------- -------- ----------- ---------- $ 7 to 8 47,000 2.2 years $8 47,000 $8 $15 to 19 228,000 6.9 15 181,000 15 $20 to 29 1,004,000 8.3 21 399,000 21 ----------- ----------- $7 to 29 1,279,000 7.8 $20 627,000 $19 =========== ===========
The Company applies APB Opinion No. 25 and related Interpretations in accounting for its fixed stock option plans. Accordingly, no compensation cost has been recognized for its fixed stock options plans. Had compensation cost for the Company's stock-based compensation plans been determined consistent with FASB Statements No. 123, the Company's net income (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below:
1997 1996 1995 ------------ ------------ ------------ (Thousands except for per share data) Net income as reported $(18,453) $6,003 $13,175 Pro forma $(19,281) $5,468 $12,988 Basic earnings per share: As reported $(1.14) $0.37 $0.85 Pro forma $(1.20) $0.34 $0.84 Diluted earnings per share: As reported $(1.14) $0.37 $0.84 Pro forma $(1.20) $0.33 $0.83
Pro forma net income reflects only options granted in 1997, 1996 and 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' vesting period of five years and compensation cost for options granted prior to January 1, 1995 is not considered. Also, the impact discussed above may not be indicative of the impact of future years. -88- 10. STOCK PLANS (CONTINUED) In 1996, the Company adopted a Stock Appreciation Rights Plan (the "Rights Plan"). The Rights Plan provides for the granting of stock appreciation rights ("Rights") to certain key employees of the Company. Holders of Rights will be entitled to receive from the Company cash in the amount equal to the excess, if any, of the market price of the common stock on the date of change in control of the Company (as defined in the Rights Plan) over the exercise price of the Rights. The Showboat Merger described at Note 16 would be considered a change in control of the Company. As of December 31, 1997, the Company had granted 640,000 stock appreciation rights to certain executive officers of the company at an exercise price of $24.58. 11. SHAREHOLDERS' EQUITY On October 5, 1995, the Board of Directors of the Company declared a dividend distribution of one Preferred Stock Purchase Right ("Right") for each outstanding share of common stock of the Company. The distribution was payable as of October 16, 1995 to stockholders of record on that date. Each Right entitles the registered holder to purchase from the Company one one-hundredth (1/100th) of a share of preferred stock of the Company, designated as a Series A Junior Preferred Stock at a price of $120.00 per one one-hundredth (1/100th) of a share. The Rights expire on October 5, 2005, unless earlier redeemed. The Company may redeem the rights in whole, but not in part, at a price of $.01 per Right. The Rights, unless earlier redeemed by the Company, will become exercisable following a public announcement that a person or group has acquired 15% or more of the common stock or has commenced (or announced an intention to make) a tender or exchange offer for 30% or more of the common stock. 200,000 shares of preferred stock have been reserved for issuance upon exercise of the Rights. The Company did not believe the Rights had a material value upon declaration of the dividend. Each share of Preferred Stock will be entitled to receive when, as and if declared, a quarterly dividend in an amount equal to the greater of $120.00 per share or 100 times the cash dividends declared on the Company's common stock. In the event of liquidation, the holders of Preferred Stock will be entitled to receive for each share of Series A Preferred Stock, a liquidation payment in an amount equal to the greater of $12,000.00 or 100 times the payment made per share of common stock. Each share of Preferred Stock will have 100 votes, voting together with the common stock. In the event of any merger, consolidation or other transaction in which common stock is exchanged, each share of Preferred Stock will be entitled to receive 100 times the amount received per share of common stock. The rights of Preferred Stock as to dividends, liquidation and voting are protected by anti-dilution provisions. -89- 12. SELECTED QUARTERLY DATA (UNAUDITED) Summarized unaudited financial data for interim periods for the years ended December 31, 1997 and 1996 are as follows:
Quarter Ended Year Ended --------------------------------------------- ---------------- 3/31/97 6/30/97 9/30/97 12/31/97 12/31/97 ----------- --------- ---------- ------------ ---------------- (In thousands except per share data) Net revenues $104,033 $149,305 $162,399 $141,079 $556,816 Income (loss)from operations 8,371 7,121 20,389 (9,780) 26,101 Net income (loss) 879 (1,999) 3,512 (20,845) (18,453) Net income (loss) per share - Basic .05 (0.12) 0.22 (1.30) (1.14) Net income (loss) per share - Diluted $.05 $(0.12) $0.22 $(1.30) $(1.14)
Quarter Ended Year Ended --------------------------------------------- ---------------- 3/31/96 6/30/96 9/30/96 12/31/96 12/31/96 ----------- --------- ---------- ------------ ---------------- (In thousands except per share data) Net revenues $102,590 $109,225 $122,242 $99,648 $433,705 Income from operations 8,439 10,082 16,593 7,007 42,121 Net income (loss) (801) 1,136 4,901 767 6,003 Net income (loss) per share - Basic (0.05) 0.07 0.30 0.05 0.37 Net income (loss) per share - Diluted $(0.05) $0.07 $0.30 $0.05 $0.37
All per share amounts have been recalculated in accordance with Statement 128. 13. SUPPLEMENTAL FINANCIAL INFORMATION A summary of additions and deductions to the allowance for doubtful accounts receivable for the years ended December 31, 1997, 1996, and 1995 follows:
Year Ended Balance at Balance at beginning end of of year Additions Deductions Year - ------------------------- ------------------ ----------- -------------- ----------- (In thousands) December 31, 1997 $2,417 $2,447 $1,781 $3,083 December 31, 1996 $2,681 $1,557 $1,821 $2,417 December 31, 1995 $2,400 $1,605 $1,324 $2,681
-90- 14. COMMITMENTS AND CONTINGENCIES On March 28, 1996, the Company's 55% owned subsidiaries, Showboat Marina Casino Partnership ("SMCP") and Showboat Marina Finance Corporation ("SMFC"), sold the East Chicago Notes to support the development of the East Chicago Showboat. Additionally, the Company contributed $40.7 million to SMCP through Intermediary Partnerships. The Company is eligible to receive a 12% preferred return on its $40.7 million investment, however, the payment of this return is subject to restrictions under the East Chicago Note Indenture. In addition to its $40.7 million investment, subject to certain qualifications and exceptions, the Company entered into a standby equity commitment with SMCP, pursuant to which it will cause to be made up to an aggregate of $30.0 million in additional capital contributions to SMCP if, during the first three full four fiscal quarters following the commencement of operations at the East Chicago Showboat, the project's combined cash flow (as defined) is less than $35.0 million for any one such full four quarter period. However, in no event will the Company be required to cause to be contributed to SMCP more than $15.0 million in respect of any such full four quarter period. The Company anticipates that the Combined Cash Flow of the East Chicago Showboat for the first full four quarters of operation will not achieve the $35.0 million threshold and that the Company will be required to contribute approximately $15.0 million under the standby equity commitment. As of March 12, 1998 the Company has contributed $1.0 million to the East Chicago Showboat as part of this standby equity commitment. There can be no assurance that the Combined Cash Flow for any future Operating Year will exceed $35.0 million and that the Company will not be required to make additional contributions to the East Chicago Showboat in accordance with the standby equity commitment. The Company and Rockingham Venture, Inc. ("RVI"), which owns the Rockingham Park, a thoroughbred racetrack in New Hampshire, entered into agreements to develop and manage any additional gaming that may be authorized at Rockingham Park. In December 1994, the Company loaned RVI approximately $8.9 million, bearing interest at 8.3%, which loan is secured by a second mortgage on Rockingham Park. At this time, casino gaming is not permitted in the State of New Hampshire. If casino gaming is legalized, the Company will, at a minimum, contribute the promissory note as a capital contribution to a joint venture. Should enabling legislation permit more than 500 slot machines or any combination of slot machines and table games, then the Company, subject to available financing, will contribute funds not to exceed 30% of cash funds required for the project. At this time, the cost of the project has not been determined. On November 3, 1997, SMCP amended its agreement with Riverboat Services, Inc. ("RSI") whereby RSI will operate and maintain the riverboat. RSI will be reimbursed for all expenses and will receive a management fee of $60,000 per month. The initial term of the agreement is five years commencing January 1997, with two renewal periods of five years each at the option of RSI. The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial statements taken as a whole. -91- 15. SUBSEQUENT EVENT On January 28,1998, a special purpose subsidiary of the Company borrowed $100.0 million from Column Financial, Inc. to acquire 10 1/2 leased acres of real property ("the Atlantic City Property") located at 801 Boardwalk, Atlantic City, New Jersey and the lease pursuant to which the Atlantic City Property was leased to Atlantic City Showboat, Inc.("ACSI") from Sun International, Inc. for a total purchase price of $110.0 million. The loan will mature on February 1, 2028. Interest accrues on the loan at an interest rate of 7.09% until February 1, 2008, at which time, unless paid off as of such date, the loan will accrue a second tranche of interest at a rate equal to the lesser of (i) the positive excess (if any) of (A) the 20 year Treasury Rate plus 2.0% per annum over (B) 7.09%, and (ii) 5.0% per annum. The loan is secured by the Atlantic City Property. 16. SHOWBOAT MERGER On December 18, 1997, the Company entered an Agreement and Plan of Merger (the "Showboat Merger Agreement") with Harrah's Entertainment, Inc., a Delaware corporation ("Harrah's"), and HEI Acquisition Corp., a Nevada corporation and wholly owned subsidiary of Harrah's ("Harrah's Sub"), whereby the Company would merge into Harrah's Sub and consequently become a wholly owned subsidiary of Harrah's (the "Showboat Merger" ). The Company will hold a special meeting of shareholders on April 23, 1998 for the Company's shareholders to consider the Showboat Merger. If the Showboat Merger is approved by Showboat Shareholders, and other conditions to the Showboat Merger are satisfied or waived, articles of merger will be filed with the Nevada Secretary of State and the Company's shareholders will become entitled to receive $30.75 in cash per share of common stock of the Company held (the day of the filing of the articles of merger is hereafter referred to as the "Closing Date"). In the event the Company's shareholders approve the merger, the Company expects to complete the merger by the end of the second quarter of 1998. -92- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The following information is furnished with respect to each member of the Board of Directors, each of whom, unless otherwise indicated, has served as a director continuously since the year shown opposite his or her name. Similar information is presented for the executive officers who are not directors. There are no family relationships between or among any of the Company's directors or executive officers, except J.K. Houssels and Jeanne S. Stewart formerly were married and are the parents of J. Kell Houssels, III. IDENTIFICATION OF DIRECTORS
DIRECTOR NAME AND POSITION WITH THE COMPANY AGE SINCE BACKGROUND INFORMATION - ------------------------------------------------------------------------------------------------------- J.K. HOUSSELS 75 1960 Until May 1994, President and Chief Chairman of the Board of the Executive Officer of the Company; since Company, Showboat Operating November 1974, Vice Chairman of the Company and Ocean Showboat, Board of Directors of Union Plaza Hotel Inc.; Director of the Company and Casino, Inc., Las Vegas, Nevada. and all subsidiaries. WILLIAM C. RICHARDSON 71 1972 Independent financial consultant, Los Director of the Company and Angeles, California; since January Ocean Showboat, Inc. 1986, arbitrator and mediator for the American Arbitration Association and self regulatory organizations. JOHN D. GAUGHAN 77 1978 Since November 1974, Chairman of the Director of the Company and Board and President of Exber, Inc., all subsidiaries. doing business as the El Cortez Hotel and the Western Hotel and Casino, Las Vegas, Nevada; since 1986, Chairman of the Board of Union Plaza Hotel and Casino, Inc., Las Vegas, Nevada. JEANNE S. STEWART 75 1979 Retired attorney, Las Vegas, Nevada. Director of the Company and Ocean Showboat, Inc. FRANK A. MODICA 70 1980 Until May 1995, Chairman of the Board Director of the Company and of Atlantic City Showboat, Inc.; until all subsidiaries. February 1995, Executive Vice President and Chief Operating Officer of the Company and President and Chief Executive Officer of Showboat Operating Company; since January 1995 Director Emeritus of First Security Bank, Las Vegas, Nevada; until December 1994 Director of First Security Bank; Director of the Professional Bowlers Association since June 1996; and Director Monarch Casino & Resort, Inc. since April 1997. H. GREGORY NASKY 55 1983 From October 1993 to February 1995, Executive Vice President Managing Director and Chief Executive of the Company and Showboat Officer of Showboat Australia Pty Operating Company; Presi- Limited; from March 1994 to February dent and Chief Executive 1995, Chief Executive Officer and Officer of Showboat Managing Director of Sydney Harbour Development Company; Casino; since March 1994, of counsel Secretary and Director of to the law firm Kummer Kaempfer Bonner the Company and all & Renshaw, Las Vegas, Nevada, outside subsidiaries. legal counsel to the Company; until February 1994, member of the law firm of Vargas & Bartlett, Las Vegas and Reno, Nevada, previous general counsel to the Company. J. KELL HOUSSELS, III 48 1983 From May 1993 to May 1995, President President and Chief and Chief Executive Officer of Showboat Executive Officer of the Development Company; from May 1993 to Company and Ocean June 1994, President and Chief Showboat, Inc.; Vice Executive Officer of Atlantic City Chairman of Showboat Showboat, Inc.; from January 1990 to Operating Company; May 1994, Vice President of the Director of Showboat, Inc. Company; from November 1990 to May and all subsidiaries; 1995, Executive Vice President of Chairman of the Board of Ocean Showboat, Inc.; from January Atlantic City Showboat, 1990 to May 1993, President and Chief Inc., Showboat Development Operating Officer of Atlantic City Company and Showboat Showboat, Inc. Marina Finance Corporation; Chairman of the Executive Committee of Showboat Marina Partnership. GEORGE A. ZETTLER 70 1986 Since February 1994, President of Director of the Company and Zimex, Redondo Beach, California; Ocean Showboat, Inc. until January 1994, President World Trade Services Group, Long Beach, California. CAROLYN M. SPARKS 56 1991 Co-owner of International Insurance Director of the Company Services, Las Vegas, Nevada; since and Ocean Showboat, Inc. 1988, Director of Southwest Gas Corporation; from 1988 to July 1996, Director of PriMerit Bank - Federal Savings Bank, Las Vegas, Nevada; from 1984 to December 1996, Regent, University and Community College System of Nevada. Positions held with the Company and any other business experience since 1993 and other directorships in companies with a class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended ("Exchange Act") or subject to the requirements of Section 15(d) of the Exchange Act and in companies registered under the Investment Company Act of 1940. Mr. Gaughan also owns the Nevada Hotel and Casino, the Gold Spike Inn and Casino, and a controlling interest in the Las Vegas Club Hotel & Casino, each of which is located in Las Vegas, Nevada. Showboat Marina Casino Partnership and Showboat Marina Finance Corporation, each an affiliate of the Company, have a class of securities registered under Section 12 of the Exchange Act.
NON-DIRECTOR EXECUTIVE OFFICERS R. Craig Bird, 51, has been the Chief Financial Officer of the Company since January 1996; the Executive Vice President, Strategic Financing/Investor Relations of the Company and Showboat Operating Company since November 1997; Chief Financial Officer of Showboat Operating Company since May 1996; Executive Vice President-Finance and Administration and Chief Financial Officer of Showboat Development Company since October 1993; Vice President-Financial Administration of Ocean Showboat, Inc. since May 1996. Mr. Bird was the Executive Vice President-Finance and Administration of the Company from June 1994 to November 1997; the Executive Vice President-Finance and Administration and Treasurer of Showboat Operating Company from May 1996 until November 1997; Vice President-Financial Administration of Atlantic City Showboat, Inc. from March 1990 to October 1993. He serves at the pleasure of the respective board of directors. Mark J. Miller, 41, has been the Executive Vice President Financial Administration of the Company and Showboat Operating Company since November 1997; Vice President-Finance of Ocean Showboat, Inc. since April 1988; Vice President-Finance and Chief Financial Officer of Ocean Showboat, Inc. since April 1991. Mr. Miller has also been a member of the Executive Committee of Showboat Marina Casino Partnership(1) and a Director and the Treasurer of Showboat Marina Finance Corporation(1) since March 1996. Mr. Miller previously served as the Executive Vice President-Operations of the Company from June 1995 until November 1997 and as the Executive Vice President-Operations of Showboat Operating Company from May 1996 to November 1997. From July 1994 to June 1995, Mr. Miller served as President and Chief Executive Officer of Atlantic City Showboat, Inc. From October 1993 to July 1994, Mr. Miller served as Executive Vice President and Chief Operating Officer of Atlantic City Showboat, Inc. and he was Vice President-Finance and Chief Financial Officer of Atlantic City Showboat, Inc. -95- from December 1988 to October 1993. He serves at the pleasure of the respective boards of directors. Paul S. Harris, 62, has been Executive Vice President-Human Resources of the Company since May 1995 and Executive Vice President-Human Resources of Showboat Operating Company since May 1996. Mr. Harris previously served as Senior Vice President- Human Resources of the Company from June 1994 to May 1995 and as Vice President-Organization and Development of Atlantic City Showboat, Inc. from July 1988 to June 1994. He serves at the pleasure of the respective boards of directors. Herbert R. Wolfe, 57, has been President and Chief Executive Officer of Atlantic City Showboat, Inc. since June 1995; Executive Vice President and Chief Operating Officer of Atlantic City Showboat, Inc. from July 1994 to May 1995; Senior Vice President of Marketing of Atlantic City Showboat, Inc. from April 1991 to July 1994. He serves at the pleasure of the board of directors of Atlantic City Showboat, Inc. J. Keith Wallace, 56, has been President and Chief Executive Officer of Showboat Operating Company since February 1998. Mr. Wallace previously served as President and Chief Executive Officer of Showboat Marina Casino Partnership(1) from March 1996 until February 1998, and Showboat Indiana, Inc. from January 1996 until February 1998. Mr. Wallace served as a Member of the Executive Committee of Showboat Marina Casino Partnership and a Director of Showboat Marina Finance Corporation(1)from March 1996 until February 1998. From February 1995 to January 1996, Mr. Wallace was the President and Chief Executive Officer of Showboat Operating Company. From May 1993 to February 1995, he was the President and Chief Executive Officer of Lake Pontchartrain Showboat, Inc. and Showboat Louisiana, Inc. From June 1993 to February 1995, Mr. Wallace served as Executive Vice President and Chief Operating Officer of Showboat Louisiana, Inc. and Lake Pontchartrain Showboat, Inc., respectively. From August 1990 to April 1993, Mr. Wallace was the Vice President and General Manager of Showboat Operating Company. He serves at the pleasure of the respective boards of directors. Carlton L. Geer, 44, has been President and Chief Executive Officer of Showboat Marina Casino Partnership(1) and Showboat Indiana, Inc., Member of the Executive Committee of Showboat Marina Casino Partnership and Director of Showboat Marina Finance Corporation(1) since February 1998. Mr. Geer previously served as President and Chief Executive Officer of Showboat Operating Company from August 1996 until February 1998. From December 1983 to April 1996, Mr. Geer held various positions with Peppermill Hotel Casino, Reno, Nevada, including General Manager from June 1993 to April 1996 and Executive Vice President of Hospitality Operations from September 1989 to June 1993. He serves at the pleasure of the respective board of directors. Mark A. Clayton, 32, has been Vice President and General Counsel of the Company and Assistant Secretary of the Company and its subsidiaries since July 1995 and the Assistant -96- Secretary of Showboat Marina Finance Corporation(1) since March 1996. Since June 1996, Mr. Clayton has served as a member of the Silicon Gaming, Inc. Compliance Committee. Mr. Clayton served as Chief of Corporate Securities Division of the Nevada State Gaming Control Board from October 1993 to June 1995; and as Deputy Chief from May 1993 to October 1993. From October 1990 to April 1993, Mr. Clayton was an associate of the law firm of Vargas & Bartlett, the previous general counsel to the Company. He serves at the pleasure of the respective boards of directors. M. Brad Straub, 43, has been Vice President-Finance and Treasurer of the Company since May 1996; Treasurer of Showboat Development Company since May 1997. Mr. Straub served as Vice President-Finance of Showboat Development and Management Services Division for Showboat Operating Company since November 1993. Mr. Straub previously served as Director of Financial Administration of the Atlantic City Showboat from April 1993 to November 1993. From May 1989 to April 1993, Mr. Straub served as Director of Internal Audit of the Atlantic City Showboat. He serves at the pleasure of the respective boards of directors. Randy L. Taylor, 35, has been Vice President-Taxation, Assistant Treasurer and Internal Revenue Service Representative of the Company since May 1996. Mr. Taylor served as Director of Corporate Taxation of the Company from October 1994 to April 1996. From July 1984 to September 1994, Mr. Taylor held various positions with KPMG Peat Marwick LLP, the Company's independent public accountant, including Senior Tax Manager from July 1991 to September 1994. He serves at the pleasure of the respective boards of directors. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the Company's directors and executive officers, and persons who own more than ten percent of the Common Stock, to file with the United States Securities and Exchange Commission and the New York Stock Exchange initial reports of ownership and reports of changes in ownership of Common Stock. Directors, executive officers and greater than ten percent shareholders are required by United States Securities and Exchange Commission regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 1997, all Section 16(a) filing requirements were complied with. ITEM 11. EXECUTIVE COMPENSATION. The following tables set forth compensation received by J. Kell Houssels, III, the Company's President and Chief Executive Officer, and the four other highest paid executive (1) Showboat Marina Casino Partnership and Showboat Marina Finance Corporation, each an affiliate of the Company, have a class of securities registered pursuant to Section 12 of the Exchange Act. -97- officers of the Company during the last fiscal year, for each year of the three-year period ended December 31, 1997 for services rendered in all capacities to the Company and its subsidiaries:
SUMMARY COMPENSATION TABLE LONG-TERM COMPENSATION ----------------------------------------- AWARDS PAYOUTS ---------------------------- ------------ OTHER ANNUAL RESTRICTED SECURITIES LONG-TERM ALL OTHER ANNUAL COMPENSATION COMPENSATION STOCK UNDERLYING INCENTIVE COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS ($) ($) AWARDS($) OPTIONS/SARS PAYOUTS($) ($) - --------------------------- ---- --------- --------- ------------ ---------- ---------------- ---------- ---------------- J. Kell Houssels, III 1997 397,917 209,585 0 0 0/0 39,500 951,329 President and Chief Executive 1996 350,000 160,449 0 0 0/113,446 49,000 21,160 Officer 1995 327,640 239,891 0 0 0/0 30,000 20,860 J.K. Houssels 1997 200,000 104,793 0 0 0/0 39,500 722,236 Chairman of the Board 1996 200,000 95,081 0 0 0/74,439 49,000 20,121 1995 200,000 146,940 0 0 0/0 30,000 31,112 H. Gregory Nasky 1997 349,750 94,471 0 0 0/0 29,625 704,918 Executive Vice President 1996 325,000 92,564 0 0 0/73,315 36,750 21,657 1995 325,000 174,875 0 0 0/0 22,500 24,575 Herbert R. Wolfe 1997 275,185 258,885 0 0 0/0 29,625 25,910 President and Chief Executive 1996 263,035 199,086 0 0 0/79,205 36,750 23,341 Officer of Atlantic City 1995 244,536 224,712 0 0 20,000/0 22,500 16,077 Showboat, Inc. R. Craig Bird 1997 253,500 94,471 0 0 0/0 29,625 349,410 Executive Vice President- 1996 242,333 91,156 0 0 0/69,240 36,750 6,841 Strategic Financing/Investor 1995 229,169 178,661 0 0 0/0 22,500 11,374 Relations and Chief Financial Officer Mark J. Miller 1997 261,000 94,471 0 0 0/0 29,625 340,670 Executive Vice President- 1996 254,000 87,376 0 0 0/71,952 36,750 11,786 Financial Administration 1995 239,155 177,580 0 0 0/0 22,500 11,981 Amounts represented in this column were received by the named individuals under the Company's 1994 Executive Long Term Incentive Plan ("1994 Plan"). The restricted shares granted under the 1994 Plan vest over a five-year period, with the last of the restricted shares of Common Stock vesting in March 1999; provided, however, that vesting on all such restricted shares will accelerate to the date of any change in control of the Company. Amounts represented in this column equal the number of shares of Common Stock underlying the stock options and stock appreciation rights granted to the named individuals under the 1994 Plan and the Showboat, Inc. 1996 Stock Appreciation Rights Plan, respectively. On December 31, 1997 the Company made payment of a one- time special bonus to certain officers and employees of the Company who were instrumental in (a) obtaining the license for Sydney Harbour Casino and Star City, (b) overseeing the development and operations of Sydney Harbour Casino and Star City, and (c) successfully opening the Sydney Harbour Casino and Star City. Sydney Harbour Casino and Star City were built by SHCH, of which the Company is a 24.6% shareholder, and is managed by Subsidiaries of the Company. The special bonus (the "Sydney Bonus") was paid in recognition of (i) the aforementioned roles played by the individual recipients of the Sydney Bonus and (ii) the fact that the recipient had foregone portions of prior Bonuses that would have otherwise been payable to them while Star City was being constructed. This amount represents the vesting of 2,000 shares under the 1994 Plan in the identified year. Of this amount, $7,448 represents excess coverage life insurance and medical reimbursement costs; $43,640 represents the Company's contribution to Mr. Houssels, III's 401(k) and Restoration Plan account and $900,241 represents the Sydney Bonus. Of this amount, $30,754 represents excess coverage life insurance and medical reimbursement costs; $4,551 represents the Company's contribution to Mr. Houssel's 401(k); and $686,931 represents the Sydney Bonus. This amount represents the vesting of 1,500 shares under the 1994 Plan in the identified year. Of this amount, $11,955 represents excess coverage life insurance and medical reimbursement costs; $33,118 represents the Company's contribution to Mr. Nasky's 401(k) and Restoration Plan account and $659,845 represents the Sydney Bonus. Of this amount, $11,503 represents excess coverage life insurance and $14,407 represents the Company's contribution to Mr. Wolfe's 401(k) and Restoration Plan account. Of this amount, $8,937 represents excess coverage life insurance and medical reimbursement costs; $19,997 represents the Company's contribution to Mr. Bird's 401(k) and Restoration Plan account; and $320,476 represents the Sydney Bonus. Of this amount, $7,961 represents excess coverage life insurance and medical reimbursement costs; $19,967 represents the Company's contribution to Mr. Miller's 401(k) and Restoration Plan account; and $312,742 represents the Sydney Bonus.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE- OPTIONS/SARS AT MONEY OPTIONS/SARS AT DECEMBER 31, 1997 (#) DECEMBER 31, 1997 ($) ---------------------------- ----------------------------------- SHARES ACQUIRED ON VALUE NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------------------------------------------------------------------------------------------------------ J. Kell Houssels, III 56,000 909,193 0/0 16,000/113,446 0/0 146,000/543,974 J.K. Houssels 44,000 649,437 0/0 16,000/74,439 0/0 146,000/356,935 H. Gregory Nasky 27,000 339,063 0/0 12,000/73,315 0/0 109,500/351,545 R. Craig Bird 28,000 378,931 0/0 12,000/69,240 0/0 109,500/332,006 Mark J. Miller 28,000 378,250 0/0 12,000/71,952 0/0 109,500/345,009 Herbert R. Wolfe 10,000 123,262 0/0 12,000/79,205 0/0 132,500/379,788 - ------------------------------------------------------------------------------------------------------------------------ Based on the CLOSING BID PRICE of the Company's Common Stock of $29 3/8 per share on December 31, 1997, the last trading day in 1997, minus the exercise price of "in-the- money" options and stock appreciation rights, respectively. Based on the Showboat Merger consideration, $30.75, minus the exercise price of the options and stock appreciation rights, the value of unexercisable options and stock appreciation rights for J. Kell Houssels, III, J.K. Houssels, H. Gregory Nasky, R. Craig Bird, Mark J. Miller and Herbert R. Wolfe would be $168,000/$699,962, $168,000/$459,289, $126,000/$452,354, $126,000/$427,211, $126,000/$443,944 and $149,000/$488,695, respectively.
PENSION PLAN TABLE The Company maintains the Supplemental Executive Retirement Plan (the "SERP"), a nonqualified plan for highly compensated employees whose retirement benefits are restricted by limitations of the Internal Revenue Code of 1986, as amended (the "Code") concerning qualified plans such as the 401(k) Plan. In general, a participant will receive a retirement benefit under the SERP equal to a percentage of his final average pay times such participant's years of service up to 15 years, less any benefits payable to such participant under the federal Social Security Act, the 401(k) Plan, or under any stock plan of the Company, with final average compensation being the average of such participant's annual compensation (base salary plus bonus) for his last three consecutive years of service. A participant becomes vested in his benefits under the SERP upon the participant's 65th birthday or upon the participant's completion of 10 years of service if the participant is at least 55 years of age. The following table shows, as of December 31, 1997, the approximate annual retirement benefits under the SERP to eligible employees in specified compensation and years of service categories, assuming retirement occurs at age 65 and that benefits are payable only during the employee's lifetime. The estimated retirement benefits provided in the table have not been reduced by the amount of benefits payable to an individual participant under the federal Social Security Act, the 401(k) Plan, or any stock plan of the Company. -99-
3-YEARS FINAL ESTIMATED ANNUAL BENEFIT ($) AVERAGE COMPENSATION YEARS OF SERVICE AT AGE 65 __________________________ _______________________________________________________________ 10 15 20 25 30 35 ________ ________ ________ ________ ________ ________ 125,000...................... 41,667 62,500 62,500 62,500 62,500 62,500 150,000...................... 50,000 75,000 75,000 75,000 75,000 75,000 175,000...................... 58,333 87,500 87,500 87,500 87,500 87,500 200,000...................... 66,667 100,000 100,000 100,000 100,000 100,000 225,000...................... 75,000 112,500 112,500 112,500 112,500 112,500 250,000...................... 83,333 125,000 125,000 125,000 125,000 125,000 300,000...................... 100,000 150,000 150,000 150,000 150,000 150,000 400,000...................... 133,333 200,000 200,000 200,000 200,000 200,000 450,000...................... 150,000 225,000 225,000 225,000 225,000 225,000 500,000...................... 166,667 250,000 250,000 250,000 250,000 250,000
The years of service for certain employees as of December 31, 1997, are as follows: Mr. Houssels III, 12 years; Mr. Houssels, 45 years, Mr. Nasky, 4 years; Mr. Wolfe, 10 years, Mr. Bird, 12 years; Mr. Miller, 12 years. No benefits have vested under the SERP with respect to any of the five named executive officers. Upon the consummation of the Showboat Merger, it is anticipated that the SERP would be terminated and only the participants who are receiving benefits or are eligible to receive benefits upon their retirement, will continue to be entitled to such benefits. In addition, the Showboat Merger Agreement requires the surviving corporation to provide retirement benefits to one executive officer who is expected to be eligible for retirement benefits under the SERP on or about September 1, 1998. SEVERANCE AGREEMENTS The Company has severance agreements (collectively, the "Severance Agreements") with several of its executive officers (individually an "Employee" and collectively the "Employees"). The Severance Agreements are with, among others, J.K. Houssels, Chairman of the Board of the Company; J. Kell Houssels, III, President and Chief Executive Officer of the Company; H. Gregory Nasky, Executive Vice President of the Company; R. Craig Bird, Executive Vice President, Strategic Financing/Investor Relations and Chief Financial Officer of the Company; Paul S. Harris, Executive Vice President-Human Resources of the Company; Mark J. Miller, Executive Vice President, Financial Administration of the Company; and Herbert R. Wolfe, President and Chief Executive Officer of Atlantic City Showboat, Inc. The Severance Agreements are renewed, unless terminated, on an annual basis. The Severance Agreements provide for severance benefits if the Employee is terminated by the Company or any subsidiary of the Company (other than for cause or by reason of the Employee's retirement, death or disability) or by the Employee for Good Reason (as defined in the Severance Agreements) within 24 months after a Change in Control (as defined in the Severance -100- Agreements) or by the Employee for any reason other than Good Reason within one year after a Change in Control or, in the case of Mr. Houssels or Mr. Houssels, III, if either of their employments are terminated for any reason, except death, within 12 months after a Change in Control. The approval by the Company's stockholders of the Showboat Merger would constitute a Change of Control. Each Severance Agreement provides that, in the event of a Potential Change in Control (as defined in the Severance Agreements), the Employee will not voluntarily resign, subject to certain conditions, for at least six months after the occurrence of such Potential Change in Control (or, if earlier, the date of the Change in Control). The signing of the Showboat Merger Agreement constituted a Potential Change of Control. The Severance Agreements provide for: (i) a lump-sum payment equal to 200% of the Employee's annual salary if his employment was terminated by the Company or any subsidiary of the Company (other than for cause or by reason of the Employee's retirement, death or disability) or by the Employee for Good Reason or 100% of the Employee's annual salary if his employment was terminated by the Employee for any reason other than Good Reason (or, in the case of Mr. Houssels or Mr. Houssels, III, 300% of his annual salary in the case of termination for any reason except death), plus 200% of the average bonuses awarded to the Employee for the three fiscal years preceding the Employee's termination if his employment was terminated by the Company or any subsidiary of the Company (other than for cause or by reason of the Employee's retirement, death or disability) or by the Employee for Good Reason or 100% of the average bonuses awarded to the Employee for the three fiscal years preceding his termination if his employment was terminated by the Employee for any reason other than Good Reason (or, in the case of Mr. Houssels or Mr. Houssels, III, 300% of his average bonus for the three fiscal years preceding his termination in the case of termination for any reason except death), (ii) the reimbursement of legal fees and expenses incurred by the Employee in seeking to enforce the Employee's rights under the Severance Agreement and (iii) continuation of the benefit of life, disability, accident and health insurance benefits, substantially similar to those which the Employee is receiving immediately prior to termination, for the duration of the Severance Period (as defined in the Severance Agreements). In addition, in the event that payments to the Employee pursuant to the Employee's Severance Agreement would subject such Employee to an excise tax under the Code, the Employee may reduce his severance benefits to an amount below the amount which would require the Employee to pay such tax. The Severance Agreements also provide that the Employee will receive additional service credit of up to two years under the SERP (as defined below) upon termination of employment following a change in control. Based on the compensation levels as of December 31, 1997, assuming a Change in Control of the Company and a subsequent termination within 12 months for any reason except death, J.K. Houssels and J. Kell Houssels, III would be entitled to receive a maximum lump- -101- sum payment of $931,542 and $1,809,852 respectively, under their Severance Agreements. Based on compensation levels as of December 31, 1997, assuming a Change in Control of the Company and a subsequent termination by the Company (other than for cause or by reason of the Employee's retirement, death or disability) or by the Employee for Good Reason within 24 months, the following Employees would be entitled to receive maximum lump-sum payments, under the Severance Agreements in the following amounts: H. Gregory Nasky $990,146, R. Craig Bird $767,876, Mark J. Miller $783,216 and Herbert R. Wolfe $968,184. Based on compensation levels as of December 31, 1997, assuming a Change in Control of the Company and a subsequent termination by the Employee for any reason other than Good Reason within one year, the following Employees would be entitled to receive maximum lump-sum payments under the Severance Agreements in the following amounts: H. Gregory Nasky $495,073, R. Craig Bird $383,938, Mark J. Miller $391,608 and Herbert R. Wolfe $484,092. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company's executive compensation is generally determined by the Board of Directors upon the recommendation of the Compensation Committee. No member of the Compensation Committee in 1997 was an officer of the Company. Throughout 1997, the Compensation Committee consisted of Mr. Richardson and Mr. Zettler. COMPENSATION OF NON-EMPLOYEE DIRECTORS REMUNERATION OF NON-EMPLOYEE DIRECTORS For 1997, each non-employee director received a retainer of $4,000 per quarter plus attendance fees of $3,500 per scheduled meeting attended and $850 for a special meeting attended. Such fees are paid by the Company and Ocean Showboat, Inc., as applicable. In addition, non-employee members of each committee are paid $850 for each committee meeting attended. Only non- employee directors receive the retainer or attendance fees. Reasonable out-of-pocket expenses incurred in attending scheduled meetings are reimbursed as to all directors. The Company has agreed to continue to pay director fees to each of its non-employee directors (at an annual rate of $50,000) for the longer of the remainder of 1998 or six months following the effective time of the Showboat Merger. Each of the non- employee directors will be offered health insurance, in substantially the form currently provided, for a period of up to five years after the effective time of the Showboat Merger. 1989 DIRECTORS' STOCK OPTION PLAN The Company maintains a director stock option plan entitled the 1989 Directors' Stock Option Plan ("Option Plan"). The Option Plan is designed to encourage non-employee directors to take a long-term view of the affairs of the Company; to attract and retain new superior non-employee directors; and to aid in compensating non-employee directors for their services to the Company. The Company's non-employee directors are William C. Richardson, John D. Gaughan, Jeanne S. Stewart, Frank A. Modica, George A. Zettler and Carolyn M. Sparks. Stock options granted under the Option Plan are intended to be designated non-qualified options or options not qualified as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended. Subject to adjustment by reason of stock dividend or split or other similar capital adjustments, an aggregate of 120,000 shares of Common Stock are reserved for issuance under the Option Plan. The administration of the Option Plan is carried out by a committee ("Committee") consisting of not less than two non-employee directors of the Company selected by and serving at the pleasure of the Company's Board of Directors. The Committee, unless permitted by holders of the majority of outstanding Common Stock, shall not have any discretion to determine or vary any matters which are fixed under the terms of the Option Plan. Fixed matters include, but are -102- not limited to, which non-employee directors shall receive awards, the number of shares of the Common Stock subject to each option award, the exercise price of any option, and the means of acceptable payment for the exercise of the option. The Committee shall have the authority to otherwise interpret the Option Plan and make all determinations necessary or advisable for its administration. All decisions of the Committee are subject to approval of the Company's Board of Directors. Current members of the Committee are Mr. Richardson and Mr. Zettler. Under the terms of the Option Plan, each option shall be exercisable in full one year after the date of grant. Unless special circumstances exist, each option shall expire on the later of the tenth anniversary of the date of its grant or two years after the non-employee director retires. Each non-employee director initially receives a one-time option to purchase 5,000 shares of Common Stock following his or her election to the Board of Directors or for those employee directors who became non- employee directors upon retirement as an employee such one-time option will be received at the next special or annual meeting, even if the non-employee director is not then a candidate to re- election to the Board of Directors. Thereafter, each non- employee director receives a grant to purchase 1,000 shares of Common Stock each year, until the shares reserved for the Option Plan are exhausted or until the Option Plan otherwise expires. The option exercise price is the greater of $7 5/8 or the fair market value, as defined under the Option Plan, of the Common Stock on the date such options are granted. The per share exercise price of options granted during 1997 pursuant to the Option Plan was $20 1/2. As of December 31, 1997, options representing 93,000 shares of Common Stock have been granted to the current six non-employee directors and two former non-employee directors and a director who has since become an employee. As of December 31, 1997, 34,000 options had been exercised under the Option Plan. Of the outstanding options remaining, options representing 53,000 shares of Common Stock are currently exercisable. The balance may not be exercised until May 29, 1998. EXECUTIVE MEDICAL REIMBURSEMENT PLAN The Company maintains a supplemental executive medical reimbursement plan entitled the Executive Medical Reimbursement Plan ("Reimbursement Plan"). The Reimbursement Plan provides directors, employee and non-employee, up to $5,000 in additional taxable health benefits for medical expenses not otherwise covered under the Company's regular health plan. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth the number of shares of Common Stock of the Company and the number of shares of Common Stock of the Company subject to options beneficially owned by the Company's directors and those executive officers named in the Summary Compensation Table, by all directors and executive officers as a group, and by persons beneficially owning more than 5% of the outstanding Common Stock at the close of business on March 17, 1998. The address for all directors and executive officers of the Company is: Showboat, Inc., 2800 Fremont Street, Las Vegas, Nevada 89104. Security ownership was verified with filings with the Securities and Exchange Commission -103- received by the Company, and according to individual verification as of March 17, 1998, which the Company solicited and received from certain beneficial owners listed in the following table:
Name Amount and Nature of Beneficial Ownership ______________________________________________________________________________________________________________________________ Number of Shares Beneficially Owned Number of Shares Total Number Excluding Shares Subject to Options of Shares Subject to Options Beneficially Owned Beneficially Owned Percent _______________________________________________________________________________________ J.K. Houssels 1,137,087 16,000 1,153,087 7.0 William C. Richardson 6,000 13,000 19,000 * John D. Gaughan 174,824 13,000 187,824 1.1 Jeanne S. Stewart 376,686 13,000 389,686 2.4 Frank A. Modica 0 7,000 7,000 * H. Gregory Nasky 15,827 12,000 27,827 * J. Kell Houssels, III 131,717 16,000 147,717 * George A. Zettler 3,405 7,000 10,405 * Carolyn M. Sparks 217,206 6,000 223,206 1.4 Herbert R. Wolfe 4,550 12,000 16,550 * R. Craig Bird 16,350 12,000 28,350 Mark J. Miller 12,700 12,000 24,700 All directors and executive officers as a group (19 persons) 2,142,052 289,000 2,431,052 14.5 Bankers Trust New York Corporation 1,109,870 0 1,109,870 6.7 FMR Corp. 1,160,000 0 1,160,000 7.0 ____________________ *Beneficial ownership does not exceed 1% of the outstanding Common Stock. Unless otherwise specifically stated herein, each person has sole voting power and sole investment power as to the identified Common Stock ownership. Shares subject to will all become exercisable under the Showboat Merger Agreement. Mr. Houssels may be deemed to be a control person. Mr. Houssels is the Chairman of the Board of the Company. Mr. Houssels' shareholdings include 11,450 shares held in his individual retirement account and 1,119,637 shares as a trustee of the J.K. and Nancy Houssels 1992 Trust No. 1. He disclaims beneficial ownership of 7,000 shares owned by his wife and 35,700 shares beneficially owned by dependent children pursuant to the J.K. Houssels, Jr. 1976 Trust Agreement and such shares are excluded from this table. In connection with the Showboat Merger Agreement, on December 18, 1997 certain individual stockholders of the Company executed Stockholder Support Agreements, pursuant to which these individuals agreed to (i) vote all of their shares in favor of the Showboat Merger; and (ii) subject to certain limited exceptions, refrain from directly or indirectly transferring or disposing of any portion of their shares. Mr. Gaughan's shareholdings include 86,000 shares held by Exber, Inc., a Nevada corporation controlled by Mr. Gaughan. Mr. Nasky is an Executive Vice President and Secretary of the Company. Mr. Nasky's shareholdings include 1,302 shares owned by Mr. Nasky's wife over which he does not have voting or investment power. Mr. Houssels, III is the President and Chief Executive Officer of the Company. Mr. Houssels, III's shareholdings include 35,700 shares beneficially owned by him as trustee of the J.K. Houssels, Jr. 1976 Trust Agreement. Mrs. Sparks' shareholdings include 41,635 shares beneficially owned by her as co-trustee of the Fred L. Morledge and Malvina W. Morledge Family Trust and 161,563 shares beneficially owned by her as co-trustee of the Sparks Family Trust; and 7,000 shares beneficially owned as custodian for her daughter. Mr. Wolfe is the President and Chief Executive Officer of Atlantic City Showboat, Inc. Mr. Bird is the Executive Vice President Strategic Financing/Investor Relations and Chief Financial Officer of Showboat, Inc. Mr. Miller is the Executive Vice President Financial Administration of Showboat, Inc. Bankers Trust New York Corporation ("BTNYC"), the parent holding company of Bankers Trust Company and indirect parent holding company of BT Australia Limited, reported on a Schedule 13G/A filed on February 17, 1998, Bankers Trust & Company and BT Australia Limited have sole investment power with respect to 246,500 and 863,270, respectively, of such shares and sole voting power with respect to 79,000 and 863,270, respectively, of such shares. BTNYC'S address is 280 Park Avenue, New York, New York 10017. FMR Corp. reported on a Schedule 13G/A filed February 11, 1998, that a wholly-owned subsidiary, Fidelity Management & Research Company ("Fidelity"), a registered investment advisor to various investment companies. Fidelity has sole investment power (but does not have voting power) with respect to the shares. FMR Corp.'s address is 82 Devonshire Street, Boston, Massachusetts 02109.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company entered into a five-year lease agreement with Exber, Inc. commencing on February 15, 1994, for land nearby the Las Vegas Showboat. Exber, Inc., a Nevada corporation controlled by John D. Gaughan, a Director of the Company, has rights to the land pursuant to a sublease agreement dated November 5, 1966. The Company pays monthly rent of $13,096 and has an option to purchase the land and all of Exber, Inc.'s rights thereto for the purchase price of $1,400,000. The Company's subsidiary, Atlantic City Showboat, Inc., leases space at the Atlantic City Showboat to R. Craig Bird, Executive Vice President, Strategic Financing/Investor Relations and Chief Financial Officer of the Company, for the operation of a gift shop and certain vending machines. During 1997, Mr. Bird paid rent and vending commissions to Atlantic City Showboat, Inc. in the amount of $102,643 and $40,487, respectively. At all times during 1997, H. Gregory Nasky was a Director and Executive Vice President of the Company and the Secretary of the Company and its subsidiaries. Additionally, Mr. Nasky was of counsel to the law firm of Kummer Kaempfer Bonner & Renshaw, outside legal counsel to the Company. At all times during 1997, John N. Brewer, a partner of the law firm of Kummer Kaempfer Bonner & Renshaw, was an Assistant Secretary of the Company and its subsidiaries. During 1997, the law firm of Kummer Kaempfer Bonner & Renshaw was paid $188,065 by the Company's Nevada gaming subsidiary, $63,599 by the Company's New Jersey subsidiaries, $123,781 by the Company's Indiana subsidiaries, $63,108 by the Company's Australia subsidiary, $197,301 by the Company in connection with its expansion opportunities and $150,705 by the Company for other parent company matters. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(l) The following consolidated financial statements of the Company and its subsidiaries have been filed as a part of this report (See "Item 8: Financial Statements and Supplementary Data"): Independent Auditors' Report; Consolidated Balance Sheets as of December 31, 1997 and 1996; -105- Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995; Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1997, 1996 and 1995; Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995; and Notes to Consolidated Financial Statements (a)(2) All schedules are omitted because they are not required, inapplicable, or the information is otherwise shown in the financial statements or notes thereto. (a)(3) Exhibits
EXHIBIT NO. DESCRIPTION --- ----------- 2.01 Agreement and Plan of Merger, dated as of December 18, 1997, among Showboat, Inc., Harrah's Entertainment, Inc. and HEI Acquisition Corp. is incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1- 7123) dated December 24, 1997, Item 7(c), Exhibit 2.1. 3.01 Restated Articles of Incorporation of Showboat, Inc. dated June 10, 1994, is incorporated herein by reference to Showboat, Inc.'s Amendment No. 1 to Registration Statement on Form S-3 (file no. 33-54325) dated July 8, 1994, Item 16, Exhibit 4.02. 3.02 Restated Bylaws of Showboat, Inc. dated October 24, 1995, is incorporated herein by reference to Showboat, Inc.'s Form 10-Q (file no. 1-7123) for the nine month period ended September 30, 1995, Part II, Item 6(a), Exhibit 3.01. 4.01 Specimen Common Stock Certificate for the Common Stock of Showboat, Inc. is incorporated herein by reference to Showboat, Inc.'s Amendment No. 1 to Registration Statement on Form S-3 (file no. 33-54325) dated July 8, 1994, Item 16, Exhibit 4.01. 4.02 Rights Agreement dated October 5, 1995, between Showboat, Inc. and American Stock Transfer and Trust Company; Form of Right Certificate; and Certificate of Designation of Rights and Preferences of Series A Junior Preferred Stock of Showboat, Inc., are incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated October 5, 1995, Item 7(c), Exhibit 4.01. 4.03 Indenture dated May 18, 1993, for the 9 1/4% First Mortgage Bonds due 2008 among ____________________ Copies of exhibits to this Form 10-K will be furnished to any requesting security holder who furnishes the Company a list identifying the exhibits to be copied by the Company at a charge of $.25 per page. -106- EXHIBIT NO. DESCRIPTION --- ----------- Showboat, Inc., Ocean Showboat, Inc., Atlantic City Showboat, Inc., Showboat Operating Company, and IBJ Schroder Bank & Trust Company; Guaranty by Ocean Showboat, Inc., Atlantic City Showboat, Inc. and Showboat Operating Company in favor of IBJ Schroder Bank & Trust Company; and Form of Bond Certificate for the 9 1/4% First Mortgage Bonds due 2008, are incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated May 18, 1993, Item 7(c), Exhibit 28.01. First Supplemental Indenture dated July 18, 1994, for the 9 1/4% First Mortgage Bonds due 2008 among Showboat, Inc., Ocean Showboat, Inc., Atlantic City Showboat, Inc., Showboat Operating Company and IBJ Schroder Bank & Trust Company is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit 4.02. 4.04 Indenture dated August 10, 1994, for the 13% Senior Subordinated Notes due 2009 among Showboat, Inc., Ocean Showboat, Inc., Atlantic City Showboat, Inc., Showboat Operating Company, and Marine Midland Bank; Guaranty by Ocean Showboat, Inc., Atlantic City Showboat, Inc. and Showboat Operating Company in favor of Marine Midland Bank; and Form of Note Certificate for the 13% Senior Subordinated Notes due 2009, are incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated August 10, 1994, Item 7(c), Exhibit 4.01. 4.05. Indenture dated as of March 28, 1996, among Showboat Marina Casino Partnership, Showboat Marina Finance Corporation, Donaldson, Lufkin & Jenrette Securities Corporation, Nomura Securities International, Inc., Bear, Stearns & Co., Inc. and American Bank National Association, as trustee, relating to the 13 1/2 Series A and Series B First Mortgage Notes due 2003, is incorporated herein by reference to Showboat, Inc.'s Form 10-Q (file no 1-7123) for the six month period ended June 30, 1996, Part II, Item 6(a), Exhibit 4.01. 10.01 Parent Services Agreement dated November 21, 1985, between Showboat, Inc. and Atlantic City Showboat, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated November 25, 1985, Item 7(c), Exhibit 10.01. Amendment No. 1 to Parent Services Agreement dated February 1, 1987, between Showboat, Inc. and Atlantic City Showboat, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.17. Amendment No. 2 to Parent Services Agreement dated December 31, 1990, between Showboat, Inc. and Atlantic City Showboat, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1- 7123) dated December 31, 1990, Item 7(c), Exhibit 28.01. Amendment No. 3 to Parent Services Agreement dated May 8, 1991, between Showboat, Inc. and Atlantic City Showboat, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1991, Part IV, Item 14(a)(3), Exhibit 10.14. Amendment No. 4 to Parent Services Agreement dated August 17, 1993, between Showboat, Inc. and Atlantic City Showboat, Inc., is incorporated herein by -107- EXHIBIT NO. DESCRIPTION --- ----------- reference to Showboat, Inc.'s Form 10-K (file no. 1- 7123) for the year ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.11. 10.02 Tax Allocation Agreement effective May 10, 1993, among Showboat, Inc. and each of its subsidiaries, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.11. First Amendment to Tax Allocation Agreement effective May 10, 1993, among Showboat, Inc. and each of its subsidiaries, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.07. 10.03 Management Services Agreement dated January 1, 1989, between Showboat, Inc. and Showboat Operating Company, is incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated January 1, 1989, Item 7(c), Exhibit 28.03. 10.04 Showboat, Inc. 1989 Long Term Incentive Plan, as amended and restated on February 25, 1993, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.23. 10.05 Showboat, Inc. 1989 Directors' Stock Option Plan, as amended and restated February 25, 1993, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.27. 10.06 Showboat, Inc. 1994 Executive Long Term Incentive Plan effective May 25, 1994, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1- 7123) for the year ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit 10.36. 10.07 Showboat, Inc. Supplemental Executive Retirement Plan effective April 1, 1994, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1- 7123) for the year ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit 10.37. 10.08 Showboat, Inc. Restoration Plan effective April 1, 1994, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit 10.38. 10.09 Statement regarding Showboat, Inc.'s Incentive Bonus Plans, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.12. 10.10 Atlantic City Showboat, Inc. Executive Medical Reimbursement Plan, effective -108- EXHIBIT NO. DESCRIPTION --- ----------- August 15, 1991, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1991, Part IV, Item 14(a)(3), Exhibit 10.23. 10.11 Atlantic City Showboat, Inc. Executive Health Examinations Plan effective January 1, 1989, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1989, Part IV, Item 14(a)(3), Exhibit 10.24. 10.12 Form of Severance Agreement between Showboat, Inc. and certain executive officer and key employees of Showboat, Inc. and its subsidiaries, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit 10.39. 10.13 Form of Indemnification Agreement between Showboat, Inc. and each director and officer of Showboat, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1987, Part IV, Item 14(a)(3), Exhibit 10.13. 10.14 Lease dated January 1, 1989, between Showboat, Inc. and Showboat Operating Company, is incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1- 7123) dated January 1, 1989, Item 7(c), Exhibit 28.01. 10.15 Lease dated January 14, 1994, between Showboat, Inc. and Exber, Inc.; and Sublease dated November 5, 1966, between Dodd Smith and John D. Gaughan and Leslie C. Schwartz, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.39. 10.16 Lease of Retail Store No. 7 dated April 10, 1987, among Atlantic City Showboat, Inc., R. Craig Bird and Debra E. Bird; and Guaranty of Lease among Atlantic City Showboat, Inc., R. Craig Bird and Debra E. Bird, are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1988, Part IV, Item 14(a)(3), Exhibit 10.24. First Amendment to the Lease between Atlantic City Showboat, Inc. and R. Craig Bird and Debra E. Bird, dated July 17, 1997. Letter Agreement dated March 25, 1997 to R. Craig Bird from Atlantic City Showboat, Inc. 10.17 Promissory Note dated August 5, 1993, in the principal amount of $20,400.69 among Showboat, Inc., R. Craig Bird and Debra E. Bird, is incorporated herein by reference to Showboat, Inc.'s Form 10-K for the year ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.15. 10.18 Ground Lease dated October 26, 1983, between Ocean Showboat, Inc. and Resorts International, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 8-K -109- EXHIBIT NO. DESCRIPTION --- ----------- (file no. 1-7123) as amended by a Form 8 filed with the Securities and Exchange Commission on November 28, 1983. Assignment and Assumption of Leases dated December 3, 1985, between Ocean Showboat, Inc. and Atlantic City Showboat, Inc.; First Amendment to Lease Agreement dated January 15, 1985, between Resorts International, Inc. and Atlantic City Showboat, Inc.; Second Amendment to Lease Agreement dated July 5, 1985, between Resorts International, Inc. and Atlantic City Showboat, Inc., are incorporated herein by reference to the Form 10-K (file no. 1-7123) for the year ended June 30, 1985, Part IV, Item 14(a)(3), Exhibit 10.02. Restated Third Amendment to Lease Agreement dated August 28, 1986, between Resorts International, Inc. and Atlantic City Showboat, Inc., is incorporated herein by reference to the Form 10-K (file no. 1-7123) for the year ended June 30, 1986, Part IV, Item 14(a)(3), Exhibit 10.08; Fourth Amendment to Lease Agreement dated December 16, 1986, between Resorts International, Inc. and Atlantic City Showboat, Inc.; Fifth Amendment to Lease Agreement dated March 2, 1987, between Resorts International, Inc. and Atlantic City Showboat, Inc.; Sixth Amendment to Lease Agreement dated March 13, 1987, between Resorts International, Inc. and Atlantic City Showboat, Inc.; Indemnity Agreement dated January 15, 1985, among Resorts International, Inc., Atlantic City Showboat, Inc. and Ocean Showboat, Inc.; and Amended Indemnity Agreement dated December 3, 1985, among Resorts International, Inc., Atlantic City Showboat, Inc. and Ocean Showboat, Inc., are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1- 7123) for the year ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.02; Seventh Amendment to Lease Agreement dated October 18, 1988, between Resorts International, Inc. and Atlantic City Showboat, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated November 16, 1988, Item 7(c), Exhibit 28.01; Eighth Amendment to Lease Agreement between Atlantic City Showboat, Inc. and Resorts International, Inc. International, Inc. dated May 18, 1993, is incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1- 7123) dated May 18, 1993, Item 7(c), Exhibit 28.06. 10.19 Closing Escrow Agreement dated September 21, 1988, among Housing Authority and Urban Redevelopment Agency of the City of Atlantic City, Resorts International, Inc., Atlantic City Showboat, Inc., Trump Taj Mahal Associates Limited Partnership, and Clapp & Eisenberg, P.C.; Agreement as to Assumption of Obligations with respect to Properties dated September 21, 1988, among Atlantic City Showboat, Inc., Trump Taj Mahal Associates Limited Partnership and Trump Taj Mahal Realty Corp.; First Amendment of Agreement as to Assumption of Obligations with respect to Properties dated September 21, 1988, among Atlantic City Showboat, Inc., Trump Taj Mahal Associates Limited Partnership and Trump Taj Mahal Realty Corp.; Settlement Agreement dated October 18, 1988, among Atlantic City Showboat, Inc., Trump Taj Mahal Associates Limited Partnership, Trump Taj Mahal Realty Corp., Resorts International, Inc. and the Housing Authority and Urban Redevelopment Agency of the City of Atlantic City; Tri-Party Agreement dated October 18, 1988, among Resorts -110- EXHIBIT NO. DESCRIPTION --- ----------- International, Inc., Atlantic City Showboat, Inc. and Trump Taj Mahal Associates Limited Partnership, are incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated November 16, 1988, Item 7(c), Exhibit 28.01. Revised Second Amendment to Agreement as to Assumption of Obligations with respect to Properties dated May 24, 1989, among Atlantic City Showboat, Inc., Trump Taj Mahal Associates Limited Partnership and Trump Taj Mahal Realty Corp., is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1989, Part IV, Item 14(a)(3), Exhibit 10.17. 10.20 Letter agreement dated September 23, 1992, between Trump Taj Mahal Associates and Atlantic City Showboat, Inc.; and letter agreement dated October 26, 1992 to Trump Taj Mahal Associates from Atlantic City Showboat, Inc., are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.24. 10.21 Lease dated December 22, 1994, between Housing Authority and Urban Redevelopment Agency of the City of Atlantic City and Atlantic City Showboat, Inc.; Tri- Party Agreement dated May 26, 1994, among Housing Authority and Urban Redevelopment Agency of the City of Atlantic City, Forest City Ratner Companies and Atlantic City Showboat, Inc.; Terms and Conditions Part II of Contract for Sale of Land for Private Redevelopment between Housing Authority and Urban Redevelopment Agency of the City of Atlantic City and Atlantic City Showboat, Inc.; and Rider to Contract for Sale of Land for Private Redevelopment between Housing Authority and Urban Redevelopment Agency of the City of Atlantic City and Atlantic City Showboat, Inc., are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit 10.46. 10.22 Agreement Amending and Restating the Tri-Party Agreement Dated as of May 26, 1994, among the Housing Authority and Urban Redevelopment Agency of the City of Atlantic City, Forest City Ratner Companies and Atlantic City Showboat, Inc. regarding Development of a Portion of the Uptown Urban Renewal Tract dated December 14, 1995; Release and Subordination Agreement dated December 14, 1995, between IBJ Schroder Bank & Trust Company and Atlantic City Showboat, Inc.; First Amendment to Leasehold in Pari Passu Mortgage, Assignment of Rents and Security Agreement and Collateral Assignment of Easement Rights-Mortgage Spreader Agreement dated December 15, 1995, between Atlantic City Showboat, Inc. and NatWest Bank, N.A.; Third Amendment to Leasehold Mortgage, Assignment of Rents and Security Agreement Dated as of May 19, 1993 - Mortgage Spreader Agreement dated December 14, 1995, between Atlantic City Showboat, Inc. and -111- EXHIBIT NO. DESCRIPTION --- ----------- IBJ Schroder Bank & Trust Company; Fourth Amendment to Leasehold Mortgage, Assignment of Rents and Security Agreement Dated as of May 18, 1993 - Release of Part of Mortgaged Property and Subordination Agreement dated December 14, 1995, between IBJ Schroder Bank & Trust Company and Atlantic City Showboat, Inc., are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1995, Part IV, Item 14(a)(3), Exhibit 10.24. 10.23 Securities Purchase Contract dated March 29, 1988, between the Casino Reinvestment Development Authority and Atlantic City Showboat, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1988, Part IV, Item 14(a)(3), Exhibit 10.23. 10.24 Deed of Trust, Assignment of Rents, and Security Agreement dated May 18, 1993, by Showboat, Inc. to Nevada Title Company in favor of IBJ Schroder Bank & Trust Company; Showboat, Inc. Security and Pledge Agreement dated May 18, 1993, between Showboat, Inc. and the IBJ Schroder Bank & Trust Company; Trademark Security Agreement dated May 18, 1993, by Showboat, Inc. in favor of IBJ Schroder Bank & Trust Company; Unsecured Indemnity Agreement dated May 18, 1993, by Showboat, Inc. in favor of IBJ Schroder Bank & Trust Company; and Showboat Operating Company Security Agreement dated May 18, 1993, between Showboat Operating Company and IBJ Schroder Bank & Trust Company, are incorporated by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated May 18, 1993, Item 5, Exhibit 28.02. Leasehold Mortgage, Assignment of Rents, and Security Agreement dated May 18, 1993, by Atlantic City Showboat, Inc. in favor of IBJ Schroder Bank & Trust Company; Assignment of Leases and Rents dated May 18, 1993, between Atlantic City Showboat, Inc. and IBJ Schroder Bank & Trust Company; and Ocean Showboat, Inc. Security and Pledge Agreement dated May 18, 1993, between Ocean Showboat, Inc. and IBJ Schroder Bank & Trust Company, are incorporated by reference to Showboat, Inc.'s Form 8-K (file no. 1- 7123) dated May 18, 1993, Item 7(c), Exhibit 28.03. Intercompany Note dated May 18, 1993, in the principal amount of $215.0 million; Assignment of Lease and Rents dated May 18, 1993, between Atlantic City Showboat, Inc. and Showboat, Inc.; and Issuer Collateral Assignment dated May 18, 1993, by Atlantic City Showboat, Inc. in favor of IBJ Schroder Bank & Trust Company, are incorporated by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated May 18, 1993, Item 7(c), Exhibit 28.04. Showboat Development Company Security and Pledge Agreement dated July 18, 1994, between Showboat Development Company and IBJ Schroder Bank & Trust Company; and Showboat Louisiana, Inc. Security and Pledge Agreement dated July 18, 1994, between Showboat Louisiana, Inc. and IBJ Schroder Bank & Trust Company, are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit 4.02. 10.25 First Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement dated July 9, 1993, between Atlantic City Showboat, Inc. and Showboat, Inc., is incorporated by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated July 7, 1993, Item 7(c), Exhibit 28.01. First Amendment to the Leasehold Mortgage, -112- EXHIBIT NO. DESCRIPTION Assignment of Rents and Security Agreement dated July 9, 1993, between Atlantic City Showboat, Inc. and IBJ Schroder Bank & Trust Company, is incorporated by reference to Showboat, Inc.'s Form 8-K (file no. 1- 7123) dated July 7, 1993, Item 7(c), Exhibit 28.02. Assignment of Rights under Agreement dated July 9, 1993, by Atlantic City Showboat, Inc. in favor of IBJ Schroder Bank & Trust Company, is incorporated by reference to Showboat, Inc.'s Form 8-K (file no. 1- 7123) dated July 7, 1993, Item 7(c), Exhibit 28.03. Form of Deed for Sale of Land for Private Redevelopment for Tract 1 and Tract 2 each dated July 7, 1993, is incorporated by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated July 7, 1993, Item 7(c), Exhibit 28.04. Use and Occupancy Agreement dated July 7, 1993, between Atlantic City Housing Authority and Urban Redevelopment Agency and Atlantic City Showboat, Inc., is incorporated by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated July 7, 1993, Item 7(c), Exhibit 28.05. 10.26 Casino Operations Agreement (excluding exhibits) dated April 22, 1994, among Leighton Properties Pty Limited, New South Wales Casino Control Authority, Showboat Australia Pty Limited, Showboat Operating Company, Sydney Casino Management Pty Limited, Sydney Harbour Casino Holdings Limited, Sydney Harbour Casino Pty Limited and Sydney Harbour Casino Properties Pty Limited; First Amending Deed dated October 6, 1994; Second Amending Deed (undated); Third Amending Deed dated December 13, 1994; Casino Complex Management Agreement dated April 21, 1994, among Sydney Harbour Casino Properties Pty Limited, Showboat Australia Pty Limited and Sydney Casino Management Pty Limited; and Development Agreement dated April 21, 1994, between Leighton Properties Pty Limited and Sydney Harbour Casino Properties Pty Limited, are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1- 7123) for the year ended December 31, 1995, Part IV, Item 14(a)(3), Exhibit 10.32. Amending Deed to Casino Complex Management Agreement among Showboat Australia Pty Limited, National Mutual Trustees Limited, Sydney Casino Management Pty Limited, Sydney Harbour Casino Properties Pty Limited and Sydney Harbour Casino Pty Limited - undated is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1996, Part IV, Item 14(a)(3), Exhibit 10.27. 10.27 Agreement of Partnership of Showboat Marina Investment Partnership dated March 1, 1996, between Showboat Indiana Investment Limited Partnership and Waterfront Entertainment and Development, Inc.; Agreement of Partnership of Showboat Marina Casino Partnership dated March 1, 1996, between Showboat Marina Partnership and Showboat Marina Investment Partnership; Letter agreement regarding economic development dated April 8, 1994, by Showboat Marina Partnership in favor of the City of East Chicago; Letter agreement regarding economic development dated April 18, 1995, by Showboat Marina Partnership in favor of the City of East Chicago; and Redevelopment Project Lease dated October 19, 1995, between Showboat Marina Partnership and the City of East Chicago, are incorporated herein by reference to -113- EXHIBIT NO. DESCRIPTION --- ----------- Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1995, Part IV, Item 14(a)(3), Exhibit 10.33. Second Amended and Restated Showboat Marina Partnership Agreement dated June 30, 1996, between Waterfront Entertainment and Development, Inc. and Showboat Indiana Investment Limited Partnership; and Promissory Note dated January 1, 1997, in principal amount of $41,887,158 by Showboat Indiana Investment Limited Partnership in favor of Showboat, Inc. are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1996, Part IV, Item 14(a)(3), Exhibit 10.28. 10.28 Non-Negotiable Mortgage Promissory Note dated December 28, 1994, in the principal amount of $8,850,000, by Rockingham Venture, Inc. in favor of Showboat, Inc.; Mortgage and Security Agreement dated December 28, 1994, between Rockingham Venture, Inc. and Showboat, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1- 7123) for the year ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit 10.42. Limited Liability Company Agreement of Showboat Rockingham Company, L.L.C. dated July 27, 1995, among Rockingham Venture, Inc., Showboat New Hampshire, Inc. and Showboat Rockingham Company, L.L.C.; Management Agreement dated July 27, 1995, among Showboat Rockingham Company L.L.C., Showboat Operating Company and Rockingham Venture, Inc.; Administrative Services Agreement dated July 27, 1995, between Showboat Operating Company and Showboat Rockingham Company, L.L.C.; and Trademark License Agreement dated July 27, 1995, between Showboat, Inc. and Showboat Rockingham Company, L.L.C., are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1995, Part IV, Item 14(a)(3), Exhibit 10.35. Construction and Operation Agreement by and between Showboat Rockingham Company LLC and Rockingham Venture, Inc. dated as of December 20, 1997; and First Amendment to Limited Liability Company Agreement of Showboat Rockingham Company, LLC dated as of December 20, 1997. 10.29 Promissory Note dated March 19, 1997, in the principal amount of $15,000,000 by Atlantic City Showboat, Inc. in favor of Showboat, Inc. 10.30 Loan and Guaranty Agreement dated July 14, 1995, among NatWest Bank, N.A., Showboat, Inc. and Atlantic City Showboat, Inc., Ocean Showboat, Inc. and Showboat Operating Company; Revolving Note dated July 14, 1995, in the principal amount of $25.0 million by Showboat, Inc. in favor of NatWest Bank, N.A.; Deed of Trust, Assignment of Rents and Security Agreement dated July 14,1995, by Showboat, Inc. in favor of Nevada Title Company for the benefit of NatWest Bank, N.A.; Leasehold in Pari Passu Mortgage, Assignment of Rents and Security Agreement dated July 14, 1995, between NatWest Bank and Atlantic City Showboat, Inc.; Assignment of Leases and Rents dated July 14, 1995, between NatWest Bank and Atlantic City Showboat, Inc.; Intercreditor Agreement for Pari Passu Indebtedness Relating to Atlantic City -114- EXHIBIT NO. DESCRIPTION --- ----------- Showboat dated July 14, 1995, among Showboat, Inc., Atlantic City Showboat, Inc., IBJ Schroder Bank & Trust Company and NatWest Bank, N.A.; and Intercreditor Agreement for Pari Passu Indebtedness Relating to Las Vegas Showboat dated July 14, 1995, among Showboat, Inc., IBJ Schroder Bank & Trust Company and NatWest Bank, N.A., are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1995, Part IV, Item 14(a)(3), Exhibit 10.38. First Amendment to the Pari Passu Assignment of Leases and Rents dated July 14, 1997 between Atlantic City Showboat, Inc. and Fleet Bank, N.A. (formerly known as NatWest Bank, N.A.); Second Amendment to the Leasehold in Pari Passu Mortgage, Assignment of Rents and Security Agreement dated July 14, 1997 among Atlantic City Showboat, Inc. and Fleet Bank, N.A. (formerly known as NatWest Bank, N.A.); Modification to Loan and Guaranty Agreement dated July 14, 1997 among Fleet Bank, N.A. (formerly known as NatWest Bank, N.A.), Showboat, Inc., Showboat Operating Company, Ocean Showboat, Inc. and Atlantic City Showboat, Inc.; Modification to Revolving Note dated July 14, 1997, in principal amount of $35,000,000 by Showboat, Inc. in favor of NatWest Bank, N.A. (now known as Fleet Bank, N.A.); First Amendment to the Intercreditor Agreement for Pari Passu Indebtedness Relating to Atlantic City Showboat dated July 14, 1997 among Showboat, Inc., Atlantic City Showboat, Inc., IBJ Schroder Bank & Trust Company and Fleet Bank, N.A. (formerly known as NatWest Bank, N.A.); First Amendment to the Intercreditor Agreement for Pari Passu Indebtedness Relating to Las Vegas Showboat dated July 14, 1997 among IBJ Schroder Bank & Trust Company, Showboat, Inc. and Fleet Bank, N.A. (formerly known as NatWest Bank, N.A.); First Amendment to the Deed of Trust, Assignment of Rents and Security Agreement dated July 14, 1997 among Showboat, Inc. and Showboat Operating Company to Nevada Title Company for the benefit of Fleet Bank, N.A. ( formerly known as NatWest Bank, N.A.). 10.31 Promissory Note dated January 1, 1997, in the principal amount of $34,011,720 by Showboat Fifteen, Inc. in favor of Showboat, Inc. is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1- 7123) for the year ended December 31, 1996, Part IV, Item 14(a)(3), Exhibit 10.33. 10.32 Standby Equity Commitment dated March 28, 1996, by and among Showboat Marina Casino Partnership, Showboat Marina Finance Corporation and Showboat, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 10-Q (file no 1-7123) for the three month period ended March 31, 1996, Part II, Item 6(a), Exhibit 10.02. 10.33 Showboat, Inc. 1996 Stock Appreciation Rights Plan, effective date September 3, 1996, is incorporated herein by reference to Showboat, Inc.'s Form 10-Q (file no 1-7123) for the nine month period ended September 30, 1996, Part II, Item 6(a), Exhibit 10.01. -115- EXHIBIT NO. DESCRIPTION --- ----------- 10.34 Promissory Note dated January 1, 1997, in the principal amount of $8,197,293 by Showboat Operating Company in favor of Showboat, Inc.; Promissory Note dated January 1, 1997, in the principal amount of $12,344,192 by Showboat Operating Company in favor of Showboat, Inc.; and Promissory Note dated January 1, 1997, in the principal amount of $9,641,821 by Showboat Operating Company in favor of Showboat, Inc. are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1996, Part IV, Item 14(a)(3), Exhibit 10.38. 10.35 Promissory Note dated January 1, 1997, in the principal amount of $53,109,002 by Showboat Development Company in favor of Showboat, Inc.; and Promissory Note dated January 1, 1997, in the principal amount of $6,292,083 by Showboat Development Company in favor of Showboat, Inc. are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1996, Part IV, Item 14(a)(3), Exhibit 10.39. 10.36 Agreement of Purchase and Sale by and between Sun International and Showboat Land LLC, dated January 29, 1998; Assignment and Assumption of Lease by and between Sun International and Showboat Land LLC, dated January 27, 1998. Landlord Estoppel Certificate by Sun International to Atlantic City Showboat, Inc., dated January 27, 1998; Tenant Estoppel Certificate by Atlantic City Showboat, Inc. to Sun International dated January 27, 1998. 10.37 Mortgage and Security Agreement by and between Column Financial, Inc. and Showboat Land LLC, dated January 29, 1998; Promissory Note in the principal amount of $100,000,000, in favor of Column Financial, Inc. by Showboat Land LLC, dated January 29, 1998; Cash Management Agreement by and between Column Financial, Inc. and Showboat Land LLC, dated January 28, 1998; Guaranty of Lease by and between Showboat, Inc. and Column Financial, Inc., dated January 29, 1998; Environmental Indemnity Agreement by and between Column Financial, Inc., Showboat Land LLC and Atlantic City Showboat, Inc. dated January 29, 1998; Assignment of Leases and Rents by and between Column Financial, Inc. and Showboat Land LLC, dated January 29, 1998; Tenant Estoppel Certificate by Atlantic City Showboat, Inc. to Column Financial, Inc. and Showboat Land LLC, dated January 29, 1998; Promissory Note Clarification Agreement dated January 29, 1998 between Column Financial, Inc. and Showboat Land LLC; and Lease Clarification Agreement dated February 13, 1998 among Showboat Land LLC and Atlantic City Showboat, Inc. 10.38 Parent Services Support Agreement dated May 29, 1997 between Showboat, Inc. and Showboat Operating Company; Management Services Support Agreement dated May 29, 1997 between Showboat, Inc. and Showboat Operating Company. -116- EXHIBIT NO. DESCRIPTION --- ----------- 10.39 Stock Purchase Agreement dated as of December 11, 1997 by and between Showboat Development Company and Futuresouth, Inc. 21.01 List of Subsidiaries. 23.01 Consent of KPMG Peat Marwick LLP. 27.01 Financial Data Schedule.
(b) REPORTS ON FORM 8-K. The Company filed a report on Form 8-K dated December 24, 1997, regarding the Showboat Merger. -117- 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 this undersigned, thereunto duly authorized. REGISTRANT: SHOWBOAT, INC. By: /s/ J. K. Houssels, III J. Kell Houssels, III, President and Chief Executive Officer (principal executive officer) DATE: March 30, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. March 30, 1998 By: /s/ J.K. Houssels J.K. Houssels, Chairman of the Board March 30, 1998 By: /s/ J. K. Houssels, III J. Kell Houssels, III, President, Chief Executive Officer and Director March 30, 1998 By: /s/ R. Craig Bird R. Craig Bird, Executive Vice President - Strategic Financing/Investor Relations and Chief Financial Officer (principal accounting officer) March 30, 1998 By: /s/ William C. Richardson William C. Richardson, Director -118- March 30, 1998 By: /S/ John D. Gaughan John D. Gaughan, Director March 30, 1998 By: /s/ Jeanne S. Stewart Jeanne S. Stewart, Director March 30, 1998 By: /s/ Frank A. Modica Frank A. Modica, Director March 30, 1998 By: /s/ H. Gregory Nasky H. Gregory Nasky, Executive Vice President, Secretary and Director March 30, 1998 By: /s/ George A. Zettler George A. Zettler, Director March 30, 1998 By: /s/ Carolyn M. Sparks Carolyn M. Sparks, Director -119-
EXHIBIT INDEX EXHIBIT PAGE NO. DESCRIPTION NO. --- ----------- --- 2.01 Agreement and Plan of Merger, dated as of December 18, 1997, among Showboat, Inc., Harrah's Entertainment, Inc. and HEI Acquisition Corp. is incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated December 24, 1997, Item 7(c), Exhibit 2.1. 3.01 Restated Articles of Incorporation of Showboat, Inc. dated June 10, 1994, is incorporated herein by reference to Showboat, Inc.'s Amendment No. 1 to Registration Statement on Form S-3 (file no. 33-54325) dated July 8, 1994, Item 16, Exhibit 4.02. 3.02 Restated Bylaws of Showboat, Inc. dated October 24, 1995, is incorporated herein by reference to Showboat, Inc.'s Form 10-Q (file no. 1-7123) for the nine month period ended September 30, 1995, Part II, Item 6(a), Exhibit 3.01. 4.01 Specimen Common Stock Certificate for the Common Stock of Showboat, Inc. is incorporated herein by reference to Showboat, Inc.'s Amendment No. 1 to Registration Statement on Form S-3 (file no. 33-54325) dated July 8, 1994, Item 16, Exhibit 4.01. 4.02 Rights Agreement dated October 5, 1995, between Showboat, Inc. and American Stock Transfer and Trust Company; Form of Right Certificate; and Certificate of Designation of Rights and Preferences of Series A Junior Preferred Stock of Showboat, Inc., are incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated October 5, 1995, Item 7(c), Exhibit 4.01. 4.03 Indenture dated May 18, 1993, for the 9 1/4% First Mortgage Bonds due 2008 among Showboat, Inc., Ocean Showboat, Inc., Atlantic City Showboat, Inc., Showboat Operating Company, and IBJ Schroder Bank & Trust Company; Guaranty by Ocean Showboat, Inc., Atlantic City Showboat, Inc. and Showboat Operating Company in favor of IBJ Schroder Bank & Trust Company; and Form of Bond Certificate for the 9 1/4% First Mortgage Bonds due 2008, are incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated May 18, 1993, Item 7(c), Exhibit 28.01. First Supplemental Indenture dated July 18, 1994, for the 9 1/4% First Mortgage Bonds due 2008 among Showboat, Inc., Ocean Showboat, Inc., Atlantic City Showboat, Inc., Showboat Operating Company and IBJ Schroder Bank & Trust Company is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended -120- EXHIBIT PAGE NO. DESCRIPTION NO. --- ----------- --- December 31, 1994, Part IV, Item 14(a)(3), Exhibit 4.02. 4.04 Indenture dated August 10, 1994, for the 13% Senior Subordinated Notes due 2009 among Showboat, Inc., Ocean Showboat, Inc., Atlantic City Showboat, Inc., Showboat Operating Company, and Marine Midland Bank; Guaranty by Ocean Showboat, Inc., Atlantic City Showboat, Inc. and Showboat Operating Company in favor of Marine Midland Bank; and Form of Note Certificate for the 13% Senior Subordinated Notes due 2009, are incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated August 10, 1994, Item 7(c), Exhibit 4.01. 4.05. Indenture dated as of March 28, 1996, among Showboat Marina Casino Partnership, Showboat Marina Finance Corporation, Donaldson, Lufkin & Jenrette Securities Corporation, Nomura Securities International, Inc., Bear, Stearns & Co., Inc. and American Bank National Association, as trustee, relating to the 13 1/2 Series A and Series B First Mortgage Notes due 2003, is incorporated herein by reference to Showboat, Inc.'s Form 10-Q (file no 1-7123) for the six month period ended June 30, 1996, Part II, Item 6(a), Exhibit 4.01. 10.01 Parent Services Agreement dated November 21, 1985, between Showboat, Inc. and Atlantic City Showboat, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated November 25, 1985, Item 7(c), Exhibit 10.01. Amendment No. 1 to Parent Services Agreement dated February 1, 1987, between Showboat, Inc. and Atlantic City Showboat, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.17. Amendment No. 2 to Parent Services Agreement dated December 31, 1990, between Showboat, Inc. and Atlantic City Showboat, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated December 31, 1990, Item 7(c), Exhibit 28.01. Amendment No. 3 to Parent Services Agreement dated May 8, 1991, between Showboat, Inc. and Atlantic City Showboat, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 10- K (file no. 1-7123) for the year ended December 31, 1991, Part IV, Item 14(a)(3), Exhibit 10.14. Amendment No. 4 to Parent Services Agreement dated August 17, 1993, between Showboat, Inc. and Atlantic City Showboat, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.11. 10.02 Tax Allocation Agreement effective May 10, 1993, among Showboat, Inc. and each of its subsidiaries, is incorporated herein by reference to -121- EXHIBIT PAGE NO. DESCRIPTION NO. --- ----------- --- Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.11. First Amendment to Tax Allocation Agreement effective May 10, 1993, among Showboat, Inc. and each of its subsidiaries, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.07. 10.03 Management Services Agreement dated January 1, 1989, between Showboat, Inc. and Showboat Operating Company, is incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated January 1, 1989, Item 7(c), Exhibit 28.03. 10.04 Showboat, Inc. 1989 Long Term Incentive Plan, as amended and restated on February 25, 1993, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.23. 10.05 Showboat, Inc. 1989 Directors' Stock Option Plan, as amended and restated February 25, 1993, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.27. 10.06 Showboat, Inc. 1994 Executive Long Term Incentive Plan effective May 25, 1994, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit 10.36. 10.07 Showboat, Inc. Supplemental Executive Retirement Plan effective April 1, 1994, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit 10.37. 10.08 Showboat, Inc. Restoration Plan effective April 1, 1994, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit 10.38. 10.09 Statement regarding Showboat, Inc.'s Incentive Bonus Plans, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.12. 10.10 Atlantic City Showboat, Inc. Executive Medical Reimbursement Plan, effective August 15, 1991, is incorporated herein by reference to Showboat, -122 EXHIBIT PAGE NO. DESCRIPTION NO. --- ----------- --- Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1991, Part IV, Item 14(a)(3), Exhibit 10.23. 10.11 Atlantic City Showboat, Inc. Executive Health Examinations Plan effective January 1, 1989, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1989, Part IV, Item 14(a)(3), Exhibit 10.24. 10.12 Form of Severance Agreement between Showboat, Inc. and certain executive officer and key employees of Showboat, Inc. and its subsidiaries, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit 10.39. 10.13 Form of Indemnification Agreement between Showboat, Inc. and each director and officer of Showboat, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1987, Part IV, Item 14(a)(3), Exhibit 10.13. 10.14 Lease dated January 1, 1989, between Showboat, Inc. and Showboat Operating Company, is incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated January 1, 1989, Item 7(c), Exhibit 28.01. 10.15 Lease dated January 14, 1994, between Showboat, Inc. and Exber, Inc.; and Sublease dated November 5, 1966, between Dodd Smith and John D. Gaughan and Leslie C. Schwartz, is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.39. 10.16 Lease of Retail Store No. 7 dated April 10, 1987, among Atlantic City Showboat, Inc., R. Craig Bird and Debra E. Bird; and Guaranty of Lease among Atlantic City Showboat, Inc., R. Craig Bird and Debra E. Bird, are incorporated herein by reference to Showboat, Inc.'s Form 10- K (file no. 1-7123) for the year ended December 31, 1988, Part IV, Item 14(a)(3), Exhibit 10.24. First Amendment to the Lease between Atlantic City Showboat, Inc. and R. Craig Bird and Debra E. Bird, dated July 17, 1997. Letter Agreement dated March 25, 1997 to R. Craig Bird from Atlantic City Showboat, Inc. -123- EXHIBIT PAGE NO. DESCRIPTION NO. --- ----------- --- 10.17 Promissory Note dated August 5, 1993, in the principal amount of $20,400.69 among Showboat, Inc., R. Craig Bird and Debra E. Bird, is incorporated herein by reference to Showboat, Inc.'s Form 10-K for the year ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.15. 10.18 Ground Lease dated October 26, 1983, between Ocean Showboat, Inc. and Resorts International, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) as amended by a Form 8 filed with the Securities and Exchange Commission on November 28, 1983. Assignment and Assumption of Leases dated December 3, 1985, between Ocean Showboat, Inc. and Atlantic City Showboat, Inc.; First Amendment to Lease Agreement dated January 15, 1985, between Resorts International, Inc. and Atlantic City Showboat, Inc.; Second Amendment to Lease Agreement dated July 5, 1985, between Resorts International, Inc. and Atlantic City Showboat, Inc., are incorporated herein by reference to the Form 10-K (file no. 1-7123) for the year ended June 30, 1985, Part IV, Item 14(a)(3), Exhibit 10.02. Restated Third Amendment to Lease Agreement dated August 28, 1986, between Resorts International, Inc. and Atlantic City Showboat, Inc., is incorporated herein by reference to the Form 10-K (file no. 1-7123) for the year ended June 30, 1986, Part IV, Item 14(a)(3), Exhibit 10.08; Fourth Amendment to Lease Agreement dated December 16, 1986, between Resorts International, Inc. and Atlantic City Showboat, Inc.; Fifth Amendment to Lease Agreement dated March 2, 1987, between Resorts International, Inc. and Atlantic City Showboat, Inc.; Sixth Amendment to Lease Agreement dated March 13, 1987, between Resorts International, Inc. and Atlantic City Showboat, Inc.; Indemnity Agreement dated January 15, 1985, among Resorts International, Inc., Atlantic City Showboat, Inc. and Ocean Showboat, Inc.; and Amended Indemnity Agreement dated December 3, 1985, among Resorts International, Inc., Atlantic City Showboat, Inc. and Ocean Showboat, Inc., are incorporated herein by reference to Showboat, Inc.'s Form 10- K (file no. 1-7123) for the year ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.02; Seventh Amendment to Lease Agreement dated October 18, 1988, between Resorts International, Inc. and Atlantic City Showboat, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated November 16, 1988, Item 7(c), Exhibit 28.01; Eighth Amendment to Lease Agreement between Atlantic City Showboat, Inc. and Resorts International, Inc. International, Inc. dated May 18, 1993, is incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated May 18, 1993, Item 7(c), Exhibit 28.06. 10.19 Closing Escrow Agreement dated September 21, 1988, among Housing Authority and Urban Redevelopment Agency of the City of Atlantic City, -124- EXHIBIT PAGE NO. DESCRIPTION NO. --- ----------- --- Resorts International, Inc., Atlantic City Showboat, Inc., Trump Taj Mahal Associates Limited Partnership, and Clapp & Eisenberg, P.C.; Agreement as to Assumption of Obligations with respect to Properties dated September 21, 1988, among Atlantic City Showboat, Inc., Trump Taj Mahal Associates Limited Partnership and Trump Taj Mahal Realty Corp.; First Amendment of Agreement as to Assumption of Obligations with respect to Properties dated September 21, 1988, among Atlantic City Showboat, Inc., Trump Taj Mahal Associates Limited Partnership and Trump Taj Mahal Realty Corp.; Settlement Agreement dated October 18, 1988, among Atlantic City Showboat, Inc., Trump Taj Mahal Associates Limited Partnership, Trump Taj Mahal Realty Corp., Resorts International, Inc. and the Housing Authority and Urban Redevelopment Agency of the City of Atlantic City; Tri-Party Agreement dated October 18, 1988, among Resorts International, Inc., Atlantic City Showboat, Inc. and Trump Taj Mahal Associates Limited Partnership; and Certificate of Trump Taj Mahal Associates Limited Partnership and Resorts International, Inc. dated November 16, 1988, are incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated November 16, 1988, Item 7(c), Exhibit 28.01. Revised Second Amendment to Agreement as to Assumption of Obligations with respect to Properties dated May 24, 1989, among Atlantic City Showboat, Inc., Trump Taj Mahal Associates Limited Partnership and Trump Taj Mahal Realty Corp., is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1989, Part IV, Item 14(a)(3), Exhibit 10.17. 10.20 Letter agreement dated September 23, 1992, between Trump Taj Mahal Associates and Atlantic City Showboat, Inc.; and letter agreement dated October 26, 1992 to Trump Taj Mahal Associates from Atlantic City Showboat, Inc., are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.24. 10.21 Lease dated December 22, 1994, between Housing Authority and Urban Redevelopment Agency of the City of Atlantic City and Atlantic City Showboat, Inc.; Tri-Party Agreement dated May 26, 1994, among Housing Authority and Urban Redevelopment Agency of the City of Atlantic City, Forest City Ratner Companies and Atlantic City Showboat, Inc.; Terms and Conditions Part II of Contract for Sale of Land for Private Redevelopment between Housing Authority and Urban Redevelopment Agency of the City of Atlantic City and Atlantic City Showboat, Inc.; and Rider to Contract for Sale of Land for Private Redevelopment between Housing Authority and Urban Redevelopment Agency of the City of Atlantic City and Atlantic City Showboat, Inc., are incorporated herein by reference to Showboat, Inc.'s -125 EXHIBIT PAGE NO. DESCRIPTION NO. --- ----------- --- Form 10-K (file no. 1-7123) for the year ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit 10.46. 10.22 Agreement Amending and Restating the Tri-Party Agreement Dated as of May 26, 1994, among the Housing Authority and Urban Redevelopment Agency of the City of Atlantic City, Forest City Ratner Companies and Atlantic City Showboat, Inc. regarding Development of a Portion of the Uptown Urban Renewal Tract dated December 14, 1995; Release and Subordination Agreement dated December 14, 1995, between IBJ Schroder Bank & Trust Company and Atlantic City Showboat, Inc.; First Amendment to Leasehold in Pari Passu Mortgage, Assignment of Rents and Security Agreement and Collateral Assignment of Easement Rights-Mortgage Spreader Agreement dated December 15, 1995, between Atlantic City Showboat, Inc. and NatWest Bank, N.A.; Third Amendment to Leasehold Mortgage, Assignment of Rents and Security Agreement Dated as of May 19, 1993 - Mortgage Spreader Agreement dated December 14, 1995, between Atlantic City Showboat, Inc. and IBJ Schroder Bank & Trust Company; Fourth Amendment to Leasehold Mortgage, Assignment of Rents and Security Agreement Dated as of May 18, 1993 - Release of Part of Mortgaged Property and Subordination Agreement dated December 14, 1995, between IBJ Schroder Bank & Trust Company and Atlantic City Showboat, Inc., are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1995, Part IV, Item 14(a)(3), Exhibit 10.24. 10.23 Securities Purchase Contract dated March 29, 1988, between the Casino Reinvestment Development Authority and Atlantic City Showboat, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1988, Part IV, Item 14(a)(3), Exhibit 10.23. 10.24 Deed of Trust, Assignment of Rents, and Security Agreement dated May 18, 1993, by Showboat, Inc. to Nevada Title Company in favor of IBJ Schroder Bank & Trust Company; Showboat, Inc. Security and Pledge Agreement dated May 18, 1993, between Showboat, Inc. and the IBJ Schroder Bank & Trust Company; Trademark Security Agreement dated May 18, 1993, by Showboat, Inc. in favor of IBJ Schroder Bank & Trust Company; Unsecured Indemnity Agreement dated May 18, 1993, by Showboat, Inc. in favor of IBJ Schroder Bank & Trust Company; and Showboat Operating Company Security Agreement dated May 18, 1993, between Showboat Operating Company and IBJ Schroder Bank & Trust Company, are incorporated by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated May 18, 1993, Item 5, Exhibit 28.02. Leasehold -126 EXHIBIT PAGE NO. DESCRIPTION NO. --- ----------- --- Mortgage, Assignment of Rents, and Security Agreement dated May 18, 1993, by Atlantic City Showboat, Inc. in favor of IBJ Schroder Bank & Trust Company; Assignment of Leases and Rents dated May 18, 1993, between Atlantic City Showboat, Inc. and IBJ Schroder Bank & Trust Company; and Ocean Showboat, Inc. Security and Pledge Agreement dated May 18, 1993, between Ocean Showboat, Inc. and IBJ Schroder Bank & Trust Company, are incorporated by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated May 18, 1993, Item 7(c), Exhibit 28.03. Intercompany Note dated May 18, 1993, in the principal amount of $215.0 million; Assignment of Lease and Rents dated May 18, 1993, between Atlantic City Showboat, Inc. and Showboat, Inc.; and Issuer Collateral Assignment dated May 18, 1993, by Atlantic City Showboat, Inc. in favor of IBJ Schroder Bank & Trust Company, are incorporated by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated May 18, 1993, Item 7(c), Exhibit 28.04. Showboat Development Company Security and Pledge Agreement dated July 18, 1994, between Showboat Development Company and IBJ Schroder Bank & Trust Company; and Showboat Louisiana, Inc. Security and Pledge Agreement dated July 18, 1994, between Showboat Louisiana, Inc. and IBJ Schroder Bank & Trust Company, are incorporated herein by reference to Showboat, Inc.'s Form 10- K (file no. 1-7123) for the year ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit 4.02. 10.25 First Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement dated July 9, 1993, between Atlantic City Showboat, Inc. and Showboat, Inc., is incorporated by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated July 7, 1993, Item 7(c), Exhibit 28.01. First Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement dated July 9, 1993, between Atlantic City Showboat, Inc. and IBJ Schroder Bank & Trust Company, is incorporated by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated July 7, 1993, Item 7(c), Exhibit 28.02. Assignment of Rights under Agreement dated July 9, 1993, by Atlantic City Showboat, Inc. in favor of IBJ Schroder Bank & Trust Company, is incorporated by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated July 7, 1993, Item 7(c), Exhibit 28.03. Form of Deed for Sale of Land for Private Redevelopment for Tract 1 and Tract 2 each dated July 7, 1993, is incorporated by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated July 7, 1993, Item 7(c), Exhibit 28.04. Use and Occupancy Agreement dated July 7, 1993, between Atlantic City Housing Authority and Urban Redevelopment Agency and Atlantic City Showboat, Inc., is incorporated by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated July 7, 1993, Item 7(c), Exhibit 28.05. -127- EXHIBIT PAGE NO. DESCRIPTION NO. --- ----------- --- 10.26 Casino Operations Agreement (excluding exhibits) dated April 22, 1994, among Leighton Properties Pty Limited, New South Wales Casino Control Authority, Showboat Australia Pty Limited, Showboat Operating Company, Sydney Casino Management Pty Limited, Sydney Harbour Casino Holdings Limited, Sydney Harbour Casino Pty Limited and Sydney Harbour Casino Properties Pty Limited; First Amending Deed dated October 6, 1994; Second Amending Deed (undated); Third Amending Deed dated December 13, 1994; Casino Complex Management Agreement dated April 21, 1994, among Sydney Harbour Casino Properties Pty Limited, Showboat Australia Pty Limited and Sydney Casino Management Pty Limited; and Development Agreement dated April 21, 1994, between Leighton Properties Pty Limited and Sydney Harbour Casino Properties Pty Limited, are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1995, Part IV, Item 14(a)(3), Exhibit 10.32. Amending Deed to Casino Complex Management Agreement among Showboat Australia Pty Limited, National Mutual Trustees Limited, Sydney Casino Management Pty Limited, Sydney Harbour Casino Properties Pty Limited and Sydney Harbour Casino Pty Limited - undated is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1996, Part IV, Item 14(a)(3), Exhibit 10.27. 10.27 Agreement of Partnership of Showboat Marina Investment Partnership dated March 1, 1996, between Showboat Indiana Investment Limited Partnership and Waterfront Entertainment and Development, Inc.; Agreement of Partnership of Showboat Marina Casino Partnership dated March 1, 1996, between Showboat Marina Partnership and Showboat Marina Investment Partnership; Letter agreement regarding economic development dated April 8, 1994, by Showboat Marina Partnership in favor of the City of East Chicago; Letter agreement regarding economic development dated April 18, 1995, by Showboat Marina Partnership in favor of the City of East Chicago; and Redevelopment Project Lease dated October 19, 1995, between Showboat Marina Partnership and the City of East Chicago, are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1995, Part IV, Item 14(a)(3), Exhibit 10.33. Second Amended and Restated Showboat Marina Partnership Agreement dated June 30, 1996, between Waterfront Entertainment and Development, Inc. and Showboat Indiana Investment Limited Partnership; and Promissory Note dated January 1, 1997, in principal amount of $41,887,158 by Showboat Indiana Investment Limited Partnership in favor of Showboat, Inc. are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1996, Part IV, Item 14(a)(3), Exhibit 10.28. -128- EXHIBIT PAGE NO. DESCRIPTION NO. --- ----------- --- 10.28 Non-Negotiable Mortgage Promissory Note dated December 28, 1994, in the principal amount of $8,850,000, by Rockingham Venture, Inc. in favor of Showboat, Inc.; Mortgage and Security Agreement dated December 28, 1994, between Rockingham Venture, Inc. and Showboat, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit 10.42. Limited Liability Company Agreement of Showboat Rockingham Company, L.L.C. dated July 27, 1995, among Rockingham Venture, Inc., Showboat New Hampshire, Inc. and Showboat Rockingham Company, L.L.C.; Management Agreement dated July 27, 1995, among Showboat Rockingham Company L.L.C., Showboat Operating Company and Rockingham Venture, Inc.; Administrative Services Agreement dated July 27, 1995, between Showboat Operating Company and Showboat Rockingham Company, L.L.C.; and Trademark License Agreement dated July 27, 1995, between Showboat, Inc. and Showboat Rockingham Company, L.L.C., are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1995, Part IV, Item 14(a)(3), Exhibit 10.35. Construction and Operation Agreement by and between Showboat Rockingham Company LLC and Rockingham Venture, Inc. dated as of December 20, 1997; and First Amendment to Limited Liability Company Agreement of Showboat Rockingham Company, LLC dated as of December 20, 1997. 10.29 Promissory Note dated March 19, 1997, in the principal amount of $15,000,000 by Atlantic City Showboat, Inc. in favor of Showboat, Inc. 10.30 Loan and Guaranty Agreement dated July 14, 1995, among NatWest Bank, N.A., Showboat, Inc. and Atlantic City Showboat, Inc., Ocean Showboat, Inc. and Showboat Operating Company; Revolving Note dated July 14, 1995, in the principal amount of $25.0 million by Showboat, Inc. in favor of NatWest Bank, N.A.; Deed of Trust, Assignment of Rents and Security Agreement dated July 14,1995, by Showboat, Inc. in favor of Nevada Title Company for the benefit of NatWest Bank, N.A.; Leasehold in Pari Passu Mortgage, Assignment of Rents and Security Agreement dated July 14, 1995, between NatWest Bank and Atlantic City Showboat, Inc.; Assignment of Leases and Rents dated July 14, 1995, between NatWest Bank and Atlantic City Showboat, Inc.; Intercreditor Agreement for Pari Passu Indebtedness Relating to Atlantic City Showboat dated July 14, 1995, among Showboat, Inc., Atlantic City Showboat, Inc., IBJ Schroder Bank & Trust Company and NatWest Bank, N.A.; and Intercreditor Agreement for Pari Passu Indebtedness Relating to Las Vegas Showboat dated July 14, 1995, among Showboat, Inc., IBJ Schroder Bank & Trust -129- EXHIBIT PAGE NO. DESCRIPTION NO. --- ----------- --- Company and NatWest Bank, N.A., are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1995, Part IV, Item 14(a)(3), Exhibit 10.38. First Amendment to the Pari Passu Assignment of Leases and Rents dated July 14, 1997 between Atlantic City Showboat, Inc. and Fleet Bank, N.A. (formerly known as NatWest Bank, N.A.); Second Amendment to the Leasehold in Pari Passu Mortgage, Assignment of Rents and Security Agreement dated July 14, 1997 among Atlantic City Showboat, Inc. and Fleet Bank, N.A. (formerly known as NatWest Bank, N.A.); Modification to Loan and Guaranty Agreement dated July 14, 1997 among Fleet Bank, N.A. (formerly known as NatWest Bank, N.A.), Showboat, Inc., Showboat Operating Company, Ocean Showboat, Inc. and Atlantic City Showboat, Inc.; Modification to Revolving Note dated July 14, 1997, in principal amount of $35,000,000 by Showboat, Inc. in favor of NatWest Bank, N.A. (now known as Fleet Bank, N.A.); First Amendment to the Intercreditor Agreement for Pari Passu Indebtedness Relating to Atlantic City Showboat dated July 14, 1997 among Showboat, Inc., Atlantic City Showboat, Inc., IBJ Schroder Bank & Trust Company and Fleet Bank, N.A. (formerly known as NatWest Bank, N.A.); First Amendment to the Intercreditor Agreement for Pari Passu Indebtedness Relating to Las Vegas Showboat dated July 14, 1997 among IBJ Schroder Bank & Trust Company, Showboat, Inc. and Fleet Bank, N.A. (formerly known as NatWest Bank, N.A.); First Amendment to the Deed of Trust, Assignment of Rents and Security Agreement dated July 14, 1997 among Showboat, Inc. and Showboat Operating Company to Nevada Title Company for the benefit of Fleet Bank, N.A. ( formerly known as NatWest Bank, N.A.). 10.31 Promissory Note dated January 1, 1997, in the principal amount of $34,011,720 by Showboat Fifteen, Inc. in favor of Showboat, Inc. is incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1996, Part IV, Item 14(a)(3), Exhibit 10.33. 10.32 Standby Equity Commitment dated March 28, 1996, by and among Showboat Marina Casino Partnership, Showboat Marina Finance Corporation and Showboat, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 10- Q (file no 1-7123) for the three month period ended March 31, 1996, Part II, Item 6(a), Exhibit 10.02. 10.33 Showboat, Inc. 1996 Stock Appreciation Rights Plan, effective date September 3, 1996, is incorporated herein by reference to Showboat, Inc.'s Form 10-Q (file no 1-7123) for the nine month period ended September 30, 1996, Part II, Item 6(a), Exhibit 10.01. -130- EXHIBIT PAGE NO. DESCRIPTION NO. --- ----------- --- 10.34 Promissory Note dated January 1, 1997, in the principal amount of $8,197,293 by Showboat Operating Company in favor of Showboat, Inc.; Promissory Note dated January 1, 1997, in the principal amount of $12,344,192 by Showboat Operating Company in favor of Showboat, Inc.; and Promissory Note dated January 1, 1997, in the principal amount of $9,641,821 by Showboat Operating Company in favor of Showboat, Inc. are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1996, Part IV, Item 14(a)(3), Exhibit 10.38. 10.35 Promissory Note dated January 1, 1997, in the principal amount of $53,109,002 by Showboat Development Company in favor of Showboat, Inc.; and Promissory Note dated January 1, 1997, in the principal amount of $6,292,083 by Showboat Development Company in favor of Showboat, Inc. are incorporated herein by reference to Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1996, Part IV, Item 14(a)(3), Exhibit 10.39. 10.36 Agreement of Purchase and Sale by and between Sun International and Showboat Land LLC, dated January 29, 1998; Assignment and Assumption of Lease by and between Sun International and Showboat Land LLC, dated January 27, 1998; Landlord Estoppel Certificate by Sun International to Atlantic City Showboat, Inc., dated January 27, 1998; Tenant Estoppel Certificate by Atlantic City Showboat, Inc. to Sun International dated January 27, 1998. 10.37 Mortgage and Security Agreement by and between Column Financial, Inc. and Showboat Land LLC, dated January 29, 1998; Promissory Note in the principal amount of $100,000,000, in favor of Column Financial, Inc. by Showboat Land LLC, dated January 29, 1998; Cash Management Agreement by and between Column Financial, Inc. and Showboat Land LLC, dated January 28, 1998; Guaranty of Lease by and between Showboat, Inc. and Column Financial, Inc., dated January 29, 1998; Environmental Indemnity Agreement by and between Column Financial, Inc., Showboat Land LLC and Atlantic City Showboat, Inc., dated January 29, 1998; Assignment of Leases and Rents by and between Column Financial, Inc. and Showboat Land LLC, dated January 29, 1998; Tenant Estoppel Certificate by Atlantic City Showboat, Inc. to Column Financial, Inc. and Showboat Land LLC dated January 29, 1998; Promissory Note Clarification Agreement dated January 29, 1998 between Column Financial, Inc. and Showboat Land LLC; and Lease Clarification Agreement dated February 13, 1998 among Showboat Land LLC and Atlantic City -131- EXHIBIT PAGE NO. DESCRIPTION NO. --- ----------- --- Showboat, Inc. 10.38 Parent Services Support Agreement dated May 29, 1997 between Showboat, Inc. and Showboat Operating Company; Management Services Support Agreement dated May 29, 1997 between Showboat, Inc. and Showboat Operating Company. 10.39 Stock Purchase Agreement dated as of December 11, 1997 by and between Showboat Development Company and Futuresouth, Inc. 21.01 List of Subsidiaries. 23.01 Consent of KPMG Peat Marwick LLP. 27.01 Financial Data Schedule. -132-
EX-10 2 EXHIBIT 10.16 FIRST AMENDMENT TO LEASE BETWEEN ATLANTIC CITY SHOWBOAT, INC. AND R. CRAIG BIRD AND DEBRA E. BIRD DATED APRIL 10, 1987 WHEREAS, Atlantic City Showboat, Inc. ("Lessor"), and R. Craig Bird and Debra E. Bird ("Lessee") entered into that certain Lease dated as of April 10, 1987, by which Lessor leased to Lessee certain real property within the Showboat Casino Hotel building in Atlantic City for a term of years as defined said Lease; and WHEREAS, Lessee has continuously occupied the Premises as defined in the Lease and operated therefrom a Gift Shop; and WHEREAS, due to certain renovations of the Showboat Casino Hotel building, the Lessor and Lessee desire to relocate Lessee's gift shop operation from the Premises as defined in the Lease to another location within the Showboat Casino Hotel building; and WHEREAS, the parties desire to amend the Lease with respect to the use of the premises; and WHEREAS, Lessee desires to memorialize its exercise of its options to extend the term of the Lease; and WHEREAS, Lessor and Lessee, upon mutual execution of this First Amendment, desire that all of the terms and conditions of the Lease remain in full force and effect with the exception of those portions of the Lease herein amended and wish to ratify and confirm all of the terms, conditions and provisions of the Lease so that such terms, conditions and provisions are completely applicable to the relationship of Lessor and Lessee with respect to the relocated gift shop. NOW, therefore, in consideration of mutual covenants, Lessor and Lessee hereby agree to amend the Lease as follows: 1. Effective as of March 1, 1997, Lessee shall vacate, surrender and forever relinquish any right, title or interest to that certain real property identified in the Lease as RS7 identified in Exhibits A and B of the Lease. 2. Effective March 1, 1997, Lessor leases to Lessee and Lessee leases from Lessor that certain real property located within the Showboat Casino Hotel building more particularly depicted and described in and on Exhibits A and B attached hereto, which Exhibits A and B are intended to replace and supersede the corresponding Exhibits attached to the Lease. 3. Effective as of March 1, 1997, the Lease, as amended by this first amendment, including all of its terms, conditions and provision, shall apply to the new Gift Shop Premises to the same extent as it applied to the Premises. 4. Effective as of March 1, 1997, the following shall be deleted from Article 18(a)(2) of the Lease (see page 20 of Lease): The following words or phrases contained in subparagraph (i): "Ron Lee clown figures (described as 24 karat gold over a base metal on an onyx base)"; Subparagraph (v) in its entirety; Subparagraph (vi) in its entirety; The following words or phases contained in subparagraph (vii): "fresh baked cookies," "soft drinks," "ice cream cones or bars or any ice cream package fountain product". 5. Lessee hereby exercises the option to renew set forth at Article 41 of the Lease, to wit, the Term of the Lease is extended for one (1) successive ten (10) year term following the expiration of the Term of the Lease as set forth at page one thereof. IN WITNESS WHEREOF, the parties have set their hands and seals by their authorized representatives as of this 17th day of July, 1997. Attest: ATLANTIC CITY SHOWBOAT, INC. /s/ Luther G. Anderson BY: /s/ Herbert R. Wolfe Luther G. Anderson Herbert R. Wolfe Assistant Secretary President and CEO Witness: /s/ Brenda S. Wallace BY: /s/ R. Craig Bird R. Craig Bird Witness: /s/ Brenda S. Wallace BY: /s/ Debra E. Bird Debra E. Bird [HARD COPY OF FIRST AMENDMENT TO LEASE CONTAINS GRAPHIC CONSTRUCTION PLAN @ FUTURE GIFT SHOP AS EXHIBIT A] Exhibit A
APPROXIMATE GENERAL SPACE LOCATION SIZE UTILIZATION Gift Shop See Hillier Sheet 1,300 sq. ft. Retail sale of magazines #A2.I newspapers, general mer- chandise, sundries, drugs, souvenirs and tobacco products
Exhibit B [Showboat Letterhead] March 25, 1987 R. Craig Bird, t/a Ocean 11 Enterprises 4 E. Timber Avenue Marmora, NJ 08223 Re: ATLANTIC CITY SHOWBOAT, INC. - OCEAN 11 ENTERPRISES AGREEMENT Dear Mr. Bird: Please have this letter confirm the terms of the arrangement between you and Atlantic City Showboat, Inc. ("Showboat") for the placement of cigarette and food vending machines at the Atlantic City Showboat Hotel, Casino and Bowling Center ("Hotel"). Those terms are as follows: 1. YOUR OBLIGATIONS. You will be obligated at your cost to: (a) Transport, place and install at the Hotel as expeditiously as possible a quantity and variety of cigarette and candy/snack vending machines satisfactory to Showboat. Such machines will be installed at all locations directed by Showboat in its sole discretion; (b) Make substitutions of machines from time to time at the reasonable discretion of Showboat; (c) Service, repair, stock and maintain in good condition machines installed and respond to any service call within 24 hours; (d) Maintain comprehensive general liability insurance satisfactory to Showboat and workers compensation insurance as required by law; (e) Adhere to Showboat's cash collection procedures as prescribed from time to time; (f) Bear the risk of loss of all machines; (g) Obtain all necessary governmental licenses, permits, registrations and approvals; Mr. R. Craig Bird March 25, 1987 Page 2 (h) Make collections from the machines at designated intervals as prescribed by Showboat; (i) Make available at the following prices and pay to Showboat commissions in accordance with the following schedule: MACHINE VENDING PRICE COMMISSION Candy & Snacks .60 12% (Public) Cigarettes 1.85 30% (Public) Candy & Snacks .50 None (Employee) Cigarettes 1.50 12% (Employee) Collections will be made at designated times by you or your representative and a representative of Showboat and divisions of collection proceeds will be made at the Hotel upon each collection: (j) Allow Showboat to audit at its discretion any records pertinent to collections: (k) Indemnify, defend and hold Showboat and/or its employees harmless for any claims, suits or damages arising out of your performance or non-performance of this Agreement, including any claim or assessment for taxes levied in connection with or arising out of operation of the machines. 2. OBLIGATIONS OF SHOWBOAT. Showboat will be obligated at its cost to: (a) Grant to you the exclusive limited license to place cigarette and candy/snack vending machines on the Hotel premises at locations specified by Showboat (subject to the terms and conditions of this Agreement) and to allow you or your employees to come into the Hotel premises for the purpose of servicing machines. The parties agree that this limited license will be deemed not to be coupled with any interest and neither this letter agreement nor any memorandum thereof will be lodged for recording as an interest in real property. Mr. R. Craig Bird March 25, 1987 Page 3 3. TERMS AND TERMINATION. The term of this Agreement ("Term") shall commence on April 1, 1987, and will continue in effect until March 31, 1992, and from year to year thereafter unless and until terminated by either party on sixty (60) days written notice given prior to the fifth anniversary or subsequent anniversaries of commencement of the Term. This Agreement shall be terminable on ten (10) days written notice by Showboat, however, in the event that Showboat's casino license is revoked, in the event that either party becomes bankrupt, insolvent or is dissolved, any Act of God or a third party which renders operation of the Hotel/Casino complex impossible or the sale by Showboat of the Hotel. Notice shall be effective if given by certified mail, return receipt requested, to the parties at the addresses set forth in this letter. 4. GOVERNING LAW. This Agreement will be subject to, governed by and construed in accordance with the laws of the State of New Jersey as may be amended and supplemented from time to time, and any action arising out of this agreement will be brought before a court of competent jurisdiction in Atlantic County, New Jersey. 5. RELATIONSHIP OF THE PARTIES. The parties acknowledge that nothing herein is intended to create any employment, agency, partnership, joint venture or tenancy and that your relationship to Showboat is strictly that of limited licensee. 6. ENTIRE AGREEMENT. This Agreement embodies the entire Agreement between the parties and supersedes all prior or contemporaneous agreements or understandings with respect to the subject matter hereof. This Agreement may be amended only in writing signed by the party to be charged. If the terms set forth in this letter are acceptable to you, please so indicate by signing where indicated below and returning this letter to Mr. Anderson of our Legal Department. ATLANTIC CITY SHOWBOAT, INC. /s/ Frank A. Modica Mar. 26, 1987 Frank A. Modica, President Date AGREED TO & ACCEPTED BY OCEAN 11 ENTERPRISES /s/ R. Craig Bird Mar. 28, 1987 R. Craig Bird, Sole Date Proprietor cc: Al Hoff, Vice Pres. Sports Robert McDonald, Vice Pres. Hotel Robert L. Frolow, Insurance & Risk Mgr. Luther G. Anderson, Asst. General Counsel EX-10 3 EXHIBIT 10.28 CONSTRUCTION AND OPERATION COOPERATION AGREEMENT This Construction and Operation Cooperation Agreement (the "Agreement") is made by and between Showboat Rockingham Company, L.L.C., a New Hampshire limited liability company ("SRC"), as amended by the First Amendment to the Limited Liability Company agreements, and Rockingham Venture, Inc., a New Hampshire corporation ("Rockingham"), as of this 20TH day of DECEMBER, 1997. R E C I T A L S 1. SRC contemplates that the State of New Hampshire may enact privately owned non-racing gaming legislation and, if authorized by such legislation and if licensed by the appropriate licensing authorities having jurisdiction over such gaming operations in New Hampshire, SRC may construct a non-racing gaming facility or renovate an existing building at Rockingham Park, Rockingham County, Salem, New Hampshire ("Rockingham Park") for the exclusive benefit of non-racing gaming operations. 2. Rockingham is the owner of Rockingham Park and conducts pari-mutuel horse racing operations, simulcast wagering, and other related support activities at Rockingham Park. 3. SRC and Rockingham have discussed the impact of construction activities and the operation of a gaming facility by SRC on the activities conducted at Rockingham Park by Rockingham, including, without limitation, the operation of live thoroughbred horse racing. 4. SRC and Rockingham desire to provide mutual cooperation to each other to facilitate the construction and operation of the gaming facility at Rockingham Park, provided that the construction and operation of the gaming facility by SRC shall not in any way materially impair the horse racing operations or other related support activities at Rockingham Park. Now, Therefore, in consideration herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, SRC and Rockingham agree as follows: I. PRECONSTRUCTION PLANNING A. SCHEMATIC DIAGRAMS. Rockingham shall provide detailed schematic diagrams of Rockingham Park to SRC showing the location of all electrical lines, utilities lines, gas lines, sewer lines, storm drains and other design and engineering elements of Rockingham Park to the extent that such drawings are available. B. OTHER INFORMATION. Upon the request of SRC, Rockingham shall provide SRC with any other information with regard to Rockingham Park which will assist SRC in the construction of a gaming facility at Rockingham Park. C. PERMIT PROCESS: Rockingham agrees to assist and cooperate with SRC to file all applications necessary to obtain all required permits and other approvals necessary to construct (or renovate existing buildings) and operate a non-racing gaming facility at Rockingham Park. D. DESIGN OF GAMING FACILITY. Prior to construction of any gaming facility, SRC shall provide Rockingham with the final site plan, footprints, utility plans, exterior renderings and a proposed construction schedule of the work for the construction of the proposed gaming facility, including, without limitation, types of construction activities to be conducted on particular days and hours. Without limiting the generality of the foregoing, prior to commencement of the construction by SRC, SRC shall submit to Rockingham for Rockingham's approval, which approval may not be unreasonably withheld: (i) a construction plan of the gaming facility at Rockingham Park showing improvements to be constructed by SRC; (ii) proposed locations for construction shacks and other temporary improvements as well as construction workmen's parking area; and (iii) a schedule describing approximate days and times during which construction activities shall take place. Within ten (10) days after submission of such plans, proposed locations and time schedule, Rockingham shall notify SRC in writing whether the same are approved or disapproved, specifying the reasons therefor if disapproved, provided that a failure to give such written notice within said ten (10) days shall constitute approval thereof. If Rockingham shall disapprove the plans, proposed locations and time of the construction, SRC shall be given adequate time and opportunity to correct such matters which Rockingham has identified for the basis of such disapproval. In the event such revised plans, locations and schedule are disapproved by Rockingham, and SRC concludes such disapproval was not reasonable in light of the goals to be achieved pursuant to that certain Limited Liability Company Agreement between Rockingham and Showboat New Hampshire, Inc. dated as of July 27, 1995 (the "Limited Liability Company Agreement") such dispute shall be resolved in accordance with Article V, Arbitration. E. CONTROL OF THE WORK: SRC shall have the sole and exclusive right to select any architect, construction manager, general contractor and engineer in connection with the design and construction of the proposed gaming facility. SRC shall also have the sole and exclusive right to select any additional subcontractors, materialmen, suppliers or any other persons or companies in connection with the construction of the proposed gaming facility. Further, SRC shall have the sole and exclusive right to manage, direct, control, coordinate and prosecute the completion of the proposed gaming facility, and Rockingham shall cooperate fully in such regard, but at no cost or expense to Rockingham. II. CONSTRUCTION REQUIREMENTS NON-INTERFERENCE WITH HORSE RACING OPERATIONS. SRC agrees to construct the gaming facility in such a manner as not to materially interfere with any related horse racing activities currently being conducted at Rockingham Park, including without limitation, live thoroughbred horse racing and simulcast wagering. The construction of the gaming facility shall not materially interfere with the operation of live thoroughbred horse racing, including training at Rockingham 2 Park and access to the racetrack facility by customers, suppliers and others. Such prohibited conduct includes, but is not limited to, noise, bright lights, flashing lights, changes in color or any other activities which can cause distraction of horses on the racing facility or impair patrons of Rockingham from participating in the activities conducted at Rockingham Park by Rockingham. Subject to the foregoing, Rockingham agrees to conduct its horse racing activities and other related activities in a manner (i) so as not to cause undue increase in the cost of construction of the gaming facility at Rockingham Park, or any part thereof which is not reasonably necessary for the protection of Rockingham's horse racing activities and other related support activities, and (ii) so as not to unreasonably interfere with SRC's timetable for construction of the gaming facility at Rockingham Park or any part thereof. III. COMPLIANCE WITH LAWS SRC and Rockingham shall comply in all material respects with all applicable laws, rules, regulations and orders of all states, counties and municipalities in which such party conducts business related to the construction activities for the non- racing gaming facility at Rockingham Park including but not limited to the rules and regulations of the New Hampshire Pari- Mutuel Commission. IV. INSURANCE INDEMNITY SRC agrees to maintain adequate liability insurance including Rockingham as an additional insured with regard to all construction activities. SRC, for itself, its successors and assigns, agrees to indemnify and hold Rockingham harmless from any claim, causes of action, suits, and damages arising out of or in any way related to the construction of the gaming facility not otherwise caused by negligence. V. OPERATION OF GAMING FACILITY Subject to the provisions of the Limited Liability Company Agreement, SRC shall operate the gaming facility in a manner which will not materially interfere with the horse racing operations and related support activities of Rockingham Park, including without limitation, ensuring that all operations at the gaming facility do not materially interfere with, distract, or disrupt live thoroughbred horse racing or simulcast wagering at Rockingham Park. VI. ARBITRATION ANY DISPUTE UNDER THIS AGREEMENT SHALL BE RESOLVED BY ARBITRATION BY A SINGLE ARBITRATOR ACTING PURSUANT TO THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION. ANY DECISION OF SUCH ARBITRATOR MAY BE ENFORCED IN ANY COURT OF COMPETENT JURISDICTION. EITHER PARTY MAY SERVE UPON THE OTHER PARTY A WRITTEN NOTICE OF THE DEMAND DISPUTE TO BE RESOLVED PURSUANT TO THIS ARTICLE. WITHIN FIFTEEN (15) DAYS AFTER THE GIVING OF SUCH NOTICE, AN ARBITRATOR MUST BE CHOSEN. SRC AND ROCKINGHAM SHALL ADVANCE EQUALLY THE COST OF THE SELECTED ARBITRATOR. SAID ARBITRATOR SHALL BE SWORN FAITHFULLY 3 AND FAIRLY TO DETERMINE THE QUESTION AT ISSUE. THE ARBITRATOR SHALL AFFORD TO SRC AND ROCKINGHAM A HEARING AND THE RIGHT TO SUBMIT EVIDENCE, WITH THE PRIVILEGE OF CROSS-EXAMINATION, ON THE QUESTION AT ISSUE, AND SHALL WITH ALL POSSIBLE SPEED MAKE HIS DETERMINATION IN WRITING AND SHALL GIVE NOTICE TO THE PARTIES HERETO OF SUCH DETERMINATION. THE DETERMINATION SHALL BE BINDING ON THE PARTIES. VII. MISCELLANEOUS A. TIME OF THE ESSENCE. Time is of the essence with respect to all time periods set forth in this Agreement. B. HEIRS, SUCCESSORS, ASSIGNS. Except as otherwise provided herein, each provision hereof shall extend to and shall, as the case may require, bind and inure to the benefit of the parties' heirs, executors, administrators, permitted successors, permitted assigns and legal representatives. C. CONSTRUCTION. All of the provisions of this Agreement shall be deemed and construed to be conditions, as well as covenants as though in words specifically expressing or importing covenants and conditions, for use in each separate provision hereof. The language in all parts of this Agreement shall be in all cases construed simply according to its fair meaning, and not strictly for or against SRC or Rockingham. This Agreement shall be construed without regard to any presumption or other rule requiring construction against the party causing the same to be drafted. D. GOVERNING LAW. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of New Hampshire without reference to its choice of law provisions. E. SEVERABILITY. Should any portion of this Agreement be declared invalid or unenforceable, then such portion shall be deemed to be severed from this Agreement and shall not affect the remainder thereof. F. RELATION OF THE PARTIES. Nothing in this Agreement shall be construed as creating a tenancy, ownership, limited partnership, joint venture, or any other relationship between the parties hereto. All debts and liabilities incurred by SRC within the scope of the authority granted and permitted hereunder in the course of its management and operation of the gaming facility shall be the debts and liabilities of SRC only, and Rockingham shall not be liable for such debts and liabilities except as specifically stated to the contrary herein. G. ATTORNEYS' FEES. Should either party institute an arbitration, action or proceeding to enforce any provision hereof, or for other relief due to an alleged breach of any provision of this Agreement, the prevailing party shall be entitled to receive from the other party all costs of the action or proceeding and reasonable attorneys' fees. H. ENTIRE AGREEMENT. This Agreement covers in full each and every agreement of any kind or nature whatsoever between the parties hereto concerning this Agreement, and all 4 preliminary negotiations and agreements, whether verbal or written, of whatsoever kind or nature are merged herein. No oral agreement or implied covenant shall be held to vary the provisions hereof, any statute law or customs to the contrary notwithstanding. I. COUNTERPARTS. This Agreement may be executed in two or more counterparts and shall be deemed to have become effective when and only when all parties hereto have executed this Agreement, although it shall not be necessary that any single counterpart be signed by or on behalf of each of the parties hereto, and all such counterparts shall be deemed to constitute but one and the same instrument. J. HEADINGS. Headings or captions have been inserted for convenience of reference only and are not to be construed or considered to be a part hereof and shall not in any way modify, restrict or amend any of the terms or provisions thereof. K. WAIVER. The waiver by one party of any default or breach of any of the provisions, covenants or conditions hereof on the part of the other part to be kept and performed shall not be a waiver of any preceding or subsequent breach of any other provisions, covenants or conditions contained herein. Agreed And Accepted of the date first above-written. Showboat Rockingham Company, L.L.C., a limited liability company, by Showboat New Hampshire, Inc., its Manager, By: /s/ its duly authorized _________________ Rockingham Venture, Inc., a New Hampshire corporation By: /s/ its duly authorized _________________ 5 FIRST AMENDMENT TO LIMITED LIABILITY COMPANY AGREEMENT OF SHOWBOAT ROCKINGHAM COMPANY, L.L.C., A NEW HAMPSHIRE LIMITED LIABILITY COMPANY THIS FIRST AMENDMENT TO LIMITED LIABILITY COMPANY AGREEMENT ("First Amendment") is made and entered into as of DECEMBER 20, 1997, by and among Rockingham Venture, Inc., a New Hampshire corporation ("Rockingham"), and Showboat New Hampshire, Inc., a Nevada corporation ("Showboat") (Rockingham and Showboat are hereinafter collectively referred to as the "Members" and individually as the "Member), and Showboat Rockingham Company, L.L.C., a New Hampshire limited liability company (the "Company"). RECITALS A. The Members and the Company have entered into a Limited Liability Company Agreement ("Original Agreement") dated as of July 27, 1995, to govern the affairs of the Company and the conduct of its business, including, without limitation, the rights and restrictions on the transfer of a Member's Interest in the Company owned by the current and future Members of the Company. B. The Members and the Company desire to amend the Original Agreement (i) to provide for the repayment of the Promissory Note (defined in the Original Agreement); (ii) to expand the ability of Rockingham to transfer its interest in the Company in certain limited situations; and (iii) to revise the procedure for future amendments to the Original Agreement, each in accordance with the terms and conditions of this First Amendment. NOW, THEREFORE, in consideration of the mutual promises contained in this First Amendment, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and with the intention of being bound by this First Amendment, the Members and the Company agree as follows: 1. RECITALS. The foregoing Recitals are true and correct. 2. DEFINITIONS. Except as otherwise defined herein, the capitalized terms used in this First Amendment shall have the meanings specified in the Original Agreement. 3. AMENDMENT TO SECTION 4.1(B)(I)(2) OF THE ORIGINAL AGREEMENT. Article IV, Section 4.1(b)(i)(2) of the Original Agreement is hereby amended and restated as follows: Showboat shall contribute the principal balance of the Promissory Note exclusive of any unpaid due balances. Upon contribution of the Promissory Note by Showboat, Rockingham's obligations to make principal and interest payments shall continue in accordance with Section 4.1(b) (iii) below. In the event that the Company is liquidated during Limited Gaming, all distributions paid to Showboat pursuant to this Agreement shall be aggregated. If the aggregated distributions do not exceed the principal balance of the Promissory Note as of the date of contributing same to the Company, Rockingham shall execute a new promissory note in the principal amount which is equal to the difference between the balance of the Promissory Note at the time of contribution to the Company and the aggregate of the distributions to Showboat. The new promissory note shall accrue interest from the date of liquidation of the Company at the same rate as interest accrued under the Promissory Note and principal and interest shall be paid in quarterly installments of no less than $259,000 until said promissory note is fully amortized. All monies paid, whether by the Company or Rockingham shall be applied first to interest then to principal. 4. AMENDMENT TO SECTION 4.1(B)(II)(2) OF THE ORIGINAL AGREEMENT. Article IV, Section 4.1(b)(ii)(2) of the Original Agreement is hereby amended and restated as follows: Showboat shall contribute (i) the principal balance of the Promissory Note (if not previously contributed) exclusive of any unpaid due balances and Rockingham's obligations to make principal and interest payments shall continue in accordance with Section 4.1(b)(iii) below and (ii) cash sufficient to obtain the Development Financing in an amount to fund the Project, not to exceed 30% of cash funds required for the Project. To the extent that Showboat's contribution exceeds 20% of cash funds required for the Project, the excess shall become a loan (the "Capital Loan") from Showboat to the Company and shall be repaid to Showboat by the Company over a four (4) year amortization period which repayment shall commence on the third anniversary date of commencement of operations at the Project. Such excess shall accrue interest at the same rate as the Development Financing. Attached hereto as Schedule 1 is an exemplar of the calculation of funds to be repaid to Showboat pursuant to the Capital Loan should Showboat make cash contributions in excess of 20% of cash funds 5. AMENDMENT TO SECTION 4.1(B)(III) OF THE ORIGINAL AGREEMENT. Article IV, Section 4.1(b)(iii) of the Original Agreement is hereby amended and restated as follows: Upon contribution to the Company, the Promissory Note shall be amended and restated so that Rockingham shall make equal principal and interest payments to the Company so that the Promissory Note shall be repaid in full within six years of the projected date of commencement of operations of the Company. 6. AMENDMENT TO SECTION 7.3 OF THE ORIGINAL AGREEMENT. Article VII, Section 7.3 of the Original Agreement is hereby amended by adding the following new paragraph after the two existing paragraphs in that section: 2 The Rockingham Shareholders shall be permitted to effect a public offering(s) of the capital stock of Rockingham registered under the Securities Act of 1993, provided, however, that (i) the Rockingham Shareholders and the Permitted Rockingham Transferees, at all times maintain ownership of more than fifty percent (50%) of Rockingham's issued and outstanding shares of capital; (ii) said public offering(s) is (are) in compliance with all applicable laws and regulations, including, without limitation, the receipt of any required gaming licenses or approvals; and (iii) such public offering(s) will not adversely effect any gaming license held by Showboat or its Affiliates in any other jurisdiction. Rockingham shall pay all costs of a public offering of its capital stock and any costs or expenses incurred by the Company, the other Members, or Showboat and its Affiliates, related to such public offering, including, but not limited to regulatory, investigative and licensing fees and expenses. In addition, Rockingham Shareholders shall be permitted to privately transfer interests in Rockingham so long as (i) the Rockingham Shareholders and Rockingham Permitted Transferees, at all times maintain ownership of more than fifty percent (50%) of the issued and outstanding shares of capital stock of Rockingham; (ii) said transfers is in compliance with all laws and regulations, including, without limitation, the receipt of any required gaming licenses or approvals; and (iii) said transfers will not adversely effect any gaming license held by Showboat or its Affiliates in any other jurisdiction. Prior to the transfers of an interest in Rockingham pursuant to this section, it is acknowledged and agreed that to the extent that the purchasers of any interest in Rockingham are required to be licensed in New Hampshire or in any other jurisdiction as a result of their ownership in Rockingham that, notwithstanding the foregoing, the purchasers of such interest shall be required, at their sole expense, to obtain all approvals necessary to effectuate such transfer and that no transfer shall become effective until such purchaser of such interest obtains such approvals and/or licenses. The purchasers of such interest shall pay all costs and expenses incurred by the Company, the other Members, or Showboat and its Affiliates, related to such transfer, including, but not limited to, regulatory, investigative and licensing fees and expenses. In addition, the purchasers of such interest shall be required, prior to the transfer becoming effective, to execute and deliver to the Company a counterpart copy of this Agreement or a written agreement in form and substance satisfactory to Showboat, its successors or assigns. No such transfer shall release or discharge the transferor from any liabilities or obligations under this Agreement until such counterpart or other agreement becomes effective, and, then only to the extent provided herein. 3 7. AMENDMENT TO SECTION 9.1(E) OF THE ORIGINAL AGREEMENT. Article IX, Section 9.1(e) of the Original Agreement is hereby amended by the addition of a replacement Section 9.1(e) to read in its entirety as follows: (e) If a Member, directly or indirectly, transfers its Interest or any portion thereof in the Company (i) to any Person other than a Permitted Transferee or a Rockingham Permitted Transferee, as the case may be, without the unanimous written consent of the Members (excluding the proposed transferee); or (ii) to any Person except as expressly provided in Section 7.3 of this Agreement; or 8. AMENDMENT TO SECTION 19.7 OF THE ORIGINAL AGREEMENT. Article XIX, Section 19.7 of the Original Agreement is hereby amended by the addition of a replacement Section 19.7 to read in its entirety as follows: This Agreement may not be modified, changed or amended except by an instrument in writing, signed by all of the Members of the Company. 9. AMENDMENT TO SECTION 23.1(F) OF THE ORIGINAL AGREEMENT. Article XXIII, Section 23.1(f) of the Original Agreement is hereby amended by the addition of a replacement Section 23.1(f) to read in its entirety as follows: (i) upon a change in the ownership of Showboat, Inc. or its Affiliates resulting in a change in control of Showboat, unless Rockingham consents within thirty (30) days prior to the change in control of Showboat, which consent shall not be unreasonably or untimely withheld, in writing to such change in control; or (ii) upon a change in control of Rockingham, its successors or assigns, unless Showboat consents within thirty (30) days prior to the change in control of Rockingham, which consent shall not be unreasonably or untimely withheld, in writing to such change in control. A change of control of Rockingham shall not be deemed to have occurred if shares of Rockingham are transferred to an entity which is controlled by the Rockingham Shareholders or transferred to a Permitted Rockingham Transferee. For purposes of this section, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person or entity, whether through the ownership of voting securities, by contract or otherwise. Control shall have deemed to occur where a Person owns more than 35% of a publicly traded corporation, or more than 50% of a non-publicly traded corporation. 10. CONFLICT BETWEEN THIS FIRST AMENDMENT AND THE ORIGINAL AGREEMENT. If there is a conflict between any of the provisions of this First Amendment and any of the provisions of the Original Agreement, the provisions of the First Amendment shall control. 4 11. NO OTHER AMENDMENTS OR CHANGES. Except as expressly amended or modified by this First Amendment, all of the terms and conditions of the Original Agreement shall remain unchanged and in full force and effect. 12. COVENANT OF COMPLIANCE. In accordance with Article XIX, Section 19.7 "Amendments" of the Original Agreement, Rockingham, Showboat and the Company covenant and agree that: (i) this First Amendment has been approved by a unanimous vote (and not by written consent) of all of the Members of the Company at a special or annual meeting of the Members; and (ii) notice of the parties' intention to amend the original Agreement was contained in the notice of such special or annual meeting of the Members, or such notice of a meeting was waived by all of the Members. IN WITNESS WHEREOF, parties hereto have executed this First Amendment on the date first above written. Members: Company: ROCKINGHAM VENTURE, INC., SHOWBOAT ROCKINGHAM COMPANY, a New Hampshire corporation L.L.C., a New Hampshire limited liability company By: SHOWBOAT NEW HAMPSHIRE, INC., its Manager By: /s/ By: /s/ Joseph E. Carney, Jr. Its:______________________________ President SHOWBOAT NEW HAMPSHIRE, INC., a Nevada corporation By: /s/ J. Kell Houssels, III President 5 ACKNOWLEDGED AND AGREED TO: Rockingham Shareholders: _____________________________ _____________________________ _____________________________ _____________________________ ____________________________ 6 EX-10 4 EXHIBIT 10.29 $15,000,000.00 US Atlantic City, New Jersey As of March 19, 1997 PROMISSORY NOTE On March 18, 1998, for value received, Atlantic City Showboat, Inc. ("ACSI") promises to pay to the order of Showboat, Inc. ("SBO") at 2800 Fremont Street, Las Vegas, Nevada or such other place as SBO shall designate in writing to ACSI, the sum of Fifteen Million and no/one-hundredths Dollars ($15,000,000.00) (or such lesser principal sum which is the aggregate unpaid principal amount of all loans made by SBO and ACSI as indicated on the Schedule of Advances attached as page 3 of this promissory note). ACSI also promises to pay interest to SBO on the unpaid principal amount outstanding from time-to-time prior to maturity at an annual rate equal to the average prime rate for money center banks as published on the first business day of each calendar month in the WALL STREET JOURNAL called "daily composite rates" ("prime rate"), plus one percent (1%) the ("Contract Rate"). The Contract Rate shall be adjusted on the first day of each calendar month to reflect the prime rate, but shall not be adjusted at any other time during the calendar month. In no event shall the interest rate be in excess of the maximum rate of interest permitted under applicable law. Interest at the Contract Rate or Default Rate (as hereinafter defined) shall be paid by ACSI on the first day of each month commencing on the first day of the month occurring after the date of said promissory note. If any payment becomes due on any day which is not a business day, such payment shall be made on the next succeeding business day. The term "business day" means Monday through Friday excepting national (federal) legal holidays. Interest hereunder shall be calculated for the actual number of days elapsed on the basis of a 360-day year. All payments of principal and/or interest shall be paid in lawful money of the United States of America. ACSI hereby expressly authorizes SBO to record on the schedule to this promissory note the amount and date of all/any such loan(s) made hereunder and the date and amount of each payment of principal thereon. All such notations shall be presumed to be correct and the aggregate unpaid amount of all/any loan(s) set forth on the schedule shall be presumed to be the aggregate unpaid principal amount due under this promissory note. Any loan may be prepared in whole or in part at any time and from time to time without premium or penalty together with interest accrued on the amount prepaid to the date of any such prepayment. Upon ACSI's (i) failure to pay when due any accrued interest or principal or (ii) failure to duly keep, perform and observe each and every term, condition, covenant, agreement or provision of this promissory note, or (iii) assignment for the benefit of creditors, declaration of bankruptcy (either voluntary or involuntary) or initiation of proceedings in any court seeking or acquiescing to any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief with its creditors, in any manner, in or for the payment of its debts when due under any state or federal law including, without limitation, the seeking, consenting to, or acquiescing to or being subject to the appointment of any trustee, receiver, assignee, custodian, master or liquidator of itself or any of its property or any of the rent, revenue, issue, earnings, profits or income thereof, SBO may, at its option, and without notice to ACSI, declare immediately due and payable the entire unpaid aggregate balance of principal, together with all accrued interest thereon, so that the same shall become immediately due and payable. The foregoing shall be events of default and any singular one shall be a default. In the event of a default or an event of default, interest shall accrue from time thereof until such default or event of default is cured, at a default rate of interest ("Default Rate") which shall be calculated as that rate of interest equal to the prime rate plus two percent (2%) from the date of default or event of default. Payment thereof may be enforced and recovered in whole or in part at any time by one or more of the remedies provided in this note or available to SBO either at law or in equity. Each and every right and remedy granted to SBO or allowed to it by law shall be cumulative and not exclusive for one or the other. No delay, failure or omission by SBO upon any default of ACSI to exercise any right or remedy granted to it or allowed to it by law shall constitute a waiver by SBO of the right to exercise any such right or remedy upon such default or upon any subsequent default. ACSI hereby waives and releases all errors, defects and imperfections in any proceedings instituted by SBO under the terms of this note. ACSI hereby waives presentment for payment, demand, notice of demand, notice of nonpayment or dishonor, protest and notice of protest of this promissory note, and all other notices in connection with the delivery, acceptance, performance, default or enforcement of this promissory note. Any demand or notice if made or given shall be sufficiently made upon or given to ACSI if made in writing and mailed to ACSI by certified mail, return receipt requested, to the last address of ACSI known to SBO. This promissory note shall be governed by and construed in accordance with the laws of the State of Nevada. If any provision of this note shall be prohibited by or invalid under such laws, such provisions shall be ineffective to the extent of such prohibition or invalidity only, without invalidating the remainder of such provision or the remaining provisions of this promissory note. IN WITNESS WHEREOF, ACSI has caused this promissory note to be executed by its duly authorized officers and its corporate seal affixed hereto as of the day and year written on the first page of this note. ATLANTIC CITY SHOWBOAT , INC. By: /s/ Herb Wolfe President and Chief Executive Officer Attest: /s/ Luther Anderson Assistant Secretary 2
SCHEDULE OF ADVANCES DATE AMOUNT OF AMOUNT OF AGGREGATE ADVANCE PAYMENT AMOUNT DUE 3
EX-10 5 EXHIBIT 10.30 FIRST AMENDMENT TO IN PARI PASSU ASSIGNMENT OF LEASES AND RENTS This First Amendment (the "First Amendment") to the In Pari Passu Assignment of Leases and Rents (the "Assignment") is made as of the 14th day of July, 1997 by and between ATLANTIC CITY SHOWBOAT, INC., a New Jersey corporation ("Assignor"), and FLEET BANK, N.A. (formerly known as NATWEST BANK, N.A.), a national banking association ("Assignee"). Terms used herein not otherwise defined herein shall have the meanings set forth in the Assignment. RECITALS WHEREAS, Assignor and Assignee entered into an In Pari Passu Assignment of Leases and Rents dated as of July 14, 1995, recorded in the Clerk's Office of Atlantic County, New Jersey on September 14, 1995 in Mortgage Book 5702, Page 253 (the "Assignment"); WHEREAS, the Assignment was executed and delivered by Assignor to Assignee to secure the payment of that certain Revolving Note (herein the "Promissory Note"), dated July 14, 1995, executed and delivered by Showboat, Inc. to Assignee, in the maximum aggregate amount of $25,000,000; WHEREAS, the Assignor has requested that the Promissory Note be amended to provide for a maximum aggregate amount of $35,000,000; and WHEREAS, Assignee is willing to permit such amendment of the Promissory Note as requested by Showboat, Inc. NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. The definition of "Promissory Note" is hereby amended to increase the principal amount thereof from $25,000,000.00 to $35,000,000.00. 2 The definition of the "SBI Loan" is hereby amended to increase the principal amount thereof from $25,000,000.00 to $35,000,000.00. 3. All other terms and conditions of the Assignment are hereby ratified and confirmed. IN WITNESS WHEREOF, the Assignor and Assignee have caused this instrument to be duly executed as of the 14th day of July, 1997. ATLANTIC CITY SHOWBOAT, INC. By: /s/ Kathleen Caracciolo Kathleen Caracciolo Vice President - Finance, Treasurer and Chief Financial Officer FLEET BANK, N.A. By: /s John T. Harrison John T. Harrison Vice President STATE OF NEW JERSEY : : ss. COUNTY OF ATLANTIC : Be it remembered that on this 23rd day of October, 1997, before me, the subscriber, in and for said county, personally appeared Kathleen Caracciolo, Vice President - Finance, Treasurer and Chief Financial Officer of Atlantic City Showboat, Inc., who I am satisfied is the person who signed the within instrument, and she acknowledged that she signed and delivered the same as such officer aforesaid, and that the within instrument is the voluntary act and deed of such corporation made by virtue of a Resolution of its Board of Directors. And said Kathleen Caracciolo did further certify and acknowledge that she received a true, correct and complete copy of the within instrument. Witnesseth my hand and seal. /s/ Barbara L. McGuire Notary Public My Commission Expires: 5/6/98 STATE OF NEW JERSEY : : ss. COUNTY OF ATLANTIC : Be it remembered, that on this 27th day of October, 1997, before me, the subscriber, a Notary Public, personally appeared John T. Harrison, Vice President of FLEET BANK, N.A., who, I am satisfied is the person(s) named in and who executed the within instrument and he did acknowledge that he signed, sealed and delivered the same as his act and deed on behalf of the Bank and for the uses and purposes therein expressed. Witnesseth my hand and seal. /s/ Michelle A. Fernetti Notary Public My Commission Expires: 3/31/98 SECOND AMENDMENT TO LEASEHOLD IN PARI PASSU MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT This Second Amendment (the "Second Amendment") to the Leasehold in Pari Passu Mortgage, Assignment of Rents and Security Agreement (the "Mortgage") is made as of the 14th day of July, 1997 by and between ATLANTIC CITY SHOWBOAT, INC., a New Jersey Corporation ("Mortgagor"), whose address is 801 Boardwalk, Atlantic City, New Jersey, 08401, and FLEET BANK, N.A. (formerly known as NATWEST BANK, N.A.), a national banking association with a business office at 10 Exchange Place, Jersey City, New Jersey, 07322 ("Mortgagee"). Terms used herein not otherwise defined herein shall have the meanings set forth in the Mortgage. RECITALS WHEREAS, Mortgagor and Mortgagee entered into a Leasehold in Pari Passu Mortgage, Assignment of Rents and Security Agreement dated as of July 14, 1995, recorded in the Clerk's Office of Atlantic County, New Jersey on September 14, 1995 in Mortgage Book 5702, Page 152 (the "Mortgage") pursuant to which Mortgagor granted to Mortgagee a security interest in all of the Mortgaged Property; and WHEREAS, the Mortgage was executed and delivered by Mortgagor to Mortgagee to secure the payment of that certain Revolving Note (herein the "Promissory Note"), dated July 14, 1995, executed and delivered by Showboat, Inc. to Mortgagee, in the maximum aggregate amount of $25,000,000.00; and WHEREAS, Mortgagor, Mortgagee and others have entered into an Amendment to the Loan and Guaranty Agreement providing for an increase in the amount available under the Loan Agreement from $25,000,000 to $35,000,000 (the "Amendment"), and making other changes in the terms of the loan; and WHEREAS, pursuant to the Amendment, Showboat, Inc. has executed and delivered to Mortgagee an Amendment to the Promissory Note to be secured hereby. NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. The definition of "Promissory Note" in the Mortgage is hereby amended to read as follows: "Promissory Note" means that certain Revolving Note, dated July 14, 1995, between Borrower and Mortgagee as amended by that certain Modification to Revolving Note, dated as of July 14, 1997, and as may be further amended pursuant to the Loan Agreement, in the maximum aggregate amount of $35,000,000. 2. All other terms and conditions of the Mortgage are hereby ratified and confirmed. IN WITNESS WHEREOF, the Mortgagor and Mortgagee have caused this instrument to be duly executed as of the 14th day of July, 1997. ATLANTIC CITY SHOWBOAT, INC. By: /s/ Kathleen Caracciolo Kathleen Caracciolo Vice President - Finance, Treasurer and Chief Financial Officer FLEET BANK, N.A. By: /s John T. Harrison John T. Harrison Vice President STATE OF NEW JERSEY : : ss. COUNTY OF ATLANTIC : Be it remembered that on this 23rd day of October, 1997, before me, the subscriber, in and for said county, personally appeared Kathleen Caracciolo, Vice President - Finance, Treasurer and Chief Financial Officer of Atlantic City Showboat, Inc., who I am satisfied is the person who signed the within instrument, and she acknowledged that she signed and delivered the same as such officer aforesaid, and that the within instrument is the voluntary act and deed of such corporation made by virtue of a Resolution of its Board of Directors. And said Kathleen Caracciolo did further certify and acknowledge that she received a true, correct and complete copy of the within instrument. Witnesseth my hand and seal. /s/ Barbara L. McGuire Notary Public My Commission Expires: 5/6/98 STATE OF NEW JERSEY : : ss. COUNTY OF ATLANTIC : Be it remembered, that on this 27th day of October, 1997, before me, the subscriber, a Notary Public, personally appeared John T. Harrison, Vice President of FLEET BANK, N.A., who, I am satisfied is the person(s) named in and who executed the within instrument and he did acknowledge that he signed, sealed and delivered the same as his act and deed on behalf of the Bank and for the uses and purposes therein expressed. /s/ Michelle A. Fernetti Notary Public My Commission Expires: 3/31/98 MODIFICATION TO LOAN AND GUARANTY AGREEMENT This Modification to Loan and Guaranty Agreement is entered into as of the 14th day of July, 1997, between and among FLEET BANK, N.A., formerly known as NATWEST BANK, N.A., a national banking association (hereinafter called "Lender"), with a business address at 10 Exchange Place, Jersey City, New Jersey 07322, and SHOWBOAT, INC., a Nevada corporation with a business address at 2800 Fremont Street, Las Vegas, Nevada 89104 (thereinafter called "Borrower"), and SHOWBOAT OPERATING COMPANY, a Nevada corporation, OCEAN SHOWBOAT, INC., a New Jersey corporation, and ATLANTIC CITY SHOWBOAT, INC., a New Jersey corporation (the "Guarantors") having the addresses set forth on the signature pages hereof. WITNESSETH WHEREAS, NatWest Bank, N.A., Borrower and Guarantors entered into that certain Loan and Guaranty Agreement dated July 14, 1995 (herein, the "Agreement"); and WHEREAS, the parties have agreed to modify the Agreement in order to increase the amount of the credit facility from $25,000,000.00 to $35,000,000.00, to extend the term thereof and to make other modifications to the terms and conditions thereof as more fully set forth herein. NOW THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto agree as follows: 1. DEFINITIONS. (a) All capitalized terms not otherwise defined herein shall have the meaning set forth in the Agreement. (b) Effective as of July 14,1997, the following definitions contained in Section 1 of the Agreement shall be modified to read as set forth below: "CAPITAL FUNDS" means the Stockholders' Equity of the Borrower less on a consolidated basis the value on the Borrower's books of all intangible assets other than those related to Non-Recourse Debt plus the Borrower's Subordinated Debt. "CONVERSION DATE" means September 14,1999. "LENDER" means Fleet Bank, N.A. (formerly known as NatWest Bank, N.A.), its successors and assigns. (c) The following definition shall be added to Section 1 of the Agreement, effective July 14, 1997: "STOCKHOLDERS' EQUITY" means as at any date of determination Borrower's Stockholders' Equity determined according to GAAP. 2. AMENDMENT TO REVOLVING NOTE. Upon execution of this Agreement, the parties shall execute an amendment to the Revolving Note to increase the face amount thereof to $35,000,000.00 and to reflect the change in the Conversion Date referred to in paragraph 1 above. 3. TERM NOTE. The last sentence of Section 2.04(b) of the Agreement is hereby modified to read as follows: The Term Note shall mature on September 14, 2002. 4. REPRESENTATIONS AND WARRANTIES. In order to induce the Lender to enter into this Modification and to make the Loans provided for herein, each and every of the representations and warranties made by Lender set forth in Sections 3.01 through 3.20 of the Agreement are hereby reaffirmed by the Borrower as if made as of the date hereof. 5. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THE MODIFICATION. The effectiveness of this modification is subject to the following conditions precedent: (a) CORPORATE DOCUMENTS OF THE BORROWER. At the time of the effective date hereof (the "Effective Date"), the Lender shall have received: (i) a copy of the Borrower's Certificate of Incorporation, certified as of a recent date by the Secretary of State of its state of incorporation; (ii) certificates of such Secretary of State, dated as of a recent date as to the good standing of and payment of taxes by the Borrower which lists the charter documents on file in the office of such Secretary of State; (iii) a certificate dated as of a recent date as to the good standing of the Borrower issued by the Secretary of State of each jurisdiction in which the Borrower is qualified as a foreign corporation; and 2 (iv) a certificate of the Secretary of the Borrower dated the Effective Date and certifying (A) that attached thereto is a true and complete copy of the by-laws of the Borrower as in effect on the date of such certification, (B) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of the Borrower authorizing the execution, delivery and performance in accordance with their respective terms of this Agreement and any other documents required or contemplated hereunder or thereunder, (C) that the certificate of incorporation of the Borrower has not been amended since the date of the last amendment thereto indicated on the certificate of the Secretary of State furnished pursuant to clause (i) above and (D) as to the incumbency and specimen signature of each officer of the Borrower executing this Agreement or any other document delivered by it in connection herewith or therewith (such certificate to contain a certification by another officer of the Borrower as to the incumbency and signature of the officer signing the certificate referred to in this clause (iv)). (b) CORPORATE DOCUMENTS OF OBLIGORS (OTHER THAN THE BORROWER). At the time of the Effective Date, the Lender shall have received for each Obligor (other than the Borrower): (i) a copy of such entity's certificate of incorporation, certified as of a recent date by the Secretary of State of the state of incorporation; (ii) a certificate of each such Secretary of State, dated as of a recent date as to the good standing of and payment of taxes by such entity which lists the charter documents on file in the office of such Secretary of State; (iii) a certificate dated as of a recent date as to the good standing of such entity issued by the Secretary of State of each jurisdiction in which such entity is qualified as a foreign corporation; and (iv) a certificate of the Secretary of such entity dated the Effective Date and certifying (A) that attached thereto is a true and complete copy of the by-laws of such entity as in effect on the date of such certification, (B) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of such entity authorizing the execution, delivery and performance in accordance with their respective terms of this Agreement, and any other documents required or contemplated hereunder or thereunder, (C) that the certificate of incorporation of such entity has not been amended 3 since the date of the last amendment thereto indicated on the certificate of the Secretary of State furnished pursuant to clause (i) above and (D) as to the incumbency and specimen signature of each officer of such entity executing this Agreement or any other document delivered by it in connection herewith or therewith (such certificate to contain a certification by another officer of such entity as to the incumbency and signature of the officer signing the certificate referred to in this clause (iv)). (c) REVOLVING NOTE. On or before the effective date hereof, the Lender shall have received a modification to the Revolving Note, executed on behalf of the Borrower, dated the date thereof. (d) OPINIONS OF COUNSEL. The Lender shall have received the favorable written opinion, dated the Effective Date and addressed to the Lender of (i) Kummer, Kaempfer, Bonner & Renshaw, counsel to the Obligors, and (ii) such local counsel as the Lender may request regarding perfection of the security interests, validity of the mortgage modification and other similar matters. (e) ERISA. The Lender shall have received copies of all Plans of the Borrower and its Subsidiaries that are in existence on the date hereof, and confirmation satisfactory to the Lender that (i) none of the Plans has incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code), (ii) no Reportable Event has occurred as to any Plan, and (iii) no termination of, or withdrawal from, any of the Plans has occurred or is contemplated that would result in any liability on the part of the Borrower or any of its Subsidiaries, if the occurrence of any of the foregoing events could reasonably be expected to have a Material Adverse Effect. (f) MORTGAGES. Appropriate modifications of the Deed of Trust covering the Las Vegas Showboat and of the Mortgage covering the Atlantic City Showboat shall be duly executed and delivered to Lender. (g) INTERCREDITOR AGREEMENT. A modification to the Intercreditor Agreements executed in connection with closing under the Agreement shall have been executed and delivered by each of the Lender, Borrower and the Trustee as to the Atlantic City Showboat and by the Trustee and the Lender as to the Las Vegas Showboat in form acceptable to the Lender and in accordance with the Bond Indenture. (h) TITLE INSURANCE, ETC. The Lender shall have received as to the Atlantic City Showboat and the Las Vegas Showboat legal, valid and binding 4 commitments from a title insurance company reasonably acceptable to the Lender, to issue a mortgage title insurance policy in form and substance reasonably satisfactory to the Lender in respect of the Mortgages as modified showing that such Mortgages are valid first liens subject only to Permitted Liens and that such fee or leasehold interest in real property subject to the Mortgages is owned by the Borrower or ACSI, respectively, free of encumbrances other than Permitted Liens. (i) SURVEYS ETC. Lender shall have received an updated survey (certified in form and by surveyors reasonably acceptable to Lender) relating to the Las Vegas Showboat and the Atlantic City Showboat prepared in accordance with ALTA standards indicating the absence of any encroachments or other title defects or an affidavit or other document sufficient to induce the Borrower's title insurance company to remove the survey exception. (j) FEDERAL RESERVE REGULATIONS. The Lender shall be reasonably satisfied that the provisions of Regulations G, T, U and X of the Board of Governors of the Federal Reserve System will not be violated by the transactions contemplated hereby. (k) NO MATERIAL ADVERSE CHANGE. No change shall have occurred with respect to the Borrower or any of its Subsidiaries since the date of the most recent audited financial statement delivered to the Lender of each such Person having or as could reasonably be expected to have a Material Adverse Effect. (l) INSURANCE. The Borrower shall have furnished the Lender with a summary of all existing insurance coverage and evidence reasonably acceptable to the Lender that the insurance policies required by Section 5.03 (a) and (b) of the Agreement have been obtained and are in full force and effect. (m) UCC FINANCING STATEMENTS AND UCC SEARCHES, ETC. The Lender shall have received, if necessary, in each case in form satisfactory to it, (i) UCC financing statements executed on behalf of the Obligor for filing in all jurisdictions in which it shall be necessary or desirable to make a filing in order to provide the Lender with a perfected security interest in the Collateral and (ii) UCC searches satisfactory to the Lender indicating that no other filings with regard to the Collateral are of record in any of such jurisdictions except in connection with Permitted Liens and existing Liens listed on Schedule 6.05. (n) OFFICERS' CERTIFICATE. The Lender shall have received an appropriate officers' certificate executed by the Chief Executive Officer and 5 Senior Financial Officer of the Borrower similar to that executed at closing under the Agreement. (o) LOAN FEE. Upon execution and delivery of this Agreement, the Borrower shall have paid to the Lender a loan fee of $125,000. 6. CONSOLIDATION, MERGER, SALE OR PURCHASE OF ASSETS ETC. Section 6.04 of the Loan Agreement is amended to add the following at the end thereof: The Borrower shall be permitted to sell all of its interest in the Las Vegas Showboat subject to the following requirements: (a) no Default or Event of Default shall exist or be continuing immediately prior to and after giving effect to such sale; (b) after giving effect to such sale, the Borrower's Leverage Ratio will not exceed the applicable minimum Leverage Ratio set forth in Section 6.14; and (c) such sale shall comply with the requirements of Section 4.10(a) of the Bond Indenture, prior to giving effect to any waiver or modification of the terms of such Section 4.10(a). 7. MINIMUM CAPITAL FUNDS. Effective as of July 14, 1997, Section 6.13 "Capital Funds" of the Agreement shall be amended to read as follows: (a) Permit Capital Funds at any time as of the dates referenced below to fall below the amounts indicated below for such date: 12/31/96 $270,000,000 12/31/97 $275,000,000 12/31/98 $280,000,000 12/31/99 $285,000,000 12/31/00 $290,000,000 12/31/01 $290,000,000 (b) Notwithstanding the foregoing, in the event of a permitted sale of the Las Vegas Showboat which results in a reduction in the Capital Funds of the Borrower, the required minimum Capital Funds amounts set forth above shall each be reduced effective as of the date of such sale and as to all dates subsequent to the date of such sale. The amount of the reduction in the required minimum Capital Funds amount set forth above shall be a sum 6 equal to the reduction in the Capital Funds of the Borrower resulting from such sale, which reduction shall be net of tax benefits arising out of losses realized upon such sale. Any reduction in the required minimum Capital Funds amounts set forth above shall be in addition to any reduction under subsections 6.13(c) or (d). (c) Notwithstanding the foregoing, in the event of a repurchase by Borrower of any of its issued and outstanding common stock, the required minimum Capital Funds amounts set forth above shall each be reduced effective as of the date of such repurchase and as to all dates subsequent to the date of such repurchase up to an aggregate of $50,000,000 by reason of such repurchases. The amount of the reduction in the required minimum Capital Funds amounts set forth above shall be equal to the reduction in the Capital Funds of the Borrower resulting from such repurchase. Any reduction in the required minimum Capital Funds amounts set forth above shall be in addition to any reduction under subsections 6.13(b) or (c). (d) Notwithstanding the foregoing, in the event of a sale by the Borrower directly or through one of its Subsidiaries of any of its interest in the Australian Joint Venture and the immediate subsequent use of such funds by the Borrower for reduction of Subordinated Debt, the required minimum Capital Funds amounts set forth above shall each be reduced effective as of the date of such sale and reduction and as to all dates subsequent to the date of such sale and reduction by a sum equal to the excess, if any, of the said reduction in Subordinated Debt over any increase in the Capital Funds of the Borrower resulting from such sale, which increase shall be net of tax costs arising out of gains realized upon such sale. Any reduction in the minimum Capital Funds amounts set forth above shall be in addition to any reduction under subsections 6.13(a) or (b). 8. LEVERAGE RATIO. Section 6.14 of the Agreement ("Leverage Ratio") shall be amended to read as follows: At any time prior to the completion of both (a) a sale of the Las Vegas Showboat and (b) a repurchase by the Borrower of its common stock of at least $25,000,000, permit the Leverage Ratio to exceed 1.7x, and at any time after the completion of said sale and repurchase, permit the Leverage Ratio to exceed 2.2x. 9. DEBT SERVICE COVERAGE RATIO. Section 6.15 of the Agreement ("Debt Service Coverage Ratio") shall be amended to read as follows: Permit the Debt Service Coverage Ratio as of the last day of any fiscal quarter of the Borrower measured as to the period consisting of such fiscal 7 quarter combined with the three previous fiscal quarters to be less than the amount indicated below for the applicable fiscal quarters indicated below: 4th Quarter 1994 - 3rd Quarter 1995 1.50x 4th Quarter 1995 - 3rd Quarter 1996 1.30x 4th Quarter 1996 - 3rd Quarter 1998 1.30x 4th Quarter 1998 and thereafter 1.50x 10. STOCK REPURCHASES. The Agreement is modified by adding a new Section 6.18 as follows: SECTION 6.18. STOCK REPURCHASES. Repurchase any of its common stock unless at the time of such repurchase (a) no Default or Event of Default shall exist or be continuing immediately prior to and after giving effect to such repurchase, (b) after giving effect to such repurchase, the Borrower's Leverage Ratio will not exceed the applicable minimum Leverage Ratio set forth in section 6.14 and (c) Borrower will have complied with and the repurchase will have been permitted under Section 4.09 of the Bond Indenture as same is presently in effect, and without regard to any waiver or modification of the terms of such Section 4.09. 11. MISCELLANEOUS. All expenses incurred by the Lender in connection with the preparation, execution and delivery of this Modification and such other documents as may be necessary to consummate the transactions contemplated hereunder, including all legal, filing and other fees and expenses, shall be paid by the Borrower. The Borrower and the Guarantors hereby ratify, confirm and approve all of the terms, conditions, and covenants of the Loan Documents, as the same have been modified from time to time and as modified hereby. Except as previously modified or expressly modified hereby, the Loan Documents shall continue in full force and effect in accordance with the provisions thereof. The Borrower and the Guarantors further represent that there are no, and hereby waive any and all, defenses, offsets or counterclaims which they may have as to the Obligations. This Agreement states the entire understanding of the parties with reference to the subject matter hereof, and may not be modified except in writing signed by both the Borrower and the Lender. 8 IN WITNESS WHEREOF, the parties hereto have executed this Modification to Loan and Guaranty Agreement as of the date and year first above written. LENDER: FLEET BANK, N.A. By: /s/ John T. Harrison John T. Harrison Vice President BORROWER: SHOWBOAT, INC. By: /s/ R. Craig Bird R. Craig Bird Executive Vice President - Financial and Administration and Chief Financial Officer GUARANTORS: SHOWBOAT OPERATING COMPANY 2800 Fremont Street Las Vegas, Nevada 89104 By: /s/ R. Craig Bird R. Craig Bird Executive Vice President, Treasurer and Chief Financial Officer OCEAN SHOWBOAT, INC. 801 Boardwalk Atlantic City, NJ 08401 By: /s/ R. Craig Bird R. Craig Bird Vice President Financial Administration 9 ATLANTIC CITY SHOWBOAT, INC. 801 Boardwalk Atlantic City, NJ 08401 By: /s/ Kathleen Caracciolo Kathleen Caracciolo Vice President - Finance, Treasurer and Chief Financial Officer 10 MODIFICATION TO REVOLVING NOTE This Modification to Revolving Note is made as of the 14th day of July, 1997, by Showboat, Inc., ("Borrower"), a Nevada Corporation. WHEREAS, Borrower executed and delivered to NatWest Bank, N.A. (now known as Fleet Bank, N.A.) ("Lender"), its Revolving Note in the face amount of Twenty Five Million Dollars ($25,000,000.00) dated July 14, 1995 (the "Revolving Note") pursuant to the terms of a Loan and Guaranty Agreement between the Borrower, NatWest Bank, N.A. and the Guarantors (hereunder the "Loan Agreement"); and WHEREAS, the Borrower and the Lender have entered into a Modification to Loan and Guaranty Agreement of even date herewith providing for an increase in the amount of the Revolving Loan Facility to the sum of $35,000,000.00 and providing for an extension to the Conversion Date. NOW THEREFORE, the undersigned Borrower hereby modifies the Revolving Note as follow: 1. The face amount of the Note is changed from $25,000,000.00 to $35,000,000.00. 2. The Conversion Date referred to as July 14, 1997 in the second paragraph of the Note is changed to September 14, 1999. 3. Capitalized terms used herein which are not otherwise defined shall have the meaning set forth in the Revolving Note. Except as herein modified, all of the terms and conditions of the Revolving Note are hereby affirmed and ratified. This modification shall be attached to and made a part of the Revolving Note. IN WITNESS WHEREOF, the Borrower has executed this Modification to Revolving Note as of the date and year first above written. SHOWBOAT, INC. By: /s/ R. Craig Bird R. Craig Bird Executive Vice President - Financial and Administration and Chief Financial Officer FIRST AMENDMENT TO INTERCREDITOR AGREEMENT FOR PARI PASSU INDEBTEDNESS RELATING TO ATLANTIC CITY SHOWBOAT This First Amendment (the "Amendment") to the Intercreditor Agreement for Pari Passu Indebtedness Relating to ATLANTIC CITY SHOWBOAT (the "Intercreditor Agreement") is made as of the 14th day of July, 1997, by and among SHOWBOAT, INC., a Nevada corporation (the "Company"), ATLANTIC CITY SHOWBOAT, INC., a New Jersey corporation ("ACSI"), IBJ SCHRODER BANK & TRUST COMPANY (the "Trustee") and FLEET BANK, N.A. (formerly known as NATWEST BANK, N.A.) (the "Lender"). Terms used herein not otherwise defined herein shall have the meanings set forth in the Intercreditor Agreement. RECITALS WHEREAS, the Trustee, the Company, ACSI and the Lender entered into the Intercreditor Agreement with respect to the Mortgage held by Lender securing a loan to the Company in the maximum sum of $25,000,000; and WHEREAS, the loan secured by the Lender's Mortgage has been increased to the maximum principal amount of $35,000,000, and ACSI has executed and delivered to the Lender certain modifications to the Lender's documents, including the Lender's Mortgage, to reflect such increase; and WHEREAS, the parties hereto desire to amend the Intercreditor Agreement to reflect such increase in the Company's indebtedness to the Lender: NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. The initial paragraph of page 3 of the Intercreditor Agreement is hereby amended to read as follows: WHEREAS, the maximum aggregate principal amount of Indebtedness to be provided by Lender is $35,000,000.00. 2. Paragraph 2 (a) of the Intercreditor Agreement is hereby amended to change the reference to $25,000,000.00 to $35,000,000.00. 3. Paragraph 2 (b) of the Intercreditor Agreement is hereby amended to change the reference to $25,000,000.00 to $35,000,000.00. 4. Paragraph 2 (c) of the Intercreditor Agreement is hereby amended to change the reference to $25,000,000.00 to $35,000,000.00. 5. All other terms and conditions of the Intercreditor Agreement are hereby ratified and confirmed. IN W1INESS WHEREOF, the Trustee, the Company, the Lender and ACSI have caused this instrument to be duly executed as of the 14th day of July, 1997. SHOWBOAT, INC. 2800 Fremont Street Las Vegas, Nevada 89104 By: /s/ R. Craig Bird R. Craig Bird Executive Vice President - Financial and Administration and Chief Financial Officer ATLANTIC CITY SHOWBOAT, INC. 801 Boardwalk Atlantic City, New Jersey 08401 By: /s/ Kathleen Caracciolo Kathleen Caracciolo Vice President - Finance, Treasurer and Chief Financial Officer IBJ SCHRODER BANK & TRUST CO. One State Street New York, New York 10004 By: /s/ Terence Rawlins Name: Terence Rawlins Title: Assistant Vice President FLEET BANK, N.A 10 Exchange Place Jersey City, NJ 07322. By: /s/ John T. Harrison John T. Harrison Vice President FIRST AMENDMENT TO INTERCREDITOR AGREEMENT FOR PARI PASSU INDEBTEDNESS RELATING TO LAS VEGAS SHOWBOAT The First Amendment (the "Amendment") to the Intercreditor Agreement for Pari Passu Indebtedness Relating to LAS VEGAS SHOWBOAT (the "Intercreditor Agreement") is made as of the 14th day of July, 1997, by and among IBJ SCHRODER BANK & TRUST COMPANY (the "Trustee"), SHOWBOAT, INC., a Nevada corporation (the "Company"), and FLEET BANK, N.A. (formerly known as NATWEST BANK, N.A.) (the "Lender"). Terms used herein not otherwise defined herein shall have the meanings set forth in the Intercreditor Agreement. RECITALS WHEREAS, the Trustee, the Company and the Lender entered into the Intercreditor Agreement with respect to the First Mortgage Bonds and the Deed of Trust held by Lender securing a loan in the maximum sum of $25,000,000; and WHEREAS, the loan secured by the Lender's Deed of Trust has been increased to the maximum principal amount of $35,000,000, and the Company has executed and delivered to the Lender certain modifications to the Lender's documents, including the Lender's Deed of Trust, to reflect such increase; and WHEREAS, the parties hereto desire to amend the Intercreditor Agreement to reflect such increase in the Company's indebtedness to the Lender: NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Paragraph 2(a) of the Intercreditor Agreement is hereby amended to change the reference to $25,000,000 to $35,000,000. 2. Paragraph 2(b) of the Intercreditor Agreement is hereby amended to change the reference to $25,000,000 to $35,000,000. 3. All other terms and conditions of the Intercreditor Agreement are hereby ratified and confirmed. IN WITNESS WHEREOF, the Trustee, the Company and the Lender have caused this instrument to be duly executed as of the 14th day of July, 1997. IBJ SCHRODER BANK & TRUST CO. One State Street New York, New York 10004 By: /s/ Terence Rawlins Name: Terence Rawlins Title: Assistant Vice President SHOWBOAT, INC. 2800 Fremont Street Las Vegas, Nevada 89104 By: /s/ R. Craig Bird R. Craig Bird Executive Vice President-Financial and Administration and Chief Financial Officer FLEET BANK, N.A. 10 Exchange Place Jersey City, NJ 07322 By: /s/ John T. Harrison John T. Harrison Vice President AMENDMENT TO DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT This First Amendment (the "Amendment") to the Deed of Trust, Assignment of Rents and Security Agreement (hereinafter called the "Deed of Trust") is made as of the 14th day of July, 1997 by and among SHOWBOAT, INC. a Nevada corporation, and SHOWBOAT OPERATING COMPANY, a Nevada corporation (collectively as "Trustor"), whose address is 2800 Fremont Street, Las Vegas, Nevada, 89104, to NEVADA TITLE COMPANY, a Nevada Corporation, whose address is 3320 West Sahara, Suite 200, Las Vegas, Nevada, 89102-60677, as Trustee ("Trustee") for the benefit for FLEET BANK, N.A. (formerly known as NatWest Bank, N.A.), a national banking association ("Beneficiary"), as Lender under that certain Loan and Guaranty Agreement, dated July 14, 1995, and as amended as of even date herewith, among Beneficiary, as Lender, Trustor, as borrower, and OCEAN SHOWBOAT, INC., a New Jersey corporation, ATLANTIC CITY SHOWBOAT, Inc., a New Jersey Corporation ("ACSI"), and SHOWBOAT OPERATING COMPANY, a Nevada corporation as Guarantors. Terms used herein not otherwise defined herein shall have the meanings set forth in the Deed of Trust. RECITALS WHEREAS, Showboat, Inc. made, executed and delivered to Lender a Revolving Note dated July 14, 1995, in the maximum aggregate amount of $25,000,000, evidencing the extension of credit by Lender to Showboat, Inc. in the maximum aggregate amount of $25,000,000; WHEREAS, Showboat, Inc. has requested that the Lender increase the maximum aggregate amount under the Revolving Note to $35,000,000; WHEREAS, Trustor and Beneficiary have entered into a Modification to Loan and Guaranty Agreement providing for an increase in the amount available under the Loan Agreement from $25,000,000 to $35,000,000 (the "Amendment"), and making other changes in the terms of the loan; and WHEREAS, pursuant to the Amendment, Trustor has executed and delivered to Beneficiary an Amendment to the Promissory Note to be secured hereby. NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. The definition of "Promissory Note" in the Deed of Trust is hereby amended to read as follows: "Promissory Note" means that certain Revolving Note between Trustor and Beneficiary dated July 14, 1995, as amended by that certain Modification to Revolving Note, dated as of July 14, 1997, and as may be further amended pursuant to the Loan Agreement, in the maximum aggregate amount of $35,000,000. 2. The definition of "Permitted Dispositions" in the Deed of Trust is amended to read as follows: "Permitted Dispositions" means (a) the sale, transfer or other disposition of Collateral not to exceed an aggregate value of $3,000,000.00 per annum and (b) the sale of the Las Vegas Showboat, provided all of the applicable conditions, agreements and covenants contained in Section 6.04 of the Loan Agreement are met and complied with. 3. All other terms and conditions of the Deed of Trust are hereby ratified and confirmed. IN WITNESS WHEREOF, the Trustor has caused this instrument to be duly executed as of the 14th day of July, 1997. SHOWBOAT, INC. By: /s/ R. Craig Bird R. Craig Bird Executive Vice President - Financial and Administration and Chief Financial Officer SHOWBOAT OPERATING COMPANY By: /s/ R. Craig Bird R. Craig Bird Executive Vice President, Treasurer and Chief Financial Officer FLEET BANK, N.A. By: /s/ John T. Harrison John T. Harrison Vice President ACKNOWLEDGMENT STATE OF NEW JERSEY : : ss. COUNTY OF ATLANTIC : Be it remembered that on this 23rd day of October, 1997, before me, the subscriber, in and for said county, personally appeared R. Craig Bird, Executive Vice President - Financial and Administration and Chief Financial Officer of Showboat, Inc. who I am satisfied is the person who signed the within instrument, and he acknowledged that he signed and delivered the same as such officer aforesaid, and that the within instrument is the voluntary act and deed of such corporation made by virtue of a Resolution of its Board of Directors. And said R. Craig Bird did further certify and acknowledge that he received a true, correct and complete copy of the within instrument. Witnesseth my hand and seal. /s/ Donna M. Berenette Notary Public My Commission Expires: 12/23/98 STATE OF NEW JERSEY : : ss. COUNTY OF ATLANTIC : Be it remembered that on this 23rd day of October, 1997, before me, the subscriber, in and for said county, personally appeared R. Craig Bird, Executive Vice President, Treasurer and Chief Financial Officer of Showboat Operating Company, who I am satisfied is the person who signed the within instrument, and he acknowledged that he signed and delivered the same as such officer aforesaid, and that the within instrument is the voluntary act and deed of such corporation made by virtue of a Resolution of its Board of Directors. And said R. Craig Bird did further certify and acknowledge that he received a true, correct and complete copy of the within instrument. Witnesseth my hand and seal. /s/ Donna M. Berenette Notary Public My Commission Expires: 12/23/98 ACKNOWLEDGMENT STATE OF NEW JERSEY : : ss. COUNTY OF ATLANTIC : Be it remembered, that on this 30th day of October, 1997, before me, the subscriber, a Notary Public, personally appeared John T. Harrison, Vice President of FLEET BANK, N.A., who, I am satisfied is the person(s) named in and who executed the within instrument and he did acknowledge that he signed, sealed and delivered the same as his act and deed on behalf of the Bank and for the uses and purposes therein expressed. /s/ Irene Gutierrez Notary Public My Commission Expires: 9/11/00 EX-10 6 EXHIBIT 10.36 AGREEMENT OF PURCHASE AND SALE SUN INTERNATIONAL NORTH AMERICA, INC., SELLER AND SHOWBOAT LAND LLC, BUYER Dated: As of January 29, 1998 Lot 140, Block 13 Tax Map of City of Atlantic City Atlantic County, New Jersey AGREEMENT OF SALE This Agreement of Sale ("Agreement") is made and entered into as of January 29, 1998 by and between Sun International North America, Inc., formerly known as Resorts International, Inc., a Delaware corporation ("Seller"), and Showboat Land LLC, a Nevada limited liability company ("Buyer"). BACKGROUND A. Seller owns certain real property located on the Boardwalk in the City of Atlantic City, County of Atlantic, currently designated as Block 13, Lot 140 on the current Atlantic City Tax Map and more particularly described on Exhibit A attached hereto and made a part hereof, together with the right, title and interest of Seller, if any, in and to the streets and in and to the land lying in the bed of any streets, roads or avenues, open or proposed, public or private, in front of, adjoining or abutting said real property to the center line thereof, the air space and development rights pertaining to said real property and the right to use such air space and development rights, all rights of way, privileges, liberties, tenements, hereditaments and appurtenances belonging, or in any way appertaining thereto, all easements now or hereafter benefitting said real property and all royalties and rights appertaining to the use and enjoyment of said real property, including, but without limiting the generality of the foregoing, all riparian, alley, vault, drainage, mineral, water, oil, coal, gas and other similar rights (all of the foregoing being hereinafter collectively referred to as the "Property"). B. Seller currently leases the Property to Atlantic City Showboat, Inc. ("Tenant"), a New Jersey corporation, pursuant to that certain Lease Agreement dated October 26, 1983, by and between Resorts, as landlord, and Tenant, as lessee. Thereafter, the said lease was amended by the parties thereto by the First Amendment to Lease Agreement dated January 15, 1985, the Second Amendment to Lease Agreement dated July 5, 1985, the Third Amendment to Lease Agreement dated October 28, 1985, the Restated Third Amendment to Lease Agreement dated August 28, 1986, the Fourth Amendment to Lease Agreement dated December 16, 1986, the Fifth Amendment dated March 2, 1987, the Sixth Amendment to Lease Agreement dated March 13, 1987, the Seventh Amendment to Lease Agreement dated October 18, 1988 and the Eighth Amendment to Lease Agreement dated May 18, 1993 (collectively, the "Lease"). C. Seller desires to sell to Buyer and Buyer desires to purchase the Property from Seller, and Seller desires to assign the Lease and Buyer desires to assume the Lease on the terms and conditions set forth in this Agreement. ARTICLE I DEFINED TERMS 1.1 DEFINITIONS. In addition to the abbreviations and definitions set forth above and in the preamble to this Agreement, the following defined terms used in this Agreement shall have the meanings specified below: "ADDITIONAL EXCEPTIONS" is defined in SECTION 3.1 of this Agreement. "CLOSING" means consummation of the purchase of the Property by Buyer from Seller in accordance with the terms and conditions of Article II of this Agreement. "CLOSING DATE" means the date specified in SECTION 2.3 of this Agreement on which the Closing will be held. "ENVIRONMENTAL LAWS" means any and all federal, state or local laws, regulations, ordinances, orders, permits and judgments and common law, including the law of strict liability and the law of conducting abnormally dangerous activities relating to the protection of health and/or the environment, including, without limitation, provisions pertaining to or regulating air pollution, water pollution, noise control, wetlands, water courses, natural resources, wildlife, Hazardous Substances, or any other activities or conditions which impact or relate to the environment or nature. 2 "HAZARDOUS SUBSTANCES" shall mean any flammable substance, explosive, radioactive material, hazardous material, hazardous waste, toxic substance, gasoline, petroleum product, pollutant, contaminant or any other substance which is regulated under any Environmental Law, including, but not limited to, asbestos, PCBs and any "hazardous substance", "hazardous material", hazardous waste", "industrial waste" or similar term as defined in any and all Environmental Laws such as, for example, Section 101 (14) of the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. Section 9601 (14) ("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"); Section 307 and 311 of the Clean Water Act, 33 U.S.C. Sections 137 and 1321; the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Sections 1801-1812; Section 1004 (5); of the Resource Conservation Recovery Act, 42 U.S.C. Section 6903 (5); the New Jersey Industrial Sight Recovery Act, N.J.S.A. 13:1K-6, et seq. ("ISRA"); the New Jersey Water Pollution Control Act, N.J.S.A. 58:10A-3, et seq.; the New Jersey Underground Storage of Hazardous Substances Act, N.J.S.A. 58:10A-21, et seq.; the New Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23.11, et seq. (the "Spill Act"); and in the rules and regulations adopted in connection with any and all of the aforementioned Statutes and all other Environmental Laws. "NJDEP" means New Jersey Department of Environmental Protection. "PERMITTED EXCEPTIONS" is defined in SECTION 3.1 of this Agreement. "PURCHASE PRICE" means the total consideration to be paid by Buyer to Seller for the purchase of the Property pursuant to SECTION 2.2 of this Agreement. "TITLE COMPANY" means Commonwealth Land Title Insurance Company, Lawyers Title Insurance Corporation and/ or such other title insurance company or companies selected by Buyer and licensed by the State of New Jersey. 3 "TITLE POLICY" means the ALTA owners policy of title insurance issued by the Title Company to Buyer which insures title to the Property as provided in SECTION 3.1 of this Agreement. 1.2 OTHER DEFINED TERMS. Certain other defined terms shall have the respective meanings assigned to them elsewhere in this Agreement. ARTICLE II PURCHASE AND SALE 2.1 PROPERTY. On the terms and conditions stated in this Agreement, Seller hereby agrees to sell and convey to Buyer, and Buyer hereby agrees to purchase and acquire from Seller, the Property. 2.2 PURCHASE PRICE. The Purchase Price to be paid by Buyer to Seller shall be One Hundred Ten Million ($110,000,000.00) Dollars allocated as follows: $57,000,000.00 - land $53,000,000.00 - excess rent attributable to leased fee estate The Purchase Price shall be payable to, or at the direction of Seller through, the Title Company at the Closing by wire transfer of immediately available funds to an account designated by Seller. 2.3 CLOSING. The Closing of the purchase and sale of the Property shall take place at 10:00 a.m. on January 29, 1998, at the offices of Latham & Watkins, 885 Third Avenue, New York, New York 10022-4802 or such other place as may be mutually agreed upon by Buyer and Seller. 2.4 ADJUSTMENTS AT CLOSING. There shall be no adjustments between Buyer and Seller at Closing. 4 2.5 COSTS OF CLOSING. Each party is responsible for paying the legal fees of its counsel in negotiating, preparing, and closing the transaction contemplated by this Agreement. Buyer shall be responsible for the cost of recording the deed, the Title Policy (as hereinafter defined) and for all fees and expenses of the Title Company. Buyer shall be responsible for the payment of the realty transfer fee in connection with the transfer of title to the Property. Each party shall be responsible for paying any other fees, costs and expenses identified herein as being the responsibility of such party. Notwithstanding the foregoing, in the event a determination is made that an additional realty transfer fee is due in connection with the conveyance of the Property to Buyer, each party shall be responsible for the payment of one-half of such additional realty transfer fee and any penalties and/or interest related thereto within ten (10) days of the date of such determination. The parties agree to share equally any and all costs and expenses, including legal fees with regard to any action or proceeding commenced related to the realty transfer fee. The provisions of this sentence shall survive Closing. 2.6 ASSIGNMENT OF LEASE AND RENTS. At closing, Seller shall assign and set over to Buyer all of Seller's right, title and interest in the Lease and rents thereunder, free and clear of all liens and encumbrances, except Permitted Exceptions and Additional Exceptions, and Buyer shall assume the Lease. ARTICLE III CONDITION OF TITLE 3.1 CONDITION OF TITLE. Title to the Property shall be good and marketable and insurable at standard rates by the Title Company, and shall be free and clear of all liens, encumbrances and rights of others, except for (a) those matters set forth on EXHIBIT 3.1 attached hereto and made a part hereof (the "Permitted Exceptions''). At Closing, title to the Property shall be conveyed to Buyer, in fee simple, by bargain and sale deed with a covenant as to grantor's acts (the "Deed") and (b) such other matters as the Title Company 5 shall be willing, at Buyer's request, to omit as exceptions to coverage or to except, without special premium, with insurance against collection out of or enforcement against the Property (the "Additional Exceptions"). ARTICLE IV CONDITIONS PRECEDENT; DELIVERIES 4.1 CONDITIONS PRECEDENT. A. The obligation of Buyer to complete the Closing is subject to the fulfillment (or waiver in writing by Buyer) of each of the following conditions at or prior to the Closing: (a) All representations and warranties made by Seller hereunder are true, complete and correct in all material respects on the date hereof, and shall be true, complete and accurate in all material respects as of the Closing Date (as if then made). (b) All covenants, agreements and obligations required by the terms of this Agreement to be performed by Seller on or before the Closing Date shall have been fully performed in all material respects. (c) Seller shall have furnished or caused to be furnished to Buyer all of the items required to be furnished by Seller under SECTION 4.2 of this Agreement. (d) Approval of the transactions contemplated by this Agreement by the New Jersey Casino Control Commission. B. The obligation of Seller to complete the Closing is subject to the fulfillment (or waiver in writing by Seller) of each of the following conditions at or prior to Closing: 6 (a) All representations and warranties made by Buyer hereunder are true, complete and correct on the date hereof, and shall be true, complete and correct in all material respects as of the Closing Date (as if then made). (b) All covenants, agreements and obligations required by the terms of this Agreement to be performed by Buyer on or before the Closing Date shall have been fully performed in all material respects. (c) Buyer shall have furnished or caused to be furnished to Seller all of the items required to be furnished by Buyer under SECTION 4.3 of this Agreement. 4.2 SELLER'S DELIVERIES. At the Closing, Seller shall deliver or cause to be delivered to Buyer, the following items duly executed, witnessed and/or attested, sealed and acknowledged where so indicated by all necessary parties: (a) The Deed, duly executed in recordable form by Seller. (b) The Assignment and Assumption of Lease in the form attached hereto as EXHIBIT 4.2(b). (c) Affidavit of title attached hereto as EXHIBIT 4.2(c). (d) Resolution of the Board of Directors of Seller authorizing the sale of the Property to Buyer in accordance with the terms of this Agreement. (e) Discharge of Mortgage recorded in Mortgage Book 4445, page 209 ET SEQ. and Assignment recorded in Deed Book 5136, page 45. (f) The Estoppel Certificate in the form attached hereto as EXHIBIT 4.2(h). 7 4.3 BUYER'S DELIVERIES. At the Closing, Buyer shall deliver or cause to be delivered to Seller or the Title Company, the following items: (a) The payment required by SECTION 2.2 of this Agreement. (b) The Assignment and Assumption of Lease in the form attached hereto as EXHIBIT 4.2(b).. (c) The Estoppel Certificate of Tenant in the form attached hereto as EXHIBIT 4.3(c). (d) Resolution of the Buyer authorizing the purchase of the Property in accordance with the terms of this Agreement. ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER 5.1 REPRESENTATIONS AND WARRANTIES. The following representations and warranties of Seller are true, complete and correct in all material respects on the date hereof and shall be true, complete and correct in all material respects on the Closing Date (as if then made): (a) Seller has the full legal right, power and authority to enter into, execute, deliver and perform all of its obligations under this Agreement. All requisite action necessary to authorize Seller to enter into this Agreement and to carry out its obligation hereunder have been, or on the Closing Date will have been, taken. The execution and delivery of this Agreement by Seller constitutes the valid and legally binding obligation of Seller to perform this Agreement, enforceable against Seller in accordance with its terms. 8 (b) Seller has not received any written notice of any pending or threatened condemnation action with respect to all or any portion of the Property, and to the best of Seller's knowledge, there are no existing condemnation or other legal proceedings affecting the Property by any governmental authority having jurisdiction over or affecting all or any part of the Property. (c) No permission, consent or approval by any third party or, to the best of Seller's knowledge, any governmental authority is required to be obtained by Seller in order for Seller to consummate the transactions contemplated by this Agreement. (d) There are no actions, suits or proceedings pending or, to the best of Seller's knowledge or the knowledge of its affiliates, threatened affecting the Property or any portion thereof. (e) Seller and each of its affiliates have not received written notice that the Property is in violation of any Environmental Laws. Seller and each of its affiliates have no knowledge of the release of Hazardous Substance on or from the Property or to the Property from any adjacent property, or any potential or known liability which has resulted in or may result in a lien on the Property or which is or may result in a violation of any Environmental Laws. Seller and each of its affiliates have not received written notice of a threatened or pending Regulatory Action (hereinafter defined) and has not received any written notification that it is or may be potentially responsible or liable for clean-up, testing or other remedial activities at any site including, without limitation, the Property. "Regulatory Action" is defined as any violation, complaint, citation, request for information, order, directive, compliance schedule, notice of claim, consent decree, action, litigation or proceeding brought by or instituted by any governmental authority under or in connection with any Environmental Law. 9 (f) To the best of Seller's knowledge and belief, the Lease is in full force and effect and no default or event, which with notice, the passage of time or both would constitute a default, has occurred thereunder. Tenant under the Lease is current in the payment of rent and all other amounts due under the Lease. (g) The representations and warranties of Seller contained herein shall not survive the Closing. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER The following representations and warranties of Buyer are true, complete and correct in all material respects on the date hereof and shall be true, complete and correct in all material respects on the Closing Date (as if then made): (a) Buyer has the full legal right, power and authority to enter into, execute, deliver and perform all of its obligations under this Agreement. All requisite action necessary to authorize Buyer to enter into this Agreement and to carry out Buyer's obligations hereunder has been, or on the Closing Date will have been, taken. The execution and delivery of this Agreement by Buyer constitutes the valid and legally binding obligation of Buyer to perform this Agreement, enforceable in accordance with its terms. (b) Buyer and each of Buyer's affiliates have not received any written notice of any pending or threatened condemnation action with respect to all or any portion of the Property, and to the best of Buyer's knowledge, there are no existing condemnation or other legal proceedings affecting the Property by any governmental authority having jurisdiction over or affecting all or any part of the Property. (c) No permission, consent or approval by any third party or, to the best of Buyer' s knowledge, any governmental authority is required to be obtained by Buyer in 10 order for Buyer to consummate the transactions contemplated by this Agreement, except the consent or approval of the New Jersey Casino Control Commission which may be required to be obtained by Buyer and/or Tenant. (d) There are no actions, suits or proceedings pending or, to the best of Buyer's knowledge or the knowledge of its affiliates, threatened affecting the Property or any portion thereof. (e) Buyer and each of its affiliates have not received written notice that the Property is in violation of any Environmental Laws. Buyer and each of its affiliates have no knowledge of the release of Hazardous Substance on or from the Property or to the Property from any adjacent property, or any potential or known liability which has resulted in or may result in a lien on the Property or which is or may result in a violation of any Environmental Laws. Buyer and each of its affiliates have not received written notice of a threatened or pending Regulatory Action and has not received any notification that it is or may be potentially responsible or liable for clean-up, testing or other remedial activities at any site including, without limitation, the Property. (f) To the best of Tenant's knowledge and belief, the Lease is in full force and effect and no default or event, which with notice, the passage of time or both would constitute a default, has occurred thereunder. (g) The representations and warranties of Buyer contained herein shall not survive the Closing. 11 ARTICLE VII BROKERAGE COMMISSIONS Seller and Buyer each warrant to the other that neither has incurred any obligation for a real estate or brokerage commission with respect to this transaction, and each hereby agrees to defend, indemnify, and hold harmless the other for any loss, cost, or expense which may result from a breach of this warranty. ARTICLE VIII CONDEMNATION If, prior to the Closing, there shall occur a threatened or actual taking or condemnation of all or any substantial portion of the Property, then, in such event, Buyer shall have the right to terminate this Agreement by written notice delivered to Seller within ten (10) days after Buyer has received written notice from Seller of such an event ("Seller's Condemnation Notice"). If Buyer elects to terminate this Agreement pursuant to the preceding sentence, the parties shall have no further rights or obligations under this Agreement, one to the other with respect to the subject matter of this Agreement. If this Agreement is not terminated by Buyer, it shall remain in full force and effect, and Seller, upon the Closing, at Buyer's election, shall either (i) pay to Buyer any award collected by Seller as a result of said taking, deducting from same the reasonable expenses of Seller, including attorneys' fees, incurred in the collection of same, or (ii) assign, transfer and set over to Buyer all of Seller's right, title and interest in and to any awards to be made on account of said taking, as the case may be. ARTICLE IX MISCELLANEOUS 9.1 NOTICES. All notices, demands, approvals, consents, requests and other communications required or permitted hereunder shall be in writing, and shall be deemed to be properly delivered (i) on receipt if delivered by hand, (ii) the next business day if 12 delivered overnight delivery by a nationally recognized overnight courier service provided it is delivered, and (iii) whether actually received or refused three (3) days after having been deposited in a regularly maintained receptacle for the United States mail, registered or certified, return receipt requested, postage prepaid, addressed as follows: If to Seller: Sun International North America, Inc. 1133 Boardwalk Atlantic City, NJ 08401 Attn: Charles D. Adamo, Esq. With a copy to: William C. Murtha, Esq. Senior Corporate Counsel Sun International North America, Inc. 1133 Boardwalk Atlantic City, NJ 08401 and to: James P. Gerkis, Esq. Whitman, Breed, Abbott & Morgan LLP 200 Park Avenue New York, NY 10166 If to Buyer: R. Craig Bird, Executive Vice President Finance and Administration Showboat Incorporated 6601 Ventnor Avenue Ventnor, NJ 08406 With a copy to: John Brewer, Esq. Kummer, Kaempfer, Bonner & Renshaw Seventh Floor 3800 Howard Hughes Parkway Las Vegas, Nevada 89109 and to: Arthur E. Sklar, Esq. Levine, Staller, Sklar, Chan, Brodsky & Donnelly, P.A. 3030 Atlantic Avenue Atlantic City, NJ 08401 13 Any of the addresses for notice may be changed by delivery of written notice in connection herewith. 9.2 ENTIRE AGREEMENT AND AMENDMENTS. This Agreement embodies the entire agreement between the parties with respect to the Property and supersedes all prior agreements and understandings, if any, relating to the Property, and may be amended or supplemented only by an instrument in writing executed by the party against whom enforcement is sought. 9.3 PARTIES BOUND. This Agreement shall be binding upon and inure to the benefit of Seller and Buyer, and their respective legal representatives, successors and assigns. 9.4 TIME IS OF THE ESSENCE. It is expressly agreed by Seller and Buyer that time is of the essence with respect to this Agreement. 9.5 ATTORNEY'S FEES. If either party hereto shall be required to employ an attorney to enforce or defend the rights of such party hereunder, the prevailing party will be entitled to recover its reasonable attorneys fees, costs and disbursements. 9.6 MULTIPLE COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed and delivered in any number of counterparts, all of which taken together shall constitute one and the same agreement and either of the parties hereto may execute this Agreement by signing and delivering any such counterpart. Signatures delivered by telecopier or similar device shall be deemed the equivalent of an original signature. At the request of a party, the other party shall deliver to the requesting party a signature page bearing the original signature of such party. 14 9.7 SEVERABILITY. If any provision of this Agreement shall, for any reason, be held violative of any applicable law, and so much of this Agreement is held to be unenforceable, then the invalidity of such specific provision shall not be held to invalidate any other provision of this Agreement which shall remain in full force and effect. 9.8 ASSIGNMENT. This Agreement may not be assigned by Buyer, in whole or in part, without the prior written consent of Seller. 9.9 GOVERNING LAW. The terms and conditions of this Agreement shall be governed by the internal laws of the State of New Jersey. 9.10 COUNTERPARTS;FACSIMILE SIGNATURES. This Agreement may be executed in counterparts and when executed by each of the parties hereto shall constitute a binding, single agreement and execution of this document and any Exhibits hereto by facsimile signature shall be acceptable and deemed the same as original signatures. The party delivering the facsimile signature shall promptly deliver a live signature page to the other party. 15 EXECUTED by Buyer this 27TH day of January, 1998 Showboat Land LLC By: Showboat Operating Company, a member By: /s/ R. Craig Bird R. Craig Bird Executive Vice-President and Chief Financial Officer Acknowledged and Agreed to: Atlantic City Showboat, Inc. By: /s/ Herbert R. Wolfe Herbert R. Wolfe President 16 EXECUTED by Seller this 27TH day of January, 1998 Sun International North America, Inc. By: /s/ John Allison John Allison Executive Vice President-Finance & Chief Financial Officer 18 INDEX OF EXHIBITS A. Legal Description 3.1 Permitted Exceptions 4.2(b) Assignment and Assumption of Lease 4.2(c) Affidavit of Title 4.2(h) Estoppel Certificate of Seller 4.3(c) Estoppel Certificate of Tenant 18 EXHIBIT A LEGAL DESCRIPTION 19 SCHEDULE A SITUATE in the City of Atlantic City, County of Atlantic and State of New Jersey, bounded and described as follows: BEGINNING at a point in the Southerly line of Pacific Avenue (60.00 feet wide), South 62 degrees 32 minutes 00 seconds West, 266.00 feet from the Westerly line of New Jersey Avenue (50.00 feet wide), said point being in the division line between Lots 140 and 144.10 in Block 13 as shown on the current tax map for the City of Atlantic City, and extending from said beginning point; thence (1) South 27 degrees 28 minutes 00 seconds East, in and along said division line, and continuing in and along the division line between Lots 140 and continuing in and along the division line between Lots 140 and 144.02 and 144.01, respectively, parallel with New Jersey Avenue 1432.20 feet to the Inland or Interior Line of Public Park (The Boardwalk); thence (2) Southwestwardly in and along same in the arc of a circle curving to the right, having a radius of 1102.57 feet, the arc length of 8.94 feet to a point of tangent; thence (3) South 59 degrees, 24 minutes, 40 seconds West in and along same, 308.53 feet to the Easterly line of Lot 128.03 thence (4) North 27 degrees 28 minutes 00 seconds West in and along same, and continuing in and along the Easterly line of Lots 128.03 and 129.06 respectively, parallel with New Jersey Avenue, 1369.53 feet to a point in the Southerly line of Lot 130; thence (5) North 62 degrees 32 minutes 00 seconds East in and along same, and continuing in and along the Southerly line of Lot 129.02, parallel with Pacific Avenue, 25.00 feet to a point; thence (6) North 27 degrees 28 minutes 00 seconds West, in and along the Easterly line of Lot 129.02, parallel with New Jersey Avenue 80.00 feet to the Southerly line of Pacific Avenue; thence (7) North 62 degrees 32 minutes 00 seconds East in and along the Southerly line of Pacific Avenue, 292.00 feet to the POINT AND PLACE OF BEGINNING. BEING KNOWN AS Lot 140 in Block 13 as shown on the current Tax Map for the City of Atlantic City. TOGETHER WITH the following non-exclusive easements: Continued on next page SCHEDULE A CONTINUED 1. A non-exclusive easement for the construction, repair, maintenance and use of the Common Facilities (as such are defined in the Ground Lease, a short form recorded in Deed Book 3878, page 1 and the Agreement as to Assumption of Obligations with respect to properties recorded in Deed Book 4795, page 243 and Deed Book 4863, page 5). 2. A non-exclusive easement over, upon and across the Pedestrian Passageway, together with the 17-Foot Egressway (Parcel A), the Service Road (Parcel B) and the Service Road Extension (Parcel C) (as such are defined in the Ground Lease, a short form recorded in Deed Book 3878, page 1 and the Agreement as to Assumption of Obligations with respect to properties recorded in Deed Book 4795, page 243 and Deed Book 4863, page 5), as shown on a survey made by Arthur W. Ponzio Co. and Associates, Inc., dated November 17, 1997, and being more particularly described as Parcels A, B and C, respectively. SUBJECT to a portion of the fifty-foot wide service easement lying within the Showboat Leased Land and more particularly described as Parcel D attached hereto. PARCEL A DESCRIPTION OF THE SEVENTEEN-FOOT WIDE EGRESSWAY AT GRADE BETWEEN THE SERVICE ROAD AND THE BOARDWALK OVER LOTS 128.07 AND 128.08 IN BLOCK 13 ON THE OFFICIAL TAX MAP OF ATLANTIC CITY. ALL that certain lot, tract or parcel of land and premises situate, lying and being in the City of Atlantic City, County of Atlantic and State of New Jersey, bounded and described as follows: BEGINNING at a point distant 535.00 feet East of the Easterly line of Virginia Avenue (80 feet wide) and 868.00 feet South of the Southerly line of Pacific Avenue (60 feet wide), when measured at right angles to said avenues respectively, and extending from said beginning point the following courses and distances: (1) South 27 degrees 28 minutes 00 seconds East parallel with Virginia Avenue, a distance of 582.45 feet to the Inland or Interior Line of Public Park; thence (2) South 59 degrees 24 minutes 40 seconds West in and along the Inland or Interior Line of Public Park, a distance or 17.03 feet; thence Continued on next page SCHEDULE A CONTINUED (3) North 27 degrees 28 minutes 00 seconds West parallel with Virginia Avenue, a distance of 583.38 feet; thence (4) North 62 degrees 32 minutes 00 seconds East parallel with Pacific Avenue, a distance of 17.00 feet to the POINT AND PLACE OF BEGINNING. PARCEL B DESCRIPTION OF THE FIFTY-FOOT WIDE SERVICE ROAD OVER LOTS 129.02, 129.06 AND A PORTION OF LOTS 128.03, 130 AND 140 IN BLOCK 13 ON THE OFFICIAL TAX MAP OF ATLANTIC CITY. ALL that certain lot, tract or parcel of land and premises situate, lying and being in the City of Atlantic City, County of Atlantic and State of New Jersey, bounded and described as follows: BEGINNING at a point in the Southerly side of Pacific Avenue (60 feet wide), said point being distant 577.00 feet East of the Easterly line of Virginia Avenue (80 feet wide) and extending from said beginning point the following courses and distances: (1) South 27 degrees 28 minutes 00 seconds East parallel with Virginia Avenue, a distance of 86.00 feet; thence (2) South 07 degrees 48 minutes 46 seconds East, a distance of 74.33 feet; thence (3) South 27 degrees 28 minutes 00 seconds East parallel with Virginia Avenue, a distance of 712.00 feet, to a point distant 868.00 feet South of the Southerly line of Pacific Avenue when measured at right angles thereto; thence (4) South 62 degrees 32 minutes 00 seconds West parallel with Pacific Avenue, a distance of 50.00 feet; thence (5) North 27 degrees 28 minutes 00 seconds West parallel with Virginia Avenue, a distance of 720.66 feet; thence (6) North 07 degrees 48 minutes 46 seconds West, a distance of 74.33 feet; thence (7) North 27 degrees 28 minutes 00 seconds West parallel with Virginia Avenue, a distance of 77.34 feet to the Southerly line of Pacific Avenue; thence Continued on next page SCHEDULE A CONTINUED (8) North 62 degrees 32 minutes 00 seconds East in and along the Southerly line of Pacific Avenue, a distance of 50.00 feet to the POINT AND PLACE OF BEGINNING. PARCEL C DESCRIPTION OF THE SEVENTEEN-FOOT WIDE FIRE LANE BETWEEN THE SERVICE ROAD AND THE BOARDWALK OVER A PORTION OF LOT 128.03 IN BLOCK 13 ON THE OFFICIAL TAX MAP OF ATLANTIC CITY. ALL that certain lot, tract or parcel of land and premises situate, lying and being in the City of Atlantic City, County of Atlantic and State of New Jersey, bounded and described as follows: BEGINNING at a point distant 552.00 feet East of the Easterly line of Virginia Avenue (80 feet wide) and 868.00 feet South of the Southerly line of Pacific Avenue (60 feet wide), when measured at right angels to said avenues respectively, and extending from said beginning point the following courses and distances: (1) South 27 degrees 28 minutes 00 seconds East parallel with Virginia Avenue, a distance of 581.53 feet to the Inland or Interior Line of Public Park; thence (2) South 59 degrees 24 minutes 40 seconds West in and along the Inland or Interior Line of Public Park, a distance of 17.03 feet; thence (3) North 27 degrees 28 minutes 00 seconds West parallel with Virginia Avenue, a distance of 582.45 feet; thence (4) North 62 degrees 32 minutes 00 seconds East parallel with Pacific Avenue, a distance of 17.00 feet to the POINT AND PLACE OF BEGINNING. PARCEL D DESCRIPTION FOR THE EASEMENT FOR THAT PORTION OF THE FIFTY-FOOT WIDE SERVICE ROAD LYING WITXIN THE SHOWBOAT LANDS OVER A PORTION OF LOT 140, BLOCK 13 ON THE OFFICIAL TAX MAP OF ATLANTIC CITY. ALL that certain lot, tract or parcel of land and premises situate, lying and being in the City of Atlantic City, County of Atlantic and State of New Jersey, bounded and described as Continued next page SCHEDULE A CONTINUED follows: BEGINNING at a point distant 577.00 feet East of the Easterly line of Virginia Avenue (80 feet wide) and 80.00 feet South of the Southerly line of Pacific Avenue (60 feet wide), and extending from said beginning point the following courses and distances: (1) South 27 degrees 28 minutes 00 seconds East parallel with Virginia Avenue, a distance of 6.00 feet; thence (2) South 07 degrees 48 minutes 46 seconds East, a distance of 74.33 feet; thence (3) North 27 degrees 28 minutes 00 seconds West parallel with Virginia Avenue, a distance of 76.00 feet; thence (4) North 62 degrees 32 minutes 00 seconds East parallel with Pacific Avenue, a distance of 25.00 feet to the POINT AND PLACE OF BEGINNING. NOTE: All references herein to Lot and Block designations are to be used for informational purposes only and are not to be interpreted as being part of the description. BEING KNOWN AS Lot in Block as shownon the tax map of the CITY of ATLANTIC CITY. EXHIBIT 3.1 PERMITTED EXCEPTIONS 1. LANDLORDS WAIVER: between Resorts International Inc. and Maryland National Leasing Corporation dated September 18, 1986 recorded December 30, 1986 in Deed Book 4372 page 282. 2. AGREEMENT AS TO ASSUMPTION OF OBLIGATIONS WITH RESPECT TO PROPERTIES: between Atlantic City Showboat Inc., a New Jersey Corporation, Trump Taj Mahal Associates Limited Partnership, a New Jersey Limited Partnership, Trump Taj Mahal Realty Corp., a New Jersey Corporation, and Resorts International Inc., a Delaware Corporation dated September 21, 1988 and recorded November 17, 1988 in Deed Book 4795 page 243 and as amended by First Amendment recorded in Deed Book 4966 page 181. 3. AGREEMENT AS TO ASSUMPTION OF OBLIGATIONS WITH RESPECT TO PROPERTIES: Between Atlantic City Showboat, Inc., a New Jersey Corporation, Trump Taj Mahal Associates Limited Partnership, a New Jersey Limited Partnership, Trump Taj Mahal Realty Corp., a New Jersey Corporation, and Resorts International Inc. a Delaware Corporation dated September 21, 1988 recorded March 14, 1989 in Deed book 4863 page 5. 4. Restrictions, covenants, agreements, and easements contained in Deed Book 2436 page 110; Misc. Book 12 page 242; and Misc. Book 12 page 377. 5. Restrictions, covenants, agreements and easements, contained in Deed Book 3978 page 219, Certification in Deed Book 4524 page 192 as modified in Deed Book 4646 page 166 and in Deed Book 3846 page 199 as amended by Correction and Confirmatory Deed in Deed Book 4636 page 218, and Deed Book 4016 page 70. 6. Rights granted to the Atlantic City Electric Company in Deed Book 1991 page 100. 7. Rights of the Federal Government to take, without compensation, any land now or formerly flowed by tidal waters for the purpose of commerce and navigation and its authority to regulate and control navigation and in that connection to establish and change bulkhead and pierhead lines. 8. Easement for Service Road over a portion of premises (Lot 140 Block 13) described as Parcel D on Exhibit A. 9. Estate and interest under the terms and provisions of lease by Resorts International Inc. a Delaware Corporation to Ocean Showboat Inc. a New Jersey Corporation Short Form Lease dated October 26, 1983 recorded January 18, 1984 in Deed Book 3878 page 1. 20 10. Taxes, charges and assessments. 11. Liability for additional assessment for tax in connection with new construction pursuant to N.J.S.A. 54:4-63.1 ET SEQ. 12. Water charges, if any, affecting the premises in question. 13. Rights or claims of parties in possession not shown by the public records, limited, however, to the Lease. 14. Encroachments, overlaps, boundary line disputes, or other matters which would be disclosed by an accurate survey and inspection of the Property. 15. Any liens, or right to a lien, for services, labor, or material heretofore or hereafter furnished, imposed by law and not shown by the public record, except such liens attributable to Seller. 16. Terms and conditions contained in Riparian Grants from the State of New Jersey to Benjamin Brown, recorded March 28, 1882 in Deed Book 88, page 80 and to James B. Reilly, recorded August 11, 1899 in Deed Book 233, page 417 provided, however, the Title Company insures that the grantees in the Riparian Grants were the upland owners at the time said Grants were given. DECLARATION OF COMMENCEMENT DATE OF LEASE: by Resorts International Inc. a Delaware Corporation and Ocean Showboat Inc. a New Jersey Corporation dated December 15, 1983 recorded May 1, 1984 in Deed Book 3911 page 63. ASSIGNMENT AND ASSUMPTION OF LEASE: by Ocean Showboat Inc. a New Jersey Corporation to Atlantic City Showboat, Inc. a New Jersey Corporation dated December 3, 1984 recorded December 24, 1984 in Deed Book 4004 page 310. FIRST AMENDMENT TO LEASE: between Resorts International Inc. a Delaware Corporation and Atlantic City Showboat Inc. a New Jersey Corporation dated January 15, 1985 recorded August 16, 1985 in Deed Book 4107 page 141. SECOND AMENDMENT TO LEASE: between Resorts International Inc. a Delaware Corporation and Atlantic City Showboat Inc. a New Jersey Corporation dated July 5, 1985 recorded November 25, 1985 in Deed Book 4158, page 221. THIRD AMENDMENT TO LEASE: between Resorts International Inc. a Delaware Corporation and Atlantic City Showboat Inc. a New Jersey Corporation dated October 28, 1985 recorded November 25, 1985 in Deed Book 4158, page 227. 21 RESTATED THIRD AMENDMENT TO LEASE: between Resorts International Inc. a Delaware Corporation and Atlantic City Showboat, Inc. a New Jersey Corporation dated October 28, 1985 recorded February 20, 1987 in Deed Book 4406 page 17. FOURTH AMENDMENT TO LEASE: between Resorts International Inc. a Delaware Corporation and Atlantic City Showboat Inc. a New Jersey Corporation dated December 16, 1986 recorded February 20, 1987 in Deed Book 4406, page 37. FIFTH AMENDMENT TO LEASE: between Resorts International Inc. a Delaware Corporation and Atlantic City Showboat Inc. a New Jersey Corporation dated March 2, 1987 recorded March 23,1987 in Deed Book 4421 page 10. SIXTH AMENDMENT TO LEASE: between Resorts International Inc. a Delaware Corporation and Atlantic City Showboat, Inc. a New Jersey Corporation dated March 13, 1987 recorded March 23, 1987 in Deed Book 4421 page 17. SEVENTH AMENDMENT TO LEASE: between Resorts International Inc. a Delaware Corporation and Atlantic City Showboat, Inc. a New Jersey Corporation date October 18, 1988 recorded December 19, 1988 in Deed Book 4814 page 231. EIGHTH AMENDMENT TO LEASE: between Resorts International Inc., a Delaware Corporation and Atlantic City Showboat, Inc. a New Jersey Corporation dated May 18, 1993 recorded May 18, 1993 in Deed Book 5500, page 284. 22 EXHIBIT 4.2(B) ASSIGNMENT AND ASSUMPTION OF LEASE 23 Prepared by: /S/ ARTHUR E. SKLAR Arthur E. Sklar ASSIGNMENT AND ASSUMPTION OF LEASE THIS ASSIGNMENT AND ASSUMPTION OF LEASE ("Assignment") is made this 27th day of January, 1998 by and between SUN INTERNATIONAL NORTH AMERICA, INC., 1133 Boardwalk, Atlantic City, New Jersey 08401 ("Assignor"), SHOWBOAT LAND LLC, 3720 Howard Hughes Parkway, Suite 200, Las Vegas, Nevada 89109 ("Assignee") and ATLANTIC CITY SHOWBOAT, INC. ("Lessee"). BACKGROUND A. Assignor conveyed to Assignee that certain real property located on The Boardwalk in the City of Atlantic City, being designated as Lot 140 in Block 13 on the current Atlantic City Tax Map and more particularly described on Exhibit A attached hereto and made a part hereof (the "Property"), subject to that certain Lease Agreement dated October 26, 1983, by and between Resorts International, Inc., as landlord, and Atlantic City Showboat, Inc., as lessee. Thereafter, the said lease was amended by the parties thereto by the First Amendment to Lease Agreement dated January 15, 1985, the Second Amendment to Lease Agreement dated July 5, 1985, the Third Amendment to Lease Agreement dated October 28, 1985, the Restated Third Amendment to Lease Agreement dated August 28, 1986, the Fourth Amendment to Lease Agreement dated December 16, 1986, the Fifth Amendment to Lease Agreement dated March 2, 1987, the Sixth Amendment to Lease Agreement dated March 13, 1987, the Seventh Amendment to Lease Agreement dated October 18, 1988 and the Eighth Amendment to Lease Agreement dated May 18, 1993 (collectively, the "Lease"). B. In connection with said conveyance, Assignor desires to assign to Assignee all of Assignor's right, title and interest in, to and under the lease, and Assignee desires to assume the obligations of Assignor thereunder. NOW, THEREFORE, in consideration of the mutual agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Assignor and Assignee hereby agree as follows: 1. ASSIGNMENT OF LEASE. Assignor hereby grants, sells, assigns, transfers and sets over to Assignee, all of Assignor's right, title and interest in and to the Lease. 2. ASSIGNMENT OF RENTS AND SECURITY DEPOSIT. Assignor hereby unconditionally grants, sells, assigns, transfers and sets over to Assignee all rents, royalties, issues, revenues, income and profits due and payable from and after the date hereof under the terms of the Lease. Assignee acknowledges that no security deposit exists under the Lease and agrees that no security is assigned hereunder. 3. ASSUMPTION OF LEASES. In consideration of the foregoing assignments, Assignee hereby accepts said assignment and assumes and agrees to keep and perform, any and all of Assignor's obligations under the Lease to be performed or paid on and after the date hereof and agrees to be bound by the terms, covenants and conditions of the Lease. Assignee agrees to indemnify and hold Assignor harmless from and against any loss, damage, liability, cost and expense suffered or incurred by Assignor, including, without limitation, reasonable attorneys' fees and expenses, by reason of the failure of Assignee to perform, keep or pay any of its obligations under the Lease or any claims related to the Property arising or accruing after the date hereof. 4. ASSIGNOR'S REPRESENTATIONS. Assignor represents and warrants to Assignee that the Lease is assigned to Assignor, free and clear of all liens, encumbrances and rights of others. and any rights thereunder have not been assigned by Assignor. This Assignment is otherwise made without representation or warranty of any kind by Assignor. 5. RELEASE. (a) ASSIGNEE'S RELEASE. Assignee hereby releases Assignor, its directors, officers, agents, representatives, control persons and affiliates (including, without limitation, Sun International Hotels Limited) and the directors, officers, agents and representatives of such control persons and affiliates (each, a "Released Person") from all actions, causes of action, suits, proceedings, debts, sums of money, liens, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, liabilities, obligations, executions, claims and demands whatsoever, in law, admiralty or equity or otherwise, which against any of the Released Persons, Assignee, its directors, officers, agents, representatives, members, control persons and affiliates of Assignee, and the directors, officers, agents and representatives of such members, control persons and affiliates, ever had, now have or hereafter can, shall or may, have for, upon, or by reason of any matter, cause or thing whatsoever pursuant to the Lease from the beginning of the world to the end of time. (b) ATLANTIC CITY SHOWBOAT, INC.'S RELEASE. Atlantic City Showboat, Inc. hereby releases Assignor, its directors, officers, agents, representatives, control persons and affiliates (including, without limitation, Sun International Hotels Limited) and the directors, officers, agents and representatives of such control persons and affiliates (each, a "Released Person") from all actions, causes of action, suits, proceedings, debts, sums of money, liens, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, liabilities, obligations, executions, claims and demands whatsoever, in law, admiralty or equity or otherwise, which against any of the Released Persons, Atlantic City Showboat, Inc., its directors, officers, agents, representatives, members, control persons and affiliates of Atlantic City Showboat, Inc., and the directors, officers, agents and representatives of such members, control persons and affiliates, ever had, now have or hereafter can, shall or may, have for, upon, or by reason of any matter, cause or thing whatsoever pursuant to the Lease from the beginning of the world to the end of time. (c) ASSIGNOR'S RELEASE. Assignor hereby releases Assignee and Atlantic City Showboat, Inc., its directors, officers, agents, representatives, control persons and affiliates (including, without limitation, Showboat, Inc. and Atlantic City Showboat, Inc.) and the directors, officers, agents and representatives of such control persons and affiliates (each, a "Released Person") from all actions, causes of action, suits, proceedings, debts, sums of money, liens, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, liabilities, obligations, executions, claims and demands whatsoever, in law, admiralty or equity or otherwise, which against any of the Released Persons, Assignor, its directors, officers, agents, representatives, members, control persons and affiliates of Assignor, and the directors, officers, agents and representatives of such members, control persons and affiliates, ever had, now have or hereafter can, shall or may, have for, upon, or by reason of any matter, cause or thing whatsoever pursuant to the Lease from the beginning of the world to the end of time; PROVIDED, HOWEVER, this release shall not apply to any claims or causes of action asserted against Assignor by persons or entities unaffiliated with Assignor arising out of the use and/or occupancy of the Property by the Lessee under the Lease. Nothing contained in this Paragraph 5 is intended to release or modify the obligations of Trump Taj Mahal Realty Corp. and Trump Taj Mahal Associates Limited Partner (together, "Trump") under that certain agreement as to Assumption of Obligations with Respect to Property between Atlantic City Showboat, Inc. and Trump dated September 21, 1988, as amended. 6. MISCELLANEOUS. This Assignment shall run with the land and be binding upon the parties hereto and each of their respective successors and assigns. This Assignment shall be governed by the laws of the State of New Jersey. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed the day and year first written above. WITNESS/ATTEST: ASSIGNOR: SUN INTERNATIONAL NORTH AMERICA, INC. /S/ By: /s/ John Allison John Allison, Executive Vice President-Finance & CFO STATE OF FLORIDA : : ss COUNTY OF Broward : BE IT REMEMBERED, that on this 27th day of January, 1998, before me, the subscriber, a Notary Public of Florida (State), personally appeared John Allison, Executive Vice-President-Finance & CFO of Sun International North America, Inc., who, I am satisfied, is the person who signed, sealed and delivered the same as such officer aforesaid, and that the within instrument is the voluntary act and deed of such corporation. /S/ LINDA WEISKOPF WITNESS/ATTEST: ASSIGNEE: SHOWBOAT LAND LLC By: Showboat Operating Company, a member /s/ Catherine Hudson By: /s/ R. Craig Bird R. Craig Bird Executive Vice-President Chief Financial Officer STATE OF NEW JERSEY : : ss COUNTY OF ATLANTIC : BE IT REMEMBERED, that on this 27th day of January, 1998, before me, the subscriber, a Notary Public of New Jersey (State), personally appeared R. Craig Bird, Executive Vice President and Chief Financial Officer of Showboat Operating Company, a member of Showboat Land LLC, who, I am satisfied, is the person who signed, sealed and delivered the same as such officer aforesaid, and that the within instrument is the voluntary act and deed of such limited liability company. /s/ Kimberly A. Park KIMBERLY A. PARK A Notary Public of New Jersey My Commission Expires March 16, 1998 4 LESSEE: ATLANTIC CITY SHOWBOAT, INC. By: /s/ Herbert R. Wolfe Herbert R. Wolfe, President and CEO STATE OF NEW JERSEY : : ss COUNTY OF ATLANTIC : BE IT REMEMBERED, that on this 27 day of January, 1998, before me, the subscriber, a Notary Public of New Jersey (State), personally appeared Herbert R. Wolfe, President and CEO of Atlantic City Showboat, Inc., who, I am satisfied, is the person who signed, sealed and delivered the same as such officer aforesaid, and that the within instrument is the voluntary act and deed of such limited liability company. /s/ Denise L. Perrone DENISE L. PERRONE NOTARY PUBLIC OF NEW JERSEY My Commission Expires Sept. 19, 1999 5 EXHIBIT 4 2(C) AFFIDAVIT OF TITLE 24 AFFIDAVIT OF TITLE STATE OF FLORIDA : : ss COUNTY OF BROWARD : The undersigned says under oath: 1. AUTHORIZATION. I am the Executive Vice President-Finance & Chief Financial Officer of Sun International North America, Inc., a corporation of the State of Delaware (the "Corporation") and am delivering the affidavit on behalf of the Corporation. I am fully familiar with the business of the corporation. I am at least 18 years old. 2. REPRESENTATIONS. The statements contained in this affidavit are true to the best of my knowledge, information and belief. 3. CORPORATE AUTHORITY. The corporation is the only owner of property known as Block 13, Lot 140 on the Tax map of the City of Atlantic City, and more particularly described in Stewart Title Guaranty Company Title Commitment No. 91118875 (the "Title Commitment"), hereinafter called "this property." This action, and the making of this affidavit of title, have been duly authorized by a proper resolution of the Board of Directors of the Corporation. The Corporation is legally authorized to transact business in New Jersey. It has paid all state franchise taxes presently due. Its charter, franchise and corporate powers have never been suspended or revoked. It is not restrained from doing business nor has any legal action been taken for that purpose. 4. APPROVAL BY SHAREHOLDERS. ( check one only) [X] Shareholder approval is not required. [ ] This is sale of all or substantially all of the assets of the Corporation. The sale is not made in the regular course of the business of the Corporation. A copy of the authorization and approval of the shareholders is attached. 5. OWNERSHIP AND POSSESSION. The Corporation has owned this property since the dates recited in the Title Commitment. Since then no one has questioned its right of ownership. The property is in possession of Atlantic City Showboat, Inc. in accordance with the lease agreement recited in the Title Commitment. 6. LIENS OR ENCUMBRANCES. It has not allowed any interests (legal rights) to be created which affects its ownership or use of this property except for those recited in the Title Commitment. The Corporation does not have any pending lawsuits or judgments against it or other legal obligations which may be enforced against this property. It does not owe any disability, unemployment, corporate franchise, social security, municipal or alcoholic beverage tax payments. No one has any security interest in any personal property or fixtures on this property except those recited in the Title Commitment. 7. EXCEPTIONS AND ADDITIONS. The following is a complete list of exceptions and additions to the above statements. a. Matters contained in the Title Commitment. b. Rights, restrictions, conditions, agreements and easements that appear of record. c. Lawsuits arising in the course of operating the business of the Corporation. 8. RELIANCE. The Corporation makes this affidavit in order to induce Stewart Title Guaranty Company, Commonwealth Land Title Insurance Company and Lawyers Title Insurance Corporation (the "Title Companies") to issue a title policy to Buyer. The Corporation is aware that the Title Companies will rely on the statements made in this affidavit and on its truthfulness. /s/ John Allison John Allison, Executive Vice President-Finance & Chief Financial Officer Signed and sworn to before me on January 26, 1998 /s/ Linda Weiskoff LINDA WEISKOFF Notary Public NOTARY PUBLIC-STATE OF FLORIDA MY COMMISSION EXPIRES 6/20/98 COMMISSION NUMBER CC385040 EXHIBIT 4.2(H) ESTOPPEL CERTIFICATE OF LANDLORD (SELLER) 25 EXHIBIT 4.2(H) LANDLORD ESTOPPEL CERTIFICATE This LANDLORD ESTOPPEL CERTIFICATE (this "Certificate") is made as of this 27TH day of JANUARY, 1998 by SUN INTERNATIONAL NORTH AMERICA, INC., a Delaware corporation having an address at 1133 Boardwalk, Atlantic City, New Jersey 08401 ("Landlord"), to ATLANTIC CITY SHOWBOAT, INC., a New Jersey corporation having an address at 801 Boardwalk, Atlantic City, New Jersey 08401 ("Tenant") and SHOWBOAT LAND LLC. ("Purchaser"). W I T N E S S E T H WHEREAS, Landlord (formerly known as Resorts International Inc.) and Tenant entered into that certain Lease Agreement dated October 26, 1983, as amended by the First Amendment to Lease Agreement dated January 15, 1985, the Second Amendment to Lease Agreement dated July 5, 1985, the Third Amendment to Lease Agreement dated October 28, 1985, the Restated Third Amendment to Lease Agreement dated August 28, 1986, the Fourth Amendment to Lease Agreement dated December 16, 1986, the Fifth Amendment to Lease Agreement dated March 2, 1987, the Sixth Amendment to Lease Agreement dated March 13, 1987, the Seventh Amendment to Lease Agreement dated October 18, 1988, and the Eighth Amendment to Lease Agreement dated May 18, 1993, for real property designated as Lot 140 in Block 13, Atlantic City, New Jersey (the "Property"), (the Lease Agreement and all amendments thereto, collectively, the "Lease"); WHEREAS, Landlord has offered to sell the Property to Tenant in accordance with the Lease; and WHEREAS, Tenant has accepted Landlord's offer; and WHEREAS, Tenant has requested that Landlord sell the Property to Purchaser, in lieu of selling the Property to Tenant and, in connection therewith, that Landlord assign its rights under the Lease to Purchaser, provided Purchaser assumes the obligations under the Lease pursuant to the terms and conditions of the Assignment and Assumption of Lease Agreement; and WHEREAS, Landlord, as an accommodation to Tenant, has agreed to sell the Property to Purchaser pursuant to the terms and conditions of the Agreement of Purchase and Sale; and WHEREAS, the Purchase Agreement (hereinafter defined), as a condition of such sale, requires, among other things, this Certificate be delivered by Landlord. NOW, THEREFORE, in consideration of the premises, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Landlord certifies to Purchaser and Tenant as follows: a. The Lease is in full force and effect and has not been modified, supplemented or amended in any way except to the extent set forth in the first recital hereof. b. The Lease represents the only lease, agreement or understanding between the Landlord and Tenant affecting the Property or the use thereof, except for that certain Agreement as to Assumption of Obligations With Respect to Properties between Tenant and Trump Taj Mahal Realty Corp. and Trump Taj Mahal Associates Limited Partnership dated September 21, 1988, as amended (the "Assumption Agreement"). c. All monetary obligations of Tenant to Landlord have been fully satisfied. To the knowledge of the undersigned, all other conditions under the Lease to be performed by Tenant have been fully satisfied, and as of the date hereof, there are no existing defenses or offsets which Landlord has against the enforcement of the Lease by Tenant. d. To the knowledge of the undersigned, (i) Tenant is not in default under the Lease, and (ii) no event has occurred, nor does any condition exist, which with notice or the passage of time would constitute such a default. Landlord is not in default under the Lease and no event has occurred which, after lapse of time and/or notice thereof to any person, would constitute a default thereunder. e. Landlord has no claim, action or lien against Tenant for any maintenance costs or payments with respect to the Common Areas. f. There are no allowances presently due or to become due, from Tenant to Landlord, on account of its improvements or otherwise. g. No Rent (as defined in the Lease) has been prepaid by more than 30 days beyond the date hereof with respect to the Lease. h. Landlord has not assigned, hypothecated or pledged its interest in the Lease or Rent payable under the Lease, other than the pledge thereof by Landlord to The Bank of New York, as Trustee, which pledge will be released concurrently with the sale of the Property. i. Landlord has not received any written notice of any pending or threatened condemnation action with respect to all or any portion of the Property, and to the best of Landlord's knowledge, there are no existing condemnation or other legal proceedings affecting the Property by any governmental authority having jurisdiction over or affecting all or any part of the Property. j. No permission, consent or approval by any third party or, to the best of Landlord's knowledge, any governmental authority is required to be obtained by in order for Seller to consummate the transactions contemplated hereby, except the consent or approval of the New Jersey Casino Control Commission which may be required to be obtained by Tenant and/or Purchaser. k. Landlord has not received written notice that the Property is in violation of any Environmental Laws (as defined in the Purchase Agreement). Landlord has not received written notice of a threatened or pending Regulatory Action (as defined in the Purchase Agreement) and has not received any notification that it is or may be potentially responsible or liable for clean-up, testing or other remedial activities at any site including, without limitation, the Property. 2 l. To the best of Landlord's knowledge, there are no actions, suits or proceedings pending or threatened affecting the Property or any portion thereof. m. Landlord hereby acknowledges that Tenant and Purchaser may rely on the matters herein set forth, and hereafter, Landlord may be estopped from denying the veracity or accuracy of the matters herein set forth. IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date first set forth above. SUN INTERNATIONAL NORTH AMERICA, INC. By: /S/ JOHN ALLISON John Allison Executive Vice-President-Finance & Chief Financial Officer STATE OF FLORIDA : : SS COUNTY OF BROWARD : BE IT REMEMBERED, that on this 27th day of January , 1998, before me, the subscriber, a Notary Public of Florida (State), personally appeared John Allison, Executive Vice-President-Finance & Chief Financial Officer of Sun International North America, Inc., who, I am satisfied, is the person who signed, sealed and delivered the same as such officer aforesaid, and that the within instrument is the voluntary act and deed of such corporation. /S/ LINDA WEISKOPF EXHIBIT 4.3(C) TENANT ESTOPPEL CERTIFICATE This TENANT ESTOPPEL CERTIFICATE (this "Certificate") is made as of this 27TH day of JANUARY , 1998 by ATLANTIC CITY SHOWBOAT, INC., a New Jersey corporation having an address at 801 Boardwalk, Atlantic City, New Jersey 08401 ("Tenant") to SUN INTERNATIONAL NORTH AMERICA, INC., a Delaware corporation having an address at 1133 Boardwalk, Atlantic City, New Jersey 08401 ("Landlord"). W I T N E S S E T H WHEREAS, Landlord (formerly known as Resorts International Inc.) and Tenant entered into that certain Lease Agreement dated October 26, 1983, as amended by the First Amendment to Lease Agreement dated January 15, 1985, the Second Amendment to Lease Agreement dated July 5, 1985, the Third Amendment to Lease Agreement dated October 28, 1985, the Restated Third Amendment to Lease Agreement dated August 28, 1986, the Fourth Amendment to Lease Agreement dated December 16, 1986, the Fifth Amendment to Lease Agreement dated March 2, 1987, the Sixth Amendment to Lease Agreement dated March 13, 1987, the Seventh Amendment to Lease Agreement dated October 18, 1988, and the Eighth Amendment to Lease Agreement dated May 18, 1993, for real property designated as Lot 140 in Block 13, Atlantic City, New Jersey (the "Property"), (the Lease Agreement and all amendments thereto, collectively, the "Lease"); WHEREAS, Landlord has offered to sell the Property to Tenant in accordance with the Lease; and WHEREAS, Tenant has accepted Landlord's offer; and WHEREAS, Tenant has requested that Landlord sell the Property to Purchaser, in lieu of selling the Property to Tenant and, in connection therewith, that Landlord assign its rights under the Lease to Purchaser, provided Purchaser assumes the obligations under the Lease pursuant to the terms and conditions of the Assignment and Assumption of Lease Agreement; and WHEREAS, Landlord, as an accommodation to Tenant, has agreed to sell the Property to Purchaser pursuant to the terms and conditions of the Agreement of Purchase and Sale; and WHEREAS, Landlord, as a condition of such sale, requires, among other things, this certificate be delivered by Tenant. NOW, THEREFORE, in consideration of the premises, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Tenant certifies to Purchaser and Landlord as follows: a. The Lease is in full force and effect and has not been modified, supplemented or amended in any way except to the extent set forth in the first recital hereof. b. The Lease represents the only lease, agreement or understanding between the Landlord and Tenant affecting the Property or the use thereof, except for that certain Agreement as to Assumption of Obligations With Respect to Properties between Tenant and Trump Taj Mahal Realty Corp. and Trump Taj Mahal Associates Limited Partnership dated September 21, 1988, as amended (the "Assumption Agreement"). c. All conditions under the Lease to be performed by Landlord have been fully satisfied, and as of the date hereof, there are no existing defenses or offsets which Tenant has against the enforcement of the Lease by Landlord. d. To the knowledge of the undersigned, (i) Landlord is not in default under the Lease, and (ii) no event has occurred, nor does any condition exist, which with notice or the passage of time would constitute such a default. Tenant is not default under the Lease and no event has occurred which, after lapse of time and/or notice thereof to any person, would constitute a default thereunder. e. Landlord has paid its share of all maintenance costs and payments to the Common Areas, as defined in the Lease, and Tenant has no claim, action or lien against Landlord for any such maintenance costs or payments. f. There are no allowances presently due or to become due, from Landlord to Tenant, on account of its improvements or otherwise. g. No Rent (as defined in the Lease) has been prepaid by more than 30 days beyond the date hereof with respect to the Lease. h. Tenant has no knowledge of any assignment, hypothecation or pledge of the Lease or Rent payable under the Lease, other than the pledge thereof by Landlord to The Bank of New York, as Trustee, which pledge will be released concurrently with the sale of the Property and other than the pledge thereof by Tenant to Fleet Bank, N.A. and IBJ Schroder Bank and Trust Company, as trustee. i. No portion of the Property has been sublet and Tenant is the only occupant of the Property, except retail store subleases between Tenant and third persons. j. Tenant has not received any written notice of any pending or threatened condemnation action with respect to all or any portion of the Property, and to the best of Tenant's knowledge, there are no existing condemnation or other legal proceedings affecting the Property by any governmental authority having jurisdiction over or affecting all or any part of the Property. 2 k. No permission, consent or approval by any third party or, to the best of Tenant's knowledge, any governmental authority is required to be obtained by Tenant in order for Seller to consummate the transactions contemplated hereby, except the consent or approval of the New Jersey Casino Control Commission which may be required to be obtained by Tenant and/or Purchaser. l. There are no actions, suits or proceedings pending or, to the best of Tenant's knowledge, threatened affecting the Property or any portion thereof. m. Tenant has not received written notice that the Property is in violation of any Environmental Laws (as defined in the Purchase Agreement). Tenant has no knowledge of the release of Hazardous Substance (as defined in the Purchase Agreement) on or from the Property or to the Property from any adjacent property, or any potential or known liability which has resulted in or may result in a lien on the Property or which is or may result in a violation of any Environmental Laws. Tenant has not received written notice of a threatened or pending Regulatory Action (as defined in the Purchase Agreement) and has not received any notification that it is or may be potentially responsible or liable for clean-up, testing or other remedial activities at any site including, without limitation, the Property. n. Tenant hereby acknowledges that Landlord and Purchaser may rely on the matters herein set forth, and hereafter, Tenant may be estopped from denying the veracity or accuracy of the matters herein set forth. IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date first set forth above. ATLANTIC CITY SHOWBOAT, INC. By: /S/ HERBERT R. WOLFE Herbert R. Wolfe President 3 STATE OF NEW JERSEY : : SS COUNTY OF ATLANTIC : BE IT REMEMBERED, that on this 27TH day of January, 1998, before me, the subscriber, a Notary Public of New Jersey (State), personally appeared Herbert R. Wolfe, President of Atlantic City Showboat, Inc., who, I am satisfied, is the person who signed, sealed and delivered the same as such officer aforesaid, and that the within instrument is the voluntary act and deed of such corporation. /S/ DENISE L. PERRONE EX-10 7 EXHIBIT 10.37 WHEN RECORDED, RETURN TO: Attention: Mark M. Leskiw, L.A. Latham & Watkins 885 Third Avenue, Suite 1000 New York, New York 10022 MORTGAGE AND SECURITY AGREEMENT THIS MORTGAGE AND SECURITY AGREEMENT (this "Mortgage") is made as of the 29th day of January, 1998, between SHOWBOAT LAND, LLC, a Nevada limited liability company ("Mortgagor") whose address is 3720 Howard Hughes Parkway, Suite 200, Las Vegas, Nevada 89109, and COLUMN FINANCIAL, INC., a Delaware corporation ("Mortgagee"), whose address is 3414 Peachtree Road, N.E., Suite 1140, Atlanta, Georgia 30326. W I T N E S S E T H: THAT FOR AND IN CONSIDERATION OF THE SUM OF TEN AND NO/100 DOLLARS ($10.00), AND OTHER VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, MORTGAGOR HEREBY IRREVOCABLY MORTGAGES, GRANTS, BARGAINS, SELLS, CONVEYS, TRANSFERS, PLEDGES, SETS OVER AND ASSIGNS, AND GRANTS A SECURITY INTEREST, TO MORTGAGEE, ITS SUCCESSORS AND ASSIGNS, with power of sale, in all of Mortgagor's estate, right, title and interest in, to and under any and all of the following described property, whether now owned or hereafter acquired (collectively, the "Property"): (A) All that certain real property situated in the County of Atlantic, State of New Jersey, more particularly described on Exhibit A attached hereto and incorporated herein by this reference (the "Real Estate"), together with all of the easements, rights, privileges, franchises, tenements, hereditaments and appurtenances now or hereafter thereunto belonging or in any way appertaining and all of the estate, right, title, interest, claim and demand whatsoever of Mortgagor therein or thereto, either at law or in equity, in possession or in expectancy, now or hereafter acquired; (B) All structures, buildings and improvements of every kind and description now or at any time hereafter located or placed on the Real Estate (the "Improvements"); (C) All furniture, furnishings, fixtures, goods, equipment, inventory or personal property owned by Mortgagor and now or hereafter located on, attached to or used in and about thc Improvements, including, but not limited to, all machines, engines, boilers, dynamos, elevators, stokers, tanks, cabinets, awnings, screens, shades, blinds, carpets, draperies, lawn mowers, and all appliances, plumbing, heating, air conditioning, lighting, ventilating, refrigerating, disposals and incinerating equipment, and all fixtures and appurtenances thereto, and such other goods and chattels and personal property owned by Mortgagor as are now or hereafter used or furnished in operating the Improvements, or the activities conducted therein, and all building materials and equipment hereafter situated on or about the Real Estate or Improvements, and all warranties and guaranties relating thereto, and all additions thereto and substitutions and replacements therefor (exclusive of any of the foregoing owned or leased by tenants of space in the Improvements); (D) All easements, rights-of-way, strips and gores of land, vaults, streets, ways, alleys, passages, sewer rights, and other emblements now or hereafter located on the Real Estate or under or above the same or any part or parcel thereof, and all estates, rights, titles, interests, tenements, hereditaments and appurtenances, reversions and remainders whatsoever, in any way belonging, relating or appertaining to the Property or any part thereof, or which hereafter shall in any way belong, relate or be appurtenant thereto, whether now owned or hereafter acquired by Mortgagor; (E) All water, ditches, wells, reservoirs and drains and all water, ditch, well, reservoir and drainage rights which are appurtenant to, located on, under or above or used in connection with the Real Estate or the Improvements, or any part thereof, whether now existing or hereafter created or acquired; (F) All minerals, crops, timber, trees, shrubs, flowers and landscaping features now or hereafter located on, under or above the Real Estate, and all riparian, littoral, mineral, oil, and gas rights now or hereafter acquired and relating to all or any part of the Real Estate; (G) All cash funds, deposit accounts and other rights and evidence of rights to cash, now or hereafter created or held by Mortgagee pursuant to this Mortgage or any other of the Loan Documents (as hereinafter defined) including, without limitation, all funds now or hereafter on deposit in the Impound Account (as hereafter defined); (H) All leases, licenses, concessions and occupancy agreements of the Real Estate or the Improvements now or hereafter entered into and all rents, royalties, issues, profits, revenue, income and other benefits (collectively, the "Rents and Profits") of the Real Estate or the Improvements, now or hereafter arising from the use or enjoyment of all or any portion thereof or from any lease, license, concession, occupancy agreement or other agreement pertaining thereto or arising from any of the Contracts (as hereinafter defined) or any of the General Intangibles (as hereinafter defined) and all cash or securities deposited to secure performance by the tenants. lessees or licensees, as applicable, of their obligations under any such leases, licenses, concessions or occupancy agreements, whether said cash or securities are to be held until the expiration of the terms of said leases, licenses, concessions or occupancy agreements or applied to one or more of the installments of rent coming due prior to the expiration of said terms, subject to, however, the provisions contained in Section 1.11 hereinbelow; (I) All contracts and agreements now or hereafter entered into covering any part of the Real Estate or the Improvements (collectively, the "Contracts") and all revenue, income and other benefits thereof, including, without limitation, management agreements, service contracts, maintenance contracts, equipment leases, personal property, leases and any contracts or documents relating to construction on any part of the Real Estate or the Improvements (including plans, drawings, surveys, tests, reports, bonds and governmental approvals) or to the management or operation of any part of the Real Estate or the Improvements; (J) All present and future monetary deposits given to any public or private utility with respect to utility services furnished to any part of the Real Estate or the Improvements; 2 (K) All present and future funds, accounts, instruments, accounts receivable, documents, causes of action, claims, general intangibles (including without limitation, trademarks, trade names, servicemarks and symbols now or hereafter used in connection with any part of the Real Estate or the Improvements, all names by which the Real Estate or the Improvements may be operated or known, all rights to carry on business under such names, and all rights, interest and privileges which Mortgagor has or may have as developer or declarant under any covenants, restrictions or declarations now or hereafter relating to the Real Estate or the Improvements) and all notes or chattel paper now or hereafter arising from or by virtue of any transactions related to the Real Estate or the Improvements (collectively, the "General Intangibles"); (L) All water taps, sewer taps, certificates of occupancy, permits, licenses, franchises, certificates, consents, approvals and other rights and privileges now or hereafter obtained in connection with the Real Estate or the Improvements and all present and future warranties and guaranties relating to the Improvements or to any equipment, fixtures, furniture, furnishings, personal property or components of any of the foregoing now or hereafter located or installed on the Real Estate or the Improvements; (M) All building materials, supplies and equipment now or hereafter placed on the Real Estate or in the Improvements by or on behalf of Mortgagor and all architectural renderings, models, drawings, plans, specifications, studies and data now or hereafter relating to the Real Estate or the Improvements and owned by Mortgagor; (N) All right, title and interest of Mortgagor in any insurance policies or binders now or hereafter relating to the Property including any unearned premiums thereon; (O) All proceeds, products, substitutions and accessions (including claims and demands therefor) of the conversion, voluntary or involuntary, of any of the foregoing into cash or liquidated claims, including, without limitation, proceeds of insurance and condemnation awards paid or payable to Mortgagor; and (P) All other or greater rights and interests of every nature in the Real Estate or the Improvements and in the possession or use thereof and income therefrom, whether now owned or hereafter acquired by Mortgagor. FOR THE PURPOSE OF SECURING: (1) The debt evidenced by that certain Promissory Note (such Note, together with any and all renewals, modifications, consolidations and extensions thereof, is hereinafter referred to as the "Note") of even date with this Mortgage, made by Mortgagor to the order of Mortgagee in the principal face amount of ONE HUNDRED MILLION AND NO/100 ($100,000,000.00), together with interest as therein provided; (2) The full and prompt payment and performance of all of the provisions, agreements, covenants and obligations herein contained and contained in any other agreements, documents or instruments now or hereafter evidencing, securing or otherwise relating to the indebtedness evidenced by the Note (the Note, this Mortgage, and such other agreements, documents and instruments, together with any and all renewals, amendments, extensions and modifications thereof, are hereinafter collectively referred to as the "Loan Documents") and the payment of all other sums therein covenanted to be paid; and 3 (3) Any and all additional advances made by Mortgagee to protect or preserve the Property or the lien or security interest created hereby on the Property, or for taxes, assessments or insurance premiums as hereinafter provided or for performance of any of Mortgagor's obligations hereunder or under the other Loan Documents or for any other purpose provided herein or in the other Loan Documents (whether or not the original Mortgagor remains the owner of the Property at the time of such advances); and (4) Any and all other indebtedness now owing or which may hereafter be owing by Mortgagor to Mortgagee, however and whenever incurred or evidenced, whether express or implied, direct or indirect, absolute or contingent, or due or to become due, and all renewals, modifications, consolidations, replacements and extensions thereof. (All of the sums referred to in Paragraphs (1) through (4) above are herein sometimes referred to as the "secured indebtedness" or the "indebtedness secured hereby"). TO HAVE AND TO HOLD the Property unto Mortgagee, its successors and assigns forever, for the purposes and uses herein set forth. PROVIDED, HOWEVER, that if the principal and interest and all other sums due or to become due under the Note, including, without limitation, any prepayment fees required pursuant to the terms of the Note, shall have been paid at the time and in the manner stipulated therein and all other sums payable hereunder and all other indebtedness secured hereby shall have been paid and all other covenants contained in the Loan Documents shall have been performed, then, in such case, this Mortgage shall be satisfied and the estate, right, title and interest of Mortgagee in the Property shall cease, and upon payment to Mortgagee of all costs and expenses incurred for the preparation of the release hereinafter referenced and all recording costs if allowed by law, Mortgagee shall release this Mortgage and the lien hereof by proper instrument. AND, PROVIDED, FURTHER, that this Mortgage and the security interests created hereby shall be subject and subordinate to the Ground Lease (as hereinafter defined) and the rights of the ground lessee thereunder. ARTICLE 1. COVENANTS OF MORTGAGOR For the purpose of further securing the indebtedness secured hereby and for the protection of the security of this Mortgage, for so long as the indebtedness secured hereby or any part thereof remains unpaid, Mortgagor covenants and agrees as follows: 1.1. Warranties of Mortgagor. Mortgagor, for itself and its successors and assigns, does hereby represent, warrant and covenant to and with Mortgagee, its successors and assigns, that: (a) Mortgagor has good and marketable fee simple title to the Property, subject only to those matters expressly set forth on Exhibit B attached hereto and by this reference incorporated herein (the "Permitted Exceptions"), and has full power and lawful authority to grant, bargain, sell, convey, assign, transfer and mortgage its interest in the Property in the manner and form hereby done or intended. 4 Mortgagor will preserve its interest in and title to the Property and will forever warrant and defend, or cause to be warranted and defended, the same to Mortgagee against any and all claims whatsoever and will forever warrant and defend, or cause to be warranted and defended, the validity and priority of the lien and security interest created herein against the claims of all persons and parties whomsoever, subject to the Permitted Exceptions. The foregoing warranty of title shall survive the foreclosure of this Mortgage and shall inure to the benefit of and be enforceable by Mortgagee in the event Mortgagee acquires title to the Property pursuant to any foreclosure; (b) No bankruptcy or insolvency proceedings are pending or contemplated by Mortgagor or, to the best knowledge of Mortgagor, against Mortgagor or by or against any direct or indirect principal of Mortgagor or by or against any endorser, cosigner or guarantor of the Note; (c) All reports, certificates, affidavits, statements and other data furnished by Mortgagor to Mortgagee in connection with the loan evidenced by the Note are true and correct in all material respects and do not omit to state any fact or circumstance necessary to make the statements contained therein not misleading; (d) The execution, delivery and performance of this Mortgage, the Note and all of the other Loan Documents have been duly authorized by all necessary action to be, and are, binding and enforceable against Mortgagor and/or Mortgagor's affiliate that is a party thereto in accordance with the respective terms thereof (subject, as to the enforcement of remedies, to the effect of applicable bankruptcy, reorganization, insolvency and similar laws and to the effect of general principles of equity) and do not contravene, result in a breach of or constitute (upon the giving of notice or the passage of time or both) a default under the operating agreement, articles of incorporation or other organizational documents of Mortgagor or such affiliate or any contract or agreement of any nature to which Mortgagor or such affiliate is a party or by which Mortgagor or such affiliate or any of its respective property may be bound and do not violate or contravene any law, order, decree, rule or regulation to which Mortgagor or such affiliate is subject; (e) Neither Mortgagor nor any of its affiliates is required to obtain any consent, approval or authorization from or to file any declaration or statement with, any Governmental Authority or agency in connection with or as a condition to the execution, delivery or performance of this Mortgage, the Note or the other Loan Documents which has not been so obtained or filed; (f) Mortgagor and its affiliates have obtained or made all necessary (i) consents, approvals and authorizations and registrations and filings of or with all Governmental Authorities and (ii) consents, approvals, waivers and notifications of partners, stockholders, creditors, lessors and other non- governmental persons and/or entities, in each case, which are required to be obtained or made by Mortgagor and/or such affiliates in connection with the execution and delivery of, and the performance by Mortgagor and such affiliates of their respective obligations, if any, under, the Loan Documents; (g) Mortgagor and the managing member of Mortgagor, have filed all federal, state and local tax returns required to be filed and has paid or made adequate provision for the payment of all federal, state and local taxes, charges and assessments payable by Mortgagor and its managing member. 5 Mortgagor and its managing member believe that their respective tax returns properly reflect the income and taxes of Mortgagor and said managing member, if any, for the periods covered thereby, subject only to reasonable adjustments required by the Internal Revenue Service or other applicable tax authority upon audit; (h) Mortgagor is not an "employee benefit plan", as defined in section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which is subject to Title I of ERISA and the assets of Mortgagor do not constitute "plan assets" of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101; (i) to the best knowledge of Mortgagor, the Real Estate and the Improvements and the intended use thereof by Mortgagor comply with all applicable restrictive covenants, zoning ordinances, subdivision and building codes, flood disaster laws, applicable health and environmental laws and regulations and all other ordinances, orders or requirements issued by any state, federal or municipal authorities having or claiming jurisdiction over the Property. The Real Estate and Improvements constitute a separate tax parcel for purposes of ad valorem taxation. The Real Estate and Improvements do not require any rights over, or restrictions against, other property in order to comply with any of the aforesaid governmental ordinances, orders or requirements. (j) to the best knowledge of Mortgagor, all utility services necessary and sufficient for the full use, occupancy, operation and disposition of the Real Estate and the Improvements for their intended purposes are available to the Property, including water, storm sewer, sanitary sewer, gas, electric, cable and telephone facilities, through public rights-of-way or perpetual private easements approved by Mortgagee; (k) to the best knowledge of Mortgagor, all streets, roads, highways, bridges and waterways necessary for access to and full use, occupancy, operation and disposition of the Real Estate and the Improvements have been completed, have been dedicated to and accepted by the appropriate municipal authority and are open and available to the Real Estate and the Improvements without funkier condition or cost to Mortgagor; (l) to the best knowledge of Mortgagor, all curb cuts, driveways and traffic signals shown on the survey delivered to Mortgagee prior to the execution and delivery of this Mortgage are existing and have been fully approved by the appropriate governmental authority; (m) There are no judicial, administrative, mediation or arbitration actions, suits or proceedings pending or threatened against or affecting Mortgagor or any of Mortgagor's members or affiliates or the Property which, if adversely determined, would materially impair either the Property or Mortgagor's or such member's or affiliate's ability to perform the covenants or obligations required to be performed by Mortgagor or such affiliates under the Loan Documents; (n) to the best knowledge of Mortgagor, the Property is free from delinquent water charges, sewer rents, taxes and assessments; 6 (o) to the best knowledge of Mortgagor, as of the date of this Mortgage, the Property is free from unrepaired damage caused by fire, flood, accident or other casualty; (p) As of the date of this Mortgage, no part of the Real Estate or the Improvements has been taken in condemnation, eminent domain or like proceeding nor is any such proceeding pending or to Mortgagor's knowledge and belief, threatened or contemplated; (q) Mortgagor possesses all franchises, patents, copyrights, trademarks, tradenames, licenses and permits adequate for the conduct of its business substantially as now conducted at the Property; (r) to the best knowledge of Mortgagor, the Improvements are structurally sound, in good repair and free of defects in materials and workmanship and have been constructed and installed in substantial compliance with the plans and specifications relating thereto. All major building systems located within the Improvements, including without limitation the heating and air-conditioning systems and the electrical and plumbing systems, are in good working order and condition; (s) Mortgagor has delivered to Mortgagee true, correct and complete copies of all Contracts and all amendments thereto or modifications thereof; (t) Mortgagor and the Property are free from any past due obligations for sales and payroll taxes; (u) There are no security agreements or financing statements affecting any of the Property other than (i) as disclosed in writing by Mortgagor to Mortgagee prior to the date hereof and (ii) the security agreements and financing statements created in favor of Mortgagee; (v) Mortgagor has delivered a true, correct and complete schedule (the "Rent Roll") of all leases to which Mortgagor is a party affecting the Property, (collectively, "Leases") as of the date hereof, which accurately and completely sets forth in all material respects for each such Lease, the following: the name of the tenant, the lease expiration date, extension and renewal provisions, the base rent payable, and the security deposit held thereunder; (w) No Lease or Contract or easement, right-of-way, permit or declaration (collectively all such instruments are referred to hereinafter as "Property Agreements") provides any party with the right to obtain a lien or encumbrance upon the Property superior to the lien of this Mortgage, except that the Mortgage is subject and subordinate to the Ground Lease; (x) Except as previously disclosed to Mortgagee in writing, there are no brokerage fees or commissions payable by Mortgagor with respect to the leasing of space at the Property and there are no management fees payable by Mortgagor with respect to the management of the Property; (y) All Security Deposits, if any, are held in a segregated account and Mortgagor is in compliance with all legal requirements relating to such Security Deposits; 7 (z) There are no outstanding options or rights of first refusal to purchase all or any portion of the Property or Mortgagor's ownership thereof except as set forth in the Ground Lease. No condition exists whereby Mortgagor or any future owner of the Property may be required to purchase any other parcel of land which is subject to any Property Agreement or which gives any person or entity a right to purchase, or right of first refusal with respect to, the Property; (aa) The Property is free and clear of any mechanics' liens or liens in the nature thereof, and no rights are outstanding that under law would give rise to any such liens, any of which liens are or may be prior to, or equal with, the lien of this Mortgage, except those which are insured against by the title insurance policy insuring the lien of this Mortgagee; (bb) To the extent required by Mortgagee, Mortgagor has delivered to Mortgagee true, correct and complete copies of all Property Agreements; (cc) No default exists, or with the passing of time or the giving of notice or both would exist, under any Property Agreement which would, in the aggregate, have a material adverse effect on the ability of Mortgagor to perform any obligations under any Loan Document (collectively, a "Material Adverse Effect"); (dd) To the best knowledge of Mortgagor, no offset or any right of offset exists respecting continued contributions to be made by any party to any Property Agreement except as expressly set forth therein. Except as previously disclosed to Mortgagee in writing, no material exclusions or restrictions on the utilization, leasing or improvement of the Property (including non-compete agreements) exists in any Property Agreement; (ee) All work, if any, to be performed by Mortgagor under each of the Property Agreements has been substantially performed, all contributions to be made by Mortgagor to any party to such Property Agreement have been made, and all other conditions to such party's obligations thereunder have been satisfied; (ff) The Property is taxed separately without regard to any other real estate and constitutes a legally subdivided lot under all applicable legal requirements (or, if not subdivided, no subdivision or platting of the Property is required under applicable legal requirements), and for all purposes may be mortgaged, conveyed or otherwise dealt with as an independent parcel; and (gg) The representations and warranties contained in this Mortgage and the other Loan Documents, or the review and inquiry made on behalf of the Mortgagor therefor, have all been made by persons having the requisite expertise and knowledge to provide such representations and warranties. No statement or fact made by or on behalf of Mortgagor in this Mortgage or in the other Loan Documents, or in any certificate, document or schedule furnished to Mortgagee pursuant hereto or thereto, contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading (which may be to Mortgagor's best knowledge where so provided herein or therein). There is no fact presently known to Mortgagor which as not been disclosed to Mortgagee which would have a Material Adverse Effect. 8 1.2. DEFENSE OF TITLE. If, while this Mortgage is in force, the title to the Property or the interest of Mortgagee therein shall be the subject, directly or indirectly, of any action at law or in equity, or be attached directly or indirectly, or endangered, clouded or adversely affected in any manner, Mortgagor, at Mortgagor's sole expense, shall take all necessary and proper steps for the defense of said title or interest, including the employment of counsel approved by Mortgagee, the prosecution or defense of litigation, and the compromise or discharge of claims made against said title or interest. Notwithstanding the foregoing, in the event that Mortgagee reasonably determines that Mortgagor is not adequately performing its obligations under this Section and Mortgagee notifies Mortgagor in writing of such inadequate performance and such inadequate performance is not cured within ten (10) days of such notice, Mortgagee may, without limiting or waiving any other rights or remedies of Mortgagee hereunder, take such steps with respect thereto as Mortgagee shall deem necessary or proper and any and all costs and expenses incurred by Mortgagee in connection therewith, together with interest thereon at the Default Interest Rate (as defined in the Note) from the date incurred by Mortgagee until actually paid by Mortgagor, shall be immediately paid by Mortgagor on demand and shall be secured by this Mortgage and by all of the other Loan Documents securing all or any part of the indebtedness evidenced by the Note. 1.3. PERFORMANCE OF OBLIGATIONS. Mortgagor shall pay when due the principal of and the interest on the indebtedness evidenced by the Note. Mortgagor shall also pay all charges, fees and other sums required to be paid by Mortgagor as provided in the Loan Documents, and shall observe, perform and discharge all obligations, covenants and agreements to be observed, performed or discharged by Mortgagor set forth in the Loan Documents in accordance with their terms. Further, Mortgagor shall promptly and strictly perform and comply with all covenants, conditions, obligations and prohibitions required of Mortgagor in connection with any other document or instrument affecting title to the Property, or any part thereof, regardless of whether such document or instrument is superior or subordinate to this Mortgage. 1.4. INSURANCE. Mortgagor shall, at Mortgagor's expense, maintain or cause to be maintained, in force and effect on the Property at all times while this Mortgage continues in effect the following insurance: (a) "All-risk" and "special causes" coverage insurance against loss or damage to the Property from all-risk perils. The amount of such insurance shall be not less than one hundred percent (100%) of the full replacement cost of the Improvements, furniture, furnishings, fixtures, equipment and other items (whether personally or fixtures) included in the Property and owned by Mortgagor from time to time, without reduction for depreciation. The determination of the replacement cost amount shall be adjusted annually to comply with the requirements of the insurer issuing such coverage. Full replacement cost, as used herein, means, with respect to the Improvements, the cost of replacing the Improvements without regard to deduction for depreciation, exclusive of the cost of excavations, foundations and footings below the lowest basement floor, and means, with respect to such furniture, furnishings, fixtures, equipment and other items, the cost of replacing the same. Each policy or policies shall contain a replacement cost endorsement and either an agreed amount endorsement (to avoid the operation of any co-insurance provisions) or a waiver of any co- insurance provisions, all subject to Mortgagee's approval. (b) Broad form Comprehensive general liability insurance for personal injury, bodily injury, death and property damage liability in amounts not less than $l,000,000.00 per occurrence, $10,000,000.00 aggregate (inclusive of umbrella coverage). Mortgagee hereby retains the right to 9 periodically (but not more often than once in any three- (3-) year period) review the amount of said liability insurance being maintained by Mortgagor and to require an increase in the amount of said liability insurance should Mortgagee deem an increase to be reasonably prudent under then existing circumstances. (c) Insurance covering the major components of the central heating, air conditioning and ventilating systems, boilers, other pressure vessels, high pressure piping and machinery, elevators and escalators, if any, and other similar equipment installed in the Improvements, in an amount equal to one hundred percent (100%) of the full replacement cost of the Improvements which policies shall insure against physical damage to and loss of occupancy and use of the Improvements arising out of an accident or breakdown covered thereunder. (d) Business interruption insurance in amounts sufficient to compensate Mortgagor for all Rents and Profits after a casualty during the period beginning on the date on which the Property, or any portion thereof, is damaged or destroyed and ending not earlier than the date that is 90 days after the date on which a certificate of occupancy is issued for the completed restoration work performed at the Property after such casualty, provided that during any period in which the tenant under the Ground Lease or the guarantor under the Guaranty of Lease, dated as of even date herewith, made by Showboat, Inc. for the benefit of Mortgagor, is an entity whose securities have an investment grade rating, Mortgagor shall be required to maintain such business interruption insurance but with coverage for a period of not less than one year after the occurrence of a casualty affecting the Property. All such insurance shall (i) be with insurers authorized to do business in the state within which the Real Estate is located and who have and maintain a Best rating of A- XII or better, (ii) contain the complete address of the Real Estate (or a complete legal description), (iii) be for a term of at least one year, and (iv) contain deductibles no greater than $1,000,000 as to the insurance required under paragraph (a) of this Section 1.4. Mortgagor shall as of the date hereof deliver to Mortgagee evidence that said insurance policies have been paid current as of the date hereof and certified copies of such insurance policies and original certificates of insurance signed by an authorized agent evidencing such insurance satisfactory to Mortgagee and all other policies of insurance maintained with respect to the Property. Mortgagor shall renew all such insurance and deliver to Mortgagee certificates evidencing such renewals at least thirty (30) days before any such insurance shall expire. Without limiting the required endorsements to insurance policies, Mortgagor further agrees that all such policies shall provide that proceeds thereunder, to the extent payable to Mortgagor, shall be payable to Mortgagee, its successors and assigns, pursuant and subject to a loss payee clause (without contribution) of standard form attached to, or otherwise made a part of, the applicable policy and that Mortgagee, its successors and assigns, shall be named as an additional insured under all liability insurance policies. Mortgagor further agrees that all such insurance policies: (i) shall provide for at least thirty (30) days' prior written notice to Mortgagee prior to any cancellation or termination thereof and prior to any modification thereof which affects the interest of Mortgagee; (ii) shall contain an endorsement or agreement by the insurer that any loss shall be payable to Mortgagee in accordance with the terms of such policy notwithstanding any act or negligence of Mortgagor which might otherwise result in forfeiture of such insurance; and (iii) shall either name Mortgagee as an additional insured or waive all rights of subrogation against Mortgagee. The delivery to Mortgagee of the insurance 10 policies or the certificates of insurance as provided above shall constitute an assignment of all proceeds payable under such insurance policies by Mortgagor to Mortgagee as further security for the indebtedness secured hereby. In the event of foreclosure of this Mortgage, or other transfer of title to the Property in extinguishment in whole or in part of the secured indebtedness, all right, title and interest of Mortgagor in and to all proceeds payable under such policies then in force concerning the Property shall thereupon vest in the purchaser at such foreclosure, or in Mortgagee or other transferee in the event of such other transfer of title. Approval of any insurance by Mortgagee shall not be a representation of the solvency of any insurer or the sufficiency of any amount of insurance. In the event Mortgagor fails to provide, maintain, keep in force, or cause to be provided, maintained and kept in force, or to deliver and furnish to Mortgagee the policies of insurance required by this Mortgage or evidence of their renewal as required herein, Mortgagee may, but shall not be obligated to, procure such insurance and Mortgagor shall pay all amounts advanced by Mortgagee, together with interest thereon at the Default Interest Rate from and after the date advanced by Mortgagee until actually repaid by Mortgagor, promptly upon demand by Mortgagee. Any amounts so advanced by Mortgagee, together with interest thereon, shall be secured by this Mortgage and by all of the other Loan Documents securing all or any part of the indebtedness evidenced by the Note. Mortgagee shall not be responsible for nor incur any liability for the insolvency of the insurer or other failure of the insurer to perform, even though Mortgagee has caused the insurance to be placed with the insurer after failure of Mortgagor to furnish such insurance. Notwithstanding anything on this Section 1.4 to the contrary, Mortgagor shall be deemed to have performed its obligations with respect to the insurance described in clauses (a) through (d) above if such insurance is maintained, in full compliance with the terms of this Mortgage, by one or more affiliates of Mortgagor; provided that if any such insurance shall cease to be so maintained by such affiliate(s), Mortgagor shall immediately effect actual (as opposed to deemed) performance of its obligation to maintain such insurance. 1.5. PAYMENT OF TAXES. Mortgagor shall pay or cause to be paid, except to the extent provision is actually made therefor pursuant to Section 1.6 of this Mortgage, all taxes and assessments which are or may become a lien on the Property or which are assessed against or imposed upon the Property. Mortgagor shall furnish Mortgagee with receipts (or if receipts are not immediately available, with copies of canceled checks evidencing payment with receipts to follow promptly after they become available) showing payment of such taxes and assessments prior to the applicable delinquency date therefor. Notwithstanding the foregoing, Mortgagor may in good faith, by appropriate proceedings and upon notice to Mortgagee, contest, or permit to be contested, the validity, applicability or amount of any asserted tax or assessment so long as (a) such contest is diligently pursued, (b) such contest suspends the obligation to pay the tax and nonpayment of such tax or assessment will not result in the sale, loss, forfeiture or diminution of the Property or any part thereof or any interest of Mortgagee therein, and (c) prior to the earlier of the commencement of such contest or the delinquency date of the asserted tax or assessment, Mortgagor deposits in the Impound Account (as hereinafter defined) an amount determined by Mortgagee to be adequate to cover the payment of such tax or assessment and a reasonable additional sum to cover possible interest, costs and penalties; PROVIDED, HOWEVER, THAT Mortgagor shall promptly cause to be paid any amount adjudged by a court of competent jurisdiction to be due, with all interest, costs and penalties thereon, promptly after such judgment becomes final: and PROVIDED FURTHER THAT in any event each such contest shall 11 be concluded and the taxes, assessments, interest, costs and penalties shall be paid prior to the date any writ or order is issued under which the Property may be sold, lost or forfeited. 1.6. TAX AND INSURANCE IMPOUND ACCOUNT. When required by Mortgagee pursuant to the next following sentence and subject to the last sentence of this Section 1.6, Mortgagor shall have the right to establish and maintain at all times while this Mortgage continues in effect an impound account (the "Impound Account") with Mortgagee or a financial institution designated by Mortgagee for payment of insurance premiums and real estate taxes and assessments on the Property and as additional security for the indebtedness secured hereby. After the occurrence of a default hereunder and Mortgagee's request, Mortgagor shall be obligated to deposit in the Impound Account an amount determined by Mortgagee to be necessary to ensure that there will be on deposit with Mortgagee an amount which, when added to the monthly payments subsequently required to be deposited with Mortgagee hereunder on account of real estate taxes, assessments and insurance premiums, will result in there being on deposit in the Impound Account an amount sufficient to pay the next due annual installment of insurance premiums, real estate taxes and assessments on the Property at least one (1) month prior to the delinquency date thereof (if paid in one installment). Commencing on the first monthly payment date under the Note after the occurrence of such default and Mortgagee's request for deposits into the Impound Account and continuing thereafter on each monthly payment date under the Note, Mortgagor shall pay to Mortgagee, concurrently with and in addition to the monthly payment due under the Note and until the Note and all other indebtedness secured hereby is fully paid and performed, deposits in an amount equal to one-twelfth (1/12) of the amount of the annual insurance premiums, real estate taxes and assessments that will next become due and payable on the Property as estimated and determined by Mortgagee. So long as no default hereunder or under the other Loan Documents has occurred and is continuing, all sums in the Impound Account shall be held by Mortgagee in the Impound Account to pay said insurance premiums, taxes and assessments in one installment before the same become delinquent. Mortgagor shall be responsible for ensuring the receipt by Mortgagee, at least thirty (30) days prior to the respective due date for payment thereof, of all bills, invoices and statements for all taxes, assessments and insurance premiums to be paid from the Impound Account, and so long as no default hereunder or under the other Loan Documents has occurred and is continuing, Mortgagee shall pay the governmental authority or other party entitled thereto directly to the extent funds are available for such purpose in the Impound Account. In making any payment from the Impound Account, Mortgagee shall be entitled to rely on any bill, statement or estimate procured from the appropriate public office or insurer without any inquiry into the accuracy of such bill, statement or estimate and without any inquiry into the accuracy, validity, enforceability or contestability of any insurance premium, tax, assessment, valuation, sale, forfeiture, tax lien or title or claim thereof. The Impound Account shall not, unless otherwise explicitly required by applicable law, be or be deemed to be escrow or trust funds, but Mortgagee shall hold the Impound Account in a separate account. No interest on funds contained in the Impound Account shall be paid by Mortgagee to Mortgagor. The Impound Account is solely for the protection of Mortgagee and entails no responsibility on Mortgagee's part beyond the payment of insurance premiums, taxes and assessments following receipt of bills, invoices or statements therefor in accordance with the terms hereof and beyond the allowing of due credit for the sums actually received. Upon assignment of this Mortgage by Mortgagee, any funds in the Impound Account shall be fumed over to the assignee and any responsibility of Mortgagee, as assignor, with respect thereto shall terminate. If the total funds in the Impound Account shall exceed the amount of payments actually applied by Mortgagee for the purposes of the Impound Account, such excess shall be credited by Mortgagee on subsequent payments 12 to be made hereunder. If, however, the Impound Account shall not contain sufficient funds to pay the sums required when the same shall become due and payable, Mortgagor shall, within ten (10) days after receipt of written notice thereof, deposit with Mortgagee the full amount of any such deficiency. If Mortgagor shall fail to deposit with Mortgagee the full amount of such deficiency as provided above, Mortgagee shall have the option, but not the obligation, to make such deposit and all amounts so deposited by Mortgagee, together with interest thereon at the Default Interest Rate from the date incurred by Mortgagee until actually paid by Mortgagor, shall be immediately paid by Mortgagor on demand and shall be secured by this Mortgage and by all of the other Loan Documents securing all or any part of the indebtedness evidenced by the Note. If there is a default under this Mortgage which is not cured within any applicable grace or cure period, Mortgagee may, but shall not be obligated to, apply at any time the balance then remaining in the Impound Account against the indebtedness secured hereby in whatever order Mortgagee shall subjectively determine. No such application of the Impound Account shall be deemed to cure any default hereunder. Upon full payment of the indebtedness secured hereby in accordance with its terms or at such earlier time as Mortgagee may elect, the balance of the Impound Account then in Mortgagee's possession shall be paid over to Mortgagor and no other party shall have any right or claim thereto. Notwithstanding anything in this Section 1.6 to the contrary, Mortgagee shall not require Mortgagor to establish and maintain an Impound Account during any period when the tenant under the Ground Lease is maintaining an impound or escrow account for the payment of real estate taxes and insurance premiums at the request or demand, and for the benefit, of such tenant's mortgagee(s). 1.7. Intentionally omitted. 1.8. Intentionally omitted. 1.9. CASUALTY AND CONDEMNATION. Mortgagor shall give Mortgagee prompt written notice of the occurrence of any casualty affecting, or the institution of any proceedings for eminent domain or for the condemnation of, the Property or any portion thereof. All insurance proceeds on the Property payable to Mortgagor pursuant to the Ground Lease or otherwise, and all causes of action, claims, compensation, awards and recoveries pertaining to Mortgagor for any damage, condemnation or taking of all or any part of the Property or for any damage or injury to it for any loss or diminution in value of the Property, are hereby assigned to and shall be paid to Mortgagee. To the extent that Mortgagor has the right or the option to do so, Mortgagee may participate in any suits or proceedings relating to any such proceeds, causes of action, claims, compensation, awards or recoveries and Mortgagee is hereby authorized, in its own name or in Mortgagor's name, to adjust any loss covered by insurance or any condemnation claim or cause of action, and to settle or compromise any claim or cause of action in connection therewith, and Mortgagor shall from time to time deliver to Mortgagee any instruments required to permit such participation; PROVIDED, HOWEVER, THAT Mortgagee shall not have the right to participate in the adjustment of any loss payable to Mortgagor which is not in excess of the lesser of (i) ten percent (10%) of the then outstanding principal balance of the Note and (ii) $250,000.00. Mortgagee shall apply any sums received by it under this Section first to the payment of all of its costs and expenses (including, but not limited to, legal fees and disbursements) incurred in obtaining those sums, and then, as follows: (a) In the event that less than sixty percent (60%) of the Improvements located on the Real Estate have been taken or destroyed, then if: 13 (1) no default is then continuing hereunder or under any of the other Loan Documents and no event has occurred which, with the giving of notice or the passage of time or both, would constitute a default hereunder or under any of the other Loan Documents, and (2) the Property can, in Mortgagee's judgment, with diligent restoration or repair, be returned to a condition at least equal to the condition thereof that existed prior to the casualty or partial taking causing the loss or damage within the earlier to occur of (i) six (6) months after the receipt of insurance proceeds or condemnation awards by either Mortgagor or Mortgagee, and (ii) the stated maturity date of the Note, and (3) all necessary governmental approvals can be obtained to allow the rebuilding and reoccupancy of the Property as described in subsection (a)(2) above, and (4) there are sufficient sums available (through insurance proceeds or condemnation awards and contributions by Mortgagor, the full amount of which shall at Mortgagee's option have been deposited with Mortgagee) for such restoration or repair (including, without limitation, for any costs and expenses of Mortgagee to be incurred in administering said restoration or repair) and for payment of principal and interest to become due and payable under the Note during such restoration or repair, and (5) the economic feasibility of the Improvements after such restoration or repair will be such that income from their operation is reasonably anticipated to be sufficient to pay operating expenses of the Property and debt service on the indebtedness secured hereby in full with the same coverage ratio considered by Mortgagee in its determination to make the loan secured hereby, and (6) Mortgagor shall have delivered to Mortgagee, at Mortgagor's sole cost and expense, an appraisal report in form and substance satisfactory to Mortgagee appraising the value of the Property as so restored or repaired to be not less than the appraised value of the Property considered by Mortgagee in its determination to make the loan secured hereby, and (7) Mortgagor so elects by written notice delivered to Mortgagee within five (5) days after settlement of the aforesaid insurance or condemnation claim, then, Mortgagee shall, solely for the purposes of such restoration or repair, advance so much of the remainder of such sums as may be required for such restoration or repair, and any funds deposited by Mortgagor therefor, to Mortgagor in the manner and upon such terms and conditions as would be required by a prudent interim construction lender, including, but not limited to, the prior approval by Mortgagee of plans and specifications, contractors and form of construction contracts and the furnishing to Mortgagee of permits, bonds, lien waivers, invoices, receipts and affidavits from contractors and subcontractors in form and substance satisfactory to Mortgagee in its discretion, with any remainder being applied by Mortgagee for payment of the indebtedness secured hereby in whatever order Mortgagee directs in its absolute discretion. (b) In all other cases, namely, in the event that sixty percent (60%) or more of the Improvements located on the Real Estate have been taken or destroyed or Mortgagor does not elect to restore or repair the Property pursuant to clause (a) above, or otherwise fails to meet the requirements of clause (a) above, then. in any of such events Mortgagee shall elect. in Mortgagee's absolute discretion and without regard to the adequacy of Mortgagee's security to do either of the following: (1) accelerate the 14 maturity date of the Note and declare any and all indebtedness secured hereby to be immediately due and payable and apply the remainder of such sums received pursuant to this section to the payment of the indebtedness secured hereby in whatever order Mortgagee directs in its absolute discretion, with any remainder being paid to Mortgagor, or (2) notwithstanding that Mortgagor may have elected not to restore or repair the Property pursuant to the provisions of Section 1.9(a)(7) above, require Mortgagor to restore or repair the Property in the manner and upon such terms and conditions as would be required by a prudent interim construction lender, including, but not limited to, the deposit by Mortgagor with Mortgagee, within thirty (30) days after demand therefor, of any deficiency necessary in order to assure the availability of sufficient funds to pay for such restoration or repair, including Mortgagee's costs and expenses to be incurred in connection therewith, the prior approval by Mortgagee of plans and specifications, contractors and form of construction contracts and the furnishing to Mortgagee of permits, bonds, lien waivers, invoices, receipts and affidavits from contractors and subcontractors in form and substance satisfactory to Mortgagee in its discretion, and apply the remainder of such sums toward such restoration and repair, with any balance thereafter remaining being applied by Mortgagee for payment of the indebtedness secured hereby in whatever order Mortgagee directs in its absolute discretion. Any reduction in the indebtedness secured hereby resulting from Mortgagee's application of any sums received by it hereunder shall take effect only when Mortgagee actually receives such sums and elects to apply such sums to the indebtedness secured hereby and, in any event, the unpaid portion of the indebtedness secured hereby shall remain in full force and effect and Mortgagor shall not be excused in the payment thereof. Partial payments received by Mortgagor, as described in the preceding sentence, shall be applied first to the final payment due under the Note and "thereafter to installments due under the Note in the inverse order of their due date. If Mortgagor elects or Mortgagee directs Mortgagor to restore or repair the Property after the occurrence of a casualty or partial taking of the Property as provided above, Mortgagor shall promptly and diligently, at Mortgagor's sole cost and expense and regardless of whether the insurance proceeds or condemnation award, as appropriate, shall be sufficient for the purpose, restore, repair, replace and rebuild the Property as nearly as possible to its value, condition and character immediately prior to such casualty or partial taking in accordance with the foregoing provisions, and Mortgagor shall pay to Mortgagee all costs and expenses of Mortgagee incurred in administering said rebuilding, restoration or repair, provided that Mortgagee makes such proceeds or award available for such purpose. Mortgagor agrees to execute and deliver from time to time such further instruments as may be requested by Mortgagee to confirm the foregoing assignment to Mortgagee of any award, damage, insurance proceeds, payment or other compensation. Mortgagee is hereby irrevocably constituted and appointed the attorney-in-fact of Mortgagor (which power of attorney shall be irrevocable so long as any indebtedness secured hereby is outstanding, shall be deemed coupled with an interest, shall survive the voluntary or involuntary dissolution of Mortgagor and shall not be affected by any disability or incapacity suffered by Mortgagor subsequent to the date hereof), with full power of substitution, subject to the terms of this Section, to settle for, collect and receive any such awards, damages, insurance proceeds, payments or other compensation from the parties or authorities making the same, to appear in and prosecute any proceedings therefor and to give receipts end acquittances therefor. 1.10. MECHANICS' LIENS. Mortgagor shall pay, or cause to be paid, when due all claims and demands of mechanics, materialmen, laborers and others for any work performed or materials delivered for the Real Estate or the Improvements; PROVIDED, HOWEVER, that Mortgagor shall have the right to contest, or 15 permit to be contested, in good faith any such claim or demand, so long as it does so diligently, by appropriate proceedings and without prejudice to Mortgagee and provided that neither the Property nor any interest therein would be in any danger of sale, loss or forfeiture as a result of such proceeding or contest. In the event Mortgagor shall contest, or permit to be contested, any such claim or demand, Mortgagor shall promptly notify Mortgagee of such contest and thereafter shall, upon Mortgagee's request, promptly provide a bond, cash deposit or other security satisfactory to Mortgagee to protect Mortgagee's interest and security should the contest be unsuccessful. If Mortgagor shall fail to discharge or provide security against any such claim or demand as aforesaid within 30 days of receiving notice of the existence of such claim or demand, with respect to discharge, or within 10 days of Mortgagee's request, with respect to providing security, Mortgagee may do so and any and all expenses incurred by Mortgagee, together with interest thereon at the Default Interest Rate from the date incurred by Mortgagee until actually paid by Mortgagor, shall be immediately paid by Mortgagor on demand and shall be secured by this Mortgage and by all of the other Loan Documents securing all or any part of the indebtedness evidenced by the Note. 1.11. RENTS AND PROFITS. As additional and collateral security for the payment of the indebtedness secured hereby and cumulative of any and all rights and remedies herein provided for, Mortgagor hereby absolutely and presently assigns to Mortgagee all existing and future Rents and Profits which assignment is outright, immediate, continuing and absolute. Mortgagor hereby grants to Mortgagee the sole, exclusive and immediate right, without taking possession of the Property, to demand, collect (by suit or otherwise), receive and give valid and sufficient receipts for any and all of said Rents and Profits, for which purpose Mortgagor does hereby irrevocably make, constitute and appoint Mortgagee its attorney-in-fact with full power to appoint substitutes or a trustee to accomplish such purpose (which power of attorney shall be irrevocable so long as any indebtedness secured hereby is outstanding, shall be deemed to be coupled with an interest, shall survive the voluntary or involuntary dissolution of Mortgagor and shall not be affected by any disability or incapacity suffered by Mortgagor subsequent to the date hereof). Mortgagee shall be without liability for any loss which may arise from a failure or inability to collect Rents and Profits, proceeds or other payments. However, until the occurrence of a default under this Mortgage which has not been cured within any applicable notice and grace or cure period, and not a limitation or as a condition hereof, but as a personal covenant only to Mortgagor and its successors and not to any lessees or any other person, Mortgagor shall have a revocable license to collect and receive the Rents and Profits when due and prepayments thereof for not more than one month prior to due date thereof. Upon the occurrence of a default hereunder which has not been cured within any applicable grace or cure period, Mortgagor's license shall automatically terminate without notice to Mortgagor and Mortgagee may thereafter, without taking possession of the Property, collect the Rents and Profits itself or by an agent or receiver. From and after the termination of such license, Mortgagor shall be the agent of Mortgagee in collection of the Rents and Profits and all of the Rents and Profits so collected by Mortgagor shall be held in trust by Mortgagor for the sole and exclusive benefit of Mortgagee and Mortgagor shall, within one (1) business day after receipt of any Rents and Profits, pay the same to Mortgagee to be applied by Mortgagee as hereinafter set forth. Neither the demand for or collection of Rents and Profits by Mortgagee shall constitute any assumption by Mortgagee of any obligations under any agreement relating thereto. Mortgagee is obligated to account only for such Rents and Profits as are actually collected or received by Mortgagee. Mortgagor irrevocably agrees and consents that the respective payors of the Rents and Profits shall, upon demand and notice from Mortgagee of a default hereunder, pay said Rents and Profits directly to Mortgagee without liability to determine the actual existence of any default claimed by Mortgagee. Mortgagor hereby waives any right, 16 claim or demand which Mortgagor may now or hereafter have against any such payor by reason of such payment of Rents and Profits to Mortgagee, and any such payment shall discharge such payor's obligation to make such payment to Mortgagor. All Rents and Profits collected or received by Mortgagee may be applied against all expenses of collection, including, without limitation, attorneys' fees, against costs of operation and management of the Property and against the indebtedness secured hereby, in whatever order or priority as to any of the items so mentioned as Mortgagee directs in its sole subjective discretion and without regard to the adequacy of its security. Neither the exercise by Mortgagee of any rights under this Section nor the application of any Rents and Profits to the secured indebtedness shall cure or be deemed a waiver of any default hereunder. The assignment of Rents and Profits hereinabove granted shall continue in full force and effect during any period of foreclosure or redemption with respect to the Property. Mortgagor has executed an Assignment of Leases and Rents dated of even date herewith (the "Assignment") in favor of Mortgagee covering all of the right, title and interest of Mortgagor, as landlord, lessor or licensor, in and to any leases, licenses and occupancy agreements relating to all or portions of the Property, intending that such instrument create an outright, immediate, continuing and absolute assignment of the Rents and Profits. All rights and remedies granted to Mortgagee under the Assignment shall be in addition to and cumulative of all rights and remedies granted to Mortgagee hereunder. 1.12. Leases and Licenses. (a) Mortgagor shall submit to Mortgagee for Mortgagee's approval, prior to the execution thereof, any proposed lease, license or occupancy agreement of the Property. Except to the extent required by the New Jersey Casino Control Commission (the "Commission"), Mortgagor shall not execute, modify, amend, supplement, cancel, terminate or accept the surrender of any lease, license or occupancy agreement for all or a substantial portion of the Property without the prior written approval of Mortgagee, and shall at all times promptly and faithfully perform, or cause to be performed, all of the covenants, conditions and agreements contained in all leases, licenses and occupancy agreements with respect to the Property, now or hereafter existing, on the part of the landlord, lessor or licensor thereunder to be kept and performed. If Mortgagor shall be required or have the right to grant or withhold its consent to any action of a tenant, licensee or occupant of the Property, Mortgagor shall not grant or withhold such consent or approval without the prior written approval of Mortgagee to so do. Mortgagor shall not do or suffer to be done any act that might result in a default by the landlord, lessor or licensor under any such lease, license or occupancy agreement or allow the tenant, lessee or licensee thereunder to withhold payment or rent and, except as otherwise expressly permitted by the terms of Section 1.13 hereof, shall not assign any such lease, license or occupancy agreement or any such rents. Mortgagor, at no cost or expense to Mortgagee, shall enforce, short of termination, the performance and observance of each and every material condition and covenant of each of the parties under such leases. Mortgagor shall not, without the prior written consent of Mortgagee, waive or release any other party from the performance or observance of any obligation or condition under such leases except in the normal of course of business in a manner which is consistent with sound and customary leasing and management practices for similar properties in the community in which the Property is located. Mortgagor shall not permit the prepayment of any rents under any of the leases for more than one month prior to the due date thereof. (b) Each lease, license and occupancy agreement executed after the date hereof affecting Mortgagor's interest in any of the Real Estate or the Improvements must provide, in a manner approved by 17 Mortgagee, that the tenant, lessee or licensee, as appropriate, will, to the extent permitted by law, recognize as its landlord, lessor or licensor and attorn to any person succeeding to the interest of Mortgagor upon any foreclosure of this Mortgage or deed in lieu of foreclosure. Each such lease, license and occupancy agreement shall also provide that, upon request of said successor in interest, the tenant, lessee or licensee shall execute and deliver an instrument or instruments confirming its attornment as provided for in this Section; provided, however, that neither Mortgagee nor any successor-in-interest shall be bound by any payment of rental for more than one (1) month in advance, or any amendment or modification of said lease or rental agreement made without the express written consent of Mortgagee or said successor-in-interest. (c) Upon the occurrence of a default under this Mortgage which is not cured within any applicable grace period, whether before or after the whole principal sum secured hereby is declared to be immediately due or whether before or after the institution of legal proceedings to foreclose this Mortgage, forthwith, upon demand of Mortgagee, Mortgagor shall surrender to Mortgagee and Mortgagee shall be entitled to take actual possession of the Property or any part thereof personally, or by its agent or attorneys. In such event, Mortgagee shall have, and Mortgagor hereby gives and grants to Mortgagee, the right, power and authority to make and enter into leases, licenses and occupancy agreements with respect to the Property or portions thereof for such rents and for such periods of occupancy and upon conditions and provisions as Mortgagee may deem desirable in its sole discretion, and Mortgagor expressly acknowledges and agrees that the term of such lease, license or occupancy agreement may extend beyond the date of any foreclosure sale of the Property; it being the intention of Mortgagor that in such event Mortgagee shall be deemed to be and shall be the attorney-in-fact of Mortgagor for the purpose of making and entering into leases, licenses or occupancy agreements of parts or portions of the Property for the rents and upon the terms, conditions and provisions deemed desirable to Mortgagee in its sole discretion and with like effect as if such leases, licenses or occupancy agreements had been made by Mortgagor as the owner in fee simple of the Property free and clear of any conditions or limitations established by this Mortgage. The power and authority hereby given and granted by Mortgagor to Mortgagee shall be deemed to be coupled with an interest, shall not be revocable by Mortgagor so long as any indebtedness secured hereby is outstanding, shall survive the voluntary or involuntary dissolution of Mortgagor and shall not be affected by any disability or incapacity suffered by Mortgagor subsequent to the date hereof. In connection with any action taken by Mortgagee pursuant to this Section, Mortgagee shall not be liable for any loss sustained by Mortgagor resulting from any failure to let the Property, or any part thereof, or from any other act or omission of Mortgagee in managing the Property (unless such act or omission constitutes gross negligence on the part of Mortgagee), nor shall Mortgagee be obligated to perform or discharge any obligation, duty or liability under any lease, license or occupancy agreement covering the Property or any part thereof or under or by reason of this instrument or the exercise of rights or remedies hereunder. Mortgagor shall, and does hereby, indemnify Mortgagee for, and hold Mortgagee harmless from, any and all claims, actions, demands, liabilities, loss or damage which may or might be incurred by Mortgagee under any such lease, license or occupancy agreement or under this Mortgage or by the exercise of rights or remedies hereunder and from any and all claims and demands whatsoever which may be asserted against Mortgagee by reason of any alleged obligations or undertakings on its part to perform or discharge any of the terms, covenants or agreements contained in any such lease, license or occupancy agreement other than those finally determined to have resulted solely from the gross negligence or willful misconduct of Mortgagee. Should Mortgagee incur any such liability, the amount thereof, including, without limitation, costs, expenses and attorneys' fees, together with interest thereon at the Default Interest Rate from the date incurred by Mortgagee until actually paid by 18 Mortgagor, shall be immediately due and payable to Mortgagee by Mortgagor on demand and shall be secured hereby and by all of the other Loan Documents securing all or any part of the indebtedness evidenced by the Note. Nothing in this Section shall impose on Mortgagee any duty, obligation or responsibility for the control, care, management or repair of the Property, or for the carrying out of any of the terms and conditions of any such lease, license or occupancy agreement, nor shall it operate to make Mortgagee responsible or liable for any waste committed on the Property by the tenants or by any other parties or for any dangerous or defective condition of the Property, or for any negligence in the management, upkeep, repair or control of the Property. Mortgagor hereby assents to, ratifies and confirms any and all actions of Mortgagee with respect to the Property taken under this Section. (d) Notwithstanding anything in this Section 1.12 to the contrary, Mortgagor may, without obtaining the prior written consent of Mortgagee, but with prior notice to Mortgagee, consent to the transfer or assignment of the interest of the tenant under the Ground Lease to an entity that is at least fifty-percent (50%) beneficially owned, directly or indirectly, by Showboat, Inc. or, after the contemplated acquisition of Showboat, Inc. by Harrah's Entertainment, Inc. ("Harrah's"), by Harrah's provided that (i) the successor tenant has a net worth at least equal to that of the original tenant, (ii) concurrently with such transfer or assignment, Showboat, Inc. or Harrah's, as applicable, (A) delivers to Mortgagee a written confirmation from each of the rating agencies rating the certificates issued under the Securitization (as hereinafter defined) stating that such transfer or assignment will not adversely affect or change the then-current rating of any class of certificate issued under the Securitization and (B) delivers to Mortgagee and to the rating agencies one or more nonconsolidation opinions with respect to the Mortgagor, the successor tenant and their respective direct and indirect owners (after such transfer or assignment) that are acceptable to the rating agencies, and (iii) the successor tenant assumes in writing all of the obligations of the tenant under the Ground Lease. 1.13. Alienation and Further Encumbrances. (a) Mortgagor acknowledges that Mortgagee has relied upon the principals of Mortgagor and the ownership and organizational structure of the Mortgagor in connection with the closing of the loan evidenced by the Note. Accordingly, except as specifically allowed hereinbelow in this Section and notwithstanding anything to the contrary contained in Section 4.6 hereof, in the event that the Property or any part thereof or interest therein shall be sold, conveyed, disposed of, alienated, hypothecated, leased (except in accordance with the provisions of Section 1.12 hereof), assigned, pledged, mortgaged, further encumbered or otherwise transferred or Mortgagor shall be divested of its title to the Property or any interest therein, in any manner or way, whether voluntarily or involuntarily, without the prior written consent of Mortgagee being first obtained, which consent may be withheld in Mortgagee's sole discretion, then the same shall constitute a default hereunder and Mortgagee shall have the right, at its option, to declare any or all of the indebtedness secured hereby, irrespective of the maturity date specified in the Note, immediately due and payable and to otherwise exercise any of its other rights and remedies contained in Article III hereof. If such acceleration is during any period when a prepayment fee is payable pursuant to the provisions set forth in the Note, then, in addition to all of the foregoing, such prepayment fee shall also then be immediately due and payable to the same end as though Mortgagor were prepaying the entire indebtedness secured hereby on the date of such acceleration. For the purposes of this Section: (i) in the event either Mortgagor or any of its members is a corporation or trust, the sale, conveyance, transfer or 19 disposition of any of the issued and outstanding capital stock of Mortgagor or any of its members or of the beneficial interest of such trust (or the issuance of new shares of capital stock in Mortgagor or any of its members) shall be deemed to be a transfer of an interest in the Property; and (ii) in the event Mortgagor or any members of Mortgagor is a limited or general partnership, a joint venture or a limited liability company, a change in the ownership interests in any general partner, any joint venturer or any member, either voluntarily, involuntarily or otherwise, or the sale, conveyance, transfer, disposition, alienation, hypothecation or encumbering of all or any portion of the interest of any such general partner, joint venturer or member in Mortgagor or such member (whether in the form of a beneficial or membership interest or in the form of a power of direction, control or management, or otherwise), shall be deemed to be a transfer of an interest in the Property. (b) In the event that Mortgagee shall consent, without in any way implying any obligation on the part of Mortgagee to so consent, to a further encumbrance of the Property, the documents evidencing or creating such encumbrance shall be subject to the prior written approval of Mortgagee and shall expressly provide, in addition to any other items required by Mortgagee, that: (i) they are subordinate, secondary, junior and inferior in all respects to the lien of this Mortgage, to the security provided by the other Loan Documents and to any and all rights of Mortgagee set forth therein, including, without limitation, Mortgagee's right to payment under the Note and the rights of Mortgagee set forth herein with respect to any insurance proceeds and condemnation awards which are a part of the Property; and (ii) they shall remain subordinate, secondary, junior and inferior in all respects to any amendments, modifications, extensions or changes in this Mortgage and the other Loan Documents thereafter entered into by Mortgagee and Mortgagor or any indemnitor or guarantor under any indemnity or guaranty executed in connection with the loan secured hereby; and (iii) they are subordinate, secondary, junior and inferior in all respects to all existing and future leases of the Property or any portion thereof and the holder thereof shall, upon request of Mortgagee, specifically subordinate the lien of such encumbrance to all leases of the Property or any portion thereof executed after the date of such encumbrance; and (iv) the holder of such subordinate mortgage acknowledges and agrees that a conveyance of all or any portion of the Property to such holder by foreclosure, deed in lieu of foreclosure or otherwise shall constitute a default under this Mortgage. (c) Notwithstanding anything in this Section 1.13 to the contrary, Mortgagor may, without obtaining the prior written consent of Mortgagee, but with prior written notice to Mortgagee, transfer all of its right, title and interest in and to the Property, subject to this Mortgage, to another single-purpose, bankruptcy-remote entity that is at least fifty percent (50%) beneficially owned, directly or indirectly, by Showboat, Inc. or, after the consummation of the contemplated acquisition of Showboat, Inc. by Harrah's, by Harrah's, and a change in the ownership of Mortgagor may be effected without obtaining the prior written consent of Mortgagee (but with prior written notice to Mortgagee) so long as Showboat, Inc. or Harrah's, as applicable, shall beneficially own, directly or indirectly, at least fifty percent (50%) of the interests in Mortgagor, provided that concurrently with such transfer, (i) Showboat, Inc. or Harrah's, as applicable, delivers to Mortgagee a written confirmation from each of the rating agencies rating the certificates issued under the Securitization (as hereinafter defined) stating that such transfer will not adversely affect or change the then-current rating of any class of certificate issued under the Securitization, (ii) Showboat, Inc. or Harrah's, as applicable, delivers to Mortgagee and to the rating agencies one or more nonconsolidation opinions with respect to the Mortgagor and its direct and indirect owners (after such transfer) that are acceptable to the rating agencies, and (iii) with respect to a transfer of the Property, the 20 transferee agrees in writing to assume and perform all of Mortgagor's obligations hereunder and under the other Loan Documents and to be bound by all of the terms, covenants and conditions of the Loan Documents pertaining to Mortgagor. 1.14. PAYMENT OF UTILITIES, ASSESSMENTS, CHARGES, ETC. Mortgagor shall pay, or cause to be paid, when due all utility charges which are incurred by Mortgagor or which may become a charge or lien against any portion of the Property for gas, electricity, water and sewer services furnished to the Real Estate and/or the Improvements and all other assessments or charges of a similar nature, or assessments payable pursuant to any restrictive covenants, whether public or private, affecting the Real Estate and/or the Improvements or any portion thereof, whether or not such assessments or charges are or may become liens thereon. 1.15. ACCESS PRIVILEGES AND INSPECTIONS. Mortgagee and the agents, representatives and employees of Mortgagee shall, subject to the rights of tenants, have full and free access to the Real Estate and the Improvements and any other location where books and records concerning the Property are kept at all reasonable times for the purposes of inspecting the Property and of examining, copying and making extracts from the books and records of Mortgagor relating to the Property, the cost of which, except after the occurrence and during the continuance of a default, shall be paid by Mortgagee. Mortgagor shall lend assistance to all such agents, representatives and employees of Mortgagee. Mortgagee shall reasonably endeavor not to unreasonably interfere with the conduct of business at the Property in exercising its rights under this Section 1.15. 1.16. WASTE; MAINTENANCE. Mortgagor shall not commit, suffer or permit any waste on the Property nor take any actions that might invalidate any insurance carried on the Property. Mortgagor shall maintain or cause to be maintained the Property in good condition and repair. 1.17. ZONING. Without the prior written consent of Mortgagee, which consent shall not be unreasonably withheld, Mortgagor shall not seek, make, suffer, consent to or acquiesce in any change in the zoning or conditions of use of the Real Estate or the Improvements. Mortgagor shall comply with and make, or cause to be complied with and made, all payments required under the provisions of any covenants, conditions or restrictions affecting the Real Estate or the Improvements. Mortgagor shall comply with, or cause to be complied with, all existing and future requirements of all governmental authorities having jurisdiction over the Property. Mortgagor shall keep, or cause to be kept, all licenses, permits, franchises and other approvals necessary for the operation of the Property in full force and effect. Mortgagor shall operate, or cause to be operated, the Property as a casino and hotel for so long as the indebtedness secured hereby is outstanding unless such operation is prohibited by law. If, under applicable zoning provisions, the use of all or any part of the Real Estate or the Improvements is or becomes a nonconforming use, Mortgagor shall not cause or permit such use to be discontinued or abandoned without the prior written consent of Mortgagee. Further, without Mortgagee's prior written consent, Mortgagor shall not file or subject any part of the Real Estate or the Improvements to any declaration of condominium or cooperative or convert any part of the Real Estate or the Improvements to a condominium, co-operative or other form of multiple ownership and governance. 1.18. FINANCIAL STATEMENTS AND BOOKS AND RECORDS. Mortgagor shall keep accurate books and records of account of the Property and its own financial affairs sufficient to permit the preparation of 21 financial statements therefrom in accordance with generally accepted accounting principles. Mortgagee and its duly authorized representatives shall have the right to examine, copy and audit Mortgagor's records and books of account at all reasonable times. So long as this Mortgage continues in effect, Mortgagor shall provide to Mortgagee, in addition to any other financial statements required hereunder or under any of the other Loan Documents, the following financial statements and information, all of which must be certified to Mortgagee as being true and correct by Mortgagor or the entity to which they pertain, as applicable, be prepared in accordance with generally accepted accounting principles consistently applied and be in form and substance acceptable to Mortgagee: (a) copies of all tax returns filed by Mortgagor, within thirty (30) days after the date of filing; (b) annual balance sheets for the Property and annual financial statements for Mortgagor, each principal or member in Mortgagor, and each indemnitor and guarantor under any indemnity or guaranty executed in connection with the loan secured hereby within one hundred twenty (120) days after the end of each calendar year audited by an independent certified public accountant; and (c) such other information with respect to the Property, Mortgagor, the principals or members in Mortgagor, and each indemnitor and guarantor under any indemnity or guaranty executed in connection with the loan secured hereby, which may be requested from time to time by Mortgagee, within a reasonable time after the applicable request. Mortgagor agrees that any and all materials furnished hereunder are the property of Mortgagee (and Mortgagee's servicer) and may be released to such parties as Mortgagee or its servicer deems appropriate, including FNMA, FHLMC, Donaldson, Lufkin & Jenrette Securities Corporation and any affiliates, any issuer, underwriter, certificateholder or trustee with respect to securities issued in connection with the sale of this Mortgage, or any rating agency responsible for rating such securities from time to time. 1.19. FURTHER DOCUMENTATION. Mortgagor shall, on the request of Mortgagee and at the expense of Mortgagor: (a) promptly correct any defect, error or omission which may be discovered in the contents of this Mortgage or in the contents of any of the other Loan Documents; (b) promptly execute, acknowledge, deliver and record or file such further instruments (including, without limitation, further mortgages, deeds of trust, security deeds, security agreements, financing statements, continuation statements and assignments of rents or leases) and promptly do such further acts as may be necessary, desirable or proper to carry out more effectively the purposes of this Mortgage and the other Loan Documents and to subject to the liens and security interests hereof and thereof any property intended by the terms hereof and thereof to be covered hereby and thereby, including specifically, but without limitation, any renewals, additions, substitutions, replacements or appurtenances to the Property; (c) promptly execute, acknowledge, deliver, procure and record or file any document or instrument (including specifically any financing statement) deemed advisable by Mortgagee to protect, continue or perfect the liens or the security interests hereunder against the rights or interests of third persons; and (d) promptly furnish to Mortgagee, upon Mortgagee's request, a duly acknowledged written statement and estoppel certificate addressed to such party or parties as directed by Mortgagee and in form and substance supplied by Mortgagee, setting forth all amounts due under the Note, stating whether any event has occurred which, with the passage of time or the 22 giving of notice or both, would constitute an event of default hereunder, stating whether any offsets or defenses exist against the indebtedness secured hereby and containing such other matters as Mortgagee may reasonably require. 1.20. PAYMENT OF COSTS; REIMBURSEMENT TO MORTGAGEE. Mortgagor shall pay all costs and expenses of every character incurred in connection with the closing of the loan evidenced by the Note and secured hereby or otherwise attributable or chargeable to Mortgagor as the owner of the Property, including, without limitation, appraisal fees, recording fees, documentary, stamp, mortgage or intangible taxes, brokerage fees and commissions, title policy premiums and title search fees, uniform commercial code/tax lien/litigation search fees, escrow fees and attorneys' fees. If Mortgagor defaults in any such payment, which default is not cured within any applicable grace or cure period, Mortgagee may pay the same and Mortgagor shall reimburse Mortgagee on demand for all such costs and expenses incurred or paid by Mortgagee, together with such interest thereon at the Default Interest Rate from and after the date of Mortgagee's making such payment until reimbursement thereof by Mortgagor. Any such sums disbursed by Mortgagee, together with such interest thereon, shall be additional indebtedness of Mortgagor secured by this Mortgage and by all of the other Loan Documents securing all or any part of the indebtedness evidenced by the Note. Further, Mortgagor shall promptly notify Mortgagee in writing of any litigation or threatened litigation affecting the Property, or any other demand or claim which, if enforced, could impair or threaten to impair Mortgagee's security hereunder Without limiting or waiving any other rights and remedies of Mortgagee hereunder, if Mortgagor fails to perform any of its covenants or agreements contained in this Mortgage or in any of the other Loan Documents and such failure is not cured within any applicable grace or cure period, or if any action or proceeding of any kind (including, but not limited to, any bankruptcy, insolvency, arrangement, reorganization or other debtor relief proceeding) is commenced which might affect Mortgagee's interest in the Property or Mortgagee's right to enforce its security, then Mortgagee may, at it option, with or without notice to Mortgagor, make any appearances, disburse any sums and take any actions as may be necessary or desirable to protect or enforce the security of this Mortgage or to remedy the failure of Mortgagor to perform its covenants and agreements (without, however, waiving any default of Mortgagor). Mortgagor agrees to pay on demand all expenses of Mortgagee incurred with respect to the foregoing (including, but not limited to, fees and disbursements of counsel), together with interest thereon at the Default Interest Rate from and after the date on which Mortgagee incurs such expenses until reimbursement thereof by Mortgagor. Any such expenses so incurred by Mortgagee, together with interest thereon as provided above, shall be additional indebtedness of Mortgagor secured by this Mortgage and by all of the other Loan Documents securing all or any part of the indebtedness evidenced by the Note. The necessity for any such actions and of the amounts to be paid shall be determined by Mortgagee in its discretion. Subject to the Ground Lease, Mortgagee is hereby empowered to enter and to authorize others to enter upon the Property or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without thereby becoming liable to Mortgagor or any person in possession holding under Mortgagor. Mortgagor hereby acknowledges and agrees that the remedies set forth in this Section 1.20 shall be exercisable by Mortgagee, and any and all payments made or costs or expenses incurred by Mortgagee in connection therewith shall be secured hereby and shall be, without demand, immediately repaid by Mortgagor with interest thereon at the Default Interest Rate, notwithstanding the fact that such remedies were exercised and such payments made and costs incurred by Mortgagee after the filing by Mortgagor of a voluntary case or the filing against Mortgagor of an involuntary case pursuant to or within the meaning of the Bankruptcy Reform Act of 1978, as amended, 23 Title 11 U.S.C., or after any similar action pursuant to any other debtor relief law (whether statutory, common law, case law or otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which may be or become applicable to Mortgagor, Mortgagee, any guarantor or indemnitor, the secured indebtedness or any of the Loan Documents. Mortgagor hereby indemnifies and holds Mortgagee harmless from and against all loss, cost and expenses with respect to any default hereof, any liens (i.e., judgments, mechanics' and materialmen's liens, or otherwise), charges and encumbrances filed against the Property, and from any claims and demands for damages or injury, including claims for property damage, personal injury or wrongful death, arising out of or in connection with any accident or fire or other casualty on the Real Estate or the Improvements or any nuisance made or suffered thereon, including, in any case, attorneys' fees, costs and expenses as aforesaid, whether at pretrial, trial or appellate level, and such indemnity shall survive payment in full of the indebtedness secured hereby. This Section shall not be construed to require Mortgagee to incur any expenses, make any appearances or take any actions. 1.21. SECURITY INTEREST. This Mortgage is also intended to encumber and create a security interest in, and Mortgagor hereby grants to Mortgagee a security interest in all sums on deposit with Mortgagee pursuant to the provisions of Section 1.6 hereof or any other Section hereof and Mortgagor's interest in all fixtures, chattels, accounts, equipment, inventory, contract rights, general intangibles and other personal property included within the Property, all renewals, replacements of any of the aforementioned items, or articles in substitution therefor or in addition thereto or the proceeds thereof (said property is hereinafter referred to collectively as the "Collateral"), whether or not the same shall be attached to the Real Estate or the Improvements in any manner. It is hereby agreed that to the extent permitted by law, all of the foregoing property is to be deemed and held to be a part of and affixed to the Real Estate and the Improvements. The foregoing security interest shall also cover Mortgagor's leasehold interest in any of the foregoing property which is leased by Mortgagor. Notwithstanding the foregoing, all of the foregoing property shall be owned by Mortgagor and no leasing or installment sales or other financing or title retention agreement in connection therewith shall be permitted without the prior written approval of Mortgagee. Mortgagor shall, from time to time upon the request of Mortgagee, supply Mortgagee with a current inventory of all of the property in which Mortgagee is granted a security interest hereunder, in such detail as Mortgagee may require. Mortgagor shall promptly replace all of the Collateral subject to the lien or security interest of this Mortgage when worn or obsolete with Collateral comparable to the worn out or obsolete Collateral when new and will not, without the prior written consent of Mortgagee, remove from the Real Estate or the Improvements any of the Collateral subject to the lien or security interest of this Mortgage except such as is replaced by an article of equal suitability and value as above provided, owned by Mortgagor free and clear of any lien or security interest except that created by this Mortgage and the other Loan Documents and except as otherwise expressly permitted by the terms of Section 1.13 of this Mortgage. All of the Collateral shall be kept at the location of the Real Estate except as otherwise required by the terms of the Loan Documents. Mortgagor shall not use any of the Collateral in violation of any applicable statute, ordinance or insurance policy. 1.22. SECURITY AGREEMENT. This Mortgage constitutes a security agreement between Mortgagor and Mortgagee with respect to the Collateral in which Mortgagee is granted a security interest hereunder, and, cumulative of all other rights and remedies of Mortgagee hereunder, Mortgagee shall have all of the rights and remedies of a secured party under any applicable Uniform Commercial Code. Mortgagor hereby agrees to execute and deliver on demand and hereby irrevocably constitutes and appoints Mortgagee the 24 attorney-in-fact of Mortgagor to execute and deliver and, if appropriate, to file with the appropriate filing officer or office such security agreements, financing statements, continuation statements or other instruments as Mortgagee may request or require in order to impose, perfect or continue the perfection of the lien or security interest created hereby. Except with respect to Rents and Profits to the extent specifically provided herein to the contrary, Mortgagee shall have the right of possession of all cash, securities, instruments, negotiable instruments, documents, certificates and any other evidences of cash or other property or evidences of rights to cash rather than property, which are now or hereafter a part of the Property and Mortgagor shall promptly deliver the same to Mortgagee, endorsed to Mortgagee, without further notice from Mortgagee. Mortgagor agrees to furnish Mortgagee with notice of any change in the name, identity, corporate structure, residence, or principal place of business or mailing address of Mortgagor within ten (10) days of the effective date of any such change. Upon the occurrence of any default hereunder not cured within any applicable grace or cure period, Mortgagee shall have the rights and remedies as prescribed in the Mortgage, or as prescribed by general law, or as prescribed by any applicable Uniform Commercial Code, all at Mortgagee's election. Any disposition of the Collateral may be conducted by an employee or agent of Mortgagee. Any person, including both Mortgagor and Mortgagee, shall be eligible to purchase any part or all of the Collateral at any such disposition. Expenses of retaking, holding, preparing for sale, selling or the like (including, without limitation, Mortgagee's attorneys' fees and legal expenses), together with interest thereon at the Default Interest Rate from the date incurred by Mortgagee until actually paid by Mortgagor, shall be paid by Mortgagor on demand and shall be secured by this Mortgage and by all of the other Loan Documents securing all or any part of the indebtedness evidenced by the Note. Subject to the Ground Lease, Mortgagee shall have the right to enter upon the Real Estate and the Improvements or any real property where any of the property which is the subject of the security interest granted herein is located to take possession of, assemble and collect the same or to render it unusable, or Mortgagor, upon demand of Mortgagee, shall assemble such property and make it available to Mortgagee at the Real Estate, a place which is hereby deemed to be reasonably convenient to Mortgagee and Mortgagor. If notice is required by law, Mortgagee shall give Mortgagor at least ten (10) days prior written notice of the time and place of any public sale of such property or of the time of or after which any private sale or any other intended disposition thereof is to be made, and if such notice is sent to Mortgagor, as the same is provided for the mailing of notices herein, it is hereby deemed that such notice shall be and is reasonable notice to Mortgagor. No such notice is necessary for any such property which is perishable, threatens to decline speedily in value or is of a type customarily sold on a recognized market. Any sale made pursuant to the provisions of this Section shall be deemed to have been a public sale conducted in a commercially reasonable manner if held contemporaneously with the foreclosure sale as provided in Section 3.1(e) hereof upon giving the same notice with respect to the sale of the Property hereunder as is required under said Section 3.1(e). Furthermore, to the extent permitted by law, in conjunction with, in addition to or in substitution for the rights and remedies available to Mortgagee pursuant to any applicable Uniform Commercial Code: (a) In the event of a foreclosure sale, the Property may, at the option of Mortgagee, be sold as a whole; and (b) It shall not be necessary that Mortgagee take possession of the aforementioned Collateral, or any part thereof, prior to the time that any sale pursuant to the provisions of this Section is conducted and it shall not be necessary that said Collateral, or any part thereof, be present at the location of such sale; and 25 (c) Mortgagee may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Mortgagee, including the sending of notices and the conduct of the sale, but in the name and on behalf of Mortgagee. The name and address of Mortgagor (as Debtor under any applicable Uniform Commercial Code) are: Showboat Land LLC 3720 Howard Hughes Parkway Suite 200 Las Vegas, Nevada 89109 The name and address of Mortgagee (as Secured Party under any applicable Uniform Commercial Code) are: Column Financial, Inc. 3414 Peachtree Road, N.E Suite 1140 Atlanta, Georgia 30326 1.23. EASEMENTS AND RIGHTS-OF-WAY. Mortgagor shall not grant any easement or right-of-way with respect to all or any portion of the Real Estate or the Improvements without the prior written consent of Mortgagee unless such grant is required pursuant to the terms of the Ground Lease. The purchaser at any foreclosure sale hereunder may, at its discretion, disaffirm any easement or right-of-way granted in violation of any of the provisions of this Mortgage and may take immediate possession of the Property free from, and despite the terms of, such grant of easement or right-of-way. If Mortgagee consents to the grant of an easement or right-of-way, Mortgagee agrees to grant such consent without charge to Mortgagor other than expenses. Including, without limitation, attorneys' fees, incurred by Mortgagee in the review of Mortgagor's request and in the preparation of documents effecting the subordination. 1.24. COMPLIANCE WITH LAWS. Mortgagor shall at all times comply, or cause to be complied, with all statutes, ordinances, regulations and other governmental or quasi- governmental requirements and private covenants now or hereafter relating to the ownership, construction, use or operation of the Property, including, but not limited to, those concerning employment and compensation of persons engaged in operation and maintenance of the Property and any environmental or ecological requirements, even if such compliance shall require structural changes to the Property; PROVIDED, HOWEVER, that, Mortgagor may, upon providing Mortgagee with security satisfactory to Mortgagee, proceed diligently and in good faith to contest, or permit to be contested, the validity or applicability of any such statute, ordinance, regulation or requirement so long as during such contest the Property shall not be subject to any lien, charge, fine or other liability and shall not be in danger of being forfeited, lost or closed. Mortgagor shall not use or occupy, or allow the use or occupancy of, the Property in any manner which violates any lease of or any other agreement applicable to the Property or any applicable law, rule, regulation or order or which constitutes a public or private nuisance or which makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto. 26 1.25. ADDITIONAL TAXES. In the event of the enactment after this date of any law of the state where the Property is located or of any other governmental entity deducting from the value of the Property for the purpose of taxation any lien or security interest thereon, or imposing upon Mortgagee the payment of the whole or any part of the taxes or assessments or charges or liens herein required to be paid by Mortgagor, or changing in any way the laws relating to the taxation of mortgages or security agreements or debts secured by mortgages or security agreements or the interest of the mortgagee or secured party in the property covered thereby, or the manner of collection of such taxes, so as to adversely affect this Mortgage or the indebtedness secured hereby or Mortgagee, then, and in any such event, Mortgagor, upon demand by Mortgagee, shall pay such taxes, assessments, charges or liens, or reimburse Mortgagee therefor; PROVIDED, HOWEVER, that if in the opinion of counsel for Mortgagee (a) it might be unlawful to require Mortgagor to make such payment, or (b) the making of such payment might result in the imposition of interest beyond the maximum amount permitted by law, then and in either such event, Mortgagee may elect, by notice in writing given to Mortgagor, to declare all of the indebtedness secured hereby to be and become due and payable in full sixty (60) days from the giving of such notice. 1.26. SECURED INDEBTEDNESS. It is understood and agreed that this Mortgage shall secure payment of not only the indebtedness evidenced by the Note but also any and all substitutions, replacements, renewals and extensions of the Note, any and all indebtedness and obligations arising pursuant to the terms hereof and any and all indebtedness and obligations arising pursuant to the terms of any of the other Loan Documents, all of which indebtedness is equally secured with and has the same priority as any amounts advanced as of the date hereof. It is agreed that any future advances made by Mortgagee to or for the benefit of Mortgagor from time to time under this Mortgage or the other Loan Documents and whether or not such advances are obligatory or are made at the option of Mortgagee, or otherwise, made for any purpose, and all interest accruing thereon, shall be equally secured by this Mortgage and shall have the same priority as all amounts, if any, advanced as of the date hereof and shall be subject to all of the terms and provisions of this Mortgage. 1.27. MORTGAGOR'S WAIVERS. To the full extent permitted by law, Mortgagor agrees that Mortgagor shall not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, moratorium or extension, or any law now or hereafter in force providing for the reinstatement of the indebtedness secured hereby prior to any sale of the Property to be made pursuant to any provisions contained herein or prior to the entering of any decree, judgment or order of any court of competent jurisdiction, or any right under any statute to redeem all or any part of the Property so sold. Mortgagor, for Mortgagor and Mortgagor's successors and assigns, and for any and all persons ever claiming any interest in the Property, to the full extent permitted by law, hereby knowingly, intentionally and voluntarily with and upon the advice of competent counsel: (a) waives, releases, relinquishes and forever forgoes all rights of valuation, appraisement, stay of execution, reinstatement and notice of election or intention to mature or declare due the secured indebtedness (except such notices as are specifically provided for herein); (b) waives, releases, relinquishes and forever forgoes all right to a marshalling of the assets of Mortgagor, including the Property, to a sale in the inverse order of alienation, or to direct the order in which any of the Property, shall be sold in the event of foreclosure of the liens and security interests hereby created and agrees that any court having jurisdiction to foreclose such liens and security interests may order the Property sold as an entirety; and (c) waives, releases, relinquishes and forever forgoes all rights and periods of redemption provided under applicable law. To the full extent 27 permitted by law, Mortgagor shall not have or assert any right under any statute or rule of law pertaining to the exemption of homestead or other exemption under any federal, state or local law now or hereafter in effect, the administration of estates of decedents or other matters whatever to defeat, reduce or affect the right of Mortgagee under the terms of this Mortgage to a sale of the Property, for the collection of the secured indebtedness without any prior or different resort for collection, or the right of Mortgagee under the terms of this Mortgage to the payment of the indebtedness secured hereby out of the proceeds of sale of the Property in preference to every other claimant whatever. Further, Mortgagor hereby knowingly, intentionally and voluntarily, with and upon the advice of competent counsel, waives, releases, relinquishes and forever forgoes all present and future statutes of limitations as a defense to any action to enforce the provisions of this Mortgage or to collect any of the indebtedness secured hereby the fullest extent permitted by law. Mortgagor covenants and agrees that upon the commencement of a voluntary or involuntary bankruptcy proceeding by or against Mortgagor, Mortgagor shall not seek a supplemental stay or otherwise pursuant to 11 U.S.C. Section 105 or any other provision of the Bankruptcy Reform Act of 1978, as amended, or any other debtor relief law (whether statutory, common law, case law, or otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which may be or become applicable, to stay, interdict, condition, reduce or inhibit the ability of Mortgagee to enforce any rights of Mortgagee against any guarantor or indemnitor of the secured obligations or any other party liable with respect thereto by virtue of any indemnity, guaranty or otherwise. 1.28. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. (A) MORTGAGOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, (I) SUBMITS TO PERSONAL JURISDICTION IN THE STATE OF NEW YORK OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THE NOTE, THIS MORTGAGE OR ANY OTHER OF THE LOAN DOCUMENTS, (II) AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN NEW YORK COUNTY, NEW YORK, (III) SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND, (IV) TO THE FULLEST EXTENT PERMITTED BY LAW, AGREES THAT IT WILL NOT BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT THE RIGHT OF MORTGAGEE TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM). MORTGAGOR FURTHER CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO THE MORTGAGOR AT THE ADDRESS FOR NOTICES DESCRIBED IN SECTION 4.5 HEREOF, AND CONSENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE VALIDITY OR EFFECTLVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY LAW). (B) MORTGAGOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVES, RELINQUISHES AND FOREVER FORGOES THE RIGHT 28 TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THE INDEBTEDNESS SECURED HEREBY OR ANY CONDUCT, ACT OR OMISSION OF MORTGAGEE OR MORTGAGOR, OR ANY OF THEIR DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH MORTGAGEE OR MORTGAGOR, IN EACH OR THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. 1.29. CONTRACTUAL STATUTE OF LIMITATIONS. Mortgagor hereby agrees that any claim or cause of action by Mortgagor against Mortgagee, or any of Mortgagee's directors, officers, employees, agents, accountants or attorneys, based upon, arising from or relating to the indebtedness secured hereby, or any other matter, cause or thing whatsoever, whether or not relating thereto, occurred, done, omitted or suffered to be done by Mortgagee or by Mortgagee's directors, officers, employees, agents, accountants or attorneys, whether sounding in contract or in tort or otherwise, shall be barred unless asserted by Mortgagor by the commencement of an action or proceeding in a court of competent jurisdiction by the filing of a complaint within one (1) year after Mortgagor first acquires or reasonably should have acquired knowledge of the first act, occurrence or omission upon which such claim or cause of action, or any part thereof, is based and service of a summons and complaint on an officer of Mortgagee or any other person authorized to accept service of process on behalf of Mortgagee, within thirty (30) days thereafter. Mortgagor agrees that such one (1) year period of time is reasonable and sufficient time for a borrower to investigate and act upon any such claim or cause of action. The one (1) year period provided herein shall not be waived, tolled or extended except by the specific written agreement of Mortgagee. This provision shall survive any termination of this Mortgage or any of the other Loan Documents. 1.30. Intentionally Omitted. 1.31. Hazardous Waste and Other Substances. (a) Mortgagor hereby represents and warrants to Mortgagee that, as of the date hereof: (i) to the best of Mortgagor's knowledge, information and belief, the Property is not in direct or indirect violation of any local, state or federal law, rule or regulation applicable to the Property pertaining to environmental regulation, contamination or clean-up (collectively, "Environmental Laws"), including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 ET SEQ. and 40 CFR Section 302.1 ET SEQ.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C.Section 6901 ET SEQ.), The Federal Water Pollution Control Act (33 U.S.C. Section 1251 ET SEQ. and 40 CFR Section 116.1 ET SEQ.), and the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 ET SEQ.), the Industrial Site Recovery Act, N.J.S.A. 13:1K-6 ET SEQ., the Leaking Underground Storage Tank Act, N.J.S.A. 58:10A-21 ET SEQ., the Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 ET SEQ., and the regulations promulgated pursuant to said laws, all as amended; (ii) to the best knowledge of Mortgagor, no hazardous, toxic or harmful substances, wastes, materials, pollutants or contaminants (including, without limitation, asbestos, polychlorinated biphenyls, petroleum products, flammable explosives, radioactive materials, infectious substances or raw materials which include hazardous constituents) or any other substances or materials which are included under or regulated by Environmental Laws (collectively, "Hazardous Substances") are located on or have been handled, generated, stored, processed or disposed of on or transported, released or 29 discharged from the Property (including underground contamination) except in the ordinary course of Mortgagor's business and in compliance with all Environmental Laws; (iii) the Property is not subject to any private or governmental lien or judicial or administrative notice or action relating to Hazardous Substances; (iv) there are no existing or closed underground storage tanks or other underground storage receptacles for Hazardous Substances on the Property; (v) Mortgagor has received no notice of, and to the best of Mortgagor's knowledge and belief, there exists no investigation, action, proceeding or claim by any agency, authority or unit of government or by any third party which could result in any liability, penalty, sanction or judgment under any Environmental Laws with respect to any condition, use or operation of the Property nor does Mortgagor know of any basis for such a claim; and (vi) Mortgagor has received no notice of and, to the best of Mortgagor's knowledge and belief, there has been no claim by any party that any use, operation or condition of the Property has caused any nuisance or any other liability or adverse condition on any other property nor does Mortgagor know of any basis for such a claim. (b) Mortgagor shall keep or cause the Property to be kept free from Hazardous Substances (except those substances used in the ordinary course of business at the Property and in compliance with all Environmental Laws) and in compliance with all Environmental Laws, shall not install or use, or permit to be installed or used, any underground storage tanks, shall expressly prohibit the use, generation, handling, storage, production, processing and disposal of Hazardous Substances by all tenants of the Property, and, without limiting the generality of the foregoing, during the term of this Mortgage, shall not install in the Improvements or permit to be installed in the Improvements asbestos or any substance containing asbestos. (c) Mortgagor shall promptly notify Mortgagee if Mortgagor shall become aware of the possible existence of any Hazardous Substances on the Property or if Mortgagor shall become aware that the Property is or may be in direct or indirect violation of any Environmental Laws. Further, immediately upon receipt of the same, Mortgagor shall deliver to Mortgagee copies of any and all orders, notices, permits, applications, reports, and other communications, documents and instruments pertaining to the actual, alleged or potential presence or existence of any Hazardous Substances at, on, about, under, within, near or in connection with the Property. Mortgagor shall, promptly and when and as required, at Mortgagor's sole cost and expense, take, or cause to be taken, all actions as shall be necessary or advisable for the clean-up of any and all portions of the Property or other affected property, including, without limitation, all investigative, monitoring, removal, containment and remedial actions in accordance with all applicable Environmental Laws (and in all events in a manner satisfactory to Mortgagee), and shall further pay or cause to be paid, at no expense to Mortgagee, all clean-up, administrative and enforcement costs of applicable governmental agencies which may be asserted against the Property. In the event Mortgagor fails to do so after notice from Mortgagee and a reasonable time to perform, subject to the Ground Lease, Mortgagee may, but shall not be obligated to, cause the Property or other affected property to be freed from any Hazardous Substances or otherwise brought into conformance with Environmental Laws and any and all costs and expenses incurred by Mortgagee in connection therewith, together with interest thereon at the Default Interest Rate from the date incurred by Mortgagee until actually paid by Mortgagor, shall be immediately paid by Mortgagor on demand and shall be secured by this Mortgage and by all of the other Loan Documents securing all or any part of the indebtedness evidenced by the Note. Mortgagor hereby grants to Mortgagee and its agents and employees access to the Property and, subject to the ground lease of the Real Estate (as heretofore amended, the "Ground Lease"), dated October 26, 1983, between Resorts International, Inc. and Ocean Showboat, Inc. a license to remove any items constituting Hazardous 30 Substances and to do all things necessary to bring the Property in conformance with Environmental Laws. Mortgagor covenants and agrees, at Mortgagor's sole cost and expense, to indemnify, defend (at trial and appellate levels, and with attorneys, consultants and experts acceptable to Mortgagee), and hold Mortgagee harmless from and against any and all liens, damages, losses, liabilities, obligations, settlement payments, penalties, assessments, citations, directives, claims, litigation, demands, defenses, judgments, suits, proceedings, costs, disbursements or expenses of any kind or of any nature whatsoever (including, without limitation, reasonable attorneys', consultants' and experts' fees and disbursements actually incurred in investigating, defending, settling or prosecuting any claim, litigation or proceeding) which may at any time be imposed upon, incurred by or asserted or awarded against Mortgagee or the Property, and arising directly or indirectly from or out of: (i) the presence, release or threat of release of any Hazardous Substances on, in, under or affecting all or any portion of the Property or any surrounding areas, regardless of whether or not caused by or within the control of Mortgagor; (ii) the violation of any Environmental Laws relating to or affecting the Property, whether or not caused by or within the control of Mortgagor; (iii) the failure by Mortgagor to comply fully with the terms and conditions of this Section 1.31; (iv) the breach of any representation or warranty contained in this Section 1.31; or (v) the enforcement of this Section 1.31, including, without limitation, the cost of assessment, containment and/or removal of any and all Hazardous Substances from all or any portion of the Property or any surrounding areas, the cost of any actions taken in response to the presence, release or threat of release of any Hazardous Substances on, in, under or affecting any portion of the Property or any surrounding areas to prevent or minimize such release or threat of release so that it does not migrate or otherwise cause or threaten danger to present or future public health, safety, welfare or the environment, and costs incurred to comply with the Environmental Laws in connection with all or any portion of the Property or any surrounding areas. The indemnity set forth in this Section 1.31(c) shall also include any diminution in the value of the security afforded by the Property or any future reduction in the sales price of the Property by reason of any matter set forth in this Section 1.31(c). Mortgagee's rights under this Section shall survive payment in full of the indebtedness secured hereby and shall be in addition to all other rights of Mortgagee under this Mortgage, the Note and the other Loan Documents. (d) Upon Mortgagee's request, at any time after the occurrence of a default hereunder or at such other time, but not more than once in any twelve (12) month period, as Mortgagee has reasonable grounds to believe that Hazardous Substances are or have been released, stored or disposed of on or around the Property or that the Property may be in violation of the Environmental Laws, Mortgagor shall provide, at Mortgagor's sole cost and expense, an inspection or audit of the Property prepared by a hydrogeologist or environmental engineer or other appropriate consultant approved by Mortgagee indicating the presence or absence of Hazardous Substances on the Property or an inspection or audit of the Improvements prepared by an engineering or consulting firm approved by Mortgagee indicating the presence or absence of friable asbestos or substances containing asbestos on the Property. If Mortgagor fails to provide such inspection or audit within thirty (30) days after such request, Mortgagee may order the same, and Mortgagor hereby grants to Mortgagee and its employees and agents access to the Property, subject to the Ground Lease, and a license to undertake such inspection or audit. The cost of such inspection or audit, together with interest thereon at the Default Interest Rate from the date incurred by Mortgagee until actually paid by Mortgagor, shall be immediately paid by Mortgagor on demand and shall be secured by this Mortgage and by all of thc other Loan Documents securing all or any part of the indebtedness evidenced by the Note. 31 (e) Without limiting the foregoing, where recommenced by a "Phase I" or "Phase II" assessment or otherwise required by Mortgagee, Mortgagor shall establish and comply with an operations and maintenance program relative to the Property, in form and substance acceptable to Mortgagee, prepared by an environmental consultant acceptable to Mortgagee, which program shall address any Hazardous Substances (including asbestos containing material or lead based paint) that may now or in the future be detected on the Property. Without limiting the generality of the preceding sentence, Mortgagee may require (i) periodic notices or reports to Mortgagee in form, substance and at such intervals as Mortgagee may specify, (ii) an amendment to such operations and maintenance program to address changing circumstances, laws or other matters, (iii) at Mortgagor's sole expense, supplemental examination of the Property by consultants specified by Mortgagee, (iv) subject to the Ground Lease, access to the Property, by Mortgagee, its agents or servicer, to review and assess the environmental condition of the Property and Mortgagor's compliance with any operations and maintenance program, and (v) variation of the operations and maintenance program in response to the reports provided by any such consultants. 1.32. Indemnification; Subrogation. (a) Mortgagor shall indemnify, defend and hold Mortgagee harmless against: (i) any and all claims for brokerage, leasing, finders or similar fees which may be made relating to the Property or the secured indebtedness, and (ii) any and all liability, obligations, losses, damages, penalties, claims, actions, suits, costs and expenses (including Mortgagee's reasonable attorneys' fees, together with reasonable appellate counsel fees, if any) of whatever kind or nature which may be asserted against, imposed on or incurred by Mortgagee in connection with the secured indebtedness, this Mortgage, the Property, or any part thereof, or the exercise by Mortgagee of any rights or remedies granted to it under this Mortgage; provided, however, that nothing herein shall be construed to obligate Mortgagor to indemnify, defend and hold harmless Mortgagee from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs and expenses enacted against, imposed on or incurred by Mortgagee solely by reason of Mortgagee's willful misconduct or gross negligence. (b) If Mortgagee is made a party defendant to any litigation or any claim is threatened or brought against Mortgagee concerning the secured indebtedness, this Mortgage, the Property, or any part thereof, or any interest therein, or the construction, maintenance, operation or occupancy or use thereof, then Mortgagor shall indemnify, defend and hold Mortgagee harmless from and against all liability by reason of said litigation or claims, including reasonable attorneys' fees (together with reasonable appellate counsel fees, if any) and expenses incurred by Mortgagee in any such litigation or claim, whether or not any such litigation or claim is prosecuted to judgment. If Mortgagee commences an action against Mortgagor to enforce any of the terms hereof or to prosecute any breach by Mortgagor of any of the terms hereof or to recover any sum secured hereby, Mortgagor shall pay to Mortgagee its reasonable attorneys' fees (together with reasonable appellate counsel, fees, if any) and expenses. The right to such attorneys' fees (together with reasonable appellate counsel fees, if any) and expenses shall be deemed to have accrued on the commencement of such action, and shall be enforceable whether or not such action is prosecuted to judgment. If Mortgagor breaches any term of this Mortgage, Mortgagee may engage the services of an attorney or attorneys to protect its rights hereunder, and in the event of such engagement following any breach by Mortgagor, Mortgagor shall pay Mortgagee reasonable attorneys' fees (together with reasonable appellate counsel fees, if any) and expenses incurred by Mortgagee, whether or not an action is actually 32 commenced against Mortgagor by reason of such breach. All references to "attorneys" in this Subsection and elsewhere in this Mortgage shall include without limitation any attorney or law firm engaged by Mortgagee and Mortgagee's in-house counsel, and all references to "fees and expenses" in this Subsection and elsewhere in this Mortgage shall include without limitation any fees of such attorney or law firm and any allocation charges and allocation costs of Mortgagee's in-house counsel. (c) A waiver of subrogation shall be obtained by Mortgagor from its insurance carrier and, consequently, Mortgagor waives any and all right to claim or recover against Mortgagee, its officers, employees, agents and representatives, for loss of or damage to Mortgagor, the Property, Mortgagor's property or the property of others under Mortgagor's control from any cause insured against or required to be insured against by the provisions of this Mortgage. 1.33. COVENANTS WITH RESPECT TO INDEBTEDNESS, OPERATIONS, FUNDAMENTAL CHANGES OF MORTGAGOR. Mortgagor represents, warrants and covenants as of the date of hereof and until such time as the secured indebtedness is paid in full, that Mortgagor: (a) does not own and will not own any encumbered asset other than (i) the Property, and (ii) incidental personal property necessary for the operation of the Property; (b) is not engaged and will not engage in any business other than the ownership and leasing of the Property; (c) will not enter into any contract or agreement with any member, principal or affiliate of the Mortgagor or any affiliate of the members of the Mortgagor except upon terms and conditions that are intrinsically fair and substantially similar to those that would be available on an arms-length basis with third parties other than an affiliate, and has not made and will not make any loans or advances to any third part, (including any affiliate); (d) has not incurred and will not incur any debt secured or unsecured, direct or contingent (including guaranteeing any obligation), other than the secured indebtedness; (e) [RESERVED] (f) is and will be solvent and pay its debts from its assets as the same shall become due; (g) has done or caused to be done and will do all things necessary to preserve its existence, and will not, nor will any member or shareholders thereof, amend, modify or otherwise change its organizational documents in a manner which adversely affects the Mortgagor's existence as a single purpose, bankruptcy remote entity; (h) will conduct and operate its business as presently conducted and operated; (i) will maintain books and records and bank accounts separate from those of its affiliates, including its members; 33 (j) will be, and at all times will hold itself out to the public as, a legal entity separate and distinct from any other entity (including any affiliate thereof, including any member or any affiliate of the general partner of the Mortgagor); (k) will file its own tax returns; (l) will maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; (m) will not seek the dissolution or winding up, in whole or in part, of the Mortgagor; (n) will not enter into any transaction of merger or consolidation, or acquire by purchase or otherwise all or substantially all of the business or assets of, or any stock or beneficial ownership of, any entity; (o) will not commingle the funds and other assets of the Mortgagor with those of any member, any affiliate or any other person; (p) has and will maintain its assets in such a manner that it is not costly or difficult to segregate, ascertain or identify its individual assets from those of any affiliate or any other person; and (q) does not and will not hold itself out to be responsible for the debts or obligations of any other person. 1.34. HANDICAPPED ACCESS. (a) Mortgagor agrees that the Property shall at all times comply to the extent applicable with the requirements of the Americans with Disabilities Act of 1990, the Fair Housing Amendments Act of 1988, all state and local laws and ordinances related to handicapped access and all rules, regulations, and orders issued pursuant thereto including, without limitation, the American with Disabilities Act Accessibility Guidelines for Buildings and Facilities (collectively, "Access Laws"). (b) Mortgagor agrees to give prompt notice to Mortgagee of the receipt by Mortgagor of any complaints related to violations of any Access Laws and of the commencement of any proceedings or investigation which relate to compliance with applicable Access Laws. ARTICLE 2. EVENTS OF DEFAULT 2.1. EVENTS OF DEFAULT. The occurrence of any of the following events shall be a default hereunder: (a) Mortgagor fails to timely perform any covenant, agreement, obligation, term or condition hereof or of any other Loan Document, including the Note, which requires payment of any money to Mortgagee. 34 (b) Mortgagor fails to provide, or to cause the provision of, insurance as required by Section 1.4 hereof or fails to perform any covenant, agreement, obligation, term or condition set forth in Section 1.16 or 1.31 hereof. (c) Mortgagor fails to perform any other covenant, agreement, obligation, term or condition set forth herein other than those otherwise described in this Section 2.1 and, to the extent such failure or default is susceptible of being cured, the continuance of such failure or default for thirty (30) days after written notice thereof from Mortgagee to Mortgagor; PROVIDED, HOWEVER, that if such default is susceptible of cure but such cure cannot be accomplished with reasonable diligence within said period of time, and if Mortgagor commences to cure such default promptly after receipt of notice thereof from Mortgagee, and thereafter prosecutes the curing of such default with reasonable diligence, such period of time shall be extended for such period of time as may be necessary to cure such default with reasonable diligence, but not to exceed an additional sixty (60) days. (d) Any representation or warranty made herein, in or in connection with any application or commitment relating to the loan evidenced by the Note, or in any of the other Loan Documents to Mortgagee by Mortgagor, by any principal, member or general partner in Mortgagor or by any indemnitor or guarantor under any indemnity or guaranty executed in connection with the loan secured hereby is determined by Mortgagee to have been false or misleading in any material respect at the time made. (e) There shall be a sale, conveyance, disposition, alienation, hypothecation, leasing, assignment, pledge, mortgage, granting of a security interest in or other transfer or further encumbrancing of the Property, Mortgagor or its members, or any portion thereof or any interest therein, in violation of Section 1.13 hereof. (f) A default occurs under any of the other Loan Documents which has not been cured within any applicable grace or cure period therein provided. (g) Mortgagor, any principal or member of Mortgagor owning, directly or indirectly, twenty-five percent (25%) or more of the interests in Mortgagor, or any indemnitor or guarantor under any indemnity or guaranty executed in connection with the loan secured hereby becomes insolvent, or shall make a transfer in fraud of creditors, or shall make an assignment for the benefit of creditors, shall file a petition in bankruptcy, shall voluntarily be adjudicated insolvent or bankrupt or shall admit in writing the inability to pay debts as they mature, shall petition or apply to any tribunal for or shall consent to or shall not contest the appointment of a receiver, trustee, custodian or similar officer for Mortgagor, for any such principal or member of Mortgagor or for any such indemnitor or guarantor or for a substantial part of the assets of Mortgagor, of any such principal or member of Mortgagor or of any such indemnitor or guarantor, or shall commence any case, proceeding or other action under any bankruptcy, reorganization, arrangement, readjustment or debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect. (h) A petition is filed or any case, proceeding or other action is commenced against Mortgagor, against any principal or member of Mortgagor owning, directly or indirectly, twenty-five percent (25%) or more of the interests in Mortgagor, or against any indemnitor or guarantor under any indemnity, or guaranty 35 executed in connection with the loan secured hereby seeking to have an order for relief entered against it as debtor or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or other relief under any law relating to bankruptcy, insolvency, arrangement, reorganization, receivership or other debtor relief under any law or statute of any jurisdiction, whether now or hereafter in effect, or a court of competent jurisdiction enters an order for relief against Mortgagor, against any principal or member of Mortgagor or against any indemnitor or guarantor under any indemnity or guaranty executed in connection with the loan secured hereby, as debtor, or an order, judgment or decree is entered appointing, with or without the consent of Mortgagor, of any such principal or member of Mortgagor or of any such indemnitor or guarantor, a receiver, trustee, custodian or similar officer for Mortgagor, for any such principal or member of Mortgagor or for any such indemnitor or guarantor, or for any substantial part of any of the properties of Mortgagor, of any such principal or member of Mortgagor or of any such indemnitor or guarantor, and if any such event shall occur, such petition, case, proceeding, action, order, judgment or decree shall not be dismissed within sixty (60) days after being commenced. (i) The Property or any part thereof shall be taken on execution or other process of law in any action against Mortgagor. (j) Mortgagor abandons all or a portion of the Property. (k) The holder of any lien or security interest on the Property (without implying the consent of Mortgagee to the existence or creation of any such lien or security interest), whether superior or subordinate to this Mortgage or any of the other Loan Documents, declares a default and such default is not cured within any applicable grace or cure period set forth in the applicable document or such holder institutes foreclosure or other proceedings for the enforcement of its remedies thereunder. (l) The Property, or any part thereof, is subjected to actual or threatened waste or to removal, demolition or material alteration so that the value of the Property is materially diminished thereby and Mortgagee determines (in its subjective determination) that it is not adequately protected from any loss, damage or risk associated therewith. (m) Any dissolution, termination, partial or complete liquidation, merger or consolidation of Mortgagor or any of its principals or members owning, directly or indirectly, twenty-five percent (25%) or more of the interests in Mortgagor. (n) [RESERVED] (o) A default by Mortgagor occurs under the Ground Lease which default has not been cured within any applicable grace or cure period, if any, provided therein. ARTICLE 3. REMEDIES 3.l. REMEDIES AVAILABLE. If there shall occur a default under this Mortgage, and such default has not been cured within any applicable grace or cure period, then this Mortgage is subject to foreclosure as provided by law and Mortgagee may, at its option and by or through a trustee, nominee, assignee or 36 otherwise, to the fullest extent permitted by law, exercise any or all of the following rights, remedies and recourses, either successively or concurrently: (a) ACCELERATION. Accelerate the maturity date of the Note and declare any or all of the indebtedness secured hereby to be immediately due and payable without any presentment, demand, protest, notice or action of any kind whatever (each of which is hereby expressly waived by Mortgagor), whereupon the same shall become immediately due and payable. Upon any such acceleration, payment of such accelerated amount shall constitute a prepayment of the principal balance of the Note and any applicable prepayment fee provided for in the Note shall then be immediately due and payable. (b) ENTRY ON THE PROPERTY. Either in person or by agent, with or without bringing any action or proceeding, or by a receiver appointed by a court and without regard to the adequacy of its security, enter upon and take possession of the Property, or any part thereof, without force or with such force as is permitted by law and without notice or process or with such notice or process as is required by law unless such notice and process is waivable, in which case Mortgagor hereby waives such notice and process, and do any and all acts and perform any and all work which may be desirable or necessary in Mortgagee's judgment to preserve the value, marketability or rentability of the Property, to increase the income therefrom, to manage and operate the Property or to protect the security hereof and all sums expended by Mortgagee therefor, together with interest thereon at the Default Interest Rate, shall be immediately due and payable to Mortgagee by Mortgagor on demand and shall be secured hereby and by all of the other Loan Documents securing all or any part of the indebtedness evidenced by the Note. (c) COLLECT RENTS AND PROFITS. With or without taking possession of the Property, sue or otherwise collect the Rents and Profits, including those past due and unpaid. (d) APPOINTMENT OF RECEIVER. Upon, or at any time prior or after, initiating the exercise of any power of sale, instituting any judicial foreclosure or instituting any other foreclosure of the liens and security interests provided for herein or any other legal proceedings hereunder, make application to a court of competent jurisdiction for appointment of a receiver for all or any part of the Property, as a matter of strict right and without notice to Mortgagor and without regard to the adequacy of the Property for the repayment of the indebtedness secured hereby or the solvency of Mortgagor or any person or persons liable for the payment of the indebtedness secured hereby, and Mortgagor does hereby irrevocably consent to such appointment, waives any and all notices of and defenses to such appointment and agrees not to oppose any application therefor by Mortgagee, but nothing herein is to be construed to deprive Mortgagee of any other right, remedy or privilege Mortgagee may now have under the law to have a receiver appointed, PROVIDED, HOWEVER, that, the appointment of such receiver, trustee or other appointee by virtue of any court order, statute or regulation shall not impair or in any manner prejudice the rights of Mortgagee to receive payment of the Rents and Profits pursuant to other terms and provisions hereof. Any such receiver shall have all of the usual powers and duties of receivers in similar cases, including, without limitation, the full power to hold, develop, rent, lease, manage, maintain, operate and otherwise use or permit the use of the Property upon such terms and conditions as said receiver may deem to be prudent and reasonable under the circumstances as more fully set forth in Section 3.3 below. Such receivership shall, at the option of Mortgagee, continue until full payment of all of the indebtedness secured hereby or until title to the Property shall have passed by foreclosure sale under this Mortgage or deed in lieu of foreclosure. 37 (e) FORECLOSURE. Immediately commence an action to foreclose this Mortgage or to specifically enforce its provisions or any of the indebtedness secured hereby pursuant to the statutes in such case made and provided and sell the Property or cause the Property to be sold in accordance with the requirements and procedures provided by said statutes in a single parcel or in several parcels at the option of Mortgagee. (1) In the event foreclosure proceedings are filed by Mortgagee, all expenses incident to such proceeding, including, but not limited to, attorneys' fees and costs, shall be paid by Mortgagor and secured by this Mortgage and by all of the other Loan Documents securing all or any part of the indebtedness evidenced by the Note. The secured indebtedness and all other obligations secured by this Mortgage, including, without limitation, interest at the Default Interest Rate (as defined in the Note), any prepayment charge, fee or premium required to be paid under the Note in order to prepay principal (to the extent permitted by applicable law), attorneys' fees and any other amounts due and unpaid to Mortgagee under the Loan Documents, may be bid by Mortgagee in the event of a foreclosure sale hereunder. In the event of a judicial sale pursuant to a foreclosure decree, it is understood and agreed that Mortgagee or its assigns may become the purchaser of the Property or any part thereof. (2) Mortgagee may, by following the procedures and satisfying the requirements prescribed by applicable law, foreclose on only a portion of the Property and, in such event, said foreclosure shall not affect the lien of this Mortgage on the remaining portion of the Property foreclosed. (f) OTHER. Exercise any other right or remedy available hereunder, under any of the other Loan Documents or at law or in equity. 3.2. APPLICATION OF PROCEEDS. To the fullest extent permitted by law, the proceeds of any sale under this Mortgage shall be applied to the extent funds are so available to the following items in such order as Mortgagee in its discretion may determine: (a) To payment of the costs, expenses and fees of taking possession of the Property, and of holding, operating, maintaining, using, leasing, repairing, improving, marketing and selling the same and of otherwise enforcing Mortgagee's right and remedies hereunder and under the other Loan Documents, including, but not limited to, receivers' fees, court costs, attorneys', accountants', appraisers', managers' and other professional fees, title charges and transfer taxes or fees. (b) To payment of all sums expended by Mortgagee under the terms of any of the Loan Documents and not yet repaid, together with interest on such sums at the Default Interest Rate. (c) To payment of the secured indebtedness and all other obligations secured by this Mortgage, including, without limitation, interest at the Default Interest Rate and, to the extent permitted by applicable law, any prepayment fee, charge or premium required to be paid under the Note in order to prepay principal, in any order that Mortgagee chooses in its sole discretion. The remainder, if any, of such funds shall be disbursed to Mortgagor or to the person or persons legally entitled thereto. 38 3.3. RIGHT AND AUTHORITY OF RECEIVER OR MORTGAGEE IN THE EVENT OF DEFAULT; POWER OF ATTORNEY. Upon the occurrence of a default hereunder, which default is not cured within any applicable grace or cure period, and entry upon the Property pursuant to Section 3.1(b) hereof or appointment of a receiver pursuant to Section 3.1(d) hereof, and under such terms and conditions as may be prudent and reasonable under the circumstances in Mortgagee's or the receiver's sole discretion, all at Mortgagor's expense, Mortgagee or said receiver, or such other persons or entities as they shall hire, direct or engage, as the case may be, may do or permit one or more of the following, successively or concurrently, subject to the Ground Lease: (a) enter upon and take possession and control of any and all of the Property; (b) take and maintain possession of all documents, books, records, papers and accounts relating to the Property; (c) exclude Mortgagor and its agents, servants and employees wholly from the Property; (d) manage and operate the Property; (e) preserve and maintain the Property; (f) make repairs and alterations to the Property; (g) complete any construction or repair of the Improvements, with such changes, additions or modifications of the plans and specifications or intended disposition and use of the Improvements as Mortgagee may in its sole discretion deem appropriate or desirable to place the Property in such condition as will, in Mortgagee's sole discretion, make it or any part thereof readily marketable or rentable; (h) conduct a marketing or leasing program with respect to the Property, or employ a marketing or leasing agent or agents to do so, directed to the leasing or sale of the Property under such terms and conditions as Mortgagee may in its sole discretion deem appropriate or desirable; (i) employ such contractors, subcontractors, materialmen, architects, engineers, consultants, managers, brokers, marketing agents, or other employees, agents, independent contractors or professionals, as Mortgagee may in its sole discretion deem appropriate or desirable to implement and effectuate the rights and powers herein granted; (j) execute and deliver, in the name of Mortgagor as attorney-in-fact and agent of Mortgagor or in its own name as Mortgagee, such documents and instruments as are necessary or appropriate to consummate authorized transactions; (k) enter such leases, whether of real or personal property, or tenancy agreements, under such terms and conditions as Mortgagee may in its sole discretion deem appropriate or desirable; (1) collect and receive the Rents and Profits from the Property; (m) eject tenants or repossess personal property, as provided by law, for breaches of the conditions of their leases or other agreements; (n) sue for unpaid Rents and Profits, payments, income or proceeds in the name of Mortgagor or Mortgagee; (o) maintain actions in forcible entry and detainer, ejectment for possession and actions in distress for rent; (p) compromise or give acquittance for Rents and Profits, payments, income or proceeds that may become due; (q) delegate or assign any and all rights and powers given to Mortgagee by this Mortgage; and (r) do any acts which Mortgagee in its sole discretion deems appropriate or desirable to protect the security hereof and use such measures, legal or equitable, as Mortgagee may in its sole discretion deem appropriate or desirable to implement and effectuate the provisions of this Mortgage. This Mortgage shall constitute a direction to and full authority to any lessee, or other third party who has heretofore dealt or contracted or may hereafter deal or contract with Mortgagor or Mortgagee, at the request of Mortgagee, to pay all amounts owing under any lease, contract, concession, license or other agreement to Mortgagee without proof of the default relied upon. Any such lessee or third party is hereby irrevocably authorized to rely upon and comply with (and shall be fully protected by Mortgagor in so doing) any request, notice or demand by Mortgagee for the payment to Mortgagee of any Rents and Profits or other sums which may be or thereafter become due under its lease, contract, concession, license or other agreement, or for the performance of any undertakings under any such lease, contract, concession, license or other agreement, and shall have no right or duty to inquire whether any default under this Mortgage or under any of the other Loan Documents has actually occurred or is then existing. Mortgagor hereby constitutes and appoints Mortgagee, its assignees, successors, transferees and nominees, as Mortgagor's true 39 and lawful attorney-in-fact and agent, with full power of substitution in the Property, in Mortgagor's name, place and stead, to do or permit any one or more of the foregoing described rights, remedies, powers and authorities, successively or concurrently, and said power of attorney shall be deemed a power coupled with an interest and irrevocable so long as any indebtedness secured hereby is outstanding. Any money advanced by Mortgagee in connection with any action taken under this Section 3.3, together with interest thereon at the Default Interest Rate from the date of making such advancement by Mortgagee until actually paid by Mortgagor, shall be a demand obligation owing by Mortgagor to Mortgagee and shall be secured by this Mortgage and by every other instrument securing the secured indebtedness. 3.4. OCCUPANCY AFTER FORECLOSURE. In the event there is a foreclosure sale hereunder and at the time of such sale, Mortgagor or Mortgagor's representatives, successors or assigns, or any other persons claiming any interest in the Property by, through or under Mortgagor (except tenants of space in the Improvements subject to leases entered into prior to the date hereof), are occupying or using the Property, or any part thereof, then, to the extent not prohibited by applicable law, each and all shall, at the option of Mortgagee or the purchaser at such sale, as the case may be, immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day-to-day, terminable at the will of either landlord or tenant, at a reasonable rental per day based upon the value of the Property occupied or used, such rental to be due daily to the purchaser. Further, to the extent permitted by applicable law, in the event the tenant fails to surrender possession of the Property upon the termination of such tenancy, the purchaser shall be entitled to institute and maintain an action for unlawful detainer of the Property in the appropriate court of the county in which the Real Estate is located. 3.5. NOTICE TO ACCOUNT DEBTORS. Mortgagee may, at any time after a default hereunder, which default is not cured within any applicable grace or cure period, notify the account debtors and obligors of any accounts, chattel paper, negotiable instruments or other evidences of indebtedness to Mortgagor included in the Property to pay Mortgagee directly. Mortgagor shall at any time or from time to time upon the request of Mortgagee provide to Mortgagee a current list of all such account debtors and obligors and their addresses. 3.6. CUMULATIVE REMEDIES. All remedies contained in this Mortgage are cumulative and Mortgagee shall also have all other remedies provided at law and in equity or in any other Loan Documents. Such remedies may be pursued separately, successively or concurrently at the sole subjective direction of Mortgagee and may be exercised in any order and as often as occasion therefor shall arise. No act of Mortgagee shall be construed as an election to proceed under any particular provisions of this Mortgage to the exclusion of any other provision of this Mortgage or as an election of remedies to the exclusion of any other remedy which may then or thereafter be available to Mortgagee. No delay or failure by Mortgagee to exercise any right or remedy under this Mortgage shall be construed to be a waiver of that right or remedy or of any default hereunder. Mortgagee may exercise any one or more of its rights and remedies at its option without regard to the adequacy of its security. 3.7. PAYMENT OF EXPENSES. Mortgagor shall pay on demand all of Mortgagee's expenses incurred in any efforts to enforce any terms of this Mortgage, whether or not any lawsuit is filed and whether or not foreclosure is commenced but not completed, including, but not limited to, legal fees and disbursements, foreclosure costs and title charges, together with interest thereon from and after the date 40 incurred by Mortgagee until actually paid by Mortgagor at the Default Interest Rate, and the same shall be secured by this Mortgage and by all of the other Loan Documents securing all or any part of the indebtedness evidenced by the Note. ARTICLE 4. MISCELLANEOUS TERMS AND CONDITIONS 4.1. TIME OF ESSENCE. Time is of the essence with respect to all provisions of this Mortgage. 4.2. RELEASE OF MORTGAGE. If all of the secured indebtedness be paid, then and in that event only, all rights under this Mortgage shall terminate except for those provisions hereof which by their terms survive, and the Property shall become wholly clear of the liens, security interests, conveyances and assignments evidenced hereby, which shall be released by Mortgagee in due form upon Mortgagor's request and at Mortgagor's cost. No release of this Mortgage or the lien hereof shall be valid unless executed by Mortgagee. 4.3. CERTAIN RIGHTS OF MORTGAGEE. Without affecting Mortgagor's liability for the payment of any of the indebtedness secured hereby, Mortgagee may from time to time and without notice to Mortgagor: (a) release any person liable for the payment of the indebtedness secured hereby; (b) extend or modify the terms of payment of the indebtedness secured hereby; (c) accept additional real or personal property of any kind as security or alter, substitute or release any property securing the indebtedness secured hereby; (d) recover any part of the Property; (e) consent in writing to the making of any subdivision map or plat thereof; (f) join in granting any easement therein; or (g) join in any extension agreement of this Mortgage or any agreement subordinating the lien hereof. 4.4. WAIVER OF CERTAIN DEFENSES. No action for the enforcement of the lien hereof or of any provision hereof shall be subject to any defense which would not be good and available to the party interposing the same in an action at law upon the Note or any of the other Loan Documents. 4.5. NOTICES. All notices, demands, requests or other communications to be sent by one party to the other hereunder or required by law shall be in writing and shall be deemed to have been validly given or served by delivery of the same in person to the intended addressee, or by depositing the same with Federal Express or another reputable private courier service for next business day delivery, or by depositing the same in the United States mail, postage prepaid, registered or certified mail, return receipt requested, in any event addressed to the intended addressee at its address set forth on the first page of this Mortgage or at such other address as may be designated by such party as herein provided. All notices, demands and requests shall be effective upon such personal delivery, or one (1) business day after being deposited with the private courier service, or two (2) business days after being deposited in the United States mail as required above. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given as herein required shall be deemed to be receipt of the notice, demand or request sent. By giving to the other party hereto at least fifteen (15) days' prior written notice thereof in accordance with the provisions hereof, the parties hereto shall have the right from time to time to change their respective addresses and each shall have the right to specify as its address any other address within the United States of America. 41 4.6. SUCCESSORS AND ASSIGNS. The terms, provisions, indemnities, covenants and conditions hereof shall be binding upon Mortgagor and the successors and assigns of Mortgagor, including all successors in interest of Mortgagor in and to all or any part of the Property, and shall inure to the benefit of Mortgagee, its directors, officers, shareholders, employees and agents and their respective successors and assigns and shall constitute covenants running with the land. All references in this Mortgage to Mortgagor or Mortgagee shall be deemed to include all such parties' successors and assigns, and the term "Mortgagee" as used herein shall also mean and refer to any lawful holder or owner, including pledgees and participants, of any of the indebtedness secured hereby. If Mortgagor consists of more than one person or entity, each will be jointly and severally liable to perform the obligations of Mortgagor. 4.7. SEVERABILITY. A determination that any provision of this Mortgage is unenforceable or invalid shall not affect the enforceability or validity of any other provision, and any determination that the application of any provision of this Mortgage to any person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to any other persons or circumstances. 4.8. GENDER. Within this Mortgage, words of any gender shall be held and construed to include any other gender, and words in the singular shall be held and construed to include the plural, and vice versa, unless the context otherwise requires. 4.9. WAIVER; DISCONTINUANCE OF PROCEEDINGS. Mortgagee may waive any single default by Mortgagor hereunder without waiving any other prior or subsequent default. Mortgagee may remedy any default by Mortgagor hereunder without waiving the default remedied. Neither the failure by Mortgagee to exercise, nor the delay by Mortgagee in exercising, any right, power or remedy upon any default by Mortgagor hereunder shall be construed as a waiver of such default or as a waiver of the right to exercise any such right, power or remedy at a later date. No single or partial exercise by Mortgagee of any right, power or remedy hereunder shall exhaust the same or shall preclude any other or further exercise thereof, and every such right, power or remedy hereunder may be exercised at any time and from time to time. No modification or waiver of any provision hereof nor consent to any departure by Mortgagor therefrom shall in any event be effective unless the same shall be in writing and signed by Mortgagee, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose given. No notice to nor demand on Mortgagor in any case shall of itself entitle Mortgagor to any other or further notice or demand in similar or other circumstances. Acceptance by Mortgagee of any payment in an amount less than the amount then due on any of the secured indebtedness shall be deemed an acceptance on account only and shall not in any way affect the existence of a default hereunder. In case Mortgagee shall have proceeded to involve any right, remedy or recourse permitted hereunder or under the other Loan Documents and shall thereafter elect to discontinue or abandon the same for any reason, Mortgagee shall have the unqualified right to do so and, in such an event, Mortgagor and Mortgagee shall be restored to their former positions with respect to the indebtedness secured hereby, the Loan Documents, the Property and otherwise, and the rights, remedies, recourses and powers of Mortgagee shall continue as if the same had never been involved. 42 4.10. SECTION HEADINGS. The headings of the sections and paragraphs of this Mortgage are for convenience of reference only, are not to be considered a part hereof and shall not limit or otherwise affect any of the terms hereof. 4.11. GOVERNING LAW. This Mortgage will be governed by and construed in accordance with the laws of the State of New York, provided that to the extent that any of such laws may now or hereafter be preempted by Federal law, in which case such Federal law shall so govern and be controlling; and provided further that the laws of the state in which the Real Estate is located shall govern as to the creation, priority and enforcement of liens and security interests in property located in such state. 4.12. COUNTING OF DAYS. The term "days" when used herein shall mean calendar days. If any time period ends on a Saturday, Sunday or holiday officially recognized by the state within which the Real Estate is located, the period shall be deemed to end on the next succeeding business day. The term "business day" when used herein shall mean a weekday, Monday through Friday, except a legal holiday or a day on which banking institutions in New York, New York are authorized by law to be closed. 4.13. RELATIONSHIP OF THE PARTIES. The relationship between Mortgagor and Mortgagee is that of a borrower and a lender only and neither of those parties is, nor shall it hold itself out to be, the agent, employee, joint venturer or partner of the other party. 4.14. APPLICATION OF THE PROCEEDS OF THE NOTE. To the extent that proceeds of the Note are used to pay indebtedness secured by any outstanding lien, security interest, charge or prior encumbrance against the Property, such proceeds have been advanced by Mortgagee at Mortgagor's request and Mortgagee shall be subrogated to any and all rights, security interests and liens owned by any owner or holder of such outstanding liens, security interests, charges or encumbrances, irrespective of whether said liens, security interests, charges or encumbrances are released. 4.15. UNSECURED PORTION OF INDEBTEDNESS. If any part of the secured indebtedness cannot be lawfully secured by this Mortgage or if any part of the Property cannot be lawfully subject to the lien and security interest hereof to the full extent of such indebtedness, then all payments made shall be applied on said indebtedness first in discharge of that portion there of which is unsecured by this Mortgage. 4.16. CROSS DEFAULT. A default hereunder which has not been cured within any applicable grace or cure period shall be a default under each of the other Loan Documents. 4.17. INTEREST AFTER SALE. In the event the Property or any part thereof shall be sold upon foreclosure as provided hereunder, to the extent permitted by law, the sum for which the same shall have been sold shall, for purposes of redemption (pursuant to the laws of the state in which the Property is located), bear interest at the Default Interest Rate. 4.18. INCONSISTENCY WITH OTHER LOAN DOCUMENTS. In the event of any inconsistency between the provisions hereof and the provisions in any of the other Loan Documents, it is intended that the provisions selected by Mortgagee in its sole subjective discretion shall be controlling. 43 4.19. CONSTRUCTION OF THIS DOCUMENT. This document may be construed as a mortgage, security deed, deed of trust, chattel mortgage, conveyance, assignment, security agreement, pledge, financing statement, hypothecation or contract, or any one or more of the foregoing, in order to fully effectuate the liens and security interests created hereby and the purposes and agreements herein set forth. 4.20. NO MERGER. It is the desire and intention of the parties hereto that this Mortgage and the lien hereof do not merge in fee simple title to the Property. It is hereby understood and agreed that should Mortgagee acquire any additional or other interests in or to the Property or the ownership thereof, then, unless a contrary intent is manifested by Mortgagee as evidenced by an appropriate document duly recorded, this Mortgage and the lien hereof shall not merge in such other or additional interests in or to the Property, toward the end that this Mortgage may be foreclosed as if owned by a stranger to said other or additional interests. 4.21. RIGHTS WITH RESPECT TO JUNIOR ENCUMBRANCES. Any person or entity purporting to have or to take a junior mortgage or other lien upon the Property or any interest therein shall be subject to the rights of Mortgagee to amend, modify, increase, vary, alter or supplement this Mortgage, the Note or any of the other Loan Documents and to extend the maturity date of the indebtedness secured hereby and to increase the amount of the indebtedness secured hereby and to waive or forebear the exercise of any of its rights and remedies hereunder or under any of the other Loan Documents and to release any collateral or security for the indebtedness secured hereby in each and every case without obtaining the consent of the holder of such junior lien and without the lien or security interest of this Mortgage losing its priority over the rights of any such junior lien. 4.22. MORTGAGEE MAY FILE PROOFS OF CLAIM. In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting Mortgagor or the principals or general partners in Mortgagor, or their respective creditors or property, Mortgagee, to the extent permitted by law, shall be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of Mortgagee allowed in such proceedings for the entire secured indebtedness at the date of the institution of such proceedings and for any additional amount which may become due and payable by Mortgagor hereunder after such date. 4.23. FIXTURE FILING. This Mortgage shall be effective from the date of its recording as a financing statement filed as a fixture filing with respect to Mortgagor's interest in all goods constituting part of the Property which are or are to become fixtures. 4.24. AFTER-ACQUIRED PROPERTY. All property acquired by Mortgagor after the date of this Mortgage which by the terms of this Mortgage shall be subject to the lien and the security interest created hereby, shall immediately upon the acquisition thereof by Mortgagor and without further mortgage, conveyance or assignment become subject to the lien and security interest created by this Mortgage. Nevertheless, Mortgagor shall execute, acknowledge, deliver and record or file, as appropriate, all and every such further mortgages, security agreements, financing statements, assignments and assurances as Mortgagee shall require for accomplishing the purposes of this Mortgage. 44 4.25. NO REPRESENTATION. By accepting delivery of any item required to be observed, performed or fulfilled or to be given to Mortgagee pursuant to the Loan Documents, including, but not limited to, any officer's certificate, balance sheet, statement of profit and loss or other financial statement, survey, appraisal or insurance policy, Mortgagee shall not be deemed to have warranted, consented to, or affirmed the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof, and such acceptance of delivery thereof shall not be or constitute any warranty, consent or affirmation with respect thereto by Mortgagee. 4.26. COUNTERPARTS. This Mortgage may be executed in any number of counterparts, each of which shall be effective only upon delivery and thereafter shall be deemed an original, and all of which shall be taken to be one and the same instrument, for the same effect as if all parties hereto had signed the same signature page. Any signature page of this Mortgage may be detached from any counterpart of this Mortgage without impairing the legal effect of any signatures thereon and may be attached to another counterpart of this Mortgage identical in form hereto but having attached to it one or more additional signature pages. 4.27. PERSONAL LIABILITY. Notwithstanding anything to the contrary contained in this Mortgage, the liability of Mortgagor for the indebtedness secured hereby and for the performance of the other agreements, covenants and obligations contained herein and in the Loan Documents shall be limited as set forth in Section 1.05 of the Note; provided however that nothing herein shall be deemed to be a waiver of any right which Mortgagee may have under Sections 506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the indebtedness secured hereby or to require that all collateral shall continue to secure all indebtedness owing to Mortgagee in accordance with the Note, this Mortgage and the other Loan Documents. 4.28. RECORDING AND FILING. Mortgagor will cause the Loan Documents and all amendments and supplements thereto and substitutions therefor to be recorded, filed, re-recorded and re- filed in such manner and in such places as Mortgagee shall reasonably request, and will pay on demand all such recording, filing, re-recording and re-filing taxes, fees and other charges. Mortgagor shall reimburse Mortgagee, or its servicing agent, for the costs incurred in obtaining a tax service company to verify the status of payment of taxes and assessments on the Property. 4.29. ENTIRE AGREEMENT AND MODIFICATIONS. This Mortgage and the other Loan Documents contain the entire agreements between the parties relating to the subject matter hereof and thereof and all prior agreements relative hereto and thereto which are not contained herein or therein are terminated. This Mortgage and the other Loan Documents may not be amended, revised, waived, discharged, released or terminated orally but only by a written instrument or instruments executed by the party against which enforcement of the amendment, revision, waiver, discharge, release or termination is asserted. Any alleged amendment, revision, waiver, discharge, release or termination which is not so documented shall not be effective as to any party. 4.30. MAXIMUM INTEREST. The provisions of this Mortgage and of all agreements between Mortgagor and Mortgagee, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of demand or 45 acceleration of the maturity of the Note or otherwise, shall the amount paid, or agreed to be paid ("Interest"), to Mortgagee for the use, forbearance or retention of the money loaned under the Note exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, performance or fulfillment of any provision hereof or of any agreement between Mortgagor and Mortgagee shall, at the time performance or fulfillment of such provision shall be due, exceed the limit for Interest prescribed by law or otherwise transcend the limit of validity prescribed by applicable law, then IPSO FACTO the obligation to be performed or fulfilled shall be reduced to such limit and if, from any circumstance whatsoever, Mortgagee shall ever receive anything of value deemed Interest by applicable law in excess of the maximum lawful amount, an amount equal to any excessive Interest shall be applied to the reduction of the principal balance owing under the Note in the inverse order of its maturity (whether or not then due) or at the option of Mortgagee be paid over to Mortgagor, and not to the payment of Interest. All Interest (including any amounts or payments deemed to be Interest) paid or agreed to be paid to Mortgagee shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full period until payment in full of the principal balance of the Note so that the Interest thereon for such full period will not exceed the maximum amount permitted by applicable law. This paragraph will control all agreements between Mortgagor and Mortgagee. 4.31. Intentionally Omitted. 4.32. Intentionally Omitted. 4.33. COOPERATION. (a) Mortgagor covenants and agrees that in the event Mortgagee decides to include the Loan as an asset of a secondary market transaction (a "Securitization"), Mortgagor shall, at Mortgagee's request, (a) meet with representatives of rating agencies to discuss the business and operations of the Property, and (b) cooperate, and cause its affiliates to cooperate, with the reasonable requests of rating agencies in connection with all of the foregoing, including, without limitation, delivering financial statements for Mortgagor and or its affiliates and such other information as may be requested by such rating agencies. Without limiting the foregoing, Mortgagor agrees that it will, and will cause its members and principals to, reasonably cooperate with Mortgagee in the Securitization, including, without limitation: (i) subject to obtaining any approval required to be obtained from the Commission, amending this Mortgage and the other Loan Documents, and executing such additional documents, as may be required by the rating agencies; (ii) modifying the Note to create multiple pari passu notes, PROVIDED that the longest final maturity of any such note shall not exceed ten (10) years, the weighted average amortization of the principal amount of the pari passu notes is not less than 30 years, and the weighted average coupon for the life of the pari passu notes is no higher than the Note Rate (as defined in the Note); (iii) providing such information as may be reasonably requested in connection with the preparation of a private placement memorandum or registration statement required to privately place or publicly distribute the securities under the Securitization in a manner which does not conflict with federal or state securities laws; 46 (iv) causing to be rendered such customary opinion letters as may be requested by the rating agencies (including, but not limited to, a substantive non-consolidation opinion, an opinion letter from local real estate counsel to Mortgagor stating that the assignment of the Loan and the Loan Documents to the trustee under the Securitization is enforceable, and opinions with respect to the Property, Mortgagor and its affiliates); (v) making such customary representations and warranties with respect to Mortgagor and the Property as may be requested by the rating agencies, consistent with the facts covered by such representations and warranties as they exist on the date thereof (including, but not limited to, the representations and warranties made herein) which representations and warranties shall survive the closing of the Securitization; (vi) providing such updated third party reports and financial information regarding the Property and Mortgagor and its affiliates and expanded ongoing administration and reporting by the trust under the Securitization as may be requested by the rating agencies or potential investors in the securities or otherwise required in connection with the election by the trust of REMIC status; (vii) obtaining the insurance policies required herein or otherwise required by the rating agencies in connection with the Securitization; (viii) amending Mortgagor's organizational documents and/or making such other changes to Mortgagor's structure as required by the rating agencies to the extent necessary to conform to customary requirements for single purpose bankruptcy remote entities in similar transactions; (ix) obtaining comfort letter (in customary form and containing customary exceptions) from a nationally recognized accounting firm in connection with financial information relating to Mortgagor and/or the Property and which, in connection with the Securitization, shall be represented in the private placement memorandum or prospectus; and (x) providing any indemnity required in connection with the Securitization. Mortgagee shall reimburse Mortgagor for the actual, out-of- pocket, third-party costs and expenses incurred by Mortgagee in order to comply with this Section 4.33. (b) In addition, Mortgagee may elect to sell one or more participation interests (each, a "Participation") in the Note. In the event that Mortgagee notifies Mortgagor that the sale of a participation to another party is a desirable course of action, then Mortgagor shall cooperate with the Mortgagee in the preparation of any information reasonably necessary or incidental to such Participation with respect to the Property which is reasonably within the possession or control of Mortgagor or is obtainable by Mortgagor and shall in good faith enter into any amendments to the Note and/or the Loan Documents necessary to accomplish the Participation. 4.34. CASINO CONTROL COMMISSION. 47 Mortgagee shall not take any action under this Mortgage requiring under the New Jersey Casino Control Act (as from time to time amended) or any successor provision of law, and the regulations promulgated thereunder, would require the approval of the Commission, without soliciting the prior approval of the Commission; provided that if the Commission shall withhold or deny its approval, Mortgagee shall have the right to contest the Commission's decision. 4.35. FURTHER STIPULATIONS. The additional covenants, agreements and provisions set forth in EXHIBIT C attached hereto, if any, shall be a part of this Mortgage and shall, in the event of any conflict between such further stipulations and any of the other provisions of this Mortgage, be deemed to control. 48 IN WITNESS WHEREOF, Mortgagor has executed this Mortgage as of the day and year first above written. MORTGAGOR: SHOWBOAT LAND, LLC a Nevada limited liability company By: Showboat Operating Company, a Nevada corporation, a member By: /s/ R. Craig Bird R. Craig Bird, Executive Vice- President and Chief Financial Officer By: Showboat Land Holding Limited Partnership, a Nevada limited partnership, a member By: Showboat Land Company, a Nevada corporation, its general partner By: /s/ R. Craig Bird R. Craig Bird, Vice- President/Finance Acknowledgments STATE OF NEW YORK ) ) SS.: COUNTY OF NEW YORK) I certify that on January 23, 1998, R. Craig Bird personally came before me and this person acknowledged under oath, to my satisfaction, that: (a) this person, signed, sealed and delivered the attached document as Vice President/Finance of Showboat Land Company, a Nevada corporation, which is the general partner of Showboat Land Holding Limited Partnership, which is the member of Showboat Land, LLC, the Nevada limited liability company named in this document; and (b) this document was signed and delivered by Showboat Land Company, on behalf of Showboat Land, LLC, as its voluntary act and deed by virtue of authority from its Board of Directors. /s/ Maria A. Vargas Notary Public MARIA A. VARGAS Notary Public, State of New York No. 01VA5072319 Qualified in Kings County Commission Expires January 27, 1999 STATE OF NEW YORK ) ) SS.: COUNTY OF NEW YORK) I certify that on January 23, 1998, R. Craig Bird personally came before me and this person acknowledged under oath, to my satisfaction, that: (a) this person, signed, sealed and delivered the attached document as Executive Vice President and Chief Financial Officer of Showboat Operating Company, which is the member of Showboat Land, LLC, the Nevada limited liability company named in this document; and (b) this document was signed and delivered by Showboat Operating Company, on behalf of Showboat Land, LLC, as its voluntary act and deed by virtue of authority from its Board of Directors. /s/ Maria A. Vargas Notary Public MARIA A. VARGAS Notary Public, State of New York No. 01VA5072319 Qualified in Kings County Commission Expires January 27, 1999 PROMISSORY NOTE $100,000,000 Loan No. WLD540070 January 29, 1998 New York, New York FOR VALUE RECEIVED, the undersigned, SHOWBOAT LAND, LLC, a Nevada limited liability company ("Borrower"), promises to pay to the order of COLUMN FINANCIAL, INC., a Delaware corporation ("Lender"), at the office of Lender at 3414 Peachtree Road, N.E., Suite 1140, Atlanta, Georgia 30326 or at such other place as Lender may designate to Borrower in writing from time to time, the principal sum of ONE HUNDRED MILLION and NO/100 DOLLARS ($100,000,000.00), together with interest on so much thereof as is from time to time outstanding and unpaid, from the date of the advance of the principal evidenced hereby, at the rate of seven and 9/100ths percent (7.09%) per annum (the "Note Rate"), in lawful money of the United States of America, which shall at the time of payment be legal tender in payment of all debts and dues, public and private. ARTICLE I - TERMS AND CONDITIONS 1.01 PAYMENT OF PRINCIPAL AND INTEREST. (a) Said interest shall be computed hereunder based on a 365- or 366-day (as applicable) year and based on twelve (12) 30- day months for each full calendar month end on the actual number of days elapsed for any whole or partial month in which interest is being calculated. In computing the number of days during which interest accrues, the day on which funds are initially advanced shall be included regardless of the time of day such advance is made, and the day on which funds are repaid shall be included unless repayment is credited prior to close of business. Payments in federal funds immediately available in the place designated for payment received by Lender prior to 3:00 p.m. local time on a day on which Lender is open for business at said place of payment shall be credited prior to close of business, while other payments received by Lender, so long as such are immediately available to Lender in federal funds in the place designated for payment, shall be credited on the first (1st) day thereafter on which Lender is open for business. Such principal and interest shall be payable in equal consecutive monthly installments of $671,357.80 each, beginning on (x) the first day of the second full calendar month following the date of this Note or (y) the first day of the first full calendar month following the date hereof in the event the advance of the principal amount evidenced by this Note is made on the first day of a calendar month, and continuing on the first day of each and every month thereafter through and including February 1, 2028 (the "Maturity Date"), at which time the entire outstanding principal balance hereof, together with all accrued but unpaid interest thereon, shall be due and payable in full. Each such monthly installment shall be applied first to the payment of accrued interest and then to reduction of principal. If the funding of the principal amount evidenced by this Note is made on a date other than the first day of a calendar month, then Borrower shall pay to Lender contemporaneously with the execution hereof interest at the foregoing interest rate for a period from the date hereof through and including the last day of the calendar month in which such funding occurs. (b) From and after the first day of February, 2008 (the "Preferred Prepayment Date"), Borrower shall pay to Lender on the first day of each calendar month, in addition to all amounts payable under subsection (a) above, all funds on deposit in the Curtailment Reserve Sub-Account (as such term is defined in that certain Cash Management Agreement dated as of the date hereof between Borrower and Lender), to be applied in reduction of the outstanding principal balance of this Note. (c) From and after the Preferred Prepayment Date, the outstanding principal balance of this Note shall, in addition to interest at the Note Rate, accrue a second tranche of interest (the "Additional Interest") at a rate equal to the lesser of (i) the positive excess (if any) of (A) the 20-Year Treasury Rate plus two percent (2.0%) per annum over (B) the Note Rate, and (ii) five percent (5.0%) per annum. The term "20-Year Treasury Rate" shall mean the linearly interpolated implied yield for a U.S. Treasury obligation having a maturity corresponding to the Maturity Date using the yields for the most closely corresponding U.S. Treasury obligations with maturities longer and shorter than the Maturity Date; provided that if any U.S. Treasury obligation has a maturity that exactly corresponds to the Maturity Date, then the yield for that U.S. Treasury obligation shall be the 20- Year Treasury Rate. The yields used to calculate the 20-Year Treasury Rate shall be the yields on page C13 of the Government Section of Bloomberg News Service, or its successor, as of the Business Day immediately prior to the Preferred Prepayment Date. If no such rate or such statistical release is published, Lender shall select a comparable interest rate index which is readily available and verifiable to Borrower but is beyond Lender's control. The Additional Interest shall accrue on the outstanding principal balance of this Note from and after the Preferred Prepayment Date and shall be payable only after the outstanding principal balance of this Note shall have been paid in full. 1.02 PREPAYMENT. (a) This Note may be prepaid in whole but not in part (except as otherwise specifically provided herein) at any time after the earlier of (1) the date of thirty-sixth (36th) monthly installment of principal and interest due hereunder and (2) if this Note and the Security Instrument become the subject of a securitization, the date that is the second anniversary of the closing of the securitization (in either ease, such date, the "Lock Out Expiration Date") provided (i) written notice of such prepayment is received by Lender not more than sixty (60) days and not less than thirty (30) days prior to the date of such prepayment, (ii) such prepayment is received on the first day of a calendar month (or, if such prepayment is not received on the first day of a calendar month, interest is paid through the last day of such calendar month) and is accompanied by all interest accrued hereunder and all other sums due hereunder or under the other Loan Documents, and (iii) if this Note is being prepaid prior to the Preferred Prepayment Date, Borrower shall have delivered to Lender cash, treasury notes or other substitute collateral acceptable to Lender sufficient, together with the prepayment, to pay all scheduled payments of principal and interest from and after the date of prepayment as and when due hereunder, including, without limitation, the outstanding principal balance hereof on the Preferred Prepayment Date (the "Defeasance Payment"). No Defeasance Payment or other prepayment fee or premium shall be due or payable in connection with any prepayment of the indebtedness evidenced by the Note resulting from application of insurance or condemnation proceeds as provided in the Security Instrument at any time during the loan term. With regard to any prepayment made hereunder, if the prior written notice required in (i) above has not been received by Lender, the prepayment shall be increased by an amount equal to the lesser of (i) thirty (30) days' unearned interest computed on the outstanding principal balance of this Note so prepaid and (ii) unearned interest computed on the outstanding principal balance of this Note so prepaid for the period from, and including, the date of prepayment through the Preferred Prepayment Date. (b) Partial prepayments of this Note shall not be permitted, except partial prepayments resulting from Lender applying insurance or condemnation proceeds to reduce the outstanding principal balance of this Note as provided in the Security Instrument, in which event no Defeasance Payment or other prepayment fee or premium shall be due. No notice of prepayment shall be required under the circumstance specified in the preceding sentence. No principal amount repaid may be reborrowed. Partial payments of principal shall be applied to the unpaid principal balance evidenced hereby but such application shall not reduce the amount of the fixed monthly installments required to be paid pursuant to Section 1.01 above. (c) Except as otherwise expressly provided in Section 1.02(b) above, the Defeasance Payment provided above shall be due, to the extent permitted by applicable law, under any and all circumstances where all or any portion of this Note is paid prior to the Maturity Date, whether such prepayment is voluntary or involuntary, even if such prepayment results from Lender's exercise of its rights upon Borrower's default and acceleration of the maturity date of this Note (irrespective of whether foreclosure proceedings have been commenced), and shall be in addition to any other sums due hereunder or under any of the other Loan Documents. No tender of a prepayment of this Note with respect to which the Defeasance Payment is due shall be effective unless such prepayment is accompanied by the Defeasance Payment. If the indebtedness of this Note shall have been declared due and payable by Lender pursuant to Section 1.04 hereof due to a default by Borrower, then any tender of payment of such indebtedness made prior to the Lock Out Expiration Date must include a Defeasance Payment computed as provided in Section 1.02(a) above plus an additional prepayment fee of one percent (1%) of the principal balance of this Note. 1.03 SECURITY. The indebtedness evidenced by this Note and the obligations created hereby are secured by that certain Mortgage and Security Agreement (the "Security Instrument") from Borrower to Lender, dated as of even date herewith concerning property located in Atlantic County, New Jersey (the "Property"). The Security Instrument together with this Note and all other documents to or of which Lender is a party or beneficiary now or hereafter evidencing, securing, guarantying, modifying or otherwise relating to the indebtedness evidenced hereby, are herein referred to collectively as the "Loan Documents." All of the terms and provisions of the Loan Documents are incorporated herein by reference. Some of the Loan Documents are to be filed for record on or about the date hereof in the appropriate public records. 1.04 DEFAULT. It is hereby expressly agreed that should any default occur in the payment of principal or interest as stipulated above and such payment is not made within five (5) days of the date such payment is due (provided that no grace period is provided for the payment of principal and interest due on the Maturity Date), or should any other default occur under any of the Loan Documents which is not cured within any applicable grace or cure period, then a default shall exist hereunder, and in such event the indebtedness evidenced hereby, including all sums advanced or accrued hereunder or under any other Loan Document, and all unpaid interest accrued thereon, shall, at the option of Lender and without notice to Borrower, at once become due and payable and may be collected forthwith, whether or not there has been a prior demand for payment and regardless of the stipulated date of maturity. In the event that any payment is not received by Lender on the date when due (subject to the applicable grace period), then in addition to any default interest payments due hereunder, Borrower shall also pay to Lender a late charge in an amount equal to five percent (5.0%) of the amount of such overdue payment. So long as any default exists hereunder, regardless of whether or not there has been an acceleration of the indebtedness evidenced hereby, and at all times after maturity of the indebtedness evidenced hereby (whether by acceleration or otherwise), interest shall accrue on the outstanding principal balance of this Note at a rate per annum equal to four percent (4.0%) plus the interest rate which would be in effect hereunder absent such default or maturity, or if such increased rate of interest may not be collected under applicable law, then at the maximum rate of interest, if any, which may be collected from Borrower under applicable law (the "Default Interest Rate"), and such default interest shall be immediately due and payable. Borrower acknowledges that it would bc extremely difficult or impracticable to determine Lender's actual damages resulting from any late payment or default, and such late charges and default interest are reasonable estimates of those damages and do not constitute a penalty. The remedies of Lender in this Note or in the Loan Documents, or at law or in equity, shall be cumulative and concurrent, and may be pursued singly, successively or together in Lender's discretion. Time is of the essence of this Note. In the event this Note, or any part hereof, is collected by or through an attorney-at-law, Borrower agrees to pay all costs of collection including, but not limited to, reasonable attorney's fees. 1.05 EXCULPATION. Notwithstanding anything in the Loan Documents to the contrary, but subject to the qualifications hereinbelow set forth, Lender agrees that (i) Borrower shall be liable upon the indebtedness evidenced hereby and for the other obligations arising under the Loan Documents to the full extent (but only to the extent) of the security therefor, the same being all properties (whether real or personal), rights, estates and interests now or at any time hereafter securing the payment of this Note and/or the other obligations of Borrower under the Loan Documents (collectively, the "Security Property"), (ii) if a default occurs in the timely and proper payment of all or any part of such indebtedness evidenced hereby or in the timely and proper performance of the other obligations of Borrower under the Loan Documents, any judicial proceedings brought by Lender against Borrower shall be limited to the preservation, enforcement and foreclosure, or any thereof, of the liens, security titles, estates, assignments, rights and security interests now or at any time hereafter securing the payment of this Note and/or the other obligations of Borrower under the Loan Documents, and confirmation of any sale under power of sale, and no attachment, execution or other writ of process shall be sought, issued or levied upon any assets, properties or funds of Borrower other than the Security Property except with respect to the liability described below in this section, and (iii) in the event of a foreclosure of such liens, security titles, estates, assignments, rights or security interests securing the payment of this Note and/or the other obligations of Borrower under the Loan Documents, whether by judicial proceedings or exercise of power of sale, no judgment for any deficiency upon the indebtedness evidenced hereby shall be sought or obtained by Lender against Borrower, except with respect to the liability described below in this section; provided, however, that, notwithstanding the foregoing provisions of this section, Borrower shall be fully and personally liable and subject to legal action (a) for proceeds paid under any insurance policies (or paid as a result of any other claim or cause of action against any person or entity) by reason of damage, loss or destruction to all or any portion of the Security Property, to the full extent of such proceeds not previously delivered to Lender, but which, under the terms of the Loan Documents, should have been delivered to Lender, (b) for proceeds or awards resulting from the condemnation or other taking in lieu of condemnation of all or any portion of the Security Property, or any of them, to the full extent of such proceeds or awards not previously delivered to Lender, but which, under the terms of the Loan Documents, should have been delivered to Lender, (c) for all tenant security deposits or other refundable deposits paid to or held by Borrower or any other person or entity in connection with leases of all or any portion of the Security Property which are not applied in accordance with the terms of the applicable lease or other agreement, (d) for rent and other payments received from tenants under leases of all or any portion of the Security Property paid more than one month in advance, (e) for rents, issues, profits and revenues of all or any portion of the Security Property which are not paid or remitted to the Central Account in accordance with the Cash Management Agreement being executed concurrently herewith between Lender and Borrower, (f) for damage to the Security Property as a result of the misconduct or negligence of Borrower or any of its principals, officers, members or affiliates, or any agent or employee of any such persons, or any removal of the Security Property in violation of the terms of thc Loan Documents, to the full extent of the losses or damages incurred by Lender on account of such damage or removal, (g) for failure to pay any valid taxes, assessments, mechanic's liens, materialmen's liens or other liens which could create liens on any portion of the Security Property which would be superior to the lien or security title of the Security Instrument or the other Loan Documents, to the full extent of the amount claimed by any such lien claimant, (h) for all obligations and indemnities of Borrower under the Loan Documents relating to hazardous or toxic substances or compliance with environmental laws and regulations to thc full extent of any losses or damages (including those resulting from diminution in value of any Security Property) incurred by Lender as a result of the existence of such hazardous or toxic substances or failure to comply with environmental laws or regulations, and (i) for fraud or material misrepresentation by Borrower or any of its principals, officers, members or affiliates, any guarantor, any indemnitor or any agent, employee or other person authorized or apparently authorized to make statements or representations on behalf of Borrower, any principal, officer, member or affiliate of Borrower, any guarantor or any indemnitor, to the full extent of any losses, damages and expenses of Lender on account thereof. References herein to particular sections of the Loan Documents shall be deemed references to such sections as affected by other provisions of the Loan Documents relating thereto. Nothing contained in this section shall (i) be deemed to be a release or impairment of the indebtedness evidenced by this Note or the other obligations of Borrower under the Loan Documents or the lien of the Loan Documents upon the Security Property, or (ii) preclude Lender from foreclosing the Loan Documents in case of any default or from enforcing any of the other rights of Lender except as stated in this section, or (iii) limit or impair in any way whatsoever the Environmental Indemnity Agreement or the Guaranty of Lease, both of even date, executed and delivered in connection with the indebtedness evidenced by this Note or release, relieve, reduce, waive or impair in any way whatsoever, any obligation of any party to such Environmental Indemnity Agreement or Guaranty of Lease. ARTICLE II - GENERAL CONDITIONS 2.01 NO WAIVER; AMENDMENT. No failure to accelerate the debt evidenced hereby by reason of default hereunder, acceptance of a partial or past due payment, or indulgences granted from time to time shall be construed (i) as a novation of this Note or as a reinstatement of the indebtedness evidenced hereby or as a waiver of such right of acceleration or of the right of Lender thereafter to insist upon strict compliance with the terms of this Note, or (ii) to prevent the exercise of such right of acceleration or any other right granted hereunder or by any applicable laws; and Borrower hereby expressly waives the benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing. No extension of the time for the payment of this Note or any installment due hereunder, made by agreement with any person now or hereafter liable for the payment of this Note shall operate to release, discharge, modify, change or affect the original liability of Borrower under this Note, either in whole or in part unless Lender agrees otherwise in writing. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. 2.02 WAIVERS. Presentment for payment, demand, protest and notice of demand, protest and nonpayment and all other notices are hereby waived by Borrower. Borrower hereby further waives and renounces, to the fullest extent permitted by law, all rights to the benefits of any statute of limitations and any moratorium, reinstatement, marshalling, forbearance, valuation, stay, extension, redemption, appraisement, exemption and homestead now or hereafter provided by the Constitution and laws of the United States of America and of each state thereof, both as to itself and in and to all of its property, real and personal, against the enforcement and collection of the obligations evidenced by this Note or the other Loan Documents. 2.03 LIMIT OF VALIDITY. The provisions of this Note and of all agreements between Borrower and Lender, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of demand or acceleration of the maturity of this Note or otherwise, shall the amount paid, or agreed to be paid ("Interest"), to Lender for the use, forbearance or retention of thc money loaned under this Note exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, performance or fulfillment of any provision hereof or of any agreement between Borrower and Lender shall, at thc time performance or fulfillment of such provision shall be due, exceed thc limit for interest prescribed by law or otherwise transcend the limit of validity prescribed by applicable law, then IPSO FACTO the obligation to be performed or fulfilled shall be reduced to such limit and if, from any circumstance whatsoever, Lender shall ever receive anything of value deemed Interest by applicable law in excess of the maximum lawful amount, an amount equal to any excessive Interest shall be applied to the reduction of the principal balance owing under this Note in the inverse order of its maturity (whether or not then due) or at the option of Lender be paid over to Borrower, and not to the payment of Interest. All Interest (including any amounts or payments deemed to be Interest) paid or agreed to be paid to Lender shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full period until payment in full of the principal balance of this Note so that the Interest thereof for such full period will not exceed the maximum amount permitted by applicable law. This Section 2.03 will control all agreements between Borrower and Lender. 2.04 USE OF FUNDS. Borrower hereby warrants, represents and covenants that no funds disbursed hereunder shall be used for personal, family or household purposes. 2.05 UNCONDITIONAL PAYMENT. Borrower is and shall be obligated to pay principal, interest and any and all other amounts which become payable hereunder or under the other Loan Documents absolutely and unconditionally and without any abatement, postponement, diminution or deduction and without any reduction for counterclaim or setoff. In the event that at any time any payment received by Lender hereunder shall be deemed by a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under any bankruptcy, insolvency or other debtor relief law, then the obligation to make such payment shall survive any cancellation or satisfaction of this Note or return thereof to Borrower and shall not be discharged or satisfied with any prior payment thereof or cancellation of this Note, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof (subject to the effects of general principles of equity), and such payment shall be immediately due and payable upon demand. 2.06 MISCELLANEOUS. This Note shall be interpreted, construed and enforced according to the laws of the State of New York. The terms and provisions hereof shall be binding upon and inure to the benefit of Borrower and Lender and their respective heirs, executors, legal representatives, successors, successors- in-title and assigns, whether by voluntary action of the parties or by operation of law. As used herein, the terms "Borrower" and "Lender" shall be deemed to include their respective heirs, executors, legal representatives, successors, successors-in-title and assigns, whether by voluntary action of the parties or by operation of law. If Borrower consists of more than one person or entity, each shall be jointly and severally liable to perform the obligations of Borrower under this Note. All personal pronouns used herein, whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural and vice versa. Titles of articles and sections are for convenience only and in no way define, limit, amplify or describe the scope or intent of any provisions hereof. Time is of the essence with respect to all provisions of this Note. This Note and the other Loan Documents contain the entire agreements between the parties hereto relating to the subject matter hereof and thereof and all prior agreements relative hereto and thereto which are not contained herein or therein are terminated. [REST OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, Borrower has executed this Note as of the day and year first above written. SHOWBOAT LAND, LLC, a Nevada limited liability company By: Showboat Operating Company, a Nevada corporation, a member By: /s/ R. Craig Bird R. Craig Bird, Executive Vice- President and Chief Financial Officer By: Showboat Land Holding Limited Partnership, a Nevada limited partnership, a member By: Showboat Land Company, a Nevada corporation, its general partner By: /s/ R. Craig Bird R. Craig Bird, Vice-President/ Finance CASH MANAGEMENT AGREEMENT THIS CASH MANAGEMENT AGREEMENT (this "AGREEMENT") is made as of the 29th day of January, 1998, by SHOWBOAT LAND, LLC ("MORTGAGOR"), whose address is 3720 Howard Hughes Parkway, Suite 200, Las Vegas, Nevada 89109 to COLUMN FINANCIAL, INC. ("MORTGAGEE"), whose address is 3414 Peachtree Road, N.E., Suite 1140, Atlanta, Georgia 30326. RECITALS: WHEREAS, Mortgagee has authorized a loan (hereinafter referred to as the "LOAN") to Mortgagor in the original principal amount of $100,000,000 (hereinafter referred to as the "LOAN AMOUNT"), which Loan is evidenced by that certain promissory note, dated the date hereof (hereinafter referred to as the "NOTE"), given by Mortgagor and secured by, among other things, that certain mortgage and security agreement dated the date hereof (hereinafter referred to as the "MORTGAGE"), encumbering certain real property described on EXHIBIT A attached hereto and made a part hereof; WHEREAS, in consideration of the Loan, Mortgagor has agreed to make payments in amounts sufficient to pay and redeem, and provide for the payment and redemption of the principal of, premium (if any) and interest on the Note when due; WHEREAS, Mortgagor agrees and acknowledges that this Agreement is a material inducement to Mortgagee's making the Loan to Mortgagor; WHEREAS, Mortgagor and Mortgagee intend these recitals to be a material part of, and are hereby incorporated into, this Agreement; and WHEREAS, all things necessary to make this Agreement the valid and legally binding obligation of Mortgagor in accordance with its terms, for the uses and purposes herein set forth, have been done and performed. NOW THEREFORE, in consideration of Ten Dollars ($10.00), the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Mortgagor covenants and agrees with and warrants to Mortgagee that the Recitals are true and correct and are incorporated herein by this reference and the parties further covenant and agree with and warrant as follows: SECTION 1: DEFINITIONS For all purposes of this Agreement, except as otherwise expressly provided or unless the context clearly indicates a contrary intent: (1) the capitalized terms defined in this Section have the meanings assigned to them in this Section, and include the plural as well as the singular; (2) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; (3) capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings ascribed to them in the Mortgage; and 1 (4) the words "herein", "hereof", and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision. "AFFILIATE" of any specified Person shall mean any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have the meanings correlative to the foregoing. "BANK" shall mean Banc One, or any successor bank hereafter selected by Mortgagee. "BUSINESS DAY" shall mean any day other than (a) a Saturday or Sunday, or (b) a day on which banking and savings and loan institutions in the State of New York are authorized or obligated by law or executive order to be closed, or, at any time during which the Loan is an asset of a securitization, a day on which banking and savings and loan institutions in the cities, states and/or commonwealths in which the trustee and the servicer(s) under the securitization are located are authorized or obligated to be closed. "CENTRAL ACCOUNT" shall mean an Eligible Account, maintained at the Bank, in the name of Mortgagee or its successors or assigns (as secured party), as may be designated by Mortgagee, and established for the benefit of Mortgagee and Mortgagor. "CLOSING DATE" shall mean the date of the Note. "COLLECTION ACCOUNT" shall mean an account designated by Mortgagee, which shall be an Eligible Account, to which payments of secured indebtedness are transferred. "COMMITMENT" shall mean a written commitment for the refinancing of the Loan from an Institutional Mortgagee. "CONDEMNATION PROCEEDS" shall have the meaning set forth in SECTION 2.13(B) hereof. "CURRENT MONTH" shall have the meaning set forth in SECTION 2.05 hereof. "CURTAILMENT PERIOD" shall mean (i) if Mortgagor fails to provide Mortgagee with a Commitment on or prior to the Refinance Notification Date, the period commencing on the Refinance Notification Date and ending on the date the secured indebtedness has been paid in full and (ii) if Mortgagor provides Mortgagee with a Commitment on or prior to the Refinance Notification Date and the Void Commitment Date occurs, the period commencing on the Void Commitment Date and ending on the date the secured indebtedness has been paid in full; provided, however, that if Mortgagor provides Mortgagee with a Commitment on or before the Refinance Notification Date and the Void Commitment Date does not occur, there shall be no Curtailment Period hereunder. "CURTAILMENT RESERVE SUB-ACCOUNT" shall mean the Sub-Account of the Central Account established pursuant to SECTION 2.02 hereof and maintained pursuant to SECTION 2.11 hereof for the purpose of holding certain Excess Property Income. "DEBT SERVICE" shall mean the amount of interest and principal payments due and payable in accordance with the Note during an applicable period. 2 "DEBT SERVICE PAYMENT SUB-ACCOUNT" shall mean the Sub- Account of the Central Account established pursuant to SECTION 2.02 hereof and maintained pursuant to SECTION 2.07 hereof for the purposes of making Debt Service payments. "DEFAULT" shall mean any event that, with notice and/or the passage of time, would become a default under Section 2.1 of the Mortgage. "DEVELOPMENT LAWS" shall mean all applicable subdivision, zoning, environmental protection, wetlands protection, or land use laws or ordinances, and any and all applicable rules and regulations of any federal, state or local governmental authority or agency promulgated thereunder of related thereto. "ELIGIBLE ACCOUNT" shall mean a segregated account held by and at the Bank or an account that is either: (a) maintained with a depository institution or trust company the long-term unsecured debt obligations of which (or, in the case of a depository institution or trust company that is the principal subsidiary of a holding company, the long-term unsecured debt obligations of such holding company) have been rated by the Rating Agencies in one of their two highest rating categories or the short-term commercial paper of which is rated by the Rating Agencies in their highest rating category at the time of any deposit therein; (b) an account or accounts maintained with a federal or state chartered depository institution or trust company with trust powers acting in its fiduciary capacity provided that any such state chartered institution or trust company shall be subject to regulations regarding fiduciary funds on deposit substantially similar to federal regulation 12 CFR Section 910(b); or (c) such other account maintained at a bank; or institution having aggregate deposits in an amount not less than $100,000,000 and otherwise acceptable to Mortgagee. The title of each Eligible Account shall indicate that funds held therein are held in trust for the uses and purposes set forth herein. "ENGINEER" shall mean any independent engineer or engineering firm reasonably approved by Mortgagee. "ENVIRONMENTAL LAWS" shall have the meaning set forth in the Mortgage. "EVENT OF DEFAULT" shall mean (a) any default under Section 2.1 of the Mortgage, (b) any, failure of Mortgagor to cause sufficient funds to be deposited in the Central Account on any Payment Date to fund all of the Sub-Accounts pursuant to SECTION 2.05, which failure shall continue for five (5) days after such Payment Date and (c) any event specified as an "Event of Default" hereunder. "EXCESS PROPERTY INCOME" shall have the meaning set forth in SECTION 2.05(C) hereof. "FISCAL YEAR" shall mean the twelve month period commencing on January 1 and ending on December 31 during each year of the term of this Agreement and the Mortgage, or such other fiscal year of Mortgagor as Mortgagor may select from time to time with the prior written consent of Mortgagee. "IMPROVEMENTS" shall have the meaning set forth in the granting clauses of the Mortgage. "INSTITUTIONAL MORTGAGEE" shall mean any of the following Persons: (a) any bank, savings and loan association, savings institution, trust company or national banking association, acting for its own account or in a fiduciary capacity, (b) any charitable foundation, (c) any insurance company or pension and/or annuity company, (d) any fraternal benefit society, (e) any pension. retirement or profit sharing trust or fund within the meaning of Title I of ERISA or for which any bank, trust company, national banking association or investment adviser registered under the Investment Advisers Act of 1940, as amended, is acting as trustee or agent, (f) any investment company or business development company, as defined in the Investment 3 Company Act of 1940, as amended, (g) any small business investment company licensed under the Small Business Investment Act of 1958, as amended, (h) any broker or dealer registered under the Securities and Exchange Act of 1934, or any investment adviser registered under the Investment Adviser Act of 1940, as amended, (i) any government, any public employees' pension or retirement system, or any other government agency supervising the investment of public funds, (j) any mortgage conduit which is in the business of originating loans for securitization in the capital markets, or (k) any other entity all of the equity owners of which are Institutional Mortgagees; provided that each of said Persons shall have net assets equal to or greater than $500,000,000, be in the business of making commercial mortgage loans, secured by properties of like type, size and value as the Property and have a long term credit rating which is not less than investment grade. "INSURANCE PROCEEDS" shall have the meaning set forth in SECTION 2.13(A) hereof. "LEASE" shall mean the ground lease of the Property, dated October 26, 1983, between Resorts International, Inc. and Atlantic City Showboat, Inc. (as successor by assignment to Ocean Showboat, Inc.), as heretofore or hereafter amended. "LEGAL REQUIREMENT" shall mean, as to any Person, the certificate of incorporation and by-laws or other organization or governing documents of such Person, and any law, treaty, rule or regulation (including, without limitation, Environmental Laws, Development Laws, and Use Requirements) or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "LOAN" shall have the meaning set forth in the Recitals hereto. "LOAN AMOUNT" shall have the meaning set forth in the Recitals hereto. "LOAN DOCUMENTS" shall mean this Agreement, the Mortgage, the Note, the Assignment of Leases and Rents, and any and all other agreements, instruments, certificates or documents executed and delivered by Mortgagor or any Affiliate of Mortgagor in connection with the Loan. "LOSS PROCEEDS" shall have the meaning set forth in SECTION 2.13(C) hereof. "MATURITY DATE" shall have the meaning set forth in the Note. "MORTGAGE" shall mean the Mortgage as originally executed or as it may hereafter from time to time be supplemented, amended, modified or extended by one or more indentures supplemental thereto. "MORTGAGEE" shall mean the Mortgagee named herein and its successors or assigns. "MORTGAGOR" shall mean Mortgagor named herein and any successor to the obligations of Mortgagor. "NOTE" shall have the meaning set forth in the recitals hereof. "PAYMENT DATE" shall mean, with respect to each month, the first (1st) calendar day in such month, or if such day is not a Business Day, the next following Business Day. 4 "PERMITTED INVESTMENTS" shall mean any one or more of the following obligations or securities acquired at a purchase-price of not greater than par, including those issued by Mortgagee, its successors or assigns, or any of their respective Affiliates: (i) direct obligations of, or obligations fully guaranteed as to payment of principal and interest by, (a) the United States or any agency or instrumentality thereof provided such obligations are backed by the full faith and credit of the United States of America, or (b) FHLMC, FNMA, the Federal Farm Credit System or the Federal Home Loan Banks provided such obligations at the time of purchase or contractual commitment for purchase are qualified by the Rating Agencies as a Permitted Investment hereunder as evidenced in writing; (ii) fully FDIC-insured demand and time deposits in or certificates of deposit of, or bankers' acceptances issued by, any bank or trust company, savings and loan association or savings bank, provided that the commercial paper and long-term unsecured debt obligations of such depository institution o trust company have the highest rating available for such securities by the Rating Agencies, or such lower rating as is consented to in writing by Mortgagee; (iii) repurchase obligations with respect to any security described in clause (i) above entered into with a depository institution or trust company (acting as principal) described in clause (ii) above; (iv) general obligations of or obligations guaranteed by any State of the United States or the District of Columbia receiving the highest long- term unsecured debt rating available for such securities by the Rating Agencies, or such lower rating as is consented to in writing by Mortgagee; (v) securities bearing interest or sold at a discount that are issued by any corporation incorporated under the laws of the United States of America or any State thereof or the District of Columbia and is rated by the Rating Agencies in their highest long-term unsecured rating categories at the time of such investment or contractual commitment providing for such investment; PROVIDED, HOWEVER, that securities issued by any such corporation will not be Permitted Investments to the extent that investment therein will cause the then outstanding principal amount of securities issued by such corporation and held as part of the Central Account to exceed 20% of the aggregate principal amount of all Permitted Investments held in the Central Account; (vi) commercial or finance company paper (including both non-interest-bearing discount obligations and interest g obligations payable on demand or on a specified date not more than one year after the date of issuance thereof) that is rated by the Rating Agencies in their highest short-term unsecured debt rating available at the time of such investment or contractual commitment providing for such investment, and is issued by a corporation the outstanding senior long-term debt obligations of which are then rated by the Rating Agencies in their highest short-term and long-term unsecured debt ratings, or such lower rating as is consented to in writing by Mortgagee; 5 (vii) guaranteed reinvestment agreements acceptable to the Rating Agencies issued by any bank, insurance company or other corporation rated in the highest long-term unsecured rating levels available to such issuers by the Rating Agencies throughout the duration of such agreements, or such lower rating as is consented to in writing by Mortgagee; (viii) units of taxable money market funds, which funds are regulated investment companies, seek to maintain a constant net asset value per share and invest solely in obligations backed by the full faith and credit of the United States, which funds have been designated in writing by the Rating Agencies as Permitted Investments with respect to this definition; and (ix) any other demand, money market or time deposit, or any other obligation, security or investment, that may be consented to in writing by Mortgagee; PROVIDED, HOWEVER, that no instrument or security shall be a Permitted Investment if (y) such instrument or security evidences a right to receive only interest payments or (z) the right to receive principal and interest payments derived from the underlying investment provides a yield to maturity in excess of 120% of the yield to maturity at par of such underlying investment. "PERSON" shall mean any individual, corporation, partnership, joint venture, estate, trust, unincorporated association, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing. "PREFERRED PREPAYMENT DATE" shall have the meaning set forth in the Note. "PRINCIPAL AMOUNT" shall mean the Loan Amount as such principal amount may be reduced from time to time pursuant to the terms of the Mortgage, the Note or the other Loan Documents. "PROPERTY" shall have the meaning set forth in the granting clauses of the Mortgage. "PROPERTY INCOME" shall mean, in each Fiscal Year or portion thereof during the term hereof, all revenue derived by Mortgagor arising from the Property including, without limitation, Rents and Profits (whether denominated as basic rent, additional rent, percentage rent, escalation payments, electrical payments or otherwise) and other fees and charges payable pursuant to the Lease or otherwise in connection with the Property, and rent insurance proceeds. "RATING AGENCY" shall mean any nationally recognized statistical agency selected by Mortgagee including, without limitation, Duff & Phelps Rating Co., Fitch Investors Service, Inc., Moody's Corporation, and/or Standard and Poor's Ratings Group, Inc., collectively, and any successor to any of them; provided, however, that at any time during which the Loan is an asset of a securitization or is otherwise an asset of any rated transaction, "Rating Agency" shall mean the rating agency or rating agencies that from time to time rate the securities, certificates or other instruments issued in connection with such securitization or other transaction. "REFINANCE NOTIFICATION DATE" shall mean the date that is six (6) months prior to the Preferred Prepayment Date. "RENTS AND PROFITS" shall have the meaning set forth in the granting clauses of the Mortgage. 6 "REQUIRED DEBT SERVICE PAYMENT" shall mean, as of any Payment Date, the amount of interest and principal then due and payable pursuant to the Note, together with any other sums due thereunder, including, without limitation, any prepayments required to be made or for which notice has been given under this Mortgage, Default Rate Interest and premium, if any, made in accordance therewith. "SUB-ACCOUNTS" shall have the meaning set forth in SECTION 2.02 hereof. "TAKING" shall mean any condemnation or taking pursuant to the exercise of the power of eminent domain and any deed delivered in lieu thereof. "USE REQUIREMENTS" shall mean any all building codes, permits, certificates of occupancy or compliance, laws, regulations, or ordinances (including, without limitation, health, pollution, fire protection, medical and day-care facilities, waste product and sewage disposal regulations), declarations or other agreements affecting the use of the Property or any part thereof. "VOID COMMITMENT DATE" shall mean the date, if any, upon which the Commitment lapses, terminates or is otherwise withdrawn. SECTION II: CENTRAL CASH MANAGEMENT Section 2.01. CASH FLOW. (a) Mortgagor hereby acknowledges and agrees that the Rents and Profits (which for the purposes of this SECTION 2.01 shall not include security deposits from the tenant under the Lease unless duly applied towards rental payments under the Lease) derived from the Property and all Loss Proceeds shall be allocated to the Sub-Accounts in the manner and priority set forth in SECTION 2.05 hereof. Mortgagor shall direct the tenant under the Lease to make all rental payments under the Lease directly to Mortgagee by wire transfer, cashier's check or money order made payable to Mortgagee or its successors and assigns and cause same to be deposited directly into the Central Account. Any Rents and Profits received by Mortgagor shall be deposited immediately in the Central Account. (b) Mortgagee may elect to change the financial institution in which the Central Account shall be maintained; PROVIDED, HOWEVER, Mortgagee shall give Mortgagor not fewer than ten (10) Business Days' prior notice of such change. All fees and charges of the bank in which the Central Account is located shall be paid by Mortgagor. Section 2.02. ESTABLISHMENT OF SUB-ACCOUNTS. Mortgagee has established, or caused to be established, the Central Account in the name of Mortgagee. The Central Account shall be under the sole dominion and control of Mortgagee. Mortgagor hereby irrevocably directs and authorizes Mortgagee to deposit into and withdraw funds from the Central Account, all in accordance with the terms and conditions of this Agreement. Mortgagor shall have no right of withdrawal from the Central Account. Each transfer of funds to be made hereunder shall be made only to the extent that funds are on deposit in the Central Account or the affected Sub-Account, and Mortgagee shall have no responsibility to make additional funds available in the event that funds on deposit are insufficient. The Central Account shall contain the Debt Service Payment Sub-Account and the Curtailment Reserve Sub-Account (to the extent applicable) (each a "SUB-ACCOUNT" and collectively, the "SUB-ACCOUNTS") to which certain funds shall be allocated and from which disbursements shall be made pursuant to the terms of this Agreement. Each Sub-Account shall be an Eligible Account. Section 2.03. PERMITTED INVESTMENTS. Upon the written request of Mortgagor, Mortgagee shall direct the Bank to invest and reinvest any balance in the Central Account from time to time in Permitted 7 Investments as instructed by Mortgagor (which instruction may be made no more than one time per month), PROVIDED THAT (a) if Mortgagor fails to so instruct Mortgagee, or upon the occurrence of a Default or Event of Default, Mortgagee may direct the Bank to invest and reinvest such balance in Permitted Investments as Mortgagee shall determine in its sole discretion (and Mortgagee shall provide written notice to Mortgagor of Mortgagee's directions regarding Permitted Investments), (b) the maturities of the Permitted Investments on deposit in the Central Account shall, to the extent such dates are ascertainable, be selected and coordinated to become due not later than the day before any disbursements from the applicable Sub-Accounts must be made, (c) all such Permitted Investments shall be held in the name and be under the sole dominion and control of Mortgagee, and (d) no Permitted Investment shall be made unless Mortgagee shall retain a perfected first priority lien in such Permitted Investment securing the secured indebtedness and all filings and other actions necessary to ensure the validity, perfection, and priority of such lien have been taken. It is the intention of the parties hereto that the entire amounts deposited in the Central Account (or as much thereof as Mortgagee may reasonably arrange to invest) shall at all times be invested in Permitted Investments, and that the Central Account shall be a so-called "zero balance" account. All funds in the Central Account that are invested in a Permitted Investment are deemed to be held in the Central Account for all purposes of this Mortgage and the other Loan Documents. Mortgagee shall not have any liability for any loss in investments of funds in the Central Account that are invested in Permitted Investments whether Mortgagor or Mortgagee selected such Permitted Investment in accordance herewith and no such loss shall affect Mortgagor's obligation to fund, or liability for funding, the Central Account and each Sub-Account, as the case may be. Mortgagor agrees that Mortgagor shall include all such earnings on the Central Account as income of Mortgagor (and, if Mortgagor is a partnership or other pass-through entity, the partners, members or beneficiaries of Mortgagor, as the case may be) for federal and applicable state and local tax purposes. Mortgagor shall have no right whatsoever to direct the investment of the proceeds in the Collection Account. Section 2.04. INTEREST ON ACCOUNTS. All interest paid or other earnings on the Permitted Investments of funds deposited into the Central Account made hereunder shall be deposited into the Central Account. Section 2.05. MONTHLY FUNDING OF SUB-ACCOUNTS. (a) On the Payment Date of each month during the term of the Loan (each, a "Current Month"), commencing on the Payment Date of the second month after the month in which the Loan is initially funded, and Mortgagee shall allocate all funds transferred or deposited into the Central Account among the Sub-Accounts as follows and in the following priority: (i) first, to the Debt Service Payment Sub-Account, until an amount equal to the Required Debt Service Payment for the Payment Date occurring in such Current Month has been allocated to the Debt Service Payment Sub-Account; and (ii) second, with respect to any Current Month for which funds are to be allocated to the Curtailment Reserve Sub-Account pursuant to SECTION 2.11 hereof, all Excess Property Income shall be allocated to the Curtailment Reserve Sub-Account. (b) Provided that (i) no Event of Default has occurred and is continuing, and (ii) no Curtailment Period is in effect, Mortgagee agrees that in each Current Month any amounts deposited into or remaining in the Central Account after sufficient funds have been transferred to the Sub-Accounts in accordance with, and such funds have been allocated in the amounts set forth in, clauses (i) and (ii) above with respect to the Current Month and any periods prior thereto shall be disbursed by Mortgagee 8 to Mortgagor on the Payment Date in such Current Month pursuant to the instructions set forth on SCHEDULE 1 attached hereto or any subsequent written instructions delivered to Mortgagee by Mortgagor. (c) As used herein, "EXCESS PROPERTY INCOME" means the amounts available in the Central Account in any Current Month after the allocation under clause (i) of subsection (a) above has been made. (d) After the occurrence and during the continuance of an Event of Default hereunder or under any other Loan Document, no funds held in the Central Account shall be distributed to Mortgagor, and Mortgagee shall have the right (without limitation to any other right or remedy of Mortgagee) to apply all or any portion of the funds held in such account to the secured indebtedness in Mortgagee's sole discretion. Section 2.06. [Reserved] Section 2.07. DEBT SERVICE PAYMENT SUB-ACCOUNT. On each Payment Date during the term of the Loan, Mortgagee shall transfer to the Collection Account, from the Debt Service Payment Sub-Account, an amount equal to the sum of (a) the Required Debt Service Payment for such Payment Date and (b) any amounts deposited into the Central Account that are either (i) Loss Proceeds that Mortgagee has elected to apply to reduce the secured indebtedness in accordance with the terms of SECTION 2.13 hereof or (ii) excess Loss Proceeds remaining after the completion of any restoration required hereunder. Section 2.08. [Reserved] Section 2.09 [Reserved] Section 2.10. [Reserved] Section 2.11. CURTAILMENT RESERVE SUB-ACCOUNT. During any Curtailment Period, on each and every Payment Date until the date on which all secured indebtedness has been paid in full, Mortgagee shall allocate all Excess Property Income to the Curtailment Reserve Sub-Account in accordance with SECTION 2.05(A)(II). On each Payment Date during any Curtailment Period, Mortgagee shall transfer to the Collection Account an amount equal to the lesser of (a) the amount available in the Curtailment Reserve Sub-Account, and (b) the total secured indebtedness then outstanding under the Note and the other Loan Documents. At the end of any Curtailment Period, the balance in the Curtailment Reserve Sub-Account shall be promptly disbursed to Mortgagor. Section 2.12. [Reserved] Section 2.13. LOSS PROCEEDS. (a) In the event of a casualty to the Property, unless Mortgagee elects, or is required pursuant to SECTION 1.9 of the Mortgage, to make all of the proceeds received by or on behalf of Mortgagor under the insurance policy required to be maintained by Mortgagor ("INSURANCE PROCEEDS") available to Mortgagor for restoration of the Property, Mortgagee and Mortgagor shall cause all such Insurance Proceeds to be paid by the insurer directly to the Central Account, whereupon Mortgagee shall, after deducting Mortgagee's costs of recovering and paying out such Insurance Proceeds, including without limitation, reasonable attorneys' fees, apply such Insurance Proceeds to reduce the secured indebtedness in accordance with the terms of the Note; PROVIDED, HOWEVER, that if Mortgagee elects, or is deemed to have elected, to make the Insurance Proceeds available for restoration of the Property, all Insurance Proceeds in respect of business interruption coverage shall be maintained in the Central Account, to be applied by Mortgagee in the same manner as Rents and Profits received from Mortgagor with respect to the operation of the Property; PROVIDED FURTHER, HOWEVER, that in the event that the Insurance Proceeds of such business interruption insurance policy are paid in a lump sum in advance, Mortgagee shall (i) hold 9 such Insurance Proceeds in a segregated interest-bearing escrow account, which shall be an Eligible Account, (ii) estimate, in Mortgagee's reasonable discretion based upon a certification of an Engineer or independent, licensed architect, the number of months required for Mortgagor to restore the damage caused by the casualty, (iii) divide the aggregate business interruption Insurance Proceeds by such number of months, and (iv) disburse from such escrow account into the Central Account each month during the performance of such restoration such monthly installment of said Insurance Proceeds. In the event that Insurance Proceeds are to be applied toward restoration, Mortgagee shall hold such funds in a segregated bank account at the Bank, which shall be an Eligible Account, and shall disburse same in accordance with the provisions of SECTION 1.9 of the Mortgage. (b) In the event of a Taking of all or any portion of the Property, unless Mortgagee elects, or is required pursuant to SECTION 1.9 of the Mortgage, to make all of the proceeds payable to Mortgagor in respect of such Taking (any such proceeds, "CONDEMNATION PROCEEDS") available to Mortgagor for restoration of the Property, Mortgagee and Mortgagor shall cause all such Condemnation Proceeds to be paid to the Central Account, whereupon Mortgagee shall, after deducting Mortgagee's costs of recovering and paying out such Condemnation Proceeds, including without limitation, reasonable attorneys' fees, apply same, by transferring such amounts to the Collection Account, to reduce the secured indebtedness in accordance with the terms of the Note; PROVIDED, HOWEVER, that any Condemnation Proceeds received by or on behalf of Mortgagor in connection with a temporary Taking shall be maintained in the Central Account, to be applied by Mortgagee in the same manner as Rents and Profits received from Manager with respect to the operation of the Property; PROVIDED FURTHER, HOWEVER, that in the event that the Condemnation Proceeds of any such temporary Taking are paid in a lump sum in advance, Mortgagee shall (i) hold such Condemnation Proceeds in a segregated interest-bearing escrow account, which shall be an Eligible Account, (ii) estimate, in Mortgagee's reasonable discretion, the number of months that the Property shall be affected by such temporary Taking, (iii) divide the aggregate Condemnation Proceeds in connection with such temporary Taking by such number of months, and (iv) disburse from such escrow account into the Central Account each month during the pendency of such temporary Taking such monthly installment of said Condemnation Proceeds. In the event that Condemnation Proceeds are to be applied toward restoration, Mortgagee shall hold such funds in a segregated bank account at the Bank, which shall be an Eligible Account, and shall disburse same in accordance with the provisions of SECTION 1.9 of the Mortgage. (c) If any Insurance Proceeds or Condemnation Proceeds (collectively, "LOSS PROCEEDS") are received by Mortgagor, such Loss Proceeds shall be received in trust for Mortgagee, shall be segregated from other funds of Mortgagor, and shall be forthwith paid into the Central Account, or paid to Mortgagee to hold in a segregated account, in each case to be applied or disbursed in accordance with the foregoing. Any Loss Proceeds made available to Mortgagor for restoration in accordance herewith, to the extent not used by Mortgagor in connection with, or to the extent they exceed the cost of, such restoration, shall be deposited into the Central Account, whereupon Mortgagee shall apply the same to reduce the secured indebtedness in accordance with the terms of the Note. SECTION 3: MISCELLANEOUS Section 3.1. CUMULATIVE RIGHTS. The rights of Mortgagee under this Agreement shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others hereunder or under any other Loan Document. No act of Mortgagee shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision. Mortgagee shall not be limited exclusively to the rights and remedies herein stated but shall be entitled, subject to the terms of this 10 Agreement and the other Loan Documents, to every right and remedy now or hereafter afforded by law or in equity. Section 3.2. EXHIBITS INCORPORATED. The information set forth in the Exhibits annexed hereto is hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof. Section 3.3. SEVERABLE PROVISIONS. If any term, covenant or condition of the Loan Documents including, without limitation, the Note, the Mortgage or this Agreement, is held to be invalid, illegal or unenforceable in any respect, such Loan Document shall be construed without such provision. Section 3.4. DUPLICATE ORIGINALS. The Agreement may be executed in any number of duplicate originals and each such duplicate original shall be deemed to constitute but one and the same instrument. Section 3.5. NO ORAL CHANGE. This Agreement, and any provisions hereof, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act on the part of Mortgagor or Mortgagee, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. Section 3.6. WAIVER OF COUNTERCLAIM. Mortgagor hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Mortgagee or its agents, and waives trial by jury in any action or proceeding brought by either party hereto against the other or in any counterclaim Mortgagor may be permitted to assert hereunder or which may be asserted by Mortgagee or its agents, against Mortgagor, or in any matters whatsoever arising out of or in any way connected with this Agreement or the secured indebtedness. Section 3.7. HEADINGS, ETC. The table of contents, headings and captions of various paragraphs of this Agreement are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or intent of the provisions hereof. Section 3.8. SOLE DISCRETION OF MORTGAGEE. Whenever Mortgagee exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to Mortgagee, the decision of Mortgagee to approve or disapprove or to decide that arrangements or terms are satisfactory or not satisfactory shall be in the sole discretion of Mortgagee and shall be final and conclusive, except as may be otherwise specifically provided herein. Section 3.9. WAIVER OF NOTICE. Mortgagor shall not be entitled to any notices of any nature whatsoever from Mortgagee except with respect to matters for which the Mortgage specifically and expressly provides for the giving of notice by Mortgagee to Mortgagor and except with respect to matters for which Mortgagor is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Section 3.10. COVENANTS RUN WITH THE LAND. All of the grants, covenants, terms, provisions and conditions herein shall run with the Premises, shall be binding upon Mortgagor and shall inure to the benefit of Mortgagee, subsequent holders of this Mortgage and their successors and assigns. Without limitation to any provision hereof, the term "Mortgagor" shall include and refer to the Mortgagor named herein, any subsequent owner of the Property, and its respective heirs, executors, legal representatives, successors and assigns. 11 Section 3.11 APPLICABLE LAW. This Agreement will be governed by and construed in accordance with the laws for the State of New York, provided that to the extent that any of such laws may now or hereafter be preempted by Federal law, such Federal law shall so govern and be controlling; and provided further that the laws of the state in which the Property is located shall govern as to the creation, priority and enforcement of liens and security interest in property located in such state. Section 3.12. REMEDIES OF MORTGAGOR. In the event that a claim or adjudication is made that Mortgagee has acted unreasonably or unreasonably delayed acting in any case where by law or under this Agreement, the Note, the Mortgage or the other Loan Documents, it has an obligation to act reasonably or promptly, Mortgagee shall not be liable for any monetary damages, and Mortgagor's remedies shall be limited to injunctive relief or declaratory judgment. Section 3.13. Offsets, Counterclaims and Defenses. Any assignee of the Mortgage, this Agreement, the Note or any other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to this Agreement, the Note, the Mortgage and such other Loan Documents which Mortgagor may otherwise have against any assignor of the Mortgage, this Agreement, the Note and such other Loan Documents and no such unrelated counterclaim or defense shall be interposed or asserted by Mortgagor in any action or proceeding brought by any such assignee upon the Mortgage, this Agreement, the Note or any other Loan Documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Mortgagor. Section 3.14. WAIVER OF STATUTE OF LIMITATIONS. The pleadings of any statute of limitations as a defense to any and all obligations secured by this Agreement are hereby waived to the full extent permitted by law. Section 3.15. NO JOINT VENTURE OR PARTNERSHIP. Mortgagor and Mortgagee intend that the relationship created hereunder be solely that of mortgagor and mortgagee or borrower and lender, as the case may be. Nothing herein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between Mortgagor and Mortgagee nor to grant Mortgagee any interest in the Property other than that of mortgagee or lender. Section 3.16. TIME OF THE ESSENCE. Time shall be of the essence in the performance of all obligations of Mortgagor hereunder. Section 3.17. NO RELEASE. No recovery of any judgment by Mortgagee and no levy of an execution under any judgment upon the Property or any part thereof or upon any other property of Mortgagor shall release any liens, rights, powers or remedies of Mortgagee hereunder, but such liens, rights, powers and remedies of Mortgagee shall continue unimpaired until all amounts due under the Note, the Mortgage and the other Loan Documents are paid in full. Section 3.18. MORTGAGOR'S OBLIGATIONS ABSOLUTE. Except as expressly set forth to the contrary in the Loan Documents, all sums payable by Mortgagor hereunder shall be paid without notice or demand, counterclaim, setoff, deduction or defense and without abatement, suspension, deferment, diminution or reduction, and the obligations and liabilities of Mortgagor hereunder shall in no way be released, discharged, or otherwise affected (except as expressly provided herein) by reason of: (a) any damage to or destruction of or any taking of the Property or any portion thereof; (b) any restriction or prevention of or interference with any use of the Property or any portion thereof; (c) any title defect or encumbrance or any eviction from the Property or any portion thereof by title paramount or otherwise; (d) any bankruptcy 12 proceeding relating to Mortgagor, any general partner, member, or shareholder, or any guarantor or indemnitor, or any action taken with respect to this Mortgage or any other Loan Document by any trustee or receiver of Mortgagor or any such general partner, member, shareholder, guarantor or indemnitor, or by any court, in any such proceeding; (e) any claim which Mortgagor has or might have against Mortgagee; (f) any default or failure on the part of Mortgagee to perform or comply with any of the terms hereof or of any other agreement with Mortgagor; or (g) any other occurrence whatsoever, whether similar or dissimilar to the foregoing, whether or not Mortgagor shall have notice or knowledge of any of the foregoing. Section 3.19 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. (a) MORTGAGOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVISE OF COMPETENT COUNSEL, (i) SUBMITS TO PERSONAL JURISDICTION IN THE STATE OF NEW YORK OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THIS AGREEMENT, THE NOTE, THE MORTGAGE OR ANY OTHER OF THE LOAN DOCUMENTS, (ii) AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN NEW YORK COUNTY, NEW YORK, (iii) SUBMITS TO THE JURISDICTION OF SUCH COURT, AND, (iv) TO THE FULLEST EXTENT PERMITTED BY LAW, AGREES THAT IT WILL NOT BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT THE RIGHT OF MORTGAGEE TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM). MORTGAGOR FURTHER CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO THE MORTGAGOR AT THE ADDRESS FOR NOTICE SET FORTH IN THE MORTGAGE, AND CONSENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY LAW). (b) MORTGAGOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVISE OF COMPETENT COUNSEL, WAIVES, RELINQUISHES AND FOREVER FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THE INDEBTEDNESS SECURED HEREBY OR ANY CONDUCT, ACT OR OMISSION OF MORTGAGEE OR MORTGAGOR OR ANY OF THEIR DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH MORTGAGEE OR MORTGAGOR, IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. Section 3.20 EXCULPATION. Notwithstanding anything to the contrary contained herein, Mortgagor's liability hereunder shall be limited as set forth in Paragraph 13 of the Note. Section 3.21 AMENDMENT. This Agreement may not be modified, amended, supplemented, replaced or terminated except by a written agreement signed by Mortgagee and Mortgagor. [REST OF PAGE INTENTIONALLY LEFT BLANK] 13 IN WITNESS WHEREOF, Mortgagor and Mortgagee have duly executed this Agreement the day and year first above written. SHOWBOAT LAND, LLC, a Nevada limited liability company By: Showboat Operating Company, a Nevada corporation, a member By: /s/ R. Craig Bird R. Craig Bird, Executive Vice- President and Chief Financial Officer By: Showboat Land Holding Limited Partnership, a Nevada limited partnership, a member By: Showboat Land Company, a Nevada corporation, its general partner By: /s/ R. Craig Bird R. Craig Bird, Vice- President/Finance COLUMN FINANCIAL, INC. By: /s/ Linda L. Keller Name: Linda L. Keller Title: Assistant Vice President GUARANTY OF LEASE This GUARANTY OF LEASE (the "Guaranty") is made and entered into by SHOWBOAT, INC., a Nevada corporation, having an office at 2800 Fremont Street, Las Vegas, Nevada 89104 ("Guarantor"), for the benefit of COLUMN FINANCIAL, INC., a Delaware corporation having an office at 3414 Peachtree Road, N.E., Suite 1140, Atlanta, Georgia 30326 ("Lender"). This Guaranty is made with reference to the following facts: A. Sun International, as successor-in-interest to Resorts International, Inc. ("Original Landlord"), and Atlantic City Showboat, Inc. ("TENANT") are parties to the Lease (as hereinafter defined). B. Showboat Land LLC ("Landlord") is simultaneously herewith acquiring the fee interest in the real property that is the subject of the Lease (the "Premises") and acquiring the Original Landlord's interest under the Lease. C. Guarantor owns or controls both Landlord and Tenant. D. Lender is simultaneously herewith making a loan in the original principal amount of $100 million to Landlord (the "Loan") to fund a portion of the purchase price of the Premises, which Loan will be secured by a mortgage on the Premises and an assignment of the Lease and the rents thereunder. E. Guarantor acknowledges that the Loan will benefit Guarantor as the beneficial owner of all of the outstanding interests of Landlord. F. Lender would not make the Loan to Landlord unless Guarantor executed this Guaranty. This Guaranty is therefore being delivered to Lender to induce Lender to make the Loan to Landlord. NOW, THEREFORE, in exchange for Ten Dollars ($10.00) and other good, adequate and valuable consideration, the receipt and sufficiency of which Guarantor acknowledges, and to induce Lender to make the Loan to Landlord, Guarantor agrees as follows: 1. DEFINITIONS. For purposes of this Guaranty, the following terms shall be defined as follows. In addition, any terms defined in the Lease shall have the same meanings in this Guaranty, except to the extent that this Guaranty provides some other meaning(s) for such terms. 1.1 "LEASE." The "Lease" means the Lease, dated on or about October 26, 1983, between Landlord's and Tenant's respective predecessor-in-interest, as it heretofore has been and hereafter may be amended from time to time. The term "Lease" shall also refer to: (a) any renewal, modification, option, extension or assignment of the Lease; and (b) Tenant's obligations relating to the Premises during any period when Tenant is occupying the Premises or any portion thereof either (i) as a "holdover tenant" or (ii) as a "statutory tenant" or under any other rent regulation, rent control, rent stabilization, mandatory arbitration or other statutory scheme regulating the landlord- tenant relationship (the parties recognizing, however, that none of the schemes referred to in this clause "ii" would presently apply to the Lease). If the Lease is terminated, then at Lender's option, notwithstanding such termination (and in the event of any subsequent reinstatement of the Lease), all Obligations under this Guaranty shall be calculated and determined as if the Lease were still in effect. Any request by Landlord that Tenant vacate the Premises and surrender the Lease shall not affect the definition of "Lease" for all purposes of this Guaranty. 1.2 "LEGAL COSTS." Lender's "Legal Costs" means Lender's actual reasonable attorneys' fees and expenses and costs incurred by Lender in any Proceeding with Guarantor or with Tenant on account of Tenant's breach of the Lease or Guarantor's breach of this Guaranty, provided that Lender prevails. 1.3 "OBLIGATIONS." The "Obligations" shall mean all obligations of Tenant under the Lease to pay money, including without limitation: (a) the obligation to pay fixed rent; and (b) the obligation to make all payments required under the Lease on account of taxes and all other matters, and to make all payments required under the Environmental Indemnity Agreement, dated as of even date hereof, from Tenant and Landlord for the benefit of Lender. 1.4 "PROCEEDING." The term "Proceeding" means any legal action, suit, arbitration hearing or proceeding arising out of, or relating to the interpretation or enforcement of, this Guaranty or the Lease, including a bankruptcy or similar proceeding affecting Tenant or Guarantor. 1.5 "TENANT." The term "Tenant" means: (a) Tenant as defined above, acting on its own behalf, and its successors and assigns as tenant under the Lease, by sale, assignment or otherwise; (b) any estate created by the commencement of a bankruptcy or similar proceeding affecting Tenant; (c) any trustee, liquidator, sequestrator or receiver of Tenant or Tenant's property; and (d) any similar person or officer, appointed pursuant to any law governing any bankruptcy or insolvency proceeding or otherwise. 1.6 "Landlord." The term "Landlord" means the Landlord named herein and its successors and assigns as landlord under the Lease, by sale, assignment, foreclosure or otherwise. 2. GUARANTY OF OBLIGATIONS. Guarantor unconditionally and irrevocably guarantees Tenant's payment and performance of the Obligations when due, strictly in compliance with the Lease. If Tenant does not pay or perform any of the Obligation(s) when due, strictly in compliance with the Lease, then Guarantor shall pay or perform such Obligation(s). At Lender's option (whether or not Landlord has previously requested payment or performance of the Obligation(s) from Tenant) Lender may demand that Guarantor pay or perform any Obligation(s) without demanding that Tenant pay or perform same. Guarantor's liability under this Guaranty shall be primary and not secondary. Guarantor's liability under this Guaranty shall be in the full amount owed by Tenant on account of the Obligations, including any interest, default interest, costs and fees (including, without limitation, Legal Costs) with respect to the Obligations, including any of the foregoing that would have accrued but for the commencement of a bankruptcy, insolvency or similar proceeding affecting Tenant. 3. NO OFFSET. Except to the extent, if any, that Lender agrees otherwise in writing, Guarantor's obligations under this Guaranty shall not be subject to offset, deduction, reduction, counterclaim, or defense of any kind, including without limitation on account of any offset, deduction, reduction, counterclaim, or defense arising or purportedly arising under the Lease or from the landlord-tenant relationship thereunder. 4. CHANGES IN LEASE. Without notice to, or consent by, Guarantor, and in Landlord's sole and absolute discretion and without prejudice to Lender or in any way limiting or reducing Guarantor's 2 liability under this Guaranty, Landlord may: (a) grant extensions of time, renewals or other indulgences or modifications to Tenant; (b) change, amend or modify the Lease; and (c) accept or make compositions or other arrangements or file or refrain from filing a claim in any bankruptcy or similar proceeding, and otherwise deal with Tenant and any other party related to the Lease as Landlord may determine in its sole and absolute discretion. Without limiting the generality of the foregoing, Guarantor's liability under this Guaranty shall continue even if Landlord alters any obligations under the Lease in any respect or if Landlord's remedies or rights against Tenant are in any way impaired or suspended with or without Guarantor's consent. If Landlord performs any of the actions described in this paragraph, then Guarantor's liability shall continue in full force and effect. Guarantor acknowledges that Guarantor is and will be in a position to know about and control any of the actions described in this paragraph. 5. NATURE OF GUARANTY. Guarantor's liability under this Guaranty is a guaranty of payment of money only. This Guaranty is a guaranty of payment, not of collection. Guarantor's liability under this Guaranty is not conditioned or contingent upon the genuineness, validity, regularity or enforceability of the Lease. Guarantor acknowledges that Guarantor is fully obligated under this Guaranty (with respect to the Obligations only) even if Tenant had no liability at the time of execution of the Lease or later ceases to be liable under the Lease, whether pursuant to bankruptcy or otherwise. Guarantor waives any right to compel Landlord to proceed first against Tenant or under the Lease, before proceeding against Guarantor. Guarantor agrees that if any of the Obligations are or become void or unenforceable, then Guarantor's liability under this Guaranty shall continue in full force with respect to all Obligations as if they were and continued to be legally enforceable. Guarantor's liability under this Guaranty shall continue until the Loan has been satisfied in full. 6. EXTENSION, RENEWAL, ETC. OF LEASE. This Guaranty shall remain and continue in full force and effect notwithstanding any renewal, modification, option, extension or assignment of the Lease, whether or not separately consented to, acknowledged or confirmed by Guarantor. The definition of "Lease" shall include any such renewal, modification, option, extension or assignment of the Lease. 7. WAIVERS OF RIGHTS AND DEFENSES. Guarantor waives any right to require Landlord to proceed against Tenant or pursue any other right or remedy for Guarantor's benefit. Guarantor agrees that Lender may proceed against Guarantor with respect to the Obligations without taking any action against Tenant. Guarantor agrees that Landlord may unqualifiedly exercise in its sole discretion any or all rights and remedies available to it against Tenant without impairing Lender's rights and remedies in enforcing this Guaranty, under which Guarantor's liabilities shall remain independent and unconditional. 8. ADDITIONAL WAIVERS. Guarantor waives diligence and all demands, protests, presentments and notices of every kind or nature, including notices of protest, dishonor, nonpayment, acceptance of this Guaranty and the creation, renewal, extension, modification or accrual of any of the Obligations. Guarantor further waives any right to plead any and all statutes of limitations as a defense to Guarantor's liability under this Guaranty or the enforcement of this Guaranty. No failure or delay on Lender's pan in exercising any power, right or privilege under this Guaranty shall impair or waive any such power, right or privilege. Guarantor irrevocably waives any right to trial by jury in any action, proceeding, counterclaim or other litigation arising out of or relating to this Guaranty, the enforcement of this Guaranty, or any actions of Lender in connection with or relating to the enforcement of this Guaranty. 3 9. LANDLORD'S EXERCISE OF LEASE REMEDIES. The validity of this Guaranty and the obligations of Guarantor shall in no way be terminated, limited, affected or impaired by reason of Landlord's assertion against Tenant of any rights or remedies reserved to Landlord under the Lease or available with respect to the Lease under applicable law. Lender may enforce this Guaranty against Guarantor either before, after, in conjunction with, or independently of Landlord's assertion against Tenant of any remedies available under the Lease or with respect to the Lease under applicable law. Guarantor's primary personal liability for the Obligations shall not be limited, restricted, diminished, or reduced in any manner by the occurrence of any of the following: (a) Tenant's departure from the Premises after such Obligations accrued; (b) Landlord's obtaining a judgment against Tenant for rent or use and occupancy payments, except to the extent that such judgment has actually been paid and such payment(s) are credited against the Obligations pursuant to this Guaranty; (c) any actions or inactions by Landlord in any Proceeding affecting Tenant or the Lease; or (d) Landlord's termination of the Lease or exercise of any other remedies under the Lease. 10. TENANT'S FINANCIAL CONDITION. Guarantor represents that Guarantor is fully aware of the financial condition of Tenant. Guarantor delivers this Guaranty based solely upon Guarantor's own independent investigation and based in no part upon any representation or statement by Lender. Guarantor is not relying upon, nor expecting, Lender to furnish Guarantor with any information concerning the financial condition of Tenant. 11. MERGER; NO CONDITIONS; AMENDMENTS. This Guaranty contains the entire agreement among the parties with respect to the matters set forth in this Guaranty. This Guaranty supersedes all prior agreements among the parties with respect to the matters set forth in this Guaranty. No course of prior dealings among the parties, no usage of trade, and no parole or extrinsic evidence of any nature shall be used to supplement, modify or vary any terms of this Guaranty. This Guaranty is unconditional. There are no unsatisfied conditions to the full effectiveness of this Guaranty. No terms or provisions of this Guaranty may be changed, waived, revoked or amended without Lender's prior written consent. If any court of competent jurisdiction determines that any provision of this Guaranty is unenforceable, then all other provisions of this Guaranty shall remain fully effective. 12. INTERPRETATION. This Guaranty shall be governed under the law of the State of New York. The words "include" or "including" are intended to be interpreted as if followed in each case by the words "without limitation." 13. LEGAL COSTS. In the event of any Proceeding between Guarantor and Lender including any Proceeding in which Lender enforces or attempts to enforce this Guaranty, Guarantor shall reimburse Lender for all Legal Costs of such Proceeding. 14. COMMERCIAL TRANSACTION. Guarantor acknowledges that the Lease and this Guaranty are a commercial transaction, and that neither this Guaranty nor the Lease is entered into for personal, family, household or agricultural purposes. 15. NO THIRD-PARTY BENEFICIARIES. This Guaranty is executed and delivered for the benefit of Lender and its heirs, successors and assigns, and is not intended to benefit any third party. 16. NOTICES. All notices, requests and demands to be made under this Guaranty shall be given in writing to a party at its address set forth in the preamble and shall be delivered by hand against a signed receipt, by nationally recognized overnight courier or by certified or registered mail, postage prepaid, return receipt requested, and shall be deemed given on the date received or on the date that 4 receipt is refused. Either party may change its address for notice by a notice given in accordance herewith. 17. ACQUISITION. Guarantor is in the process of being acquired by Harrah's Entertainment, Inc. ("Harrah's"). In the event that the acquisition of Guarantor by Harrah's is consummated, at any time thereafter Guarantor may assign this Guaranty to Harrah's or any entity that is at least fifty percent (50%) beneficially owned by Harrah's having a net worth equal to or greater than Guarantor's net worth at such time and owning, directly or indirectly, at least fifty percent (50%) of the outstanding interests of Tenant (such entity, the "Successor Guarantor") provided that the Successor Guarantor agrees in writing to assume all of the Guarantor's obligations hereunder and to be bound by all of the terms, conditions and covenants contained in this Guaranty pertaining to the Guarantor. [REST OF PAGE INTENTIONALLY LEFT BLANK] 5 IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty as of the date indicated below. GUARANTOR SHOWBOAT, INC. By: /s/ R. Craig Bird Its: Executive Vice President and Chief Financial Officer Date: January 29, 1998 9 ENVIRONMENTAL INDEMNITY AGREEMENT ENVIRONMENTAL INDEMNITY AGREEMENT (the "Agreement") made as of the 29th day of January, 1998 by SHOWBOAT LAND, LLC, a Nevada limited liability company, having an office at 3720 Howard Hughes Parkway, Suite 200, Las Vegas, Nevada 89109 ("Owner- Indemnitor"), and ATLANTIC CITY SHOWBOAT, INC., a New Jersey corporation, having an office at 801 Boardwalk, Atlantic City, New Jersey 08401 ("Tenant-Indemnitor"), in favor of COLUMN FINANCIAL, INC., a Delaware corporation, having an office at 3414 Peachtree Road, N.E., Suite 1140, Atlanta, Georgia 30326 ("Indemnitee") and other Indemnified Parties (as hereinafter defined). RECITALS A. Owner-Indemnitor and Tenant-Indemnitor (together, "Indemnitors"), are, or will be, respectively, the fee owner of and the ground tenant (pursuant to that certain Lease Agreement, dated October 26, 1983, originally entered into between Resorts International, Inc. and Ocean Showboat, Inc., as amended) with respect to that certain real property located in the City of Atlantic City, County of Atlantic, and State of New Jersey, known as Atlantic City Showboat Hotel and Casino and more particularly described in Exhibit A attached hereto (said real property, together with any real property hereafter encumbered by the lien of the Security Instrument (defined below), being herein collectively referred to as the "Land"; the Land, together with Owner-Indemnitor's, title and interest in and to all structures, buildings and improvements now or hereafter located on the Land, being collectively referred to as the "Property"). B. Indemnitee is prepared to make a loan (the "Loan") to Owner-Indemnitor in the principal amount of $100,000,000.00, to be evidenced by a certain promissory note of even date herewith in the principal amount of $100,000,000.00 made by Owner- Indemnitor to Indemnitee (the "Note") and secured by, among other things, a certain mortgage and security agreement given by Owner- Indemnitor to Indemnitee (the "Security Instrument") which will encumber the Property. C. Indemnitee is unwilling to make the Loan unless Owner-Indemnitor and Tenant-Indemnitor, jointly and severally, agree to provide the indemnification, representations, warranties, and covenants and other matters described in this Agreement for the benefit of Indemnified Parties. AGREEMENT NOW THEREFORE, in consideration of the loan and the right to use the premises and Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Owner-Indemnitor and Tenant-Indemnitor hereby represent, warrant, covenant and agree for the benefit of Indemnified Parties as follows: 1. ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES. The Indemnitors represent and warrant that, to the best knowledge of Indemnitors: (a) there are no Hazardous Substances (defined below) or underground storage tanks in, on, above, or under the Property, except those that are both (i) in compliance with all Environmental Laws (defined below) and with permits issued pursuant thereto, if applicable, and (ii) fully disclosed to Indemnitee in writing pursuant to the written report(s) resulting from the environmental assessment(s) of the Property delivered to Indemnitee (such report(s) are identified in Exhibit B attached hereto and are hereinafter referred to collectively as the "Environmental Report"); (b) there are no past, present or threatened Releases (defined below) of Hazardous Substances in, on, above, under or from the Property except as described in the Environmental Report; (c) there is no threat of any Release of Hazardous Substances migrating to the Property except as described in the Environmental Report; (d) there is no past or present non-compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with the Property, except as described in the Environmental Report; (e) Indemnitors do not know of, and neither of the Indemnitors has received, nor has knowledge of the receipt by any prior tenant of, any written or oral notice or other communication from any person or entity (including but not limited to a governmental entity) relating to Hazardous Substances or Remediation (defined below) thereof, of possible liability of any person or entity pursuant to any Environmental Law, other environmental conditions in connection with the Property, or any actual or potential administrative or judicial proceedings in connection with any of the foregoing; and (f) Indemnitors have truthfully and fully provided to Indemnitee, in writing, any and all information relating to conditions in, on, above, under or from the Property that is known to Indemnitors or that is contained in files and records of the Indemnitors, including but not limited to any reports relating to Hazardous Substances in, on, above, under or from the Property and/or to the environmental condition of the Property. 2. ENVIRONMENTAL COVENANTS. Indemnitors covenant and agree that: (a) all uses and operations on or of the Property, whether by Indemnitors or by any other person or entity, shall be in compliance with all Environmental Laws and permits issued pursuant thereto; (b) there shall be no Releases of Hazardous Substances in, on, above, under or from the Property other than in compliance with all Environmental Laws; (c) there shall be no Hazardous Substances in, on, above or under the Property, except those that are in compliance with all Environmental Laws and with permits issued pursuant thereto; (d) Indemnitors shall keep the Property free and clear of all liens and other encumbrances imposed pursuant to any Environmental Law, whether due to any act or omission of Indemnitors or any other person or entity (the "Environmental Liens"); (e) Indemnitors shall, at their sole cost and expense, fully and expeditiously cooperate in all activities of Indemnified Parties pursuant to Section 3 hereof, including but not limited to providing all relevant information and making knowledgeable persons available for interviews; (f) Indemnitors shall, at their sole cost and expense, perform any environmental site assessment or other investigation of environmental conditions in connection with the Property, pursuant to any reasonable written requests of Indemnitee (including but not limited to sampling, testing and analysis of soil, water, air, building materials, and other materials and substances whether solid, liquid or gas), and share with Indemnitee the reports and other results thereof, and Indemnitee and other Indemnified Parties shall be entitled to rely on such reports and other results thereof, provided that, so long as no Event of Default has occurred and is continuing, such requests by Indemnitee shall not be made more than once in any twelve (12) month period; (g) Indemnitors shall, at their sole cost and expense, comply with all reasonable written requests of Indemnitee to (i) reasonably effectuate Remediation of any condition (including but not limited to a Release of a Hazardous Substance) in, on, above, under or from the Property; (ii) comply with any Environmental Law; (iii) comply with any directive from any governmental authority; and (iv) take any other reasonable action necessary or appropriate for protection of human health or the environment; (h) Indemnitors shall not do or allow any tenant or other user of the Property to do any act or thing that materially increases the dangers to human health or the environment, poses an unreasonable risk of harm to any person or entity (whether on or off the Property), or constitutes a public or private nuisance; and (i) Indemnitors shall immediately notify Indemnitee in writing of (A) any presence or Releases or threatened Releases of Hazardous Substances in, on, above, under, from or migrating towards the Property, (B) any non-compliance with any -2- Environmental Laws related in any way to the Property, (C) any actual or potential Environmental Lien, (D) any required or proposed Remediation of environmental conditions relating to the Property, and (E) any written or oral notice or other communication of which Indemnitors become aware from any source whatsoever (including but not limited to a governmental entity) relating in any way to Hazardous Substances or Remediation thereof, possible liability of any person or entity pursuant to any Environmental Law, other environmental conditions in connection with the Property, or any actual or potential administrative or judicial proceedings in connection with anything referred to in this Agreement, in each case of which either Indemnitor has knowledge or notice. Any failure of Indemnitors to perform their obligations pursuant to this Agreement shall constitute bad faith waste with respect to the Property. 3. INDEMNIFIED PARTIES' RIGHTS/COOPERATION AND ACCESS. Indemnified Parties and any other person or entity designated by Indemnified Parties (including but not limited to any receiver, any representative of a governmental entity, and any environmental consultant) shall have the right but not the obligation, to enter upon the Property at all reasonable times to assess any and all aspects of the environmental condition of the Property and its use, including but not limited to conducting any environmental assessment or audit (the scope of which shall be determined in Indemnified Parties' sole and absolute discretion) and taking samples of soil, groundwater or other water, air, or building materials, and conducting other invasive testing. Indemnitors shall cooperate with and provide access to Indemnified Parties and any such person or entity designated by Indemnified Parties. Indemnified Parties shall reasonably endeavor to minimize any interference to Indemnitors caused by Indemnified Parties' exercise of their rights under this Section 3. 4. INDEMNIFICATION. Indemnitors covenant and agree, jointly and severally, at their sole cost and expense, to protect, defend, indemnify, release and hold harmless Indemnified Parties from and against any and all Losses (defined below) imposed upon or incurred by or asserted against any Indemnified Parties (other than those Losses arising solely (i) from a state of facts that first came into existence after Indemnitee acquired title to the Property through foreclosure or a deed in lieu thereof or (ii) from the gross negligence of any Indemnified Parties) and directly or indirectly arising out of or in any way relating to any one or more of the following: (a) any presence of any Hazardous Substances in, on, above, or under the Property; (b) any past, present or threatened Release of Hazardous Substances in, on, above, under or from the Property; (c) any activity by one or both of the Indemnitors, any person or entity affiliated with one or both Indemnitors, and any other user of the Property in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other Release, generation, production, manufacturing, processing, refining, control, management, abatement, removal, handling, transfer or transportation to or from the Property of any Hazardous Substances at any time located in, under, on or above the Property; (d) any activity by one or both of the Indemnitors, any person or entity affiliated with one or both of the Indemnitors, and any other user of the Property in connection with any actual or proposed Remediation of any Hazardous Substances at any time located in, under, on or above the Property, whether or not such Remediation is voluntary or pursuant to court or administrative order, including but not limited to any removal, remedial or corrective action; (e) any past, present or threatened non-compliance or violations of any Environmental Laws (or permits issued pursuant to any Environmental Law) in connection with the Property or operations thereon, including but not limited to any failure by one or both of the Indemnitors, any person or entity affiliated with one or both of the Indemnitors, and any other user of the Property to comply with any order of any governmental authority in connection with any Environmental Laws; (f) the imposition, recording or filing or the threatened imposition, recording or filing of any Environmental Lien encumbering the Property; (g) any administrative processes or proceedings or judicial proceedings in any way connected with any matter -3- addressed in this Agreement; (h) any past, present or threatened injury to, destruction of or loss of natural resources in any way connected with the Property, including but not limited to costs to investigate and assess such injury, destruction or loss; (i) any acts of one or both of the Indemnitors, any person or entity affiliated with one or both of the Indemnitors, and any other user of the Property in arranging for disposal or treatment, or arranging with a transporter for transport for disposal or treatment, of Hazardous Substances at any facility or incineration vessel containing such or similar Hazardous Substances; (j) any acts of one or both of the Indemnitors, any person or entity affiliated with one or both of the Indemnitors, and any other user of the Property in accepting any Hazardous Substances for transport to disposal or treatment facilities, incineration vessels or sites from which there is a Release, or a threatened Release of any Hazardous Substance which causes the incurrence of costs for Remediation; (k) any personal injury, wrongful death, or property or other damage arising under any statutory or common law or tort law theory, including but not limited to damages assessed for private or public nuisance or for the conducting of an abnormally dangerous activity on or near the Property; (1) any misrepresentation or inaccuracy in any representation or warranty or material breach or failure to perform any covenants or other obligations pursuant to this Agreement or Section 1.31 of the Security Instrument; and (m) any diminution in value of the Property in any way connected with any occurrence or other matter referred to in this Agreement. 5. DUTY TO DEFEND AND ATTORNEYS' AND OTHER FEES AND EXPENSES. Upon written request by any Indemnified Party, Indemnitors shall defend same (if requested by any Indemnified Party, in the name of the Indemnified Party) by attorneys and other professionals approved by the Indemnified Parties. Notwithstanding the foregoing, any Indemnified Parties may, in their sole and absolute discretion, engage their own attorneys and other professionals to defend or assist them, and, at the option of Indemnified Parties, their attorneys shall control the resolution of claim or proceeding; provided, however, that, unless any conflict of interest shall arise among the Indemnified Parties, the Indemnified Parties shall have the right to retain no more than one firm of attorneys to defend or assist them. Upon demand, Indemnitors shall pay or, in the sole and absolute discretion of the Indemnified Parties, reimburse, the Indemnified Parties for the payment of reasonable fees and disbursements of attorneys, engineers, environmental consultants, laboratories and other professionals in connection therewith. 6. DEFINITIONS. Capitalized terms used herein and not specifically defined herein shall have the respective meanings ascribed to such terms in the Security Instrument. As used in this Agreement, the following terms shall have the following meanings: The term "Hazardous Substances" includes but is not limited to any and all substances (whether solid, liquid or gas) defined, listed, or otherwise classified as pollutants, hazardous wastes, hazardous substances, hazardous materials, extremely hazardous wastes, or words of similar meaning or regulatory effect under any present or future Environmental Laws or that may have a negative impact on human health or the environment, including but not limited to petroleum and petroleum products, asbestos and asbestos-containing materials ("ACM"), polychlorinated biphenyls ("PCBs"), lead, radon, radioactive materials, flammables and explosives. The term "Environmental Law" means any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law, applicable to the Property and relating to protection of human health or the environment, relating to Hazardous Substances, relating to liability for or costs of Remediation or prevention of Releases of Hazardous Substances or relating to liability for or costs of other actual or threatened danger to human health or the environment. -4- The term "Environmental Law" includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like applicable to the Property and addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Substances Transportation Act; the Resource Conservation and Recovery Act (including but not limited to Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act (the "Clean Water Act"); the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the National Environmental Policy Act; the Spill Compensation and Control Act; the Industrial Site Recovery Act; the Leaking Underground Storage Tank Act; and the River and Harbors Appropriation Act. The term "Environmental Law" also includes, but is not limited to, any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law, conditioning transfer of property upon a negative declaration or other approval of a governmental authority of the environmental condition of the Property; requiring notification or disclosure of Releases of Hazardous Substances or other environmental condition of the Property to any governmental authority or other person or entity, whether or not in connection with transfer of title to or interest in the Property; imposing conditions or requirements in connection with permits or other authorization for lawful activity at or with respect to the Property; relating to nuisance, trespass or other causes of action related to the Property; and relating to wrongful death, personal injury, or property or other damage in connection with any physical condition or use of the Property. The term "Release" with respect to any Hazardous Substance includes but is not limited to any release, deposit, discharge, emission, leaking, leaching, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Substances. The term "Remediation" includes but is not limited to any response, remedial, removal, or corrective action; any activity to clean up, detoxify, decontaminate, contain or otherwise remediate any Hazardous Substance; any actions to prevent, cure or mitigate any Release of any Hazardous Substance; any action to comply with any Environmental Laws or with any permits issued pursuant thereto; any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or evaluation relating to any Hazardous Substances or to anything referred to herein and in Section 1.31 of the Security Instrument. The term "Legal Action" means any claim, suit or proceeding, whether administrative or judicial in nature. The term "Indemnified Parties" includes Indemnitee, any person or entity who is or will have been involved in originating the Loan, any person or entity who is or will have been involved in servicing the Loan, any person or entity in whose name the encumbrance created by the Security Instrument is or will have been recorded, persons and entities who may hold or acquire or will have held a full or partial interest in the Loan (including but not limited to those who may acquire any interest in mortgage pass-through certificates or other securities evidencing a beneficial interest in the Loan offered in a rated or unrated public offering or private investment ("Securities"), as well as custodians, trustees and other fiduciaries who hold or have held a full or partial interest in the Loan for the benefit of third parties), as well as the respective directors, officers, shareholders, partners, employees, agents, servants, representatives, contractors, subcontractors, affiliates, subsidiaries, participants, successors and assigns of -5- any and all of the foregoing (including but not limited to any other person or entity who holds or acquires or will have held a participation or other full or partial interest in the Loan or the Property, whether during the term of the Loan or as part of or following foreclosure pursuant to the Loan) and including but not limited to any successors by merger, consolidation or acquisition of all or a substantial part of Indemnitee's assets and business. The term "Losses" includes any and all claims, suits, liabilities (including but not limited to strict liabilities), administrative or judicial actions or proceedings, obligations, debts, damages, losses, costs, expenses, diminutions in value, fines, penalties, charges, fees, expenses, costs of Remediation (whether or not performed voluntarily), judgments, awards, amounts paid in settlement, foreseeable and unforeseeable consequential damages, litigation costs, attorneys' fees and costs of diligence, engineers' fees, environmental consultants' fees, and investigation costs (including but not limited to costs for sampling, testing and analysis of soil, water, air, building materials, and other materials and substances whether solid, liquid or gas), of whatever kind or nature, and whether or not incurred in connection with any judicial or administrative proceedings. 7. UNIMPAIRED LIABILITY. The liability of Indemnitors under this Agreement shall in no way be limited or impaired by, and Indemnitors hereby consent to and agree to be bound by, any amendment or modification of the provisions of the Note, the Security Instrument or any other document which evidences, secures or guarantees all or any portion of the Loan or executed and delivered in connection with the Loan (the "Other Security Documents") to or with Indemnitee by Indemnitor or any person who succeeds Indemnitor under any of such documents or as owner of the Property. In addition, the liability of Indemnitors under this Agreement shall in no way be limited or impaired by (i) any extensions of time for performance required by the Note, the Security Instrument or any of the Other Security Documents, (ii) any sale or transfer of all or part of the Property, (iii) except as provided herein, any exculpatory provision in the Note, the Security Instrument, or any of the Other Security Documents limiting Indemnitee's recourse to the Property or to any other security for the Note, or limiting Indemnitee's rights to a deficiency judgment against any Indemnitor, (iv) the accuracy or inaccuracy of the representations and warranties made by any Indemnitor under the Note, the Security Instrument or any of the Other Security Documents or herein, (v) the release of one or both Indemnitors or any other person from performance or observance of any of the agreements, covenants, terms or conditions contained in any of the Other Security Documents by operation of law, Indemnitee's voluntary act, or otherwise, (vi) the release or substitution in whole or in part of any security for the Note, or (vii) Indemnitee's failure to record the Security Instrument or file any UCC financing statements (or Indemnitee's improper recording or filing of any thereof) or to otherwise perfect, protect, secure or insure any security interest or lien given as security for the Note; and, in any such case, whether with or without notice to Indemnitor and with or without consideration. 8. ENFORCEMENT. (a) Indemnified Parties may enforce the obligations of the Indemnitors without first resorting to or exhausting any security or collateral or without first having recourse to the Note, the Security Instrument, or any Other Security Documents or any of the Property, through foreclosure proceedings or otherwise, provided, however, that nothing herein shall inhibit or prevent Indemnitee from suing on the Note, foreclosing, or exercising any power of sale under, the Security Instrument, or exercising any other rights and remedies thereunder. This Agreement is not collateral or security for the debt of Owner-Indemnitor pursuant to the Loan, unless Indemnitee expressly elects in writing to make this Agreement additional collateral or security for the debt of Owner-Indemnitor pursuant to the Loan, which Indemnitee is entitled to do in its sole and absolute discretion. It is not -6- necessary for an event of default to have occurred pursuant to the Security Instrument for Indemnified Parties to exercise their rights pursuant to this Agreement. Notwithstanding any provision of the Security Instrument, the obligations pursuant to this Agreement are exceptions to any non-recourse or exculpation provision of the Security Instrument; Indemnitors are fully and personally, jointly and severally, liable for such obligations, and their liability is not limited to the original or amortized principal balance of the Loan or the value of the Property. (b) Notwithstanding anything to the contrary in this Agreement, it shall not be a default hereunder if an Indemnitor shall breach any of its covenants, or fail to perform its obligations, set forth in Section 2 hereof unless and until (i) an Indemnified Party shall have notified the Indemnitors that such breach or failure has occurred, and (ii) such breach or failure is not cured within thirty (30) days after the effective date of such notice, or, if such breach or default is not reasonably capable of being cured within such thirty (30) day period, Indemnitors do not commence to cure within such thirty (30) day period and thereafter diligently pursue such cure to completion. 9. SURVIVAL. The obligations and liabilities of Indemnitors under this Agreement shall fully survive indefinitely notwithstanding any termination, satisfaction, assignment, entry of a judgment of foreclosure, exercise of any power of sale, or delivery of a deed in lieu of foreclosure of the Security Instrument. 10. INTEREST. Any amounts payable to Indemnified Parties under this Agreement shall become immediately due and payable and, if not paid within thirty (30) days of written demand therefor, shall bear interest at a per annum rate equal to the lesser of (a) eleven and 9/100ths percent (11.09%) per annum or (b) the maximum interest rate which Indemnitors may by law pay or Indemnified Parties may charge and collect, from the date payment was due. 11. WAIVERS. (a) Indemnitors hereby waive and relinquish (i) any right or claim of right to cause a marshalling of Indemnitors' assets or to cause Indemnitee or other Indemnified Parties to proceed against any of the security for the Loan before proceeding under this Agreement against Indemnitors; (ii) all rights and remedies accorded by applicable law to indemnitors or guarantors, except any rights of subrogation which Indemnitors may have, provided that the indemnity provided for hereunder shall neither be contingent upon the existence of any such rights of subrogation nor subject to any claims or defenses whatsoever which may be asserted in connection with the enforcement or attempted enforcement of such subrogation rights including, without limitation, any claim that such subrogation rights were abrogated by any acts of Indemnitee or other Indemnified Parties; (iii) the right to assert a counterclaim, other than a mandatory or compulsory counterclaim, in any action or proceeding brought against or by Indemnitee or other Indemnified Parties; (iv) notice of acceptance hereof and of any action taken or omitted in reliance hereon; (v) presentment for payment, demand of payment, protest or notice of nonpayment or failure to perform or observe, or other proof, or notice or demand; and (vi) all homestead exemption rights against the obligations hereunder and the benefits of any statutes of limitations or repose. Notwithstanding anything to the contrary contained herein, Indemnitors hereby agree to postpone the exercise of any rights of subrogation with respect to any collateral securing the Loan until the Loan shall have been paid in full. (b) INDEMNITORS HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING -7- OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THE NOTE, THE SECURITY INSTRUMENT, THIS AGREEMENT OR THE OTHER SECURITY DOCUMENTS OR ANY ACTS OR OMISSIONS OF ANY INDEMNIFIED PARTIES BY CONNECTION THEREWITH. 12. SUBROGATION. Indemnitors shall take any and all reasonable actions, including institution of legal action against third-parties, necessary or appropriate to obtain reimbursement, payment or compensation from such persons responsible for the presence of any Hazardous Substances at, in, on, under or near the Property or otherwise obligated by law to bear the cost Indemnified Parties shall be and hereby are subrogated to all of Indemnitors' rights now or hereafter in such claims. 13. INDEMNITOR'S REPRESENTATIONS AND WARRANTIES. Indemnitors represent and warrant that: (a) each has the full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder; the execution, delivery and performance of this Agreement by each Indemnitor has been duly and validly authorized; and all requisite corporate action has been taken by each Indemnitor to make this Agreement valid and binding upon such Indemnitor, enforceable in accordance with its terms; (b) each Indemnitor's execution of, and compliance with, this Agreement will not result in the breach of any term or provision of the charter or by-laws of that Indemnitor or result in the breach of any term or provision of, or conflict with or constitute a default under or result in the acceleration of any obligation under, any agreement, indenture or loan or credit agreement or other instrument to which the Indemnitor or the Property is subject, or result in the violation of any law, rule, regulation, order, judgment or decree to which the Indemnitor or the Property is subject; (c) there is no action, suit, proceeding or investigation pending or threatened against either Indemnitor which, either in any one instance or in the aggregate, that may result in any material adverse change in the business, operations, financial condition, properties or assets of either Indemnitor, or in any material impairment of the right or ability of either Indemnitor to carry on its business substantially as now conducted, or in any material liability on the part of either Indemnitor, or which would draw into question the validity of this Agreement or of any action taken or to be taken in connection with the obligations of each Indemnitor contemplated herein, or which would be likely to impair materially the ability of either Indemnitor to perform under the terms of this Agreement; (d) Indemnitors do not believe, nor does either Indemnitor have any reason or cause to believe, that it cannot perform each and every covenant contained in this Agreement; (e) no approval, authorization, order, license or consent of, or registration or filing with, any governmental authority or other person, and no approval, authorization or consent of any other party is required in connection with this Agreement; and -8- (f) this Agreement constitutes a valid, legal and binding obligation of each Indemnitor, enforceable against it in accordance with the terms hereof, subject to general principles of equity and laws affecting the rights and remedies of debtors and creditors generally. 14. NO WAIVER. No delay on any Indemnified Party's part in exercising any right, power or privilege under this Agreement shall operate as a waiver of any such privilege, power or right. 15. NOTICE OF LEGAL ACTIONS. Each party hereto shall, within five (5) business days of receipt thereof, give written notice to the other party hereto of (i) any notice, advice or other communication from any governmental entity or any source whatsoever with respect to Hazardous Substances on, from or affecting the Property, and (ii) any Legal Action brought against such party or related to the Property, with respect to which Indemnitor may have liability under this Agreement. Such notice shall comply with the provisions of Section 19 hereof. 16. BOOKS AND RECORDS. (a) Each Indemnitor shall keep adequate books and records of account in accordance with generally accepted accounting principles ("GAAP"), or in accordance with other methods acceptable to Indemnitee in its sole discretion, consistently applied, and each Indemnitor shall furnish to Indemnitee: (i) an annual balance sheet and profit and loss statement of such Indemnitor in the form required by Indemnitee, prepared and certified by such Indemnitor, or if required by Indemnitee, audited financial statements prepared by an independent certified public accountant acceptable to Indemnitee, within ninety (90) days after the close of each fiscal year of Indemnitor; and (ii) such other financial statements as may, from time to time, be required by Indemnitee. (b) Indemnitors shall furnish to Indemnitee and its agents convenient facilities for the examination and audit of any such books and records. Within a reasonable time after request by Indemnitee, each Indemnitor shall provide any other information with respect to the Property and the financial condition of such Indemnitor as Indemnitee may from time to time request. (c) To the extent that any of the above financial statements and/or records are prepared for an Indemnitor by an independent certified public accountant, such Indemnitor shall deliver copies of such certified financial statements and/or records to Indemnitee. 17. EXAMINATION OF BOOKS AND RECORDS. Indemnitee and its accountants shall have the right to examine the records, books, management and other papers of each Indemnitor which reflect upon such Indemnitor's financial condition, at the Property or at any office regularly maintained by such Indemnitor where the books and records are located. Indemnified Parties and their accountants shall have the right to make copies and extracts from the foregoing records and other papers. In addition, Indemnified Parties and their accountants shall have the right to examine and audit the books and records of each Indemnitor pertaining to the income, expenses and operation of the Property during reasonable business hours at any office of such Indemnitor where the books and records are located. -9- 18. TRANSFER OF LOAN. (a) Indemnitee may, at any time, sell, transfer or assign the Note, the Security Instrument, this Agreement and the Other Security Documents, any or all servicing rights with respect thereto, or grant participations therein or issue mortgage pass-through certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement. Indemnitee may forward to each purchaser, transferee, assignee, servicer, participant, investor in such securities or any credit rating agency rating such securities (collectively, the "Investor") and each prospective Investor, all documents and information which Indemnitee now has or may hereafter acquire relating to Indemnitors and the Property, as Indemnitee determines necessary or desirable. Indemnitors shall furnish, and Indemnitors consent to Indemnitee furnishing, to such Investors or such prospective Investors any and all information concerning the financial condition of the Indemnitors and of the Property as may be requested by Indemnitee, any Investor or any prospective Investor in connection with any sale, transfer or participation interest. (b) Upon any transfer or proposed transfer contemplated above and by Section 4.33 of the Security Instrument, at Indemnitee's request, each or both Indemnitors shall provide an estoppel certificate to the Investor or any prospective Investor in such form, substance and detail as Indemnitee, such Investor or prospective Investor reasonably may require. 19. NOTICES. (a) Any notice or communication in respect thereof will be sufficiently given to a party if in writing and delivered in person, sent by certified or registered mail (airmail if overseas) or the equivalent (with return receipt requested) or by overnight courier or given by facsimile transmission addressed to the party at its address or facsimile number provided for that purpose. (b) A notice or communication will be effective, if delivered by hand, sent by overnight courier or by facsimile transmission, on the day it is delivered (or if that day is not a day on which commercial banks are open for business in the city specified in the address for notice provided by the recipient (a "Local Banking Day"). or if delivered after 5:00 p.m. (recipient's local time) on a Local Banking Day, on the first following day that is a Local Banking Day), or, if sent by certified or registered mail (airmail if overseas) or the equivalent (return receipt requested), three Local Banking Days after dispatch if the recipient's address for notice is in the same country as the place of dispatch and otherwise seven Local Banking Days after dispatch (or, in either case, if delivered after 5:00 p.m. (recipient's local time) on a Local Banking Day, on the first following day that is a Local Banking Day). (c) Either party by notice to the other may designate additional or different addresses for subsequent notices or communications. 20. JURISDICTION. Indemnitors covenant and agree (i) that in any action or proceeding brought by any Indemnified Party against an Indemnitor under this Agreement, the Supreme Court of the State of New York for the County of New York, or, in a case involving diversity of citizenship, the United States District Court for the Southern District of New York, shall have non exclusive jurisdiction over any such action or proceeding; (ii) that service of any summons and complaint or other process in any such action or proceeding may be made by registered or certified mail directed to Indemnitor to its address set forth on the first page of this Agreement; Indemnitors hereby waive personal service thereof; and (iii) that within thirty days after such mailing Indemnitor so served shall appear or answer to any summons and complaint or other process, and should Indemnitor so served fail to appear or answer within said thirty-day period, Indemnitor shall be deemed in default and judgment may be entered -10- against the Indemnitor for the amount as demanded in any summons and complaint or other process so served. 21. NO THIRD-PARTY BENEFICIARY. The terms of this Agreement are for the sole and exclusive protection and use of Indemnified Parties. No party shall be a third-party beneficiary hereunder, and no provision hereof shall operate or inure to the use and benefit of any such third party. It is agreed that those persons and entities included in the definition of Indemnified Parties are not such excluded third party beneficiaries. 22. DUPLICATE ORIGINALS; COUNTERPARTS. This Agreement may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Agreement may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Agreement. The failure of any party hereto to execute this Agreement, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder. 23. NO ORAL CHANGE. This Agreement, and any provisions hereof, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of any Indemnitor or any Indemnified Party, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. 24. HEADINGS, ETC. The headings and captions of various paragraphs of this Agreement are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or intent of the provisions hereof. 25. NUMBER AND GENDER/SUCCESSORS AND ASSIGNS. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or persons referred to may require. Without limiting the effect of specific references in any provision of this Agreement, the term "Indemnitor" shall be deemed to refer to each and every person or entity comprising an Indemnitor from time to time, as the sense of a particular provision may require, and to include the heirs, executors, administrators, legal representatives, successors and assigns of an Indemnitor, all of whom shall be bound by the provisions of this Agreement, provided that no obligation of an Indemnitor may be assigned except with the written consent of Indemnitee, but provided further that if the interest of the Owner-Indemnitor or the Tenant-Indemnitor in the Property shall be transferred to another entity in accordance with the provisions of Section 1.13(c) or Section 1.12(d), respectively, of the Security Instrument, then the transferee of such interest shall be deemed and be an assign of the transferor and an Indemnitor hereunder and shall be bound by the provisions of this Agreement without obtaining the written consent of the Indemnitee. Each reference herein to Indemnitee shall be deemed to include its successors and assigns. This Agreement shall inure to the benefit of Indemnified Parties and their respective successors and assigns forever. 26. JOINT AND SEVERAL LIABILITY. If any Indemnitor consists of more than one person or entity, the obligations and liabilities of each such person hereunder are joint and several. The obligations and liabilities of this Agreement are joint and several to Owner-Indemnitor and Tenant-Indemnitor. -11- 27. RELEASE OF LIABILITY. Any one or more parties liable upon or in respect of this Agreement may be released, or partially released, without affecting the liability of any party not so released. 28. RIGHTS CUMULATIVE. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies which Indemnitee has under the Note, the Security Instrument, or the Other Security Documents or would otherwise have at law or in equity. 29. INAPPLICABLE PROVISIONS. If any term, condition or covenant of this Agreement shall be held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such provision. 30. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the law of the State of New York, without reference or giving effect to any choice of law doctrine, provided that to the extent that any of such laws may now or hereafter be preempted by Federal law, such Federal law shall so govern and be controlling. [REST OF PAGE INTENTIONALLY LEFT BLANK] -12- IN WITNESS WHEREOF, this Agreement has been executed by Owner-Indemnitor and Tenant-Indemnitor and is effective as of the day and year first above written. SHOWBOAT LAND, LLC, a Nevada limited liability company By: Showboat Operating Company, a Nevada corporation, a member By: /s/ R. Craig Bird R. Craig Bird, Executive Vice- President and Chief Financial Officer By: Showboat Land Holding Limited Partnership, a Nevada limited partnership, a member By: Showboat Land Company, a Nevada corporation, its general partner By: /s/ R. Craig Bird R. Craig Bird, Vice- President/Finance ATLANTIC CITY SHOWBOAT, INC., a Nevada corporation By: /s/ John N. Brewer Name: John N. Brewer Title: Assistant Secretary RECORD AND RETURN TO: Latham & Watkins 885 Third Avenue, Suite 1000 New York, New York 10022-4802 Attention: Mark M. Leskiw, L.A. ASSIGNMENT OF LEASES AND RENTS THIS ASSIGNMENT OF LEASES AND RENTS (this "Assignment"), made as of the 29th day of January, 1998, is by SHOWBOAT LAND, LLC, a Nevada limited liability company ("Assignor"), whose address is 3270 Howard Hughes Parkway, Suite 200, Las Vegas, Nevada 89109, in favor of Column Financial, Inc., a Delaware corporation ("Assignee"), whose address is 3414 Peachtree Road, N.E., Suite 1140, Atlanta, Georgia 30326. W I T N E S S E T H : THAT, WHEREAS, Assignor has executed a certain note dated of even date herewith (the "Note"), payable to the order of Assignee in the stated principal amount of One Hundred Million and 00/100 Dollars ($100,000,000.00); and WHEREAS, the Note is secured by that certain Mortgage and Security Agreement dated of even date herewith (the "Mortgage"), between Assignor, as mortgagor, and Assignee, as mortgagee, encumbering that certain real property, situated at 801 Boardwalk, Atlantic City, County of Atlantic, State of New Jersey, as more particularly described on EXHIBIT A attached hereto and incorporated herein by this reference, and all of Assignor's right, title and interest in and to all buildings and other improvements now or hereafter located thereon (collectively, the "Improvements") (said real property and the Improvements are hereinafter sometimes collectively referred to as the "Property"); and WHEREAS, Assignor is desirous of further securing to Assignee the performance of the terms, covenants and agreements hereof and of the Note, the Mortgage and each other document evidencing, securing, guaranteeing or otherwise relating to the indebtedness evidenced by the Note (the Note, the Mortgage and such other documents, as each of the foregoing may from time to time be amended, consolidated, renewed or replaced, being collectively referred to herein as the "Loan Documents"). NOW, THEREFORE, in consideration of the mailing of the loan evidenced by the Note be Assignee to Assignor and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Assignor does hereby irrevocably, absolutely and unconditionally transfer, sell, assign, pledge, deliver and convey to Assignee, its successors and assigns, all of the right, title and interest of Assignor in and to: (a) any and all leases, licenses, rental agreements and occupancy agreements of whatever form now or hereafter affecting all or any part of the Property, including, without limitation, the Ground Lease (as hereinafter defined), and any and all guarantees, extensions, renewals, replacements and modifications thereof (collectively, the "Leases"); and (b) all deposits (whether for security or otherwise), rents, issues, profits, revenues, royalties, accounts, rights, benefits and income of every nature of and from the Property, including, without limitation, minimum rents, additional rents, termination payments, forfeited security deposits, liquidated damages following default and all proceeds payable to Assignor (pursuant to the Ground Lease (as hereinafter defined) or otherwise) under any policy of insurance covering loss of rents resulting from untenantability due to destruction or damage to the Property, and all proceeds of and awards in condemnation payable to Assignor arising from the Property, together with the immediate and continuing right to collect and receive the same, whether now due or hereafter becoming due, and together with all rights and claims of any kind that Assignor may have against any tenant, lessee or licensee under the Leases or under law or equity as a result of their relationship as landlord and tenant, or against any other occupant of the Property (collectively, the "Rents"). TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns. This Assignment is an absolute assignment to Assignee, and not an assignment as security for the performance of the obligations under the Loan Documents or any other indebtedness. This is an outright, immediate, continuing, and absolute assignment, and not a pledge or the passing of a security interest. Notwithstanding the foregoing, upon termination of this Assignment in accordance with Section 16 hereof, this Assignment shall become and be void and of no effect; but the affidavit of any officer of Assignee stating that any portion of the amount due under the Note or any other Loan Document is unpaid or any term of any of the Loan Documents is unperformed shall be and constitute PRIMA FACIE evidence of the validity, effectiveness and continuing force of this Assignment and any party may and is hereby authorized to rely thereon. IT IS AGREED that, notwithstanding that this instrument is a present, outright, immediate, continuing, absolute and executed assignment of the Rents and of the Leases and a present, outright, immediate, continuing, absolute and executed grant of the powers herein granted to Assignee, and not merely the collateral assignment of, or a grant of a lien or security, interest in, the Rents and Leases, Assignor is hereby permitted, at the sufferance of Assignee and at its discretion, and is hereby granted (not as a limitation or condition hereof, but as a personal covenant only to Assignor and its successors and not to any lessee or any other person) a revocable license by Assignee, to retain possession of the Leases and to collect and retain the Rents unless and until there shall be a default under the terms of any of the Loan Documents, 2 which default has not been cured within any applicable grace or cure period (including any applicable notice). In the event of such uncured default (any such uncured default, an "Event of Default"), the aforementioned license granted to Assignor shall automatically terminate without notice to Assignor, and Assignee may thereafter, without taking possession of the Property, take possession of the Leases and collect the Rents. Further, from and after such termination, Assignor shall be the agent of Assignee in collection of the Rents, and any Rents so collected by Assignor shall be held in trust by Assignor for the sole and exclusive benefit of Assignee and Assignor shall, within one (1) business day after receipt of any Rents, pay the same to Assignee to be applied by Assignee as hereinafter set forth. Furthermore, from and after such uncured default and termination of the aforementioned license, Assignee shall have the immediate and continuing power, right and authority, without any notice whatsoever to Assignor and without regard to the adequacy of the security therefor (but subject to (i) the terms and conditions of that certain Lease Agreement, dated October 26, 1983, between Resorts International, Inc. and Ocean Showboat, Inc., as such lease agreement has been amended to date (as so amended, the "Ground Lease") and (ii) the requirements of the New Jersey Casino Control Commission (the "Commission")), to: (a) enter upon, take possession of, and manage and operate the Property, with full power to employ agents to manage the same, whether foreclosure of the Mortgage has been instituted or not and without applying for a receiver; (b) demand, collect, receive and sue for the Rents, including those past due and unpaid; and (c) do all acts relating to such management of the Property, including, but not limited to, negotiation of new Leases, making adjustments of existing Leases, contracting and paying for repairs and replacements to the Improvements and to the fixtures, equipment and personal property located in the Improvements or used in any way in the operation, use and occupancy of the Property as in the sole subjective judgment and discretion of Assignee may be necessary to maintain the same in a tenantable condition, purchasing and paying for such additional furniture and equipment as in the sole subjective judgment of Assignee may be necessary to maintain a proper rental income from the Property, employing necessary managers and other employees, purchasing fuel, providing utilities and paying for all other expenses incurred in the operation of the Property, maintaining adequate insurance coverage over hazards customarily insured against and paying the premiums therefor. Assignee may apply the Rents received by Assignee from the Property, after deducting the costs of collection thereof, including, without limitation, attorneys' fees and a management fee for any management agent so employed, against amounts expended for repairs, upkeep, maintenance, service, fuel, utilities, taxes, assessments, insurance premiums and such other expenses as Assignee incurs in connection with the operation of the Property and against interest, principal, required escrow deposits and other sums which have or which may become due, from time to time, under the terms of the Loan Documents, in such order or priority as to any of the items so mentioned as Assignee, in its sole subjective discretion, may determine. The exercise by Assignee of the rights granted Assignee in this paragraph, and the collection of the Rents and the application thereof as herein provided, shall not be considered a waiver by Assignee of any default under the Loan Documents or prevent foreclosure of any liens on the Property nor shall such exercise make Assignee liable under any of the Leases, Assignee hereby expressly reserving 3 all of its rights and privileges under the Mortgage and the other Loan Documents as fully as though this Assignment had not been entered into. Without limiting the rights granted hereinabove, in the event Assignor shall fail to make any payment or to perform any act required under the terms hereof and such failure shall not be cured within any applicable grace or cure period (including any applicable notice), then Assignee may, but shall not be obligated to, without prior notice to or demand on Assignor, and without releasing Assignor from any obligation hereof, make or perform the same in such manner and to such extent as Assignee reasonably may deem necessary to protect the security hereof, including specifically, without limitation, appearing in and defending any action or proceeding purporting to affect the security hereof or the rights or powers of Assignee, performing or discharging any obligation, covenant or agreement of Assignor under any of the Leases, and, in exercising any of such powers, paying all necessary costs and expenses, employing counsel and incurring and paying attorneys' fees. Any sum advanced or paid by Assignee for any such purpose, including, without limitation, reasonable attorneys' fees, together with interest thereon at the Default Interest Rate (as defined in the Note) from the date paid or advanced by Assignee until repaid by Assignor, shall immediately be due and payable to Assignee by Assignor on demand and shall be secured by the Mortgage and by all of the other Loan Documents securing all or any part of the indebtedness evidenced by the Note. IT IS FURTHER AGREED that this Assignment is made upon the following terms, covenants and conditions: 1. This Assignment shall not operate to place responsibility for the control, care, management or repair of the Property upon Assignee, nor for the performance of any of the terms and conditions of any of the Leases, nor shall it operate to make Assignee responsible or liable for any waste committed on the Property by the tenants or any other party or for any dangerous or defective condition of the Property or for any negligence in the management, upkeep, repair or control of the Property. Assignee shall not be liable for any loss sustained by Assignor resulting from Assignee's failure to let the Property or from any other act or omission of Assignee in managing the Property except for such acts or omissions constituting gross negligence on the part of Assignee. Assignor shall and does hereby indemnify and hold Assignee harmless from and against any and all liability, loss, claim, demand or damage which may or might be incurred by reason of this Assignment, including, without limitation, claims or demands for security deposits from tenants of space in the Improvements deposited with Assignor, and from and against any and all claims and demands whatsoever which may be asserted against Assignee by reason of any alleged obligations or undertakings on its part to perform or discharge any of the terms, covenants or agreements contained in any of the Leases. Should Assignee incur any liability by reason of this Assignment or in defense of any claim or demand for loss or damage as provided above, the amount thereof, including, without limitation, costs, expenses and attorneys' fees, together with interest thereof at the Default Interest Rate from the date paid or incurred by Assignee until repaid by Assignor, shall be immediately due and payable to Assignee by Assignor upon demand and 4 shall be secured by the Mortgage and by all of the other Loan Documents securing all or any part of the indebtedness evidenced by the Note. 2. This Assignment shall not be construed as making Assignee a mortgagee in possession. 3. Assignee is obligated to account to Assignor only for such Rents as are actually collected or received by Assignee. 4. Assignor hereby further presently and absolutely assigns to Assignee subject to the terms and provisions of this Assignment: (a) any award or other payment which Assignor may hereafter become entitled to receive with respect to any of the Leases as a result of or pursuant to any bankruptcy, insolvency or reorganization or similar proceedings involving the tenants under such Leases; and (b) any and all payments made by or on behalf of any tenant of any part of the Property in lieu of Rent. Assignor hereby irrevocably appoints Assignee as its attorney-in- fact to, from and after the occurrence of a default by Assignor hereunder or under any of the other Loan Documents which has not been cured within any applicable grace or cure period, appear in any such proceeding and to collect any such award or payment, which power of attorney is coupled with an interest by virtue of this Assignment and is irrevocable so long as any sums are outstanding under the loan evidenced by the Note. 5. Assignor represents, warrants and covenants to and for the benefit of Assignee: (a) that Assignor now is (or with respect to any Leases not yet in existence, will be immediately upon the execution thereof) the absolute owner of the landlord's interest in the Leases, with full right and title to assign the same and the Rents due or to become due thereunder; (b) that, other than this Assignment and those assignments, if any, specifically permitted in the Mortgage, there are no outstanding assignments of the Leases or Rents; (c) that no Rents have been anticipated, discounted, released, waived, compromised or otherwise discharged except for prepayment of rent of not more than one (1) month prior to the accrual thereof; (d) that there are no material defaults now existing under any of the Leases by the landlord or tenant, and there exists no state of facts which, with the giving of notice or lapse of time or both, would constitute a default under any of the Leases by the landlord or tenant, except as disclosed in writing to Assignee; (e) that Assignor has and shall duly and punctually observe and perform all covenants, conditions and agreements in the Leases on the part of the landlord to be observed and performed thereunder and (f) the Leases are in full force and effect and are the valid and binding obligations of Assignor, and, to the knowledge of Assignor, are the valid and binding obligations of the tenants thereto. 6. Assignor covenants and agrees that Assignor shall not, without the prior written consent of Assignee, except as expressly required by the Commission: (a) exclusive of security deposits, accept any payment of Rent or installments of Rent for more than one month in advance; (b) enter into any Lease having a term of less than six (6) months or in excess of two (2) years; (c) cancel or terminate any Lease (other than for non-payment of Rent or any other material default thereunder) or amend or modify any Lease; (d) take or omit to take any action or exercise any right or option which would permit the tenant under any Lease to cancel or terminate said Lease; (e) 5 anticipate, discount, release, waive, compromise or otherwise discharge any Rents payable or other obligations under the Leases; (f) further pledge, transfer, mortgage or otherwise encumber or assign the Leases or future payments of Rents except as otherwise expressly permitted by the terms of the Mortgage or incur any material indebtedness, liability or other obligation to any tenant, lessee or licensee under the Leases; or (g) permit any Lease to become subordinate to any lien, except to the extent that such may occur without Assignor's consent under the terms of such Lease; provided, however, that Assignor may take any of the actions described in subsection (c) or (e) above so long as such actions are taken by Assignor in the ordinary course of business and are consistent with sound customary leasing and management practices for similar properties. 7. Assignor covenants and agrees that Assignor shall, at its sole cost and expense, appear in and defend any action or proceeding arising under, growing out of, or in any manner connected with the Leases or the obligations, duties or liabilities of the landlord or tenant thereunder, and shall pay on demand all costs and expenses, including, without limitation, attorneys' fees, which Assignee may incur in connection with Assignee's appearance, voluntary or otherwise, in any such action or proceeding, together with interest thereon at the Default Interest Rate from the date incurred by Assignee until repaid by Assignor. 8. At any time after the occurrence of an Event of Default, Assignee may, at its option, notify any tenants or other parties of the existence of this Assignment, Assignor does hereby specifically authorize, instruct and direct each and every present and future tenant, lessee and licensee of the whole or any part of the Property to pay all unpaid and future Rents to Assignee upon receipt of demand from Assignee to so pay the same and Assignor hereby agrees that each such present and future tenant, lessee and licensee may rely upon such written demand from Assignee to so pay said Rents without any inquiry into whether there exists a default hereunder or under the other Loan Documents or whether Assignee is otherwise entitled to said Rents. Assignor hereby waives any right, claim or demand which Assignor may now or hereafter have against any present or future tenant, lessee or licensee by reason of such payment of Rents to Assignee, and any such payment shall discharge such tenant's, lessee's or licensee's obligation to make such payment to Assignor. 9. Assignee may take or release any security for the indebtedness evidenced by the Note, may release any party primarily or secondarily liable for the indebtedness evidenced by the Note, may grant extensions, renewals or indulgences with respect to the indebtedness evidenced by the Note and may apply any other security therefor held by it to the satisfaction of any indebtedness evidenced by the Note without prejudice to any of its rights hereunder. 10. The acceptance of this Assignment and the collection of the Rents in the event Assignor's license terminates, as referred to above, shall be without prejudice to Assignee. The rights of Assignee hereunder are cumulative and concurrent, may be pursued separately, successively or together and may be exercised as often as occasion therefor shall arise, it being agreed by Assignor that the exercise of any one or more of the rights provided for herein shall not 6 be construed as a waiver of any of the other rights or remedies of Assignee, at law or in equity or otherwise, so long as any obligation under the Loan Documents remains unsatisfied. 11. All rights of Assignee hereunder shall inure to the benefit of its successors and assigns; and all obligations of Assignor shall bind its successors and assigns and any subsequent owner of the Property. All rights of Assignee in, to and under this Assignment shall pass to and may be exercised by any assignee of such rights of Assignee. Assignor hereby agrees that if Assignee gives notice to Assignor of an assignment of said rights, upon such notice the liability of Assignor to the assignee of the Assignee shall be immediate and absolute. Assignor will not set up any claim against Assignee or any intervening assignee as a defense, counterclaim or set-off to any action brought by Assignee or any intervening assignee for any amounts due hereunder or for possession of or the exercise of rights with respect to the Leases or the Rents. 12. It shall be a default hereunder (a) if any representation or warranty made herein by Assignor is determined by Assignee to have been false or misleading in any material respect at the time made; or (b) upon any failure by Assignor to comply with the provisions of Paragraph 6 above; or (c) upon any failure by Assignor in the performance or observance of any other covenant or condition hereof and, to the extent such failure described in this subsection (c) is susceptible of being cured, the continuance of such failure for thirty (30) days after written notice thereof from Assignee to Assignor, PROVIDED, HOWEVER, that if such default is susceptible of cure but such cure cannot be accomplished with reasonable diligence within said period of time, and if Assignor commences to cure such default promptly after receipt of notice thereof from Assignee, and thereafter prosecutes the curing of such default with reasonable diligence, such period of time shall be extended for such period of time as may be necessary to cure such default with reasonable diligence, but not to exceed an additional sixty (60) days. Any such default not so cured shall be a default under each of the other Loan Documents, entitling Assignee to exercise any or all rights and remedies available to Assignee under the terms hereof or of any or all of the other Loan Documents, and any default under any other Loan Document which is not cured within any applicable grace or cure period shall be deemed a default hereunder subject to no grace or cure period, entitling Assignee to exercise any or all rights provided for herein. 13. Failure by Assignee to exercise any right which it may have hereunder shall not be deemed a waiver thereof unless so agreed in writing by Assignee, and the waiver by Assignee of any default hereunder shall not constitute a continuing waiver or a waiver of any other default or of the same default on any future occasion. No collection by Assignee of any Rents pursuant to this Assignment shall constitute or result in a waiver of any default then existing hereunder or under any of the other Loan Documents. 14. If any provision under this Assignment or the application thereof to any entity, person or circumstance shall be invalid, illegal or unenforceable to any extent, the remainder of this Assignment and the application of the provisions hereof to other entities, persons or circumstances shall not be affected thereby and shall be enforced to the fullest extent permitted by law. 7 15. This Assignment may not be amended, modified or otherwise changed except by a written instrument duly executed by Assignor and Assignee. 16. This Assignment shall be in full force and effect continuously from the date hereof to and until the Mortgage shall be released of record, and the release of the Mortgage shall, for all purposes, automatically terminate this Assignment and render this Assignment null and void and of no effect whatsoever. 17. In case of a conflict between any provision of this Assignment and any provision of the other Loan Documents, the provision selected by Assignee in its sole subjective discretion shall prevail and be controlling. 18. All notices, demands, requests or other communications to be sent by one party to the other hereunder or required by law shall be given and become effective as provided in the Mortgage. 19. This Assignment shall be governed by and construed in accordance with the laws of the State of New York, except to the extent that any of such laws may now or hereafter be preempted by Federal law, in which case such Federal law shall so govern and be controlling; and provided further that the laws of the state in which the real property on EXHIBIT "A" attached hereto is located shall govern as to the creation, priority and enforcement of liens and security interests on and in property located in such state. 20. This Assignment may be executed in any number of counterparts, each of which shall be effective only upon delivery and thereafter shall be deemed an original, and all of which shall be taken to be one and the same instrument, for the same effect as if all parties hereto had signed the same signature page. Any signature page of this Assignment may be detached from any counterpart of this Assignment without impairing the legal effect of any signatures thereon and may be attached to another counterpart of this Assignment identical in form hereto but having attached to it one or more additional signature pages. 21. In addition to, but not in lieu of, any other rights hereunder, Assignee shall have the right to institute suit and obtain a protective or mandatory injunction against Assignor to prevent a breach or default, or to enforce the observance, of the agreements, covenants, terms and conditions contained herein, as well as the right to damages occasioned by any breach or default by Assignor. 22. This Assignment shall continue and remain in full force and effect during any period of foreclosure with respect to the Property. 23. Assignor hereby covenants and agrees that Assignee shall be entitled to all of the rights, remedies and benefits available by statute, at law, in equity or as a matter of practice for the enforcement and perfection of the intents and purposes hereof. Assignee shall, as a matter of absolute right, be entitled, upon application to a court of applicable jurisdiction, to the appointment 8 of a receiver to obtain and secure the rights of Assignee hereunder and the benefits intended to be provided to Assignee hereunder. 24. Notwithstanding anything to the contrary contained in this Assignment, the liability of Assignor and its members for the indebtedness secured hereby and for the performance of the other agreements, covenants and obligations contained herein and in the Loan Documents shall be limited as set forth in Section 1.05 of the Note. [REST OF PAGE INTENTIONALLY LEFT BLANK] 9 IN WITNESS WHEREOF, Assignor has executed this Assignment as of the day and year first above written. SHOWBOAT LAND, LLC a Nevada limited liability company By: Showboat Operating Company, a Nevada corporation, a member By: /s/ R. Craig Bird R. Craig Bird, Executive Vice- President and Chief Financial Officer By: Showboat Land Holding Limited Partnership, a Nevada limited partnership, a member By: Showboat Land Company, a Nevada corporation, its general partner By: /s/ R. Craig Bird R. Craig Bird, Vice- President/Finance STATE OF NEW YORK ) ) SS.: COUNTY OF NEW YORK ) I certify that on January 23, 1998, R. Craig Bird personally came before me and this person acknowledged under oath, to my satisfaction, that: (a) this person signed, sealed and delivered the attached document as Executive Vice President and Chief Financial Officer of Showboat Operating Company, which is the member of Showboat Land, LLC, the Nevada limited liability company named in this document; and (b) this document was signed and delivered by Showboat Operating Company, on behalf of Showboat Land, LLC, as its voluntary act and deed by virtue of authority from its Board of Directors. /s/ Maria A. Vargas Notary Public Maria A. Vargas Notary Public, State of New York No. 01VA5072319 Qualified in Kings County Commission Expires January 27, 1999 Acknowledgments STATE OF NEW YORK ) ) SS.: COUNTY OF NEW YORK ) I certify that on January 23, 1998, R. Craig Bird personally came before me and this person acknowledged under oath, to my satisfaction, that: (a) this person signed, sealed and delivered the attached document as Vice President/Finance of Showboat Land Company, a Nevada corporation, which is the general partner of Showboat Land Holding Limited Partnership, which is the member of Showboat Land, LLC, the Nevada limited liability company named in this document; and (b) this document was signed and delivered by Showboat Land Company, on behalf of Showboat Land, LLC, as its voluntary act and deed by virtue of authority from its Board of Directors. /s/ Maria A. Vargas Notary Public Maria A. Vargas Notary Public, State of New York No. 01VA5072319 Qualified in Kings County Commission Expires January 27, 1999 TENANT ESTOPPEL CERTIFICATE January 29, 1998 Column Financial, Inc. 3414 Peachtree Road, N.E. Atlanta, Georgia 30326 Re: 801 BOARDWALK. ATLANTIC CITY, NEW JERSEV (THE "PROPERTY") Gentlemen: It is our understanding that Column Financial, Inc. ("Lender") is about to make a loan to Showboat Land, LLC ("Landlord"), the landlord, or successor-in-interest to the landlord under our lease, secured by a mortgage on the Property (the "Loan"), and, as a condition precedent thereof, you have required this certification by the undersigned. The undersigned, as successor by assignment to Ocean Showboat, Inc., the named tenant under that certain lease made with Resorts International, Inc., as landlord, dated October 26, 1983, which lease has been modified or amended by amendments dated January 15, 1985, July 5, 1985, October 28, 1985, August 28, 1986 (restating amendment of October 28, 1985), December 6, 1987, March 2, 1987, March 13, 1987, October 18, 1988, and May 18, 1993 (as so amended and modified, the "LEASE", a true and complete copy of which, including all such amendments and modifications, is attached hereto), hereby ratifies the Lease and certifies and agrees that: (a) the undersigned entered into possession of the premises described in the Lease (the "DEMISED PREMISES") on December 15, 1983 (the commencement date of the term of the Lease). The Demised Premises consist of the entirety of the Property; (b) the fixed rental in the annual amount of $6,340,000 (payable in equal monthly installments) was payable beginning on April 1, 1987; (c) the current annual fixed rental under the Lease is $9,046,626.97; (d) the Lease is in full force and effect in accordance with its terms and, except as indicated above, has not been assigned, modified, supplemented or amended in any way and the undersigned has no notice of any assignment, pledge or hypothecation by the Landlord of the Lease or of the rentals thereunder; (e) the Lease represents the entire agreement between the parties with respect to the Demised Premises and the Property, and the undersigned has no options, rights of first refusal or other rights with respect to the Property and the Demised Premises except as set forth therein; (f) other than leasehold mortgages currently encumbering the Property, the Lease has not been assigned or pledged. No portion of the Demised Premises has been sublet, except as listed on Exhibit A to this Certificate; (g) the term of the Lease commenced on December 15, 1983 and, unless otherwise terminated or extended in accordance with the terms of the Lease, will expire on December 14, 2082. There are no options to renew, extend or cancel the Lease except to the extent contained in the Lease; (h) all construction and other obligations of a material nature required to be performed by the landlord under the Lease (including, without limitation, the landlord covenants in Articles 9, 10, 11 and 15 of the Lease) have been fully satisfied or are inapplicable to Landlord, and there are no existing obligations on the part of Landlord under the Lease; (i) any required payments, if any, by the landlord to the undersigned for tenant improvements have been made; (j) on this date there are no existing defenses, offsets or counterclaims which the undersigned has against the enforcement of the Lease by the Landlord and the undersigned has no knowledge of any existing default under the Lease or any event which, with the giving of notice, the passage of time or both, would constitute a default under said Lease; (k) the undersigned is not entitled to any free rent periods, offsets, concessions, abatements, deductions or otherwise against the rent payable under the Lease from and after the date hereof, except as follows: none (list all offsets, abatements and deductions to the rent or, if none, so indicate); (1) no rental, other than for the current month, has been paid in advance; (m) there is no security deposit held by the Landlord; (n) the rentals under the Lease have been paid through the month of January 1998; (o) there are no actions, whether voluntary or involuntary, pending against the undersigned under the bankruptcy or insolvency laws of the United States or any state or territory of the United States; (p) to the best of the undersigned's knowledge, no hazardous wastes or hazardous substances have been treated, stored, placed, used or disposed of in, on, at, above or under the Demised Premises except such cleaning or other fluids used in the ordinary course of 2 business; (q) the undersigned currently has no right to terminate the Lease pursuant to Section 29.1 thereof (granting the unilateral right to terminate the Lease upon a determination that modifications or additions required by The New Jersey Casino Control Commission are unreasonably burdensome); (r) the undersigned will maintain, throughout the 10- year term of the Loan, the casualty and liability insurance that the undersigned is required to maintain under the terms of the leasehold mortgages currently encumbering the Demised Premises; (s) in the event that all or substantially or effectively all of the Property is taken by condemnation, the undersigned will not contest or submit to arbitration any valuation of Landlord's fee estate at an amount equal to the amount then outstanding under the Loan; (t) in the event that a default on the part of Landlord occurs under the Lease, the undersigned will give written notice to Lender of said default, including sufficient detail to enable Lender, to cure said default, and the undersigned will forbear from exercising any and all rights and remedies exercisable under the Lease as a result of such default to afford Lender a reasonable period of time (but in no event less the thirty (30) days after the expiration of the applicable cure period with respect to Landlord) to cure such default, including, as necessary, sufficient time for Lender to obtain possession of the Property through foreclosure or otherwise; The undersigned understands and acknowledges that (i) this certificate shall be binding upon the undersigned and its successors and assigns, (ii) Lender is relying on this certificate in extending financial accommodations to Landlord, (iii) Lender will be secured by, among other things, a mortgage on the Property and a collateral assignment of Landlord's interest in the Lease, (iv) certain modifications of the Lease and other actions relating to the Lease may require your prior written consent, and (v) this certificate also may be relied upon by Lender's successors and assigns and, if the Loan becomes the subject of a securitization, may also be relied upon by the credit rating agency, if any, rating the securities collateralized by the Loan as well as by any issuer of such securities and any servicer and/or trustee acting in respect of such securitization. Very truly yours, ATLANTIC CITY SHOWBOAT, INC. By: /s/ John N. Brewer Name: John N. Brewer Title: Assistant Secretary 3 EXHIBIT A SUBLEASES 4 RETAIL LEASES AND LIMITED LICENSE AGREEMENT APPENDIX ITEM A Somerset Ice Company, Inc. lease (Jewelry Shop) B Ocean 11 Enterprises lease (Gift Shop) C Mr. Larry's Hair Salon Lease D L.A.Y. Enterprises, Inc. lease (Peanut Shop) E Megabucks Host Casino Limited License and Personnel Agreement PROMISSORY NOTE CLARIFICATION AGREEMENT Dated as of January 29, 1998 between COLUMN FINANCIAL, INC., a Delaware corporation having an office at 3414 Peachtree Road, N.E., Suite 1140, Atlanta, Georgia 30326 and SHOWBOAT LAND, LLC, A Nevada limited liability company having an office at 3720 Howard Hughes Parkway, Suite 200 Las Vegas, Nevada 89109 PROMISSORY NOTE CLARIFICATION AGREEMENT THIS PROMISSORY NOTE CLARIFICATION AGREEMENT (this "AGREEMENT"), made as of the 29th day of January, 1998, between SHOWBOAT LAND, LLC, a Nevada limited liability company having an office at 3720 Howard Hughes Parkway, Suite 200, Las Vegas, Nevada 89109 ("BORROWER"), and COLUMN FINANCIAL, INC., a Delaware corporation having an office at 3414 Peachtree Road, N.E., Suite 1140, Atlanta, Georgia 30326 ("LENDER"). W I T N E S S E T H : WHEREAS, Borrower is the owner of certain real property situated at 801 Boardwalk, Atlantic City, County of Atlantic, State of New Jersey (the "PROPERTY"); and WHEREAS, in connection with a certain mortgage loan made with regard to the Property by Lender to Borrower, in the original principal amount of One Hundred Million and 00/100 Dollars ($100,000,000.00) (the "Loan"), Borrower executed and delivered to Lender a Promissory Note, dated January 29, 1998, in the maximum principal amount of One Hundred Million and 00/100 Dollars ($100,000,000.00) (the "NOTE") to evidence the Loan; and WHEREAS, Borrower and Lender have agreed to clarify their understanding with respect to Section 1.01 (a) of the Note. NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00), and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, and the mutual covenants contained herein, the parties hereto do hereby agree as follows: 1. CLARIFICATION OF THE NOTE. If there is any confusion or question about the meaning of the first sentence of Section 1.01 (a) of the Note, then said sentence shall be interpreted as if written as follows: "Said interest shall be computed hereunder based on a 360-day year, but paid based upon the actual number of days in each calendar month." 2. MISCELLANEOUS. This Agreement shall be interpreted, construed and enforced according to the laws of the State of New York. The terms and provisions hereof shall be binding upon and inure to the benefit of Borrower and Lender and their respective heirs, executors, legal representatives, successors, successors-in-title and assigns, whether by voluntary action of the parties or by operation of law. As used herein, the terms "Borrower" and "Lender" shall be deemed to include their respective heirs, executors, legal representatives, successors, successors-in-title and assigns, whether by voluntary action of the parties or by operation of law. If Borrower consists of more than one person or entity, each shall be jointly and severally liable to perform the obligations of Borrower under the Note and under this Agreement. [REST OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year first above written. Attest: (Seal) SHOWBOAT LAND, LLC a Nevada limited liability company By: Showboat Operating Company, a Nevada corporation, a member By: /s/ R. Craig Bird R. Craig Bird, Executive Vice- President and Chief Financial Officer By: Showboat Land Holding Limited Partnership, a Nevada limited partnership, a member By: Showboat Land Company, a Nevada corporation, its general partner By: /s/ R. Craig Bird R. Craig Bird, Vice-President/Finance COLUMN FINANCIAL, INC., a Delaware corporation By: /s/ D. S. Foster David S. Foster, Senior Vice President LEASE CLARIFICATION AGREEMENT THIS LEASE CLARIFICATION AGREEMENT (this "AGREEMENT") is made and entered into as of the 13th day of February, 1998, by and between SHOWBOAT LAND, LLC, a Nevada limited liability company, as lessor ("LESSOR"), and ATLANTIC CITY SHOWBOAT, INC., a New Jersey corporation, as lessee ("LESSEE"). W I T N E S S E T H: A. Resorts International, Inc. ("RESORTS") together with Resorts' subsidiary, Resorts International, Inc. of New Jersey ("RESORTS NEW JERSEY"), to the extent of its interest, and Lessee's parent corporation, Ocean Showboat, Inc., a New Jersey corporation ("OSI") entered into a lease agreement dated October 26, 1983 (which lease agreement, as amended, is hereinafter called the "LEASE") for certain property located in the City of Atlantic City (the "DEMISED PREMISES"), as such property and such Lease are more particularly described on EXHIBIT A and EXHIBIT B, respectively, annexed hereto and made a part hereof. B. On December 3, 1984, OSI assigned to Lessee the lessee's interest under the Lease pursuant to the provisions of Paragraph 13.1 of the Lease. C. On January 15, 1985, Resorts and Lessee executed a First Amendment to Lease Agreement. D. On July 5, 1985, Resorts and Lessee executed a Second Amendment to Lease Agreement. E. On October 28, 1985, Resorts and Lessee executed a Third Amendment to Lease Agreement. F. On August 28, 1986, Resorts and Lessee executed a Restated Third Amendment to Lease Agreement. G. On December 16, 1986, Resorts and Lessee executed a Fourth Amendment to Lease Agreement. H. Resorts acquired from Resorts New Jersey the fee simple interest in the Demised Premises by deed dated December 23, 1986 and recorded in the Clerk's Office on December 24, 1986 in Deed Book 4366, page 214. I. On March 2, 1987, Resorts and Lessee executed a Fifth Amendment to Lease Agreement. J. On March 13, 1987, Resorts and Lessee executed a Sixth Amendment to Lease Agreement. K. On October 18, 1988, Resorts and Lessee executed a Seventh Amendment to Lease Agreement. L. On May 18, 1983, Resorts and Lessee executed an Eighth Amendment to Lease Agreement. M. By Deed dated January 26, 1998, Sun International North America, Inc. ("SUN"), Resorts' successor in interest with respect to the Demised Premises, conveyed to Lessor the fee simple interest in the Demised Premises, and Lessor succeeded to Sun's interest as lessor under the Ground Lease. N. Lessee, as the current lessee under the Lease, the lessee thereunder which has executed all amendments thereto to date, and an affiliate of the original lessee under the Lease, and Lessor, as the current lessor under the Lease, desire to clarify the meaning of Section 24.4 of the Lease. NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein. 1. DEFINITIONS. All words and terms used herein shall have the same meanings as those set forth in the Lease, unless otherwise provided herein. 2. CLARIFICATION OF SECTION 24.4 OF THE LEASE. Lessee acknowledges and agrees, and Lessor confirms that it was Lessor's understanding when it acquired fee title to the Demised Premises, that it was the intent of the parties to the Lease that, and Lessor and Lessee agree that, Section 24.4 provide that: (a) if the purchase price to be paid by Lessee is less than the amount (collectively, the "Fee Mortgage Release Amount") that Lessor would be obligated to pay to the holder of the fee mortgage to obtain a release and satisfaction (or, if applicable, to effect a defeasance) thereof in accordance with the related loan documents, including, without limitation, any prepayment premiums, late charges, or any other amounts that may be due and payable under such fee mortgage in connection therewith then, Lessee shall not be entitled to acquire fee title to the Demised Premises free of the lien of such fee mortgage unless Lessor or, at its election, Lessee, pays to the holder of the fee mortgage an amount equal to the difference between the Fee Mortgage Release Amount and such purchase price; and 2 (b) no closing of such transfer of fee title to the Demised Premises shall occur until the lien of such fee mortgage has been cleared. 3. INCONSISTENCY BETWEEN THIS AGREEMENT AND THE LEASE. If there shall be an inconsistency between the terms and provisions of this Agreement and those of the Lease, then the terms and provisions of this Agreement shall control. 4. CHOICE OF LAW. This Agreement shall be deemed to be a contract entered into pursuant to the laws of the State of New Jersey and shall in all respects be governed, construed, applied and enforced in accordance with the laws of the State of New Jersey. 5. ENTIRE AGREEMENT. This writing constitutes the entire agreement of the parties relative to the subject matter hereof. Any modification or amendment hereto shall be ineffective unless in writing and signed by the parties hereto. 6. NO WAIVER. Nothing in this Agreement is intended to waive or release any rights of Lessor to any payments to which Lessor is or may be entitled under the Lease. 7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns. 8. RATIFICATION OF THE LEASE. The provisions of the Lease as clarified hereby are ratified and affirmed by Lessor and Lessee and shall remain in full force and effect according to their terms. 9. COUNTERPARTS. This Agreement may be executed in one or more counterparts which, when taken together, shall constitute one and the same Agreement, with the same effect as if all parties hereto signed the same Agreement. [NO FURTHER TEXT ON THIS PAGE] 3 IN WITNESS WHEREOF, Lessor and Lessee have executed this instrument as of the day and year first written. LESSOR: SHOWBOAT LAND, LLC, A Delaware limited liability company ATTEST: By: SHOWBOAT OPERATING COMPANY, a Nevada corporation, a member ____________________________ Name: Title: (Assistant) Secretary By: /s/ R. Craig Bird R. Craig Bird, Executive Vice President and Chief Financial Officer By: SHOWBOAT LAND HOLDING LIMITED PARTNERSHIP, a Nevada limited partnership, a member ATTEST: By: SHOWBOAT LAND COMPANY, a Nevada corporation, its general partner ____________________________ Name: Title: (Assistant) Secretary By: /s/ R. Craig Bird R. Craig Bird, Vice President/Finance LESSEE: ATTEST: ATLANTIC CITY SHOWBOAT, INC., a New Jersey corporation ____________________________ By: /s/ Name: Name: Title: (Assistant) Secretary Title: STATE OF NEW JERSEY ) ) ss.: COUNTY OF ATLANTIC ) BE IT REMEMBERED, that on this 13th day of February, 1998, before me, this subscriber, an _________________ of New Jersey, personally appeared R. Craig Bird, who, I am satisfied is the person who signed the within instrument as Executive Vice President of Showboat Operating Company, a Nevada corporation, a member of SHOWBOAT LAND, LLC, a Nevada limited liability company, the entity named therein, and he acknowledged that he signed and delivered the same as such officer aforesaid, and that the within instrument is the voluntary act and deed of such entity, in its capacity as a member of SHOWBOAT LAND, LLC, made by virtue of the authority of its Board of Directors. /s/ Brenda Sue Wallace NOTARY PUBLIC [Seal] STATE OF NEW JERSEY ) ) ss.: COUNTY OF ATLANTIC ) BE IT REMEMBERED, that on this 13th day of February, 1998, before me, this subscriber, an _______________________ of New Jersey, personally appeared R. Craig Bird, who, I am satisfied is the person who signed the within instrument as Vice President/Finance of Showboat Land Company, a Nevada corporation, a general partner of Showboat Land Holding Limited Partnership, a Nevada limited partnership, a member of SHOWBOAT LAND, LLC, a Nevada limited liability company, the entity named therein, and he acknowledged that he signed and delivered the same as such officer aforesaid, and that the within instrument is the voluntary act and deed of such entity, in its capacity as a general partner of Showboat Land Holding Limited Partnership, a member of SHOWBOAT LAND, LLC, made by virtue of the authority of its Board of Directors. /s/ Brenda Sue Wallace NOTARY PUBLIC [Seal] IN WITNESS WHEREOF, Lessor and Lessee have executed this instrument as of the day and year first written. LESSOR: SHOWBOAT LAND, LLC, A Delaware limited liability company ATTEST: By: SHOWBOAT OPERATING COMPANY, a Nevada corporation, a member ____________________________ Name: By: /s/ Title: (Assistant) Secretary R. Craig Bird, Executive Vice President and Chief Financial Officer By: SHOWBOAT LAND HOLDING LIMITED PARTNERSHIP, a Nevada limited partnership, a member ATTEST: By: SHOWBOAT LAND COMPANY, a Nevada corporation, its general partner ____________________________ Name: Title: (Assistant) Secretary By: /s/ R. Craig Bird, Vice President/Finance LESSEE: ATTEST: ATLANTIC CITY SHOWBOAT, INC., a New Jersey corpoation /s/ M. Clayton By: /s/ John N. Brewer Name: Name: Title: (Assistant) Title: Secretary STATE OF NEVADA ) ) ss COUNTY OF CLARK ) BE IT REMEMBERED, that on this 13th day of February, 1998, before me, this subscriber, a Notary Public of Nevada, personally appeared John N. Brewer, who, I am satisfied is the person who signed the within instrument as Assistant Secretary of ATLANTIC CITY SHOWBOAT, INC., a New Jersey corporation, the entity named therein, and he acknowledged that he signed and delivered the same as such officer aforesaid, and that the within instrument is the voluntary act and deed of such entity, made by virtue of the authority of its Board of Directors. /s/ Pier Washington OFFICIAL SEAL PIER WASHINGTON Notary Public - State of Nevada My Comm. Expires Nov. 20, 1999 No. 96-0550-1 EXHIBIT "A" DESCRIPTION OF THE LAND ALL THAT CERTAIN lot, tract or parcel of land and premises situate, lying and being in the City of Atlantic City, County of Atlantic and State of New Jersey, bounded and described as follows: BEGINNING at a point in the southerly line of Pacific Avenue (60 feet wide), distant 577.00 feet eastwardly from the easterly line of Virginia Avenue (80 feet wide), said point also being located 62.00 feet eastwardly from the westerly line of the former States Avenue (90 feet wide) (now vacated), and extending thence 1. North 62 degrees 32 minutes 00 seconds East, in and along the southerly line of Pacific Avenue, 292.00 feet; thence 2. South 27 degrees 28 minutes 00 seconds East; parallel with Virginia Avenue, 1432.20 feet to the Interior or Inland Line of Public Park; thence 3. South, curving to the right in the arc of a circle, having a radius of 1102.57 feet, the arc distance of 8.94 feet to a point of tangent; thence 4. South 59 degrees 24 minutes 40 seconds West, in and along the Interior or INLAND LINE of Public Park, 308.53 feet to a point distant 552.00 feet east of the easterly line of Virginia Avenue, when measured at right angles thereto; thence 5. North 27 degrees 28 minutes 00 seconds West, parallel with Virginia Avenue, 1369.53 feet; thence 6. North 62 degrees 32 minutes 00 seconds East, parallel with Pacific Avenue, 25.00 feet; thence 7. North 27 degrees 28 minutes 00 seconds West, parallel with Virginia Avenue, 80.00 feet to the point and place of BEGINNING. TOGETHER WITH the following non-exclusive easements: 1. A non-exclusive easement for the construction, repair, maintenance and use of the Common Facilities (as defined in the Ground Lease). 2. A non-exclusive easement over, upon and across the Pedestrian Passageway (as defined in the Ground Lease), together with the 17-Foot Egressway, the Service Road and the Service Road Extension (as such terms are defined in the Ground Lease), as shown on a survey made by Arthur W. Ponzio Co. and Associates, Inc. dated December 30, 1986 and being more particularly described as Parcels A, B and C, respectively, attached hereto. SUBJECT to a portion of the fifty-foot wide service easement lying within the Land and more particularly described as Parcel D attached hereto. BEING Block 13, Lot 1401, Tax Map o the City of Atlantic City, New Jersey. PARCEL A DESCRIPTION OF THE SEVENTEEN-FOOT WIDE EGRESSWAY AT GRADE BETWEEN THE SERVICE ROAD AND THE BOARDWALK. ALL that certain lot, tract or parcel of land and premises situate, lying and being in the City of Atlantic City, County of Atlantic and State of New Jersey, bounded and described as follows: BEGINNING at a point distant 535.00 feet east of the easterly line of Virginia Avenue (80 feet wide) and 868.00 feet south of the southerly line of Pacific Avenue (60 feet wide), when measured at right angles to said avenues respectively, and extending from said beginning point the following courses and distances: 1. South 27 degrees 28 minutes 00 seconds East, parallel with Virginia Avenue, a distance of 582.45 feet to the Inland or Interior Line of Public Park; thence 2. South 59 degree 24 minutes 40 seconds West, in and along the Inland or Interior Line of Public Park, a distance of 17.03 feet; thence 3. North 27 degrees 28 minutes 00 seconds West, parallel with Virginia Avenue, a distance of 583.38 feet: thence 4. North 62 degrees 32 minutes 00 seconds East, parallel with Pacific Avenue, a distance of 17.00 feet to the point and place of BEGINNING. PARCEL B DESCRIPTION OF THE FIFTY-FOOT WIDE SERVICE ROAD All that certain lot, tract or parcel of land and premises situate, lying and being in the City of Atlantic City, County of Atlantic and State of New Jersey, bounded and described as follows: BEGINNING at a point in the southerly side of Pacific Avenue (60 feet wide), said point being distant 577.00 feet east of the easterly line of Virginia Avenue (80 feet wide) and extending from said beginning point the following courses and distances: 1. South 27 degrees 28 minutes 00 seconds East, parallel with Virginia Avenue, a distance of 86.00 feet; thence 2. South 07 degrees 48 minutes 46 seconds East, a distance of 74.33 feet; thence 3. South 27 degrees 28 minutes 00 seconds East, parallel with Virginia Avenue, a distance of 712.00 feet, to a point distant 868.00 feet south of the southerly line of Pacific Avenue when measured at right angles thereto; thence 4. South 62 degrees 32 minutes 00 seconds West, parallel with Pacific Avenue, a distance of 50.00 feet; thence 5. North 27 degrees 28 minutes 00 seconds West, parallel with Virginia Avenue, a distance of 720.66 feet; thence 6. North 07 degrees 48 minutes 46 seconds West, a distance of 74.33 feet; thence 7. North 27 degrees 28 minutes 00 seconds West, parallel with Virginia Avenue, a distance of 77.34 feet to the southerly line of Pacific Avenue; thence 8. North 62 degrees 32 minutes 00 seconds East, in and along the southerly line of Pacific Avenue, a distance of 50.00 feet to the point and place of BEGINNING. PARCEL C DESCRIPTION OF THE SEVENTEEN-FOOT WIDE FIRE LANE BETWEEN THE SERVICE ROAD AND THE BOARDWALK. All that certain lot, tract or parcel of land and premises situate, lying and being in the City of Atlantic City, County of Atlantic and State of New Jersey, bounded and described as follows: BEGINNING at a point distant 552.00 feet east of the easterly line of Virginia Avenue (80 feet wide) and 868.00 feet south of the southerly line of Pacific Avenue (60 feet wide), when measured at right angles to said avenues respectively, and extending from said beginning point the following courses and distances: 1. South 27 degrees 28 minutes 00 seconds East, parallel with Virginia Avenue, a distance of 581.53 feet to the Inland or Interior Line of Public Park; thence 2. South 59 degrees 24 minutes 40 seconds West, in and along the Inland or Interior Line of Public Park, a distance of 17.03 feet; thence 3. North 27 degrees 28 minutes 00 seconds West, parallel with Virginia Avenue, a distance of 582.45 feet; thence 4. North 62 degrees 32 minutes 00 seconds East, parallel with Pacific Avenue, a distance of 17.00 feet to the point and place of BEGINNING. PARCEL D DESCRIPTION FOR THE EASEMENT FOR THAT PORTION OF THE FIFTY-FOOT WIDE SERVICE ROAD LYING WITHIN THE SHOWBOAT LANDS. ALL that certain lot, tract or parcel of land and premises situate, lying and being in the City of Atlantic City, County of Atlantic and State of New Jersey, bounded and described as follows: BEGINNING at a point distant 577.00 feet east of the easterly line of Virginia Avenue (80 feet wide) and 80.00 feet south of the southerly line of Pacific Avenue (60 feet wide), and extending from said beginning point the following courses and distances: 1. South 27 degrees 28 minutes 00 seconds East, parallel with Virginia Avenue, a distance of 6.00 feet; thence 2. South 07 degrees 48 minutes 46 seconds East, a distance of 74.23 feet; thence 3. North 27 degrees 28 minutes 00 seconds West, parallel with Virginia Avenue, a distance of 76.00 feet; thence 4. North 62 degrees 32 minutes 00 seconds East, parallel with Pacific Avenue, a distance of 25.00 feet to the point and place of BEGINNING. RECITAL: BEING the same premises that were leased by Resorts International Inc., a Delaware Corporation to Ocean Showboat Inc., a New Jersey Corporation dated October 26, 1983 recorded January 18, 1984 in Deed Book 3878 page 1. ASSIGMENT AND ASSUMPTION OF LEASE: by Ocean Showboat Inc., a New Jersey Corporation to Atlantic City Showboat Inc., a New Jersey Corporation to Atlantic City Showboat Inc., a New Jersey Corporation dated December 3, 1984 recorded December 24, 1984 in Deed Book 4004 page 310. FIRST AMENDMENT TO LEASE: dated January 15, 1985 recorded August 16, 1985 in Deed Book 4107 page 141. SECOND AMENDMENT TO LEASE: dated July 5, 1985 recorded November 25, 1985 in Deed Book 4158 page 221. THIRD AMENDMENT TO LEASE: dated October 28, 1985 recorded November 25, 1985 in Deed Book 4158 page 227. RESTATED THIRD AMENDMENT TO LEASE: dated October 28, 1985 recorded February 20, 1987 in Deed Book 4406 page 17. FOURTH AMENDMENT TO LEASE: dated December 16, 1986 recorded February 20, 1987 in Deed Book 4406 page 37. FIFTH AMENDMENT TO LEASE: dated March 2, 1987 recorded March 23, 1987 in Deed Book 4421 page 10. SIXTH AMENDMENT TO LEASE: dated March 13, 1987 recorded March 23, 1987 in Deed Book 4421 page 17. SEVENTH AMENDMENT TO LEASE: dated October 18, 1988 recorded December 19, 1988 in Deed Book 4814 page 231. EXHIBIT "B" "RESORTS LEASE" means that certain Lease Agreement dated as of October 26, 1983 between Resorts and OSI, recorded May 1, 1984 in Deed Book 3878, page 1, as assigned to Mortgagor pursuant to that certain Assignment and Assumption of Lease made December 3, 1984 between OSI and Mortgagor recorded, December 24, 1984 in Deed Book 4004, page 310, as amended by (i) that certain First Amendment to Lease Agreement dated as of January 15, 1985 between Resorts and Mortgagor recorded, August 16, 1985 in Deed Book 4107, page 141; (ii) that certain Second Amendment to Lease Agreement dated as of July 5, 1985 between Resorts and Mortgagor recorded, November 25, 1985 in Deed Book 4158, page 221; (iii) that certain Third Amendment to Lease Agreement dated as of October 28, 1985 between Resorts and Mortgagor, recorded November 25, 1985 in Deed Book 4158, page 227; (iv) that certain Restated Third Amendment to Lease Agreement dated as of August 28, 1986 between Resorts and Mortgagor, recorded February 20, 1987 in Deed Book 4406 page 17; (v) the certain Fourth Amendment to Lease Agreement dated as of December 16, 1986 between Resorts and Mortgagor, recorded February 20, 1987 in Deed Book 4406, page 37; (vi) that certain Fifth Amendment to Lease Agreement dated as of March 2, 1987 between Resorts and Mortgagor, recorded March 23, 1987 in Deed Book 4421, page 10; (vii) that certain Sixth Amendment to Lease Agreement dated as of March 13, 1987 between Resorts and Mortgagor, recorded March 23, 1987 in Deed Book 4421, page 17; (viii) that certain Seventh Amendment to Lease Agreement dated as of October 18, 1988 between Resorts and Mortgagor, recorded December 19, 1988 in Deed Book 4814, page 231; and (ix) that certain Eighth Amendment to Lease Agreement dated as of May 18, 1993 between Resorts and Mortgagor, recorded May ____, 1993 in Deed Book ____, page _____. EX-10 8 EXHIBIT 10.38 PARENT SERVICES SUPPORT AGREEMENT This Parent Services Support Agreement (this "Agreement") is made as of the ____ day of May 1997, by and between Showboat, Inc., a Nevada corporation ("SI") and Showboat Operating Company, a Nevada corporation ("SOC"). R E C I T A L S A. SI, provides certain administrative services to Atlantic City Showboat, Inc. ("ACSI") in connection with its gaming operations at the Showboat Casino Hotel in Atlantic City, New Jersey, pursuant to the terms of that certain Parent Services Agreement dated November 21, 1985, and as amended on February 1, 1987, December 31, 1990, May 8, 1991 and August 17, 1993 (collectively, the "Parent Services Agreement"). B. SOC, a wholly-owned subsidiary of SI, owns and operates the Showboat Hotel, Casino and Bowling Center in Las Vegas, Nevada, and has extensive experience in the gaming industry. C. Certain employees of SOC have previously assisted SI in fulfilling its obligations to ACSI under the Parent Services Agreement, and SI desires to continue to use the services of such SOC employees in connection with the Parent Services Agreement. D. SI and SOC desire to set forth the terms of compensation for the services previously rendered, and to be rendered by, SOC pursuant to the term of this Agreement. OPERATIVE PROVISIONS In consideration of the recitals, covenants and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, SI and SOC agree as follows: 1. SERVICES Upon the terms and conditions described herein, SOC shall provide to SI the services (collectively, the "Services") required for SI to fulfill its obligations to ACSI under the Parent Services Agreement, including, without limitation, (i) executive services, (ii) financial services, (iii) data processing services, (iv) legal services, (v) marketing services, (vi) tax planning and compliance services, (vii) site selection services, and (viii) administrative services. 2. SOC PERSONNEL All SOC personnel engaged to render the Services shall remain the employees of SOC, and SOC shall be responsible for their compensation and for withholding federal or state income taxes. The costs and expenses incurred by SOC for consultants, agents and independent contractors selected and engaged to perform the Services for SI shall be engaged and paid directly by SI or reimbursed to SOC upon demand. Any such consultants, agents and independent subcontractors shall separately invoice and account for their Services provided to SI. 3. STANDARD OF PERFORMANCE SOC undertakes to provide the Services hereunder with the same degree of care and diligence it uses in providing similar services for its own operations. In providing the Services hereunder, SOC shall not be liable to SI for errors or omissions hereunder except to the extent that such errors and omissions constitute gross negligence or willful misconduct. 4. FEES SI shall pay to SOC fees for the Services previously rendered, and to be rendered hereunder, equal to one-half of the fees received by SI from ACSI under the Parent Services Agreement. 5. EXPENSE REIMBURSEMENT SI shall be solely responsible for the payment of all direct and indirect costs and expenses incurred by SOC in connection with the performance of the Services. SI shall pay directly or reimburse SOC for all costs and expenses incurred by SOC for the benefit of SI, including, without limitation, all supplies, materials, communications, facsimile, courier services, postage and handling charges, travel, meals, accommodations and entertainment. SOC shall provide SI with sufficient detailed invoices of such expenses in accordance with the then applicable guidelines of the Internal Revenue Service so as to entitle SI to a deduction for such expenses. 6. TERM The term of this Agreement shall be effective retroactively as of January 1, 1997, and shall continue until the earlier to occur of the expiration or termination of the Parent Services Agreement. 7. REMEDIES In the event that either party commits a material default of its obligations hereunder, the nondefaulting party may notify the defaulting party of such default. In the event that such default is not cured within five (5) days thereafter, the nondefaulting party shall be entitled to pursue any remedies available to it, including but not limited to, the termination of this Agreement upon notice to the defaulting party. 8. GENERAL PROVISIONS (a) RECITALS. The recitals set forth above are true and correct and are incorporated herein. (b) OTHER SERVICES. Nothing in this Agreement shall be construed to prohibit SOC from undertaking to provide additional services to SI not described in this Agreement on terms and conditions (including the fees therefore) satisfactory to each of SI and SOC. 2 (c) EFFECT OF WAIVER. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach thereof. (d) ATTORNEY'S FEES. SI and SOC agree that in the event of a dispute, arbitration or litigation concerning this Agreement, the losing party shall pay the prevailing party's reasonable attorneys' fees in that dispute, arbitration or litigation. (e) NOTICE. Any and all notices required under this Agreement shall be in writing and shall be either (i) hand-delivered; (ii) mailed, postage prepaid, certified mail, return receipt requested; or (iii) delivered via a nationally recognized overnight courier service, addressed to: SI: Showboat, Inc. 2800 Fremont Street P.O. Box 43117 Las Vegas, Nevada 89116-0117 Attention: Chief Financial Officer SOC: Showboat Operating Company 2800 Fremont Street P.O. Box 43117 Las Vegas, Nevada 89116-0117 Attention: Chief Financial Officer All notices hand-delivered shall be deemed delivered as of the date actually delivered. All notices mailed or delivered via overnight courier shall be deemed delivered as of three business days after the date postmarked. Any changes in any of the addresses listed herein shall be made by notice as provided in this Section 8(e). (f) AMENDMENT. No amendment or modification of this Agreement shall be deemed effective unless and until it is executed in writing by both SI and SOC. (g) SEVERABILITY. It is mutually agreed that all of the terms, covenants, provisions and agreements contained herein are severable and that, in the event any of them shall be held to be invalid by any competent court, this Agreement shall be interpreted as if such invalid term, covenant, provision or agreement were not contained herein. (h) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada in effect on the date of this Agreement without resort to any conflict of laws principles, and the courts of the State of Nevada shall have sole and exclusive jurisdiction over any matter brought under, or by reason of, this Agreement. (i) ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties regarding SI's engagement of SOC, and the parties hereby agree that no other oral representations or agreements have been entered into in connection with this transaction. 3 (j) ACKNOWLEDGMENT. SI and SOC agree to cooperate fully with each other in order to achieve the purposes of this Agreement and to take all actions and execute and deliver all documents that may be required to carry out the purposes and intent of this Agreement. (k) COUNTERPARTS. This Agreement may be executed at different times and in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (l) NEUTRAL INTERPRETATION. The provisions contained herein shall not be construed in favor of or against any party because that party or its counsel drafted this Agreement, but shall be construed as if all parties prepared this Agreement, and any rules of construction to the contrary are hereby specifically waived. The terms of this Agreement were negotiated at arm's length by the parties hereto. (m) NO THIRD PARTY BENEFICIARIES. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person or entity, other than the parties hereto, any rights or remedies under or by the reason of the Agreement. In witness whereof, the parties hereto have caused this Agreement to be executed by their representatives thereunto duly authorized. SHOWBOAT, INC., a Nevada corporation By: /s/ J. KELL HOUSSELS, III, PRESIDENT AND CHIEF EXECUTIVE OFFICER SHOWBOAT OPERATING COMPANY, a Nevada corporation By: /s/ J. KELL HOUSSELS, III, PRESIDENT AND CHIEF EXECUTIVE OFFICER 4 MANAGEMENT SERVICES SUPPORT AGREEMENT This Management Services Support Agreement (this "Agreement") is made as of the ____ day of May 1997, by and between Showboat, Inc., a Nevada corporation ("SI") and Showboat Operating Company, a Nevada corporation ("SOC"). R E C I T A L S A. SI, provides certain administrative services to SOC in connection with its gaming operations at the Showboat Hotel, Casino and Bowling Center in Las Vegas, Nevada, pursuant to the terms of that certain Management Services Agreement dated January 1, 1989. B. SOC, a wholly-owned subsidiary of SI, owns and operates the Showboat Hotel, Casino and Bowling Center in Las Vegas, Nevada, and has extensive experience in the gaming industry. C. Certain employees of SOC have previously assisted SI in fulfilling its obligations to SOC under the Management Services Agreement, and SI desires to continue to use the services of such SOC employees in connection with the Management Services Agreement. D. SI and SOC desire to set forth the terms of compensation for the services previously rendered, and to be rendered by, SOC pursuant to the term of this Agreement. OPERATIVE PROVISIONS In consideration of the recitals, covenants and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, SI and SOC agree as follows: 1. SERVICES Upon the terms and conditions described herein, SOC shall provide to SI the services (collectively, the "Services") required for SI to fulfill its obligations to SOC under the Management Services Agreement, including, without limitation, (i) executive services, (ii) financial services, (iii) data processing services, (iv) legal services, (v) marketing services, (vi) tax planning and compliance services, (vii) site selection services, and (viii) administrative services. 2. SOC PERSONNEL All SOC personnel engaged to render the Services shall remain the employees of SOC, and SOC shall be responsible for their compensation and for withholding federal or state income taxes. The costs and expenses incurred by SOC for consultants, agents and independent contractors selected and engaged to perform the Services for SI shall be engaged and paid directly by SI or reimbursed to SOC upon demand. Any such consultants, agents and independent subcontractors shall separately invoice and account for their Services provided to SI. 3. STANDARD OF PERFORMANCE SOC undertakes to provide the Services hereunder with the same degree of care and diligence it uses in providing similar services for its own operations. In providing the Services hereunder, SOC shall not be liable to SI for errors or omissions hereunder except to the extent that such errors and omissions constitute gross negligence or willful misconduct. 4. FEES SI shall pay to SOC fees for the Services previously rendered, and to be rendered hereunder, equal to one-half of the fees received by SI from SOC under the Management Services Agreement. 5. EXPENSE REIMBURSEMENT SI shall be solely responsible for the payment of all direct and indirect costs and expenses incurred by SOC in connection with the performance of the Services. SI shall pay directly or reimburse SOC for all costs and expenses incurred by SOC for the benefit of SI, including, without limitation, all supplies, materials, communications, facsimile, courier services, postage and handling charges, travel, meals, accommodations and entertainment. SOC shall provide SI with sufficient detailed invoices of such expenses in accordance with the then applicable guidelines of the Internal Revenue Service so as to entitle SI to a deduction for such expenses. 6. TERM The term of this Agreement shall be effective retroactively as of January 1, 1997, and shall continue until the earlier to occur of the expiration or termination of the Management Services Agreement. 7. REMEDIES In the event that either party commits a material default of its obligations hereunder, the nondefaulting party may notify the defaulting party of such default. In the event that such default is not cured within five (5) days thereafter, the nondefaulting party shall be entitled to pursue any remedies available to it, including but not limited to, the termination of this Agreement upon notice to the defaulting party. 8. GENERAL PROVISIONS (a) RECITALS. The recitals set forth above are true and correct and are incorporated herein. (b) OTHER SERVICES. Nothing in this Agreement shall be construed to prohibit SOC from undertaking to provide additional services to SI not described in this Agreement on terms and conditions (including the fees therefore) satisfactory to each of SI and SOC. 2 (c) EFFECT OF WAIVER. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach thereof. (d) ATTORNEY'S FEES. SI and SOC agree that in the event of a dispute, arbitration or litigation concerning this Agreement, the losing party shall pay the prevailing party's reasonable attorneys' fees in that dispute, arbitration or litigation. (e) NOTICE. Any and all notices required under this Agreement shall be in writing and shall be either (i) hand-delivered; (ii) mailed, postage prepaid, certified mail, return receipt requested; or (iii) delivered via a nationally recognized overnight courier service, addressed to: SI: Showboat, Inc. 2800 Fremont Street P.O. Box 43117 Las Vegas, Nevada 89116-0117 Attention: Chief Financial Officer SOC: Showboat Operating Company 2800 Fremont Street P.O. Box 43117 Las Vegas, Nevada 89116-0117 Attention: Chief Financial Officer All notices hand-delivered shall be deemed delivered as of the date actually delivered. All notices mailed or delivered via overnight courier shall be deemed delivered as of three business days after the date postmarked. Any changes in any of the addresses listed herein shall be made by notice as provided in this Section 8(e). (f) AMENDMENT. No amendment or modification of this Agreement shall be deemed effective unless and until it is executed in writing by both SI and SOC. (g) SEVERABILITY. It is mutually agreed that all of the terms, covenants, provisions and agreements contained herein are severable and that, in the event any of them shall be held to be invalid by any competent court, this Agreement shall be interpreted as if such invalid term, covenant, provision or agreement were not contained herein. (h) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada in effect on the date of this Agreement without resort to any conflict of laws principles, and the courts of the State of Nevada shall have sole and exclusive jurisdiction over any matter brought under, or by reason of, this Agreement. (i) ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties regarding SI's engagement of SOC, and the parties hereby agree that no other oral representations or agreements have been entered into in connection with this transaction. 3 (j) ACKNOWLEDGMENT. SI and SOC agree to cooperate fully with each other in order to achieve the purposes of this Agreement and to take all actions and execute and deliver all documents that may be required to carry out the purposes and intent of this Agreement. (k) COUNTERPARTS. This Agreement may be executed at different times and in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (l) NEUTRAL INTERPRETATION. The provisions contained herein shall not be construed in favor of or against any party because that party or its counsel drafted this Agreement, but shall be construed as if all parties prepared this Agreement, and any rules of construction to the contrary are hereby specifically waived. The terms of this Agreement were negotiated at arm's length by the parties hereto. (m) NO THIRD PARTY BENEFICIARIES. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person or entity, other than the parties hereto, any rights or remedies under or by the reason of the Agreement. In witness whereof, the parties hereto have caused this Agreement to be executed by their representatives thereunto duly authorized. Showboat, Inc., a Nevada corporation By: /s/ J. KELL HOUSSELS, III, PRESIDENT AND CHIEF EXECUTIVE OFFICER Showboat Operating Company, a Nevada corporation By: /s/ J. KELL HOUSSELS, III, PRESIDENT AND CHIEF EXECUTIVE OFFICER 4 EX-10 9 EXHIBIT 10.39 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (this "Agreement") is made and entered into as of the 11th day of December, 1997, by and between Showboat Development Company, a Nevada corporation (the "Seller"), and Futuresouth, Inc., a Missouri corporation (the "Buyer"). RECITALS A. Seller is the owner of 100 shares of common stock (the "Shares"), $1.00 par value (the "Common Stock"), of Showboat Lemay, Inc., a Nevada corporation (the "Company"). The Shares represent one hundred percent (100%) of the total outstanding Common Stock, equity and ownership of the Company. B. Company is the general partner of Southboat Limited Partnership (the "Partnership"). C. Buyer desires to acquire the Shares from Seller upon the terms and conditions hereinafter set forth. D. Seller desires to sell the Shares upon the terms and conditions hereinafter set forth. Now, Therefore, for and in consideration of the premise and mutual covenants, agreements, understandings, undertakings, representations, warranties and promises, and subject to the conditions hereinafter set forth, and intending to be legally bound thereby, the parties do hereby covenant and agree that the Recitals set forth above are true and accurate, and further covenant and agree as follows: ARTICLE I PURCHASE AND SALE OF SHARES 1.1 PURCHASE AND SALE Subject to the provisions hereof, on the Closing Date (as hereinafter defined), Seller shall sell, transfer, assign and deliver the Shares to Buyer, and Buyer shall buy the Shares from Seller. 1.2 CONSIDERATION In consideration of the sale of the Shares to Buyer, Buyer shall pay the sum of One Hundred Ten Dollars and 00/100th Dollars ($110.00) and other consideration provided herein. 1.3 REIMBURSEMENT OF EXPENSES a. Seller represents and warrants that Seller has incurred approximately $4.8 million in direct out-of- pocket expenses in connection with development of the Project, which expenses are described on SCHEDULE 1.3 attached hereto (the "Seller Development Costs"). SCHEDULE 1.3 is a complete listing of the Seller Development Costs. Seller represents the Seller Development Costs were incurred in (i) developing the plans for the proposed riverboat casino complex, (ii) obtaining financing commitments for the riverboat casino complex, (iii) coordinating interactions with and making applications and presentations to the Missouri Gaming Commission for a gaming license, and (iv) coordinating interactions with and making applications and presentations to St. Louis County, for selection and negotiation of a lease for riverboat casino site. The Seller Development Costs do not include Seller's soft costs for which no reimbursement is contemplated. Seller agrees upon the request of the Partnership to provide the Partnership with such documentation of the Seller Development Costs as may be requested. b. Buyer has advised Seller that Buyer intends to transfer the general partner interest held by the Company in the Partnership to another gaming operator (the "New Gaming Operator"). Buyer recognizes that the work previously done on the Project and the Project Documents by Seller and the incurrence of the Seller Development costs in performing such work will have considerable value to the Partnership and may save the Partnership money in connection with completing the Project. Within 60 days after Buyer brings a New Gaming Operator into the Partnership, Buyer, Seller and the New Gaming Operator shall meet and attempt to reach agreement in good faith on the dollar amount of the Seller Development Costs to be reimbursed to Seller in light of Seller's efforts, time and energies in securing, negotiating, developing and maintaining the Project and the Project Documents, and that amount (which may not exceed the Seller Development Costs) shall be the amount to be reimbursed to Seller (this amount is referred to as the "Adjusted Reimbursement Costs"). c. In the event that the Seller and the Partnership can not agree on the amount of the Adjusted Reimbursement Costs, either the Seller or the Partnership may request that the issue be submitted to binding arbitration, and be referred to a panel of three neutral arbitrators for final determination pursuant to the Commercial Rules of the American Arbitration Association (the "AAA"). Such arbitration will be administered by the AAA and held in St. Louis, Missouri. Any such arbitration will be initiated by a written request for arbitration delivered by one party to the other and to the AAA. The arbitrators will be attorneys with gaming experience selected in accordance with the rules of the AAA. The hearing will begin sixty (60) days after the arbitrators are selected, and a final decision or award will be made within thirty (30) days of the closing of the hearing. The decision or award and the basis therefor will be in writing and delivered to the parties. The final decision will be binding on Seller and the Partnership and enforceable in any court -2- of law having jurisdiction. Each party shall bear its own costs incurred in connection with the arbitration. d. If the riverboat casino project (the "Project") (the term Project as used in this Agreement includes all aspects of the riverboat gaming project including but not limited to the Lease of the site with the St. Louis County Port Authority) contemplated by the Southboat Limited Partnership Agreement is completed and opens for gaming business, the Partnership shall, if permitted by law and by the and the rules and regulations of the Missouri Gaming Commission, pay to Seller an amount equal to the Adjusted Reimbursement Cost (without interest) payable only in the manner set forth in this paragraph. The Partnership shall pay five percent (5%) of its net earnings as computed in accordance with generally accepted accounting principles before taking into account depreciation and amortization (on intangible assets). Moreover, Buyer shall have been fully reimbursed for the $500,000 in development costs that Buyer has invested in the Project before any Adjusted Reimbursement Costs are paid to Seller. Partnership payments pursuant to this paragraph shall be made annually within 120 days after the close of its fiscal year. e. The Adjusted Reimbursement Costs are payable only to the extent that all terms and conditions in this Section 1.3 are satisfied, otherwise the Seller is irrevocably waiving any right to recover the Seller Development Costs and the Adjusted Reimbursement Costs. For example, without limiting the preceding sentence, Seller forfeits all right to recover the Seller Development Costs and the Adjusted Reimbursement Costs if the Project does not open for business, or if the Partnership is not legally permitted to make said payments. Seller also acknowledges that it is irrevocably waiving any right to recover that amount by which the Seller Development Costs exceed the Adjusted Reimbursement Costs. f. Seller represents and warrants that it is the sole owner of the Seller Development Costs and that no other person has any rights to recover the Seller Development Costs from Buyer or the Partnership. Seller agrees to indemnify and hold Buyer and the Partnership harmless with respect to any claims made against them for recovery of any of the Seller Development Costs, excluding the Partnership's obligations to Seller under this Section 1.3. ARTICLE II CLOSING 2.1 CLOSING DATE The closing (the "Closing") under this Agreement for the purchase and sale of the Shares shall be at the offices of the Company, unless otherwise agreed to in writing by each of the parties -3- hereto, on December 12, 1997 (the "Closing Date"). The Closing shall take place at 10:00 a.m. Pacific Standard Time on the Closing Date. 2.2 SELLER'S CLOSING DOCUMENTS At the Closing, Seller shall deliver to Buyer the following documents: a. the certificate representing all of the Shares duly endorsed in blank; b. a certified resolution of the Company removing all officers and directors appointed by the Company and replacing said officers and directors with officers and directors identified by Buyer as of the Closing; and c. an executed amendment to the articles of incorporation of the Company changing the name of the Company to Southboat Lemay, Inc.; and d. the Project Documents (as defined in section 7.1). 2.3 PURCHASER'S CLOSING DOCUMENTS a. At the Closing, Buyer shall deliver to Seller the amount of One Hundred Ten Dollars and 00/100th Dollars ($110.00). b. At the Closing, Buyer shall cause to be delivered to Seller a faxed copy of a letter signed by the St. Louis County Port Authority addressed to the Bank of New York in the form attached hereto directing the release from escrow of Seller's Security Deposit and Guarantees (with original to be delivered by overnight delivery to Seller's counsel). ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby makes the following representations and warranties to Buyer, and Seller warrants that the following are true and accurate on the date hereof and will be true and accurate at all times thereafter through the Closing Date. 3.1 TITLE TO SHARES Seller is the record and beneficial owner of the Shares, free and clear of all liens, encumbrances, security agreements, options, charges, restrictions or any other claims of any type, kind or nature whatsoever. The Shares are fully paid and nonassessable and have been duly and validly issued by Company, and were not issued in violation of any preemptive rights. -4- 3.2 AUTHORITY Seller has the full right, power, legal capacity and authority to enter into, and perform its obligations under this Agreement, including the sale and delivery of the Shares to Buyer. 3.3 BINDING NATURE OF AGREEMENT This Agreement constitutes the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms. 3.4 NO VIOLATION Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, nor the fulfillment of the terms hereof by Seller will conflict with, or result in a breach of or default under, any of the terms or provisions of (i) any agreement, note, indenture, mortgage, deed of trust, instrument lease or franchise to which Seller is a party or by which it or any of its assets or properties are bound; or (ii) any law, judgment, order, arbitration award, rule, regulation, ordinance, writ, injunction or decree of any governmental agency or instrumentality or court applicable to or having jurisdiction over Seller or any of its assets or properties. 3.5 NO COMPANY LIABILITIES The Company has no liabilities as of the date hereof other than the Box Suite Lease and Ticket Option Agreement between the Rams Football Company, Inc. and the Company, and Seller represents that all amounts then due under said agreements through the Closing Date have been paid. For purposes of this Agreement the term "liabilities" shall include without limitation any direct or indirect liability or obligation, indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost, expense, obligation or responsibility, either accrued, absolute, contingent, mature, not mature or otherwise. 3.6 NO COMMISSION OR FINDER'S FEE Seller has not dealt with any broker or finder in connection with the Project (which term includes the Lease) or any of the transactions contemplated by this Agreement other than a consulting agreement with Jeffrey A. Boughrum (a copy of which was provided to Buyer on December 8, 1997), and no broker or other person is entitled to any commission or finder's fee in connection with such transactions or the Project. Seller is solely responsible for paying all amounts owed to Jeffrey A. Boughrum pursuant to his Consulting Agreement with Seller dated August 15, 1997, or otherwise, and Seller agrees to indemnify and hold Buyer and the Partnership harmless with respect to all amounts owed to Jeffrey A. Boughrum. 3.7 NO REPRESENTATIONS UNTRUE No representation made by Seller in this Agreement contain or will contain any untrue statement of material fact or omit to state any material fact known to Seller necessary to make any -5- statement, warranty or representations not misleading to Buyer. Seller knows of no material facts or conditions adversely affecting the value of the Shares, which have not been disclosed to Buyer. Except as set forth in this Agreement, Seller does not make any representations or warranties to Buyer. 3.8 NO FUTURE INTERESTS Seller hereby represents and warrants that it has conducted all necessary due diligence with respect to the subject matter of this Agreement, including its own investigation of the future prospects of the Project and hereby represents and warrants that it is freely and voluntarily entering into the transactions described in this Agreement based solely on its own due diligence. Seller acknowledges that it is not relying on any representations by Buyer in entering into this transaction, and that it has no basis to rescind this transaction or seek other relief against the Buyer or the Partnership in the event that the Partnership is able to obtain a gaming license (except for any payments made pursuant to Section 1.3. Seller represents and warrants that it fully understands that it is permanently terminating all interest it has in the Project, the Project Documents and the Partnership and that it will have no interest of any kind in the Project, the Project Documents or the Partnership and no right to payments of any kind (except for any payments made pursuant to Section 1.3) in the event that the Partnership is able to obtain a gaming license and open the Project for a gaming business. Without limiting the foregoing, Seller acknowledges that it has no rights in the gaming application fee paid to the Missouri Gaming Commission and that all rights in said fees now belong to the Partnership. 3.9 ALL COMPANY AND PARTNERSHIP AGREEMENTS DISCLOSED Attached hereto as SCHEDULE 3.9 is a list of all agreements under which either the Company or the Partnership has any future obligations. A copy of all agreements listed on SCHEDULE 3.9 is attached to said Schedule. Seller represents that the agreements listed on SCHEDULE 3.9 and attached hereto are true and complete copies of the agreements that are binding on Company and/or the Partnership, and that there are no amendments, side agreements or other undisclosed agreements that would change the terms of any of the attached agreements, and that there are no defaults under said agreements. Seller further warrants that Company and the Partnership have paid all amounts due under the agreements listed on SCHEDULE 3.9 through the Closing Date. 3.10 ALL LIABILITIES DISCLOSED The Partnership has no liabilities (as defined in section 3.5), except for those disclosed on SCHEDULE 3.10 attached hereto. Without limiting the foregoing, the Seller represents that neither the Partnership, nor the Company has any obligation to make any payments, grant any equity interests in the Project or pay any other consideration to any person in the event that the Partnership is able to open a gaming business. -6- 3.11 PROPERTY Attached hereto as SCHEDULE 3.11 is a list of all property owned or leased by the Company or by the Partnership (the "Property"). Seller warrants that the Company or the Partnership holds good title to all of the Property free and clear of all liens, claims and encumbrances. Seller shall cooperate in taking any actions necessary to vest title and control of the Property in Buyer, such as changing signature cards on bank accounts. 3.12 TAX RETURNS The Company and the Partnership have filed all tax returns that were due prior to the Closing Date and have paid all taxes that are owed by the Company or the Partnership for all periods prior to the Closing Date. There is no pending audit concerning any Company or Partnership tax returns. The representations in this section apply to all taxes applicable to the Company and the Partnership, including without limitation all federal, state (Nevada and Missouri) and local income, franchise, property and gaming taxes. 3.13 OWNERSHIP OF COMPANY The 100 Shares being transferred to Buyer constitute all outstanding stock that has been issued by Company. Company has no other outstanding stock and has no obligation, contingent or otherwise, to issue any stock to any person. Without limiting the foregoing, Company warrants that it has not issued any warrants or stock options. 3.14 OWNERSHIP OF PARTNERSHIP Company owns an 80% interest in the Partnership ("Company's 80% Partnership Interest"), and Buyer by acquiring ownership of Company will be acquiring ownership of 100% of the Partnership. Company's 80% Partnership Interest is free and clear of all liens, encumbrances, security agreements, options, charges, restrictions or any other claims of any type, kind or nature whatsoever. Company's 80% Partnership Interest and Buyer's 20% interest in the Partnership constitute the entire equity interest in the Partnership, and the Partnership has no obligation, contingent or otherwise, to issue any equity interest to any person. 3.15 COMPANY Company is duly organized under the laws of the State of Nevada, is qualified to do business in the State of Missouri, and is in good standing in the States of Nevada and Missouri. 3.16 COMPLIANCE WITH LAW Seller represents and warrants that Seller, Company and the Partnership have not violated any laws or governmental regulations in connection with their activities to establish a gaming business in Missouri. -7- 3.17 DISCLOSURE UNDER PARTNERSHIP AGREEMENT Except as disclosed on Schedule 3.17 Seller has no involvement in any gaming projects in the State of Missouri or in East St. Louis, Illinois other than the Project. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Buyer makes the following representations and warranties to Seller, and Buyer hereby warrants that the following are true and accurate on the date hereof and will be true and accurate at all times thereafter through the Closing Date. 4.1 AUTHORITY Buyer has the full right, power, legal capacity and authority to enter into, and perform its obligations under this Agreement. 4.2 BINDING NATURE OF AGREEMENT This Agreement constitutes the valid and binding obligations of Buyer, enforceable against Buyer in accordance with its terms. 4.3 DIFFERENCE IN FACTS Buyer hereby represents and warrants that it has conducted all necessary due diligence with respect to the subject matter of this Agreement and hereby represents and warrants that it accepts the Company "as is" and accepts that any and all liabilities and/or obligations of the Company for any and all acts committed prior to the purchase of the Shares contemplated by this Agreement, except that nothing herein shall be deemed to release Seller from any liability that it has for its obligations, representations and warranties in this Agreement. 4.4 NO VIOLATION Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, nor the fulfillment of the terms hereof by Buyer will conflict with, or result in a breach of or default under, any of the terms or provisions of: (i) any agreement, note, indenture, mortgage, deed of trust, instrument, lease or franchise to which Buyer is a party or by which it or any of its assets or properties are bound; or (ii) any law, judgment, order, arbitration award, rule, regulation, ordinance, writ, injunction or decree of any governmental agency or instrumentality or court applicable to or having jurisdiction over Buyer or any of its assets or properties. 4.5 NO RELIANCE Buyer acknowledges that Seller has not made and does not make any representations or warranties concerning the past or future performance of the Company, except for any -8- representations set forth in this Agreement. In making its investment decision, Buyer has relied upon its own examination of the Company, including the merits and risks involved. Buyer has consulted its own attorney, business advisor or tax advisor as to legal, business or tax advice. Buyer possesses sufficient business probity and sophistication to assess the risks of purchasing the Shares or has consulted with persons of its own choosing who possess such probity and sophistication to advise Buyer of the risks attendant to the investment called for under this Agreement. 4.6 INVESTMENT INTENT Buyer is acquiring the Shares for its own account, for investment and not with a view to the resale or distribution thereof, and Buyer understands the nature and effect of this representation. 4.7 NO COMMISSION OR FINDER'S FEE Buyer has not dealt with any broker or finder in connection with any of the transactions contemplated by this Agreement, and to the best of its knowledge, no broker or other person is entitled to any commission or finder's fee in connection with such transactions. 4.8 NO REPRESENTATIONS UNTRUE No representation made by Buyer in this Agreement contains or will contain any untrue statement of material fact or omit to state any material fact known to Buyer necessary to make any statement, warranty or representation not misleading to Seller. Except as set forth in this Agreement, Buyer does not make any representations or warranties to Seller. ARTICLE V CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS 5.1 SATISFACTION OF CONDITIONS PRECEDENT The obligation of Seller to sell and transfer the Shares under this Agreement is subject to the satisfaction, on or before the Closing Date, of all the conditions set forth in this Article V. Seller may waive any or all of these conditions in whole or in part without prior notice; provided, however, that no such waiver of a condition shall constitute a waiver by Seller of any of its other rights or remedies, at law or in equity, if Buyer should be in default of any of its representations, warranties, or covenants under this Agreement. 5.2 RETURN OF SECURITY DEPOSIT Seller shall have received a faxed copy of a letter in the form attached to this Agreement signed by the St. Louis County Port Authority irrevocably instructing the Bank of New York to deliver the $750,000 security deposit plus interest earned thereon deposited in the St. Louis County Port Authority/Southboat Limited Partnership escrow account at the Bank of New York, Account Number 484299 thereon to Seller. Buyer, the Company and the Partnership hereby -9- waive any and all claims they may have to share in said security deposit and interest earned thereon. Seller represents and warrants to Buyer, the Partnership and the St. Louis County Port Authority that all sums owing to the Bank of New York and to any predecessor escrow agent under the Escrow Agreement dated October 13, 1995 by and between the St. Louis County Port Authority, the Partnership and Boatmen's Trust Company at any time through termination of the Escrow Agreement have been paid in full, and Seller agrees it is solely responsible for paying all amounts, if any, still owing to the Escrow Agent under said Escrow Agreement. 5.3 RELEASE OF GUARANTEES Seller shall have received a faxed copy of a letter in the form attached to this Agreement signed by the St. Louis County Port Authority irrevocably instructing the Bank of New York to deliver to Seller the Guarantee of Minimum Rent and the Completion Guarantee, each dated as of October 13, 1995. ARTICLE VI CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS 6.1 SATISFACTION OF CONDITIONS PRECEDENT The obligation of Buyer to purchase the Shares under this Agreement is subject to the satisfaction, on or before the Closing Date, of all the conditions set forth in this Article VI. Buyer may waive any or all of these conditions in whole or in part without prior notice; provided, however, that no such waiver of a condition shall constitute a waiver by Buyer of any of its other rights or remedies, at law or in equity, if Seller should be in default of any of its representations, warranties, or covenants under this Agreement. 6.2 REPRESENTATIONS AND WARRANTIES All representations and warranties by Seller in this Agreement shall be true and correct as of the Closing Date and Seller shall have performed all of its obligations under this Agreement which are to be performed on or before Closing. 6.3 ACCEPTANCE OF FUTURESOUTH The St. Louis County Port Authority shall have provided Seller with its written consent and acceptance of Buyer as the controlling shareholder of Company, subject to such terms and conditions as are acceptable to Buyer. -10- ARTICLE VII ADDITIONAL COVENANTS BY SELLER 7.1 DELIVERY OF PROJECT DOCUMENTS (a) Seller shall deliver to Buyer at or prior to Closing all books, records and other documents in the possession of or under the control of Seller, the Company, the Partnership, or any of their affiliates, that relate to the Project or the business of the Company or the Partnership, including, but not limited to, all engineering studies, architectural and engineering drawings and plans, elevations, site studies, Coast Guard permit applications, if any, the Partnership's Missouri Gaming Commission application, title insurance commitments, surveys, environmental reports, market studies, information, presentations and other material used for any attempts to sell the Project or any part thereof, agreements, the Company's corporate minute books, the Company's and the Partnership's tax returns and all correspondence (collectively, the "Project Documents"). To the extent not delivered at Closing, Seller has a continuing obligation after Closing to supply such Project Documents to Buyer. Seller forfeits its right to receive the Adjusted Reimbursement Costs if Buyer has not received substantially all of the Project Documents within 30 days after the Closing Date. Seller is assigning all of its right, title and interest in the Project Documents to Buyer. Seller does not represent or warrant the completeness, accuracy of the contents or usefulness of any of the Project Documents. Buyer either possesses sufficient business probity and sophistication to assess the risks of relying on the Project Documents or has consulted with persons of its own choosing who possess such probity and sophistication to advise Buyer of the risks attendant to the reliance on the Project Documents. Seller agrees to make available at Buyer's expense employees of Seller who have knowledge of the Project Documents upon the written request of Buyer and upon the mutual agreement of Seller and Buyer. (b) Seller further represents that Buyer has not pledged, mortgaged, hypothecated or transferred the Project Documents and there are no payments due to anyone if the Project Documents are used by Buyer. Seller hereby irrevocably consents to Buyer having access to and use of all Project Documents, and Seller shall if requested by Buyer, at Buyer's expense, provide any consents that may be reasonable required by third parties in order for Buyer to use and have access to the Project Documents. Without limiting the preceding sentence, Seller hereby authorizes the Missouri Gaming Commission to disclose the Partnership's gaming application and all materials related thereto (other than the personal disclosure gaming applications filed by officers, directors and key employees of Showboat, Inc. and any of its subsidiaries. 7.2 COOPERATION Seller agrees to cooperate with Buyer after Closing in providing, at Buyer's expense such documents as may be reasonably required to effectuate the transactions described in this Agreement, including but not limited to providing any additional consents, amendments to the gaming applications, assignments or other documents as may be required by any third party, including but not limited to any documents required by the Missouri Gaming Commission, St. Louis County or the Coast Guard. -11- 7.3 NO EMPLOYEES Seller warrants that the Company and the Partnership do not have and have not had any employees at any time prior to the Closing Date, and as of closing all of Seller's directors and officers shall have resigned their offices with the Company and the Partnership. 7.4 CONFIDENTIALITY (a) Seller and Buyer agree to keep the terms of this Agreement confidential following the Closing, provided that nothing herein shall prevent Seller or Buyer from making such disclosures as are required by government agencies or by court order, and Buyer may disclose this Agreement to third parties that are involved in the Project to the extent Buyer determines such disclosure is appropriate. In the event that either Seller or Buyer reasonably believes that public disclosure of this Agreement is appropriate Seller and Buyer shall prepare a mutually agreeable press releases. (b) Seller agrees to keep the Project Documents confidential following the Closing, provided that nothing herein shall prevent Seller from making such disclosures as are required by government agencies or by court order. (c) Buyer agrees to keep the Partnership's gaming application confidential to the extent that the application contains personal information regarding officers and directors of Showboat, Inc. and any of its subsidiaries, provided that nothing herein shall prevent Buyer from making such disclosures as are required by government agencies or by court order. 7.5 PRESERVATION OF LEASE AND GAMING APPLICATION Seller agrees to not do anything that would cause a termination of the Lease and Development Agreement between Partnership and the St. Louis County Port Authority (the "Lease") prior to Closing, and agrees to execute at Closing any documents required to retract the termination notice it had given with respect to the Lease. Seller also agrees not to withdraw the Partnership's application to the Missouri Gaming Commission for a class A owner's and class B operator's license or do anything else that would adversely affect that license application, except that Seller may notify the Missouri Gaming Commission of its withdrawal from the Project and may withdraw its application for an operator's license. In accordance with Missouri gaming rules and regulations, Buyer shall cause the Partnership to amend said application with the Missouri Gaming Commission to reflect the change in ownership contemplated under this Agreement. Seller shall coordinate any notifications it makes to the Missouri Gaming Commission, St. Louis County and the Coast Guard with Buyer. Following Closing Seller agrees not to do anything that adversely affects the Partnership's gaming application, except that it is recognized that Seller is permitted to withdraw from the Project and that Seller may respond to questions by any gaming authority regulating its or any of its affiliates regarding the Project and Seller's sale of the Shares to Buyer. -12- ARTICLE VIII COSTS Buyer and Seller shall each bear their own costs and expenses incurred or to be incurred in negotiating and preparing this Agreement and in taking whatever actions that may be necessary or appropriate to consummate the transactions contemplated by this Agreement, including the costs of obtaining any consents or approvals. ARTICLE IX RELEASE AND INDEMNITY BY BUYER 9.1 RELEASE BY BUYER Buyer, for itself and its successors and assigns, releases and forever discharges Seller, including the officers, directors, employees and agents of the Seller, or any affiliated companies of the Seller, of and from any and all manner of action and causes of action, suits, debts, dues, accounts, contracts, agreements, judgments, claims and demands whatsoever, whether in law or in equity, whether known or unknown, anticipated or unanticipated, disclosed or undisclosed, which now exist or may hereafter arise from any matter, fact, circumstance, happening, or thing whatsoever occurring or failing to occur from the beginning of the world to the date of this Agreement. Buyer does not release any claims that may arise under this Agreement. 9.2 INDEMNIFICATION BY BUYER Buyer shall defend, indemnify, and hold completely free and harmless the Seller, including the officers, directors, employees and agents of the Seller, or any affiliated companies of the Seller, from any and all actions and causes of action, suits, debts, dues, accounts, contracts, agreements, judgments, claims, and demands (including attorneys' fees and costs) related to the Company, Southboat Limited Partnership Agreement or the Lease, except that Buyer is not obligated to indemnify Seller for any matters that were not disclosed to Buyer or for any matters that violate Seller's representations, warranties and covenants under this Agreement. ARTICLE X RELEASE AND INDEMNITY BY SELLER 10.1 RELEASE BY SELLER OF BUYER Seller, for itself and its successors and assigns, releases and forever discharges Buyer, Company, the Partnership, including the affiliates, officers, directors, employees and agents of the foregoing (collectively referred to as the "Buyer Released Parties"), of and from any and all manner of action and causes of action, suits, debts, dues, accounts, contracts, agreements, judgments, claims and demands whatsoever, whether in law or in equity, whether known or unknown, anticipated or unanticipated, disclosed or undisclosed, which now exist or may -13- hereafter arise from any matter, fact, circumstance, happening, or thing whatsoever occurring or failing to occur from the beginning of the world to the date of this Agreement. Seller does not release any claims that may arise under this Agreement. 10.2 INDEMNIFICATION BY SELLER Seller shall defend, indemnify, and hold completely free and harmless the Buyer, including the officers, directors, employees and agents of the Buyer, or any affiliated companies of the Buyer, from any and all loss, liability and expense (including attorneys' fees and costs) related to any default by Seller in its obligations under this Agreement, including any loss, liability and expense incurred by Buyer as a result of any of Seller's representations and warranties in this Agreement not being correct. ARTICLE XI GENERAL PROVISIONS 11.1 CAPTIONS The subject headings or captions of the selections and subsection of this Agreement are included only for the purposes of the convenience and shall not affect the construction or interpretation of any provisions contained herein. 11.2 ENTIRE AGREEMENT This Agreement (together with all exhibits, documents, agreements and instruments executed or furnished in connection herewith) constitutes the entire agreement between the parties pertaining to the subject matter hereof, and supersedes any and all prior or contemporaneous written or oral negotiations, agreements, representations, and understandings of the parties with respect to such subject matter. 11.3 EXPENSES If any legal action or any arbitration or other proceeding is brought is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default, or misrepresentations in connection with any the provisions of this Agreement, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief to which it may be entitled. 11.4 NOTICE Any and all notices required under this Agreement shall be in writing and shall be either: (i) hand-delivered; (ii) mailed, first-class postage prepaid, certified mail, return receipt requested; or (iii) delivered via a nationally recognized overnight courier service, addressed to: -14- Seller: Showboat Development Company 2800 Fremont Street Las Vegas, Nevada 89104 H. Gregory Nasky, President and Chief Executive Officer Copy to: John N. Brewer Kummer Kaempfer Bonner & Renshaw 3800 Howard Hughes Parkway, Seventh Floor Las Vegas, Nevada 89109 Buyer: Futuresouth, Inc. 10205 Gravois Road St. Louis, Missouri 63123 Dennis Long, President and Chief Executive Officer Copy to: Frederick J. Berger Riezman & Blitz, P.C. 7700 Bonhomme, 7th Floor St. Louis, Missouri 63105 All notices hand-delivered or delivered via overnight courier shall be deemed delivered as of the date actually delivered. All notices mailed shall be deemed delivered as of three (3) business days after the date postmarked. Any changes in any of the addresses listed herein shall be made by notice as provided in this Section 11.4. 11.5 MODIFICATION, AMENDMENT OR WAIVER This Agreement may not be amended, supplemented or otherwise modified, and none of its terms may be waived, unless such amendment, supplement, modification or waiver is in an express writing and executed by the party or parties to be bound thereby. The failure of any party at any time or times to require performance of any provision hereof shall not affect the right of such party at a later time to enforce the same, and no waiver of any term or provision hereof on any one occasion shall be deemed to be a waiver of the same or any other provision hereof at any subsequent time or times. 11.6 BINDING EFFECT; ASSIGNMENT This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, predecessors, parents, affiliates, subsidiaries, divisions, officers, directors, shareholders, employees, advisors, consultants, insurers, attorneys, heirs, executors, administrators and any persons claiming rights by, through or under them; provided, however, that no assignment of any rights or delegation of any obligations provided for herein may be made by either party to this Agreement without the prior written consent of the other party. -15- 11.7 CONSTRUCTION This Agreement shall be construed in accordance with its intent and without regard to any presumption or any other rule requiring construction against the party causing the same to be drafted. 11.8 GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada in effect on the date of this Agreement without resort to any conflict of laws principles. 11.9 COUNTERPARTS This Agreement may be executed at different times and in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 11.10 NO THIRD PARTIES BENEFITTED This Agreement is made and entered into for the sole protection and benefit of Buyer and Seller, their successors and assigns, and no other person or persons shall have any right of action hereon. 11.11 SEVERABILITY If any provision of this Agreement, or any portion of any provision, shall be deemed invalid or unenforceable for any reason whatsoever, such invalidity or unenforceability shall not affect the enforceability and validity of the remaining provisions hereof. 11.12 TIME OF THE ESSENCE At all times stated herein, time shall be of the essence. 11.13 GENDER Each party to this Agreement agrees that masculine or feminine pronouns shall be substituted for the neuter form and vice versa and the plural shall be substituted for the singular form and vice versa in any place or places herein which the context requires such substitution or substitutions. 11.14 NEUTRAL INTERPRETATION The provisions contained herein shall not be construed in favor of or against any party because that party or its counsel drafted this Agreement, but shall be construed as if all parties prepared this Agreement, and any rules of construction to the contrary are hereby specifically waived. The terms of this Agreement were negotiated at arm's length by the parties hereto. -16- 11.15 SURVIVAL All representations, warranties and covenants in this Agreement shall survive closing. 11.16 COUNTERPARTS This Agreement may be executed in counterparts. The parties may sign this Agreement and fax a signed copy to the other party. Any party receiving a copy bearing a facsimile signature may rely on such facsimile signature and the facsimile copy is binding on the party that signed it. THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES. In Witness Whereof, the parties hereto have duly executed this Agreement on the date first set forth above. SELLER BUYER SHOWBOAT DEVELOPMENT COMPANY, FUTURESOUTH, INC., a Missouri a Nevada corporation corporation By: /s/ By: /s/ H. Gregory Nasky Dennis Long President and Chief President and Chief Executive Officer Executive Officer -17- EXHIBIT 1.3 SCHEDULE OF SELLER'S REIMBURSEMENT COSTS -18- SCHEDULE 3.9 SCHEDULE OF AND COPIES OF ALL AGREEMENTS UNDER WHICH PARTNERSHIP OR COMPANY HAS OBLIGATIONS 1. Release of All Claims and Indemnification Agreement among Showboat Lemay, Inc., Showboat, Inc., Showboat Development company and Futuresouth, Inc. dated May 1, 1995. 2. Release of all Claims and Indemnification Agreement among Futuresouth, Inc., Showboat Lemay, Inc., Showboat, Inc. and Showboat Development Company dated May 2, 1995. 3. Management Agreement by and between Southboat Partnership and Showboat Operating Company dated as of May 2, 1995.* 4. Administrative Services Agreement by and between Showboat Operating Company and Southboat Partnership dated as of May 2, 1995.* 5. Trademark License Agreement by and between Showboat, Inc. and Southboat Partnership dated as of May 2, 1995.* 6. Agreement of Limited Partnership of Southboat Limited Partnership dated May 1, 1995 7. Letter Agreement between Showboat Lemay, Inc., Futuresouth, Inc. and Southboat Limited Partnership dated as of September 20, 1995. 8. Lease and Development Agreement dated as of October 13, 1995, First Amendment to Lease and Development Agreement dated as of May 1996, and Second Amendment to Lease and Development Agreement dated as of December 12, 1996. 9. Box Suite Lease and Ticket Option Agreement between the Rams Football Company, Inc. and Showboat Lemay, Inc. *Agreements by their terms terminate once Showboat no longer maintains an equity interest in the Southboat Limited Partnership. -19- SCHEDULE 3.10 SCHEDULE OF ALL PARTNERSHIP LIABILITIES All liabilites due and owing as of the Closing Date have been paid. -20- SCHEDULE 3.11 SCHEDULE OF ALL PARTNERSHIP AND COMPANY PROPERTY Showboat Lemay, Inc. has no property other than $100 in a bank account. Southboat Limited Partnership has no property other than the property leased pursuant to the Lease and Development Agreement dated October, 13, 1995. -21- SCHEDULE 3.17 DISCLOSURE OF ALL OTHER GAMING PROJECTS SELLER IS INVOLVED IN LOCATED IN MISSOURI OR EAST ST. LOUIS, ILLINOIS None. -22- EX-21 10 EXHIBIT 21.01 LIST OF SUBSIDIARIES
State of Incorporation/ NAME ORGANIZATION NAMES USED IN DOING BUSINESS ---- ------------ ---------------------------- Atlantic City Showboat, Inc. New Jersey Showboat; Showboat Hotel and Casino; Atlantic City Showboat Ocean Showboat, Inc. New Jersey Ocean Showboat Ocean Showboat Finance Corporation New Jersey Ocean Showboat Finance Corporation Showboat Operating Company Nevada Showboat; Showboat Hotel, Casino & Bowling Center; Las Vegas Showboat Showboat Development Company Nevada Showboat Development Company Showboat Australia Pty Limited Australia Not applicable Sydney Harbour Casino Holdings Australia Not applicable Limited Sydney Casino Management Pty Australia Not applicable Limited Star City Casino Pty Limited Australia Not applicable Sydney Harbour Casino Properties Australia Sydney Harbour Casino Pty Limited Showboat Indiana, Inc. Nevada Not applicable Showboat Indiana Investment, Nevada Not applicable Limited Partnership Showboat Marina Partnership Indiana Showboat Marina; East Chicago Showboat Showboat Marina Casino Partnership Indiana Showboat Marina; East Chicago Showboat Showboat Marina Finance Corporation Indiana Not applicable Showboat Marina Investment Indiana Not applicable Partnership Showboat New Hampshire, Inc. Nevada Not applicable Showboat Rockingham Company, L.L.C. New Hampshire Not applicable Showboat Land Company Nevada Not applicable Showboat Land Holding Limited Nevada Not applicable Partnership Showboat Land LLC Nevada Not applicable
EX-23 11 EXHIBIT 23.01 CONSENT OF INDEPENDENT AUDITORS' The Board of Directors Showboat, Inc.: We consent to incorporation by reference in the registration statements (Nos. 33-36048, 33-56044, 33-47945 and 33-58315) on Form S-8 of Showboat, Inc. of our report dated March 13, 1998, relating to the consolidated balance sheets of Showboat, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1997, which report appears in the December 31, 1997 annual report on Form 10-K of Showboat, Inc. KPMG PEAT MARWICK Las Vegas, Nevada March 27, 1998 EX-27 12
5 1,000 YEAR DEC-31-1997 DEC-31-1997 67,145 21,755 18,831 3,083 3,328 122,967 744,390 243,414 800,547 74,645 531,119 0 0 16,351 155,029 800,547 543,989 556,816 0 299,747 227,464 2,447 43,935 20,823 2,370 18,453 0 0 0 18,453 0 1.14
EX-27 13
5 The following is a Restated Financial Data Schedule for Showboat, Inc. for the year ended December 31, 1996 in connection with the accounting principle change regarding the calculation of earnings per share. 1,000 YEAR DEC-31-1996 DEC-31-1996 26,748 62,387 14,819 2,417 2,785 118,990 651,486 211,298 814,669 60,051 530,743 0 0 16,181 171,191 814,669 427,829 433,705 0 235,859 159,811 2,417 30,938 9,481 3,478 6,003 0 0 0 6,003 0.37 0.37
EX-27 14
5 The following is a Restated Financial Data Schedule for Showboat, Inc. for the year ended December 31, 1995 in connection with the accounting principle change regarding the calculation of earnings per share. 1,000 YEAR DEC-31-1995 DEC-31-1995 29,605 77,322 11,129 2,681 2,808 134,731 541,786 186,872 649,395 53,716 392,369 0 0 15,795 158,145 649,395 423,213 428,592 0 210,339 171,556 1,605 29,692 24,610 11,435 13,175 0 0 0 13,175 0.85 0.84
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