-----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, BGFLH3HFHNqFMUPTO0gMq3Yc7nFq12fedRQMhnJY7sVh1/3Q/AsJAxDhMrtcyxow OrQeN3yJ14uxchygmPhDkg== 0000906477-96-000010.txt : 19960320 0000906477-96-000010.hdr.sgml : 19960320 ACCESSION NUMBER: 0000906477-96-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960319 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: 1934 Act SEC FILE NUMBER: 001-07123 FILM NUMBER: 96536256 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 [FEE REQUIRED] For the fiscal year ended December 31, 1995 [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 [NO FEE REQUIRED] 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 jurisdiction (I.R.S. employer of incorporation or organization identification no.) 2800 Fremont Street, Las Vegas, Nevada 89104 (Address of principal executive offices) (Zip code) (702) 385-9141 (Registrant's telephone number, including area code) Securities registered pursuant to section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, $1.00 par value, and New York Stock Exchange Preferred Stock Purchase Rights 9 1/4% First Mortgage Bonds due 2008 New York Stock Exchange Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] 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 15, 1996, was approximately $342,272,000. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of March 15, 1996: 15,762,285 DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III of this Report is incorporated by reference from the Showboat, Inc. Proxy Statement to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Report. 2 PART I ITEM 1.BUSINESS GENERAL Showboat, Inc. (the "Company"), through subsidiaries, (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"), and (iii) beneficially owns a 26.3% interest in, and manages, the Sydney Harbour Casino in Sydney, New South Wales, Australia, which commenced gaming operations in an interim casino on September 13, 1995. The Company, through subsidiaries, also owns (i) a 55% partnership interest in Showboat Marina Partnership, which received a certificate of suitability on January 8, 1996 for a riverboat owner's license in East Chicago, Indiana, and (ii) an 80% interest in Southboat Limited Partnership which has submitted an application with the Missouri Gaming Commission for a riverboat gaming license near Lemay, Missouri. From July 1993 to March 31, 1995, the Company owned an interest in, and managed the Showboat Star Casino, a riverboat casino then located on Lake Pontchartrain in New Orleans, Louisiana. The Company commenced operations in September 1954, as a partnership, and was incorporated in Nevada in 1960. The Company operated only in Nevada until the Atlantic City Showboat commenced operations in 1987. The Company became a publicly traded company on December 9, 1968. It was listed on the American Stock Exchange from 1973 to 1984 and on the New York Stock Exchange from 1984 to the present. 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 1995 DEVELOPMENTS SYDNEY, AUSTRALIA The Sydney Harbour Casino commenced gaming operations in an interim casino in Sydney, New South Wales, Australia on September 13, 1995. Showboat Australia Pty Limited ("SA"), a corporation formed under the laws of the State of New South Wales and wholly-owned by subsidiaries of Showboat, is the largest single shareholder at 26.3% of Sydney Harbour Casino Holdings Limited ("SHCH"). SHCH, through wholly-owned subsidiaries, owns the Sydney Harbour Casino and holds the casino license required to operate the Sydney Harbour Casino. SA also has an 85% interest in the management company which manages the Sydney Harbour Casino pursuant to the terms of a 99-year management agreement. The interim casino, which has approximately 60,000 square feet of casino space, is located approximately one mile from the Sydney central business district at Pyrmont Bay adjacent to Darling Harbour on Wharves 12 and 13. An existing building was renovated to permit the operation of the interim casino containing 500 slot machines and 150 table games. The interim 3 casino is open 24 hours per day, every day of the year. The interim casino features restaurants, bars, a sports lounge and a gift shop. The opening of the Sydney Harbour Casino marks the beginning of Sydney Harbour Casino's 12-year monopoly as the only full- service casino in the State of New South Wales. This exclusive 12-year period is included in the 99-year casino license awarded to Sydney Harbour Casino Pty Limited ("SHCL"), a wholly-owned subsidiary of SHCH. Pursuant to the terms of a construction contract and subject to certain exceptions, the permanent Sydney Harbour Casino must be completed within 38 months of the December 1994 award of the casino license to SHCL. The Company anticipates that the permanent Sydney Harbour Casino will commence operations by early 1998. The permanent Sydney Harbour Casino will be located at Pyrmont Bay next to the interim casino site. Pursuant to the terms of the casino license, upon opening the permanent casino, the interim casino will cease operations. The permanent Sydney Harbour Casino will feature approximately 153,000 square feet of casino space, including an approximately 22,000 square foot private gaming area to be located on a separate level which will target a premium clientele. The Sydney Harbour Casino will have 1,500 slot machines and 200 table games. The permanent Sydney Harbour Casino will also contain several themed restaurants, cocktail lounges, a 2,000 seat lyric theatre, a 900 seat cabaret style theatre and extensive public areas. The Sydney Harbour Casino complex will include a 352-room hotel tower and an adjacent condominium tower containing 139 privately-owned units with full hotel services. The complex will also include extensive retail facilities, a station for Sydney's proposed light rail system, a bus terminal, docking facilities for commuter ferries and parking for approximately 2,500 cars. EAST CHICAGO, INDIANA On January 8, 1996, the Showboat Marina Partnership ("SMP") was issued a certificate of suitability by the Indiana Gaming Commission (the "Indiana Commission") for a gaming license to own and operate a riverboat casino and related facilities (collectively, the "East Chicago Showboat") in East Chicago, Indiana. SMP is owned 55% by Showboat Indiana Investment Limited Partnership, a wholly-owned limited partnership of the Company, and 45% by Waterfront Entertainment and Development, Inc. ("Waterfront"), an unrelated corporation. SMP has applied to the Indiana Commission to transfer the certificate of suitability to a subsidiary partnership. The subsidiary partnership would then, if the transfer is approved, own and operate the East Chicago Showboat. No assurance can be given that the Indiana Commission will approve the transfer of the certificate of suitability to the subsidiary partnership. The certificate of suitability is valid for a period of 180 days from January 8, 1996, during which time SMP or the subsidiary partnership, as applicable, must comply with certain statutory requirements and special conditions in order to receive a permanent riverboat owner's license. The time period of the certificate of suitability may be extended at the discretion of the Indiana Commission. During the 180 day (or subsequently extended) interim compliance period, SMP or the subsidiary partnership, as applicable, must (i) invest at least $154.5 million in project development costs for the East Chicago Showboat, including, but not limited to site improvements, preopening expenses and contingency; (ii) obtain all permits, licenses and certificates required for lawful operation of the East Chicago Showboat, including those related to zoning, building, fire safety and health; (iii) 4 obtain any required financing; (iv) post a bond in an amount the local community will spend for infrastructure and any other facilities associated with the East Chicago Showboat; (v) obtain insurance; and (vi) obtain licensure for gaming equipment. Failure to substantially comply with the foregoing requirements may result in the Indiana Commission not extending the certificate of suitability beyond the initial 180 day period. The certificate of suitability also provides that failure to commence excursions within twelve months of January 8, 1996, may result in the revocation of the certificate of suitability; however, to date, the Indiana Commission has not revoked any gaming operator's certificate of suitability for failure to commence excursions within twelve months of issuance. No assurance can be given, however, that the Indiana Commission will not revoke the certificate of suitability if SMP or the subsidiary partnership, as applicable, fails to commence excursions within 12 months of the date of issuance thereof. If the Indiana Commission determines SMP or the subsidiary partnership, as applicable, has complied with the requirements of the certificate of suitability and all other applicable statutory and regulatory requirements required during the interim compliance period, it may issue an owner's license. The East Chicago Showboat will be located approximately 12 miles from downtown Chicago, Illinois. The current plans for the East Chicago Showboat contemplate a 100,000 square foot state-of- the-art riverboat casino containing approximately 51,000 square feet of gaming space on four levels and will feature approximately 1,700 slot machines and approximately 86 table games. The riverboat casino is designated to accommodate up to 3,750 customers. Adjacent to the riverboat will be an approximately 100,000 square foot pavilion which will feature restaurants, cocktail lounges and retail space. The East Chicago Showboat will provide secure, well-lit customer parking for approximately 2,500 vehicles, which includes a parking garage for approximately 1,000 vehicles and surface level parking for approximately 1,500 vehicles. The East Chicago Showboat is expected to cost approximately $195.0 million and is expected to commence gaming operations by July 1, 1997. Showboat will invest approximately $40.0 million in SMP of which $39.0 million will be contributed to the subsidiary partnership. SMP, or the subsidiary partnership, as applicable, intends to obtain a combination of debt and equipment financings for an aggregate of approximately $156.0 million to develop the East Chicago Showboat. No assurance can be given that SMP, or the subsidiary partnership, as applicable, will be successful in obtaining such financings. Under the current partnership agreement, the Company will receive a 12% preferred return on its investment in SMP. In addition, subject to certain qualifications and exceptions, the Company has agreed to provide a completion guarantee to complete the East Chicago Project so that it becomes operational, including the payment of all costs owing prior to such completion, up to a maximum aggregate amount of $30.0 million should a lender require a completion guarantee in connection with any development financing. In addition, subject to certain qualifications and exceptions, the Company has agreed to provide a standby equity commitment should a lender require a standby equity commitment in connection with any development financing, pursuant to which it will cause to be made up to an aggregate of $30.0 million in additional capital contributions to SMP or the subsidiary partnership if, during the first three full four fiscal quarters following the commencement of operations, the East Chicago 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 5 Company be required to cause to be contributed to the subsidiary partnership more than $15.0 million in respect of any one such full four quarter period. If the Company is required to provide a standby equity commitment, Waterfront has agreed to pay the Company $5.2 million, which amount shall accrue interest at 12% per annum until paid, from Waterfront's share of distributable cash from SMP. Among other things, SMP agreed to contribute the following economic incentives to the City of East Chicago: (i) 3% of its adjusted gross receipts for the benefit of economic development, education and community development in the City of East Chicago, (ii) .75% of its adjusted gross receipts for the benefit of commercial and housing development in the City of East Chicago, (iii) to reimburse certain expenses of the City of East Chicago, (iv) to fund certain projects and programs designated by the City of East Chicago, and (v) to provide job training for residents of the City of East Chicago who are hired as employees of East Chicago Showboat. SMP committed to fund the following projects in the approximate amounts specified, regardless of the issuance of a gaming license: (1) Healthy East Chicago Wellness Program, with estimated expenditures of $200,000 in 1996; (2) comprehensive market development assessment for various transportation corridors in the City, with estimated expenditures of $70,000 in 1996; (3) various capital improvements to the City, with expenditures of $500,000 in 1996; and (4) engineering fees related to the water marketing project for extension of the City's water main, with estimated expenditures of $500,000 in 1996. Fifty percent of the funds expended by SMP or the subsidiary partnership, as applicable, in connection with these four projects shall be credited against the 1% share payable to the City of East Chicago during the first and, if necessary second years of operations, only, unless otherwise approved by the City of East Chicago. On October 19, 1995, SMP entered into a lease with the City of East Chicago for certain real property and improvements in Lake County, Indiana. The term of the lease which commenced upon the issuance of the certificate of suitability is 30 years with two options to extend for 30 years each. Annual rent for the SMP Casino Site is $400,000, subject to adjustment. On December 6, 1995, the U.S. Army Corps of Engineers issued a final development permit to the City of East Chicago for the East Chicago Showboat. LAS VEGAS, NEVADA In December 1995, the Company completed an approximately $21.0 million renovation of the Las Vegas Showboat that primarily improved the quality of the public areas of the Las Vegas Showboat. Approximately 30,000 square feet or 40% of the casino space was closed from July 1995 to December 1995 as a result of the renovation, which closure caused a significant disruption in operations and earnings at the Las Vegas Showboat. The renovation project included the replacement of the roof over a portion of the casino which resulted in higher ceilings and the removal of a number of support pillars, giving the casino a more expansive appearance. An internal balcony was added which provides an overview of the casino. The renovation also included a number of alterations and expansions to the dining and bar areas to improve their variety and overall ambiance. The coffee shop was expanded to include patio seating which looks into the casino. The Mardi Gras Lounge, formerly the Carnival Lounge, was doubled in size to meet the demand of patrons when popular entertainers perform, and the casino bar adjacent to the lounge was expanded to include an additional raised seating area and a large screen television. 6 Additionally, the facilities power plant and HVAC systems were replaced, a new pool building was constructed, new carpeting was installed throughout the property, the buffet and coffee shop kitchens and the employee dining room were remodeled and enlarged and an employee learning center was added. ATLANTIC CITY, NEW JERSEY During 1995, the Atlantic City Showboat restructured the layout of its casino. Jake's Betting Parlor, which contained approximately 15,000 square feet of casino space, approximately 40 table games, a horse race simulcast facility, a keno facility and a poker room, was converted into the Carousel Room, a premium slot area. The simulcast and keno facilities were relocated to the main casino floor. Approximately 400 slot machines were added in connection with this restructuring. In connection with the settlement of certain litigation in December 1995 for cash and non-cash consideration, Atlantic City Showboat, Inc. ("ACSI"), a wholly-owned subsidiary of the Company, received title to certain real property adjacent to the Atlantic City Showboat upon which it constructed a surface level parking area for approximately 500 vehicles. 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"). SLP is owned 80% by Showboat Lemay, the sole general partner, and 20% by Futuresouth, the sole limited partner. The Southboat Casino Project is expected to be located on approximately 29 acres at the southernmost portion of the St. Louis County Port Authority Site on the Mississippi River near Lemay, Missouri (the "Southboat Casino Site"). The Southboat Casino Project is intended to be a multi-level gaming and entertainment facility within a New Orleans-themed riverboat and permanently-moored barge complex. The total cost of the Southboat Casino Project is anticipated to be approximately $117.0 million. The limited partnership agreement provides that the Company's initial capital contribution is $19.5 million and that Showboat Lemay, on behalf of SLP, will arrange for a $75.0 million loan to develop the Southboat Casino Project and to arrange for equipment financing for the remaining costs of the project. SLP has entered into a commitment letter to receive up to $75.0 million of financing for the construction of the Southboat Casino Project, subject to certain conditions. The commitment letter expires on May 10, 1996. No assurance can be given that SLP will be selected for investigation prior to the expiration of the commitment letter. No assurance can be given that SLP will be successful in obtaining the necessary funds to finance the Southboat Casino Project or that SLP will be successful in obtaining a casino license. The Company has also agreed to provide a loan to SLP in the amount of approximately $4.5 million to assist in the development of the Southboat Casino Project. Pursuant to the terms of a management agreement, an administrative services agreement and a trademark license agreement, each dated May 2, 1995, the Company has agreed to manage and to provide other services to the proposed operations at the Southboat Casino Project. The Company will receive an aggregate fee equal to 5 1/4 % of gross gaming revenues net of all 7 gaming taxes, plus an incentive management fee equal to (i) 20% of earnings between $30.0 to $35.0 million before any interest expense, income taxes, capital lease rent, depreciation and amortization, and (ii) 10% of earnings in excess of $35.0 million before any interest expense, income taxes, capital lease rent, depreciation and amortization. On October 13, 1995, SLP entered into a lease and development agreement with the St. Louis County Port Authority ("Port Authority") for the lease of the Southboat Casino Site for a term of 99 years, commencing upon the investigation of SLP for a Missouri gaming license and the receipt of all permits from the U.S. Army Corps of Engineers. Fees and rent for the Southboat Casino Site are payable as follows: (i) a $500,000 acceptance fee upon completion of a due diligence period; (ii) a $750,000 security deposit on the commencement date of the lease; (iii) a $2.5 million fee on the commencement date of the lease; (iv) a $2.5 million fee on the opening date of the Southboat Casino Project; (v) rent in the amount of $2.0 million per annum payable in equal monthly installments, beginning on the commencement date and continuing until the opening of the Southboat Casino Project; and (iv) rent in the amount of the greater of 4% of adjusted gross receipts or Minimum Rent (as defined below), beginning on the opening date of the Southboat Casino Project and continuing until the expiration of the term of the lease. "Minimum Rent" means $3.0 million during the first 12-month period occurring after the opening of the Southboat Casino Project; $2.8 million during the second 12-month period; $2.6 million during the third 12-month period; $2.4 million during the fourth 12-month period; $2.2 million during the fifth 12-month period; and $2.0 million beginning on the fifth anniversary of the opening of the Southboat Casino Project and continuing through the 15th lease year ("Guarantee Period"). The Company has guaranteed SLP's payment of Minimum Rent for the Guarantee Period and SLP's timely completion of, construction of, and payment for all improvements and installations in connection with SLP's development of the Southboat Casino Project. If SLP fails to pay any monthly installment of Minimum Rent, or if the lease is terminated at any time within the Guarantee Period due to an event of default by SLP, the Company must pay either (i) the full sum of unpaid Minimum Rent due for the remainder of the Guarantee Period, or (ii) if it posts a $2.0 million letter of credit, make monthly payments of Minimum Rent. In addition, the Company agreed to provide a Guarantee of Completion to the Port Authority which provides, in material part, that the Company will complete the construction of the Southboat Casino Project should SLP, after the commencement of work, abandon the project for a period of 30 days after receipt of notice from the Port Authority. On October 17, 1995, SLP submitted an application to the Missouri Gaming Commission (the "Missouri Commission") for the necessary gaming licenses to own and operate the Southboat Casino Project. In the event SLP is selected for investigation by the Missouri Commission for a casino license, SLP will submit an application to the U.S. Army Corps of Engineers for the necessary permits. In the event that SLP is issued such permits by the U.S. Army Corps of Engineers, SLP will commence construction of the Southboat Casino Project, which construction the Company believes will take approximately 12 to 18 months to complete. As of March 15, 1996, SLP had not been selected for investigation by the Missouri Commission for a casino license and there can be no assurance that such a selection will occur or, if such selection occurs, that a gaming license will be granted to SLP. 8 PREFERRED STOCK PURCHASE RIGHTS On October 5, 1995, the Board of Directors of the Company declared a dividend to shareholders of record on October 16, 1995 of one Preferred Stock Purchase Right (the "Right(s)") for each outstanding share of Common Stock, par value $1.00 per share (the "Common Stock"), of the Company. Each Right entitles the registered holder to purchase from the Company one one-hundredth (1/100) of a share of a new series of preferred shares of the Company, designated as Series A Junior Preferred Stock ("Preferred Stock"), at a price of $120.00 per one one-hundredth (1/100) of a share (the "Exercise Price"), subject to certain adjustments. Initially, the Rights are not exercisable and automatically trade with the Common Stock. The Rights are not represented by a separate certificate, but are evidenced, with respect to any of the Common Stock certificates outstanding as of October 16, 1995, by such Common Stock certificate with a copy of a summary of the Rights attached thereto. The Rights, unless earlier redeemed by the Board of Directors, become exercisable upon the close of business on the day (the "Distribution Date") which is the earlier of (i) the tenth day following a public announcement that a person or group of affiliated or associated persons, with certain exceptions set forth below, has acquired beneficial ownership of 15% or more of the outstanding voting stock of the Company (an "Acquiring Person") and (ii) the tenth business day (or such later date as may be determined by the Board of Directors prior to such time as any person or group of affiliated or associated persons becomes an Acquiring Person) after the date of the commencement or announcement of a person's or group's intention to commence a tender or exchange offer the consummation of which would result in the ownership of 30% or more of the Company's outstanding voting stock (even if no shares are actually purchased pursuant to such offer). An Acquiring Person does not include (A) the Company, (B) any subsidiary of the Company, (C) any employee benefit plan or employee stock plan of the Company or of any subsidiary of the Company, or any trust or other entity organized, appointed, established or holding Common Stock for or pursuant to the terms of any such plan or (D) any person or group whose ownership of 15% or more of the shares of voting stock of the Company then outstanding results solely from (i) any action or transaction or transactions approved by the Board of Directors before such person or group became an Acquiring Person or (ii) a reduction in the number of issued and outstanding shares of voting stock of the Company pursuant to a transaction or transactions approved by the Board of Directors (provided that any person or group that does not become an Acquiring Person by reason of clause (i) or (ii) above shall become an Acquiring Person upon acquisition of an additional 1% of the Company's voting stock unless such acquisition of additional voting stock will not result in such person or group becoming an Acquiring Person by reason of such clause (i) or (ii)). The Rights are not exercisable until the Distribution Date. The Rights will expire at the close of business on October 5, 2005, unless earlier redeemed by the Company as described below. The Preferred Stock is non-redeemable and, unless otherwise provided in connection with the creation of a subsequent series of preferred stock, subordinate to any other series of the Company's preferred stock. The Preferred Stock may not be issued except upon exercise of Rights. Each share of Preferred Stock will be entitled to receive when, as and if declared, a 9 quarterly dividend in an amount equal to the greater of $120.00 per share and 100 times the cash dividends declared on the Company's Common Stock. In addition, the Preferred Stock is entitled to 100 times any non-cash dividends (other than dividends payable in equity securities) declared on the Common Stock, in like kind. 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. The number of shares of Preferred Stock issuable upon exercise of the Rights is subject to certain adjustments from time to time in the event of a stock dividend on, or a subdivision or combination of, the Common Stock. The Exercise Price for the Rights is subject to adjustment in the event of extraordinary distributions of cash or other property to holders of Common Stock. Unless the Rights are earlier redeemed or the transaction is approved by the Board of Directors and the Continuing Directors, in the event that, after the time that the Rights become exercisable, the Company were to be acquired in a merger or other business combination (in which any shares of the Company's Common Stock are changed into or exchanged for other securities or assets) or more than 50% of the assets or earning power of the Company and its subsidiaries (taken as a whole) were to be sold or transferred in one or a series of related transactions, the Rights Agreement provides that proper provision will be made so that each holder of record of a Right will from and after such date have the right to receive, upon payment of the Exercise Price, that number of shares of common stock of the acquiring company having a market value at the time of such transaction equal to two times the Exercise Price. In addition, unless the Rights are earlier redeemed, if a person or group (with certain exceptions) becomes the beneficial owner of 15% or more of the Company's voting stock (other than pursuant to a tender or exchange offer (a "Qualifying Tender Offer") for all outstanding shares of Common Stock that is approved by the Board of Directors, after taking into account the long-term value of the Company and all other factors they consider relevant in the circumstances), the Rights Agreement provides that proper provision will be made so that each holder of record of a Right, other than the Acquiring Person (whose Rights will thereupon become null and void), will thereafter have the right to receive, upon payment of the Exercise Price, that number of shares of the Company's Preferred Stock having a market value at the time of the transaction equal to two times the Exercise Price (such market value to be determined with reference to the market value of the Company's Common Stock as provided in the Rights Agreement). At any time on or prior to the close of business on the tenth day after the time that a person has become an Acquiring Person (or such later date as a majority of the Board of Directors and a majority of the Continuing Directors (as defined in the Rights Agreement) may determine), the Company may redeem the Rights in whole, but not in part, at a price of $.01 per Right ("Redemption Price"). The Rights may be redeemed after the time that any person has become an Acquiring Person only if approved by a majority of the Continuing Directors. Immediately upon the effective time of the action of the Board of Directors of the Company authorizing redemption of the Rights, the right to exercise the Rights will terminate and the only 10 right of the holders of the Rights will be to receive the Redemption Price. For as long as the Rights are then redeemable, the Company may, except with respect to the redemption price or date of expiration of the Rights, amend the Rights in any manner, including an amendment to extend the time period in which the Rights may be redeemed. At any time when the Rights are not then redeemable, the Company may amend the Rights in any manner that does not materially adversely affect the interests of holders of the Rights as such. Amendments to the Rights Agreement from and after the time that any person becomes an Acquiring Person requires the approval of a majority of the Continuing Directors (as provided in the Rights Agreement). 200,000 shares of Preferred Stock have been reserved for issuance upon exercise of the Rights. The Rights have certain anti-takeover effects. The Rights will cause substantial dilution to a person or group who attempts to acquire the Company on terms not approved by the Company's Board of Directors. The Rights should not interfere with any merger or other business combination approved by the Board since they may be redeemed by the Company at $.01 per Right at any time until the close of business on the tenth day (or such later date as described above) after a person or group has obtained beneficial ownership of 15% or more of the voting stock. NEW ORLEANS, LOUISIANA In a series of unrelated transactions in 1995, Showboat Star Partnership ("SSP") sold certain of its assets, and the Company sold all of its equity interest in SSP, resulting in a pretax gain to the Company of $2.6 million. SSP owned the Showboat Star Casino that was located on the south shore of Lake Pontchartrain in New Orleans, Louisiana, approximately seven miles from the New Orleans' "French Quarter." The Showboat Star Casino commenced gaming operations on November 8, 1993. The riverboat contained approximately 21,900 square feet of gaming space on three levels, with approximately 770 slot machines and 40 table games. On- shore facilities included a 34,000 square foot terminal building, which contained a restaurant, a cocktail lounge and administrative offices. SSP elected to cease all gaming operations on March 9, 1995 due to conflicting interpretations by the Orleans Parish District Attorney and an administrative law judge regarding the Louisiana Riverboat Gaming Act relating to circumstances under which a riverboat casino could conduct dockside gaming operations. RANDOLPH, MISSOURI In March 1995, the Company, through a subsidiary, purchased a 35% interest in Showboat Mardi Gras, L.L.C. ("SMG") (f/k/a Randolph Riverboat Company, L.L.C.), which applied for a gaming license with the Missouri Commission to own and operate a riverboat casino in Randolph, Missouri. In May 1995, the Missouri Commission selected the applicants for the then available gaming licenses in the Kansas City, Missouri metropolitan area. SMG was not selected and is currently seeking a buyer for its riverboat. The Company contributed approximately $5.1 million to SMG which was used for the construction of the riverboat, costs incurred in the license application process and other general and administrative expenses. Although additional contributions may be required from the Company in order for SMG to sell the riverboat, the Company will receive a portion of the proceeds upon the sale of the riverboat 11 and other assets of SMG. The Company has recognized a pre-tax write-down of $1.4 million on its investment in SMG. 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, which loan is secured by a second mortgage on Rockingham Park. 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. 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. FUTURE EXPANSION The Company regularly 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. 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. 12 NARRATIVE DESCRIPTION OF BUSINESS ATLANTIC CITY OPERATIONS The Company's subsidiary, ACSI, owns and operates the Atlantic City Showboat, which commenced operations in 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 are leased to ACSI. In addition, ACSI owns two nearby surface parking lots which consist of approximately nine acres in the aggregate. The Atlantic City Showboat is a New Orleans-themed hotel- casino featuring, as of March 1, 1996, approximately 97,000 square feet of casino space located in an expansive four-story podium facility. The four-story podium houses the casino and a 20-story hotel tower and is adjacent to a 17-story hotel tower constructed in 1994. 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 four-story podium 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 ten elevators provide easy access to the second public level. Public areas located on the ground level, in addition to the casino space, include a show lounge, five restaurants, two cocktail lounges, a pizza snack bar, an ice cream parlor, 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, board room and exhibition space and a 60-lane bowling center, including a snack bar and cocktail lounge. As of March 1, 1996, the casino offered approximately 3,300 slot machines, 95 table games, a horse race simulcast facility and a keno facility. The second and fourth levels of the four-story podium 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 casino podium. 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 Atlantic City Showboat is the Taj Mahal Casino Hotel (the "Taj Mahal"). The Taj Mahal is the largest casino in Atlantic City and is connected to both the Atlantic City Showboat and Merv Griffin's Resorts International Casino Hotel by pedestrian passageways. 13 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. ATLANTIC CITY EMPLOYEES AND LABOR RELATIONS As of March 1, 1996, the Atlantic City Showboat employed approximately 3,300 persons on a full-time basis and approximately 350 persons on a part-time basis. Approximately 1,330 or 40.3% of the Atlantic City Showboat's full-time employees are covered by collective bargaining agreements. 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 Company owns the Las Vegas Showboat which 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, 453 hotel rooms, a 106-lane bowling center, two specialty restaurants, a buffet, a coffee shop, a 1,300-seat bingo parlor garden and a showroom. In addition, 8,300 square feet of meeting room area is available with a seating capacity of 1,000 persons. As of March 1, 1996, the Las Vegas Showboat's casino offered approximately 1,450 slot machines, 28 table games, a race and sports book and a keno facility. The Las Vegas Showboat also plans to develop a recreational vehicle park with approximately 80 spaces on leased property near the Las Vegas Showboat. Assuming there are no delays in the design and construction phases, the recreational vehicle park is expected to be operational in September 1996. The Las Vegas Showboat sponsors a variety of special events designed to produce a high volume of traffic through the casino. The Las Vegas Showboat sponsors such events as the Professional Bowlers Association Tour and Superstar Bingo, a high-stakes bingo game, and is the site of the annual High Rollers Million Dollar Bowling Tournament. The Las Vegas Showboat also regularly hosts small conventions and groups. In addition, the Las Vegas Showboat provides a slot club which is designed to attract and reward frequent slot players at the Las Vegas Showboat. 14 LAS VEGAS EMPLOYEES AND LABOR RELATIONS As of March 1, 1996, the Las Vegas Showboat employed approximately 1,275 persons, of which approximately 724 or 56.8% of the employees were represented by collective bargaining agreements. The Company considers its current labor relations to be satisfactory. SYDNEY OPERATIONS The Company's wholly-owned subsidiary, SA, invested approximately $100.0 million for a 26.3% interest in SHCH, which, through wholly-owned subsidiaries, owns the Sydney Harbour Casino and holds the casino license required to operate the Sydney Harbour Casino. SA also has an 85% interest in the management company which manages the Sydney Harbour Casino. In December 1994, the New South Wales Casino Control Authority ("NSWCCA") granted the only full-service casino license in the State of New South Wales to SHCL. The Sydney Harbour Casino commenced gaming operations in an interim casino in Sydney, Australia on September 13, 1995. The interim casino, which has approximately 60,000 square feet of casino space, is located approximately one mile from the Sydney central business district at Pyrmont Bay adjacent to Darling Harbour on Wharves 12 and 13. An existing building was renovated to permit the operation of the interim casino containing 500 slot machines and 150 table games. The interim casino is open 24 hours per day, every day of the year. The interim casino also features restaurants, bars, a sports lounge and a gift shop. The opening of the Sydney Harbour Casino marks the beginning of Sydney Harbour Casino's 12-year monopoly as the only full- service casino in the State of New South Wales. This exclusive 12-year period is included in the 99-year casino license awarded to SHCL. Pursuant to the terms of a construction contract and subject to certain exceptions, the permanent Sydney Harbour Casino must be completed within 38 months of the award of the casino license to SHCL. The Company anticipates that the permanent Sydney Harbour Casino will commence operations by early 1998. The permanent Sydney Harbour Casino will be located at Pyrmont Bay next to the interim casino site. Pursuant to the terms of the casino license, upon opening the permanent casino, the interim casino will cease operations. The permanent Sydney Harbour Casino will feature approximately 153,000 square feet of casino space, including an approximately 22,000 square foot private gaming area to be located on a separate level which will target a premium clientele. The Sydney Harbour Casino will have 1,500 slot machines and 200 table games. The permanent Sydney Harbour Casino will also contain several themed restaurants, cocktail lounges, a 2,000 seat lyric theatre, a 900 seat cabaret style theatre and extensive public areas. The Sydney Harbour Casino complex will include a 352 room hotel tower and an adjacent condominium tower containing 139 privately-owned units with full hotel services. When available, some of the 139 privately-owned units may also be used by the hotel for its guests. The complex will also include extensive retail facilities, a station for Sydney's proposed light rail system, a bus terminal, docking facilities for commuter ferries and parking for approximately 2,500 cars on site. 15 In April 1994, Sydney Harbour Casino Properties Pty Limited ("SHCP"), a wholly-owned subsidiary of SHCH, entered into an agreement with Leighton Properties Pty Limited ("Leighton Properties") to design and construct the interim and permanent Sydney Harbour Casino for a total of A$691.0 million. (As used in this Form 10-K, amounts in Australian dollars are denoted as "A$." As of March 15, 1996, the exchange rate was approximately $0.7744 for each A$1.00.) SHCP is currently reviewing the design of the permanent Sydney Harbour Casino with the view to improving its operational efficiency and product quality and to match the changing competitive environment. Additionally, SHCP and Leighton Properties are discussing matters in relation to the administration and management of the project under the construction contract, including an accelerated completion date for the project, firming up on monetary allowances and resolution of certain claims notified by Leighton Properties to SHCP. Subject to the completion of the final plans, financing and required approvals and agreements, the current cost estimate of the Sydney Harbour Casino project is A$771.0 million. The total development cost is, however, subject to change based upon the final modifications resulting from SHCP's review of the design for the permanent Sydney Harbour Casino and the result of SHCP's discussions with Leighton Properties relating to the administration and management of the project. As with any construction contract, the final amount of such contract will be subject to modification based upon change orders and the occurrence of certain events such as costs associated with certain types of construction delays. No assurance can be given that the construction costs for the Sydney Harbour Casino will not exceed budgeted amounts. SHCP has incurred approximately A$276.1 million of the project costs as of December 31, 1995. Under the terms of the construction contract and subject to certain exceptions, the permanent casino must be completed within 38 months of December 1994, the date of issuance of the casino license. In the event that the permanent Sydney Harbour Casino is not completed within such time period, the construction contract provides for the payment of liquidated damages of not more than A$150,000 per day to an aggregate maximum amount of A$30.0 million. Additionally, SHCH is indemnified against any loss arising from the contractor's failure to perform its obligations under the construction contract. The cost of the Sydney Harbour Casino, excluding the cost components for construction of the interim and permanent casinos, is anticipated to be approximately A$518.0 million. In addition to its 26.3% 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. SA's option may be exercised no earlier than July 1, 1998 and expires June 30, 2000. If all of the options to purchase equity in SHCH were exercised, including the exercise by SA of its options, SA's ownership in SHCH would increase to 28.3%. However, depending on various factors, including the number of options exercised by the holders of options, the issuance of additional shares or options by SHCH and the purchase or sale of shares of SHCH by SA, SA's ownership interest in SHCH could vary. 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 the permanent Sydney Harbour Casino 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. 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, manages the interim casino and will manage the permanent Sydney Harbour Casino pursuant to a 99-year management agreement (the "Management Agreement"). The terms of the 16 Management Agreement require the Manager to advise SHCL or SHCP as to the casino design and configuration and the placement of all gaming equipment. The Manager also has agreed to train all employees of the Sydney Harbour Casino 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 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. SA has agreed to forego the first A$19.1 million of its 85% portion of the fees due under the Management Agreement, of which amount approximately A$15.1 million remains as of December 31, 1995. Gaming revenue from the Sydney Harbour Casino will be taxed at a rate of (i) 22.5% of slot machine revenue and (ii) 20% of the first A$200.0 million 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$320.0 million per annum. The A$200.0 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. SHCL will also pay a community benefit levy of 2.0% of gross gaming revenue. As with any major construction effort, the permanent Sydney Harbour Casino involves many risks, including, without limitation, shortages of materials and labor, work stoppages, labor disputes, weather interference, unforeseen engineering, environmental or geological problems and unanticipated cost increases, any of which could give rise to delays or cost overruns. Construction, equipment or staffing problems or difficulties in obtaining any of the requisite permits, allocations and authorizations from regulatory authorities could increase the cost or delay the construction or opening of the permanent facilities or otherwise affect their design and features. The final budgets and construction plans for the permanent Sydney Harbour Casino may vary significantly from that which is currently anticipated. Accordingly, there can be no assurance that the permanent Sydney Harbour Casino will be completed within the time periods or budgets which are currently contemplated. In addition, 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 1, 1996, the Sydney Harbour Casino employed approximately 2,750 persons, of which approximately 2,290 or 83% of the employees were represented by collective bargaining agreements. The Sydney Harbour Casino considers its current labor relations to be satisfactory. 17 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, 1995, casinos either owned or managed by the Company featured the following approximate number of slot machines and table games:
Interim Sydney Atlantic City Las Vegas Harbour SHOWBOAT SHOWBOAT CASINO TOTAL Slot Machines 3,450 1,450 500 5,400 "21" Tables 47 15 83 147 Poker Tables 6 0 0 6 "Craps" Tables 12 2 2 16 Roulette Tables 13 2 31 46 Caribbean Stud Poker 7 1 4 12 Pai Gow Poker Tables 1 1 4 6 Baccarat Tables 3 0 3 6 Mini-Baccarat Tables 2 0 14 16 Big Six Wheel 2 0 3 5 Sic Bo 1 0 3 5 Let It Ride 0 2 0 2 Two Up 0 0 1 1
The Atlantic City Showboat also contains a horse racing simulcast room and a keno facility. The Las Vegas Showboat also contains a race and sports book, a 1,300-seat bingo parlor and a keno facility. On March 1, 1996, the Las Vegas Showboat reintroduced five poker tables. Slot machines have been the principal source of casino revenues at the Atlantic City Showboat and the Las Vegas Showboat. At the Atlantic City Showboat, slot machines accounted for 73.9%, 73.6% and 73.2% of casino revenues for the years ended December 31, 1995, 1994 and 1993, respectively. At the Las Vegas Showboat, slot machines accounted for 85.5%, 83.0% and 84.2% of casino revenues for the years ended December 31, 1995, 1994 and 1993, respectively. In contrast, table games have been the principal source of casino revenues at the interim Sydney Harbour Casino. For the period from commencement of operations to December 31, 1995, table games accounted for 86.1% of casino revenues at the Sydney Harbour Casino. Gaming operations at the Atlantic City Showboat, the Las Vegas Showboat and the interim Sydney Harbour Casino are each conducted 24 hours a day, every day of the year. 18 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 for the years ended December 31, 1995, 1994 and 1993. Net revenues for the interim Sydney Harbour Casino and the Showboat Star Casino are not included in the table since the Company accounts for its investment in SHCH and the SSP, respectively, under the equity method of accounting. The Company's equity in the income or loss of SHCH, net of intercompany elimination, was reduced to zero due to the write- off of preopening costs for the period from commencement of operations to December 31, 1995. Approximately, A$44.0 million in preopening costs were incurred as of December 31, 1995, and approximately A$23.4 million in preopening costs were expensed as of December 31, 1995. The remaining preopening costs will be expensed in 1996. The Company's equity in the income or loss of SSP, net of intercompany elimination, was a loss of $22,000 through March 31, 1995, income of $12,828,000 for the year ended December 31, 1994 and a loss of $850,000 for the period from commencement of operations to December 31, 1993. For other financial information, see the Company's financial statements contained in Item 8. Financial Statements and Supplementary Data.
Year Ended Year Ended DECEMBER 31, 1995 DECEMBER 31, 1994 (dollar amounts in thousands) AMOUNT PERCENT AMOUNT PERCENT Revenues: Casino $379,494 88.5 $351,436 87.6 Food and beverage 53,894 12.6 50,624 12.6 Rooms 25,694 6.0 20,587 5.1 Sports and special 3,924 1.0 4,168 1.0 events Other 5,379 1.2 7,799 2.0 Total gross revenues 468,385 109.3 434,614 108.3 Less compli- mentaries 39,793 9.3 33,281 8.3 Total net revenues $428,592 100.0 $401,333 100.0
Year Ended DECEMBER 31, 1993 (dollar amounts in thousands) AMOUNT PERCENT Revenues: Casino $329,522 87.7 Food and beverage 48,669 12.9 Rooms 19,355 5.2 Sports and special 4,251 1.1 events Other 5,982 1.6 Total gross revenues 407,779 108.5 Less compli- mentaries 32,052 8.5 Total net revenues $375,727 100.0 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. 19 Includes management fee revenues, net of intercompany elimination, in the amount of $.2 million, $1.9 million and $.3 million paid to Lake Pontchartrain Showboat, Inc., a wholly-owned subsidiary of the Company, from SSP in 1995, 1994 and 1993, respectively. Does not include interest income.
The Atlantic City Showboat offers complimentary meals, drinks and room accommodations to a larger percentage of customers than does the Las Vegas Showboat or the Sydney Harbour Casino. Such promotional allowances (complimentary services) at the Atlantic City Showboat were 9.7%, 8.8% and 9.3% of total net revenues for the years ended December 31, 1995, 1994 and 1993, respectively. Such promotional allowances (complimentary services) at the Las Vegas Showboat were 6.4%, 6.5% and 5.9% of total net revenues for the years ended December 31, 1995, 1994 and 1993, respectively. At the interim Sydney Harbour Casino, such complimentary services were 2.7% of the total net revenues for the period from commencement of operations to December 31, 1995. GAMING CREDIT POLICY A relatively minimal dollar amount of credit is extended to a limited number of gaming customers at the Las Vegas Showboat. The Sydney Harbour Casino is prohibited by regulation from extending any credit to its gaming customers. The Atlantic City Showboat, however, offers substantially more credit to a greater number of customers than the Las Vegas Showboat. At the Atlantic City Showboat, gaming receivables were approximately $7.1 million at December 31, 1995, before deducting allowance for doubtful accounts of approximately $2.5 million. In comparison, gaming receivables at the Atlantic City Showboat were approximately $6.9 million at December 31, 1994, 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 approximately $7.2 million at December 31, 1995, before deducting allowance for doubtful accounts of approximately $2.6 million. In comparison, the Company's gaming receivables were approximately $7.0 million at December 31, 1994, before deducting allowance for doubtful accounts of approximately $2.2 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. All other states are required to enforce a judgment on a gaming debt entered 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 .4% of casino revenues for the year ended December 31, 1995, as compared to approximately .2% for 20 the year ended December 31, 1994. Annual gaming bad debt expense at the Las Vegas Showboat was approximately .2% of casino revenues for the year ended December 31, 1995, as compared to approximately .2% of casino revenues for the year ended December 31, 1994. 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 performance. All dealers and other personnel are internally trained by the Company, however, dealers in New Jersey must also obtain certification from an independent dealer's school in order to meet licensing requirements. The Company presently intends to promote qualified employees to supervisory and management levels. However, staffing requirements for the Company's hotel-casinos and for the Company's Gaming Development Division have required that certain supervisory and management personnel be hired from other hotel-casinos. 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 gaming and hotel revenues are significantly seasonal in Las Vegas, Nevada. In contrast, the Company believes that gaming and hotel revenues are seasonal in Atlantic City, New Jersey due to the harsher weather in the mid-eastern seaboard during winter months. Due to the limited operating history of the Sydney Harbour Casino, the Company is currently evaluating whether gaming and hotel revenues are seasonal in Sydney, Australia. 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. Many states have legalized, and other states are currently considering legalizing, casino gaming. The Company believes that the growth in the legalization of gaming is fueled by a combination of increasing popularity and acceptability of gaming activities and the desire and need for states and local communities to generate revenues without increasing general taxation. 21 ATLANTIC CITY, NEW JERSEY The Atlantic City Showboat competes with 11 other hotel- casinos in Atlantic City containing a total of approximately 961,000 square feet of gaming space and approximately 9,200 casino hotel rooms as of December 31, 1995 (including the Atlantic City Showboat). According to the New Jersey Convention and Visitors Authority, seven expansions of existing hotel- casinos have been announced and are expected to be complete within the next two years, which will add approximately 3,600 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 gaming licenses 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. To a lesser extent, the Atlantic City Showboat competes with casinos in Nevada and other states of the United States and internationally. Delaware recently passed legislation authorizing all three racetracks in its state to operate slot machines. On December 29, 1995, two of those racetracks opened casinos containing a total of approximately 1,200 slot machines. The Company believes that the commencement or expansion of casino and other gaming ventures in 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. As of December 31, 1995, there were approximately four hotel-casinos located on the Boulder Strip (including the Las Vegas Showboat), 37 located on or near the Las Vegas Strip, 14 located in the downtown area and 11 located in other areas in or near Las Vegas. In recent months, 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. A new hotel-casino targeting a similar market as the Las Vegas Showboat is scheduled to open in April 1997 in Henderson, Nevada, approximately eight miles from the Las Vegas Showboat. According to the Las Vegas Convention and Visitors Authority, the Las Vegas hotel-motel room inventory was approximately 90,046 rooms as of December 31, 1995, an increase of approximately 1.7% from the prior year. Seven new hotel-casinos and seven hotel-casino expansions are under construction or have been announced, which will add approximately 19,000 rooms to the Las Vegas areas over the next approximately two years. 22 As a result of increased competition primarily for slot machine players and Las Vegas area residents, the Las Vegas Showboat has experienced declines in revenues and earnings from operations. The Company has expanded marketing and customer service programs in response to excess casino capacity in the Las Vegas market. In December 1995, the Company completed an approximately $21.0 million renovation of the Las Vegas Showboat that primarily improved the quality of the public areas of the Las Vegas Showboat. Approximately 30,000 square feet or 40% of the casino space was closed from July 1995 to December 1995 as a result of the renovation. The increased competition and the construction activities caused a significant disruption in operations and earnings at 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 and in New Jersey and other states of the United States and internationally. According to the Attorney General of California, as of January 1996, there were approximately 9,000 slot machines illegally located in approximately 30 casinos on Native American land throughout California, including four casinos in the Palm Springs area. In November 1995, a proposed initiative for the approval of gaming on Native American land in California was submitted to the California Attorney General's office but is facing opposition from certain government, law enforcement and religious leaders. 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 The Sydney Harbour Casino competes with casinos in Australia and other casinos located within the Pacific Rim. Currently, 16 full-service casinos operate in Australia and New Zealand. Sydney Harbour Casino will remain the only full-service casino in the State of New South Wales for 12 years following commencement of gaming operations in the interim casino. While only 13.9% of casino revenues were generated by slot machines, in 1994 (the most recently available public information), in excess of approximately 70,000 slot machines were permitted in approximately 1,800 hotels and approximately 1,500 non-profit private clubs in New South Wales. Hotels are limited to a maximum of ten slot machines each. In 1994, over 50% of the private clubs contained 25 slot machines or less; however, the largest private club contained in excess of 800 slot machines. Sydney Harbour Casino expects to compete 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, theatres, convention facilities and retail shopping. 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 gaming customers to its casinos. Specifically, the Company's marketing strategy at the Atlantic City Showboat and the Las Vegas Showboat is to develop a high volume of traffic through the casinos, emphasizing slot machine play which accounted for 23 73.9% and 85.5% of casino revenues of the Atlantic City Showboat and the Las Vegas Showboat, respectively, in 1995. The Atlantic City Showboat targets 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. The Sydney Harbour Casino intends to target 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 its slot machine customers by means of promotions, including players' clubs, and direct mailings. The Company also sponsors special events designed to attract its target customers. 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 first two license renewal periods are one year. Thereafter, 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 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 24 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 25, 1995 for the period commencing January 31, 1995 and ending January 31, 1997. 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. 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, 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 25 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. To satisfy this obligation, the Company may either: (i) pay an investment alternative tax equal to 2 1/2 of its 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. 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. In 1992, the New Jersey legislature adopted laws imposing 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 to market Atlantic City as a tourist destination and resort. In addition, the state of New Jersey, effective July 1, 1993, imposed a $1.50 per day fee for each patron's car that is parked at an Atlantic City casino. ACSI has elected to absorb the parking fee as a marketing expense, and not to collect the fee from patrons as do the majority of Atlantic City casinos. ACSI has incurred parking fees of approximately $1.9 million, $1.8 million and $.8 million in 1995, 1994 and 1993, respectively. 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. 26 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. 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 1995) 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. The Company, through SBOC, conducts casino gaming operations in Las Vegas, Nevada. The Company is not required to obtain the prior approval of the Nevada Gaming Authorities to conduct casino gaming operations outside Nevada. However, the Company must submit quarterly reports to the Nevada Board regarding (i) any changes in ownership or control of any interest in ACSI or OSI; (ii) any changes in officers, directors or key employees of ACSI or OSI; (iii) all complaints, disputes, orders to show cause and disciplinary actions, related to gaming, instituted or presided over by an entity of the United States, a state or any other governmental jurisdiction concerning ACSI or OSI; (iv) any arrest of an employee of ACSI or OSI involving cheating or theft related to gaming in New Jersey; and (v) any arrest or conviction of an officer, director, key employee or equity owner of ACSI or OSI for certain offenses. The Company, through its New Jersey subsidiaries, must provide to the Nevada Board all documents filed with the state of New Jersey relating to the Atlantic City Showboat, the systems of accounting and internal control utilized in connection with the Atlantic City Showboat, and annual operational and regulatory reports describing compliance with regulations, procedures for audit, and procedures for surveillance relating to the Atlantic City Showboat. The Company must also comply with any additional reporting requirements which may be imposed by the Nevada Board. New laws and regulations as well as amendments to existing laws and regulations pertaining to gaming activities in Nevada from time to time are proposed or adopted. Changes in such laws, regulations and 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 27 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 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 28 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 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, 29 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 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 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 1995, 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 30 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 and the Shelf Approval must be renewed annually. 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 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 applicable local authorities. 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 31 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 selling of food or refreshments. 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. 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 32 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 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. 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 the casino license should continue in force. 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. 33 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. 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. 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 formal rules and has proposed additional rules governing the application procedure. The Indiana Commission may suspend or revoke the license of a licensee or impose civil penalties, in some cases without notice or hearing. 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 U.S. Army Corps of Engineers, determine which waterways are navigable waterways for purposes of the Indiana Riverboat Gambling Act and determine which navigable waterways are suitable for the operation of riverboats. Additionally, the Indiana Commission may adopt emergency orders concerning navigability of waters for extreme weather conditions or other extreme circumstances. The Indiana 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. 34 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 an additional investigation fee of $55,000. If the applicant is selected, the applicant must pay an initial license fee of $25,000 and post a bond. A person holding an owner's gaming license issued by the Indiana Commission may not own more than a ten percent (10%) interest in another such license. An owners 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. A gaming license is a revocable privilege and is not a property right. In connection with its application for an owner's license, the Company, SMP and Waterfront declared to the Indiana Commission that if SMP, or upon the transfer of the certificate of suitability to the subsidiary partnership, the subsidiary partnership receives a riverboat owner's license for East Chicago, Indiana, 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 SMP or the subsidiary partnership, as applicable. Adherence to the non-competition declaration is a condition of the certificate of suitability and the owner's license. There can be no assurance that SMP or the subsidiary partnership will obtain an owner's license. Some municipalities have initiated their own review process. The Indiana Commission has passed a resolution stating that certain evaluations by local governments will be important factors in the Indiana Commission's economic development evaluation process, however, the Indiana Commission retains the sole authority to award a license. 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 are limited to a duration of four hours 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 35 (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. An admission tax of $3.00 for each person admitted to the gaming excursion is imposed upon the license owner. An additional twenty percent (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 uncollected gaming receivables. 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. Legislation is currently before the Indiana Legislature permitting the imposition of property taxes on the riverboats at rates to be determined by local taxing authorities of the jurisdiction in which a riverboat operates. 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 Riverboat Gambling Act places special emphasis upon minority and women's business enterprise participation in the riverboat industry. Any person issued a gaming owners license must establish goals of expending at least ten percent (10%) of the total dollar value of the licensee's contracts for goods and services with minority business enterprises and five percent (5%) of the total dollar value of the licensees contracts for goods and services with women's business enterprises. The Indiana Commission may suspend, limit or revoke the gaming owners license or impose a fine for failure to comply with statutory requirements. MISSOURI GAMING Gaming was originally authorized in the state of Missouri in November 1992. On April 29, 1993, new legislation (the "Missouri Act") was enacted which replaced the 1992 legislation. In January 1994 the Missouri Supreme court handed down a decision which held that the operation of certain games of chance such as traditional slot machines was prohibited by the constitution of the state of Missouri. On November 8, 1994, the people of Missouri voted in favor of an amendment to the Missouri constitution to allow slot machine gaming in the state. The Missouri Act provides for the licensing and regulation of excursion gambling boat operations on the Mississippi and Missouri Rivers in the state of Missouri and the licensing and regulation of persons who distribute gaming equipment and supplies to gaming licensees. An excursion gambling boat is a boat, ferry or other floating facility on which gaming is allowed. The Missouri Act limits the loss per individual on each excursion to $500, but does not otherwise limit the amount which may be wagered on any bet or the amount of space in the vessel which may be utilized for gaming. The Missouri Act is to be implemented and enforced by a five- member Missouri Commission. The Missouri Commission is empowered to issue such number of riverboat gaming licenses as it determines to be appropriate. A gaming license cannot be granted to any gaming operator unless the voters in such operator's "home dock" city or county have authorized gaming activities on gaming riverboats. 36 Gaming boats in Missouri must generally resemble boats from Missouri's riverboat history and must contain nongaming areas, food service and a Missouri theme gift shop. The boats must cruise unless public safety requires continuous docking. Annual license fees will be set by the Missouri Commission but may not be less than $25,000. Each licensee also must post a bond or other form of surety (in an amount determined by the Missouri Commission) to secure performance of its obligations under the Missouri Act and the regulations of the Missouri Commission. On September 1, 1993, the Missouri Commission adopted rules and regulations (the "Missouri Regulations") governing the licensing, operation and administration of riverboat gaming in the state of Missouri and the form of application for such licensure. SLP has submitted its gaming application. There can be no assurance that SLP will be selected for investigation for licensing or if so selected that a Missouri gaming license will be issued. In addition, the Missouri Regulations remain subject to amendment and interpretation, and may further limit or otherwise adversely affect the Company and its Missouri gaming operations. Directors and certain officers and key persons of the Company and SLP must file personal disclosure forms with the gaming license application and must be found suitable by the Missouri Commission. Further, the Missouri Regulations require that all employees of SLP who are involved in gaming operations must file applications for and receive Missouri gaming occupational licenses. The Missouri Regulations require disclosure by the Company and SLP of any person or entity holding any direct or indirect ownership interest in SLP. SLP is also required to disclose the names of the holders of all of SLP's debt including a description of the nature and terms of such debt. The Missouri Commission may, in its sole discretion, request additional information with respect to such holders. Missouri gaming licenses must be renewed annually during the first two years of an entity's licensure and renewed every two years thereafter. Under Missouri law, gaming licenses are not transferable, and under the Missouri Regulations the transfer of (i) any ownership interest in a privately held business entity or (ii) a 5% or greater interest in a publicly traded company directly or indirectly holding a Missouri gaming license is prohibited without the approval of the Missouri Commission. Further, without the prior approval of the Missouri Commission, the Missouri Regulations prohibit withdrawals of capital, loans, advances or distribution of any assets in excess of 5% of accumulated earnings by a license holder to anyone with an ownership interest in the license holder. The Missouri Regulations specifically provide that any action of the Missouri Commission shall not indicate or suggest that the Missouri Commission has considered or passed in any way on the marketability of the applicant or licensee's securities, or on any other matter, other than the applicant or licensee's suitability for licensure under Missouri law. A Missouri gaming license holder can be disciplined in Missouri for gaming related acts occurring in another jurisdiction which results in disciplinary action in the other jurisdiction. In addition to any other taxes or fees payable to state and local governmental authorities, gaming licensure in the state of Missouri will subject SLP to a 20% Adjusted Gross Receipts tax. Adjusted Gross Receipts is generally defined as gross receipts from gaming less payouts to 37 customers as winnings. Also, a $2.00 admission is payable to the Missouri Commission for each person admitted to the riverboat. The Missouri Commission has broad powers to require additional disclosure by an applicant during the processing of a gaming application, to deny gaming licensure and to administratively fine or suspend or revoke a gaming license for failure to comply with or for violation of the Missouri Act or Missouri Regulations. Further, in certain situations, the Missouri Commission can appoint a supervisor to continue the operations of a license holder after lapse, suspension or revocation of a gaming license. The supervisor may operate and sell the facility with earnings or proceeds being paid to the former owners only after deduction of the costs and expenses of the supervisorship and establishment of reserves. U.S. COAST GUARD Each riverboat also is regulated by the U.S. Coast Guard, whose regulations affect boat 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. All vessels operated by the Company must hold a Certificate of Inspection. Loss of the Certificate of Inspection of a vessel would preclude its use as an operating riverboat. The vessel must be drydocked periodically for inspection of the hull, which will result in a loss of service that can have an adverse effect on the Company. For vessels of the Company's type, the inspection cycle is every five years. Less stringent rules apply to permanently moored vessels. The Company believes that these regulations, and the requirements of operating and managing cruising gaming vessels generally, make it more difficult to conduct riverboat gaming than to operate land-based casinos. All shipboard employees of the Company employed on U.S. Coast Guard regulated vessels, 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 Company intends to obtain such insurance to cover employee claims. SHIPPING ACT OF 1916; MERCHANT MARINE ACT OF 1936 In order for the Company's vessels 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. 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 1995, 38 the Company's gaming properties operated at satisfactory levels of utilization; however, approximately 40% of the main casino space at the Las Vegas Showboat was closed for approximately six months of 1995 as a result of a renovation. ATLANTIC CITY FACILITIES The Atlantic City Showboat is located on approximately 12 acres, 10 1/2 acres of which is leased from Griffin Gaming & Enterprises, Inc. f/k/a Resorts International, Inc. ("Resorts") pursuant to a 99-year lease dated October 26, 1983 (as amended, "Lease"). The remaining acreage is held in fee by ACSI. In addition, ACSI owns two nearby surface level parking lots which consist of approximately nine acres in the aggregate. Under the New Jersey Act, both Resorts 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 Resorts 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 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 of Resorts' 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, Resorts, 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, Resorts 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. In the event Resorts is unable under the laws of New Jersey to act as lessor of the site to the Atlantic City Showboat ("Premises"), ACSI has an option to purchase the Premises for the greater of $66.0 million or the fair market value of the "leased fee estate" (determined by appraisal in the case of disagreement), subject to a maximum purchase price of 11 times the annual rent in the option year. However, if the appraisal is not completed within the time period specified by the New Jersey Commission, the purchase price is equal to the lesser of $66.0 million or 11 times the annual rent in the option year. If ACSI is unable to continue operating the Atlantic City Showboat under the New Jersey gaming laws, Resorts has a similar option to purchase ACSI's interest in the Premises together with the Atlantic City Showboat building and all furniture, fixtures and equipment thereon for their fair market value as of the option date (determined by appraisal in the case of disagreement). Also, should Resorts elect to sell its 39 interest in the Lease or the Premises to an unaffiliated third party, ACSI has a first right of purchase unless such sale is made to a person who acquires all of the assets and liabilities of Resorts (subject to the Lease). Similarly, Resorts has a first right of purchase of ACSI's leasehold interest in the Premises or the Atlantic City Showboat if ACSI elects to sell the same to any person other than an affiliate of ACSI or a mortgagee of ACSI's leasehold interest and improvements on the leased land. Any such transfer by ACSI, other than to a permitted transferee, requires Resorts' consent which cannot be unreasonably withheld. The Lease and all amendments thereto are subject to review and approval by the New Jersey Commission, and Resorts 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, Resorts, 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. Resorts presently holds a casino service industry license, which must be renewed every three years. The 9 1/4 First Mortgage Bonds due 2008 (the "First Mortgage Bonds") and the Company's $25.0 million revolving loan ("$25.0 Million Revolving Loan") from NatWest Bank, N.A. are each secured by leasehold mortgages on (i) ACSI's interest in the Lease, (ii) the Atlantic City Showboat (including the 20-story hotel tower and four-story podium as well as certain personal property therein) and future improvements on the leased real property, (iii) the 17-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 Resorts' rights under the Lease and its fee interest in the Premises. Subject to certain limited exceptions, the Lease may not be amended without the consent of the trustee under the Indenture governing the First Mortgage 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"). The Atlantic City Showboat is located on a portion of the Urban Renewal Tract owned by Resorts. 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 ("Realigned Delaware Avenue") to permit direct ingress and egress from the Realigned Delaware Avenue to the Atlantic City Showboat, which improvements have been completed. As a part of a settlement agreement executed on December 14, 1995, between ACSI, the Housing Authority and Urban Redevelopment Agency of the City of Atlantic City ("Housing Authority") and Forest City Ratner Companies, ACSI will no longer be required to expend approximately $15.0 million to construct a parking garage on the Urban Renewal Tract. 40 Realigned Delaware Avenue has not yet been dedicated to the City of Atlantic City. Pending dedication of the Realigned Delaware Avenue to the City, the Housing Authority granted to ACSI a permanent easement and right of way ("Easement") for the Realigned Delaware Avenue for the benefit of ACSI and ACSI's employees, agents, guests, suppliers, visitors, invitees and all others seeking access to the Atlantic City Showboat. Until acceptance of a deed of dedication of the Realigned Delaware Avenue by the City of Atlantic City, ACSI shall maintain at its expense and pay, if billed separately, the real property taxes associated with the Easement, or reimburse Resorts for its allocable share of such real property taxes for the Easement. 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. ACSI leases a parking area for its employees from the City of Atlantic City for 400 parking spaces. The lease renews every 90 days unless terminated by either party on 30-days written notice. ACSI provides, through an independent contractor, a shuttle service for its employees between the employee parking area and the Atlantic City Showboat. In 1993, ACSI purchased a vacant city block from private owners which currently provides approximately 450 parking spaces for ACSI customers and employees. In December 1995, ACSI received title to real property comprising approximately a city block resulting from its settlement of certain litigation against the Housing Authority and the Forest City Ratner Companies. The property currently provides approximately 500 parking spaces for ACSI customers and employees. LAS VEGAS FACILITIES Las Vegas Showboat is located on the eastern edge of the City of Las Vegas approximately two and one-half miles from both downtown Las Vegas and the area commonly known as the "Strip" where many of Las Vegas' major resort hotel-casinos are located. The Las Vegas Showboat is primarily a two-story structure with an eighteen-story high-rise hotel and a 620-car parking garage. The hotel registration area, bowling center, restaurants, bars and entertainment lounge surround the casino area and are on the first floor of the Las Vegas Showboat. The buffet, 1,300-seat bingo room, meeting and banquet facilities, employee dining room, and the Company's executive offices are located on the second floor. The Las Vegas Showboat's high-rise tower contains 352 of the Showboat's 453 guest rooms. The entire facility covers approximately 26 acres, which includes approximately 19.25 acres of improved parking area. 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. During 1995, the Company completed an approximately $21.0 million renovation of the casino, dining rooms and bar areas, all of which were substantially completed in 1995. The renovation included the replacement of the roof over a portion of the casino which resulted in higher ceilings and the removal of a number of support pillars, giving the casino a more expansive appearance. An internal balcony was added which provides an overview of the casino. The renovation also included a number of alterations and expansions to the dining and bar areas to improve their variety and overall ambiance. The coffee 41 shop was expanded to include patio seating which looks into the casino. The Mardi Gras Lounge, formerly the Carnival Lounge, was doubled in size to meet the demand of patrons when popular entertainers perform, and the casino bar adjacent to the lounge was expanded to include an additional seating area and a large screen television. Additionally, the facilities power plant and HVAC systems were replaced, a new pool building was constructed, new carpeting was installed throughout the property, the buffet and coffee shop kitchens and the employee dining room were remodeled and enlarged and an employee learning center was added. As a result of this extensive renovation construction during 1995, approximately 40% of the main casino space of the Las Vegas Showboat was closed for approximately six months of 1995. The Company holds fee title to the above-described real property, buildings and improvements at the Las Vegas Showboat, which secures the Company's First Mortgage Bonds and the $25.0 Million Revolving Loan. The Company leases such property, buildings and improvements to SBOC. SYDNEY FACILITIES SHCP subleases a site located at Wharves 12 and 13 at Pyrmont Bay in Sydney, Australia from the NSWCCA, which site is owned by the City West Development Corporation. SHCH renovated an existing building on the interim site to permit the operation of the interim casino. The subleases for the interim site have a combined term which commenced on December 14, 1994 and continue until the commencement of operations at the permanent Sydney Harbour Casino. SCHP is not required to perform any material work on the interim site after the interim casino ceases operation. For the first three years following completion of the interim casino, SHCP pays net annual rent to the NSWCCA in the amount of A$4.125 million. After the initial three year period, the net annual rent for the interim site is subject to adjustment in accordance with the terms of the lease. SHCP also entered into leases with the NSWCCA for the permanent Sydney Harbour Casino site, which site is located on an 8.4 acre site on Pyrmont Bay adjacent to Darling Harbour. The permanent site is approximately one mile from Sydney's central business district and within walking distance of a monorail station. The permanent site will have a light rail station and is anticipated to have access to a ferry wharf. The permanent site is also close to four major car parks in Darling Harbour and has good access to arterial road routes. The leases for the permanent site have a combined term of 99 years commencing on December 14, 1994. SHCP prepaid the net rent to the NSWCCA for the first 12 years under the leases with a payment of A$120.0 million. For the remaining term, the net annual rent is A$250,000. Upon termination of the leases, 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. ITEM 3.LEGAL PROCEEDINGS. ACSI V. HOUSING AUTHORITY AND FOREST CITY RATNER COMPANIES ("FCR"), Docket Nos. ATL-L-811-95 and ATL-L-1898-95, instituted on March 9, 1995, in the Atlantic County Superior Court. ACSI filed an action against the Housing Authority and FCR to protect its 42 ownership of, and its right to develop, two parcels of beach- block land, including an 80-foot easement, adjacent to the Atlantic City Showboat which were purchased by ACSI in 1993 for $4.6 million (collectively, the "Parcels"). The complaint alleged, among other things, that the Housing Authority improperly sought to force ACSI to convey the Parcels back to the Housing Authority so that the Housing Authority could lease the Parcels to FCR as a site for a strip mall construction project. FCR filed a counterclaim seeking specific performance and damages. On December 14, 1995, ACSI entered into certain agreements with the Housing Authority and FCR to settle their disputes. The terms of the settlement agreements required ACSI to convey portions of the Parcels, along with the 80-foot easement, to the Housing Authority. In return, ACSI received from the Housing Authority (i) a Certificate of Completion to the real property on which the 17-story hotel tower was constructed; (ii) a release from its requirement to expend approximately $15.0 million to construct a parking garage on one of the Parcels; and (iii) title in fee simple, free of any encumbrances, to another parcel of property adjacent to the ACSI, comprising approximately an entire city block. In addition, ACSI agreed to donate $2.5 million of its Casino Reinvestment Development Authority funds toward construction of planned community facilities in the Urban Renewal Tract, including, but not limited to, a public skating rink. The settlement was consummated as of December 31, 1995 and the Atlantic City Superior Court dismissed the legal proceedings on January 18, 1996. DARLING HARBOUR CASINO LIMITED ("DHCL") V. NSWCCA, SHCL AND CHIEF SECRETARY AND MINISTER FOR ADMINISTRATIVE SERVICES ("MINISTER FOR ADMINISTRATIVE SERVICES"), Case No. 30091/94, instituted in December 1994, in the Administrative Law Division of the Supreme Court of New South Wales, Sydney Registry. DHCL, the unsuccessful applicant for the casino license in New South Wales, initiated an action against NSWCCA, SHCL and the Minister for Administrative Services seeking, among other things, the revocation of the casino license awarded to SHCL on December 14, 1994. On November 8, 1995, the New South Wales Court of Appeal dismissed the legal proceedings filed by DHCL. DHCL has been granted leave to appeal to the High Court of Australia. Management believes that the DHCL's action is without merit and intends to defend vigorously the action. DHCL V. NSWCCA, SHCL AND NEW SOUTH WALES MINISTER FOR PLANNING ("MINISTER FOR PLANNING"), Case No. 40227/94 and 40230/94, instituted in December 1994, in the Land and Environment Court of the State of New South Wales, Australia. DHCL initiated an action against the NSWCCA and the Minister for Planning alleging that the development plans for Sydney Harbour Casino were improperly approved. SHCL was joined as a party to those proceedings in view of its interest in their outcome. On April 21, 1995, the Land and Environmental Court dismissed the legal proceedings filed by DHCL. On August 18, 1995, DHCL filed an appeal with the New South Wales Court of Appeal against the April 21, 1995 decision of the Land and Environment Court. Management believes that DHCL's action is without merit and intends to defend vigorously the action. WILLIAM H. AHERN V. CAESARS WORLD, INC., ET AL., Case No. 94- 532-Civ-Orl-22, instituted on May 10, 1994 ("Ahern Complaint") and WILLIAM POULOUS V. CAESARS WORLD, INC., ET AL., Case No. 94- 478-Civ-Orl-22, instituted on April 26, 1994 ("Poulos Complaint") (collectively, the Ahern Complaint and the Poulos Complaint are referred to as the "Complaints"). Two individuals, each purportedly representing a class, filed the Complaints in the United States 43 District Court, Middle District of Florida, against numerous manufacturers, distributors and casino operators of video poker and electronic slot machines, including the Company. The plaintiffs intend to seek class certification of the interests they claim to represent. The Complaints allege 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 allege violations of the Racketeer Influenced and Corrupt Organizations Act, as well as claims of common law fraud, unjust enrichment and negligent misrepresentation, and seeks damages in excess of $1.0 billion. The cases have been consolidated and removed to the United States District Court for the District of Nevada, Southern District. Management believes that the Complaints are without merit and intends to defend vigorously the allegations. 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 for the District of Nevada, Southern District. An individual, purportedly representing a class, filed a complaint against four manufacturers, three distributors and 38 casino operators, including the Company, that manufacture, distribute or offer for play video poker and electronic slot machines. The individual allegedly intends to seek class certification of the interests he claims to represent. The complaint alleges 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 complaint alleges violations of the Racketeer Influenced and Corrupt Organizations Act, as well as claims of common law fraud, unjust enrichment and negligent misrepresentation, and seeks damages in excess of $1.0 billion. The complaint is similar to the Poulos complaint and the Ahern Complaint. The Company filed a motion to dismiss the complaint. The court has not yet ruled on the motion. Plaintiff's attempts to consolidate this action with the Ahern Complaint and Poulous Complaint were not successful. Management believes that the complaint is without merit and intends to defend vigorously the allegations. ITSI TV PRODUCTIONS, INC. V. BALLY'S GRAND, INC., ET AL., Case No. CV-N-90-314-HDM, instituted on June 29, 1990 in the United States Court, District of Nevada (the "Nevada action"). The plaintiff claims that Showboat infringed on the plaintiff's copyright by displaying to Showboat's sports book customers certain horse race broadcasts. Numerous other hotel-casinos located in Las Vegas, Nevada are defendants in this lawsuit. The plaintiff seeks to recover damages for copyright infringement in an unknown amount. A motion to dismiss the complaint has been filed on behalf of Showboat denying the existence of an enforceable copyright and asserting statue of limitations defenses. The motion is currently pending. The same factual issues are pending in an action filed in the United States District Court for the Eastern District of California (the "California action") in which Showboat is not a party. The United States District Court for the District of Nevada has stayed and administratively stayed the Nevada action pending resolution of the liability issues in the pending California action. The California action was tried in 1993 and therein the Court found that although the plaintiff owned the copyright, there was no infringement. The decision of the California action is currently on appeal before the Ninth Circuit Court of Appeals. Management believes that the plaintiff is not entitled to damages and intends to defend vigorously the allegations. 44 FLORIDA HORSEMEN'S BENEVOLENT AND PROTECTIVE ASSOCIATION V. HILEAH PARK, INC. ET AL., Case No. 95-1358-CIV-KIWG, instituted on June 26, 1995 in the United States District Court for the District of the Southern District of Florida. The Company has been advised that the Florida Horsemen's Benevolent and Protective Association, which represents about 5,000 horsemen nationwide, filed the lawsuit against 76 casino and race track operators, including the Company. As of the date hereof, the Company has not been served with summons and complaint. The action purportedly claims that the defendants illegally accepted nearly $11.0 million in off-track wagers. In December 1995, the Company entered into a settlement agreement with respect to Showboat for $400. HYLAND, ET AL. V. GRIFFIN INVESTIGATION, ET AL., Case No. 95- CV-2236 (JEI), instituted on May 5, 1995, in the United States District Court for the District of New Jersey (Camden Division). The Company was served with a First Amended Complaint on August 29, 1995. Seventy-six casino operators, including the Company, and others were originally named as defendants in the action. The action, brought on behalf of "card counters," alleges that the casino operators exclude card counters from play and share information about card counters. The action is based on alleged violations of federal antitrust law, the Fair Credit Reporting Act, and various state consumer protection laws. On October 25, 1995, the plaintiffs filed a "Notice of Dismissal Without Prejudice Only As To Defendant Showboat, Inc.," with the District Court Clerk. 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 discovery cut-off is May 1, 1996 and the trial date is scheduled for September 1996 in the Nevada action. EDWARD H. EGIPIACO V. INDIANA GAMING COMMISSION, Case No. 45C01- 95-10-MI0 1845, instituted on October 17, 1995, in the Circuit Court for Lake County, Indiana. The plaintiff, Edward H. Egipiaco, filed a complaint on behalf of himself and the residents of the City of East Chicago requesting a preliminary injunction to enjoin the Indiana Commission from conducting a hearing on SMP's application for the sole riverboat casino license in East Chicago, Indiana, and from issuing a certificate of suitability to SMP. The complaint alleges that the City of East Chicago failed to hold an open public bidding process in selecting its applicants, and such failure is in conflict with Indiana gaming laws. On October 19, 1995, the Indiana Commission commenced the hearing on the East Chicago application, but was served with a temporary restraining order and halted the proceedings. Subsequently, in November 1995 the temporary restraining order was dissolved on the basis that no triable issues existed. The Indiana 45 Commission thereafter conducted further proceedings and granted the certificate of suitability to SMP on January 8, 1996. No assurance can be given that the plaintiff or others may not seek another temporary restraining order or injunction at a later time. An unfavorable outcome of such litigation could have a material adverse effect on SMP and its proposed riverboat casino project in East Chicago, Indiana. 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 1995. 46 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 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 1996 First quarter (through March 15, 1996) 28 1/2 21 .025 1995 First quarter 15 3/4 13 1/2 .025 Second quarter 18 5/8 13 1/2 .025 Third quarter 24 3/8 17 1/2 .025 Fourth quarter 29 3/8 21 .025 1994 First quarter 21 16 1/4 .025 Second quarter 22 7/8 15 3/8 .025 Third quarter 17 7/8 13 1/8 .025 Fourth quarter 14 1/2 11 1/2 .025
On March 15, 1996, the closing price of the Company's common stock on the New York Stock Exchange was $25 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. The Company is restricted in the payment of cash, dividends, loans or other similar transactions by the terms of Indentures executed by it in connection with the issuance of First Mortgage Bonds and the 13% Senior Subordinated Notes due 2009, respectively. See Note 6 to the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. The approximate number of shareholders of record of the common stock as of March 15, 1996 was 1,605. 47 ITEM 6. SELECTED FINANCIAL DATA.
Year Ended December 31, 1995 1994 1993 INCOME STATEMENT DATA: (In thousands, except per share data) Net revenues $428,592 $401,333 $375,727 Income from operations 46,674 51,828 45,419 Income before extraordinary items and cumulative effect of change in method of accounting for income taxes (a)(b)(c)(d)(e)(g) 13,175 15,699 13,464 Net income 13,175 15,699 7,341 Income before extraordinary items and cumulative effect of change in method of accounting for income taxes per share (a)(b)(c)(d) (e)(g) .84 1.02 .89 Net income per share .84 1.02 .49 Cash dividends declared per common share .10 .10 .10
Year Ended December 31, 1992 1991 INCOME STATEMENT DATA: (In thousands, except per share data) Net revenues $355,236 $331,560 Income from operation 46,508 35,501 Income before extraordinary items and cumulative effect of change in method of accounting for income taxes (a)(b)(c)(d)(e)(g) 15,857 6,014 Net income 12,449 6,194 Income before extraordinary items and cumulative effect of change in method of accounting for income taxes per share (a)(b)(c)(d) (e)(g) 1.37 .53 Net income per share 1.08 .55 Cash dividends declared per common share .10 .10
48
December 31, 1995 1994 1993 BALANCE SHEET DATA: (In thousands) Total assets (a)(f) $649,395 $623,691 $470,700 Long-term debt (including current maturities) (a)(b) (c)(f) 392,391 392,035 280,617 Shareholders' equity (f) 173,941 157,461 135,158 Shares outstanding at year- end (f) 15,720 15,369 14,980
December 31, 1992 1991 BALANCE SHEET DATA: (In thousands) Total assets (a)(f) $384,900 $320,032 Long-term debt (including current maturities) (a)(b) (c)(f) 209,116 213,004 Shareholders' equity (f) 126,018 64,133 Shares outstanding at year- end (f) 14,804 11,350
(a) In the year ended December 31, 1991, the Company recognized an extraordinary gain of $.2 million, net of tax, as a result of the purchase of $12.1 million of its 11 3/8% Mortgage-Backed Bonds Due 2002 ("Mortgage-Backed Bonds"). (b) In the year ended December 31, 1992, the Company recognized an extraordinary loss of $3.4 million net of tax, as a result of the planned redemption of all of its outstanding 13% Subordinated Sinking Fund Debentures ("Debentures"). (c) The Company adopted FAS 109 in 1993 and reported the cumulative effect of the change in method of accounting for income taxes as of January 1, 1993 in the 1993 Consolidated Statement of Income. (d) 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. See Note 8 to the Consolidated Financial Statements. (e) 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 for 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. (f) 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. (g) In the year ended December 31, 1995, the Company recognized a pre-tax write-down of $1.4 million on its investment in SMG. 49 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL Showboat, Inc. and subsidiaries (collectively, the "Company" or "SBO"), (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"), and (iii) beneficially owns a 26.3% interest in, and manages the Sydney Harbour Casino in Sydney, New South Wales, Australia, which commenced gaming operations in an interim casino on September 13, 1995. The Company, through subsidiaries, also owns (i) a 55% partnership interest in Showboat Marina Partnership, which received a certificate of suitability on January 8, 1996 for a riverboat owner's license in East Chicago, Indiana, and (ii) an 80% interest in Southboat Limited Partnership which has submitted an application with the Missouri Gaming Commission for a riverboat gaming license near Lemay, Missouri. From July 1993 to March 31, 1995, the Company owned an interest in, and managed the Showboat Star Casino, a riverboat casino then located on Lake Pontchartrain in New Orleans, Louisiana. 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. In March 1995, the Company purchased an additional 50% of the equity of Showboat Star Partnership ("SSP"), which operated the Showboat Star Casino on Lake Pontchartrain in New Orleans, Louisiana, bringing the Company's total equity interest in SSP to 100%. The purchase price of the additional equity interest was $25.0 million coupled with a distribution of certain of the current assets of SSP to partners other than the Company. On March 9, 1995, the Company ceased all operations at the Showboat Star Casino as a result of certain legal issues related to conducting dockside gaming in the Orleans Parish. In a series of unrelated transactions, SSP sold certain of its assets, and the Company sold all of its equity interest in SSP, resulting in a pretax gain to the Company of $2.6 million which is included in the 1995 Consolidated Statement of Income as gain on sale of affiliate. In August, 1994, Showboat Australia Pty Limited ("SA"), a wholly-owned subsidiary of the Company, invested approximately $100.0 million for a 26.3% interest in Sydney Harbour Casino Holdings Limited ("SHCH"), which, through wholly-owned subsidiaries, owns the Sydney Harbour Casino and holds the casino license required to operate the Sydney Harbour Casino. In December 1994, the New South Wales Casino Control Authority granted the only full-service casino license in the State of New South Wales to Sydney Harbour Casino Pty Limited ("SHCL"). SA also has an 85% interest in the management company which manages the Sydney Harbour Casino. SA has agreed to forego the first A$19.1 million of its 85% portion of the fees due under the management agreement, of which amount approximately A$15.1 million remains as of December 31, 1995. SHCL commenced gaming operations on September 13, 1995 in a 60,000 50 square foot interim casino. Pursuant to the terms of the construction contract and subject to certain exceptions, the permanent facility must be completed within 38 months of the award of the casino license to SHCL. SHCL anticipates that the permanent facility will commence operations by early 1998. The Company's equity in earnings of SHCL's operations has been reduced to zero due to the write-off of certain preopening costs. MATERIAL CHANGES IN RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 (1995) COMPARED TO YEAR ENDED DECEMBER 31, 1994 (1994) REVENUES Net revenues for the Company increased to $428.6 million in 1995 from $401.3 million in 1994, an increase of $27.3 million or 6.8%. Casino revenues increased $28.1 million or 8.0% to $379.5 million in 1995 from $351.4 million in 1994. Nongaming revenues, which consist principally of room, food, beverage, management fee and bowling revenues, were $88.9 million in 1995 compared to $83.2 million in 1994, an increase of $5.7 million or 6.9%. The Atlantic City Showboat generated $368.9 million of net revenues in the year ended December 31, 1995 compared to $320.2 million for the same period in the prior year, an increase of $48.7 million or 15.2%. Casino revenues were $337.2 million for the year ended December 31, 1995 compared to $292.4 million for the same period in the prior year, an increase of $44.8 million or 15.3%. The increase in casino revenues was due primarily to an increase in gross slot revenues of $35.4 million or 16.1% with a 14.7% increase in slot units at the Atlantic City Showboat. The increase in slot revenues compares to a 12.0% growth in slot revenues in the Atlantic City market for the year ended December 31, 1995 and a 10.0% increase in average slot units in the Atlantic City market. Also contributing to the increase in casino revenues was the mild winter weather during the first quarter 1995 compared to the harsh winter weather during the same period in the prior year. The favorable comparison to the prior year is attributed to the addition of 15,000 square feet of casino space and approximately 600 slot machines added throughout 1994, and the addition of approximately 200 slot machines in May 1995. The Atlantic City Showboat also added approximately 200 slot machines in December 1995 raising the total number of machines to approximately 3,450 as of December 31, 1995. Atlantic City Showboat slot revenues accounted for 73.9% of total casino revenues for the year ended December 31, 1995 and 73.6% for the year ended December 31, 1994. Table game revenues increased $11.3 million or 15.9% to $82.9 million for the year ended December 31, 1995 compared to $71.6 million for the same period in the prior year. Contributing to the increase in table game revenues was the 1995 expanded marketing programs and the introduction of the Caribbean stud poker in late 1994. The Company's table game growth of 15.9% compares to a 4.5% growth in table game revenues in the Atlantic City market for the year ended December 31, 1995. Food and beverage revenues were $42.1 million for the year ended December 31, 1995 compared to $36.2 million for the same period in the prior year, an increase of $5.9 million or 16.4%. This increase is attributable to increased food promotional programs during the year ended December 31, 1995. 51 The Las Vegas Showboat achieved net revenues of $59.5 million for the year ended December 31, 1995, compared to $79.2 million in the same period in 1994, a decrease of $19.7 million or 24.9%. Casino revenues decreased to $42.3 million in 1995 from $59.0 million in 1994, a decrease of $16.7 million or 28.3%. Food and beverage revenues decreased to $11.8 million for the year ended December 31, 1995 from $14.4 million in the same period in 1994, a decrease of $2.6 million or 18.1%. The decreases in revenues were attributable to construction activities within the property for the second half of 1995 and increased competition along the Boulder Strip throughout the entire year. The Company anticipates that revenues at the Las Vegas Showboat will continue to be impacted until the excess casino capacity is absorbed by the Las Vegas market. During the construction period, casino capacity was reduced by approximately 40% and service to food outlets was substantially disrupted. INCOME FROM OPERATIONS The Company's income from operations declined $5.1 million or 9.9% to $46.7 million in 1995 from $51.8 million in 1994. The decline is attributable to the cessation of operations of SSP (which resulted in a $12.8 million reduction in income from operations), a decline in operating results at the Las Vegas Showboat and an increase in corporate and development expenses. These decreases were partially offset by the improved performance at the Atlantic City Showboat. Atlantic City Showboat's income from operations, before management fees, increased to $72.4 million in the year ended December 31, 1995 compared to $50.7 million from the same period in 1994, an increase of $21.7 million or 42.9%. Operating expenses at the Atlantic City Showboat increased $26.9 million or 10.0% to $296.4 million for the year ended December 31, 1995 compared to $269.5 million for the same period in the prior year. The increased operating expenses included a $14.2 million increase in casino division expenses (which includes: $4.1 million increase in marketing expenses, $5.4 million increase in promotional allowance costs and $3.6 million increase in gaming taxes), a $8.0 million increase in general and administrative expenses which is primarily related to increased payroll, real estate taxes, and rent related to the expanded property, and a $3.4 million increase in depreciation expense for the Atlantic City Showboat's expanded facility. The Atlantic City Showboat's operating margin, before management fees, increased to 19.6% in 1995 compared to 15.8% in 1994. For the year ended December 31, 1995, the Las Vegas Showboat had a loss from operations, before management fees and intercompany rent, of $3.7 million compared to income of $4.4 million in the same period in 1994. Operating expenses declined to $63.3 million in 1995 compared to $74.8 million in 1994, a decrease of $11.6 million or 15.5%. The Company anticipated a reduction in revenues during the construction period and concentrated on reducing expenses. Expenses declined in all departments for the year ended December 31, 1995. However, significant decreases were not realized in certain promotional and marketing utilized at the Las Vegas Showboat in order to compete with the other gaming facilities on the Boulder Strip during the renovation of the facility. Corporate and development expenses totaled $21.7 million in 1995 compared to $17.0 million in 1994. The increased development expense is attributed to (i) the maintenance of a comprehensive development effort to pursue expansion opportunities, which includes $2.9 million 52 expended for the proposed riverboat casino project near Lemay, Missouri, (ii) preopening support for new projects, and (iii) $1.2 million for insurance costs which were previously recorded by the respective operating properties. OTHER (INCOME) EXPENSE In 1995, other (income) expense consisted of $29.7 million of interest expense, net of $13.1 million of capitalized interest, and $6.2 million of interest income. Foreign currency gain was $.3 million during 1995 and a net gain on the sale and write-down of affiliates totaled $1.1 million. In 1994, other (income) expense consisted of $29.5 million of interest expense, net of $3.3 million of capitalized interest, and $4.9 million of interest income. In connection with its renovation project at the Las Vegas Showboat and the Company's investment in Sydney Harbour Casino, the Company capitalized interest of $.5 million and $12.6 million respectively in 1995. INCOME TAXES In 1995, the Company incurred income taxes of $11.4 million, or an effective tax rate of 46.5% compared to $11.5 million or an effective tax rate of 42.4% in 1994. Differences between the Company's effective tax rate and the statutory federal tax rates are due to permanent differences between financial and tax reporting and state income taxes. NET INCOME In 1995, the Company realized net income of $13.2 million or $.84 per share. In 1994, the Company realized net income of $15.7 million or $1.02 per share. YEAR ENDED DECEMBER 31, 1994 (1994) COMPARED TO YEAR ENDED DECEMBER 31, 1993 (1993) REVENUES Net revenues for the Company increased to $401.3 million in 1994 from $375.7 million in 1993, an increase of $25.6 million or 6.8%. Casino revenues increased $21.9 million or 6.7% to $351.4 million in 1994 from $329.5 million in 1993. Nongaming revenues, which consist principally of room, food, beverage, management fee and bowling revenues, were $83.2 million in 1994 compared to $78.3 million in 1993, an increase of $4.9 million or 6.3%. The Atlantic City Showboat generated $320.2 million of net revenues in 1994 compared to $294.2 million in 1993, an increase of $26.0 million or 8.8%. Casino revenues were $292.4 million in 1994 compared to $268.8 million in 1993, an increase of $23.6 million or 8.8%. The increase in casino revenues was primarily due to increases in both slot machine and table game revenues. Slot machine revenues at the Atlantic City Showboat increased $18.3 million or 9.3% in 1994. This compares favorably to 3.7% growth in slot machine revenues in the Atlantic City market during the same period. The improved slot revenue growth experienced by the Atlantic City Showboat is primarily attributed to the addition of 609 slot machines throughout 1994 for a total of 3,027 slot machines by December 31, 1994. Table game revenues increased $2.9 million or 4.2% in 1994. Casino revenues were also favorably impacted by the mid-1994 addition of 53 keno and the mid-1993 addition of poker and horse race simulcasting. Nongaming revenues increased $3.3 million or 6.2% in 1994 to $56.0 million from $52.7 million in 1993. This increase was primarily due to increased complimentary room revenue of $1.2 million and non-complimentary food revenues of $2.2 million. At the Las Vegas Showboat, net revenues decreased to $79.2 million in 1994 from $81.1 million in 1993, a decrease of $1.9 million or 2.3%. The decrease in net revenues primarily resulted from an approximate 37% increase in slot machine capacity on the Boulder Strip in the third quarter of 1994. The Company anticipates that revenues at the Las Vegas Showboat will be negatively impacted until the excess casino capacity on the Boulder Strip is absorbed by the Las Vegas market. Casino revenues decreased to $59.0 million in 1994 from $60.7 million in 1993, a decrease of $1.7 million or 2.8%. Nongaming revenues increased $.2 million in 1994 primarily as a result of increased hotel occupancy due to increased effectiveness of certain hotel marketing programs. Lake Pontchartrain Showboat, Inc., a wholly-owned subsidiary of the Company, managed the Showboat Star Casino and generated $3.5 million of management fee revenues, before an intercompany elimination of $1.6 million, in 1994 compared to $.4 million in 1993. Showboat Star Casino, which opened November 8, 1993, generated net revenues of $98.4 million in 1994 consisting primarily of casino revenues of $97.2 million. In 1993, Showboat Star Casino generated net revenues of $12.1 million and casino revenues of $10.9 million. INCOME FROM OPERATIONS The Company's income from operations increased to $51.8 million in 1994 from $45.4 million in 1993, an increase of $6.4 million or 14.1%. Improvements in income from operations at the Atlantic City Showboat and the Showboat Star Casino were offset by a decline in income from operations at the Las Vegas Showboat and by an increase in corporate and development expenses. Income from operations at the Atlantic City Showboat, before intercompany management fees, was $50.7 million in 1994 compared to $44.0 million in 1993, an increase of $6.7 million or 15.3%. The increase in income from operations was primarily due to increased revenues that were offset by a $19.3 million or 7.7% increase in operating expenses before intercompany management fees to $269.5 million in 1994 from $250.2 million in 1993. The increase in operating expenses was primarily due to the increased capacity and volume of business as a result of the expansion of the Atlantic City facility. General and administrative expenses were also impacted by a $1.5 million or 22.0% increase in real estate taxes and an increase of $1.0 million in a parking assessment absorbed by the Atlantic City Showboat. Partially offsetting these increases was the decrease of $1.0 million in insurance costs borne by the parent company. Income from operations at the Las Vegas Showboat, before intercompany management fees, declined $3.8 million or 46.4% in 1994 to $4.4 million in 1994 from $8.2 million in 1993. The decrease was primarily due to increased competition on the Boulder Strip that resulted in a decrease in net revenue. In addition, operating expenses increased to $74.8 million in 1994 from 54 $72.9 million in 1993, an increase of $1.9 million or 2.7%. Increases in expenses were due to increased payroll and payroll related costs and increased advertising costs. SSP realized net income of $24.8 million on net revenues of $98.4 million in 1994. Operations at the Showboat Star Casino contributed $13.7 million in 1994 to the Company's income from operations. In 1993, SSP recognized a loss of $2.8 million primarily as a result of the write-off of preopening costs. Corporate and development expenses totaled $17.0 million in 1994 compared to $5.5 million in 1993. The Company established a separate corporate and development office in late 1993. Prior to this time, a significant portion of corporate expenses were absorbed by operating subsidiaries. In addition, the Company has expanded the scope of its activities related to the pursuit of expansion opportunities in jurisdictions outside Nevada and New Jersey. OTHER (INCOME) EXPENSE In 1994, other (income) expense consisted of $29.5 million of interest expense, net of $3.3 million of capitalized interest, and $4.9 million of interest income. In 1993, other (income) expense consisted of $24.7 million of interest expense, net of capitalized interest, and $3.2 million of interest income. The increase in interest expense is due to an increase in long-term debt during the period. In connection with its expansion project at the Atlantic City Showboat and the Company's 1994 investment in Sydney Harbour Casino, the Company capitalized interest of $2.7 million and $.6 million, respectively, in 1994. INCOME TAXES In 1994, the Company incurred income taxes of $11.5 million, or an effective tax rate of 42.4% compared to $10.5 million, before the income tax benefit of an extraordinary loss, or an effective tax rate of 43.8% in 1993. Differences between the Company's effective tax rate and the statutory federal tax rates are due to permanent differences between financial and tax reporting and state income taxes. NET INCOME In 1994, the Company realized net income of $15.7 million or $1.02 per share. In 1993, income before an extraordinary loss and a cumulative effect adjustment was $13.4 million or $.89 per share. In 1993, the Company recognized an extraordinary loss net of tax of $6.7 million, or $.44 per share, as a result of the redemption of all of its 11 3/8% Mortgage-Backed Bonds Due 2002. Net income for 1993, after recognition of the extraordinary loss and the cumulative effect adjustment, was $7.3 million or $.49 per share. LIQUIDITY AND CAPITAL RESOURCES The Company's cash flow from operations was $53.2 million in 1995 compared to $55.4 million in 1994. Cash used in investing activities was $41.2 million in 1995 compared to $193.5 million in 1994. The decrease resulted from fewer capital expenditures in 1995 and a reduction in investments in unconsolidated affiliates, offset by the proceeds from the sale of SSP in 1995. 55 Cash provided from financing activities was $4.5 million in 1995 compared to $105.8 million in 1994. The decrease was primarily due to the issuance of $120.0 million of 13% Senior Subordinated Notes in 1994. In 1995, the Company expended approximately $49.6 million on capital improvements primarily related to its Atlantic City and Las Vegas facilities which were funded from operations and proceeds of the 1994 sale of $120.0 million of 13% Senior Subordinated Notes due 2009. The Board of Directors has authorized capital expenditures for the Atlantic City Showboat and Las Vegas Showboat for 1996 totaling $21.7 million and $6.0 million, respectively. In addition, cash requirements include capital improvements approved during 1995 that will be incurred in 1996 totaling $5.3 million and $6.0 million for the Atlantic City Showboat and the Las Vegas Showboat, respectively. The Company is eligible to receive approximately $8.8 million in credits reserved by the Casino Reinvestment Development Authority ("CRDA"), which is being redistributed in cash, as a result of the completion of additional hotel rooms added as part of the approximately $93.0 million expansion and renovation program at the Atlantic City Showboat. To date the Company has received approximately $2.9 million of the $8.8 million. In 1995, a court ruling not involving the Company, disallowed the payment of CRDA disbursement of funding credits for an unrelated expansion project. As a result, the CRDA has suspended disbursement of funding credits until such time as the appeal court overturns the lower court's decision. ACSI, in December 1995, entered into an agreement with the Atlantic City Housing Authority and Forest City Ratner Companies in which ACSI conditionally covenanted to donate $2.5 million of its CRDA funds toward construction of planned community facilities in the Urban Renewal Tract, including, but not limited to, a public skating rink. The Company completed a $21.0 million renovation of the Las Vegas Showboat. The construction project required the closure of approximately 40% of casino space for six months during the second half of 1995. As a result, revenues and results of operations at the Las Vegas Showboat were adversely impacted by business disruption during the construction period. The Company anticipates that the renovated facility will improve its competitive position on the Boulder Strip. No assurance can be given, however, that the renovated facility will be successful in attracting former or new customers to the Las Vegas Showboat. On August 4, 1995, the Company obtained a two year secured line of credit for general working capital purposes totaling $25.0 million. At the end of the two year term, the line of credit 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. Interest is payable monthly at the bank's prime rate plus .5% or LIBOR plus 2.5% at the election of the Company. The interest rate charged at the date the line of credit is converted to a term loan will be the bank's prime rate plus 1% or the fixed rate designated by the bank at the election of the Company. In the event the line of credit is utilized for equity investments in or loans to entities constituting new projects, the Company will be required to pay the bank a fee equal to .75% of the advance. As of December 31, 1995, all the funds under this line of credit are available for use by the Company. This line of credit replaced the Atlantic City Showboat's unsecured line of credit which expired in August of 1995. 56 On May 18, 1993, the Company issued $275.0 million of 9 1/4% First Mortgage Bonds due 2008 (the "Bonds"). The Bonds are unconditionally guaranteed by Showboat Operating Company ("SBOC"), a wholly-owned subsidiary of the Company, Ocean Showboat, Inc. ("OSI"), a wholly-owned subsidiary of the Company, and Atlantic City Showboat, Inc. ("ACSI"), a wholly-owned subsidiary of OSI. The Bond Indenture was amended in July 1994. 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 Indenture for the Bonds (the "Bond Indenture"), as amended. 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 secured by a deed of trust representing a first lien on the Las Vegas Showboat (other than certain assets), by a pledge of all outstanding shares of capital stock of OSI, an intercompany note by ACSI in favor of the Company and a pledge of certain intellectual property rights of the Company. OSI's obligation under its guarantee is secured by a Pledge of all outstanding shares of capital stock of ACSI. ACSI's obligation under its guarantee is secured by a leasehold mortgage representing a first lien on the Atlantic City Showboat (other than certain assets). SBOC's guarantee is secured by a pledge of certain assets related to the Las Vegas Showboat. Additional security is or will be provided to the holders of the Bonds from other subsidiaries of SBO which are not unrestricted subsidiaries. The Bond Indenture, as amended, place significant restrictions on SBO and its subsidiaries including restrictions on making loans and advances by SBO to subsidiaries that are Non- Recourse subsidiaries or subsidiaries in which SBO owns less than 50% of the equity. All capitalized terms not otherwise defined in this paragraph have the meanings assigned to them in the Bond Indenture, as amended. The Bond Indenture, as amended, also 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 the investment by SBO and its subsidiaries in certain investments. In addition, the terms of the Bond Indenture, as amended, prohibit SBO and its subsidiaries from making a Restricted Payment unless, at the time of such Restricted Payment: (i) no Default or Event of Default has occurred or would occur as a consequence of such Restricted payment; (ii) SBO, at the time of such Restricted Payment other than in an investment in a subsidiary in a gaming related business or a Quarterly Dividend, and after giving pro forma effect thereto as if such Restricted payment had been made at the beginning of the applicable four-quarter period, would have been permitted to incur at least $1.00 of additional Indebtedness, and; (iii) such Restricted Payment, together with the aggregate of all other Restricted Payments by SBO and its subsidiaries is less than the sum of (x) 50% of the Consolidated Net Income of SBO for the period (taken as one accounting period) from April 1, 1993 to the end of SBO's most recently ended fiscal quarter for which internal financial statements are available plus, (y) 100% of the aggregate net cash proceeds received by SBO from the issuance of sale of Equity Interests of SBO since the Issue Date, plus (z) Excess Non-Recourse Subsidiary Cash Proceeds received after the Issue Date. The term Restricted Payment does not include, among other things, the payment of any dividend if, at the time of declaration of such dividend, the dividend would have complied with the provisions of the Bond Indenture, as amended; the redemption, repurchase, retirement, or other acquisition of any Equity Interest of SBO out of proceeds of the substantially concurrent sale of other Equity Interests of 57 SBO; Investments by SBO in an amount not to exceed $75.0 million in the aggregate in any Non-Recourse Subsidiary engaged in a Gaming Related Business, Investments by SBO in any Non-Recourse Subsidiary engaged in a Gaming Related Business in an amount not to exceed in the aggregate 100% of all cash received by SBO from any Non-Recourse Subsidiary up to $75.0 million in the aggregate and thereafter, 50% of all cash received by SBO from any Non-Recourse Subsidiary other than cash required to be repaid or returned to such Non-Recourse Subsidiary provided that the aggregate amount of Investments pursuant thereto does not exceed $125.0 million in the aggregate; Investments in Controlled Entities; and the purchase, redemption, defeasance of any pari passu indebtedness with a substantially concurrent purchase, redemption, defeasance, or retirement of the Bonds (on a pro rata basis). Notwithstanding the foregoing, the Company is permitted to make investments in a Controlled Entity only if from July 18, 1994 until December 31, 1996 the Company's Fixed Charge Coverage Ratio for the Company's most recently ended twelve months is greater than 1.5 to 1 and for the period commencing after December 31, 1996 the Company's Fixed Charge Coverage Ratio is greater than 1.75 to 1. For all other Restricted Payments, other than a Regular Quarterly Dividend or a Restricted Investment in a Subsidiary engaged in a Gaming Related Business, the Company's Fixed Charge Ratio Coverage for the most recently ended four full fiscal quarters, after giving effect to such Restricted Payment must be greater than 2.25 to 1. As of December 31, 1995, the Company's Fixed Charge Coverage Ratio was 3.41 to 1. Additionally, the Bond Indenture, as amended, permits the Company to issue up to $150.0 million of debt (of which $120.0 million has been issued) without compliance with the debt incurrence tests stated therein. On August 10, 1994, the Company issued $120.0 million of 13% Senior Subordinated Notes due 2009 (the "Notes"). The Notes are unconditionally guaranteed by OSI, ACSI and SBOC. Interest on the Notes is payable semi-annually on February 1 and August 1 of each year commencing on February 1, 1995. The Notes are not redeemable prior to August 1, 2001. Thereafter, the Notes will be redeemable, in whole or in part, at redemption prices specified in the Indenture for the Notes (the "Note Indenture"). The Notes are unsecured 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 $30.0 million of Notes at the discretion of the Company. The Note Indenture places significant restrictions on the Company, many of which are similar to the restrictions placed on the Company by the Bond Indenture, as amended, including covenants restricting or limiting the ability of the Company and its Restricted Subsidiaries (as defined in the Note Indenture) to, among other things, (i) pay dividends or make other Restricted Payments, (ii) incur additional Indebtedness and issue Preferred Stock, (iii) create Liens, (iv) create dividend and other payment restrictions affecting Restricted Subsidiaries, (v) enter into mergers, consolidations, or make sale of all or substantially all assets, (vi) enter into transactions with Affiliates and (vii) engage in other lines of business. The Company is actively pursuing potential opportunities in certain jurisdictions where gaming has recently been legalized, as well as jurisdictions where gaming is not yet legalized. There can be no assurance that (i) legislation to legalize gaming will be enacted in any additional jurisdictions, (ii) properties in which the Company has invested will be compatible with any gaming legislation so enacted, (iii) legalized gaming will continue to be authorized in any 58 jurisdiction that the Company currently operates or has pending applications to operating a gaming establishment, or (iv) the Company will be able to obtain the required licenses in any jurisdiction. Further, no assurance can be given that any of the announced projects, or any project under development will be completed, or result in any significant contribution to the Company's cash flow or earnings. Casino gaming operations are highly regulated and new casino development is subject to a number of risks. Sydney Harbour Casino Properties Pty Limited ("SHCP"), a wholly-owned subsidiary of SHCH, entered into a contract with a construction contractor in April 1994. SHCP is currently reviewing the design of the permanent Sydney Harbour Casino with the view to improving its operational efficiency and product quality and to match the changing competitive environment. Additionally, SHCP and Leighton Properties are discussing matters in relation to the administration and management of the project under the construction contract, including an accelerated completion date for the project, firming up on monetary allowances and resolution of certain claims notified by Leighton Properties to SHCP. Subject to the completion of the final plans, financing and required approvals and agreements, the current cost estimate of the Sydney Harbour Casino project is A$771.0 million. The total development cost is, however, subject to change based upon the final modifications resulting from SHCP's review of the design for the permanent Sydney Harbour Casino and the result of SHCP's discussions with Leighton Properties relating to the administration and management of the project. As with any construction contract, the final amount of such contract will be subject to modification based upon change orders and the occurrence of certain events such as costs associated with certain types of construction delays. No assurance can be given that the construction costs for the Sydney Harbour Casino will not exceed budgeted amounts. The Company is a member of a partnership, Showboat Marina Partnership ("SMP"), consisting of Showboat Indiana Investment Limited Partnership, a limited partnership owned by the Company, and Waterfront Entertainment and Development, Inc. ("Waterfront"), an unrelated Indiana corporation. SMP received its certificate of suitability from the Indiana Gaming Commission ("Indiana Commission") for a riverboat owner's license allocated by statute to East Chicago, Indiana on January 8, 1996. SMP has applied to the Indiana Commission to transfer the certificate of suitability to a subsidiary partnership. No assurance can be given that the Indiana Commission will approve the transfer of the certificate of suitability to the subsidiary partnership. Additionally, no assurance can be given that SMP or the subsidiary partnership, as applicable, will receive an owner's license from the Indiana Commission. A certificate of suitability indicates that the recipient has been chosen for licensure and is valid for 180 days, unless extended by the Indiana Commission. The Company will apply to the Indiana Commission to extend the effectiveness of the certificate of suitability beyond its initial 180 days. Although the Indiana Commission has extended the effectiveness of certificates of suitability held by other gaming operators, no assurance can be given that the Indiana Commission will extend the effectiveness of SMP's certificate of suitability beyond 180 days from the date of issuance. The certificate of suitability requires SMP or the subsidiary partnership, as applicable, to invest no less than, in the aggregate, $170.0 million in the proposed riverboat casino and related facilities (collectively, the "East Chicago Project") and in economic incentives to East Chicago. The East Chicago Project is expected to cost approximately $195.0 million. The Company anticipates that it will contribute approximately $40.0 million to SMP of which $8.9 million had 59 been funded as of December 31, 1995. In addition to funds contributed by the partners, SMP or the subsidiary partnership, as applicable, intends to obtain a combination of debt and equipment financings for an aggregate of approximately $156.0 million to develop the East Chicago Project. No assurance can be given that SMP or the subsidiary partnership will successfully obtain the necessary financings, or if such financings are available, the financings will be available on favorable terms. Under the current partnership agreement, the Company will receive a 12% preferred return on its investment in SMP. In addition, subject to certain qualifications and exceptions, the Company has agreed to provide a completion guarantee to complete the East Chicago Project so that it becomes operational, including the payment of all costs owing prior to such completion, up to a maximum aggregate amount of $30.0 million, should a lender require a completion guarantee in connection with any development financing. In addition, subject to certain qualifications and exceptions, the Company has agreed to provide a standby equity commitment pursuant to which it will cause to be made up to an aggregate of $30.0 million in additional capital contributions to the SMP or the subsidiary partnership if, during the first three full four fiscal quarters following the commencement of operations, the East Chicago 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 SMP or the subsidiary partnership more than $15.0 million in respect of any one such full four quarter period. If the Company is required to provide a standby equity commitment, Waterfront has agreed to pay the Company $5.2 million, which amount shall accrue interest at 12% per annum until paid, from Waterfront's share of distributable cash from SMP. The Company through its subsidiary, Showboat Lemay, Inc. ("Showboat Lemay"), has an 80% general partner interest in Southboat Limited Partnership ("SLP") which, subject to licensing, plans to build and operate a riverboat casino project and related facilities (the "Southboat Casino Project") on the Mississippi River near Lemay, Missouri (the "Southboat Casino Site"). On June 1, 1995, the St. Louis County Council named SLP as the preferred developer/operator for a dockside gaming facility at the Southboat Casino Site. On October 13, 1995, SLP entered into a lease agreement with the St. Louis County Port Authority ("Port Authority") for the lease of the Southboat Casino Site for a term of 99 years, commencing upon the investigation of SLP for a Missouri gaming license and the receipt of all permits from the U.S. Army Corps of Engineers. Fees and rent for the Southboat Casino Site are payable as follows: (i) a $500,000 acceptance fee upon completion of a due diligence period; (ii) a $750,000 security deposit on the commencement date of the lease; (iii) a $2.5 million fee on the commencement date of the lease; (iv) a $2.5 million fee on the opening date of the Southboat Casino Project; (v) rent in the amount of $2.0 million per annum payable in equal monthly installments, beginning on the commencement date and continuing until the opening of the Southboat Casino Project; and (iv) rent in the amount of the greater of 4% of adjusted gross receipts or Minimum Rent (as defined below), beginning on the opening date of the Southboat Casino Project and continuing until the expiration of the term of the lease. "Minimum Rent" means $3.0 million during the first 12-month period occurring after the opening of the Southboat Casino Project; $2.8 million during the second 12- month period; $2.6 million during the third 12-month period; $2.4 million during the fourth 12-month period; $2.2 million during the fifth 12-month period; and $2.0 million beginning on the fifth anniversary of the opening of the Southboat Casino Project and continuing through the 15th lease year ("Guarantee Period"). The Company has guaranteed SLP's payment 60 of Minimum Rent for the Guarantee Period and SLP's timely completion of, construction of, and payment for all improvements and installations in connection with SLP's development of the Southboat Casino Project. If SLP fails to pay any monthly installment of Minimum Rent, or if the lease is terminated at any time within the Guarantee Period due to an event of default by SLP, the Company must pay either (i) the full sum of unpaid Minimum Rent due for the remainder of the Guarantee Period, or (ii) if it posts a $2.0 million letter of credit, make monthly payments of Minimum Rent. In addition, the Company agreed to provide a Guarantee of Completion to the Port Authority which provides, in material part, that the Company will complete the construction of the Southboat Casino Project should SLP, after the commencement of work, abandon the project for a period of 30 days after receipt of notice from the Port Authority. On October 17, 1995, SLP filed its application for a gaming license with the Missouri Gaming Commission. The total cost of the Southboat Casino Project is expected to be $117.0 million. The limited partnership agreement provides that the Company's initial capital contribution is $19.5 million and that Showboat Lemay, on behalf of SLP, will arrange for a $75.0 million loan to develop the Southboat Casino Project and to arrange for equipment financing for the remaining costs of the Southboat Casino Project. The Company has also agreed to provide a loan to SLP in the amount of approximately $4.5 million to assist in the development of the Southboat Casino Project. SLP has entered into a commitment letter to receive to $75.0 million of financing from an unrelated party for the construction of a riverboat and related site improvements subject to certain conditions. The financing commitment expires May 10, 1996. No assurance can be given that SLP will be selected for investigation for a gaming license prior to the expiration of the financing commitment. No assurance can be given that SLP will be successful in obtaining the necessary funds to finance its gaming project or that SLP will successfully obtain a casino license. In July 1995, 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. The unpaid principal and all accrued interest with respect to the loan becomes due on December 28, 1999. Subject to certain conditions, RVI may extend the maturity date of the loan up to an additional 24 months. At this time, casino gaming is not permitted in the State of New Hampshire. No assurance can be given that casino gaming legislation will be enacted in the State of New Hampshire or, if enacted, such legislation will authorize casino gaming at Rockingham Park. Depending upon the number and types of gaming, if any, legalized by the necessary authorities, the Company and RVI will make certain capital contributions. At a minimum, the Company will contribute the promissory note representing the loan. If casino enabling legislation permits 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. 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 61 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. In March 1995, the Financial Accounting Standards Board issued SFAS No. 321, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121"). SFAS No. 121 becomes effective for fiscal years beginning after December 15, 1995. The Company is currently assessing the impact of SFAS No. 121 on its financial statements. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 is effective for transactions entered into in fiscal years beginning after December 15, 1995. The Company will not be adopting the recognition and measurement criteria of SFAS No. 123 and thus, the impact of SFAS No. 123 on the Company's financial statements will not be material. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Independent Auditors' Report; Consolidated Balance Sheets as of December 31, 1995 and 1994; Consolidated Statements of Income for the Years Ended December 31, 1995, 1994 and 1993; Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1995, 1994 and 1993; Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993; and Notes to Consolidated Financial Statements 62 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, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Notes 1 and 9 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1993 to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". KPMG PEAT MARWICK LLP Las Vegas, Nevada March 11, 1996 63 SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994 ASSETS 1995 1994 ------------ ----------- (In thousands) Current assets: Cash and cash equivalents $106,927 $90,429 Receivables, net 8,448 8,890 Income tax receivable 2,076 - Inventories 2,808 2,591 Prepaid expenses 4,728 4,736 Investment in unconsolidated affiliate held for sale - 30,346 Current deferred income taxes 9,744 6,529 ------------ ----------- Total current assets 134,731 143,521 ------------ ----------- Property and equipment: Land 11,536 9,545 Land improvements 12,184 10,142 Buildings 316,723 316,884 Furniture and equipment 176,127 164,388 Construction in progress 25,216 5,240 ------------ ----------- 541,786 506,199 Less accumulated depreciation and amortization 186,872 168,531 ------------ ----------- 354,914 337,668 ------------ ----------- Other assets: Investments in unconsolidated affiliates 120,090 108,853 Deposits and other assets 28,911 22,537 Debt issuance costs, net of accumulated amortization of $1,860,000 and $955,000 at December 31, 1995 and 1994, respectively 10,749 11,112 ------------ ----------- 159,750 142,502 ------------ ----------- $649,395 $623,691 ============ =========== 64 (continued) SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994 (continued) LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994 ------------ ----------- Current liabilities: (In thousands) Current maturities of long-term debt $22 $19 Accounts payable 15,143 11,059 Income taxes payable - 4,562 Dividends payable 392 384 Accrued liabilities 38,158 34,286 ------------ ----------- Total current liabilities 53,715 50,310 ------------ ----------- Long-term debt, excluding current maturities 392,369 392,016 ------------ ----------- Other liabilities 5,028 5,144 ------------ ----------- Deferred income taxes 22,319 18,760 ------------ ----------- Minority Interest 2,023 - ------------ ----------- Commitments and contingencies (Notes 7 and 15) 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 15,794,578 shares at December 31, 1995 and 1994 15,795 15,795 Additional paid-in capital 80,078 76,845 Retained earnings 80,434 68,809 ------------ ----------- 176,307 161,449 Cumulative foreign currency translation adjustment 285 3,490 Cost of shares in treasury, 74,333 shares and 425,823 shares at December 31, 1995 and 1994, respectively (587) (3,364) Unearned compensation for restricted stock (2,064) (4,114) ------------ ----------- Total shareholders' equity 173,941 157,461 ------------ ----------- $649,395 $623,691 ============ =========== See accompanying notes to consolidated financial statements. 65 SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 1995, 1994 and 1993 (In thousands except per share data) 1995 1994 1993 ------------ ------------ ----------- Revenues: Casino $379,494 $351,436 $329,522 Food and beverage 53,894 50,624 48,669 Rooms 25,694 20,587 19,355 Sports and special events 3,924 4,168 4,251 Management fees 190 1,861 279 Other 5,189 5,938 5,703 ------------ ------------ ----------- 468,385 434,614 407,779 Less complimentaries 39,793 33,281 32,052 ------------ ------------ ----------- Net revenues 428,592 401,333 375,727 ------------ ------------ ----------- Operating costs and expenses: Casino 177,644 169,786 160,855 Food and beverage 32,150 34,287 31,742 Rooms 8,339 7,847 8,029 Sports and special events 3,206 3,321 3,198 General and administrative 119,568 109,058 92,739 Selling, advertising and promotion 9,456 9,647 9,592 Depreciation and amortization 31,533 28,387 23,303 ------------ ------------ ----------- 381,896 362,333 329,458 ------------ ------------ ----------- Income from operations from consolidated subsidiaries 46,696 39,000 46,269 Equity in income (loss) of unconsolidated affiliate (22) 12,828 (850) ------------ ------------ ----------- Income from operations 46,674 51,828 45,419 ------------ ------------ ----------- 66 (continued) SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 1995, 1994 and 1993 (In thousands except per share data) (continued) 1995 1994 1993 ------------ ------------ ----------- Income from operations $46,674 $51,828 $45,419 ------------ ------------ ----------- Other (income) expense: Interest income (6,225) (4,872) (3,215) Gain on sale of affiliate (2,558) - - Write-down of investment in affiliate 1,426 - - Foreign currency transaction gain (271) - - Interest expense, net of amounts capitalized 29,692 29,452 24,696 ------------ ------------ ----------- 22,064 24,580 21,481 ------------ ------------ ----------- Income before income tax expense, extraordinary items and cumulative effect adjustment 24,610 27,248 23,938 Income tax expense 11,435 11,549 10,474 ------------ ------------ ----------- Income before extraordinary items and cumulative effect adjustment 13,175 15,699 13,464 Extraordinary items, net of income tax - - (6,679) Cumulative effect of change in method of accounting for income taxes - - 556 ------------ ------------ ----------- Net income $13,175 $15,699 $7,341 ============ ============ =========== Income per common and equivalent share: Income before extraordinary items and cumulative effect adjustment $0.84 $1.02 $0.89 Extraordinary items, net of income tax - - (0.44) Cumulative effect of change in method of accounting for income taxes - - 0.04 ------------ ------------ ----------- Net income $0.84 $1.02 $0.49 ============ ============ =========== See accompanying notes to consolidated financial statements 67 SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended December 31, 1995, 1994 and 1993
Cumulative foreign currency Additional transla- Unearned Common paid-in Retained tion Treasury compen- stock capital earnings adjustment stock sation Total ---------- ----------- ------------ ------------ ----------- ---------------------- (In thousands) Balance, December 31, 1992 $15,795 $69,374 $48,778 - ($7,761) ($168) $126,018 Net income - - 7,341 - - - 7,341 Cash dividends ($.10 per share) - - (1,491) - - - (1,491) Share transactions under stock plan - 1,788 - - 1,391 - 3,179 Amortization of unearned compensation - - - - - 111 111 ---------- ----------- ------------ ------------ ----------- ---------------------- Balance, December 31, 1993 15,795 71,162 54,628 - (6,370) (57) 135,158 Net income - - 15,699 - - - 15,699 Cash dividends ($.10 per share) - - (1,518) - - - (1,518) Warrants issued - 1,953 - - - - 1,953 Share transactions under stock plan - 3,730 - - 3,006 (6,021) 715 Amortization of unearned compensation - - - - - 1,964 1,964 Foreign currency trans- lation adjustmen - - - 3,490 - - 3,490 ---------- ----------- ------------ ------------ ----------- ---------------------- Balance, December 31, 1994 15,795 76,845 68,809 3,490 (3,364) (4,114) 157,461 Net income 13,175 13,175 Cash dividends ($.10 per share) (1,550) (1,550) Share transactions under stock plans 3,233 2,777 (116) 5,894 Amortization of un- earned compensation 2,166 2,166 Foreign currency trans- lation adjustment (3,205) (3,205) ---------- ----------- ------------ ------------ ----------- ---------------------- Balance, December 31, 1995 $15,795 $80,078 $80,434 $285 ($587) ($2,064) $173,941 ========== =========== ============ ============ =========== ======================
See accompanying notes to consolidated financial statements. 68 SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1995, 1994 and 1993 1995 1994 1993 ------------ ------------ ----------- (In thousands) Cash flows from operating activities: Net income $13,175 $15,699 $7,341 Adjustments to reconcile net income to net cash provided by operating activities: Allowance for doubtful accounts 1,605 950 1,849 Depreciation and amortization 31,533 28,387 23,303 Amortization of original issue discount and debt issuance costs 1,281 820 744 Provision for deferred income taxes 2,069 256 813 Amortization of unearned compensation 2,166 1,964 111 Provision for loss on Casino Reinvestment Development Authority obligation 1,414 1,018 1,122 (Earnings) loss of unconsolidated affiliate, net of distributions 2,768 (3,596) 850 (Gain) loss on sale and write-down of affiliates (1,132) - - Extraordinary loss on extinguishment of debt - - 11,166 (Gain) loss on disposition of property and equipment (36) (251) 517 Increase in receivables, net (2,492) (2,580) (2,670) Increase in inventories and prepaid expenses (209) (924) (23) Increase in deposits and other assets (656) (1,378) (554) Pension costs, net of payments 882 995 - Increase in accounts payable 4,566 396 85 Increase (decrease) in income taxes payable (5,168) 3,051 968 Increase (decrease) in accrued liabilities 1,384 10,566 (1,503) ------------ ------------ ----------- Net cash provided by operating activities 53,150 55,373 44,119 ------------ ------------ ----------- 69 (continued) SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1995, 1994 and 1993 (continued) 1995 1994 1993 ------------ ------------ ----------- (In thousands) Cash flows from investing activities: Acquisition of property and equipment ($49,573) ($72,471) ($59,686) Proceeds from sale of property and equipment 1,065 290 78 Proceeds from sale of affiliate 51,366 - - Investments in unconsolidated affiliates (36,551) (110,979) (18,600) (Advances to) repayments from unconsolidated affiliates 1,210 (899) - (Increase) decrease in deposits and other assets (4,639) (8,850) 4,046 Deposit for Casino Reinvestment Development Authority obligation, net of refunds (4,052) (599) (3,289) ------------ ------------ ----------- Net cash used in investing activities (41,174) (193,508) (77,451) ------------ ------------ ----------- Cash flows from financing activities: Principal payments of long-term debt (20) (3,575) (3,914) Proceeds from issuance of long-term debt - 120,000 275,000 Early extinguishment of debt - - (208,085) Debt issuance costs (542) (4,474) (7,593) Payment of dividends (1,543) (1,509) (1,400) Distribution to bond holders - (5,195) - Issuance of common stock 4,604 530 2,510 Minority interest contributions 2,023 - - ------------ ------------ ----------- Net cash provided by financing activities 4,522 105,777 56,518 ------------ ------------ ----------- Net increase (decrease) in cash and cash equivalents 16,498 (32,358) 23,186 Cash and cash equivalents at beginning of year 90,429 122,787 99,601 Cash and cash equivalents at ------------ ------------ ----------- end of year $106,927 $90,429 $122,787 ============ ============ =========== 70 (continued) SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1995, 1994 and 1993 (continued) 1995 1994 1993 ------------ ------------ ----------- (In thousands) Supplemental disclosures of cash flow information and non-cash investing and financing activities: Cash paid during the year for: Interest, net of amount capitalized $28,021 $22,522 $25,741 Income taxes 14,533 8,242 3,650 Foreign currency translation adjustment (3,205) 3,490 - See accompanying notes to consolidated financial statements. 71 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, conduct casino gaming operations in Las Vegas, Nevada, Atlantic City, New Jersey and until March 9, 1995, in New Orleans, Louisiana. In addition, the Company operates support services including hotel, restaurant, bar, and convention facilities. On September 13, 1995, the Sydney Harbour Casino commenced gaming operations in an interim casino in Sydney, Australia. The Company, through its wholly owned subsidiary, Showboat Australia Pty. Ltd. (SA), owns approximately 26.3% of Sydney Harbour Casino Holdings Limited, the parent corporation of the casino licensee, Sydney Harbour Casino Pty. Limited (SHCL). SA also owns 85% of the manager of the Sydney Harbour Casino. The Company also owns a 55% interest in a general partnership formed to own and operate a proposed riverboat casino in East Chicago, Indiana. A certificate of suitability was awarded by the Indiana Gaming Commission on January 8, 1996 for the East Chicago, Indiana project and the owner's riverboat license from the Commission is pending. The Company has an 80% interest in a limited partnership formed to own and operate a proposed riverboat casino in Lemay, Missouri. The gaming application for the Missouri project is pending. Gaming operations at both the East Chicago, Indiana and Lemay, Missouri projects cannot commence until a gaming license is awarded by the respective Gaming Commissions. The consolidated financial statements include all domestic and foreign subsidiaries which are more than 50% owned and controlled. Investments in unconsolidated affiliates which are at least 20% owned are carried at cost plus equity in undistributed earnings or loss since acquisition. All material intercompany balances have been eliminated in consolidation. 72 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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, 1995 1994 1993 ------------ ------------ ----------- (In thousands) Food and beverage $27,119 $23,893 $23,866 Room 7,197 5,883 5,054 Other 1,346 2,066 2,037 ------------ ------------ ----------- Total $35,662 $31,842 $30,957 ============ ============ =========== Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. 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. See Notes 5 and 6 for additional fair value disclosures. 73 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 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 and loans and advances made to 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 and those activities include the use of funds to acquire assets qualifying for interest capitalization. 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, 1995, 1994 and 1993, $13,148,000, $3,378,000, and $1,085,000, respectively, of interest cost was capitalized. Preopening and Development Costs The Company is currently investigating expansion opportunities in new gaming jurisdictions. Costs associated with these investigations are expensed as incurred until such time as a particular opportunity is determined to be viable, generally when the Company is selected as the operator of a new gaming facility or the Company's gaming license application is under consideration for the jurisdiction in which the Company plans to operate. Costs incurred during the construction and preopening phase are capitalized. Types of costs capitalized include professional fees, salaries and wages, temporary office expenses, marketing expenses and training costs. When the new operation opens for business, preopening costs will be expensed over a period not to exceed 12 months. 74 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Retirement Benefits The Company has a defined benefit pension plan that provides retirement benefits for certain key employees. Pension costs under this pension plan are actuarially computed. The benefits provided under this plan are not funded until due. Income Taxes Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109)and has reported the cumulative effect of that change in accounting method in the 1993 Consolidated Statement of Income. Under the asset and liability method of FAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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. For tax reporting purposes, the Company files on a fiscal year ending June 30. 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. Costs associated with the issuance of debt have been deferred and are being amortized over the life of the related indebtedness using a weighted average method based on retirement schedules specified in the debt indentures. 75 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Income Per Common and Equivalent Share Income per common and equivalent share is based on the weighted average number of shares outstanding. Such averages were 15,730,478, 15,457,061, and 15,099,147 for the years ended December 31, 1995, 1994 and 1993, respectively. Fully-diluted and primary income per common and equivalent share are the same. Foreign Currency Translation The financial statements of foreign subsidiaries are converted 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. Gains and losses resulting from foreign currency transactions are included in income currently. Gains and losses resulting from translation of financial statements are excluded from the Consolidated Statements of Income and are credited or charged directly to a separate component of Shareholders' Equity. 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 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. 76 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2.RECEIVABLES, NET Receivables, net consist of the following: December 31, ------------ ----------- 1995 1994 ------------ ----------- (In thousands) Casino $7,224 $6,983 Hotel 1,113 993 Other 2,792 3,314 ------------ ----------- 11,129 11,290 Less allowance for doubtful accounts 2,681 2,400 ------------ ----------- Receivables, net $8,448 $8,890 ============ =========== 3.ACCRUED LIABILITIES Accrued liabilities consist of the following: December 31, ------------ ----------- 1995 1994 ------------ ----------- (In thousands) Salaries and wages $12,827 $11,113 Interest 10,740 10,350 Medical and liability claims 4,125 3,110 Taxes, other than taxes on income 4,032 3,380 Advertising and promotion 2,113 2,201 Outstanding chips and tokens 1,713 1,897 Other 2,608 2,235 ------------ ----------- Total accrued liabilities $38,158 $34,286 ============ =========== 77 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4.INVESTMENTS IN UNCONSOLIDATED AFFILIATES Showboat Louisiana, Inc. (SLI) was formed in 1993 to hold a 30% equity interest in Showboat Star Partnership (SSP) which owned a riverboat casino and was managed by Lake Pontchartrain Showboat, Inc. (LPSI), a wholly-owned subsidiary of the Company. In 1993, the Company invested $18,600,000 in SSP for its 30% equity interest in the riverboat casino. Effective March 1, 1994, the Company purchased an additional 20% equity interest from its partner for $9,000,000. In March 1995, the Company purchased an additional 50% of the equity of SSP bringing the Company's total equity interest in SSP to 100%. The purchase price of the additional equity interest was $25.0 million coupled with a distribution of certain of the current assets of SSP to partners other than the Company. On March 9, 1995, the Company ceased all operations at the Showboat Star Casino as a result of certain legal issues related to conducting dockside gaming in Orleans Parish. In a series of unrelated transactions, SSP sold certain of its assets and the Company sold its equity interest in SSP resulting in a net pretax gain of $2,558,000 which is included in the 1995 Consolidated Statement of Income as gain on sale of affiliate. Operation of the riverboat casino commenced on November 8, 1993. The investment by SLI in SSP has been accounted for under the equity method of accounting. The Company's equity in the income or loss of SSP is included in the Consolidated Statement of Income as equity in income or loss of unconsolidated affiliate. LPSI received a management fee from SSP of 5.0% of casino revenues net of gaming taxes of 18.5% and boarding fees. Intercompany management fees have been eliminated in consolidation. 78 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4.INVESTMENTS IN UNCONSOLIDATED AFFILIATES (continued) The Company's wholly-owned subsidiary, Showboat Australia Pty. Ltd., (SA), invested approximately $100.0 million for a 26.3% 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 Casino. SA also owns 85% of the company engaged to manage the casino for a management fee. On September 13, 1995, the Sydney Harbour Casino commenced gaming operations in an interim facility and is expected to commence operations in a permanent facility in early 1998. The net income of the interim casino included in equity in income (loss) of unconsolidated affiliate in the Consolidated Statement of Income has been reduced to zero due to the write-off of preopening costs. Approximately A$44.0 million Australian dollars(US$33.7 million) have been incurred in preopening costs, and for the year ended December 31, 1995, approximately A$23.4 million (US$17.4 million) of preopening costs have been expensed. The remaining preopening costs will be expensed in 1996. In addition to its 26.3% equity interest in SHCH, SA has an option to purchase an additional 37,446,553 ordinary shares or approximately 7% 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), formerly known as Randolph Riverboat Company, L.L.C., to own and operate, subject to licensing, a riverboat casino near Kansas City, Missouri. SMG was not selected by the Missouri Gaming Commission for a license and therefore is currently seeking a buyer for its riverboat. The Company has invested approximately $5.1 million in a combination of both equity and advances to SMG for the completion of the riverboat, costs incurred in the licensing process and other general and administrative expenses. The company owns 35% of the equity of SMG and has reported a pretax loss of $1,426,000 which is included in the 1995 Consolidated Statement of Income as write-down of investment in affiliate to reflect its investment in SMG at its estimated net realizable value at December 31, 1995. 79 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4.INVESTMENTS IN UNCONSOLIDATED AFFILIATES (continued) Summarized condensed financial information of SSP and SHCH (the only significant unconsolidated affiliates) as of and for the years ending December 31, 1995, 1994 and 1993 is as follows: 1995 1994 1993 ------------ ------------ ----------- Showboat Star Partnership (Unaudited): (In thousands) Income statement data: Net revenues $11,044 $97,989 $12,062 Net income (loss) (10,719) 24,782 (2,836) Company's share of net income (loss) including closing costs and loss on sale of assets (5,211) 12,828 (850) Balance sheet data: Assets Current assets $ - $16,624 $8,150 Property and equipment, net - 35,135 36,236 Other assets - 19,522 20,481 ------------ ------------ ----------- Total assets $ - $71,281 $64,867 ============ ============ =========== Liabilities and partners' capital accounts: Current liabilities $ - $3,950 $6,268 Partners' capital accounts - 67,331 58,599 ------------ ------------ ----------- Total liabilities and partners' capital accounts $ - $71,281 $64,867 ============ ============ =========== The amount reported above as the Company's share of net loss for the year ended December 31, 1995 from SSP is exclusive of the gain the Company realized on the ultimate disposition of its ownership interest in SSP. The Consolidated Statement of Income includes the Company's share of the loss on operations (approximately $22,000) of SSP for 1995 as equity in income (loss) of unconsolidated affiliate. The Company's share of additional losses incurred by SSP related to closing costs and sale of certain assets were offset against the Company's gain on sale of its equity interest in SSP resulting in a net gain of $2,558,000, which is reported as gain on sale of affiliate. 80 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4.INVESTMENTS IN UNCONSOLIDATED AFFILIATES (continued) 1995 1994 1993 ------------ ------------ ----------- Sydney Harbour Casino Holdings Ltd. (In thousands) (Unaudited) Income statement data: Net revenues $90,800 $ - $ - Net income (loss) - - - Company's share of net income (loss) - - - Balance sheet data: Assets: Property and equipment, net $229,100 $20,000 $ - Other assets 325,400 386,500 - ------------ ------------ ----------- Total assets $554,500 $406,500 $ - ============ ============ =========== Liabilities and shareholders' equity: Liabilities $182,200 $8,600 $ - Shareholders' equity: Company's 97,900 104,600 - Other shareholders' 274,400 293,300 - ------------ ------------ ----------- Total liabilities and shareholders' equity $554,500 $406,500 $ - ============ ============ =========== The difference between the Company's equity in SHCH shown above and the amounts reported as investments in unconsolidated affiliates in the Company's Consolidated Balance Sheets is primarily due to capitalized interest of approximately $13,100,000 and $600,000 in 1995 and 1994, respectively, and debt and stock issuance costs of approximately $5,800,000 and $3,500,000 in 1995 and 1994 respectively. The remaining amount relates to SMG. 81 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 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 its gross casino revenues after completion of its first full year of operation. This assessment may be satisfied by investing in qualified direct investments, purchasing bonds issued by the Casino Reinvestment Development Authority (CRDA), or paying an "alternative tax". In order for direct investments to be eligible, they must be approved by the CRDA. Deposits with the CRDA bear interest at two-thirds of market rates resulting in a current value lower than cost. At December 31, 1995 and 1994, deposits and other assets include $7,198,000 and $5,277,000, respectively, representing the Company's deposit with the CRDA of $10,458,000 as of December 31, 1995 and $7,716,000 as of December 31, 1994, net of a valuation allowance of $3,260,000 and $2,439,000, respectively. The carrying value of these deposits, net of the valuation allowance, approximates fair value. The CRDA, as an agency of the City of Atlantic City, is responsible for the redevelopment of the area surrounding the Boardwalk. As of December 31, 1995, the CRDA approved the use of $9,029,000 of the Company's deposits for use in connection with the expansion and improvement of a City street leading to the Atlantic City Showboat. In connection with its approval, the CRDA required the Company to donate $2,500,000 of its deposits with the CRDA to certain public programs. Expansion of the city street was completed in 1994, with additional improvements being completed in 1995. The Company reclassified these CRDA deposits, net of the valuation allowance, totaling approximately $7,686,000 to property and equipment. The Company has applied for and received approval for approximately $ 8,800,000 in funding credits from the CRDA in connection with the construction of Atlantic City Showboat's additional hotel rooms. In connection with the Company's Credit Agreement with the CRDA, which states the terms and conditions by which the Company may receive funding credit, the Company applied for and received funds from the CRDA, net of a processing fee, of approximately $ 2,955,000, as a credit for expenditures made relating to the construction of the hotel rooms. The balance of the funding credits may be applied to portions of future CRDA deposits. In 1995, a court ruling, not involving the Company, disallowed the payment of CRDA disbursement of funding credits for an unrelated expansion project. As a result the CRDA has suspended disbursement of funding credits until such time as the appeal court overturns the lower court's decision. 82 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6.LONG-TERM DEBT Long-term debt consists of the following: December 31, ------------ ----------- 1995 1994 ------------ ----------- (In thousands) 9 1/4% First Mortgage Bonds due 2008 net of unamortized discount of $4,632,000 and $5,008,000 at December 31, 1995 and 1994, respectively $270,368 $269,992 13% Senior Subordinated Notes due 2009 120,000 120,000 Capital lease obligations 2,023 2,043 ------------ ----------- 392,391 392,035 Less current maturities 22 19 ------------ ----------- $392,369 $392,016 ============ =========== On May 18, 1993, the Company issued $275,000,000 of 9 1/4% First Mortgage Bonds due 2008 (Bonds). The proceeds from the sale of the Bonds were $268,469,000, net of underwriting discounts and commissions. Proceeds from the sale of the Bonds were used to redeem all of the outstanding 11 3/8% Mortgage-Backed Bonds Due 2002 at 105.7% of the principal amount plus accrued interest. The remaining proceeds were reserved by the Company to benefit existing facilities and to expand into new facilities or gaming jurisdictions. On July 1, 1994, the Company obtained consents to amend (Amendments) its Indenture governing its Bonds (Bond Indenture). The Company received consents from holders of approximately $259,772,000 or 94% of the Bonds approving the Amendments. In consideration for their consent, the consenting Bond holders received 2% of the face value of the Bonds. On July 28, 1994, the Company paid $5,195,000 to the consenting Bond holders. As the amount paid does not represent a significant modification of the terms of the Bonds, it is reflected as a discount on the Bonds and is being amortized as an adjustment to yield over the remaining life of the Bonds using the effective interest method. 83 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6.LONG-TERM DEBT (continued) The Bonds 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 secured by a deed of trust representing a first lien on the Las Vegas hotel casino (other than certain assets), by a pledge of all outstanding shares of capital stock of OSI, an intercompany note by ACSI in favor of SBO, a pledge of certain intellectual property rights of the Company, and by investments in Controlled Entities (as defined in the Bond Indenture, as amended). OSI's obligation under its guarantee is secured by a pledge of all outstanding shares of capital stock of ACSI. ACSI's obligation under its guarantee is secured by a leasehold mortgage representing a first lien on the Atlantic City hotel casino (other than certain assets). SOC's guarantee is secured by a pledge of certain assets related to the Las Vegas hotel casino. 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. In order for the Company to incur additional indebtedness or make a restricted payment, other than a regular quarterly dividend (as defined), the Company must, among other things, meet a specified fixed charge coverage ratio. Dividends are included as a restricted payment under the Bond Inden- ture. Regular quarterly dividends (as defined) can be paid as long as no event of default has occurred or is continuing and the dividend payable, together with the aggregate of all other restricted payments made by the Company is less than the sum of 50% of the consolidated net income (as defined) of the Company for the period commencing April 1, 1993 to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of the payment plus 100% of the cash net proceeds from the sale of certain equity interests (as defined) plus certain cash proceeds received from the non-recourse subsidiaries. The Company was in compliance with the Bond Indenture Covenants as of December 31, 1995. 84 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6.LONG-TERM DEBT (continued) On August 10, 1994, the Company issued $120,000,000 of 13% Senior Subordinated Notes due 2009 (Notes). The proceeds from the sale of the Notes (Note Offering) were $116,520,000, net of underwriting discounts and commissions. Proceeds from the Note Offering were reserved for or used to invest approximately $100,000,000 for an approximately 26.3% equity interest in SHCH and renovate the Las Vegas Showboat. The Notes are 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 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, 1995. On August 4, 1995, the Company obtained a two year secured line of credit for general working capital purposes totaling $25.0 million. At the end of the two year term, the line of credit may convert to a three year term loan. The bank received security pari passu with the holders of the Bonds. Interest is payable monthly at the bank's prime rate plus .5% or LIBOR plus 2.5% at the election of the Company. The interest rate charged at the date the line of credit is converted to a term loan will be the bank's prime rate plus 1% or a fixed rate designated by the bank at the election of the Company. In the event the line of credit is utilized for equity investments in or loans to entities constituting new projects, the Company will be required to pay the bank a fee equal to .75% of the advance. As of December 31, 1995, all of the funds under this line of credit are available for use by the Company. This line of credit replaced the Atlantic City Showboat's unsecured line of credit which expired in August of 1995. 85 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6.LONG-TERM DEBT (continued) Maturities of the Company's long-term debt exclusive of unamortized discount are as follows: Year ending (In thousands) December 31, 1996 $22 1997 25 1998 29 1999 19 2000 0 Thereafter 396,928 ------------ $397,023 ============ The fair value of the Company's Bonds and Notes were $261,938,000 and $135,600,000 respectively, at December 31, 1995, and $229,969,000 and $114,300,000 respectively, at December 31, 1994, based on the quoted market prices. The carrying amount of capital leases approximates fair value at December 31, 1995. 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 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, ------------ ----------- 1995 1994 ------------ ----------- (In thousands) Building - warehouse $2,050 $2,050 Furniture and equipment 152 152 ------------ ----------- 2,202 2,202 Less accumulated amortization 1,361 1,203 ------------ ----------- $841 $999 ============ =========== 86 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 7.LEASES (continued) 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 1995, the annual rent increased $227,000 to $8,501,000. ACSI is responsible for taxes, assessments, insurance and utilities. 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, 1995: Capital Operating Leases Leases ------------ ----------- Year ending (In thousands) December 31, 1996 $286 $10,277 1997 286 10,119 1998 286 9,959 1999 272 9,396 2000 253 9,261 Thereafter 1,928 704,969 ------------ ----------- Total minimum lease payments 3,311 $753,981 =========== Less amount representing interest (10.4% to 12.9%) 1,288 ------------ Present value of net minimum capital lease payments $2,023 ============ Rent expense for all operating leases was $11,241,000, $10,380,000 and $9,287,000 for the years ended December 31, 1995, 1994 and 1993, respectively. 87 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8.EXTRAORDINARY ITEMS On June 18, 1993, the Company redeemed all of its remaining 11 3/8% Mortgage-Backed Bonds Due 2002 at 105.7% plus accrued and unpaid interest up to and including the redemption date. The Company recognized an extraordinary loss before any income tax benefit of $11,166,000 as a result of the write-off of the unamortized debt issuance costs of $2,666,000 and the payment of a 5.7% redemption premium of $8,500,000. The after tax loss was $6,679,000 or $.44 per share. 9.INCOME TAXES As discussed in Note 1, the Company adopted FAS 109 effective January 1, 1993. The cumulative effect of the change in method of accounting for income taxes of $556,000 is determined as of January 1, 1993 and is reported separately in the Consolidated Statement of Income for the year ended December 31, 1993. Prior year financial statements have not been restated to apply the provisions of FAS 109. Total income tax expense was allocated as follows: Year ended December 31, ------------ ------------ ----------- 1995 1994 1993 ------------ ------------ ----------- (In thousands) Continuing operations $11,435 $11,549 $10,474 Extraordinary item - - (4,487) Shareholders' equity, related to cumulative foreign currency translation adjustment (1,726) 1,879 - Shareholders' equity, related to compensation expense deferred and reported as a reduction of shareholders' equity for financial reporting purposes (1,471) (241) (661) ------------ ------------ ----------- $8,238 $13,187 $5,326 ============ ============ =========== 88 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9.INCOME TAXES (continued) Income tax expense attributable to income from continuing operations consists of: Year ended December 31, ------------------------- ----------- 1995 1994 1993 ------------ ------------ ----------- (In thousands) U.S. federal Current $5,489 $8,793 $7,910 Deferred 2,477 323 965 ------------ ------------ ----------- 7,966 9,116 8,875 ------------ ------------ ----------- State and local Current 3,877 2,500 1,195 Deferred (408) (67) 404 ------------ ------------ ----------- 3,469 2,433 1,599 ------------ ------------ ----------- Total Current 9,366 11,293 9,105 Deferred 2,069 256 1,369 ------------ ------------ ----------- $11,435 $11,549 $10,474 ============ ============ =========== 89 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9.INCOME TAXES (continued) Income tax expense 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, 1995, 1994 and 1993 to pretax income from continuing operations as a result of the following: Year ended December 31, ------------ ------------ ----------- 1995 1994 1993 ------------ ------------ ----------- (In thousands) Computed "expected" tax expense $8,614 $9,537 $8,378 Increase (reduction) in income taxes resulting from: Change in the beginning of the year balance of the valuation allowance for deferred tax assets allocated to income tax expense 476 (161) 224 Adjustment to deferred tax assets and liabilities for enacted changes in tax rates - - 383 State and local income taxes, net of federal tax benefit 2,174 1,715 930 Impact of settlement of Internal Revenue Service examination 32 307 619 Other, net 139 151 (60) ------------ ------------ ----------- Income tax expense $11,435 $11,549 $10,474 ============ ============ =========== 90 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9.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, 1995 and 1994 are as follows: 1995 1994 ------------ ----------- (In thousands) Deferred tax assets: Preopening costs ($2,236) ($2,191) Accrued vacations (1,786) (1,803) Casino Reinvestment Development Authority obligation (1,332) (1,002) Allowance for doubtful accounts (1,091) (991) Accrued state income taxes (250) (800) Long-term incentive plan (1,005) (772) Accrued bonuses (2,191) (269) Executive deferred compensation (657) (348) Accrued medical claims (803) (492) Alternative minimum tax credit carryforwards (572) (697) Other (2,602) (1,920) ------------ ----------- Total gross deferred tax assets (14,525) (11,285) Less valuation allowance 916 440 ------------ ----------- Net deferred tax assets (13,609) (10,845) ------------ ----------- Deferred tax liabilities: Depreciation and amortization 18,894 18,655 Capitalized interest 7,034 2,494 Cumulative foreign currency translation adjustment 153 1,879 Other 103 48 ------------ ----------- Total gross deferred tax liabilities 26,184 23,076 ------------ ----------- Net deferred tax liability $12,575 $12,231 ============ =========== At December 31, 1995, the Company had available $572,000 of alternative minimum tax credit carryforwards which are available to reduce future federal regular income taxes, if any, over an indefinite period. 91 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 10 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 $1,932,000, $1,826,000 and $1,525,000 to this and another Company plan merged into this plan for the years ended December 31, 1995, 1994 and 1993, respectively. The Company's union employees are covered by union-sponsored, collectively-bargained, multi-employer pension plans. The Company contributed and charged to expense $1,326,000, $1,298,000 and $1,197,000 during the years ended December 31, 1995, 1994 and 1993, 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 senior line staff and 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, 1995 and 1994 consists of the following: December 31, ------------ ----------- 1995 1994 ------------ ----------- (In thousands) Service costs of benefits earned $368 $376 Interest cost on projected benefit obligations 387 335 Amortization of unrecognized prior service costs 284 284 ------------ ----------- $1,039 $995 ============ =========== 92 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 10EMPLOYEE BENEFIT PLANS (continued) The status of the defined benefit plan at December 31, 1995 and 1994 is as follows: December 31, ------------ ----------- 1995 1994 ------------ ----------- (In thousands) Fair value of plan assets $ - $ - ------------ ----------- Actuarial present value of benefit obligations: Vested benefit obligation 2,558 2,512 Non-vested benefit obligation 2,470 1,637 ------------ ----------- Accumulated benefit obligation 5,028 4,149 Effect of projected future salary increases 711 512 ------------ ----------- Projected benefit obligation 5,739 4,661 ------------ ----------- Plan assets less than projected benefit obligation (5,739) (4,661) Unrecognized prior service costs 3,692 3,964 Unrecognized (gain)loss 170 (298) Adjustment to recognize minimum liability (3,151) (4,149) ------------ ----------- Accrued pension cost included in other liabilities (5,028) (5,144) ------------ ----------- Prior service costs to be recognized in income in future years of $3,151,000 and $4,149,000 at December 31, 1995 and 1994, respectively, are included in deposits and other assets on the Consolidated Balance Sheet. The assumptions used in computing the information above were as follows: 1995 1994 ------------ ----------- Discount rate 7.00% 7.50% Future compensation growth rate 4.50% 4.50% 93 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 11STOCK 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. 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 $2,166,000 , $1,964,000 and $111,000 was recognized for the years ended December 31, 1995, 1994 and 1993, respectively. Unearned compensation has been shown as a reduction of shareholders' equity in the accompanying Consolidated Balance Sheets. A summary of certain stock option information is as follows: Year ended December 31, ------------------------- ----------- 1995 1994 1993 ------------ ------------ ----------- Options outstanding at January 1 1,916,570 812,320 901,080 Granted 240,000 1,228,750 96,550 Exercised (344,790) (37,160) (176,560) Forfeited (137,800) (87,340) (8,750) ------------ ------------ ----------- Options outstanding at December 31 1,673,980 1,916,570 812,320 ============ ============ =========== Option price range at December 31 $6.50 to $6.50 to $6.50 to $20.25 $20.25 $18.00 Options exercisable at December 31 670,280 644,320 529,495 ============ ============ =========== 94 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 12SHAREHOLDERS' EQUITY On May 6, 1994, in connection with the Company's investment in SHCH, the Company issued warrants to purchase 150,000 shares of Showboat, Inc. common stock with an exercise price of $15.50 per share. The warrants were exercisable on issuance and are scheduled to expire on May 6, 1999. At December 31, 1995, all warrants were outstanding. The value of the warrants of $1,953,000 has been reported as part of the investment in SHCH and will be amortized over the life of the principal assets. 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. 95 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 13SELECTED QUARTERLY DATA (Unaudited) Summarized unaudited financial data for interim periods for the years ended December 31, 1995 and 1994 are as follows: Quarter ended (a) Year ------------------------------------------------ ended 3/31/95 6/30/95 9/30/95 12/31/95 12/31/95 ---------- ----------- ------------ ------------ ----------- (In thousands except per share data) Net revenues $98,679 $111,864 $119,569 $98,480 $428,592 Income from operations 7,424 14,274 18,994 5,982 46,674 Net income (loss)(b) (c) 1,783 4,959 7,826 (1,393) 13,175 Net income (loss) per share 0.12 0.32 0.50 (0.10) 0.84 Quarter ended (a) Year ------------------------------------------------ ended 3/31/94 6/30/94 9/30/94 12/31/94 12/31/94 ---------- ----------- ------------ ------------ ----------- (In thousands except per share data) Net revenues $88,432 $102,395 $113,231 $97,275 $401,333 Income from operations 11,088 14,041 17,262 9,437 51,828 Net income 3,440 5,354 5,915 990 15,699 Net income per share 0.23 0.35 0.38 0.06 1.02 (a)Quarterly results may not be comparable due to the seasonal nature of operations. (b)In March 1995, SSP sold certain of its assets and the Company sold its equity interest in SSP resulting in a net pretax gain of $2.6 million which is included in net income for the quarter ended March 31, 1995. (c)In the quarter ended December 31, 1995, the Company recognized a $1.4 million pretax write-down related to its 35% investment in SMG. 96 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 14SUPPLEMENTAL FINANCIAL INFORMATION A summary of additions and deductions to the allowance for doubtful accounts receivable for the years ended December 31, 1995, 1994, and 1993 follows: Balance at Balance Allowance for beginning at end of doubtful accounts: of year Additions Deductions Year --------------- ---------- ---------- ---------- ---------- Year ended December 31, 1995 $2,400 $1,605 $1,324 $2,681 --------------- ---------- ---------- ---------- ---------- Year ended December 31, 1994 $2,946 $950 $1,496 $2,400 --------------- ---------- ---------- ---------- ---------- Year ended December 31, 1993 $3,079 $1,849 $1,982 $2,946 --------------- ---------- ---------- ---------- ---------- 15COMMITMENTS AND CONTINGENCIES In February 1994, the Company and Waterfront Entertainment and Development, Inc. formed the Showboat Marina Partnership (SMP) to own and operate a riverboat casino in East Chicago, Indiana (the East Chicago Project). The Company through its wholly owned subsidiaries owns 55% of SMP. SMP received its certificate of suitability from the Indiana Gaming Commission on January 8, 1996. A certificate of suitability indicates that the recipient has been chosen for licensure and is valid for 180 days, unless extended by the Indiana Gaming Commission. SMP has not yet received the required owner's license to operate the riverboat. The certificate of suitability requires SMP to invest no less than an aggregate of $170.0 million in the East Chicago Project and certain economic incentives to the city of East Chicago. The Company anticipates that it will contribute approximately $40.0 million to SMP of which approximately $8.9 million has been funded as of December 31, 1995. SMP intends to obtain a combination of debt and equipment financing for an aggregate of approximately $156.0 million to develop the East Chicago Project. Subject to certain qualifications and exceptions, the Company has agreed to provide a completion guarantee to complete the East Chicago Project so that it becomes operational, including the payment of all costs owing prior to such completion, up to a maximum aggregate amount of $30.0 million. In addition, subject to certain qualifications and exceptions, the Company has agreed to provide a standby equity commitment pursuant to which it will agree to cause to be made up to an aggregate of 97 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 15COMMITMENTS AND CONTINGENCIES (continued) $30.0 million in additional capital contributions during the first three full four fiscal quarters following the commencement of operations at the East Chicago Project if the East Chicago Project's combined cash flow (as defined) is less than $35.0 million for any such full four quarter period. However, in no event will the Company be required to cause to be contributed more than $15.0 million in respect of any one such full four quarter period. If the Company is required to provide a standby equity commitment, Waterfront Entertainment and Development, Inc. has agreed to pay the Company $5.2 million, which amount will accrue interest at 12% per annum until paid, from its share of distributable cash from SMP. The Company through its subsidiary, Showboat Lemay, Inc., has an 80% interest in Southboat Limited Partnership (SLP) which, subject to licensing, plans to build and operate a riverboat and dockside gaming facility (the Southboat Casino Project) on the Mississippi River in Lemay, Missouri. The limited partnership agreement sets forth that the Company's initial capital contribution is $19.5 million and that Showboat Lemay, Inc., on behalf of SLP, will arrange for a $75.0 million loan to develop the Southboat Casino Project and to arrange for equipment financing for the remaining costs of the project. The Company has also agreed to provide a loan to SLP in the amount of approximately $4.5 million to assist in the development of the Southboat Casino Project. SLP has entered into a commitment letter to receive up to $75.0 million of financing from an unrelated third party for the Southboat Casino Project. The financing commitment expires on May 10, 1996. On October 13, 1995, SLP executed a 99 year lease for the Southboat Casino site which commences upon the investigation of SLP for a Missouri gaming license and the receipt of all permits from the U.S. Army Corps of Engineers. Fees and rent for the Southboat Casino site are as follows: (i) a $500,000 acceptance fee, (ii) a $750,000 deposit, (iii) a $2.5 million fee on commencement of the lease and a $2.5 million fee upon the opening of the Southboat Casino Project, (iv) rent in the amount of $2.0 million per year from commencement of the lease until opening and (v) rent in the amount of 4% of adjusted gross receipts or Minimum Rent (as defined) whichever is greater. The Minimum Rent requires a total of $33.0 million in lease payments from the date of opening through the 15th lease year (Guarantee Period). The Company has guaranteed SLP's payment of the Minimum Rent for the Guarantee Period and SLP's timely completion of construction of, and payment for, all improvements and installations in connection with SLP's development of the Southboat Casino Project. The total cost of the Southboat Casino Project is expected to be approximately $117.0 million. All costs related to SLP have been expensed by the Company through December 31, 1995. 98 (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 15COMMITMENTS AND CONTINGENCIES (continued) In July, 1995 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. At this time, casino gaming is not permitted in the State of New Hampshire. Depending upon the number and types of gaming, if any, legalized by the necessary authorities, the Company and RVI will make certain capital contributions. At a minimum, the Company will contribute the promissory note representing the loan. If casino enabling legislation permits 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. 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 position or results of operations. 99 (continued) 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. This information is incorporated by reference from the Company's Proxy Statement to be filed with the Commission in connection with the Company's Annual Meeting of Shareholders on May 30, 1996. ITEM 11. EXECUTIVE COMPENSATION. This information is incorporated by reference from the Company's Proxy Statement to be filed with the Commission in connection with the Company's Annual Meeting of Shareholders on May 30, 1996. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. This information is incorporated by reference from the Company's Proxy Statement to be filed with the Commission in connection with the Company's Annual Meeting of Shareholders on May 30, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. This information is incorporated by reference from the Company's Proxy Statement to be filed with the Commission in connection with the Company's Annual Meeting of Shareholders on May 30, 1996. 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, 1995 and 1994; Consolidated Statements of Income for the Years Ended December 31, 1995, 1994 and 1993; 100 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1995, 1994 and 1993; Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993; 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) Exhibits1 EXHIBIT NO. DESCRIPTION 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 101 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. 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 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) 102 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, 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 Warrant Agreement dated May 6, 1994, between Showboat, Inc. and DLJ Bridge Finance, Inc., is incorporated by reference from Showboat, Inc.'s Form 10-K (file no. 1- 7123) for the year ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 99.01. 103 10.15 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. 10.16 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. 10.17 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. 10.18 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. 10.19 Promissory Note dated December 31, 1993, in the principal amount of $56,801.75 between Showboat, Inc. and Frank A. Modica, 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 10.08. 10.20 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 104 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. 10.21 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 International, Inc., Atlantic City Showboat, Inc. and Trump Taj Mahal Associates Limited Partnership; Declaration of Easement and Right of Way Agreement dated October 18, 1988, between the Housing Authority and Urban Redevelopment Agency of the City of Atlantic City, and Atlantic City Showboat, Inc.; 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. 10.22 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. 105 10.23 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. 10.24 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. 10.25 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. 10.26 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 106 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. 10.27 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. 10.28 Agreement for Sale of Partnership interests dated March 31, 1995, among Lake Pontchartrain Showboat, Inc., Showboat Louisiana, Inc., Showboat, Inc., Player Riverboat, LLC, Players Riverboat Management, Inc. and Players International, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1- 7123) dated March 31, 1995, Item 7(c), Exhibit 28.01. 107 10.29 Purchase and Sale Agreement dated January 4, 1995, between Showboat Star Partnership and Belle of Orleans, L.L.C.; Assignment of Leases dated January 4, 1995, between Showboat Star Partnership and Belle of Orleans, L.L.C.; and Sublease dated January 4, 1995, between Showboat Star Partnership and Belle of Orleans, 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, 1994, Part IV, Item 14(a)(3), Exhibit 10.41. 10.30 Promissory Note dated January 1, 1995, in the principal amount of $23,807,832 by Showboat Louisiana, 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, 1994, Part IV, Item 14(a)(3), Exhibit 10.43. 10.31 Promissory Note dated March 2, 1995, in the principal amount of $25,000,000 by Lake Pontchartrain Showboat, Inc. and Showboat Louisiana, 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, 1994, Part IV, Item 14(a)(3), Exhibit 10.44. 10.32 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. 10.33 Agreement dated September 13, 1993, among Showboat, Inc., Showboat Indiana, Inc., Showboat Operating Company, Showboat Development Company, Showboat Indiana Investment Limited Partnership and Waterfront Entertainment and Development, Inc.; and Showboat Marina Partnership Agreement dated January 31, 1994, between Waterfront Entertainment and Development, Inc. and Showboat Investment Limited Partnership, are 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 10.38. Amended and Restated Showboat Marina Partnership Agreement dated March 1, 1996, between Waterfront Entertainment and Development, Inc. and Showboat Indiana Investment Limited Partnership; 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; Redevelopment Project 108 Lease dated October 19, 1995, between Showboat Marina Partnership and the City of East Chicago; and Promissory Note dated January 1, 1996, in the principal amount of $9,316,367 by Showboat Indiana Investment Limited Partnership in favor of Showboat, Inc. 10.34 Agreement of Limited Partnership of Southboat Limited Partnership effective May 1, 1995, between Showboat Lemay, Inc. and Futuresouth, Inc.; Management Agreement dated May 2, 1995, between Southboat Partnership (a predecessor of Southboat Limited Partnership) and Showboat Operating Company; Trademark License Agreement dated May 2, 1995, between Southboat Partnership and Showboat, Inc.; Lease and Development Agreement dated October 13, 1995, between the St. Louis County Port Authority and Southboat Limited Partnership; Escrow Agreement dated October 13, 1995, between the St. Louis County Port Authority, Southboat Limited Partnership, Showboat, Inc. and Boatmen's Trust Company; Guarantee of Minimum Rent dated October 13, 1995, by Showboat, Inc.; Guarantee of Completion dated October 13, 1995, by Showboat, Inc., are incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated October 1, 1995, Item 7(c), Exhibits 10.01 through 10.06, inclusive. 10.35 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, 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. 10.36 Promissory Note dated March 19, 1995, in the principal amount of $15,000,000 by Atlantic City Showboat, 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, 1994, Part IV, Item 14(a)(3), Exhibit 10.45. 10.37 Operating Agreement dated January 25, 1995, between Showboat Missouri, Inc. and Randolph Riverboat Company, Inc.; Management Agreement dated January 25, 1995, between Showboat Operating Company and Randolph Riverboat Company, Inc.; Administrative Services Agreement dated January 25, 1995, between Showboat Operating Company and Randolph Riverboat Company, L.L.C.; and Trademark License Agreement dated January 25, between Showboat, Inc. and Randolph Riverboat Company, L.L.C., are 109 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 10.40. Promissory Note dated January 1, 1996, in the principal amount of $5,024,470 by Showboat Missouri, Inc. in favor of Showboat, Inc. 10.38 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 Company and NatWest Bank, N.A. 10.39 Promissory Note dated January 1, 1996, in the principal amount of $51,314,536 by Showboat Fifteen, Inc. in favor of Showboat, 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. Form 8-K, Item 5, dated October 13, 1995, reporting the execution of a lease and development agreement by and between SLP and the St. Louis County Port Authority. Form 8-K, Items 5 and 7, dated October 5, 1995, reporting a dividend of Preferred Stock Purchase Rights. 110 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. Kell Houssels, III J. Kell Houssels, III, President and Chief Executive Officer (principal executive officer) DATE: March 19, 1996 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 19, 1996 By: /s/ J. K. Houssels J.K. Houssels, Chairman of the Board March 19, 1996 By: /s/ J. Kell Houssels, III J. Kell Houssels, III, President, Chief Executive Officer and Director March 19, 1996 By: /s/ R. Craig Bird R. Craig Bird, Executive Vice President- Finance Administration and Chief Financial Officer (principal accounting officer) March 19, 1996 By: /s/ William C. Richardson William C. Richardson, Director 111 March 19, 1996 By: /s/ John D. Gaughan John D. Gaughan, Director March 19, 1996 By: /s/ Jeanne S. Stewart Jeanne S. Stewart, Director March 19, 1996 By: /s/ Frank A. Modica Frank A. Modica, Director March 19, 1996 By: /s/ H. Gregory Nasky H. Gregory Nasky, Executive Vice President, Secretary and Director March 19, 1996 By: /s/ George A. Zettler George A. Zettler, Director March 19, 1996 By: /s/ Carolyn M. Sparks Carolyn M. Sparks, Director 112 EXHIBIT INDEX EXHIBIT PAGE NO. DESCRIPTION NO. 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 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 113 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. 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 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. 114 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, 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 115 IV, Item 14(a)(3), Exhibit 10.13. 10.14 Warrant Agreement dated May 6, 1994, between Showboat, Inc. and DLJ Bridge Finance, Inc., is incorporated by reference from Showboat, Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 99.01. 10.15 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. 10.16 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. 10.17 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. 10.18 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. 10.19 Promissory Note dated December 31, 1993, in the principal amount of $56,801.75 between Showboat, Inc. and Frank A. Modica, 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 10.08. 10.20 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 116 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. 10.21 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 International, Inc., Atlantic City Showboat, Inc. and Trump Taj Mahal Associates Limited Partnership; Declaration of Easement and Right of Way Agreement dated October 18, 1988, between the 117 Housing Authority and Urban Redevelopment Agency of the City of Atlantic City, and Atlantic City Showboat, Inc.; 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. 10.22 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. 10.23 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. 10.24 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 118 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. 10.25 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. 10.26 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 119 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. 10.27 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. 10.28 Agreement for Sale of Partnership interests dated March 31, 1995, among Lake Pontchartrain Showboat, Inc., Showboat Louisiana, Inc., Showboat, Inc., Player Riverboat, LLC, Players Riverboat Management, Inc. and Players International, Inc., is incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated March 31, 1995, Item 7(c), Exhibit 28.01. 10.29 Purchase and Sale Agreement dated January 4, 1995, between Showboat Star Partnership and Belle of Orleans, L.L.C.; Assignment of Leases dated January 4, 1995, between Showboat Star Partnership and Belle of Orleans, L.L.C.; and Sublease dated January 4, 1995, between Showboat Star Partnership and Belle of Orleans, 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, 1994, Part IV, Item 14(a)(3), Exhibit 10.41. 10.30 Promissory Note dated January 1, 1995, in the principal amount of $23,807,832 by Showboat Louisiana, 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, 1994, Part IV, Item 14(a)(3), Exhibit 10.43. 120 10.31 Promissory Note dated March 2, 1995, in the principal amount of $25,000,000 by Lake Pontchartrain Showboat, Inc. and Showboat Louisiana, 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, 1994, Part IV, Item 14(a)(3), Exhibit 10.44. 10.32 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. 10.33 Agreement dated September 13, 1993, among Showboat, Inc., Showboat Indiana, Inc., Showboat Operating Company, Showboat Development Company, Showboat Indiana Investment Limited Partnership and Waterfront Entertainment and Development, Inc.; and Showboat Marina Partnership Agreement dated January 31, 1994, between Waterfront Entertainment and Development, Inc. and Showboat Investment Limited Partnership, are 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 10.38. Amended and Restated Showboat Marina Partnership Agreement dated March 1, 1996, between Waterfront Entertainment and Development, Inc. and Showboat Indiana Investment Limited Partnership; 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; Redevelopment Project Lease dated October 19, 1995, between Showboat Marina Partnership and the City of East Chicago; and Promissory Note dated January 1, 1996, in the principal amount of $9,316,367 by Showboat Indiana Investment Limited Partnership in favor of Showboat, Inc. 10.34 Agreement of Limited Partnership of Southboat Limited Partnership effective 121 May 1, 1995, between Showboat Lemay, Inc. and Futuresouth, Inc.; Management Agreement dated May 2, 1995, between Southboat Partnership (a predecessor of Southboat Limited Partnership) and Showboat Operating Company; Trademark License Agreement dated May 2, 1995, between Southboat Partnership and Showboat, Inc.; Lease and Development Agreement dated October 13, 1995, between the St. Louis County Port Authority and Southboat Limited Partnership; Escrow Agreement dated October 13, 1995, between the St. Louis County Port Authority, Southboat Limited Partnership, Showboat, Inc. and Boatmen's Trust Company; Guarantee of Minimum Rent dated October 13, 1995, by Showboat, Inc.; Guarantee of Completion dated October 13, 1995, by Showboat, Inc., are incorporated herein by reference to Showboat, Inc.'s Form 8-K (file no. 1-7123) dated October 1, 1995, Item 7(c), Exhibits 10.01 through 10.06, inclusive. 10.35 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, 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. 10.36 Promissory Note dated March 19, 1995, in the principal amount of $15,000,000 by Atlantic City Showboat, 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, 1994, Part IV, Item 14(a)(3), Exhibit 10.45. 10.37 Operating Agreement dated January 25, 1995, between Showboat Missouri, Inc. and Randolph Riverboat Company, Inc.; Management Agreement dated January 25, 1995, between Showboat Operating Company and Randolph Riverboat Company, Inc.; Administrative Services Agreement dated January 25, 1995, between Showboat Operating Company and Randolph Riverboat Company, L.L.C.; and Trademark License Agreement dated January 25, between Showboat, Inc. and Randolph Riverboat Company, 122 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, 1994, Part IV, Item 14(a)(3), Exhibit 10.40. Promissory Note dated January 1, 1996, in the principal amount of $5,024,470 by Showboat Missouri, Inc. in favor of Showboat, Inc. 10.38 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 Company and NatWest Bank, N.A. 10.39 Promissory Note dated January 1, 1996, in the principal amount of $51,314,536 by Showboat Fifteen, Inc. in favor of Showboat, Inc. 21.01 List of Subsidiaries. 23.01 Consent of KPMG Peat Marwick LLP. 27.01 Financial Data Schedule. 123 _______________________________ 1Copies 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. EX-10.24 2 EXHIBIT 10.24 AGREEMENT AMENDING AND RESTATING THE TRI-PARTY AGREEMENT DATED AS OF 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., REGARDING DEVELOPMENT OF A PORTION OF THE UPTOWN URBAN RENEWAL TRACT DECEMBER 14, 1995 TABLE OF CONTENTS Paragraph Pages 1. SCOPE, INTENT AND BINDING NATURE 6 OF THIS AGREEMENT 2. LANDS AFFECTED 8 3. TRACT 1 DEVELOPMENT 9 (A) Tract 1/Phase I Tower 9 (B) 80' FT. EASEMENT 11 4. TRACT 2 11 5. TRACT 3 14 6. PARCEL 11 16 7. PARCEL 15 17 8. TIMING OF CONVEYANCES/TAXES 19 9. PRIOR AGREEMENTS 21 10. ENTRANCE DRIVE ISSUES 25 (A) Transfer of Land 27 (B) Use 27 (C) Cost of Combined Service Drive 29 and Interim Service Drive i Paragraph Pages (D) Loading Dock 31 (E) Configuration & Construction of 32 the Combined Service Drive 11. PHASE II HOTEL TOWER 33 12. VACATION OF RECONVEYED TRACTS 35 BY SHOWBOAT 13. DISPUTE RESOLUTION 37 14. ASSIGNMENT 40 (A) Assignment By FCRC and Showboat 40 (B) Assignment By ACHA 40 (C) Binding Effect 41 15. MISCELLANEOUS 42 (A) Building Height Restriction 42 (B) Pedestrian Bridges 42 (C) Relocation of Utilities 42 (D) (Intentionally Deleted and Omitted) (E) Recording 43 (F) Notices 43 (G) Governing Law 44 (H) Entire Agreement 44 (I) Execution of Agreement 44 (J) CRDA Funding 44 (K) Settlement/Dismissal of Suit 45 (L) Covenants Implicitly Surviving Closing 46 ii
EXHIBITS (A) Plan to accompany Re-stated Tri-Party Agreement dated 12/1/95. Block 13, Lots 144.03, 144.04, 144.05 and 144.06 Dated 9/15/95, revised to 11/7/95. (B) Legal Description - "Portion of Tract 1 to be conveyed to ACHA 7,333.57 SF" (C) Legal Description - "Portion of Tract 1 to be Retained by Showboat 55,288.43 SF" (D) Legal Description - "Portion of Tract 2 to be Conveyed to ACHA 57,435.09 SF" (E) Legal Description - "Portion of Tract 2 to be Retained by Showboat 11,874.91 SF" (F) Legal Description - "Portion of Tract 3 to be Conveyed to Showboat 1,200 SF" (G) Legal Description - "Portion of Tract 3 to be Retained by ACHA 117,440 SF" (H) Proposed Subdivision Plan Dated September 25, 1995, Revised to November 7, 1995. (I) Legal Description - "Portion of Service Road owned or to be owned by ACHA 11,077.22 SF" (J) Legal Description - "3243.52 SF P/O Service Road to be Retained by Showboat" (K) Legal Description - "Portion of Service Road owned or to be owned by ACHA 8,654.45 SF" (L) Legal Description - Block 15 (M) Legal Description - 80' Easement to be conveyed to ACHA (N) Plan depicting FCRC Building set back restriction. iii EXHIBITS (CONT'D) (O) Pages 10, 11 and 12 of Parcel 15 lease (P) Surrender of Certificate of Deposit Assignment (Q) Plan Showing improvements to landscape for property of Atlantic City Showboat, Inc. dated 11/6/95 and 11/29/95 (R) Inter Party Releases (S) Legal Description - "Fire Access Way, Service Road and Utility Easement - 22,975.19 SF". (T) Form of Deed - Parcel 15 (U) Form of Deed - "Portion of Tract 3 to be conveyed to Showboat - 1,200 SF" (V) Form of Deed - "Portion of Tract 1 to be conveyed to ACHA - 7,333.57 SF" and Combined Service Drive Easement; "Portion of Tract 2 to be conveyed to ACHA - 57,435.09 SF" and Combined Service Drive Easement; 80' Easement Declaration of restriction as to portion of Tract 2 to be retained by Showboat. (W) Paragraphs 8(h), 8(i) 8(k) and 8(q) of Part I of the Showboat Development Agreement and Paragraph 801 of Part II of the Showboat Development Agreement
iv AGREEMENT AMENDING AND RESTATING TRI-PARTY AGREEMENT AMONG 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 THIS AGREEMENT by and among Housing Authority and Urban Redevelopment Agency of the City of Atlantic City (hereinafter "ACHA"), Forest City Ratner Companies (hereinafter "FCRC") and Atlantic City Showboat, Inc. (hereinafter "Showboat") dated December 14, 1995, sets forth the amended and restated agreement among those parties with respect to a portion of the Uptown Urban Renewal Tract in the City of Atlantic City (hereinafter "UURT"). WHEREAS, ACHA, FCRC, and Showboat had, previous to May 26, 1994, entered into various memoranda and agreements specifically identified as: (1) a Memorandum of Understanding dated May 24, 1993, between FCRC and ACHA (hereinafter "the FCRC MOU"), (2) a Memorandum of Understanding by and among Showboat, FCRC and ACHA dated May 24, 1993, also known as the "tripartite" Memorandum of Understanding (hereinafter "the Tripartite MOU"), and (3) a Contract For The Sale Of Land For Private Development entered into between ACHA and Showboat dated June 11, 1993, along with all Parts, Riders, and Exhibits annexed thereto and amendments (hereinafter "The Showboat Development Agreement"), and WHEREAS, the parties were granted certain rights, accepted certain responsibilities and reached binding and non-binding understandings with respect to the UURT pursuant to the aforementioned Memoranda and Agreements regarding the development of land within the UURT by both FCRC and Showboat, and WHEREAS, certain development has taken place within the UURT by Showboat in a manner consistent with the aforementioned Agreements and Memoranda, and WHEREAS, on May 26, 1994, the parties entered into that certain agreement entitled "Tri-Party Agreement Among 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 (hereinafter referred to as "the TPA"); and WHEREAS, also on May 26, 1994, Showboat and ACHA entered into Amendment No. 1 to the Showboat Development Agreement; and WHEREAS, on January 25, 1995, ACHA, pursuant to the TPA, declared FCRC to have "commenced development" of an "entertainment complex" and entered into a certain agreement (hereinafter referred to as "The FCRC Development Agreement"); and WHEREAS, Showboat, in response to ACHA's determination of January 2 25, 1995, as aforesaid, filed suit in the Superior Court of New Jersey, Atlantic County, Law Division, inter alia contesting ACHA's determination that FCRC had "commenced development" of its entertainment complex pursuant to the TPA and subsequently ACHA and FCRC filed certain counter-claims with respect to the subject matter here in issue; and WHEREAS, on May 25, 1995, ACHA declared Showboat in default of the Showboat Development Agreement on account of the subject matter of the TPA and of the Showboat Development Agreement; and WHEREAS, in response to said declaration of default Showboat filed a certain lawsuit in the Superior Court of New Jersey, Atlantic County; and WHEREAS, Showboat desires ACHA to rescind said default and to issue to Showboat a Certificate of Completion as defined in Part II of the Showboat Development Agreement for the improvements Showboat has caused to be erected upon the portions of Tract 1 that Showboat will retain as hereinafter described. See Exhibit C; and WHEREAS, Showboat desires ACHA also to issue to it a Certificate of Completion for a portion of Tract 2 to be retained by Showboat and portion of Tract 3 which is to be conveyed to Showboat pursuant to this Restated Agreement. See Exhibits E and F; 3 WHEREAS, the parties sincerely desire to settle their differences, once and for all, with respect to the subject matter of the aforesaid lawsuits and with respect to the future development of the UURT and otherwise so that: (1)The development of the undeveloped portions of the UURT may proceed; (2) Showboat relinquishes any rights it may claim to influence or control, or object to or contest, in any fashion the future development of the UURT provided such development is consistent with the redevelopment plan dated August 25, 1994, as amended by Ordinance #102 of 1994 adopted on November 23, 1994, as may be amended from time to time ("the Redevelopment Plan"), and with other applicable land use laws. Showboat, however, reserves the right to object to or contest any future development solely on the grounds that such development is not in compliance with the Redevelopment Plan or any other applicable land use law; (3) Showboat's right and ability to develop its retained portion (as hereinafter defined) of the UURT is preserved; and (4) the Atlantic City community may enjoy the benefits of the developments herein agreed to and described; and WHEREAS, on December 22, 1994, Showboat entered into a certain lease with ACHA for that certain parcel known as Parcel 15, City of Atlantic City, and pursuant to said lease has caused certain improvements to be made on Parcel 15; and 4 WHEREAS, Showboat wishes to acquire and ACHA, for the consideration hereinafter recited, wishes to convey to Showboat in fee simple all right, title and interest in and to Parcel 15 free of any and all requirements, restrictions, reverters or encumbrances whatsoever, Showboat's use and ownership of said Parcel 15 being subject only to any applicable land use laws, the Redevelopment Plan and covenants contained in the deed of conveyance; and WHEREAS, pursuant to the aforementioned discussions ACHA, FCRC and Showboat have reached agreement as to their respective rights and responsibilities between Showboat and ACHA or between Showboat and FCRC regarding certain portions of the UURT and desire to memorialize those agreements in writing in order to clearly establish those rights and responsibilities; and WHEREAS, this document (hereinafter referred to as "this Restated Agreement") is intended to set forth the aforementioned rights and responsibilities between Showboat and ACHA or between Showboat and FCRC with regard to future development of certain portions of the UURT and is intended to replace and supersede the agreements referred to in Paragraph 1(A) below with respect to the parcels herein affected in their entirety. IT IS HEREBY AGREED AS FOLLOWS: 5 1. SCOPE, INTENT AND BINDING NATURE OF THIS AGREEMENT (A) ACHA, FCRC and Showboat (hereinafter collectively referred to as "the parties") hereby agree that this Restated Agreement shall determine the future rights and obligations of the parties with respect to certain portions of the UURT as more specifically defined herein. The parties hereby acknowledge and agree that this Restated Agreement is to be known as the Amended and Restated Tri-Party Agreement dated as of December 14, 1995, and shall take into account and will supersede the FCRC MOU, the Tripartite MOU, and the Showboat Development Agreement, that certain Memorandum of Understanding between Showboat and FCRC dated as of July 24, 1995, and specifically replaces and supersedes the TPA as well as the previously recited documents in this Paragraph 1(A) and the Parcel 15 Lease and the Use and Occupancy Agreement as hereinafter described. Based on that understanding, the parties acknowledge and agree that they will be bound by the following purposes and provisions of this Restated Agreement. (B) This Restated Agreement shall amend, modify and supersede in its entirety the Showboat Development Agreement and the TPA except as provided for in Paragraph 15(L) of this Restated Agreement. Specifically, the only obligations between Showboat and ACHA or between Showboat and FCRC that will survive this Restated Agreement 6 shall be as specifically set forth herein. This Restated Agreement shall, without limitation, supersede the Parcel 15 Lease (except as set forth at paragraph 7 hereof), the Use and Occupancy Agreement (except as set forth at paragraphs 8 and 12 hereof) and any right with respect to the purchase or sale of Tract 3. Without limiting the foregoing, the parties agree that this Restated Agreement shall finally and definitively state and encompass all of the rights and obligations between Showboat and ACHA or between Showboat and FCRC with respect to the lands herein affected as described in Paragraph 2 in the City of Atlantic City, superseding all prior agreements and understandings with respect thereto, except as specifically provided in this Restated Agreement. (C) This Agreement also provides a procedure for the expeditious and economical resolution of certain disputes between Showboat and FCRC as hereinafter provided. (D) As used in this Restated Agreement, the term "FCRC" shall mean FCRC or any successor developer designated by ACHA, and "ACHA" shall mean any successor, assign or designee of ACHA. 2. LANDS AFFECTED This Restated Agreement shall govern the following portions of the UURT with regard to existing and future development within those areas: (A) Tract 1 on the Plan prepared by Arthur W. Ponzio Company & Associates, dated May 12, 1993 (hereinafter "the Plan"), annexed 7 to the TPA as Exhibit A, also known as Block 13, Lot 144.03 on the tax map of the City of Atlantic City as it existed on November 1, 1995 ("the Tax Map"). (B) Tract 2 identified on the Plan also known as Block 13, Lot 144.04 on the Tax Map. (C) Tract 3 identified on the Plan also known as Block 13, Lots 144.05 and 144.06 on the Tax Map. (D) all portions known as "the 80' easement" identified on the Plan also known as Block 13, Lot 144.06 on the Tax Map. (E) all portions of Block 13, Lots 144.01 and 144.02 on the Tax Map. (F) all portions of Parcel 11, bounded by Atlantic Avenue on the North, New Jersey Avenue on the East, Pacific Avenue on the South and Delaware Avenue on the West, previously known as Block 11, Lots 77 and 78, as well as all portions thereof affected by realigned Delaware Avenue (now known as Block 11, Lot 79 on the Tax Map) (G) all portions of Parcel 15, bounded by Atlantic Avenue on the North, Delaware Avenue on the East, Pacific Avenue on the South and Maryland Avenue on the West, previously known as Block 15, Lots 80, 81, 82 83, 84 and 85 and United States Avenue, as well as all portions thereof affected by realigned Delaware Avenue (now known as Block 15, Lots 88 and 89 on the Tax Map), more 8 particularly described in Exhibit L of this Restated Agreement. (H) All Portions of Block 10 on the Tax Map. (I) All portions of Block 7, Lots 216.01, 216.02 and 217 on the Tax Map. 3. TRACT 1 DEVELOPMENT (A) Tract 1\Phase I Tower. It is acknowledged by all parties that pursuant to previous agreements and memoranda, Showboat has developed a Hotel Tower on a portion of Tract 1. Said Tract 1 was conveyed by ACHA to Showboat pursuant to the Showboat Development Agreement. Tract 1 shall be subdivided as depicted at Exhibits A and H of this Restated Agreement. Showboat shall reconvey to ACHA as part of the consideration recited in paragraph 7 of this Restated Agreement, that portion of Tract 1 identified on Exhibit A to this Restated Agreement as "Portion of Tract 1 to be conveyed to ACHA 7,333.57 SF". Said portion of Tract 1 is more particularly described at Exhibit B of this Restated Agreement. Showboat shall retain that portion of Tract 1 identified on Exhibit A as "Portion of Tract 1 to be retained by Showboat 55,288.43 SF". See Exhibit C. Showboat agrees that it shall also grant to ACHA an easement within a portion of the "Portion of Tract 1 to be Retained by Showboat" (See Exhibit C) and within the parcel identified at Exhibit A of this Agreement as 9 "Portion of Tract 2 to be retained by Showboat 11,874.91 SF" as more particularly discussed in paragraph 10 of this Restated Agreement. ACHA acknowledges and agrees that Showboat has completed development of the portion of Tract 1 to be retained in accordance with the Showboat Development Agreement. Showboat has submitted to ACHA and ACHA has approved that certain plan being Exhibit Q of this Restated Agreement which pertains to landscaping of that portion of Tract 1 identified at Exhibit A of this Restated Agreement as "Area Reserved for Future Showboat Hotel Tower Construction". Except as othewise provided in this Restated Agreement, all other prior plans or agreements with respect to Tract 1 are hereby superseded. ACHA agrees that, immediately upon completion of the improvements to Tract 1 described at Exhibit Q of this Restated Agreement, it will issue to Showboat a Certificate of Completion for Tract 1 as defined in Part II of the Showboat Development Agreement and ACHA further agrees that it will not withhold issuance of said Certificate of Completion for any reason whatsoever other than Showboat's failure to make the improvements depicted and described at Exhibit Q of this Restated Agreement. Should a Certificate of Completion not be issued to Showboat at Closing for any reason, Showboat shall be permitted to request a Certificate of Completion within a reasonable time after 10 Closing. (B) 80 Ft. Easement. Pursuant to the Showboat Development Agreement and the Tripartite MOU, Showboat obtained easement rights to an area known as the "80' easement" which has been described in the Showboat Development Agreement as an area solely for pedestrian and/or vehicular ingress and egress to and from Tract 1. Said 80' easement is more particularly described on the Plan, as well as Exhibits A and M of this Restated Agreement. Said 80' easement, pursuant to the Showboat Development Agreement, had been deemed part of Tract 1 for all purposes except certain ones provided for in Section 9 of the Rider thereto. In consideration of providing Showboat an easement over a portion of the Combined Service Drive as more particularly provided for in paragraph 10 of this Restated Agreement and as part of the consideration recited at paragraph 7 of this Restated Agreement, Showboat's rights to the 80' easement shall cease and shall be reconveyed by Showboat back to ACHA at Closing in order to accomplish the intent of this Restated Agreement. 4. TRACT 2 The parties acknowledge that pursuant to the Showboat Development Agreement and the Tripartite MOU, Showboat has been conveyed an area within the UURT identified as Tract 2 on the Plan and more 11 specifically identified as Block 13, Lot 144.04 on the Tax Map. Tract 2 shall be subdivided by Showboat as depicted and described at Exhibits A and H of this Restated Agreement. Showboat shall reconvey to ACHA as part of the consideration given pursuant to paragraph 7 of this Restated Agreement, that portion of Tract 2 identified at Exhibit A to this Restated Agreement as "Portion of Tract 2 to be conveyed to ACHA 57,435.09 SF". Said portion of Tract 2 is more particularly described at Exhibit D of this Restated Agreement. Showboat shall retain that portion of Tract 2 identified at Exhibit A of this Restated Agreement as "Portion of Tract 2 to be Retained by Showboat 11,874.91 SF" free of all restrictions, reverters, or requirements (including development requirements)of any kind other than: (1) the requirement of completing the improvements depicted at Exhibit Q of this Restated Agreement;(2) the restriction (to be incorporated into and recorded with the deed being Exhibit V to this Restated Agreement) that the 15' wide strip extending along Showboat's existing driveway from the boundary of Tract 3 shall be utilized only for purposes of a pedestrian passageway, themeing and screening in accordance with this Restated Agreement as more particularly depicted on Exhibit Q of this Restated Agreement. 12 Subsequent to the issuance of a Certificate of Completion, however, Showboat may at its discretion alter the improvements depicted at Exhibit Q provided that such alteration remains consistent with the foregoing restriction and the height restriction referenced at Paragraph 10(E) of this Restated Agreement; (3) the Redevelopment Plan; and (4) covenants contained in the deed of conveyance. Showboat shall have the right, but not the obligation, to develop a Phase II hotel tower addition upon the retained portion of Tract 2 as more particularly discussed at paragraph 11 of this Restated Agreement, provided that it is consistent with the Redevelopment Plan. ACHA agrees that immediately upon completion by Showboat of the improvements depicted on Exhibit Q of this Restated Agreement, it shall issue Showboat a Certificate of Completion for the portion of Tract 2 retained by Showboat in accordance with Part II of the Showboat Development Agreement. ACHA further agrees that it shall not withhold issuance of such Certificate of Completion for any reason whatsoever other than Showboat's failure to complete such improvements. Should a Certificate of Completion not be issued to Showboat at Closing for any reason, Showboat shall be permitted to request a Certificate of Completion within a reasonable time after Closing. The parties agree that the previously defined rights and 13 obligations of Showboat contained in the agreements described in Paragraph 1 of this Restated Agreement for its use of Tract 2 are hereby modified and any rights which Showboat may have in the portion of Tract 2 to be conveyed to ACHA pursuant to this Restated Agreement are set forth in this paragraph 4 and are further defined below in paragraphs 10, 11 and 12. 5. TRACT 3 The parties acknowledge and agree that the portion of the UURT identified as Tract 3 on the Plan shall be subdivided by Showboat at Showboat's expense on behalf of ACHA as more particularly depicted on Exhibits A and H of this Restated Agreement and as more particularly described at Exhibits F and G of this Restated Agreement. In consideration of this Restated Agreement, ACHA shall convey to Showboat at Closing that portion of Tract 3 identified on Exhibit A of this Restated Agreement as "Portion of Tract 3 to be conveyed to Showboat 1200 SF", see Exhibits A and F, free of any and all restrictions, reverters, or requirements (including development requirements) of any kind, subject only to the restriction that it shall be utilized for purposes of a pedestrian passageway, theming and/or screening in accordance with this Restated Agreement as more particularly described and depicted at Exhibit Q of this Restated 14 Agreement as well as the Redevelopment Plan and covenants set forth in the deed of conveyance. Subsequent to issuance of a Certificate of Completion, however, Showboat may at its discretion alter the improvements depicted at Exhibit Q provided that such alteration remains consistent with the foregoing restrictions and the height restriction referenced at Paragraph 10(E) of this Restated Agreement. ACHA agrees that immediately upon completion by Showboat of the improvements depicted on Exhibit Q of this Restated Agreement, it shall issue to Showboat a Certificate of Completion for the portion of Tract 3 granted to Showboat. ACHA further agrees that it shall not withhold issuance of such Certificate of Completion for any reason whatsoever other than Showboat's failure to complete such improvements. Should a Certificate of Completion not be issued to Showboat at Closing for any reason, Showboat shall be permitted to request a Certificate of Completion within a reasonable time after Closing. Showboat herein acknowledges and agrees that it relinquishes any rights which it may have had, or could have claimed, with respect to Tract 3, with the exception of the Portion of Tract 3 to be conveyed to Showboat-1200 SF (See Exhibit F) pursuant to this Restated 15 Agreement. Such rights shall include, but not be limited to, those rights identified in the Showboat Development Agreement, Section 8, wherein special provisions are identified for the possible lease or purchase of Tract 3 by Showboat. To the extent that there is any claim, or may be any claim, that the 80' easement previously identified in paragraph 3 (B) is appurtenant to, part of, or within Tract 3, the parties hereby recognize that ACHA shall have the exclusive right to develop within the areas of the 80' easement and that Showboat hereby acknowledges and agrees that it relinquishes all rights that it may have in that 80' easement. Furthermore, the parties acknowledge that the Use and Occupancy Agreement pertaining to Tract 3 and Block 13, Lot 144.02 on the Tax Map in favor of Showboat shall terminate as of the date of Closing as recited at paragraph 8 of this Restated Agreement and neither Showboat nor ACHA shall have any further obligation with respect to said Use and Occupancy Agreement subsequent to said date except as set forth in this Restated Agreement. 6. PARCEL 11 Showboat herein specifically relinquishes any and all rights which it may have to develop Parcel 11 for surface and/or structured parking (or for any other use) whether pursuant to any provision of the 16 Showboat Development Agreement, the TPA or any other agreement with respect to, without limitation, the location of "additional parking" within Parcel 11. 7. PARCEL 15 ACHA shall convey to Showboat at Closing the area known as Parcel 15 and which is also formerly known as Block 15, Lots 80, 81, 82 , 83, 84 and 85 and United States Avenue, and which is bounded by Atlantic Avenue on the North, Maryland Avenue on the West, Pacific Avenue on the South and realigned Delaware Avenue on the East (now known as Block 15 Lots 88 and 89 on the Tax Map). Parcel 15 is more particularly described in Exhibit L of this Restated Agreement. At Closing and in consideration of this Restated Agreement FCRC specifically relinquishes any and all rights which it may have to develop Parcel 15 for surface and/or structured parking or for any other purpose whatsoever. The parties acknowledge that Showboat and ACHA entered into a certain lease dated as of December 22, 1994, pursuant to which Showboat leased and currently occupies Parcel 15 for a term ending December 31, 1999. For and in consideration of the following, ACHA shall convey to Showboat at Closing all right, title and interest in Parcel 15: 1. Conveyance by Showboat to ACHA of the Portion of Tract 1 described at Exhibit B of this Restated Agreement; 17 2. Conveyance by Showboat to ACHA of the Portion of Tract 2 described at Exhibit D of this Restated Agreement; 3. Conveyance by Showboat to ACHA (and extinguishment) of the 80' easement described at Exhibit M of this Restated Agreement; 4. Intentionally deleted and omitted. 5. The grant by Showboat to ACHA of the easement for the Combined Service Drive over portions of Tract 1 and Tract 2 to be retained by Showboat as described at Exhibit J of this Restated Agreement; 6. Relinquishment by Showboat of all right, title and interest in and to the sum of $150,000 (together with interest accrued to the date of Closing) currently being held as security deposit by ACHA pursuant to the previously referenced lease of Parcel 15; 7. Showboat's convenant as set forth at paragraph 15(J) of this Restated Agreement; 8. Payment to ACHA at Closing of the sum of one million eight hundred ninety-nine thousand dollars ($1,899,000.00), adjusted as of December 29, 1995, to credit Showboat with: (1) interest accrued on the above referenced $150,000.00 Parcel 15 security deposit; and (2) the sum of $10,033.75 representing credit for a portion of the payment made by Showboat to ACHA on or about November 1, 1995, on account of the Use and Occupancy Agreement; 9. Such other agreements and undertakings as provided in this Restated Agreement. ACHA acknowledges that Showboat has complied with all of the 18 provisions of the Parcel 15 lease and is not in default thereof. Upon conveyance of Parcel 15 by ACHA to Showboat, said Parcel 15 lease shall be of no further force or effect, with the exception of Showboat's obligations set forth at Articles 8 and 9 of the Parcel 15 lease, wherein Showboat covenanted to indemnify and insure ACHA with respect to liability. A true copy of Articles 8 and 9 of the Parcel 15 lease is attached hereto as Exhibit O. It is agreed that such Articles shall survive execution of this Restated Agreement so that ACHA is protected by the provisions of said Articles against claims accruing prior to December 29, 1995, but not thereafter. At Closing, ACHA shall execute on its letterhead the document being in the form of Exhibit P of this Restated Agreement evidencing its surrender of its assignment of a certain certificate of deposit in the amount of $405,000 previously delivered by Showboat to ACHA. ACHA agrees that Showboat has completed Parcel 15 in accordance with the plans submitted to and approved by ACHA. ACHA shall convey title to Parcel 15 which is marketable and insurable at regular rates without material exception and free of all encumbrances, restrictions, requirements or reverters other than requirements set forth in the deed of conveyance (see Exhibit T), the Redevelopment Plan or in applicable land use laws. 8. TIMING OF CONVEYANCES/TAXES Showboat at its sole cost and expense has had a Phase I Environmental 19 Site Assessment prepared with respect to Tract 3 and Block 13, Lot 144.02, the 80' easement and the portions of Tracts 1 and 2 to be reconveyed to ACHA pursuant to this Restated Agreement and has delivered a copy thereof to ACHA and FCRC. Showboat shall, prior to Closing, remediate the subject tracts as and to the extent required under applicable law. In addition, from and after Closing, Showboat shall indemnify and hold ACHA harmless from and against any and all loss, cost, damage, claim or expense from the contamination of such tracts which arose during the period of Showboat's ownership or occupancy of the subject tracts. The parties acknowledge and agree that the conveyances of property and grants of easements set forth in paragraphs 3, 4, 5, 6, 7 and 10 of this Restated Agreement shall be accomplished by means of simultaneous conveyances by way of deeds dated as of December 29, 1995, in the form of the documents being Exhibits T, U and V of this Restated Agreement. Showboat and ACHA will convey the parcels previously referred to free of all liens and encumbrances and at Closing will execute the customary affidavit of title. The delivery of documents and consideration herein recited ("the Closing") shall take place at the offices of ACHA on December 15, 1995, and shall be effective December 29, 1995. Showboat shall vacate such parcels or tracts on or prior to the date that Showboat is required to convey 20 such parcels or tracts. It is understood, acknowledged and agreed by the parties that with regard to any tracts or parcels conveyed between the parties pursuant to this Restated Agreement, ACHA shall have no real estate tax liability. Showboat shall pay real property taxes on all parcels which it owns and on the 80' easement until December 31, 1995. Thereafter, the real estate taxes on or attributable to any lands (including the 80' easement) conveyed by Showboat to ACHA pursuant to this Restated Agreement, shall be paid by FCRC in accordance with this Restated Agreement. Showboat and FCRC herein acknowledge that ACHA is a tax exempt public entity which shall have no obligation for any real estate taxes. 9. PRIOR AGREEMENTS (A) Prior Showboat-ACHA Agreements. Notwithstanding any provisions in this Restated Agreement to the contrary, the following provisions of The Showboat Development Agreement, true copies of which are annexed hereto as Exhibit W, shall survive Closing and shall be binding on Showboat and ACHA: (1) Paragraphs 8(h), 8(i), 8(k) and 8(q) of Part I of the Showboat Development Agreement; (2) Paragraph 801 of Part II of the Showboat Development Agreement. 21 (B) Prior FCRC - ACHA Agreements. In addition to any other provisions contained in this Restated Agreement, ACHA and FCRC intend to be bound by the provisions of the FCRC Development Agreement which is currently in effect subject to the following: 1. FCRC relinquishes any rights that it may have pursuant to the FCRC Development Agreement to any property that Showboat is retaining pursuant to this Restated Agreement. FCRC further agrees that it releases ACHA with regard to any claims or liability which FCRC could have asserted against ACHA with regard to any property that Showboat is retaining pursuant to this Restated Agreement. 2. FCRC and ACHA shall attempt to enter into a Ground Lease on or before June 30, 1996. In the event that FCRC and ACHA do not enter into a Ground Lease by such date for any reason, the Board of Commissioners of ACHA shall have the right, in their sole discretion, to adopt a resolution terminating the FCRC Development Agreement ("Terminating Resolution"). In the event that ACHA adopts a Terminating Resolution, FCRC and 22 ACHA agree that the FCRC Development Agreement shall terminate as of the date the Terminating Resolution is adopted, that they shall have no further responsibility to each other, that FCRC unconditionally relinquishes any interest it may have had in the FCRC Development Agreement and property described in the FCRC Development Agreement and that they release each other from any and all claims that they may have against each other except as provided for in Paragraph 4(a) of the FCRC Development Agreement with regard to real estate taxes and the real estate tax escrow. In the event that the FCRC Development Agreement is terminated whether by ACHA adopting a Terminating Resolution or FCRC notifying ACHA of its election to terminate the FCRC Development Agreement before ACHA adopts a Terminating Resolution and, in either event, FCRC executes a release by September 30, 1996, providing that FCRC unconditionally relinquishes any interest it may have had in the FCRC Development Agreement and the property described in the FCRC Development Agreement and that 23 FCRC releases ACHA from any and all claims FCRC may have against ACHA except as provided for in paragraph 4(a) of the FCRC Development Agreement with regard to real estate taxes and real estate tax escrow ("the Release"), then ACHA shall return the deposit made by FCRC pursuant to Paragraph 4(a) of the FCRC Development Agreement, or any unapplied portion thereof, on or before December 1, 1996. ACHA agrees that in the event the FCRC Development Agreement is terminated as provided above and FCRC executes the Release on or prior to September 30, 1996, the tax escrow deposit may only be applied to the real estate taxes assessed and actually payable for the 1996 tax year, that is, the period from January 1, 1996, through December 31, 1996. FCRC and ACHA agree, however, that this Restated Agreement shall not constitute an "...agreement...to allow Showboat to continue to own the property in question..." within the meaning of Paragraph 4(a) of the FCRC Development Agreement. FCRC and ACHA further agree that with regard to the June 30, 1996, date in this paragraph, 24 TIME IS OF THE ESSENCE and this date shall not be subject to to cure periods, default provisions or unavoidable delays pursuant to the FCRC Development Agreement. The Board of Commissioners of ACHA reserves the right in its sole discretion and upon such terms as ACHA determines are reasonable, to extend the June 30, 1996, deadline through the adoption of a Resolution prior to June 30, 1996, authorizing an extension of the June 30, 1996, deadline. 3. FCRC and ACHA agree that an "Unavoidable Delay" within the meaning of the FCRC Development Agreement of nine months has occured as a result of the Showboat litigation. As a result, in accordance with the FCRC Development Agreement, various dates in the FCRC Development Agreement shall be adjusted. By way of illustration, with respect to ACHA's right to sublease pursuant to Paragraph 4(c)(viii) the date will extended to July 1, 1996. 10. ENTRANCE DRIVE ISSUES The parties acknowledge and agree that the FCRC project contemplates 25 a combined fire and service access drive to be constructed on the land specifically identified at Exhibit A of this Restated Agreement as "Fire Accessway, Service Road and Utility Easement", which is more particularly described at Exhibit S of this Restated Agreement. This constructed driveway shall be hereinafter referred to as the "Combined Service Drive." The parties acknowledge and agree that FCRC's obligations under this Paragraph 10 are conditioned upon its execution of a Ground Lease with ACHA. Nothing in the preceding sentence, however, shall relieve any successor developer of FCRC of the obligations as set forth in this Paragraph 10. The parties also acknowledge and agree that the Combined Service Drive is being provided for purposes of providing fire and emergency access to the FCRC project and for the delivery of various items needed to service that facility. Likewise, a portion of the Combined Service Drive will be used by Showboat to accommodate the delivery needs of a portion of its facility located adjacent to the Combined Service Drive (to the extent feasible and not inconsistent with the purpose of providing delivery access to the FCRC project) and also to provide fire access and emergency egress for the Showboat facility. More specifically, this facility includes the Phase I Hotel Tower and may, in the future, also include a Phase II Hotel Tower which may be 26 constructed pursuant to paragraph 11 of this Restated Agreement. The parties acknowledge and agree that construction of this Combined Service Drive to be utilized by both FCRC and Showboat shall require the revision of certain rights and facilities as follows: (A) Transfer of Land The parties acknowledge and agree that it will be necessary to transfer, or to grant easements over, certain parcels currently owned or under the control of Showboat in order to accomplish the construction of the Combined Service Drive. The area within which the easement shall be granted is more particularly depicted on Exhibit A of this Restated Agreement and identified thereon as "3243.52 SF P/O service road to be retained by Showboat" as is more particularly described on Exhibit J of this Restated Agreement. There shall be no monetary consideration for the granting of this easement to ACHA. Subsequent thereto, the parties acknowledge and agree that the easement identified herein may be assigned from or rights otherwise granted therein from ACHA to FCRC. (B) Use The Combined Service Drive shall be constructed by FCRC within lands owned by ACHA or within lands owned by Showboat or to which Showboat has granted ACHA an easement respectively and may be used by FCRC for purposes of providing access for deliveries and other service requirements to the FCRC project as such project may be modified or 27 expanded, and for the construction, installation, maintenance, repair, replacement and relocation of subterranean utilities, including without limitation water and sewer lines and drains. FCRC will require its general contractor for the Combined Service Drive to deliver to Showboat a certificate evidencing general liability insurance and naming Showboat as additional insured for any work to be done on or under the land described at Exhibit J. As stated above, Showboat shall also have a non-exclusive easement to use a portion of the Combined Service Drive identified more particularly at Exhibit S of this Restated Agreement for purposes of providing for vehicular access for deliveries and service requirements to a portion of its facility. In addition, the easement granted by ACHA (with respect to both the land owned by ACHA and the land over which ACHA has an easement from Showboat) shall permit the Combined Service Drive to be used by both FCRC and Showboat for the following purposes: (1) fire or emergency access required by law or any governmental entity; (2) the maintenance and repair of utilities or other public improvements including beach and boardwalk maintenance in favor of governmental entities and utility companies; and (3) pedestrian access to the beach and boardwalk. Such easement shall be conveyed to Showboat by ACHA at Closing and shall be in the form as appears as Exhibit U to this Restated Agreement. Showboat and FCRC will indemnify, defend and hold ACHA harmless for any and all claims or suits for personal injury or property damage arising out of the utilization of the Combined Service 28 Drive (or Interim Combined Service Drive as the case may be) by their respective contractors, agents invitees, guests or employees. The parties also anticipate and recognize Showboat's need for loading dock access and fire/emergency egress for its facility prior to construction of the Combined Service Drive but subsequent to Closing. Therefore, ACHA's grant of easement over the area in which the Combined Service Drive will be constructed (see Exhibit S of this Restated Agreement) will include Showboat's right to utilize such area for such purposes prior to completion of construction of the Combined Service Drive. The pre-constructed Combined Service Drive shall hereinafter be referred to as the Interim Combined Service Drive. In the event that the Interim Combined Service Drive becomes impassable due to construction by FCRC, ACHA shall grant to Showboat a non- exclusive license to utilize a 24 foot wide access-way to be designated by ACHA to provide for vehicular access to Showboat's delivery area. FCRC agrees that it shall make a good faith effort to limit deliveries for the retail portion of the FCRC project using the Combined Service Drive to normal weekday business hours (Monday through Friday, 7:00 a.m. to 5:30 p.m.) except for emergency or extraordinary circumstances. Such efforts shall be undertaken by FCRC by enforcement of its rules and regulations for the tenants or other occupants in the retail portion of the FCRC project which shall limit times of delivery as set forth above. (C) Cost of Combined Service Drive and Interim 29 Combined Service Drive It shall be the sole responsibility of FCRC to construct and bear the cost of the Combined Service Drive. Such costs shall include any taxes assessed on portions of the Combined Service Drive constructed over lands owned (or to be owned) by ACHA and relocation of utilities required to accommodate FCRC's construction. In the event that a regulatory authority requires a design change in the Combined Service Drive for purposes of providing adequate fire access and emergency egress for the Showboat facility as it exists on the effective date of this Restated Agreement, FCRC shall bear the cost for such design changes. Except as set forth in the preceding sentence, any modification of the design and construction of the Combined Service Drive at the request of Showboat which differs from that design shown at Exhibit A, shall be subject to the approval of ACHA and FCRC (which approval shall not be unreasonably withheld) and shall be at the sole cost and expense of Showboat. Notwithstanding the foregoing, however, in the event that Showboat desires to use the Combined Service Drive to serve the Phase II Tower, if such additional use, when considered together with existing use and the actual use of the FCRC project, would require any improvements or modification to the Combined Service Drive, such improvements or modifications shall be subject to the approval of ACHA and FCRC, not to be unreasonably withheld or delayed, and shall be performed at Showboat's cost and expense, including the 30 cost of obtaining any permits or approvals in connection therewith. ACHA and FCRC shall inform Showboat in writing within 45 days of receipt by ACHA and FCRC of Showboat's written request for any design change (which request must be accompanied by plans and other information reasonably required to evaluate such request) of their respective positions on any such request, specifying with particularity the reasons for withholding any approval. The work shall be performed by FCRC, or, at FCRC's election, by Showboat. Any approved modification or improvement will be performed in a manner which will not unreasonably interfere with the use of the Combined Service Drive by ACHA, FCRC or Showboat. Showboat shall be responsible for its reasonable allocation, based on usage, of the costs of repair and maintaining the Combined Service Drive but in no event shall such share exceed 50% of the total costs of such maintenance. In the event that Showboat elects to cause any improvements to be made upon the Interim Combined Service Drive, such improvements shall be at Showboat's sole cost and expense. (D) Loading Dock The parties acknowledge and agree, pursuant to the previous memoranda and agreements entered into by them, that Showboat was permitted to have access to its loading dock located next to its facility in the vicinity of the Phase I Hotel Tower. Pursuant to these previous agreements, Showboat was to reconfigure such loading dock to accommodate the concerns of both Showboat and FCRC in the development 31 of the FCRC project and the service entrances to be used therewith. Pursuant to this Restated Agreement, the parties acknowledge that the proposed FCRC project will be constructed such that Showboat will have access to its loading dock through the Interim Combined Service Drive or Combined Service Drive. However, to the extent that Showboat requires that its current or proposed loading dock be relocated as a result of the design of the FCRC project, it is the sole obligation of Showboat to undertake any such redesign, reconstruction and cost of relocating or reconfiguring its loading dock. FCRC shall have no responsibility to contribute to the cost of any such reconfiguration but agrees to work in concert with Showboat in order to accommodate any reconfiguration which may be necessary during the construction of the FCRC project. (E) Configuration and Construction of the Combined Service Drive The parties acknowledge and agree that the Interim Combined Service Drive and the Combined Service Drive shall be located as depicted on Exhibit A and as described at Exhibit S of this Restated Agreement. FCRC acknowledges and agrees that since the Combined Service Drive is to be located near Showboat's primary entrance for the public, Showboat is concerned that the configuration and construction of the Combined Service Drive be accomplished in such a way as to minimize impacts upon Showboat's primary entrance. Accordingly, FCRC and 32 Showboat agree that they will cooperate with each other and coordinate their design efforts for the intersection of the proposed Combined Service Drive with Pacific Avenue, in order to develop screening and entry features that are compatible with the designs and operational needs of each party's facility. Showboat agrees that any screening feature which it constructs will be limited in height to the height of the FCRC project building height in front of which it is constructed. Showboat shall bear the sole cost and expense of any screening erected on its property. To the extent that Showboat and FCRC cannot agree to any particular item involved in the development of the designs for the Combined Service Drive or the screening and entry features contained within that area, either party may, by notice to the other parties, submit such dispute to be conclusively determined by the dispute resolution procedure set forth in paragraph 13 to this Restated Agreement. 11. PHASE II HOTEL TOWER The parties acknowledge and agree that the prior memoranda and agreements discuss and give certain rights to Showboat with respect to the construction of a second hotel tower adjacent to the Phase I Tower. This second tower shall be hereinafter referred to as the "Phase II Tower". Pursuant to agreements reached herein, FCRC, Showboat and ACHA agree that the Phase II Tower location, should 33 Showboat at some point in the future in its sole and absolute discretion decide to build it, will be constructed on portions of Tract 1 and Tract 2 to be retained by Showboat. Although the precise location of the Phase II Tower cannot be certainly stated at this time, the parties anticipate that the Phase II Tower will extend to the common property line. Showboat and FCRC agree to cooperate to coordinate construction of their respective facilities so as to promote and achieve the most expeditious and economical construction schedule possible. Such specific items shall include, but not be limited to, the foundations, supports and pillars required, and the other facilities needed for, the eventual construction of the Phase II Tower. In order for Showboat ultimately to construct its Phase II Hotel Tower, FCRC and Showboat recognize and agree that it will be necessary for Showboat, prior to or contemporaneous with, FCRC's construction, to install certain support structures and foundations on Showboat's property adjacent to the Combined Service Drive. Such support structures and foundations will occupy an area extending from the sub-surface up to and possibly exceeding 28.25 feet Mean Sea Level. Neither the construction, use nor maintenance of the foundations and support structures shall substantially interfere with the use of the 34 Combined Service Drive for its intended purposes. Such foundations and support structures shall not be shared with or used by FCRC in any way and shall be and remain the exclusive property of Showboat. In order to facilitate and coordinate Showboat's construction of said foundations and support structures with FCRC's construction, FCRC will provide Showboat with its construction schedule pertinent to the Combined Service Drive as soon as such schedule becomes available. Showboat in turn shall provide FCRC with its construction schedule pertinent to the aforesaid foundations and support structures as soon as such schedule becomes available. FCRC and Showboat shall allow each other's contractors reasonable access to all areas of the construction site reasonably required for each party's construction efforts provided, however, that neither contractor impedes or delays the progress of the other. All such access shall be at the risk of the party entering. FCRC and Showboat shall also allow each other's architects, contractors or engineers to make inspections of the construction site and of the work in progress or completed thereon. 12. VACATION OF RECONVEYED TRACTS BY SHOWBOAT In recognition of the agreements reached herein with regard to the use of the various portions of the UURT by FCRC, Showboat acknowledges that it shall be required to vacate certain portions of the UURT which will be reconveyed to ACHA pursuant to the terms of this Restated 35 Agreement as well as Tract 3 and Block 13, Lot 144.02 on the Tax Map. Consistent with the provisions and acknowledgments herein, Showboat shall vacate such portions of the UURT immediately upon consummation of the conveyances herein described. At the time of reconveyance by Showboat, the parcels so reconveyed shall be free and clear of all liens, encumbrances, leases or occupancy rights, vacant and cleared of all debris, improvements or personal property, subject to the existence of: (1) any subterranean utilities, fixtures or items previously approved by ACHA; (2) and subterranean utilities, fixtures or items existing as of July 7, 1993; and (3) surface improvements currently on the 80' easement. As to the foregoing items (1) ,(2) and (3), Showboat shall have no obligation to remove or clear. Showboat agrees that it shall not have any claim against FCRC or ACHA for the loss of value of any improvements or personal property remaining on the property after the date for reconveyance. Showboat shall deliver such property to ACHA in accordance with the provisions of paragraph 8 of this Restated Agreement. FCRC agrees to accept from ACHA the parcels in the same condition as ACHA received them from Showboat. ACHA currently holds the sum of seventy five thousand dollars ($75,000.00) which Showboat has delivered to ACHA as a security deposit pursuant to the Use and Occupancy Agreement. ACHA and Showboat agree that ACHA shall continue to hold such $75,000.00 to secure the performance of Showboat pursuant to the provisions of this paragraph 12. ACHA shall deliver to Showboat said $75,000.00 36 immediately upon satisfactory inspection by ACHA of the subject tracts provided that ACHA in its reasonable discretion is satisfied that Showboat has complied with the provisions of this paragraph 12. 13. DISPUTE RESOLUTION FCRC and Showboat acknowledge that this Restated Agreement calls for their cooperation with regard to coordination of the construction and use of the Combined Service Drive. Accordingly, should such cooperation with respect to any one issue not result in an agreement between FCRC and Showboat as to how to resolve that issue, FCRC and Showboat are herein providing for a methodology to resolve as expeditiously and economically as possible any disputes which cannot be determined by their cooperation. Any such dispute which cannot be resolved by FCRC and Showboat shall be conclusively determined by an arbitration panel consisting of one arbitrator selected by Showboat, one by FCRC and a third selected by the first two arbitrators ("the Panel"). In any instance of this Restated Agreement where arbitration is specified for the resolution of a dispute, the party requesting arbitration shall do so by giving notice to that effect to the other party, specifying in said notice the nature of the dispute, and said dispute shall be determined by three arbitrators designated as hereinafter provided. The party requesting arbitration shall designate in its notice requesting such arbitration an arbitrator, 37 giving his/her name and address. The other party shall, within ten days after the effective date of such notice, designate by notice to the party requesting such arbitration a second arbitrator, giving his/her name and address. The two arbitrators so designated shall within ten days after the effective date of the notice designating the second arbitrator designate a third arbitrator. If a party who has the right to appoint an arbitrator pursuant to the preceding sentence fails or neglects to do so, then the other party (or if the two arbitrators appointed by the parties fail to appoint a third arbitrator when required hereunder, then either party) may apply to any court of competent jurisdiction to appoint such arbitrator. The three arbitrators shall proceed promptly to the resolution of the dispute. The arbitrators shall conduct the arbitration in accordance with the Commercial Rules of the American Arbitration Association (or successor organization) then in effect. Upon selection of the Panel to make a determination under this Restated Agreement, and upon acceptance by the Panel of that responsibility, the following procedure shall apply: (1) Upon presentation of the issue in dispute to the Panel tomake a determination, the Panel shall be designated as a arbitrator of the outstanding issues between FCRC and Showboat. 38 (2) Within seven (7) days of notification to the Panel that it shall be called upon to decide any issue in dispute, FCRC and Showboat shall present to the Panel and to each other their respective positions in writing, including an explanation of how each party's position was calculated and any written documentation to support such position. (3) Within seven (7) days of receiving the information set forth in paragraph 2, the Panel shall meet with FCRC and Showboat to discuss the issues, at which time, the Panel may request any additional information which it feels is needed to render a decision. Such meeting shall be informal and shall not be conducted as an adversarial proceeding nor shall the Rules of Evidence under the laws of the State of New Jersey apply. At this meeting, FCRC and Showboat may also present any additional information which they feel is relevant. (4) Within fifteen (15) days of conducting the meeting as set forth in paragraph 3, the Panel shall render its decision in writing to both FCRC and Showboat, with a copy to ACHA. If the Panel cannot agree within fifteen days upon a resolution, the third arbitrator shall determine the dispute, unless all of the arbitrators agree to extend the determination period, but in no event longer than an additional fifteen days. Said decision shall be binding and 39 unappealable as to both FCRC and Showboat and shall be considered a final decision reached through binding arbitration under the laws of the State of New Jersey. (5) When appropriate, Showboat and FCRC may agree to an alternative form of dispute resolution if such alternative form is identified in writing and agreed to by both FCRC and Showboat. (6) FCRC and Showboat shall share equally the costs of conducting any dispute resolution procedure pursuant to this paragraph. (7) ACHA shall be notified of any dispute submitted to arbitration or dispute resolution and shall receive copies of all documents submitted as part of the arbitration or dispute resolution process. ACHA shall have the right to observe any arbitration or dispute resolution proceedings and Showboat and FCRC shall provide ACHA with notice of the outcome thereof. 14. ASSIGNMENT (A) Assignment by FCRC and Showboat Showboat and FCRC acknowledge and agree that each has the right to assign this Restated Agreement, in whole or in part, subject to the prior written approval of ACHA. (B) Assignment by ACHA Subject to the provisions of the following sentence, ACHA may assign 40 this Restated Agreement, or any interest therein, without the prior written consent of FCRC and Showboat. Notwithstanding the foregoing, ACHA may not assign, delegate, sub-contract or otherwise dispose of any of its "ACHA Functions" (as hereinafter defined) unless such disposition is to a governmental entity and any attempt to do so in violation of the foregoing shall be null and void. For purposes of this section 14 (B), the term "ACHA Functions" shall mean any rights, remedies, responsibilities or obligations under this Restated Agreement with respect to: (i) review and approval of FCRC's plans, designs, finishes and materials for any improvements; (ii) the issuance of Certificate(s) of Completion for any improvements; (iii) enforcement of the Redevelopment Plan as it relates to the parcels or tracts, or any part thereof, or of the affirmative action requirements of the Redevelopment Plan. Notwithstanding the foregoing, ACHA reserves the right to delegate or sub- contract, to one or more parties acting on ACHA's behalf, anything other than the ultimate responsibility for and decision making with respect to the ACHA Functions. (C) Binding Effect This Restated Agreement shall be binding upon and inure to the benefit of ACHA, FCRC and Showboat and their respective heirs, executors, administrators, successors and assigns. However, in the event that 41 after FCRC commences development, ACHA terminates the FCRC Development Agreement, ACHA or its successor or assigns shall have the right but not the obligation to complete the FCRC project and/or fulfill any of FCRC's obligations pursuant to this Restated Agreement, except that any successor or assigned must be bound to complete construction of the Combined Service Drive. 15. MISCELLANEOUS (A) FCRC agrees that its project shall not exceed fifty-two (52) feet mean sea level in height within twenty-four (24) feet of Showboat's property line as depicted at Exhibit N of this Restated Agreement. (B) It is also acknowledged and agreed that there may be a desire by FCRC and Showboat to construct a connecting pedestrian bridge between the proposed FCRC project and the existing Showboat Casino Hotel facility to permit patrons to move between those facilities. The location of any pedestrian bridge(s) connecting the two facilities shall be mutually agreed upon by FCRC and Showboat subject to approval by ACHA. The cost of such pedestrian bridge(s), if constructed, shall be borne equally by FCRC and Showboat. (C) The parties anticipate that construction of the FCRC project will require excavation and relocation of utilities currently serving the Showboat facility. Such utilities include water, sewer, drainage, electricity and other subterranean utilities. To the extent that any utilities or other facilities or improvements may need to be relocated as a result of the reconveyance of the Tracts and the 80' easement 42 identified herein by Showboat to ACHA and the subsequent conveyance by ACHA to FCRC, and in order to accommodate the FCRC project, the expense for such relocation shall be the sole and exclusive obligation of FCRC. Neither Showboat nor ACHA undertakes any obligation whatsoever to pay for any such relocation. However, this responsibility shall not include any utility or facility relocation required to be undertaken as a result of any decision by Showboat, pursuant to paragraph 11 hereof, to construct the Phase II Tower. Showboat shall have the right to review and reasonably approve the design, the method and timing of the relocation of any utilities that are tied into the Showboat facilities in order to insure that such relocation will not unreasonably interrupt utility service to the Showboat Casino Hotel. Showboat shall respond to any written request for relocation of utilities within thirty days of receipt. Any such request must be accompanied by plans and other information reasonable required to evaluate such requests. If Showboat decides not to approve any such request, its response will include a reasonably detailed explanation for its refusal to so approve. (D) (Intentionaly deleted and omitted). (E) The parties agree that this Restated Agreement may be recorded in the Office of the Atlantic County Clerk. (F) Any notices consents, requests or approvals which are required to be given with respect to any portion of this Restated Agreement shall be given in writing by way of ordinary United States mail by the party 43 giving such notice to both other parties to this Restated Agreement addressed as follows: As to Showboat: P.O. Box 840 Atlantic City, NJ 08401 Attention: Legal Department As to ACHA: 227 N. Vermont Avenue P.O. Box 1258 Atlantic City, NJ 08404 Attention: Executive Director As to FCRC: One Metro Tech Center, North Brooklyn, NY 11201 Attention: Legal Department (G) This Restated Agreement shall be governed by and construed under the laws of the State of New Jersey. (H) This Restated Agreement constitutes the entire understanding among the parties and may only be amended by a writing executed by all the parties. The parties affirm that there are no other agreements between Showboat and ACHA or Showboat and FCRC, with respect to the issues addressed herein. (I) This Restated Agreement may be executed in counterparts at different locations or by signature of any of the parties transmitted by an electronic means such as telecopier (fax), and execution by such means shall bind the parties in the same manner as if executed in person on the date of this Restated Agreement. (J) Showboat acknowledges that FCRC desires to obtain funding for 44 certain portions of its project from the Casino Reinvestment Development Authority ("CRDA"). Showboat is willing to assist construction of FCRC's project and in furtherance thereof will provide or cause to be provided CRDA funds, in the form of a grant in an amount equal to $2.5 million, toward construction of the planned community facilities, including but not limited to the skating rink, providing that in no event will Showboat make any cash outlay on account of any portion of the FCRC project and its financial assistance will be strictly limited to utilization of available CRDA funds not to exceed the aforesaid $2.5 million. Showboat agrees not to take any action to otherwise encumber such funds for a period of three years from the date of this Restated Agreement. In addition, Showboat, so long as there is no expense incurred by it, will render its cooperation and assistance to FCRC in obtaining any discretionary or "pool" CRDA funds from CRDA. Showboat's interest in such "pool" CRDA funds shall not be considered an expense incurred by Showboat for purposes of the preceding sentence. Showboat makes no warranty or representation that any funding described in this paragraph 15(J) will be approved by the CRDA for the use herein contemplated and Showboat's covenant herein shall be limited solely to making the appropriate applications to CRDA in furtherance of the purposes herein described and otherwise acting in good faith with respect to its obligations as set forth herein. (K) The parties acknowledge and agree that this Restated Agreement is 45 intended, among other things, to memorialize the settlement between them of those issues raised in those lawsuits now pending between and among them being Atlantic City Showboat, Inc. v. Housing Authority and Urban Redevelopment Agency of the City of Atlantic City and Forest City Ratner Companies, bearing Docket Numbers ATL-L-00811-95-PW and ATL-L-001898-95-PW. The parties hereby agree to stipulate to the dismissal of the above- referenced lawsuits with prejudice, together with all counter- claims, within five business days of Closing as described in paragraph 8 of this Restated Agreement. The parties at the same time will exchange mutual releases in the form set forth at Exhibit R of this Restated Agreement. (L) Notwithstanding any presumptions to the contrary, all covenants, conditions and representations contained in this Restated Agreement, which, by their nature, implictly or expressly, involved performance, in any particular, after Closing, or which cannot be ascertained to have been fully performed until after Closing, shall survive Closing to the extent provided in this Restated Agreement and the deeds delivered pursuant hereto. 46 AMENDED AND RESTATED TRI-PARTY AGREEMENT SIGNATURE PAGE ATTEST: ATLANTIC CITY SHOWBOAT, INC. /s/ Luther G. Anderson By: /s/ Herbert R. Wolfe Luther G. Anderson Herbert R. Wolfe Assistant Secretary President and Chief Executive Officer STATE OF NEW JERSEY : : SS COUNTY OF ATLANTIC : BE IT REMEMBERED, that on this 14th day of December, 1995, before me, the subscriber, personally appeared Herbert R. Wolfe who I am satisfied is the person who signed the within instrument as President Chief Executive Officer of Atlantic City Showboat, Inc., the corporation named therein, and he acknowledged that he signed, sealed with the corporate seal 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. /s/ Cynthia C. Stern 47 AMENDED AND RESTATED TRI-PARTY AGREEMENT SIGNATURE PAGE ATTEST: HOUSING AUTHORITY AND URBAN REDEVELOPMENT AGENCY OF THE CITY OF ATLANTIC CITY /s/ By: /s/ John P. Whittington Secretary John P. Whittington, Chairman STATE OF NEW JERSEY : SS COUNTY OF ATLANTIC : BE IT REMEMBERED, that on this 14th day of December, 1995, before me, the subscriber, personally appeared John P. Whittington who I am satisfied is the person who signed the within instrument as Chairman of ATLANTIC CITY HOUSING AUTHORITY AND URBAN REDEVELOPMENT AGENCY, the Agency named therein, and he acknowledged that he signed, sealed with the Agency's seal and delivered the same as such officer aforesaid, and that the within instrument is the voluntary act and deed of such Agency, made by virtue of a Resolution of its Members. /s/ John F. Glowacki 48 AMENDED AND RESTATED TRI-PARTY AGREEMENT SIGNATURE PAGE FOREST CITY RATNER COMPANIES ATTEST: BY RATNER GROUP, INC., GENERAL PARTNER /s/ By: /s/ Bruce C. Ratner Secretary Bruce C. Ratner, President STATE OF NEW YORK : : SS COUNTY OF KINGS : BE IT REMEMBERED, that on this 14th day of December, 1995, before me, the subscriber, personally appeared Bruce C. Ratner who I am satisfied is the person who signed the within instrument as President of Ratner Group, Inc., a corporation which is general partner of Forest City Ratner Companies, and he acknowledged that he signed, sealed with the corporate seal and delivered the same as aforesaid officer, 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. /s/ Concepcion C. Balinong 49 Prepared by: Record and return to Arthur E. Sklar, Esq. Levine, Steller, Sklar, Chan, Brodsky & Donnelly, P.A. ______________________ 3030 Atlantic Avenue Arthur Sklar, Esquire Atlantic City, NJ 08401 RELEASE OF PART OF MORTGAGED PROPERTY AND SUBORDINATION AGREEMENT THIS AGREEMENT is made as of the 14th day of December, 1995 by and between IBJ Schroder Bank & Trust Company (as Trustee), whose address is One State Street, New York, New York 10004 (hereinafter referred to as "Mortgagee") and Atlantic City Showboat, Inc. whose address is 801 Boardwalk, Atlantic City, New Jersey 08401 (hereinafter referred to as "Mortgagor"). W I T N E S S E T H: BACKGROUND A. Mortgagor executed and delivered to Mortgagee (i) a Leasehold Mortgage, Assignment of Rents and Security Agreement dated as of May 18, 1993, recorded May 19, 1993 in the Office of the Clerk of Atlantic County (the "Clerk's Office") in Mortgage Book 5028, page 1, as amended by First Amendment to the Leasehold Mortgage, Assignment of Rents and Security agreement dated July 9, 1993, recorded July 28, 1993 in the Clerk's Office in Mortgage Book 5095, page 209 and Second Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement dated July 6, 1995, recorded September 14, 1995 in the Clerk's Office in Mortgage Book 5702, page 223 and (ii) an Assignment of Leases and Rents dated May 18, 1993, recorded May 19, 1993 in the Clerk's office in Mortgage Book 5028, page 66 (together, the "Trust Mortgage"). Mortgagee also holds an obligation for the payment of an indebtedness that is secured by the Trust Mortgage. B. Mortgagor executed and delivered to Showboat, Inc., a Nevada corporation (i) a Leasehold Mortgage, Assignment of Rents and Security Agreement dated May 18, 1993, recorded May 19, 1993 in the Clerk's Office in Mortgage Book 5028, page 79, amended by First Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement dated July 9, 1993, recorded July 28, 1993 in Mortgage Book 5095, page 26 and amended by Second Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement date July 6, 1995, recorded September 14, 1995 in the Clerk's Office in Mortgage book 5702, page 236 and (ii) an Assignment of Rents and Leases dated May 18, 1993, recorded in the Clerk's Office in Mortgage Book 5028, page 144 (together, the "Assigned Mortgage"). The Assigned Mortgage was assigned by Showboat, Inc. to Mortgagee by assignment dated May 18, 1993, recorded May 29, 1993 in the Clerk's Office in Assignment Book 624, page 195. Mortgagee also holds an obligation for the payment of an indebtedness that is secured by the Assigned Mortgage. C. Pursuant to a Tri-Party Agreement among Mortgagor, the Housing Authority and Urban Redevelopment Agency of the City of Atlantic City (the "Housing Authority") and Forest City Ratner dated December 7, 1995 (the "Tri-Party Agreement"), Mortgagor agreed to convey to the Housing Authority (i) certain land and premises more particularly described on Exhibit "A" attached hereto and made a part hereof (the "Release Parcels") and (ii) an easement over a portion of lands and premises owned by Mortgagor more particularly described on Exhibit "B" attached hereto and made a part hereof (the "Easement Parcel") and the Housing Authority has agreed to convey to Mortgagor the land and premises described on Exhibit "C" attached hereto and made a 2 part hereof (the "Authority Lands"). D. On December 6, 1995, the Planning Board of Atlantic City approved the re-subdivision of Lots 144.03, 144.04, 144.05 and 144.06 in Block 13 on the Tax Map of the City of Atlantic City as reflected on a subdivision plan prepared by Arthur W. Ponzio Co. & Associates, Inc., last revised November 7, 1995 (the "Subdivision Plat"). The Subdivision Plat has been, or is about to be filed, in the Clerk's Office. E. Mortgagor has requested Mortgagee to release the Release Parcels encumbered by the Trust Mortgage and the Assigned Mortgage and to subordinate the lien of the Trust Mortgage and the Assigned Mortgage to the Easement Parcel. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Recitals. The recitals set forth above are hereby incorporated in their entirety as if fully set forth at length. 2. Release of Part of Mortgaged Premises: Subordination. 2.1 Mortgagee hereby releases the Release Parcels from the lien of the Trust Mortgage and the Assigned Mortgage. The Release Parcels include (a) the land, (b) all buildings and other improvements that are located on the land, (c) all fixtures that are attached to the land or buildings, if any, and (d) all other present rights of Mortgagee relating to the Release Parcels. 2.2 The rest of the property (not released) described in the Trust Mortgage and the Assigned Mortgage remains subject to the lien of such mortgages. 2.3 Subordination to Easement. Mortgagee hereby subordinates the lien of the Trust Mortgage and the Assigned Mortgage to the Easement Parcel for the uses and purposes 3 described therein. 3. Successors and Assigns. This Agreement inures to the benefit of Mortgagor and is binding upon Mortgagee and their respective successors and assigns. IN WITNESS WHEREOF, the undersigned has caused these presents to be executed the day and year first above written. ATTEST: IBJ SCHRODER BANK & TRUST COMPANY, as Trustee ________________________ By:________________________________ , Secretary , Vice-President STATE OF NEW JERSEY : : ss COUNTY OF ATLANTIC : BE IT REMEMBERED that on this_______ day of December, 1995, before me, the subscriber, a Notary Public of New Jersey, personally appeared __________________________________________, who, I am satisfied is the person who signed the within instrument as Vice-President of IBJ Schroder Bank & Trust Company, as trustee, the corporation named therein, and he thereupon acknowledged that the said instrument made by the corporation and seal with its corporate seal, was signed, sealed with the corporate seal and delivered by him as such officer, and is the voluntary act and deed of the corporation, as trustee. ____________________________________ 4 TRACT B (Identified in the Restated Agreement as "The 80' Easement") BEGINNING at a point in the westerly line of New Jersey Avenue (50' wide), South 27 degrees, 28'00" seconds east a distance of 862.00' from the southerly line of Pacific Avenue (60' wide), and extending from said beginning point; thence 1. South 27 degrees, 28'00" east in and along the westerly line of New Jersey Avenue a distance of 80.00' to a point; thence 2. South 62 degrees, 32'00" west a distance of 140.00' to a point; thence 3. North 27 degrees, 28'00" west a distance of 80.00' to a point; thence 4. North 62 degrees, 32'00" east a distance of 140.00' to the point and place of BEGINNING CONTAINING an area of 11,200 square feet and being Block 13, Lot 144.06 on the Tax Map of the City of Atlantic City as it existed on November 1, 1995, and also being the lands and premises over which a certain easement was granted to Grantor by Grantee by deed dated July 7, 1993, and recorded in the Atlantic County Clerk's Office in deed book 5524, page 201 et seq. Exhibit A page 1 of 3 TRACT A (Identified in the Restated Agreement as "Portion of Tract 1 to be conveyed to ACHA-7,333.57SF") Beginning at a point being South 62 degrees 32'00" West, 140.00' from the westerly line of New Jersey Avenue (50.00' wide), and South 27 degrees 28'00" East, 445.00' from the southerly line of Pacific Avenue (60.00' wide), and extending from said beginning point; thence 1. South 27 degrees 28'00" East, parallel with New Jersey Avenue, 497.00' to the northerly line of lot 144.02 in block 13; thence 2. South 62 degrees 32'00" West, in and along same, parallel with Pacific Avenue, 13.00'; thence 3. North 27 degrees 28'00" West, parallel with New Jersey Avenue, 419.73' to a point; thence 4. North 59 degrees 59'37" West, 20.77' to a point; thence 5. North 27 degrees 28'00" West, parallel with New Jersey Avenue 41.38' to a point; thence 6. North 59 degrees 59'37" West, 20.46' to a point; thence 7. North 27 degrees 28'00" West, 1.13' to a point; thence 8. North 62 degrees 32'00" East, parallel with Pacific Avenue, 35.17' to the point and place of BEGINNING. CONTAINING an area of 7,333.57 square feet and being a portion Block 13, Lot 144.03, Tax Map of the City of Atlantic City as it existed on November 1, 1995, and also being a portion of the lands and premises granted to Mortgagor by the Housing Authority by deed dated July 7, 1993, and recorded in the Atlantic County Clerk's Office in deed book 5524, page 201 et seq. Exhibit A page 2 of 3 [Original typed on letterhead] September 23, 1995 Metes and Bounds Description for property situate in the City of Atlantic City, County of Atlantic and State of New Jersey, located in Block 13 as shown on the Atlantic City Tax Map, and being a PORTION OF TRACT 2 (LOT 144.04) TO BE CONVEYED TO THE ATLANTIC CITY HOUSING AUTHORITY as shown on plan prepared by Arthur W. Ponzio, Jr., Professional Land Surveyor, New Jersey License No. 28314, plan dated September 25, 1995, bounded and described as follows: Beginning at a point being South 62 32'00" West, 251.00' from the westerly line of New Jersey Avenue (50' wide), and South 27 28'00" East, 80.00' from the southerly line of Pacific Avenue (60' wide), and extending from said beginning point; thence 1. North 62 32'00" East, parallel with Pacific Avenue, 151.00' to a point; thence 2. South 27 28'00" East, parallel with New Jersey Avenue, 583.00' to a point; thence 3. South 62 32'00" West, parallel with Pacific Avenue, 40.00' to a point; thence 4. North 27 28'00" West, parallel with New Jersey Avenue, 218.00' to a point; thence 5. South 62 32'00" West, parallel with Pacific Avenue, 35.17' to a point; thence 6. North 27 28'00" West, parallel with New Jersey Avenue, 84.40' to a point; thence 7. South 62 32'00" West, parallel with Pacific Avenue, 75.83' to a point; thence 8. North 27 28'00" West, parallel with New Jersey Avenue, 280.60' to the point and place of BEGINNING. CONTAINING an area of 57435.09 square feet /s/ Arthur W. Ponzio, Jr. Arthur W. Ponzio, Jr. Professional Land Surveyor N.J. License No. 28314 Exhibit A page 3 of 3 EXHIBIT "B" EASEMENT PARCEL TRACT D (Identified in the Restated Agreement as "3,243.52SF P/O Service Road to be Retained by Showboat") Beginning at a point being South 62 degrees 32'00" West, 251.00' from the westerly line of New Jersey Avenue (50.00' wide) and South 27 degrees 28'00" East, 360.60' from the southerly line of Pacific Avenue (60.00 wide), and extending from said beginning point; thence 1. North 62 degrees 32'00" East, parallel with Pacific Avenue, 24.00' to a point; thence 2. South 27 degrees 28'00" East, parallel with New Jersey Avenue, 4.25' to a point; thence 3. South 59 degrees 59'37" East, 116.85' to a point; thence 4. South 27 degrees 28'00" East, parallel with New Jersey Avenue, 41.38' to a point; thence 5. North 59 degrees 59'37" West, 161.49' to a point; thence 6. North 27 degrees 28'00" West, parallel with New Jersey Avenue, 8.00' to the point and place of BEGINNING CONTAINING an area of 3243.52 square feet and being a portion of Block 13 on the Tax Map of the City of Atlantic City and also being a portion of the lands and premises granted to Grantor by Grantee by deed dated July 7, 1993, and recorded in the Atlantic County Clerk's Office in deed book 5524, pages 201 et seq. and 216 et seq. Said easement shall extend from the subsurface to a height of 28.25 mean sea level and shall be for the purpose of constructing and utilizing in accordance with the Restated Agreement that certain improvement identified in the Restated Agreement as the Combined Service Drive and also for the purpose of constructing, relocating, maintaining, replacing and repairing subterranean utilities, including without limitation water and sewer lines and drains. [Original typed on letterhead] December 7, 1994 METES AND BOUNDS DESCRIPTION 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 the southeasterly corner of Atlantic Avenue (100.00' wide) and Maryland Avenue (60.00' wide) and extending from said beginning point; thence (1) North 62 degrees 32'00" East, in and along the southerly line of Atlantic Avenue, a distance of 350.00' to the westerly line of Delaware Avenue (82.00' wide); thence (2) South 27 degrees 28'00" East, in and along the westerly line of Delaware Avenue, a distance of 100.00' to a point of curve; thence (3) Curving to the left in the arc of a circle having a radius of 429.00' and in and along the westerly line of Delaware Avenue, the arc length of 104.82' to a point of tangent; thence (4) South 41 degrees 28'00" East, in and along the westerly line of Delaware Avenue, a distance of 152.53' to a point of curve; thence (5) Curving to the right in the arc of a circle having a radius of 315.00' and in and along the westerly line of Delaware Avenue, the arc length of 76.97' to a point of tangent; thence (6) South 27 degrees 28'00" East, in and along the westerly line of Delaware Avenue, a distance of 122.01' to the northerly line Pacific Avenue; thence (7) South 62 degrees 32'00" West, in and along the northerly line of Pacific Avenue, a distance of 409.00' to the easterly line of Maryland Avenue; thence Exhibit C page 1 of 4 (8) North 27 degrees 28'00" West, in and along the easterly line of Maryland Avenue, a distance of 550.00' to the point and place of BEGINNING. BEING KNOWN AS Block 15 as shown on the current official taxing plan of the City of Atlantic City, with a proposed vacation of United States Avenue and realignment of Delaware Avenue. CONTAINING an area of 209,013.13 square feet, or 4.80 Acres Exhibit C page 2 of 4 [Original typed on letterhead] September 23, 1995 Metes and Bounds Description for property situate in the City of Atlantic City, County of Atlantic and State of New Jersey, located in Block 13 as shown on the Atlantic City Tax Map, and being A PORTION OF TRACT 3 (LOT 144.05) TO BE CONVEYED TO ATLANTIC CITY SHOWBOAT, INC. as shown on plan prepared by Arthur W. Ponzio, Jr., Professional Land Surveyor, New Jersey License No. 28314, plan dated September 25, 1995, bounded and described as follows: Beginning at a point in the southerly line of Pacific Avenue (60.00' wide), South 62 32'00" West, 251.00' from the westerly line of New Jersey Avenue (50.00' wide), and extending from said beginning point; thence 1. South 27 28'00" East, parallel with New Jersey Avenue, 80.00' to a point; thence 2. South 62 32'00" West, parallel with Pacific Avenue, 15.00' to the easterly line of lot 140 in block 13; thence 3. North 27 28'00" West, in and along same, parallel with New Jersey Avenue, 80.00' to the southerly line of Pacific Avenue; thence 4. North 62 32'00" East, in and along same, 15.00' to the point and place of BEGINNING. CONTAINING an area of 1200 square feet. /s/ Arthur W. Ponzio, Jr. Arthur W. Ponzio, Jr. Professional Land Surveyor N.J. License No. 28314 Exhibit C page 3 of 4 EASEMENT Metes and Bounds Description for property situate in the City of Atlantic City, County of Atlantic and State of New Jersey, located in Block 13 on the Atlantic City Tax Map, being A PROPOSED FIRE ACCESSWAY, SERVICE ROAD AND UTILITY EASEMENT, as shown on plan prepared by Arthur W. Ponzio, Jr., Professional Land Survey, New Jersey License No. 28314, plan last dated November 7, 1995, entitled PLAN TO ACCOMPANY RE-STATED TRI-PARTY AGREEMENT DATED 12/1/95, bounded and described as follows: Beginning at a point in the southerly line of Pacific Avenue (60' wide), said point being South 62 degrees 32'00" West, 251.00' from the westerly line of New Jersey Avenue (50'), and extending from said beginning point; thence 1. North 62 degrees 32'00" East, parallel with Pacific Avenue, 24.00' to a point; thence 2. South 27 degrees 28'00" East, parallel with New Jersey Avenue, 364.85' to a point; thence 3. South 59 degrees 59'37" East, 182.26' to a point; thence 4. South 27 degrees 28'00" East, parallel with New Jersey Avenue, 423.48' to the northerly line of lot 144.02; thence 5. South 62 degrees 32'00" West, in and along same, parallel with Pacific Avenue, 24.00' to a point; thence 6. North 27 degrees 28'00" West, parallel with New Jersey Avenue, 419.73' to a point; thence 7. North 59 degrees 59'37" West, 182.26' to a point; thence 8. North 27 degrees 28'00" West, parallel with New Jersey Avenue, 360.68' to the point and place of BEGINNING. CONTAINING an area of 22,975.19 square feet. Exhibit C page 4 of 4 Record and return to Prepared by: William L. Mueller, Esq. /s/ Arthur Sklar Clark, Ladner, Fortenbaugh & Young Arthur Sklar, Esquire Woodland Falls Corporate Park 200 Lake Drive East Suite 300 Cherry Hill, NJ 08002 FIRST AMENDMENT TO LEASEHOLD IN PARI PASSU MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT AND COLLATERAL ASSIGNMENT OF EASEMENT RIGHTS MORTGAGE SPREADER AGREEMENT THIS AGREEMENT is made as of this 15th day of December, 1995, by and between Atlantic City Showboat, Inc., a New Jersey corporation, whose address is 801 Boardwalk, Atlantic City, New Jersey 08404 (hereinafter referred to as "Mortgagor"), and NatWest Bank, N.A. (hereinafter referred to as "Mortgagee"). W I T N E S S E T H: BACKGROUND. A. Mortgagor executed and delivered to Mortgagee a Leasehold in Pari Passu Mortgage, Assignment of Rents and Security Agreement dated as of July 14, 1995, recorded September 14, 1995 in the Office of the Clerk of Atlantic County (the "Clerk's Office") in Mortgage Book 5702, page 152 (the "NatWest Mortgage") and related loan documents. B. Pursuant to the terms of an agreement between Mortgagor and Mortgagee, Mortgagor agreed to spread the lien of the NatWest Mortgage to additional lands acquired by Mortgagor not encumbered by the NatWest Mortgage. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: Recitals. The recitals set forth above are hereby incorporated in their entirety as if fully set forth at length. 2. Agreement to Mortgage. Mortgagor hereby mortgages to Mortgagee and intends that the lien of the Mortgage shall hereby attach and spread to Mortgagor's right, title and interest in the land and premises more particularly described on Exhibit "A" attached hereto and made a part hereof and shall be deemed to be a valid mortgage lien on such property under and subject to easements, agreements and restrictions of record. 3. Collateral Assignment. Mortgagor collaterally assigns to Mortgagee all of Mortgagor's rights in and to a certain Service Road, Fire Accessway and Utility Easement identified as proposed new lots 144.08 and 144.09 on Proposed Plan of Subdivision prepared by Arthur W. Ponzio, Jr., L.S., last revised December 7, 1995, filed or about to be filed in the Atlantic County Clerk's Office and more particularly described on Exhibit "B" attached hereto and made a part hereof. 4. Successors and Assigns. This Agreement inures to the benefit of Mortgagee, and is binding upon Mortgagor, and their respective successors and assigns. IN WITNESS WHEREOF, the undersigned has caused these presents to be executed the day and year first above written. ATTEST: ATLANTIC CITY SHOWBOAT, INC. /s/ Luther G. Anderson By: /s/ Herbert R. Wolfe Luther G. Anderson, Assistant Herbert R. Wolfe, President Secretary STATE OF NEW JERSEY : : ss COUNTY OF ATLANTIC : BE IT REMEMBERED that on this 20th day of December, 1995, before me, the subscriber, a Notary Public of New Jersey, personally appeared Herbert R. Wolfe, who, I am satisfied is the person who signed the within instrument as President of Atlantic City Showboat, Inc., the corporation named therein, and he thereupon acknowledged that the said instrument made by the corporation and sealed with its corporate seal, was signed, sealed with the corporate seal and delivered by him as such officer pursuant to a proper resolution of its Board of Directors, and is the voluntary act and deed of the corporation. /s/ Cynthia C. Stern Metes and Bounds Description for property situate in the City of Atlantic City, county of Atlantic and State of New Jersey, located in Block 13 as shown on the Atlantic City Tax Map, and being PROPOSED NEW LOT 144.10, BLOCK 13 TO BE OWNED BY ATLANTIC CITY SHOWBOAT, INC. as shown on plan prepared by Arthur W. Ponzio, Jr., Professional Land Surveyor, New Jersey License No. 28314, plan dated September 25, 1995, last revised December 7, 1995 filed or to be filed in the Atlantic County Clerk's Office, bounded and described as follows: Beginning at a point in the southerly line of Pacific Avenue (60' wide), South 62 degrees 32'00" West, 251.00' from the westerly line of New Jersey Avenue (50' wide), and extending from said beginning point; thence 1. South 27 degrees 8'00" East, parallel with New Jersey Avenue, 360.60' to a point; thence 2. North 62 degrees 2'00" East, parallel with Pacific Avenue, 75.83 to a point; thence 3. South 27 degrees 8'00" East, parallel with New Jersey Avenue, 85.53' to a point; thence 4. South 59 degrees 9'37" East, 20.46' to a point; thence 5. South 27 degrees 8'00" East, parallel with New Jersey Avenue, 41.38' to a point; thence 6. South 59 degrees 9'37" East, 20.77' to a point; thence 7. South 27 degrees 28'00" East, parallel with New Jersey Avenue, 419.73' to a point in the northerly line of lot 144.02 in block 13; thence 8. South 62 degrees 32'00" West in and along same, parallel with Pacific Avenue, 113.00' to the easterly line of lot 140 in block 13; thence 9. North 27 degrees 28'00" West, in and along same, parallel with New Jersey Avenue, 942.00' to the southerly line of Pacific Avenue; thence 10. North 62 degrees 32'00" East in and along same, 15.00' to the point and place of BEGINNING. CONTAINING an area of 68,363.34 square feet. Exhibit A page 1 of 2 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 the southeasterly corner of Atlantic Avenue (100.00' wide) and Maryland Avenue (60.00' wide) and extending from said beginning point; thence (1) North 62 degrees 32' 00" East, in and along the southerly line of Atlantic Avenue, a distance of 350.00' to the westerly line of Delaware Avenue (82.00' wide); thence (2) South 27 degrees 28' 00" East, in and along the westerly line of Delaware Avenue, a distance of 100.00' to a point of curve; thence (3) Curving to the left in the arc of a circle having a radius of 429.00' and in and along the westerly line of Delaware Avenue, the arc length of 104.82' to a point of tangent; thence (4) South 41 degrees 28' 00" East, in and along the westerly line of Delaware Avenue, a distance of 152.53' to a point of curve; thence (5) Curving to the right in the arc of a circle having a radius of 315.00' and in and along the westerly line of Delaware Avenue, the arc length of 76.97' to a point of tangent; thence (6) South 27 degrees 28' 00" East, in and along the westerly line of Delaware Avenue, a distance of 122.01' to the northerly line of Pacific Avenue; thence (7) South 62 degrees 32' 00" West, in and along the northerly line of Pacific Avenue, a distance of 409.00' to the easterly line of Maryland Avenue; thence (8) North 27 degrees 28' 00" West, in and along the easterly line of Maryland Avenue, a distance of 550.00' to the point and place of BEGINNING. BEING KNOWN AS Block 15 as shown on the current official taxing plan of the City of Atlantic City, with a proposed vacation of United States Avenue and realignment of Delaware Avenue. CONTAINING an area of 209,013.13 square feet, or 4.80 Acres. Exhibit A page 2 of 2 EASEMENT Metes and Bounds Description for property situate in the City of Atlantic City, County of Atlantic and State of New Jersey, located in Block 13 on the Atlantic City Tax Map, being a portion of A PROPOSED FIRE ACCESS WAY, SERVICE ROAD AND UTILITY EASEMENT, as shown on plan prepared by Arthur W. Ponzio, Jr., Professional Land Survey, New Jersey License No. 28314, plan last dated November 7, 1995, entitled PLAN TO ACCOMPANY RE-STATED TRI PARTY AGREEMENT DATED 12/1/95, bounded and described as follows: BEGINNING at a point in the Southerly line of Pacific Avenue (60' wide), said point being South 62 degrees 32'00" West, 251.00' from the Westerly line of New Jersey Avenue (50'), and extending from said beginning point; thence 1. North 62 degrees 32'00" East, parallel with Pacific Avenue, 24.00' to a point; thence 2. South 27 degrees 28'00" East, parallel with New Jersey Avenue, 360.60' to a point; thence 3. South 62 degrees 32'00" West, in and along same, parallel with Pacific Avenue, 24.00' to a point; thence 4. North 27 degrees 28'00" West, parallel with New Jersey Avenue, 360.60' to the point and place of BEGINNING. CONTAINING an area of 8,654.45 square feet and being the same easement conveyed by Deed dated December 29, 1995, from the Housing Authority and Redevelopment Agency of the City of Atlantic City to Atlantic City Showboat, Inc. SAID easement shall extend from the subsurface to a height of 28.25 feet mean sea level and shall be for the purpose of constructing and utilizing in accordance with the Restated Agreement that certain improvement identified in the Restated Agreement as the combined Service Road and also for the purpose of constructing, relocating, maintaining, replacing, and repairing subterranean utilities, including without limitation water and sewer lines and drains. Exhibit B page 1 of 2 Metes and Bounds Description for property situate in the city of Atlantic City, County of Atlantic and State of New Jersey, located in Block 13 as shown on the Atlantic City Tax Map, and being a portion of a proposed Fire Access Way, Service Road and Utility Easement (PROPOSED NEW LOT C) to be owned by the Atlantic City Housing Authority as shown on plan prepared by Arthur W. Ponzio, Jr., Professional Land Surveyor, new Jersey License No. 28314, plan dated September 25, 1995, bounded and described as follows: Beginning at a point in the Northerly line of lot 144.02 in Block 13 as shown on the Atlantic City Tax Map, said point being South 62 degrees 32'00" West, 129.00' from the Westerly line of New Jersey Avenue (50' wide), and South 27 28'00" East, 942.00' from the Southerly line of Pacific Avenue (60' wide), and extending from said beginning point; thence 1. South 62 degrees 32'00" West, in and along the Northerly line of Lot 144.02, parallel with Pacific Avenue, 24.00' to a point; thence 2. North 27 degrees 28'00" West, parallel with New Jersey Avenue, 419.73' to a point; thence 3. North 59 degrees 59'37" West, 20.77' to a point; thence 4. North 27 degrees 28'00" West, parallel with New Jersey Avenue, 41.38' to a point; thence 5. South 59 degrees 59'37" East, 65.41' to a point; thence 6. South 27 degrees 28'00" East, parallel with New Jersey Avenue, 423.48' to the point and place of BEGINNING. CONTAINING an area of 11,077.22 square feet. SAID easement shall extend from the subsurface to a height of 28.25 feet mean sea level and shall be for the purpose of constructing and utilizing in accordance with the Restated Agreement that certain improvement identified in the Restated Agreement as the combined Service Road and also for the purpose of constructing, relocating, maintaining, replacing, and repairing subterranean utilities, including without limitation water and sewer lines and drains. Exhibit B page 2 of 2 Record and return to Prepared by: Bradley S. Paulsen, Esq. 2 Renaissance Sq. 40 N. Central Avenue /s/ Arthur Sklar, Esq. Suite 2700 Arthur Sklar, Esq. Phoenix, Arizona 85003 THIRD AMENDMENT TO THE LEASEHOLD MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT DATED AS OF MAY 18, 1993 MORTGAGE SPREADER AGREEMENT THIS AGREEMENT is made as of this 14th day of December, 1995, by and between Atlantic City Showboat, Inc., a New Jersey corporation, whose address is 801 Boardwalk, Atlantic City, New Jersey 08404 (hereinafter referred to as "Mortgagor"), and IBJ Schroder Bank & Trust Company (as Trustee), whose address is One State Street, New York, New York 10004 (hereinafter referred to as "Mortgagee"). W I T N E S S E T H: BACKGROUND. A. Mortgagor executed and delivered to Mortgagee (i) a Leasehold Mortgage, Assignment of Rents and Security Agreement dated as of May 18, 1993, recorded May 19, 1993 in the Office of the Clerk of Atlantic County (the "Clerk's Office") in Mortgage Book 5028, page 1, as amended by First Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement dated July 9, 1993, recorded July 28, 1993 in the Clerk's Office in Mortgage Book 5095, page 209 and Second Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement dated July 6, 1995, recorded September 14, 1995 in the Clerk's Office in Mortgage Book 5702, page 223 and (ii) an Assignment of Leases and Rents dated May 18, 1993, 1 recorded May 19, 1993 in the Clerk's office in Mortgage Book 5028, page 66 (together, the "Trust Mortgage"). B. Mortgagor executed and delivered to Showboat, Inc., a Nevada corporation (i) a Leasehold Mortgage, Assignment of Rents and Security Agreement dated May 18, 1993, recorded May 19, 1993 in the Clerk's Office in Mortgage Book 5028, page 79, amended by First Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement dated July 9, 1993, recorded July 28, 1993 in Mortgage Book 5095, page 26 and amended by Second Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement dated July 6, 1995, recorded September 14, 1995 in the Clerk's Office in Mortgage Book 5702, page 236 and (ii) an Assignment of Rents and Leases dated May 18, 1993, recorded in the Clerk's Office in Mortgage Book 5028, page 144 (together, the "Assigned Mortgage"). The Assigned Mortgage was assigned by Showboat, Inc. to Mortgagee by assignment dated May 18, 1993, recorded May 29, 1993 in the Clerk's Office in Assignment Book 624, page 195. C. On December 6, 1995, the Planning Board of Atlantic City approved a re-subdivision of Lots 144.03, 144.04, 144.05 and 144.06 in Block 13 on the Tax Map of the City of Atlantic City as reflected on a subdivision plan prepared by Arthur W. Ponzio Co. & Associates, Inc., last revised November 7, 1995 (the "Subdivision Plat"). The Subdivision Plat shall be filed in the Clerk's Office prior to the recording of this Agreement. D. Pursuant to a Tri-Party Agreement among Mortgagor, the Housing Authority and Forest City Ratner dated December 14, 1995 (the "Tri-Party Agreement"), Mortgagor agreed to convey to the Housing Authority (i) all Mortgagor's right, title and interest in certain land and premises more particularly described on Exhibit "A" attached hereto and made a part hereof (the 2 "Release Parcels") and (ii) an easement over a portion of lands and premises owned by Mortgagor more particularly described on Exhibit "B" attached hereto and made a part hereof (the "Easement Parcel") and the Housing Authority has agreed to convey to Mortgagor the land and premises described on Exhibit "C" attached hereto and made a part hereof (the "Authority Lands") and to grant to Mortgagor a certain easement with respect to that certain Proposed Fire Access way, Service Road and Utility Easement described on Exhibit "D" attached hereto and made a part hereof (the "Fire Access way"). E. In consideration for the release by Mortgagee of the Release Parcels and subordination of the Trust Mortgage and the Assigned Mortgage to the Easement Parcel, Mortgagor has agreed to mortgage to Mortgagee the Authority Lands and to collaterally assign all of its right, title and interest in and to its easement to utilize the Fire Access way. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Recitals. The recitals set forth above are hereby incorporated in their entirety as if fully set forth at length. 2. Agreement to Mortgage. Mortgagor hereby mortgages the Authority Lands to Mortgagee and intends that the lien of the Mortgage shall hereby attach and spread to Mortgagor's right, title and interest in the Authority Lands and shall be deemed to be a valid mortgage lien on such property under and subject to easements, agreements and restrictions of record. 3. Agreement to Collaterally Assign. Mortgagor hereby collaterally assigns to Mortgagee its easement to utilize the Fire Access way. 3 4. Successors and Assigns. This Agreement inures to the benefit of Mortgagee, and is binding upon Mortgagor and their respective successors and assigns. IN WITNESS WHEREOF, the undersigned has caused these presents to be executed the day of the year first above written. 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 STATE OF NEW JERSEY: : ss COUNTY OF ATLANTIC: BE IT REMEMBERED that on this 20th day of December, 1995, before me, the subscriber, a Notary Public of New Jersey, personally appeared Herbert R. Wolfe, who, I am satisfied is the person who signed the within instrument as President of Atlantic City Showboat, Inc., the corporation named therein, and he thereupon acknowledged that the said instrument made by the corporation and sealed with its corporate seal, was signed, sealed with the corporate seal and delivered by him as such officer pursuant to a proper resolution of its Board of Directors, and is the voluntary act and deed of the corporation. /s/ Cynthia C. Stern TRACT B (Identified in the Restated Agreement as "The 80' Easement") BEGINNING at a point in the westerly line of New Jersey Avenue (50' wide), South 27 degrees, 28'00" seconds east a distance of 862.00' from the southerly line of Pacific Avenue (60' wide), and extending from said beginning point; thence 1. South 27 degrees, 28'00" east in and along the westerly line of New Jersey Avenue a distance of 80.00' to a point; thence 2. South 62 degrees, 32'00" west a distance of 140.00' to a point; thence 3. North 27 degrees, 28'00" west a distance of 80.00' to a point; thence 4. North 62 degrees, 32'00" east a distance of 140.00' to the point and place of BEGINNING CONTAINING an area of 11,200 square feet and being Block 13, Lot 144.06 on the Tax Map of the City of Atlantic City as it existed on November 1, 1995, and also being the lands and premises over which a certain easement was granted to Grantor by Grantee by deed dated July 7, 1993, and recorded in the Atlantic County Clerk's Office in deed book 5524, page 201 et seq. Exhibit A page 1 of 3 TRACT A (Identified in the Restated Agreement as "Portion of Tract 1 to be conveyed to ACHA-7,333.57SF") Beginning at a point being South 62 degrees 32'00" West, 140.00' from the westerly line of New Jersey Avenue (50.00' wide), and South 27 degrees 28'00" East, 445.00' from the southerly line of Pacific Avenue (60.00'wide), and extending from said beginning point; thence 1. South 27 degrees 28'00" East, parallel with New Jersey Avenue, 497.00' to the northerly line of lot 144.02 in block 13; thence 2. South 62 degrees 32'00" West, in and along same, parallel with Pacific Avenue, 13.00'; thence 3. North 27 degrees 28'00" West, parallel with New Jersey Avenue, 419.73' to a point; thence 4. North 59 degrees 59'37" West, 20.77' to a point; thence 5. North 27 degrees 28'00" West, parallel with New Jersey Avenue 41.38' to a point; thence 6. North 59 degrees 59'37" West, 20.46' to a point; thence 7. North 27 degrees 28'00" West, 1.13' to a point; thence 8. North 62 degrees 32'00" East, parallel with Pacific Avenue, 35.17' to the point and place of BEGINNING. CONTAINING an area of 7,333.57 square feet and being a portion Block 13, Lot 144.03, Tax Map of the City of Atlantic City as it existed on November 1, 1995, and also being a portion of the lands and premises granted to Mortgagor by the Housing Authority by deed dated July 7, 1993, and recorded in the Atlantic County Clerk's Office in deed book 5524, page 201 et seq. Exhibit A page 2 of 3 Metes and Bounds Description for property situate in the City of Atlantic City, County of Atlantic and State of New Jersey, located in Block 13 as shown on the Atlantic City Tax Map, and being a PORTION OF TRACT 2 (LOT 144.04) TO BE CONVEYED TO THE ATLANTIC CITY HOUSING AUTHORITY as shown on plan prepared by Arthur W. Ponzio, Jr., Professional Land Surveyor, New Jersey License No. 28314, plan dated September 25, 1995, bounded and described as follows: Beginning at a point being South 62 degrees 32'00" West, 251.00' from the westerly line of New Jersey Avenue (50' wide), and South 27 28'00" East, 80.00' from the southerly line of Pacific Avenue (60' wide), and extending from said beginning point; thence 1. North 62 degrees 32'00" East, parallel with Pacific Avenue, 151.00' to a point; thence 2. South 27 degrees 28'00" East, parallel with new Jersey Avenue, 583.00' to a point; thence 3. South 62 degrees 32'00" West, parallel with Pacific Avenue, 40.00' to a point, thence 4. North 27 degrees 28'00" West, parallel with New Jersey Avenue, 218.00' to a point; thence 5. South 62 degrees 32'00" West, parallel with Pacific Avenue, 35.17' to a point; thence 6. North 27 degrees 28'00" West, parallel with New Jersey Avenue 84.40' to a point; thence 7. South 62 degrees 32'00" West, parallel with Pacific Avenue, 75.83' to a point; thence 8. North 27 degrees 28'00" West, parallel with New Jersey Avenue 280.60' to the point and place of BEGINNING. CONTAINING an area of 57,435.09 square feet. Exhibit A page 3 of 3 EASEMENT PARCEL TRACT D (Identified in the Restated Agreement as "3,243.52SF P/O Service Road to be Retained by Showboat") Beginning at a point being South 62 degrees 32'00" West, 251.00' from the westerly line of New Jersey Avenue (50.00' wide) and South 27 degrees 28'00" East, 360.60' from the southerly line of Pacific Avenue (60.00 wide), and extending from said beginning point; thence 1. North 62 degrees 32'00" East, parallel with Pacific Avenue, 24.00' to a point; thence 2. South 27 degrees 28'00" East, parallel with New Jersey Avenue, 4.25' to a point; thence 3. South 59 degrees 59'37" East, 116.85' to a point; thence 4. South 27 degrees 28'00" East, parallel with New Jersey Avenue, 41.38' to a point; thence 5. North 59 degrees 59'37" West, 161.49' to a point; thence 6. North 27 degrees 28'00" West, parallel with New Jersey Avenue, 8.00' to the point and place of BEGINNING CONTAINING an area of 3243.52 square feet and being a portion of Block 13 on the Tax Map of the City of Atlantic City and also being a portion of the lands and premises granted to Grantor by Grantee by deed dated July 7, 1993, and recorded in the Atlantic County Clerk's Office in deed book 5524, pages 201 et seq. and 216 et seq. Said easement shall extend from the subsurface to a height of 28.25 mean sea level and shall be for the purpose of constructing and utilizing in accordance with the Restated Agreement that certain improvement identified in the Restated Agreement as the Combined Service Drive and also for the purpose of constructing, relocating, maintaining, replacing and repairing subterranean utilities, including without limitation water and sewer lines and drains. Exhibit B page 1 of 2 RESTRICTION/MORTGAGOR Declaration of Restriction. Furthermore, Mortgagor herein acknowledges and accepts those certain restrictions upon the use of a certain portion of Block 13, Lot 144.04 on the Tax Map of the City of Atlantic City as it existed on November 1, 1995, such restrictions being more particularly set forth at paragraph 3 of that certain Restated Agreement referenced above. Said portion of Block 13, Lot 144.04 is a portion of the parcel identified in the Restated Agreement as "Portion of Tract 2 to be Retained by Showboat". The parcel of land over which such restriction shall apply is more particularly described as follows: Beginning at a point in the easterly line of lot 140 in block 13, said point being South 62 degrees 32'00" West, 266.00' from the westerly line of New Jersey Avenue (50' wide), and South 27 degrees 28'00" East, 80.00' from the southerly line of Pacific Avenue (60' wide) and extending from said beginning point; thence 1. North 62 degrees 32'00" East, parallel with Pacific Avenue, 15.00' to a point; thence 2. South 27 degrees 28'00" East, parallel with New Jersey Avenue 280.60' to a point; thence 3. South 62 degrees 32'00" West, parallel with Pacific Avenue, 15.00' to a point; thence 4. North 27 degrees 28'00" West in and along the easterly line of said lot 140, parallel with New Jersey Avenue, 280.60'to a point and place of BEGINNING. CONTAINING an area of 4209 square feet. Such restriction as set forth in the Restated Agreement shall limit the use of the above-described parcel so that it may be utilized only for purposes of a pedestrian passageway, themeing and screening in accordance with the Restated Agreement. Exhibit B page 1 of 2 METES AND BOUNDS DESCRIPTION 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 the southeasterly corner of Atlantic Avenue (100.00' wide) and Maryland Avenue (60.00' wide) and extending from said beginning point; thence (1) North 62 degrees 32' 00" East, in and along the southerly line of Atlantic Avenue, a distance of 350.00' to the westerly line of Delaware Avenue (82.00' wide); thence (2) South 27 degrees 28' 00" East, in and along the westerly line of Delaware Avenue, a distance of 100.00' to a point of curve; thence (3) Curving to the left in the arc of a circle having a radius of 429.00' and in and along the westerly line of Delaware Avenue, the arc length of 104.82' to a point of tangent; thence (4) South 41 degrees 28' 00" East, in and along the westerly line of Delaware Avenue, a distance of 152.53' to a point of curve; thence (5) Curving to the right in the arc of a circle having a radius of 315.00' and in and along the westerly line of Delaware Avenue, the arc length of 76.97' to a point of tangent; thence (6) South 27 degrees 28' 00" East, in and along the westerly line of Delaware Avenue, a distance of 122.01' to the northerly line of Pacific Avenue; thence (7) South 62 degrees 32' 00" West, in and along the northerly line of Pacific Avenue, a distance of 409.00' to the easterly line of Maryland Avenue; thence Exhibit C page 1 of 3 (8) North 27 degrees 28' 00" West, in and along the easterly line of Maryland Avenue, a distance of 550.00' to the point and place of BEGINNING. BEING KNOWN AS Block 15 as shown on the current official taxing plan of the City of Atlantic City, with a proposed vacation of United States Avenue and realignment of Delaware Avenue. CONTAINING an area of 209,013.13 square feet, or 4.80 Acres. Exhibit C page 2 of 3 Metes and Bounds Description for property situate in the City of Atlantic City, County of Atlantic and State of New Jersey, located in Block 13 as shown on the Atlantic City Tax map, and being A PORTION OF TRACT 3 (LOT 144.05) TO BE CONVEYED TO ATLANTIC CITY SHOWBOAT, INC. as shown on plan prepared by Arthur W. Ponzio, Jr., Professional Land Surveyor, New Jersey License No. 28314, plan dated September 23, 1995, bounded and described as follows: Beginning at a point in the southerly line of Pacific Avenue (60.00' wide), south 62 degrees 32'00" West, 251.00' from the westerly line of New Jersey Avenue (50.00' wide), and extending from said beginning point; thence 1. South 27 degrees 28'00" East, parallel with New Jersey Avenue, 80.00' to a point; thence 2. South 62 degrees 32'00" West, parallel with Pacific Avenue, 15.00' to the easterly line of lot 140 in block 13; thence 3. North 27 degrees 28'00" West, in and along same, parallel with New Jersey Avenue, 80.00' to the southerly line of Pacific Avenue; thence 4. North 62 degrees 32'00" East, in and along same, 15.00' to the point and place of BEGINNING. CONTAINING an area of 1200 square feet. Exhibit C page 3 of 3 EASEMENT Metes and Bounds Description for property situate in the City of Atlantic City, County of Atlantic and State of New Jersey, located in Block 13 on the Atlantic City Tax Map, being A PROPOSED FIRE ACCESS WAY, SERVICE ROAD AND UTILITY EASEMENT, as shown on plan prepared by Arthur W. Ponzio, Jr., Professional Land Survey, New Jersey License No. 28314, plan last dated November 7, 1995, entitled PLAN TO ACCOMPANY RE-STATED TRI-PARTY AGREEMENT DATED 12/1/95, bounded and described as follows: Beginning at a point in the Southerly line of Pacific Avenue (60' wide), said point being South 62 degrees 32'00" West, 251.00' from the Westerly line of New Jersey Avenue (50'), and extending from said beginning point; thence 1. North 62 degrees 32'00" East, parallel with Pacific Avenue, 24.00' to a point; thence 2. South 27 degrees 28'00" East, parallel with New Jersey Avenue, 360.60' to a point; thence 3. South 62 degrees 32'00" West, in and along same, parallel with Pacific Avenue, 24.00' to a point; thence 4. North 27 degrees 28'00" West, parallel with New Jersey Avenue, 360.60' to the point and place of BEGINNING. CONTAINING an area of 8,654.45 square feet and being the same easement conveyed by Deed dated December 29, 1995, from the Housing Authority and Redevelopment Agency to the City of Atlantic City to Atlantic City Showboat, Inc. SAID easement shall extend from the subsurface to a height of 28.25 feet mean sea level and shall be for the purpose of constructing and utilizing in accordance with the Restated Agreement that certain improvement identified in the Restated Agreement as the combined Service Road and also for the purpose of constructing, relocating, maintaining, replacing, and repairing subterranean utilities, including without limitation water and sewer lines and drains. Exhibit D page 1 of 2 Metes and Bounds Description for property situate in the city of Atlantic City, County of Atlantic and State of New Jersey, located in Block 13 as shown on the Atlantic City Tax Map, and being a portion of a proposed Fire Access Way, Service Road and Utility Easement (PROPOSED NEW LOT C) to be owned by the Atlantic City Housing Authority as shown on plan prepared by Arthur W. Ponzio, Jr., Professional Land Surveyor, new Jersey License No. 28314, plan dated September 25, 1995, bounded and described as follows: Beginning at a point in the Northerly line of lot 144.02 in block 13 as shown on the Atlantic City Tax Map, said point being South 62 degrees 32'00" West, 129.00' from the Westerly line of New Jersey Avenue (50' wide), and South 27 degrees 28'00" East, 942.00' from the Southerly line of Pacific Avenue (60' wide), and extending from said beginning point; thence 1. South 62 degrees 32'00" West, in and along the northerly line of lot 144.02, parallel with Pacific Avenue, 24.00' to a point; thence 2. North 27 degrees 28'00" West, parallel with New Jersey Avenue, 419.73' to a point; thence 3. North 59 degrees 59'37" West, 20.77' to a point; thence 4. North 27 degrees 28'00" West, parallel with New Jersey Avenue, 41.38' to a point; thence 5. South 59 degrees 59'37" East, 65.41' to a point; thence 6. South 27 degrees 28'00" East, parallel with New Jersey Avenue, 423.48' to the point and place of BEGINNING. CONTAINING an area of 11,077.22 square feet. SAID easement shall extend from the subsurface to a height of 28.25 feet mean sea level and shall be for the purpose of constructing and utilizing in accordance with the Restated Agreement that certain improvement identified in the Restated Agreement as the combined Service Road and also for the purpose of constructing, relocating, maintaining, replacing, and repairing subterranean utilities, including without limitation water and sewer lines and drains. Exhibit D page 2 of 2 Prepared by: Arthur E. Sklar, Esq. Levine, Staller, Sklar, Chan, Brodsky & Donnelly, P.A. /s/ Arthur E. Sklar 3030 Atlantic Avenue Arthur Sklar, Esquire Atlantic City, NJ 08401 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 THIS AGREEMENT is made as of the 14th day of December, 1995 by and between IBJ Schroder Bank & Trust Company (as Trustee), whose address is One State Street, New York, New York 10004 (hereinafter referred to as "Mortgagee") and Atlantic City Showboat, Inc. whose address is 801 Boardwalk, Atlantic City, New Jersey 08401 (hereinafter referred to as "Mortgagor"). W I T N E S S E T H: BACKGROUND A. Mortgagor executed and delivered to Mortgagee (i) a Leasehold Mortgage, Assignment of Rents and Security Agreement dated as of May 18, 1993, recorded May 19, 1993 in the Office of the Clerk of Atlantic County (the "Clerk's Office") in Mortgage Book 5028, page 1, as amended by First Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement dated July 9, 1993, recorded July 28, 1993 in the Clerk's Office in Mortgage Book 5095, page 209 and Second Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement dated July 6, 1995, recorded September 14, 1995 in the Clerk's Office in Mortgage Book 5702, page 223 and (ii) an Assignment of Leases and Rents dated May 18, 1993, recorded May 19, 1993 in the Clerk's office in Mortgage Book 5028, page 66 (together, the "Trust Mortgage"). Mortgagee also holds an obligation for the payment of an indebtedness that is secured by the Trust Mortgage. B. Mortgagor executed and delivered to Showboat, Inc., a Nevada corporation (i) a Leasehold Mortgage, Assignment of Rents and Security Agreement dated May 18, 1993, recorded May 19, 1993 in the Clerk's Office in Mortgage Book 5028, page 79, amended by First Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement dated July 9, 1993, recorded July 28, 1993 in Mortgage Book 5095, page 26 and amended by Second Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement dated July 6, 1995, recorded September 14, 1995 in the Clerk's Office in Mortgage Book 5702, page 236 and (ii) an Assignment of Rents and Leases dated May 18, 1993, recorded in the Clerk's Office in Mortgage Book 5028, page 144 (together, the "Assigned Mortgage"). The Assigned Mortgage was assigned by Showboat, Inc. to Mortgagee by assignment dated May 18, 1993, recorded May 29, 1993 in the Clerk's Office in Assignment Book 624, page 195. Mortgagee also holds an obligation for the payment of an indebtedness that is secured by the Assigned Mortgage. C. Pursuant to a Tri-Party Agreement among Mortgagor, the Housing Authority and Urban Redevelopment Agency of the City of Atlantic City (the "Housing Authority") and Forest City Ratner dated December 14, 1995 (the "Tri-Party Agreement"), Mortgagor agreed to convey to the Housing Authority (i) all Mortgagor's right, title and interest in certain land and premises more particularly described on Exhibit "A" attached hereto and made a part hereof (the "Release Parcels") and (ii) an easement over a portion of lands and premises owned by Mortgagor more particularly described on Exhibit "B" attached hereto and made a part hereof (the "Easement Parcel") and the Housing Authority has agreed to convey to Mortgagor the land and premises 2 described on Exhibit "C" attached hereto and made a part hereof and an easement over and across the land described on Exhibit "D" attached hereto and made a part hereof. D. On December 6, 1995, the Planning Board of Atlantic City approved the re-subdivision of Lots 144.03, 144.04, 144.05 and 144.06 in Block 13 on the Tax Map of the City of Atlantic City as reflected on a subdivision plan prepared by Arthur W. Ponzio Co. & Associates, Inc., last revised November 7, 1995 (the "Subdivision Plat"). The Subdivision Plat has been or is about to filed, in the Clerk's office. E. Mortgagor has requested Mortgagee to release the Release Parcels encumbered by the Trust Mortgage and the Assigned Mortgage and to subordinate the lien of the Trust Mortgage and the Assigned Mortgage to the Easement Parcel. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Recitals. The recitals set forth above are hereby incorporated in their entirety as if fully set forth at length. 2. Release of Part of Mortgaged Premises; Subordination. 2.1 Mortgagee hereby releases the Release Parcels from the lien of the Trust Mortgage and the Assigned Mortgage. The Release Parcels include (a) the land, (b) all buildings and other improvements that are located on the land, (c) all fixtures that are attached to the land or buildings, if any, and (d) all other present rights of Mortgagee relating to the Release Parcels. 2.2 The rest of the property (not released) described in the Trust Mortgage and the Assigned Mortgage remains subject to the lien of such mortgages. 3 2.3 Subordination to Easement. Mortgagee hereby subordinates the lien of the Trust Mortgage and the Assigned Mortgage to the Easement Parcel and to the terms and conditions governing the Easement and to the uses and purposes described herein. 3. Successors and Assigns. This Agreement inures to the benefit of Mortgagor and is binding upon Mortgagee and their respective successors and assigns. IN WITNESS WHEREOF, the undersigned has caused these presents to be executed the day and year first above written. ATTEST: IBJ SCHRODER BANK & TRUST COMPANY, as Trustee /s/ Susan Lavelle By: /s/ Barbara McCluskey Susan Lavelle, Asst. Secretary Barbara McCluskey, Asst. Vice-President STATE OF NEW YORK : : ss COUNTY OF RICHMOND : BE IT REMEMBERED that on this 14th day of December, 1995, before me, the subscriber, a Notary Public of New York, personally appeared Barbara McCluskey, who, I am satisfied is the person who signed the within instrument as Asst. Vice-President of IBJ Schroder Bank & Trust Company, as trustee, the corporation named therein, and he thereupon acknowledged that the said instrument made by the corporation and sealed with its corporate seal, was signed, sealed with the corporate seal and delivered by him as such officer, and is the voluntary act and deed of the corporation, as trustee. /s/ Eddie Jackson Jr. 4 TRACT B (Identified in the Restated Agreement as "The 80' Easement") BEGINNING at a point in the westerly line of New Jersey Avenue (50' wide), South 27 degrees, 28'00" seconds east a distance of 862.00' from the southerly line of Pacific Avenue (60' wide), and extending from said beginning point; thence 1. South 27 degrees, 28'00" east in and along the westerly line of New Jersey Avenue a distance of 80.00' to a point; thence 2. South 62 degrees, 32'00" west a distance of 140.00' to a point; thence 3. North 27 degrees, 28'00" west a distance of 80.00' to a point; thence 4. North 62 degrees, 32'00" east a distance of 140.00' to the point and place of BEGINNING CONTAINING an area of 11,200 square feet and being Block 13, Lot 144.06 on the Tax Map of the City of Atlantic City as it existed on November 1, 1995, and also being the lands and premises over which a certain easement was granted to Grantor by Grantee by deed dated July 7, 1993, and recorded in the Atlantic County Clerk's Office in deed book 5524, page 201 et seq. Exhibit A page 1 of 3 5 TRACT A (Identified in the Restated Agreement as "Portion of Tract 1 to be conveyed to ACHA-7,333.57SF") Beginning at a point being South 62 degrees 32'00" West, 140.00' from the westerly line of New Jersey Avenue (50.00' wide), and South 27 degrees 28'00" East, 445.00' from the southerly line of Pacific Avenue (60.00' wide), and extending from said beginning point; thence 1. South 27 degrees 28'00" East, parallel with New Jersey Avenue, 497.00' to the northerly line of lot 144.02 in block 13; thence 2. South 62 degrees 32'00" West, in and along same, parallel with Pacific Avenue, 13.00'; thence 3. North 27 degrees 28'00" West, parallel with New Jersey Avenue, 419.73' to a point; thence 4. North 59 degrees 59'37" West, 20.77' to a point; thence 5. North 27 degrees 28'00" West, parallel with New Jersey Avenue 41.38' to a point; thence 6. North 59 degrees 59'37" West, 20.46' to a point; thence 7. North 27 degrees 28'00" West, 1.13' to a point; thence 8. North 62 degrees 32'00" East, parallel with Pacific Avenue, 35.17' to the point and place of BEGINNING. CONTAINING an area of 7,333.57 square feet and being a portion Block 13, Lot 144.03, Tax Map of the City of Atlantic City as it existed on November 1, 1995, and also being a portion of the lands and premises granted to Mortgagor by the Housing Authority by deed dated July 7, 1993, and recorded in the Atlantic County Clerk's Office in deed book 5524, page 201 et seq. Exhibit A page 2 of 3 6 Metes and Bounds Description for property situate in the City of Atlantic City, County of Atlantic and State of New Jersey, located in Block 13 as shown on the Atlantic city Tax Map, and being a PORTION OF TRACT 2 (LOT 144.04) TO BE CONVEYED TO THE ATLANTIC CITY HOUSING AUTHORITY as shown on plan prepared by Arthur W. Ponzio, Jr., Professional Land Surveyor, New Jersey License No. 28314, plan dated September 25, 1995, bounded and described as follows: Beginning at a point being South 62 32'00" West, 251.00' from the westerly line of New Jersey Avenue (50' wide), and South 27 28'00" East, 80.00' from the southerly line of Pacific Avenue (60' wide), and extending from said beginning point; thence 1. North 62 32'00" East, parallel with Pacific Avenue, 151.00' to a point; thence 2. South 27 28'00" East, parallel with new Jersey Avenue, 583.00' to a point; thence 3. South 62 32'00" West, parallel with Pacific Avenue, 40.00' to a point; thence 4. North 27 28'00" West, parallel with New Jersey Avenue, 218.00' to a point; thence 5. South 62 32'00" West, parallel with Pacific Avenue, 35.17' to a point; thence 6. North 27 28'00" West, parallel with New Jersey Avenue 84.40' to a point; thence 7. South 62 32'00" West, parallel with Pacific Avenue, 75.83' to a point; thence 8. North 27 28'00" West, parallel with New Jersey Avenue 280.60' to the point and place of BEGINNING. CONTAINING an area of 57,435.09 square feet. Exhibit A page 3 of 3 7 EASEMENT PARCEL TRACT D (Identified in the Restated Agreement as "3,243.52SF P/O Service Road to be Retained by Showboat") Beginning at a point being South 62 degrees 32'00" West, 251.00' from the westerly line of New Jersey Avenue (50.00' wide) and South 27 degrees 28'00" East, 360.60' from the southerly line of Pacific Avenue (60.00 wide), and extending from said beginning point; thence 1. North 62 degrees 32'00" East, parallel with Pacific Avenue, 24.00' to a point; thence 2. South 27 degrees 28'00" East, parallel with New Jersey Avenue, 4.25' to a point; thence 3. South 59 degrees 59'37" East, 116.85 ' to a point; thence 4. South 27 degrees 28'00" East, parallel with New Jersey Avenue, 41.38' to a point; thence 5. North 59 degrees 59'37" West, 161.49' to a point; thence 6. North 27 degrees 28'00" West, parallel with New Jersey Avenue, 8.00' to the point and place of BEGINNING CONTAINING an area of 3243.52 square feet and being a portion of Block 13 on the Tax Map of the City of Atlantic City and also being a portion of the lands and premises granted to Grantor by Grantee by deed dated July 7, 1993, and recorded in the Atlantic County Clerk's Office in deed book 5524, pages 201 et seq. and 216 et seq. Said easement shall extend from the subsurface to a height of 28.25 mean sea level and shall be for the purpose of constructing and utilizing in accordance with the Restated Agreement that certain improvement identified in the Restated Agreement as the Combined Service Drive and also for the purpose of constructing, relocating, maintaining, replacing and repairing subterranean utilities, including without limitation water and sewer lines and drains. Exhibit B 8 METES AND BOUNDS DESCRIPTION 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 the southeasterly corner of Atlantic Avenue (100.00' wide) and Maryland Avenue (60.00' wide) and extending from said beginning point; thence (1) North 62 degrees 32'00" East, in and along the southerly line of Atlantic Avenue, a distance of 350.00' to the westerly line of Delaware Avenue (82.00' wide); thence (2) South 27 degrees 28'00" East, in and along the westerly line of Delaware Avenue, a distance of 100.00' to a point of curve; thence (3) Curving to the left in the arc of a circle having a radius of 429.00' and in and along the westerly line of Delaware Avenue, the arc length of 104.82' to a point of tangent; thence (4) South 41 degrees 28'00" East, in and along the westerly line of Delaware Avenue, a distance of 152.53' to a point of curve; thence (5) Curving to the right in the arc of a circle having a radius of 315.00' and in and along the westerly line of Delaware Avenue, the arc length of 76.97' to a point of tangent; thence (6) South 27 degrees 28'00" East, in and along the westerly line of Delaware Avenue, a distance of 122.01' to the northerly line of Pacific Avenue; thence (7) South 62 degrees 32'00" West, in and along the northerly line of Pacific Avenue, a distance of 409.00' to the easterly line of Maryland Avenue; thence Exhibit C page 1 of 3 9 (8) North 27 degrees 28'00" West, in and along the easterly line of Maryland Avenue, a distance of 550.00' to the point and place of BEGINNING. BEING KNOWN AS Block 15 as shown on the current official taxing plan of the City of Atlantic City, with a proposed vacation of United States Avenue and realignment of Delaware Avenue. CONTAINING an area of 209,013.13 square feet, or 4.80 Acres. Exhibit C page 2 of 3 10 Metes and Bounds Description for property situate in the City of Atlantic City, County of Atlantic and State of New Jersey, located in Block 13 as shown on the Atlantic City Tax map, and being A PORTION OF TRACT 3 (LOT 144.05) TO BE CONVEYED TO ATLANTIC CITY SHOWBOAT, INC. as shown on plan prepared by Arthur W. Ponzio, Jr., Professional Land Surveyor, New Jersey License No. 28314, plan dated September 23, 1995, bounded and described as follows: Beginning at a point in the southerly line of Pacific Avenue (60.00' wide), south 62 32'00" West, 251.00' from the westerly line of New Jersey Avenue (50.00' wide), and extending from said beginning point; thence 1. South 27 28'00" East, parallel with New Jersey Avenue, 80.00' to a point; thence 2. South 62 32'00" West, parallel with Pacific Avenue, 15.00' to the easterly line of lot 140 in block 13; thence 3. North 27 28'00" West, in and along same, parallel with New Jersey Avenue, 80.00' to the southerly line of Pacific Avenue; thence 4. North 62 32'00" East, in and along same, 15.00' to the point and place of BEGINNING. CONTAINING an area of 1200 square feet. Exhibit C page 3 of 3 11 EASEMENT Metes and Bounds Description for property situate in the City of Atlantic City, County of Atlantic and State of New Jersey, located in Block 13 on the Atlantic City Tax Map, being a portion of A PROPOSED FIRE ACCESS WAY, SERVICE ROAD AND UTILITY EASEMENT, as shown on plan prepared by Arthur W. Ponzio, Jr., Professional Land Survey, New Jersey License No. 28314, plan last dated November 7, 1995, entitled PLAN TO ACCOMPANY RE-STATED TRI-PARTY AGREEMENT DATED 12/1/95, bounded and described as follows: Beginning at a point in the Southerly line of Pacific Avenue (60' wide), said point being South 62 degrees 32'00" West, 251.00' from the Westerly line of New Jersey Avenue (50'), and extending from said beginning point; thence 1. North 62 degrees 32'00" East, parallel with Pacific Avenue, 24.00' to a point; thence 2. South 27 degrees 28'00" East, parallel with New Jersey Avenue, 360.60' to a point; thence 3. South 62 degrees 32'00" West, in and along same, parallel with Pacific Avenue, 24.00' to a point; thence 4. North 27 degrees 28'00" West, parallel with New Jersey Avenue, 360.60' to the point and place of BEGINNING. CONTAINING an area of 8,654.45 square feet and being the same easement conveyed by Deed dated December 29, 1995, from the Housing Authority and Redevelopment Agency of the City of Atlantic City to Atlantic City Showboat, Inc. SAID easement shall extend from the subsurface to a height of 28.25 feet mean sea level and shall be for the purpose of constructing and utilizing in accordance with the Restated Agreement that certain improvement identified in the Restated Agreement as the combined Service Road and also for the purpose of constructing, relocating, maintaining, replacing, and repairing subterranean utilities, including without limitation water and sewer lines and drains. Exhibit D page 1 of 2 12 Metes and Bounds Description for property situate in the city of Atlantic City, County of Atlantic and State of New Jersey, located in Block 13 as shown on the Atlantic City Tax Map, and being a portion of a proposed Fire Access Way, Service Road and Utility Easement (PROPOSED NEW LOT C) to be owned by the Atlantic City Housing Authority as shown on plan prepared by Arthur W. Ponzio, Jr., Professional Land Surveyor, new Jersey License No. 28314, plan dated September 25, 1995, bounded and described as follows: Beginning at a point in the Northerly line of lot 144.02 in Block 13 as shown on the Atlantic City Tax Map, said point being South 62 32'00" West, 129.00' from the Westerly line of New Jersey Avenue (50' wide), and South 27 28'00" East, 942.00' from the Southerly line of Pacific Avenue (60' wide), and extending from said beginning point; thence 1. South 62 32'00" West, in and along the Northerly line of Lot 144.02, parallel with Pacific Avenue, 24.00' to a point; thence 2. North 27 28'00" West, parallel with New Jersey Avenue, 419.73' to a point; thence 3. North 59 59'37" West, 20.77' to a point; thence 4. North 27 28'00" West, parallel with New Jersey Avenue, 41.38' to a point; thence 5. South 59 59'37" East, 65.41' to a point; thence 6. South 27 28'00" East, parallel with New Jersey Avenue, 423.48' to the point and place of BEGINNING. CONTAINING an area of 11,077.22 square feet. SAID easement shall extend from the subsurface to a height of 28.25 feet mean sea level and shall be for the purpose of constructing and utilizing in accordance with the Restated Agreement that certain improvement identified in the Restated Agreement as the combined Service Road and also for the purpose of constructing, relocating, maintaining, replacing, and repairing subterranean utilities, including without limitation water and sewer lines and drains. Exhibit D page 2 of 2 13 EX-10.32 3 EXHIBIT 10.32 SHC EXHIBIT 8 TO COMPLIANCE DEED (Casino Operations Agreement) -Sydney Casino Project- 22 April 1994 CLAYTON UTZ SOLICITORS AND ATTORNEYS Levels 27-35 No.1 O'Connell Street Sydney NSW 2000 Australia PO BOX H3 Australia Square Sydney NSW 2000 DX 370 Sydney Ph (02) 353 4000 Int + 612 353 4000 FAX (02) 251 7832 SYDNEY MELBOURNE BRISBANE PERTH SHC CASINO OPERATIONS AGREEMENT [Including List of Exhibits] Date: 1994 New South Wales Casino Control Authority The Authority Sydney Harbour Casino Pty. Limited The Licensee Sydney Harbour Casino Properties Pty. Limited SHC Properties Sydney Harbour Casino Holdings Limited SHC Holdings Sydney Casino Management Pty. Limited Casino Manager Showboat Australia Pty. Limited SBA Leighton Properties Pty. Limited LPPL Showboat Operating Company SOC CLAYTON UTZ Solicitors and Attorneys Levels 27-35 No. 1 O'Connell Street SYDNEY NSW 2000 Tel: (02) 353 4000 Fax: (02) 251 7832 Copyright Reserved CONFIDENTIAL TABLE OF CONTENTS Clause Page 1. DEFINITIONS AND INTERPRETATION 2 1.1 Definitions 2 1.2 Interpretation 10 2. CONSIDERATION 12 3. APPROVAL BY MINISTER AND DISCLAIMER 12 3.1 Minister's Approval 12 3.2 Authority/State Not Liable 12 4. GENERAL COVENANTS AND WARRANTS BY CONTRACTING PARTIES 12 4.1 Covenants and Warranties by Contracting Parties 12 4.2 Covenants and Warranties by Licensee and Casino Manager l3 4.3 Covenants and Warranties by Licensee 13 4.4 Covenants and Warranties by SHC Holdings 13 4.5 Covenants and Warranties by SHC Properties 13 4.6 Covenants and Warranties by Casino Manager 13 5. COMPLIANCE WITH LICENCE AND ACT 13 6. COMPLIANCE WITH USE AND OCCUPATION OBLIGATIONS 13 6.1 COA Lease Terms 13 6.2 Permanent Site Freehold Lease 7. CASINO COMPLEX MANAGEMENT AGREEMENT 14 7.1 Casino Complex Management Agreement Valid and Enforceable 14 7.2 Direction 15 7.3 Undertakings about Casino Complex Management Agreement 15 7.4 Licensee to Procure Certain Compliance by Casino Manager 15 7.5 Consent to CCA Charge 16 7.6 Termination Notices 16 7.7 No Termination if Authority Directs 16 7.8 Termination if Authority Directs 16 7.9 Not to Terminate if Default Remedied 16 7.10 Notice to Novate Casino Complex Management Agreement 17 7.11 Contents of Novation Notice 17 7.12 Novation of Casino Complex Management Agreement 18 8 S & A AGREEMENTS 18 (ii) Clause Page 8.1 S & A Agreements Valid and Forceable 18 8.2 Direction to SOC 19 8.3 Undertakings about S & A Agreements 19 8.4 Licensee, Casino Manager and SBA to Procure Certain Compliance 20 8.5 Termination Notices 20 8.6 No Termination if Authority Directs 20 8.7 Termination if Authority Directs 20 8.8 Not to Terminate if Default Remedied 21 8.9 Notice to Novate an S & A Agreement 21 8.10 Contents of Novation Notice 21 8.11 Novation of an S & A Agreement 22 9. ASSIGNMENT DEED 22 10. O & M AGREEMENTS 23 10.1 Existing O & M Agreements 23 10.2 Pre-Conditions to Future O & M Agreements 23 10.3 Undertakings About O & M Agreements 23 10.4 SHC Group and Casino Manager to Procure Certain Compliance 24 10.5 Restrictions on Termination by SHC Group or Casino Manager 24 10.6 Termination if Authority Directs 24 11. NO COMPETITION 25 11.1 Non Competition 25 11.2 Severance 25 12. CASINO OPERATIONS AND MANAGEMENT 26 12.1 Best Practice Covenant 26 12.2 Incorporation of the Application 26 12.3 Gaming Equipment 26 12.4 Games 27 12.5 Advertising, Marketing and Promotion 28 12.6 Not used 29 13. GENERAL RESPONSIBILITY TO INFORM AUTHORITY 29 13.1 General Responsibility to Inform 29 13.2 Litigation 29 14. INSPECTION OF RECORDS AND ACCESS TO PREMISES 29 (iii) Clause Page 15. REGULAR MEETINGS WITH AUTHORITY 30 15.1 Information 30 15.2 Regular Meetings 30 15.3 Other Meetings 30 15.4 Agenda 30 15.5 Representatives 30 15.6 Minutes 31 16. NOT USED 31 17. FORCE MAJEURE 31 18. COVENANTS, WARRANTS AND INDEMNITIES 34 18.1 Continuing Covenants and Warranties 34 18.2 Covenants and Warranties True and Accurate and Separate 34 18.3 Covenants and Warranties Survive Termination 34 18.4 Notice of Any Breach of Covenants and Warranties 34 18.5 Indemnity in Respect of Breach 34 18.6 Indemnity Against Third Party Claims 35 18.7 Indemnity Payable on Demand 35 19. CONTRACTING PARTY'S RIGHT OF REMEDY AND AUTHORITY'S RIGHTS OF TERMINATION 35 19.1 Remedy of Breach 35 19.2 Obligation Default Notices 36 19.3 Deemed Notice 36 19.4 Obligation Licence Conditions 36 19.5 Authority may amend Conditions of Licence, cancel or suspend Licence 36 20. DEFAULT INTEREST 36 20.1 36 20.2 37 21. Not used 37 22. AUTHORITY'S STATUTORY OBLIGATIONS AND DISCRETIONS 37 22.1 No Fetter of Powers, Rights, Obligations and Discretions 37 22.2 Authority to Consider Act 37 (iv) Clause Page 22.3 Directions by Authority 37 23. EXPENSES AND STAMP DUTY 37 23.1 Expenses 37 23.2 Stamp Duty and Other Taxes 38 24. ASSIGNMENTS 38 24.1 Assignment Subject to Act 38 24.2 Assignment by Contracting Party 38 24.3 Assignment by Authority 38 25. VARIATION OF DEED 39 26. GOVERNING LAW AND JURISDICTION 39 26.1 Governing Law 39 26.2 Jurisdiction 39 27. NO REPRESENTATION BY OR RELIANCE ON AUTHORITY 40 28. DISPUTE RESOLUTION 40 29. NOTICES 42 29.1 Requirements for Notices 42 29.2 Addresses of Parties 43 29.3 Appointment of Local Agent 44 30. CONTINUING OBLIGATION 44 31. FURTHER ASSURANCE 44 32. SEVERABILITY 44 33. WAIVER 45 34. CONSENTS AND APPROVALS 45 35. WRITTEN WAIVER, CONSENT AND APPROVAL 45 36. NON-MERGER 45 (v) Clause Page 37. REMEDIES CUMULATIVE 45 38. OPINION BY AUTHORITY 46 39. NO DEDUCTION 46 40. SURVIVAL OF INDEMNITIES 46 41. ATTORNEYS 46 42. COUNTERPARTS 46 SCHEDULE 1 47 SCHEDULE 2 48 SCHEDULE 3 49 SCHEDULE 4 53 SCHEDULE 5 56 SCHEDULE 6 59 SCHEDULE 7 60 SCHEDULE 8 64 SCHEDULE 9 67 SCHEDULE 10 70 SCHEDULE 11 71 SHC CASINO OPERATIONS AGREEMENT DEED made at on 1994 BETWEEN NEW SOUTH WALES CASINO CONTROL AUTHORITY a statutory corporation constituted by the Casino Control Act, 1992 on behalf of the State of New South Wales, pursuant to section 142 of the Casino Control Act 1992, of Level 17, 309 Kent Street, Sydney, NSW, Australia, 2000 ("Authority") AND SYDNEY HARBOUR CASINO PTY. LIMITED, ACN 060 510 410, a company duly incorporated in New South Wales, Australia of 3rd Floor, 472 Pacific Highway, St. Leonards, NSW, Australia ("Licensee") AND SYDNEY HARBOUR CASINO PROPERTIES PTY. LIMITED, ACN 050 045 120, a company duly incorporated in New South Wales, Australia of 3rd Floor, 472 Pacific Highway, St. Leonards, NSW, Australia ("SHC Properties") AND SYDNEY HARBOUR CASINO HOLDINGS LIMITED, ACN 064 054 431, a company duly incorporated in New South Wales, Australia of 3rd Floor, 472 Pacific Highway, St. Leonards, NSW, Australia ("SHC Holdings") AND SYDNEY CASINO MANAGEMENT PTY. LIMITED, ACN 060 462 053, a company duly incorporated in New South Wales, Australia of 3rd Floor, 472 Pacific Highway, St. Leonards, NSW, Australia ("Casino Manager") AND SHOWBOAT AUSTRALIA PTY. LIMITED, ACN 061 299 625, a company duly incorporated in New South Wales, Australia of 3rd Floor, 472 Pacific Highway, St. Leonards, NSW, Australia ("SBA") AND LEIGHTON PROPERTIES PTY. LIMITED, ACN 001 046 395, a company duly incorporated in New South Wales, Australia of 3rd Floor 472 Pacific Highway, St. Leonards, NSW Australia ("LPPL") AND SHOWBOAT OPERATING COMPANY, a company duly organised under the laws of the State of Nevada, USA of 2800 Fremont Street, Las Vegas, Nevada 89104 USA ("SOC") RECITALS A. The Authority has on the date of this Deed granted the Licence to the Licensee. B. The SHC Group has on the date of this Deed pursuant to the Casino Complex Management Agreement appointed the Casino Manager to provide certain services in connection with the operation and management of the Casino Complex. C. SOC has agreed pursuant to the S & A Agreements to provide certain support and 2. assistance services to SBA in connection with the operation and management of the Casino Complex. D. SBA has agreed pursuant to the Assignment Deed to assign its right, title and interest under the S & A Agreements to the Casino Manager. E. SHC Properties and the Licensee will sub-lease, lease or be entitled to occupy the Temporary Site, the Permanent Site, the Casino Complex, furnishings and gaming equipment for the Casino Complex and all other tangible assets necessary for the operation of the Casino Complex. F. The SHC Group acknowledges that the CCA Charge secures to the Authority, among other things, the obligations owed by the SHC Group to the Authority under this Deed. THE DEED WITNESSES 1. DEFINITIONS AND INTERPRETATION 1.1 Definitions The following words have the following meanings in this Deed unless the contrary intention appears: "Act" means the Casino Control Act 1992 (New South Wales). "Administration Event" in respect of a company means each of the following events: (a) a meeting of the board of directors of that company is called to consider a resolution to appoint an Administrator; (b) a liquidator or provisional liquidator of the company determines to execute an appointment of an Administrator or applies to the court for leave to appoint himself or herself as the Administrator; or (c) an Encumbrance over the whole, or substantially the whole, of the company's property becomes enforceable (in the sense that the security comprised in the Encumbrance becomes enforceable). "Administrative Services Agreement" means the agreement so entitled of even date between SBA and SOC comprising Exhibit 1. "Administrator" has the same meaning as in section 9(1) of the Corporations Law. "Ancillary Facilities" means all facilities ancillary to or connected with the Casino being those identified in the Application to be constructed on or located within the Temporary Site or Permanent Site, and including all other facilities provided by the 3. Licensee or the Casino Manager in connection with the Casino whether or not on the Temporary Site or the Permanent Site and whether or not identified in the Application. "Application" means in respect of the Licensee the totality of all documents, notes correspondence, drawings, plans and papers forming part of or lodged or made in connection with or deemed to be part of the Licensee's application for the Licence as at the date of this Deed and as are set out in and referred to in Exhibit 3 of the Compliance Deed and including such amendments permitted by the Compliance Deed. "Assignment Deed" means the deed entered into contemporaneously with the Compliance Deed between the Casino Manager and SBA whereby the SBA assigns its right title and interest under the S & A Agreements to the Casino Manager as nominee for the Showboat Leighton Partnership in the form and on the terms set out in Exhibit 2. "Authorised Officer" means in respect of any party, any person nominated as an Authorised Officer for the purposes of this Deed by notice to the other parties. "Business Day" means any day (other than a Saturday, Sunday or public holiday recognised in Sydney and generally throughout the State of New South Wales). "Casino" has the meaning given to that term in the Act. "Casino Complex" means the Casino and Ancillary Facilities. "Casino Complex Management Agreement" means the agreement of even date between the Licensee, the Casino Manager, SHC Properties, SBA and LPPL as partners in the Showboat Leighton Partnership and SHC Properties and comprising Exhibit 3. "CCA Charge" means the deed between the Licensee, SHC Properties and SHC Holdings of the one part and the Authority on behalf of itself and on behalf of the State of the other part entered into on or around the date of execution of the Compliance Deed. "CCA Project Documents" has the same meaning given to it in the Continuity and Cooperation Agreement. "COA Lease Terms" means the document in the form of and on the terms set out in Exhibit 4. "Compliance Deed" means the deed so entitled between the Authority, the SHC Group, SBA, LPPL, Leighton Holdings Limited, the Casino Manager and SOC. "Contract" means any contract, agreement, arrangement or understanding, whether formal or informal or written or oral and whether or not having legal or equitable force and whether or not based on legal or equitable rights and includes a Controlled Contract. 4. "Contracting Parties" means all parties to this Agreement (other than the Authority) severally. "Continuity and Cooperation Agreements" means the deed so entitled of even date between the Authority, the SHC Group and the Commonwealth Bank of Australia. "Controlled Contract" has the meaning giving to it in section 36 of the Act. "Controller" has the same meaning as in section 9 of the Corporations Law. "Default Party" means: (a) in relation to the Casino Complex Management Agreement, the party to that agreement referred to in clause 7.6(b)(ii); (b) in relation to the S & A Agreement, the party to that agreement referred to in clause 8.5(b)(ii). "Default Rate" has the meaning given to it in the Compliance Deed. "Development and Licensibility Agreement" means the agreement so entitled of even date between SBA and SOC on the form and on the terms set out in Exhibit 5. "Dispute" has the meaning given to that term in clause 28. "Encumbrance" means any mortgage, charge, pledge, lien, encumbrance, assignment, hypothecation, security interest, title retention, preferential right, trust arrangement, contractual right of set-off, or any other security agreement or arrangement in favour of any person and includes any agreement to create or grant any of them. "Event of Default" means, in relation to a Contracting Party, any of the following (whether or not caused by any reason whatsoever outside the control of that party): (a) the party does not pay any money payable under this Deed in the manner specified: (i) if the time for payment is specified or provided for in this Deed, on the date so specified or provided for; or (ii) in any other case within 5 Business Days after being advised in writing by the Authority of the same being due and payable; (b) the party defaults in fully performing, observing and fulfilling any provision of this Deed (other than a provision requiring the payment of money as contemplated in paragraph (a)); (c) any representation warranty or statement made or repeated or deemed to be made or repeated by the party in this Deed proves to be untrue, incorrect 5. or misleading in any respect; (d) the party breaches any undertaking given at any time to the Authority or fails to comply with any conditions imposed by the Authority in agreeing to any matter (including any consent, waiver or approval); (e) any Event of Insolvency occurs in relation to the party; (f) the party purports to make an assignment or novation of this Deed or any of its rights or obligations under this Deed without the written consent of the Authority; (g) the party ceases, or threatens to cease, to carry on any part of its business which the Authority reasonably considers to be material to any Contracting Party's capacity to perform its obligations under this Deed; (h) this Deed becomes or is claimed by the party to be void, voidable or unenforceable in whole or in part; or (i) at any time it is unlawful for the party to perform any of its obligations under this Deed. "Event of Force Majeure" means, in relation to a Contracting Party, any act, event or circumstance (or any combination thereof) which is beyond the control of the party, including without limitation: (a) acts of God, perils of the sea, accidents of navigation, war (whether declared or not), sabotage, riot, insurrection, civil commotion, national emergency (whether in fact or law), martial law, fire, flood, cyclone, earthquake, landslide, storm or other adverse weather conditions, explosion, epidemic, quarantine; (b) action or inaction by any court of competent jurisdiction, government or governmental or other competent authority including any expropriation, restraint, prohibition, intervention, requisition, requirement, direction or embargo by legislation, regulation, decree or other legally enforceable order; (c) breakdown of machinery or facilities or shortages of labour, transportation, fuel, power or essential plant, equipment or material, strikes lockout and other labour difficulties (whether or not involving employees of the party concerned), including conditions directly resulting from any of the foregoing but in no event does it include: (d) lack of funds or other financial difficulties experienced by the party; 6. (e) any act, event or cause directly or indirectly resulting from any neglect, breach or misconduct in relation to any Transaction Document by the party thereto; (f) any act, event or cause which could have been prevented, overcome or remedied by the exercise by any party to a Transaction Document (other than the Authority) of reasonable care and diligence; (g) any act, event or cause directly or indirectly resulting from the Authority properly executing its functions under the Act (including giving directions or notices under any section). "Event of Insolvency" means, in relation to each Contracting Party, any of the following events: (a) a liquidator, provisional liquidator, trustee, administrator, manager, Controller or similar officer is appointed in respect of the party or any of its assets; (b) an application is made to a court for an order or an order is made or a meeting is convened or a resolution is passed for the purpose of appointing a person referred to in paragraph (a) or for winding up the party or for implementing a scheme of arrangement for the party; (c) as a result of the operation of the Corporations Law or any other applicable law, the party is taken to have failed to comply with a statutory demand; (d) a moratorium of any debts of the party or an official assignment or a composition or an arrangement formal or informal with the party's creditors or a trustee or any similar proceeding or arrangement by which the assets of the party are submitted to the control of its creditors or a trustee, is applied for ordered or declared; (e) the party becomes is declared or is deemed insolvent within the meaning of any applicable law or is unable or admits in writing its inability to pay its debts as they fall due; (f) any distress, execution, attachment or other process is made or levied against any assets of the party; or (g) an Administration Event occurs; (h) in relation to a party which is not incorporated under the Corporations Law, an event similar to or equivalent to any of the events referred to in paragraphs (a) to (g) inclusive occurs under any law applicable to or to which such party is subject. 7. "Founding Shareholders" has the same meaning given to it in the Compliance Deed. "Founding Shareholders Subscription Agreement" has the same meaning given to it in the Compliance Deed. "Institutional Investors" means the persons specified in Schedule 2 and as have been determined pursuant to the provisions of the Compliance Deed. "Lender Securities" has the same meaning as in the Compliance Deed. "Licence" means the licence granted by the Authority to the Licensee to operate the Casino pursuant to section 18(1) of the Act. "Management Support Agreement" means the agreement so entitled of even date between SBA and SOC on the form and on the terms set out in Exhibit 7. "Minister's Approval and Consent Acknowledgment" has the same meaning as in the Compliance Deed. "Novation Nominee" means any person nominated by the Authority as such for the purposes of clauses 7 and 8. "Novation Notice" means a notice given by the Authority under any of clauses 7.10 and 8.9. "Novation Time" means the time of receipt by a Contracting Party of a Novation Notice. "O & M Agreements" means any Contract: (a) (i) to which any of the SHC Group or the Casino Manager is or may become a party; or (ii) which has or will be assigned to any of the SHC Group or the Casino Manager; and (b) which has a O & M Material Effect, but excludes the Casino Complex Management Agreement, the S & A Agreements and the Assignment Deed. "0 & M Material Effect" means: (a) is significant to the overall and/or integrated operation and management of the Casino Complex; or 8. (b) is or could have a material effect on the continued viability of operations at the Casino Complex. "O & M Novation Agreement" means an agreement on terms and conditions acceptable to the Authority to inter alia novate an O & M Agreement under which provisions are included in relation to the matters described in Schedule 1. "0 & M Provider" means a party to an O & M Agreement other than the SHC Group or the Casino Manager. "Obligation Default" means any breach giving rise to an Obligation Default Notice under clause 19.2 "Obligation Licence Condition" means an obligation of a Contracting Party to the Authority under this Deed which, under clause 19.4, is considered to be a condition of the Licence which shall have been contravened. "Occupation Licence Agreement (Permanent)" means the document entitled "Occupational Licence - Permanent Site" between SHC Properties and SHC in the form and on the terms set out in Annexure A to the COA Lease Terms. "Occupation Licence Agreement (Temporary)" means the occupation licence so entitled between SHC Properties and SHC in the form and on the terms set out in Exhibit 9. "Parties" or "parties" means the Authority and the Contracting Parties and "Party" or "party" means any one of them. "Partnership Agreements" means the deed entered into on the same date as the Compliance Deed establishing and governing the "Showboat Leighton Partnership" made between SBA and LPPL, in the form and on the terms set out in Exhibit 10. "Permanent Site" has the same meaning as Land in the Permanent Site Construction Lease. "Permanent Site Construction Lease" has the meaning given to it in the Compliance Deed. "Permanent Site Freehold Lease" means the lease to be entered into by the Authority and SHC Properties in the form and on the terms set out in Exhibit 19 to the Permanent Site Construction Lease. "Permitted Encumbrance" means in relation to a Contracting Party: (a) liens arising solely by operation of law in the ordinary course of the business of that party (including without limitation retention of title arrangements) where the amount secured has been due for less than 30 days or is being contested in good faith and by appropriate means; 9. (b) any mechanics', workmen's or other like lien arising in the ordinary course of business of that party; (c) the encumbrances of that party consented to by the Authority under and in accordance with the Transaction Documents; and (d) the Lender Securities, and for the purposes of clause 12.3(b)(i) only, also means: (e) any lease arrangement entered into in the ordinary course of business, provided that such lease arrangement contains (in the opinion of the Authority) proper and adequate safeguards to ensure the availability of gaming equipment for the continuity of operation of the Casino. "Permitted Exception" means the Assignment Deed and Permitted Encumbrances. "Related Body Corporate" has the meaning given in section 9 of the Corporations Law. "Representative" has the meaning given to that term in clause 28. "S&A Agreements" means the Development and Licensibility Agreement, the Administrative Services Agreement, the Management Support Agreement, the Partnership Agreement, the Occupation Licence Agreement (Temporary) and the Occupation Licence Agreement (Permanent). "S&A Party" means the Licensee, the Casino Manager, LPPL, SBA and SOC. "S&A Provider" means the persons who under the S&A Agreements are providing certain support and assistance to the Licensee and the Casino Manager to enable them to properly perform their obligations under the Casino Complex Management Agreement. "SHC Group" means the Licensee, SHC Properties and SHC Holdings, severally. "State" means the State of New South Wales. "Taxes" means all present and future taxes, levies, imposts, deductions, charges, fees and withholdings, in each case plus interest, related penalties and any charges, fees or other amounts in connection with any of them. "Temporary Site" has the same meaning as "Land" in the Temporary Site Construction Sub-Lease. "Temporary Site Construction Sub Lease" has the meaning given to it in the Compliance Deed. 10. "Terminating Party" means: (a) in relation to the Casino Complex Management Agreement, a party to the Casino Complex Management Agreement who intends to terminate that agreement pursuant to clauses 19.1, 21, 28.1 and 29.4 of that agreement; (b) in relation to an S & A Agreement, a party to that S & A Agreement or the Casino Manager (pursuant to its rights under the Assignment Deed) who intends to terminate that S & A Agreement pursuant to clause 4 of Administrative Services Agreement, clause 4 of the Development and Licensibility Agreement, clause 4 of the Management Support Agreement, clause 20 of the Partnership Agreement, clause 7 of the Occupation Licence Agreement (Temporary), or clause 7 of the Occupation Licence Agreement (Permanent) (as the case may be). "Transaction Documents" means the documents as so defined in the Compliance Deed. "Variation" has in relation to any Controlled Contract the same meaning as in section 37 of the Act. "Vary" includes, in relation to any Contract, amend, vary, modify, supplement, or waive any provision of the Contract. 1.2 Interpretation In this Deed unless the contrary intention appears: (a) a reference to this Deed, or to any other deed, agreement, document or instrument (other than the Application) includes this Deed, or that other deed, agreement, document or instrument as amended, supplemented, novated, replaced or varied from time to time; (b) a reference to a person includes a reference to an individual, firm, company, corporation, body corporate, statutory body, body politic, trust, partnership, joint venture, association whether incorporated or unincorporated, or an authority as the case may be; (c) a reference to a person or to any party to this Deed includes a reference to that person's or party's executors, administrators, successors, permitted substitutes and permitted assigns (including any person taking by way of novation); (d) a reference to a clause, Schedule, Exhibit or Annexure is a reference to a clause, Schedule, Exhibit or Annexure to or of this Deed and Schedules, Exhibits and Annexures and clauses therein form part of this Deed as if expressly set out in the body of this Deed (except for the purposes of the definition of Event of Default which shall exclude a reference to COA Lease 11. Terms); (e) a reference to the singular includes a reference to the plural and vice versa and words denoting a given gender shall include all other genders; (f) headings and sub-headings are for convenience only and do not affect interpretation; (g) where any word or phrase is given a defined meaning any other part of speech or other grammatical form in respect of such word or part of speech has a corresponding meaning; (h) a reference to any legislation, statute, ordinance, code or other law or to any section or provision thereof includes all ordinances, by-laws, regulations, rules, rulings and directions and other statutory instruments issued thereunder and any modifications, consolidations, re-enactments, replacements and substitutions of any of them; (i) a reference to any monetary amount or payment to be made hereunder is a reference to an Australian dollar amount or payment in Australian dollars as the case may require; (j) where a reference is made to any body or authority which has ceased to exist, such reference shall be deemed a reference to the body or authority as then serves substantially the same objects as that body or authority and any reference to the president or secretary-general of such body or authority shall in the absence of a president or secretary-general be read as a reference to the senior officer for the time being of the body or authority and/or such other person fulfilling the relevant duties of president or secretary-general; (k) where an act, matter or thing required to be done by this Deed falls to be done on a day which is not a Business Day that act, matter or thing must be done on the preceding day which is a Business Day except in the case of payments due on demand, which may be made on the next following Business Day; (1) the calculation of any rate under this Deed shall be based on a calendar year and all references to months are references to calendar months; (m) where the Contracting Parties make a joint promise, covenant, undertaking, representation or warranty the same shall be construed to refer to and bind each of them severally. 1.3 Unless otherwise defined in this Deed, or the context in this Deed requires otherwise, words, phrases or terms defined in the Act have the same meanings in this Deed. 12. 1.4 To the extent of any inconsistency or conflict between the terms of this Deed and the Act, the Licence, any other Transaction Document: (a) the Act shall prevail over the Licence, this Deed and all other Transaction Documents; (b) the Licence will prevail over this Deed and all other Transaction Documents; (c) this Deed will prevail over all other Transaction Documents (other than the Continuity and Co-operation Agreement and the CCA Charge). 1.5 The rights and obligations of the parties under this Deed are in addition and without prejudice to their respective rights and obligations under the Act. 2. CONSIDERATION Each party acknowledges to each other party that it enters into this Deed and incurs obligations and gives rights under it for valuable consideration received from the other parties to this Deed. 3. APPROVAL BY MINISTER AND DISCLAIMER 3.1 Minister's Approval The Authority warrants that it has full power and authority to enter into, execute and comply with this Deed on behalf of the State and that, pursuant to section 142 of the Act, the Minister has approved of both the Authority entering into this Deed and its terms as evidenced by the Minister's Approval and Consent Acknowledgment. 3.2 Authority/State Not Liable Notwithstanding anything to the contrary expressed in or which would, but for this clause 3.2, be implied in this Deed, neither the Authority nor the State of New South Wales nor its members, employees, delegates, agents, consultants or advisors shall have any liability whatsoever to any party in respect of any failure or breach by the Authority under or in respect of this Deed or any matter contemplated by this Deed. 4. GENERAL COVENANTS AND WARRANTIES BY CONTRACTING PARTIES 4.1 Covenants and Warranties by Contracting Parties Each of the Contracting Parties covenants, warrants, represents and undertakes to and with the Authority in the terms set out in Schedule 3. 13. 4.2 Covenants and Warranties by Licensee and Casino Manager Each of the Licensee and the Casino Manager covenants, warrants, represents and undertakes to and with the Authority in the terms set out in Schedule 4. 4.3 Covenants and Warranties by Licensee The Licensee covenants, warrants, represents and undertakes to and with the Authority in the terms set out in Schedules 5 and 6. 4.4 Covenants and Warranties by SHC Holdings SHC Holdings covenants, warrants, represents and undertakes to and with the Authority in the terms set out in Schedule 7. 4.5 Covenants and Warranties by SHC Properties SHC Properties covenants, warrants, represents and undertakes to and with the Authority in the terms set out in Schedule 8. 4.6 Covenants and Warranties by Casino Manager The Casino Manager covenants, warrants, represents and undertakes with the Authority in the terms set out in Schedule 9. 5. COMPLIANCE WITH LICENCE AND ACT The Licensee shall at all times, and shall procure that the Casino Manager, SBA and LPPL at all times, comply with and perform all applicable terms, conditions and provisions of the Licence, the Act and the regulations made thereunder. 6. COMPLIANCE WITH USE AND OCCUPATION OBLIGATIONS 6.1 COA Lease Terms (a) From the Lease Commencement Date of the Permanent Site Freehold Lease (as defined therein), the Authority and SHC Properties shall at all times, comply with and perform all of their respective obligations, and have the benefit of their rights, as set out in the COA Lease Terms and on the terms thereof. For these purposes the obligations to be complied with and performed, and the rights, in respect of: (i) the Authority shall be: (AA) while it is Lessor under the Permanent Site Freehold Lease, those obligations and rights contained in the COA Lease Terms on its part and for its benefit as if 14. the Authority was the Lessor as referred to therein under a lease on those terms; (BB) its obligations and rights in its capacity as the Casino Control Authority contained in the COA Lease terms; and (ii) SHC Properties shall be those obligations and rights contained in the COA Lease Terms on its part and for its benefit as if SHC Properties was the Lessee as referred to therein under a Lease on those terms. Furthermore the definition of "Term" in clause 1.2 of the COA Lease Terms shall have the same meaning as in the Permanent Site Freehold Lease. (b) SHC Properties shall ensure that no event described in clause 10.1 of the COA Lease Terms shall occur. 6.2 Permanent Site Freehold Lease If whilst clause 6.1 is in force, the Authority and SHC Properties comply with their obligations under clause 6.1 in all respects, then the Authority or SHC Properties (as the case may be) will be deemed to have complied with its obligations under the Permanent Site Freehold Lease and shall be under no obligation thereunder. 7. CASINO COMPLEX MANAGEMENT AGREEMENT 7.1 Casino Complex Management Agreement Valid and Enforceable Each of the Licensee, SHC Properties, SBA, LPPL and the Casino Manager covenant with and warrant to the Authority that: (a) the Casino Complex Management Agreement is valid, in full force and effect and enforceable in accordance with its terms subject to: (i) any statute of limitations; (ii) any laws of bankruptcy, insolvency, liquidation, reorganisation or other laws affecting creditors' rights generally; and (iii) any defence of set-off or counter-claim; (b) it has fulfilled or taken all action necessary to fulfill when due all of its obligations under the Casino Complex Management Agreement; and (c) there has not occurred any material default or any event which with the lapse of time or election by it shall become a material default under the Casino Complex Management Agreement. 15. 7.2 Direction Pursuant to section 38 of the Act the Authority directs that section 37 of the Act is to apply to each of SHC Properties, SBA, LPPL, the Casino Manager and SHC Holdings and each of SHC Properties, SBA, LPPL, the Casino Manager and SHC Holdings acknowledges the same. 7.3 Undertakings about Casino Complex Management Agreement Each of the Licensee, SHC Properties, SBA, LPPL and the Casino Manager undertakes, represents and warrants to the Authority that: (a) it will comply with all of its material obligations under the Casino Complex Management Agreement; (b) it will give written notice to the Authority as soon as it becomes aware of any material breach of the Casino Complex Management Agreement; (c) it will simultaneously with the giving by it of any material notice under the Casino Complex Management Agreement give a copy of the material notice to the Authority; (d) it will promptly give to the Authority details of any material disputes under or in relation to the Casino Complex Management Agreement; (e) without limiting the circumstances where a Variation must not occur, it will not without the Authority's prior written consent Vary the Casino Complex Management Agreement; (f) it will not without the prior written consent of the Authority assign, novate or otherwise transfer its rights or obligations or any of them under the Casino Complex Management Agreement otherwise than under a Permitted Encumbrance; (g) not used (h) it will not without the prior written consent of the Authority give or permit to be created any Encumbrance over its rights under the Casino Complex Management Agreement other than a Permitted Encumbrance; and (i) it will not without the prior written consent of the Authority agree to do any of the things described in paragraphs (e) - (h) inclusive. 7.4 Licensee to Procure Certain Compliance by Casino Manager The Licensee undertakes, represents and warrants to the Authority to procure that each of SHC Properties, SBA, LPPL and the Casino Manager complies with and duly 16. performs their respective material obligations under the Casino Complex Management Agreement. 7.5 Consent to CCA Charge The Casino Manager, SBA and LPPL each consent to the creation by the SHC Group of the CCA Charge which includes a charge over the respective rights, title and interest of the SHC Group only in, under and to the Casino Complex Management Agreement and the Casino Manager, SBA and LPPL each acknowledge the right title and interest of the Authority and the State in, under and to the Casino Complex Management Agreement under and by virtue of the provisions of the CCA Charge. 7.6 Termination Notices (a) A Terminating Party must provide to the Authority a copy of each notice of that party's intention to terminate the Casino Complex Management Agreement pursuant to clauses 19.1, 21, 28.1 and 29.4 of the Casino Complex Management Agreement at least 10 Business Days prior to the proposed termination date. (b) Each notice given under clause 7.6(a) must specify: (i) the nature of the default under the Casino Complex Management Agreement; (ii) the party under the Casino Complex Management Agreement responsible for the default; (iii) particulars of the events and circumstances relied on; and (iv) the particular provision of the Casino Complex Management Agreement in respect of which the default has occurred and, if the default is capable of remedy, an outline of what acts, matters or things would be required to remedy the default. 7.7 No Termination if Authority Directs The Terminating Party must not terminate the Casino Complex Management Agreement if, prior to the proposed termination date contained in the notice referred to in clause 7.6, the Authority gives notice in writing to the Terminating Party directing the Terminating Party not to terminate the Casino Complex Management Agreement. The Authority may only give a notice under this clause 7.7 where the termination of the Casino Complex Management Agreement will or could, in the reasonable opinion of the Authority, materially affect the management or operation of the Casino Complex. 7.8 Termination if Authority Directs If a material breach on the part of any party to the Casino Complex Management Agreement other than the Licensee occurs under the Casino Complex Management 17. Agreement, the Licensee must, if directed in writing by the Authority to do so, terminate the Casino Complex Management Agreement in accordance with its terms. 7.9 Not to Terminate if Default Remedied The Terminating Party agrees with the Authority that the Terminating Party will not exercise its rights of termination under the Casino Complex Management Agreement if, prior to the expiration of the period specified in the notice referred to in clause 7.6, the Authority: (a) in the case of a default by the Default Party under an obligation to pay money, pays or procures the payment of that money; (b) in the case of a default by the Default Party under any other obligation which is capable of remedy, either remedies that default or takes steps for another person to remedy that default; and (c) in the case of a default by the Default Party under any other obligation which is not capable of remedy, pays or procures the payment to the Terminating Party of an amount by way of compensation in respect of the default which is agreed between the Authority and the Terminating Party or, in default of such agreement, determined pursuant to clause 28. 7.10 Notice to Novate Casino Complex Management Agreement Where: (a) the Terminating Party has given a notice pursuant to clause 7.6 of its intention to terminate the Casino Complex Management Agreement; and (b) where the Default Party is the Casino Manager, the Licensee has not, within 20 Business Days, appointed a new Casino Manager approved by the Authority on such terms as the Authority and the Licensee may agree, then, without prejudice to the rights of the Authority under clause 7.9, the Authority may prior to the expiration of the period specified in the notice referred to in paragraph (a) give to the Terminating Party a notice of intention to novate the Casino Complex Management Agreement. 7.11 Contents of Novation Notice A Novation Notice must: (a) be given by the Authority or a Novation Nominee; and (b) state that: 18. (i) the Authority or the Novation Nominee wishes to novate the Casino Complex Management Agreement; (ii) the Authority or the Novation Nominee requires the Terminating Party to continue to perform its obligations under the Casino Complex Management Agreement; and (iii) the Authority or the Novation Nominee agrees to comply with all obligations of the Default Party falling to be performed as from the date of the notice as if the Authority or the Novation Nominee, as the case may be, were as from that time a party to the Casino Complex Management Agreement in place of the Default Party. 7.12 Novation of Casino Complex Management Agreement Following the Novation Time: (a) the Casino Complex Management Agreement will continue in full force and effect; (b) the Terminating Party will perform and observe all the obligations on its part contained in the Casino Complex Management Agreement as if the Authority or the Novation Nominee, as the case may be, was at all times a party to the Casino Complex Management Agreement in place of the Default Party; (c) the Authority or the Novation Nominee, as the case may be, will from the Novation Time assume all obligations on the part of the Default Party falling to be performed as from the Novation Time under the Casino Complex Management Agreement and will observe and perform all those obligations as if it were from that time a party to the Casino Complex Management Agreement in place of the Default Party; and (d) the Default Party will not be released, relieved or discharged from liability for and the Authority will not assume any liability for any fees or other amounts accrued due under the Casino Complex Management Agreement before the Novation Time, or liability for any breach or liability to remedy any breach which the Default Party may have committed before the Novation Time of any provision of the Casino Complex Management Agreement. 8. S & A AGREEMENT 8.1 S & A Agreements Valid and Enforceable Each S&A Party covenants with and warrants to the Authority in respect of each S&A 19. Agreement to which it is a party that: (a) each S & A Agreement is valid, in full force and effect and enforceable in accordance with its terms subject to: (i) any statute of limitations; (ii) any laws of bankruptcy, insolvency, liquidation, reorganisation other laws affecting creditors' rights generally; and (iii) any defences of set-off or counter claim; (b) each of them has fulfilled or taken all action necessary to fulfil when due all of its obligations under the S & A Agreement; and (c) there has not occurred any material default or any event which with the lapse of time or election of either of them shall become a material default under any S & A Agreement. 8.2 Direction to SOC Pursuant to section 38 of the Act the Authority directs that section 37 of the Act is to apply to SOC and SOC acknowledges the same. 8.3 Undertakings about S & A Agreements Each S&A Party undertakes, represents and warrants to the Authority that: (a) it will comply with all of its material obligations under each S & A Agreement; (b) it will give written notice to the Authority as soon as it becomes aware of any material breach of any S & A Agreement; (c) it will simultaneously with the giving by it of any material notice under any S & A Agreement give a copy of the material notice to the Authority; (d) it will promptly give to the Authority details of any material disputes under or in relation to any S & A Agreement; (e) without limiting the circumstances where a Variation must not occur, it will not without the Authority's prior written consent Vary any S & A Agreement; (f) it will not without the prior written consent of the Authority assign, novate or otherwise transfer its rights or obligations or any of them under any S & A Agreement otherwise than under a Permitted Exception; (g) not used 20. (h) it will not without the prior written consent of the Authority give or permit to be created any Encumbrance over its rights under any S & A Agreement other than any Permitted Encumbrance; (j) it will not without the prior written consent of the Authority agree to do any of the things described in paragraphs (e) - (h) inclusive. 8.4 Licensee, Casino Manager and SBA to Procure Certain Compliance Each of the Licensee, the Casino Manager and SBA undertakes, represents and warrants to the Authority to procure that each of SOC and LPPL complies with and duly performs their respective material obligations under all of the S & A Agreements. 8.5 Termination Notices (a) The Terminating Party must provide to the Authority a copy of each notice of that party's intention to terminate any S & A Agreement pursuant to either clause 4 of the Administrative Services Agreement, clause 4 of the Development and Licensibility Agreement, clause 4 of the Management Support Agreement, clause 20 of the Partnership Agreement, clause 7 of the Occupation Licence Agreement (Temporary), or clause 7 of Occupation Licence Agreement (Permanent) at least 10 Business Days prior to the proposed termination date. (b) Each notice given under clause 8.5(a) must specify: (i) the nature of the default under that S & A Agreement; (ii) the party under that S & A Agreement responsible for the default; (iii) particulars of the events and circumstances relied on; and (iv) the particular provision of that S & A Agreement in respect of which the default has occurred and, if the default is capable of remedy, an outline of what acts, matters or things would be required to remedy the default. 8.6 No Termination if Authority Directs The Terminating Party must not terminate any S & A Agreement if, prior to the proposed termination date contained in the notice referred to in clause 8.5, the Authority gives notice in writing to the Terminating Party not to terminate that S & A Agreement. The Authority may only give a notice under this clause 8.6 where the termination of that S & A Agreement will or could, in the reasonable opinion of the Authority, materially affect the management or operation of the Casino Complex. 8.7 Termination if Authority Directs If a material breach on the part of SOC occurs under the Development and Licensibility Agreement, the Administrative Services Agreement or the Management 21. Support Agreement, the Casino Manager or SBA must, if directed in writing by the Authority to do so, terminate such agreement in accordance with its terms. 8.8 Not to Terminate if Default Remedied The Terminating Party agrees with the Authority that the Terminating Party will not exercise its rights of termination under any S & A Agreement if, prior to the expiration of the period specified in the notice referred to in clause 8.5, the Authority: (a) in the case of a default by the Default Party under an obligation to pay money, pays or procures the payment of that money; (b) in the case of a default by the Default Party under any other obligation which is capable of remedy, either remedies that default or takes steps for another person to remedy that default; and (c) in the case of a default by the Default Party under any other obligation which is not capable of remedy, pays or procures the payment to the Terminating Party of an amount by way of compensation in respect of the default which is agreed between the Authority and the Terminating Party or, in default of such agreement, determined pursuant to clause 28. 8.9 Notice to Novate an S & A Agreement Where the Terminating Party has given a notice pursuant to clause 8.5 of its intention to terminate any S & A Agreement then, without prejudice to the rights of the Authority under clause 8.8, the Authority may prior to the expiration of the period specified in the notice give to the Terminating Party a notice of intention to novate that S & A Agreement. 8.10 Contents of Novation Notice A Novation Notice must: (a) be given by the Authority or a Novation Nominee; and (b) state that: (i) the Authority or the Novation Nominee wishes to novate a S & A Agreement; (ii) the Authority or the Novation Nominee requires the Terminating Party to continue to perform its obligations under that S & A Agreement; and (iii) the Authority or the Novation Nominee agrees to comply with all obligations of the Default Party falling to be performed as from the date of the notice as if the Authority or the Novation Nominee, as the case may be, were as from that time a party to 22. that S & A Agreement in place of the Default Party. 8.11 Novation of an S & A Agreement Following the Novation Time: (a) the S & A Agreement the subject of a Novation Notice ("RELEVANT S & A AGREEMENT") will continue in full force and effect; (b) the Terminating Party will perform and observe all the obligations on its part contained in the Relevant S & A Agreement as if the Authority or the Novation Nominee, as the case may be, was at all times a party to the Relevant S & A Agreement in place of the Default Party; (c) the Authority or the Novation Nominee, as the case may be, will from the Novation Time assume all obligations on the part of the Default Party falling to be performed as from the Novation Time under the Relevant S & A Agreement and will observe and perform all those obligations as if it were from that time a party to the Relevant S & A Agreement in place of the Default Party; and (d) the Default Party will not be released, relieved or discharged from liability for and the Authority will not assume any liability for any fees or other amounts accrued due under the Relevant S & A Agreement before the Novation Time, or liability for any breach or liability to remedy any breach which the Default Party may have committed before the Novation Time of any provision of the Relevant S & A Agreement. 9. ASSIGNMENT DEED Each of the Casino Manager and SBA covenants with and warrants to the Authority that: (a) the Assignment Deed is valid, in full force and effect and enforceable in accordance with its terms subject to: (i) any statute of limitations; (ii) any laws of bankruptcy, insolvency, liquidation, reorganisation or other laws affecting creditors' rights generally; and (iii) any defences of set-off or counterclaim; (b) each of them has fulfilled or taken all action necessary to fulfil when due all of its obligations under the Assignment Deed; and (c) there has not occurred any material default or any event which with the lapse of time or election of either of them shall become a material default under the Assignment Deed. 23. 10. O & M AGREEMENTS 10.1 Existing O & M Agreements Each of the SHC Group and the Casino Manager warrant and represent to the Authority that as at the time of execution of this Deed there are no O & M Agreements. 10.2 Pre-Conditions to Future O & M Agreements Each of the SHC Group and the Casino Manager shall procure that no O & M Agreement to which it is a party, or to which it will be assigned the benefit of and/or the right title and interest under, will be entered into unless: (a) the SHC Group or the Casino Manager (as the case may be) has notified the Authority of the details of the proposed O & M Agreement at least 14 days (or such shorter period as the Authority may approve in a particular case) before entering into it; and (b) the Authority has not within that 14 days (or the shorter approved period) notified the SHC Group or the Casino Manager (as the case may be) that it objects to the proposed O & M Agreement; and (c) the parties to the O & M Agreement have simultaneously entered into a O & M Novation Agreement with the Authority. 10.3 Undertakings About O & M Agreements Each of the SHC Group and the Casino Manager undertakes, represents and warrants to the Authority that in respect of the O & M Agreements to which it becomes a party, or to which it will be assigned the benefit of and/or the right title and interest thereunder: (a) it will comply with all of its material obligations under the O & M Agreements and will use its best endeavours to procure compliance by each O & M Provider with all of its material obligations under the O & M Agreements; (b) it will give written notice to the Authority as soon as it becomes aware of any material breach of any O & M Agreement by any party thereto including itself; (c) it will simultaneously with the giving or receipt by it or by any O & M Provider of any material notice under any O & M Agreement give a copy of the notice to the Authority; (d) it will promptly give to the Authority details of any material disputes under 24. or in relation to the O & M Agreements; (e) without limiting the circumstances where a Variation must not occur, it will not without the Authority's prior written consent Vary the O & M Agreement. (f) it will procure that without the prior written consent of the Authority no rights or obligations under any O & M Agreement are assigned, novated or otherwise transferred other than under a Permitted Encumbrance; and (g) it will not without the prior written consent of the Authority give or permit to be created, or agree to give or permit to be created, any Encumbrance other than a Permitted Encumbrance over its rights under any O & M Agreements. 10.4 SHC Group and (Casino Manager to Procure Certain Compliance Each of the SHC Group and the Casino Manager shall in respect of the O & M Agreements to which it becomes a party, or to which it assigned the benefit and/or the right title and interest thereunder, use its best endeavours to procure performance of and compliance by each O&M Provider with all of its obligations under the O & M Agreements. 10.5 Restrictions on Termination by SHC Group or (Casino Manager (a) Each of the SHC Group and the Casino Manager shall in respect of the O & M Agreements to which it becomes a party, or to which it will be assigned the benefit of and/or the right title and interest thereunder, procure that no notice to terminate an O & M Agreement is given by the SHC Group or the Casino Manager unless a copy of the proposed notice has first been provided to the Authority and the Authority has not within 14 days after receipt of that proposed notice directed in writing that the O & M Agreement concerned is not to be terminated. (b) If the Authority gives such a direction the SHC Group and the Casino Manager shall in respect of the O & M Agreements to which it becomes a party, or to which it will be assigned the benefit of and/or the right title and interest thereunder, procure that it is complied with. 10.6 Termination if Authority Directs Without limiting clause 10.3, each of the SHC Group and the Casino Manager shall in respect of the O & M Agreements to which it becomes a party, or to which it will be assigned the benefit of and/or the right title and interest thereunder, enforce or procure enforcement of its rights under the O & M Agreements in accordance with any direction in writing to do so by the Authority. In particular but without limiting and without in any way limiting the Authority's powers under section 39 of the Act, 25. if a material breach on the part of a party (not being the SHC Group or the Casino Manager) occurs under an O & M Agreement, the SHC Group or the Casino Manager, as the case may be, shall, if directed in writing by the Authority to do so, terminate the O & M Agreement in question in accordance with its terms. 11. NO COMPETITION 11.1 Non Competition (a) Each Contracting Party covenants with and undertakes to the Authority that it will not directly or indirectly: (A) (i) do any of the things specified in Part A of Schedule 10; (ii) (AA) on its own account; (BB) jointly with or on behalf of any other person, firm, company or trust; (CC) as a shareholder, consultant, partner, joint venture participant or in any other capacity; (iii) for the periods specified in Part B of Schedule 10; or (B) at any time during the periods specified in Part B of Schedule 10 be entitled (within the meaning of section 609 of the Corporations Law) to shares in any body corporate or interests in any trust doing any of the things referred to in Part A of Schedule 10. (b) The Authority may, upon the request of any Contracting Party having given such an undertaking as set out at clause 11.1 (a), vary that undertaking in its complete and unfettered discretion. 11.2 Severance If any part of any provision or any part of a provision of clause 11.1 ("Provisions"), or the application of any part or provision or part of a provision of clause 11.1 to any person or circumstance (for the purposes of this clause 11.2 only "Applications"), on its true interpretation is determined to be void, invalid or otherwise unenforceable, that Provision or Application shall be read down to such extent as may be necessary to ensure that it is not void, invalid or unenforceable and as may be reasonable in all the circumstances so as to give full and as valid an operation as possible. Any such determination shall not affect any other Provisions or Applications all of which other Provisions or Applications shall remain in full force and effect. In the event that the infringing Provision or Application cannot be so read down, it shall be deemed void and severable to the extent that it is void or to the extent of the voidability, invalidity or unenforceability and shall be deemed deleted from this Deed to the same extent and effect as if never incorporated herein but the remainder of clause 11. 1 shall remain in 26. full force and effect. It is the intention of the parties that if any Provision or Application of this Deed is susceptible logically and reasonably of two or more constructions, one of which would render the Provision or Application enforceable and the other or others of which would render the Provision or Application unenforceable, then the Provision or Application shall have the meaning which renders it enforceable. 12. CASINO OPERATIONS AND MANAGEMENT 12.1 Best Practice Covenant The SHC Group covenants with and undertakes to the Authority that: (a) it shall use its best endeavours to conduct and manage the operations of the Casino and the Ancillary Facilities in the manner contemplated by paragraph (b); (b) the operations of the Casino and the Ancillary Facilities will be conducted and managed: (i) at a first-class international standard for casinos and casino complexes in general having regard to the best operating practices at them and will be conducted in an efficient and commercially fair and reasonable manner and to standards of the highest integrity; and (ii) to the standards set out in Schedule 11. 12.2 Incorporation of the Application (a) The Application is hereby incorporated by reference into this Deed. (b) The Licensee covenants and undertakes with the Authority to and where necessary, procure that SHC Properties and SHC Holdings will: (i) operate and conduct the Casino and the Ancillary Facilities in accordance with the Application; and (ii) provide all the features, facilities, attractions and services and described in the Application. 12.3 Gaming Equipment (a) The Licensee will procure gaming equipment for use in the Casino which will be suitable for the purpose of lawful gaming in the Casino and which will be sufficient to enable the Licensee to conduct gaming operations at the Casino in accordance with the Application. The gaming equipment shall comply with the requirements of the Act. The Authority acknowledges that the Casino Manager, as agent of the Licensee, may be procuring the gaming equipment for use in the Casino. 27. (b) The Licensee hereby acknowledges and declares that: (i) it will at all relevant times own the gaming equipment which is used in the Casino free and clear from any Encumbrances other than the Permitted Encumbrances and as a beneficial owner; and (ii) it shall not dispose of such gaming equipment, unless the Authority gives its prior written consent to the Licensee permitting it to do otherwise, such permission not be unreasonably withheld. (c) The Licensee hereby agrees to replace any gaming equipment which proves defective or which becomes no longer operational so as to maintain at all times a sufficient quantity of Gaming Equipment which will be suitable for the purpose of lawful gaming at the Casino and complies with the requirements of this clause 12.3 and which will enable the Licensee to conduct gaming operations at the Casino. (d) For the purposes of assisting the Authority and the Director in the performance of their respective obligations and duties under the Act, including without limitation, under sections 68 and 69 of the Act, the Licensee shall procure that an independent expert approved by the Authority will certify to the Authority that, in its opinion, the gaming equipment provided by the Licensee from time to time complies with the requirements of the Act and regulations passed thereunder and this Deed whenever the Authority requests such a certificate to be provided. 12.4 Games (a) The Licensee may, subject to the Act, conduct in the Casino only the games permitted in accordance with the provisions of the Act. (b) (i) The Licensee will notify the Authority of of any other game which it proposes to conduct at the Casino, or any amendment to the rules of any game which it conducts at the Casino, earlier than 121 days prior to the date on which the Licensee proposes to introduce the game or rule amendment in the Casino. (ii) Such notification will set out: (A) the proposed rules of the game or the proposed amendments to the rules of the game; and (B) the Licensee's estimates of gross revenue which will be attributable to that game or the benefits of the proposed amendments to the rules; and (C) the estimated direct costs attributable to conducting the game or the proposed amendments to the rules. (iii) Upon receipt of such notice, the Authority will consult with the Licensee with a view to determining whether or not the Authority ought to approve the conduct of the game in the Casino or the 28. amendment to the rules of the game in the Casino. (iv) The Authority shall have reasonable regard to, amongst other matters which it considers relevant it its absolute discretion, the interests of the Licensee when determining whether or not to approve the proposed conduct of the game in the Casino. (v) The Director may make recommendations to the Authority regarding: (A) the proposed conduct of a game in the Casino and the rules of such game; and (B) a proposed amendment to the rules of a game conducted in the Casino; pursuant to section 104(1)(e) of the Act. (vi) The Authority shall notify the Licensee of its determination regarding a proposed game and its rules or a proposed amendment to the rules of a game not later than 120 days after Receipt of the notice from the Licensee or as soon as practicable thereafter following completion of the consultations with the Licensee. (c) (i) The Authority may propose to the Licensee by notice a game which it would like the Licensee to consider conducting at the Casino. (ii) Upon receipt of such notice, the Licensee shall prepare a report on the advisability of the game and its estimates of gross revenue attributable to such game and estimated direct costs attributable to such game. (iii) Such report shall be furnished by the Licensee, in a timely manner, to the Authority for its consideration. (iv) Upon receipt of such report, the Authority will consult with a view to agreeing whether or not the Licensee should be directed to conduct such game at the Casino. (v) After having reasonable regard to the interests of the Licensee, the Authority may notify the Licensee to conduct such game at the Casino upon such rules as the Authority may direct. 12.5 Advertising, Marketing and Promotion (a) The Licensee shall consistently with clause 12 advertise, market and promote the Casino and the Ancillary Facilities with the objective of ensuring the Casino is fully and regularly patronised. (b) The Licensee shall expend the amount (plus or minus 10%) provided in each budget, a copy of which shall be provided to the Authority on request, on advertising, marketing and promotions on such media, events and activities as it considers most suitable to achieve the objective set out in clause 12.5(a). 29. (c) The Licensee shall certify, quarterly, in writing to a person nominated by the Authority the amounts which it has expended on advertising, marketing and promotions in the period covered by such certificate, which certificate is to contain a breakdown of the amounts expended on the various categories of expenditure. 12.6 Not used 13. GENERAL RESPONSIBILITY TO INFORM AUTHORITY 13.1 General Responsibility to Inform The Casino Manager and the SHC Group shall at all times keep the Authority fully informed of all material aspects of the operation of the Casino Complex and shall immediately report any occurrence which would materially adversely effect the Casino Complex. l3.2 Litigation Without limiting clause 13.1, the Contracting Parties shall immediately notify the Authority of any litigation, arbitration or other dispute subject to a resolution process to which any of them is a party or with which any of them is involved which could materially affect their ability to perform their respective obligations under this Deed, the Licence, the Casino Complex Management Agreement or an S & A Agreement. 14. INSPECTION OF RECORDS AND ACCESS TO PREMISES The Casino Manager and the SHC Group shall, after receipt of reasonable notice from the Authority, permit authorised representatives of the Authority (including its employees, agents and advisers) and the Director: (a) to enter upon any part of the Casino and Ancillary Facilities at all reasonable times; (b) to examine or inspect the Casino and Ancillary Facilities, their contents and all equipment necessary for their operation and determine whether such equipment is in proper operating order; (c) to examine or inspect all books of account and other records relating to the Casino, the Ancillary Facilities, the SHC Group or the Casino Manager and to take copies or extracts from them; (d) to determine whether the obligations of the SHC Group and the Casino Manager under this Deed, the Casino Complex Management Agreement, the Licence and the Transaction Documents have been complied with; (e) to observe the cash count system or any actual counting; and 30. (f) to inspect or test security monitoring systems. 15. REGULAR MEETINGS WITH AUTHORITY 15.1 Information The SHC Group and the Casino Manager agree to provide the Authority with such information from time to time as the Authority may require to ensure the Authority is, in its opinion, adequately informed in relation to: (a) the management and operation of the Casino and the Ancillary Facilities; and (b) the performance by the SHC Group and the Casino Manager of their obligations under this Deed, the Casino Complex Management Agreement, the Licence and the Transaction Documents. 15.2 Regular Meetings Subject to clause 15.3 the Authority may, for the purposes of clause 15.1, request that the representatives of the SHC Group and the Casino Manager attend meetings with the Authority on reasonable written notice (which shall depend on the circumstances) at such times and places as specified in such notice. The Authority shall not request more than one such meeting in any three month period. 15.3 Other Meetings The Authority may request that the representatives of the SHC Group and the Casino Manager attend meetings with the Authority on reasonable written notice (which shall depend on the circumstances) where the Authority suspects or forms the view that any of the following events have occurred, or that any act, matter or thing has arisen which could lead to any of the following events occurring: (a) the breach of any condition of the Licence; or (b) the breach of any clause of any Transaction Document. 15.4 Agenda The Authority will include in the notice of a meeting under this clause 15 an agenda of the matters proposed to be discussed at the meeting. 15.5 Representatives For the purposes of clause 15, the representatives required to attend meetings shall be those persons as determined by the Authority from time to time in consultation with the SHC Group and the Casino Manager, provided that such persons shall include the 31. Managing Director of the SHC Group or the Chief Executive Officer of the Casino Manager only where: (a) the Authority reasonably requires their presence to consider or discuss the matters to be dealt with at that meeting; and (b) such persons have not been able to persuade the Authority that their personal attendance is not required for the Authority to consider the matters proposed to be discussed as outlined in the agenda referred to in clause 15.4. 15.6 Minutes The SHC Group shall prepare accurate minutes of each meeting referred to in clause 15 and shall deliver copies of the minutes to the Authority and the Casino Manager within 3 Business Days after each meeting. 16. NOT USED 17. FORCE MAJEURE 17.1 If by reason of an Event of Force Majeure, a Contracting Party (affected Contracting Party) is or reasonably expects to be wholly or partially unable to carry out any of its obligations under this Deed, it shall give to the Authority prompt notice of the Event of Force Majeure once it becomes aware of the same and the obligations affected together with full particulars of all relevant matters including: (a) details of the Event of Force Majeure; (b) identification of the obligations hereunder affected; (c) details of the action that the Affected Contracting Party has taken to remedy the situation and details of the action that it proposes to take to remedy the situation; (d) an estimate of the time during which the Affected Contracting Party will be unable to carry out its obligations due to the Event of Force Majeure; and (e) an estimate of the costs that the Affected Contracting Party will incur to remedy the situation and its proposed funding arrangements. 17.2 Upon the notice under clause 17.1 being given, the Affected Contracting Party shall be obliged to provide the Authority with all relevant information pertaining to the Event of Force Majeure. 17.3 (a) Upon the notice under clause 17.1 having been given, any party may immediately request a consultation with the other parties in order to reach 32. agreement as to the best way of resolving the situation. (b) If no such request is made within 5 Business Days, or no agreement is reached between the parties within 15 Business Days of such request being made, then subject to clause 17.4, clause 17.5 will apply. 17.4 Within 5 Business Days of the Affected Contracting Party providing a notice under clause 17.1 to the Authority (notice), the Authority may notify the Affected Contracting Party that it disputes the contents of the Notice (including without limitation, the existence of the Event of Force Majeure or the obligations claimed to be affected by the Event of Force Majeure), in which event clause 28 shall apply. 17.5 Subject to clauses 17.3 and 17.4: (a) the obligations of the Affected Contracting Party, identified in the notice issued under clause 17.1 or, if clause 17.4 applies, the obligations in such notice which are determined by dispute resolution (under clause 28) to be affected (other than under this clause 17 and any other clause which is expressed to survive this clause 17.5(a)), shall be suspended from the date the notice under clause 17.1 was given but only to the extent and for so long as the period that such obligations are genuinely affected by the Event of Force Majeure; and (b) the Affected Contracting Party shall not be deemed to be in default under this Deed insofar as its failure or delay in the observance or performance of its obligations specified in the notice given under clause 17.1 or, if clause 17.4(b) applies, the obligations in such notice which are determined by dispute resolution (pursuant to clause 28) to be affected, are caused by the Event of Force Majeure, PROVIDED THAT if for any reason the Event of Force Majeure continues for more than 20 Business Days from the date of the notice issued under clause 17.1 then the Authority may terminate this Deed with respect to the Affected Contracting Party and will not be liable to pay any form of compensation to the Affected Contracting Party (other than existing liabilities owed by the Authority to the Affected Contracting Party at the time of termination). 17.6 Upon an Affected Contracting Party being able to recommence the fulfilment of the obligations under this Deed previously affected by a notified Event of Force Majeure: (a) it shall give to the Authority prompt notice of the same; and (b) the period of an Event of Force Majeure shall end. 17.7 Upon an Event of Force Majeure coming to an end pursuant to clause 17.6 the Affected Contracting Party shall immediately recommence the fulfillment of the 33. obligations which were so previously affected PROVIDED THAT where the occurrence of the Event of Force Majeure has resulted in that Affected Contracting Party not complying with an obligation within the time limit specified in this Deed for the performance of that obligation, then the time for performance of that obligation shall be extended for the shorter of the period of the Event of Force Majeure (being the time between the date on which the notice under clause 17.1 was received by the Authority and the date on which the notice under clause 17.6 was received by the Authority inclusive), and the period it would take a person of a first class standard of competence acting diligently to perform the obligation. 17.8 (a) Upon a notice under clause 17.1 being given, where the Affected Contracting Party reasonably expects that the occurrence of the Event of Force Majeure will result in the Affected Contracting Party not complying with an obligation within the time limit specified in this Deed for the performance of that obligation (affected Obligation.), the Affected Contracting Party may apply by notice in writing to the Authority for an extension of time for the performance of the Affected Obligation. Such notice shall state a fair and reasonable estimate of the time by which in the opinion of the Affected Contracting Party the Affected Obligation could be performed. (b) Within 5 Business Days of receipt by the Authority of a notice under clause 17.8(a), the Authority will make a determination (in its absolute discretion) on the Affected Contracting Party's application for an extension of time and shall promptly provide the Affected Contracting Party with notice of the determination. (c) Within 10 Business Days of the Affected Contracting Party receiving a notification of a determination under clause 17.8(b) from the Authority, the Affected Contracting Party may notify the Authority that it disputes the refusal of an extension of time or the length of the extension of time, and in that event the matter shall be referred for dispute resolution pursuant to clause 28. 17.9 The foregoing provisions of this clause 17 shall not apply to excuse performance of: (a) any obligation to pay money under this Deed; or (b) any obligation of any Contracting Party other than the Affected Contracting Party. 17.10 Each Contracting Party shall, at its cost, use its best endeavours to overcome an Event of Force Majeure or remedy the disability resulting therefrom as promptly as possible including making reasonable expenditures of funds provided always that such party shall not be required hereby to settle any labour dispute on terms contrary to its wishes nor to test the validity of any law, regulation, decree or order by way of legal proceedings. 34. 18. COVENANTS, WARRANTIES AND INDEMNITIES 18.1 Continuing Covenants and Warranties Unless otherwise expressly stated, the covenants, warranties, representations and undertakings given in this Deed are made as at the date of this Deed and are deemed repeated on each date on which the Authority requests in writing that the relevant Contracting Party repeat the covenants, warranties, representations and undertakings and in any event, every 3 months after the date of this Deed. 18.2 Covenants and Warranties True and Accurate and Separate It is a term of this Deed that each of the covenants, warranties, representations and undertakings given in this Deed are true and correct in every respect and shall be construed separately, and the meaning of each shall in no way be limited by reference to any other clause or paragraph contained herein. 18.3 Covenants and Warranties Survive Termination Each of the covenants, warranties, representations and undertakings herein shall remain in full force and effect on and after any termination of this Deed for any reason whatsoever. 18.4 Notice of Any Breach of Covenants and Warranties The SHC Group, the Casino Manager and the S & A Provider shall immediately give notice in writing to the Authority of any breach of any of the representations warranties covenants or undertakings of this Deed. No such notification shall affect or in any way limit the liability of the SHC Group, the Casino Manager or the S & A Provider. 18.5 Indemnity in Respect of Breach Each Contracting Party hereby indemnifies and shall at all times keep indemnified each of the Authority and the State against any and all loss, damage, claims, penalties, liabilities and expenses (including special, indirect and consequential damages and legal costs on the higher of a full indemnity basis or a solicitor and own client basis and without the need for taxation) whatsoever caused or contributed to by breach of this Deed (including clauses 6.1 and 19. l(b) and (c)) by the Contracting Party, including without limitation as a result of: (a) the payment, omission to make payment or delay in making payment of any amount referred to in or contemplated by this Deed; (b) a breach of any of its obligations, warranties, covenants, undertakings or representations under this Deed; 35. (c) any damage to property or death of or injury to any person of any nature or kind. 18.6 Indemnity Against Third Party Claims Each Contracting Party hereby indemnifies and shall at all times keep indemnified each of the Authority and the State against any and all claims, actions, demands, loss, damages, liabilities and expenses (including special, indirect and consequential damages and legal costs on the higher of a full indemnity basis or a solicitor and own client basis and without the need for taxation) brought or claimed by any third party, in connection with the performance by the Contracting Party of its obligations under this Deed. 18.7 Indemnity Payable on Demand Any moneys payable under any of the indemnities in this clause 18 shall be payable within 5 Business Days of demand. 19. CONTRACTING PARTY'S RIGHT OF REMEDY AND AUTHORITY'S RIGHTS OF TERMINATION 19.1 Remedy of Breach If any breach of the nature referred to in paragraphs (a) to (d) inclusive of the definition of Event of Default occurs (including for the avoidance of doubt a failure to comply with clause 6.1(b) in respect of the COA Lease Terms): (a) the Authority may issue a notice to the Licensee specifying the breach ("Default Notice"); and (b) if the breach is capable of remedy, the Licensee shall cause the breach to be remedied (which in the case of a monetary obligation shall include payment of interest pursuant to clause 20.1 of this Deed) to the satisfaction of the Authority within the time specified in the Default Notice, which time shall be not less than: (i) 2 Business Days after issue of the Default Notice, in the case of an event referred to in paragraph (a) of the definition of Event of Default; or (ii) 10 Business Days after the issue of the Default Notice, in the case of an event referred to in any of paragraphs (b) to (d) inclusive of the definition of Event of Default; or (c) if the breach is not capable of remedy, the Contracting Parties shall comply with any requirements in relation to such breach or redress the prejudice arising from the breach in the manner specified in the Default Notice, whether by the payment of compensation or damages or otherwise, within 36. the time specified in the Default Notice which time shall not be less than 5 Business Days after the issue of the Default Notice. 19.2 Obligation Default Notices If there is: (a) an occurrence of an event referred to in any of paragraphs (e) to (i) inclusive of the definition of Event of Default in respect of any Contracting Party; or (b) a breach of clause 19.1 by any Contracting Party; then the Authority may issue a notice ("Obligation Default Notice") to the Licensee specifying the breach as an Obligation Default. 19.3 Deemed Notice All Contracting Parties agree and acknowledge that upon receipt or deemed receipt of a Default Notice pursuant to clause 19.1 or an Obligation Default Notice pursuant to clause 19.2 (as the case may be) by the Licensee, the Default Notice or the Obligation Default Notice (as the case may be) whether addressed to the Licensee and/or any other Contracting Party shall be thereupon deemed received by all Contracting Parties for the purposes of this clause 19. 19.4 Obligation Licence Conditions If the breach specified in the Obligation Default Notice is not remedied, or the prejudice arising from the breach (as specified in the Obligation Default Notice) is not redressed, in either case to the satisfaction of the Authority within 10 Business Days after the issue of the Obligation Default Notice, then the obligation the breach of which has given rise to the Obligation Default Notice, shall thereupon and without more be considered to be a condition of the Licence which shall have been contravened. 19.5 Authority may amend Conditions of Licence, cancel or suspend Licence Each Contracting Party acknowledges and agrees that upon the occurrence of an Obligation Licence Condition the Authority may amend the conditions of the Licence, or cancel or suspend the Licence pursuant to section 23 of the Act. 20. DEFAULT INTEREST 20.1 If any Contracting Party makes default in payment of any money payable under this Deed (including under this clause), or if the Authority shall expend any moneys under or pursuant to this Deed consequent upon any breach by any Contracting Party of its provisions, the relevant Contracting Party shall pay to the Authority interest (both 37. before as well as after any judgment) on such overdue moneys at the Default Rate from and including the date when such moneys originally fall due for payment up to the date they are paid or satisfied, and shall likewise pay to the Authority interest on moneys so expended at the Default Rate from the date the same are expended by the Authority until repaid by the Contracting Party or otherwise satisfied. Interest as aforesaid shall be calculated daily and compounded monthly. 20.2 For the avoidance of doubt, it is the intention of the parties that where interest is payable under sub-clause 10.8 of the COA Lease Terms on any sum payable under the COA Lease Terms, clause 20.1 of this Deed does not operate to make interest payable on the same again. In other words there should be no double-counting of interest payments on the same sum. 21. Not used 22. AUTHORITY'S STATUTORY OBLIGATIONS AND DISCRETIONS 22.1 No Fetter of Powers, Rights, Obligations and Discretions Nothing in this Deed shall be taken as, nor is capable of, fettering or prejudicing the powers, rights, obligations and discretions imposed or conferred on the Authority under the Act or imposing on the Authority any obligation or restriction which conflicts with those powers, rights, obligations and discretions. 22.2 Authority to Consider Act In giving any approvals or exercising any powers, rights or discretions under this Deed, the Authority will have regard to the provisions of the Act, including without limitation its objects specified in section 140. 22.3 Directions by Authority Unless otherwise expressly provided, no provision in this Deed shall be taken to be a direction by the Authority under the Act, including without limitation under sections 29, 30, 32 and 38. 23. EXPENSES AND STAMP DUTY 23.1 Expenses The SHC Group must on demand reimburse the Authority for and keep the Authority indemnified against all expenses, including all legal fees, costs and disbursements on a solicitor/own client basis and without the need for taxation, incurred by the Authority in connection with: (a) any subsequent consent, agreement, approval or waiver under or amendment of this Deed or the Transaction Documents; and 38. (b) the exercise, enforcement, preservation, attempted enforcement or preservation of any rights under this Deed or the Transaction Documents, including without limitation any expenses incurred in the evaluation of any matter of material concern to the Authority. 23.2 Stamp Duty and Other Taxes The SHC Group will be liable to: (a) pay all stamp duties, registration and similar Taxes, including fines and penalties, financial institutions duty and federal debits tax in connection with the execution, delivery, performance, enforcement or attempted enforcement of this Deed or any payment or other transaction under or contemplated in this Deed; and (b) indemnify and keep indemnified the Authority against any loss or liability incurred or suffered by it as a result of the delay or failure by the SHC Group to pay Taxes. 24. ASSIGNMENTS 24.1 Assignment Subject to Act Each party's ability to assign, encumber or otherwise dispose of their rights and obligations under this Deed is subject to section 142(4) of the Act. 24.2 Assignment by Contracting Party Without limiting the application of, and in addition to, clause 24.1 no Contracting Party may assign, transfer, Encumber or otherwise dispose of all or any part of its rights or obligations under this Deed other than by way of the Permitted Encumbrance unless the Authority has given its prior written consent which consent can be withheld or made subject to any requirements specified by the Authority in its absolute discretion, PROVIDED THAT to the extent to which there is a ministerial consent or approval in respect of such rights or obligations under the Minister's Approval and Consent Acknowledgement the Authority shall be deemed for the purposes of this clause 24.2 to have given its prior written consent. 24.3 Assignment by Authority The Authority may at any time assign its rights and obligations under this Deed to: (a) any other statutory corporation or authority, any government department or agency which has taken over the functions or objects of the Authority under the Act; or (b) the New South Wales Government, 39. provided that the assignee has executed a deed agreeing to be bound by the terms of this Deed as if it were an original party in place of the Authority. 25. VARIATION OF DEED 25.1 If any party (the "Proposing Party") proposes a variation to the terms of this Deed (including without limitation the Schedules and Exhibits), the Proposing Party shall submit to each of the other parties ("Other Parties") a notice in writing ("Variation Proposal") specifying all details of the proposed variation including full details of all financial, corporate, timing and operations and other changes to the Application. 25.2 Each of the Other Parties shall within 20 Business Days after receipt of a Variation Proposal or such longer period as may be agreed between the parties advise in writing of its approval or rejection of the Variation Proposal. 25.3 Failure to respond within the time period referred to in clause 25.2 shall be deemed to be a rejection. 25.4 Where approval under clause 25.2 has been given to a Variation Proposal then each party shall duly execute a formal amending agreement or agreements (as the case may be) to effect the Variation Proposal ("Variation Agreement") whereupon (and not before) the parties shall be bound thereby PROVIDED THAT the Variation Agreement shall have no force or effect and shall not be deemed to have been entered into by the Authority unless and until the Authority has received the approvals of the Minister thereto required pursuant to section 142 of the Act (and each Variation Agreement shall contain an express provision to this effect unless such approvals have previously been obtained). If the Variation Agreement is not duly executed by any party or the Ministerial approvals referred to above are not received within 30 Business Days after the date of approval of each of the Other Parties under clause 25.2 then the Variation Proposal shall be deemed rejected and any Variation Agreement shall have and shall be deemed for all purposes, never to have had, any force or effect. 26. GOVERNING LAW AND JURISDICTION 26.1 Governing Law This Deed is governed by and construed in accordance with the laws of the State. 26.2 Jurisdiction (a) Each party irrevocably submits to and accepts, generally and unconditionally, the non-exclusive jurisdiction of the courts and appellate courts and mediation and arbitration processes of the State with respect to any action or proceedings which may be brought at any time relating in any way to this Deed. (b) Each party irrevocably waives any objection it may now or in the future 40. have to the venue of any action or proceeding, and any claim it may now or in the future have that any action or proceeding has been brought in an inconvenient forum. (c) Each party irrevocably waives any immunity in respect of obligations under this Deed that it may acquire from the jurisdiction of any court or any legal or arbitration process for any reason including without limitation, the service of notice, attachment prior to judgement, attachment in aid of execution or execution. 27. NO REPRESENTATION BY OR RELIANCE ON AUTHORITY Each Contracting Party acknowledges and confirms that: (a) it has relied on its own inquiries as to all other parties to this Deed, including the nature and extent of the entire relationship between them whether or not recorded in this Deed, and the nature and effect of this Deed; and (b) it has not entered into this Deed in reliance on or as a result of any representation, warranty, promise, statement, conduct or inducement by or on behalf of the Authority otherwise than as embodied in the CCA Project Documents, or as notified in writing by that party to it before the date of this Deed. 28. DISPUTE RESOLUTION 28.1 A Party must not commence or maintain any action or court proceedings (except proceedings seeking interlocutory relief) in respect of a dispute or difference as to any matter relating to or arising under this Deed ("Dispute") unless it has complied with this clause 28. 28.2 A Party claiming that a Dispute has arisen must notify the other Parties giving details of the Dispute. 28.3 Within 3 Business Days after a notice is given under clause 28.2, each Party must nominate in writing a representative authorised to settle the Dispute on its behalf ("Representative"). 28.4 During the period of 10 Business Days after a notice is given under clause 28.2 (or any longer period agreed between the Parties), each Party must ensure that its Representative uses his or her best endeavours, with the other Representatives to: (a) resolve the Dispute; or (b) agree on a process to resolve the Dispute without court proceedings (e.g. mediation, conciliation, executive appraisal or independent expert 41. determination) including: (i) the involvement of any dispute resolution organisation; (ii) the selection and payment of a third party to be engaged by the Parties to assist in negotiating a resolution of the Dispute without making a decision that is binding on a Party unless that Party's Representative has so agreed in writing; (iii) any procedural rules; (iv) the timetable, including any exchange of relevant information and documents; and (v) the place where meetings will be held. 28.5 If, within the period specified in clause 28.4, the Representatives have not resolved the Dispute or agreed upon a process to resolve the Dispute, the Parties may, within 5 Business Days after expiry of that period, agree to appoint a person, who is of good repute and is an expert in the area relevant to the Dispute, to perform the following functions, which the Parties authorise the person to do: (a) act as an independent consultant for the purpose of resolving the Dispute, as an expert and not as an arbitrator; (b) establish the procedures for identifying the issues relating to the Dispute and the contentions of the Parties, in accordance with considerations of procedural fairness; (c) make a written, reasoned decision to resolve the Dispute; and (d) decide how the independent consultant's fees should be paid by the Parties. If the Parties cannot agree, within the 5 Business Day period referred in this subclause, on the appointment of an independent consultant, the Parties must request the Secretary General of the Australian Commercial Disputes Centre Limited to appoint that person. 28.6 A decision by the independent consultant under clause 28.5 shall be final and binding on the Parties. However, a Party is entitled to take court proceedings to appeal that decision on a question of law. 28.7 If, by the expiry of the period of 5 Business Days specified in clause 28.5: (a) the Dispute has not been resolved; (b) no process has been agreed under clause 28.4; and (c) no request has been made under clause 28.5, then a Party that has complied with clauses 28.2 to 28.4 may terminate the dispute 42. resolution process by giving notice to the other Parties, whereupon clause 28.1 shall no longer operate in relation to the Dispute. 28.8 Each Party: (a) must keep confidential all confidential information and confidential communications made by a Representative under this clause; and (b) must not use or disclose that confidential information or those confidential communications except to attempt to resolve the Dispute, but nothing in this sub-clause shall affect the admissibility into evidence in any court or arbitral proceedings of extrinsic evidence of facts which, but for this sub-clause, would be admissible in evidence. 28.9 Each Party must bear its own costs of resolving a Dispute under this clause 28. 28.10 If a Party does not comply with any provision of clauses 28.2 to 28.4 or, if applicable, clause 28.5 and any procedural requirements established under clause 28.5(b) then the other Parties will not be bound by those sub-clauses in relation to the Dispute. 29. NOTICES 29.1 Requirements for Notices Every notice or other communication to be given or made under or arising from this Deed: (a) must be in writing; (b) must be signed by an Authorised Officer of the sender; (c) will be deemed to have been duly given or made to a person if delivered or posted by prepaid post to the address, or sent by fax to the fax number of that person set out in clause 29.2 (or to any other address or fax number as is notified in writing by that person to the other parties from time to time); and (d) will be deemed to be given or made (unless a later time is specified in the notice or communication): (i) (in the case of prepaid post being sent and received within Australia) on the third day after the date of posting as indicated by the postmark on the notice or communication; (ii) (in the case of prepaid post being sent or received outside Australia) on the fifth day after the date of posting as indicated by the postmark on the notice or communication; 43. (iii) (in the case of delivery by hand) on delivery, provided that where delivery is made: (A) after 5:00 pm on any Business Day in the city of the recipient of the notice or communication, then in such case at 9:00 am on the next following Business Day; (B) on a day which is not a Business Day in the city of the recipient of the notice or communication, then in such case at 9:00 am on the next following Business Day; (iv) (in the case of fax) on receipt of a transmission report which indicates that the facsimile was sent in its entirety to the facsimile number of the addressee. 29.2 Addresses of Parties The addresses and fax numbers of the parties for the purposes of this clause 29 are: Authority Address: Level 17, 309 Kent Street, Sydney, NSW, Australia, 2000 Fax No.: (02) 299 7427 Attention: Mr L Le Compte, Chief Executive Licensee Address: 3rd floor, 472 Pacific Highway, St. Leonards, Australia, 2065 Fax No.: (02) 925 6003 Attention: Mr G Nasky SHC Properties Address: 3rd floor, 472 Pacific Highway, St. Leonards, Australia, 2065 Fax No.: (02) 925 6003 Attention: Mr G Nasky SHC Holdings Address: 3rd floor, 472 Pacific Highway, St. Leonards, Australia, 2065 Fax No.: (02) 925 6003 Attention: Mr G Nasky Casino Manager Address: 3rd floor, 472 Pacific Highway, St. Leonards, Australia, 2065 Fax No.: (02) 925 6003 Attention: Mr G Nasky 44. SBA Address: 3rd floor, 472 Pacific Highway, St. Leonards, Australia, 2065 Fax No.: (02) 925 6003 Attention: Mr G Nasky LPPL Address: 3rd floor, 472 Pacific Highway, St. Leonards, Australia, 2065 Fax No.: (02) 925 6003 Attention: Mr V Vella SOC Address: 2800 Fremont Street, Las Vegas, Nevada 89104 USA Fax No.: 0015 1702 385 9678 Attention: Mr J K Houssels 29.3 Appointment of Local Agent SOC hereby appoints SBA as its agent for the service of any process in any proceedings commenced, or proposed to be commenced, in New South Wales and SBA hereby irrevocably consents to and accepts such appointment. 30. CONTINUING OBLIGATION This Deed constitutes a continuing obligation regardless of any settlement of account, intervening payment, express or implied revocation or any other matter or thing, until termination of this Deed in accordance with the provisions of this Deed. 31. FURTHER ASSURANCE Each Contracting Party will at the entire cost and expense of such party perform all such acts and execute all such agreements, assurances and other documents and instruments as the Authority reasonably requires to perfect or improve the rights and powers afforded, created or intended to be afforded or created, by this Deed. 32. SEVERABILITY All provisions and each and every part thereof contained in this Deed shall be severable and shall be so construed as not to infringe the law of Australia or the law of any Australian state or territory or of any other relevant jurisdiction. If any such provision on its true interpretation is found to infringe any such law, that provision shall be read down to such extent as may be necessary to ensure that it does not so infringe any such law and as may be reasonable in all the circumstances so as to give as full and as valid an operation as possible. In the event that the infringing provision cannot be so read down, it shall be deemed 45. void and severable and shall be deemed deleted from this Deed to the same extent and effect as if never incorporated herein and the parties shall negotiate with each other for the purpose of substituting an appropriate clause so far as is practicable in lieu of such deleted provision. It is the intention of the parties that if any provision of this Deed is logically and reasonably susceptible of two or more constructions, one of which would render the provision enforceable and the other or others of which would render the provision unenforceable, then the provision shall have the meaning which renders it enforceable. 33. WAIVER A failure to exercise or enforce, or a delay in exercising or enforcing, or the partial exercise or enforcement of any right, remedy, power or privilege under this Deed by the Authority will not in any way preclude or operate as a waiver of the exercise or enforcement of that right, remedy, power or privilege, or any further exercise or enforcement of it, or the exercise or enforcement of any other right, remedy, power or privilege under this Deed or provided by law. 34. CONSENTS AND APPROVALS Where under this Deed the consent or approval of the Authority is required to do any act or thing, then unless expressly provided otherwise in this Deed, that consent or approval may be given or withheld in the absolute and unfettered discretion of the Authority and may be given subject to such conditions as the Authority thinks fit in its absolute and unfettered discretion. 35. WRITTEN WAIVER, CONSENT AND APPROVAL Any waiver, consent or approval given by the Authority under this Deed will only be effective and will only bind the Authority if it is given in writing by an Authorised Officer, or given verbally and subsequently confirmed by the Authority in writing by an Authorised Officer. 36. NON-MERGER None of the terms or conditions of this Deed nor any act matter or thing done under or by virtue of or in connection with this Deed or any other agreement between the parties hereto shall operate as a merger of any of the rights and remedies of the parties in or under this Deed or in or under any such other agreement all of which shall continue in full force and effect. 37. REMEDIES CUMULATIVE The rights and remedies conferred by this Deed on the Authority are cumulative and in addition to all other rights or remedies available to the Authority by statute, by general law, or by virtue of any Transaction Document. 46. 38. OPINION BY AUTHORITY Any opinion to be formed by the Authority for the purposes of this Deed may be formed by the Authority on such grounds and material as it in its absolute discretion determines to be sufficient. In forming any such opinion the Authority shall be deemed to be exercising merely administrative functions. 39. NO DEDUCTION All payments by the Contracting Parties under this Deed will be free of any set-off or counterclaim and without deduction or withholding for any present or future Taxes unless the Contracting Parties are compelled by law to make any deduction or withholding and if this is the case, the Contracting Parties must pay to the Authority any additional amounts as are necessary to enable the Authority to receive, after all those deductions and withholdings, a net amount equal to the full amount which would otherwise have been payable had no deduction or withholding been required to be made. 40. SURVIVAL OF INDEMNITIES The indemnities contained in this Deed and associated provisions shall survive the termination of this Deed for the benefit of the parties respectively entitled hereto. 41. ATTORNEYS Each of the attorneys executing this Deed states that the attorney has no notice of the revocation of that attorney's power of attorney. 42. COUNTERPARTS This Deed may be executed in any number of counterparts and by the different parties on different counterparts, each of which constitutes an original of this Deed, and all of which together constitute one and the same instrument. 47. SCHEDULE 1 O & M Novation Agreements 1. The parties (apart from the SHC Group and the Authority) consent to the creation by SHC Group of the CCA Charge which includes a charge over the SHC Group's rights, title and interest, in under and to the O & M Agreement concerned and those parties acknowledge the right, title and interest of the Authority and the State in, under and to the O & M Agreement concerned under and by virtue of the provisions of the CCA Charge. 2. Each party (apart from the Authority) covenants with and undertakes to the Authority that it will be bound by section 32 of the Act as if it was the "casino operator" named in that section. 3. Like provisions as those contained herein in respect of the obligations of the S & A Providers to the Authority. 48. SCHEDULE 2 Institutional Investors 49. SCHEDULE 3 Covenants and Warranties by Contracting Parties 1. Capacity (a) (Legal Binding Obligation): This Deed constitutes a valid and legally binding obligation of, and is enforceable against, the Contracting Party in accordance with its terms subject to: (i) any statute of limitations; (ii) any laws of bankruptcy, insolvency, liquidation, reorganisation or other laws affecting creditors' rights generally; and (iii) any defences of set-off or counter claim other than those referred to in clause 39. (b) (Execution, Delivery and Performance): The execution and delivery of this Deed, and the performance of or compliance with its obligations under this Deed, by the Contracting Party does not violate any law or regulation or official directive or any document or agreement to which the Contracting Party is a party or which is binding upon it or any of its assets. (c) (Power): The Contracting Party has the power, and has taken all corporate and other action required, to enter into this Deed and to authorise the execution and delivery of this Deed and all instruments, documents and agreements to be executed and delivered in connection herewith, and to perform its obligations hereunder. (d) (No Consent Required): No authorisation, approval or consent is required in order for the Contracting Party to enter into and perform its obligations under and pursuant to this Deed. (e) (Constituent Documents): The execution, delivery and performance of this Deed does not violate the Memorandum and Articles of Association of the Contracting Party (or its Certificate of Incorporation, By-laws or other constituent documents in its jurisdiction of incorporation) or cause a limitation on its powers or cause the powers of its directors or officers to be exceeded and, if the Contracting Party is listed on the Australian Stock Exchange Limited or its subsidiaries or on any other stock exchange, does not violate the listing (or equivalent) requirements thereof. 2. Corporate Structure (a) (Due Incorporation): The Contracting Party is duly incorporated, is validly existing under the laws of the jurisdiction of its incorporation and has the corporate power to own its property and to carry on its business as it is now being conducted. (b) (Filings): The Contracting Party has filed all corporate notices and effected all 50. registrations with the Australian Securities Commission and, if Applicable, the Australian Stock Exchange Limited or with similar offices in its jurisdiction of incorporation and in any other jurisdiction as required by law and all such filings and registrations are current, complete and accurate. (c) (No Event of Insolvency): No Event of Insolvency has occurred, or to the knowledge of the Contracting Party could reasonably be expected to occur, in relation to the Contracting Party. (d) (No Trusts): The Contracting Party is not the trustee of any trust nor does it hold any property subject to or impressed by any trust other than the Casino Manager as nominee for the Showboat Leighton Partnership as evidenced by the Partnership Agreement. (e) (Commercial Benefit): The execution of this Deed is in the best commercial interests of the Contracting Party. (f) (Compliance with Constituent Documents): The Contracting Party will at all times comply with its Memorandum and Articles of Association (or its Certificate of Incorporation, By-laws or other constituent documents in its jurisdiction of incorporation) as amended from time to time. 3. Information (All information true): All information given at any time and every statement made at any time by the Contracting Party to the Authority or its employees, agents or consultants in connection with this Deed and any Transaction Document is and will be true in any material respect and is and will not by omission or otherwise be misleading in any material respect. 4. Litigation (a) (No Litigation): No litigation, arbitration, criminal or administrative proceedings are current, pending or, to the knowledge of the Contracting Party, threatened, which, if adversely determined, would or could have a material adverse effect on the business assets or financial condition of the Contracting Party. (b) (Future Litigation): The Contracting Party will immediately advise the Authority in writing of any litigation, arbitration, criminal (including any summons or other process in respect of an offence) or administrative (including any statutory notices) proceedings which, after the date of this Deed, are commenced or threatened by or against the Contracting Party and, if adversely determined, would or could have a material adverse effect on the business assets or financial condition of the Contracting Party. 5. Immunity from Jurisdiction The Contracting Party is not and will not be immune from the jurisdiction of a court or from any legal or arbitration process, whether through service of notice, judgment, attachment in aid of 51. execution or otherwise. 6. No Event of Default (a) (No Event of Default): No event has occurred which does, or which with the giving of notice, lapse of time, satisfaction of a condition or determination could, constitute an Event of Default. (b) (Notification): The Contracting Party will immediately notify the Authority in writing upon becoming aware of any event which does, or which with the giving of notice, lapse of time, satisfaction of a condition or determination could, constitute an Event of Default. 7. Authorities (a) (All Necessary Authorities): The Contracting Party has obtained or effected all authorizations, approvals (including any necessary approvals under the Foreign Acquisitions and Takeovers Act, 1975), consents, licences, permits, exemptions, filings, registrations, notifications and other requirements of any governmental, judicial or public authority or body which must be obtained in Australia and in the jurisdiction of its incorporation before the entry of the Contracting Party into, or performance of its obligations under, this Deed ("Authorities") and all such Authorities are in full force and effect and any conditions upon which the Authorities were given have been, and will continue to be, complied with. (b) (Future Authorities): The Contracting Party will obtain and maintain in full force and effect and comply with the conditions of all Authorities which are required after the date of this Deed in connection with the performance by the Contracting Party of its obligations under this Deed. (c) (No Transfer): The Contracting Party will not transfer, encumber or surrender any of the Authorities referred to in paragraphs (a) and (b) without the Authority's prior written approval. 8. Disciplinary or Investigatory Action (a) (No Disciplinary or Investigatory Action): The Contracting Party is not aware, in relation to itself or in the case of the Licensee any Close Associate, of any disciplinary or investigatory action (other than of a routine nature and not going to fitness as a casino operator or probity generally) being conducted or likely to be conducted anywhere in the world in relation to gaming activities or casino operations. (b) (Notice to be Given): The Contracting Party will immediately advise the Authority in writing if it becomes aware of, or becomes aware of any fact matter or circumstance which is likely to give rise to, any such disciplinary or investigatory action in relation to itself or in the case of the Licensee any Close Associate. 52. 9. Compliance with Legal Requirements The Contracting Party will at all times comply with the requirements of all applicable laws (including without limitation the Act), rules, regulations, orders and decrees of any administrative, governmental or quasi-governmental authority. 10. Rights of Authority The Contracting Party will not do anything in derogation of the rights of the Authority. 53. SCHEDULE 4 Covenants and Warranties by Licensee and Amino Manager 1. Corporate Structure (a) (Authority to approve Directors): The Licensee and the Casino Manager will obtain the prior written approval of any appointment of a director or alternate director of the Licensee or the Casino Manager. (b) (Authority can remove Directors): The Licensee and the Casino Manager will procure the vacation from office of any of their directors or alternate directors in accordance with any direction to that effect by the Authority. (c) (Authority to approve of Auditor): No person will be appointed as auditor of the Licensee or the Casino Manager unless that person's appointment as auditor has first been approved in writing by the Authority. (d) (Special Resolutions): The Licensee and the Casino Manager will deliver to the Authority not later than 7 days before the date of the relevant meeting a copy of any notice calling an extraordinary general meeting or proposing any special or extraordinary resolution of the Licensee or the Casino Manager. 2. Information (Information required by Authority): The Licensee and the Casino Manager will give to the Authority all such information as is necessary to ensure that the Authority is able to make an informed assessment of their assets and liabilities, profits and losses and prospects and otherwise all such information in connection with this Deed, the Licence and the Casino Complex as the Authority reasonably requires from time to time. 3. Gaming Licences (Advice of Revocation of Gaming Licence): The Licensee and the Casino Manager will immediately advise the Authority if the Licensee or the Casino Manager or in the case of the Licensee any of its Close Associates suffer any actual or threatened revocation, termination or suspension of any gaming licence or rights anywhere in the world or become aware of any fact, matter or circumstance which could lead to such revocation, termination or suspension. 4. Records All records of the businesses of the Licensee and the Casino Manager have been fully, properly and accurately kept and completed in accordance with all legal requirements and proper business practices and will continue to be so kept and completed and there are, and will in the future, be no material inaccuracies or discrepancies of any kind contained or reflected in any of them. 54. 5. Accounts (a) (Most Recent Accounts): The most recent accounts of the Licensee and the Casino Manager delivered to the Authority: (i) have been prepared in accordance with accounting principles and practices generally accepted in Australia; and (ii) give a true and fair view of the financial condition of the Licensee and the Casino Manager as at the date to which they relate and the results of the Licensee's and the Casino Manager's operations for the accounting period ended on that date and since that date there has been no material adverse change in the financial condition of the Licensee and the Casino Manager as shown in such accounts. (b) (Proper Books of Account): The Licensee and the Casino Manager will keep or cause to be kept proper books of account and will therein make true and perfect entries of all dealings and transactions now or in the future conducted by them including in respect of the businesses contemplated by or authorised under this Deed and the Licence, and shall keep the books of account, vouchers and other documents relating to their affairs and businesses at the Temporary Site or the Permanent Site, as the case may be, and shall procure that the same shall at all reasonable times be available for inspection and copying by the Authority or any employee, agent or professional adviser of the Authority as the Authority may from time to time appoint. (c) (Compliance with Accounting Standards): The Licensee and the Casino Manager will ensure that all balance sheets and profit and loss statements and other accounts prepared on their behalf are prepared in accordance with their Articles of Association, the Corporations Law, any applicable statute and all accounting principles and practices generally accepted in Australia consistently applied (or, if not consistently applied, accompanied by details of the inconsistencies) and give a true and fair view of their financial condition and the results of their operations as at the date and for the period ending on the date to which such accounts are prepared. (d) (Consolidated and Unconsolidated Accounts): The Licensee and the Casino Manager will ensure that if any balance sheet or profit and loss statement or other accounts furnished to the Authority discloses the consolidated financial condition and results of the operations of more than one corporation it is accompanied by an unconsolidated balance sheet and profit and loss statement for each such corporation that complies with all other requirements herein contained in relation to balance sheets and profit and loss statements generally. (e) (Notification of Authority): The Licensee and the Casino Manager will notify the Authority in writing of all material events or circumstances which could affect their profitability or the value of their assets or liabilities by more than 10%. 55. 6. Change of Control The Licensee and the Casino Manager will immediately advise the Authority of any material changes in their shareholding or the shareholding of any Related Body Corporate, including without limitation one or more persons acquiring or materially altering a substantial shareholding (as that term is defined in the Corporations Law). 7. Taxes (a) (File All Returns): The Licensee and the Casino Manager will file with the appropriate authorities within the time limited by law all income Tax, group Tax, sales Tax, land Tax and other returns for Taxes which the law requires them to furnish. (b) (Pay All Taxes): The Licensee and the Casino Manager will duly and punctually pay all Taxes now or in the future charged, chargeable or payable by them. (c) (Returns and Receipts): The Licensee and the Casino Manager will immediately on being required to do so by the Authority, provide the Authority with a copy of all the returns, assessments for Taxes and receipts for the payment of Taxes which it lodges with and receives from any government authority. 56. SCHEDULE 5 Covenants and Warranties by Licensee (General) 1. Corporate Structure (a) (Disposal of Shares held by Close Associates): Where so required by the Authority, the Licensee will, in accordance with the procedures set out in its articles of association, enforce the disposal of shares in itself held by any person who, in the opinion of the Authority, is a close associate of the Licensee within the meaning of section 13 of the Act and is not a suitable person to be concerned in or associated with the operation or management of a casino having regard to whether: (i) the person is of good repute, having regard to character, honesty and integrity; or (ii) the person has any business association with a person, body or association who, in the opinion of the Authority, is not of good repute having regard to character, honesty and integrity; or (iii) each director, partner, trustee, executive officer and secretary and any other officer or person determined by the Authority to be associated or connected with the ownership, administration or management of the operations or business of the person is a suitable person to act in that capacity. (b) (Disposal of Shares): Where so required by the Authority, the Licensee will, in accordance with the procedures set out in its Articles of Association, enforce the disposal of shares held in it by any person other than SHC Holdings, where such person acquired those shares without the prior written consent of the Authority. (c) (Amendment of Constituent Documents): The Licensee will not amend its Memorandum and Articles of Association without the prior written approval of the Authority. (d) (Issues and Transfers of Shares): Within 14 days of the end of each month after the date of this Deed, the Licensee will provide to the Authority details of all shares issued by the Licensee or transfers of shares registered by the Licensee during the previous month. (e) (Disclosure of Beneficial Interest): If so requested by the Authority, the Licensee will procure and supply to the Authority a statutory declaration by any person registered as the holder of any shares in the Licensee setting out the name and address of any person entitled to the same and full particulars of that entitlement; (f) Not used 57. (g) (Subsidiaries): The Licensee will not, without the prior written approval of the Authority, establish or acquire a subsidiary (as that term is defined in the Corporations Law) unless it relates to a business incidental to or complementary with the businesses contemplated by or authorised under this Deed and the Licence. (h) (Business): The Licensee will not, without the prior written approval of the Authority, carry on or conduct any business other than the businesses contemplated by or authorised under this Deed and the Licence or any business incidental to or complementary with those businesses. (i) (Reports to Members etc.): The Licensee will deliver to the Authority, at the time of their issue, a copy of all reports, accounts, notices and circulars issued by the Licensee to any of its members, to the Australian Stock Exchange Limited or any of its subsidiaries, to any other stock exchange or to the Australian Securities Commission. (j) (Change of name): The Licensee will not change its corporate or business name without the prior written approval of the Authority. (k) (Change of financial year): The Licensee will not change the date of commencement of its financial year without the prior written approval of the Authority. (l) Not used (m) (Interpretation): For the purposes of paragraphs (a)-(l) above: (i) "share" or "shares" includes, as the context requires, any other class of voting security (as defined in section 92 of the Corporations Law) issued by the Licensee; (ii) a reference to a person being entitled to shares has the same meaning as a reference in Part 6.7 of the Corporations Law to a person being entitled to voting shares in a company, and that person's entitlement will be calculated in the manner prescribed for calculation of substantial shareholdings in Part 6.7 of the Corporations Law as if that Part applied; (iii) no person shall be entitled to any shares by reason solely of that person being a member or a shareholder of a Founding Shareholder. 2. Not used 3. Employees (a) The Licensee will ensure that the Casino Complex is at all times adequately staffed by sufficient numbers of employees licensed under the Act and, insofar as an employer is able to control and discipline staff, will ensure that such employees comply with the Act, the regulations made thereunder and any conditions upon which any employee's licence is granted. 58. (b) Each of the Licensee and the Casino Manager covenant and undertake that it will not execute any employment contract or any contract for services which is inconsistent with the Act, and in particular, either of section 47(6) or section 61(3) of the Act. (c) Each of the Licensee and the Casino shall provide certified copies of any employment contract or any contract for services which is requested by the Authority. 4. Intellectual Property The Licensee will maintain and renew all its present and future trade marks and other intellectual property. 59. SCHEDULE 6 Not used 60. SCHEDULE 7 Covenants and Warranties by SHC Holdings 1. (5% Cap): Except in the case of the Founding Shareholders, SHC Holdings will not without the prior written consent of the Authority knowingly permit a person, or, upon becoming aware of a person being entitled, allow a person to continue, to be entitled to a number of shares in SHC Holdings which exceeds 5% of the total number of shares in SHC Holdings on issue at any time. 2. (Institutional Investors Cap): SHC Holdings will not without the prior written consent of the Authority knowingly permit any Institutional Investor, or upon becoming aware of an Institutional Investor being entitled, allow that Institutional Investor to continue, to be entitled to a number of shares in SHC Holdings which exceeds 10% of the total number of shares in SHC Holdings on issue at any time. 3. (Disposals by SHC Holdings): SHC Holdings will not dispose of any of its interest in any shares in the Licensee or any of its interest in any shares in SHC Properties without the prior written consent of the Authority, or except as permitted by the Continuity and Co-operation Agreement. 4. (Disposal of Shares held by Close Associates): Where so required by the Authority, SHC Holdings will, in accordance with the procedures set out in its Articles of Association, enforce the disposal of shares in itself held by any person who, in the opinion of the Authority, is a close associate of the Licensee within the meaning of section 13 of the Act and is not a suitable person to be concerned in or associated with the operation or management of a casino having regard to whether: (i) the person is of good repute, having regard to character, honesty and integrity; or (ii) the person has any business association with a person, body or association who, in the opinion of the Authority, is not of good repute having regard to character, honesty and integrity; or (iii) each director, partner, trustee, executive officer and secretary and any other officer or person determined by the Authority to be associated or connected with the ownership, administration or management of the operations or business of the person is a suitable person to act in that capacity; 5. (Disposal of Excess Shares): Where so required by the Authority, SHC Holdings will, in accordance with the procedures set out in its Articles of Association, enforce the disposal of shares in itself held by any person which exceed the number of shares which that person is permitted to be entitled to under paragraphs 1 and 2 above. 61. 6. (Authority to approve Directors): SHC Holdings will obtain the prior written approval of the Authority to any appointment of a director or alternate director of SHC Holdings. 7. (Authority can remove Directors): SHC Holdings will procure the vacation from office of any director or alternate director of SHC Holdings in accordance with any direction to that effect by the Authority. 8. (Amendment of Constituent Documents): SHC Holdings will not amend its Memorandum and Articles of Association without the prior written approval of the Authority. 9. (Authority to approve of Auditor): No person will be appointed as auditor of SHC Holdings unless that person's appointment as auditor has first been approved in writing by the Authority. 10. (Issues and Transfers of Shares): SHC Holdings will provide to the Authority within 14 days of the end of each month details of all shares issued by SHC Holdings or share transfers registered by SHC Holdings during the previous month. 11. (Disclosure of Beneficial Interests): If so requested by the Authority, SHC Holdings will procure and supply to the Authority a statutory declaration by any person registered as the holder of any shares in SHC Holdings setting out the name and address of any person entitled to same and full particulars of that entitlement. 12. Not used 13. (Subsidiaries): SHC Holdings will not, without the prior written approval of the Authority, establish or acquire a subsidiary (as that term is defined in the Corporations Law) (other than the Licensee and SHC Properties) unless it relates to a business incidental to or complementary with the businesses contemplated by or authorised under this Deed. 14. (Business): SHC Holdings will not, without the prior written approval of the Authority, carry on or conduct any business other than the businesses contemplated by or authorised under this Deed or any business incidental to or complementary with those businesses. 15. (Reports to Members etc.): SHC Holdings will deliver to the Authority, at the time of their issue, a copy of all reports, accounts, notices and circulars issued by SHC Holdings to any of its members, to the Australian Stock Exchange Limited or any of its subsidiaries, to any other stock exchange or to the Australian Securities Commission. 16. (Change of name): SHC Holdings will not change its corporate or business name without the prior written approval of the Authority. 62. 17. (Change of financial year): SHC Holdings will not change the date of commencement of its financial year without the prior written approval of the Authority. 18. (financial ratios) : At all times during the term of the Facility Agreement (as that term is defined in the Compliance Deed) (facility Agreement.) and for the duration of any other secured external indebtedness of SHC Holdings, SHC Holdings shall ensure that the ratios referred to in clause 14.5(c) and 14.5(d) of the Facility Agreement are maintained in compliance with the levels set out in those clauses. 19. (Founding Shareholders' Shareholdings): The total number of shares and other classes of voting securities as defined in section 92 of the Corporations Law (.Shares.) held by the Founding Shareholders at any time until the completion of the Casino Complex at the Permanent Site will be: (a) in the case of LPPL, 25,000,000 ordinary shares of $1.00 each and options over unissued ordinary shares equivalent to 7% of the fully diluted total issued capital of SHC Holdings; and (b) in the case of SBA, 135,000,000 ordinary shares of $1.00 each and options over unissued ordinary shares equivalent to 7% of the fully diluted total issued capital of SHC Holdings. 20. (Issues of New Shares): Except for: (i) Shares or options in SHC Holdings issued to employees of SHC Holdings or any of its permitted subsidiaries (not exceeding 5 % of the fully diluted total issued capital of SHC Holdings or any of its permitted subsidiaries); (ii) Options to be issued to the Founding Shareholders under the Founding Shareholders Subscription Agreement and not exceeding 14% of the fully diluted total issued capital of SHC Holdings; (iii) Unsecured debt securities issued in the ordinary course of business of SHC Holdings which do not materially increase the total indebtedness of SHC Holdings; (iv) Options issued to Commonwealth Bank of Australia over that number of unissued ordinary shares in the capital of the Company as is equivalent to 5% of that number of preferred ordinary shares in the capital of SHC Holdings to be issued to Institutional Investors; and (v) Options over unissued preferred ordinary shares equivalent in total to 3% of the total issued capital of SHC Holdings together with options over unissued ordinary shares equivalent to 1% of the total issued capital of SHC Holdings such options having been issued to the said Nicholson Holdings Limited and Marth Enterprises Limited. SHC Holdings will not issue any Shares of a class other than the Shares issued as at the date of this Deed without the prior written approval of the Authority. 21. (Maximum Issues of Shares): Except for issues to holders of Shares pro-rata to their 63. existing holding and issues of Shares to the Founding Shareholders, SHC Holdings will not in any given 12 month period issue, or announce the issue of, Shares totalling more than 10% of the total number of Shares on issue at the commencement of that 12 month period without the prior written approval of the Authority. 22. (Interpretation): For the purpose of clauses 1-21 of this Schedule 7 above: (a) "share" or "shares" includes, as the context requires, any other class of voting security (as defined in section 92 of the Corporations Law) issued by SHC Holdings; (b) (i) a reference to a person being entitled to shares has the same meaning as a reference in Part 6.7 of the Corporations Law to a person being entitled to voting shares in a company, and that person's entitlement will be calculated in the manner prescribed for calculation of substantial shareholdings in Part 6.7 of the Corporations Law as if that Part applied; (ii) no person shall be entitled to any shares by reason solely of that person being a member or shareholder of a Founding Shareholder; (c) "dispose of" includes sell, transfer, assign, alienate, surrender, dispose of, deposit, part with possession of and enter into any agreement or arrangement to do or allow any of these things. 64. SCHEDULE 8 Covenants and Warranties by SHC Properties 1. (Disposal of Shares held by Close Associates): Where so required by the Authority, SHC Properties will, in accordance with the procedures set out in its Articles of Association, enforce the disposal of shares in itself held by any person who, in the opinion of the Authority, is a close associate of the Licensee within the meaning of section 13 of the Act and is not a suitable person to be concerned in or associated with the operation or management of a casino having regard to whether: (i) the person is of good repute, having regard to character, honesty and integrity; or (ii) the person has any business association with a person, body or association who, in the opinion of the Authority, is not of good repute having regard to character, honesty and integrity; or (iii) each director, partner, trustee, executive officer and secretary and any other officer or person determined by the Authority to be associated or connected with the ownership, administration or management of the operations or business of the person is a suitable person to act in that capacity. 2. (Disposal of Excess Shares): Where so required by the Authority, SHC Properties will, in accordance with the procedures set out in its Articles of Association, enforce the disposal of shares held in it by any person other than SHC Holdings, where such person acquired those shares without the prior written consent of the Authority. 3. (Authority to approve Directors): SHC Properties will obtain the prior written approval of the Authority to any appointment of a director or alternate director of that SHC Properties. 4. (Authority can remove Directors): SHC Properties will procure the vacation from office of any director or alternate director of SHC Properties in accordance with any direction to that effect by the Authority. 5. (Amendment of Constituent Documents): SHC Properties will not amend its Memorandum and Articles of Association without the prior written approval of the Authority. 6. (Authority to approve auditor): No person will be appointed as auditor of SHC Properties unless that person's appointment as auditor has first been approved in writing by the Authority. 7. (Issues and Transfers of Shares): SHC Properties will provide to the Authority within 65. 14 days of the end of each month details of all shares issued by SHC Properties or share transfers registered by SHC Properties during the previous month. 8. (Disclosure of Beneficial Interests): If so requested by the Authority, SHC Properties will procure and supply to the Authority from a member of SHC Properties a statutory declaration by any person registered as the holder of any shares in SHC Properties setting out the name and address of any person entitled to the same and full particulars of that entitlement. 9. Not used 10. (Subsidiaries): SHC Properties will not, without the prior written approval of the Authority, establish or acquire a subsidiary (as that term is defined in the Corporations Law) unless it relates to a business incidental to or complementary with the businesses contemplated by or authorised under this Deed. 11. (Business): SHC Properties will not, without the prior written approval of the Authority, carry on or conduct any business other than the businesses contemplated by or authorised under this Deed or any business incidental to or complementary with those businesses. 12. (Reports to Members etc.): SHC Properties will deliver to the Authority, at the time of their issue, a copy of all reports, accounts, notices and circulars issued by the Licensee to any of its members, to the Australian Stock Exchange Limited or any of its subsidiaries, to any other stock exchange, to the Australian Securities Commission. 13. (Change of name): SHC Properties will not change its corporate or business name without the prior written approval of the Authority. 14. (Change of financial year): SHC Properties will not change the date of commencement of its financial year without the prior written approval of the Authority. 15. Not used 16. (Interpretation): For the purposes of clause 1-15 of this Schedule 8 above: (a) "share" or "shares" includes, as the context requires, any other class of voting security (as defined in section 92 of the Corporations Law) issued by an SHC Properties; and (b) (i) a reference to a person being entitled to shares has the same meaning as a reference in Part 6.7 of the Corporations Law to a person being entitled to voting shares in a company, and that person's entitlement will be calculated in the manner prescribed for calculation of substantial shareholdings in Part 6.7 of the Corporations Law as if that Part applied; 66. (ii) no person shall be entitled to any shares by reason solely of that person being a member or shareholder of a Founding Shareholder; (c) "dispose of" includes sell, transfer, assign, alienate, surrender, dispose of, deposit, part with possession of and enter into any agreement or arrangement to do or allow any of these things. 67. SCHEDULE 9 Covenants and Warranties by the Casino Manager 1. (5% Cap): Except in the case of the Founding Shareholders, the Casino Manager will not without the prior written consent of the Authority knowingly permit a person, or, upon becoming aware of a person being entitled, allow a person to continue, to be entitled to a number of shares in the Casino Manager which exceeds 5 % of the total number of shares in the Casino Manager on issue at any time. 2. (Disposal of Shares held by Close Associates): Where so required by the Authority, the Casino Manager will, in accordance with the procedures set out in its Articles of Association, enforce the disposal of shares in itself held by any person who, in the opinion of the Authority, is a close associate of the Licensee within the meaning of section 13 of the Act and is not a suitable person to be concerned in or associated with the operation or management of a casino having regard to whether: (i) the person is of good repute, having regard to character, honesty and integrity; or (ii) the person has any business association with a person, body or association who, in the opinion of the Authority, is not of good repute having regard to character, honesty and integrity; or (iii) each director, partner, trustee, executive officer and secretary and any other officer or person determined by the Authority to be associated or connected with the ownership, administration or management of the operations or business of the person is a suitable person to act in that capacity; 3. (Disposal of Excess Shares): Where so required by the Authority, the Casino Manager will, in accordance with the procedures set out in its Articles of Association, enforce the disposal of shares in itself held by any person which exceed the number of shares which that person is permitted to be entitled to under paragraph I above. 4. (Amendment of Constituent Documents): The Casino Manager will not amend its Memorandum and Articles of Association without the prior written approval of the Authority. 5. (Issues and Transfers of Shares): The Casino Manager will provide to the Authority within 14 days of the end of each month details of all shares issued by the Casino Manager or share transfers registered by the Casino Manager during the previous month. 68. 6. (Disclosure of Beneficial Interests): If so requested by the Authority, the Casino Manager will procure and supply to the Authority a statutory declaration by any person registered as the holder of any shares in the Casino Manager setting out the name and address of any person entitled to same and full particulars of that entitlement. 7. Not used 8. (Subsidiaries): The Casino Manager will not, without the prior written approval of the Authority, establish or acquire a subsidiary (as that term is defined in the Corporations Law) unless it relates to a business incidental to or complementary with the businesses contemplated by or authorised under this Deed. 9. (Business): The Casino Manager will not, without the prior written approval of the Authority, carry on or conduct any business other than the businesses contemplated by or authorised under this Deed or any business incidental to or complementary with those businesses. 10. (Reports to Members etc.): The Casino Manager will deliver to the Authority, at the time of their issue, a copy of all reports, accounts, notices and circulars issued by the Casino Manager to any of its members, to the Australian Stock Exchange Limited or any of its subsidiaries, to any other stock exchange or to the Australian Securities Commission. 11. (Change of name): The Casino Manager will not change its corporate or business name without the prior written approval of the Authority. 12. (Change of financial year): The Casino Manager will not change the date of commencement of its financial year without the prior written approval of the Authority. 13. (Interpretation): For the purpose of clauses 1-12 of this Schedule 9 above: (a) "share" or "shares" includes, as the context requires, any other class of voting security (as defined in section 92 of the Corporations Law) issued by the Casino Manager; (b) (i) a reference to a person being entitled to shares has the same meaning as a reference in Part 6.7 of the Corporations Law to a person being entitled to voting shares in a company, and that person's entitlement will be calculated in the manner prescribed for calculation of substantial shareholdings in Part 6.7 of the Corporations Law as if that Part applied; (ii) no person shall be entitled to any shares by reason solely of that person being a member or shareholder of 69. a Founding Shareholder; (c) "dispose of" includes sell, transfer, assign, alienate, surrender, dispose of, deposit, part with possession of and enter into any agreement or arrangement to do or allow any of these things. 70. SCHEDULE 10 No Competition Restraint (Clause 11.1) PART A 1. Be entitled to any shares (which includes any other class of voting security as defined in section 92 of the Corporations Law) in any person who is, or has an interest in (including by way of any agreement, arrangement or understanding), a licensee, operator, or manager of a casino in any state or territory of the Commonwealth of Australia other than the State of New South Wales. For the purposes of this clause, a reference to a person being entitled to shares has the same meaning as a reference in Part 6.7 of the Corporations Law to being entitled to voting shares in a company, and an entitlement will be calculated in the manner prescribed for calculation of substantial shareholdings in Part 6.7 of the Corporations Law as if that Part applied. 2. Have any financial or economic interest in any person who is, or has an interest in (including by way of any agreement, arrangement or understanding), a licensee, operator or manager of a casino in any state or territory of the Commonwealth of Australia other than the State of New South Wales. 3. Undertake, participate or be involved in (including by way of any agreement arrangement or understanding) the management or operation of a casino in any state or territory of the Commonwealth of Australia other than the State of New South Wales. PART B For the duration of the Exclusivity Period (as that term is defined in the Casino Exclusivity Agreement, being the agreement so entitled between the Authority and the Licensee entered into on or around the date of this Deed). 71. SCHEDULE 11 Objective Standards (Clause 12.1(b)(ii)) Satisfactory scoring from an appropriately designed and implemented consumer service audit conducted at least 12 monthly at the expense of the Licensee. It is envisaged that the service audit shall embrace every element of the operations including but not limited to gaming, cashiering, security, visitor and player relations. Further the service audit should be designed jointly by the Licensee and the Casino Manager and a recognised and agreed casino operations expert from a major consulting, market research or accounting firm (whichever is the most appropriate in the circumstances) and the audit should provide a numeric scoring system such that the report by the expert can identify to the Authority that the operations meet or fail to meet the standards and that the areas of failure can be identified for appropriate and timely remedy by the Licensee and the Casino Manager. 72. EXECUTED as a deed. THE COMMON SEAL of ) NEW SOUTH WALES CASINO ) ......................... CONTROL AUTHORITY was duly affixed ) Lindsay le Compte hereto in accordance with section ) Chief Executive, 152 of the Casino Control Act ) New South Wales Casino 1992 (NSW) by and in the ) Control Authority presence of the Chief Executive: ) SIGNED SEALED AND DELIVERED for ) and on behalf of ) ......................... SYDNEY HARBOUR CASINO PTY. ) (Signature) LIMITED, ACN 060 510 410 by ) its Attorney under a Power of ) Attorney dated and registered Book ) No. and who declares that he ) has not received any notice of the ) revocation of such Power of ) Attorney in the presence of: ) .................................... (Signature of Witness) .................................... (Name of Witness in Full) 73. SIGNED SEALED AND DELIVERED for ) and on behalf of ).......................... SYDNEY HARBOUR CASINO ) (Signature) PROPERTIES PTY. LIMITED, ACN 050 ) 045 120 by its Attorney ) under a Power of Attorney dated ) and registered Book No. and ) who declares that he has not ) received any notice of the ) revocation of such Power of ) Attorney in the presence of: ) .................................. (Signature of Witness) .................................. (Name of Witness in Full) SIGNED SEALED AND DELIVERED for ) and on behalf of ) ........................ SYDNEY HARBOUR CASINO ) (Signature) HOLDINGS LIMITED, ACN 064 054 431) by its Attorney under a ) Power of Attorney dated and ) registered Book No. and who ) declares that he has not ) received any notice of the ) revocation of such Power of ) Attorney in the presence of: ) ................................. (Signature of Witness) ................................. (Name of Witness in Full) 74. SIGNED SEALED AND DELIVERED for ) and on behalf of ).................... SHOWBOAT AUSTRALIA PTY. ) (Signature) LIMITED, ACN 061 299 625 by ) its Attorney under a Power of ) Attorney dated and registered ) Book No. and who declares ) that he has not received any ) notice of the revocation of ) such Power of Attorney in the ) presence of: ) ................................. (Signature of Witness) ................................. (Name of Witness in Full) SIGNED SEALED AND DELIVERED for ) and on behalf of )..................... SYDNEY CASINO MANAGEMENT PTY. ) (Signature) LIMITED, ACN 060 462 053 by ) its Attorney under a Power of ) Attorney dated and registered ) Book No. and who declares that ) he has not received any notice ) of the revocation of such Power ) of Attorney in the presence of: ) ................................. (Signature of Witness) ................................. (Name of Witness in Full) 75. SIGNED SEALED AND DELIVERED for ) and on behalf of )........................... LEIGHTON PROPERTIES PTY. ) (Signature) LIMITED, ACN 001 046 395 by ) its Attorney under a Power of ) Attorney dated and registered ) Book No. and who declares that ) he has not received any notice ) of the revocation of such Power ) of Attorney in the presence of: ) ................................. (Signature of Witness) ................................. (Name of Witness in Full) SIGNED SEALED AND DELIVERED for ) and on behalf of ).......................... SHOWBOAT OPERATING COMPANY by ) (Signature) its Attorney under a Power ) of Attorney dated and registered) Book No. and who declares ) that he has not received any ) notice of the revocation of ) such Power of Attorney in the ) presence of: ) ..................................................... (Signature of Witness) ..................................................... (Name of Witness in Full) 76. LIST OF EXHIBITS EXHIBIT 1 Administrative Services Agreement EXHIBIT 2 Assignment Deed EXHIBIT 3 Casino Complex Management Agreement EXHIBIT 4 COA Lease Terms EXHIBIT 5 Development and Licensibility Agreement EXHIBIT 6 Not used EXHIBIT 7 Management Support Agreement EXHIBIT 8 Not used EXHIBIT 9 Occupation Licence Agreement (Temporary) EXHIBIT 10 Partnership Agreement SYDNEY HARBOUR CASINO PROPERTIES PTY LIMITED (ACN 050 045 120) AND SYDNEY HARBOUR CASINO PTY LIMITED (ACN 060 510 410) ("Owner") SHOWBOAT AUSTRALIA PTY LIMITED (ACN 061 299 625) and LEIGHTON PROPERTIES PTY LIMITED (ACN 001 046 395) ("THE SHOWBOAT LEIGHTON PARTNERSHIP") SYDNEY CASINO MANAGEMENT PTY LIMITED (ACN060 462 053) ("Casino Manager") CASINO COMPLEX MANAGEMENT AGREEMENT NORTON SMITH & CO Solicitors 20 Martin Place SYDNEY NSW 2000 DX 119 SYDNEY Ph.: 930 7500 Ref: PMD/940477 Table of Contents No. Title Page 1 Definitions and Interpretation 2 2 Construction of Complex and Installations by Owner 12 3 Pre-Opening Services by Casino Manager 12 4 Opening Dates 14 5 Operating Term of Agreement 15 6 Management of the Complex during Operating Term 15 7 Casino Manager to Act Solely as Agent of Owner 18 8 Owner to bear all Operating Expenses 19 9 Marketing 20 10 Working Capital and Bank Accounts 20 11 Books, Records and Statements 21 12 Casino Manager's Management Fee 23 13 Reserve for Replacements, Substitutions and Additions to Furniture and Equipment and Non-Structural Improvements 24 14 Repairs and Maintenance and Capital Improvements 25 15 Casino 26 16 Insurance 27 17 Owner to pay Real and Personal Property Taxes 30 18 Name 31 19 Damage or Destruction - Condemnation 31 20 Title to Complex 33 21 Termination 34 22 Notices 36 23 Governing Law 38 24 Consent 38 25 Owner's Right of Sale 38 26 Assignment 40 27 Liability of Owner and Casino Manager 41 28 Partial Invalidity 42 29 Special Conditions 42 30 Currency 43 31 Owner's Sole Business 45 32 Miscellaneous 45 33 Entire Agreement 47 34 Dispute Resolution 47 THIS CASINO COMPLEX MANAGEMENT AGREEMENT is dated 21/4/1994. BETWEEN SYDNEY HARBOUR CASINO PROPERTIES PTY LIMITED (ACN 050 045 120) a company incorporated in the State of New South Wales and having its registered office at Level 3, 472 Pacific Highway, St Leonards New South Wales ("SHCP"); and SYDNEY HARBOUR CASINO PTY LIMITED (ACN 060 510 410) a company incorporated in the State of New South Wales and having its registered office at Level 3, 472 Pacific Highway, St Leonards, New South Wales ("SHC") (SHCP AND SHC COLLECTIVELY REFERRED TO AS "OWNER") AND: SHOWBOAT AUSTRALIA PTY LIMITED (ACN 061 299 625) a company incorporated in the State of New South Wales and having its registered office at Level 3, 472 Pacific Highway, St Leonards, New South Wales ("SAL"); and LEIGHTON PROPERTIES PTY LIMITED (ACN 001 046 395) a company incorporated in the State of New South Wales, and having its registered office at Level 3, 472 Pacific Highway, St. Leonards, New South Wales ("Leighton") (THE SHOWBOAT LEIGHTON PARTNERSHIP) AND SYDNEY CASINO MANAGEMENT PTY LIMITED (ACN 060 462 053) a company incorporated in the State of New South Wales, having its registered office at Level 3, 472 Pacific Highway, St Leonards, New South Wales, Sydney ("Casino Manager") RECITALS: A. SHCP is or will be entitled on the First Opening Date to be the sub-lessee of the site of the Temporary Casino and on the Second Opening Date to be the lessee of the Permanent Site on which SHCP is constructing an international standard casino complex in accordance with the plans and specifications forming part of the Transaction Documents, which complex is to be known as Sydney Harbour Casino. B. SHC is or will be entitled on the dates referred to in Recital A to be the licensee of the sites of the Temporary Casino and the Permanent Casino pursuant to license agreements with SHCP and on those same dates will be the licensee under the License. C. SHCP and SHC are both wholly owned subsidiaries of Sydney Harbour Casino Holdings Limited ACN 064 054 431 ("SHC Holdings"). D. SAL is a subsidiary of Showboat Inc. which is experienced in the planning, decorating, furnishing, equipping and promoting, as well as the ownership, management and operation, through subsidiary companies, of casinos and associated hotels and resorts in the United States of America. E. Leighton is a wholly owned subsidiary of Leighton Holdings Limited ACN 004 482 982("Leighton Holdings"). -2- F. SAL has entered into a partnership agreement with Leighton ("the Showboat Leighton Partnership") whereunder SAL and Leighton are to provide services to Owner in relation to the Casino Complex through the nominee company of the Showboat Leighton Partnership. G. The Casino Manager is the nominee company of the Showboat Leighton Partnership. H. Owner wants the Showboat Leighton Partnership through the Casino Manager to provide and the Showboat Leighton Partnership wants to provide services in relation to planning, decorating, furnishing, managing and equipping of the Casino Complex through the Casino Manager I. Owner wishes to obtain the benefits of Showboat's and Leighton's expertise in the foregoing areas by turning over to the Showboat Leighton Partnership through their nominee, the Casino Manager, control and discretion in the operation, direction, management and supervision of the Casino Complex on terms that will reserve to Owner such powers and rights as shall enable it to fully comply with its obligations under the Act and on terms that Owner will have the obligations and powers with respect to such operation, direction management and supervision, as herein provided, and the Showboat Leighton Partnership through the Casino Manager for a fee, agrees to assume such control and discretion. OPERATIVE PROVISIONS: 1. DEFINITIONS AND INTERPRETATION 1.1 Definitions In this Agreement including the Recitals and any Schedules unless the subject or context otherwise indicates the following terms shall have the meanings respectively assigned to them: "ACCOUNTING PERIOD" means a month or period of not less than two nor more than seven full weeks as determined by Casino Manager in order to comply with the terms of the Licence and all Transaction Documents. "ACT" means the Casino Control Act 1992 (New South Wales). "AGENCY ACCOUNTS" means the Casino Agency Accounts in the name of SHC. "AGREEMENT" means this Casino Complex Management Agreement of even date entered into by the Owner, the Showboat Leighton Partnership and Casino Manager. "ASSOCIATE" has the meaning given in Division 2 of Part 1.2 of the Australian Corporations Law. "AUTHORITY" means the New South Wales Casino Control Authority. -3- "BUILDING AND APPURTENANCES" means in relation to: (a) the Temporary Casino, the casino and other facilities on the Temporary Premises; and (b) in relation to the Casino Complex, the Casino, food and beverage outlets, entertainment facilities and hotel on the Permanent Site; together with, in each instance, all installations including, without limitation, heating, lighting, sanitary equipment, air-conditioning, laundry, refrigerating, built-in kitchen equipment and elevators and escalators where relevant. "BUSINESS DAY" means any day other than Saturday, Sunday or public holiday recognised in Sydney and generally throughout the State of New South Wales. "CASINO" has the meaning given to that term in the Act. "CASINO AGENCY ACCOUNTS" means the accounts opened in the name of the Owner by the bank selected by Owner and approved by Casino Manager referred to in Clause 10. "CASINO BANKROLL" shall mean an amount reasonably determined by Casino Manager as funding required to bankroll Casino Gaming Activities with such amount being established by the Casino Manager in consultation with the Owner and adjusted periodically as necessary. In no event shall such Casino Bankroll include amounts necessary to cover Operating Expenses or Working Capital. Casino Bankroll shall include the funds located on the casino tables, in the gaming devices, cages, vault, counting rooms, or in any other location in the Casino where funds may be found and funds in a bank account identified by Owner for any additional amount required by the Act or such other amount as is reasonably determined by Casino Manager. "CASINO COMPLEX" means the Casino and all facilities ancillary to or connected with the Casino including a hotel, restaurants, retail facilities, entertainment facilities, carparks, residential and office accommodation, staff facilities, staff car parking, coach storage facilities, open space areas erected on the Permanent Site and unless otherwise stated includes the Temporary Casino erected on the Temporary Site and for the purposes of this Agreement comprises the Permanent Site (and whilst relevant, the Temporary Site ) the Building and Appurtenances, all Furniture and Equipment and all Operating Equipment and Operating Supplies. "CASINO COMPLEX GROSS OPERATING PROFIT" means the excess of Total Revenue over Operating Expenses after deducting Casino Operating Expenses from Operating Expenses. "CASINO GAMING ACTIVITIES" shall include but not be limited to table games, slot machines, video machines, Keno and other forms of gaming managed by Casino Manager in the Casino. -4- "CASINO GROSS OPERATING PROFIT" means the excess of Casino Revenue over Casino Operating Expenses. "CASINO MANAGER" means Sydney Casino Management Pty Limited ACN 060 462 053 in the capacity of nominee of the Showboat Leighton Partnership. "CASINO OPERATING EXPENSES" means: (a) All Operating Expenses directly attributable to maintaining conducting and supervising the operation of the Casino including the community benefits levy, state casino duties, such direct expenses for Casinos as are included in the Uniform System, the management fee provided for in Clause 12.1(a) but excluding the management fee provided for in Clause 12.1(b). Wherever possible and practical, all services and utilities for the Casino shall be separately metered or invoiced and the charges for such services and utilities shall be paid separately. When such services and utilities are so inter-related that separation in this way is not possible, the costs shall be accumulated and apportioned in accordance with the following paragraph. (b) Such proportion of those Operating Expenses which are so inter-related that specific allocation between the Casino and the remainder of the Complex is impracticable including without limitation those costs specified in the Uniform System described as Administrative and General, Property Operation and Maintenance, Marketing (including complimentaries and other charges to the Casino from the Casino Complex) and Energy as shall be apportioned between Operating Expenses and Casino Operating Expenses which in the case of marketing expenses shall be in the proportion which Total Revenue bears to Casino Revenue and which in the case of all other expenses referred to in this paragraph (b) shall be the fraction in which the numerator shall be the square metres of the area where Casino Gaming Activities are carried on together with such further areas as Casino Manager and Owner agree and the denominator shall be the square metres of the Casino Complex. "CASINO REVENUE" means the pretax total of all sums including cheques and other negotiable instruments, whether collected or not, received from the conduct or playing of games within the Casino, less the total of all sums paid out as winnings in respect of such conduct or playing of games. "CHIPS" means any tokens used or capable of being used in the Casino in the conduct of gaming in the place of money and approved for the purpose under the Act. "CLAUSE" means a clause of this Agreement. "COA" means the Casino Operations Agreement of even date between the Authority, SHC, SHCP, SHC Holdings, SAL, Leighton, Casino Manager and Showboat Operating Company. -5- "COMPLIANCE DEED" means the Deed of even date between the Authority, SHC, SHCP, SHC Holdings, SAL, Leighton, Leighton Holdings, SCM and Showboat Operating Company. "CPI" means the annual percentage increase to the end of the March quarter of the Fiscal Year at the end of which the calculation is being made from the end of the March quarter for the previous Fiscal Year determined by the All Groups Consumer Price Index applicable to the city of Sydney as published by the Australian Bureau of Statistics and in the event of such Index being discontinued or abolished then such index as the Australian Bureau of Statistics or its successors shall substitute therefor and if no index shall be substituted therefor then any index kept by the Commonwealth or New South Wales State Governments as the Casino Manager and Owner shall agree. "FIRST OPENING DATE" has the meaning given to it in Clause 4. "FISCAL YEAR" means the financial year beginning on 1 July in any year and ending on the next occurring 30 June except that the first Fiscal Year shall be that period commencing on the First Opening Date and ending the next occurring 30 June and the last Fiscal Year shall be that period beginning on 1 July of the Fiscal Year in which this Agreement is terminated and ending on the date on which this Agreement is terminated. The words "Full Fiscal Year" as used in this Agreement refer to any Fiscal Year containing not less than 365 days. "FURNITURE AND EQUIPMENT" means all necessary furniture, furnishings, wall coverings, gaming tables, gaming machines, surveillance equipment, computer equipment, electronic display boards and signage and all ancillary gaming and electronic equipment and all other Casino Complex equipment which shall include all equipment required for the operation of the casino surveillance and security, kitchens, baths, laundries and dry cleaning facilities, office equipment, dining room wagons, material handling equipment, cleaning and engineering equipment and vehicles. "INDEPENDENT CHARTERED ACCOUNTANT" means the firm of Arthur Andersen or such other qualified accounting firm as approved by Owner and Casino Manager. "INTEREST" means the rate which is 2% above the indicator lending rate on corporate overdrafts exceeding $100,000 from time to time charged by the Commonwealth Bank of Australia. "LEASES" means the lease granted or to be granted to SHCP over the Permanent Site and whilst relevant the sub-lease over the Temporary Site. "LICENCE" means the licence granted by the Authority to SHC to operate the Casino pursuant to Section 18(1) of the Act. "MANAGEMENT FEE" has the meaning given to it in Clause 12. -6- "NON-STRUCTURAL IMPROVEMENTS" means minor repairs replacements and improvements to the Building and Appurtenances which are not of a structural nature. "OPENING DATE" means either or both of the First Opening Date and the Second Opening Date as the context requires. "OPERATING EQUIPMENT" means all necessary gaming consumables, gaming cloths, chips, dice, chinaware, glassware, linens, silverware, uniforms, utensils and other items of a similar nature including such items bearing such name or identifying characteristics as Casino Manager shall consider appropriate. "OPERATING EXPENSES" means all costs and expenses of maintaining, conducting and supervising the operation of the Casino Complex incurred by Casino Manager directly or at its request pursuant to this Agreement or as otherwise specifically provided herein, which are properly attributable to the period under consideration under Casino Manager's system of accounting, including without limitation: (a) The cost of all food and beverages sold or consumed and of all Operating Equipment and Operating Supplies placed in use including rental of telephone equipment, telex equipment and hire of like communications equipment where such equipment is not available to Owner for purchase and its installation has been approved by Casino Manager. For purposes of this provision, Operating Equipment and Operating Supplies shall be considered to have been placed in use when they are transferred from the storerooms of the Casino Complex to the appropriate operating departments. (b) Salaries and wages of Casino Complex personnel, including costs of payroll taxes and direct reasonable employee benefits (which benefits may include, without limitation, a pension plan, medical insurance, life insurance, an executive bonus program and home leave transportation expenses), any amount accrued or paid for severance termination pay, long service leave or superannuation payments related to the period of employment at the Casino Complex, and the reasonable costs of moving executive level Casino Complex personnel (being those personnel who report directly to the Managing Director and those personnel in turn directly reporting to them), their families and their belongings to the area in which the Casino Complex is located at the commencement of their employment at the Casino Complex and returning them to their point of origin or next assignment to the extent that such costs are not paid by another employer (with costs limited to the cost of return to point of origin) upon the conclusion of their employment at the Casino Complex and all other expenses not otherwise specifically referred to herein which are referred to as Administrative and General Expenses in the Uniform System. If the General Casino Manager of the Casino Complex and other Casino Complex executive personnel are on the payroll of Casino Manager or any affiliated company, the cost of their salaries, payroll taxes and employee benefits shall be billed by such company to and be reimbursed by Casino Manager monthly and such reimbursement shall be an Operating Expense. -7- Subject to Clause 7.2 the salaries or wages of other employees or executives of Casino Manager, Showboat, Leighton or any of their affiliated companies shall in no event be an Operating Expense, but traveling expenses incurred by them in connection with the management of the Casino Complex shall be Operating Expenses and such persons shall be entitled to free room and board and the free use of all Casino Complex facilities at such times as they visit the Casino Complex in connection with the management thereof. Notwithstanding the foregoing, if it becomes necessary for a Showboat or Leighton employee or an employee or executive of a company affiliated with Showboat or Leighton to temporarily perform services at the Casino Complex of a nature normally performed by Casino Complex personnel, his salary (including payroll taxes and employee benefits) as well his traveling expenses will be Operating Expenses and he will be entitled to free room, board and use of Casino Complex facilities, while performing such services. (c) The cost of non-structural repairs to and maintenance of the Casino Complex referred to in Clause 14. (d) The cost of all other goods and services obtained by Casino Manager in connection with its operation of the Casino Complex including. without limitation, heat and utilities office supplies and all services performed by third parties. (e) Insurance premiums for public or third party liability insurance, and Workers' Compensation Insurance or insurance required by similar employee benefits acts (as opposed to premiums for property damage insurance, business interruption insurance and boiler and machinery insurance which are not to be Operating Expenses) being the insurances referred to in Clause 16.7(a) to (c). (f) Casino licences including employee licence fees, state or local fees and taxes, community benefit levy and liquor licence fees (as provided for under the COA and subject to section 89 of the Act), if any, (as opposed to all duties assessments and any other charges levied against the Casino Complex on its contents which are not to be Operating Expenses). (g) Legal fees and fees of any Independent Chartered Accountant for services directly related to the operation of the Casino Complex and its facilities and fees for the audit of the accounts relating to the Casino Complex. (h) The costs and expenses of technical consultants and specialised operational experts for specialised services in connection with non-recurring work on operational, functional, decorating, design or construction problems and activities, including the reasonable fees of Showboat or Leighton or any Showboat or Leighton subsidiary or division. (i) All expenses for advertising and marketing the Casino Complex specified as Operating Expenses in Clause 9 and all expenses of sales promotion and public relations activities. -8- (j) All out-of-pocket expenses and disbursements determined by the Independent Chartered Accountant to have been reasonably, properly and specifically incurred by Casino Manager, Showboat or any of their affiliated or subsidiary companies pursuant to, in the course of and directly related to, the management and operation of the Casino Complex under this Agreement. Without limiting the generality of the foregoing, such charges may include all reasonable travel, telephone telegram, radiogram, cablegram, air express and other incidental expenses, but except as herein otherwise expressly provided, shall not include any of the regular expenses of the offices maintained by Casino Manager, Showboat or any of their affiliated or subsidiary companies other than offices maintained at the Casino Complex for the management of the Casino Complex. (k) The management fee provided for in Clauses 12.1(a) and (c) hereof (l) Any other expenses expressly provided in this agreement as being an Operating Expense. Excluding except as otherwise provided in this Agreement: (m) depreciation and amortization; (n) interest on Owner's indebtedness and any rent payable by Owner either in respect of the Temporary Premises or the Permanent Site, the Building and Appurtenances, the Furniture and Equipment, the Operating Equipment, the Operating Supplies or any part of any of the foregoing; (o) taxes and insurance premiums which are stated to be borne by the Owner under this Agreement; and (p) the costs of any other things specified herein to be done or provided at Owner's expense; (q) the management fee provided for in Clauses 12.1(b) and (d) hereof. "OPERATING SUPPLIES" means playing cards, dice, chips, the inventories of paper supplies, cleaning materials, maintenance supplies, uniforms and similar consumable items. "OPERATING TERM" shall mean the operating term as provided for in Clause 5.1 . "PERMANENT SITE" has the same meaning as defined in the Compliance Deed. "PRE-OPENING EXPENSES" means all expenses incurred by SHC, SAL, Casino Manager or by Showboat or Leighton or any affiliated or subsidiary companies thereof in performing Pre-Opening Services in connection with the opening of the Casino Complex by Owner including without limitation reasonable travel expenses (including the costs of moving executive-level hotel personnel, their families and their belongings and expenses of business entertainment, salary (including pay roll taxes and costs of employee benefits) of specialist and non-specialist executives -9- for time actually spent in the performance of Pre-Opening Services (including travel time), the cost of pre-opening advertising, promotion and publicity, the cost of suitable ceremonies, the cost of obtaining all necessary licences and permits which are the responsibility of Casino Manager, including the fees of solicitors and other consultants incident thereto, software licenses, small capital items, office fitout costs, interim office expenses including rent, outgoings, administration etc., the cost of training of staff and the fees payable for participation in any third party reservation system as indicated and agreed upon in the budget to be submitted by the Casino Casino Manager to the Owner. "PRE-OPENING SERVICES" means those services referred to in Clauses3.1(a)-(g) inclusive and any other matters which Clause 3 provides may be included within such description. "PROJECT DOCUMENTS" means Project Documents as defined in the Compliance Deed. "RESERVE ACCOUNT" means the account in the name of SHC additional to the Agency Account established for the reserve of replacements, substitutions and additions to Furniture and Equipment and Non-Structural Improvements provided for in Clause 13. "RESERVE FUND" means a cash fund created for the purpose of making replacements, substitutions and additions to Furniture and Equipment and Non-Structural Improvements pursuant to the Clause 13.2. "SECOND OPENING DATE" has the meaning given to it in Clause 4. "SHOWBOAT" means Showboat Inc a foreign corporation incorporated in the state of Nevada in the United States of America and having its principal office at 2800 Fremont Street, Las Vegas, Nevada. "STANDARDS" means such standards as are described in Clause 12.1 of the COA. "TEMPORARY CASINO" means the temporary Casino and other facilities including car park constructed in accordance with the requirements of the Authority and other relevant agreements for use preceding completion of the Casino Complex. "TEMPORARY SITE" means the Temporary Site as defined in the Compliance Deed. "TOTAL REVENUE" means all income and proceeds of sales of every kind (whether in cash or on credit) resulting from the operation of the Casino Complex and all of the facilities therein including without limitation, (a) all income received from tenants, transient guests, lessees, licensees and concessionaires (but not including the gross receipts of such lessees, licensees or concessionaires) and other persons occupying space at the Casino Complex and/or rendering services to Casino Complex guests (but exclusive of all consideration received at the Casino Complex for hotel -10- accommodation, goods and services to be provided at other hotels, although arranged by, for, or on behalf of, Casino Manager), (b) all income from catering operations conducted outside of the Casino Complex unless such operations are licenced to a party other than the Casino Manager in which case the licence fee received shall be included, (c) all revenues resulting from the operations of any car park connected with the Casino Complex unless such operations are licenced to a party other than the Casino Manager in which case the licence fee received shall be included, (d) all subsidy payments, governmental allowances and awards, (e) any other form of incentive payments or awards from any source whatsoever which are attributable to the operation of the Casino Complex and (f) the proceeds of use and occupancy insurance actually received by Casino Manager or Owner with respect to the operation of the Casino Complex (after deduction from such insurance proceeds of all necessary expenses incurred in the adjustment or collection thereof), after deducting any value added tax or betterment levy, or bed tax payable to any government or statutory authority but does not include Casino Revenue. "TRANSACTION DOCUMENTS" has the same meaning as in the Compliance Deed. "UNIFORM SYSTEM" means the "Uniform System of Accounts for Hotels" currently 8th Revised Edition 1985) as adopted by the American Hotel and Motel Association of the United States and Canada from time to time. "WORKING CAPITAL" shall mean such amount in the Agency Accounts and the Casino Bankroll as will be reasonably sufficient to assure the timely payment of all current liabilities of the Casino Complex, including the operations of the Casino, during the term of this Agreement, and to permit Casino Manager to perform its management responsibilities and obligations hereunder, with reasonable reserves for unanticipated contingencies and for short term business fluctuations resulting from monthly variations from the budget. 1.2 Interpretation (a) In this agreement, unless the context otherwise requires: (1) headings and underlinings are for convenience only and do not affect the interpretation of this agreement; (2) words importing the singular include the plural and vice versa; (3) words importing a gender include any gender; -11- (4) an expression importing a natural person includes any company, partnership, joint venture, association, corporation or other body corporate and any governmental agency; (5) a reference to any thing includes a part of that thing; (6) references to Clauses, parties, annexures, exhibits and schedules are references to Clauses of, and parties, annexures, exhibits and schedules to, this agreement; (7) a reference to any statute, regulation, proclamation, ordinance or by-law includes all statutes, regulations, proclamations, ordinances or by-laws varying, consolidating or replacing them, and a reference to a statute includes all regulations, proclamations, ordinances and by-laws issued under that statute; (8) a reference to an agreement includes any encumbrance, guarantee, undertaking, deed, agreement or legally enforceable arrangement or understanding whether or not in writing; (9) a reference to an asset includes all property, of any nature, as well and all rights, revenues and benefits; (10) a reference to a document includes any agreement in writing, or notice, instrument or other document of any kind; (11) a reference to a document includes any permitted amendment or supplement to or replacement or novation of, that document; (12) a reference to a party to any document includes that party's successors and permitted assigns; (13) where the day on or by which any thing is to be done is not a Business Day, that thing must be done on or by the preceding Business Day; (14) a reference to the Owner shall mean and include a reference to SHCP or SHC as the case may be where to do otherwise would conflict with the provisions of the Act, the Licence or the COA but otherwise such reference shall mean and include a reference to SHCP and SHC jointly and severally. (15) where there is a reference herein to a liability of the Showboat Leighton Partnership through its nominee the Casino Manager, such liability is a several liability in accordance with the 85% interest in such partnership of SAL and the 15% interest therein of Leighton. (b) To the extent of any inconsistency or conflict between the terms of this Agreement and the Act or the COA. (1) The Act and the COA shall prevail over this Agreement. -12- (2) In the event of any inconsistency between the Act and the COA, the Act shall prevail over the COA. 2. CONSTRUCTION OF COMPLEX AND INSTALLATIONS BY OWNER 2.1 Owner engages Casino Manager to be Owner's consultant to advise on the configuration, layout, interior design and construction of the Casino Complex. Additionally, Casino Manager shall recommend to Owner and advise Owner as to the suggested placement of all gaming equipment and ancillary furnishings and the configuration of ancillary areas within the Casino Complex. 2.2 Owner, at its sole and separate expense, shall prepare preliminary design plans, working drawings, and specifications of the Casino Complex. Casino Manager shall evaluate the preliminary design plans, working drawings and assist owner in designing the Casino Complex. Owner shall have the sole and exclusive right to manage, direct, control, co-ordinate and prosecute the construction of the Casino Complex and the installation of the Furniture and Equipment. 2.3 Owner shall, strictly in accordance with the relevant provisions of the COA and in conformity with all applicable laws, ordinances and governmental regulations, at its own expense, construct furnish and equip on the Temporary Premises, a Temporary Casino and on the Permanent Site an international standard casino, food and beverage and entertainment and hotel complex each complying with the Standards including Casino Manager's requirements for life safety specifications. 2.4 The Casino Complex shall consist of the facilities described and defined as the Casino Complex in the COA. 2.5 If there is a delay in the construction of the Casino Complex both Owner and Casino Manager shall take all reasonable steps to mitigate any damages which may arise from such delay. 3. PRE-OPENING SERVICES BY CASINO MANAGER 3.1 Prior to each the First Opening Date and the Second Opening Date, Casino Manager, as agent and for the account of Owner, shall have the exclusive right in relation to the Casino Complex to engage in the following Pre-Opening Services, provided that funds are advanced therefor as hereafter required: (a) Recruit, train, direct and employ on behalf of SHC an initial staff for the Casino Complex. (b) Initiate and prosecute promotion publicity and other like programs designed to attract guests to the Casino Complex on and after the Opening Date -13- including without limiting the generality of the foregoing, public relations and other marketing activities. (c) Negotiate leases licences and concession agreements for stores office space and lobby space at the Casino Complex, subject to SHCP's approval. All leases, licences or concessions shall be in SHCP's name and executed by officers of SHCP on its behalf. (d) Apply for, process and take all necessary steps to procure so far as is possible in SHC's name (or or both as may be required by the issuing authority) all licences and permits required for the operation of the Casino Complex and its related facilities by SHC, provided that it will be SHC's obligation to obtain the Licence and any liquor licences for the sale of alcoholic beverages at all restaurants and bars in the Casino Complex and to all guest rooms, but Casino Manager agrees to render SHC all reasonable assistance in connection with its efforts to obtain such licences. (e) Purchase all initial Operating Supplies, food and beverages. Such initial inventories shall be paid for out of the working capital furnished by SHC under Clause 10 of this Agreement. (f) Prepare and submit to SHC organisational plans with respect to the staffing structure for the Casino Complex 90 days prior to each Opening Date. (g) Do all other things necessary for the proper opening of the Casino Complex including, but not limited to, arranging for suitable inaugural ceremonies and arranging for interim office space being such office space as is necessary for the Casino Manager to fulfill its functions under this Clause. 3.2 All reasonable budgeted Pre-Opening Expenses incurred by Casino Manager, Showboat, Leighton or any of Casino Manager's, Showboat's or Leighton's affiliated or subsidiary companies shall be paid for by Owner provided that Casino Manager shall be reimbursed by Owner for overruns to budgeted Pre-Opening Expenses where Casino Manager has complied with the terms of this Agreement or has not recklessly incurred additional expense provided that Casino Manager has obtained Owner's consent to any material overruns. 3.3 Owner shall deposit from time to time with Casino Manager such amounts as are notified by Casino Manager as are necessary and in accordance with Clause 3.2 hereof to meet Pre-Opening Expenses. 3.4 Within ninety (90) days after each Opening Date, Casino Manager shall account to Owner for all expenditures made under this Clause which shall be independently reviewed by the Independent Chartered Accountant. 3.5 If any balance remains of the funds deposited by Owner with Casino Manager hereunder, they shall be placed in the Agency Accounts provided for in Clause 10 -14- to the extent that there are insufficient funds therein, and any surplus shall be repaid to Owner forthwith. 3.6 If Casino Manager at any time expends funds in excess of the amount deposited with it under this Clause, with the consent of Owner, or by reason of Owner's not depositing additional funds with Casino Manager in the event of anticipated or actual delay, such excess shall be refunded to Casino Manager forthwith upon demand with Interest calculated on a daily basis. 3.7 At Casino Manager's request, Owner will from time to time deposit with Casino Manager the estimated costs in connection with obtaining any applicable licences and permits to be obtained by Casino Manager. Any portion of the deposits not expended will be refunded to Owner. 4. OPENING DATES 4.1 (a) Subject to Clause 4.3, the First Opening Date is the date of the completion of the Temporary Casino to a state of operational readiness which complies with the Completion Standards (as defined in the Development Agreement between SHC and Leighton ("Development Agreement")) (b) The Second Opening Date is the date of the Completion (as defined in the Development Agreement) of the Casino Complex (other than the Temporary Casino). 4.2 Notwithstanding the Opening Date, Owner and Casino Manager shall proceed diligently thereafter to fulfill all of its obligations provided for in Clause 2 regarding the construction furnishing and equipping of the Casino Complex and Owner shall diligently proceed to cure all material defects or deficiencies as to which Casino Manager notifies it. 4.3 Notwithstanding Clause 4.1, both parties agree that the First Opening Date and the Second Opening Date shall each be a date which is no earlier than 10 days after the satisfaction of all the following conditions: (a) all operating permits for the Casino Complex and its operations (including, without limitation, a certificate of occupancy or local equivalent, gaming, liquor and restaurant licences) have been obtained, (b) the Working Capital and the Casino Bankroll for the Casino have been furnished by Owner, (c) Casino Manager shall have given written notice to Owner that all operational systems have been tested on a "dry-run" basis to the satisfaction of Casino Manager and, to the extent required by applicable law and the Authority provided that no further testing shall be required of operational -15- systems which have been satisfactority tested under the Development Agreement, and (d) all other state and federal governmental requirements necessary to open, occupy and operate the Casino Complex have been satisfied. 5. OPERATING TERM OF AGREEMENT 5.1 Subject to the COA the Operating Term of this Agreement shall be a period commencing on the date this Agreement is signed and terminating on the expiration of the Licence unless otherwise canceled or extended in accordance with this Agreement or any other Transaction Document or by the Authority under the Act. 6. MANAGEMENT OF THE CASINO COMPLEX DURING OPERATING TERM 6.1 Owner hereby engages Casino Manager as the exclusive casino manager of the Casino Complex during the Operating Term. Casino Manager shall manage the Casino Complex and all of its facilities and activities in accordance with the Standards and provide or contract for entertainment in keeping with the requests of patrons, financial viability and constraints of the Casino Complex and the requirements of the Authority under the Act. 6.2 Except as in this Agreement otherwise provided and subject to the Act the COA and all other applicable laws, Casino Manager shall have exclusive control and discretion in the operation, direction, management and supervision of the Casino Complex. Such control and discretion shall include, without limitation: (a) determination of labour policies (including the hiring and discharge of all employees and entering into a contract or contracts with an applicable union or unions in Owner's name); (b) credit policies (including entering into agreements with credit card organisations); (c) terms of admittance; (d) charges for rooms; (e) entertainment and amusement policies; (f) food and beverage policies (including the right to conduct catering operations outside of the Casino Complex); (g) leasing, licensing and granting of concessions for commercial space at the Casino Complex; -16- (h) the institution of such legal proceedings in the name of Owner or Casino Manager as Casino Manager shall deem appropriate in connection with the operation of the Casino Complex; and (i) all phases of promotion and publicity relating to the Casino Complex. In exercising its said control and discretion, Casino Manager may negotiate such contracts, leases, concession agreements and other undertakings on behalf of Owner as it shall from time to time consider appropriate subject to Division 2 of Part 3 of the Act with respect to controlled contracts and the budget, and officers of Owner will execute any or all of same at Casino Manager's request. 6.3 After due consideration to the impact of undertaking any legal proceedings upon the Owner, Casino Manager may institute such legal proceedings in the name of Owner as Casino Manager shall deem appropriate in connection with the operation of the Casino Complex; and (a) Owner shall co-operate with Casino Manager in the institution of such legal proceedings. (b) In the event that Owner shall refuse to institute such legal proceedings within two (2) months of Casino Manager on the advice of Casino Manager's solicitors requiring the institution of such proceedings then where the recommended proceedings are for recovery of a debt the amount thereof specified by Casino Manager in its recommendation to Owner shall be deemed to be added to Total Revenue. (c) In any other case such amount as may be determined by the Independent Chartered Accountant (who may make such determination on the advice of Queen's Counsel or Senior Counsel of the New South Wales Bar) shall be deemed to be added to Total Revenue. (d) Such addition to Total Revenue shall be with effect in the accounting year in which the cause of action arose but shall only be made if it has not already been included in Total Revenue. (e) In any such proceeding Owner shall be represented by legal advisers of its choice. 6.4 Notwithstanding the foregoing no Casino Complex employee shall receive compensation (including salary and benefits greater than at the rate of $750,000 per year exclusive of the value of food and lodging and the use of Casino Complex facilities (increased at the end of each Fiscal Year by the CPI) without prior consent of Owner of the pay rate. This amount may be redetermined by agreement from time to time to reflect other increases in the cost of living or industry pay rates, such maximum rate to be determined conclusively by the Independent Chartered Accountant at the request of either party made at any time in the event the parties fail to agree to any suggested increase. -17- 6.5 In its management of the Casino Complex hereunder, Owner acknowledges that Casino Manager is to implement and carry out methods procedures and policies suggested by Showboat and other recommendations made by Showboat when such recommendations are consistent with the business plan and budget approved by the Owner. 6.6 If equipment is installed and maintained at the Casino Complex in connection with any services referred to in Clause 6.5, all costs of such installation and maintenance will be paid by Owner and charged to the operation of the Casino Complex as an Operating Expense either as current expenses or over a period of years as determined by the Independent Chartered Accountant. 6.7 Casino Manager may in accordance with agreed budgets: (a) purchase goods, supplies and services from or through Showboat, Leighton or any of their affiliated or subsidiary companies so long as the prices and terms thereof are demonstrably competitive with the prices and terms of goods and services of equal quality available from others; (b) pay to any of same a fee for the negotiation of contracts for the direct purchase by Casino Manager from independent suppliers of goods, supplies and services so long as the prices and terms thereof when added to the said fee are demonstrably competitive with the prices and terms of goods and services of equal quality available from others, such fee to be charged to the operation of the Casino Complex on the same basis as it is charged to the operation of hotels owned by Showboat subsidiaries; and (c) retain a Showboat or Leighton subsidiary, affiliate or division as a consultant to perform technical services in connection with any substantial remodelling, repairs, construction or other capital improvements to the Casino Complex and said subsidiary, affiliate or division shall be reasonably compensated for its services. 6.8 Casino Manager, in its discretion may provide reasonable short term food and lodging for Casino Complex employees and allow them the use of Casino Complex facilities and may allow the general manager of the Casino Complex suitable living quarters within the Casino Complex and the reasonable use of all Casino Complex facilities including food, without charge to the said Casino Complex employees and General Casino Manager or to Casino Manager. 6.9 Casino Manager, in its discretion may enroll the Casino Complex employees in superannuation (in addition to any superannuation required by law), medical and health, life insurance and similar employee benefit plans. The said plans may be joint plans for the benefit of employees at more than one casino or hotel owned, leased or managed by Showboat or any of its subsidiaries. Employer contributions to such plans and reasonable administrative fees which Casino Manager may expend in connection therewith will be Operating Expenses. -18- 6.10 From time to time, at the request of Owner, senior executive staff of Casino Manager having knowledge of the operation of the Casino Complex, shall attend a meeting at a time and place reasonably determined by Owner and shall report to Owner as to the operation of the Casino Complex and shall discuss matters of policy and procedure affecting all phases of the conduct of business at the Casino Complex. To the extent possible such consultation and advice shall take place prior to effectuating any major policies and procedures. 6.11 Not later than sixty (60) days prior to the commencement of each Fiscal Year Casino Manager shall submit to Owner a draft annual budget for the operation of the Casino Complex in accordance with the Uniform Systems accompanied by full supporting data and assumptions and a business plan, and shall at Owner's request, consult with Owner in good faith concerning such budget and will give consideration to suggestions made by Owner. The final decision on the budget shall be that of Casino Manager. The final annual budget shall be submitted to Owner no later than 10 days prior to the commencement of each Fiscal Year. 6.12 Subject to the non competition provisions of the COA, nothing contained in this Agreement shall be construed to restrict or prevent, in any manner, Casino Manager, Showboat, Leighton or any of their affiliates or subsidiaries from engaging in any other businesses or investments during the term of this Agreement or any renewal thereof, including, without limitation, any similar or competitive gaming operation. Owner acknowledges that Showboat and/or their affiliates operate other casinos and may in the future operate additional casinos in different areas of the world, and that marketing efforts may cross over in the same markets and with respect to the same potential customer base. Casino Manager, in the course of managing the Casino, may refer customers of the Casino Complex and other parties to other facilities operated by affiliates of Casino Manager to utilize gaming, entertainment and other amenities, without payment of any fees to Owner. Owner consents to such activities and agrees that such activities will not constitute a conflict of interest. Owner acknowledges and agrees that Casino Manager may distribute promotional materials for Casino Manager's affiliates and facilities, including casinos, at the Casino Complex. 7. CASINO MANAGER TO ACT SOLELY AS AGENT OF OWNER 7.1 In the performance of its duties as Casino Manager of the Casino Complex Casino Manager shall act solely as agent of Owner. Nothing herein shall constitute or be construed to be or create a partnership or joint venture between Owner and Casino Manager. All debts and liabilities to third persons incurred by Casino Manager in the course of its operation and management of the Casino Complex shall be the debts and liabilities of Owner only and Casino Manager shall not be liable for any such debts and liabilities by reason of its management, supervision, direction and operation of the Casino Complex for Owner. Casino Manager may so inform third parties with whom it deals on behalf of Owner and may take any other reasonable steps to carry out the intent of this paragraph. -19- 7.2 (a) Casino Complex employees shall be the employees of SHC and not of Casino Manager and every person performing services in connection with this Agreement, including any agent or employee of Casino Manager, Showboat, Leighton or their affiliates shall be acting as the agent of SHC. (b) Nonetheless, the Casino Complex employees including manager and other executive personnel may be on the payroll of SAL or Leighton or any of their affiliates and their salaries and other related expenses (including, but not limited to, payroll taxes and the cost of employee benefits and any amount accrued or paid for severance termination pay long service leave or superannuation payments related to the period of employment at the Casino Complex) shall be invoiced to Owner as a supplemental management fee and included in Operating Expenses provided such employees receive compensation based on a rate no greater than provided for in Clause 6.4 hereof (provided always that where an employee receives compensation in excess of such rate, the rate to be applied shall be the maximum allowed under Clause 6.4) unless Owner agrees. (c) Additionally, the Casino Manager may utilise the services of executives of Showboat or any of its subsidiaries or affiliates and their salaries and any other related expenses including but not limited to, payroll taxes and the cost of employee benefits and any amount accrued or paid for severance termination pay, long service leave or superannuation pay hereby related to the period of employment at the Casino Complex shall be invoiced to Owner as a supplemental management fee and included in Operating Expenses provided such executives receive compensation based on a rate no greater than provided for in Clause 6.4 hereof (provided always that where an employee receives compensation in excess of such rate the rate to be applied shall be the maximum allowed under Clause 6.4) unless Owner agrees. (d) To the extent that Casino Manager deems advisable and in Owner's best interest, Casino Manager may delegate to one or more persons in its employ or to the Casino Complex general manager the responsibility of employing, paying, supervising and discharging SHC employees. Each person to whom any such duty is delegated shall be the agent of the licensee under the Licence and not of Casino Manager for such purposes. 8. OWNER TO BEAR ALL OPERATING EXPENSES 8.1 In performing its duties hereunder during the Operating Term, Casino Manager shall act solely for the account of Owner. All reasonable Operating Expenses incurred by Casino Manager in performing its duties shall be borne solely by Owner. To the extent the funds necessary therefor are not generated by the operation of the Casino Complex, they shall be supplied by Owner to Casino Manager in the manner provided in Clause 10. If Casino Manager recommends to Owner that the funds in the Capital Expenditure Reserve Account (provided for in Clause 13) be used to defray Operating Expenses of the Casino Complex other than the expenses for which the reserve was created and Owner agrees then such -20- fund in the Capital Expenditure Reserve as may be necessary to meet such need may be so utilised and Owner shall replace all such funds on demand. 8.2 Casino Manager shall not in any event be required to advance any of its own funds for the operation of the Casino Complex, nor to incur any liability in connection therewith unless Owner shall have furnished Casino Manager with funds necessary for the discharge thereof. However, if Casino Manager shall at any time advance any funds in payment of Operating Expenses, which Casino Manager shall have the right but not the obligation to do, Owner shall repay Casino Manager on demand all or any part thereof, plus Interest calculated on a daily basis except that if such advances were made by converting foreign currency into Australian dollars, then repayment shall be made in the foreign currency so converted and to the extent such advances result from Casino Manager refraining from receiving any part of its fees on the dates they are payable hereunder they shall be deemed to have been made in the currency of Australia. 9. MARKETING 9.1 Casino Manager shall arrange and contract for all marketing including but not limited to advertising, selling and public relations activities which Casino Manager may deem necessary for the operation of the Casino Complex. Casino Manager shall analyse the market, identify market segments that would generate revenue and profit for the Casino Complex and then develop a combination of marketing (including but not limited to advertising and promotions) and sales (including but not limited to player representatives, agreements with tour wholesalers) programmes designed to generate revenue and profit. The business plan submitted by Casino Manager with the annual budget shall contain detailed marketing plans designed to generate the projected revenues. The Casino Complex may participate in Showboat's sales centres and advertising programmes (if any) and any other such programmer as determined by Casino Manager for such amount as Casino Manager determines is the Casino Complex's proper share of such participation from time to time and such amount shall be an Operating Expense. 10. WORKING CAPITAL AND BANK ACCOUNTS 10.1 (a) Owner will provide Casino Manager with initial working capital in the amounts agreed in the budget prepared by Casino Manager and approved by Owner thirty (30) days prior to the Estimated First Opening Date and thirty (30) days prior to the Estimated Second Opening Date. (b) Thereafter from time to time throughout the Operating Term, if and as requested by Casino Manager, Owner shall furnish to Casino Manager funds sufficient in amount to constitute normal working capital for the uninterrupted and efficient operation of the Casino Complex. -21- (c) Any dispute as to the amount of working capital required for the operation of the Casino Complex shall be resolved by the Independent Chartered Accountant who shall take into account in each instance all reasonably foreseeable future financial needs of the Casino Complex. 10.2 (a) All funds received by Casino Manager in the operation of the Casino Complex, including working capital for the Casino Complex referred to in the preceding paragraph, shall be deposited in the relevant Agency Account in compliance with the Act. Such funds shall be Owner's property subject to the terms of this Agreement and shall not be mingled with Casino Manager's or Owner's other funds. (b) Out of the Agency Accounts, Casino Manager shall pay all Operating Expenses as well as the fees payable to Casino Manager under Clause 12. 10.3 Owner may require that amounts standing to the credit of the Agency Accounts may be placed on short term deposit at interest such interest for the account of Owner and not form part of Total Revenue. Any expenses of Casino Manager in connection therewith shall be reimbursed by Owner to Casino Manager. 10.4 In addition to the Agency Accounts, a Reserve Account shall be established for the purposes of Clause 13. 10.5 (a) The accounts referred to in Clause 10.4 shall be opened in the name of SHC and maintained at all times solely by Casino Manager. Cheques or other documents of withdrawal shall bear an appropriate legend indicating that the Casino Complex is managed by Casino Manager as agent of SHC. Such cheques or other documents of withdrawal shall be signed only by representatives of Casino Manager. Owner's sole right to the funds in the foregoing accounts shall be to receive therefrom the payments to be made by Casino Manager to Owner or at its direction under the provisions of this Agreement. (b) Owner will bear all losses occasioned by the failure or insolvency of the bank or financial institution with which an Agency Account or the Reserve Account is maintained or deposited. (c) Upon the expiration or termination of this Agreement and the payment to Casino Manager of all amounts due to Casino Manager hereunder upon such expiration or termination, all remaining amounts in the foregoing accounts shall be transferred forthwith to Owner. 11. BOOKS RECORDS AND STATEMENTS 11.1 (a) Casino Manager shall comply with the requirements of Part 9 of the Act and shall, for the account of Owner and with Owner's approval establish and maintain full and adequate books of account and other records reflecting the -22- results of operation of the Casino Complex on an accrual basis, all in accordance with applicable Australian Accounting Standards, generally accepted accounting principles and with the Uniform System with such exceptions as may be required by the provisions of this Agreement, provided, however, that Casino Manager may make such modifications in such accounts as are consistent with Showboat's standard practice in accounting for its operations under management contracts generally, so long as such modifications do not affect the determination of Casino Complex Gross Operating Profit and Casino Gross Operating Profit under the Uniform System, as modified by the aforementioned exceptions. (b) Books of account and records relating to or reflecting on of the Casino Complex and its management shall be the property of the Owner and shall be kept at the Casino Complex or such other place as may be agreed by Owner provided that unless the Authority grants an exemption pursuant to Section 129(2) of the Act and Owner approves, all books, records and documents relating to the operations of the Casino shall be kept at the Casino and shall be available to Owner and its representatives at all reasonable times for examination audit inspection and transcription. (c) Upon any termination of this agreement, all of such books and records forthwith shall be turned over to Owner so as to ensure the orderly continuance of the operation of the Casino Complex, but such books and records shall thereafter be available to Casino Manager at all reasonable times for inspection, audit, examination and transcription for a period of seven (7) years. (d) Owner and Casino Manager shall comply with the requirements of Part 9 of the Act and all directions of the Authority in relation to books, records and statements. 11.2 Casino Manager shall endeavour to deliver to Owner at or prior to the end of each accounting period used by Casino Manager in accounting for the operations of the Casino Complex a profit and loss statement showing the results of the operation of the Casino Complex for the immediate preceding accounting period and for the Fiscal Year to date. Such statement: (a) shall be in the form acceptable to the Owner; (b) shall be taken from the books and records maintained by Casino Manager in the manner hereinabove specified; (c) shall follow the general form set forth in the Uniform System, adjusted if necessary to Australian accounting standards but shall not contain any items excluded from the definition of Casino Complex Gross Operating Profit and Casino Gross Operating Profit. 11.3 (a) Within ninety (90) days after the end of each Fiscal Year, Casino Manager shall deliver to Owner a profit and loss statement, audited by the -23- Independent Chartered Accountant, showing the results of operations of the Casino Complex during such Fiscal Year, and the Casino Complex Gross Operating Profit, and Casino Gross Operating Profit, if any, for such Fiscal Year. (b) Owner shall be deemed to have waived any objections to said audited statement not specified to Casino Manager in writing within forty-five (45) days of receipt thereof. (c) Any disputes as to the contents of any such statement or any accounting matter hereunder shall be determined by the Independent Chartered Accountant, whose decisions shall be final and conclusive on Casino Manager and Owner. 12. CASINO MANAGER'S MANAGEMENT FEE 12.1 During each Fiscal Year of the Operating Term (and proportionately for a fraction of a Fiscal Year) commencing from the First Opening Date, Owner shall pay to Casino Manager for services rendered under this Agreement a Management Fee being: (a) one and one half per cent (1 1/2%) of Casino Revenue for such Fiscal Year; (b) six per cent (6%) of Casino Gross Operating Profit for such Fiscal Year; (c) three and one half per cent (3 1/2%) of Total Revenue for such Fiscal Year; and (d) ten per cent (10%) of Casino Complex Gross Operating Profit for such Fiscal Year. provided that for the purposes of calculating Casino Complex Gross Operating Profit under this Clause 12.1, Operating Expenses shall not include the charge against revenue for the Capital Expenditure Reserve Account. 12.2 On or before the last day of each Accounting Period Casino Manager shall be paid out of the Agency Accounts its fees based on the percentages applied to that portion of the current Fiscal Year which ended on the last day of the preceding Accounting Period, all as determined from the books of account referred to in Section 11. To the extent that there may be insufficient funds in the Agency Accounts for such payments, Owner shall pay to Casino Manager forthwith on demand the said fee. 12.3 On or before the last day of each Accounting Period or more frequently if Owner and Casino Manager agree during the Operating Term, Casino Manager shall, after payment of Casino Manager's fees for the immediately preceding Accounting Period and retention of Working Capital sufficient to assure the uninterrupted and -24- efficient operation of the Casino Complex for the foreseeable future, remit to Owner all remaining funds in the Agency Accounts. 12.4 At the end of each Fiscal Year and following receipt by Owner of the annual audit, an adjustment will be made based on said audit, if necessary, so that Casino Manager shall have received its proper fees as hereinabove specified for the said Fiscal Year. Within thirty (30) days of receipt by Owner of such audit Casino Manager shall either: (a) place in an Agency Account or remit to Owner, as appropriate, any excess amounts it may have received as fees during such Fiscal Year; or (b) be paid out of an Agency Account or by Owner, as appropriate, any deficiency in the amounts it shall have received as such fees; whichever the case may be. 12.5 In the event there is an operating loss in any Fiscal Year, it will be borne exclusively by Owner and the amount thereof will not be applied against the Casino Gross Operating Profit or the Casino Complex Gross Operating Profit of any other Fiscal Year for the purpose of determining Casino Manager's fees. 13. RESERVE FOR REPLACEMENTS, SUBSTITUTIONS AND ADDITIONS TO FURNITURE AND EQUIPMENT AND NON-STRUCTURAL IMPROVEMENTS 13.1 Commencing from the First Opening Date during the operating of the Temporary Casino, there shall be deducted in monthly instalments from Total Revenue and Casino Revenue an amount up to: (a) Three per cent (3%) of Casino Revenue; and (b) One and Three quarter per cent (1 3/4%) of Total Revenue, and commencing from the Second Opening Date during the Operating Term, there shall be deducted in monthly instalments from Total Revenue and Casino Revenue an amount up to: (a) six percent (6%) of Casino Revenue; and (b) three and one half percent (3 1/2%) of Total Revenue, (with the precise amount being determined by the Casino Manager in consultation with the Owner) respectively provided that at the end of each Fiscal Year so much of the amount deducted that has not been spent pursuant to this Clause shall be remitted to the Owner provided there is no intended or allocated use of such funds for the purposes of this Clause. -25- 13.2 A cash Reserve Fund shall be created as a sinking fund and the moneys deducted pursuant to Clause 13.1 shall be deposited into this account. Such fund shall be recorded on the books of account maintained for the Casino Complex as "Capital Expenditure Reserve Account" and shall be accounted for as a sinking fund. 13.3 Subject to Clause 14.5 and except as otherwise specified in this Agreement, the Reserve Fund shall be used solely for the purposes specified in this Clause 13. Any expenditure for replacement or substitution of or additions to Furniture and Equipment or Non-Structural Improvements during each Fiscal Year may be made by Casino Manager without Owner's consent up to the amount of such Reserve Fund including the unused accumulations thereof from earlier Fiscal Years, and any such expenditures shall be paid from the Reserve Fund. 13.4 All proceeds from the sale of Furniture and Equipment no longer needed for the operation of the Casino Complex shall be credited to the Reserve Fund. 13.5 All amounts remaining in the Reserve Fund at the close of each Fiscal Year not remitted to Owner in accordance with the Provisions of Clause 13.1, shall be carried forward and retained until fully used as herein provided. 13.6 Any expenditure for the purposes specified in this Clause in excess of the Reserve Fund shall be subject to Owner's approval. 13.7 The Reserve Fund will be invested by Casino Manager with a financial institution or society approved by Owner in the name of the Owner. Such fund, including all interest earned thereon, shall be and remain at all times during the Operating Term under the exclusive and absolute control of Casino Manager. Interest shall not form part of Total Revenue or Casino Revenue and shall be credited to the Reserve Fund. 13.8 In the event that the amount standing to the credit of the Reserve Fund is at any time insufficient to meet expenditure required Owner will provide to Casino Manager any shortfall in accordance with budget provisions or any amendment to the budget approved by the Owner. 13.9 Upon any termination of this Agreement Casino Manager's right to any unused portion of the Reserve Fund shall terminate and the same shall be paid over forthwith to Owner. 14. REPAIRS AND MAINTENANCE AND CAPITAL IMPROVEMENTS 14.1 Subject to compliance by Owner with the provisions of the COA, the Leases and Clause 10 hereof, Casino Manager shall from time to time make such expenditure for repairs and maintenance as it deems necessary to keep the Casino Complex in -26- good repair and operating condition (excluding structural repairs and changes and extraordinary repairs to or replacement of equipment included in the definition of Building and Appurtenances ). If any such repairs or maintenance shall be made necessary by any condition against the occurrence of which Owner has received the guarantee or warranty of a supplier of labour or materials then Casino Manager may invoke such guarantees or warranties in Owner's or Casino Manager's name and Owner will cooperate fully with Casino Manager in the enforcement thereof. 14.2 Subject to compliance by the Owner with the provisions of the COA, the Leases and Clause 10 hereof, Owner may from time to time at its sole expense make such further alterations, additions, or improvements in or to the Casino Complex as Casino Manager shall propose or Owner shall recommend and Casino Manager shall approve, all of which will be made with as little hindrance to the operation of the Casino Complex as possible. No alterations, additions or improvements shall be made without Casino Manager's approval. Any and all such alterations, additions or improvements shall, upon completion, become part of the Casino Complex. 14.3 (a) If structural repairs or changes in the Casino Complex or extraordinary repairs to or replacement of any equipment included in the definition of Building and Appurtenances shall be required at any time during the term of this Agreement to maintain the Casino Complex in good operating condition or by reason of any laws, ordinances, rules or regulations now or hereafter in force, or by order of any governmental or municipal power, department, agency, authority or officer, or otherwise, or because Casino Manager and Owner jointly agree upon the desirability thereof, then in such event all such repairs, changes or replacements shall be made by Owner at Owner's sole expense, and shall be made with as little hindrance to the operation of the Casino Complex as possible. (b) Notwithstanding the foregoing, Owner shall have the right to contest the need for any such repairs, changes or replacements required by any law, ordinance, regulation or order of governmental authority and may postpone compliance therewith, if so permitted by law, but in each such event Owner shall protect Casino Manager from any loss, cost, damage or expense which may result therefrom, such protection to be in a form satisfactory to Casino Manager. 14.4 The provisions of this Clause 14 are without prejudice to any of Casino Manager's rights or remedies arising out of any breach by Owner of its obligations under Clause 2. 14.5 If the Casino Manager or Owner recommends to Owner or the Casino Manager as the case may be that payment for repairs, maintenance and capital improvements provided for under this Clause 14 be made from the Reserve Fund created pursuant to Clause 13 and Owner and Casino Manager agrees then such funds in the Reserve Fund as may be necessary to meet such need may be so utilised. -27- 15. CASINO 15.1 Each of Owner and Casino Manager shall at all times comply with the provisions of the Act applicable to SHC as licensee and the Licence and will not do or omit any act which would constitute a ground for cancellation or suspension of the Licence. Each of Owner and Casino Manager shall at all times comply with their obligations under each of the Transaction Documents and will not do or omit any act which would constitute default under any such Transaction Document. 15.2 Each of Casino Manager and Owner agrees with the other that: (a) it will keep the other informed in respect to any matter or thing which in its opinion (such opinion to be reasonably formed having regard to the nature of the matter or thing and all other relevant circumstances) would or could result in a breach of the Act; (b) it will provide copies of all reports returns forms submissions or any other information of any kind provided by either to the Authority or received from the Authority; (c) it will not take any decision in respect to any matter or thing which in its opinion (such opinion to be reasonably formed having regard to the nature of the matter or thing and all other relevant circumstances) would or could result in the suspension or cancellation of the Licence or would or could result in a breach of the Act without the prior approval of the other; (d) it will keep the other informed of any proposed visits or meetings between representatives of it and the Director of Casino Surveillance under the Act of which it has prior notice where the purpose of such visit relates to the matters or things described in paragraphs (a), (b) or (c) hereof and shall permit the other to have a representative present at such visits or meetings if so requested. 16. INSURANCE 16.1 The provisions of this Clause 16 are subject to the provisions of the Project Documents. 16.2 Owner shall provide and maintain at Owner's sole expense, at all times during the period of construction, furnishing and equipping the Casino Complex, adequate builder's risk property insurance (covering all usual risks) and all risks required to be covered by the Authority. In addition, during such period Owner shall provide and maintain general liability insurance with the coverage and limits as more specifically set forth in Clause 16.7, fully protecting Owner, Casino Manager, and their respective subsidiaries and affiliates, against loss or damage arising in connection with the construction, furnishing, equipping and preparation for the opening of the Casino Complex. -28- 16.3 Throughout the Operating Term, Owner, at its sole expense, shall procure and maintain insurance policies which insure the Casino Complex and each of the component parts against damage from risks of all nature (excluding at Owner's discretion only damage resulting from war, nuclear energy, wear, tear and inherent vice) for the full 100% replacement costs of the Casino Complex and each of its component parts and in no event less than the minimum amount necessary to avoid the effect of co-insurance provisions in such policies, and Owner shall carry such other or additional insurance in such amounts and against such risks as Casino Manager shall reasonably require with respect to the buildings, facilities and contents of the Casino Complex, it being reasonable for Casino Manager to require insurance of the types and in the amounts generally carried on casinos and hotels owned and operated by Showboat or its affiliates. 16.4 The property damage insurance policies shall provide that the loss, if any, payable thereunder shall be adjusted with and payable to Owner. In addition, throughout the Operating Term, Owner shall also provide and maintain business interruption insurance covering loss of income to both Owner and Casino Manager for a minimum period of one year for not less than an amount equal to the government tax payable resulting from interruption of business caused by the occurrence of any of the risks insured against under the property damage insurance as previously set forth in this paragraph. The business interruption insurance policy shall provide that the loss, if any, payable thereunder shall be adjusted with and payable to Owner for the amount of the government tax and any additional amounts payable to Owner and Casino Manager as their interests may appear. 16.5 Boiler and Machinery insurance (including use and occupancy/loss of income) shall be effected for all direct loss or damage to property caused by an accident as defined under a standard Boiler and Machinery policy including boilers, pressure vessels and mechanical or electrical equipment. Said coverage shall be in limits of not less than replacement value. 16.6 Owner shall endeavour to obtain a waiver of right of subrogation from each insurer providing a property damage insurance policy or policies affecting the coverage specified in Clauses 16.2-16.5 which waiver of right of subrogation shall be for the benefit of Casino Manager, Showboat, Leighton and their respective subsidiaries and affiliates. 16.7 Casino Manager, as agent of Owner shall throughout the Operating Term procure and maintain the following insurance coverage to the extent such coverage is available for the Casino Complex either through participation in an insurance program developed for managed Showboat hotels and casinos, or in the local insurance market provided always that Owner shall be entitled to effect its own insurance beyond that procured by Casino Manager. The cost of the premiums for the insurance set forth in the following subparagraph 16.7(a) - (c) shall be paid from an Agency Account and shall be an Operating Expense. (a) general liability insurance having a minimum per occurrence limit of $150,000,000 or its local currency equivalent (exclusive of defence costs for -29- which there shall be no limit) against all claims which may be brought anywhere in the world for bodily injury, death or damage to property of third parties which insurance shall include coverage in the same amount against all claims brought anywhere in the world arising out of alleged: (1) false arrest, detention; (2) libel, slander, defamation or violation of the right of privacy or; (3) wrongful entry or eviction. If the coverage is not available through either a Showboat insurance program for managed hotels or in the local insurance market, then Casino Manager shall procure and maintain such coverage as may be available and most closely approximates the aforesaid coverage. All general liability insurance policies required pursuant to this Clause 16.7(a) shall name Owner, Casino Manager, Showboat, Leighton and their respective subsidiaries and affiliates as the insured. Employees of the foregoing engaged in work at or on behalf of the Casino Complex shall also be named as additional insured. (b) Motor vehicle liability insurance, including coverage arising out of the ownership or operation of motor vehicles for limits which are usual and customary for hotel motor vehicles in the area where the Casino Complex is located but, in any event, not less than limits that are required by law and covering the parties specified in Clause 16.7(a). If available and customary insurance of not less than $20,000,000 any one occurrence, or its local currency equivalent shall be maintained (exclusive of defence costs for which there shall be no limit) against all claims which may be brought anywhere in the world for bodily injury, death or damage to property of third parties. (c) Worker's compensation insurance as required from time to time. Casino Manager as agent for Owner shall prepare and lodge all employee wages and other returns and proposals as may be required from time to time to effect and maintain such insurance. 16.8 Owner or Casino Manager may each reasonably require an increase in the above limits of insurance coverage and may reasonably require the procuring and maintaining of other or additional insurance, provided such insurance is available. Owner and Casino Manager each acknowledge that it is reasonable for the other to require insurance of the types and in the amounts generally carried at casinos and hotels owned or operated by Showboat or its affiliates. 16.9 All insurance shall be in such form and with such companies as approved by Casino Manager and Owner, such approval not to be unreasonably withheld. All insurance shall be in compliance with the relevant terms of the Project Documents. 16.10 (a) Certificates of all policies shall be delivered to Owner and/or Casino Manager: -30- (1) not less than thirty (30) days prior to the First Opening Date in the case of all insurance required to be maintained during the Operating Term; and (2) not less than thirty (30) days prior to the expiration date of all policies of insurance that must be maintained subsequent to such expiration dates under the terms of this Agreement. All such certificates shall specify that the policies to which they relate cannot be cancelled on less than thirty (30) days prior written notice to Casino Manager. (b) Should Owner fail to supply Casino Manager with any such certificates, the placement of which is the responsibility of Owner, within the foregoing time limits, Casino Manager may provide such insurance as to which such certificates are not supplied or enrol Owner in any self-insurance program maintained by Casino Manager, Showboat or any of their affiliated or subsidiary companies, the expenses of such provision of insurance or the losses under such self-insurance program to be treated as an Owner's expense and not an Operating Expense. Any advances for such insurance made by Casino Manager shall be reimbursed by Owner on demand. 16.11 Any deductible payable with respect to any insurance claim shall be the responsibility of the party which would otherwise be liable if there had been no insurance covering the claim. 16.12 In the event that either party shall at any time fail, neglect, or refuse to maintain any of the insurance required under the provisions of Clause 16, then the other party may procure or renew such insurance, and any amounts paid therefor by that party shall be a debt due from the failing party on the first day of the month following such payment, together with Interest calculated on daily rests from the date of payment for such insurance until repayment thereof to the non-failing party by the failing party. 16.13 Owner shall co-operate with Casino Manager to the extent Casino Manager may reasonably require and Casino Manager shall co-operate with Owner to the extent Owner may reasonably require in connection with the prosecution or defence of any action or proceedings arising out of, or for the collection of any insurance proceeds and will execute and deliver to Owner or Casino Manager, as the case may be, such instruments as may be properly required to facilitate the recovery of any insurance proceeds. 17. OWNER TO PAY REAL AND PERSONAL PROPERTY TAXES 17.1 Owner shall pay, on or before the final dates on which the same may be payable without the assessment of interest or penalties, with the right to pay the same in -31- instalments to the extent permitted by law, all real estate taxes, all personal property taxes and all betterment assessments levied against the Casino Complex or any of its component parts. 17.2 Owner shall furnish Casino Manager, on or before the foregoing deadlines, proof of payment thereof in form satisfactory to Casino Manager, in default whereof, Casino Manager may pay any such taxes or assessment on Owner's behalf in which event Casino Manager shall be reimbursed forthwith by Owner for all sums so expended plus Interest, and may withdraw same from the Agency Account or the Reserve Account at any time. 17.3 Notwithstanding the foregoing, Owner may, at its sole expense, contest the validity or the amount of any such tax or assessment, provided that such contest in no way jeopardises Casino Manager's rights under this Agreement. Casino Manager agrees to cooperate with Owner and execute any documents or pleadings required for such purpose, provided that Casino Manager is satisfied that the facts set forth in such documents or pleadings are accurate and that such execution or cooperation does not impose any obligations or expenses on Casino Manager, and Owner agrees to reimburse Casino Manager for all increased expenses occasioned to Casino Manager by any such contest. 18. NAME 18.1 During the term of this Agreement, the Casino Complex shall at all times be known and designated as the "Sydney Harbour Casino" or such other name as from time to time may be selected by Casino Manager, subject to the prior written approval of the Authority and the approval of Owner. 18.2 SAL and its Associates shall be entitled to use the name of the Casino Complex and any logo or trade marks associated therewith in any advertising or promotional activities associated either with the Casino Complex or Showboat and its Associates without charge. 19. DAMAGE OR DESTRUCTION - CONDEMNATION 19.1 (a) Subject to the provisions of the Leases, if the Casino Complex or any portion thereof shall be damaged or destroyed at any time or times during the Operating Term by fire, casualty or any other cause, Owner will, at its own cost and expense and with due diligence, repair, rebuild or replace the same so that after such repairing, rebuilding, or replacing the Casino Complex shall be substantially the same as prior to such damage or destruction. If Owner fails to commence such work within one hundred and eighty (180) days after the fire or other casualty, or shall fail to complete the same diligently, Casino Manager may, at its option, either: (1) terminate this Agreement by written notice to Owner; or -32- (2) commence or complete such work for the account of Owner, in which event Casino Manager shall be entitled to be repaid therefor as provided in Clause 20.4 and the proceeds of insurance shall be made available to Casino Manager. Casino Manager shall further have the right to require that any proceeds from insurance be applied to such repairing, rebuilding or replacing. (b) Notwithstanding the foregoing, if the Casino Complex is damaged or destroyed to such an extent that the cost of repairs or restoration as reasonably estimated by Casino Manager exceeds one-third of the replacement cost of the Casino Complex, Casino Manager may terminate this Agreement by written notice to Owner or Owner may if it determines not to repair or rebuild or replace the Casino Complex as aforesaid terminate this Agreement by such notice to Casino Manager. Subject to the Act and the provisions of Part 3, Division 2 of the Act, if thereafter at any time during the Operating Term hereof but within three (3) years of such damage or destruction Owner commences to repair, rebuild or replace the Casino Complex so that Casino Operations continue it shall give written notice thereof to Casino Manager and Casino Manager may within sixty (60) days of written notice from Owner of its intention to repair rebuild or replace the Casino Complex reinstate this Agreement by written notice to Owner. 19.2 If the whole of the Casino Complex shall be resumed or condemned under any, condemnation, compulsory resumption or like proceeding by any competent authority or if such a portion thereof shall be taken or condemned as to make it imprudent or unreasonable, in Casino Manager's reasonable opinion, to use the remaining portion as a hotel and casino complex of the type and class of the Casino Complex immediately preceding such taking or condemnation, then the Operating Term shall terminate as of the date of such taking or condemnation, but any award for such taking or condemnation shall be fairly and equitably apportioned between Owner and Casino Manager with priority to recoupment by Owner of its investment in the Casino Complex. 19.3 If only a part of the Casino Complex shall be taken or condemned and the taking or condemnation of such part does not make it unreasonable or imprudent, in Casino Manager's reasonable opinion, to operate the remainder as a hotel of the type and class of the Casino Complex immediately preceding such taking or condemnation, this Agreement shall not terminate, and so much of any award to Owner shall be made available as shall be reasonably necessary for making alterations or modifications of the Casino Complex, or any part thereof, so as to make it a satisfactory architectural unit as a hotel of similar type and class as prior to the taking or condemnation. The balance of the award, after deduction of the sum necessary for such alterations or modifications, shall be fairly and equitably apportioned between Owner and Casino Manager so as to compensate Casino Manager for any loss of income resulting from the taking or condemnation. 19.4 The provisions of this Clause 19 are subject to the provisions of the Project Documents. -33- 20. TITLE TO COMPLEX 20.1 Owner covenants and agrees that: (a) It will throughout the Operating Term of this Agreement maintain full ownership of the Temporary Premises and Permanent Site as relevant and the Building and Appurtenances, as lessee in the case of SHCP under the Leases granted for the Temporary Casino and for the Permanent Site respectively, free and clear of all liens and encumbrances save those as referred to in Schedule 1 to this Agreement and as licensee in the case of SHC under the licences granted to it by SHCP. (b) It will throughout the term of this Agreement maintain full ownership of the Furniture and Equipment, Operating Equipment and Operating Supplies free and clear of all liens and encumbrances save those referred to in Schedule 1 to this Agreement (c) During the currency of the relevant Lease or Leases or licence, Owner will carry out and perform its obligations as lessee or licensee as the case may be. 20.2 Owner covenants that Casino Manager upon fulfilling its obligations hereunder, shall have undisturbed occupation, management and operation of the Casino Complex during the Operating Term in accordance with this Agreement, and Owner will at its own expense undertake and prosecute any appropriate action, judicial or otherwise, to assure such peaceful and quiet possession by Casino Manager. 20.3 Owner further agrees that throughout the term of this Agreement it will pay, keep, observe and perform all payments, terms, covenants, conditions and obligations required under any lease, mortgage, or other agreement creating a lien on the Temporary Premises or Permanent Site as relevant, the Building and Appurtenances or the Furniture and Equipment, Operating Equipment or Operating Supplies and under the COA and any other agreements required to maintain the Licence and the relevant Lease in full force and effect. 20.4 Should Casino Manager elect at any time to do so or should Owner default in the performance of any of the foregoing obligations or any other obligations hereunder, Casino Manager, or any of its affiliates may, on Owner's behalf, fulfill said obligations, using their own funds or funds from time to time in an Agency Account or the Reserve Account, and shall be reimbursed forthwith by Owner for all sums so expended out of their own funds with Interest and may withdraw same from an Agency Account or the Reserve Account in whole or in part at any time. Any Agency Account or Reserve Account funds used for the foregoing purposes will be promptly replenished by Owner. 20.5 This Clause 20 is subject to the provisions of the Project Documents. -34- 21. TERMINATION 21.1 The following shall constitute events of default: (a) The failure of Casino Manager to pay any amount to Owner provided for herein when the same is payable, or the failure of Owner to pay or furnish to Casino Manager any amount Owner is required to pay or furnish to Casino Manager in accordance with the terms hereof (including, without limitation, fees and working capital) when the same is payable or required to be furnished or the failure of Owner to pay any amount payable to Showboat or any of its affiliated or subsidiary companies for a period of thirty (30) days after such amount becomes payable. (b) The filing of a voluntary petition for winding up or a petition for reorganisation under any applicable law of either Owner or Casino Manager without the consent in writing of the other of them. (c) If a petition is presented for the winding up of either Owner or Casino Manager and such party cannot within ninety (90) days thereafter reasonably satisfy the other that the petition is frivolous or vexatious. (d) If any order is made for the winding up of Owner or Casino Manager. (e) The appointment of an administrator, a receiver, or receiver and casino manager of all or a substantial part of the assets or undertaking of either Owner or Casino Manager. (f) The execution for an amount in excess of one million ($1,000,000) upon any property of Owner or Casino Manager which is not stayed or satisfied within sixty days . (g) The failure of either Owner, Casino Manager, Showboat or Leighton to perform, keep or fulfill any of the covenants, undertakings, operations or conditions set forth in the Licence where such failure has a material adverse effect on either the Licence, the Transaction Documents, Owner, Casino Manager or the operations of the Casino Complex. (h) The failure of Owner to maintain at all times throughout the Operating Term hereof all of the insurance required to be maintained by Owner under this Agreement. (i) The failure of either Owner or Casino Manager to perform, keep or fulfill any of the other covenants, undertakings, obligations or conditions set forth in this Agreement where such failure has a material adverse effect on the other party provided that in the case of any alleged default by Casino Manager pursuant to the provisions of Clauses 6 or 9 of this Agreement Casino Manager has failed within sixty days of receiving notice of the alledged default from Owner (which notice shall include sufficient particulars of the default to enable Casino Manager to properly comprehend the nature -35- and extent of the default alledged) to rectify the default or otherwise reasonably satisfy Owner. (j) The Authority in its absolute discretion at any time deems the Casino Manager unsuitable to perform its role. 21.2 In any of such events of default and subject to the termination and novation provisions of the COA, the non-defaulting party may give to the defaulting party notice of its intention to terminate the Operating Term after the expiration of a period of fifteen (15) days from the date such notice is served and, upon the expiration of such period, the Operating Term shall expire. If, however, with respect to the events of default referred to in Clause 21.1 (a) and (g) - (i) above and unless a specific right of termination is specified elsewhere in this Agreement for the breach in question: (a) upon receipt of such notice the defaulting party shall promptly and with all due diligence remedy the default within the said fifteen (15) day period; or (b) if such default is not capable of remedy within said fifteen (15) day period, take and continue action to remedy such default with all due diligence until the same is cured, but for not more than ninety (90) days from such notice; then such notice shall be of no force and effect. 21.3 Notwithstanding the foregoing, neither Owner nor Casino Manager shall be deemed to be in default under this Agreement if a bona fide dispute with respect to any of the foregoing events of default has arisen between them and such dispute has been or is submitted to arbitration prior to the expiration of the foregoing fifteen (15) day notice period for the termination of this Agreement, provided that the provisions of this paragraph will not apply to any dispute over a determination by the Independent Chartered Accountant on any matter to be determined by him under the provisions of this Agreement, and further provided that Casino Manager may terminate this Agreement notwithstanding the existence of this paragraph if Owner fails at any time during the pendency of the arbitration proceedings to comply with its obligations under Clause 10 in respect of the furnishing of working capital for the operation of the Casino Complex. 21.4 The rights granted above shall not be in substitution for, but shall be, except as otherwise provided in this Agreement, in addition to any and all rights and remedies for breach of contract (other than the right to terminate this Agreement)granted by applicable provisions of law. 21.5 In addition to the rights of termination specified above, Owner or Casino Manager may terminate the Operating Term where: (a) the Licence or any licence necessary for the operation of the Casino Complex, is suspended and as a result of such suspension the Casino -36- Complex ceases to trade for a period in excess of one hundred and twenty (120) days; (b) any event as specified in the COA entitling the State of New South Wales or the Authority, as the case may be, to terminate the COA has occurred consequent upon a default or failure of the other party and the Authority has given notice of its intention to terminate unless the alleged failure or default is remedied, and such failure or default is not remedied within the time specified. 21.6 Subject to the provisions of the Continuity and Co-Operation Agreement (as defined in the Compliance Deed) and in accordance with the provisions of Clause 7 of the COA, Owner acknowledges and agrees that in the event of default that Casino Manager may enter into or novate and continue the operation of this agreement with the Authority if so requested or required by the Authority. 21.7 Associates of Casino Manager own and/or operate or will own and/or operate casino gaming facilities in the states of Nevada, New Jersey and Louisiana, United States of America, which are subject to extensive state and local regulation. If the Authority determines that a member of Owner is unsuitable to be a member or has taken or threatened to take disciplinary action or other action that could result in loss or suspension of the Licence as a consequence of the status or any action of Owner, a member of Owner, any Associate of Owner or a member thereof and if, in the sole judgment and discretion of Casino Manager, such determination, disciplinary action or other action may result in a disciplinary action or the loss of or inability to reinstate any registration, application or licence or any rights or entitlements held by Casino Manager or any Associate of Casino Manager under the applicable laws of any other jurisdiction, then Casino Manager may terminate the Operating Term provided that Casino Manager will consult with Owner to ensure the continuance of Casino Operations. 22. NOTICES 22.1 Requirements for Notices Every notice or other communication to be given or made under or arising from this Agreement: (a) must be in writing; (b) must be signed by an authorised officer of the sender; (c) will be deemed to have been duly given or made to a person if delivered or posted by prepaid post to the address, or sent by fax to the fax number of that person set out in Clause 22.2 (or to any other address or fax number as is notified in writing by that person to the other parties from time to time); and -37- (d) will be deemed to be given or made (unless a later time is specified in the notice or communication); (1) (in the case of prepaid post being sent and received within Australia) on the third day after the date of posting as indicated by the postmark on the notice or communication; (2) (in the case of prepaid post being sent or received outside Australia) on the fifth day after the date of posting as indicated by the postmark on the notice or communication; (3) (in the case of delivery by hand) on delivery, provided that where delivery is made: (A) after 5:00 pm on any Business Day in the city of the recipient of the notice or communication, then in such case at 9:00 am on the next following Business Day; (B) on a day which is not a Business Day in the city of the recipient of the notice or communication, then in such case at 9:00 am on the next following Business Day; (4) (in the case of fax) on receipt of a transmission report which indicates that the facsimile was sent in its entirety to the facsimile number of the addressee. 22.2 Addresses Until otherwise notified, the addresses, telex numbers and facsimile transmission numbers of the parties are as follows: Owner: Sydney Harbour Casino Pty Limited and Sydney Harbour Casino Properties Pty Limited Fax: 925 6003 Attention: Mr Gregg Nasky Casino Manager: Sydney Casino Management Company Limited Fax: 925 6003 Attention: Mr Gregg Nasky With a copy to each of: SAL: Fax: 925 6003 Attention: Mr Gregg Nasky and: Leighton Fax: 925 6003 Attention: Mr Vyril Vella -38- 23. GOVERNING LAW AND JURISDICTION 23.1 Governing Law This Agreement is governed by and construed in accordance with the laws of the State of New South Wales. 23.2 Jurisdiction (a) Each party irrevocably submits to and accepts, generally and unconditionally, the non-exclusive jurisdiction of the courts and appellate courts of the State of New South Wales with respect to any action or proceedings which may be brought at any time relating in any way to this Agreement. (b) Each party irrevocably waives any objection it may now or in the future have to the venue of any action or proceeding, and any claim it may now or in the future have that any action or proceeding has been brought in an inconvenient forum. (c) Each party irrevocably waives immunity in respect of objections under this Agreement that it may acquire from the jurisdiction of any court or any legal or arbitration process for any reason including without limitation, the service of notice, attachment prior to judgment, attachment in aid of execution or execution. 24. CONSENT 24.1 Except as herein otherwise provided, whenever in this Agreement the consent or approval of Casino Manager or Owner is required, such consent or approval shall not be unreasonably withheld. Such consent shall also be in writing only and shall be duly executed by an authorised officer or agent of the party granting such consent or approval. 25. OWNER'S RIGHT OF SALE 25.1 Except as otherwise provided for by and in accordance with the provisions of the Continuity and Co-operation Agreement, Owner agrees that it will not sell, assign or transfer, or otherwise deal in any way with its interest in the Casino Complex except with the benefit of this Agreement and provided that Owner obtains the prior written approval of Casino Manager which approval shall not be unreasonably withheld. 25.2 Casino Manager may withhold its approval in its absolute discretion if the proposed sale, assignment, transfer or dealing is proposed: -39- (a) to a person, company or company related to such a company, ("related" having the meaning used in the Corporations Law) which carries on as one of its activities casino or hotel management; (b) to a person or company which does not have the financial capacity to carry out and perform its obligations as the Owner under the terms of this Agreement, the Project Documents or the Licence unless Casino Manager has the benefit of a guarantee from a person or company which has such financial capacity; (c) during the first twelve years of the Operating Term; (d) without the prior approval of the Authority; (e) to any person where such sale, assignment, transfer or dealing would result in Casino Manager having the right to terminate this Agreement under the provisions of Clause 21.8 hereof. 25.3 (a) In the event of the Owner wishing to sell, transfer, assign or deal with its interest in the Casino Complex, the Owner will notify the Casino Manager and provide to it financial particulars and details and such other information as the Casino Manager may reasonably request relating to the company or person to which Owner proposes to sell, assign, transfer or deal with its interest (the "Purchaser"). (b) Owner will afford to the Casino Manager a reasonable time to review such particulars and to advise the Owner as to whether or not it approves, having regard to the limitations contained in this Clause, the Purchaser. (c) If there is any dispute between the Casino Manager and Owner as to whether: (1) a Purchaser has the requisite financial capacity as referred to in Clause 25.2(b) above to carry out and perform its obligations as Owner under the Casino Complex Management Agreement; (2) the guarantor has the requisite financial capacity as referred to in Clause 25.2(b) above; (3) the Purchaser is a person or company within the criteria of Clause 25.2(a) above, the matter shall be referred to the Independent Chartered Accountant whose decision shall be final and binding. (d) If, in accordance with the provisions of this Clause: (1) Casino Manager approves of the Purchaser; or -40- (2) the financial capacity as referred to in Clause 25.2(b) above or acceptable criteria as referred to in 25.2(a) above of the Purchaser (or guarantor) has been referred to the Independent Chartered Accountant who determines that the purchaser (or guarantor) does have the requisite financial capacity as referred to in Clause 25.2(b) above; and in either case acceptable criteria as referred to in Clause 25.2(a) above are established then Owner shall, in the event of the sale proceeding, assign its interest in this Agreement to the Purchaser by a deed to which Owner, Purchaser, Casino Manager, SAL and Leighton are parties and the Purchaser assumes all obligations of Owner. (e) The deed shall release the Owner of its obligations under the Casino Complex Management Agreement with effect from the date of assignment to the Purchaser but without prejudice to any antecedent right, claim, demand or action Casino Manager may have against Owner or any guarantor under this Agreement and any of the Transaction Documents to which it is a party. Except for any mortgage or charge referred to in Schedule 1 Owner shall not enter into any mortgage affecting or relating to the Casino Complex or grant any charge over its assets or undertaking relating to the Casino Complex except with the prior written approval of Casino Manager which approval shall not be unreasonably withheld. 25.4 In the event that the Authority in its absolute discretion at any time deems the Owner to be unsuitable to perform its role hereunder or the Owner fails to meet its financial covenants in any finance documents relating to the Sydney Harbour Casino and as a consequence a financier in exercise of any rights it may have under its security documents with Owner wishes to sell, assign, transfer or otherwise deal in any way with Owner's interest in the Casino Complex and the benefit of this Agreement, then Casino Manager shall have the pre-emptive right to acquire such interest on the same terms and conditions as are offered by any bona fide third party within 90 days of being given written notice of such terms and conditions. 25.5 The provisions of this Clause are subject to the Act and the Project Documents. 26. ASSIGNMENT 26.1 Subject to the Act, the Project Documents all Transaction Documents and the consent of the Authority, (a) Casino Manager shall have the right to assign all its rights, title and interest under this Agreement to a subsidiary company of it or Showboat, provided that Casino Manager, Showboat or a subsidiary of Showboat shall at all times own at least fifty-one percent (51%) of all classes of capital stock of said subsidiary, and provided further that said subsidiary enjoys the benefits of the Showboat organisation to the same degree as Casino Manager and -41- that Leighton has the right to acquire 15% of all classes of capital stock of such subsidiary. (b) Casino Manager shall have the right to assign this Agreement to any successor or assignee of Casino Manager or Showboat which may result from any merger, consolidation or reorganisation, or to another corporation which acquires all or substantially all of the business and assets of Showboat provided Leighton has the right to acquire 15% of all classes of capital stock of such successor or assignee. (c) With Owner's consent Casino Manager shall also have the right to assign all right, title and interest under this Agreement to any Assignee. 26.2 Any assignment permitted by this Clause and upon assumption of this Agreement by the assignee the assignor shall be relieved of any obligation or liability under this Agreement. 27. LIABILITY OF OWNER AND CASINO MANAGER 27.1 Notwithstanding any other provisions of this Agreement, Casino Manager, Showboat, Leighton or any of its affiliates or subsidiaries who perform services on behalf of Casino Manager hereunder ("the Service Provider") shall not, in the performance of this Agreement, be liable to Owner for any damages, loss, cost, or expense unless that loss or damage resulted in whole or in part from the recklessness or wilful misconduct of the Service Provider or its directors, officers or employees PROVIDED HOWEVER that if the Service Provider has implemented procedures and systems in respect of training and safety including employment systems which directors, officers and employees are required to comply with which they recklessly or by wilful misconduct do not comply with thereby causing loss or damage then the Service Provider shall not be liable for such loss or damage PROVIDED HOWEVER that if any financier of the Owner has exercised its rights under any securities given over the Casino Complex such that it thereby has a contractual relationship with the Service Provider and the Service Provider has failed to provide services hereunder in accordance with the Standards and as a direct consequence of such failure the Licence is suspended or terminated then the Service Provider shall be liable for any damages, loss, cost or expense caused thereby. 27.2 The Owner hereby indemnifies the Service Provider from and against all costs and expenses of whatsoever nature which arise from the performance by the Service Provider of its responsibilities hereunder except where the Casino Manager is liable for costs or damage under Clause 27.1. 27.3 Casino Manager agrees that, in its operation of the Casino Complex pursuant to this Agreement, it will perform its duties in accordance with industry standards for the operation of similar international standard casinos and hotels by an experienced Casino Manager. Casino Manager shall be liable for claims of third parties for -42- personal injury and property damage not covered by the insurance required under Clause 16.7 hereof which result from the recklessness or wilful misconduct of Casino Manager, or its subsidiaries or affiliates respectively having due regard to the standards set out in Clause 27.3. 27.4 Defence counsel engaged by Casino Manager or Owner, as indemnifier under Clause 27, shall be reasonably acceptable to the other party. Without limiting the generality of the foregoing, indemnifier shall promptly provide the other party with copies of all claims and pleadings (as well as correspondence, memos, documents and discovery with respect thereto, unless within the scope of any applicable privilege) relating to any such matters. The indemnifier shall give prior written notice to the other party of all meetings, conferences and judicial proceedings and shall be afforded an opportunity to attend and participate in same. The indemnifier shall afford the other party the right to engage independent counsel, at its sole expense, to represent indemnitee as additional and/or co-counsel in all such proceedings, trials, appeals and meetings with respect thereto. 28. PARTIAL INVALIDITY 28.1 In the event that any one or more of the phrases, sentences, Clauses or paragraphs contained in this Agreement shall be declared invalid by the final and unappealable order, decree or judgment of any court, this Agreement shall be construed as if such phrases, sentences, Clauses or paragraphs had not been inserted; provided that if any portion of Clauses 7, 8, 12 or 27 be so declared invalid, Casino Manager shall have the option to terminate this Agreement within thirty (30) days thereafter on written notice to Owner. 29. SPECIAL CONDITIONS 29.1 This Agreement and the provisions contained herein are subject to and conditional upon the satisfaction of each of the following conditions: (a) The approval of the Foreign Investment Review Board to Casino Manager becoming the casino manager of the Casino Complex, if required. (b) Approval of the Authority to the appointment of Casino Manager. 29.2 Any of the conditions precedent referred to in Clause 29.1 may be waived in writing by both parties whereupon satisfaction of such condition shall no longer be a condition to the operation of this Agreement. 29.3 Either party may also request in writing the other party to waive any of the conditions. 29.4 In the event that any of the conditions precedent have not been satisfied by 31 March 1995 or subsequently waived following a request to waive made by the -43- other party either party may terminate this Agreement on notice to the other and the consequence of such termination shall be that neither party shall have any claim against the other for damages or otherwise by reason merely of such termination but if such termination occurs after Casino Manager has become entitled to fees hereunder, Casino Manager shall be entitled to such fees. 29.5 Casino Manager, through its agents and attorneys, will arrange for the filing of the necessary applications for the approvals referred to in Clause 29.1 (a) and (b) above. Owner will fully cooperate with Casino Manager in connection with the said approvals, will execute any required application forms or other documents required for obtaining same and will bear all costs incurred by Casino Manager in connection with obtaining such approvals, including legal fees. All costs incurred by Casino Manager will be considered as Pre-Opening Expenses. 30. CURRENCY 30.1 It is understood that Casino Manager: (a) will receive its fee in Australian dollars and be reimbursed for any moneys outlayed by it unless such payments are reimbursements for funds expended in another currency when Casino Manager will be repaid in Australian dollars such amount as will fully discharge the expense incurred; (b) intends to compensate its United States and other expatriate personnel (referred to in Clause 7), consultants and experts (including Showboat and any Showboat subsidiary) that may perform services for the Casino Complex in currency of the country of which they are nationals, a country in which they maintain a residence or in currency of the United States of America, whichever of such currencies Casino Manager shall elect, and for said personnel, consultants and experts to be able to repatriate said compensation; and (c) to the extent necessary in its judgment, will make payments in currency other than Australian dollars in order to properly perform the Pre-Opening Services referred to in Clause 3 hereof and to operate the Casino Complex in a manner which will successfully cater to the international tourist and business trade, including, without limitation: (1) expenditures to cover reasonable travelling expenses and reasonable living expenses included in the budget while engaged in travel in connection with the management of the Casino Complex of nominated Casino Complex personnel and of nominated employees and nominated executives of Casino Manager, Showboat and any of their affiliated companies who visit the Casino Complex in connection with the operation thereof or the performance of technical services hereunder; -44- (2) reasonable travelling and moving expenses of expatriate Casino Complex personnel and their families to the Casino Complex at the commencement of their employment and back to the place from which they were hired or the location of their next employment (limited to the higher of the cost of return to the former place or to a country of which they are nationals or legal residents) at the termination of their employment at the Casino Complex, to the extent these expenditures cannot conveniently be made in the currency of the country in which the Casino Complex is located; (3) reasonable expenditures to reimburse Showboat and its affiliated companies for communications sent to the Casino Complex by mail, cable, telex, telephone or otherwise; (4) expenditures for the importation of food, beverages, Operating Supplies and replacements of and additions to Furniture and Equipment and Operating Equipment (including payments to Showboat or any Showboat subsidiary for same); (5) payments to travel agents; and (6) other payments for selling of the services of the Casino Complex, for consultant and technical services (including payments to any Showboat subsidiary for same) and for marketing the Casino Complex outside of the country in which it is located; provided, however, that Casino Manager will not be obliged to make any such expenditures unless currency control authorities or other governmental authorities as may have jurisdiction make the appropriate foreign currency available therefor. 30.2 (a) For the purposes of determining the amounts of local currency to be deducted from Total Revenue with respect to Operating Expenses which have been paid for in currency other than the currency of the country in which the Casino Complex is located, such deductions shall be calculated at the exchange rate in effect on the date such foreign currency payments are made. (b) Notwithstanding the foregoing to the extent the Casino Complex receives foreign currency or local currency is converted into foreign currency, all future payments of Operating Expenses with such foreign currency shall be calculated at the exchange rate in effect on the date of said receipt or conversion. (c) Currency conversion in respect of all payments to be made hereunder in currency other than Australian dollars shall be calculated at the prevailing exchange rate for payments of a similar nature in Australia on the date such payment is made provided that amounts unsettled at the end of each Fiscal -45- Year shall be calculated at the prevailing exchange rate on the last Business Day of the Fiscal Year. 31. OWNER'S SOLE BUSINESS 31.1 Owner hereby warrants that the ownership of the Casino Complex and Owner's activities in compliance with this Agreement are the sole business and activities of Owner, and Owner hereby agrees not to engage in any other activity of business during the Operating Term without the approval of Casino Manager. This Clause is not intended in any way to limit the activities of any of Owner's stockholders or affiliates. 32. MISCELLANEOUS 32.1 If during the term of this Agreement the designated Independent Chartered Accountants shall no longer be in existence and has no successor or if Casino Manager shall desire to substitute another firm of independent chartered accountants, the name of any reputable international firm of independent chartered accountants having casino and hotel experience, selected by Casino Manager and approved by Owner, shall be deemed substituted in its place. 32.2 Owner and Casino Manager shall execute and deliver all other appropriate supplemental agreements and other instruments, and take any other action necessary to make this Agreement fully legally effective, binding and enforceable as between them and as against third parties, including Owner's filing in appropriate governmental offices pursuant to any statute, ordinance, rule or regulation requiring such filing by persons or entities doing business in a name other than their own, of a certificate or similar document indicating that Owner is engaging in the hotel business at the Casino Complex under the name of the Casino Complex. Any fees or expenses incurred in connection therewith shall be borne by Owner and shall not be Operating Expenses. 32.3 The headings of the titles to the several articles of this Agreement are inserted for convenience only and are not intended to affect the meaning of any of the provisions hereof. 32.4 The waiver of any of the terms and conditions of this Agreement on any occasion or occasions shall not be deemed a waiver of such terms or conditions on any future occasion. 32.5 This Agreement shall be binding upon and inure to the benefit of Owner and Casino Manager and their respective successors and/or permitted assigns. 32.6 Unless expressly stated to the contrary, all references to amounts of money are expressed in currency of Australia. -46- 32.7 Until Owner shall advise Casino Manager to the contrary in writing, Casino Manager may rely on any Director or Secretary or other officer of Owner as being authorised to take any action required or permitted to be taken by Owner, including, without limitation, the giving of all approvals hereunder. 32.8 Owner shall use its best efforts to cause its officers, directors, employees and stockholders to provide the Nevada gaming authorities, the Louisiana gaming authorities, and the New Jersey gaming authorities and any other authority to which Showboat or its affiliates will report to with such documents and information necessary for Casino Manager's affiliates to maintain or obtain Casino Manager's Affiliates' gaming licenses in other jurisdictions. 32.9 All information furnished by either party under or pursuant to this Agreement, including financial information, to the other party shall be held by the other party in strict confidence and shall not be revealed or made accessible in whole or in part, in any manner whatsoever to any other persons unless required by law or unless each party consents to such disclosure or unless such information already is part of the public domain. All such confidential information, including all copies of such information shall be returned to the party furnishing the information when requested by such party, without making or retaining copies or excerpts of such information. 32.10 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 either party. This Agreement shall be construed without regard to any presumption or other rule requiring construction against the party causing the same to be drafted. 32.11 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. 32.12 Whenever this Agreement requires an act to be performed within a specified time period or to be completed diligently, such periods are subject to "unavoidable delays". Unavoidable delays include delays caused by acts of God, acts of war, civil commotions, riots, strikes, lockouts, acts of government in either its sovereign or contractual capacity, perturbation in telecommunications transmissions, inability to obtain suitable labor or materials, accident, fire, water damages, flood, earthquake, or other natural catastrophes. 32.13 Casino Manager shall use its best efforts to render the services contemplated by this Agreement in good faith to Owner, but hereby explicitly disclaims any and all warranties, express or implied, including but not limited to the success or -47- profitability of the Casino Complex. In the performance of the services contemplated by this Agreement, Casino Manager shall not be liable to Owner for any acts or omissions in connection therewith other than fraud or willful misconduct. 33. ENTIRE AGREEMENT 33.1 This Agreement in conjunction with relevant provisions of the Act and the Project Documents constitutes the entire Agreement between the parties relating to the subject matter hereof, superseding all prior agreements or undertakings, oral or written. Owner hereby represents that in entering into this Agreement Owner has not relied on any projection of earnings, statements as to the possibility of future success or other similar matter which may have been prepared by Casino Manager, Showboat, or any of their respective affiliates or subsidiaries, and understands that no guarantee is made or implied by Casino Manager, Showboat or any of their affiliated or subsidiary companies as to the cost or the future financial success of the Casino Complex. 34. DISPUTE RESOLUTION 34.1 A party must not commence or maintain any action or court proceedings (except proceedings seeking interlocutory relief) in respect of a dispute or difference as to any matter relating to or arising under this Agreement ("Dispute") unless it has complied with this Clause 34. 34.2 A party claiming that a Dispute has arisen must notify the other parties giving details of the Dispute. 34.3 Within 3 business days after a notice is given under clause 34.2 each party must nominate in writing a representative authorised to settle the Dispute on its behalf ("Representative"). 34.4 During the period of 10 business days after a notice is given under clause 34.2 (or any longer period agreed between the parties), each party must ensure that is Representative uses his or her best endeavours, with the other Representatives to: (a) resolve the Dispute; or (b) agree on a process to resolve the Dispute without court proceedings (e.g. mediation, conciliation, executive appraisal or independent expert determination) including: (1) the involvement of any dispute resolution organisation; (2) the selection and payment of a third party to be engaged by the parties to assist in negotiating a resolution of the Dispute without making a -48- decision that is binding on a party unless that party's Representative has so agreed in writing; (3) any procedural rules; (4) the timetable, including any exchange of relevant information and documents; and (5) the place where meetings will be held. 34.5 If within the period specified in Clause 34.4, the Representatives have not resolved the Dispute or agreed upon a process to resolve the Dispute, the parties may, within 5 business days after expiry of that period, agree to appoint a person, who is of good repute and is an expert in the area relevant to the Dispute, to perform the following functions, which the parties authorise the person to do: (a) act as an independent consultant for the purpose of resolving the Dispute, as an expert and not as an arbitrator; (b) establish the procedures for identifying the issues relating to the Dispute and the contentions of the parties, in accordance with considerations of procedural fairness; (c) make a written, reasoned decision to resolve the Dispute; and (d) decide how the independent consultant's fees should be paid by the parties. If the parties cannot agree, within the 5 business day period referred in this sub-clause, on the appointment of an independent consultant, the parties must request the Secretary General of the Australian Commercial Disputes Centre Limited to appoint that person. 34.6 A decision by the independent consultant under Clause 34.5 shall be final and binding on the parties. However, a party is entitled to take court proceedings to appeal that decision on a question of law. 34.7 If, by the expiry of the period of 5 business days specified in Clause 34.5: (a) the Dispute has not been resolved; (b) no process has been agreed under Clause 34.4; and (c) no request has been made under Clause 34.5, then a party that has complied with Clauses 34.2 to 34.4 may terminate the dispute resolution process by giving notice to the other parties, whereupon Clause 34.1 shall no longer operate in relation to the Dispute. 34.8 Each party: -49- (a) must keep confidential all confidential information and confidential communications made by a Representative under this clause; and (b) must not use or disclose that confidential information or those confidential communications except to attempt to resolve the Dispute, but nothing in this sub-clause shall affect the admissibility into evidence in any court or arbitral proceedings of extrinsic evidence of facts which, but for this sub-clause, would be admissible in evidence. 34.9 Each party must bear its own costs of resolving a Dispute under this Clause 34. 34.10 If a party does not comply with any provision of Clauses 34.2 to 34.4 or, if applicable, clause 34.5 and any procedural requirements established under Clause 34.5(b) then the other parties will not be bound by those sub-clauses in relation to the Dispute. SCHEDULE 1 LIENS AND ENCUMBRANCES CLAUSE 20.1 Encumbrances in favour of the Commonwealth Bank of Australia ACN 123 123 124 and the Authority granted to support the Application as that term is defined in the Compliance Deed between the Authority, SHC, SHCP, SHC Holdings, SAL, Leighton, Leighton Holdings, Casino Manager and Showboat Operating Company. IN WITNESS WHEREOF the parties have duly executed this Agreement the day and year first above written. SIGNED for and on behalf of ) SYDNEY HARBOUR CASINO ) PROPERTIES PTY LIMITED ) ) by: H.G. Nasky its ) Attorney under a Power of Attorney ) ) dated: 21/4/94 ) ) and who declares that he has not ) received any notice of the revocation ) of such Power of Attorney ) in the presence of: ) /s/ H. Gregory Nasky Signature /s/ A. Tsekouras Signature of Witness A. Tsekouras Name of Witness in full -50- SIGNED for and on behalf of ) SYDNEY HARBOUR CASINO ) PTY LIMITED by H. G. Nasky its ) Attorney under a Power of Attorney ) dated: 21/4/94 ) and who declares that he has not ) received any notice of the revocation ) of such Power of Attorney ) in the presence of: ) /s/ H. Gregory Nasky Signature /s/ A. Tsekouras Signature of Witness A. Tsekouras Name of Witness in full SIGNED for and on behalf of ) SHOWBOAT AUSTRALIA ) PTY LIMITED by H. G. Nasky its ) Attorney under a Power of Attorney ) dated: 21/4/94 ) and who declares that he has not ) received any notice of the revocation ) of such Power of Attorney ) in the presence of: ) /s/ H. Gregory Nasky Signature /s/ A. Tsekouras Signature of Witness A. Tsekouras Name of Witness in full SIGNED for and on behalf of ) LEIGHTON PROPERTIES ) PTY LIMITED by Vyril Vella its ) Attorney under a Power of Attorney ) dated: 21/4/94 ) and who declares that he has not ) received any notice of the revocation ) of such Power of Attorney ) in the presence of: ) /s/ Vyril Vella Signature /s/ Ian George Johnston Signature of Witness Ian George Johnston Name of Witness in full -51- SIGNED for and on behalf of ) SYDNEY CASINO MANAGEMENT ) COMPANY PTY LIMITED by ) H. G. Nasky its ) Attorney under a Power of Attorney ) dated: 21/4/94 ) and who declares that he has not ) received any notice of the revocation ) of such Power of Attorney ) in the presence of: ) /s/ H. Gregory Nasky Signature /s/ A. Tsekouras Signature of Witness A. Tsekouras Name of Witness in full SHC FIRST AMENDING DEED DATE: 6 OCTOBER 1994 NEW SOUTH WALES CASINO CONTROL AUTHORITY AUTHORITY SYDNEY HARBOUR CASINO PTY. LIMITED SHC SYDNEY HARBOUR CASINO PROPERTIES PTY. LIMITED SHC PROPERTIES SYDNEY HARBOUR CASINO HOLDINGS LIMITED SHC HOLDINGS SHOWBOAT AUSTRALIA PTY. LIMITED SBA LEIGHTON PROPERTIES PTY. LIMITED LPPL LEIGHTON CONTRACTORS PTY. LIMITED LCPL LEIGHTON HOLDINGS LIMITED LHL SYDNEY CASINO MANAGEMENT PTY. LIMITED SCM SHOWBOAT OPERATING COMPANY SOC SHOWBOAT DEVELOPMENT CORPORATION SDC SHOWBOAT INC SBI COMMONWEALTH BANK OF AUSTRALIA CBA CLAYTON UTZ SOLICITORS AND ATTORNEYS NO. 1 O'CONNELL STREET SYDNEY NSW 2000 TEL: (02) 353 4000 FAX: (02) 251 7832 COPYRIGHT RESERVED SHC FIRST AMENDING DEED Date: 6 October 1994 New South Wales Casino Control Authority Authority Sydney Harbour Casino Pty. Limited SHC Sydney Harbour Casino Properties Pty. Limited SHC Properties Sydney Harbour Casino Holdings Limited SHC Holdings Showboat Australia Pty. Limited SBA Leighton Properties Pty. Limited LPPL Leighton Contractors Pty. Limited LCPL Leighton Holdings Limited LHL Sydney Casino Management Pty. Limited SCM Showboat Operating Company SOC Showboat Development Corporation SDC Showboat Inc SBI Commonwealth Bank of Australia CBA Clayton Utz Solicitors and Attorneys No. 1 O'Connell Street SYDNEY NSW 2000 Tel: (02) 353 4000 Fax: (02) 251 7832 Copyright Reserved TABLE OF CONTENTS Clause Page 1. DEFINITIONS AND INTERPRETATION 2 2. CONSIDERATION 4 3. ASSOCIATED DOCUMENTS 4 4. WARRANTIES AND DISCLAIMER 5 5. AMENDMENTS TO COMPLIANCE DEED 6 6. AMENDMENTS TO OTHER EXECUTED PROJECT DOCUMENTS 27 7. GUARANTORS' CONSENT AND RATIFICATION 28 8. AMENDING PARTIES' CONSENT AND RATIFICATION 28 9. GENERAL 28 10. MISCELLANEOUS 28 SCHEDULE TO FAD 30 LIST OF EXHIBITS EXHIBIT 1 Preliminary Site Works Agreement EXHIBIT 2 Nominee Trust Deeds EXHIBIT 3 Supplementary Legal Opinion EXHIBIT 4 First Supplementary Minister's Approval and Consent Acknowledgement THIS DEED is made the 6 day of October 1994 BETWEEN NEW SOUTH WALES CASINO CONTROL AUTHORITY, a statutory corporation constituted by the Casino Control Act, 1992, on behalf of the State of New South Wales, pursuant to section 142 of the Casino Control Act 1992, of Level 17, 309 Kent Street, Sydney, NSW, Australia, 2000 ("Authority") AND SYDNEY HARBOUR CASINO PTY. LIMITED, ACN 060 510 410, a company duly incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, St Leonards, NSW, Australia ("SHC") AND SYDNEY HARBOUR CASINO PROPERTIES PTY. LIMITED, ACN 050 045 120, a company duly incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, St Leonards, NSW, Australia ("SHC Properties") AND SYDNEY HARBOUR CASINO HOLDINGS LIMITED, ACN 064 054 431, a company duly incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, St Leonards, NSW, Australia ("SHC Holdings") AND SHOWBOAT AUSTRALIA PTY. LIMITED, ACN 061 299 625, a company duly incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, St Leonards, NSW, Australia ("SBA") AND LEIGHTON PROPERTIES PTY. LIMITED, ACN 001 046 395, a company duly incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, St Leonards, NSW, Australia ("LPPL") AND LEIGHTON CONTRACTORS PTY. LIMITED, ACN 000 893 667, a company duly incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, St Leonards, NSW, Australia ("LCPL") AND LEIGHTON HOLDINGS LIMITED, ACN 004 482 982, a company duly incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, St Leonards, NSW, Australia ("LHL") AND SYDNEY CASINO MANAGEMENT PTY. LIMITED, ACN 060 462 053, a company duly incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, St Leonards, NSW, Australia ("SCM") AND SHOWBOAT OPERATING COMPANY, a company duly organised under the laws of the State of Nevada, USA of 2800 Fremont Street, Las Vegas, Nevada 89104 USA ("SOC") AND SHOWBOAT DEVELOPMENT CORPORATION, a company duly organised under the laws of the State of Nevada, USA of 2800 Fremont Street, Las Vegas, Nevada, 89104, USA ("SDC") 2 AND SHOWBOAT INC, a company duly organised under the laws of the State of Nevada, USA of 2800 Fremont Street, Las Vegas, Nevada, 89104, USA ("SBI") AND COMMONWEALTH BANK OF AUSTRALIA, ACN 123 123 124, incorporated in the ACT and having an of office at Level 1, 48 Martin Place, Sydney ("CBA") RECITALS A. On 22 April 1994 the Authority and certain of the Amending Parties entered into the Executed Project Documents. B. This Deed is an amending deed and is supplemental to certain of the Executed Project Documents. THIS DEED WITNESSES 1. DEFINITIONS AND INTERPRETATION 1.1 Definitions In this Deed, unless the context otherwise requires: "ACT" means the Casino Control Act, 1992. "AMENDING PARTIES" means all the parties to this Deed other than the Authority. "COMPLIANCE DEED" means the deed so entitled dated 22 April 1994 made between the Authority and the Application Parties. "EXECUTED PROJECT DOCUMENTS" means all of the following: (a) Compliance Deed; (b) CD Bank Guarantee (First); (c) CCA Charge; (d) CCA Cross Guarantee; (e) Parent Guarantees; (f) Confidentiality and Disclaimer Deed; (g) Deed of Restraint; and 3 (h) Development Agreement Side Deed. "EXISTING SHARES" means the existing ordinary shares issued in SHC Holdings and held by LPPL. "FIRST SUPPLEMENTARY MINISTER'S APPROVAL AND CONSENT ACKNOWLEDGEMENT" means the acknowledgement of the Minister dated -- October 1994, in the form and on the terms set out in Exhibit 4. "NEW SHARES" means each fully paid-up ordinary share in SHC Holdings to be issued to a Nominee as referred to in clause 3(c). "NOMINEE" means a person nominated by SBA to take up a New Share to be held on trust in favour of SBA pursuant to the relevant Nominee Trust Deed. "NOMINEE TRUST DEEDS" means the trust deeds entered into by the Nominees as referred to in clause 3(c), in the form and on the terms set out in Exhibit 2, each a "Nominee Trust Deed". "PRELIMINARY SITE WORKS AGREEMENTS" means the agreement of even date herewith entitled Preliminary Site Preparation Excavation and Remediation Works Contract between the Authority and SHC Properties, in the form and on the terms set out in Exhibit 1. "SUPPLEMENTARY LEGAL OPINION" means the US legal opinion to be given by Messrs Kummer Kaempfer Bonner & Renshaw of Nevada, USA in the form and on the terms of Exhibit 3 regarding, inter alia, the enforceability of this Deed. 1.2 UNDEFINED WORDS AND PHRASES Capitalised words and phrases used in this Deed which are not defined in this Deed shall have the same meaning as in the Compliance Deed, except that references to Application Parties" in the definitions of "Event of Default" and "Event of Force Majeure" shall be read as references to "Amending Parties". Likewise, capitalised words and phrases which are referred to in any such definition in the Compliance Deed shall have the same meaning as in the Compliance Deed. 1.3 INTERPRETATION Clause 1.2 of the Compliance Deed is hereby incorporated in this Deed as if it were expressly set out herein subject only to insertion of the words "the Compliance Deed" after "this Deed" in line 1 of clause 1.2(a). 1.4 To the extent of any inconsistency or conflict between the terms of this Deed, the Compliance Deed and the Act, Licence, any other Executed Project Document, any other Transaction Document, Invitation Document or the Application: 4 (a) the Act shall prevail over the Licence, this Deed, the Compliance Deed, all other Executed Project Documents, all other Transaction Documents, all Invitation Documents and the Application; (b) a Licence (if and when granted to SHC) will prevail over this Deed, the Compliance Deed, all other Executed Project Documents, all other Transaction Documents, all Invitation Documents and the Application; (c) the Compliance Deed as amended by this Deed will prevail over all other Executed Project Documents, all other Transaction Documents, all Invitation Documents and the Application. 1.5 The rights and obligations of the Amending Parties under this Deed are in addition and without prejudice to their respective rights and obligations under the Act. 1.6 Nothing in this Deed whether express or implied prejudices, fetters or otherwise affects or is intended in any way to impose any obligation or restriction on the Authority which in any way conflicts with the obligations, powers, duties, restrictions and discretions of the Authority under the Act. 1.7 Each party acknowledges and agrees that CBA is a party to this Deed solely for the purpose of acknowledging and consenting to the amendment of the Continuity and Co- operation Agreement pursuant to clause 5.2(el) and acknowledging and consenting to the amendment of the Development Agreement Side Deed pursuant to clause 6.2, it being a party to each of those Executed Project Documents, and CBA shall not be deemed a party to, or bound by the terms and conditions of, any other Executed Project Document to which it is not a party as a consequence of CBA joining as an Amending Party under this Deed. 2. CONSIDERATION Each party acknowledges to the other party that it enters into this Deed and incurs obligations and gives rights under it for valuable consideration received from the other Parties to this Deed. 3. ASSOCIATED DOCUMENTS On or before execution of this Deed: (a) the Amending Parties other than CBA shall deliver to the Authority an unconditional written consent of BCML pursuant to the terms of the Equity Underwriting Agreement to the SHC Holdings, LPPL and SBA entering this Deed; (b) the Amending Parties other than CBA shall deliver to the Authority an unconditional written consent of CBA pursuant to the terms of the Facility Agreement to SHC, SHC Holdings and SHC Properties entering this Deed; 5 (c) (i) LPPL (as the sole shareholder in SHC Holdings) and SHC Holdings shall cause the issue and allotment of 5 New Shares in SHC Holdings at par value as follows: (A) 2 New Shares to SBA; and (B) one New Share to each of the 3 Nominees; (ii) (A) each such issue shall be in accordance with the provisions of the Corporations Law; and (B) the New Shares shall rank equally with each Existing Share and be subject to all the same benefits and entitlements as attach to each Existing Share; (iii) SBA shall cause each of its Nominees to subscribe and pay for and take up each of the New Shares whereupon SBA shall cause each Nominee to duly enter into and deliver the relevant Nominee Trust Deed; (iv) each Nominee shall hold its New Shares on trust for SBA pursuant to the relevant Nominee Trust Deed; (d) SHC shall cause the delivery to the Authority of the duly executed Supplementary Legal Opinion; and (e) SHC Properties shall duly execute and deliver to the Authority the Preliminary Site Works Agreement. 4. WARRANTIES AND DISCLAIMER 4.1 The Authority warrants that, pursuant to sections 142(1) and 142(2) of the Act, the Minister has approved of both the Authority entering into this Deed and its terms as evidenced by the First Supplementary Minister's Approval and Consent Acknowledgement. 4.2 Pursuant to the CCA Charge, the Authority hereby consents to SHC, SHC Holdings and SHC Properties entering into this Deed. 4.3 Nothing in this Deed shall be taken as, nor is capable of, constituting an obligation on the Authority to grant a Licence to any person (including without limitation SHC) or affecting the Authority's power to determine the Application by not granting a Licence to SHC pursuant to section 18(1) of the Act. 4.4 Notwithstanding anything to the contrary expressed in or which would, but for this clause 4.4, be implied in this Deed, neither the Authority nor the State of New South Wales nor its members, employees, delegates, agents, consultants or advisers shall have any liability whatsoever to any party in respect of any failure or breach by the Authority under or in respect of this Deed or any other matter contemplated hereby. 6 4.5 (a) The covenants, undertaking, warranties and representations set out in clauses 1 to 6 inclusive of Schedule 1 to the Compliance Deed are hereby incorporated in this Deed as if expressly set out herein subject to the following: (i) delete the words "Application Parties" wherever they appear; and (ii) in lieu insert the words "Amending Parties" and each Amending Party other than CBA represents and warrants to and with the Authority in those terms. (b) The representations and warranties included above are made as at the date of this Deed and are deemed repeated at all times during the currency of this Deed with reference to the facts and circumstances then subsisting as if made at each such time, unless otherwise expressly stated and shall be construed separately and the meaning of each shall in no way be limited by reference to any other clause contained in this Deed. 5. AMENDMENTS TO COMPLIANCE DEED 5.1 AMENDMENTS TO THE BODY AND SCHEDULES OF THE COMPLIANCE DEED The Compliance Deed is amended as follows: (a) in the definitions "Casino Exclusivity Agreement", "Casino Duty and Community Benefit Levy Agreement", "Casino Operations Agreement", "Casino Taxes Agreements" "CCA Charge", "CD Bank Guarantee (Second)", "COA Lease Terms", "Deed of Covenant", "Development Agreement Side Deed", "Permanent Site Construction Lease", "Continuity and Co-operation Agreements", "Permanent Site Freehold Lease", "Temporary Site Construction Sub-Lease", and "Temporary Site Sub-Lease" insert "as amended by the First Amending Deed" at the end of each definition; (b) in the definition of "Application": (i) delete the words in line 3 "as at the date of this Deed"; and (ii) insert after the numeral "3" in line 4 and before the words "as the same may be and following the words "and includes without limitation, the following: (i) letter from the Authority to Sydney Harbour Casino Pty. Limited dated 6 April 1994 entitled "re: Sydney Harbour Casino Pty. Limited Response to the 28 March 1994 Submission"; (ii) letter from the Authority to Sydney Harbour Casino Pty. Limited 7 dated 6 April 1994 entitled "re: Sydney Harbour Casino: Amendments & Further Particulars relating to the Casino Component; (iii) letter from the Authority to Sydney Harbour Casino Pty. Limited dated 26 April 1994 entitled "re: Sydney Harbour Casino: Amendments & Further Particulars relating to the Casino Component; (iv) letter from Sydney Harbour Casino Pty. Limited to the Authority dated 26 April 1994; (v) letter from Sydney Harbour Casino Pty. Limited to the Authority dated 28 April 1994; (vi) letter from Sydney Harbour Casino Pty. Limited to the Authority dated 3 May 1994; (vii) letter from Sydney Harbour Casino Pty. Limited to the Authority dated 4 May 1994; (viii) letter from the Authority to Sydney Harbour Casino Pty. Limited dated 5 May 1994; (ix) second letter from Sydney Harbour Casino Pty. Limited to the Authority dated 5 May 1994; and (x) letter from the Authority to Sydney Harbour Casino Pty. Limited dated 9 May 1994 entitled: "re: Sydney Harbour Casino Pty. Limited Meeting with Authority Representatives"."; (c) in the definition of "Copyright Assignment Deed", delete the phrase "SHC" in line 1; (d) in the definition of "Equity Documents": (i) delete the words "and the" in line 5 and insert in lieu thereof "," and (ii) insert "and" the Nominee Trust Deeds" at the end of line 6; (e) insert the following definition after the definition of "Finance and Security Documents": "FIRST AMENDING DEED" means the deed to be entered into on 6 October 1994 between the Authority, the Application Parties, LCPL, SDC, SBI and CBA.; 8 (f) insert the following definition after the definition of "Nicolson/Marth Undertaking" "NOMINEE TRUST DEEDS" has the meaning given in the First Amending Deed.; (g) in the definition of "Occupation Licence Agreement (Permanent)", delete the words "Annexure A" in line 2 and in lieu thereof insert "Exhibit 1"; (h) insert the following definition after the definition of "Preferred Applicant Nomination Date": "PRELIMINARY SITE WORKS AGREEMENT" has the meaning given in the First Amending Deed.; (i) in the definition of "Project Documents": (i) delete the word "and" at the end of subparagraph (z); (ii) delete ".," at the end of subparagraph (aa) and in lieu thereof insert ";"; and (iii) insert the following subparagraphs after subparagraph (aa): "(bb) the Preliminary Site Works Agreement; and (cc) the First Amending Deed"; (j) in the definition of "SCM Memorandum and Articles", insert "and as further amended on 5 May 1994" after the brackets in line 3; (k) in the definition of "SHC Holdings Memorandum and Articles", insert "and as further amended on 6 May 1994" after the brackets in line 4; (1) in the definition of "SHC Memorandum and Articles", insert "and as further amended on 6 May 1994" after the brackets in line 3; (m) in the definition of "SHC Properties Memorandum and Articles", insert "and as further amended on 6 May 1994" after the brackets in line 4; (n) intentionally not used; (o) in clause 13.1(b)(i), insert "1.6 million" in the space provided in line 3; (p) in clause 17.2 delete "18" in line 1 and in lieu thereof insert "17"; (q) in clause 7(j) of Schedule 1, after the word "granted" in line 5, insert "and as set out in the second paragraph to this clause 7(j)"; (r) after the existing paragraph of clause 7(j) of Schedule 1, insert 9 the following: "Completion of blanks will also include, without limitation: (i) annexure of the agreed and approved plans and specifications forming part of the D.A. for Permanent Site, shall become Exhibit 4 to the Permanent Site Construction Lease and those forming part of the D.A. for Temporary Site shall become Exhibit 4 to the Temporary Site Construction Sub-Lease; (ii) the relevant details shall be inserted in the Schedule to the Copyright Assignment Deed; (iii) upon registration of the relevant plans, appropriate title details will be inserted in the Permanent Site Construction Lease and the Temporary Site Construction Sub-Lease; and (iv) the relevant details will be inserted in the blanks in clause 12.1 of the Permanent Site Construction Lease."; (s) in clause 7(j) of Schedule 1, delete the numerals "15" in line 9 and in lieu thereof insert the numerals "16"; (t) in clause 10(g) of Schedule 1, insert at the end "in the case of clause 10(g)(ii)(A) of this Schedule 1 or, in the case of clause 10(g)(ii)(B) of Schedule 1, the date which is 5 Business Days prior to the Final D.A. Approval Date". 5.2 AMENDMENTS TO EXHIBITS TO THE COMPLIANCE DEED (a) Exhibit 6 (Casino Duty and Community Benefit Levy Agreement) is amended as follows: (i) In Recital D delete: (A) "payable in instalments" in line 1 of sub-clause (a); and (B) "an annual casino duty and" in line 1 of sub-clause (b); (ii) in clause 1.1, delete the definition of "Casino Duty - Base Amount"; (iii) delete the definition of "CD Bank Guarantee (Second)" and in lieu thereof insert: 10 ""CD BANK GUARANTEE (SECOND)" has the same meaning as in the Casino Taxes Agreement, being a guarantee to secure amongst other things to the Authority payment of the Specified Payment Amount referred to in clause 4.2."; (iv) delete the definition of "First Financial Year" and in lieu thereof insert: "First Financial Year" means the period l July 1994 to 30 June 1995 being the period during which the Licence was granted to the Licensee."; (v) in the definition of "Specified Payment Amount", delete "[ ]" in line 2 and insert in lieu thereof "$256,000,000"; (vi) delete clause 4.2 and in lieu thereof insert: "4.2 The Specified Payment Amount is due and payable in full on or before 12 noon (Sydney time) on the date which is 21 days after the Licence Issue Date."; (vii) delete clause 5 and in lieu thereof insert the following: "5. NOT USED. "; (viii) in clause 6.6, delete "Casino Duty-Base Amount"; (ix) in Schedule 1 paragraph (c): (A) delete "first instalment of the" in line 3; and (B) delete "and the first instalment of the Casino Duty-Base Amount only" in lines 4 and 5; and (x) delete Schedule 3 and in lieu thereof insert: "SCHEDULE 3 - NOT USED"; (b) Exhibit 7 (Casino Exclusivity Agreement) is amended as follows: (i) in clause 1.1, after the definition of "Act" insert: "APPROVED AMUSEMENT DEVICE" has the meaning given in the Liquor Act 1982 (NSW)." 11 (ii) in the definition of "Casino" in clause 1.1, delete the word "Section" and in lieu thereof insert "section"; (iii) in clause 1.1, delete the definition of "Operations" and in lieu thereof insert: ""OPERATIONS" has the meaning given in paragraph (a) of the definition of "operations" in section 3 of the Act."; (iv) in each of paragraphs (i), (iii), (iv) and (v) of the definition of "Table Game" in clause 1.1, add to the end "from time to time."; (v) in paragraph (ii) of the definition of "Table Game" in clause 1.1, add to the end "or an Approved Amusement Device."; (vi) in paragraph (iv) of the definition of "Table Game" in clause 1.1, delete the words "a Poker Machine" in line 1 and in lieu thereof insert "an Approved Amusement Device"; and (vii) in paragraph (vi) of the definition of "Table Game" in clause 1.1, add to the end the following sentence: "For the avoidance of doubt nothing in this paragraph (vi) shall be taken as limiting or restricting the operation of paragraphs (i) to (v) above inclusive and, in particular, the operation of clause 1.2(h) in respect of those paragraphs". (c) Exhibit 8 (Casino Operations Agreement) is amended as follows: (i) in the definition of "Occupation Licence Agreement (Permanent)", delete the words "Annexure A" and in lieu thereof insert "Exhibit 1"; (ii) in clause 6.l(a), delete the words "clause 1.2" in the last sentence and in lieu thereof insert "clause 1.1"; (iii) in Schedule 3, after clause 10, insert the following: "11. MINIMUM HOTEL MODULES In addition and without prejudice to any other obligations under the Project Documents the Contracting Parties shall ensure that at all times during the currency of the Permanent Site Freehold Lease, at 12 least the equivalent of 600 hotel modules (each of an area not less than 35m2) are available at all times for tourist/public use either at the Permanent Site, or partly at the Permanent Site and partly as the serviced apartments forming part of the hotel accommodation within the Applications"; and (iv) in Exhibit 4 to Casino Operations Agreement (COA Lease Terms): (A) In clause 2.1(b) delete in line 3 and following: "if the Lessor shall have made an election pursuant to Schedule 1 of the Permanent Site Construction Lease to have the rent payable during the Primary Rental Period prepaid and the Lessee shall have done so then for the period of [ ] from the Lease Commencement Date (being the balance of the Primary Rental Period as that expression is defined in Schedule 1 to the Permanent Site Construction Lease) no further rental shall be payable"; and insert in lieu thereof the following: "if the Lessee has paid to the Lessor the payment referred to in clause 2 of Schedule 1 to the Permanent Site Construction Lease then for the period of [ ] from the Lease Commencement Date (being the balance of the Primary Rental Period as that expression is defined in Schedule 1 to the Permanent Site Construction Lease), no further rental shall be payable in respect of that period and rental payable pursuant to clause 3 of Schedule 1 to this Lease shall be payable on the date being the day immediately following the last day of the Primary Rental Period and thereafter on each anniversary of that date." (B) after Part 3, insert: "PART 3A INDEMNITY FOR ENVIRONMENTAL MATTERS 3A.1 The Lessor acknowledges that clause 4.10 of the Permanent Site Construction Lease contains warranties and an indemnity in favour of the Lessee thereunder. The Lessor acknowledges and agrees that it gives 13 to the Lessee the warranties and indemnity in the same terms as contained in the aforementioned clause 4.10 with the exception that the twenty-five (25) year period referred to in clause 4.10(b) and (c) shall expire on the twenty-fifth anniversary of the Lease Commencement Date of the Permanent Site Construction Lease." (C) in clause 6.2(d), delete "(g)" in line 1 and in lieu thereof insert "(c)"; (D) In Schedule 1: (AA) delete clause 1 and insert in lieu thereof the following: "The rental payable will be at the rate of $15,000,000 per annum for the period of [ ] being the balance of the Primary Rental Period." (BB) delete clause 2 and insert in lieu thereof the following: "Notwithstanding clause 1, provided that the payment referred to in clause 2 of Schedule 1 to the Permanent Site Construction Lease has been made, no further rental shall be payable in respect of the Primary Rental Period or any part thereof"; and (CC) in clause 3 delete "[ ]" in and insert in lieu thereof "250,000. (d) Exhibit 9 (The Casino Taxes Agreement) is amended as follows: (i) delete the definition of "Casino Duty - Base Amount"; (ii) in the definition of "CD Bank Guarantee (Second)", delete all words after the word of" where first appearing in line 2 and in lieu thereof insert "amongst other things, payment of the First Specified Amount referred to in clause 4.2 of the Casino Duty and Community Benefit Levy Agreement."; and (iii) in clause 6: 14 (A) after the word "secure" in line 2, insert "amongst other things"; (B) delete the words "the first instalment of" in line 4; (C) delete "(a)" in line 5; and (D) delete all words after the word "Agreement" in line 5; (e) Exhibit 15 (CD Bank Guarantee (Second)) is amended as follows: (i) in clause 2 delete all words after the word "exceeding" in line 7 and insert in lieu thereof the following: "$376,000,000 representing $256,000,000 in respect of the Specified Payment Amount under and as defined in the Casino Duty and Community Benefit Levy Agreement of even date herewith between the Treasurer of the State of New South Wales and the Licensee and $120,000,000 in respect of the total amount under clause 3 of Schedule 1 of the Permanent Site Construction Lease of even date herewith between Sydney Harbour Casino Properties Pty Limited and the Beneficiary ("GUARANTEED AMOUNT")." (el) Exhibit 18 (Continuity and Co-Operation Agreement) is amended as follows: (i) in clause 16.2, line 1 delete "If the Project Company fails to remedy the Obligation Default:" and insert in lieu thereof: "If for any reason an Obligation Default is not remedied:"; (f) Exhibit 33 (Permanent Site Construction Lease) is amended as follows: (i) in clause 1.1: (A) in the definition of Compliance Deed, delete "[ ]" and insert in lieu thereof "22 April 1994"; (B) delete the definition of "Light Rail Works Plans and Specifications" and in lieu thereof insert: "LIGHT RAIL WORKS PLANS AND SPECIFICATIONS" means the plans and specifications for the Light Rail Works to be prepared by the Lessee and approved by the Lessor, which plans and specifications must be of no lesser standard than as specified in the annexure to the Light Rail Warranty Deed""; 15 (C) in the definition of "Pre-requisites", delete sub-clause (g) and insert: "(g) Not Used"; (D) insert the following definition after the definition of "Pre-requisites": "PRELIMINARY SITE WORKS AGREEMENT" means an agreement dated 6 October 1994 between the Casino Control Authority and the Lessee entitled Preliminary Site Preparation Excavation and Remediation Works Contract."; (ii) intentionally not used; (iii) in clause 4.10(a), delete the definition of "Environmental Laws" and in lieu thereof insert: "ENVIRONMENTAL LAWS" means laws current from time to time for protection of the Environment against contamination or pollution of air or water, soil or ground water, the ozone layer or public health by chemicals, pesticides, hazardous substances, hazardous wastes, dangerous goods, environmental hazards or noxious trades and enforcement or administration of any of those laws (whether they arise under statute or pursuant to any notice, decree, order or directive of any government entity.); (iv) in clause 4.10(b), after the word "that in line 1 insert "immediately"; (v) delete clause 4.11 and in lieu thereof insert: "4.11 "Completion of certain excavation If at Lease Commencement excavation of the Land to the levels and dimensions identified in Exhibit 17 to this Lease shall not have been completed, then: (a) the Lessee shall with all due expedition cause the excavation to be completed to the levels and dimensions identified in Exhibit 17. (b) the following provisions of the 16 Preliminary Site Works Agreement shall apply mutatis mutandis to the completion of those works: 1.2, 1.3, 1.4, 1.5, 1.6, 2.1(a) and the last sentence, 2.4, 3.1, 3.2, 3.3, 4.1, 4.2, 4.3, 5.1, 5.2, 5.3, 5.4, 6.1, 6.2, 6.3, 6.4, 6.5, 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.7, 7.8, 8.6, 13.1, 14.5, 14.7, Schedules 1, 2, 3, 4, 5, 6 and 7. (c) the Lessee shall bear the cost of completing the Works subject to the other provisions of this Lease, but the Casino Control Authority shall be liable to pay all money which would have been payable under the Preliminary Site Works Agreement, had it been performed to completion, plus $40,480 (being fees payable to Dames & Moore), less $4,750,000. To the extent that the Lessee has been paid money under the Preliminary Site Works Agreement, the Lessee shall credit to the Lessor the amount so received, and if that amount exceeds the money payable pursuant to this clause, shall re-pay to the Lessor that excess."; (vi) after clause 4.15, insert the following: "4.16 The parties agree that for the purposes of clause 4.10(c), the expense to the Lessee of it causing contaminated material to be handled, stockpiled, removed from site and disposed of (including selection of disposal site and arranging for disposal) shall until the Works have been completed be: The following unit "extra over" rates per cubic metre, loose measured in the truck, measured at the gate shall apply, to include 17 all handling, stockpiling, removal from the Site and disposal costs including selection of disposal site and arranging for disposal. (i) Materials which can be disposed of without stabilization: $90/m3 (ii) Asbestos Contaminated Soils: Cost plus 25% for overheads and profit (iii) Other material: Cost plus 25% for overheads and profit."; (vii) in clause 5.1(a), insert at the end: "and, in respect of the Light Rail Works, must be of no lesser standard than as specified in the annexure to the Light Rail Warranty Deed"; (viii) in clause 5.1(c): (A) delete in the second sentence the words "to do so" appearing in line 8; and (B) insert at the end of the fourth sentence: "and shall conduct the appeal in accordance with any directions (including as to counsel or other representative) from time to time issued by the Lessor"; (ix) intentionally not used; (x) in clause 6.5(e)(iii), delete "or"; (xi) in clause 6.5(e)(iv), insert "or" at the end; (xii) after clause 6.5(e)(iv), insert the following: "(v) by reason of the application of clause 6.5(i)"; 18 (xiii) after clause 6.5(h), insert the following: "6.5(i) The parties acknowledge that the Estimated Construction Period was predicated on the site, having been handed over to the Lessee, excavated to the levels and dimensions identified in Exhibit 17. Except to the extent that delay arises because the Lessee shall have failed to dutifully comply with its obligations under the Preliminary Site Works Agreement as to the rate at which it carried out the Works thereunder, then if on Lease Commencement Date excavation shall not have been completed to the levels and dimensions identified in Exhibit 17, then the Lessee shall be entitled to an extension of time subject to the provisions of this clause 6.5."; (xiv) after the existing paragraph of clause 6.10, insert the following paragraph: "Whenever the Lessee shall seek the consent or approval of the Lessor in respect of the work contemplated by clause 4.11 and the Lessor seek the advice of a consultant in respect thereof, the Lessor shall be entitled to the cost thereof pursuant to this clause."; (xv) in clause 6.14(a), after the word "Deed" in line 2 insert: "but must nevertheless cause the Light Rail Works Plans and Specifications to be of no lesser standard than as specified in the annexure to the Light Rail Warranty Deed."; (xvi) in clause 16.2, after subparagraph (g) insert: "(h) If so directed by the Lessor the New Lease shall include as part of the Premises defined therein the stratum referred to in Part 20."; (xvii) in Part 20, after the word "guarantee" in line 7, insert: "As an alternative, the Lessor may require that the stratum form part of the Premises comprising the Permanent Site Freehold Lease and the COA Lease 19 Terms."; and (xviii)In Schedule 1: (A) delete in line 4 of clause 1 "[ ] [" and insert in lieu thereof "l5,000,000"; (B) delete clause 2 and insert in lieu thereof the following: "Notwithstanding clause 1, the Parties have agreed that the rental payable during the Primary Rental Period shall be prepaid as set out in clause 3." (C) delete clause 3 and insert in lieu thereof the following: "On or before 12 noon (Sydney time) on the date which is 21 days after Lease Commencement Date, the Lessee shall pay to the Lessor an amount of $120,000,000 in immediately available and cleared funds in prepayment of the rental payable during the Primary Rental Period." (xvix) in Exhibit 19- to Permanent Site Construction Lease (Permanent Site Freehold Lease): (A) In clause 2.1(b) delete in line 3 and following: "if the Lessor shall have made an election pursuant to Schedule 1 of the Permanent Site Construction Lease to have the rent payable during the Primary Rental Period prepaid and the Lessee shall have done so then for the period of [ ] from the Lease Commencement Date (being the balance of the Primary Rental Period) no further rental shall be payable"; and insert in lieu thereof the following: "if the Lessee has paid to the Lessor the payment referred to in clause 2 of Schedule 1 to the Permanent Site Lease (Construction Lease) then for the period of [ ] from the Lease Commencement Date (being the balance of the Primary Rental Period), no further rental shall be payable in respect of that period and rental payable pursuant to clause 3 of Schedule 1 to this Lease shall be payable on the date being the day immediately following the last day of the Primary Rental Period and thereafter on each anniversary of 20 that date." (B) after Part 3, insert a new Part 3A as follows: "PART 3A INDEMNITY FOR ENVIRONMENTAL MATTERS 3A.1 The Lessor acknowledges that clause 4.10 of the Permanent Site Lease (Construction Lease) contains warranties and an indemnity in favour of the Lessee thereunder. The Lessor acknowledges and agrees that it gives to the Lessee the warranties and indemnity in the same terms as contained in the aforementioned clause 4.10 with the exception that the twenty-five (25) year period referred to in clause 4.10(b) and (c) shall expire on the twenty-fifth anniversary of the Lease Commencement Date of the Permanent Site Lease (Construction Lease)."; (C) Not Used. (D) In Schedule 1: (AA) in clause 1, line 1 and 2, delete the following: "In the event that the Lessor did not make an election as contemplated by clause 2 of Schedule 1 to the Permanent Site Lease (Construction Lease) then the" and insert in lieu thereof "The"; (BB) in clause 1, delete "[ ]" where first appearing and insert in lieu thereof "15,000,000"; (CC) in clause 1, insert "Rental" in line 4 after "Primary"; (DD) insert as a new clause 2 the following: "2. Notwithstanding clause 1, 21 provided that the payment referred to in clause 2 of Schedule 1 to the Permanent Site Lease (Construction Lease) has been made, no further rental shall be payable in respect of the Primary Rental Period or any part thereof"; and (EE) renumber clause 2 as clause 3 and delete "[ ]" and insert in lieu thereof "250,000." (g) Exhibit 42 (Temporary Site Construction Sub-Lease) is amended as follows: (i) in the definition of "Building Approval", delete the words "a buildings * in line 2 and in lieu thereof insert "the Works"; (ii) in the definition of "Deed of Covenant", delete the word "Lease" in line 3 and in lieu thereof insert "Sub-Tense"; (iii) in the definition of "Minister", after the word "the" where last appearing in line 1, insert "Casino Control"; (iv) in clause 4.9, delete the word "land" in line 5 and in lieu thereof insert "Land"; (v) in paragraph (a) of clause 4.14, delete the words "and utilities within"; (vi) in clause 4.14, insert after sub-clause (c), the following: "(d) For the purposes of paragraph (a) of this clause the Lessee acknowledges and agrees that the phrase "loading requirements of the Project" in relation to water, sewerage, drainage and electricity services means as follows: (i) Water-peak domestic demand of 14.4 litres per second and peak fire demand of 22 litres per second; (ii) Sewerage - total fixture units of 1285FU; 22 (iii) Drainage - no additional drainage is required for the improvements erected upon the land at or prior to the Lease Commencement Date. (iv) Stormwater Drainage - both from the improvements erected on the Land at any time (including at or prior to the lease Commencement Date) and from the external car park shall be the sole responsibility of the Lessee who shall be required to meet the appropriate discharge requirements of the Maritime Services Board and Environmental Protection Authority and to ensure that the existing pipes and drains installed in the external car park and other external areas of the Premises are adequate and sufficient to meet the Lessee's needs; (v) Electricity - maximum demand load of 3MVA."; "(e) The Lessee agrees that the obligations of the Lessor pursuant to this clause 4.14 shall be limited to the undertaking of the following works in relation to the services to be made available to the Premises at or prior to the Lease Commencement Date: - (i) Electricity - the installation of a new pit and conduit in Foreshore Road and the ducts necessary to enable the maximum demand load to be made available by Sydney Electricity upon application by the Lessee for the installation of cabling and the undertaking of any other necessary works; and (ii) Gas - the installation of the reticulation mains to connect the 23 Premises to the existing gas lines in Foreshore Road." (vii) After clause 4.14, insert the following: "4.15 LIMITATION TO SERVICES WARRANTY AND INDEMNITY The Lessee agrees that notwithstanding the provisions of clause 4.14 the Lessor shall not be liable or responsible for any failure of the water, sewerage, drainage, gas and electrical services connected to the Premises as at 1 June 1994 ("the Existing Services") which occurs after the Lease Commencement Date. The Lessee acknowledges that except as specifically provided in clause 4.14 the Lessor makes no representation as to the capacity, suitability, adequacy or state of repair of the Existing Services and, except as specifically provided in clause 4.14 the Lessee further acknowledges and agrees that it shall not be entitled to commence any action or make any claim (whether on an indemnity or any other basis) against the Lessor in relation to any failure, inadequacy or unsuitability in respect of any of the Existing Services. 4.16 OBLIGATION TO MAINTAIN SERVICES The Lessee further agrees that it shall be responsible for maintaining the Existing Services on the Premises during the term of the Lease and agrees to indemnify the Lessor in respect of any cost, claim, demand, proceeding or action which may be brought against the Lessor by any relevant authority or other person in respect of any failure by the Lessee to maintain the Existing Services during the term of the Lease as provided herein." (viii) in clause 5.14, delete the word "Lease" in line 1 and in lieu thereof insert "Sub-Lease"; (ix) in clause 6.5(e)(ii), delete the word "Lease" in line 3 and in lieu thereof insert "Sub-Lease"; (x) intentionally not used; (xi) in clause 8.8(a), delete the word "Board" in line 3 and in lieu thereof insert "Brigade"; 24 (xii) in clause 9.1(a), (A) delete the word "The" in line 1 and in lieu thereof insert "the"; (B) after the word "law" in line 1 insert "the Head Lessor,"; and (C) replace the full stop at the end with a semi-colon; (xiii) in clause 9.1(b), (A) delete the word "The" in line 1 and in lieu thereof insert "the"; and (B) after the word "indemnifies" in line 1 and "which" in line 4 insert "the Head Lessor,"; (xiv) in clause 9.1, insert at the end of the penultimate paragraph: "nor to release or indemnify the Head Lessor where the act in question amounts to a negligent act or omission on the part of the Head Lessor."; (xv) in clause 9.2(a)(ii)(c), delete the last sentence; (xvi) in clause 9.2(d), delete the word "Lease" in line 1 and in lieu thereof insert "Sub-Lease"; (xvii) in clause 9.5, delete the word "improvements" in line 1 and in lieu thereof insert Improvements"; (xviii)in clause 12.1, delete the word "Lessor" in line 1 and in lieu thereof insert "Lessee"; (xix) in clause 12.1(a), delete the word "rent" in line 1 and in lieu thereof insert "Rent"; (xx) in clause 15.11, delete the numerals "11" in the penultimate line and in lieu thereof insert "llA"; (xxi) in clause 15.14, delete the word "Lease" wherever appearing and in lieu thereof insert "Sub-Lease"; (xxii) in Exhibit 4A (Deed of Covenant): (A) in clause 3.2(b), delete the words "6.l(d) of the Sub- 25 Lease" in line 2 and in lieu thereof insert "9.1 of the Temporary Site Construction Sub-Lease"; (B) in clause 3.2(c), delete the words "sub-clause (a)" in line 3 and in lieu thereof insert "sub-clauses (a) and (b)"; and (C) after clause 10.8, insert: "10.9 NO REPRESENTATION OR WARRANTY BY CWDC SHCP acknowledges that no representation or warranty is or has been given by CWDC in relation to the completeness or accuracy of any drawings, plans or specifications provided to SHCP, Sydney Harbour Casino Pty. Limited, Leighton Properties Pty. Limited or Leighton Contractors Pty. Limited or their respective contractors or any other person or corporation whether or not related to or associated with the above named parties, in respect of wharves 12 and 13 at Pyrmont."; (xxiii)in Exhibit 11 (Temporary Site Sub-Lease): (A) insert the following definition after the definition of "Authority": "BUILDING" means the improvements now or hereafter erected upon the Land and where the context so permits any part thereof."; (B) in clause 2.7, line 1, delete the word "the" where last appearing in line 1 and in lieu thereof insert "this"; (C) in clause 2.7, delete the handwritten words and in lieu thereof insert: "Where the Rent is paid beyond the date of expiration of this Sub-Lease or the date the Premises are resumed then the Lessee shall be entitled to a refund of any excess Rent paid by it. Such refund shall be calculated on the basis that Rent accrues on a daily basis."; (D) in clause 5.1, delete the words "when first constructed or erected or brought upon the Premises" in lines 5 26 and 6 and in lieu thereof insert "at Lease Commencement Date"; (E) in clause 5.10(a), delete the word "Lease" in line 6 and in lieu thereof insert "Sub-Lease"; (F) in clause 5.10(c), delete the word "Lease" in line 2 and in lieu thereof insert "Sub-Lease"; (G) in clause 5.11(b), delete the words "the Lease" in line 2 and in lieu thereof insert "this Sub-Lease"; (H) in clause 5.15, delete the word "Lease" in line 3 and in lieu thereof insert "Sub-Lease"; (I) in clause 6.2(h), after the word "Lessor" in lines 2 and 3 insert "and the Head Lessor"; (J) in clause 6.5(c): (AA) after the word "Lessor" in line 2 insert "or the Head Lessor"; (BB) in line 6, insert "that neither" before the word "the"; and (CC) in line 7, insert "nor the Head Lessor" before the word "elects". (K) in clause 9.1, delete the word "Lease" in line 1 and in lieu thereof insert "Sub-Lease"; (L) in clause 9.1A(b), after the word "Lessor" in line 1 insert "and the Head Lessor"; (M) in clause 10.7(b), delete the word "the" in line 2 and in lieu thereof insert "this"; (N) in clause 10.13, delete the words "the Lease" in the 4th last line, and in lieu thereof insert "this Sub- lease"; (O) in clause 14.1.1, delete "[deletion made subject to CWDC confirmation]"; (P) in paragraph 6 of Schedule 1, delete the words "be refunded" in the last line and in lieu thereof insert 27 "shall, unless as otherwise provided in this Sub-Lease, be such moneys paid"; (Q) in Part A of Schedule 2 insert the following at the end as new paragraphs: " - the removal and making good of the proposed roundabout and third laneway of Darling Island Drive, to the north of the community park as detailed in the final CWDC Design dated [to be advised].; and - the removal and making good of the proposed roundabout at the intersection of Jones Bay Road and Foreshore Road as detailed in the final CWDC Design dated [to be advised]."; (R) in Part A of Schedule 2, after the words "Loose landscaping - ie. potted plants etc." where first appearing insert as a new paragraph the words and figures set out in the Schedule hereto; delete the words "Make good to be undertaken by the Lessee upon the expiration or sooner determination of this Sub-Lease" where first appearing; and delete the words "Loose landscaping - ie. potted plants etc. " where second appearing. 5.3 RATIFICATION AND CONFIRMATION OF COMPLIANCE DEED In all other respects the parties to the Compliance Deed ratify and confirm their respective obligations under the Compliance Deed. 6. AMENDMENTS TO OTHER EXECUTE PROJECT DOCUMENTS 6.1 CCA CHARGE (a) The CCA Charge is amended by deleting from paragraph (b) of the definition of "Obligations Licence Condition" the words "in paragraph (a) of that definition". (b) In all other respects the parties to the CCA Charge ratify and confirm their respective obligations under the CCA Charge. 6.2 DEVELOPMENT AGREEMENT SIDE DEED (a) The Development Agreement Side Deed is amended as follows: (i) in clause 4.6B, delete the word "Agent" in line 7 and in lieu 28 thereof insert "Authority"; (ii) in clause 20.4, after the word "Authority" in line 1 of the final paragraph insert "or the Agent (as the case may be)"; (iii) delete clause 25.5 and in lieu thereof insert "25.5 - Not Used"; (iv) in the heading to clause 28.2, delete "and the Authority"; (v) in clause 33.4, delete the words "a valid operation to the fullest extents in lines 8 and 9 and in lieu thereof insert "as full and as valid an operation as possible; and (vi) in clause 36.1, delete the word "Construct" in line 5 and in lieu thereof insert the word "Construction". (b) In all other respects the parties to the Development Agreement Side Deed ratify and confirm their respective obligations under the Development Agreement Side Deed. 7. GUARANTORS' CONSENT AND RATIFICATION Each of LHL, SDC and SBI consents to the amendments to the Executed Project Documents in the manner set forth in clauses 5 and 6 and ratifies and confirms its respective obligations under the Leighton Guarantee and Showboat Guarantee respectively, in respect of each of such Executed Project Document as so amended. 8. AMENDING PARTIES' CONSENT AND RATIFICATION To the extent that the consent of or approval by any Amending Party is required to the amendments to the Executed Project Documents in the manner set forth in clauses 5 and 6, under the terms of any Executed Project Document and/or any executed Application Documents to which it is a party, that consent is hereby given and each such Amending Party ratifies and confirms its obligations under each such Executed Project Document and/or executed Application Document, in respect of each of such deeds as so amended. 9. GENERAL Any reference in any Transaction Document to any document amended by this Deed shall be read and construed and have force and effect as including the amendments thereto effected by this Deed. 10. MISCELLANEOUS Clauses 7 and 8, 10 to 12, 13.2 and 14 to 32 inclusive of the Compliance Deed are hereby incorporated in this Deed as if expressly set out herein subject to the following: 29 (a) each reference to the words Application Parties" in clauses 8, 10, 11, 12, 13.2, 16, 17, 27, 28 and 30 of the Compliance Deed shall be read and construed as a reference to "Amending Parties"; (b) references to clauses within clause 8.2 and clause 1l.5(b) shall be read as references to clauses of the Compliance Deed; (c) a reference to the Minister's Approval and Consent Acknowledgement includes a reference to the First Supplementary Minister's Approval and Consent Acknowledgement; (d) insert the words "SDC and SBI" after "SOC" in line 1 of clause 17.3; and (e) delete the words "as set out in clause 9" from line 3 of clause 18. 30 SCHEDULE TO FAD (Clause 5.2(g)(xxiii)(R)) "The expression "loose and limited fixed kitchen equipment" shall mean the following items: Coolroom Dry Store Shelving Pallet Truck High Pressure Watercleaners Flat Bed Trolley Shelving Vegetable Processor Vegetable Peeler Planetary Mixer 40 Litre Vertical Cutter/Mixer Shelving Utensil Rack Trolley (General Purpose) Ice Machine Slicer Chopping Block Shelving Utensil Rack Trolley (General Purpose) Spiral Mixer Planetary Mixer 80 litre Planetary Mixer 20 litre Dough Divider Rounder Dough Sheeter Vertical Cutter Mixer Chocolate Temperer Chocolate Enrober 2 door Retarder Prover 2 door Upright Refrigerator 45 litre Kettle Rotary Multideck Oven Shelving Utensil Rack Trolley (Bake) Combi Oven 10 tray Combi Oven 20 tray Mixer Kettle 150 litre Kettle 150 litre Kettle 45 litre Bram Plan 31 Frying Suite Vertical Cutter Mixer 60 litre Blast Chiller Chilling Trolley Utensil Rack Pot Wash Machine High Pressure Water Cleaner Dishwasher Tray Lowerators Soak Sinks Silver Burnisher Shelving Utensil Racking Shelving Bain Marie Hot Display Cold Well Display Salad Bar 2 door Upright Refrigerator - Pass thru Microwave Oven Milk Dispenser Soup Kettle Water Chiller Ice Dispenser Pie Oven Plater Lowerator (Unheated) Plater Lowerator (Heated) Holding Cabinets 2 door Upright Refrigerator 2 door Upright Freezer Shelving 45 litre Kettle Re-heat Ovens Utensil Racks Ice Flaker Ice Cream Dispenser Pasta Cookers Sauce Kettles Fryer Rice Cooker Milk Dispenser Carvery Unit Cook'n Hold Oven Rice Cooker Fryer 2 door Upright Refrigerator 2 door Upright Freezer Shelving 32 Utensil Rack Dishwasher 2 door Upright Refrigerator Towel Warmer Food Processor Boiling Water Unit Microwave 10 tray Combi Oven Fryer Kettle 45 litre 2 door Upright Freezer Utensil Rack Shelving Dishwasher 2 door Upright Refrigerator Food Processor Boiling Water Unit Microwave Oven Shelving Utensil Rack 2 door Upright Refrigerator Ice Maker Clam Shell Griddle Frying Suite Pressure Fryer 20 tray Combi Oven Toaster Soft Serve Machine Shelving Holding Cabinets Boiling Water Unit Microwave 2 door Upright Refrigerator 6 tray Combi Oven Fryer Shelving 2 door Upright Refrigerator 2 door Upright Freezer Utensil Rack Dishwasher 2 door Upright Refrigerator Microwave Mixer - 20 litre Food Processor Boiling Water Unit Wine Racking Towel Warmer 33 Juicer 2 door Upright Refrigerator Shelving Ice Maker Blender Glass Washer 2 door Upright Refrigerator Shelving Ice Maker Blender Glass Washer 2 door Upright Refrigerator Shelving Ice Maker Blender 2 door Upright Refrigerator Shelving Ice Maker Blender Ice Maker Shelving Blenders Ice Maker Shelving Blenders Ice Maker Shelving Blenders 2 door Upright Refrigerator 2 door Upright Refrigerator Ice Maker 2 door Upright Refrigerator Shelving Glass Washer Blenders 2 Door Upright Refrigerator Ice Maker Blenders Linen Shelving Linen Bins Linen Trolleys Operating Supply Store Shelving General Store Shelving Lost and Found Store Shelving Head Cleaners Store Shelving Chemical Store Shelving Conveyor Racking System 34 Shelving Mobile Hanging Racks Dirty Uniform Bins Sewing Machine Overlocker Iron Ironing Board Compactor - Three Chamber (Recycling) 35 EXECUTED as a deed. THE COMMON SEAL of ) NEW SOUTH WALES CASINO ) CONTROL AUTHORITY was hereunto ) affixed in the presence of the Chief ) Executive: ) /s/ Peter Shaw /s/ (Signature of Witness) (Signature of Chief Executive) Peter John Shaw (Name of Chief (Name of Witness) Executive) SIGNED SEALED AND DELIVERED for ) and on behalf of ) /s/ H. Gregory SYDNEY HARBOUR CASINO PTY. ) Nasky LIMITED, ACN 060 510 410 by ) (Signature) Harold Gregory Nasky ) its Attorney under a Power of Attorney ) dated 21 April 1994 and registered Book ) 4055 No. 578 and who declares that he has ) not received any notice of the revocation of ) such Power of Attorney in the presence of: ) /s/ Ian Johnston (Signature of Witness) Ian George Johnston (Name of Witness in Full) 36 SIGNED SEALED AND DELIVERED for ) and on behalf of ) /s/ H. Gregory SYDNEY HARBOUR CASINO ) Nasky PROPERTIES PTY. LIMITED, ACN 050 ) (Signature) 045 120 by Harold Gregory Nasky its ) Attorney under a Power of Attorney dated ) 21 April 1994 and registered Book 4055 ) No. 579 and who declares that he has not ) received any notice of the revocation of ) such Power of Attorney in the presence of: ) /s/ Ian Johnston (Signature of Witness) Ian George Johnston (Name of Witness in Full) SIGNED SEALED AND DELIVERED for ) /s/ H. Gregory and on behalf of ) Nasky SYDNEY HARBOUR CASINO ) (Signature) HOLDINGS LIMITED, ACN 064 054 431 ) by Harold Gregory Nasky its Attorney under a ) Power of Attorney dated 21 April 1994 and ) registered Book 4055 No. 577 and who ) declares that he has not received any notice ) of the revocation of such Power of Attorney ) in the presence of: ) /s/ Ian Johnston (Signature of Witness) Ian George Johnston (Name of Witness in Full) 37 SIGNED SEALED AND DELIVERED for ) /S/ H. Gregory and on behalf of ) Nasky SHOWBOAT AUSTRALIA PTY. ) (Signature) LIMITED, ACN 061 299 625 by Harold ) Gregory Nasky its Attorney under a Power ) of Attorney dated 21 April 1994 and ) registered Book 4055 No. 576 and ) who declares that he has not received any ) notice of the revocation of such Power of ) Attorney in the presence of: ) /s/ Ian Johnston (Signature of Witness) Ian George Johnston (Name of Witness in Full) SIGNED SEALED AND DELIVERED for ) and on behalf of ) /s/ B. Clark LEIGHTON PROPERTIES PTY. ) (Signature) LIMITED, ACN 001 046 395 by Barry William ) Clark its Attorney under a Power of ) Attorney dated 21 April 1994 and registered ) Book 4055 No. 591 and who declares that ) he has not received any notice of the ) revocation of such Power of Attorney in the ) presence of: ) /s/ Lyril Leich (Signature of Witness) Lyril Anthony Leich (Name of Witness in Full) 38 SIGNED SEALED AND DELIVERED for ) and on behalf of ) /s/ R. Turchini LEIGHTON CONTRACTORS PTY. ) (Signature) LIMITED, ACN 000 893 667 by Richard Peter ) Turchini its Attorney under a Power of ) Attorney dated 21 April 1994 and registered ) Book 4055 No. 570 and who declares that ) he has not received any notice of the ) revocation of such Power of Attorney in the ) presence of: ) /s/ T. Cooper (Signature of Witness) Terrence Cooper (Name of Witness in Full) SIGNED SEALED AND DELIVERED for ) and on behalf of ) /s/ B. Clark LEIGHTON HOLDINGS LIMITED ) (Signature) ACN 004 482 982 by Barry William Clark its ) Attorney under a Power of Attorney dated ) 21 April 1994 and registered Book 4055 ) No. 581 and who declares that he has not ) received any notice of the revocation of ) such Power of Attorney in the presence of: ) /s/ Lyril Leich (Signature of Witness) Lyril Anthony Leich (Name of Witness in Full) 39 SIGNED SEALED AND DELIVERED for ) /s/ H. Gregory and on behalf of ) Nasky SYDNEY CASINO MANAGEMENT PTY. ) (Signature) LIMITED, ACN 060 462 053 by Harold Gregory ) Nasky its Attorney under a Power of ) Attorney dated 21 April 1994 and registered ) Book 4055 No. 578 and who declares that ) he has not received any notice of the ) revocation of such Power of Attorney in the ) presence of: ) /s/ Ian Johnston (Signature of Witness) Ian George Johnston (Name of Witness in Full) SIGNED SEALED AND DELIVERED for ) /s/ H. Gregory and on behalf of ) Nasky SHOWBOAT OPERATING COMPANY by ) (Signature) Harold Gregory Nasky its Attorney under a ) Power of Attorney dated 29 September 1994 ) and registered Book No. and who ) declares that he has not received any ) notice of the revocation of such Power of ) Attorney in the presence of: ) /s/ Ian Johnston (Signature of Witness) Ian George Johnston (Name of Witness in Full) 40 SIGNED SEALED AND DELIVERED for ) /s/ H. Gregory and on behalf of ) Nasky SHOWBOAT DEVELOPMENT ) (Signature) CORPORATION by Harold Gregory Nasky its ) Attorney under a Power of Attorney dated ) 29/9/94 and registered Book No. ) and who declares that he has not received ) any notice of the revocation of such Power ) of Attorney in the presence of: ) /s/ Ian Johnston (Signature of Witness) Ian George Johnston (Name of Witness in Full) SIGNED SEALED AND DELIVERED for ) /s/ H. Gregory and on behalf of ) Nasky SHOWBOAT INC. by Harold Gregory Nasky its ) (Signature) Attorney under a Power of Attorney dated ) 29 September 1994 and registered Book ) No. and who declares that he has not ) received any notice of the revocation of ) such Power of Attorney in the presence of: ) /s/ Ian Johnston (Signature of Witness) Ian George Johnston (Name of Witness in Full) 41 SIGNED SEALED AND DELIVERED for ) and on behalf of ) /s/ R. C. COMMONWEALTH BANK OF ) Fernandez AUSTRALIA, ACN 123 123 124 by ) (Signature) Richard Fernandez its Attorney under a Power ) of Attorney dated 16 March 1994 and ) registered Book 4050 No. 804 and who ) declares that he has not received any notice ) of the revocation of such Power of Attorney ) in the presence of: ) /s/ (Signature of Witness) ______________________________________________ (Name of Witness in Full) SHC EXHIBIT 1 TO FIRST AMENDING DEED (PRELIMINARY SITE WORKS AGREEMENT) - SYDNEY CASINO PROJECT - SHC PRELIMINARY SITE PREPARATION, EXCAVATION AND REMEDIATION WORKS CONTRACT DATE: NEW SOUTH WALES CASINO CONTROL AUTHORITY PRINCIPAL SYDNEY HARBOUR CASINO PROPERTIES PTY LIMITED SHCP CLAYTON UTZ SOLICITORS AND ATTORNEYS NO. 1 O'CONNELL STREET SYDNEY NSW 2000 TEL: (02) 353 4000 FAX: (02) 251 7832 COPYRIGHT RESERVED TABLE OF CONTENTS CLAUSE PAGE 1. DEFINITIONS AND INTERPRETATION 1 1.1 DEFINITIONS 1 1.2 INTERPRETATION 2 1.3 BUSINESS DAYS 4 1.4 UNDEFINED TERMS 4 1.5 INCONSISTENCY 4 1.6 ADDITIONAL RIGHTS TO ACT 4 2. PRIMARY OBLIGATIONS 4 2.1 SHCP 4 2.2 PRINCIPAL 5 2.3 WARRANTIES 5 2.4 SHCP TO BEAR ALL RISKS 5 3. REPRESENTATIVES 6 3.1 PRINCIPAL'S REPRESENTATIVE 6 3.2 SHCP REPRESENTATIVE 6 3.3 COMMUNICATIONS 6 4. INDEMNITIES AND INSURANCE 6 4.1 INDEMNITY BY SHCP 6 4.2 INDEMNITY BY PRINCIPAL 7 4.3 INSURANCE 7 5. DESIGN AND DOCK 8 5.1 DESIGN 8 5.2 SHCP WARRANTIES 8 5.3 INTELLECTUAL PRY RIGHTS 8 5.4 AUTHORITY REQUIREMENTS 8 6. SITE AND CONTAMINANTS 9 6.1 ACCESS TO SHCP 9 6.2 ACCESS TO PRINCIPAL 9 6.3 NOTIFICATION OF CONTAMINANTS 9 6.4 EXTENSION OF TIME 10 6.5 VALUATION OF REMOVAL OF CONTAMINANTS 10 7. WORKS 10 TABLE OF CONTENTS CLAUSE PAGE 7.1 DESCRIPTION 10 7.2 CODE OF PRACTICE 10 7.3 SUBCONTRACTING 11 7.4 SAFETY 11 7.5 QUALITY 11 7.6 TESTING 12 7.7 VARIATIONS 12 7.8 SURVEYOR'S REPORT 12 7.9 WATER TABLE 12 8 TIME 13 8.1 TIME FOR COMPLETION 13 8.2 PROGRAM 13 8.3 NOTICE OF DELAYS 14 8.4 CLAIM FOR EXTENSION OF TIME 14 8.5 EXTENSION OF TIME 14 8.6 DELAY COSTS 14 9. PAYMENT CERTIFICATES 15 9.1 CLAIMS 15 9.2 CERTIFICATES 15 9.3 PAYMENT 15 9.4 RISE AND FALL 15 9.5 POST LIOCNOE 16 10. COMPLETION 16 10.1 COMPLETION CERTIFICATE 16 10.2 EFFECT OF COMPLETION CERTIFICATE 16 10.3 LIQUIDATED DAMAGES 16 11. TERMINATION 17 11.1 FAILURE TO GRANT LICENCE 17 11.2 CONSEQUENCES OF TERMINATION 17 12. DISPUTE DETERMINATION 17 12.1 DISPUTE DETERMINATION 17 TABLE OF CONTENTS CLAUSE PAGE 12.2 NOTICE OF DISPUTE 18 12.3 NOMINATION OF REPRESENTATIVE 18 12.4 REPRESENTATIVES TO RESOLVE DISPUTE 18 12.5 APPOINTMENT OF INDEPENDENT CONSULTANT 18 12 6 DECISION FINAL AND BINDING 19 12 7 TERMINATION OF DISPUTE RESOLUTION PROCESS 19 12.8 CONFIDENTIALITY 19 12.9 COSTS 20 12.10 FAILURE TO COMPLY 20 13. EXPENSES AND STAMP DUTY 20 13.1 EXPENSES 20 13.2 TAXES 20 14. GENERAL 20 14.1 RIGHT OF SET-OFF 20 14.2 GOVERNING LAW AND JURISDICTION 21 14.3 WAIVER 21 14.4 VARIATION OF CONTRACT 21 14.5 THE PRINCIPAL MAY ACT 21 14.6 NOTICES 21 14.7 INDEMNITY UNAFFECTED 22 14.8 ASSIGNMENT 22 14.9 SEVERABILITY 23 SCHEDULE 1 23 SCHEDULE 2 29 SCHEDULE 3 29 SCHEDULE 4 34 SCHEDULE 5 35 SCHEDULE 6 36 SCHEDULE 7 37 FORMAL AGREEMENT THIS AGREEMENT is made on 1994 BETWEEN CASINO CONTROL AUTHORITY, a statutory corporation constituted by the Casino Control Act 1992 (NSW) ("ACT") on behalf of the State of New South Wales under section 142 of the Act, of Level 17, 309 Kent Street, Sydney, NSW 2000 ("PRINCIPAL") AND SYDNEY HARBOUR CASINO PROPERTIES PTY. LIMITED (ACN 050 045 120) of Level 3, 472 Pacific Highway, St. Leonards ("SHCP") RECITALS A. Sydney Harbour Casino Pty. Ltd. ("SHC") has been granted preferred applicant status by the Principal for the issue of a licence to operate a casino on the Site ("CASINO"). B. SHCP is a company associated with SHC and is the proposed lessee under a document titled Permanent Site Construction Lease as part of the bid of SHC pursuant to which SHC has been granted preferred applicant status. C. SHCP has entered into a Development Agreement with Leighton Properties Pty. Limited ("LPPL") for the planning, design and construction of the Casino. D. SHCP has procured LPPL to enter into a Design and Construction Agreement with Leighton Contractors Pty. Limited ("LCPL") for the design and construction of the Casino. E. Prior to the commencement of the construction of the Casino the Principal desires to have excavation works designed and constructed or caused to be designed and constructed by SHCP. A description of the excavation works is set out in Schedule 2 ("WORKS"). F. SHCP has prepared the preliminary design ("DESIGN DOCUMENTS") as necessary in sufficient detail to enable SHCP to provide a lump sum price being the Contract Price. The Design Documents are listed in Schedule 4. G. SHCP agrees to undertake, or cause to be undertaken, further design work in sufficient detail so as to assist the Principal obtain the Development Consent necessary to carry out the Works in accordance with this Contract, for which SHCP has caused LPPL to enter into a contract with LCPL for the design and construction of the Works. H. SHCP has procured LCPL to engage Dames and Moore of 41 McLaren Street, North Sydney, NSW, 2060 (the "ENVIRONMENTAL ENGINEER") to provide consultancy services in relation to the identification of Contaminants which may be encountered during the execution of the Works, their removal and disposal and complying with the applicable requirements. I. SHCP warrants that the carrying out of the Works (in accordance with the Contract) will reasonably meet the requirements of the Principal as set out in the Design Documents. OPERATIVE 1. The Principal and SHCP promise to perform their respective obligations under the Contract. 2. The "Contract" means: (a) this Formal Agreement; (b) the Conditions of Contract annexed to this Formal Agreement; (c) all Schedules and other documents annexed to this Formal Agreement; and (d) the Design Documents. SIGNED as an agreement. THE COMMON SEAL of ) CASINO CONTROL AUTHORITY was ) duly affixed in accordance with section 152 ) of the Act by the Chief Executive: ) _____________________________________________ Lindsay Le Compte Chief Executive Casino Control Authority THE COMMON SEAL of ) SYDNEY HARBOUR CASINO ) PROPERTIES PTY LIMITED was ) affixed by the authority of the Board of ) Directors in the presence of: ) _________________________________ __________________________ (Signature of Secretary/Director) (Signature of Director) ___________________________________ __________________________ Name of Secretary/Director in Full) (Name of Director in Full) CONDITIONS OF CONTRACT 1. DEFINITIONS AND INTERPRETATION 1.1 DEFINITIONS In the Contract unless the Contract otherwise requires: "ACT" means Casino Control Act 1992 (NSW); "ACTIVITIES" means all things or tasks which are necessary for SHCP to do, or cause to be done, to comply with its Contract obligations; "AWARD DATE" means the date the Formal Agreement, to which these Conditions of Contract are attached, has been signed by the Principal and SHCP; "BUSINESS DAY" means any day, other than a Saturday, Sunday or public holiday recognised in Sydney and generally throughout the State of New South Wales; "COMPLETION" means the stage when: (a) the Works are complete except for minor omissions or defects; and (b) SHCP has done, or caused to be done, everything the Contract requires it to do before Completion; "COMPLIANCE DEED" means the deed so entitled dated on or about 22 April 1994 made between the Principal, SHC and others; "CONTAMINANTS" means any substance or material defined as "CONTAMINATED MATERIAL" in the Work Plan; "CONTRACT PARTICULARS" means the particulars in Schedule 1; "CONTRACT PRICE" means the amount specified in the Contract Particulars as adjusted under clauses 7.7, 7.9 and 9.4; "DATE FOR COMPLETION" means the period specified in the Contract Particulars as adjusted under these Conditions of Contract; "DESIGN DOCUMENTS" means the documents listed in Schedule 4; "DEVELOPMENT CONSENT" means the consent required for the Works and for which the Principal has lodged an application with the relevant authority; "ENVIRONMENT" includes all aspects of the surroundings of human beings including, without limitation: (i) the physical characteristics of those surroundings such as the land, the 2 waters and the atmosphere; (ii) the biological characteristics of those surroundings such as the animals, plants and other forms of life; and (iii) the aesthetic characteristics of those surroundings such as their appearance, sounds, smells, tastes and textures; "ENVIRONMENTAL LAWS" means laws current from time to time for protection of the Environment against contamination or pollution of air or water, soil or ground water, the ozone layer or public health by chemicals, pesticides, hazardous substances, hazardous wastes, dangerous goods, environmental hazards, or noxious trades and enforcement or administration of any of those laws (whether that law arises under statute or pursuant to any notice, decree, order or directive of any governmental entity); "FIRST SUPPLEMENTARY MINISTER'S APPROVAL AND CONSENT ACKNOWLEDGEMENT" has the same meaning as in the Compliance Deed; "LICENCE" means the licence to operate a casino pursuant to section 18(1) of the Act; "MINISTER" means the Minister responsible for administering the Act; "PERMANENT SITE CONSTRUCTION LEASE" means the lease between the Principal and SHCP which forms Exhibit 33 to the Compliance Deed, as amended by agreement between the parties to that lease; "PRINCIPAL'S REPRESENTATIVE" means the person nominated in the Contract Particulars; "SITE" means the Site defined in the Contract Particulars; "TAXES" has the same meaning as in the Compliance Deed; "VARIATION" means any change, including omissions, to the Works, excluding however any work performed by SHCP to deal with Contaminants in accordance with the Work Plan; "WORK PLAN" means the document in Schedule 3; and "WORKS" means works described in Schedule 2, including any Variations. 1.2 INTERPRETATION In this Contract unless the contrary intention appears: (a) a reference to this Contract, or to any other deed, agreement, document or instrument includes this Contract or that other deed, agreement, document or instrument as amended, supplemented, novated, replaced or varied from time to time; 3 (b) a reference to a person includes a reference to an individual, firm, company, corporation, body corporate, statutory body, body politic, trust, partnership, joint venture, association whether incorporated or unincorporated or an authority as the case may be; (c) a reference to a person or to any party to this Contract includes a reference to that person's or party's executors, administrators, successors, permitted substitutes and permitted assigns (including any person taking by way of novation); (d) a reference to a clause or Schedule is a reference to a clause or Schedule of this Contract and Schedules form part of this Contract as if expressly set out in the body of this Contract; (e) a reference to the singular includes a reference to the plural and vice versa and words denoting a given gender shall include all other genders; (f) headings are for convenience only and shall not affect interpretation; (g) where any word or phrase is given a defined meaning any other part of speech or other grammatical form in respect of such word or part of speech has a corresponding meaning; (h) a reference to any legislation, statute, ordinance, code or other law or to any section or provision thereof includes all ordinances, by-laws, regulations, rules, rulings and directions and other statutory instruments issued thereunder and any modifications, consolidations, re-enactments, replacements and substitutions of any of them; (i) a reference to any monetary amount or payment to be made hereunder is a reference to an Australian dollar amount or payment in Australian dollars as the case may require; (j) where a reference is made to any body or authority which has ceased to exist, such reference shall be deemed a reference to the body or authority as then serves substantially the same objects as that body or authority and any reference to the president or secretary-general of such body or authority shall in the absence of a president or secretary-general be read as a reference to the senior officer for the time being of the body or authority and/or such other person fulfilling the relevant duties of president or secretary-general; (k) unless otherwise specified, all payments by SHCP to the Principal must be made in immediately available and cleared funds before 2 pm on the due date for payment; and (1) the contra proferentem rule will not apply to the interpretation of the 4 Contract. 1.3 BUSINESS DAYS Where an act, matter or thing required to be done by this Contract falls to be done on a day which is not a Business Day that act, matter or thing must be done on the preceding day which is a Business Day except in the case of payments due on demand, which may be made on the next following Business Day. 1.4 UNDEFINED TERMS A word or phrase used in this Contract which is not defined in this Contract shall have the same meaning as in the Act. 1.5 INCONSISTENCY To the extent of any inconsistency or conflict between the terms of this Contract and the Act or the Compliance Deed: (a) the Act shall prevail over this Contract and the Compliance Deed; and (b) the Compliance Deed shall prevail over this Contract. 1.6 ADDITIONAL RIGHTS TO ACT The rights and obligations of the parties under this Contract are in addition and without prejudice to their respective rights and obligations under the Act. 2. PRIMARY OBLIGATIONS 2.1 SHCP SHCP must: (a) subject to paragraph (b), immediately commence to perform, or cause to be performed, the Activities in accordance with the Work Plan; (b) commence, or cause to be commenced, the Works on Site by no later than the date set out in the Contract Particulars. SHCP may perform any of its obligations under this Contract including (without limitation) obligations to give notices to the Principal, provide information or documentary evidence or seek extensions of time by causing LPPL or LCPL to do so on its behalf. This will not release SHCP from its obligation to comply with the Contract. 5 2.2 PRINCIPAL Subject to clauses 9.5 and 14.1, the Principal must pay SHCP the Contract Price and any amounts due under clauses 6.5 and 7.6. 2.3 WARRANTIES (a) The Principal warrants that it has full power and authority to enter into, execute and comply with this Contract on behalf of the State of New South Wales and that, pursuant to sections 142(1) and 142(2) of the Act, the Minister has approved of both the Principal entering into this Contract and its terms as evidenced by the First Supplementary Minister's Approval and Consent Acknowledgement. (b) SHCP represents and warrants to and with the Principal in the terms set out in Schedule 7. 2.4 SHCP TO BEAR ALL RISKS SHCP acknowledges that other than where it encounters Contaminants it will bear the entire risk of the scope of work involved in discharging its Contract obligations being greater than anticipated. This will include (without limitation): (a) complying with all conditions of the Development Consent; (b) complying with the requirements of all authorities in respect of the Activities; (c) site demobilisation if the Contract is terminated under clause 11.1; (d) transportation haulage distances to the Nominated Fill Sites (as defined in the Work Plan) being greater than anticipated; (e) the depth of the concrete foundations being greater than anticipated; (f) the reinforcement content of the footings being greater than anticipated; (g) removing all structural steel items found to be embedded in concrete footings; (h) rock being found to be harder than anticipated; (i) rock faults being found to be more severe than anticipated; (j) stabilising the existing boundary retaining walls if this proves necessary; and 6 (k) underpinning or repairing adjacent buildings where these are found to be vulnerable to vibration induced damage arising from or in connection with the Works. 3. REPRESENTATIVES 3.1 PRINCIPAL'S REPRESENTATIVE SHCP must comply with any directions which the Principal's Representative is empowered to give under the Contract. 3.2 SHCP REPRESENTATIVE SHCP must give notice in writing to the Principal's Representative nominating a person as its representative. A direction will be deemed to be given to SHCP if it is given to this person. 3.3 COMMUNICATIONS All communications between the Principal and SHCP must be in writing, or if oral, must be confirmed in writing within 10 days. 4. INDEMNITIES AND INSURANCE 4.1 INDEMNITY BY SHCP Subject to clause 4.2, SHCP must indemnify the Principal against: (a) loss of or damage to property of the Principal, including the existing property described in the Contract Particulars but excluding property to be demolished under the Contract, arising out of or in connection with the carrying out of the Activities; (b) claims by or liability to any person in respect of personal injury or death or loss of or damage to any property arising out of or in connection with the carrying out of the Activities; and (c) all damages, suits, claims, penalties, losses, liabilities and expenses (including, without limitation, all engineering, accounting, legal and other expenses) which may be imposed upon or incurred by or asserted against the Principal by any other person (including, without limitation, any governmental entity, land owner, employee, independent contract, invitee or any other person) arising out of or in connection with any negligence by SHCP, LPPL or LCPL in the carrying out of the Activities or the Works or any breach of the Contract by SHCP. 7 SHCP's liability under this indemnity is limited to $50,000,000 for each and every event which gives rise to a liability under this indemnity. 4.2 INDEMNITY BY PRINCIPAL Subject to the next paragraph the Principal will indemnify and keep indemnified SHCP harmless from and in respect of any and all damages, suits, claims, penalties, losses, liabilities and expenses (including, without limitation, all engineering, accounting, legal and other expenses) which may be imposed upon or incurred by or asserted against SHCP within the period of twenty-five (25) years from the date of the Contract by any other person (including, without limitation, any governmental entity, land owner, employee, independent contractor, invitee or any other person) arising out of or in connection with any contamination, pollution, material degradation or material harm to the Environment or any breach of Environmental Laws arising from the carrying out of the Activities or the Works. The indemnity in the previous paragraph will not apply to the extent that such damages, suits, claims, penalties, losses, liabilities and expenses arise out of any negligence by SHCP, LPPL or LCPL in the carrying out of the Activities or the Works or from a breach of the Contract by SHCP. 4.3 INSURANCE SHCP must: (a) prior to commencing any Activities on Site effect, or cause to be effected, the insurance referred to in the Contract Particulars for the events and in the amounts referred to in the Contract Particulars from insurers and on terms satisfactory to the Principal; (b) prior to commencing any Activities on Site provide the Principal with such evidence of the required insurance as the Principal may require; and (c) maintain, or cause to be maintained, this insurance until: (i) in the case of professional indemnity, six years from the earlier of: (A) the date of Completion; or (B) termination of the Contract under clause 11; and (ii) in the case of insurance other than professional indemnity, the earlier of: (A) the issue of a Completion certificate; or 8 (B) 6 months after the termination of the Contract under clause 11. 5. DESIGN AND DOCK 5.1 DESIGN SHCP must design, or cause to be designed, such parts of the Works as may be required to enable it to perform, or cause to be performed, its Contract obligations. 5.2 SHCP WARRANTIES SHCP warrants that: (a) the Design Documents are fit for their intended purpose; and (b) any further design required to enable it to perform, or cause to be performed, its Contract obligations will be fit for its purpose. 5.3 INTELLECTUAL PROPERTY RIGHTS SHCP: (a) assigns to the Principal the entire copyright and all other rights of a similar nature in the Design Documents and any other designs prepared, or caused to be prepared, by it under clause 5.1; and (b) indemnifies the Principal against any claim or liability in respect of any infringement of any patent, registered design, copyright or similar protected right by any of the Design Documents or other designs prepared, or caused to be prepared, by it under clause 5.1. 5.4 AUTHORITY REQUIREMENTS SHCP must: (a) unless otherwise specified, comply with, or cause to be complied with, the requirements of all authorities and applicable laws, statutes and regulations and requirements made under them, give all notices and pay all fees necessary to perform its Contract obligations; (b) assist the Principal obtain. the Development Consent and apply for, and use its best endeavours to obtain and once obtained, give the Principal copies of, all other licences, permits, consents, approvals, determinations and permissions required to perform the Activities; and (c) subject to clause 6.5, at its cost comply with the Development Consent and 9 all licences, permits, consents, approvals, determinations and permissions obtained from authorities in respect of the Activities. The parties acknowledge that: (d) subject to paragraph (e), SHCP's obligations under this clause will be the same as they would have been if the Principal was a private individual and not an instrumentality, statutory corporation or agent of the State of New South Wales; and (e) SHCP need not obtain a building approval pursuant to the Local Government Act 1993 in respect of the Works. The Principal will indemnify SHCP against the reasonable legal costs incurred by SHCP, LPPL or LCPL arising out of any challenges to or proceedings in respect of the Development Consent. 6. SITE AND CONTAMINANTS 6.1 ACCESS TO SHCP Subject to clause 6.2, the Principal will provide SHCP with immediate access to the Site. 6.2 ACCESS TO PRINCIPAL SHCP must provide, or cause to be provided, the Principal and the Principal's Representative with: (a) unrestricted access to the Site and to all areas where Activities are being undertaken; and (b) such facilities, (including, without limitation reasonable site accommodation) as the Principal and the Principal's Representatives may require to supervise, examine and test the work or materials. 6.3 Notification of Contaminants If during the execution of the Activities SHCP, LPPL or LCPL discover a Contaminant, SHCP must: (a) give, or cause to be given, written notice to the Principal's Representative; and (b) proceed to deal with the Contaminant in accordance with the Work Plan. If required by the Principal's Representative, SHCP must provide to the Principal's 10 Representative a statement in writing specifying: (c) the nature and type of Contaminants encountered; (d) the time it is anticipated will be required to deal with the Contaminants and the expected delay in achieving Completion; (e) the measures it proposes to take to dispose of the Contaminants, SHCP's estimate of the quantity of Contaminants and of the cost of the measures it proposes to take to dispose of the Contaminants; and (f) other details reasonably required by the Principal's Representative. 6.4 EXTENSION OF TIME Delay caused by a Contaminant may justify an extension of time under clause 8.5. 6.5 VALUATION OF REMOVAL OF CONTAMINANTS The Principal must pay SHCP the extra costs incurred by it as a result of discovery and disposing of Contaminants. Such extra costs will be calculated using the rates or prices in Schedule 5 and the quantities measured in accordance with the Work Plan. 7. WORKS 7.1 DESCRIPTION SHCP must perform, or cause to be performed, the Works in accordance with: (a) the Design Documents; (b) the Work Plan; (c) any further designs prepared by it under clause 5.1; (d) the requirements of all authorities, applicable laws, statutes and regulations (and requirements made under them) and all licences, permits, consents, approvals, determinations and permissions obtained in respect of the Activities, including (without limitation) the Development Consent; and (e) any directions the Principal's Representative may be empowered to give under the Contract. 7.2 CODE OF PRACTICE SHCP must comply with and must ensure that LPPL, LCPL and all subcontractors, suppliers and consultants engaged by LCPL comply with the provisions of the New 11 South Wales Government Code of Practice for the Construction Industry. 7.3 SUBCONTRACTING SHCP may subcontract any part of the Activities. SHCP will remain fully responsible for the Activities despite subcontracting any part of the Activities. 7.4 SAFETY SHCP must: (a) prior to commencing, or causing the commencement of, any Activities on Site provide the Principal's Representative with an Occupational Health and Safety Plan in accordance with the Occupational Health and Safety Act 1983; (b) perform the Activities safely and so as to protect persons and property; and (c) upon Completion or the sooner termination of this Contract leave the Site and the Works in a clean and safe condition. If SHCP fails to comply with its Contract obligations and due to such failure the Principal's Representative reasonably considers there is a risk of injury to people or damage to property arising from the Activities, he or she may direct SHCP to appropriately change, or cause to be appropriately changed, the manner of working or to cease working. If the Principal's Representative directs SHCP to cease working, SHCP may recommence working when it is in a position to comply with its Contract obligations. 7.5 QUALITY SHCP must use, or cause to be used, good quality plant and materials and ensure all workmanship is of a proper standard. SHCP must implement, or cause to be implemented, the quality assurance system specified in the Work Plan. SHCP will not be relieved from any of its Contract obligations arising from compliance with the quality assurance requirements of the Contract. 7.6 TESTING SHCP must carry out, or cause to be carried out, all tests described in Schedule 2 or directed by the Principal's Representative. The cost of carrying out the tests described in Schedule 2 is deemed to be included in the Contract Price. 12 The reasonable costs of carrying out all other tests directed by the Principal's Representative will be assessed, subject to clause 12, by the Principal's Representative and be paid by the Principal to SHCP. 7.7 VARIATIONS The Principal's Representative may direct SHCP to carry out a Variation by a written document titled "Variation Order" and: (a) no Variation will vitiate the Contract, and (b) SHCP must carry out all Variations so directed. The Contract Price will be adjusted for the value of all Variations by: (c) where clause 7.9 applies, the amount determined under that clause; (d) any rates or prices in the Contract which may be applicable to the Variation; or (e) a reasonable amount to be agreed between the parties or, in default of such agreement, determined, subject to clause 12, by the Principal's Representative. If without receiving a "Variation Order" directing a Variation from the Principal's Representative, SHCP carries out more work than required by this Contract including (without limitation) excavating the works to a lower depth than required by the Design Documents, this will be performed by it at its risk and will not constitute a Variation nor otherwise entitle SHCP to an adjustment of the Contract Price or payment on any other basis. 7.8 SURVEYOR'S REPORT The parties acknowledge that the certificate in Schedule 6 accurately sets out the levels on Site at the date of this Contract. Prior to Completion SHCP must provide, or cause to be provided, the Principal's Representative with a Certificate from a licensed surveyor stating that the Works have been completed to the levels required by the Contract. 7.9 WATER TABLE If the natural water table level is found at a higher level than the finished excavation levels shown by the Design Documents either the Principal or SHCP may by notice in writing to the other elect to terminate the excavation at the natural water table level. If either party elects to terminate the excavation at the natural water table level in 13 accordance with the preceding paragraph then: (a) this will be deemed to be a Variation which omits all work contemplated by the Contract below such level; and (b) the Contract Price will be reduced by deducting an amount determined as follows: X $4,806,610.00 x _ Y Where: X = the quantities of excavated material between the natural water table level and the finished excavation levels shown by the Design Documents; and Y = the quantities of excavated material between the existing natural surface level and the finished excavation levels shown by the Design Documents. 8. TIME 8.1 TIME FOR COMPLETION SHCP must achieve, or cause the achievement of, Completion by the Date for Completion. 8.2 PROGRAM SHCP must within 14 days of the Award Date submit a program of the Activities to the Principal's Representative. This program must set out: (a) the proposed method of working; (b) a project calendar containing the working days; (c) the interrelationship between Activities; and (d) the sequencing of Activities which constitute the critical path or paths. 14 8.3 NOTICE OF DELAYS Upon it becoming evident to SHCP that Completion of the Works is likely to be delayed beyond the Date for Completion SHCP shall forthwith notify, or cause to be notified, the Principal. 8.4 CLAIM FOR EXTENSION OF TIME SHCP may claim an extension of time if SHCP: (a) is or will be delayed in achieving, or causing the achievement of, Completion of the Works by an event described in the Contract Particulars not arising from or due to or substantially contributed to by any neglect, default or misconduct by SHCP, LPPL or LCPL; and (b) has taken all proper and reasonable steps both to preclude the occurrence of the cause of the delay and to avoid or minimise the effects or consequences of the cause of the delay. To claim an extension of time SHCP must submit a claim to the Principal's Representative for an extension to the Date for Completion within 21 days of the commencement of the delay setting out the cause of delay and stating the period by which it requires the Date for Completion to be extended. 8.5 EXTENSION OF TIME The Date for Completion will be extended: (a) where SHCP has made a claim in accordance with clause 8.4 and SHCP will be delayed in achieving, or causing the achievement of, Completion, by a reasonable period determined by the Principal's Representative and notified to the parties within 14 days after the later of SHCP's notice under clause 8.4 or the end of the effects of the delay; and (b) by any period specified in a notice to SHCP by the Principal's Representative who may by such a notice for any reason whatsoever unilaterally extend the Date for Completion. 8.6 DELAY COSTS The rates and prices set out in Schedule 5 are deemed to include and the Principal will not otherwise be liable for any costs, losses and damages suffered or incurred by SHCP in performing or procuring performance of the Activities, including (without limitation) those arising out of or in connection with delays to the Activities, arising from: (a) the discovery of Contaminants or potential Contaminants in material 15 excavated or to be excavated as part of the Works; or (b) the requirement to comply with this Contract and the Work Plan in dealing with Contaminants or potential Contaminants in material excavated or to be excavated as part of the Works. 9. PAYMENT CERTIFICATES 9.1 CLAIMS Prior to the issue of the Licence to SHC, SHCP must give the Principal's Representative claims for payment: (a) at the times stated in the Contract Particulars and upon the issue of the Licence to SHC; (b) in the format required by the Principal's Representative; and (c) which provides the evidence reasonably required by the Principal's Representative of the amount claimed, including (without limitation) all relevant details and particulars relating to the amount (if any) claimed under clauses 6.5 and 7.6. 9.2 CERTIFICATES The Principal's Representative must within the time period stated in the Contract Particulars of receipt of a payment claim under clause 9.1 give SHCP and the Principal a payment certificate from the Principal's Representative which: (a) certifies the value of work completed in accordance with the Contract; and (b) states the reasons for any difference in the amount certified as then payable from the amount SHCP claimed. 9.3 PAYMENT Subject to clauses 9.5, 12 and 14.1, the Principal must pay SHCP the amount certified in each payment certificate within the time stated in the Contract Particulars. The Principal will, unless otherwise instructed in writing by SHCP, make payments due under this clause direct to LCPL. Payments made to LCPL under this clause will be a good and valid discharge of the Principal's obligation to pay SHCP the amount due under this clause. 9.4 RISE AND FALL If Development Consent for the works has not issued by 31 August 1994 the Contract Price will be adjusted in the same relation as the Contract Price bears to the Consumer 16 Price Index at 30 June 1994 as it bears to that index for the quarter immediately preceding the date when Completion has occurred. For the purposes of this clause "Consumer Price Index" means the all groups Consumer Price Index for the City of Sydney compiled by the Australian Bureau of Statistics for the weighted average of the eight capital cities of Australia or any index which is substituted for that Index. 9.5 POST LICENCE After the grant of the Licence to SHC, this Contract will automatically terminate and subject to clause 14.7: (a) the Principal will not be liable for and SHCP will no longer have an entitlement to payment of the balance of the Contract Price or any amounts payable under clauses 6.5 or 7.6; and (b) SHCP releases the Principal from any claim which it otherwise would have against the Principal under this Contract to payment of the balance of the Contract Price or any amounts payable under clauses 6.5 or 7.6. 10. COMPLETION 10.1 COMPLETION CERTIFICATE SHCP must notify the Principal's Representative in writing 7 days prior to when it expects to achieve Completion. The Principal's Representative must promptly and in any event no later than 7 days after receipt of SHCP's written notice inspect the Works and, if satisfied that Completion has been achieved, issue a Completion certificate stating the date Completion was reached. If any minor omissions or defects exist in the Works upon Completion SHCP must, within a reasonable time of Completion, remedy, or cause to be remedied, these omissions or defects. 10.2 EFFECT OF COMPLETION CERTIFICATE A Completion certificate is not approval by the Principal of SHCP's performance of its Contract obligations. 10.3 LIQUIDATED DAMAGES If SHCP does not reach, or cause to be reached, Completion by the Date for Completion, it must pay liquidated damages at the rate in the Contract Particulars for every day after the Date for Completion until it reaches Completion or the Contract is terminated, whichever is first. This amount is an agreed genuine pre-estimate of the Principal's damages if Completion occurs after the Date for Completion. The Principal may deduct liquidated damages from any payment claim SHCP makes 17 or from any security it holds. 11. TERMINATION 11.1 FAILURE TO GRANT LICENCE If the Compliance Deed terminates for any reason other than because SHC has been granted the Licence, this Contract will automatically terminate. 11.2 CONSEQUENCES OF TERMINATION If the Contract is terminated under clause 11.1 the Principal's liability to SHCP will be limited to paying SHCP within 30 days of the date of termination the following amounts, less payments already made to SHCP under clause 9.3: (a) any amount payable under clause 6.5 and clause 7.6; (b) in respect of Variations, the value of work undertaken as at the date of termination in accordance with the Contract and the cost of services, goods or materials properly ordered for Variations for which SHCP has paid or for which SHCP is legally bound to pay and on such payment by the Principal such goods or materials will become the property of the Principal; (c) the amount determined by the following formula: X Contract Price x _ Y Where: X = the quantities of excavated material between the existing natural surface level and the level at which the Site is at upon the date of termination; and Y = the quantities of excavated material between the existing natural surface level and the finished excavation levels shown by the Design Documents; and (d) any other amounts payable under the provisions of this Contract. 12. DISPUTE DETERMINATION 12.1 DISPUTE DETERMINATION A party must not commence or maintain any action or court proceedings (except proceedings seeking interlocutory relief) in respect of a dispute or difference as to any 18 matter relating to or arising under or in connection with this Contract or the Activities ("Dispute") unless it has complied with this clause. 12.2 NOTICE OF DISPUTE A party claiming that a Dispute has arisen must notify the other party in writing giving details of the Dispute. 12.3 NOMINATION OF REPRESENTATIVE Within 5 days after a notice is given under clause 12.2, each party must nominate in writing a representative authorised to settle the Dispute on its behalf ("Representative"). 12.4 REPRESENTATIVES TO RESOLVE DISPUTE During the period of 14 days after a notice is given under clause 12.2 (or any longer period agreed between the parties), each party must ensure that its Representative uses his or her best endeavours, with the other Representative, to: (a) resolve the Dispute; or (b) agree on a process to resolve the Dispute without court proceedings (including without limitation mediation, conciliation, executive appraisal or independent expert determination) including: (i) the involvement of any dispute resolution organisation; (ii) the selection and payment of a third party to be engaged by the parties to assist in negotiating a resolution of the Dispute without making a decision that is binding on a party unless that party's Representative has so agreed in writing; (iii) any procedural rules; (iv) the timetable, including any exchange of relevant information and documents; and (v) the place where meetings will be held. 12.5 APPOINTMENT OF INDEPENDENT CONSULTANT If, within the period specified in clause 12.4, the Representatives have not resolved the Dispute or agreed upon a process to resolve the Dispute, the parties may, within 10 days after expiry of that period, agree to appoint a person, who is of good repute and is an expert in the area relevant to the Dispute, to perform the following functions, which the parties authorise the person to do: (a) act as an independent consultant for the purpose of resolving the Dispute, as an expert and not as an arbitrator; 19 (b) establish the procedures for identifying the issues relating to the Dispute and the contentions of the parties, in accordance with considerations of procedural fairness; (c) make a written, reasoned decision to resolve the Dispute; and (d) decide how the independent consultant's fees should be paid by the parties. If the parties cannot agree, within that 10 day period, on the appointment of an independent consultant, the parties must request the Secretary General of the Australian Commercial Disputes Centre Limited to appoint that person. 12.6 DECISION FINAL AND BINDING A decision by the independent consultant under clause 12.5 will be final and binding on the parties. However, a party is entitled to take court proceedings to appeal that decision on a question of law. 12.7 TERMINATION OF DISPUTE RESOLUTION PROCESS If, by the expiry of the period specified in clause 12.5: (a) the Dispute has not been resolved; (b) no process has been agreed under clause 12.4; and (c) no request has been made under clause 12.5, then a party that has complied with clauses 12.2 to 12.4 may terminate the dispute resolution process by giving notice to the other party, and then clause 12.1 will no longer operate in relation to the Dispute. 12.8 CONFIDENTIALITY Each party must: (a) keep confidential all confidential information and confidential communications made by a Representative under this clause; and (b) not use or disclose that confidential information or those confidential communications except to attempt to resolve the Dispute. Nothing in this sub-clause will affect the admissibility into evidence in any court or arbitral proceedings of extrinsic evidence of facts which, but for this sub-clause, would be admissible in evidence. 20 12.9 COSTS Each party must bear its own costs of resolving a Dispute under this clause. 12.10 FAILURE TO COMPLY If a party does not comply with any provision of clauses 12.2 to 12.4 or, if applicable, clause 12.5 and any procedural requirements established under clause 12.5, then the other party will not be bound by those sub-clauses in relation to the Dispute. 13. EXPENSES AND STAMP DUTY 13.1 EXPENSES SHCP must on demand reimburse the Principal for and keep the Principal indemnified against all expenses, including all legal fees, costs and disbursements on a solicitor/own client basis and without the need for taxation, incurred by the Principal in connection with the enforcement or attempted enforcement of any rights under this Contract which it may have by reason of a default by SHCP, including without limitation any expenses incurred in the evaluation of any matter of material concern to the Principal. 13.2 TAXES SHCP must: (a) pay all stamp duties, registration and similar Taxes, including fines and penalties, financial institutions duty and federal debits tax in connection with the execution, delivery, performance, enforcement or attempted enforcement of this Contract or any payment or other transaction under or contemplated in this Contract; and (b) indemnify and keep indemnified the Principal against any loss or liability incurred or suffered by it as a result of the delay or failure by SHCP to pay Taxes. 14. GENERAL 14.1 RIGHT OF SET-OFF The Principal may deduct from moneys otherwise due to SHCP any debt due from SHCP to the Principal under the Contract. 14.2 GOVERNING LAW AND JURISDICTION This Contract is governed by and construed in accordance with the laws of the State of New South Wales. 21 Each party irrevocably submits to and accepts, generally and unconditionally, the non-exclusive jurisdiction of the courts and appellate courts and mediation and arbitration processes of New South Wales with respect to any legal action or proceedings which may be brought at any time relating in any way to this Contract. 14.3 WAIVER The Principal can only waive its rights under this Contract by expressly doing so in writing. 14.4 VARIATION OF CONTRACT An amendment to or variation of a term of this Contract will have no force or effect and will be deemed not to have been entered into by the Principal unless and until the Principal has received the approvals of the Minister thereto required under section 142 of the Act. 14.5 THE PRINCIPAL MAY ACT The Principal may, either itself or by a third party, perform a Contract obligation which SHCP was obliged to perform but which it failed to perform if: (a) the Principal gives notice in writing to SHCP specifying the Contract obligation which SHCP has failed to perform; and (b) SHCP fails to perform or to commence to perform the Contract obligation within 10 days of this notice. The costs, expenses and damages suffered or incurred by the Principal in performing such a Contract obligation will be a debt due from SHCP to the Principal. 14.6 NOTICES A notice to be given under or arising out of the Contract must be in writing and addressed and forwarded to the relevant party at the address or facsimile number stated in the Contract Particulars or otherwise as notified in writing from time to time. A notice sent by post is taken to have been given at the time when, in due course of the post, it would have been delivered at the address to which it is sent. A notice sent by facsimile transmission is taken to have been given on the date and time on the transmission slip showing the facsimile number of the party to whom it is addressed in accordance with this clause. 14.7 INDEMNITY UNAFFECTED The parties acknowledge that neither this Contract nor the performance of the 22 Activities by SHCP or LPPL or LCPL nor the termination of this Contract pursuant to clause 9.5, will in any way affect the rights and liabilities of the parties under the Permanent Site Construction Lease, including (without limitation) the warranties in clause 4.10(b) or the indemnity in clause 4.10(c) of that Lease. 14.8 ASSIGNMENT Each party's ability to assign, encumber or otherwise dispose of their rights and obligations under this Contract is subject to section 142(4) of the Act. 14.9 SEVERABILITY All provisions and each and every part thereof contained in this Contract shall be severable and shall be so construed as not to infringe the law of Australia or the law of any Australian state or territory or any other relevant jurisdiction. If any such provision on its true interpretation is found to infringe any such law, that provision shall be read down to such extent as may be necessary to ensure that it does not so infringe any such law and as may be reasonable in all the circumstances so as to give as full and as valid an operation as possible. In the event that the infringing provision cannot be so read down, it shall be deemed void and severable and shall be deemed deleted from this Contract to the same extent and effect as if never incorporated herein and the parties shall negotiate with each other for the purpose of substituting an appropriate clause so far as is practicable in lieu of such deleted provision. It is the intention of the parties that if any provision of this Contract is logically and reasonably susceptible of two or more constructions, one of which would render the provision enforceable and the other or others of which would render the provision unenforceable, then the provision shall have the meaning which renders it enforceable. 23 SCHEDULE 1 CONTRACT PARTICULARS CONTRACT PRICE: $4,806,610 (Clause 1.1) DATE FOR COMPLETION: 17 weeks after the later of (Clause 1.1) the: (a) Award Date; or (b) the issue of the Development Consent. PRINCIPAL'S REPRESENTATIVE: Tony Collins, Regional Manager (Clause 1.1) Operations Division, New South Wales Public Works SITE: Lot 122 on DP828957, Lots 92 (Clause 1.1) and 93 on DP838113 and Lots 11 and 12 on DP830887 COMMENCEMENT OF WORKS ON The later of the Award Date or SITE: the date upon which the (Clause 2.1(b)) Development Consent issues. EXISTING PROPERTY: Heritage Building (Clause 4.1(a)) Perimeter Retaining Walls INSURANCE: (Clause 4.3) TYPE EVENT AMOUNT AND INSURED Public Loss of or damage Minimum of $50,000,000 Liability to any physical in the name of the property or Principal, SHCP, LPPL injury to or death and LCPL with cross to any person liability so that the (other than insurance applies to employees) Principal, SHCP, LPPL and LCPL as separate insured Workers' Liability for SHCP shall: Compensation injury to or death of employees (a) comply with whether arising at applicable Workers' common law or under Compensation statute legislation with respect to its employees; and 24 (b) ensure LPCL and LCPL comply with applicable Workers' Compensation legislation with respect to their employees. Professional Professional $10,000,000 in the name of Indemnity negligence for SHCP. breach of professional duty (whether in contract or otherwise) by SHCP, LPPL, LCPL or any of their employees, agents or consultants. Motor Vehicle Loss of or damage Minimum of $5,000,000 in Third Party to any physical the joint names of SHCP Liability property and the Principal with cross liability so that the insurance applies to each as separate insured. EVENTS OF DELAY: (a) By reason of the (Clause 8.4) discovery of Contaminants; and (b) by reason of any other matter, cause or thing beyond the control of SHCP, LPPL and LCPL, PROVIDED HOWEVER that SHCP will not be entitled to an extension of time in respect of any combination of workmen, strikes or industrial difficulties which relate specifically to the Site, the Works, the construction of the Casino, SHCP, LPPL or LCPL other than those which are due to: (a) attempts by industrial unions to have SHCP, LPPL or LCPL act contrary to the New South Wales Government Code of Practice for the Construction Industry; or (b) industrial disputation arising from a breach by industrial unions of an enterprise agreement relating to the Site, the Works or the construction of the Casino provided that such enterprise agreement complies with 25 the New South Wales Government Code of Practice for the Construction Industry. TIME FOR PAYMENT CLAIM: 25th day of each month. (Clause 9.1) TIME FOR PAYMENT 7 days. CERTIFICATE: (Clause 9.2) TIME FOR PAYMENT OF 21 days from the issue of PAYMENT the payment certificate. CERTIFICATE: (Clause 9.3) LIQUIDATED DAMAGES: $1.00 per day (Clause 10.3) ADDRESSES AND FACSIMILE Principal: NUMBERS FOR NOTICES (Clause 14.6) Level 17 309 Kent Street SYDNEY Fax: 299 7427 Attention: Lindsay Le Compte Principal's Representative: 66-72 Rickard Road BANKSTOWN NSW 2200 Fax: 795 0888 Attention: Tony Collins SHCP: Level 3, 472 Pacific Highway ST. LEONARDS NSW 2065 Fax: 925 6152 Attention: Mr Chris Ryan 26 SCHEDULE 2 DESCRIPTION OF THE WORKS The Description of the Works is subdivided into two subsections: PART A - EXCAVATION WORKS PART B - ENVIRONMENTAL ENGINEERING SERVICES PART A - EXCAVATION WORKS The following sets out the scope and description of the Works: - - Ensure the Environmental Engineer provides surveillance and specialist engineering services in respect to Site remediation during the period of the excavation, transportation and depositing at the disposal fill sites. The scope of work to be undertaken is set out in SCHEDULE 2 - PART B. - - Carry out geotechnical investigation to determine the location of the sandstone bedrock and the intersection with RL100 across the excavation Site and to determine ground water levels and flows through the bedrock and fill material. - - Carry out additional sampling of the fill across the site to augment the test data currently available. Up to 10 test holes are to be excavated using a backhoe to depths of 2-3 metros. Samples are to be analysed for contaminants and the Environmental Engineer shall compile a report with recommendations on the findings. - - Engage a suitably qualified Archaeological consultant to provide surveillance of the Site during the initial excavation of the surface layers and provide all necessary reports to the satisfaction of the relevant authorities. - - Obtain the excavation permit from the Heritage Branch of the Department of Planning. - - Prepare an environmental management plan in a form and containing such details as may be reasonably required by the Principal's Representative and any relevant authorities, setting out the roles and responsibilities to minimise the effects on the Environment during the course of the Works including (without limitation) the procedures for noise control, dewatering, erosion protection, dust control and the method for transporting material from the Site. SHCP must obtain the approval of the Environment Protection Authority of New South Wales to this Plan. - - Prepare a dilapidation report on the adjacent buildings, considered to be affected by the Works such as the Sydney Electricity Switching Station and Sydney Electricity Lighting Station Heritage Building. - - Prepare a quality assurance plan for the work in a form and containing such details as 27 may be reasonably required by the Principal's Representative including (without limitation) the quality assurance system to be adopted by the Environmental Engineer. - - Excavate the entire site to RL100 and remove all concrete footings, conduits, tanks, Clockwork fence, and remaining structures above this level (excluding the Sydney Electricity Lighting Station Heritage Building) and in accordance with the Design Documents referred to in Schedule 4. - - Further excavate sandstone rock and remove all concrete foundations west of the RL100 rock contour line to RL96 and RL97 approximately in accordance with the Design Documents referred to in Schedule 4. - - Transport and deposit excavated material at the fill disposal sites in accordance with the Work Plan. - - Provide for any dewatering that may be required to allow excavation of the fill material and excavation of the sandstone rock west of the 'natural' rock dam at rock contour RL100. - - Install suitable shoring, underpinning of remaining structures within the site and on the site boundary, or provide a batter to the excavated face, where the excavated surface is considered to be unstable in its unsupported condition by a qualified geotechnical engineer approved by the Principal. - - In accordance with the Work Plan excavate, handle on Site and dispose of, any material identified as potentially being Contaminated Material (as defined in the Work Plan). - - Provide all necessary barriers and warning lights. - - Provide one 4m x 2.4m shed on site with desk, chair, telephone and power for use by the Principal's Representative. - - Progressively and on completion of the excavation, SHCP shall provide a report scheduling the fill disposal sites in accordance with the Work Plan. - - Comply with the conditions of the Development Consent. - - Provide to the Principal's Representative, copies of all reports, plans etc. including those prepared or provided by the Environmental Engineer. PART B - ENVIRONMENTAL ENGINEERING SERVICES The following sets out the scope and description of services which SHCP must ensure that the Environmental Engineer provides under the Contract: 28 - - Establish presence on Site. - - Liaise with the Principal's Representative on a regular basis. - - Undertake additional sampling across the Site for analysis for Contaminants and compile a report on the findings as set out in PART A of this Schedule. - - Undertake Site inspection of the Works, providing services equivalent to 6 weeks full time followed by 1.5 days per week for the remaining period of the Contract. - - Undertake all necessary testing for Contaminants, reporting and liaison with the EPA including obtaining necessary approval in accordance with the Work Plan. - - Provide a daily report, detailing the classification of materials excavated and leaving the Site and their ultimate destination. - - Prepare Progress Reports on a 2 week basis, a copy of which is to be made available to the Principal's Representative. - - Undertake regular liaison with EPA in accordance with the Work Plan. - - On Completion of the Works, prepare a report in accordance with the Work Plan. 29 SCHEDULE 3 WORK PLAN The Work Plan sets out the methodology for excavation of the Site, demolition of structures and transport to disposal fill sites. The Work Plan is subdivided into four subsections: PART A - DEFINITIONS PART B - GENERAL PART C - SANDSTONE, CONCRETE AND FILL MATERIAL PART D - CONTAMINATED MATERIAL PART A - DEFINITIONS "CONTAMINATED MATERIAL" means material classified by the Environmental Engineer as not suitable for disposal at a Nominated Fill Site and requiring disposal at a Licensed Landfill Site. "EPA" means Environment Protection Authority of New South Wales. "FILL MATERIAL" means material classified by the Environmental Engineer as suitable for disposal at a Nominated Fill Site. "LICENSED LANDFILL SITE" means landfill site approved by the EPA. "NOMINATED FILL SITE" means a site which has as its intended land use, either: (a) an industrial purpose; or (b) any other use approved by the Principal's Representative under Part C of this Work Plan. "SANDSTONE MATERIAL" means sandstone material classified by the Environmental Engineer as suitable for unrestricted disposal, at the discretion of SHCP. PART B - GENERAL This section sets out the general work plan under which the work is to be performed and the material tested, transported and deposited at the selected fill sites and the demolition of concrete structures. - - Excavation and loading shall be carried out using construction plant normally used in the excavation of sandstone, excavation of fill and removal of concrete structures, including dozers, loaders and hydraulic rock breakers. 30 - - Broken up concrete structures may either be removed from the Site or alternatively a crushing plant may be established on Site for crushing concrete, bricks and sandstone prior to removal from the Site. - - Excavation work will be carried out between the hours nominated in the Development Consent. - - Transportation access to the Site by truck must be via one of the following routes: - Broadway/Wattle Street/Pyrmont Bridge Road/Edward Street; - Glebe Island Arterial (from City)/Pyrmont Bridge Road/Edward Street; - Glebe Island Bridge/Bank Street/Miller Street/Union Street/Pyrmont Bridge Road/Edward Street; - Pier Street/Darling Drive/Pyrmont Bridge Road/Edward Street. - - Transportation egress from the Site by truck for disposal of excavated material must be via one of the following routes: - Edward Street/Union Street/Darling Drive/Ultimo Street/Harris Street/Broadway; - Edward Street/Union Street/Darling Drive/Pier Street; - Edward Street/Union Street/Pyrmont Bridge Road/Bank Street/Glebe Island Bridge; - Edward Street/Union Street/Pyrmont Bridge Road/Pyrmont Street and hence via duct north to Harbour Bridge. - - SHCP will take steps to minimise the spread of dust and debris on the surrounding road system. - - Edward Street and Union Street shall be cleaned on a regular basis to minimise the generation of dust. - - Excavation and loading procedures shall be such that all materials shall be available for inspection and testing by the Environmental Engineer either in machinery bucket or stockpile prior to loading into trucks. Material identified as potentially being Contaminated Material shall be dealt with under PART D - CONTAMINATED MATERIAL. Otherwise the material shall be dealt with under PART C SANDSTONE, CONCRETE & FILL MATERIAL. - - On completion of the excavation and transport to the disposal site, the Environmental Engineer shall prepare a report documenting the surveillance work undertaken, test results and recommendations to SHCP and the Principal's Representative. The report shall also document the results of the final inspection at Completion of the Works. 31 PART C - SANDSTONE, CONCRETE & FILL MATERIAL This section deals with the disposal of material designated as Sandstone Material, Fill Material or concrete by the Environmental Engineer. - - Disposal of excavated Fill Material from the Site shall be to a Nominated Fill Site. - - SHCP shall seek the Principal's Representative's approval to the location of all proposed Nominated Fill Sites where Fill Material is to be deposited and for this purpose will provide evidence such as correspondence from the landowners stating: - Property identification and owner; - Quantity and type of fill to be deposited; - Proposed ultimate destination on the site where of the fill is to be deposited; - Intended land use for the site; and - Advice that the land owner accepts fill material of the type described. - - The Principal's Representative is only obliged to approve a site as a Nominated Fill Site if the fill material to be deposited at that site does not pose a human health risk or risk to the Environment given the intended use of that site. - - Disposal of Sandstone Material from the Site shall be at the unrestricted discretion of SHCP. - - Disposal of concrete, bricks and steel material from the Site shall be at the unrestricted discretion of SHCP. - - SHCP shall advise the Principal's Representative of the quantity of the Sandstone Material, concrete, bricks and like material removed from the Site. PART D - CONTAMINATED MATERIAL This section deals with the excavation and disposal of material identified as potentially being Contaminated Material by the Environmental Engineer. - - Regular liaison meetings with the EPA shall be undertaken during the period of excavation. Liaison meetings shall involve SHCP, the Environmental Engineer and the Principal's Representative. - - Visual inspection and volatile gas screening (with a photoionisation detector "PID") shall also be conducted. Materials which are suspect shall be placed in a stockpile on the Site. Suspect materials may include (without limitation): 32 - stained or oily soils; - soils giving above background volatile emissions on the PID; - soils containing fibrous materials suspected of being asbestos; and - soils with a high percentage of ash or slag. - - Representative sampling shall be undertaken from the suspect materials for analysis. The materials must not be removed from the Site until results are received and advice from the Environmental Engineer. - - Excavate and stockpile material considered as being potentially Contaminated Material at a location not to interfere with the main work. Materials confirmed as Contaminated Material shall be dealt with in the following manner: - - MATERIALS WHICH CAN BE DISPOSED OF WITHOUT STABILISATION For materials found to be contaminated with metals or organics, which pass the EPA requirement for unstabilised materials (which may include TCLP testing {Toxicity Characteristic Leaching Procedure}), application may be made by SHCP to the EPA for disposal at a Nominated Fill Site or alternatively a Licensed Landfill Site. - - ASBESTOS CONTAINING SOILS For materials found to be containing asbestos, application shall be made by SHCP to the EPA for disposal of the soil to a Licensed Landfill Site, with disposal undertaken by a licensed contractor in accordance with the requirements of the Workcover Authority of NSW. - - OTHER MATERIAL Materials within this category are: - Soils containing prescribed chemical wastes under the Environmentally Hazardous Chemicals Act (ea. PCBs) which at certain concentrations and amounts cannot be disposed of at a Nominated Fill Site; - Soils containing hydrocarbons (ea. polycyclic aromatic hydrocarbons PAHS) at concentrations above which they can be disposed at a Nominated Fill Site; - Soils containing leachable metals or organics at concentrations which exceed the criteria for disposal at a Nominated Fill Site. The above materials shall be handled on an individual basis. Options for disposal may 33 include: - Stabilisation and landfill disposal; - Treatment to reduce concentrations to a level where disposal is possible; - Transportation to treatment plant; - Offsite strategic storage pending assessment of treatment options. Application is required to be made to the EPA, for its approval on the treatment and disposal of the above materials. - - SHCP shall advise the Principal's Representative of the location of all Licensed Landfill Sites where Contaminated Material is deposited, providing written evidence, such as correspondence from the landowner, stating: - Property identification and owner; - Quantity and type of Contaminated Material deposited; - EPA approval for disposal of the material at that site. 34 SCHEDULE 4 DRAWINGS AND SPECIFICATIONS AND OTHER RELEVANT DOCUMENTS (IF ANY) Drawing JO78/CSS/9/DD/25500/02 35 SCHEDULE 5 RATES AND PRICES PART A - PAYMENT FOR CONTAMINATED MATERIAL The following unit "extra over" rates per cubic metre, loose measured in the truck, measured at the gate shall apply, to include all handling, stockpiling, removal from the Site and disposal costs including selection of disposal site and arranging for disposal. (i) Materials which can be $90/m3 disposed of without stabilisation (ii) Asbestos Contaminated Soils Cost plus 25% for overheads and profit (iii) Other material Cost plus 25% for overheads and profit PART B - PAYMENT FOR ENVIRONMENTAL ENGINEERING CONSULTANT AND TESTING Consultant in Charge $133/hr Senior Level Staff $105/hr Staff $65/hr Support Staff $55/hr Testing for Metals $95/hr Testing for TCLP of Metals $145/test Testing for Hydrocarbons $330/test Testing for TCLP of Hydrocarbons $430/test Testing for Asbestos in soils $40/test Other Costs Cost plus 25% for overheads and profit 36 SCHEDULE 6 ENGINEERING SURVEYOR'S CERTIFICATE Drawing No. 80980001/00 37 SCHEDULE 7 WARRANTIES BY SHCP (a) (LEGALLY BINDING OBLIGATION): this Contract constitutes a valid and legally binding obligation of SHCP in accordance with its terms notwithstanding: (i) any statute of limitations; (ii) any laws of bankruptcy, insolvency, liquidation, reorganisation or other laws affecting creditors' rights generally; and (iii) any defences of set-off or counter claim; (b) (EXECUTION, DELIVERY AND PERFORMANCE): the execution and delivery of this Contract, and the performance of or compliance with its obligations under this Contract by it does not violate any law or regulation or official directive or any document or agreement to which it is a party or which is binding upon it or any of its assets; (c) (INFORMATION): all information given at any time and every statement made at any time, by it to the Principal or its employees, agents or consultants in connection with this Contract is and will be true in any material respect and is and will not by omission or otherwise be misleading in any material respect; (d) (IMMUNITY): it is not and will not be immune from the jurisdiction of a court or arbitration process or from any legal process (whether through service of notice, judgement, attachment in aid of execution or otherwise); (e) (NO EVENT OF INSOLVENCY): no event has occurred which constitutes an Event of Insolvency in relation to the Principal. (f) (DUE INCORPORATION): it is duly incorporated, is validly existing under the laws of the jurisdiction of its incorporation and has the corporate power to own its property and to carry on its business as is now being conducted; (g) (CONSTITUENT DOCUMENTS): the execution, delivery and performance of this Contract does not violate the Memorandum and Articles of Association of it (or the equivalent constituent documents in its jurisdiction of incorporation), or cause a limitation on its powers, or cause the powers of its directors or officers to be exceeded, and if it is listed on the Australian Stock Exchange Limited or its subsidiaries or on any other stock exchange, does not violate the listing (or equivalent) requirements thereof; (h) (POWER): it has the power, and has taken all corporate and other action required, to enter into this Contract and to authorise the execution and delivery of this Contract and the performance of its obligations hereunder; 38 (i) (FILINGS): it has filed all corporate notices and effected all registrations with the Australian Securities Commission or similar office in its jurisdiction of incorporation and in any other jurisdiction as required by law and all such filings and registrations are current, complete and accurate; and (j) (Commercial Benefit): the execution of this Contract is in its best commercial interests. SHC EXHIBIT 2 TO FIRST AMENDING DEED (NOMINEE TRUST DEEDS) - SYDNEY CASINO PROJECT - DATED: 23 JUNE 1994 BETWEEN HAROLD GREGORY NASKY (THE "TRUSTEE") AND SHOWBOAT AUSTRALIA PTY LIMITED (ACN 061 299 625) (THE "BENEFICIARY") DEED OF TRUST DUNHILL MADDEN BUTLER SOLICITORS & NOTARIES SYDNEY 16 BARRACK STREET, SYDNEY 2000 NEW SOUTH WALES, AUSTRALIA GPO BOX 427, SYDNEY 2001 TELEPHONE: (02) 233 3622 INTERNATIONAL: 612 233 3622 DX 254 SYDNEY FAX: (02) 235 3099 REF: ATT:DAM:775053 SYDNEY-MELBOURNE DEED OF TRUST THIS DEED dated 23 JUNE 1994 BETWEEN: HAROLD GREGORY NASKY of 7408 Silver Palm Court, Las Vegas, Nevada USA 89117 (the "Trustee") AND SHOWBOAT AUSTRALIA PTY LIMITED (ACN 061 299 625) of Level 3, 472 Pacific Highway, St. Leonards 2065 (the "Beneficiary"). RECITALS: A. The Beneficiary has requested the Trustee to acquire the Share as a custodian trustee for the Beneficiary. B. The Beneficiary has paid or provided the whole of the subscription moneys for the share and the Trustee has acquired the Share. C. The Trustee agrees to hold the Share on the terms specified in this Deed. IT IS AGREED AS FOLLOWS: 1. DEFINITION AND INTERPRETATION. 1.1 DEFINITION "COMPANY" means Sydney Harbour Casino Holdings Limited (ACN 064 054 431). "SHARE" means the share or shares which are described in the Schedule. 1.2 INTERPRETATION The following rules of interpretation apply unless the context requires otherwise. (a) the singular includes the plural and conversely. (b) a gender includes any genders. (c) a reference to a person includes a body corporate, an unincorporated body or other entity and conversely. (d) a reference to a clause or schedule is to a clause or of schedule of this Deed. (e) a reference to a person includes a reference to the persons executors, administrators, successors and permitted assigns. (f) "Share" includes, if more than one share is the subject of this Deed, each of those shares severally. (g) headings are for convenience of reference only and shall not affect the construction or interpretation of this Deed. 2 2. TRUST The Trustee acknowledges and agrees that the Share and all rights, benefits, income and capital from it is held in trust for the Beneficiary absolutely. 3. DEALING WITH THE SHARE The Trustee shall transfer, exercise and deal with the Share, the certificate of title to it, and all rights, benefits, income and capital from it in the manner that the Beneficiary directs from time to time. 4. DOCUMENTS 4.1 The Trustee shall immediately give to the Beneficiary a copy of every notice or other document received by the Trustee in respect of the Share. 4.2 Clause 4.1 shall not apply to any notice or document if the Beneficiary has received or is likely to receive a similar notice or document in its capacity as the holder of any other share of the same class in the Company. 5. INDEMNITY The Beneficiary shall indemnify the Trustee against any loss, cost, charge, expense, action, proceeding, judgment, or liability incurred, suffered by or brought, made or recovered against the Trustee in connection with the holding of the Share by the Trustee, including all costs and expenses incurred by the Trustee in connection with this Deed and the execution of the trusts under this Deed. 6. REMOVAL OF TRUSTEE 6.1 The Beneficiary may remove the Trustee and appoint instead any person or corporation as the Trustee in place of the Trustee by deed, or any other means that may be acceptable to the Trustee. 6.2 The Beneficiary shall be obliged to remove the Trustee in the manner specified in clause 6.1 if the Trustee requests this by written notice to the Beneficiary. 6.3 For the purposes of Clause 6.2, if the Trustee gives written notice to the Beneficiary under that Clause, and the Beneficiary fails to remove the Trustee within five (5) business days after service of that notice, the Trustee may transfer the Share to the Beneficiary. The Beneficiary, for valuable consideration received, irrevocably appoints the Trustee as the attorney of the Beneficiary with power in the name of the Beneficiary to accept any such transfer, to execute any instrument of that transfer and take any other action on behalf of the Beneficiary that the Trustee may in its discretion think fit to perfect transfer of title of the Share to the Beneficiary. 7. NOTICES Any notice given under this Deed must be in writing and signed by the party giving the notice (or if a corporation by any director of that corporation) and may be served personally or by registered mail addressed to the party to whom the notice is given at the address specified in this Deed (or such other address as notified by the other party in writing) in which case, it shall be deemed to be served forty-eight (48) hours after the time of posting of the notice. 3 8. GOVERNING LAW 8.1 This Deed is governed by the laws of the State of New South Wales. The parties irrevocably agree to submit to the non-exclusive jurisdiction of the courts of New South Wales and the Courts of Appeal from them. 8.2 Each party waives the right to object to an action being brought in those courts, to claim that the action has been brought in an inconvenient forum or to claim that those courts do not have jurisdiction. THE SCHEDULE NO. OF CLASS OF NOMINAL PAID UP NAME OF COMPANY SHARES SHARES AMOUNT AMOUNT OF SHARES 1 Ordinary $1.00 $1.00 Sydney Harbour Casino Holdings Limited (ACN 064 054 431) EXECUTED AS A DEED SIGNED SEALED and DELIVERED ) by the said HAROLD GREGORY ) NASKY in the presence of: ) /s/ Thomas M. Green /s/ H. Gregory Nasky Signature of Witness Harold Gregory Nasky Thomas M. Green Print Name of Witness THE COMMON SEAL of ) SHOWBOAT AUSTRALIA PTY ) LIMITED (ACN 061 299 625) was ) affixed in accordance with its ) Memorandum and Articles of ) Association In the presence of:) /s/ H. Gregory Nasky Signature of Secretary/Director Signature of Director Print Name of Secretary/Director Print Name of Director DATED: 23 JUNE 1994 BETWEEN VYRIL ANTHONY VELLA (THE "TRUSTEE") AND SHOWBOAT AUSTRALIA PTY LIMITED (ACN 061 299 625) (THE "BENEFICIARY") DEED OF TRUST DUNHILL MADDEN BUTLER SOLICITORS & NOTARIES SYDNEY 16 BARRACK STREET, SYDNEY 2000 NEW SOUTH WALES, AUSTRALIA GPO BOX 427, SYDNEY 2001 TELEPHONE: (02) 233 3622 INTERNATIONAL: 612 233 3622 DX 254 SYDNEY FAX: (02) 235 3099 REF: ATT:DAM:775053 SYDNEY-MELBOURNE DEED OF TRUST THIS DEED dated 23 JUNE 1994 BETWEEN: VYRIL ANTHONY VELLA of 102A Lilli Pilli Point Road, Lilli Pilli NSW 2229 (the "Trustee") AND: SHOWBOAT AUSTRALIA PTY LIMITED (ACN 061 299 625) of Level 3, 472 Pacific Highway, St. Leonards 2065 (the "Beneficiary"). RECITALS: A. The Beneficiary has requested the Trustee to acquire the Share as a custodian trustee for the Beneficiary. B. The Beneficiary has paid or provided the whole of the subscription moneys for the share and the Trustee has acquired the Share. C. The Trustee agrees to hold the Share on the terms specified in this Deed. IT IS AGREED AS FOLLOWS: 1. DEFINITION AND INTERPRETATION. 1.1 DEFINITION "COMPANY" means Sydney Harbour Casino Holdings Limited (ACN 064 054 431). "SHARE" means the share or shares which are described in the Schedule. 1.2 INTERPRETATION The following rules of interpretation apply unless the context requires otherwise. (a) the singular includes the plural and conversely. (b) a gender includes any genders. (c) a reference to a person includes a body corporate, an unincorporated body or other entity and conversely. (d) a reference to a clause or schedule is to a clause or of schedule of this Deed. (e) a reference to a person includes a reference to the persons executors, administrators, successors and permitted assigns. (f) "Share" includes, if more than one share is the subject of this Deed, each of those shares severally. (g) headings are for convenience of reference only and shall not affect the construction or interpretation of this Deed. 2 2. TRUST The Trustee acknowledges and agrees that the Share and all rights, benefits, income and capital from it is held in trust for the Beneficiary absolutely. 3. DEALING WITH THE SHARE The Trustee shall transfer, exercise and deal with the Share, the certificate of title to it, and all rights, benefits, income and capital from it in the manner that the Beneficiary directs from time to time. 4. DOCUMENTS 4.1 The Trustee shall immediately give to the Beneficiary a copy of every notice or other document received by the Trustee in respect of the Share. 4.2 Clause 4.1 shall not apply to any notice or document if the Beneficiary has received or is likely to receive a similar notice or document in its capacity as the holder of any other share of the same class in the Company. 5. INDEMNITY The Beneficiary shall indemnify the Trustee against any loss, cost, charge, expense, action, proceeding, judgment, or liability incurred, suffered by or brought, made or recovered against the Trustee in connection with the holding of the Share by the Trustee, including all costs and expenses incurred by the Trustee in connection with this Deed and the execution of the trusts under this Deed. 6. REMOVAL OF TRUSTEE 6.1 The Beneficiary may remove the Trustee and appoint instead any person or corporation as the Trustee in place of the Trustee by deed, or any other means that may be acceptable to the Trustee. 6.2 The Beneficiary shall be obliged to remove the Trustee in the manner specified in clause 6.1 if the Trustee requests this by written notice to the Beneficiary. 6.3 For the purposes of Clause 6.2, if the Trustee gives written notice to the Beneficiary under that Clause, and the Beneficiary fails to remove the Trustee within five (5) business days after service of that notice, the Trustee may transfer the Share to the Beneficiary. The Beneficiary, for valuable consideration received, irrevocably appoints the Trustee as the attorney of the Beneficiary with power in the name of the Beneficiary to accept any such transfer, to execute any instrument of that transfer and take any other action on behalf of the Beneficiary that the Trustee may in its discretion think fit to perfect transfer of title of the Share to the Beneficiary. 7. NOTICES Any notice given under this Deed must be in writing and signed by the party giving the notice (or if a corporation by any director of that corporation) and may be served personally or by registered mail addressed to the party to whom the notice is given at the address specified in this Deed (or such other address as notified by the other party in writing) in which case, it shall be deemed to be served forty-eight (48) hours after the time of posting of the notice. 3 8. GOVERNING LAW 8.1 This Deed is governed by the laws of the State of New South Wales. The parties irrevocably agree to submit to the non-exclusive jurisdiction of the courts of New South Wales and the Courts of Appeal from them. 8.2 Each party waives the right to object to an action being brought in those courts, to claim that the action has been brought in an inconvenient forum or to claim that those courts do not have jurisdiction. THE SCHEDULE NO. OF CLASS OF NOMINAL PAID UP NAME OF COMPANY SHARES SHARES AMOUNT AMOUNT OF SHARES 1 Ordinary $1.00 $1.00 Sydney Harbour Casino Holdings Limited (ACN 064 054 431) EXECUTED AS A DEED SIGNED SEALED and DELIVERED ) by the said VYRIL ANTHONY ) VELLA in the presence of: ) /s/ Thomas M. Green /s/ Vyril Vella Signature of Witness Vyril Anthony Vella Thomas M. Green Print Name of Witness THE COMMON SEAL of ) SHOWBOAT AUSTRALIA PTY ) LIMITED (ACN 061 299 625) was ) affixed in accordance with its ) Memorandum and Articles of ) Association In the presence of:) /s/ H. Gregory Nasky Signature of Secretary/Director Signature of Director Print Name of Secretary/Director Print Name of Director DATED: 23 JUNE 1994 BETWEEN BARRY WILLIAM CLARK (THE "TRUSTEE") AND SHOWBOAT AUSTRALIA PTY LIMITED (ACN 061 299 625) (THE "BENEFICIARY") DEED OF TRUST DUNHILL MADDEN BUTLER SOLICITORS & NOTARIES SYDNEY 16 BARRACK STREET, SYDNEY 2000 NEW SOUTH WALES, AUSTRALIA GPO BOX 427, SYDNEY 2001 TELEPHONE: (02) 233 3622 INTERNATIONAL: 612 233 3622 DX 254 SYDNEY FAX: (02) 235 3099 REF: ATT:DAM:775053 SYDNEY-MELBOURNE DEED OF TRUST THIS DEED dated 23 JUNE 1994 BETWEEN: BARRY WILLIAM CLARK of 30 Miamba Avenue, Carlingford NSW 2118 (the "Trustee") AND: SHOWBOAT AUSTRALIA PTY LIMITED (ACN 061 299 625) of Level 3, 472 Pacific Highway, St. Leonards 2065 (the "Beneficiary"). RECITALS: A. The Beneficiary has requested the Trustee to acquire the Share as a custodian trustee for the Beneficiary. B. The Beneficiary has paid or provided the whole of the subscription moneys for the share and the Trustee has acquired the Share. C. The Trustee agrees to hold the Share on the terms specified in this Deed. IT IS AGREED AS FOLLOWS: 1. DEFINITION AND INTERPRETATION. 1.1 DEFINITION "COMPANY" means Sydney Harbour Casino Holdings Limited (ACN 064 054 431). "SHARE" means the share or shares which are described in the Schedule. 1.2 INTERPRETATION The following rules of interpretation apply unless the context requires otherwise. (a) the singular includes the plural and conversely. (b) a gender includes any genders. (c) a reference to a person includes a body corporate, an unincorporated body or other entity and conversely. (d) a reference to a clause or schedule is to a clause or of schedule of this Deed. (e) a reference to a person includes a reference to the persons executors, administrators, successors and permitted assigns. (f) "Share" includes, if more than one share is the subject of this Deed, each of those shares severally. (g) headings are for convenience of reference only and shall not affect the construction or interpretation of this Deed. 2 2. TRUST The Trustee acknowledges and agrees that the Share and all rights, benefits, income and capital from it is held in trust for the Beneficiary absolutely. 3. DEALING WITH THE SHARE The Trustee shall transfer, exercise and deal with the Share, the certificate of title to it, and all rights, benefits, income and capital from it in the manner that the Beneficiary directs from time to time. 4. DOCUMENTS 4.1 The Trustee shall immediately give to the Beneficiary a copy of every notice or other document received by the Trustee in respect of the Share. 4.2 Clause 4.1 shall not apply to any notice or document if the Beneficiary has received or is likely to receive a similar notice or document in its capacity as the holder of any other share of the same class in the Company. 5. INDEMNITY The Beneficiary shall indemnify the Trustee against any loss, cost, charge, expense, action, proceeding, judgment, or liability incurred, suffered by or brought, made or recovered against the Trustee in connection with the holding of the Share by the Trustee, including all costs and expenses incurred by the Trustee in connection with this Deed and the execution of the trusts under this Deed. 6. REMOVAL OF TRUSTEE 6.1 The Beneficiary may remove the Trustee and appoint instead any person or corporation as the Trustee in place of the Trustee by deed, or any other means that may be acceptable to the Trustee. 6.2 The Beneficiary shall be obliged to remove the Trustee in the manner specified in clause 6.1 if the Trustee requests this by written notice to the Beneficiary. 6.3 For the purposes of Clause 6.2, if the Trustee gives written notice to the Beneficiary under that Clause, and the Beneficiary fails to remove the Trustee within five (5) business days after service of that notice, the Trustee may transfer the Share to the Beneficiary. The Beneficiary, for valuable consideration received, irrevocably appoints the Trustee as the attorney of the Beneficiary with power in the name of the Beneficiary to accept any such transfer, to execute any instrument of that transfer and take any other action on behalf of the Beneficiary that the Trustee may in its discretion think fit to perfect transfer of title of the Share to the Beneficiary. 7. NOTICES Any notice given under this Deed must be in writing and signed by the party giving the notice (or if a corporation by any director of that corporation) and may be served personally or by registered mail addressed to the party to whom the notice is given at the address specified in this Deed (or such other address as notified by the other party in writing) in which case, it shall be deemed to be served forty-eight (48) hours after the time of posting of the notice. 3 8. GOVERNING LAW 8.1 This Deed is governed by the laws of the State of New South Wales. The parties irrevocably agree to submit to the non-exclusive jurisdiction of the courts of New South Wales and the Courts of Appeal from them. 8.2 Each party waives the right to object to an action being brought in those courts, to claim that the action has been brought in an inconvenient forum or to claim that those courts do not have jurisdiction. THE SCHEDULE NO. OF CLASS OF NOMINAL PAID UP NAME OF COMPANY SHARES SHARES AMOUNT AMOUNT OF SHARES 1 Ordinary $1.00 $1.00 Sydney Harbour Casino Holdings Limited (ACN 064 054 431) EXECUTED AS A DEED SIGNED SEALED and DELIVERED ) by the said BARRY WILLIAM ) CLARK in the presence of: ) /s/ Thomas M. Green /s/ B. Clark Signature of Witness Barry William Clark Thomas M. Green Print Name of Witness THE COMMON SEAL OF ) SHOWBOAT AUSTRALIA PTY ) LIMITED (ACN 061 299 625) was ) affixed in accordance with its ) Memorandum and Articles of ) Association In the presence of:) /s/ H. Gregory Nasky Signature of Secretary/Director Signature of Director Print Name of Secretary/Director Print Name of Director SHC EXHIBIT 3 TO FIRST AMENDING DEED (SUPPLEMENTARY LEGAL OPINION) - SYDNEY CASINO PROJECT - SUPPLEMENTARY LEGAL OPINION CIRCULATION SHC DRAFT 3: (14.9.94) [LETTERHEAD OF US LAWYERS] [ ] 1994 New South Wales Casino Control Authority and the State of New South Wales Level 17 309 Kent Street Sydney, New South Wales 2000 Australia SYDNEY CASINO PROJECT: SHOWBOAT, INC., SHOWBOAT DEVELOPMENT COMPANY AND SHOWBOAT OPERATING COMPANY ** We have acted as counsel to Showboat, Inc., a Nevada Corporation ("SBO"), Showboat Development Company, a Nevada Corporation ("SDC"), and Showboat Operating Company, a Nevada Corporation ("SOC"), (HEREINAFTER IN THIS LETTER THE "COMPANIES") in connection with the SHC First Amending Deed executed by SBO, SOC, SDC, the New South Wales Casino Control Authority (on behalf of the State of New South Wales) ("AUTHORITY"), SHC, SHC Properties, SHC Holdings, SBA, LPPL, LCPL, LHL, CBA and SCM, dated [ ] 1994 (Sydney time). This Opinion is being issued and delivered to the Authority pursuant to paragraph 3(d) of the SHC First Amending Deed. SBO, SOC and SDC shall be collectively referred to herein as the "Companies". The SHC First Amending Deed shall be referred to as the "Relevant Document". Capitalised terms are used herein as defined in the SHC First Amending Deed unless otherwise defined. As counsel to the Companies, we have examined originals, if available, or copies of the following documents and instruments: (a) Draft First Amending Deed dated as of [ ], 1994 and marked SHC: FIRST AD (FINAL [ ]) ("DRAFT FIRST AMENDING DEED"); [(b) Powers of Attorney made by SBO, SOC and SDC each dated April 18, 1994 ("POWERS OF ATTORNEY") NB. ?NEED FOR NEW POWERS.] The Draft First Amending Deed, shall be referred to as the "DRAFT RELEVANT DOCUMENT". We have examined originals, where available, or copies of: 2 (a) Resolutions certified by the Secretary of SBO, SOC and SDC dated as of [ ], 1994; and (b) Certificate of the Secretary of State of Nevada, dated as of [ ], 1994, attesting to the good standing in Nevada of SBO, SOC and SDC. We have conducted such other reviews as are necessary to give the opinions hereinafter stated. In rendering the opinions expressed herein we have assumed the Relevant Document will not reflect any substantial change from the Draft Relevant Document which, if considered by us, would affect our opinions expressed herein. We have also assumed that the Relevant Document will be executed by SBO, SOC and SDC pursuant to the [Powers of Attorney.] In our examinations we have assumed the due completion of each document (where blanks appear), and the due execution and due delivery of each document by each party as of the date hereof; the genuineness of all signatures other than the signatures of SBO, SOC and SDC; and the legal capacity of natural persons who signed or who will sign the documents. We further assume that the Relevant Document accurately describes and contains your understanding of the matters described therein and that there are no oral or written statements or agreements by you, that modify, amend, or vary, or purport to modify, amend or vary any of the terms of the Relevant Document. In our examination we have also assumed the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic documents. We further assume the absence of fraud or duress in the inducement or effectuation of the subject transactions and affirm that we have no actual knowledge that would lead us to believe that there exists any such fraud or duress. We ** are admitted to the Bar of the State of Nevada, and in rendering our opinions hereinafter stated, we have relied on the applicable laws of the State of Nevada as these laws presently exist and as they have been applied and interpreted by courts having jurisdiction with the State of Nevada. We express no opinion as to the laws of any other jurisdiction other than laws of the United States of America. Based upon the foregoing and in reliance thereon and subject to the assumptions, exceptions, qualifications and limitations set forth herein, we are of the opinion that: 1. (a) SBO is a corporation duly organised, validly existing and in good standing under the laws of the State of Nevada; (b) SOC is a corporation duly organised, validly existing, and in good standing under the laws of the State of Nevada; (c) SDC is a corporation duly organised, validly existing and in good standing under the laws of the State of Nevada; (d) Each of the Companies is: (i) in good standing and has all requisite power and authority to own 3 and operate and deal with its properties and assets and to manage and to carry on its business as presently conducted; and (ii) duly qualified or registered to do business in every jurisdiction where a failure to be so qualified or registered would have a material adverse effect on the condition (financial or otherwise), operations or income of the Companies and is in good standing in each such jurisdiction in which the Companies are qualified or registered to do business. 2. The Relevant Document has been duly authorised, executed and delivered to you by the Companies. The Relevant Document ** constitutes legal, valid and binding obligations of the Companies, enforceable against the Companies in accordance with **its terms. The Powers of Attorney are valid and binding appointments made by SBO, SOC and SDC respectively, which authorise the execution and delivery of the Relevant Document on behalf of the Companies by any of the attorneys named therein. 3. The execution and delivery of the Relevant Document, the performance and observance by the Companies of their respective obligations thereunder, and the consummation of the transactions contemplated thereby (including the grant of security interests and liens thereunder) are within the corporate authority of the Companies and have been duly authorised by all necessary corporate proceedings and actions on the part of the Companies. 4. The execution and delivery of the Relevant Document by the Companies does not, and the performance and observance by the Companies of their respective obligations thereunder, the transactions contemplated thereunder, and the provisions thereof, do not and will not contravene, conflict with, or result in a breach, default or violation of: (a) any provisions of the Companies' respective Articles of Incorporation, their respective Bylaws or any other constituent document of the respective Companies; (b) any provision of the laws, statutes, rules or regulations of the State of Nevada or of the Federal law or regulations of the United States; or (c) any decree, judgment, order, regulation or rule of any federal, state or municipal court, board or government or administrative authority or any agreement, instrument or arrangement binding on any of the Companies or any of their assets or properties or to which any of the Companies is a party, including ** the Relevant Document, nor will the same result in the creation of any security interest or mortgage under any such agreement, arrangement or instrument other than as may be expressly set out in the Relevant Document. 4 5. No approval or consent or other action by, and no filing with, any person, or state municipal or federal agency, board, authority or other government or administrative unit is required under any law, statute, rule or regulation as a condition to the validity, effectiveness or, enforceability of, or performance by the Companies of their respective obligations under, the Relevant Document or consummation of the transactions contemplated by the Relevant Document. 6. There are no actions, proceedings, enquiries, investigations or litigation of any nature pending, or, to our knowledge, threatened at law or in equity by or before any court, or government or administrative instrumentality, board or agency having jurisdiction over any of the Companies which has or may materially adversely affect the condition (financial or otherwise), operation or income of any of the Companies or which has or may affect or place in question the authority of any of the Companies to enter into or perform their respective obligations under, or the validity or enforceability of, the Relevant Document or the consummation of the transactions contemplated by the Relevant Document. 7. Although we are not in a position to give an unqualified opinion in this regard, we are of the opinion that there is a reasonable basis on which to conclude that the courts of the State of Nevada should give effect to the agreement of the parties set forth in the Relevant Document which will be governed by the laws of the State of New South Wales. This opinion is based, in part, upon the assumption, that the parties acted in good faith and not for the purpose of evading the law of the real situs of the contract and that the situs chosen by the parties has a substantial relationship to the transaction. See, Angel v. Ernst, 102 Nev. 390, 724 P.2d 215 (1986), Constanzo v. Marine Midland Realty, 10I Nev. 277, 701 P.2d 747 (1985), and Sievers v. Diversified Mortgage Investors, 95 Nev. 811, 603 P.2d 270 (1970). 8. The submission of the Companies to the jurisdiction of the Courts of New South Wales and the appointment of SBA as agent for service of process for any action or proceedings commenced in New South Wales is valid and binding on each of the Companies. 9. Any final and conclusive judgment obtained in the courts of New South Wales or Australia will be recognised and enforced by the courts of Nevada and the Federal Courts of the United States without a further review on the merits. 10. Claims under the Relevant Document against any of the Companies will rank at least pari pasu with the claims of all other unsecured creditors of the Companies respectively, other than those claims which are preferred by law generally. 11. In any proceedings taken in the State of Nevada and in any Federal Court of the United States, none of the Companies will be entitled to claim for itself or any of its assets immunity from suit, execution, attachment or other legal process. 12. Our opinion in paragraph 2 above as to the enforceability of the documents is subject to: 5 (i) bankruptcy, insolvency, reorganisation, fraudulent transfer, moratorium or other laws of general application relating to or affecting the enforcement of creditors' rights; (ii) general principles of equity regardless of whether such issues are considered in a proceeding in equity or at law which provide, among other things, that the remedies of specific performance and other forms of equitable relief are subject to equitable defences and to the discretion of the court before which any proceeding therefor may be brought; (iii) the fact that a court may view any provision of the Relevant Document as unconscionable or subject to an obligation that the parties to the Relevant Document act reasonably or in a commercially reasonably manner; (iv) the fact that certain remedies contained in the Relevant Document may be qualified under the laws of the State of Nevada, none of which qualifications will materially interfere with the practical realisation of the benefits and the security provide thereby. Our opinion in paragraph 8 above as to the valid and binding nature of the submission of the Companies to the jurisdiction of the Courts of New South Wales or Australia is subject to the equitable principle of forum non-conveniens. The Second Circuit of the United States Court of Appeals addressed this issue in Allstate Life Insurance Co. v. Linter Group Limited, 994 F.2d 996 (2d Cir. 1993). In Linter Group, the Second Circuit discussed the legal principle of forum non-conveniens in dismissing an action in the State of New York despite a forum selection clause in an indenture selecting the Courts of the State of New York. "Although there is still a strong presumption in favour of a plaintiff's choice of forum, the Supreme Court has recognised that dismissal nevertheless may be appropriate where certain private and public interest factors point towards trial in an alternative forum. Gulf Oil Corp. v. Gilbert, 330 US 501, 508-09, 91 L.Ed. 1055, 67 S. Ct. 839 (1947) "remaining citations omitted]. The private and public interest factors recognised by the Court in Gilbert include: (1) the ease of access to sources of proof; (2) the availability of compulsory process for attendance of unwilling witnesses; (3) the cost of obtaining attendance of unwilling witnesses; (4) practical problems involving the efficiency and expense of a trial; (5) enforceability of judgments; 6 (6) administrative difficulties flowing from court congestion; (7) imposing jury duty on citizens of the forum; (8) the local interest in having controversies decided at home; and (9) the avoidance of unnecessary problems in the application of foreign law. Gilbert, supra 330 US at 508-09" Linter, 994 F.2 at 1001. Therefore the opinion expressed in opinion paragraph 8 assumes that a court will carefully consider the factors listed in Gulf Oil Corp v. Gilbert, 330 U.S. 91 L. Ed. 1055, 67 S. Ct. 839 (1947) in determining the propriety of an alternative forum. Our opinion in paragraph 9 above as to the enforceability of a judgment in the State of Nevada and in a Federal Court of the United States is subject to the constitutional principle of comity. "The U.S. Supreme Court defined comity as 'the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws.' Hilton v. Guyot, 159 U.S. 113, 164, 40 L. Ed. 95, 16 S. Ct. 139 (1895). As a general rule, comity may be granted where 'it is shown that the foreign court is a court of competent jurisdiction, and that the laws and public policy of the forum state and the rights of its residents will not be violated.' Cunard S. S. Co. V. Salen Reefer Serv. AB, 773 F.2d 452, 457 (2 Cir. 1985). Indeed, as long as the foreign court abides by 'fundamental standards of procedural fairness,' granting comity is appropriate. Id " Allstate Life Insurance C. v. Linter Group Limited, 994 F.2d 996, 998 (2d Cir. 1993). We therefore assume in rendering opinion paragraph 9 that the laws of New South Wales or Australia are "procedurally fair" In particular, we assume that (1) the laws of New South Wales and Australia do not favour its citizens over those of other nations, states and provinces; (2) the Companies are provided the opportunity to provide evidence in their defence; (3) the Companies will receive timely notice to permit them sufficient time to defend the action; and (4) the judgment rendered by an Australian or New South Wales court will not be against the public policy of the **The State of Nevada._We also assume that the courts of Australia and New South Wales recognise and enforce judgments rendered by courts of any state of the United States or federal courts of the United States of America. The foregoing opinions are subject to the following additional qualifications: (a) We express no opinion as to the effectiveness of any provision directly or indirectly requiring that any consent, modification, amendment or waiver be in writing. (b) We express no opinion as to the enforceability of any provision which requires the party to indemnify another party for losses or damages caused by the indemnified 7 party's gross negligence, intentional acts or omissions. Moreover, we advise you that a Court may not enforce an indemnity agreement which shifts the financial responsibility that the contract of indemnity expresses such intention in clear and unequivocal terms. (c) Since the opinions expressed in this letter are based upon the law in effect on the date hereof, we assume no obligation to revise or supplement this opinion letter should such law be changed by legislative action, judicial decision or otherwise. We are qualified to practice and are experts in the laws of the State of Nevada and the Federal law of the United States. We are qualified to give this legal opinion. These opinions are effective as of the date hereof. No extensions of our opinions may be made by implication or otherwise. **We expressly consent to and acknowledge your reliance on this opinion in executing the Relevant Document. Our opinions are not to be otherwise quoted in whole or in part without the express, written consent of this firm. Yours sincerely [US LAWYER] SHC EXHIBIT 4 TO FIRST AMENDING DEED (FIRST SUPPLEMENTAL MINISTER'S APPROVAL AND CONSENT ACKNOWLEDGEMENT) - SYDNEY CASINO PROJECT - FIRST SUPPLEMENTARY MINISTER'S APPROVAL AND CONSENT ACKNOWLEDGEMENT DATE: 1994 THE HONOURABLE ANNE MARGARET COHEN MP ("MINISTER") CLAYTON UTZ SOLICITORS AND ATTORNEYS LEVELS 27-35 NO. 1 O'CONNELL STREET SYDNEY NSW 2000 TEL: (02) 353 4000 FAX: (02) 251 7832 COPYRIGHT RESERVED FIRST SUPPLEMENTARY MINISTER'S APPROVAL AND CONSENT ACKNOWLEDGEMENT BY THE HONOURABLE ANNE MARGARET COHEN MP Chief Secretary and the Minister of the Crown for the time being administering the Casino Control Act 1992 (NSW) (facts) ("Act") PURSUANT TO SECTION 142 OF THE ACT I HEREBY: 1. acknowledge having granted approval to the Authority for and on behalf of the State, to conduct negotiations and to enter into the agreements referred to in Schedule 1; 2. acknowledge that the agreements referred to in Schedule 1 are for or in connection with the establishment and operation of a casino and any development of which a casino or proposed casino forms part; 3. approve of the terms of the agreements referred to in Schedule 1; and 4. consent to the assignment of rights and obligations under or in respect of the agreements referred to in Schedule 1 and to the encumbering of the rights under or in respect of the agreements referred to in Schedule 1 as specified in the Item referable to the relevant agreement and on condition that each such assignment and encumbrance (and any later sale of such rights) is given or occurs in accordance with the provisions of the relevant agreement as specified. For the avoidance of doubt the terms of the agreements referred to in clauses 1 to 4 inclusive are those contained in the documents marked for identification with the official stamp of the Chief Secretary's Department and held and available during business hours for inspection at the Department by any party to them. In giving these approvals I note that the Authority must, under section 12 of the Casino Control Act, satisfy itself as to the suitability of any applicant to which a licence is ultimately granted under section 18 of the Act. This Acknowledgement shall not be taken as, nor is capable of, being an approval, consent or acknowledgement in respect of any agreement to which the Authority is not a party whether or not such agreement forms an annexure, exhibit or schedule to any of the agreements referred to in Schedule 1. This Acknowledgement is given solely for the purposes of section 142 of the Act and accordingly, any person entering into or relying upon any of the agreements to which the Authority is a party, referred to in Schedule 1, does so based solely upon the person's own 2 commercial judgment of, and professional advices in respect of, the terms of such agreement and the matters, express or implied, contemplated by such agreement. Terms used but not defined in this Acknowledgement have the same meaning as in the Act. SIGNED by THE HONOURABLE ANNE MARGARET COHEN on [ ] 1994 _____________________________________ The Honourable Anne Margaret Cohen MP _____________________________________ Witnessed by: R D McGregor J.P. 3 SCHEDULE 1 ITEM 1 Parties and Agreement SHC First Amending Deed made or to be made between the Authority, Sydney Harbour Casino Pty. Limited, Sydney Harbour Casino Properties Pty. Limited, Sydney Harbour Casino Holdings Limited, Showboat Australia Pty. Limited, Leighton Properties Pty. Limited, Leighton Contractors Pty. Limited, Leighton Holdings Limited, Sydney Casino Management Pty. Limited, Showboat Operating Company, Showboat Development Corporation, Showboat Inc. and Commonwealth Bank of Australia. ASSIGNMENT AND ENCUMBERING AND CONDITIONS RELATING TO THE SAME Clause 10: Miscellaneous 4 ITEM 2 PARTIES AND AGREEMENT Preliminary Site Preparation, Excavation and Remediation Works Contract made or to be made between the Authority and Sydney Harbour Casino Properties Pty. Limited. ASSIGNMENT AND ENCUMBERING AND CONDITIONS RELATING TO THE SAME Clause 14.8: Assignment SHC SECOND AMENDING DEED DATE: NEW SOUTH WALES CASINO CONTROL AUTHORITY AUTHORITY SYDNEY HARBOUR CASINO PTY. LIMITED SHC SYDNEY HARBOUR CASINO PROPERTIES PTY. LIMITED SHC PROPERTIES SYDNEY HARBOUR CASINO HOLDINGS LIMITED SHC HOLDINGS SHOWBOAT AUSTRALIA PTY. LIMITED SBA LEIGHTON PROPERTIES PTY. LIMITED LPPL LEIGHTON CONTRACTORS PTY. LIMITED LCPL LEIGHTON HOLDINGS LIMITED LHL SYDNEY CASINO MANAGEMENT PTY. LIMITED SCM SHOWBOAT OPERATING COMPANY SOC SHOWBOAT DEVELOPMENT CORPORATION SDC SHOWBOAT INC. SBI =========== CLAYTON UTZ SOLICITORS AND ATTORNEYS NO. 1 O'CONNELL STREET SYDNEY NSW 2000 TEL: (02) 353 4000 FAX: (02) 251 7832 COPYRIGHT RESERVED CONFIDENTIAL 2 TABLE OF CONTENTS CLAUSE PAGE 1. DEFINITIONS AND INTERPRETATION 3 2. CONSIDERATION 5 3. ASSOCIATED DOCUMENTS 5 4. WARRANTIES AND DISCLAIMER 6 5. AUTHORITY APPROVAL OF DA2 6 6. AMENDMENT OF APPLICATION 7 7. APPLICATION UNCONDITIONAL 7 8. AMENDMENTS TO COMPLIANCE DEED 7 9. AMENDMENTS TO OTHER EXECUTED PROJECT DOCUMENTS 9 10. GUARANTORS' CONSENT AND RATIFICATION 9 11. AMENDING PARTIES' CONSENT AND RATIFICATION 9 12. CONSENT TO VARIATIONS IN OTHER TRANSACTION DOCUMENTS 9 13. GENERAL 9 14. MISCELLANEOUS 10 LIST OF EXHIBITS 17 THIS DEED is made the ________ day of ____________________, 1994. BETWEEN NEW SOUTH WALES CASINO CONTROL AUTHORITY, a statutory corporation constituted by the Casino Control Act, 1992, on behalf of the State of New South Wales, pursuant to Section 142 of the Casino Control Act 1992, of Level 17, 309 Kent Street, Sydney, NSW, Australia, 2000 ("AUTHORITY") AND SYDNEY HARBOUR CASINO PTY. LIMITED, ACN 060 510 410, a company duly incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, St. Leonards, NSW, Australia ("SHC") AND SYDNEY HARBOUR CASINO PROPERTIES PTY. LIMITED, ACN 050 045 120, a company duly incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, St. Leonards, NSW, Australia ("SHC PROPERTIES") AND SYDNEY HARBOUR CASINO HOLDINGS LIMITED, ACN 064 054 431, a company duly incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, St. Leonards, NSW, Australia ("SHC HOLDINGS") AND SHOWBOAT AUSTRALIA PTY. LIMITED, ACN 061 299 625, a company duly incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, St. Leonards, NSW, Australia ("SBA") AND LEIGHTON PROPERTIES PTY. LIMITED, ACN 001 046 395, a company duly incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, St. Leonards, NSW, Australia ("LPPL") AND LEIGHTON CONTRACTORS PTY. LIMITED, ACN 000 893 667, a company duly incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, St. Leonards, NSW, Australia ("LCPL") AND LEIGHTON HOLDINGS LIMITED, ACN 004 482 982, a company duly incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, St. Leonards, NSW, Australia ("LHL") AND SYDNEY CASINO MANAGEMENT PTY. LIMITED, ACN 060 462 053, a company incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, St. Leonards, NSW, Australia ("SCM") AND SHOWBOAT OPERATING COMPANY, a company duly organized under the laws of the State of Nevada, USA of 2800 Fremont Street, Las Vegas, Nevada 89104 USA ("SOC") AND SHOWBOAT DEVELOPMENT CORPORATION, a company duly organised under the laws of the State of Nevada USA of 2800 Fremont Street, Las Vegas, Nevada 89104 USA ("SDC") 2 AND SHOWBOAT INC., a company duly organised under the laws of the State of Nevada USA of 2800 Fremont Street, Las Vegas, Nevada 89104 USA ("SBI")
RECITALS A. On 22 April 1994 the Authority and certain of the Amending Parties entered into the Executed Project Documents. B. Certain of the Executed Project Documents were amended by a First Amending Deed dated 6 October 1994. C. This Deed is a further amending deed and is supplemental to certain of the Executed Project Documents. D. The Compliance Deed imposed an obligation on SHC to obtain the D.A. for Permanent Site and pursuant to this obligation, SHC lodged a development application (defined herein as "DA1") with the Consent Authority on 6 June 1994. E. Following receipt of public comment on DAI, SHC formulated and submitted DA2 to the Consent Authority, with the consent of the Authority as landowner. F. Clause 7 of the Compliance Deed contemplates variation of the Compliance Deed and paragraph B4.4.1.3 of the Brief to Applications and Addendum 34 to that Brief contemplate amendments to development applications. G. DA2 involves increased construction costs and no reduction in the terms of the [financial offer] forming part of the Application. H. The Consent Authority has given its consent to DA2 on terms and conditions that are acceptable to SHC and to the Authority. I. The parties to the Compliance Deed have resolved by this Second Amending Deed to vary the Compliance Deed to permit DA2 to be substituted for DA1 insofar as they may be inconsistent.
3 THIS DEED WITNESSES 1. DEFINITIONS AND INTERPRETATION 1.1 Definitions In this Deed, unless the context otherwise requires: "ACT" means the Casino Control Act, 1992. "AGREED DESIGN" means the design: (a) which has been developed in conformity with the terms of the Brief; (b) which is to be further developed in conformity with the terms of the Brief; and (c) which is currently partially embodied in DA2, which to the extent that it differs from the design embodied in DA1 is agreed by the parties hereto to constitute a variation pursuant to clause 7 of the Compliance Deed; "AMENDING PARTIES" means all the parties to this Deed other than the Authority. "ANCILLARY AMENDING DEED" means the deed to be entered into between [ ] to amend certain Transaction Documents other than the Executed Project Documents, the form and terms of which are set out in Exhibit 1. [IT IS ENVISAGED THAT THIS DOCUMENT WILL DEAL WITH AMENDMENTS TO TRANSACTION DOCUMENTS WHICH ARE NEITHER EXECUTED PROJECT DOCUMENTS NOR EXHIBITS TO THE COMPLIANCE DEED.] "CBA" means Commonwealth Bank of Australia, ACN 123 123 124. "COMPLIANCE DEED" means the deed so entitled dated 22 April 1994 made between the Authority and the Application Parties as amended by the First Amending Deed. "DA1" means the development application for the Permanent Site lodged with the Consent Authority by SHC Properties on 6 June 1994. "DA2" means the development application for the Permanent Site lodged with the Consent Authority by SHC Properties on 2 September 1994. "EXECUTED PROJECT DOCUMENTS" means all of the following: (a) Compliance Deed; 4 (b) CD Bank Guarantee (First); (c) CCA Charge; (d) CCA Cross Guarantee; (e) Parent Guarantees; (f) Confidentiality and Disclaimer Deed; (g) Deed of Restraint; and (h) Development Agreement Side Deed. "FIRST AMENDING DEED" means the deed of that name entered into on 6 October 1994 between the Authority and the Amending Parties. "SECOND SUPPLEMENTARY LEGAL OPINION" means the US legal opinion to be given by Messrs Kummer Kaempfer Bonner & Renshaw of Nevada, USA in the form and on the terms of Exhibit 2 regarding, inter alia, the enforceability of this Deed. "SECOND SUPPLEMENTARY MINISTER'S APPROVAL AND CONSENT ACKNOWLEDGMENT" means the acknowledgment of the Minister dated [ ] 1994, in the form and on the terms set out in Exhibit 3. 1.2 UNDEFINED WORDS AND PHRASES CapitaliSed words and phrases used in this Deed which are not defined in this Deed shall have the same meaning as in the Compliance Deed, except that references to "Application Parties" in the definitions of "Event of Default" and "Event of Force Majeure" shall be read as references to "Amending Parties". Likewise, capitalized words and phrases which are referred to in any such definition in the Compliance Deed shall have the same meaning as in the Compliance Deed. References to the Compliance Deed in this clause 1.2 are to the Compliance Deed as it reads without being amended by this Deed except where a contrary intention is expressed in this Deed. 1.3 INTERPRETATION Clause 1.2 of the Compliance Deed is hereby incorporated in this Deed as if it were expressly set out herein subject only to insertion of the words "the Compliance Deed" after "this Deed" in line 1 of clause 1.2(a). 1.4 To the extent of any inconsistency or conflict between the terms of this Deed, the Compliance Deed and the Act, License, any other Executed Project Document, any other Transaction Document, Invitation Document or the Application; 5 (a) the Act shall prevail over the License, this Deed, the Compliance Deed, all other Executed Project Documents, all other Transaction Documents, all Invitation Documents and the Application; (b) a License (if and when granted to SHC) will prevail over this Deed, the Compliance Deed, all other Executed Project Documents, all other Transaction Documents, all Invitation Documents and the Application; (c) the Compliance Deed as amended by this Deed will prevail over all other Executed Project Documents, all other Transaction Documents, all Invitation Documents and the Application. 1.5 The rights and obligations of the Amending Parties under this Deed are in addition and without prejudice to their respective rights and obligations under the Act. 1.6 Nothing in this Deed whether express or implied prejudices, fetters or otherwise affects or is intended in any way to impose any obligation or restriction on the Authority which in any way conflicts with the obligations, powers, duties, restrictions and discretions of the Authority under the Act. 2. CONSIDERATION Each party acknowledges to each other that it enters into this Deed and incurs obligations and gives rights under it for valuable consideration received from the other parties to this Deed. 3. ASSOCIATED DOCUMENTS On or before execution of this Deed: (a) the Amending Parties other than CBA shall deliver to the Authority an unconditional written consent of Bain Capital Markets Limited pursuant to the terms of the Equity Underwriting Agreement to SHC Holdings, LPPL and SBA entering this Deed; (b) the Amending Parties other than CBA shall deliver to the Authority an unconditional written consent of CBA pursuant to the terms of the Facility Agreement to SHC, SHC Holdings and SHC Properties entering this Deed; and (c) SHC shall cause the delivery to the Authority of the duly executed Second Supplementary Legal Opinion. 6 4. WARRANTIES AND DISCLAIMER 4.1 The Authority warrants that, pursuant to Sections 142(1) and 142(2) of the Act, the Minister has approved of both the Authority entering into this Deed and its terms as evidenced by the Second Supplementary Minister's Approval and Consent Acknowledgment. 4.2 Pursuant to the CCA Charge, the Authority hereby consents to SHC, SHC Holdings and SHC Properties entering into this Deed. 4.3 Nothing in this Deed shall be taken as, nor is capable of, constituting an obligation on the Authority to grant a License to any person (including without limitation SHC) or affecting the Authority's power to determine the Application by not granting a License to SHC pursuant to Section 18(1) of the Act. 4.4 Notwithstanding anything to the contrary expressed in or which would, but for this clause 4.4, be implied in this Deed, neither the Authority nor the State of New South Wales nor its members, employees, delegates, agents, consultants or advisers shall have any liability whatsoever to any party in respect of any failure or breach by the Authority under or in respect of this Deed or any other matter contemplated hereby. 4.5 (a) The covenants, undertaking, warranties and representations set out in clauses 1 to 6 inclusive of Schedule 1 to the Compliance Deed are hereby incorporated in this Deed as if expressly set out herein subject to the following: (i) delete the words "Application Parties" wherever they appear; and (ii) in lieu insert the words "Amending Parties" and each Amending Party other than CBA represents and warrants to and with the Authority in those terms. (b) The representations and warranties included above are made as at the date of this Deed and are deemed repeated at all times during the currency of this Deed with reference to the facts and circumstances then subsisting as if made at each such time, unless otherwise expressly stated and shall be construed separately and the meaning of each shall in no way be limited by reference to any other clause contained in this Deed. 5. AUTHORITY APPROVAL OF DA2 The Authority and each Amending Party agrees that by executing this Deed the Authority confirms its approval and acceptance of the development consent issued by the Consent Authority. 7 6. AMENDMENT OF APPLICATION Each of the parties to this Deed hereby agrees and acknowledges that SHC's application for a License is the Application as defined in the Compliance Deed as amended by this Deed (as verified by the statutory declaration herewith), which Application includes the Agreed Design. 7. APPLICATION UNCONDITIONAL The Amending Parties agree that the Consent Authority having given its consent to DA2 on terms and conditions that are acceptable to SHC and the Authority, SHC's Application (as defined in the Compliance Deed as amended by this Deed) has become unconditional. 8. AMENDMENTS TO COMPLIANCE DEED 8.1 AMENDMENTS TO THE BODY AND SCHEDULES OF THE COMPLIANCE DEED The Compliance Deed is amended as follows: (a) by deleting the existing definition of "Application" and replacing it with the following: [WE WILL NEED TO DISCUSS WHAT EXACTLY WILL CONSTITUTE "THE APPLICATION" IN THIS SITUATION IN COMPARISON TO THE EXISTING DEFINITION, AND HOW IT SHOULD BE DESCRIBED] (b) where SHC agrees and acknowledges that: (i) there are no D.A. Conditions or other conditions attached to the Consent Authority's approval of DA2 which are unacceptable to it; (ii) there are no D.A. Appeal Events in relation to DA2; and (iv) there will be no D.A. Appeal in respect of DA2, the following definitions are redundant and therefore deleted: "D.A. Affected Design Bid", "D.A. Affected Financial Bid", "D.A. Appeal", "D.A. Appeal Event", "D.A. Approval Date", "DA Condition", "D.A. Condition Determination Date", "Final D.A. Approval Date", "Final D.A. Lodgement Date", "Final Design Bid", "Final Withdrawal Date" and "Initial Design Bid"; (c) in the definition of "D.A. for Permanent Site", by deleting all the words after "means" and replacing them with the following words: 8 "the development application for the Permanent Site lodged with the Consent Authority by SHC Properties on 2 September 1994."; (d) in the definition of "Event of Force Majeure", by deleting all of paragraph (g) and replacing it with "(g) Not Used"; (e) by inserting the following new definition: "AGREED DESIGN" means the design: (a) which has been developed in conformity with the terms of the Brief; (b) which is to be further developed in conformity with the terms of the Brief; and (c) which as at the date of the Second Amending Deed is partially embodied in DA2."; (f) in clause 3(j), by deleting the words "and the Final Design Bid (if any)"; (g) in each of clause 5.3(a) and clause 5.3(b), by deleting the words "or a D.A. Appeal"; (h) by deleting clauses 6(d), 6(e), 6(f) and 6(g); (i) in clause 9.6(d), by deleting the words "or D.A. Appeal", and replacing the comma before the word "Event" with the word "or"; (j) in the Schedule to the Deed, by deleting clauses 10(a), 10(b), 10(c), 10(e), 10(f), 10(g), 10(h), 10(i), 10(j) and 10(k). 8.2 AMENDMENTS TO EXHIBITS TO THE COMPLIANCE DEED (a) Exhibit 2 (Apartment Management Leases) is amended as follows: (i) in clause 14.6, by inserting the word "affect" before the word "either". (b) Exhibit 8 (Casino Operations Agreement) is amended as follows: (i) by deleting the existing definition of "Application" and replacing it with the following: " "Application" has the meaning given to it in the Compliance Deed." 9 (c) All of the amendments which are effected by the Ancillary Amending Deed to documents which are comprised in the Exhibits are also made to those documents as Exhibits. 8.3 RATIFICATION AND CONFIRMATION OF COMPLIANCE DEED In all other respects the parties to the Compliance Deed ratify and confirm their respective obligations under the Compliance Deed. 9. AMENDMENTS TO OTHER EXECUTED PROJECT DOCUMENTS [QUERY IN PARTICULAR WHETHER ANY AMENDMENTS ARE REQUIRED TO THE DEVELOPMENT AGREEMENT SIDE DEED] 10. GUARANTORS' CONSENT AND RATIFICATION Each of LHL, SDC and SBI consents to the amendments to the Executed Project Documents in the manner set forth in clause 8 [and clause 9] and ratifies and confirms its respective obligations under the Leighton Guarantee and Showboat Guarantee respectively, in respect of each of such Executed Project Document as so amended. 11. AMENDING PARTIES' CONSENT AND RATIFICATION To the extent that the consent of or approval by any Amending Party is required to the amendments to the Executed Project Documents in the manner set forth in clause 8 [and clause 9], under the terms of any Executed Project Document and/or any executed Application Documents to which it is a party, that consent is hereby given and each such Amending Party ratifies and confirms its obligations under each such Executed Project Document and/or executed Application Document, in respect of each of such deed as so amended. 12. CONSENT TO VARIATIONS IN OTHER TRANSACTION DOCUMENTS Each of the parties to this Deed acknowledges and agrees to the making of those amendments to Transaction Documents other than the Executed Project Documents which are described in the Ancillary Amending Deed. 13. GENERAL Any reference in any Transaction Document to any document amended by this Deed shall be read and construed and have force and effect as including the amendments thereto effected by this Deed. 10 14. MISCELLANEOUS Clauses 7 and 8, 10 to 12, 13.2 and 14 to 32 inclusive of the Compliance Deed are hereby incorporated in this Deed as if expressly set out herein subject to the following: (a) each reference to the words "Application Parties" in clauses 8, 10, 11, 12, 13.2, 16, 17, 27, 28 and 30 of the Compliance Deed shall be read and construed as a reference to "Amending Parties"; (b) references to clauses within clause 8.2 and clause 11.5(b) shall be read as references to clauses of the Compliance Deed; (c) a reference to the Minister's Approval and Consent Acknowledgement includes a reference to the Second Supplementary Minister's Approval and Consent Acknowledgement; (d) insert the words "SDC and SBI" after "SOC" in line 1 of clause 17.3; and (e) delete the words "as set out in clause 9" from line 3 of clause 18. EXECUTED as a deed. THE COMMON SEAL OF NEW ) SOUTH WALES CASINO CONTROL ) AUTHORITY was hereunto affixed in ) the presence of the Chief Executive: ) ___________________________ _______________________________ (Signature of Witness) (Signature of Chief Executive) ___________________________ _______________________________ (Name of Witness) (Name of Chief Executive) 11 SIGNED SEALED AND DELIVERED ) for and on behalf of ) _______________________________ SYDNEY HARBOUR CASINO PTY. ) (Signature) LIMITED, ACN 060 510 410 by ) ) its Attorney under a Power of ) Attorney dated and ) registered Book No. and ) who declares that he has not ) received any notice of the ) revocation of such Power of ) Attorney in the presence of: ) _______________________________ (Signature of Witness) _______________________________ (Name of Witness in Full) SIGNED SEALED AND DELIVERED ) for and on behalf of ) _______________________________ SYDNEY HARBOUR CASINO ) (Signature) PROPERTIES PTY. LIMITED, ) ACN 050 045 120 by ) ) its Attorney under a Power of ) Attorney dated and ) registered Book No. and ) who declares that he has not ) received any notice of the ) revocation of such Power of ) Attorney in the presence of: ) _______________________________ (Signature of Witness) _______________________________ (Name of Witness in Full) 12 SIGNED SEALED AND DELIVERED ) for and on behalf of ) _______________________________ SYDNEY HARBOUR CASINO ) (Signature) HOLDINGS LIMITED, ACN 064 054 ) 431 by ) its Attorney under a Power of ) Attorney dated and ) registered Book No. and ) who declares that he has not ) received any notice of the ) revocation of such Power of ) Attorney in the presence of: ) _______________________________ (Signature of Witness) _______________________________ (Name of Witness in Full) SIGNED SEALED AND DELIVERED ) for and on behalf of ) _______________________________ SHOWBOAT AUSTRALIA PTY. ) (Signature) LIMITED, ACN 061 299 625 by ) ) its Attorney under a Power of ) Attorney dated and ) registered Book No. and ) who declares that he has not ) received any notice of the ) revocation of such Power of ) Attorney in the presence of: ) _______________________________ (Signature of Witness) _______________________________ (Name of Witness in Full) 13 SIGNED SEALED AND DELIVERED ) for an on behalf of ) _______________________________ LEIGHTON PROPERTIES PTY. ) (Signature) LIMITED, ACN 001 046 395 by ) ) its Attorney under a Power of ) Attorney dated and ) registered Book No. and ) who declares that he has not ) received any notice of the ) revocation of such Power of ) Attorney in the presence of: ) _______________________________ (Signature of Witness) _______________________________ (Name of Witness in Full) SIGNED SEALED AND DELIVERED ) for and on behalf of ) _______________________________ LEIGHTON CONTRACTORS PTY. ) (Signature) LIMITED, ACN 000 893 667 by ) ) its Attorney under a Power of ) Attorney dated and ) registered Book No. and ) who declares that he has not ) received any notice of the ) revocation of such Power of ) Attorney in the presence of: ) _______________________________ (Signature of Witness) _______________________________ (Name of Witness in Full) 14 SIGNED SEALED AND DELIVERED ) for and on behalf of ) _______________________________ LEIGHTON HOLDINGS LIMITED, ) (Signature) ACN 004 482 982 by ) its Attorney under a Power of ) Attorney dated and ) registered Book No. and ) who declares that he has not ) received any notice of the ) revocation of such Power of ) Attorney in the presence of: ) _______________________________ (Signature of Witness) _______________________________ (Name of Witness in Full) SIGNED SEALED AND DELIVERED ) for and on behalf of ) _______________________________ SYDNEY CASINO MANAGEMENT PTY. ) (Signature) LIMITED, ACN 060 462 053 by ) ) its Attorney under a Power of ) Attorney dated and ) registered Book No. and ) who declares that he has not ) received any notice of the ) revocation of such Power of ) Attorney in the presence of: ) _______________________________ (Signature of Witness) _______________________________ (Name of Witness in Full) 15 SIGNED SEALED AND DELIVERED ) for and on behalf of ) _______________________________ SHOWBOAT OPERATING ) (Signature) COMPANY by ) its Attorney under a Power of ) Attorney dated and ) registered Book No. and ) who declares that he has not ) received any notice of the ) revocation of such Power of ) Attorney in the presence of: ) _______________________________ (Signature of Witness) _______________________________ (Name of Witness in Full) SIGNED SEALED AND DELIVERED ) for and on behalf of ) _______________________________ SHOWBOAT DEVELOPMENT ) (Signature) CORPORATION by ) its Attorney under a Power of ) Attorney dated and ) registered Book No. and ) who declares that he has not ) received any notice of the ) revocation of such Power of ) Attorney in the presence of: ) _______________________________ (Signature of Witness) _______________________________ (Name of Witness in Full) 16 SIGNED SEALED AND DELIVERED ) for and on behalf of ) _______________________________ SHOWBOAT INC. by ) (Signature) its Attorney under a Power of ) Attorney dated and ) registered Book No. and ) who declares that he has not ) received any notice of the ) revocation of such Power of ) Attorney in the presence of: ) _______________________________ (Signature of Witness) _______________________________ (Name of Witness in Full) LIST OF EXHIBITS EXHIBIT 1 Ancillary Amending Deed EXHIBIT 2 Second Supplementary Legal Opinion EXHIBIT 3 Second Supplementary Minister's Approval and Consent Acknowledgment SHC EXHIBIT 1 TO SECOND AMENDING DEED (ANCILLARY AMENDING DEED) - SYDNEY CASINO PROJECT - SHC EXHIBIT 2 TO SECOND AMENDING DEED (SECOND SUPPLEMENTARY LEGAL OPINION) - SYDNEY CASINO PROJECT - SECOND SUPPLEMENTARY LEGAL OPINION [LETTERHEAD OF U.S. LAWYERS] [____________], 1994 New South Wales Casino Control Authority and the State of New South Wales Level 17 309 Kent Street Sydney, New South Wales 2000 Australia SYDNEY CASINO PROJECT: SHOWBOAT, INC., SHOWBOAT DEVELOPMENT COMPANY AND SHOWBOAT OPERATING COMPANY We have acted as counsel to Showboat, Inc., a Nevada Corporation ("SBO"), Showboat Development Company, a Nevada Corporation ("SDC"), and Showboat Operating Company, a Nevada Corporation ("SOC"), (hereinafter in this letter the "COMPANIES") in connection with the SHC Second Amending Deed executed by SBO, SOC, SDC, the New South Wales Casino Control Authority (on behalf of the State of New South Wales) ("AUTHORITY"), SHC, SHC Properties, SHC Holdings, SBA, LPPL, LCPL, LHL and SCM, dated [__________], 1994 (Sydney time). This Opinion is being issued and delivered to the Authority pursuant to paragraph 3(c) of the SHC Second Amending Deed. SBO, SOC and SDC shall be collectively referred to herein as the "Companies". The SHC Second Amending Deed shall be referred to as the "Relevant Document". Capitalised terms are used herein as defined in the SHC Second Amending Deed unless otherwise defined. As counsel to the Companies, we have examined originals, if available, or copies of the following documents and instruments: (a) Draft Second Amending Deed dated as of [_______________], 1994 and marked SHC: 2ND AD (FINAL [ ]) ("DRAFT FIRST AMENDING DEED"); (b) Powers of Attorney made by SBO, SOC and SDC each dated [ ] ("POWERS OF ATTORNEY"). The Draft Second Amending Deed, shall be referred to as the "Draft Relevant Document". We have examined originals, where available, or copies of: (a) Resolutions certified by the Secretary of SBO, SOC and SDC dated as of [ ], 1994; and 2 (b) Certificate of the Secretary of State of Nevada, dated as of [ ], 1994, attesting to the good standing in Nevada of SBO, SOC and SDC. We have conducted such other reviews as are necessary to give the opinions hereinafter stated. In rendering the opinions expressed herein we have assumed the Relevant Document will not reflect any substantial change from the Draft Relevant Document which, if considered by us, would affect our opinions expressed herein. We have also assumed that the Relevant Document will be executed by SBO, SOC and SDC pursuant to the Powers of Attorney. In our examinations we have assumed the due completion of each document (where blanks appear), and the due execution and due delivery of each document by each party as of the date hereof; the genuineness of all signatures other than the signatures of SBO, SOC and SDC; and the legal capacity of natural persons who signed or who will sign the documents. We further assume that the Relevant Document accurately describes and contains your understanding of the matters described therein and that there are no oral or written statements or agreements by you, that modify, amend, or vary, or purport to modify, amend or vary any of the terms of the Relevant Document. In our examination we have also assumed the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic documents. We further assume the absence of fraud or duress in the inducement or effectuation of the subject transactions and affirm that we have no actual knowledge that would lead us to believe that there exists any such fraud or duress. We are admitted to the Bar of the State of Nevada, and in rendering our opinions hereinafter stated, we have relied on the applicable laws of the State of Nevada as these laws presently exist and as they have been applied and interpreted by courts having jurisdiction with the State of Nevada. We express no opinion as to the laws of any other jurisdiction other than laws of the United States of America. Based upon the foregoing and in reliance thereon and subject to the assumptions, exceptions, qualifications and limitations set forth herein, we are of the opinion that: 1. (a) SBO is a corporation duly organised, validly existing and in good standing under the laws of the State of Nevada; (b) SOC is a corporation duly organised, validly existing, and in good standing under the laws of the State of Nevada; (c) SDC is a corporation duly organised, validly existing, and in good standing under the laws of the State of Nevada; (d) Each of the Companies is: (i) in good standing and has all requisite power and authority to own and operate and deal with its properties and assets and to manage and to carry on its business as presently conducted; and 3 (ii) duly qualified or registered to do business in every jurisdiction where a failure to be so qualified or registered would have a material adverse effect on the condition (financial or otherwise), operations or income of the Companies and is in good standing in each such jurisdiction in which the Companies are qualified or registered to do business. 2. The Relevant Document has been duly authorised, executed and delivered to you by the Companies. The Relevant Document constitutes legal, valid and binding obligations of the Companies, enforceable against the Companies in accordance with its terms. The Powers of Attorney are valid and binding appointments made by SBO, SOC and SDC respectively, which authorise the execution and delivery of the Relevant Document on behalf of the Companies by any of the attorneys named therein. 3. The execution and delivery of the Relevant Document, the performance and observance by the Companies of their respective obligations thereunder, and the consummation of the transactions contemplated thereby (including the grant of security interests and liens thereunder) are within the corporate authority of the Companies and have been duly authorised by all necessary corporate proceedings and actions on the part of the Companies. 4. The execution and delivery of the Relevant Document by the Companies does not, and the performance and observance by the Companies of their respective obligations thereunder, the transactions contemplated thereunder, and the provisions thereof, do not and will not contravene, conflict with, or result in a breach, default or violation of: (a) any provisions of the Companies' respective Articles of Incorporation, their respective Bylaws or any other constituent document of the respective Companies; (b) any provision of the laws, statutes, rules or regulations of the State of Nevada or of the Federal law or regulations of the United States; or (c) any decree, judgment, order, regulation or rule of any federal, state or municipal court, board or government or administrative authority or any agreement, instrument or arrangement binding on any of the Companies or any of their assets or properties or to which any of the Companies is a party, including the Relevant Document, nor will the same result in the creation of any security interest or mortgage under any such agreement, arrangement or instrument other than as may be expressly set out in the Relevant Document. 4 5. No approval or consent or other action by, and no filing with, any person, or state municipal or federal agency, board, authority or other government or administrative unit is required under any law, statute, rule or regulation as a condition to the validity, effectiveness or, enforceability of, or performance by the Companies of their respective obligations under, the Relevant Document or consummation of the transactions contemplated by the Relevant Document. 6. There are no actions, proceedings, enquiries, investigations or litigation of any nature pending, or, to our knowledge, threatened at law or in equity by or before any court, or government or administrative instrumentality, board or agency having jurisdiction over any of the Companies which has or may materially adversely affect the condition (financial or otherwise), operation or income of any of the Companies or which has or may affect or place in question the authority of any of the Companies to enter into or perform their respective obligations under, or the validity or enforceability of, the Relevant Document or the consummation of the transactions contemplated by the Relevant Document. 7. Although we are not in a position to give an unqualified opinion in this regard, we are of the opinion that there is a reasonable basis on which to conclude that the courts of the State of Nevada should give effect to the agreement of the parties set forth in the Relevant Document which will be governed by the laws of the State of New South Wales. This opinion is based, in part, upon the assumption, that the parties acted in good faith and not for the purpose of evading the law of the real situs of the contract and that the situs chosen by the parties has a substantial relationship to the transaction. SEE ENGEL V. ERNST, 102 Nev. 390, 724 P.2d 215 (1986), CONSTANZO V. MARINE MIDLAND REALTY, 101 Nev. 277, 701 P.2d 747 (1985), and SIEVERS V. DIVERSIFIED MORTGAGE INVESTORS, 95 Nev. 811, 603 P.2d 270 (1970). 8. The submission of the Companies to the jurisdiction of the Courts of New South Wales and the appointment of SBA as agent for service of process for any action or proceedings commenced in New South Wales is valid and binding on each of the Companies. 9. Any final and conclusive judgment obtained in the courts of New South Wales or Australia will be recognized and enforced by the courts of Nevada and the Federal Courts of the United States without a further review on the merits. 10. Claims under the Relevant Document against any of the Companies will rank at least pari pasu with the claims of all other unsecured creditors of the Companies respectively, other than those claims which are preferred by law generally. 11. In any proceedings taken in the State of Nevada and in any Federal Court of the United States, none of the Companies will be entitled to claim for itself or any of its assets immunity from suit, execution, attachment or other legal process. 12. Our opinion in paragraph 2 above as to the enforceability of the documents is subject to: 5 (i) bankruptcy, insolvency, reorganisation, fraudulent transfer, moratorium or other laws of general application relating to or affecting the enforcement of creditors' rights; (ii) general principles of equity regardless of whether such issues are considered in a proceeding in equity or at law which provide, among other things, that the remedies of specific performance and other forms of equitable relief are subject to equitable defences and to the discretion of the court before which any proceeding therefor may be brought; (iii) the fact that a court may view any provision of the Relevant Document as unconscionable or subject to an obligation that the parties to the Relevant Document act reasonably or in a commercially reasonably manner; (iv) the fact that certain remedies contained in the Relevant Document may be qualified under the laws of the State of Nevada, none of which qualifications will materially interfere with the practical realisation of the benefits and the security provide thereby. Our opinion in paragraph 8 above as to the valid and binding nature of the submission of the Companies to the jurisdiction of the Courts of New South Wales or Australia is subject to the equitable principle of forum non-conveniens. The Second Circuit of the United States Court of Appeals addressed this issue in ALLSTATE LIFE INSURANCE CO. V. LINTER GROUP LIMITED, 994 F.2d 996 (2d Cir. 1993). In LINTER GROUP, the Second Circuit discussed the legal principle of forum non-conveniens in dismissing an action in the State of New York despite a forum selection clause in an indenture selecting the Courts of the State of New York. "Although there is still a strong presumption in favour of a plaintiff's choice of forum, the Supreme Court has recognized that dismissal nevertheless may be appropriate where certain private and public interest factors point towards trial in an alternative forum. GULF OIL CORP. V. GILBERT, 330 US 501, 508-09, 91 L.Ed. 1055, 67 S. Ct. 839 (1947) [remaining citations omitted]. The private and public interest factors recognised by the Court in GILBERT include: (1) the ease of access to sources of proof; (2) the availability of compulsory process for attendance of unwilling witnesses; (3) the cost of obtaining attendance of unwilling witnesses; (4) practical problems involving the efficiency and expense of a trial; (5) enforceability of judgments; 6 (6) administrative difficulties flowing from court congestion; (7) imposing jury duty on citizens of the forum; (8) the local interest in having controversies decided at home; and (9) the avoidance of unnecessary problems in the application of foreign law. GILBERT, supra 330 US at 508-09" LINTER, 994 F.2d at 1001. Therefore the opinion expressed in opinion paragraph 8 assumes that a court will carefully consider the factors listed in GULF OIL CORP. V. GILBERT, 330 U.S. 91 L. Ed. 1055, 67 S. Ct. 839 (1947) in determining the propriety of an alternative forum. Our opinion in paragraph 9 above as to the enforceability of a judgment in the State of Nevada and in a Federal Court of the United States is subject to the constitutional principle of comity. "The U.S. Supreme Court defined comity as 'the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws.' HILTON V. GUYOT, 159 U.S. 113, 164, 40 L. Ed. 95, 16 S. Ct. 139 (1895). As a general rule, comity may be granted where 'it is shown that the foreign court is a court of competent jurisdiction, and that the laws and public policy of the forum state and the rights of its residents will not be violated.' CUNARD S. S. CO. V. SALEN REEFER SERV. AB, 773 F.2d 452, 457 (2 Cir. 1985). Indeed, as long as the foreign court abides by 'fundamental standards of procedural fairness,' granting comity is appropriate. ID." ALLSTATE LIFE INSURANCE CO. V. LINTER GROUP LIMITED, 994 F.2d 996, 998 (2d Cir. 1993). We therefore assume in rendering opinion paragraph 9 that the laws of New South Wales or Australia are "procedurally fair." In particular, we assume that (1) the laws of New South Wales and Australia do not favor its citizens over those of other nations, states and provinces; (2) the Companies are provided the opportunity to provide evidence in their defense; (3) the Companies will receive timely notice to permit them sufficient time to defend the action; and (4) the judgment rendered by an Australian or New South Wales court will not be against the public policy of the State of Nevada. We also assume that the courts of Australia and New South Wales recognise and enforce judgments rendered by courts of any state of the United States or federal courts of the United States of America. The foregoing opinions are subject to the following additional qualifications: (a) We express no opinion as to the effectiveness of any provision directly or indirectly requiring that any consent, modification, amendment or waiver be in writing. (b) We express no opinion as to the enforceability of any provision which requires the party to indemnify another party for losses or damages caused by the indemnified 7 party's gross negligence, intentional acts or omissions. Moreover, we advise you that a Court may not enforce an indemnity agreement which shifts the financial responsibility that the contract of indemnity expresses such intention in clear and unequivocal terms. (c) Since the opinions expressed in this letter are based upon the law in effect on the date hereof, we assume no obligation to revise or supplement this opinion letter should such law be changed by legislative action, judicial decision or otherwise. We are qualified to practice and are experts in the laws of the State of Nevada and the Federal law of the United States. We are qualified to give this legal opinion. These opinions are effective as of the date hereof. No extensions of our opinions may be made by implication or otherwise. We expressly consent to and acknowledge your reliance on this opinion in executing the Relevant Document. Our opinions are not to be otherwise quoted in whole or in part without the express, written consent of this firm. Yours sincerely [US LAWYER] SHC EXHIBIT 3 TO SECOND AMENDING DEED (SECOND SUPPLEMENTARY MINISTER'S APPROVAL AND CONSENT ACKNOWLEDGMENT) - SYDNEY CASINO PROJECT - SECOND SUPPLEMENTARY MINISTER'S APPROVAL AND CONSENT ACKNOWLEDGMENT DATE: ____________________, 1994 THE HONOURABLE ANNE MARGARET COHEN MP ("MINISTER") CLAYTON UTZ SOLICITORS AND ATTORNEYS LEVELS 27-35 NO. 1 O'CONNELL STREET SYDNEY NSW 2000 TEL: (02) 353 4000 FAX: (02) 251 7832 COPYRIGHT RESERVED CONFIDENTIAL SECOND SUPPLEMENTARY MINISTER'S APPROVAL AND CONSENT ACKNOWLEDGEMENT BY THE HONOURABLE ANNE MARGARET COHEN MP Chief Secretary and the Minister of the Crown for the time being administering the Casino Control Act 1992 (NSW) ("ACT") PURSUANT TO SECTION 142 OF THE ACT I HEREBY: 1. acknowledge having granted approval to the Authority for and on behalf of the State, to conduct negotiations and to enter into the agreement referred to in Schedule 1; 2. acknowledge that the agreement referred to in Schedule 1 is for or in connection with the establishment and operation of a casino and any development of which a casino or proposed casino forms part; 3. approve of the terms of the agreement referred to in Schedule 1; and 4. consent to the assignment of rights and obligations under or in respect of the agreement referred to in Schedule 1 and to the encumbering of the rights under or in respect of the agreement referred in Schedule 1 as specified in the Item referable to the relevant agreement and on condition that each such assignment and encumbrance (and any later sale of such rights) is given or occurs in accordance with the provisions of the relevant agreement as specified. For the avoidance of doubt the terms of the agreement referred to in clauses 1 to 4 inclusive are those contained in the documents marked for identification with the official stamp of the Chief Secretary's Department and held and available during business hours for inspection at the Department by any party to them. In giving this approval I note that the Authority must, under Section 12 of the Casino Control Act, satisfy itself as to the suitability of any applicant to which a license is ultimately granted under Section 18 of the Act. This acknowledgment shall not be taken as, nor is capable of, being an approval, consent or acknowledgment in respect of any agreement to which the Authority is not a party whether or not such agreement forms an annexure, exhibit or schedule to the agreement referred to in Schedule 1. This Acknowledgment is given solely for the purposes of Section 142 of the Act and accordingly, any person entering into or relying upon the agreement to which the Authority is a party referred to in Schedule 1 does so based solely upon the person's own commercial judgment of, and professional advices in respect of, the terms of such agreement and the matters, express or implied, contemplated by such agreement. 2 Terms used but not defined in this Acknowledgment have the same meaning as in the Act. SIGNED by THE HONOURABLE ANNE MARGARET COHEN MP on [_________________], 1994. __________________________________________ The Honourable Anne Margaret Cohen MP __________________________________________ Witnessed by: R.D. McGregor J.P. 3 SCHEDULE 1 ITEM 1 PARTIES AND AGREEMENT SHC Second Amending Deed made or to be made between the Authority, Sydney Harbour Casino Pty. Limited, Sydney Harbour Casino Properties Pty. Limited, Sydney Harbour Casino Holdings Limited, Showboat Australia Pty. Limited, Leighton Properties Pty. Limited, Leighton Contractors Pty. Limited, Leighton Holdings Limited, Sydney Casino Management Pty. Limited, Showboat Operating Company, Showboat Development Corporation and Showboat Inc. ASSIGNMENT AND ENCUMBERING AND CONDITIONS RELATING TO THE SAME Clause 14: Miscellaneous SHC THIRD AMENDING DEED Date: New South Wales Casino Control Authority Authority Sydney Harbour Casino Pty. Limited SHC Sydney Harbour Casino Properties Pty. Limited SHC Properties Sydney Harbour Casino Holdings Limited SHC Holdings Showboat Australia Pty. Limited SBA Leighton Properties Pty. Limited LPPL Leighton Contractors Pty. Limited LCPL Leighton Holdings Limited LHL Sydney Casino Management Pty. Limited SCM Showboat Operating Company SOC Showboat Development Corporation SDC Showboat Inc. SBI Natal Mutual Trustees Limited Trustee Clayton Utz Solicitors and Attorneys No. 1 O'Connell Street SYDNEY NSW 2000 Tel: (02) 353 4000 Fax: (02) 251-7832 Copyright Reserved CONFIDENTIAL TABLE OF CONTENTS Clause Page 1. DEFINITIONS AND INTERPRETATION 3 2. CONSIDERATION 5 3. ASSOCIATED DOCUMENTS 5 4. WARRANTIES AND DISCLAIMER 5 5. TRUSTEE'S ACCESSION TO COMPLIANCE DEED 6 6. OTHER PARTIES TO COMPLIANCE DEED 6 7. AMENDMENTS TO COMPLIANCE DEED 7 8. GUARANTORS' CONSENT AND RATIFICATION 28 9. AMENDING PARTIES' CONSENT AND RATIFICATION 28 10. LIMITATION ON TRUSTEE'S LIABILITY 28 11. GENERAL 29 12. MISCELLANEOUS 29 THIS DEED is made the day of 1994 BETWEEN NEW SOUTH WALES CASINO CONTROL AUTHORITY, a statutory corporation constituted by the Casino Control Act, 1992, on behalf of the State of New South Wales, pursuant to section 142 of the Casino Control Act 1992, of level 17, 309 Kent Street, Sydney, NSW, Australia, 2000 ("Authority") AND SYDNEY HARBOUR CASINO PTY. LIMITED, ACN 060 510 410, a company duly incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, St. Leonards, NSW, Australia ("SHC") AND SYDNEY HARBOUR CASINO PROPERTIES PTY. LIMITED, ACN 050 045 120, a company duly incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, St. Leonards, NSW, Australia ("SHC Properties") AND SYDNEY HARBOUR CASINO HOLDINGS LIMITED, ACN 064 054 431, a company duly incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, ST. Leonards, NSW, Australia ("SHC Holdings") AND SHOWBOAT AUSTRALIA PTY. LIMITED, ACN 061 299 625, a company duly incorporated in New South Wales, Australia of Level 3, 472 Pacific Highway, St. Leonards, NSW, Australia ("SBA") AND LEIGHTON PROPERTIES PTY. LIMITED, ACN 001 046 395, a company duly incorporated in New South Wales, Australia of level 3, 472 Pacific Highway, ST. Leonards, NSW, Australia ("LPPL") AND LEIGHTON CONTRACTORS PTY. LIMITED, ACN 000 893 667, a company duly incorporated in New South Wales, Australia of level 3, 472 Pacific Highway, St. Leonards, NSW, Australia ("LCPL") AND LEIGHTON HOLDINGS LIMITED, ACN 004 482 982, a company duly incorporated in New South Wales, Australia of level 3, 472 Pacific Highway, St. Leonards, NSW, Australia ("LHL") AND SYDNEY CASINO MANAGEMENT PTY. LIMITED, ACN 060 462 053, a company duly incorporated in New South Wales, Australia of level 3, 472 Pacific Highway, St. Leonards, NSW, Australia ("SCM") AND SHOWBOAT OPERATING COMPANY, a company duly organised under the laws of the State of Nevada, USA of 2800 Fremont Street, Las Vegas, Nevada 89104 USA ("SOC") AND SHOWBOAT DEVELOPMENT CORPORATION, a company duly organized under the laws of the State of Nevada, USA of 2800 Fremont Street, Las Vegas, Nevada, 89104, USA ("SDC") -2- AND SHOWBOAT INC, a company duly organized under the laws of the State of Nevada, USA of 2800 Fremont Street, Las Vegas, Nevada, 89104, USA ("SBI") AND NATIONAL MUTUAL TRUSTEES LIMITED, ACN 004 029 841, a company duly incorporated in the State of Victoria and having its principal office in the State of New South Wales at 11th Floor, 44 Market Street, Sydney (the "Trustee") RECITALS A. On 22 April 1994 the Authority and certain of the Amending Parties entered into the Executed Project Documents. B. Certain of the Executed Project Documents were amended by ** the First Amending Deed ** and ** the Second Amending Deed **. C. This Deed is an amending deed and is supplemental to certain of the Executed Project Documents. D. SHC is an applicant for the issue of a casino licence by the Authority under section 18 of the Act. E. Section 12 of the Act provides that the Authority must not grant an application for a casino licence unless satisfied that the applicant, and each "close associate" (as defined in section 13 of the Act) of the applicant is a suitable person to be concerned in or associated with the management and operation of a casino. F. LPPL currently has certain connections with SHC which may make LPPL a "close associate" of SHC. G. A number of allegations which may impugn the reputation of the Leighton Group companies have required the Authority to consider the suitability of LPPL. H. LPPL has therefore proposed that it be disassociated from its possible "close associate" relationship with SHC until the question of its suitability to be concerned in, or associated with, the management and operation of a casino has been resolved. I. To implement LPPL's proposal, the Trust has been established and the Trust Property has been assigned by LPPL to the Trustee. J. The Trustee wishes to become bound by the Compliance Deed from the date hereof, as if it were a party to the Compliance Deed, and to be included as a party to the Casino Operations Agreement. K. The parties hereto wish to amend certain Transaction Documents to reflect the trust arrangements described above. -3- THIS DEED WITNESSES 1. DEFINITIONS AND INTERPRETATION 1.1 Definitions In this Deed, unless the context otherwise requires: "ACT" means the Casino Control Act, 1992. "AMENDING PARTIES" means all the parties to this Deed other than the Authority. "COMPLIANCE DEED" means the deed so entitled dated 22 April 1994 made between the Authority and the Application Parties as amended by the First Amending Deed ** and the Second Amending Deed **. "EXECUTED PROJECT DOCUMENTS" means all of the following: (a) Compliance Deed; (b) CD Bank Guarantee (First); (c) CCA Charge; (d) CCA Cross Guarantee; (e) Parent Guarantees; (f) Confidentiality and Disclaimer Deed; (g) Deed of Restraint; and (h) Development Agreement Side Deed. "FIRST AMENDING DEED" means the deed of that name entered into on 6 October 1994 between the Authority, ** the Amending Parties (other than the Trustee) and the Commonwealth Bank of Australia. ** "SECOND AMENDING DEED" means the deed of that name entered into on [ ] 1994, between the Authority and the Amending Parties other than the Trustee.** "THIRD SUPPLEMENTARY MINISTER'S APPROVAL AND CONSENT ACKNOWLEDGMENT" means the acknowledgment of the Minister dated [ ] 1994, in the form and on the terms set out in Exhibit 1. -4- "THIRD SUPPLEMENTARY LEGAL OPINION" means the US legal opinion to be given by Messrs Kummer Kaempfer Bonner & Renshaw of Nevada, USA in the forma and on the terms of Exhibit 2 regarding, inter alia, the enforceability of the Deed. "TRUSTEE'S INDEMNITY" means: (a) the Trustee's right of indemnity from the Trust Property; (b) any equitable liens and other encumbrances granted to the Trustee in respect of the Trust, the Trust Property or the beneficiaries under the Trust Deed; and (c) all moneys paid or payable under or in respect of any such right, title or interest. "TRUST DEED" means the deed dated[ ] between the Trustee and [the Settlor]. "TRUST PROPERTY" has the meaning given to it in the Trust Deed. 1.2 UNDEFINED WORDS AND PHRASES Capitalised words and phrases used in this Deed which are not defined in this Deed shall have the same meaning as in the Compliance Deed. Likewise, capitalised words and phrases which are referred to in any such definition in the Compliance Deed shall have the same meaning as in the Compliance Deed. References to the Compliance Deed in this clause 1.2 are to the Compliance Deed as it reads without being amended by this Deed, except where a contrary intention is expressed in this Deed. 1.3 INTERPRETATION Clause 1.2 of the Compliance Deed is hereby incorporated in this Deed as if it were expressly set out herein subject only to insertion of the words "the Compliance Deed" after "the Deed" in line 1 of clause 1.2(a). 1.4 To the extent of any inconsistency or conflict between the terms of this Deed, the Compliance Deed and the Act, License, any other Executed Project Document, any other Transaction Document, Invitation Document or the Application. (a) the Act shall prevail over the license, this Deed, the Compliance Deed, all other Executed Project Documents, all other Transaction Documents, all Invitation Documents and the Application; (b) a License (if and when granted to SHC) will prevail over this Deed, the Compliance Deed, all other Executed Project Documents, all other Transaction Documents, all Invitation Documents and the Application; -5- (c) the Compliance Deed as amended by this Deed will prevail over all other Executed Project Documents, all other Transaction Documents, all Invitation Documents and the Application. 1.5 The rights and obligations of the Amending Parties under this Deed are in addition and without prejudice to their respective rights and obligations under the Act. 1.6 Nothing in this Deed whether express or implied prejudices, fetters or otherwise affects or is intended in any way to impose any obligation or restriction on the Authority which in any way conflicts with the obligations, powers, duties, restrictions and discretions of the Authority under the Act. 2. CONSIDERATION Each party acknowledges to each other party that it enters into this Deed and incurs obligations and gives rights under it for valuable consideration received from the other parties to this Deed. 3. ASSOCIATED DOCUMENTS On or before execution of this Deed: (a) the Amending Parties shall deliver to the Authority an unconditional written consent of BCML pursuant to the terms of the Equity Underwriting Agreement to SHC Holdings, LPPL and SBA entering this Deed; (b) the Amending Parties shall deliver to the Authority an unconditional written consent of CBA pursuant to the terms of the Facility Agreement to SHC, SHC Holdings and SHC Properties entering the Deed; (c) SHC shall cause the delivery to the Authority of the duly executed Third Supplementary Legal Opinion, in each case in form and substance acceptable to the Authority. 4. WARRANTIES AND DISCLAIMER 4.1 The Authority warrants that, pursuant to sections 142(1) and 142(2) of the Act, the Minister has approved of both the Authority entering into this Deed and its terms as evidenced by the Third Supplementary Minister's Approval and Consent Acknowledgment. 4.2 Pursuant to the CCA Charge, the Authority hereby consents to SHC, SHC Holdings and SHC Properties entering into this Deed. 4.3 Nothing in this Deed shall be taken as, nor is capable of, constituting an obligation on the Authority to grant a Licence to any person (including without limitation SHC) or -6- affecting the Authority's Power to determine the Application by not granting a Licence to SHC pursuant to section 18(1) of the Act. 4.4 Notwithstanding anything to the contrary expressed in or which would, but for this clause 4.4, be implied in this Deed, neither the Authority nor the State of New South Wales nor its members, employees, delegates, agents, consultants or advisers shall have any liability whatsoever to any party in respect of any failure or breach by the Authority under or in respect of this Deed or any other matter contemplated hereby. 4.5 (a) The covenants, undertaking, warranties and representations set out in clauses 1 to 6A inclusive of Schedule 1 to the Compliance Deed (as amended by clause 7.1(e) of this Deed) are hereby incorporated in this Deed as if expressly set out herein subject to the following: (i) delete the words "Application Parties" wherever they appear; and (ii) in lieu thereof insert the words "Amending Parties," and each Amending Party represents and warrants to and with the Authority in those terms. (b) The representations and warranties included above are made as at the date of this Deed and are deemed repeated at all times during the currency of this Deed with reference to the facts and circumstances then subsisting as if made at each such time, unless otherwise expressly stated and shall be construed separately and the meaning of each shall in no way be limited by reference to any other clause contained in this Deed. 5. TRUSTEE'S ACCESSION TO COMPLIANCE DEED The Trustee agrees that it will be bound, with effect from and including the date hereof by the Compliance Deed as if it was named in and as a party to the Compliance Deed. 6. OTHER PARTIES TO COMPLIANCE DEED The Authority, SHC, SHC Properties, SHC Holdings, SBA, LPPL, LHL, SCM and SOC each agree with the Trustee that each of the Authority, SHC. SHC Properties, SHC Holdings, SBA, LPPL, LHL, SCM and SOC will observe other terms and conditions of the Compliance Deed to enable the Trustee to receiver the benefit of and to enjoy all the rights and to be subject to all the obligations under the Compliance Deed to the same extent as if the Trustee was, from the date of this Deed, named in and as a party to the Compliance Deed. -7- 7. AMENDMENTS TO COMPLIANCE DEED 7.1 Amendments to the Body and Schedules of the Compliance Deed With effect from the date of this Deed, the Compliance Deed is amended as follows: (a) in clause 1.1, in the definitions "Casino Exclusivity Agreement", Casino Duty and Community Benefit Levy Agreement", "Casino Operations Agreement", Casino Taxes Agreement", CCA Charge", CD Bank Guarantee (Second)", "COA Lease Terms", "Deed of Covenant", Development Agreement Side Deed", Permanent Site Freehold Lease", "Temporary Site Construction Sub-Lease" and "Temporary Site Sub- Lease" delete "as amended by the First Amending Deed" at the end of each definition; (b) in clause 1.1, insert the following new definitions in such a way that all of the definitions in that clause appear in alphabetical order: "SBI" means Showboat Inc. "SDC" means Showboat Development Corporation. "THIRD AMENDING DEED" means the deed of that name dated [ ] between the Authority, ** THE APPLICATION PARTIES, LEIGHTON CONTRACTORS PTY LIMITED, SHOWBOAT DEVELOPMENT CORPORATION, SHOWBOAT INC. and the Trustee. "TRUST" means the trust created by the Trust Deed. "TRUST DEED" means the deed dated on or ** BEFORE the date of the Third Amending Deed between the Trustee and [the Settlor]. "TRUST DOCUMENTS" has the meaning given to it in the Casino Operations Agreement as amended by the Third Amending Deed. "TRUSTEE" means National Mutual Trustees Limited. "TRUST PROPERTY" has the meaning given to it in the Trust Deed. "TRUSTEE'S INDEMNITY" means: (a) the Trustee's right of indemnity from the Trust Property; (b) any equitable liens and other encumbrances granted to the Trustee in respect of the Trust, the Trust Property or the beneficiaries under the Trust Deed; and -8- (c) all moneys paid or payable under or in respect of any such right, title or interest. (c) in clause 1, delete altogether the definition of "Casino Complex Works Agreement"; (d) in clause 1.1, in the definition of "Q & M Documents", delete the words "and the Casino Complex Works Agreement" at the end; (e) in clause 1.1, in the definition of "Project Documents": (i) delete the word "and" at the end of sub- paragraph (cc); (ii) ** replace the full stop at the end of sub- paragraph (dd) with ":" and (iii) insert the following sub-paragraphs after sub- paragraph (dd): "(ee) the Third Amending Deed; and (ff) the Trust Documents.": ** (f) insert the following new clauses 8.3A, 8.3B, 8.3C, 8.3D, and 8.3E immediately after clause 8.3: "8.3A With effect on and from the date of the Third Amending Deed, LPPL indemnifies each of the Authority and the State of New South Wales and shall keep each of the Authority and the State of New South Wales indemnified at all times on and from that date against any and all loss, damage, claims, penalties, liabilities and expenses (including special, indirect and consequential damages and legal costs on the higher of a full indemnity basis or a solicitor and own client basis and without the need for taxation) whatsoever directly or indirectly caused or contributes to by a Trustee in respect of which the Authority and/or the State if New South Wales is entitled to make a demand or claim upon the Trustee under clauses 8.1 or 8.2 of this Deed (whether or not the Authority and/or the State of New South Wales has made such a demand or claim upon the Trustee). 8.3B The parties agree that the limitation on the Trustee's liability provided for in clause 33 of this Deed shall in no way limit, prejudice or otherwise affect the rights of the Authority and the State of New South Wales to exercise their respective rights under clause 8.3A and make a demand or claim upon LPPL under clause 8.3A and recover moneys under the clause. 8.3C The Authority and the State of New South Wales are not required to make a demand or claim upon, or commence proceedings or enforce any other right against the Trustee or any other person, -9- before making any demand or claiming from LPPL under the indemnity in clause 8.3A. 8.3D With effect on and from the date of the Third Amending Deed, the Trustee indemnifies each of the Authority and the State of New South Wales and shall keep each of the Authority and the State of New South Wales indemnified at all times on and from that date against any and all loss, damage, claims, penalties, liabilities and expenses (including special, indirect and consequential damages and legal costs on the higher of a full indemnity basis or a solicitor and own client basis and without the need for taxation) whatsoever directly or indirectly caused or contributed by a breach of this Deed or of any Transaction Document by LPPL in respect of which the Authority and/or the State of New South Wales is entitled to make a demand or claim upon LPPL under clauses 8.1 or 8.2 of this Deed (whether or not the Authority and/or the State of New South Wales has made such a demand or claim upon ** LPPL). 8.3E The Authority and the State of New South Wales are not required to make a demand or claim upon, or commence proceedings or enforce any other right against LPPL or any other person, before making any demand or claiming from the Trustee under the indemnity in clause 8.3D."; (g) insert the following new clause 33 immediately after clause 32: "33. LIMITATION OF TRUSTEE'S LIABILITY Notwithstanding any other clauses in this Deed or in any other Transaction Document: (a) the Trustee enters into this Deed as trustee of the Trust and not in its personal capacity; (b) the Trustee has no personal liability in relation to any of its obligations under or arising out of any of the Transaction Documents; (c) in relation to each such obligation the liability of the Trustee is limited to and does not extend beyond the Trust Property as it stands at the time at which any such obligation is not met or satisfied; (d) the Trustee will not be liable to meet or satisfy any such obligation from its own assets (except the Trustee's Indemnity); -10- (e) the preceding paragraphs apply notwithstanding the fact that the liabilities of the Trustee in its capacity as the trustee of the Trust may from time to time and at any time almost equal, equal or exceed the value of the Trust Property at the relevant time; (f) paragraphs (a) - (e) do not apply to the liability of the Trustee in relation to any obligation which in any Transaction Document the Trustee expressly assumes in its personal capacity; (g) it is acknowledged by the Trustee that the Trust Property at any time will include the amount of any compensation found by a Final Judgment (or admitted by the Trustee) to be payable by the Trustee to restore the Trust Property because of a failure by the Trustee to exercise in relation to the Trust the degree of care, diligence and prudence required of a trustee or because of some other neglect, default or breach of duty by the Trustee having regard to the powers and duties conferred on the Trustee by the Trust Deed or otherwise in either case occurring before the time in question and causing loss to the Trust quantified before the time in question; (h) for the purposes of this clause 33 "FINAL JUDGMENT" means a judgment of a court of law in Australia against which there can be no appeal or in relation to which the time to appeal has expired.": (h) in clause (g) of Schedule 1, insert the following after the words "impressed by any trust": "(other than the Trust)": (i) in Schedule 1, insert the following new clause 6A immediately after clause 6: "6A. With the effect from the date of the Third Amending Deed, the Trustee covenants, warrants, represents and undertakes to and with the Authority as follows: (a) (TRUSTEE): the Trustee has power to enter into this Deed in its capacity as trustee of the Trust; -11- (b) (TRUST VALIDLY CREATED): the Trust has been validly created and is in existence at the date of the Third Amending Deed; (c) (TRUSTEE VALIDLY APPOINTED): the Trustee has been validly appointed as trustee of the Trust and is presently the sole trustee of the Trust; (d) (NO PROCEEDINGS): no proceedings of any description have been or are likely to be commenced or threatened which could have a material adverse effect on the assets, or financial position or the Trustee's trusteeship of the Trust; (e) (NO ACQUISITION OF TRUST ASSETS): the Trustee has not done, or failed to do, any act whereby any of the assets of the Trust have been acquired by any other person, no assets of the Trust are presently registered in the name of any other person, and no person other than the beneficiaries previously notified to the Authority has acquired any right of any kind whether vested or contingent in any asset of the Trust; (f) (RIGHTS OF INDEMNITY AND EXONERATION AGAINST TRUST ASSETS): (i) the Trustee in its capacity as trustee of the Trust has valid rights of the indemnity and exoneration against the assets of the Trust, which rights are available for satisfaction of all liabilities and other obligations incurred by the Trustee under this Deed; and (ii) there is no subsisting circumstance or other thing which has or could have the effect of prejudicing or diminishing the Trustee's right of indemnity and exoneration against the assets of the Trust in any way and without limiting the generality of the foregoing, the Trust has not released, disposed of or charged -12- such rights; (g) the Trustee will: (i) (NEW TRUSTEE): procure that any new trustee executes any documents which Authority requires in its absolute discretion; (ii) (DETERMINATION OF TRUST ETC.): notify the Authority forthwith in writing if the Trust is determined or for any reason ceases to exist; (h) the Trustee shall not: (i) default in the performance of its obligations as trustee of the Trust; (ii) release, dispose of or otherwise prejudice: A. Its rights of indemnity against the Trust Property; B. Its rights of exoneration; or C. Its equitable lien over the Trust Property." 7.2 Amendments to Exhibits to the Compliance Deed (a) Exhibit 8 (Casino Operations Agreement) is amended as follows: (i) include National Mutual Trustees Limited as a party, including by inserting the following words at the end of the list of parties on page 1: "NATIONAL MUTUAL TRUSTEES LIMITED, ACN 004 029 841, a company duly incorporated in the State of Victoria and having its principal office in the State of New South Wales at 11th Floor, 44 Market Street, Sydney (TRUSTEE"); (ii) add the following recitals immediately after recital F: "G. Pursuant to certain of the Trust Documents, LPPL has assigned the Trust Property to the Trustee to be held on the terms of the Trust Deed. -13- H. This Agreement contains provisions introduced by the Third Amending Deed to reflect that assignment."; (iii) insert in clause 1.1 the following new definitions in such a way that all of the definitions in clause 1.1 appear in alphabetical order: "APPROVED TRUSTEE" means **: (a) **any company which is named from time to time in the First Part of the Third Schedule of the Trustee Companies Act 1964 of New South Wales, or which is otherwise included in the definition of "Trustee Company" in that Act from time to time; and (b) such other person as the Authority may determine, unless the Authority determines from time to time that any such company or person is not included within this definition. "ASSIGNED DOCUMENTS SIDE DEED" means the deed of that name between LPPL, SBA, SHC Holdings, the Licensee, SHC Properties, SOC, the Casino Manager and the Trustee dated on or before the date of this Agreement. "BCM" means Bain Capital Markets Pty. Limited, ACN 000 690 933. "CALL OPTION" means the call options dated on or before the date of this Agreement relating to the Trust Property (other than the Shares), between the Trustee as grantor and LPPL as grantee. "DEED OF ASSIGNMENT - LEIGHTON CONTRACTs" means the deed of that name between LPPL and the Trustee on or before the date of this Agreement, "PUT OPTION" means the put option dated on or about the date of this Agreement relating to the Trust Property between LPPL as grantor and the Trustee as grantee. "SHARE CALL OPTION" means the call option dated on or before the date of this Agreement relating to the Shares, between the Trustee as grantor and LPPL as grantee. "SHARES" has the meaning given to it in the Share Call Option. -14- "SUBSCRIBERS" means those persons who have agreed to subscribe for shares in SHCH pursuant to agreements with SHC Holdings, LPPL, SBA and BCM. "SUBSCRIPTION AGREEMENT SIDE LETTERS" means the letters between SHC Holdings, LPPL, SBA, LPPL, SBA, BCM, the Trustee and each of the Subscribers dated on or before the date of this Agreement. "SUITABILITY CERTIFICATE" means a notice from the Authority in the form set out in Schedule 12 hereto. "THIRD AMENDING DEED" means the deed of that name dated [ ] between the Authority, ** the Contracting Parties, Leighton Contractors Pty. Limited, Leighton Holdings Limited, Showboat Development Corporation, Showboat Inc. and the Trustee. "TRUST" means the trust created by the Trust Deed. "TRUST DEED" means the deed dated [ ] between the Trustee and [the Settlor]. "TRUST DOCUMENTS" means all of the following: (a) the Assigned Documents Side Deed; (b) the Call Option; (c) the CBA Documents Side Deed; (d) the Deed of Assignment - Leighton Contracts; (e) the Put Option; (f) the Share Call Option; (g) the Subscription Agreement Side Letters; (h) the Trust Deed; (i) the Underwriting Agreement Side Deed; and (j) any other document, agreement or other instrument pursuant to which any of the Trust Property is assigned to the Trustee. "TRUST PROPERTY" has the meaning given to it in the Trust Deed. -15- TRUSTEE'S INDEMNITY" means: (a) the Trustee's right of indemnity from Trust Property; (b) any equitable liens and other encumbrances granted to the Trustee in respect of the Trust, the Trust Property or the beneficiaries under the Trust Deed; and (c) all moneys paid or payable under or in respect of any such right, title or interest. "UNDERWRITING AGREEMENT SIDE DEED" means the deed of that name between SHCH, LPPL, SBA, BCM and the Trustee dated on or before the date of this Agreement,"; (iv) in clause 1.1, add the following new sub-paragraph (i) to the definition of "Event of Default" and renumber sub-paragraph (i) as sub-paragraph (j): "(i) in relation to the Trustee only: (i) without the prior written consent of the Authority, there occurs: (A) any resettlement of the Trust; (B) any variation of the Trust Deed; (C) any vesting or distribution of any assets of the Trust, or (D) any breach of trust by the Trustee; or (ii) the Trustee for any reason loses or ceases to be entitled to the Trustee's Indemnity; (v) in clause 1.1, in the definition of "Founding Shareholders", delete the words "has the same meaning given to it in the Compliance Deed", and replace them with the following: "means SBA and LPPL and on and from the date on which LPPL'S rights created under the Founding Shareholders Subscription Agreement are transferred to the Trustee pursuant to any Trust Document, means SBA and the Trustee." (vi) in clause 1.1, in the definition of "Permitted Encumbrance": (A) delete the word "and" at the end of paragraph (c); -16- (B) replace the comma at the end of paragraph (d) with: "; and"; (C) renumber the existing paragraph (e) as paragraph (f); and (D) insert the following new paragraph (e) after paragraph (d); "(e) the Trust"; (vii) in clause 1.1, insert the following in the definition of S&A Party" immediately after LPPL,": "the Trustee,"; (viii) in clause 4.6, insert the words "to and" after "undertakes"; (ix) insert the following new clause 4.7 immediately after clause 4.6: "4.7 COVENANTS AND WARRANTIES BY TRUSTEE The Trustee covenants, warrants, represents and undertakes to and with the Authority in the terms set out in Schedule 13." (x) insert in clause 5 immediately before the words "and LPPL": ", the Trustee': (xi) insert in clause 7.1 immediately before the words "and the Casino Manager": ", the Trustee"; (xii) insert in clause 7.2 immediately after "LPPL" whatever it appears: "the Trustee,"; (xiii) insert in clause 7.3 and clause 7.4 immediately after "LPPL": ", the Trustee,"; (xiv) insert in clause 7.5 immediately after "SBA": ", the Trustee"; 17 (xv) by inserting the following in clause 8.4 immediately after "SOC": ", the Trustee": (xvi) insert the following new clause 10A immediately after clause 10: "10A. TRUST DOCUMENTS 10A.1 Each of the Contracting Parties covenants with and warrants to the Authority in respect of each Trust Document that: (a) the Trust Documents are valid, in full force and effect and enforceable in accordance with their terms, subject to: (i) any statute of limitations; (ii) any laws of bankruptcy insolvency, liquidation, reorganisation or other laws affecting creditors' rights generally; and (iii) any defences of set- off or counterclaim; (b) each of them has fulfilled or taken all action necessary to fulfill when due all of its obligations under the Trust Documents; (c) there has not occurred any material default or breach or any event which with the lapse of time or election of it shall become a material breach of the Trust Document. 10A.2 Pursuant to section 38 of the Act, the Authority directs that section 37 of the Act is to apply to the Trustee and the Trustee acknowledges the same. 10A.3 Each of the Trustee and LPPL undertakes, represents and warrants to the Authority that: (a) it will comply with all of its obligations under the Trust Deed, the Put Option, the Call Option and the Share Call Option; -18- (b) it will give written notice to the Authority as soon as it becomes aware of any breach of the Trust Deed, the Put Option the Call Option or the Share Call Option; (c) it will promptly give to the Authority details of any disputes under or in relation to the Trust Deed, the Put Option the Call Option or the Share Call Option; (d) it will not without the Authority's prior written consent Vary the Trust Deed, the Put Option the Call Option or the Share Call Option; (e) it will not without the prior written consent of the Authority give or permit to be created any Encumbrance over its rights under the Trust Deed, the Put Option the Call Option or the Share Call Option other than any Permitted Encumbrance; (f) it will not without the prior written consent of the Authority agree to do any of the things described in paragraphs (a)-(e) inclusive." (xvii) in clause 16, delete the words "NOT USED" and insert the following new clause 16: "16. EXERCISE OF PUT OPTION, CALL OPTION AND SHARE CALL OPTION 16.1 Options The Trustee and LPPL acknowledge and agree with the Authority that: (a) the Trustee must not exercise the Put Option; (b) LPPL must not exercise the Call Option; (c) LPPL must not exercise the Share call Option, -19- in each case unless the following requirements are first satisfied: (d) full particulars of the proposed purchaser under the relevant option (including for the removal of doubt LPPL) must have been furnished to the Authority; (e) either: (i) the Authority in its absolute discretion has given notice in writing to the Trustee or LPPL (whichever is proposing to exercise the relevant option) that in the opinion of the Authority the proposed purchased (including for the removal of doubt LPPL) is not, and will not after exercise and completion of the relevant option become, a close associate (as defined in the Act) of the Licensee; or (ii) (A) the Authority in its absolute discretion has given notice in writing to the Trustee or LPPL (Whichever is proposing to exercise the relevant option) that in the option of the Authority the proposed purchases (including for the removal of doubt LPPL) is, or after exercise of the relevant option will become, a close associate (as defined in the Act) of the Licensee; and (B) the Authority has issued to the Trustee or LPPL (whichever is proposing to exercise the relevant option) a -20- Suitability Certificate in respect of the proposed purchaser; and (f) The Trustee, LPPL and the process purchaser (including for the removal of doubt LPPL) must enter into such documents or agreements as the Authority may require, each in form and substance satisfactory to the Authority. 16.2 Authority may carry out Investigations (a) The Authority may carry out such investigations and enquiries as it considers necessary to enable it to consider the proposed sale to the proposed purchaser, and whether it is appropriate to give a Suitability Certificate in respect of the proposed purchaser. (b) Without limited the generality of the foregoing, the Authority: (i) may require any person it is investigating in relation to the person's suitability to be concerned in or associated with the management or operation of a casino to consent to having his or her photograph, fingerprints and/or palm prints taken; and (ii) may refer to the Commissioner of Police details of the persons the Authority is investigating, copies of any photographs, finger prints and palm prints taken, and any supporting information that the Authority considers appropriate for referral to the Commissioner. (c) The Authority may decline to issue a Suitability Certificate while any person from whom it requires a photograph, finger prints -21- or palm prints under this clause refuses to allow his or her photograph, finger prints or palm prints to be taken. 16.3 Authority may require further information etc. (a) The Authority may, by notice in writing, require the proposed purchaser or a person who, in the opinion of the Authority, has some association or connection with the proposed purchaser that is relevant to the proposed purchase, to do any one or more of the following things: (i) to provide, in accordance with directions in the notice, such information, verified by statutory declaration, as is relevant to the investigation of the proposed purchase and is specified in the notice; (ii) to produce, in accordance with the directions in the notice, such records relevant to investigations of the proposed purchase as are specified in the notice and to permit examination of the records, the taking of extracts from them and the making of copies of them; (iii) to authorise a person described in the notice to comply with a specified requirement of the kind referred to in paragraph (a) or (b); (iv) to furnish to the Authority such authorities and consents as the Authority directs for the purchase of enabling the Authority to obtain information (including financial and other confidential information) from other persons concerning the person and his or her associates or relations. -22- (b) If a requirement made by the Authority under clause 16.3(a) is not complied with, the Authority may decline to issue the Suitability Certificate; (xviii)Insert the following clause 18.4 immediately after the words "the Casino Manager" wherever they appear: ", the Trustee"; (xix) Insert the following new clauses 18.6A, 18.6B, 18.6C, 18.6D and 18.6E immediately after clause 18.6; "18.6A LPPL hereby indemnified each of the Authority and the State and shall keep each of the Authority and the State indemnified at all times against any and all loss, damage, claims, penalties, liabilities and expenses (including special, indirect and consequential damages and legal costs on the higher of a full indemnity basis or a solicitor and own client basis and without the need for taxation) whatsoever directly or indirectly cause or contributed to by a breach of this Agreement by Trustee or brought or claimed by any third party in each case in respect of which the Authority and/or the State is entitled to make a demand or claim upon the Trustee under clauses 18.5 or 18.6 of this Agreement (as the case may be) (whether or not the Authority and/or the State has made such a demand or claims upon the Trustee). 18.6B The parties agree that the limitation of the Trustee's liability provided for in clause 21 of this Agreement shall in no way limit, prejudice or otherwise affect the rights of the Authority and the State to exercise their respective rights under clause 18.6A and make a demand or claim upon LPPL under clause 18.6A and recover moneys under that clause. 18.6C The Authority and the State are not required to make a demand or claim upon, or commence proceedings or enforce any other right against the Trustee or any other person, before making any demand or claiming from LPPL under the indemnity in clause 18.6A. -23- 18.6D The Trustee hereby indemnified each of the Authority and the State and shall keep each of the Authority and the State indemnified at all times against any and all loss, damage, claims, penalties, liabilities and expenses (including special, indirect and consequential damages and legal costs on the higher of a full indemnity basis or a solicitor and own client basis and without the need for taxation) whatsoever directly or indirectly caused or contributed by a breach of this Agreement by LPPL in respect of which the Authority and/or the State is entitled to make a demand or claim upon LPPL under clauses 18.5 or 18.6 of this Agreement (whether or not the Authority and/or the State has made such a demand or claim upon LPPL). 18.6E The Authority and the State are not required to make a demand or claim upon, or commence proceedings or enforce any other right against LPPL or any other person, before making any demand or claiming from the Trustee under the indemnity in clause 18.6D." (xx) delete from clause 21 words "NOT USED" and replace them with a new clause 21 as follows: "21. LIMITATION ON TRUSTEE'S LIABILITY Notwithstanding any other clauses in this Agreement or in any other Transaction Document; (a) the Trustee enters into this Agreement as trustee of the Trust and not in its personal capacity; (b) the Trustee has no personal liability in relation to any of its obligations under or arising out of any of the Transaction Documents; (c) in relation to each such obligation the liability of the Trustee is limited to and does not extend beyond the Trust Property as it stands at the time at which any such obligation is not met or satisfied; (d) the Trustee will not be liable to meet or satisfy any such obligation from its own assets (except the Trustee's Indemnity); -24- (e) the preceding paragraphs apply notwithstanding the fact that the liabilities of the Trustee in its capacity as the trustee of the Trust may from time to time and at any time almost equal, equal or exceed the value of the Trust Property at the relevant time; (f) paragraphs (a) - (e) do not apply to the liability of the Trustee in relation to any obligations which in any Transaction document the Trustee expressly assumes in its personal capacity; (g) it is acknowledged by the Trustee that the Trust Property at any time will include the amount of any compensation found by a Final Judgment (or admitted by the Trustee) to be payable by the trustee to restore the Trust Property because of a failure by the Trustee to exercise in relation to the Trust the degree of care, diligence and prudence required of a trustee or because of some other neglect, default or breach of duty by the Trustee having regard to the powers and duties conferred on the Trustee by the Trust Deed or otherwise in either case occurring before the time in question and causing loss to the Trust quantified before the time in question; (h) for the purposes in this clause 21 "Final Judgment" means a judgment of a court of law in Australia against which there can be not appeal or in relation to which the time to appeal has expired." (xxi) insert the following new clause 21B after clause 21A: "21B. RETIREMENT AND REPLACEMENT OF TRUSTEE The Trustee, LPPL and the Authority agree that the Trustee will not retire or be removed as trustee of the Trust except where: (a) a replacement trustee is to be appointed in its place; -25- (b) the Authority has given its prior written consent to the appointment of the new trustee, which consent may be withheld by the Authority in its absolute discretion, except where the proposed new trustee is an Approved trustee, in which case the Authority's consent shall not be unreasonably withheld; and (c) the new trustee has executed such documents in form and substance acceptable to the Authority as the Authority requires, including an agreement in which it agrees to be bound by all of the terms of this Agreement." (xxii) insert the following at the end of clause 29.2: Trustee Address: 11th Floor, 44 Market Street Sydney, Australia, 2000 Fax No.: **(02) 299-8793 Attention: **Mr N Brancatisano (xxiii) insert a new Schedule 12 as follows: "SCHEDULE 12 Suitability Certificate To: [The Trustee/Leighton Properties Pty Limited] 1. We refer to your letter dated [ ] notifying us of your intention to exercise the [name of relevant option]. 2. We confirm that the proposed purchase pursuant to the [name of relevant option] is [ ]. 3. We hereby certify that as at the date of this Certificate [ ] is a suitable person to be concerned in or associated with the management and operation of a casino. -26- 4. Nothing in this Certificate, whether express or implied, prejudices, fetters or otherwise affects, or is intended in any way to impose any obligation or restriction on the Authority which in any way conflicts with, the obligations, powers, duties, restrictions and discretions of the Authority under the Act.** Dated: [Signature]" (xxiii) insert a new Schedule 13 as follows: "SCHEDULE 13 Covenants and Warranties by the Trustee 1. (TRUSTEE): The Trustee has power to enter into this Agreement in its capacity as trustee of the Trust. 2. (TRUST VALIDLY CREATED): The Trust has been validly created and is in existence at the date of this Agreement. 3. (TRUSTEE VALIDLY APPOINTED): The Trustee has been validly appointed as trustee of the Trust and is presently the sole trustee of the trust. 4. (NO PROCEEDINGS): No proceedings of any description have been or are likely to be commenced or threatened which could have a material adverse effect on the assets, or financial position or the Trustee's trusteeship of the Trust. 5. (NO ACQUISITION OF TRUST ASSETS): The Trustee has not done, or failed to do, any act whereby any of the assets of the Trust have been acquired by any other person, not assets or the Trust are presently registered in the name of any other person, and not person other than the beneficiaries previously notified to the Authority has acquired any right of any kind whether vested or contingent in any asset of the Trust. 6. (Rights of Indemnity and Exoneration against Trust assets): (i) the Trustee in its capacity as trustee of the Trust has valid rights of indemnity and exoneration against the assets of the Trust, which rights are available for satisfaction of all liabilities and other obligations incurred by the Trustee under this Agreement; and -27- (ii) there is no subsisting circumstance or other thing which has or could have the effect of prejudicing or diminishing the Trustee's right of indemnity and exoneration against the assets of the Trustee in any way and without limiting the generality of the foregoing, the Trust has not released, disposed of or charged such rights. 7. The Trustee will: (a) (NEW TRUSTEE): procure that any new trustee executes any documents which the Authority requires; (b) (DETERMINATION OF TRUST ETC.): notify the Authority forthwith in writing if the Trust is determined or for any reason ceases to exist. 8. The Trustee shall not: (a) default in the performance of its obligations as trustee of the Trust; (b) release, dispose of or otherwise prejudice: (i) its rights of indemnity against the Trust Property; (ii) its rights of exoneration; or (iii) its equitable lien over the Trust Property; or (c) sell, transfer, encumber or otherwise dispose of any of the Trust Property except pursuant to the Put Option, the Call Option or the Share Call Option (in which case the Trustee shall comply with clause 16 of this Agreement) or otherwise with the prior written consent of the Authority (in which case clauses 16(d)-(f) of this Agreement shall apply mutatis mutandis). (b) Exhibit 44 (Casino Complex Works Agreement) is deleted in its entirety. 7.3 Ratification and confirmation of compliance Deed The parties to the Compliance Deed ratify and confirm their respective obligations under the Compliance Deed as hereby varied which, subject to the variation and accession described herein, shall continue in full force and effect. -28- 8. GUARANTORS' CONSENT AND RATIFICATION 8.1 Each of LPL, SDK and BSI consents to the amendments to the Compliance Deed in the manner set forth in clause 7 and ratifies and confirms its respective obligations under the Lighten Guarantee and Showboat Guarantee respectively, in respect of the Compliance Deed as so amended and as so acceded to by the Trustee. 8.2 Each of SHC, SHC Holdings and SHC Properties consents to the amendments to the Compliance Deed: (a) set out in clause 7; and (b) the first Amending Deed (as defined in the Compliance Deed), which consent shall be taken to have effect from and including 6 October 1994, and in which case ratifies and confirms its respective obligations under the CCA Cross Guarantee (as defined in the Compliance Deed), in respect of the Compliance Deed as so amended. 9. AMENDING PARTIES' CONSENT AND RATIFICATION To the extent that the consent of, or approval by, any Amending Party is required to the amendments to the Compliance Deed set out in clause 7, under the terms of any Executed Project Document and/or any executed Application Documents to which it is a party, that consent is hereby given and each such Amending Party ratifies and confirms its obligations under each such Executed Project document and/or executed Application Document, in respect of the Compliance Deed as so amended. 10. LIMITATION ON TRUSTEE'S LIABILITY Notwithstanding any other clauses in this Deed or in any other Transaction Document: (a) the Trustee enters into this Deed as trustee of the Trust and not in its personal capacity; (b) the Trustee has no personal liability in relation to any of its obligations under or arising out of any of the Transaction Documents; (c) in relation to each such obligation the liability of the Trustee is limited to and does not extend beyond the Trust Property as it stands at the time at which such obligation is not met or satisfied; (d) the Trustee will not be liable to meet or satisfy any such obligation from its own assets (except the Trustee's Indemnity); -29- (e) the preceding paragraphs apply notwithstanding the fact that the liabilities of the Trustee in its capacity as the trustee of the trust may from time to time and at any time almost equal, equal or exceed the value of the Trust Property at the relevant time; (f) paragraphs (a)-(e) do not apply to the liability of the Trustee in relation to any obligation which in any Transaction Document the trustee expressly assumes in its personal capacity; (g) it is acknowledged by the Trustee that the Trust Property at any time will include the amount of any compensation found by a Final Judgment (or admitted by the Trustee) to be payable by the Trustee to restore the Trust Property because of a failure by the Trustee to exercise in relation to the Trust the degree of care, diligence and prudence required of a trustee or because of some other neglect, default or breach of duty by the Trustee having regard to the powers and duties conferred on the Trustee by the Trust Deed or otherwise in either case occurring before the time in question; (h) for the purposes of this clause 10 "Final Judgment" means a judgment of a court of law in Australia against which there can be no appeal or in relation to which the time to appeal has expired. 11. GENERAL Any reference in any Transaction document to any document amended by this Deed shall be read and construed and have force and effect as including the amendments thereto effected by this Deed. 12. MISCELLANEOUS Clauses 7 and 8, 10 to 12, 13.2 and 14 to 32 inclusive of the Compliance Deed are hereby incorporated in this Deed as if expressly set out herein subject to the following: (a) each reference to the words "Application Parties" in clauses 8, 10, 11, 12, 13.2, 16, 17, 27, 28 and 30 of the Compliance Deed shall be read and construed as a reference to "Amending Parties"; (b) references to clauses within clause 8.2 and clause 11.5(b) shall be read as references to clauses of the Compliance Deed; (c) a reference to the Minister's Approval and Consent Acknowledgment includes a reference to the Third Supplementary Minister's Approval and Consent Acknowledgment; (d) insert the words "SDC and SBI" after "SOC" in line 1 of clause 17.3; and -30- (e) delete the words "as set out in clause 9" from line 3 of clause 18. EXECUTED AS A DEED. THE COMMON SEAL of ) NEW SOUTH WALES CASINO ) CONTROL AUTHORITY was hereunto ) affixed in the presence of the Chief ) Executive: ) ________________________________ ______________________________ (Signature of Witness) (Signature of Chief Executive) ________________________________ ______________________________ (Name of Witness) (Name of Chief Executive) SIGNED SEALED AND DELIVERED ) for and on behalf of ) _________________________ SYDNEY HARBOUR CASINO PTY. ) (Signature) LIMITED, ACN 060 510 410 BY ) ) its Attorney under a Power of ) Attorney dated and who ) declares that he has not received ) any notice of the revocation of such ) Power of Attorney in the presence of:) __________________________________ (Signature of Witness) __________________________________ (Name of Witness in Full) -31- SIGNED SEALED AND DELIVERED ) for and on behalf of ) _________________________ SYDNEY HARBOUR CASINO ) (Signature) PROPERTIES PTY. LIMITED, ACN 050 ) 045 120 by its) Attorney under a Power of Attorney ) dated) and who declares) that he has not received any notice ) of the revocation of power of ) Attorney in the presence of: ) __________________________________ (Signature of Witness) __________________________________ (Name of Witness in Full) SIGNED SEALED AND DELIVERED ) for and on behalf of ) _________________________ SYDNEY HARBOUR CASINO ) (Signature) HOLDINGS LIMITED, ACN 064 054 431 ) by its Attorney under a) Power of Attorney dated ) and who declares that he has not ) received any notice of the ) revocation of such Power of ) Attorney in the presence of: ) ) __________________________________ (Signature of Witness) __________________________________ (Name of Witness in Full) -32- SIGNED SEALED AND DELIVERED ) for and on behalf of ) _________________________ SHOWBOAT AUSTRALIA PTY. ) (Signature) LIMITED, ACN 061 299 625 by Harold ) Gregory Nasky its Attorney under a ) Power of Attorney dated ) and who declares that he has not ) received any notice of the ) revocation of such Power of ) Attorney in the presence of: ) ) _________________________ (Signature of Witness) __________________________________ (Name of Witness in Full) SIGNED SEALED AND DELIVERED ) for and on behalf of ) _________________________ LEIGHTON PROPERTIES PTY. ) (Signature) LIMITED, ACN 001 046 395 by ) its Attorney under a Power of ) Attorney dated ) and who declares that he has not ) received any notice of the revocation) of such Power of Attorney in the ) presence of: ) ) ____________________________ (Signature of Witness) __________________________________ (Name of Witness in Full) -33- SIGNED SEALED AND DELIVERED ) for and on behalf of ) _________________________ LEIGHTON CONTRACTORS PTY. ) (Signature) LIMITED, ACN 008 893 667 by ) its Attorney under a Power ) of Attorney dated ) and who declares that he has not ) received any notice of the revocation) of such Power of Attorney in the ) presence of: ) ) __________________________________ (Signature of Witness) __________________________________ (Name of Witness in Full) SIGNED SEALED AND DELIVERED ) for and on behalf of ) ________________________ LEIGHTON HOLDINGS LIMITED, ) (Signature) ACN 004 482 982 by ) its Attorney under a Power of ) Attorney and who declares that he has) not received any notice of the ) revocation of such Power of Attorney ) in the presence of: ) ) __________________________________ (Signature of Witness) __________________________________ (Name of Witness in Full) -34- SIGNED SEALED AND DELIVERED ) for and on behalf of ) _________________________ SYDNEY CASINO MANAGEMENT PTY. ) (Signature) LIMITED, ACN 060 462 053 by ) its Attorney under a Power ) of Attorney dated ) and who declares that he has not ) received any notice of the revocation) of such Power of Attorney in the ) presence of: ) ) __________________________________ (Signature of Witness) __________________________________ (Name of Witness in Full) SIGNED SEALED AND DELIVERED ) for and on behalf of ) _________________________ SHOWBOAT OPERATING COMPANY ) (Signature) by its Attorney ) under a Power of Attorney ) dated and who declares ) that he has not received any notice ) of the revocation of such Power of ) Attorney in the presence of: ) ) __________________________________ (Signature of Witness) __________________________________ (Name of Witness in Full) -35- SIGNED SEALED AND DELIVERED ) for and on behalf of ) ________________________ SHOWBOAT DEVELOPMENT ) (Signature) CORPORATION by its ) Attorney under a Power of Attorney ) dated and who declares ) that he has not received any notice ) of the revocation of such Power of ) Attorney in the presence of: ) ) __________________________________ (Signature of Witness) __________________________________ (Name of Witness in Full) SIGNED SEALED AND DELIVERED ) for and on behalf of ) _________________________ SHOWBOAT INC by its ) (Signature) Attorney under a Power of Attorney ) dated and who declares ) that he has not received any notice ) of the revocation of such Power of ) Attorney in the presence of: ) ) __________________________________ (Signature of Witness) __________________________________ (Name of Witness in Full) LIST OF EXHIBITS EXHIBIT 1 Third Supplementary Minister's Approval and Consent Acknowledgment EXHIBIT 2 Third Supplementary Legal Opinion SIGNED SEALED AND DELIVERED ) for and on behalf of ) _________________________ NATIONAL MUTUAL TRUSTEES ) (Signature) LIMITED, ACN 004 029 841, by ) its Attorney under a Power) of Attorney dated and who) declares that he has not received ) any notice of the revocation of such ) Power of Attorney in the presence of:) ) __________________________________ (Signature of Witness) __________________________________ (Name of Witness in Full) SHC EXHIBIT 1 TO THIRD AMENDING DEED (Third Supplementary Minister's Approval and Consent Acknowledgment) - Sydney Casino Project - Third Supplementary Minister's Approval and Consent Acknowledgment DATE: 1994 THE HONOURABLE ANNE MARGARET COHEN MP ("Minister") CLAYTON UTZ Solicitors and Attorneys Levels 27-35 No. 1 O'Connell Street SYDNEY NSW 2000 Tel: (02) 353 4000 Fax: (02) 251 7832 Copyright Reserved CONFIDENTIAL THIRD SUPPLEMENTARY MINISTER'S APPROVAL AND CONSENT ACKNOWLEDGMENT BY THE HONOURABLE ANNE MARGARET COHEN MP Chief Secretary and the Minister of the Crown for the time being administering the Casino Control Act 1992 (NSW) ("Act") PURSUANT TO SECTION 142 OF THE ACT 1 HEREBY: 1. acknowledge having granted approval to the Authority for and on behalf of the State, to conduct negotiations and to enter into the agreement referred to in Schedule 1; 2. acknowledge that the agreement referred to in Schedule 1 are for or in connection with the establishment and operation of a casino and any development of which a casino or proposed casino forms part; 3. approve to the terms of the agreement referred to in Schedule 1; and 4. consent to the assignment of rights and obligations under or in respect of the agreement referred to in Schedule 1 and to the encumbering of the rights under or in respect of the agreement referred to in Schedule 1 as specified in the Item referable to the agreement and on condition that each such assignment and encumbrance (and any later sale of such rights) is given or occurs in accordance with the provisions of the agreement as specified. For the avoidance of doubt the terms of the agreement referred to in clauses 1 to 4 inclusive are those contained in the document marked for identification with the official stamp of the Chief Secretary's Department and held and available during business hours for inspection at the Department by any party to them. In giving these approvals I note that the Authority must, under section 12 of the Casino Control Act, satisfy itself as to the suitability of any applicant to which a licence is ultimately granted under section 18 of the Act. This Acknowledgment shall not be taken as, nor is capable of, being an approval, consent or acknowledgment in respect of any agreement to which the Authority is not a party whether or not such agreement forms an annexure, exhibit or schedule to the agreement referred to in Schedule 1. This acknowledgment is given solely for the purposes of section 142 of the Act and accordingly, any person entering into or relying upon the agreement referred to in Schedule 1 does so based solely upon the person's own commercial judgment of, and professional advises in respect of, the terms of such agreement and the matters, express or implied, contemplated by such agreement. -2- Terms used but not defined in this Acknowledgment have the same meaning as in the Act. SIGNED by THE HONOURABLE ANNE MARGARET COHEN MP on [ ] 1994 __________________________________ The Honourable Anne Margaret Cohen MP __________________________________ Witnessed by: R D McGregor J.P. -3- SCHEDULE 1 Parties and Agreement SHC Third Amending Deed made or to be made between the Authority, Sydney Harbour Casino Pty. Limited, Sydney Harbour Casino Properties Pty. Limited, Sydney Harbour Casino Holdings Limited, Showboat Australia Pty. Limited, Leighton Properties Pty. Limited, Leighton Contractors Pty. Limited, Leighton Holdings Limited, Sydney Casino Management Pty. Limited, Showboat Operating Company, Showboat Development Corporation, Showboat Inc. and National Mutual Trustees Limited. Assignment and Encumbering and Conditions Relating to the Same Clause 12 **: Miscellaneous SHC EXHIBIT 2 TO THIRD AMENDING DEED (Third Supplementary Legal Opinion) - Sydney Casino Project - THIRD SUPPLEMENTARY LEGAL OPINION [LETTERHEAD OF US LAWYERS] [ ] 1994 New South Wales Casino Control Authority and the State of New South Wales Level 17 309 Kent Street Sydney, New South Wales 2000 Australia SYDNEY CASINO PROJECT: SHOWBOAT, INC., SHOWBOAT DEVELOPMENT COMPANY AND SHOWBOAT OPERATING COMPANY We have acted as counsel to Showboat, Inc., a Nevada Corporation ("SBO"), Showboat Development Company, a Nevada Corporation ("SDC"), and Showboat Operating Company, a Nevada Corporation ("SOC"), in connection with the SHC Third Amending Deed executed by SBO, SOC, SDC, the New South Wales Casino Control Authority (on behalf of the State of New South Wales) ("AUTHORITY"), Sydney Harbour Casino Pty. Limited ("SHC"), Sydney Harbour Casino Properties Pty. Limited ("SHC PROPERTIES"), Sydney Harbour Casino Holdings Limited ("SHC HOLDINGS"), Showboat Australia Pty. Limited ("SBA"), Leighton Properties Pty. Limited ("LPPL"), Leighton Contractors Pty. Limited ("LCPL"), Leighton Holdings Limited ("LHL"), Sydney Casino Management Pty. Limited ("SCM") and National Mutual Trustees Limited ("TRUSTEE"), dated [ ] 1994 (Sydney time). This Opinion is being issued and delivered to the Authority pursuant to paragraph 3(d) of the SHC Third Amending Deed. SBO, SOC and SDC shall be collectively referred to herein as the "Companies". The SHC Third Amending Deed shall be referred to as the "Relevant Document". Capitalised terms are used herein as defined in the SHC Third Amending Deed unless otherwise defined. As counsel to the Companies, we have examine originals, if available, or copies of the following documents and instruments: (a) Draft Third Amending Deed dated as of [ ] 1994 and marked SHC: THIRD AD (FINAL [ ] ("DRAFT THIRD AMENDING DEED"); (b) Powers of Attorney made by SBO, SOC and SDC each dated [ ] 1994 ("POWERS OF ATTORNEY"). The Draft Third Amending Deed, shall be referred to as the "DRAFT RELEVANT DOCUMENT". We have examined originals, where available, or copies of: (a) Resolutions certified by the Secretary of SBO, SOC and SDC dated as of [ ] 1994; -2- and (b) Certificates of the Secretary of State of Nevada, dated as of [ ] 1994, attesting to the good standing in Nevada of SBO, SOC and SDC. We have conducted such other reviews as are necessary to give the opinions hereinafter stated. In rendering the opinions expressed herein we have assumed the Relevant Document will not reflect any substantial change from the Draft Relevant Document which, if considered by us, would affect our opinions expressed herein. We have also assumed that the Relevant Document will be executed by SBO, SOC and SDC pursuant to the Powers of Attorney. In our examinations we have assumed the due completion of each document (where blanks appear), and the due execution and due delivery of each document by each party as of the date hereof; the genuineness of all signatures other than the signatures of SBO, SOC and SDC; and the legal capacity of natural persons who signed or who will sign the documents. We further assume that the Relevant Document accurately describes and contains your understanding of the matters described therein and that there are no oral or written statements or agreements by you, that modify, amend, or vary, or purport to modify, amend or vary any of the terms of the Relevant Document. In our examination we have also assumed the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic documents. We further assume the absence of fraud or duress in the inducement or effectuation of the subject transactions and affirm that we have no actual knowledge that would lead us to believe that there exists any such fraud or duress. We are admitted to the Bar of the State of Nevada, and in rendering our opinions hereinafter stated, we have relied on the applicable laws of the State of Nevada as these laws presently exist and as they have been applied and interpreted by courts having jurisdiction with the State of Nevada. We express no opinion as to the laws of any other jurisdiction other than laws of the United States of America. Based upon the foregoing and in reliance thereon and subject to the assumptions, exceptions, qualifications and limitations set forth herein, we are of the opinion that: 1. (a) SBO is a corporation duly organised, validly existing and in good standing under the laws of the State of Nevada; (b) SOC is a corporation duly organised, validly existing, and in good standing under the laws of the State of Nevada; (c) SDC is a corporation duly organised, validly existing and in good standing under the laws of the State of Nevada; (d) Each of the Companies is: (i) in good standing and has all requisite power and authority to own and operate and deal with its properties and assets and to manage -3- and to carry on its business as presently conducted; and (ii) duly qualified or registered to do business in every jurisdiction where a failure to be so qualified or registered would have a material adverse effect on the condition (financial or otherwise), operations or income of the Companies and is in good standing in each such jurisdiction in which the Companies are qualified or registered to do business. 2. The Relevant Document has been duly authorised, executed and delivered to you by the Companies. The Relevant Document constitutes legal, valid and binding obligations of the Companies, enforceable against the Companies in accordance with its terms. The Powers of Attorney are valid and binding appointments made by SBO, SOC and SDC respectively, which authorise the execution and delivery of the Relevant Document on behalf of the Companies by any of the attorneys named therein. 3. The execution and delivery of the Relevant Document, the performance and observance by the Companies of their respective obligations thereunder, and the consummation of the transactions contemplated thereby (including the grant of security interests and liens thereunder) are within the cooperate authority of the Companies and have been duly authorised by all necessary corporate proceedings and actions on the part of the Companies. 4. The execution and delivery of the Relevant Document by the Companies does not, and the performance and observance by the Companies of their respective obligations thereunder, the transactions contemplated thereunder, and the provisions thereof, do not and will not contravene, conflict with, or result in a breach, default or violation of: (a) any provisions of the Companies' respective Articles of Incorporation, their respective Bylaws or any other constituent document of the respective Companies; (b) any provision of the laws, statutes, rules or regulations of the State of Nevada or of the Federal law or regulations of the United States; or (c) any decree, judgment, order, regulation or rule of any federal, state or municipal court, board or government or administrative authority or any agreement, instrument or arrangement binding on any of the Companies or any of their assets or properties or to which any of the Companies is a party, including the Relevant Document, nor will the same result in the creation of any security interest or mortgage under any such agreement, arrangement or instrument rather than as may be expressly set out in the Relevant Document. -4- 5. No approval or consent or other action by, and no filling with, any person, or state municipal or federal agency, board, authority or other government or administrative unit is required under any law, statute, rule or regulation as a condition to he validity, effectiveness or, enforceability of, or performance by the Companies of their respective obligations under, the Relevant Document or consummation of the transactions contemplated by the Relevant Document. 6. There are no actions, proceedings, enquiries, investigations or litigation of any nature pending, or, to our knowledge, threatened at law or in equity by or before any court, or government or administrative instrumentality, board or agency having jurisdiction over any of the Companies which has or may materially adversely affect the condition (financial or otherwise), operation or income of any of the Companies or which has or may affect or place in question the authority of any of the Companies to enter into or perform their respective obligations under, or the validity or enforceability of, the Relevant Document or the consummation of the transactions contemplated by the Relevant Document. 7. Although we are not in a position to give an unqualified opinion in this regard, we are of the opinion that there is a reasonable basis on which to conclude that the courts of the State of Nevada should give effect to the agreement of the parties set forth in the Relevant Document which will be governed by the laws of the State of New South Wales. This opinion is based, in part, upon the assumption, that the parties acted in good faith and not for the purpose of evading the law of the real situs of the contract and that the situs chosen by the parties has a substantial relationship to the transaction. SEE, ENGEL V. ERNST, 102 NEV. 390, 724 P.2D 215 (1986), CONSTANZO V. MARINE REALTY, 101 NEV. 277, 701 P.2D 747 (1985), AND SIEVERS V. DIVERSIFIED MORTGAGE INVESTORS, 95 NEV. 811, 603 P.2D 270 (1970). 8. The submission of the Companies to the jurisdiction of the Courts of New South Wales and the appointment of SBA as agent for service of process for any action or proceedings commenced in New South Wales is valid and binding on each of the Companies. 9. Any final and conclusive judgment obtained in the courts of New South Wales or Australia will be recognised and enforced by the courts of Nevada and the Federal Courts of the United States without a further review of the merits. 10. Claims under the Relevant Document against any of the Companies will rank at least pari passu with the claims of all other unsecured creditors of the Companies respectively, other than those claims which are preferred by law generally. 11. In any proceedings taken in the State of Nevada and in any Federal Court of the United States, none of the Companies will be entitled to claim for itself or any of its assets immunity from suit, execution, attachment or other legal process. 12. Our opinion in paragraph 2 above as to the enforceability of the documents is subject to: -5- (i) bankruptcy, insolvency, reorganisation, fraudulent transfer, moratorium or other laws of general application relating to or affecting the enforcement of creditors' rights; (ii) general principles of equity regardless of whether such issues are considered in a proceeding in equity or at law which provide, among other things, that the remedies of specific performance and other forms of equitable relief are subject to equitable defences and to the discretion of the court before which any proceeding therefor may be brought; (iii) the fact that a court may view any provision of the Relevant Document as unconscionable or subject to an obligation that the parties to the Relevant Document reasonably or in a commercially reasonably manner; (iv) the fact that certain remedies contained in the Relevant Document may be qualified under the laws of the State of Nevada, none of which qualifications will materially interfere with the practical realisation of the benefits and the security provide thereby. Our opinion in paragraph 8 above as to the valid and binding nature of the submission of the Companies to the jurisdiction of the Courts of New South Wales or Australia is subject to the equitable principle of forum non-conveniens. The second Circuit of the United States Court of Appeals addressed this issue in ALLSTATE LIFE INSURANCE CO. V. LINTER GROUP LIMITED, 994 F.2d 996 (2d Cir. 1993). In LINTER GROUP, the Second Circuit discussed the legal principle of forum non-conveniens in dismissing an action in the State of New York despite a forum selection clause in an indenture selecting the Courts of the State of New York. "Although there is still a strong presumption in favor of a plaintiff's choice of forum, the Supreme Court has recognised that dismissal nevertheless may be appropriate where certain private and public interest factors point towards trial in an alternative forum. GULF OIL CORP. V. GILBERT, 330 US 501, 508-09, 91 L.Ed. 1055, 67 S. Ct. 839 (1947) [remaining citations omitted]. The private and public interest factors recognised by the Court in GILBERT include: (1) the ease of access to sources of proof; (2) the availability of compulsory process for attendance of unwilling witnesses; (3) the cost of obtaining attendance of unwilling witnesses; (4) practical problems involving the efficiency and expense of a trial; (5) enforceability of judgments; -6- (6) administrative difficulties flowing from court congestion; (7) imposing jury duty on citizens of the forum; (8) the local interest in having controversies decided at home; and (9) the avoidance of unnecessary problems in the application of foreign law. GILBERT, supra 330 US at 508-09, LINTER, 994 F.2d at 1001. Therefore the opinion expressed in opinion paragraph 8 assumes that a court will carefully consider the factors listed in GULF OIL CORP. V. GILBERT, 330 U.S. 91 L. Ed. 1055, 67 E. Ct. 839 (1947) in determining the propriety of an alternative forum. Our opinion in paragraph 9 above as to the enforceability of a judgment in the State of Nevada and in a Federal Court of the United States is subject to the constitutional principle of comity. "The U.S. Supreme Court defined comity as 'the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws.' HILTON V. GUYOT, 159 U.S. 113, 164, 40 L.Ed. 95, 16 S. Ct. 139 (1895). As a general rule, comity may be granted where 'it is shown that the foreign court is a court of competent jurisdiction, and that the laws and public policy of the forum state and the rights of its residents will not be violated.' CUNARD S.S. CO. V. SALEN REEFER SERV.AB, 773 F.2d 452, 457 (2 Cir. 1985). Indeed, as long as the foreign court abides by 'fundamental standards of procedural fairness,' granting comity is appropriate. Id." ALLSTATE LIFE INSURANCE C. V. LINTER GROUP LIMITED, 994 F.2d 996. 998 (2d Cir. 1993). We therefore assume in rendering opinion paragraph 9 that the laws of New South Wales or Australia are "procedurally fair." In particular, we assume that (1) the laws of New South Wales and Australia do not favour its citizens over those of other nations, states and provinces; (2) the Companies are provided the opportunity to provide evidence in their defence; (3) the Companies will receive timely notice to permit them sufficient time to defend the action; and (4) the judgment rendered by an Australian or New South Wales court will not be against the public policy of the State of Nevada. We also assume that the courts of Australia and New South Wales recognise and enforce judgments rendered by courts of any state of the United States or federal courts of the United States of America. The foregoing opinions are subject to the following additional qualifications: (a) We express no opinion as to the effectiveness of any provision directly or indirectly requiring that any consent, modification, amendment or waiver be in writing. (b) We express no opinion as to the enforceability of any provision which requires the party to indemnify another party for losses or damages caused by the indemnified -7- party's gross negligence, intentional acts or omissions. Moreover, we advise you that a Court may not enforce an indemnity agreement which shifts the financial responsibility that the contract of indemnity expresses such intention in clear and unequivocal terms. (c) Since the opinions expressed in this letter are based upon the law in effect on the date hereof, we assume no obligation to revise or supplement this opinion letter should such law be changed by legislative action, judicial decision or otherwise. We are qualified to practice and are experts in the laws of the State of Nevada and the Federal law of the United States. We are qualified to give this legal opinion. These opinions are effective as of the date hereof. No extensions of our opinions may be made by implication or otherwise. We expressly consent to and acknowledge your reliance on this opinion in executing the Relevant Document. Our opinions are not to be otherwise quoted in whole or in part without the express, written consent of this firm. Yours sincerely, [US LAWYER] Sydney Harbour Casino Properties Pty Limited and Leighton Properties Pty Limited DEVELOPMENT AGREEMENT Freehill Hollingdale & Page Solicitors MLC Centre Martin Place Sydney NSW 2000 Australia Telephone: (02) 225 5000 Facsimile: (02) 233 6430 Reference: GTB:36B THIS AGREEMENT made on the 22 day of April 1994 between the following parties: 1. SYDNEY HARBOUR CASINO PROPERTIES PTY LIMITED ACN 050 045 120 of Level 3, 472 Pacific Highway, St Leonards, New South Wales (the "Principal"); and 2. LEIGHTON PROPERTIES PTY LIMITED ACN 001 046 395 of Level 3,472 Pacific Highway, St Leonards, NSW, 2065 (the "Developer"). RECITALS: A. The Principal and other members of the SHC Group have entered into the Casino Agreements in respect of the development and operation of the Sydney Casino. The Developer is aware of the terms of the Casino Agreements including the requirements of the Casino Authority and of the business objectives of the Principal in respect of the Project. B. The Developer represents to the Principal that it has the requisite skill, experience and ability to execute the Project and to procure the execution of the residential building work and the specialist work involved in the Project in accordance with the Agreement and so as to ensure that the Project meets the requirements of the Casino Authority and the Principal in respect of the Project and so as to ensure that the Principal complies with its obligations under the Casino Agreements to the extent those obligations relate to the obligations of the Developer under this Agreement, or are to be performed on behalf of the Principal by the Developer pursuant to this Agreement. C. In reliance on the Developer's representations, the Principal wishes to engage the Developer to execute the Project. D. The Developer has agreed to accept such engagement upon the terms of the Agreement. E. The parties acknowledge that the Principal has approved the extent and scope of the Development Proposal and Project Briefs. IT IS HEREBY AGREED as follows: 1. The Principal engages the Developer to execute the Project in accordance with the Agreement. 2. The Developer shall: (a) well and faithfully execute all activities involved in the development, design, construction, Fitout and Commissioning of the Sydney Casino in accordance with the Agreement; and (b) supply and provide at its own expense all things necessary for the proper performance by the Developer of its obligations under the Agreement. 3. The Developer warrants to the Principal that: (a) the design of the Sydney Casino shall be carried out and completed in accordance with the intent and express requirements of the Development Proposal and Project Briefs, 2 as included in Annexure C, the requirements of the Casino Authority, and the terms of this Agreement; (b) the construction of the Sydney Casino shall be in accordance with the design consented to by the Principal pursuant to Clause 7.3, and shall be carried out in a proper and workmanlike manner; (c) all designs, materials, equipment and performance requirements specified or incorporated in the Project whether before or after the date of this Agreement, shall comply with the intent and express requirements of the Development Proposal and Project Briefs as included in Annexure C or, if not stated therein, shall be consistent with the general character and quality of an international class casino complex; (d) the Sydney Casino, at Completion, shall comply with the requirements of the Casino Authority under the Casino Agreements including the Planning Approval (once it has been obtained), the Development Proposal and Project Briefs, all legislation, subordinate legislation, the Building Code of Australia, Authorities, all relevant Australian standards and any standard specified in the Development Proposal and Project Briefs; (e) it shall obtain from manufacturers or suppliers of equipment incorporated in the Sydney Casino appropriate warranties for the nature of the Project, which warranties shall be provided to and in favour of the Principal; (f) the Sydney Casino, when constructed, shall be fit for its intended purpose, as described in or to be inferred from the Development Proposal and Project Briefs; and (g) it has the requisite skill, experience and ability to execute the Project in accordance with this Agreement and so as to ensure the Project meets the requirements of the Casino Authority and the Principal. 4. Each party hereto shall perform, fulfil, observe, comply with and submit to all and singular the provisions, conditions, stipulations and requisitions and all matters and things contained expressed implied or shown in the Agreement and by and on the part of the respective party to be performed, fulfilled, observed, complied with and submitted to. 5. The Annexures listed below form part of this Agreement: (a) Annexure A: Details of Agreement (b) Annexure B: Conditions of Engagement; (c) Annexure C: Development Proposal and Project Briefs, Room Data Sheets, drawings and other relevant documents; (d) Annexure D: Design and Construction Programmes; (e) Annexure E: Form of Security; 3 (f) Annexure F: Not used; (g) Annexure G: Preconstruction Period Drawdown Schedule; (h) Annexure H: Schedule of Monetary Allowances. (i) Annexure I: Proforma Design Consultant's Report. (j) Annexure J: Facility Agreement Insurance Requirements. (k) Annexure K: Progress Payments Control Document (l) Annexure L: Excavation Plan In construing this Agreement, all the Annexures shall be read with this Agreement. In case of inconsistency the following order of precedence shall apply: This Agreement Annexure B Annexure C Annexure A Annexure D Annexure E Annexure K Annexure J Annexure G Annexure H Annexure I Annexure L. 6. This Agreement and clauses 1.1, 2.1, 3.1, 3.2, 4, 5, 6, 7.2(c), (h), (k),(j) and (m), 7.3, 7.4, 8, 9.1, 11.1, 14, 15, 16, 17.1 to 17.3 (in respect only of the amounts in the Preconstruction Drawdown Schedule) 19, 20, 22, 24, 25 and 28.1 of Annexure B commence on the Operative Date. The remainder of the Agreement does not take effect until the Licensing Date. If the Licensing Date has not occurred by 31 December 1994 either party may terminate this Agreement by notice in writing to the other. 7. The Agreement, the Development Agreement Side Deed, the Copyright Assignment Deed and the Project Certifier Deed constitute the entire agreement between the parties in respect of the Project and supersede all prior agreements, correspondence, and other communications concerning the Project. 8. The Agreement shall be governed by and construed with reference to the laws at the time being in force in the State of New South Wales. 4 EXECUTED by the parties as an agreement: SIGNED for and on behalf of SYDNEY HARBOUR CASINO PROPERTIES PTY LIMITED by its attorney in the presence of: /s/ David Fabian /s/ H. Gregory Nasky Witness (print name) Attorney (print name) David Fabian H. Gregory Nasky SIGNED for and on behalf of LEIGHTON PROPERTIES PTY LIMITED by its attorney in the presence of: ; /s/ /s/ Witness (print name) Attorney (print name) 5 ANNEXURE A DETAILS OF AGREEMENT SEPARABLE PORTIONS (CLAUSE 10) SEPARABLE PORTION DATE FOR LIQUIDATED DEFECTS OF THE PROJECT COMPLETION DAMAGES LIABILITY PERIOD (CLAUSE 18.3) 1. TEMPORARY CASINO The devleopment of 9 months 12 months the Temporary Casino after $0/day located at Wharves Licensing 12 and 13, Sydney Date 2. PERMANENT CASINO The development of 38 months 12 months the Permanent Casino after $150,000/day at Pyrmont Licensing and the transfer of Date FF&E from the Temporary Casino 3. PROJECT Maximum Amount $30,000,000 - - CONTRACT LUMP SUM: $691,090,000 (CLAUSE 2) - - SECURITY (CLAUSE 3) $ 20,000,000 (a) Time to provide security: Licensing Date (b) Form of security: Two (2) unconditional bank guarantees in the form set out in Annexure E each for half of the above sum. - - DEVELOPER'S REPRESENTATIVE (CLAUSE 4): MARK C GRAY - - PRINCIPAL'S REPRESENTATIVE (CLAUSE 4): GREGG NASKY - - ADDRESSES FOR NOTICES (CLAUSE 6): (a) Principal - Address: Level 3 472 Pacific Highway - Telephone: 925 6666 - Facsimile: 925 6003 6 (b) Developer - Address: Level 3 472 Pacific Highway St Leonards NSW 2065 - Facsimile: (02) 925 6003 - - Times for early access Temporary Casino: 60 days (Clause 11.4) prior to Date for Completion Permanent Casino: 90 days prior to Date for Completion - - MONETARY ALLOWANCES twenty percent (20%) applied to PERCENTAGE (% PA) TO BE amount in excess of monetary ADDED FOR INDIRECT COSTS allowances shown in Annexure H. (CLAUSE 12): - - PERCENTAGE (% PA) TO BE Increased Work - ADDED FOR INDIRECT COSTS twenty five percent (CLAUSE 16.4): Decreased work - nil percent - - INTERESET (% PA) Authorised Dealers Bank Bill (CLAUSE 17.6): Rate plus three percent (3%) 7 ANNEXURE B CONDITIONS OF ENGAGEMENT TABLE OF CONTENTS 1. Definitions and Interpretation 2. Contract Sum 3. Assignment and Security 4. Representatives 5. Instructions 6. Notices 7. Documentation and Project Control Group 8. Quality and Quality Assurance 9. Design and Construction Programmes 10. Separable Portions of the Project 11. Access to the Site 12. Monetary Allowances 13. Items Supplied by Principal 14. Insurance 15. Time for Completion 16. Variations 17. Payment 18. Completion and Defects Liability Period 19. Termination on Default 20. Dispute Settlement 21. Co-Operation with Others 22. Site Conditions 23. Inspection and Testing 24. Services 25. Confidentiality 26. Design and Construction Contract 27. Waiver 28. Planning Approval 29. Light Rail Warranty Deed 30. Building Services Corporation Act, 1989 31. Developer's Security 32. Reviews 33. Other Consultants 34. Construction Lease 8 PART 1 DEFINITIONS AND INTERPRETATION 1.1 INTERPRETATION In the Agreement, except where the context otherwise requires: "AGENT" means Commonwealth Bank of Australia or such other agent as is engaged by the Principal's financiers in respect of the Project; "ARCHITECTURAL CONSULTANT" means the ARCHITECTURAL CONSULTANT engaged by the Design and Construction Contractor being Philip Cox Richardson Taylor & Partners Pty Limited (ACN 002 535 891) and The Hillier Group (or any appropriate joint venture entity formed by them), or such other consultant as is agreed to by the Principal, the Developer and the Principal's financiers; "AUTHORISED DEALERS BANK BILL RATE" means in relation to any period, the average (expressed as a percentage yield to maturity per annum rounded upwards, if necessary, to the nearest 0.01%) bid rate for bills which have a term to maturity equal to that period which average rate is displayed on the page of the Reuters Monitor System designated "BBSY" at or about 10.00 am (Sydney time) on the first day of the period for the purchase of bills bearing the acceptance of a trading bank (as defined in the Banking Act 1959 (Cwth)) but if that day is not a business day then on the business day which immediately precedes that day. "AUTHORITIES " means all Commonwealth, State, Territorial and local government departments, bodies, instrumentalities and other public authorities having jurisdiction over the Project; "AUTHORITIES PLANNING REQUIREMENTS" means the planning requirements of the Authorities which have been incorporated in Annexure C or specified in the Casino Agreements; "BUSINESS DAY" means a day (other than a Saturday or Sunday or public holiday ) on which banks are open generally for business in Sydney; "CASINO AGREEMENTS" means: (a) the Temporary Site Construction Sub-Lease for the Temporary Casino between the Casino Authority and the Principal ("the Construction Sub Lease " ); (b) the Permanent Site Lease (Construction Lease) for the Permanent Casino between the Casino Authority and the Principal ("the Construction Lease " ); (c) the Casino Duty and Community Benefit Levy Agreement between the Treasurer of the State of New South Wales and Sydney Harbour Casino Pty Limited; (d) Deed of Covenant between inter alia the Casino Authority, City West Development Corporation and the Principal; and (e) Head Lease Temporary Casino between City West Development Corporation and the Casino Authority; 9 "CASINO AUTHORITY" means the New South Wales Casino Control Authority or such other body or person authorised by the Government of the State of New South Wales to have jurisdiction over the Project or who is authorised to issue a casino licence for the Sydney Casino; "CASINO CONTROL ACT" means the Casino Control Act 1992 (NSW); "CERTIFICATE OF FINAL COMPLETION" means the certificate issued by the Principal to the Developer in accordance with clause 18.5; "COMMISSIONING" means the checking, testing and acceptance of the operational readiness of, and of the procedures for, the various components of the Project relating to building services by the Principal but excluding the Operator's Commissioning; "COMPLETION" means the completion of the design, construction, Fit-Out and Commissioning of the Project to a state of operational readiness which complies with the Completion Standards, including the provision to the Principal of all warranties, all necessary interim operation and maintenance manuals and necessary interim drawings; "COMPLETION ACTION PLAN" means the plan referred to in clause 18.1(a) identifying the steps to be performed to achieve Completion in accordance with this Agreement; "COMPLETION STANDARDS" means: (a) for construction of the Project or a Separable Portion when: (1) the Project or Separable Portion is complete except for minor omissions and minor defects the immediate making good of which by the Developer is not practical: (A) which do not prevent the Project or Separable Portion from being reasonably capable of being used for its intended purposes; and (B) rectification of which will not significantly prejudice the convenient use of the Project or Separable Portion by members of the public taking into account the intended use of the items concerned and their location; and (C) which do not cause any legal impediment to the use and/or occupation of the Project or a Separable Portion; and (2) those tests which are required by the provisions of any statute or required to be carried out by any competent authority or the Agreement to be carried out and passed before Completion have been carried out and passed and evidence to the reasonable satisfaction of the Principal is given to the Principal; (3) the documents listed in the Development Proposal and Project Briefs and any other documents and other information which are required by this Agreement for Completion have been supplied to the Principal; 10 (4) an identification survey by a registered surveyor has been provided to the Principal; (5) a certificate of classification under the Local Government Act 1993 (NSW) is issued; (6) the Developer has provided to the Principal statements signed by the Company Secretary of each of the Developer and the Design and Construction Contractor certifying that all claims due and payable to subcontractors and suppliers in respect of payments included in all Progress Claims paid to the Developer, and all wages due and owing to employees of the Contractor have been paid; (7) all requirements under the Casino Agreements, this Agreement and the Casino Control Act relevant to the design and construction of the Project or a Separable Portion have been complied with; (8) for Commissioning, when all the procedures functions and processes for operation of the various components of the Project or a Separable Portion (including all staff facilities and equipment) relating to building services are in place have passed all tests and are immediately and reliably available to the Principal with the exception only of minor omissions and maintenance items; and (9) for Fit-Out, when all of the Fit-Out is installed in place and operational with the exception only of minor omissions and maintenance items; "CONTAMINANTS" has the same meaning as in the Construction Lease; "CONTRACT SUM" means the sum stated in Annexure A hereof or such other sum as shall be determined from time to time in accordance with the Agreement; "COPYRIGHT ASSIGNMENT DEED" means the copyright assignment deed entered into on or about the date of this Agreement by the Casino Authority, the Principal, the Developer, the Design and Construction Contractor and the Architectural Consultant; "DATE FOR COMPLETIONS" means the dates as calculated in Annexure A, being the date on or before which the Developer is to bring each Separable Portion of the Project to Completion, as adjusted in accordance with Clause 15 hereof; "DATE OF COMPLETION" means the dates when each Separable Portion of the Project reaches the stage of Completion; "DAY" means calendar day; "DESIGN AND CONSTRUCTION CONTRACT" means the contract entered into on or about the date of this Agreement between the Developer and the Design and Construction Contractor; "DESIGN AND CONSTRUCTION CONTRACTOR" shall mean Leighton Contractors Pty Limited or any replacement; 11 "DESIGN CONSULTANTS" means the design, structural, services and other consultants engaged by the Developer or the Design and Construction Contractor for the Project including the Architectural Consultant; "DESIGN DOCUMENTS" means all drawings, specifications and design documents developed by the Developer pursuant to the terms of this Agreement; "DESIGN AND CONSTRUCTION PROGRAMMES" means the programme for the design, documentation, construction, fitout, commissioning and completion of the Temporary Casino and the Permanent Casino (as the case may be) set out in Annexure D as amended from time to time with the prior written approval of the Principal. "DETERMINATION DATE" means the earlier of: (a) the date of the Review under clause 32 at which it is agreed by the parties and the Agent that the Developer's Security and Fortnightly Progress Claims are no longer required; and (b) the date of payment of the payment certificate issued in respect of the Final Statement under clause 17.5 "DEVELOPER'S SECURITY" means the security to be provided by the Principal under clause 31; "DEVELOPMENT AGREEMENT SIDE DEED" means the side deed entered into on or about the date of this Agreement between the Casino Authority, the Principal, the Agent, the Developer and the Design and Construction Contractor; "DEVELOPMENT PROPOSAL AND PROJECT BRIEFS" means the proposals of the Principal, in relation to the construction, development and establishment of the Project described in the documents listed in Annexure C; "DRAWINGS" means the plans, designs and working drawings relating to the Project provided by the Principal to the Casino Authority and described in Annexure C; "FACILITY AGREEMENT" means the Sydney Harbour Casino Facility Agreement between the Principal, the Agent and other parties identified therein; "FINANCIAL DEFAULT" means a default of the type referred to in clause 19.3(b ); "FIT-OUT" means the installation of gaming equipment, furniture, fittings, furnishings and such other built-in and loose items required to bring the Project to a stage to enable Commissioning to take place but excluding fitout to be performed by the Operator or Tenants; "FORCE MAJEURE" shall mean: (a) any explosion, earthquake, natural disaster, sabotage, act of a public enemy, war ( declared or undeclared ) or revolution; (b) action or inaction by a court, government or Authorities, including denial, refusal or failure to grant any permit, authorization, licence, approval or acknowledgement and changes in law but, subject to clause 15.7(b ), excluding any delay in the granting of a building approval; 12 (c) fire or flood; (d) lightning, major storm or hurricane; (e) strikes, lockouts, industrial disputes, labour disputes, work bans, blockages, picketing action, secondary boycotts or any other industrial action or lack of action (provided that they do not relate specifically to the Project, the Site, the Developer or the Design and Construction Contractor except if they are due to: (1) attempts by industrial unions to have the Principal, the Developer or the Design and Construction Contractor act contrary to the New South Wales Government Code of Practice for Construction; or (2) industrial disputation arising from a breach by industrial unions of an enterprise agreement relating to the Site or the Project, provided such enterprise agreement complies with the New South Wales Government Code of Practice for Construction); (f) riot, civil commotion or blockade; or (g) a suspension by the Developer under clause 19.3, which causes or results in delay in the Completion of the Project but does not include events to the extent to which they are caused or contributed to by the Developer or those for whom it is responsible; "FORTNIGHTLY PROGRESS CLAIMS" means progress claims for payment by the Principal which are made by the Developer in accordance with clause 17.3(g ); "INDIRECT COSTS" means all preliminaries, administration costs, site overheads, head and branch office overheads, and profit; "INSTRUCTION" means and includes any agreement, approval, authorisation, certificate, decision, demand, determination, direction, explanation, notice, order, permission, rejection, request or requirement given or issued in writing by the Principal; "LICENSED CONTRACTOR" means a person authorised to contract to do residential building work or specialist work under the Building Services Corporation Act, 1989; "LICENSING DATE" means the date on which the Casino Authority grants Sydney Harbour Casino Pty Limited a casino licence pursuant to section 18(1) of the Casino Control Act; "MONETARY ALLOWANCE" means a rate, quantity or sum or a combination thereof which has been used in evaluating the Contract Sum and is scheduled in Annexure H. in respect of work or an item of work which may be performed or supplied, at the direction or approval of the Principal, either by the Developer or the Design and Construction Contractor, or by a subcontractor or supplier to the Design and Construction Contractor; "OPENING OF THE TEMPORARY CASINO" means the date of commencement of commercial operations to the public of the Temporary Casino; 13 "OPERATIVE DATE" means the date upon which the Casino Authority announces that Sydney Harbour Casino Pty Limited is the preferred applicant; "OPERATOR'S COMMISSIONING" means the checking, testing and acceptance of the operational readiness of and procedures for the gaming equipment, surveillance and other components of the Project which are the responsibility of the Operator; "OPERATOR" means Sydney Casino Management Company Pty Limited, ACN 060 462 053 or any replacement operator; "PERMANENT CASINO" means the permanent casino complex to be developed at Pyrmont, Sydney as identified in the Development Proposal and Project Briefs . "PLANNING APPROVAL" means the planning approval to be obtained from the Minister for Planning in respect of each of the Temporary Casino and the Permanent Casino; "PRECONSTRUCTION PERIOD" means the period between the Operative Date and the Licensing Date. "PRINCIPAL'S DELAY DAMAGES" means the sum of: (a) amounts payable by the Principal under clause 7 of the Casino Duty and Community Benefit Levy Agreement; (b) additional pre-opening costs incurred by the Principal; and (c) the sum of the following incurred by the Principal under the Facility Agreement (terms used in this sub-clause have the same meaning as in the Facility Agreement): (1) the interest or discounts applying to all Segments outstanding under the Construction Facility at the Bank Bill Rate (adjusted as necessary for clause 14.2(bb) of the Facility Agreement) plus the Margin; and (2) the interest applying to the overdraft accommodation under the Working Capital Facility calculated at the Overdraft Rate; and (3) a pro-rated proportion of any amounts payable under clauses 7.9 and 20 of the Facility Agreement, LESS (d) average net operating profits after tax since the opening of the Temporary Casino except to the extent that such profit has been committed by the Principal prior to being advised in writing by the Developer of the likely extent of the anticipated delay; "PROGRAMMING CONSULTANT" means the external programming consultant appointed pursuant to clause 7.5; "PROGRESS CERTIFICATE" has the same meaning as payment certificate; "PROGRESS PAYMENTS CONTROL DOCUMENT" means a trade based breakup of the Contract Sum prepared by the Design and Construction Contractor and agreed to by the Quantity Surveyor which is set out in Annexure "K"; 14 "PROJECT" means the whole of the development of the Sydney Casino project including planning, design, construction and commissioning in accordance with the Agreement as described generally in the Development Proposal and Project Briefs and includes variations provided for in the Agreement; "PROJECT CERTIFIER DEED" means the project certifier's deed entered into on or about the date of this deed between, inter alia, the Principal, the Developer and the Quantity Surveyor; "PROJECT CONTROL GROUP" means a group of persons comprising representatives of the Principal, the Developer, the Agent and others invited from time to time by the Developer or the Principal; "QUANTITY SURVEYOR" means the Quantity Surveyor appointed pursuant to clause 17.2; "RESIDENTIAL BUILDING WORK" has the same meaning as that expression has in the Building Services Corporation Act, 1989; "SEPARABLE PORTION" means a portion of the Project specified in Annexure A or agreed to by the Principal and Developer pursuant to clause 10.1; "SHC GROUP" means Sydney Harbour Casino Pty Limited, Sydney Harbour Casino Holdings Limited and the Principal; "SITE" means: (a) in respect of the Temporary Casino, the land to be made available to the Principal pursuant to the Temporary Site Sub-Lease (Construction Sub-Lease) entered into on or about the date of this Agreement; and (b) in respect of the Permanent Casino, the land to be made available to the Principal pursuant to the Permanent Site Lease (Construction Lease) entered into on or about the date of this Agreement; together with any other lands and other places made available by the Principal to the Developer for the purpose of the Agreement; "SPECIALIST WORK" has the same meaning as that expression has in the Building Services Corporation Act, 1989; "SYDNEY CASINO" means the casino, hotel, serviced apartments and related structures initially as the Temporary Casino at a temporary location at Wharves 12 and 13 and subsequently as the Permanent Casino, once completed, at Pyrmont Bay, Sydney; "TEMPORARY CASINO" means the temporary casino complex to be developed at Wharves 12 and 13, Sydney as identified in the Development Proposal and Project Briefs; "TENANT" means a person or entity who proposes to occupy part or all of the Sydney Casino; "VARIATION" means a change to the Development Proposal and Project Briefs as may be authorised by the Principal under Clause 16 or required as a result of a change in a law or a requirement of an Authority including any of the following: (a) increases, decreases or omissions from any part of the Project; 15 (b) changes in the character or quality of any material or work; (c) changes in the levels, lines, positions or dimensions of any part of the Project; (d) execution of additional work; (e) changes to the Project not consistent with the Development Proposal and Project Briefs including any requirements of the Planning Approval inconsistent with the Development Proposal and Project Briefs. PART 2 CONTRACT SUM 2.1 CONTRACT SUM (a) The Principal shall pay the Developer the Contract Sum in accordance with the terms of the Agreement. (b) The Contract Sum is the Lump Sum stated in Annexure A for all work carried out under this Agreement. (c) The Contract Sum is not subject to adjustment or cost escalation except as otherwise expressly provided for in the Agreement. (d) The Contract Sum (subject to any adjustment in accordance with Parts 12, 15, 16, 21, 22 and 23 of this Agreement) is fixed. PART 3 ASSIGNMENT AND SECURITY 3.1 ASSIGNMENT Neither party may assign the Agreement or any part thereof without the prior written approval of the other party, which approval shall not be unreasonably withheld. The Developer consents to the Principal mortgaging and assigning its interest in this Agreement to the Agent. If this Agreement is validly terminated by the Principal, the Developer must, if requested by the Principal in writing, use its best endeavours to procure the Design and Construction Contractor to agree to an assignment of the Developer's interest in the Design and Construction Contract to the Principal or its nominee. If the Design and Construction Contractor will not agree to such assignment the Developer will, if requested by the Principal in writing, procure the Design and Construction Contractor to assign to the Principal or its nominee, its interest in any subcontracts, supply or consultancy agreements it has entered in respect of the Project. 3.2 DESIGN AND CONSTRUCTION CONTRACT The entry by the Developer into the Design and Construction Contract shall not relieve the Developer from any liability or obligation under this Agreement. The Developer shall be liable to the Principal for the acts and omissions of the Design and Construction Contractor as if they were acts or omissions of the Developer. 16 3.3 SECURITY The Developer shall procure that there be provided, or provide, to the Principal two unconditional undertakings from a bank acceptable to the Principal, within the time, in the form and in the amount stated in Annexure A. The security is for the due and proper performance by the Developer of its obligations under the Agreement. The Principal shall not convert the security or any part thereof into money unless the Principal is reasonably satisfied on reasonable grounds that there are moneys due and owing by the Developer to the Principal which are not paid in accordance with this Agreement or the Developer is otherwise in breach of this Agreement in which case its right to convert the security shall be limited to the amount it is entitled to under this Agreement. The Developer will not convert any security held by it under the Design and Construction Contract without the prior written approval of the Principal. Half of the security must be released to the Developer on the Date of Completion of the last Separable Portion to be completed and the other half must be released to the Developer on the date of the issue of the Certificate of Final Completion. The parties acknowledge that Leighton Holdings Limited has provided a guarantee to the Principal and certain other parties in respect of the Developer's obligations under this Agreement. PART 4 REPRESENTATIVES 4.1 DEVELOPER'S REPRESENTATIVE The Developer shall appoint and at all times have a representative to exercise its powers, duties, discretions and authorities under the Agreement. The Developer's representative shall be the person stated in Annexure A. The Developer's representative shall not be changed without the Principal's approval. 4.2 PRINCIPAL'S REPRESENTATIVE The Principal shall appoint and at all times have a representative to exercise its powers, duties, discretions and authorities under the Agreement. The Principal's representative shall be the person stated in Annexure A or such other person as may be advised in writing. The Principal shall not communicate directly with the Design and Construction Contractor, subcontractors, consultants or suppliers engaged by the Developer or the Design and Construction Contractor in regard to any matter for which the Developer is responsible under this Agreement, without prior advice to the Developer. 17 PART 5 INSTRUCTIONS 5.1 INSTRUCTIONS The Principal may give or issue instructions to the Developer regarding the Project and the Developer shall be obliged to comply with all such instructions provided that such instructions are within the scope of the Agreement. PART 6 NOTICES 6.1 SERVICE All correspondence (including notices) shall be deemed to have been served: (a) if delivered personally, upon delivery to the recipient; (b) if sent by facsimile machine, upon successful transmission to the Developer or the Principal; (c) if sent by post, upon the expiration of three (3) days following the date of posting. 6.2 DELIVERY All correspondence (including notices) shall be hand-delivered or directed to the addresses or facsimile numbers as stated in Annexure A, or as otherwise advised in writing by either party. PART 7 DOCUMENTATION AND PROJECT CONTROL GROUP 7.1 PROJECT CONTROL GROUP During the Project, the Developer shall convene monthly meetings of the Project Control Group. 7.2 REPORTS, ASSESSMENT AND APPROVALS The Developer shall: (a) Attend meetings of the Project Control Group. (b) Report in writing to the Principal in a manner agreed with the Principal. The report shall include sections dealing with: - legal; - finance; - market; - design; - documentation; - consultants; 18 - approvals; - procurement; - construction; - quality assurance; - completion; - programme; - delay (anticipated or forecast); - forward planning; - subcontractors; - site safety; - industrial relations; - pre-opening and commissioning. The report shall also include site photographs detailing the progress of the construction, schedules of variations, schedules of extensions of time and all certificates. (c) Obtain, organise and present to the Principal information including design documents which the Principal or the Project's financiers may require in connection with the the Project. (d) Assess and report in the Project Control Group meetings the progress of the Project, consideration of design alternatives and how the design as developed reflects the design intent described in the Agreement. (e) Assess and report in Project Control Group meetings on any variation, progress of construction and pre-opening activities by the Operator and time for completion. (f) Assess and report in the Project Control Group meetings on all aspects of the project's development programme including any potential delays and appropriate strategies to avoid or minimise them. (g) Provide advice to the Principal as to such other matters as may be required. (h) Provide documents and information to the Casino Authority and comply with all other design and construction obligations of the Principal under the Casino Agreements. (i) Procure each Design Consultant to prepare and provide to the Principal (at no additional cost to the Principal) reports on a monthly basis throughout the execution of the Project. Each report shall report upon such matters as the Principal may reasonably request including the quality of the Project and the compliance and uniformity of the execution of the Project with the Development Proposal and Project Briefs and Design Documents relevant to that Design Consultant's commission. (j) Provide to the Principal such information as it requires for the purposes of the project advisory meetings held pursuant to the Casino Agreements, and, if requested by the Principal, attend such meetings and procure Design Consultants to attend such meetings accompanied by a representative of the Developer and the Design and Construction Contractor. (k) Use its best endeavours to procure a Planning Approval, provided that the failure to obtain such approval where the Developer has 19 used its best endeavours shall not be a breach of this Agreement by the Developer. (l) Obtain any building approvals for the Project from the relevant Authorities and procure all other Authorities approvals required for the execution of the Project other than approvals in respect of which the Project is exempt. (m) Notify the Principal and the Casino Authority of meetings with Design Consultants in relation to the development of Design Documents and allow their representatives to attend such meetings. (n) Procure and provide to the Principal the certificates issued by consultants in the form and at the times contemplated by clause 5.14 of the Construction Lease and the Construction Sub Lease. 7.3 DOCUMENTATION (a) The Developer shall submit all Design Documents to the Principal in a timely manner. The Developer will establish a procedure for continuously communicating and consulting with and will progressively deliver Design Documents to and report to the Principal on design development to allow the Principal to review the design, seek comments from the Operator on relevant design matters, and comment on Design Documents in accordance with the Design and Construction Programmes. For the purposes of this sub-clause Design Documents shall include documents leading to documents for construction. In the course of design development relating to Monetary Allowances the Developer will, in consultation with the Principal, progressively refine and adjust the design so that the cost plan for the Monetary Allowances remains within the total of the Monetary Allowances consistently with the design objectives of the Principal to the extent they can be accommodated, with the objective of establishing Monetary Allowance packages for submission to tenderers in accordance with Part 12. (b) The Principal shall review all Design Documents submitted to it and shall provide the Developer with comments on the documentation or approve it for use as being suitable for the operation and management of the Sydney Casino. (c) The giving of any approval by the Principal shall not relieve or reduce the Developer's responsibility for the execution of the Project in accordance with this Agreement. (d) The Developer must not amend any document approved in accordance with this clause without resubmitting the amended document in accordance with the procedure set out in this clause. (e) The Principal shall provide all comments or approvals within 7 days of a request for approval by the Developer relating to the Temporary Casino and within 16 days of a request for approval by the Developer in relation to the Permanent Casino. If a response is not received by this date, the approval is deemed to have been given. (f) Once the Principal has given, or is deemed to have given, its approval in respect of any part of the Project, any subsequent amendment by the Principal to that approval will deemed to be a Variation. However, if the need for the amendment arose due to a 20 deficiency in the Design Documents prepared by the Developer, the Developer will not be entitled to any extension of time or additional payment in respect of the amendment. (g) The Developer indemnifies the Principal in respect of any infringement of any patent, registered design, copyright or similar protected right by any of the Design Documents. 7.4 PRINCIPAL'S APPROVAL If the Developer is required by this Agreement to submit to the Principal any documents or proposal for approval, subject to the time periods referred to in clause 7.3(e), the Principal shall do all things within its control to provide such approval: (a) in a timely manner; and (b) so as not to prevent the Developer from carrying out its obligations under this Agreement. 7.5 PROGRAMMING CONSULTANT The Developer shall appoint an external programming consultant to report to the Project Control Group on timing and progress of the Works. Prior to appointing the external programming consultant the parties shall agree and prepare a brief of the external programming consultant's scope of works. The role of the external programming consultant shall not impinge on the respective rights and obligations of the parties under the Agreement. 7.6 ARCHITECTURAL CONSULTANT The Developer will ensure the Design and Construction Contractor engages the Architectural Consultant to provide design and other architectural consulting services contemplated by this Agreement. If for any reason the appointment of the Architectural Consultant is terminated representatives of the Principal, the Agent, the Developer and the Design and Construction Contractor will meet to seek to agree on a suitable replacement having regard to the nature of the Project. PART 8 QUALITY AND QUALITY ASSURANCE 8.1 QUALITY ASSURANCE The Developer shall ensure that the Design and Construction Contractor establishes and maintains a quality system which will assure the Principal that the quality of the design, construction and FFE shall comply with this Agreement. The proposed system shall meet the requirements of AS3901. The Design and Construction Contractor shall submit to the Developer the quality plans for review on an on-going basis commensurate with the development of the design in sufficient time to allow the Project to be carried out in an orderly manner. The quality plan shall be reviewed by Technical Resources Pty Limited Quality Systems Group. 21 In addition to the requirements of AS3901 the Developer (or its appointed agent) shall carry out audits to verify the operation and effectiveness of the quality system. The first audit shall take place within four weeks of commencement on Site by the Design and Construction Contractor and shall be followed by regular audits at three monthly intervals unless otherwise required. 8.2 WORKMANSHIP The Developer shall ensure that the Project is executed so that all workmanship and the design shall be of a kind which is both suitable for its purpose and consistent with the nature, character and use of the Sydney Casino as described in Annexure C. PART 9 DESIGN AND CONSTRUCTION PROGRAMMES 9.1 DESIGN AND CONSTRUCTION PROGRAMMES The Design and Construction Programmes included in Annexure D show the times within which it is proposed that the various parts of the Project including all relevant design activities (including the submission of documents for approval) and on-site and off-site construction activities are to be executed. Where possible they will also show the times for supply of items by the Principal pursuant to clause 13.1. The Developer shall regularly monitor the Design and Construction Programmes. These documents shall be revised, if necessary, at monthly intervals, or at such shorter intervals as may be appropriate having regard to the Developers' progress and performance as compared to its then current programme. The Developer shall provide the Principal with copies of such updated programmes. Within 6 weeks of the Operative Date the Developer will submit to the Principal a schedule of estimated progress payments based on the Design and Construction Programmes and the Progress Payments Control Document. PART 10 SEPARABLE PORTIONS OF THE PROJECT 10.1 SEPARABLE PORTIONS OF THE PROJECT Unless a contrary intention is expressed in the Agreement, for all purposes the provisions of the Agreement shall apply to a Separable Portion as if it were the only work included in the Project. The Separable Portions are listed in Annexure A. Additional Separable Portions may be agreed between the Principal and the Developer for the purpose of facilitating handover and occupation of the Project. The Developer acknowledges the requirement of the Principal to have access to parts of the Project prior to Completion in order to train staff and to be able to comply with its obligations under the Casino Agreements and will take steps to provide such access. Such access will be in accordance with the Design and Construction Contractor's site control policies and procedures. 22 PART 11 ACCESS TO SITE 11.1 ACCESS PRIOR TO LICENSING DATE The Principal shall use its best endeavours to arrange access to the Site during the period from the Operative Date to the Licensing Date for the purpose of the Developer or the Design and Construction Contractor and their consultants, to carry out design investigations, as and when required. A failure by the Principal to provide such access will not entitle the Developer to an extension of time unless the Principal has not used its best endeavours. 11.2 ACCESS FROM LICENSING DATE The Principal shall give the Developer full access to the Site from the Licensing Date. 11.3 ACCESS FOR PRINCIPAL The Developer shall allow the Principal, its representatives, the Casino Authority or others authorised in writing by the Principal or Casino Authority, access to any part of the Site at any time, subject to those authorised personnel complying with the Design and Construction Contractor's site control policies and procedures. These site control policies and procedures will be reasonable and will not specifically preclude the Principal from giving the Casino Authority and its representatives access to the Site in accordance with the requirements of the Casino Agreements provided the site control policies and procedures are complied with. 11.4 ACCESS TO OTHERS Without limiting the generality of clause 21, the Developer shall provide the Principal, the Operator and the Tenants access to areas of the Project when reasonably directed in writing by the Principal including but not limited to the times prior to Completion in accordance with clause 3.10 of the Development Proposal and Project Brief for the Permanent Casino and as nominated in Annexure A for the purposes of Fitout, Commissioning and Operator's Commissioning. The Principal, the Operator and the Tenants shall comply with the Design and Construction Contractor's site control policies and procedures. The Developer shall not be responsible for acts, defaults or omissions of persons brought on site by the Principal, the Operator and the Tenants. PART 12 MONETARY ALLOWANCES 12.1 MONETARY ALLOWANCES Monetary Allowances shall not by themselves be payable by the Principal but shall be dealt with as follows: (a) where at the direction or approval of the Principal the work or item to which a Monetary Allowance relates is performed or supplied by the Developer or the Design and Construction Contractor, the work or item shall be valued under clause 16 except that the percentages 23 stated in Annexure A for clause 16 shall not apply, and where the Monetary Allowance is: (1) a rate, the rate is exclusive of Indirect Costs relevant to the work or item; (2) a sum, the sum is exclusive of Indirect Costs relevant to the work or item; (b) where at the direction of the Principal the work or item to which a Monetary Allowance relates is performed or supplied by a subcontractor or a supplier then the Principal shall pay the Developer the actual amount payable to the subcontractor or supplier for the work or item, without any added margin. In respect of work or items to be performed or supplied pursuant to paragraph (b) the following procedure shall apply: (1) The Developer will obtain at least three tenders for the performance of the work or item. (2) Prior to calling tenders the Developer will prepare in consultation with the Principal and provide to the Principal a brief on the work or item and the proposed terms of the contract and consult with the Principal in respect of the persons from whom tenders will be called and the form of the tenders. (3) The Developer will include among the tenderers anyone nominated by the Principal unless the Developer reasonably believes such person is not capable of performing the work or supplying the item in accordance with this Agreement. If the Developer reasonably objects to a tenderer proposed by the Principal and the Principal confirms the nomination the Developer must seek a tender from such tenderer. If the tenderer defaults under its contract (for the work the subject of the tender) then the Principal must pay to the Developer as an adjustment to the Contract Sum the amount of loss which the Developer could not reasonably avoid. Nothing in this sub-clause shall relieve the Developer from its normal obligations to procure proper administration of the tenderer's contract. (4) The Developer will procure the calling of tenders from the tenderers selected by it and nominated by the Principal and will then procure negotiation as may be appropriate with them to attempt to obtain more favourable tenders and additional information. The Developer will report in writing to the Principal on the outcome of such negotiations and provide a comparative review of and access to the tenders as negotiated and a recommendation of the preferred tenderer. (5) The Developer shall advise the Principal whether any, and if so what, contingency should be allowed by the Principal and the specific reasons why that contingency should be allowed. The Developer will continuously monitor the adequacy of any contingency and will advise the Principal if it is necessary to adjust the contingency and the specific reasons why that adjustment is necessary. The Developer may recommend to the Principal that the work be performed for a fixed lump sum which, if accepted by the Principal, will be deemed to be the 24 actual amount payable under clause 12.1(b) in respect of the relevant item or work for the purposes of this clause. (6) After receiving such information the Principal must direct the Developer which tenderer to accept or, if desired in order to maintain the cost plan, further adjust the design in consultation with the Developer to achieve the necessary economies. If the Principal fails to so direct or adjust within a reasonable time the Developer will procure the acceptance of the recommended tenderer. (7) Both the Principal and the Developer must exercise any rights or perform any obligations pursuant to this clause promptly and in accordance with reasonable time limits. If the final aggregate amount of (a) and (b) above exceeds the aggregate amount included in the Contract Sum for Monetary Allowances, then the Principal shall pay the Developer as an adjustment to the Contract Sum the amount calculated by multiplying the percentage stated in Annexure A of such excess to compensate the Developer and the Design and Construction Contractor for their Indirect Costs. PART 13 ITEMS SUPPLIED BY PRINCIPAL 13.1 ITEMS SUPPLIED BY PRINCIPAL Where materials, goods or equipment have been supplied by the Principal or its agent, the Developer shall arrange for the Design and Construction Contractor to inspect and check the materials, goods or equipment in order to ensure that they comply with the Agreement. The Developer shall advise the Principal in writing immediately upon receipt of materials, goods or equipment which do not comply with the Agreement. The Principal shall advise the Developer in writing of the requirements with regard to such materials, goods or equipment in sufficient time such that the orderly progress of the Project will not be delayed. Where any such materials, goods or equipment contain defects which should have been apparent on reasonable inspection but which are not notified to the Principal by the Developer, the Developer will be liable for any subsequent loss or damages, arising from such defect, to the extent the loss or damage is not covered by the warranty from the subcontractor, supplier or manufacturer of the materials, goods or equipment. 13.2 NO WARRANTY Where materials, goods or equipment have been supplied or have been specified by brand name or by specific type of material by the Principal or its agent, the Developer does not warrant or guarantee the performance of those materials, goods or equipment beyond the limits stated by the relevant subcontractors, suppliers or manufacturers as the case may be. 25 PART 14 INSURANCE 14.1 INSURANCE (a) The Developer shall ensure that the Design and Construction Contractor has effected or caused to be effected the following insurances for the Project: (1) professional indemnity and workers' compensation as of the date of this Agreement; (2) contractor's all risks and public liability insurance prior to the commencement of work on Site; (3) appropriate insurances by Consultants, subcontractors, suppliers and others engaged by the Developer and Design and Construction Contractor on the Project. (b) The Developer will ensure that the Design and Construction Contractor complies with its obligations pursuant to clauses 14.2, 14.3, 14.5, 14.6 and 14.7 of the Design and Construction Contract. (c) The Developer shall effect professional indemnity insurance (in an amount of $70,000,000) with a vicarious liability extension which requires the policy to respond in the case of negligence on the part of the Developer, the Design and Construction Contractor or a Design Consultant (or some combination thereof) and workers compensation insurances for the Project as of the date of this Agreement. (d) The Developer shall provide the Principal at the Date of the Agreement with the details of the insurance cover provided for the Project. 14.2 PLANT AND EQUIPMENT The Developer will ensure that, throughout the currency of the Project, insurance for constructional plant and equipment in respect of the Project whether carried out by sub-contractors or by the Design and Construction Contractor is maintained by the plant and equipment owners. 14.3 SUB-CONTRACTORS The Developer shall ensure that all sub-contractors maintain all appropriate insurances including workers' compensation insurance. 14.4 CASINO AGREEMENTS The Developer must ensure that all insurance required to be effected by this clause in respect of the Project is in accordance with the Principal's obligations set out in the Casino Agreements provided that the Developer is not obliged to take out any additional insurances including, without limitation, business interruption or product liability insurance. 14.5 FACILITY AGREEMENT The Developer must, in respect of the insurances required to be effected by this clause comply with the Principal's financiers requirements as 26 detailed in Annexure J. 14.6 INDEMNITY The Developer indemnifies the Principal against liability for death or personal injury to persons and damage to or loss or destruction of property arising out of the Project caused by the negligence, omission or default of the Developer or any subcontractor or consultant of the Developer. This indemnity will be reduced proportionally to the extent that the injury or damage is due to the Principal, the Operator or the Tenants. 14.7 DETAILS OF INSURANCE The Developer must ensure that all insurance required to be effected by clause 14.1(a)(1) and (2) and 14.1(c): (a) includes a cross liability clause in which the insurer agrees to waive all rights of subrogation or action against any of the persons comprising the insured and for the purpose of which the insurer accepts the term "insured" as applying to each of the persons comprising the insured as if a separate policy of insurance had been issued to each of them (subject always to the overall sum insured not being increased thereby); (b) expressly provides that any breach of a policy term or condition or any non disclosure or misrepresentation by an insured or persons whose interest is noted on the policy will not invalidate the cover in respect of other insured's or persons whose interests are noted on the policy; (c) (except in respect of professional indemnity insurance) notes the interests of the Principal, the Casino Authority and the Agent by endorsement on the policy; (d) is maintained throughout the term of this Agreement and, in respect of the professional indemnity cover, for a period of 6 years after the Date of Completion. 14.8 CARE OF THE PROJECT Until the Date of Completion of the Project the Developer shall be responsible for the care of the Project. After the Date of Completion the Developer shall be liable for damage occasioned by the Developer in the course of completing any outstanding work or complying with its obligations under clause 18.3. PART 15 TIME FOR COMPLETION 15.1 MINIMISE DELAY (a) The Developer shall not be entitled to an extension of time for Completion pursuant to clauses 15.2 and 15.3 unless: (1) Completion might reasonably be expected to be delayed. 27 (2) The delay must involve a critical activity or critical resource or other factor that the Developer can demonstrate will be critical to Completion. (3) The Developer has taken all reasonable steps to avoid and minimise the delay. (b) Where more than one event causes concurrent delays and the cause of at least one of those events is not a cause referred to in clause 15.2, to the extent that the delays are concurrent, the Developer shall not be entitled to an extension of time for Completion. The Developer will not be entitled to allege time is at large as a consequence of such non-entitlement. 15.2 EXTENSION OF TIME Subject to clause 15.1, and subject to the Developer complying with clause 15.9 in respect of the relevant event the Developer shall be entitled to an extension of time to the Date for Completion by an amount equal to the full extent that the delay will be critical to Completion where the delay is caused by: (a) acts, defaults or omissions by the Principal or those for whom it is responsible (including, without limitation, any acts, defaults or omissions by the Principal, the Operator or the Casino Authority in respect of their various obligations relevant to Completion); (b) a breach of the Casino Agreements by the Casino Authority; (c) a "Force Majeure" event; (d) a Variation directed by the Principal in accordance with this Agreement. 15.3 NOTICE OF DELAY The Developer shall give written notice to the Principal of the fact or likelihood of a delay as soon as it becomes aware of the fact or likelihood and provide with the notice details of the cause of delay and how the Project is likely to be delayed and if the delay is concurrent with other delays. The Developer shall give a written claim for an extension of time to the Principal specifying the number of days claimed and providing all necessary supporting information, including, if applicable, the costs or estimated costs of the Developer of the delay within fourteen (14) days after the cessation of the delay. Where several delaying events or circumstances are concurrent and such concurrence continues for a period exceeding one month, the Developer shall provide to the Principal at monthly intervals detailed statements quantifying the effect of such concurrent delaying events and circumstances on the progress of the Project. 15.4 GRANT OF EXTENSION The Principal shall as soon as reasonably practicable and in any event not later then 28 days after receiving the Developer's fully detailed claim pursuant to clause 15.3, determine what, if any, extension of time to a Date for Completion shall be granted to the Developer and shall thereupon notify the Developer in writing accordingly. 28 15.5 EXTENSIONS BY PRINCIPAL If the Developer does not give: (a) the written notice to the Principal of the fact or likelihood of a delay for which the Developer is entitled to an extension of time; or (b) a written claim for an extension of time to the Principal; within 45 days of the times required by clause 15.3, then the Developer shall not be entitled to an extension of time and the delay shall be deemed not to have occurred but the Principal may in its absolute discretion (but shall not be obliged) at any time by notice in writing addressed to the Developer extend a Date for Completion if in its opinion the Developer would otherwise be entitled to such an extension. 15.6 ACCELERATION Where the Developer is entitled to an extension of time pursuant to clause 15.2, the Principal may elect instead to direct the Developer in writing to take such steps as the Principal considers necessary to accelerate, expedite or reschedule activities in order to ensure that the progress of the work is maintained in accordance with the Design and Construction Programmes. In this event, the Developer shall forego its entitlement to an extension of time and shall comply with the Principal's direction. The Developer shall be entitled to be paid as an adjustment to the Contract Sum for all additional costs for which the Developer is liable to pay as a result of such direction. To assist the Principal in making any such direction the Developer will, if requested by the Principal, advise the Principal about possible alternatives for overcoming delays and their estimated cost. 15.7 DELAY COSTS (a) Subject to paragraph (b) of this clause the Developer shall be entitled as an adjustment to the Contract Sum to delay costs in respect of all extensions of time granted other than those due (whether concurrently with other delays or not) to the events referred to in clause 15.2(c) in respect only of paragraph (e) of the definition of Force Majeure. Such delay costs shall be the total amount of all costs and expenses including but not limited to Indirect Costs other than profit proven to the reasonable satisfaction of the Principal. Any additional costs incurred by the Developer in respect of a delay or disruption caused by a Variation shall be included in the value of the Variation calculated in accordance with clause 16. (b) If the relevant Authority refuses to grant a building approval or issues a conditional building approval and, in either case, the Casino Authority directs the Principal to appeal against the refusal or any one or more of the conditions sought to be imposed the Developer will: (1) not be entitled to delay costs in respect of the first two months of any delay consequential on the appeal; and 29 (2) be entitled to an extension of time in respect of any delay consequential on the appeal. 15.8 MILESTONES If the Project is behind schedule as set out in the Design and Construction Programmes such that any of the milestone events set out below are more than 35 days behind schedule as a consequence of an event other than a Variation or an event for which the Developer is entitled to an extension of time, the Principal may direct the Developer in writing to prepare and submit to the Principal within 14 days a draft amended programme demonstrating how the Developer can comply with its obligations under this Agreement without acceleration and a report on any alternatives to acceleration, their feasibility, ramifications and likely costs. After careful analysis of all relevant facts the Principal may then either direct the Developer to comply with the draft amended programme or to accelerate the progress of the Project. If so directed to accelerate the Developer must accelerate the Project in order to achieve the schedule in the Design and Construction programmes and will not be entitled to recover any costs resulting from the direction to accelerate. MILESTONES 1. Completion of Temporary Casino 2. Completion of Carpark Structure 3. Handover of LRT 4. Completion of Podium Structure 5. Completion of Structure including Towers 6. Completion of Facade Works 7. Completion of Permanent Casino 15.9 EXTENSION OF TIME UNDER CASINO AGREEMENTS In addition to its other obligations under this clause, the Developer must give notice to the Principal of all events relating to the Project which would entitle the Principal to an extension of time under the Casino Agreements and reasonably assist the Principal with its claim under the Casino Agreements whether or not the Developer is entitled to an extension of time in respect of such event under this Agreement. All such notifications must be given to the Principal in sufficient time to allow the Principal to comply with the requirements of the Casino Agreements for claiming an extension of time. 15.10 ACCELERATION BY DEVELOPER If at any time the Developer elects to accelerate or alter the sequence of the Project such that the time by which the Principal must perform obligations under this Agreement is altered, the Developer will notify the Principal of the impact on the Principal's obligations, provided that the Principal may not, by this process, be deprived of a reasonable opportunity to review and make decisions about the Project without thereby giving rise to entitlement to a claim by the Developer for time or money nor of its rights under sub-clause 7.3(e). 15.11 ACCELERATION DIRECTED BY PRINCIPAL The Principal may at any time direct the Developer to accelerate the Project in order to achieve Completion by any reasonable date. The 30 Developer shall be entitled to be paid as an adjustment to the Contract Sum for all additional costs for which the Developer is liable to pay as a result of such direction. To assist the Principal in making such direction the Developer will, if requested by the Principal, advise the Principal about possible alternatives for achieving acceleration and their estimated cost. PART 16 VARIATIONS 16.1 VARIATIONS The Principal without invalidating this Agreement may instruct the Developer to make Variations. All such instructions shall be made in writing by the Principal. 16.2 PERFORMANCE OF VARIATIONS (a) The Developer shall not vary the Project without the agreement of the Principal. If the Developer considers that a variation is required, notice in writing to that effect shall be given to the Principal. If the Developer considers that an instruction given by the Principal which is not identified as a Variation, in fact constitutes a Variation, the Developer must, reasonably promptly after receipt of the instruction, notify the Principal in writing. (b) If a Variation is instructed by the Principal, the Developer must before performing the varied work, and in any event within a reasonable time after the instruction, provide to the Principal in writing a price for the Variation calculated in accordance with this Agreement and details of any delay or disruption likely to result from the Variation. (c) Unless the Principal directs otherwise, the Developer must not perform any Variation until the value of the Variation and any extension of time has been agreed by the Principal and the Developer. (d) The value of variations shall be agreed within seven (7) days of the date of instruction provided that failing such agreement the value of the variation shall be as reasonably determined by the Quantity Surveyor. (e) If the Developer requests the Principal to approve a variation for the convenience of the Developer, the Principal may, in its absolute discretion, approve the variation in writing. The Developer will not be entitled to any extension of time or any additional payment in respect of a variation approved for the convenience of the Developer. 16.3 DEVELOPER PROPOSED VARIATIONS If the Principal authorises a variation that has been proposed by the Developer and such variation will result in a saving to the Principal after all costs associated with the variation are taken into account, the Principal will share equally with the Developer 50% of the said saving. The Principal is under no obligation to authorise a variation proposed by the Developer. 31 16.4 VALUATION OF VARIATIONS Variations shall be valued by measuring the extent of the variation and applying fair and reasonable rates and prices and the Contract Sum will be adjusted accordingly. The valuation of variations shall include the percentage for Indirect Costs set out in Annexure A and the delay and disruption costs if any. PART 17 PAYMENT 17.1 PAYMENT Prior to the Licensing Date, payment shall be assessed by reference to the Preconstruction Period Drawdown Schedule set out under Annexure G. After the Licensing Date, payment shall be assessed by reference to percentage completion and cost to completion of the Project based on the Progress Payments Control Document. 17.2 PROGRESS CLAIMS On the last day of each month during the development of the Project and at the Date of Completion the Developer shall submit to the Principal a progress claim for payment by the Principal which shall show: (a) the value of work carried out which shall be assessed in accordance with clause 17.1; (b) the value of unfixed materials, goods and equipment delivered to the Site for inclusion in the Project and the value of unfixed materials, goods and equipment specially manufactured or fabricated off-site for subsequent inclusion in the Project, in respect of which all the requirements of clause 17.4 have been met; (c) the cost of the work to be carried out to bring the Project to Completion and the cost of materials, goods and equipment, still required to be purchased in order to complete the Project (together the "Cost to Complete"); (d) the amount and the particulars of any adjustments to the Contract Sum in the terms of the Agreement; (e) the total amount previously paid by the Principal; (f) the amount claimed by the Developer. Each progress claim shall include: (g) a statement signed by the Company Secretary of the Design and Construction Contractor, certifying that all claims due and payable to sub-contractors, suppliers and consultants (other than claims in respect of the current period) have been paid by the Design and Construction Contractor; and (h) a report in the form of Annexure I from all Design Consultants confirming that all works carried out during the period to which the progress claim relates have been executed to the satisfaction of that Design Consultant in accordance with the Development Proposal 32 and Project Briefs, Design Documents and the requirements of Authorities. The Principal shall appoint WT Partnership or such other quantity surveyor as the Developer shall nominate and who is acceptable to the Principal and the Agent to inspect the Project and review the Developer's progress claim. 17.3 PAYMENT CERTIFICATE (a) Within five (5) business days of the receipt of the Developer's progress claim the Quantity Surveyor shall review the progress claim. (b) If the Quantity Surveyor is satisfied with the correctness of the progress claim it shall within five (5) business days of receipt of the progress claim issue a payment certificate to the Principal and the Developer in accordance with the Project Certifier Deed. Within two (2) business days after receipt of the payment certificate the Principal will pay to the Developer the amount of the payment certificate less any amount which is due and payable from the Developer to the Principal under or in connection with the Agreement. The Principal may dispute the correctness of any payment certificate issued by the Quantity Surveyor in accordance with the Project Certifier Deed as if it were a dispute arising under clause 3.8(a) of that Deed. However, pending resolution of any such dispute the Principal must pay the full amount of the payment certificate to the Developer in accordance with this clause. (c) If the Quantity Surveyor disputes the correctness of the progress claim it shall within five (5) business days of receipt of the progress claim issue a payment certificate to the Principal and the Developer for the undisputed amount and the provisions of clause 17.3(b) will apply to this payment certificate. The Quantity Surveyor must provide with the payment certificate reasons for the disputed amount. The Developer, Principal and Quantity Surveyor shall make all efforts to resolve any disputed items as expeditiously as possible. However, the Developer or Principal may at anytime refer the matter to dispute resolution pursuant to the Project Certifier Deed. (d) If, as at the date of any Progress Claim, the Contract Sum less the Cost to Complete is less than the sum of the total amount previously paid by the Principal to the Developer and the amount claimed in the progress claim (the "Shortfall"), the Quantity Surveyor in calculating the amount to include in the payment certificate will deduct the Shortfall from the amount which would otherwise be payable to the Developer (e) Any payment certificate issued by the Quantity Surveyor pursuant to this Agreement will certify the Cost to Complete as well as the amount payable to the Developer and will otherwise be substantially in the form required by the Agent, and addressed to the Principal the Agent and the Developer. (f) The obligation of the Principal to pay the Developer pursuant to clauses 17.3(b) and (c) is subject to the Developer providing to the Principal on the date of payment statements dated that day and signed by the Company Secretary of each of the Developer and the 33 Design and Construction Contractor certifying that all wages due and owing to their respective employees have been paid. (g) Notwithstanding the balance of this clause 17, from the Opening of the Temporary Casino until the Determination Date: (1) the Developer will be entitled to submit to the Principal progress claims for payment by the Principal (in the form required by clause 17.2) on a fortnightly basis commencing on the date which is fourteen (14) days after the day on which the Developer last submitted a progress claim under clause 17.2; and (2) the period of five (5) business days referred to in clause 17.3 within which the Quantity Surveyor is required to issue a payment certificate will be reduced to three (3) business days. 17.4 UNFIXED MATERIALS It is hereby agreed between the Principal and the Developer that:- (a) subject to the Developer complying with the provisions of this clause payment will be made in respect of off-site or unfixed materials or goods. (b) where the Developer has been paid by the Principal in respect of off-site or unfixed materials or goods the Developer must provide evidence to the reasonable satisfaction of the Principal when those materials or goods are incorporated into the Sydney Casino. (c) the Developer shall only be paid for off-site or unfixed materials and/or goods if the Developer complies with either I or II below: (I) the Developer provides to the Principal (or to the Agent if so directed by the Principal) additional security in the form of Annexure E in an amount in Australian dollars equal to the payment claimed for the off-site or unfixed materials; or (II) (1) the Developer has provided to the Principal evidence satisfactory to the Principal that title in the materials and/or goods free of any liens or encumbrances will pass to the Principal on payment and if requested by the Principal insured the goods in the name of the Principal as well as the Developer; and (2) the Developer has clearly marked or otherwise delineated all such materials and/or goods to be the sole and exclusive property of the Principal; and (3) the Developer has provided the Principal with a written statement addressed to the Principal and signed by the Developer, the Design and Construction Contractor (if appropriate) and the supplier of the materials and/or goods to the effect that upon payment being made by the Principal the property in such materials and/or goods will rest in the Principal, and the materials and/or goods will be available for delivery to the Site when required. 34 (d) All such materials and/or goods shall become the property of the Principal upon payment by the Principal to the Developer of the amount in respect thereof included in any such progress payment and thereafter the Developer shall not remove the same except for use in the Sydney Casino (unless the Principal shall have in writing authorised removal) but, the Developer shall remain responsible for loss or damage thereto and for insuring such materials and/or goods. (e) Any payment in advance made as aforesaid shall be accepted as having been made at the express request of the Developer and the making of the payment shall not: (1) import the implication that the materials and/or goods in respect of which the advance payment is made are satisfactory and will subsequently be accepted by the Principal as being in accordance with this Agreement when built, fixed or installed into the Sydney Casino; or (2) prejudice the right of the Principal to reject or direct the removal of any material and/or goods whether fixed or not that is not in accordance with this Agreement. (f) for the purposes of this clause 17, unfixed materials or goods are materials or goods which are intended to become fixed but have not been fixed at the relevant date. 17.5 FINAL STATEMENT Within 28 days after the Date of Completion the Developer shall submit a final statement showing the Contract Sum and the final amount it considers is owing to the Developer which statement will include any security held by the Principal and its exercise or release in accordance with this Agreement together with all documents required and reasonably necessary for calculation of the amount to be certified, including all moneys which the Developer considers to be due from the Principal under or arising out of the Agreement or any alleged breach thereof. Within seven (7) days of the receipt of the Developer's final statement the Quantity Surveyor shall review the final statement and issue a payment certificate to the Principal. The amount identified by the payment certificate as owing to the Developer shall become a debt due and payable by the Principal to the Developer seven (7) days after receipt of the payment certificate by the Principal except to the extent that any part of such amount is already a debt due and payable pursuant to the terms of this Agreement. Either party may dispute the correctness of the payment certificate issued by the Quantity Surveyor pursuant to this clause. However, pending resolution of such dispute the Principal must pay the full amount of the payment certificate to the Developer. The obligation of the Principal to pay the Developer pursuant to this clause is subject to the Developer providing to the Principal on the date of payment statements dated that day and signed by the Company Secretary of each of the Developer and the Design and Construction Contractor, certifying that all wages due and owing to employees of each of them have been paid. 35 17.5A ESTIMATED FINAL STATEMENT On or before the second last day of the Availability Period to the Construction Facility under the Facility Agreement the Developer must provide to the Principal in form and substance satisfactory to the Agent a statement being the best estimate by the Developer as to the final statement to be submitted under clause 17.5. Before becoming entitled to payment of any amount payable under clause 17.5 the Developer must provide an acknowledgement to the Principal (in form and substance satisfactory to the Agent) that upon receipt by the Developer of that amount the Developer does not dispute that the payment discharges the Principal from further payment to the Developer with respect to the subject matter of the claim to which that payment relates. 17.6 INTEREST Either party shall pay to the other interest at the rate specified in Annexure A on any moneys due and unpaid on any account whatsoever pursuant to the Agreement from the due date for payment until the date upon which payment is made. Interest shall be compounded at monthly intervals. 17.7 EFFECT OF PAYMENT CERTIFICATE Neither the issue of a payment certificate nor payment in respect to the Certificate shall constitute approval of any work. PART 18 COMPLETION AND DEFECTS LIABILITY PERIOD 18.1 COMPLETION (a) The Developer shall complete the Project to the stage of Completion on or before the Date for Completion. During the performance of the Project the Developer shall develop and implement, in co-operation with the Principal, a Completion Action Plan. (b) Prior to Completion, the Developer shall provide the Principal and the Casino Authority with at least twenty-eight (28) days written notice of the date when the Developer estimates the Project will reach Completion. The Developer may revise this date by further written notice to the Principal and Casino Authority. (c) The Principal, the Casino Authority, the Architectural Consultant, the Developer and Design and Construction Contractor must promptly but in any event prior to the date notified by the Developer pursuant to clause 18.1(b) jointly inspect the Sydney Casino at a mutually convenient time. Prior to such inspection the Developer must provide to the Principal and the Architectural Consultant a list prepared by each Design Consultant identifying all items (if any) which that Consultant believes requires attention for the Project to reach Practical Completion. Following such inspection each party may make submissions to the Architectural Consultant. (d) If the Architectural Consultant determines that the Project has reached Completion, the Architectural Consultant shall issue to each 36 of the Principal, the Agent, the Developer and the Design and Construction Contractor a Certificate of Completion. If the Principal seeks to dispute the issue of such certificate, the certificate will remain valid unless and until it is determined otherwise in accordance with this Agreement. If the Architectural Consultant determines that the Project has not reached Completion, the Architectural Consultant shall issue to the Developer a list of items which require attention by the Developer in order for the Project to reach Completion. The Developer shall immediately attend to the list of items, and after attending to these items give a further notice to the Principal and the Casino Authority. (e) Clause 18.1(c)-(e) shall apply in respect of each notice given by the Developer until the Architectural Consultant is satisfied that the Project has reached Completion. (f) If the Date of Completion of the Permanent Casino occurs after the Date for Completion of the Permanent Casino then, subject to clause 18.1(g), in respect of each day after the Date for Completion of the Permanent Casino up to the Date of Completion of the Permanent Casino the Developer shall, on a weekly basis, on receipt from the Principal of a certificate with detailed calculations, pay to the Principal by way of liquidated and pre-ascertained damages the lesser of: (1) the amount stated in Annexure A; and (2) the Principal's Delay Damages for that day. (g) The amount payable by the Developer under clause 18.1(f) will in no circumstances exceed the amount stated in Annexure A. (h) The Developer will not be liable to the Principal in contract, tort (including but not limited to negligence) or otherwise in respect of the late or delayed completion of the Project, other than as provided in clause 18.1(f) and (g). (i) The Principal must take reasonable steps to mitigate Principal's Delay Damages. (j) If the Developer notifies the Principal of an anticipated delay (as contemplated in paragraph (d) of the definition of Principal's Delay Damages in clause 1.1) the Principal shall as soon as possible, given its existing commitments, reserve an amount of net operating profit after tax of the Temporary Casino equal to the product of the average daily amount of such profit since the opening of the Temporary Casino multiplied by the notified length of the delay. (k) If the Developer disputes a certificate issued under clause 18.1(f), the Developer shall pay the amount referred to in the certificate but may refer the dispute thereafter for resolution in accordance with Part 20. (l) The parties acknowledge that the amount payable under clause 18.1(f) is a genuine pre-estimate of the Principal's damage. (m) If the Developer does not bring the Permanent Casino to Completion within 270 days of the Date for Completion or becomes liable to pay 37 to the Principal by way of liquidated and pre-ascertained damages the amount stated in Annexure A, the Principal may, without prejudice to any other rights or remedies which the Principal may have, by notice left at or forwarded by certified mail addressed to the Developer, forthwith terminate the Agreement. 18.2 AS-BUILT DRAWINGS AND MANUALS Within 6 months after Completion the Developer must provide to the Principal: (a) a complete set of as-built drawings for the Sydney Casino being, with respect to architectural and structural drawings, 1:100 scale equivalent to building approval standard documentation; and (b) final and complete versions of all operation and maintenance manuals. 18.3 DEFECTS LIABILITY PERIOD Each Defects Liability Period stated in Annexure A shall commence on the Date of Completion. As soon as possible after Completion but in any event within six (6) months after Completion, the Developer shall rectify all defects, omissions, or faults in the Sydney Casino notified to it as at Completion. As and when requested by the Principal during the Defects Liability Period the Developer will procure each of the Design Consultants to prepare and provide to the Principal (at no additional cost to the Principal) a list of the defects, omissions and faults apparent in the Sydney Casino relevant to that Design Consultant's commission. At any time prior to the expiration of the Defects Liability Period, the Principal may instruct the Developer to rectify any defect, omission or fault in the Sydney Casino which exists at Completion or which becomes apparent in the Defects Liability Period. The instruction shall identify the defect, omission or fault and shall state a reasonable date by which the Developer shall complete rectification. If the Developer fails to rectify any defect, omission or fault by the reasonable date stipulated in the instruction, the Principal may have the rectification work carried out by others and the cost of the work will be a debt due and payable by the Developer to the Principal. The Developer shall carry out rectification work at times and in such manner as will cause as little inconvenience to the Principal, the Operator, patrons and occupants of the Sydney Casino as is reasonably possible in accordance with a proposal which has been submitted by the Developer and approved by the Principal. Failing agreement between the parties as to a proposal the issue shall be resolved in accordance with clause 20. 18.4 CERTIFICATES The Developer shall obtain and provide to the Principal prior to the expiration of the Defects Liability Period all certificates issued by relevant Authorities and consultants including a building certificate under the Local Government Act 1993 (NSW) and other documents as set out in the Development Proposal and Project Briefs, unless the reason for non-issue of any such certificates is a matter for which under the Agreement the 38 Principal is responsible. The Principal shall procure and provide to the Developer the consent of the owner to enable such an application to be made. 18.5 ISSUE OF CERTIFICATE OF FINAL COMPLETION Prior to the expiration of the Defects Liability Period the parties will jointly participate in a detailed inspection of the Sydney Casino. Such inspection must be attended by the Architectural Consultant and representatives of each of the Principal, the Developer and the Design and Construction Contractor with appropriate expertise and experience to locate and identify defects, omissions and faults. These representatives will prepare, during such inspection, a detailed list of all identified outstanding defects, omissions and faults to be rectified. Within fourteen (14) days of the expiration of the Defects Liability Period, provided the Developer has rectified all defects, omissions or faults notified to it and has provided to the Principal a certificate signed by the Architectural Consultant certifying that all defects have been satisfactorily rectified and provided the Developer has satisfied all its obligations under this Agreement, the Principal shall issue a Certificate of Final Completion to the Developer. 18.6 EFFECT OF CERTIFICATE OF FINAL COMPLETION Unless either party not less than twenty-eight (28) days after the issue of the Certificate of Final Completion serves a notice of dispute on the other party, the certificate shall be evidence in any proceedings arising out of this Agreement that the Project shall have been completed in accordance with the terms of this Agreement to the reasonable satisfaction of both the Architectural Consultant and any Quantity Surveyor appointed by the Principal and that any necessary effect has been given to all the terms of this Agreement which require an adjustment to be made to the Contract Sum except in the case of: (a) fraud, dishonesty or deliberate or fraudulent concealment relating to the Project or any part thereof or to any matter dealt with in the said certificate; (b) any accidental or erroneous inclusion or exclusion of any work or materials, goods or figures in any computation or any arithmetical error in such computation; (c) any defect, including, without limiting the generality of the foregoing, any omission, in the Project or any part thereof which was not apparent at the end of the Defects Liability Period; or (d) any defect, including, without limiting the generality of the foregoing, any omission, in the Project or any part thereof which should have been reasonably apparent at the end of the Defects Liability Period but in respect of which the cost of rectification will exceed $10,000. 39 18.7 DEFECTS (a) After the end of the Defects Liability Period the Developer indemnifies the Principal against all costs, losses, expenses and damages which the Principal suffers or incurs due to: (1) any structural defect to the Sydney Casino (being a defect to the columns, slabs, foundations, footings or lift cores) prior to the date 10 years after the Date of Completion; and (2) any other defect to the Sydney Casino prior to the date 5 years after the Date of Completion; other than defects which should have been reasonably apparent to the Principal at the end of the Defects Liability Period and in respect of which the cost of rectification will not exceed $10,000. (b) The Principal will not be entitled to make any claim against the Developer in contract, tort or otherwise in respect of any relevant defect in the Sydney Casino after the respective periods set out above. 18.8 ARCHITECTURAL CONSULTANT For the purposes of this clause 18 only, "Architectural Consultant" means Philip Cox Richardson Taylor & Partners Pty Limited (ACN 002 535 891). PART 19 TERMINATION ON DEFAULT 19.1 DEFAULT BY DEVELOPER Subject to clause 19.2, if the Developer makes default in any one or more of the following respects: (a) if without reasonable cause it fails to proceed diligently with the Project, or wholly suspends the carrying out of the Project (other than in accordance with the Agreement) before Completion thereof; or (b) if it commits any other substantial breach of the Agreement; then the Principal may give a written notice left at or forwarded by certified mail addressed to the Developer specifying the default and, (c) if the default is capable of remedy, the default is not remedied to the satisfaction of the Principal within the time specified in the notice, which must not be less than twenty-one (21) days; or (d) if the default is not capable of remedy, the Developer does not comply with any requirements in relation to the default or redress of the prejudice arising from the default in the manner specified in the notice, whether by the payment of compensation or damages or otherwise within the time specified in the notice which must not be less than twenty-one (21) days; 40 then the Principal without prejudice to any other rights or remedies may, within a further period of twenty-one (21) days, by notice left at or forwarded by certified mail addressed to the Developer, forthwith terminate the Agreement. 19.2 INSOLVENCY OF DEVELOPER If the Developer has a winding up order made against it or (except for the purposes of reconstruction of terms approved by the Principal) passes or attempts to pass a resolution for winding up or becomes a party to the appointment of or has an official manager or receiver or receiver and manager or administrator or mortgagee in possession appointed for the whole or any part of its property or undertaking or becomes a party to or attempts to enter into any composition or scheme of arrangement which materially affects this Agreement then the Principal may at any time give a written notice left at or forwarded by certified mail addressed to the Developer specifying the default, forthwith terminate the Agreement. 19.3 DEFAULT BY PRINCIPAL (a) If the Principal commits a substantial breach of the Agreement (other than a Financial Default) then the Developer subject to the provisions of the Development Agreement Side Deed may give a written notice left at or forwarded by certified mail addressed to the Principal specifying the default and if the Principal shall continue such default for twenty-one (21) days after receipt of such written notice then the Developer without prejudice to any other rights or remedies may, within a further period of twenty-one (21) days of such continuance, by notice left at or forwarded by certified mail addressed to the Principal, forthwith terminate the Agreement or suspend the performance of its obligations under the Agreement. (b) If the Principal makes default in any one or more of the following respects: (1) if it fails to make a payment due to the Developer in accordance with the Agreement; or (2) if it fails to provide the Developer's Security in accordance with clause 31; then the Developer subject to the provisions of the Development Agreement Side Deed may give a written notice left at or forwarded by certified mail addressed to the Principal specifying the default and if the Principal shall continue such default for ten (10) days after receipt of such written notice then the Developer without prejudice to any rights or remedies may by notice left at or forwarded by certified mail addressed to the Principal, forthwith terminate the Agreement or suspend the performance of its obligations under the Agreement. 19.4 INSOLVENCY OF PRINCIPAL If the Principal has a winding up order made against it or (except for the purposes of reconstruction on terms approved by the Developer) passes or attempts to pass a resolution for winding up or becomes a party to the appointment of or has an official manager or receiver or receiver and manager or administrator or mortgagee in possession appointed for the whole or any part of its property or undertaking or becomes a party to or 41 attempts to enter into any composition or scheme of arrangement which materially affects this Agreement then the Developer subject to the provisions of the Development Agreement Side Deed may at any time give a written notice left at or forwarded by certified mail addressed to the Principal specifying the default, forthwith terminate the Agreement. 19.5 PAYMENT ON TERMINATION In the event of termination pursuant to Clause 19.3 or 19.4 and without prejudice to any other rights which the Developer may possess, the Developer shall be entitled to be paid by the Principal: (a) the value of all design, construction and commissioning work executed at the date of termination; (b) the cost of materials or goods ordered for the Project for which the Developer shall have paid or which the Developer is legally bound to pay; (c) the reasonable cost of demobilisation from the Site. 19.6 RETURN OF DOCUMENTS In the event of termination pursuant to clause 19.1 or 19.2 the Developer will, promptly after such termination, provide to the Principal all Design Documents held by it. PART 20 DISPUTE SETTLEMENT 20.1 DISPUTE SETTLEMENT (a) If a dispute arises out of or relates to this Agreement (including any dispute as to breach or termination of the Agreement or as to any claim in tort, in equity or pursuant to any statute) a party to the Agreement may not commence any court proceedings relating to the dispute unless it has complied with the following paragraphs of this clause except where the party seeks urgent interlocutory relief. (b) A party to this Agreement claiming that a dispute ("the Dispute") has arisen under or in relation to this Agreement must give written notice to the other party to this Agreement specifying the nature of the Dispute. (c) On receipt of that notice by that other party, the parties to this Agreement ("the Parties") must endeavour in good faith to resolve the Dispute expeditiously using informal dispute resolution techniques such as mediation, expert evaluation or determination or similar techniques agreed by them. (d) If the Parties do not agree within seven (7) days of receipt of the notice (or such further period as agreed in writing by them) as to: (1) the dispute resolution technique and procedures to be adopted; (2) the timetable for all steps in those procedures; and 42 (3) the selection and compensation of the independent person required for such technique, the Parties must mediate the Dispute in accordance with the Mediation Rules of the Law Society of New South Wales and the President of the Law Society of New South Wales or the President's nominee will select the mediator and determine the mediator's remuneration. (e) If the Dispute has not been resolved pursuant to paragraphs (b)-(d) above within 28 days of the notice referred to in paragraph (b), or such longer period as the Parties agree then: (1) if the Dispute involves an amount less than $10,000,000 either party shall request the Secretary General of the Australian Commercial Disputes Centre Limited to appoint a suitable person of good repute and who is an expert in the area of Dispute or difference to act as an independent consultant for the purpose of resolving the matter in dispute or difference. The independent consultant appointed shall act as an expert and not as an arbitrator and his decision shall be final and binding on the parties. The fees of the independent consultant shall be payable as directed by the independent consultant. (2) If the Dispute involves an amount equal to or greater than $10,000,000 either party shall refer the Dispute to arbitration by requesting the Secretary General of the Australian Commercial Disputes Centre Limited to appoint a suitable person of good repute to act as an arbitrator. The parties agree that the rules of evidence will apply to any such arbitration and that the parties will be entitled to legal representation. 20.2 DISPUTE SETTLEMENT UNDER THE DESIGN AND CONSTRUCTION CONTRACT Neither the parties to this Agreement nor any person appointed pursuant to clause 20.1, will be bound by the determination of any dispute under the Design and Construction Contract. 20.3 DETERMINATIONS BY CONSULTANTS Where pursuant to the terms of this Agreement the Architectural Consultant or Quantity Surveyor is required to determine any matter they shall have regard to but will not be bound by any agreements reached between the Developer and the Design and Construction Contractor. The parties acknowledge that any dispute between them relating to a determination under this Agreement by the Architectural Consultant, Quantity Surveyor or other third party (other than pursuant to this clause) may be resolved pursuant to this clause. PART 21 CO-OPERATION WITH OTHERS 21.1 CO-OPERATION WITH OTHERS Should the Principal require others to carry out work on the Site, then the Developer shall give those personnel or organisations reasonable access 43 to undertake those works. Should the Principal require the Developer to provide plant, equipment and facilities to facilitate the work by others then to the extent that such plant, equipment and facilities are on the Site and available for use, the Developer shall do so at no cost to the Principal. Should it be necessary to bring to the Site or re-establish the necessary plant, equipment or facilities then the Developer shall do so and be reimbursed the costs of so doing as an adjustment to the Contract Sum. PART 22 SITE CONDITIONS 22.1 PERMANENT SITE CONDITIONS (A) CONDITION OF SITE The Developer acknowledges that it has inspected the following reports and certificates and agrees that it will, subject only to clause 22.1(d), accept the Site in its present state and condition and that it will not be entitled to terminate this Agreement or to seek compensation from the Principal should any Contaminants be found at any time on, in or under the Site and whether referred to in the documents or not: (1) letter from Envirosciences Pty Limited to Metropolitan Demolitions Pty Limited dated 17 November 1992; (2) letter from Envirosciences Pty Limited to Metropolitan Demolitions Pty Limited dated 18 November 1992; (3) letter from Envirosciences Pty Limited to Metropolitan Demolitions Pty Limited dated 20 November 1992; (4) letter from Envirosciences Pty Limited to Metropolitan Demolitions Pty Limited dated 25 May 1993; (5) letter from Envirosciences Pty Limited to Metropolitan Demolitions Pty Limited dated 16 April 1993; (6) letter from Envirosciences Pty Limited to Metropolitan Demolitions Pty Limited dated 7 December 1992; (7) letter from Envirosciences Pty Limited to Metropolitan Demolitions Pty Limited dated 14 December 1992; (8) letter from Envirosciences Pty Limited to Metropolitan Demolitions Pty Limited dated 8 January 1993; (9) notice under section 35, Environmentally Hazardous Chemicals Act dated 3 May 1990 addressed to Electricity Commission of NSW; (10) notice under section 35, Environmentally Hazardous Chemicals Act, Annexure 1, dated 17 April 1990 addressed to Electricity Commission of NSW; 44 (11) notice under section 35, Environmentally Hazardous Chemicals Act, Annexure 2, dated 27 April 1990 addressed to Electricity Commission of NSW; (12) notice under section 35, Environmentally Hazardous Chemicals Act, Annexure 3, dated 13 February 1991 addressed to Electricity Commission of NSW; (13) City West Redevelopment Project Master Plan No 1, Area 2 - Site Assessment Report, Pyrmont, New South Wales, February 1994, Volumes I and II prepared by AGC Woodward-Clyde Pty Limited; (14) preliminary report Soil Conditions Former Pyrmont Power Station 28 February 1994 The Principal does not warrant the accuracy of the abovementioned documents and the Principal shall not be liable for any errors or omissions in the documents. Subject only to clause 22.1(d), the Developer hereby releases the Principal for any costs, claims, demands, losses, expenses or judgments that the Developer may suffer or incur from the presence of any Contaminants in, on or under the Site and whether known or not known and any contamination, pollution, material degradation or material harm to the Environment (as defined in clause 22.1(d)) or any breach of Environmental Laws (as defined in clause 22.1(d)) . This release shall continue after expiration or sooner determination of this Agreement. (B) SITE CONDITIONS Subject to clause 22.1(d), the Developer acknowledges that no representation or warranty is or has been given by or on behalf of the Principal: (1) As to the Site or any structure on the Site including, but not limited to the nature, geology, condition or state of repair of the Site or any structure on the Site; (2) with respect to the suitability of the Site for the Project or the Works; and (3) in relation to the completeness of: (A) any technical surveys of the Site provided to the Developer or the Design and Construction Contractor; or (B) any other documents provided to the Developer or the Design and Construction Contractor in relation to the Site. (c) Not used. (d) INDEMNITY FOR ENVIRONMENTAL MATTERS (1) In this clause 22.1(d) the following terms have these meanings: 45 "Environment" includes all aspects of the surroundings of human beings including, without limitation: (i) the physical characteristics of those surroundings such as the land, the waters and the atmosphere; (ii) the biological characteristics of those surroundings such as the animals, plants and other forms of life; and (iii) the aesthetic characteristics of those surroundings such as their appearance, sounds, smells, tastes and textures. "Environmental Laws" means current laws for protection of the Environment against contamination or pollution of air or water, soil or ground water, chemicals, pesticides, hazardous substances, the ozone layer, public health, hazardous waste, dangerous goods, environmental hazards, or noxious trades and enforcement or administration of any of those laws (whether that law arises under statute or pursuant to any notice, decree, order or directive of any governmental entity). This clause applies notwithstanding clause 22.1(a). (2) The Principal warrants that following the excavation contemplated by clause 22.1 (e): (A) The Casino Authority is not nor will the Principal be in actual violation of any Environmental Laws nor has it received written notice of any alleged violation of any Environmental Laws, arising from or in connection with the Site (except insofar as it has received the reports and associated documents listed in clause 22.1(a)) nor is the Principal aware of any claim, judgment, enforcement action or the like regarding any actual or alleged presence of substances on the Site, the migration of substances emanating from the Site on to other land or waters or the violation of any Environmental Laws. (B) There is no substance present in, on or under the Site which would give rise to any liability the value of which would exceed $50,000 (including, without limitation, damages, penalties, clean-up or related orders, costs, injunctive relief or enforcement orders of any kind) under Environmental Laws nor which may become or give rise to such a liability in the future. (C) The Site following the excavation contemplated in clause 22.1(e) is safe and without risk to the health of persons. (D) Occupation and use of the Site following the excavation contemplated in clause 22.1(e) will not breach any Environmental Laws. 46 (3) INDEMNITY The Principal shall indemnify and keep indemnified the Developer harmless from and in respect of any and all damages, suits, claims, penalties, losses, liabilities and expenses (including, without limitation, all engineering, accounting, legal and other expenses) which may be imposed upon or incurred by or asserted against the Developer within the twenty-five (25) year time period referred to in sub-clause (4) by any other person (including, without limitation, any governmental entity, landowner, employee, independent contractor, invitee or any other person) arising out of or in connection with any contamination, pollution, material degradation or material harm to the Environment or any breach of Environmental Laws or any of the warranties at sub-clause (2) involving any substance, material or waste on or under the Site at the date of this Agreement which is peculiar to the Site and not commonly present in such quantities in the Environment and which quantities are of such nature or concentration as would potentially lead to the Environmental Protection Authority requiring or ordering site investigations or remedial action. (4) PERIOD OF WARRANTIES The warranties and indemnity provided by this clause will remain in force for a period of twenty-five (25) years from the date of this Agreement. (5) RELIANCE The Principal acknowledges that the Developer intends to give exactly corresponding warranties and indemnities to, inter alia, the Design and Construction Contractor and agrees to indemnify the Design and Construction Contractor against any or all damages, suits, claims, penalties, losses, liabilities and expenses (including, without limitation, all engineering, accounting, legal and other expenses) which may be imposed upon or incurred by or asserted against the Design and Construction Contractor by any other person (including, without limitation, any governmental entity, landowner, employee, independent contractor, invitee or any other person) arising out of or in connection with any breach of the Developer's warranty or loss or liability pursuant to its indemnity. (6) SURVIVAL OF WARRANTIES AND INDEMNITY The warranties and indemnities given by the Principal in this sub-clause 22.1(d) shall continue for the full period of twenty-five (25) years referred to in sub-clause (4) and for that purpose shall survive the expiration or sooner determination of this Agreement. 47 (e) The Principal must cause the Site to be excavated to the levels and dimensions identified in Annexure L ("Bulk Excavation") prior to the Licensing Date. (f) The references to Site in this clause 22.1 means the Site for the Permanent Casino. 22.2 TEMPORARY SITE CONDITIONS (a) The Developer acknowledges that it is aware that the Site is contaminated as identified in the report of Envirosciences Pty Limited of August 1993 ("Envirosciences Report") and the report titled "Public Works City West, Darling Island Site Investigation" prepared by Woodward-Clyde Pty Limited of 7 April 1994 ("Woodward-Clyde Report"). (b) The Principal and the Developer acknowledge that the Envirosciences Report discloses the existence of asbestos, polychlorinated biphenyls, synthetic mineral fibres and lead within the improvements erected upon the Site ("Envirosciences Contaminants"). The Principal must cause the Envirosciences Contaminants to be removed from the improvements in an appropriate manner (or in the case of lead the same may be painted over) on or before the Lease Commencement Date of the Construction Sub-Lease. If any Contaminants are found in the improvements erected on the Site other than the Envirosciences Contaminants (or further contaminants of the same type) or if any notice is issued by the Environmental Protection Authority in relation to the Site then the Principal shall indemnify the Developer against any costs, expenses, claims, liabilities and losses suffered or incurred by the Developer resulting therefrom. (c) The references to Site in this clause 22.2 mean the Site for the Temporary Casino. 22.3 CLAIMS Subject to clauses 22.1, 22.2 and 24 the Developer assumes all risks in relation to the conditions of the Site and its surroundings including the subject matter of the Woodward-Clyde Report and the Developer agrees not to take action or make any claim for compensation or damages, costs or expenses other than in accordance with or for breach of clauses 22.1 and 22.2 against the Principal or any of its servants, agents or consultants in relation to the condition of the Site and hereby releases each such person from any such action or claim whether or not such action or claim is known or foreseeable at the date of this Agreement. PART 23 INSPECTION AND TESTING 23.1 NOTICE The Principal may, from time to time, give to the Developer notice in writing that: (a) the Principal proposes to carry out, during the progress of the Project, inspections, measurements or tests; or 48 (b) the Principal requires the Developer to carry out, during the progress of the Project, inspections, measurements or tests described in the notice. Any notice given under this clause shall be given sufficiently in advance of the proposed dates of completion of the work to be inspected, measured or tested so as not to delay its completion. 23.2 INSPECTION AND TESTING If the Principal gives to the Developer a notice pursuant to clause 23.1; (a) the Developer must ensure that no part of the Project thereafter becomes inaccessible before any required inspection, measurement or test is completed; and (b) if the notice is pursuant to clause 23.1(a), the Developer must permit the Principal or their respective agents to carry out the inspection, measurement or test; or (c) if the notice is pursuant to clause 23.1(b), the Developer must carry out the inspection, measurement or test, in accordance with the conditions set out in the notice and at a time specified in the notice and must immediately thereafter provide to the Principal a copy of the results of the inspection, measurement or test; and (d) if the results of the inspection, measurement or test reveal that the Project complies with this Agreement then the cost of any such inspection, measurement or testing shall be added to the Contract Sum and, if not, the cost shall be borne by the Developer. 23.3 NON-COMPLIANCE If following any inspection, measuring or examination of the Project the Project does not comply with the provisions of this Agreement the Principal may by notice to the Developer specify: (a) in what respect the Project does not comply; and (b) what action must be taken to rectify the non-compliance and the time within which that action is to be taken, and the Developer must comply with such notice. 23.4 SUSPENSION If the Developer fails for any reason to comply with a notice given pursuant to clause 23.3 the Principal may, without prejudice to any other right or remedy arising because of such failure, by notice to the Developer direct the suspension of the Project until the notice given pursuant to clause 23.3 is complied with. 49 PART 24 SERVICES 24.1 PERMANENT CASINO (a) The Principal must use its best endeavours to ensure that the Casino Authority uses its best endeavours to ensure that all Authorities promptly and efficiently make available, upon appropriate normal terms, including an appropriate application by the Developer, if necessary, services and utilities to, from and within the Site for the Permanent Casino relating water, sewerage, drainage and electricity to satisfy the loading requirements of the Permanent Casino indicated in the Development Proposal and Project Briefs. (b) Subject to sub-clause (a) the Developer assumes the risk in relation to services serving the Site for the Permanent Casino. 24.2 TEMPORARY CASINO (a) The Principal warrants that the services within, from and to the Site for the Temporary Casino, including without limitation, water, sewerage, drainage, electricity and gas are located as indicated in and will satisfy the loading requirements identified in the Development Proposal and Project Briefs and will be sufficient for the development of the Temporary Casino. (b) The Principal indemnifies the Developer from and against all losses, damages, costs and expenses incurred by the Developer and the Design and Construction Contractor by reason of the breach of the Principal's warranty under this clause. PART 25 CONFIDENTIALITY 25.1 CONFIDENTIALITY All documents and information provided by one party to another party under this Agreement must be kept confidential and not disclosed to any person other than the Agent, other financiers approached by the Agent in respect of the Project and the Casino Authority without the consent of the other party unless: (a) the information is in the public domain; (b) disclosure is made to consultants to or financiers of the party who are under an obligation not to disclose such information; or (c) disclosure is required by law. 25.2 TERMINATION The obligation in clause 25.1 apply after termination of this Agreement. 50 PART 26 DESIGN AND CONSTRUCTION CONTRACT 26.1 BUILDING CODE OF PRACTICE Any building contractor appointed by the Developer (including Leighton Contractors Pty Limited) must comply with the New South Wales Code of Practice for Construction. 26.2 OCCUPATIONAL HEALTH AND SAFETY PLAN Any building contract entered into by the Developer (including the Design and Construction Contract) must contain a provision requiring the builder to prepare and comply with an occupational health and safety plan which is acceptable to the Casino Authority. PART 27 WAIVER 27.1 WAIVER No waiver by any party to this Agreement will be binding upon the parties unless it is in writing. No waiver of one breach of any term or condition of this Agreement will operate as a continuing waiver unless expressed to so operate in writing. PART 28 PLANNING APPROVAL 28.1 PLANNING APPROVAL If, notwithstanding the best endeavours of the Developer, the Planning Approval is not obtained within the time provided in the Design and Construction Programme or if the Planning Approval, as obtained, contains conditions not consistent with the Development Proposal and Project Briefs, the Developer acknowledges that notwithstanding any other provisions of this Agreement it will not be entitled to extra costs by way of either delay costs or Variations in respect of the first $1,000,000 of extra cost incurred by the Developer as a result of the conditions themselves or of the delay in obtaining the Planning Approval or complying with the conditions attached to it. PART 29 LIGHT RAIL WARRANTY DEED 29.1 LIGHT RAIL WARRANTY DEED The Developer will execute and will procure the Design and Construction Contractor to execute in favour of the owner of the light rail works deeds of warranty at the times and in the form contemplated by Clause 6.14 of the Construction Lease. 51 The Developer will execute, and will procure the Design and Construction Contractor to execute a power of attorney in relation to the execution of the light rail warranty deeds at the times and in the form contemplated by the Construction Lease. Prior to the Principal conducting the negotiations contemplated by Clause 6.14 of the Construction Lease the Principal shall consult with the Developer and have due regard to its reasonable requirements as to the form of the deeds. The Principal shall seek to involve the Developer in all relevant negotiations and shall act in good faith in protecting the Developer's interests in such negotiations or any relevant dispute resolution process. 29.2 LIGHT RAIL WORKS The Developer indemnifies the Principal for its liability under clause 6.12 of the Construction Lease except to the extent to which such liability is caused or contributed to by a breach by the Principal of this Agreement or the Casino Agreements (not being the Developer's conduct resulting in exercise by the Casino Authority of that right). PART 30 BUILDING SERVICES CORPORATION ACT, 1989 30.1 RESIDENTIAL BUILDING WORK AND SPECIALIST WORK (a) Notwithstanding any term to the contrary, the Developer must not do any residential building work or specialist work forming part of the Sydney Casino. (b) Any term of this Agreement which suggests that the Developer is obliged to do residential building work or specialist work means that the Developer must procure the execution of the residential building work or specialist work by entering into a contract with a Licensed Contractor. (c) This clause 30 will not relieve the Developer from any liability under this Agreement. The Developer shall be liable to the Principal for the acts and omissions of a Licensed Contractor as if they were acts of the Developer. PART 31 DEVELOPER'S SECURITY 31.1 On or prior to the Opening of the Temporary Casino the Principal must provide to the Developer as security for payment of amounts payable under this Agreement two unconditional undertakings (the "Undertakings") in a form acceptable to the Developer given by Australian banks (or other financial institutions approved by the Developer) each for an amount of twelve million dollars ($12,000,000). 31.2 In lieu of providing one of the Undertakings the Principal may provide a duly completed and executed irrevocable letter of credit in the form of Schedule 5 to the Facility Agreement (allowing for partial drawings and with no expiry date) issued by the Agent for 52 an amount of twelve million dollars ($12,000,000) (the "Letter of Credit"). 31.3 The Developer may only make demands or requests for payment under the Undertakings or the Letter of Credit at the times and for the amounts referred to in this clause 31. 31.4 If the Principal fails to pay any amount payable under this Agreement ("Unpaid Amount") within ten (10) business days of the due date for payment the Developer may make a demand or request for payment under each of the Undertakings or alternatively one of the Undertakings and the Letter of Credit (if it has been provided in lieu of one of the Undertakings) each demand or request being for an amount equal to one third of the Unpaid Amount. 31.5 The Developer must return the Undertakings and the Letter of Credit (if applicable) to the Principal at the Determination Date. PART 32 REVIEWS 32.1 On a quarterly basis commencing on the day which is four (4) months after the Opening of the Temporary Casino the parties and the Agent must meet and review the requirement for Fortnightly Progress Claims to continue and for the Developer to continue to hold the Developer's Security (the "Review"). 32.2 The parties and the Agent must act in good faith in conducting each Review and have regard, among other things, to the free cashflow from the Temporary Casino (as determined by the Principal and verified by the Agent) to be applied after the Review from Gross Project Revenue (as defined in the Facility Agreement) towards Completion (as defined in the Facility Agreement). PART 33 OTHER CONSULTANTS 33. If the Developer or the Design and Construction Contractor engages a person in respect of the Project ("Engagement") and that person is the subject of a nomination by the Lessor under clause 5.8 of the Construction Lease or the Construction Sub Lease the Developer must procure that person to enter into a deed to the same effect as the Copyright Assignment Deed in respect of the Engagement within twenty (20) days of the Principal advising the Developer of the nomination. PART 34 CONSTRUCTION LEASE 34.1 If third alternative under clause 9.3 of the Construction Lease or the Construction Sub Lease is adopted by the parties to the Construction Lease or Construction Sub Lease then the Developer 53 shall, after notification by the Principal that the third alternative has been adopted, promptly demolish the improvements and clear the Site of all improvements, structures, rubbish and debris. 34.2 If clause 34.1 applies then: (a) the Developer will be entitled to be paid: (1) the unpaid contract value of work completed prior to the demolition (including any appropriate component of the Contract Sum for profit); (2) the cost of materials or services properly ordered and intended for incorporation in the Project for which the Developer has paid or is liable to pay; (3) the reasonable cost of demobilisation and removal from the Site of the Developer's tools, plant, equipment and temporary buildings; (4) all reasonable costs incurred in carrying out the demolition and clearance; and (5) a reasonable allowance for profit and off site overheads in respect of the matters referred to in sub-paragraphs (2) to (4); and (b) the Developer will not be entitled to be paid for the work under the Agreement which is not executed or any amount for profit foregone in respect of the unexecuted work. 54 ANNEXURE C DEVELOPMENT PROPOSAL AND PROJECT BRIEFS 1. Development Proposal and Project Briefs for Temporary Casino. 2. Development Proposal and Project Briefs for the Permanent Casino complex including transfer of FF&E: 3. Room Data Sheets for: (a) Temporary Casino; (b) Permanent Casino. 4. Drawings prepared by the Architectural Consultant as listed in this Annexure. 5. Indicative Site Control Policies and Procedures. In case of any inconsistency between the above documents the order of precedence shall be as set out above. ANNEXURE C SYDNEY HARBOUR CASINO A. PERMANENT CASINO - Project Brief Issue G dated 22nd April 1994 - Room Data Sheets Issue D dated 22nd April 1994 - Architectural Drawings received as listed below: CCA NO. DRAWING NO. TITLE S1/2 J078/A/0049/SK/04 Site Plan S2/2 J078/A/0065/SK/03 Site Landscape Plan F1/12 J078/A/0053/SK/09 Floor Plan Level - 4 Carparking F2/12 J078/A/0003/SK/14 Level - 3 Carparking F3/12 J078/A/0004/SK/16 Level - 2 Carparking F4/12 J078/A/0005/SK/15 Level - 1 Carparking F5/12 J078/A/0006/SK/16 Back of House/ Pyrmont Street Level F6/12 J078/A/0007/SK/16 Casino Level F7/12 J078/A/0008/SK/12 Casino Mezanine Level F8/12 J078/A/0087/SK/09 Podium/Roof Access F9/12 J078/A/0009/SK/18 Private Gaming/ Function Rooms F10/12 J078/A/0041/SK/07 Typical Hotel/ Apartments Floor Plans(Lo Rise) F11/12 J078/A/0103/SK/04 Typical Hotel/ Apartments Floor Plans(Hi Rise) F12/12 J078/A/0054/SK/05 Roof Plan C1/5 J078/A/0011/SK/16 Section East-West Section/Section AA C2/5 J078/A/0027/SK/06 North-South Section/Section BB C3/5 J078/A/0119/SK/03 Showroom Theatre C4/5 J078/A/0040/SK/06 Lyric Theatre C5/5 J078/A/0127/SK/01 Casino Surveillance Offices E1/4 J078/A/0056/SK/07 Elevation Pyrmont Street Elevation E2/4 J078/A/0055/SK/07 Foreshore Road Elevation E3/4 J078/A/0057/SK/06 Jones Bay Road Elevation E4/4 J078/A/0126/SK/03 Edward Street Elevation SA1/7 J078/A/0098/SK/05 Back of House Level SA2/7 J078/A/0058/SK/07 Casino Level SA3/7 J078/A/0128/SK/01 Casino Mezzanine Level SA4/7 J078/A/0097/SK/06 Private Gaming/Function Rooms Level SA5/7 J078/A/0100/SK/03 Heritage Building SA6/7 J078/A/0109/SK/03 Apartment Layouts SA7/7 J078/A/0090/SK/02 Typical Hotel Guest Room *Lyric Theatre Sketches see LPPL Memo dated 17/3/94 B. TEMPORARY CASINO - Project Brief Issue G dated 22nd April 1994 - Room Data Sheets Issue C dated 22nd April 1994 - Architectural Drawings received as listed below:- CCA NO. DRAWER NO. TITLE TS1/1 J078/A/1539/SK/02 Site Plan TF1/2 J078/A/1536/SK/05 Ground Floor Plan TF2/2 J078/A/1537/SK/05 Mezzanine & PPF Plan TE1/1 J078/A/1540/SK/03 Elevations of Sections LPPL/BRIEF/SK/001 Site Boundary Detail LPPL/BRIEF/SK/002 Main Entrance Canopy Detail NOTE: Details on drawings marked with an * take precedence over details on other drawings. [Original on Leighton Properties Fax Transmission Cover Sheet] LEIGHTON PROPERTIES FAX TRANSMISSION TO: Philip Cox Philip Cox, Richardson, Fax No: (02) 264 5844 Taylor & Partners John Richardson Karl Chee Peter Longley Hillier Group Colin Henson Ove Arup & Partners Fax No: (02) 261 2181 Bob O'Hea Barry Webb Barry Webb & Associates Fax No: (02) 418 1191 Gary Lowe Phil Turner Bruce Arundell Fax No: (02) 929 7986 & Partners George Koutoulas Robert Fitzell Robert Fitzell Fax No: (02) 498 7788 Acoustics G. Gallagher TRACT Fax No: (02) 954 3825 Steve Calhoun John Frost Cini Little Pty Limited Fax No: (02) 418 8335 Ashley Colley WT Partnership Fax No: (02) 957 3161 Tony Makin Peter Rixon Vision Fax No: (07) 870 1002 David Bird Fax No. (03) 614 8612 Howard Tanner Howard Tanner & Fax No: (02) 281 4337 Associates Roger Hale TWA Fax No: (02) 436 4127 David Weatherall Mark Bouton Leighton Contractors Fax No: (02) 415 2509 Pty Limited (02) 233 3053 John Dunlop _________________________________________________________________ FROM Andrew Cooper TEL NO: (02) 925 6080 DATE: 17 MAR 94 PAGES: 1+3 RE: SYDNEY HARBOUR CASINO Lyric Theatre Following review of Lyric Theatre Areas, the following areas should be deducted from our schedule of areas for 14 March 94 Drawings. Regards, ANDREW COOPER [4 Pages of Lyric Theatre Area Drawings] SYDNEY HARBOUR CASINO ANNEXURE 'C' SITE CONTROL POLICIES AND PROCEDURES (PRO FORMA) A. SITE VISITS - AGENT, PRINCIPAL, DEVELOPER AND C.C.A. 1. Report to Site Office 2. Complete Register of Site Visits 3. Visitor Identification Tag 4. Compliance with appropriate safety requirements, ie. hats, boots, etc. 5. Return to Site Office and complete Visitor Register, return hats, etc. B. SEPARATE CONTRACTORS/OPERATOR COMMISSIONING 1. GENERAL CONDITIONS - Crib and ablution facilities - Carparking - Service provision and charges, ie. power, water, etc. 2. TRANSPORTATION (HORIZONTAL AND VERTICAL) OF GOODS AND MATERIALS - Access to builders lift, alimak and cranes - Use of forklifts, type of forklift - Use of pallet trucks 3. STORAGE AREAS - Designated areas - Storage compound requirements - Storage compound size and location 4. RUBBISH REMOVAL - Frequency - Bin location - Costs associated with failure to remove rubbish Page 1 of 2 SYDNEY HARBOUR CASINO 5. INDUSTRIAL RELATIONS - Site Policy - Compliance with Site Policy - Details of individual employees - Proof of payment of entitlements - Employee identification - N.S.W. Government-Code of Practice 6. OCCUPATIONAL HEALTH AND SAFETY - Site Safety Policy - Site Safety Induction/cost - Tagging of electrical equipment - Material safety data sheets - Site Safety Committee - O.H.&S. Act - specific project requirements 7. WORKING HOURS - Normal working hours - Overtime hours - procedure and notification - R.D.O. 8. CO-OPERATION, CO-ORDINATION AND INTEGRATION - Interface (direct and indirect) with Builder and Builder's subcontractors - Programme proposals - Programme requirements - Protection of existing works - Damage to existing works 9. OBSTRUCTION TO SERVICES - Avoidance of obstruction and damage to services - Damage resulting from blocked drains, severed power lines, etc. - Repair and restoration 10. CONFIDENTIALITY - Site photographs - Site information disclosure - Special requirements of Casino Site Page 2 of 2 55 ANNEXURE D DESIGN AND CONSTRUCTION PROGRAMMES 1. Temporary Casino. 2. Permanent Casino. [Sydney Harbour Casino, Leighton Properties Pty Limited, Perm Casino and Carpark Construction Drawings] 56 ANNEXURE E FORM OF SECURITY Two Unconditional Bank Guarantees to be provided each for half of the amount stated in Annexure A. ANNEXURE E FORM OF SECURITY COMMONWEALTH BANK OF AUSTRALIA ACN 123 123 124 PROFORMA BANK GUARANTEE Security Deposit Guarantee To [Favouree] .............................................. ............................................................ Security Deposit by [Customer] ............................. At the request of the abovementioned Customer and in consideration of the abovementioned Favouree at the request of the Commonwealth Bank of Australia (hereinafter referred to as the Bank) dispensing with the lodgement by the Customer of the Security Deposit for: ............................................................ ............................................................ ............................................................ The Bank unconditionally undertakes to pay on demand any sum which may from time to time be demanded by the Favouree to a maximum aggregate sum of: [Amount of Security Deposit].......................... ($.......) The undertaking is to continue until a notification has been received from the Favouree either that the Security Deposit is no longer required by the Favouree or until payment to the Favouree by the Bank of the whole of the said sum or such lesser sum as may be required by the Favouree. Should the Favouree notify the Bank that it desires payment to be made to it of the whole or any part of the said Security Deposit, it is unconditionally agreed that such payment or payments will be made to the Favouree forthwith without further reference to the Customer and notwithstanding any notice given by the Customer to the Bank not to pay same. Provided always that the Bank may at any time without being required to do so pay to the Favouree the Security Deposit less any amount it may have already paid hereunder and thereupon the Bank's liability under this undertaking will immediately cease and determine. The benefit of this guarantee is personal and not capable of assignment. Dated at .......... this ..... day of ................. 199.. For the Commonwealth Bank of Australia ................................................. Branch ................................................. Manager 57 ANNEXURE F Not used. 58 ANNEXURE G PRECONSTRUCTION PERIOD DRAWDOWN SCHEDULE ANNEXURE G PRECONSTRUCTION DRAWDOWN SCHEDULE Monthly Accumulative $ $ 1994 May 910,000 910,000 June 1,800,000 2,710,000 July 2,540,000 5,250,000 August 2,980,000 8,230,000 September 3,203,000 11,433,000 October 2,890,000 14,323,000 59 ANNEXURE H SCHEDULE OF MONETARY ALLOWANCES SYDNEY HARBOUR CASINO SCHEDULE OF MONETARY ALLOWANCES FILE: SHC05 DATE:22APR94 ISSUE: M PERMANENT TEMPORARY ITEM CASINO(S) CASINO(S) TOTAL(S) 1 Theming & FOH finishes 43,300,000 2,650,000 2 Landscaping - Casino 4,500,000 800,000 3 Landscaping - Street 400,000 4 Landscaping - Roof + 4,800,000 F/shore terrace 5 Kitchen & Bar Equipment# 6,550,000 3,300,000 6 Specialist Lighting 5,500,000 1,000,000 - Internal (VLS) 7 Specialist Lighting 2,500,000 250,000 - External (BWA) 8 Showroom Theatre - 4,240,000 Lighting & Equipment 9 Lyric Theatre - Lighting 1,500,000 & Equipment 10 Banquet & Function 500,000 rooms - L&E 11 Building Identification 650,000 350,000 Signage 12 Directional & Internal 650,000 Signage 13 Car Park Controls 350,000 70,000 14 Roof/Water Features at Casino Roof inc Rainbow Serpent 1,800,000 Glass Tower Hydraulics 2,430,000 Electrical 900,000 Specialist 1,080,000 Lighting Special Features 450,000 Membrane to 500,000 feature 7,160,000 15 Lift Car Finishes 380,000 40,000 (FOH Lifts x 17no/ 16 Showroom Fitout of 1,500,000 Auditorium-Seats+ Finishes 17 Lyric Fitout of Auditorium 3,000,000 - Seats+Finishes 18 Charter Boat Wharf 750,000 0 19 Sydney Electrical Lighting 3,000,000 Station Refurbishment 20 Joinery - Casino Cage,coin 1,500,000 250,000 coin rdmpn,sec pod,cloak 21 Joinery - Hotel, Serv Apts 3,600,000 22 Acoustic Treatment 2,000,000 23 Facade - External + 24,500,000 1,750,000 Internal Skin 24 Pyrmont Bay Water Feature 4,000,000 25 Precinct Traffic Road 260,000 Signage Dynamic 26 Precinct Traffic Road 100,000 Signage Non active 27 Al fresco dining at 150,000 North end of T/C (roof) 28 Associated Precinct 1,360,000 300,000 Traffic Works (OAT) 29 Vidiscreen to Sports Bar 400,000 30 Reinstatement to Temp 60,000 Casino access 31 Handrail to Wharves 12+13 80,000 32 Roof features 1,300,000 TOTAL 130,250,000 11,050,000 141,300,000 33 FFE (Casino, Offices, 34,929,000 22,071,000 57,000,000 Hotel, Serv Apts) Refer SHC8 (Issue H) 34 Allowance for Rise + Fall 5,200,000 5,200,000 TOTAL 170,379,000 33,121,000 203,500,000 LCPL is to allow for its preliminaries, indirect costs and design fees separately in the base building price except for Items 25, 26, 28 whose allowance includes design fees. # Kitchen allowance inclu transfer of equipment from Temp casino SYDNEY-HARBOUR CASINO SCOPE OF WORKS FOR SCHEDULE OF MONETARY ALLOWANCES 22 APRIL 1994 ISSUE B THE CONTRACTOR IS DEEMED TO HAVE ALLOWED FOR INDIRECT COSTS AND DESIGN FEES SEPARATELY IN THE CONTRACT PRICE, EXCEPT FOR ITEMS 25, 26, AND 28 WHICH INCLUDE AN ALLOWANCE FOR DESIGN FEES. IF CONSTRUCTION PLANT AND/OR EQUIPMENT IS REQUIRED TO INSTALL ANY WORK THE SUBJECT OF A MONETARY ALLOWANCE THEN: (A) IF THE CONTRACTOR ALREADY HAS IN PLACE ON SITE APPROPRIATE CONSTRUCTION PLANT AND/OR EQUIPMENT TO INSTALL SUCH WORK THEN IT SHALL BE PROVIDED BY THE CONTRACTOR AT NO ADDITIONAL COST TO THE DEVELOPER, OR (B) IF CONSTRUCTION PLANT AND/OR EQUIPMENT IS REQUIRED TO BE BROUGHT ON SITE SPECIFICALLY TO INSTALL SUCH WORK THEN THE COST OF THE PLANT AND/OR EQUIPMENT SHALL BE TAKEN INTO ACCOUNT IN VALUING THE COST SUCH WORK. 1. THEMING & FOH FINISHES: The scope of this allowance includes for all work to supply and install/construct/support: (i) Finishes to floor, wall and columns (ii) Bar and servery finishes. (iii) Ceilings to the nominated FOH rooms as set out in the Room Data Sheets. (iv) Supplementary features, including internal landscaping, to enhance the ambience of the nominated FOH rooms. 2, 3, 4 LANDSCAPING: PERMANENT CASINO The scope of this allowance includes the supply and installation of; (i) Paving to -Porte Cochere, -Foreshore Terrace steps, -Through Site Link @ RL108.5, -External stair cases, -LRT/Bus Coach setdown area, -Roof through site link and -External colonnades, -Feature gravel to non -Perimeter footpaths, trafficable rooves. (ii) Handrails and balustrades to: -Terrace balconies -Roof -Foreshore Terrace Steps -External stairs. (iii) Soft landscaping to Foreshore Terrace Steps, Roof, footpaths including associated structural container, irrigation, soil, additional membrane over and above horizontal roof membrane allowed by the Contractor. (IV) Street furniture. The Contractor has allowed for the necessary structural support and drainage of all hard landscaping, and drainage from soft landscaping where suspended. LANDSCAPING: TEMPORARY CASINO The scope of this allowance includes the supply and installation of: (i) pedestrian paving to selected entrance areas at the Temporary Casino site (ii) make good to existing Wharf Promenade pavement areas (iii) soft landscaping (iv) Street Furniture. The Contractor has allowed for the necessary structural support and drainage of all hard landscaping, and drainage from soft landscaping where suspended. 5. KITCHEN & BAR EQUIPMENT: The scope of this allowance includes the supply and installation of equipment required to meet the Brief and as described in Cini Little Room Data Sheets including: - F&B equipment - loose kitchen FFE - shelving to coolrooms but excluding shelving to Storerooms (included under FFE) 6. SPECIALIST LIGHTING - INTERNAL: The scope of this allowance includes the supply and installation of all specialist, architectural lighting associated with internal FOH areas (as defined in Room Data Sheets under "ESL5") plus associated emergency and exit lighting to the respective areas, controls and wiring from the relevant Distribution Board. 7. ETERNAL LIGHTING: The scope of this allowance includes the supply and installation of all architectural feature lighting to external public landscape areas, illumination of buildings (floodlighting) and footpath lighting, including associated controls and wiring from the relevant Distribution Board. It shall include special structures or posts required to support or contain the light fitting. 8. SHOWROOM - LIGHTING & EQUIPMENT The scope of this allowance includes the supply and installation of the following works: - Double purchase counter weight system - Fire Curtain - Stage Drapes - House Curtain - Cinema Screen - Stage Communications & CCTV - Stage Audio (Basic System) - Stage Lighting (Basic System) - 2 Offside Revolving Stages - 2 Stage Elevators - 1 Forestage Elevator - 1 Catwalk Elevator - 1 Rain Curtain 9. LYRIC - LIGHTING AND EQUIPMENT: The scope of this allowance includes the supply and installation of the following works: - Double purchase counterweighting system - Fire Curtain - Stage Drapes - House Curtain - Cinema Screen - Stage Communications & CCTV - Stage Audio (Basic System) - Stage Lighting (Basic System) 10. BANQUET: The scope of this allowance includes the supply and installation of the following works: - Lighting Droppers - Stage Lighting (Basic System) 11. BUILDING IDENTIFICATION: The scope of this allowance includes the supply and installation of external identification signage to the Complex including illumination, supports, controls and wiring. 12. INTERNAL & DIRECTIONAL SIGNAGE: The scope of this allowance includes the supply and installation of all directional and information signage to suit interior decor, but excluding door name, number, statutory signage (allowed for by the Contractor). 13. CAR PARK CONTROLS The scope of works includes the supply and installation of boom gates, ticket dispense machines, security controls magnetic card readers, intercom equipment. (Construction of booths, plinths, conduit, structure has been allowed for by the Contractor.) 14. ROOF/WATER FEATURES AT CASINO: The scope of this allowance includes the supply and installation of the following works: (i) Additional structural work to support the roof/water feature (ii) Glass/Metalwork/masonry/etc to create the feature (iii) Hydraulic works, including tanks, pumps, fittings and piping, water treatment (iv) Electrical works - including power and lighting, controls and wiring (v) Additional membrane, extra over to horizontal roof membrane allowed for by the Contractor. 15. LIFT CAR FINISHES: All internal lift car finishes (floor, wall, ceiling), lighting and extra over treatment to lift control panel. 16. SHOWROOM AUDITORIUM FITOUT: The scope of works includes the supply and installation of: (i) finishes to floor, walls (ii) ceiling and ceiling finishes (iii) tables and seats (iv) baulstrading and handrails to steps 17. LYRIC AUDITORIUM FITOUT: The scope of this allowance includes the supply and installation of: (i) finishes to floor, walls (ii) ceiling and ceiling finishes (iii) tables and seats (iv) balustrading and handrails to steps 18. CHARTER BOAT FITOUT: The scope of this allowance includes the supply and installation of all work associated with the Charter Boat wharf to be located at Pyrmont Bay: (i) pontoon (ii) superstructure (iii) piling (iv) connecting ramp (v) lighting (from street system) 19. SELS BUILDING REFURBISHMENT: The scope of work includes all refurbishment work to restore the actual building from current condition to a completed, fitted out, building including: (i) cleaning and restoration of facade (ii) repair and/or replacement of existing fenestration, and new fenestration to east facade (iii) repair/replace floors (iv) repair/replace roof (v) install new building services - electrical, hydraulic, fire, mechanical, lifts, and security (vi) fitout including finishes to floor, walls, ceilings as described in the Room Data Sheets. 20. JOINERY - CASINO: The scope includes for the supply and installation of all joinery required to facilitate the operation of MGF and PGR including those items listed in the Room Data Sheets. 21. JOINERY TO HOTEL AND SERVICED APARTMENTS: The scope includes for the supply and installation of: (i) Hotel: Bedhead, vanity, wardrobe, luggage rack, minibar and cupboards (ii) Serviced Apartments: Bedhead, vanities, kitchen, wardrobes, linen cupboard, laundry cupboards. 22. ACOUSTIC TREATMENT: The scope of this allowance is to cover the works to be added to contract price to achieve acoustic performance criteria as set out in the Project Brief. The following items have been included in the Contractor's price; - - Separate Structure for Lyric Theatre - - Acoustic treatment to Hotel and Serviced Apartments' rooms/corridors - - Side masonry walls to Lyric Auditorium to provide air gap 23. FACADE: PERMANENT CASINO The scope of this allowance includes for the supply and installation of the facade/perimeter wall elements to the project (podium and towers) including: (i) cast-in fixings (ii) structural support system (iii) external and internal skin, including finish of internal skin and spandrel (iv) glazing including openable windows to the towers (v) internal and external sills (vi) sunshading (vii) balcony balustrading and "clip-on" balconies (viii) cladding to columns (ix) plant room enclosure (x) flytower walls (xi) terrace/balcony parapet walls (xii) parapet walls at roof level (xiii) building maintenance units to the towers, incorporating fixed davits to top of towers and as delineated on LPPL/Facade/SK1 - 11 attached (dated 14 April 1994) FACADE: TEMPORARY CASINO The scope of this allowance includes all work necessary to upgrade the existing facade of the Wharves 12 and 13 Building to the designed quality of finish, as detailed on the relevant contract drawings. The scope of works will include: (i) new cladding as detailed (external and internal skin) including finishes to internal skin (ii) repair, paint and upgrading of external and internal skin to facade elements that will be retained (iii) new facade to Restaurant elements (iv) enclosure to external services plant and equipment but excluding Porte Cochere canopy which has been allowed for by the Contractor in the Contract price. 24. PYRMONT BAY WATER FEATURE: The scope of this allowance includes the supply and installation of all equipment for the water feature located on the Foreshore and in Pyrmont Bay including: (i) hydraulic components - associated piping, pumps fittings and controls. (ii) electrical components - power and lighting, associated controls and wiring. 25. PRECINCT TRAFFIC ROAD SIGNAGE - DYNAMIC The scope of this allowance includes the supply and installation of dynamic signage at a major intersection which will show the carpark capacity of four nominated carparks including computer/wiring from each carpark. 26. PRECINCT TRAFFIC ROAD SIGNAGE - NONACTIVE The scope of this allowance includes the supply and installation of all street signage required to implement the precinct and local resident parking management scheme. 27. AL FRESCO DINING - TEMPORARY CASINO The scope of this allowance includes the supply and installation of: (i) floor finish to structural slab (ii) structure to support lightweight tensile membrane for roof (iii) tensile membrane 28. ASSOCIATED PRECINCT TRAFFIC WORKS The scope of this allowance includes for the following works: (i) CWDC recommended changes: - Ban right hand turns from Pyrmont Bridge Road into Union Street and Edward Street. - Full closure Pyrmont Street North. - Linemarking and signage to denote one-way and two-way operation of a number of roads. - Replacement of roundabout at Jones Bay Road/Foreshore Drive with a traffic signal control intersection on opening of Permanent Casino. (ii) Sydney Harbour Casino initiated improvements: - Pier Street/Harbour Street/Goulburn Street improvements - Slip lane to Darling Drive - extend left turn lane by extending linemarking - Pyrmont Bridge Road improve linemarking and intersection arrangements. - Edward Street/Union Street Intersection - Priority Control and Pedestrian Provisions. - Encourage truck traffic from Pyrmont Point sites to use Foreshore Road North to access Bank Street (Load limits etc). - Signals at Foreshore road entry to Casino including pedestrian crossings. - Potential expenditure north of Jones Bay Road Foreshore Road - if permitted by CWDC - and not covered by CWDC proposed works ie interim pavement and lane marking improvements if not constructed in early stages by CWDC to allow car/bus parking and turnaround. - Reopen Murray Street at Pyrmont Street/Allen Street and signalise. - Pedestrian crossings in Pyrmont Street and Jones Bay Road. Note: Temporary traffic management and signage during the construction works of the two Casinos have been allowed for by the Contractor. (iii) Resident Amenity Plan 29. VIDISCREEN The scope of this allowance includes the supply and installation of: (i) 16 number Panasonic Multiscreen Video Projection System (43"), or equal (ii) Support structure for the units. 30. REINSTATEMENT TO TEMPORARY CASINO ACCESS The scope of this allowance includes for all work to: (i) Remove the canopy over the dining area. (ii) Remove the temporary ramp. (iii) Replace the access road and reinstatement with soft landscaping on the south western elevation of the Temporary Casino. 31. HANDRAIL WHARVES 12 AND 13 The scope of this allowance includes the supply and installation of a safety handrail to comply with statutory requirements on the eastern side of Wharves 12 and 13. 32. ROOF FEATURES: The scope of this allowance includes the supply and installation of: (i) Towers' communication metalwork and support structure (ii) canopies/awnings/trellage to terraces and public areas (iii) Pyrmont Street entry awnings excluding glazed rooves over porte cochere which have been allowed for by the Contractor. 60 ANNEXURE I PRO FORMA DESIGN CONSULTANT'S REPORT (clause 17.2(h)) ANNEXURE I (DEVELOPMENT AGREEMENT) PROFORMA OF MONTH DESIGN CONSULTANTS REPORT SYDNEY HARBOUR CASINO Monthly Consultants Report for the month of___________ ______________________ ("the Consultant") hereby certifies to Leighton Contractors Pty Limited that to the best of the Consultant's belief, from the Consultant's due provision of services under and in accordance with the Consultancy Agreement in respect of the above project (the Consultancy Agreement"); (i) The works of the said Project as depicted in all the drawings, specifications, schedules and other documents prepared by the Consultant and issued to Leighton Contractors Pty Limited have been executed to the satisfaction of the Consultant in accordance with with the requirements for the Development and Project Brief (as defined in the Consultancy Agreement), all relevant Standards and Codes of Practice and the requirements of all Authorities (as defined in the Consultancy Agreement) and; ................................................ DIRECTOR (CONSULTANT) 61 ANNEXURE J FACILITY AGREEMENT INSURANCE REQUIREMENTS EXTRACT FROM FACILITY AGREEMENT - CLAUSE 14.2(1) - INSURANCE The Borrower undertakes to: (i) maintain or procure that there is maintained proper and adequate insurances in an amount not less than the full replacement value thereof or any lesser amount approved by the Agent (acting on the instructions of the Majority Participants) with responsible and reputable insurance companies or associations and in any case approved by the Agent (acting on the instructions of the Majority Participants which instructions shall not be unreasonably withheld) for all the Secured Property which is of a nature or kind capable of being insured, with the relevant member of the Group as being named insured or loss payee or endorsee or, subject to the Transaction Documents, in the case of a claim over $500,000 in respect of the Sydney Casino Complex or any part of it, with the Participants and the Working Capital Facility Provider as loss payees or endorsees covering loss or damage by earthquake, floods, cyclone, fire, explosion or other risks for the time being and from time to time customarily insured against by companies engaged in similar businesses or in similar areas or owning similar assets, and insure against such other risks (including public liability and business interruption insurance) which the Agent (acting on the instructions of the Majority Participants) may reasonably require (and for this purpose the Agent and the Participants may, but shall not be obliged to, rely upon the advice of any insurance broker or adviser) in each case, to such extent as is prudent or as the Agent (acting on the instructions of the Majority Participants) may reasonably require; (ii) take out and maintain all proper insurance or otherwise comply with the provisions of any workmen's compensation laws or employers' liability laws or other similar laws for the time being in force, against liability on account of accident or injuries to employees; (iii) deposit with the Agent copies of the policy or policies in respect of insurance referred to in paragraphs (i) and (ii) above, deposit the originals of those policies with the Agent upon request and duly pay each premium when it becomes due and payable, and deposit with the Agent a copy of the receipt for such premium and ensure that each insurance policy: (i) provides that it may not be cancelled by any of the insureds named therein without the prior written consent of the Agent (acting on the instructions of the Majority Participants) (but the Agent shall not unreasonably withhold such consent if proper policies in accordance with this provision are substituted) and may not lapse, be cancelled or avoided by the insurance company for non payment of premiums or otherwise until at least 15 days after the date of written notice thereof to the Agent; and (ii) contains a note of the interests of the Participants, the Working Capital Facility Provider and the Agent, and provide the Agent with a copy of a certificate of compliance issued by each insurer within 14 Business Days after receipt by the Borrower. 62 ANNEXURE K PROGRESS PAYMENTS CONTROL DOCUMENT SYDNEY HARBOUR CASINO ANNEXURE K PROGRESS PAYMENT CONTROL DOCUMENT (PRO FORMA) CONSTRUCTION ZONE TRADE BREAKDOWN CARPARKS PODIUM TOWERS TEMPORARY CASINO 16 Site Signage 17 Hoardings and Temporary Fencing 18 Scaffolding 19 Dewatering 20 Demolition 21 Excavation and Shoring 24 Piles and Piers 25 Concrete 26 Formwork 27 Reinforcement 28 Post Tensioning 29 Precast Concrete 30 Structural Steel 31 Metalwork 34 Tanking 35 Brickwork and Blockwork 36 Carpentry and Joinery 41 Curtain Wall 42 Windows and Glazing 43 Metal Cladding 44 Roofing 50 Plastering SYDNEY HARBOUR CASINO TRADE BREAKDOWN CARPARKS PODIUM TOWERS TEMPORARY CASINO 53 Wall and Floor Finishes 56 Painting 58 Furnishings 60 Builders Work (BWIC with Services) 61 Hydraulic Services 62 Electrical Services 63 Security System 64 Mechanical Services 65 Fire Services 66 Lifts, Hoists and Escalators 67 Kitchen, Bar and Refrigeration Equipment 73 Landscaping 76 External Works 79 Provisional Sums 79a (Breakdown of provisional Sums) 91 Design and Quality Assurance Other Trades as Required TOTAL SYDNEY HARBOUR CASINO ANNEXURE K PROGRESS PAYMENT CONTROL DOCUMENT (PRO FORMA) CONSTRUCTION ZONE TRADE BREAKDOWN EXTERNAL HISTORIC OTHER ZONES WORKS BUILDING AS REQUIRED 16 Site Signage 17 Hoardings and Temporary Fencing 18 Scaffolding 19 Dewatering 20 Demolition 21 Excavation and Shoring 24 Piles and Piers 25 Concrete 26 Formwork 27 Reinforcement 28 Post Tensioning 29 Precast Concrete 30 Structural Steel 31 Metalwork 34 Tanking 35 Brickwork and Blockwork 36 Carpentry and Joinery 41 Curtain Wall 42 Windows and Glazing 43 Metal Cladding 44 Roofing 50 Plastering SYDNEY HAROUR CASINO TRADE BREAKDOWN EXTERNAL HISTORIC OTHER ZONES WORKS BUILDING AS REQUIRED 53 Wall and Floor Finishes 56 Painting 58 Furnishings 60 Builders Work (BWIC with Services) 61 Hydraulic Services 62 Electrical Services 63 Security System 64 Mechanical Services 65 Fire Services 66 Lifts, Hoists and Escalators 67 Kitchen, Bar and Refrigeration Equipment 73 Landscaping 76 External Works 79 Provisional Sums 79a (Breakdown of provisional Sums) 91 Design and Quality Assurance Other Trades as Required TOTAL SYDNEY HARBOUR CASINO ANNEXURE K PROGRESS PAYMENT CONTROL DOCUMENT (PRO FORMA) CONSTRUCTION ZONE TRADE BREAKDOWN TOTAL PER TRADE COMMENTS 16 Site Signage 17 Hoardings and Temporary Fencing 18 Scaffolding 19 Dewatering 20 Demolition 21 Excavation and Shoring 24 Piles and Piers 25 Concrete 26 Formwork 27 Reinforcement 28 Post Tensioning 29 Precast Concrete 30 Structural Steel 31 Metalwork 34 Tanking 35 Brickwork and Blockwork 36 Carpentry and Joinery 41 Curtain Wall 42 Windows and Glazing 43 Metal Cladding 44 Roofing 50 Plastering SYDNEY HARBOUR CASINO TRADE BREAKDOWN TOTAL PER TRADE COMMENTS 53 Wall and Floor Finishes 56 Painting 58 Furnishings 60 Builders Work (BWIC with Services) 61 Hydraulic Services 62 Electrical Services 63 Security System 64 Mechanical Services 65 Fire Services 66 Lifts, Hoists and Escalators 67 Kitchen, Bar and Refrigeration Equipment 73 Landscaping 76 External Works 79 Provisional Sums 79a (Breakdown of provisional Sums) 91 Design and Quality Assurance Other Trades as Required TOTAL 63 ANNEXURE L EXCAVATION PLAN [Floor Plan Carparking Level-3] EX-10.33 4 EXHIBIT 10.33 AMENDED & RESTATED SHOWBOAT MARINA PARTNERSHIP AGREEMENT AMENDED & RESTATED SHOWBOAT MARINA PARTNERSHIP AGREEMENT TABLE OF CONTENTS Page 1. Definitions 2 1.1 Affiliate 2 1.2 Agreement 2 1.3 Budget 2 1.4 Capital Account 2 1.5 Capital Budget 3 1.6 Capital Contribution 3 1.7 Carrying Value 3 1.8 Casino Facilities 3 1.9 Code 3 1.10 Commission 3 1.11 Comparable Companies 4 1.12 Development Expenses 4 1.13 Distributable Cash 4 1.14 Effective Date 4 1.16 Ground 4 1.17 Indiana Uniform Partnership Act 4 1.18 Interest 5 1.19 Losses 5 1.20 Managing Partner 5 1.21 Minimum Gain 5 1.22 Nonrecourse Deductions 5 1.23 Opening 5 1.24 Operating Budget 5 1.25 Partners 5 1.26 Partnership 5 1.27 Partnership's Auditor 5 1.28 Percentage Interest 5 1.29 Person 6 1.30 Project 6 1.31 Regulations 6 1.32 Vessel 6 2. Formation of the Partnership; Name; Applicable Law; Etc. 6 2.1 Formation of Partnership 6 2.2 Applicable Law 6 2.3 The Scope of Partner's Authority 6 2.4 Business Purposes 6 2.5 Term of Partnership 7 -i- 2.6 Principal Place of Business 7 2.7 Property of the Partnership 7 2.8 Certificate 7 2.9 Licensing 7 3. Funding of the Partnership 8 3.1 The Percentage Interest of Each Partner in the Partnership 8 3.2 Capital Accounts 8 3.3 Return of Capital Contributions 9 3.4 No Priority 9 3.5 Preferential Return 10 3.6 Loans 10 3.7 (Deleted - no longer used) 10 3.8 Contributions 10 3.9 Failure to Contribute 11 4. Allocations and Distributions 12 4.1 Definitions 12 4.2 Allocation of Income, Gain, Loss, Deduction (Including Depreciation), and Credit 12 4.3 Distributions and Investment of Cash 16 4.4 Development Fee 17 5. Management of the Partnership 18 5.1 Managing Partner 18 5.2 Restrictions 18 5.3 Actions Requiring Unanimous Consent of the Partners 19 5.4 Dealings with Affiliates 20 5.5 Removal of Managing Partner 20 5.6 Ground 20 5.7 Partnership Debts 20 5.8 Delegation of Authority 21 5.9 Other Ventures 21 5.10 Exculpation from Liability; Indemnification 21 5.11 Meetings of Partners 21 5.12 Reports 22 5.13 Partnership Development Financing 22 5.14 Management Agreement 24 6. Put Option 24 7. Transfer of Partner's Interest 25 7.1 Restrictions on Transfer 26 7.2 Right of First Refusal 26 7.3 Continuing Liability 26 8. PARTNER DEFAULT 27 8.1 Definition of Default 27 8.2 Defaults 27 8.3 Buyout Remedy 27 8.4 Injunctive Relief 28 9. Determination of Fair Market Value 28 -ii- 9.1 Fair Market Value 28 10. Force Majeure 29 10.1 Force Majeure Defined 29 10.2 Actions to Resolve Force Majeure Events 29 11. Termination and Liquidation of Partnership 30 11.1 Termination 30 11.2 Winding Up and Liquidation 30 11.3 Bankruptcy or Insolvency; Involuntary Transfer 31 12. Disclosure of Other Business Interest Conflicts; Business Opportunity 32 12.1 Other Business Interests 32 12.2 Competition 32 12.3 Business Opportunity 33 13. Tax Matters; Books and Records; Accounting 33 13.1 Tax Matters 33 13.2 Indemnity Against Breach 34 13.3 Records 34 13.4 Notices 35 13.5 Reports to Partners 36 14. Trademarks and Licenses 36 14.1 Showboat Marks 36 14.2 Use of Marks by Partnership 36 15. General Provisions 36 15.1 Foreign Gaming Licenses 36 15.2 Entire Agreement 36 15.3 Counterparts 37 15.4 Captions 37 15.5 Amendment 37 15.6 Grammatical Changes 37 15.7 Successors and Assigns 37 15.8 Consent of Partners 37 15.9 No Waiver 37 15.10 Disputes 38 15.11 Partial Invalidity 38 15.12 Cooperation with Nevada, Louisiana and New Jersey Gaming Authorities 38 15.13 Administrative/Development/Trademark/License Fees 38 15.14 Applicable Law: Jurisdiction 39 15.15 Financing Fees 39 -iii- AMENDED & RESTATED SHOWBOAT MARINA PARTNERSHIP AGREEMENT This Amended & Restated Showboat Marina Partnership Agreement, dated as of the 1st day of March, 1996, is executed by and between: WATERFRONT ENTERTAINMENT AND DEVELOPMENT, INC. ("Waterfront"), an Indiana corporation with its registered office at 8101 Polo Club Drive, Suite D, Merrillville, Indiana 46410, appearing herein by and through Michael Pannos, its President, duly authorized hereunto: and SHOWBOAT INDIANA INVESTMENT LIMITED PARTNERSHIP ("Showboat"), a Nevada limited partnership with its registered office at 2800 Fremont Street, Las Vegas, Nevada 89104, appearing herein by and through J. Kell Houssels, III, Chairman of the Board of its general partner, Showboat Indiana, Inc., duly authorized hereunto; W I T N E S S E T H: WHEREAS, Waterfront and Showboat formed the Partnership pursuant to a Partnership Agreement dated January 31, 1994 (the "Original Agreement")to construct, acquire, own, and operate an excursion cruise vessel casino on Lake Michigan from a port in East Chicago, Indiana, including all equipment and other facilities required to own and operate the excursion cruise vessel casino, including, but not limited to, docks, piers, restaurants, entertainment facilities, vehicular parking area(s), waiting areas, administrative offices for, but not limited to, accounting, purchasing, and management information services (including offices for management personnel) and other areas utilized in support of the operations of the excursion cruise vessel, and for the other purposes set forth in the Original Agreement ; and WHEREAS, since January 31, 1994, Waterfront and Showboat have submitted applications with the Indiana Gaming Commission ("Commission") to operate a licensed excursion cruise vessel casino on Lake Michigan from a port in East Chicago, Indiana; and WHEREAS, as a part of the applications filed with the Commission, Waterfront and Showboat have continuously evaluated the total costs and expenses of constructing the excursion cruise vessel casino and related facilities and believe that the total costs and expenses have increased to an amount of up to $195 million, which is $105 million higher than originally specified in the Partnership Agreement; and WHEREAS, following discussions with investment bankers and other consultants, the parties have determined that development financing for the Project may not be obtained by the Partnership at interest rates of 15% per annum or less; and WHEREAS, under the Original Agreement, either the increase of costs or the inability to obtain development financing at interest rates of 15% or less permits either Partner to terminate the Partnership unless the Partners can mutually agree to appropriate courses of action to resolve the condition; and WHEREAS, the Partnership has been advised by its financial advisors that it should form a subsidiary partnership to own and operate the Project and to obtain the Development Financing making the Partnership the holder of partnership interests instead of the operator and owner of the Project; and WHEREAS, the Partners, following good faith discussions, are executing this Amended & Restated Showboat Marina Partnership Agreement to resolve the matters identified in the foregoing Recitals and to make such other changes to the Original Agreement as the Partners deem necessary and advisable. Now, Therefore, in consideration of the covenants herein contained and intending to be mutually bound thereby, the parties hereto agree as follows: 1. Definitions 1.1 Affiliate The term "Affiliate" when used with respect to any Person specified herein, shall mean any other Person who (i) controls, is controlled by or is under common control with such specified Person; (ii) is an officer or director of, partner in, shareholder of, or trustee of, or serves in a similar capacity with respect to, a Person specified in clause (i); or (iii) is a twenty-five percent (25%) or more owned subsidiary, spouse, father, mother, son, daughter, brother, sister, uncle, aunt, nephew or niece or any Person described in clauses (i) or (ii). The term "control" shall mean and include ownership of a 25% or greater equity interest in such other Person. 1.2 Agreement This Amended & Restated Showboat Marina Partnership Agreement, as originally executed and as amended, modified, supplemented, or restated, from time to time, as the context may require. 1.3 Budget A Capital Budget or an Operating Budget. All Budgets shall set forth the assumptions and qualifications underlying their preparation. 1.4 Capital Account A separate account maintained for each Partner and determined strictly in accordance with the rules set forth in Section 704(b) of the Code, as amended, and Section 1.704-1(b)(2)(iv) of the Regulations. In accordance with those sections, a Partner's capital account shall be equal to the amount of money contributed by the Partner and the fair market value of any property contributed by the Partner (net of any liability secured by the property or to which the property is subject), increased by allocations of Net Income to the Partner and decreased by (a) the amount of money distributed to the Partner, (b) the fair market value of any property distributed to the 2 Partner by the Partnership (net of any liability secured by the property or to which the property is subject), (c) the Partner's share of expenditures of the Partnership described in Section 705(a)(2)(B) of the Code and (d) the net losses allocated to the Partner. To the extent that anything contained herein shall be inconsistent with Section 1.704-1(b)(2)(iv) of the Regulations, the Regulations shall control. 1.5 Capital Budget A budget setting forth all estimated sources and uses of funds for the initial development, including related road improvements to the Project, renovation, repair or replacement of the Project. 1.6 Capital Contribution The amount of cash and the Carrying Value of any property (net of any liabilities secured by such property that the Partnership is considered to assume or take subject to under Code Section 752) contributed by a party in exchange for an Interest in the Partnership. 1.7 Carrying Value The adjusted basis of any assets of the Partnership, as determined for federal income tax purposes, except: (A) The initial Carrying Value of any asset contributed (or deemed contributed) to the Partnership shall be such asset's gross fair market value at the time of such contribution; (B) The Carrying Values of all Partnership assets shall be adjusted to equal their respective gross fair market values at the times specified in Section 3.2(c) and (d) of this Agreement if the Partnership has elected to adjust the Partners' Capital Accounts as provided in such Section; and (C) If the Carrying Values of the Partnership assets have been determined pursuant to clause (a) or (b) of this section, such Carrying Values shall be adjusted thereafter in the same manner as the assets' adjusted bases for federal income tax purposes, except that the depreciation deductions shall be computed in accordance with this Agreement. 1.8 Casino Facilities All equipment and other property used in connection with the ownership and operation of the Vessel and anything used in connection with or in support of the Vessel including, but not limited to, docks, piers, restaurants, entertainment facilities, vehicular parking area(s), working areas, restrooms, administrative offices for, but not limited to, accounting, purchasing, and management information services (including offices for Showboat management personnel). 1.9 Code The Internal Revenue Code of 1986, as amended, including the corresponding provisions of any succeeding law. 1.10 Commission The Indiana Gaming Commission. 3 1.11 Comparable Companies The following seven (7) companies: Argosy Gaming Co.; Presidents Riverboat Casinos, Inc.; Grand Casinos, Inc.; Aztar Corp.; Caesar's World, Inc.; Bally Manufacturing Corp.; and Showboat, Inc. A substitution may be made only by unanimous agreement of the Partners. The Partners agree that Empress River Casino Corporation ("Empress") shall be a Comparable Company only if, at the time any calculations shall be made using data related to Comparable Companies, the Empress shall have issued to the public any security in an offering registered with the Securities and Exchange Commission. In the event that Empress is included as a Comparable Company, it shall replace Aztar Corp. or, if that company is not then a Comparable Company, it shall replace one of the companies deriving the principal portion of its net revenue from riverboat operations as mutually agreed between the Partners. 1.12 Development Expenses All expenses incurred in connection with the development of the Project which were paid by either Partner and not reimbursed by the Partnership. Each partner agrees to prepare a budget reasonably detailing the Development Expenses to be incurred by such Partner. Within thirty (30) days of the Effective Date each Partner shall submit to the other Partner, for the other Partner's approval (which approval cannot be unreasonably withheld or delayed) its Development Expenses budget. The other Partner shall have twenty (20) days to review the Development Expenses budget. Any dispute regarding the budget shall be resolved by arbitration. The Development Expenses budget may be amended from time to time with both Partners' written consent which neither Partner may unreasonably withhold or delay. Expenses not included in the Development Expenses budget shall not be reimbursed by the Partnership. Each Partner shall provide to the Partnership a monthly detailed accounting, with supporting documentation, of said Development Expenses paid by the Partner. 1.13 Distributable Cash All cash receipts of the Partnership, excluding Capital Contributions and the proceeds of any sale or financing, less cash expenditures, including but not limited to, working capital reserves or other amounts as the Partners reasonably determine to be necessary or appropriate for the proper operation of the Partnership business, discharge of current indebtedness, and, where appropriate, its winding up and liquidation. 1.14 Effective Date The Effective Date of this Agreement shall be the date upon which Waterfront and Showboat executed the Original Agreement. 1.15 Ground The site for the Casino Facilities located on land which the Partnership will have acquired by a ground lease, option to purchase, acquisition in fee or other agreement conveying control of the site to the Partnership. 1.16 Indiana Uniform Partnership Act The law of the State of Indiana governing general partnerships codified at IC 23-4-1-1 et seq., as amended. 4 1.17 Interest The entire ownership interest of a Partner in the Partnership at any particular time, including the right of such Partner to any and all benefits to which a Partner may be entitled pursuant to this Agreement, together with the obligation of such Partner to comply with the terms of this Agreement. 1.18 Losses The taxable losses (the excess of allowable deductions over recognizable income items) of the Partnership for a period, or as a result of a transaction, for federal income tax purposes as determined in accordance with Code Section 703(a) computed with the adjustments required under this Agreement. 1.19 Managing Partner The Managing Partner of the Partnership will be Showboat, subject to removal as provided herein. 1.20 Minimum Gain The amount determined strictly in accordance with the principles of Section 1.704-2(b)(2) of the Regulations. 1.21 Nonrecourse Deductions The Partnership's deductions characterized as "nonrecourse deduction" under Section 1.704-2(b)(1) of the Treasury Regulations. 1.22 Opening The date the Project opens to the public for business for gaming activities by paying customers. 1.23 Operating Budget A budget setting forth all of the estimated sources and uses of funds for the operation of the Project for a specified period. The Operating Budget shall be reviewed and evaluated quarterly. 1.24 Partners The Partners of the Partnership are Waterfront and Showboat. 1.25 Partnership This Showboat Marina Partnership, an Indiana general partnership, and its successor entities. 1.26 Partnership's Auditor The initial independent auditor for the Partnership shall be KPMG Peat Marwick. 1.27 Percentage Interest With respect to each Partner, the Interest of such Partner expressed as a percentage of the total of the Interests of all Partners as set forth in Section 3.1 of the Agreement. 5 1.28 Person Any individual, partnership, limited partnership, corporation, limited liability company, unincorporated association, or other entity. 1.29 Project The excursion cruise vessel casino development to be acquired, developed in the City of East Chicago, in the State of Indiana, and operated on Lake Michigan. Total costs and expenses associated with the Project shall not exceed $195,000,000 or be less than $170,000,000, subject to Section 10. 1.30 Regulations The regulations of the United States Treasury Department pertaining to the Code, as amended, and any successor provision(s). 1.31 Vessel The excursion cruise vessel casino to be owned and operated by the Partnership on Lake Michigan, Indiana, in conjunction with the Casino Facilities. The gaming area, to be contained in the Vessel, shall be approximately 51,000 square feet. 2. Continuation of Partnership 2.1 Continuation of Partnership The Partners hereby agree to continue the Partnership originally formed on the Effective Date as a general partnership under the Indiana Uniform Partnership Act under the name and style of Showboat Marina Partnership, and on the terms and conditions set forth herein. This Agreement shall amend and restate the Original Agreement in its entirety effective as of the date hereof. 2.2 Applicable Law The rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by the Indiana Uniform Partnership Act and this Agreement. 2.3 The Scope of Partner's Authority Except as otherwise expressly provided herein, no Partner shall have any authority to act on behalf of, or in the name of, the Partnership, or to enter into or assume any commitment or obligation or responsibility on behalf of any other Partner or the Partnership. 2.4 Business Purposes The purposes of the Partnership are (a) to acquire, design, construct, own and operate the Project, (b) to acquire, lease, sell, or otherwise dispose of other properties used or useful in connection with the foregoing, (c) to carry on any other activities necessary or incidental to the foregoing, and (d) to engage in any other business if such business is approved and agreed upon unanimously by the Partners prior to entering into such business. 6 2.5 Term of Partnership (a) Initial Term. The Partnership is constituted for an initial term ending December 31, 2023, and shall be continued for successive 1-year terms thereafter until terminated as provided in section "b" below, by operation of law or as otherwise provided in this Agreement. (b) Termination by Partner. If a Partner desires that the Partnership terminate upon the expiration of the initial term of the Partnership or any renewal term thereafter, such Partner shall give written notice to the other Partner of its intention to cause such termination at least 90 days prior to the end of the initial term or any renewal term thereafter, and the Partnership shall terminate at the end of the initial term or such renewal term, as the case may be, and shall thereafter be liquidated in accordance with the provisions of Section 11 hereof. 2.6 Principal Place of Business The principal business establishment of the Partnership shall be located in East Chicago, Indiana and shall be mutually chosen by the Partners. The Managing Partner may, in its sole discretion, change the location of the principal place of business of the Partnership, and, if it does so, it shall promptly notify Waterfront of such new location within five (5) days of such change. Notwithstanding the foregoing, in the event the Managing Partner desires to change the location of the principal business establishment of the Partnership to a location outside of East Chicago, the Managing Partner shall obtain the consent to such change from Waterfront, whose consent may not be unreasonably withheld or delayed. 2.7 Property of the Partnership All personal property and real property owned or leased by the Partnership shall be deemed to be owned or leased by the Partnership and none of the Partners shall have any right, title, or interest therein; provided, however, that a Partner may be a lessor or sublessor of property which is leased to the Partnership. To the extent permitted by law, title to all property owned by the Partnership shall be held by the Partnership in its name. 2.8 Certificate Upon the execution of the Original Agreement, the Managing Partner shall perform all acts necessary to assure the prompt filing of such certificate of fictitious or assumed business name as is required by Indiana law, and shall perform all other acts required by Indiana law or any other law to perfect and maintain the Partnership as a Partnership under the laws of the State of Indiana. 2.9 Licensing Each Partner covenants to use its best efforts to diligently obtain all state and local licenses, including gaming licenses, necessary to conduct gaming operations in the Project. The Partners agree to provide each other with copies of all applications, reports, letters and other documents filed or provided to the state or local licensing authorities. In the event that either Partner as a result of a communication or action by the Commission or on the basis of consultations with its gaming counsel and/or other professional advisors, reasonably believes in good faith, with the concurrence of the other Partner's board of directors, that the Commission is likely to: (i) fail to license and/or approve the Partnership or its Affiliates to own and operate any gaming related businesses; (ii) grant required gaming licensing and/or approval only upon terms 7 and conditions which are unacceptable to Showboat and Waterfront; (iii) significantly delay the licensing and/or approval contemplated under this Agreement; or (iv) revoke any existing license or casino operating contract of the Partnership or its Affiliates, due to concerns of any aspect of the suitability of a particular shareholder or owner of an interest in a Partner or its Affiliate, then the Partner shall divest itself of its interest in the Affiliate or cause such shareholder or owner of an interest in the Partner or the Affiliate to divest itself of such interest. If, however, the events described in subparagraphs (i) through (iv) arise from concerns with respect to the suitability of a particular Partner ("Selling Party") then the Selling Party's entire interest in the Partnership may be purchased by the other Partner at a purchase price equal to the greater of the then fair market value of the Selling Party's Partnership Interest or the unreturned Capital Contributions and unreimbursed Development Expenses of the Selling Party. The fair market value shall be determined in accordance with Section 9.1. 3. Funding of the Partnership 3.1 The Percentage Interest of Each Partner in the Partnership The Percentage Interests of the Partners shall be: Waterfront 45% Showboat 55% 100% 3.2 Capital Accounts (a) A separate Capital Account shall be maintained by the Partnership for each Partner in accordance with Section 704(b) of the Code and Regulations Section 1.704-1(b)(2)(iv). Each Partner's capital account shall be (i) credited for each contribution of capital (at net fair market value) and allocations to the Partner of Partnership Income and Gain, and (ii) debited for each allocation of Partnership Loss and Deduction (including Depreciation), all as set forth in Section 4 hereof, and by the amount of money and other property (at net fair market value) distributed to the Partner by the Partnership. (b) If the Partnership at any time distributes any of its assets in kind to any Partner, the Capital Account of each Partner shall be adjusted to account for that Partner's allocable share (as determined in this Agreement) of the profits or losses that would have been realized by the Partnership had it sold the assets that were distributed at their respective fair market values immediately prior to their distribution. (c) In the event the Partnership makes an election under Code Section 754, the amounts of any adjustment to the basis (or Carrying Value) of assets of the Partnership made pursuant to Code Section 743 shall be reflected in the Capital Accounts of the Partners, and the amounts of any adjustments to the basis (or Carrying Value) of assets of the Partnership made pursuant to Code Section 734 as a result of the distribution of property by the Partnership to a Partner (to the extent that such adjustments have not previously been reflected in the Partner's capital accounts) shall be reflected in the Capital Accounts of the Partner in the manner prescribed in regulations promulgated under Code Section 704(b). 8 (d) If elected by the Partnership, upon the occurrence of any of the following events, the Capital Account balance of each Partner shall be adjusted to reflect the Partner's allocable share (as determined under this Agreement) of the profits and losses that would be realized by the Partnership if it sold all of its property at its fair market value on the day of the adjustment: (i) any increase in any new or existing Partner's Interest resulting from the contribution of cash or property by such Partner to the Partnership; (ii) any reduction in any Partner's Interest resulting from a distribution of such Partner in redemption of all or a portion of such Partner's Interest in the Partnership; and (iii) whenever else allowed under applicable Regulations. (e) In the event of a permitted transfer of an Interest of a Partner pursuant to the terms of this Agreement, the Capital Account of the Transferor Partner shall become the Capital Account of the transferee Partner to the extent it relates to the transferred interest. (f) The provisions of this section relating to the maintenance of Capital Accounts are intended to comply with Regulation Section 1.704-1(b) and shall be interpreted and applied in a manner consistent with such Regulations. If it is determined that it is a burden to modify the manner in which Capital Accounts or any debits or credits thereto (including, without limitation, debits or credits relating to liability secured by property contributed to or distributed by the Partnership or which are assumed by the Partnership or any of the Partners) in order to comply with such Regulation, after obtaining advice from the Partnership's Auditor the Partners may make such modification provided that there is no material effect upon the amounts otherwise distributable to any Partner upon dissolution of the Partnership. 3.3 Return of Capital Contributions Except as may otherwise be provided herein, no Partner shall be entitled to demand or receive the return of any Capital Contribution made by such Partner. No Partner shall be entitled to demand and receive property other than cash in return for such Partner's Capital Contribution. Notwithstanding the foregoing: (a) at such time as the Partnership and its Partners are licensed by the Commission, one-half (1/2) of Waterfront's Capital Contribution and unreimbursed Development Expenses, in each case together with the preferred return thereon provided for in Section 3.5, shall be returned to Waterfront by the Partnership; and (b) within six months after the Opening, the Partnership shall return to Waterfront its remaining unpaid Capital Contribution and unreimbursed Development Expenses, in each case together with the preferred return thereon provided for in Section 3.5. If the Partnership has insufficient funds to return such amounts, Showboat shall make an immediate cash Capital Contribution or loan to the Partnership in an amount sufficient for the Partnership to discharge its obligations to Waterfront. 3.4 No Priority Unless otherwise agreed or as provided in this Agreement, no Partner shall have any priority over any other Partner with respect to distributions or the return of Capital Contributions. 9 3.5 Preferential Return Each Partner shall be entitled to a preferential, cumulative, but not compounded, annual return of twelve percent (12%) on such Partner's outstanding Capital Contribution and unreimbursed Development Expenses until the Capital Contribution, unreimbursed Development Expenses and interest thereon are paid in full. 3.6 Loans The Partners, or any of them, upon prior unanimous consent of the Partners, may lend, or procure the lending of, money or property to or for the Partnership upon such terms and conditions as may be agreed upon at that time. Except as otherwise provided herein, any loans made to the Partnership by the Partners shall be entitled to a cumulative, but not compounded, annual return of twelve percent (12%) on the outstanding loan balance until the loan and such return thereon has been paid in full. Such loans shall not be considered contributions to the capital of the Partnership. Except as otherwise provided herein, the annual return on such loans shall be paid out of Distributable Cash or the proceeds of the sale or refinancing of part or all of the assets of the Partnership (in connection with the termination of the Partnership or otherwise) in the same priority as the preferred return on the Partners' outstanding Capital Contributions and unreimbursed Development Expenses is payable pursuant to Sections 4.3.b(iv), 4.3.d(iv) or 11.2(f), as the case may be. The principal amount of any such loans shall be paid out of Distributable Cash or the proceeds of the sale or refinancing of part or all of the assets of the Partnership (in connection with the termination of the Partnership or otherwise) in the same priority as the Partners' outstanding Capital Contributions and unreimbursed Development Expenses is payable pursuant to Sections 4.3.b(v), 4.3.d(v) or 11.2(g), as the case may be. 3.7 (Deleted - no longer used) 3.8 Contributions (a) Initial Capital Contribution. Immediately after the Effective Date, the Partners shall contemporaneously each make the following initial Capital Contributions (each Partner's contribution shall be conditioned on the other making its contribution): (i) Waterfront - $2,100,000 (ii) Showboat - $2,600,000 (b) Additional Capital Contributions. The Partners shall make additional Capital Contributions to the Partnership under the following circumstances, which amounts shall be credited to their respective Capital Accounts: (i) (Deleted - No Longer Used) (ii) Showboat - In lieu of an additional Capital Contribution, Showboat shall loan the Partnership a total of $37.4 million. The first $29.525 million of this loan shall bear a preferential return at 12% per annum as provided in Section 3.6 and the remaining $7.875 million shall bear interest as provided in Section 3.9.(a)(iii). Interest on said loan 10 shall be paid in the same manner and priority as provided for the preferred return on loans from Partners pursuant to Section 3.6; or (iii) At such other times as the Partners shall unanimously determine that additional funds are needed to carry on the business of the Partnership. In the absence of such agreement, Showboat shall, subject to the limitations in Section 10.2, make such additional Capital Contributions or loans as are needed to carry on the business of the Partnership. (c) Additional Capital Contributions pursuant to the first sentence of (iii) above shall be made by the Partners in the following percentages: Waterfront 45% Showboat 55% 100% 3.9 Failure to Contribute (a) If either Waterfront or Showboat should fail to make any Capital Contribution or a required loan on or before the date such contribution or loan is due (the "Defaulting Partner"), such failure shall constitute a default under this Agreement and the other Partner (the "Non-Defaulting Partner") may, at any time thereafter while the contribution remains unpaid, serve written notice ("Notice of Demand") upon the Defaulting Partner requiring it to make the Capital Contribution or loan, together with all costs and expenses that may have been incurred by the Partnership by reason of the nonpayment. The Notice of Demand shall specify a date (which shall be not less than ten (10) days after the date of the notice) on which, and the place at which, the contribution or loan and such costs and expenses are to be paid. In the event of the nonpayment of the additional Capital Contribution or loan on such date and at such place, the Non-Defaulting Partner shall have the right: (i) To buy the Defaulting Partner's Interest for an amount equal to the fair market value of the Defaulting Partner's Interest, computed as set forth in Section 9.1 (and for purposes of such computation, the valuation date shall be the end of the month next preceding the month in which such contribution or loan should have been made, as set forth in the notice contemplated by this Section), such amount to be payable in cash at a closing to be held in East Chicago, Indiana on a date set by the Non-Defaulting Partner not later than ninety (90) days after the Non- Defaulting Partner gives written notice of such election to the Defaulting Partner, which notice must be given thirty (30) days after the expiration of the period specified in the Notice of Demand, provided, however, that the closing may be extended for a reasonable period of time in the event the procedures set forth in Section 9 have not been completed within said 90-day period; (ii) To sue the Defaulting Partner or any guarantor to cause such Capital Contribution or loan to be made or to sue for damages for the failure to do so; or 11 (iii) To advance to the Partnership an amount equal to the Defaulting Partner's required additional Capital Contribution or loan, and the amount so advanced, together with any corresponding Capital Contribution made by the Non-Defaulting Partner for its own account shall be considered loans to the Partnership and shall be repaid by the Partnership to such Non-Defaulting Partner with interest thereon at an annual rate four (4) percentage points above the rate shown in the Wall Street Journal (or its successor publication) from time to time as the prime rate for money center banks but with a floor of twelve percent (12%) per annum, which rate shall be determined on the first day of each month and shall be applied to the loan balance for the month. However, in no event shall the interest rate exceed the maximum lawful rate. Such interest shall be payable quarterly. (b) A Non-Defaulting Partner entitled to the remedies set out in subsections (ii) and (iii) above may pursue both simultaneously. 4. Allocations and Distributions 4.1 Definitions As used herein, the terms "Income," "Gain," "Loss," "Deduction," and "Credit" shall have the same meanings as are generally used and understood in the context of subchapter K of the Code, and the term "Depreciation" shall have the same meaning as is generally used and understood in the context of Sections 167 and 168 of the Code. 4.2 Allocation of Income, Gain, Loss, Deduction (Including Depreciation), and Credit (a) General. Each item of Partnership Income, Gain, Loss, Deduction (including Depreciation), and Credit, as determined for federal income tax purposes, shall be allocated between the Partners and shall be credited to (in the case of Income, Gain, and Credit) or charged against (in the case of Loss or Deduction (including Depreciation)), their respective capital accounts in proportion to their Percentage Interests in the Partnership. (b) Compliance with Section 704(c) of the Code. In accordance with Section 704(c) of the Code and applicable Regulations, items of Income, Gain, Loss and Deduction (including Depreciation) with respect to any property contributed to the Partnership shall, solely for tax purposes, be allocated among the Partners so as to take account of any variation between the adjusted basis of such property to the Partnership for federal income tax purposes and the fair market value ascribed to that property under this Agreement. In addition, in the event the value of any Partnership asset is required to be adjusted pursuant to the provisions of Section 704(b) and the Regulations thereunder, subsequent allocations of items of Income, Gain, Loss and Deduction (including Depreciation) for tax purposes with respect to such assets shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its adjusted value, in the same manner as under Section 704(c) of the Code and the applicable Regulations. (c) Special Allocations. Notwithstanding the provisions of Section 4.2(a) above, the following allocations of Profits and Losses shall be made: 12 (i) Minimum Gain Chargeback. Except as otherwise provided in Section 1.704-2(f) of the Regulations, in the event that there is a net decrease in the Partnership Minimum Gain during any taxable year, each Partner shall be allocated items of income and gain for such year, and, if necessary, subsequent years, in an amount equal to such Partner's share of the net decrease in such Partnership Minimum Gain during such year in accordance with Section 1.704-2(g) of the Regulations. Any such allocation for a given year shall consist first of gains from the disposition of property subject to Partner non-recourse debt and then, if necessary, a pro rata portion of the Partnership's other items of income and gain for such year. If there is insufficient income and gain in a year to make the allocations specified in this section for all Partners for such year, the income and gain shall be allocated among the Partners in proportion to the respective amounts they would have been allocated had there been an unlimited amount of income and gain for such year. This section is intended to comply with the Minimum Gain Chargeback requirement of Section 1.704-2(f) of the Regulations and shall be interpreted consistent with that section. (ii) Partnership Minimum Gain Chargeback. Except as otherwise provided in Section 1.704-2(i)(4) of the Regulations, in the event there is a net decrease in the Minimum Gain attributable to a Partner non-recourse debt during any taxable year, each Partner with a share of such Minimum Gain shall be allocated income and gain for the year (and, if necessary, subsequent years) in accordance with Section 1.704-2(i) of the Regulations. Any such allocation for a given year shall consist first of gains from the disposition of property subject to Partner non-recourse debt, and then, if necessary, a pro rata portion of the Partnership's other items of income and gain. If there is insufficient income and gain in a year to make the allocations specified in this section for all such Partners for such year, the income and gain shall be allocated among such Partners in proportion to their respective amounts they would have been allocated had there been an unlimited amount of income and gain for such year. This section is intended to comply with the Chargeback requirement of Section 1.704-2(i)(4) of the Regulations and shall be interpreted consistent with that section. (iii) Qualified Income Offset. Any Partner who unexpectedly receives an adjustment, allocation, or distribution described in subparagraphs (4), (5) or (6) of Section 1.704-1(b)(2)(ii)(d) of the Regulations, which adjustment, allocation or distribution creates or increases a deficit balance in that Partner's Capital Account, shall be allocated items of "book" income and gain in an amount and manner sufficient to eliminate or to reduce the deficit balance in that Partner's Capital Account so created or increased as quickly as possible in accordance with Section 1.704-1(b)(2)(ii)(d) of the Regulations and its requirements for a "qualified income offset." For purposes of this section, Capital Accounts shall be adjusted as provided for in Sections 1.704-1(b)(2)(ii)(d), 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations. The Partners intend that the provisions set forth in this section will constitute a "qualified income offset" as described in the Regulations. Regulations shall control in the case of any conflict between those Regulations and this subjection. 13 (iv) Allocation of Net Income. The net income of the Partnership shall be allocated as follows: (i) to each Partner with a negative Capital Account, pro rata in an amount equal to (or in proportion to if less than) the amount of the negative Capital Account of each such party; and thereafter (ii) to the Partners in accordance with their Percentage Interests. (v) Allocation of Net Losses and Non-Recourse Deductions. (a) Net losses shall be allocated as follows: A. To the Partners with positive Capital Accounts, in accordance with the ratio of their positive Capital Account balances, until no Partner has a positive Capital Account; and thereafter, B. To the Partners, in accordance with the ratio of their Percentage Interests. (b) After the allocations of net losses, non-recourse deductions shall be allocated in accordance with the Partner's Percentage Interests. (c) After the allocations of net losses and non-recourse deductions, Partner non-course deductions shall be allocated between the Partners as required in Section 1.704-2(i)(1) of the Regulations, in accordance with the manner in which the Partner or Partners bear the economic risk of loss for the Partner non-recourse debt corresponding to the Partner non- recourse deductions, and if more than one Partner bears such economic risk of loss for a Partner non-recourse debt, the corresponding Partner non- course deductions must be allocated among such Partners in accordance with the ratios in which the Partners share the economic risk of loss for the party non-recourse debt. (vi) Tax Allocations. To the extent permitted by Section 1.704-1(b)(4)(i) of the Regulations, all items of income, gain, loss and deductions for federal and state income tax purposes shall be allocated in accordance with corresponding "book" items in accordance with the principles of Section 704(c) of the Code and Section 1.704-1(b)(4)(i) of the Regulations. Where any provision depends on the Capital Account of any Partner, that Capital Account shall be determined after the operation of all preceding provisions for the year. (vii) Varying Interest. Where any Partner's interest, or proportion thereof, is acquired or transferred during a taxable year, the Partnership may choose to implement the provisions of Section 706(d) of the Code in allocating among the varying interests. The methods, hereinabove set forth, by which net income, net losses and distributions are allocated and distributed are hereby expressly consented to by the Partners as an express condition of becoming a Partner. 14 (d) Determination of Profits and Losses. For purposes of this Agreement, profits and losses shall be determined in accordance with the accounting method utilized by the Partnership for federal income tax purposes, with the following adjustments: (i) Items of gain, loss and deduction shall be computed based upon the Carrying Value of each of the Partnerships' assets rather than upon each such asset's adjusted basis for federal income tax purposes. (ii) Any tax exempt income received by the Partnership shall be included as an item of gross income. (iii) The difference between the adjusted basis of any assets for federal income tax purposes and the Carrying Value of any assets of the Partnership contributed or deemed contributed to the Partnership shall not be taken into account. (iv) Any expenditures of the Partnership described in Section 705(a)(2)(B) (including any expenditures treated as being described in Section 705(a)(2)(B) pursuant to the regulation promulgated under Section 704(b) of the Code) shall be treated as a deductible expense. (e) Recapture. In making the allocation of Gain or Profit among the Partners, the ordinary income portion, if any, of such Gain or Profit caused by the recapture of cost recovery or any other deductions shall be allocated among those Partners who were previously allocated the cost recovery or any other deductions in proportion to the amount of such deductions previously allocated to them. It is intended that the Partners, as between themselves, shall bear the burden of recapture caused by cost recovery or other deductions which were previously allocated to them, in proportion to the amount of such deductions which had been allocated to them, notwithstanding that a Partner's share of Profits, Losses or Liabilities may increase or decrease from time to time. Nothing in this Section 4.3(e), however, shall cause the Partners to be allocated more or less Gain or Profit than would otherwise be allocated to them pursuant to this Section 4. (f) Allocation Savings Provision. The allocation method set forth in this Section 4 is intended to allocate Profits and Losses to the Partners for federal income tax purposes in accordance with their economic interests in the Partnership while complying with the requirements of Section 704(b) of the Code and the Regulations promulgated thereunder. If in the opinion of the Managing Partner, the allocation of Profits or Losses pursuant to the preceding provisions of this Section 4 shall not (1) satisfy the requirements of Section 704(b) of the Code or the Regulations thereunder, (2) comply with any other provisions of the Code or Regulations, or (3) properly take into account any expenditure made by the Partnership or transfer of an interest in the Partnership, then withstanding anything to the contrary contained in the preceding provisions of this Section 4, Profits and Losses shall be allocated in such a manner so as to reflect properly (1), (2) or (3) as the case may be. The Managing Partner shall have the right to amend this Agreement with the consent of Waterfront (whose consent shall not be unreasonably withheld or delayed) to reflect any such change in the method of allocating Profits and Losses. 15 4.3 Distributions and Investment of Cash (a) (Deleted - No longer used) (b) Distributable Cash from operations shall be distributed not less frequently than quarterly. All such distributions shall be made to the Partners as follows: (i) first, payment of the Development Fee if not previously paid pursuant to this Section 4.3 or pursuant to Section 4.4, below; (ii) second, return of Waterfront's Capital Contribution plus unreimbursed Development Expenses, in each case together with the preferred return thereon provided for in Section 3.5, if not previously paid pursuant to this Section 4.3 or pursuant to Section 3.3 above; (iii) third, to the Partners in an amount equal to the good faith estimate of the income tax liability of each Partner (or each Partners' owner or owners) with respect to the income realized by each partner, including, without limitation, any income realized pursuant to Section 4.2(c)(iii) hereof, calculated by multiplying such estimated income by the highest combined federal and state income tax rates of each such Partner (or its owners), taking into account whether such Partner (or its owners) will be subject to corporate or individual taxes. (iv) fourth, any accrued and unpaid preferred return on each Partner's outstanding Capital Contribution and expenses pursuant to Section 3.5 above; (v) fifth, to the extent not previously repaid, one-fifth (1/5th) (calculated on an annualized basis together with all prior distributions to such Partner in that calendar year) of each Partner's outstanding Capital Contributions, loans and unreimbursed Development Expenses shall be repaid to the Partners annually beginning one year after the Opening; subject, however, to the limitation that (a) no more than 80% of the Distributable Cash available for disbursement pursuant to the provisions of this subsection shall be distributed pursuant hereto, provided, however, the Partners may mutually agree to repay more than one-fifth (1/5) of each Partner's outstanding Capital Contributions, loans and unreimbursed Development Expenses and (b) the balance of such Distributable Cash shall be available for distribution pursuant to subsection 4.3.b(v) below; and (vi) the balance, if any, to the Partners in proportion to their respective Percentage Interests. (c) All distributions of cash, except for payment of the Development Fee, reimbursement of Development Expenses, payment of any preferred return on Partners' Capital Contributions or Development Expenses and repayment to Partners of loans and interest thereon, shall be charged to the Partners' respective Capital Accounts. (d) All proceeds of the sale or refinancing of part or all of the assets of the Partnership, net of transaction costs, repayment of debt and reasonable reserves, shall be distributed in the following manner to the Partners: 16 (i) first, payment of the Development Fee if not previously paid pursuant to this Section 4.3 or pursuant to Section 4.4, below; (ii) second, return of Waterfront's Capital Contribution plus unreimbursed Development Expenses, in each case together with the preferred return thereon provided for in Section 3.5, if not previously paid pursuant to this Section 4.3 or pursuant to Section 3.3 above; (iii) third, to the Partners in an amount equal to the good faith estimate of the income tax liability of each Partner (or each Partners' owner or owners) with respect to the income realized by each partner, including, without limitation, any income realized pursuant to Section 4.2(c)(iii) hereof, calculated by multiplying such estimated income by the highest combined federal and state income tax rates of each such Partner (or its owners), taking into account whether such Partner (or its owners) will be subject to corporate or individual taxes. (iv) fourth, any accrued and unpaid preferred return on each Partner's outstanding Capital Contribution and expenses pursuant to Section 3.5 above; (v) fifth, to the extent not previously repaid, one-fifth (1/5) (calculated on an annualized basis together with all other distributions to such Partner in that calendar year) of each Partner's outstanding Capital Contributions, loans and unreimbursed Development Expenses shall be repaid to the Partners annually (beginning one year after the Opening); subject, however, to the limitation that (a) no more than eighty percent (80%) of the proceeds available for distribution pursuant to the provisions of this subsection shall be distributed pursuant hereto, provided, however, the Partners may mutually agree to repay more than one-fifth (1/5) of each Partner's outstanding Capital Contributions, loans and unreimbursed Development Expenses and (b) the balance of such proceeds shall be available for distribution pursuant to subsection 4.3.d(v) below; (vi) the balance, if any, to the Partners in proportion to their respective Percentage Interests. (e) All liquidating distributions shall be made in accordance with the provisions of Section 11.2 hereof. (f) All cash distributions, except for repayment to Partners of loans and interest thereon, shall be made to the Partners simultaneously. 4.4 Development Fee At such time as the Partnership (a) gains control of the Ground pursuant to Sections 1.14 and 5.6 and (b) has been licensed to operate a gaming facility by the Commission, each Partner shall become entitled to a development fee of no less than $1,000,000. One-half of the development fee shall be paid to each Partner at the time that the conditions specified in the preceding sentence have been met. The balance of the development fee shall be payable in six (6) 17 equal monthly installments commencing one (1) month after the payment specified in the preceding sentence, with the balance, if any, payable upon the Opening. If the Partnership has insufficient funds to make such payments, Showboat shall make an immediate Cash Capital Contribution or loan to the Partnership to allow such payments. 5. Management of the Partnership 5.1 Managing Partner The management of the Partnership shall be vested in the Managing Partner. The Managing Partner shall represent and act for and on behalf of the Partnership in any matter or thing whatsoever, being hereby expressly authorized and empowered in its sole and unlimited discretion to conduct, manage and transact the business, affairs, and concerns of the Partnership in accordance with a Budget preapproved by the Partners, except for those matters described in Sections 5.2 and 5.3 that require the consent of Waterfront. The Budget shall contain provisions for economic incentives as specified by the certificate of suitablility issued to the Partnership by the Indiana Gaming Commission or the riverboat owner's license, if one is issued . The Managing Partner shall submit a proposed initial Capital Budget and a pro-forma five (5) year projection ("Projection") of operations to Waterfront within thirty (30) days after the Effective Date and a proposed Operating and Capital Budget to Waterfront at least thirty days prior to the commencement of each calendar year. Waterfront agrees to review the proposed Budget and to present objections or comments to Showboat within thirty (30) days of receipt of the Budget. Showboat agrees to review any such communications from Waterfront within ten (10) business days of the receipt of such comments. Waterfront and Showboat shall then promptly meet in person or by telephone at a time and location mutually convenient and acceptable to Mr. Michael Pannos on behalf of Waterfront and Mr. J. Kell Houssels on behalf of Showboat to approve or appropriately revise and approve the Budget. Waterfront and Showboat may freely substitute their representatives for this purpose upon reasonable notice. A dispute over a Budget not resolved within sixty (60) days of original receipt of such Budget shall be resolved by arbitration. The Managing Partner shall continue to operate under a prior approved Operating Budget if one exists, and has authority to make all payments for taxes, utilities, insurance and other amounts to third parties outside of its control necessary for the uninterrupted operation of the Project. Managing Partner shall designate the placement of all gaming equipment and ancillary furnishings and the configuration of ancillary areas within the vessel. Once operating, the Managing Partner shall have exclusive control and responsibility for the operation of the Casino Facilities. 5.2 Restrictions The Managing Partner may not do any of the following without the concurrence of Waterfront which concurrence cannot be unreasonably withheld or delayed: (a) Except as otherwise expressly provided for herein, construct, improve, buy, own, sell, convey, exchange, assign, rent, or lease any property (real, personal or mixed), or any interest therein totaling, during any one calendar year, more than $500,000 unless in an approved Capital Budget; 18 (b) Borrow money, issue evidence of indebtedness, secure any such indebtedness by mortgage, deed of trust, pledge, or other lien, or execute agreements, notes, mortgages, deeds of trust, assignments, security agreements, financing statements or other documents relating thereto which involve a credit facility to carry out the same totaling, during any one calendar year, more than $500,000 unless consented to by the other Partner; (c) Make or revoke any election permitted the Partnership by any taxing authority (including, without limitation, those within the contemplation of Code Subtitle A, Chapter 1, Subchapter K), and to act as the tax matters partner for purposes of Code Subtitle F, Chapter 63, Subchapter C; (d) Abandon any of the assets of the Partnership in excess of $50,000; (e) Perform any act in violation of the terms and conditions of this Agreement, the Indiana Uniform Partnership Act, or any other applicable law or regulation; (f) Make, execute, or deliver any general assignment for the benefit of creditors or any bond, confession of judgment, guaranty, indemnity bond or surety bond; (g) Initiate or settle any litigation by or against the Partnership for more than $100,000 or settle any proceeding before any governmental or regulatory body for more than $100,000; (h) Vote any shares of stock owned by the Partnership. (i) Disburse funds that exceed an approved Operating Budget by more than five percent (5%) without prior concurrence of Waterfront. Any such variance in excess of five percent (5%) shall be promptly reported to Waterfront with reasonable explanations. (j) Sell, lease or otherwise dispose of the Vessel. 5.3 Actions Requiring Unanimous Consent of the Partners (a) So long as Waterfront retains a Partnership Interest in excess of twenty percent (20%), the following actions or decisions shall require the unanimous consent of the Partners which consent shall not be unreasonably withheld or delayed; (i) sale of all or substantially all of the assets of the Partnership; (ii) approval of the initial development plan, initial Capital Budget and pro-forma Operating Budget for the Project; (iii) approval of the annual Operating Budget and annual Capital Budget, and any amendments thereto; (iv) amendments to the Partnership Agreement; (v) material changes in the nature of the business of the Partnership; (vi) application for additional gaming licenses by the Partnership; 19 (vii) a change in the economic incentives as described in Section 5.1 of this Agreement; or (viii) a change in the Partnership auditor. (b) Notwithstanding subsection 5.3(a)(iv) above, the Partners agree that any amendment to the Partnership Agreement which would materially impair the rights of Waterfront contained herein shall require the consent of Waterfront. 5.4 Dealings with Affiliates All fees paid or goods or services purchased from a Partner or its Affiliate shall be at "arms length" on terms no less favorable to the Partnership than are commercially available to the Partnership from other customarily available sources. All such transactions shall require the consent of the unaffiliated or unrelated Partner, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, consent to a specific transaction shall not be required if the transaction is expressly included within and identified in an approved Operating Budget or Capital Budget. 5.5 Removal of Managing Partner A Managing Partner may be removed by the other Partner in the event that the Managing Partner shall ultimately be proven, by an unappealable order or judgment of a court of competent jurisdiction, to have engaged in criminal acts or acts of fraud or willful misconduct with respect to the business of the Partnership. If a Partner is removed as the Managing Partner pursuant to this section, such removal shall have no effect on such Partner's Partnership Interest. 5.6 Ground Waterfront shall be responsible for locating the Ground, subject to the approval of Showboat, for the Project and negotiating a site control agreement, such as a ground lease with the City of East Chicago, or other appropriate party with respect to the Ground, allowing the Partnership to develop, construct and operate the Project. Showboat shall assist Waterfront in locating the Ground and negotiating the site control agreement. Wherever possible, Waterfront shall consult with Showboat with respect to all aspects of negotiating the site control agreement and any other actions taken by Waterfront in connection with the development and operation of the Project. The site control agreement shall be subject to the prior written consent of Showboat, which consent shall not be unreasonably withheld. Waterfront shall use its best efforts to obtain the longest possible term for the site control agreement. 5.7 Partnership Debts The Partnership shall be primarily liable to creditors of the Partnership for all Partnership debts. Each Partner shall be proportionately liable to such creditors on the basis of such Partner's Percentage Interest. Each Partner agrees to indemnify the other Partner to the extent such other Partner may pay to a creditor of the Partnership any amounts in excess of such Partner's proportionate share of a Partnership debt. Notwithstanding anything in this Section to the contrary, the Partners are responsible for their respective obligations under Section 11. 20 5.8 Delegation of Authority The Partners may delegate all or any of their powers, rights, and obligations hereunder, and the person so delegated may appoint, employ, contract, or otherwise deal with any person, including any other Partner(s), for the transaction of the business of the Partnership, which person, under the supervision of the Partners, may perform any acts or services for the Partnership as the Partners may approve in writing. 5.9 Other Ventures Nothing contained herein shall be construed to prevent any of the Partners from engaging in any other business venture. Except as expressly provided herein, neither the Partnership nor any other Partner shall have any rights in and to any such ventures or the profits, losses, or cash flow derived therefrom. 5.10 Exculpation from Liability; Indemnification (a) No Partner shall be liable to the Partnership or to any other Partner because any taxing authority contests, disallows, or adjusts any item of income, gain, loss, deduction, credit, or tax preference in the Partnership income tax returns. (b) The Managing Partner shall not be liable to the Partnership or any of the other Partners for, and the Managing Partner shall be indemnified and held harmless by the Partnership from and against, any and all claims, demands, liabilities, costs, expenses (including attorney's fees and court costs), and damages of any nature whatsoever arising out of or incidental to the Managing Partner's management of the Partnership's affairs, except where such claim is based upon the criminal acts, fraud or willful misconduct of the Managing Partner, or by the breach by the Managing Partner of any provision of this Agreement. The indemnification rights herein contained shall be cumulative of, and in addition to, any and all other rights, remedies, and recourse of the Managing Partner, whether available pursuant to this Agreement or at law. (c) The Partners shall not be liable to the Partnership or to any of the other Partners for, and the Partners shall be indemnified and held harmless by the Partnership from and against, any and all claims, demands, liabilities, costs, expenses (including attorney's fees and court costs), and damages of any nature whatsoever arising out of or incidental to the Partners' management of the Partnership's affairs, except where such claim is based upon the criminal acts, fraud or willful misconduct of the Partners, or by the breach by the Partners of any provision of this Agreement. The indemnification rights herein contained shall be cumulative of, and in addition to, any and all other rights, remedies, and recourse of the Partners, whether available pursuant to this Agreement or at law. 5.11 Meetings of Partners The Partners shall meet in person or by telephone at least once each month to discuss the operations of the Partnership. The Managing Partner shall distribute daily reports of operations to the Partners. 5.2 Reports Deleted - not used. 21 5.13 Partnership Development Financing (a) Showboat shall obtain on behalf of the Partnership and with the assistance of Waterfront, third-party debt financing in an amount reasonably required for the development of the Project and operating cash flow deficits for a period of up to one year after Opening in accord with the initial Capital Budget and the Projection (collectively "Development Financing"). The Development Financing shall be nonrecourse to Waterfront and may be secured by the Partnership's assets or cash flows only. Any financing obtained by Showboat shall not require the Partnership to issue warrants, participation of equity or cash flow or other equity "kickers" except as may be specifically agreed to by all Partners. Subject to Force Majeure, if Showboat is unable to obtain the Development Financing, or if it elects not to pursue the Development Financing, it shall make an additional Capital Contribution or loan to fund such necessary amounts. Showboat shall, on or before one hundred twenty (120) days after the issuance of a certificate of suitability to the Partnership or such later date as the Securities and Exchange Commission has permitted for the effectiveness of the Registration Statement for the proposed debt financing if such financing is raised in a public offering required to be registered under the Securities Act of 1933 (the "Funding Date") and further subject to market conditions, (i) obtain the Development Financing, (ii) make such capital contribution in lieu thereof, or (iii) obtain an unconditional letter of credit, a guaranty of timely and sufficient financing from a reputable financial institution with sufficient assets, a bridge loan in the amount of the Development Financing or other similar instrument demonstrating the clear availability of the funds equal to the Development Financing from a reputable financial institution with sufficient assets, all in a time frame consistent with that set forth in the Capital Budget. Showboat shall use its best efforts to timely and in good faith complete all financing arrangements by such Funding Date. The failure of Showboat to timely provide the Development Financing or, in the alternative, to make a sufficient Capital Contribution or loan, shall constitute a breach of this Agreement and a failure of Showboat to make the Capital Contribution or loan shall entitle Waterfront to the remedies resulting therefrom in Section 3.9 of this Agreement. (b) The Partnership will form another Indiana general partnership called Showboat Marina Casino Partnership ("Casino") and a finance corporation (the "Financing Corporation" and together with Casino, the "Issuers") to serve as joint issuers of a portion of the Development Financing. The Issuers shall be formed by Showboat pursuant to organizational documents in form and substance acceptable to both Partners. The only other partner of Casino shall be an Indiana general partnership formed for that purpose called Showboat Marina Investment Partnership ("Investment"). Investment shall be formed by the Partners and the equity interests in Investment shall be owned by the Partners in the same percentages as the Percentage Interests of the Partners in this Partnership. The Partnership shall hold a ninety-nine percent (99%) interest in Casino and Investment shall hold a one percent (1%) interest in Casino. The Partnership shall be the managing partner of Casino. (c) The Partnership shall enter into a management agreements (the "Management Agreement") with Casino providing, among other things, for the payment of a management fee to the Partnership of at least two percent (2%) of net revenue (as defined in the Management Agreement)of the Project and five percent (5%) of earnings before interest expense, taxes, depreciation and amortization of the Project. The Management Agreement shall further provide 22 that all costs, expenses, funding, operating deficits, operating capital and other liabilities incurred due to the operation of the Project shall be the sole and exclusive obligation of Project. (d) Showboat, Inc., the parent of Showboat, has agreed that, if the proceeds of the Development Financing and the Capital Contributions or loans are insufficient to meet the costs of developing, constructing and opening the Project, Showboat, Inc. will provide additional funds up to a maximum of $30.0 million to complete the Project, subject to the debt covenants in Showboat Inc.'s indentures for its 9 1/4% First Mortgage Bonds, its 13% Senior Subordinated Notes, and in connection with the Development Financing (the "Completion Guaranty"). Showboat shall cause Showboat, Inc. to (i) provide the Completion Guaranty in form and substance acceptable to Showboat, Inc. and the initial purchasers of the Development Financing, (ii) to perform all of its obligations under the Completion Guaranty, and (iii) agree not to enter into additional covenants which would materially further limit its ability to comply with the Completion Guaranty. Moreover, the Partners recognize and acknowledge that, (i) in the current interest rate climate for debt transactions for gaming operations, equity or cash flow participation is commonly sought by prospective bond purchasers; and (ii) the Partners are currently discussing a possible debt transaction that may include a cash flow participation in the net income from operations of the Partnership in favor of bondholders. The Partners agree that neither shall unreasonably withhold consent to cash flow participation as long as such participation is similar to participation rights required by debt transactions completed within six months of the Development Financing. Any such cash flow participation shall be in the nature of that currently being discussed by the Partners with Donaldson, Lufkin & Jenrette Securities Corporation as underwriters of the Development Financing. (e) The Partners anticipate that, in connection with the Development Financing, Showboat, Inc. will agree to provide to the Issuers a written standby equity commitment (the "Standby Equity Commitment"), which will provide that if the cash flow (as defined therein) of the Issuers is less than $35.0 million for any of the first three full fiscal four-quarter periods after Opening, Showboat, Inc. will contribute to the Issuers cash in an amount equal to the difference between $35.0 million and the amount of such cash flow, subject to limits of $15.0 million in any one such period and $30.0 million in the aggregate. Any payments made by Showboat, Inc. to the Issuers pursuant to the Standby Equity Commitment shall be treated as a loan to the Partnership for purposes of this Agreement. Showboat shall be entitled to receive a fee from Waterfront (the "Guaranty Fee") in the amount of $5.2 million for agreeing to provide the Standby Equity Commitment. The Guaranty Fee shall be due upon issuance of the Standby Equity Commitment, but shall be treated as a loan from Showboat to the Partnership under Section 3.6. Upon issuance of the Standby Equity Commitment, the Partnership shall book a receivable from Waterfront in an amount equal to $5.2 million (the "Waterfront Receivable"). The Partnership shall pay the Guaranty Fee only from Distributable Cash or, should the Put Option described in Article 6 be exercised at a time at which the Waterfront Receivable has not been paid in full, such remaining portion of the Waterfront Receivable shall be due and payable from the Put Option proceeds. At such time as the Partnership pays the Guaranty Fee from Distributable Cash pursuant to Sections 4.3(b)(v), 4.3(d)(v) or 11.2(g), the Waterfront Receivable will be reduced dollar for dollar, with an offsetting reduction in Waterfront's Capital Account. In accordance with Section 4.2(c)(iii) 23 hereof, Waterfront shall be allocated items of gross income by the Partnership to the extent such reduction in their Capital Account causes or increases a deficit balance in such Capital Account. In addition to any amounts otherwise distributable to Waterfront pursuant to Sections 4.3(b)(iii), 4.3(d)(iii) or 11.2(e) to the extent it is determined that the payment of the Guaranty Fee to Showboat results in income to Waterfront other than as income allocated to Waterfront by the Partnership, such income shall be taken into account in determining the distribution to be made to Waterfront pursuant to such sections. (f) The Partners expect that Showboat, Inc. will be required to provide support to assist the Partnership in obtaining a bond as directed by the Commission for certain economic development obligations to the City of East Chicago. Showboat, Inc. has agreed to provide the support for such a bond, if required to do so by the Commission, and Showboat shall cause Showboat, Inc. to provide this support, if so required. Neither Showboat nor Showboat, Inc. shall be entitled to any fee or other compensation from the Partnership or the Issuers for agreeing to provide or providing such support. 5.14 Management Agreement Subject to the provision of Section 6, in the event that the Project is sold by the Partnership, a provision in the sale contract shall require that the purchaser enter into a management agreement with Showboat, Inc. for the balance of the term of the site control agreement for the Ground substantially in the form of the Management Agreement. 6. Put Option Upon the third anniversary of the commencement of the Opening and ending sixty (60) days thereafter, Waterfront may elect to require Showboat to purchase all or a portion of Waterfront's Partnership interest (the "Disposition Portion") either by (i) a series of three (3) payments as described below or (ii) by distributing the entire Partnership Distributable Cash, cash from sales or refinancings and liquidating distributions to Waterfront for a period of four (4) years on account of Showboat's acquisition of Waterfront's Disposition Portion. Showboat shall have a period of sixty (60) days to elect option (i) or (ii). If Showboat elects option (i) above, Showboat shall immediately purchase, at a minimum, one-third (1/3) of Waterfront's Disposition Portion. The remaining portion of Waterfront's Disposition Portion shall be purchased by Showboat in no more than two (2) additional installments, on the fifth anniversary and the seventh anniversary of the Opening. At the fifth anniversary Showboat shall purchase, at a minimum, one-half (1/2) of Waterfront's remaining Disposition Portion not purchased on the third anniversary. Any remaining Disposition Portion shall subsequently be purchased by Showboat on the seventh anniversary of the Opening. The purchase price of Waterfront's Disposition Portion under either option shall be calculated by multiplying the percentage Disposition Portion being purchased by Showboat by the equity market value of the Project ("Fair Value"). The Fair Value shall be determined by multiplying the Project's earnings before interest, taxes, depreciation and amortization ("EBITDA") for the most recent four (4) calendar quarters for which quarterly financial statements have been prepared immediately preceding the respective anniversary dates under 24 option (i) and immediately preceding the date of election under option (ii) by the average of the ratios of the sum of the market value of equity plus long-term debt divided by EBITDA of the seven (7) Comparable Companies for the same period, provided, however, the EBITDA multiplier shall not be less than five (5) nor more than ten (10). Attached hereto and incorporated herein by reference as Exhibit B is a calculation format of the Fair Value of Waterfront's Disposition Portion. The Partnership may not incur additional indebtedness to fund the purchase price of Waterfront's Disposition Portion unless (i) Waterfront's entire Partnership interest is purchased or (ii) Showboat obtains Waterfront's written consent, which may be granted or withheld in Waterfront's discretion. The purchase price may be paid in cash or with registered shares of common stock of Showboat, Inc., Showboat's parent corporation. In the event Showboat elects option (ii) above, sums distributed to Waterfront in excess of amounts otherwise distributable to it shall be deemed a payment on account of the purchase price of Waterfront's Disposition Portion. Upon the seventh anniversary of the Opening all of Disposition Portion must be purchased. Waterfront's Percentage Interest in the Disposition Portion shall pass to Showboat upon full payment therefore. The Partners agree that, notwithstanding the foregoing provisions of this Section, if Showboat, in its sole discretion, determines within ten (10) days after Waterfront's election that it is unwilling for any reason to pay the Fair Value for Waterfront's Disposition Portion as determined by the formula set forth in this Section, then the Partnership shall retain reputable investment bankers who shall market the Partnership or its assets for sale to the highest reputable bidder, but free and clear of the Management Agreement described in Section 5.14. Waterfront and Showboat shall be permitted to submit bids for the purchase of the Partnership or its assets in such event. 7. Transfer of Partner's Interest 7.1 Restrictions on Transfer Except as may otherwise be expressly provided herein, no Partner shall sell, assign, pledge, encumber, hypothecate, or otherwise transfer or dispose of all or any part of its Interest or share of its Interest, as amended, without the written consent of the other Partner. No transfer of an Interest shall be made except in accordance with 68 IAC 5- 2 and other applicable regulations of the Commission. Any sale or other transfer or attempted transfer in violation of this Agreement shall be null and void and of no force and effect. Further, no partner shall be admitted to the Partnership without the unanimous consent of the Partners. Each Partner acknowledges the reasonableness of the restrictions on transfers imposed by this Agreement in view of the relationship of the Partners. Any transfer, with consent, must be of all of such Partner's Interest, unless Waterfront and Showboat otherwise agree. This prohibition shall include the direct disposition of an Interest, as well as any voluntary transfer (by sale, contract for sale, assignment, pledge, hypothecation or otherwise) of a controlling interest in the stock of a Partner, or the merger or other consolidation of a Partner with or into another Person, but in such event, the consent of Waterfront and Showboat shall not be unreasonably withheld or delayed. 25 Notwithstanding the foregoing, Waterfront's shareholders may transfer portions of their equity interests, or Waterfront may issue new shares to new shareholders so long as Michael Pannos and Thomas Cappas remain officers, directors and collectively, including immediate family holdings, at least 25% shareholders of Waterfront. At all times stated herein Waterfront shall have not more than 35 shareholders each of whom shall be individuals and a majority of whom shall be residents of the State of Indiana. 7.2 Right of First Refusal In the event that a Partner ("Transferring Partner") intends to make a voluntary transfer of part or all of its Interest to a third party, it shall first offer such Interest to the other Partner ("Remaining Partner"), who shall have a right of first refusal with respect to the acquisition of such Interest. In the event that the Transferring Partner receives a bona fide offer to purchase acceptable to such Partner, then the Remaining Partner shall have a right of first refusal to purchase such Interest at the same price and under the same terms and conditions as are contained in such written offer, provided that if the transfer of such Interest is made pursuant to Section 15.1 of this Agreement, the purchase price shall be that which is set forth in Section 15.1 of this Agreement. Upon receipt of any such acceptable offer, the Transferring Partner shall certify a complete, true and correct copy of such offer to the Remaining Partner. The Remaining Partner shall have a period of thirty (30) days from the date of receipt of such written offer to elect whether or not it intends to accept or reject such offer. If the Remaining Partner desires to purchase the interest from the Transferring Partner upon the same terms and conditions as are set forth in such acceptable offer (or at a price specified in Section 15.1 of this Agreement, if applicable), then the Remaining Partner shall notify the Transferring Partner within ten (10) days of the receipt of such written offer and shall accompany such notice with an earnest money deposit equivalent to any earnest money deposit that was made with the original offer. If the Remaining Partner fails to notify the Transferring Partner within such ten (10) day period, such failure to so notify shall be deemed a rejection of such offer. Rejection of such offer shall not terminate this right of first refusal as to any other or subsequent sales of the Interest. In the event of the exercise of the right of first refusal, the Remaining Partner shall consummate the sale and purchase of the Interest in accordance with, and within the time limitations set forth in, the terms and conditions of such offer to purchase as originally submitted (except with respect to price if the transfer is made pursuant to Section 15.1 of this Agreement). In the event that such offer should include as a part of the consideration to be paid any particular or unique property, or the exchange of any other property, the Remaining Partner shall not be required to deliver to the Transferring Partner such property, but may satisfy such obligations by the payment to the Transferring Partner of cash in an amount equivalent in value to such other property. The Transferring Partner may not combine the sale of an interest with the sale of any other asset. A transfer shall include a sale or a contract for sale of all or part of an Interest as well as the sale, contract for sale or assignment of a controlling interest in the Stock of a Partner or a merger or other consolidation of a Partner with or into another Person. 7.3 Continuing Liability Unless otherwise agreed, in the event a Partner sells, exchanges, assigns or otherwise transfers its Interest (including any transfer in accordance with Section 8 of this Agreement), such Partner shall remain liable for all obligations and liabilities incurred by such Partner as a Partner prior to the effective date of such transfer (including any tax liability of such Partner), but shall be 26 free of any obligations or liabilities incurred on account of the activities of the Partnership after such date. 8. Partner default 8.1 Definition of Default The occurrence of any one or more of the following events which is not cured within the time permitted shall constitute a default under this Agreement (hereinafter referred to as a "Default" or an "Event of Default," as the case may be) as to the Partner failing in the performance or effecting the breach act. 8.2 Defaults (a) A Partner fails in a material way to properly staff and timely perform its duties and obligations hereunder. (b) A Partner fails to perform or materially comply with any of the covenants, agreements, terms or conditions contained in the Agreement applicable to it, provided that the remedy of a nondefaulting Partner for a Partner's failure to make a Capital Contribution or a required loan is treated exclusively in Section 3.9 of this Agreement. 8.3 Buyout Remedy Ten (10) days after notice of the occurrence of a default where such default is not cured, an Event of Default shall be deemed to exist. Upon the occurrence of an Event of Default, the Partner not in default ("Offering Partner") shall have ten (10) days to provide a notice ("Offering Notice") to the other Partner (the "Non-Offering Partner"), propose a price per one percent (1%) Partnership Interest (the "Offering Price") at which the Offering Partner is ready, willing and able either to (i) sell to the Non-Offering Partner all of the Offering Partner's Interest, or (ii) purchase from the Non-Offering Partner all of its Interest. The Offering Notice shall be presented in the alternative as described in the previous sentence. The Non-Offering Partner shall have a period of thirty (30) days after delivery of the Offering Notice in which to elect, by timely written notice to the Offering Partner, either to (i) purchase the Interest of the Offering Partner at the Offering Price, or (ii) sell all of its Interest to the Offering Partner at the Offering Price. During such 30-day period and an additional 30-day period, the Non-Offering Partner may not make any offer of its own pursuant to this section. If the Non-Offering Partner fails to elect either alternative within such 30-day period, then the Offering Partner may, within 15 days thereafter, elect one of the alternatives. If the Offering Partner fails to select an alternative within that 15-day period, the Offer shall lapse. If one of the alternatives is elected by Waterfront or Showboat in accordance with the terms of this section, payment for the affected Interest shall be made in cash at a closing to be held in East Chicago, Indiana on a date set by the party electing one of the alternatives not later than ninety (90) days after such election. 27 8.4 Injunctive Relief If a Partner violates any provision of Sections 5.4, 5.5, 7 or 12 of this Agreement, the other Partner shall also be entitled to remedies in equity. 9. Determination of Fair Market Value 9.1 Fair Market Value If Waterfront and Showboat cannot agree within fifteen (15) days following the commencement of circumstances calling for a determination of the fair market value of a Partnership Interest ("Valuation Interest"), they shall thereupon attempt in good faith, to agree upon a single appraiser to appraise the Valuation Interest. If they cannot agree upon a single appraiser within fifteen (15) days, either of them (the "Electing Partner") may give the other (the "Other Partner") a written notice calling for appointment of an appraisal panel (the "Appraisal Panel"), and such notice shall designate a disinterested person who is familiar with the gaming operations and recognized by those in the business of operating gaming facilities as one who could fairly and accurately evaluate a gaming operation (the "First Appraiser") to serve on the Appraisal Panel. Upon receipt of such notice, the Other Partner shall have seven (7) days in which to designate a disinterested person who is familiar with gaming operations and recognized by those in the business of operating gaming facilities as one who could fairly and accurately evaluate a gaming operation (the "Second Appraiser") to serve on the Appraisal Panel by serving notice of such designation on the Electing Partner. If the Second Appraiser is not so appointed and designated within or by the time so specified, then the First Appraiser shall be the sole appraiser to determine the fair market value of the Valuation Interest. Upon the designation, if any, of the Second Appraiser, the First Appraiser and the Second Appraiser shall themselves appoint a third disinterested person who is familiar with gaming operations and recognized by those in the business of operating gaming facilities as one who could fairly and accurately evaluate a gaming operation (the "Third Appraiser") within seven (7) days. If the First Appraiser and the Second Appraiser are unable to agree upon such appointment within seven (7) days, then the Electing Partner shall request such appointment by the president and executive committee of the Indiana Chapter of the American Institute of Real Estate Appraisers. In the event of failure, refusal or inability of any appraiser to act, a new appraiser shall be appointed in the stead thereof, which appointment shall be made in the same manner as provided in this Section 9 for the appointment of such appraiser so failing, refusing or being unable to act. The one or three appraisers appointed as the Appraisal Panel shall each determine the fair market value of the Valuation Interest, taking into account appropriate indicators of the fair market value thereof in a cash sale between a willing buyer and seller not under undue duress and shall report their findings to the Partners in writing. In the case of a three appraiser Appraisal Panel, if one or more appraisers fail to deliver their reports within sixty (60) days after the appointment of the Third Appraiser, a new appraiser shall be appointed in the stead thereof, which appointment shall be made in the same manner as provided in this Section 9 for the appointment of such appraiser failing to deliver his report. The fair market value of the Valuation Interest shall be equal to the mean of the two closest appraised values reported by the Appraisal Panel; provided that if such values are equally distributed, the fair market value of the Valuation Interest 28 shall be equal to the mean of the three appraised values reported by the Appraisal Panel. Such determination shall be conclusive and shall be binding upon the Partners. Except as otherwise provided herein, a Partner shall pay the fees and expenses of the appraiser it appointed, and the fees and expenses of the third appraiser, and all other expenses, if any, shall be borne equally by both parties. To be qualified to be selected or designated as an appraiser for purposes of this Section 9, an appraiser must demonstrate (a) current good standing as a licensed appraiser, and (b) past appraising experience of at least five years, which experience shall include the appraisal of casino gaming operations. 10. Force Majeure 10.1 Force Majeure Defined The following events are beyond the control of either Partner (a "Force Majeure Event"): (a) The unavailability of financing in the marketplace except at rates in excess of twenty percent (20%), inclusive of any cash flow participation, per annum; provided that an obligation to repurchase or prepay at a premium any Development Financing using a specified percentage of cash flow shall not be deemed "cash flow participation" for purposes of this subsection. (b) The passage of material new legislation which reduces the projected internal rate of return to Showboat for the Project by more than thirty percent (30%) compared to the Projection. (c) An increase in the cost of the Project beyond $200 million, with the understanding that the current Capital Budget is $195 million, including contingencies. (d) The receipt of material new conditions imposed by the City of East Chicago or the Indiana Gaming Commission or any other governmental entity which reduces the projected internal rate of return to Showboat by more than thirty percent (30%) compared to the Projection. (e) A delay in the opening of the Project for more than one hundred eighty (180) days after the opening date is established by the Partners or a closure of the Project after Opening for more than one hundred eighty (180) days. (f) Any other event which materially alters the assumptions and underlying facts upon which this Agreement is based and which is reasonably expected by both Partners to reduce the projected internal rate of return to Showboat by more than thirty percent (30%) compared to the Projection. 10.2 Actions to Resolve Force Majeure Events In the event of a Force Majeure Event the Partners agree to first meet in good faith effort to mutually agree on appropriate courses of action to be taken in connection with a Force Majeure Event, including the economic effect thereof. In the event that the Partners fail to agree 29 on a course of action then either Partner may terminate this Agreement on thirty (30) days written notice to the other Partner. Provided, however, if the Force Majeure Event can be cured by the contribution of additional capital, Showboat shall contribute such capital only in the event that the contribution shall not be more than thirty-five percent (35%) of the initial Capital Budget. If amounts beyond that limitation are required to cure the Force Majeure Event and Showboat does not provide such additional capital, then Waterfront shall be entitled to contribute additional capital. If neither Partner contributes the additional capital, then Showboat may locate additional capital from qualifying third parties. If Showboat is unable to do so, Waterfront may then attempt to locate additional capital from qualifying third parties. 11. Termination and Liquidation of Partnership 11.1 Termination In addition to the provisions for termination of the Partnership set forth elsewhere in this Agreement, the Partnership will also terminate upon the sale, assignment or other disposition of all or substantially all of the tangible assets of the Partnership unless Waterfront and Showboat agree in writing to the contrary. No termination of the Partnership shall relieve or release any Partner from its obligation to reimburse the other Partners as a result of such termination if such termination has been caused by a breach of any duty or obligation owed by such Partner. 11.2 Winding Up and Liquidation Upon the termination of the Partnership, the Managing Partner shall act as liquidator of the Partnership in disposing of and distributing the Partnership's assets. Unless otherwise agreed upon, the property of the Partnership shall be sold as soon as practicable following termination of the Partnership, and any Partner or former Partner may purchase property of the Partnership on terms mutually agreed upon. After the disposition of Partnership property and the appropriate allocation of all items of Income, Gain, Loss, Deductions (including Depreciation), and Credit in accordance with the provisions of Section 4 hereof, the proceeds therefrom, to the extent sufficient therefor, shall be applied and distributed in the following order: (a) First, to the payment and discharge of all the Partnership's debts and liabilities to creditors other than Partners; (b) Second, to the payment and discharge of all the Partnership's debts and liabilities to Partners (other than for the Development Fee, any unreimbursed Development Expenses, and accrued and unpaid preferred return pursuant to Section 3.5 and any loans made by a Partner pursuant to Section 3.6); (c) Third, to the payment of the Development Fee if not previously paid pursuant to this Agreement; (d) Fourth, to the return of Waterfront's Capital Contribution plus unreimbursed Development Expenses, in each case together with the preferred return thereon provided for in Section 3.5, if not previously paid pursuant to this Agreement; 30 (e) Fifth, to the Partners in an amount equal to the good faith estimate of the income tax liability of each Partner (or each Partners' owner or owners) with respect to the income realized by each Partner, including, without limitation, any income realized pursuant to Section 4.2(c)(iii) hereof, calculated by multiplying such estimated income by the highest combined federal and state income tax rates of each such Partner (or its owners), taking into account whether such Partner (or its owners) will be subject to corporate or individual taxes. (f) Sixth, to the payment of any accrued and unpaid preferred return on each Partner's outstanding Capital Contribution, loans and unreimbursed Development Expenses pursuant to Section 3.5 above; (g) Seventh, to the extent not previously repaid, to the repayment of each Partner's entire unpaid Capital Contribution, loans and unreimbursed Development Expenses; (h) Eighth, the balance, if any, to the Partners in proportion to their respective positive Capital Account balances. Upon complete liquidation, dissolution and winding up, the Partners shall cease to be Partners of the Partnership. 11.3 Bankruptcy or Insolvency; Involuntary Transfer (a) Subject to the rights and powers of a trustee and court in bankruptcy under the Bankruptcy Code of 1978 or any similar, succeeding law, if: (i) any Partner files a petition in bankruptcy or a petition to take advantage of any insolvency law, makes an assignment for the benefit of creditors, consents to or acquiesces in the appointment of a receiver, liquidator, or trustee of the whole or any substantial portion of such Partner's properties or assets, or files a petition or answer seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under the federal bankruptcy laws or any other applicable laws; or (ii) a court of competent jurisdiction shall enter an order, judgment, or decree appointing a receiver, liquidator, or trustee of any Partner of the whole or any substantial portion of the property or assets of such Partner or approving a petition filed against such Partner seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under the federal bankruptcy laws or any other applicable laws, and such order, judgment or decree is not vacated, set aside or stayed within two (2) months from the date of entry thereof; then the other Partner shall have the right, but not the obligation, to purchase the entire Interest of such bankrupt or insolvent Partner. In the absence of such an election, the business of the Partnership shall be continued in the name of the Partnership, in which case there shall be compliance with all of the terms and conditions of this Agreement. (b) If a Partner suffers an Involuntary Transfer of part or all of its Interest, the transferee shall not be a partner hereunder and shall take such Interest or part thereof subject to an option in favor of the remaining Partner to acquire such Interest or part thereof. Until the 31 closing of a sale upon such election by the remaining Partner, the transferee shall be entitled to any cash distributions, but shall not be entitled to any vote, consent or similar rights, if any. An "Involuntary Transfer" shall mean a transfer due to dissolution of a Partner or a transfer without the choice of a Partner, including but not limited to a transfer to a judgment creditor, lienholder or the holder of a security interest or encumbrance, or a transfer ordered by a court. (c) If the other Partner elects to purchase the Interest of such bankrupt or insolvent Partner or the Interest from a transferee after an involuntary transfer, such remaining Partner shall inform the bankrupt or insolvent Partner or transferee of such election within thirty (30) days after receipt of notice of institution of bankruptcy proceedings, assignment for the benefit of creditors, or appointment of receiver, liquidator or trustee or transfer. In such event, the entire Interest shall be purchased at a price equal to eighty percent (80%) of the fair market value of such Interest as determined in accordance with Section 9 of this Agreement, payable in cash at a closing set by the purchasing Partner within ninety (90) days after the determination of such value. 12. Disclosure of Other Business Interest Conflicts; Business Opportunity 12.1 Other Business Interests (a) No Partner shall be required to devote its entire time or attention to the business of the Partnership. (b) All of the Partners understand that the Partners and the stockholders of corporate Partners may be interested, directly or indirectly, individually, or through one or more Affiliates, in various other businesses outside of Cook County, Illinois and the State of Indiana, and non-gaming businesses in East Chicago or elsewhere, not included in this Partnership ("Unrelated Businesses"). The Partners hereby agree that the creation of the Partnership and the assumption by each of the Partners of its duties hereunder shall be without prejudice to its right (or the right of its Affiliates) to have Unrelated Businesses and to receive and enjoy profits or compensation therefrom. 12.2 Competition Waterfront agrees that Showboat and its Affiliates ("Showboat Parties") are pursuing gaming opportunities throughout the United States and other jurisdictions and may be pursuing gaming opportunities in Cook County, Illinois. Waterfront acknowledges that the Showboat Parties may pursue such opportunities, including opportunities in Cook County, Illinois. Neither the Showboat Parties nor Waterfront shall engage in other gaming activities in Indiana. If Showboat or Waterfront or any of their Affiliates commence gaming operations in Cook County, Illinois, the other Partner may purchase fifteen percent (15%) of the first Partner's or its Affiliates' interest in such gaming venture at the first Partner's or its Affiliates' purchase price at any time within one (1) year of the opening of such operation(s). In the event that the Showboat Parties or Waterfront or their Affiliates enter into a gaming opportunity in Cook County, Illinois such Partner shall covenant that key customers of the Project shall not be solicited by such Partner to become customers of the gaming venture in Cook County nor may such Partner assign management talent from the Project to the Cook County gaming venture without the consent of the other Partner, which consent shall not be unreasonably withheld or delayed. 32 The Partners acknowledge that Showboat and/or its Affiliates operate other casinos and may in the future operate additional casinos in different areas of the world, including, without limitation, casinos in the state of Illinois and that marketing efforts may cross over in the same market and with respect to the same potential customer base. Showboat, in the course of its Affiliates managing the Vessel, may refer customers of the Vessel and other parties to other facilities operated by Affiliates of Showboat to utilize gaming, entertainment and other amenities, without payment of any fees to the Partnership or the Partners. The Partnership and the Partners acknowledge and agree that Showboat or its Affiliates may distribute promotional materials for Showboat or its Affiliates and facilities, including casinos, at the Riverboat. However, if such facility to which a customer of the Project would be referred or which is promoted is within a county identified below, the consent of Waterfront shall be required, which consent may be withheld in Waterfront's sole discretion.
Michigan Counties Illinois Counties Berrien Cook Van Buren DuPage Allegan Grundy Cass Lake St. Joseph Will Branch Kentall Kankakee
12.3 Business Opportunity In the event that a Partner or any of its Affiliates has the opportunity to acquire an interest in any Unrelated Business (a "Business Opportunity"), whether individually or as a member of a partnership or joint venture or other entity or as a shareholder of a corporation, such Partner or its Affiliate shall not be required to offer such Business Opportunity to the Partnership or to the other Partners except as expressly required hereunder, and the failure of such Partner or its Affiliate to do so shall not constitute a breach of such Partner's fiduciary duty to the Partnership or to the other Partners. 13. Tax Matters; Books and Records; Accounting 13.1 Tax Matters If unanimously approved by the Partners, the Partnership shall file an election under Section 754 of the Code in accordance with applicable regulations, to cause the basis of the Partnership's property to be adjusted for federal income tax purposes as provided by Sections 734 and 743 of the Code. No election shall be made by the Partnership or by any of the Partners to be excluded from the application of the provisions of Subchapter K of the Code or any similar provisions of the state tax laws. The Managing Partner is designated as the "Tax Matters Partner." 33 13.2 Indemnity Against Breach Each Partner agrees that it will indemnify and hold the Partnership and the other Partners harmless from and against any and all losses, costs, liabilities and expenses, including, but not limited to, attorneys' fees of every kind and description, absolute and contingent, which result from any breach of this Agreement by such indemnifying Partner. Except as may otherwise be decided pursuant to Section 13.1, in the event any claim or liability (which if proved would constitute, or create a liability subject to indemnification under this Section 13.2) is made or asserted against the Partnership or a Partner (collectively the "Accused party") it shall notify the Partner which the Accused party believes should indemnify the Accused party pursuant to the provisions of this Section 13.2 (the "Notified Partner") in writing that such claim or demand has been made. Upon receipt of such notice, the Notified Partner (a) shall be entitled to participate at its own expense in the defense of such suit brought to enforce any claim, or (b) in the event the Notified Partner and the Accused party agree that the Notified Partner would be wholly liable for, and is financially able to satisfy, such claim, the Notified Partner may elect to assume the defense thereof, in which event it shall not be liable for attorneys' fees and court costs thereafter incurred by the Accused party in defense of such action, or (c) the Notified Partner and the Accused party may agree to conduct a defense jointly and to share expenses in any manner in which they agree. Payment of sums finally determined to be due hereunder shall be made upon demand to the Partner or Partnership to whom a right of indemnity has accrued under this Section 13.2. The Partner entitled to payment shall also be entitled to receive reasonable attorneys' fees for collection of such payment if not paid within thirty (30) days after demand is made, if such Partner or the Partnership prevails in any claims against another Partner for any such payment hereunder. 13.3 Records Accurate, current, and complete books, shall be maintained on a calendar year and accrual basis in accordance with generally accepted accounting principles consistently applied and for tax purposes the Partnership's tax year will be the tax year of the Managing Partner in accordance with the federal tax laws. The Partnership shall keep any and all other records necessary, convenient, or incidental to recording the business and affairs of the Partnership. The Managing Partner shall provide monthly, quarterly and annual unaudited income statements, balance sheets and changes in cash position to Waterfront not later than twenty-eight (28) days after each calendar month, forty- five (45) days after each calendar quarter and sixty (60) days after each calendar year. Waterfront shall keep monthly statements confidential at its board level. The Managing Partner shall select the Partnership's Auditor and shall determine all matters regarding methods of depreciation and accounting and shall make all tax elections and decisions relating to taxes. The Partnership's Auditor shall audit the books and records of the Partnership annually and render an opinion on the financial statements of the Partnership as of the end of each calendar year. Copies of the financial statements certified by the Partnership's Auditor shall be provided to the Partners within ninety (90) days following the end of each calendar year. Waterfront may designate an additional reputable accounting firm ("Special Auditor") to conduct an audit of the 34 operations of the Partnership at Waterfront's expense; provided, however, that if the additional audit by the Special Auditor shall reveal a discrepancy in gross revenues, net income or cash to be distributed to the Partners of more than three percent (3%), Showboat shall bear the costs of such audit. The Partners and their representatives shall have the right to inspect the books and records of the Partnership at any time during normal business hours. 13.4 Notices Any notice which may be or is required to be given hereunder shall be deemed given 3 days after such notice has been deposited, by registered or certified mail, in the United States mail, addressed to the Partnership or the Partners at the addresses set forth after their respective names below, or at such different addresses as to the Partnership or any Partner as it shall have theretofore advised the other parties in writing: Partnership: Showboat Indiana, Inc. 2800 Fremont Street Las Vegas, Nevada 89104 with a copy to: Waterfront Entertainment and Development, Inc. 8101 Polo Club Drive, Suite D Merrillville, Indiana 46410 Waterfront: Waterfront Entertainment & Development, Inc. 8101 Polo Club Drive, Suite D Merrillville, Indiana 46410 with a copy to: Phillip L. Bayt, Esq. Ice Miller Donadio & Ryan One American Square Indianapolis, Indiana 46282 Showboat: Showboat Indiana, Inc. 2800 Fremont Street Las Vegas, Nevada 89104 with a copy to: John N. Brewer, Esq. Kummer Kaempfer Bonner & Renshaw Seventh Floor 3800 Howard Hughes Parkway Las Vegas, Nevada 89109 35 13.5 Reports to Partners The Partners agree that the Managing Partner will provide all of the information necessary for the preparation of a U.S. Partnership Return of Income (Form 1065) for the Partnership accounts within two (2) months after the close of each calendar year. The Managing Partner agrees to provide each of the Partners with all information necessary for their timely preparation of the required U.S. Income tax returns. 14. Trademarks and Licenses 14.1 Showboat Marks Showboat, Inc., the parent corporation of Showboat, is the owner of the marks and trade names listed on Exhibit C (collectively "Showboat Marks"). Showboat, Inc. has reserved to itself certain rights, most particularly those rights concerned with the exploitation of the Showboat Marks. Showboat, Inc. believes that the Showboat Marks have and will increasingly become a popular and valuable asset in various fields of use not only throughout the United States but also in foreign countries. 14.2 Use of Marks by Partnership Showboat shall cause Showboat, Inc. to grant to the Partnership the non-exclusive license to use the Showboat Marks in connection with the Project at no cost to the Partnership only for such period of time that Showboat is the Managing Partner (the "Use Period"), provided that such use is in accord with reasonable criteria established by Showboat, Inc. Upon termination of the Use Period all uses of the Showboat Marks shall cease and the Partnership shall remove from the vessel and the Casino Facilities any furnishings, personal property, fixtures and other items which contain any of the Showboat Marks. 15. General Provisions 15.1 Foreign Gaming Licenses If Showboat determines, at its sole discretion, that any of its gaming licenses in other jurisdictions may be adversely affected or in jeopardy because of its status as a Partner, Showboat shall have the option at any such time to sell its Interest, subject to the right of first refusal granted to Waterfront. If this occurs prior to or within the first six (6) months after Opening and Waterfront elects its right of first refusal, Showboat shall receive as sole compensation for Waterfront's purchase of its Interest, the Capital Contribution Showboat has made to the Partnership plus interest thereon at the Federal funds rate for the period during which its Capital Contribution was made to the Partnership. If this occurs after the first six (6) months after Opening and Waterfront elects its right of first refusal, Showboat shall receive as sole compensation for Waterfront's purchase of its interest the fair market value of such interest determined in accordance with Section 9, payable within ninety (90) days after the determination of the fair market value. In case of a sale by Showboat of its Interest under this Section, the Management Agreement shall terminate upon the consummation of such sale. 15.2 Entire Agreement This Agreement constitutes the entire understanding of the Partners with respect to the subject matter hereof, and there are no understandings, representations, or warranties of any kind 36 between the Partners except as expressly set forth herein and as set forth in that certain agreement of even date among Showboat, Waterfront and Showboat, Inc. 15.3 Counterparts This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. 15.4 Captions The captions in this Agreement are solely for the convenience of the parties and do not constitute a part of this Agreement. 15.5 Amendment All additions, changes, corrections or amendments to the terms, responsibilities, obligations, and conditions contained herein must and will be in writing signed by all the Partners before they become effective. 15.6 Grammatical Changes Whenever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural, and pronouns stated in either the masculine, the feminine or the neuter gender shall include the masculine, feminine and neuter gender as the circumstances require. 15.7 Successors and Assigns Subject to the restrictions on transfer expressly set forth in this Agreement, this Agreement shall inure to the benefit of and be binding upon, the successors and assigns of the parties hereto. 15.8 Consent of Partners Whenever consent of the Partners is required for any action, such consent shall be by a written instrument signed by the Partners, sent to the Partners in the manner provided for notices or by facsimile transmission and deposited in the regular mail prior to the action requiring the consent being made. 15.9 No Waiver (a) The failure of any Partner or the Partnership to insist, in any one or more instances, upon observance and performance of any provision of this Agreement shall not be construed as a waiver of such provision or the relinquishment of any other right granted herein or of the right to require future observance and performance of any such provision or right. (b) The waiver by any Partner or the Partnership of any breach of any provision herein contained shall not be deemed to be a waiver of such provision on account of any other breach of the same or any other provision of this Agreement. (c) No provision of this Agreement shall be deemed to have been waived, unless such waiver be in writing and signed by the person sought to be charged with a waiver of such provision. 37 15.10 Disputes In the event any dispute should arise between the parties hereto where the parties cannot agree on a matter requiring unanimity, to enforce any provision hereof, for damages by reason of any alleged breach hereunder, for a declaration of such party's rights or obligations hereunder, or for any other remedy, such dispute shall be settled by arbitration by a single arbitrator pursuant to the rules of the American Arbitration Association. Such arbitration shall be conducted in East Chicago, Indiana in accordance with the rules then in effect by the American Arbitration Association, provided that the parties shall be entitled to afford themselves of the discovery allowed under the then current rules of Federal Civil Procedures for the Northern District of Indiana. The decision of the arbitrator shall be final and may be entered as a judgment by a court of competent jurisdiction for any matter in controversy below $1,000,000. The decision of the arbitrator where the matter in controversy is in excess of that amount shall be appealable to a circuit or superior court in Lake County, Indiana for a mistake of law or fact. The prevailing party (as determined by the arbitrator) shall be entitled to recover such amounts, if any, as the arbitrator may adjudge to be reasonable attorneys' fees for the prevailing party; and such amount shall be included in any judgment rendered in such action or proceeding. 15.11 Partial Invalidity If any term, covenant, or condition of this Agreement or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement or the application of such term, covenant, or condition to persons or circumstances, other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term, covenant, or condition of this Agreement shall be valid and enforced to the fullest extent permitted by law. 15.12 Cooperation with Gaming Authorities The Partners shall use their best efforts to cause its officers, directors, employees and stockholders to provide the Nevada Gaming Authorities, the New Jersey Casino Control Commission or such other gaming authority having jurisdiction over Showboat or its affiliates with such documents and information necessary for Showboat to (i) obtain the approval of the Nevada Gaming Authorities or the New Jersey Casino Control Commission to conduct gaming operations in the state of Indiana, and (ii) maintain Showboat's and Showboat's Affiliates gaming licenses. 15.13 Administrative/Development/Trademark/License Fees Showboat is a subsidiary of Showboat, Inc. Showboat, Inc. through another subsidiary ("Related Subsidiary") provides development, management, administrative, trademark and licensing services (the "Services") to its operating subsidiaries for a fee. The Partners agree that Showboat may enter into agreements for such Services for the benefit of the Project. Provided, however, the fees earned by the Related Subsidiary for Services rendered to the Partnership shall be paid only from Partnership distributions to Showboat unless otherwise consented to in writing by Waterfront. 38 15.14 Applicable Law: Jurisdiction (a) The laws of the State of Indiana shall govern the validity, performance, and enforcement of the terms and conditions of this Agreement and any other obligation secured hereby. (b) The Partners agree that any proceedings with respect to the performance or enforcement of this Agreement shall be brought in the state of Indiana. 15.15 Financing Fees The Partners agree that, except with respect to the Development Financing, neither Partner nor any of their affiliates, shareholders, parents, or other related entities will seek fees from the Partnership or any other related person or entity for arranging financing, extending guaranties or otherwise lending comfort, security or credit support for Partnership financing or for bringing other assets to the Partnership other than as specified herein. This Section 15.15 shall not prohibit the Partnership from paying fees to third parties unrelated to the Partners. IN WITNESS WHEREOF, the parties have executed this Agreement in multiple originals as of the date first hereinabove written. WATERFRONT ENTERTAINMENT AND DEVELOPMENT, INC. By:________________________________ MICHAEL PANNOS, PRESIDENT SHOWBOAT INDIANA INVESTMENT LIMITED PARTNERSHIP, a Nevada Limited Partnership By: Showboat Indiana, Inc., its General Partner By:________________________________ J. KELL HOUSSELS, III,CHAIRMAN OF THE BOARD AGREEMENT OF PARTNERSHIP OF SHOWBOAT MARINA INVESTMENT PARTNERSHIP AN INDIANA GENERAL PARTNERSHIP AGREEMENT OF PARTNERSHIP OF SHOWBOAT MARINA INVESTMENT PARTNERSHIP AN INDIANA GENERAL PARTNERSHIP TABLE OF CONTENTS PAGE ARTICLE I. DEFINITIONS 1 Affiliate 1 Cash Available for Distribution 2 Code 2 Depreciation 2 Gross Asset Value 2 Gross Revenue 2 Interest or Partnership Interest 3 Majority Interest 3 Net Profits or Net Losses 3 Nonrecourse Debt or Partner Nonrecourse Debt 3 Original Capital Contribution 3 Partner 3 Partnership 3 Partnership Property 4 Project 4 Regulations 4 Showboat Marina 4 Unrecovered Capital Contribution 4 ARTICLE II. FORMATION AND ORGANIZATION MATTERS 4 Agreement of General Partnership 4 Fictitious Business Name Statement 4 Name 5 Purpose 5 Term 5 Principal Place of Business 5 i Title to Property 5 ARTICLE III. CAPITAL CONTRIBUTIONS 6 Showboat Indiana 6 Waterfront 6 No Interest on Capital Contributions 6 Withdrawal of Capital Contributions 6 Additional Capital Contributions 6 Failure to Contribute 7 Adjustment of Capital Contributions 8 Put Option 8 ARTICLE IV. CAPITAL ACCOUNTS 9 Increases 9 Decreases 10 Other Adjustments 10 General Provisions 10 ARTICLE V. LOANS 11 Partner's Loans to the Partnership 11 Other Loans to the Partnership 11 Showboat Indiana Advances and Affiliate Loans 12 Loans from the Partnership 12 ARTICLE VI. ALLOCATIONS OF PROFITS AND LOSSES 12 Determination of Net Profits and Net Losses 12 Net Profits 13 Net Losses 13 Special Allocations 13 Curative Allocations 14 Other Allocation Rules 14 Tax Allocations Code Section 704(c) 15 Certain Elections 16 ARTICLE VII. DISTRIBUTIONS 16 Operating Distributions 16 Distributions Upon Dissolution or Liquidation 17 Restoration of Capital Account 17 Method of Distribution 18 Distributions to Owners of Record 18 ARTICLE VIII. BOOKS AND RECORDS, ACCOUNTING, AND TAXES 18 Fiscal Year of Partnership 18 Books and Records 18 Tax Returns and Reports to Partners 19 Gross Value Adjustment of Partnership Assets 19 ii ARTICLE IX. POWERS AND OBLIGATIONS OF PARTNERS 19 Authority of Showboat Indiana 19 Duties of Showboat Indiana 20 Partnership Meetings 21 Activities of Partners 21 Liability of the Partners 22 Indemnification of the Partners 22 Representations 22 Right to Rely Upon the Authority of Showboat Indiana 23 ARTICLE X. BANK ACCOUNTS 23 Bank Accounts 23 Expenses of the Partnership 23 ARTICLE XI. TRANSFER OF A PARTNERSHIP INTEREST 23 Transfer of a Partner's Interest 23 Right of First Refusal 24 Continuing Liability 24 Effectiveness of Substitution 25 Further Limitations of Transfers 26 Payment to Withdrawing Partner 26 ARTICLE XII. DISSOLUTION OF PARTNERSHIP 26 Events of Dissolution 26 Winding-Up of Partnership Business 27 Distribution of Partnership Property Upon Dissolution 27 Assets Other Than Cash 27 Capital Account Adjustments 28 ARTICLE XIII. NOTICES 28 ARTICLE XIV. DISCLOSURE OF OTHER BUSINESS INTEREST CONFLICTS; BUSINESS OPPORTUNITY 28 Other Business Interests 28 Competition 28 Business Opportunity 29 ARTICLE XV. MISCELLANEOUS PROVISIONS 30 Limited Power of Attorney Amendment 31 Binding Effect; Further Instruments 33 Headings 33 Gender and Number 33 Severability 33 Waiver of Action for Partition 33 iii Governing Law 33 Arbitration; Attorneys' Fees and Costs 33 Integration 34 Counterparts 34 Exhibits 34 AGREEMENT OF PARTNERSHIP OF SHOWBOAT MARINA INVESTMENT PARTNERSHIP AN INDIANA GENERAL PARTNERSHIP THIS AGREEMENT OF PARTNERSHIP of SHOWBOAT MARINA INVESTMENT PARTNERSHIP, an Indiana general partnership (this "Agreement"), is made as of this 1st day of March, 1996, by and between SHOWBOAT INDIANA INVESTMENT LIMITED PARTNERSHIP, a Nevada limited partnership ("Showboat Indiana"), and WATERFRONT ENTERTAINMENT AND DEVELOPMENT, INC., an Indiana corporation ("Waterfront"). RECITALS A. The parties hereto have joined together for the purpose of forming a general partnership pursuant to the Uniform Partnership Act under the laws of the state of Indiana, upon the terms and conditions and for the purposes hereinafter set forth. B. The parties desire to form a general partnership on the terms and conditions set forth herein, for the purpose of holding a one percent (1%) partnership interest in the Showboat Marina Casino Partnership, an Indiana general partnership. NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and with the intention of being bound by this Agreement, the parties stipulate and agree as follows: ARTICLE I. DEFINITIONS For purposes of this Agreement, and in addition to terms defined elsewhere herein, the following terms shall have the following meanings: 1.01 AFFILIATE The term Affiliate shall refer to (i) any person ("first person") directly or indirectly controlling, controlled by, or under common control with a second person, or owning or controlling 10% or more of the outstanding securities of that second person; (ii) any officer, director, partner or member of the immediate family of that first person; and (iii) if that second person is an officer, director or partner, any company for which that second person acts in that capacity. "Person" includes any individual, partnership, corporation, limited liability company, association or other legal entity. The term "control" (including the terms "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise. 1.02 CASH AVAILABLE FOR DISTRIBUTION The Cash Available for Distribution shall mean Gross Revenue less cash expenditures (including but not limited to, debt service and operating expenses) and amounts set aside for reserves, but not including any amount which, if distributed, would cause a default of any covenant contained in any financing agreement between the Partnership and a third party lender. 1.03 CODE The Internal Revenue Code of 1986, as amended, codified as Title 26 of the U.S. Code. 1.04 DEPRECIATION For each fiscal year or other period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided, however, that if the federal income tax depreciation, amortization, or other cost recovery deduction for such year is zero, depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by Showboat Indiana. 1.05 GROSS ASSET VALUE With respect to any asset, the asset's adjusted basis for federal income tax purposes, except that the initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the fair market value of such asset, as determined by the contributing Partner and the Partnership. The Gross Asset Value of any Partnership assets distributed to any Partner shall be the gross fair market value of such asset on the date of distribution. 1.06 GROSS REVENUE All of the revenue generated by the Partnership Property and miscellaneous sources, including, without limitation, all cash receipts from operation of the Partnership Property and cash proceeds from (a) any loan secured by the Partnership Property, (b) a sale or refinancing of all or part of the Partnership Property remaining after retirement of debt secured by such Partnership Property and all expenses relating to the transaction and retention of reasonable reserves, and (c) net condemnation proceeds. 2 1.07 INTEREST OR PARTNERSHIP INTEREST The proportionate interest of a Partner in the profits, losses, and capital of the Partnership, set forth as such Partner's "Percentage Interest" on Exhibit A hereto. 1.08 MAJORITY INTEREST Any combination of Partnership Interests that, in the aggregate, constitutes more than fifty percent (50%) of all Partnership Interests. 1.09 NET PROFITS OR NET LOSSES The net income or loss of the Partnership, as determined by the auditors or accountants employed by the Partnership, in accordance with Section 703 of the Code, applied consistently with prior periods. 1.10 NONRECOURSE DEBT OR PARTNER NONRECOURSE DEBT Any debt or liability of the Partnership as to which no Partner has any liability for repayment beyond its investment in the Partnership. 1.11 ORIGINAL CAPITAL CONTRIBUTION The amount contributed by a Partner to the capital of the Partnership upon its formation or upon the Partner's admission thereto. 1.12 OPENING The date the Project opens to the public for business for gaming activities by paying customers. 1.13 PARENT AGREEMENT The Amended & Restated Showboat Marina Partnership Agreement between Showboat Indiana and Waterfront dated as of March 1, 1996. 1.14 PARTNER Initially, Showboat Indiana and Waterfront, and thereafter, any person or entity which holds a Partnership Interest and is admitted as a substitute Partner in accordance with this Agreement. 1.15 PARTNERSHIP Showboat Marina Investment Partnership, an Indiana general partnership. 3 1.16 PARTNERSHIP PROPERTY The Partnership's interest in such property, whether real or personal, as may from time to time belong to the Partnership. 1.17 PROJECT The excursion cruise vessel casino development to be acquired and developed by Showboat Marina in the City of East Chicago, Indiana, and operated on Lake Michigan. 1.18 REGULATIONS The regulations promulgated by the U.S. Treasury Department under the Code. 1.19 SHOWBOAT MARINA Showboat Marina Casino Partnership, an Indiana general partnership. 1.20 UNRECOVERED CAPITAL CONTRIBUTION The Original Capital Contribution made by a Partner to the Partnership reduced by any distributions to said Partner, which constitute a return of capital, thereby decreasing such Partner's Capital Account. 1.21 Undefined Terms Capitalized terms used but not defined herein that are defined in the Parent Agreement shall have the meaning ascribed thereto in the Parent Agreement. ARTICLE II. FORMATION AND ORGANIZATION MATTERS 2.01 AGREEMENT OF GENERAL PARTNERSHIP Showboat Indiana and Waterfront agree to associate themselves together as a general partnership pursuant to the provisions of the Indiana Uniform Partnership Act (IC 23-4-1-1 et seq.), as amended from time to time, and upon the terms and conditions set forth in this Agreement. 2.02 FICTITIOUS BUSINESS NAME STATEMENT Showboat Indiana shall execute and promptly cause to be filed in the applicable Indiana counties, a certificate of assumed or fictitious business name, or such other document that may be required, with respect to the name of the Partnership and with respect to any other assumed or fictitious business names used by the Partnership in carrying out its purpose. 4 2.03 NAME The name of the Partnership shall be Showboat Marina Investment Partnership. 2.04 PURPOSE The purposes of the Partnership are (a) to hold a one percent (1%) interest in Showboat Marina to be purchased at a price of $390,000, (b) to carry on any other activities necessary or incidental to the foregoing, and (c) to engage in any other business if such business is approved and agreed upon unanimously by the Partners prior to entering into such business. 2.05 TERM The term of the Partnership shall commence upon the execution of this Agreement and shall continue until the earlier of either (i) December 31, 2023; or (ii) the sale of all or substantially all of the Partnership Property (the "Initial Term"); unless the life of the Partnership shall be terminated or extended pursuant to law or any provision of this Agreement. The term of the Partnership shall be continued automatically for successive one-year terms (each, a "Renewal Term") after December 31, 2023 until terminated as provided herein. If Showboat Indiana desires that the Partnership terminate upon the expiration of the Initial Term of the Partnership or any Renewal Term thereafter, Showboat Indiana shall give written notice to Waterfront of its intention to cause such termination at least ninety (90) days prior to the end of the Initial Term or any Renewal Term thereafter. The Partnership shall terminate thereafter at the end of the Initial Term or such Renewal Term, as the case may be, and shall thereafter be liquidated in accordance with the provisions hereof. 2.06 PRINCIPAL PLACE OF BUSINESS The location of the principal place of business of the Partnership shall be: 2001 E. Columbus Drive, East Chicago, Indiana 46312, or at such other place as Showboat Indiana may from time to time determine. 2.07 TITLE TO PROPERTY Legal title to all Partnership Property shall be taken and at all times held in the name of the Partnership. 2.08 LICENSING Each Partner covenants to use its best efforts to diligently obtain all state and local licenses, including gaming licenses, necessary to conduct gaming operations in the Project. The Partners agree to provide each other with copies of all applications, reports, letters and other documents filed or provided to the state or local licensing authorities. In the event that either Partner as a result of a communication or action by the Commission or on the basis of consultations with its gaming counsel and/or other professional advisors, reasonably believes in good faith, with the concurrence of the other Partner's board of directors, that the Commission is 5 likely to: (i) fail to license and/or approve the Partnership or its Affiliates to own and operate any gaming related businesses; (ii) grant required gaming licensing and/or approval only upon terms and conditions which are unacceptable to Showboat Indiana and Waterfront; (iii) significantly delay the licensing and/or approval contemplated under this Agreement; or (iv) revoke any existing license or casino operating contract of the Partnership or its Affiliates, due to concerns of any aspect of the suitability of a particular shareholder or owner of an interest in a Partner or its Affiliate, then the Partner shall divest itself of its interest in the Affiliate or cause such shareholder or owner of an interest in the Partner or the Affiliate to divest itself of such interest. If, however, the events described in subparagraphs (i) through (iv) arise from concerns with respect to the suitability of a particular Partner ("Selling Party") then the Selling Party's entire Interest in the Partnership may be purchased by the other Partner at a purchase price equal to the greater of the then fair market value of the Selling Party's Partnership Interest. ARTICLE III. CAPITAL CONTRIBUTIONS 3.01 SHOWBOAT INDIANA Showboat Indiana shall contribute Fifty-Five Dollars ($55.00) to the capital of the Partnership, whether such funds shall be contributed as debt or equity, as Showboat Indiana shall determine, in its sole and absolute discretion. The Interest of Showboat Indiana in the Partnership shall be fifty-five percent (55%). 3.02 WATERFRONT Waterfront shall contribute Forty-Five Dollars ($45.00) to the capital of the Partnership. The Interest of Waterfront in the Partnership shall be forty-five percent (45%). 3.03 NO INTEREST ON CAPITAL CONTRIBUTIONS All contributions to the capital of the Partnership shall be made in cash. Capital contributions to the Partnership shall not bear interest. 3.04 WITHDRAWAL OF CAPITAL CONTRIBUTIONS Except as expressly provided in this Agreement, no part of the contributions of any Partner to the capital of the Partnership may be withdrawn by such Partner without the prior written consent of Showboat Indiana. The Partners shall not have the right to receive property, other than cash, in return for their capital contributions, but this shall not be construed to limit the Partners' rights to receive their respective Interest in any property distributions made pursuant to this Agreement. 3.05 ADDITIONAL CAPITAL CONTRIBUTIONS At such time or times as the Partners shall unanimously determine that additional capital ("Additional Capital Contribution") is required by the Partnership, such Additional Capital Contribution shall be made by the Partners in proportion to the Partners' Interests in the 6 Partnership. If any Partner shall fail to make any Additional Capital Contribution, then Showboat Indiana shall have the right to acquire, on behalf of the Partnership, such additional capital as may be required, from whatever sources, in whatever amounts, and upon whatever terms and conditions Showboat Indiana deems necessary and appropriate, in its business judgment, to meet the ongoing needs of the Partnership. To obtain the required capital on behalf of the Partnership, the Partners shall each be entitled to the remedies set forth below. 3.06 FAILURE TO CONTRIBUTE If either Waterfront or Showboat Indiana should fail to make any Capital Contribution or a required loan on or before the date such contribution or loan is due (the "Defaulting Partner"), such failure shall constitute a default under this Agreement and the other Partner (the "Non-Defaulting Partner") may, at any time thereafter while the contribution remains unpaid, serve written notice ("Notice of Demand") upon the Defaulting Partner requiring it to make the Capital Contribution or loan, together with all costs and expenses that may have been incurred by the Partnership by reason of the nonpayment. The Notice of Demand shall specify a date (which shall be not less than ten (10) days after the date of the notice) on which, and the place at which, the contribution or loan and such costs and expenses are to be paid. In the event of the nonpayment of the additional Capital Contribution or loan on such date and at such place, the Non-Defaulting Partner shall have the right: (a) To buy the Defaulting Partner's Interest for an amount equal to the fair market value of the Defaulting Partner's Interest, computed as set forth in Section 9.1 of the ParentAgreement (and for purposes of such computation, the valuation date shall be the end of the month next preceding the month in which such contribution or loan should have been made, as set forth in the notice contemplated by this Section), such amount to be payable in cash at a closing to be held in East Chicago, Indiana on a date set by the Non-Defaulting Partner which is not later than ninety (90) days after the Non-Defaulting Partner gives written notice of such election to the Defaulting Partner Suchnotice must be given no later than thirty (30) days after the expiration of the period specified in the Notice of Demand, provided, however, that the closing may be extended for a reasonable period of time in the event the procedures set forth in Section 9 of the Parent Agreement have not been completed within said 90-day period; (b) To sue the Defaulting Partner or any guarantor to cause such Capital Contribution or loan to be made or to sue for damages for the failure to do so; or (c) To advance to the Partnership an amount equal to the Defaulting Partner's required additional Capital Contribution or loan, and the amount so advanced, together with any corresponding Capital Contribution made by the Non- Defaulting Partner for its own account shall be considered loans to the Partnership and shall be repaid by the Partnership to such Non-Defaulting Partner with interest thereon at an annual rate four (4) percentage points above the rate shown in THE WALL STREET JOURNAL (or its successor publication) from time to time as the prime rate for money center banks but with a floor of twelve percent (12%) per annum, which rate shall be determined on the first day of each 7 month and shall be applied to the loan balance for the month. However, in no event shall the interest rate exceed the maximum lawful rate. Such interest shall be payable quarterly. 3.07 ADJUSTMENT OF CAPITAL CONTRIBUTIONS As of any date, a Partner's capital contribution shall be deemed to be adjusted as follows: (a) Increased by the amount of any Partnership liabilities which, in connection with distributions pursuant to Section 7.01 or Section 7.02 hereof, are assumed by such Partner or are secured by any Partnership Property distributed to such Partner; and (b) Reduced by the amount of cash and the Gross Asset Value of any Partnership Property distributed to such Partner pursuant to Section 7.01 or Section 7.02 hereof; and (c) Reduced by the amount of any liabilities of such Partner assumed by the Partnership or which are secured by any property contributed by such Partner to the Partnership. 3.08 PUT OPTION Upon the third anniversary of the commencement of the Opening and ending sixty (60) days thereafter, Waterfront may elect to require Showboat Indiana to purchase all or a portion of Waterfront's Partnership Interest (the "Disposition Portion") either by (i) a series of three (3) payments as described below, or (ii) by distributing the entire Partnership Distributable Cash, cash from sales or refinancing and liquidating distributions to Waterfront for a period of four (4) years on account of Showboat Indiana's acquisition of Waterfront's Disposition Portion. Showboat Indiana shall have a period of sixty (60) days to elect option (i) or (ii). If Showboat Indiana elects option (i) above, Showboat Indiana shall immediately purchase, at a minimum, one-third (1/3) of Waterfront's Disposition Portion. The remaining portion of Waterfront's Disposition Portion shall be purchased by Showboat Indiana in no more than two (2) additional installments, on the fifth anniversary and the seventh anniversary of the Opening. At the fifth anniversary Showboat Indiana shall purchase, at a minimum, one-half (1/2) of Waterfront's remaining Disposition Portion not purchased on the third anniversary. Any remaining Disposition Portion shall be purchased by Showboat Indiana on the seventh (7th) anniversary of the Opening. The purchase price of Waterfront's Disposition Portion shall be calculated by multiplying (i)the percentage Partnership Interest represented by the Disposition Portion to be purchased by Showboat Indiana, by (ii) one percent (1%) of the Fair Value of the Project determined in accordance with the formula specified in Article 6 of the Parent Agreement. The Partnership may not incur additional indebtedness to fund the purchase price for Waterfront's Disposition Portion unless (i) Waterfront's entire Partnership interest is purchased or (ii) Showboat Indiana obtains Waterfront's written consent, which may be granted or withheld in 8 Waterfront's discretion. The purchase price may be paid in cash or with registered shares of common stock of Showboat, Inc., Showboat Indiana's parent corporation. In the event Showboat Indiana elects option (ii) above, (a) sums distributed to Waterfront in excess of amounts otherwise distributable to it shall be deemed a payment on account of the purchase price of Waterfront's Disposition Portion, and (b) upon the seventh (7th) anniversary of the Opening all of Disposition Portion must be purchased. Waterfront's Percentage Interest in the Disposition Portion shall pass to Showboat Indiana upon full payment therefor. The Partners agree that, notwithstanding the foregoing provisions of this Section, if Showboat Indiana, in its sole discretion, determines within ten (10) days after Waterfront's election that it is unwilling for any reason to pay the purchase price prescribed in this Section for Waterfront's Disposition Portion as determined by the formula referred to in this Section, then the Partnership shall retain reputable investment bankers who shall market the Partnership or its assets for sale to the highest reputable bidder. Waterfront and Showboat Indiana shall be permitted to submit bids for the purchase of the Partnership or its assets in such event. ARTICLE IV. CAPITAL ACCOUNTS There shall be established and maintained on the books of the Partnership a separate capital account ("Capital Account") for each Partner. The Partnership shall maintain such Capital Accounts in accordance with the capital account maintenance rules of Regulations Section 1.704-1(b)(2)(iv), as such rules may be amended from time to time. Unless otherwise required by such rules, the Capital Account of each Partner shall be maintained for such Partner in accordance with the following provisions: 4.01 INCREASES Each Partner's Capital Account shall be increased by: (a) The amount of the Partner's cash or, to the extent permitted by the terms of any Development Financing, in- kind capital contributions to the Partnership; and (b) The fair market value of any property contributed by the Partner to the Partnership (net of liabilities secured by any such contributed property that the Partnership is considered to assume or take subject to for purposes of Section 752 of the Code); and (c) The amount of Net Profits (or items thereof) allocated to the Partner pursuant to Article VI.; and (d) Any other increases required by the Regulations. If Section 704(c) of the Code applies to property contributed by a Partner to the Partnership, then the Partners' Capital Accounts shall be adjusted in accordance with Regulations Section 1.704-1(b)(2)(iv)(g). 9 4.02 DECREASES Each Partner's Capital Account shall be decreased by: (a) The amount of Net Losses allocated to the Partner pursuant to Article VI.; and (b) All amounts paid or distributed to the Partner pursuant to Article VII., other than amounts required to be treated as a payment for property or services under the Code; and (c) The fair market value of any property distributed in kind to the Partner (net of any liabilities secured by such distributed property that such Partner is considered to assume or take subject to for purposes of Section 752 of the Code); and (d) Any other decreases required by the Regulations. 4.03 OTHER ADJUSTMENTS (a) Before decreasing a Partner's Capital Account (as described above) with respect to the distribution of any property to such Partner, all Partners' Capital Accounts shall be adjusted to reflect the manner in which the unrealized income, gain, loss, and deduction inherent in such property (that has not been previously reflected in the Partners' Capital Accounts) would be allocated among the Partners if there were a taxable disposition of such property by the Partnership on the date of distribution, in accordance with Regulations Section 1.704-1(b)(2)(iv)(e). (b) Partners' Capital Accounts shall be adjusted in accordance with, and upon the occurrence of an event as permitted by Regulations Section 1.704-1(b)(2)(iv)(f), or upon the receipt of additional Capital Contributions pursuant to Section 3.06(b), hereof, to reflect a revaluation of the Partnership's assets on the Partnership's books. Such adjustments to the Partners' Capital Accounts shall be made in accordance with Regulations Section 1.704- 1(b)(2)(iv)(g) for allocations of depreciation, depletion, amortization and gain or loss with respect to such revalued property. 4.04 GENERAL PROVISIONS (a) COMPLIANCE WITH REGULATIONS - All provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b)(2)(iv), and shall be interpreted and applied in a manner consistent with such Regulations. In the event Showboat Indiana shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Partnership or Showboat Indiana) are computed in order to comply with such Regulations, Showboat Indiana may make such modification, provided that it is not likely to have a material effect on the amount 10 distributable to any Partner pursuant to Section 7.01(a) and Section 7.02 hereof upon the dissolution of the Partnership. (b) DETERMINATION OF LIABILITIES - In determining the amount of any liability for purposes of Sections 4.01(b) and 4.02(c) above, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and any Regulations promulgated thereunder. (c) FEDERAL INCOME TAX ELECTIONS - Showboat Indiana may , on behalf of the Partnership, make all elections for federal income tax purposes, including but not limited to an election, pursuant to Code Section 754, to adjust the basis of the Partnership's assets under Code Sections 734 or 743. In the event an election pursuant to Code Section 754 is made, upon the adjustment to the basis of the Partnership's assets, the Capital Accounts of all Partners shall be adjusted in accordance with the requirements of Regulation Section 1.704-1(b)(2)(iv)(m). (d) TRANSFER OF PARTNERSHIP INTEREST - In the event any Interest in the Partnership is transferred to a transferee who is entitled to be admitted to the Partnership as a substitute Partner in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred Interest. ARTICLE V. LOANS 5.01 PARTNER'S LOANS TO THE PARTNERSHIP No Partner shall lend or advance money to or for the Partnership's benefit without the prior written consent of Showboat Indiana. If any Partner shall make loans or lend money to the Partnership or advance money on its behalf, the amount of any such loan or advance shall not be an increase in the Partner's Capital Contribution or Interest, nor shall it entitle such Partner to any increase in his share of the distributions of the Partnership, nor subject such Partner to any greater proportion of the losses which the Partnership may sustain. The amount of any such loan or advance shall be a debt due from the Partnership to such Partner, at such rates and on such terms as shall be reasonably determined by Showboat Indiana. 5.02 OTHER LOANS TO THE PARTNERSHIP If Showboat Indiana determines that funds are reasonably necessary for maintaining and protecting the assets of the Partnership, conducting its business, or making capital improvements (or similar expenditures), Showboat Indiana is authorized (but not obligated) to borrow the needed funds on the Partnership's behalf on commercially reasonable terms existing at the time of the borrowing, and all or any portion of the Partnership Property may be pledged or conveyed as security for the indebtedness. In order for the Partnership to acquire its interest in Showboat Marina, a loan or advance will be obtained from Showboat Marina Partnership. 11 5.03 SHOWBOAT INDIANA ADVANCES AND AFFILIATE LOANS From time to time, Showboat Indiana may advance to the Partnership such funds as shall be required for the business expenses or other obligations of the Partnership. Such loan or advance shall become an obligation and liability of the Partnership, shall be evidenced in writing by a promissory note (whether secured by Partnership Property or unsecured) or other document of indebtedness and shall bear interest and otherwise be subject to the terms and conditions as shall be provided in such note or document; provided, however, any interest paid to Showboat Indiana on any such loans or advances shall not exceed the interest that would be charged by independent commercial lending institutions or private lenders for similar loans for the same purpose and in the same locality as the Partnership Property. Showboat Indiana shall not require a prepayment charge or penalty on any such loan. Showboat Indiana shall not provide permanent financing for the Partnership. 5.04 LOANS FROM THE PARTNERSHIP No loans shall be made from the Partnership to any Partner. ARTICLE VI. ALLOCATIONS OF PROFITS AND LOSSES 6.01 DETERMINATION OF NET PROFITS AND NET LOSSES The amount of Net Profits or Net Losses available for allocation for each fiscal year or other period, shall be an amount equal to the Partnership's taxable income or loss for such year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(l) shall be included in taxable income or loss) with the following adjustments: (a) Any income of the Partnership that is exempt from federal income tax or not otherwise taken into account in computing net profits or net losses pursuant to this Section 6.01, shall be added to such taxable income or loss; and (b) Any expenditures of the Partnership described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing net profits or losses pursuant to this Section 6.01 shall be subtracted from such taxable income or loss; and (c) In the event the Gross Asset Value of any Partnership Property is adjusted pursuant to Section 8.04, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Profits or Net Losses; and (d) Gain or loss resulting from any disposition of any Partnership Property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the Partnership Property disposed of, notwithstanding that the adjusted tax basis of such Partnership Property differs from its Gross Asset Value; and 12 (e) In lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account depreciation for such fiscal year or other period, computed in accordance with Section 1.04. Notwithstanding any other provision of this Section 6.01, any items which are specially allocated pursuant to Sections 6.04 or 6.05 hereof shall not be taken into account in computing Net Profits or Net Losses. 6.02 NET PROFITS After giving effect to any special allocations set forth in Sections 6.04 and 6.05 hereof, Net Profits for any fiscal year shall be allocated to the Partners in proportion to their respective Partnership Interests. 6.03 NET LOSSES After giving effect to the special allocations set forth in Section 6.04 and 6.05 hereof, Net Losses for any fiscal year shall be allocated to the Partners in proportion to their respective Partnership Interests; provided however that no Net Loss may be allocated to a partner with a negative Capital Account unless all Partners have a negative Capital Account. 6.04 SPECIAL ALLOCATIONS (a) MINIMUM GAIN CHARGEBACK - Except as otherwise provided in Regulations Section 1.704-2(i)(4), notwithstanding any other provision of this Section 6.04, if there is a net decrease in Partnership Minimum Gain, as defined in the Regulations, during any Partnership fiscal year, each Partner who would otherwise have an Adjusted Capital Account Deficit (as defined below) at the end of such year shall be specially allocated items of Partnership income and gain for such year (and, if necessary subsequent years) in an amount and manner sufficient to eliminate such Adjusted Capital Account Deficit as quickly as possible. The items to be so allocated shall be determined in accordance with Regulations Section 1.704-2(i). This Section is intended to comply with the minimum gain chargeback requirement Regulations Section 1.704-2(i)(4), and shall be interpreted consistently therewith. (b) QUALIFIED INCOME OFFSET - In the event any Partner unexpectedly receives any adjustments, allocations or distributions described in Regulations Section 1.704-l(b)(2)(ii)(d)(4), (5) or (6); items of Partnership income and gain shall be specially allocated to each such Partner in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such Partner as quickly as possible, provided that an allocation pursuant to this Section 6.04(b) shall be made only if and to the extent that such Partner would have an Adjusted Capital Account Deficit after all other allocations have been made as if this Section were not in this Agreement. (c) NON-RECOURSE DEDUCTIONS - Non-recourse deductions for any fiscal year or other period shall be allocated fifty- five percent (55%) to Showboat Indiana and forty-five percent (45%) to Waterfront. 13 (d) CODE SECTION 754 ADJUSTMENTS - To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704- 1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss ( if theadjustment decreases such basis) and such gain or loss shall be specially allocated to the Partners in the manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such section of the Regulations. (e) ADJUSTED CAPITAL ACCOUNT DEFICIT - The Adjusted Capital Account Deficit with respect to any Partner shall be the deficit balance, if any, in such Partner's Capital Account as of the end of the relevant fiscal year, after giving effect to the following adjustments: 1. Credit to such Capital Account any amounts which such Partner is obligated to restore (pursuant to any provision of this agreement, pursuant to the terms of such Partner's promissory note, if any, or otherwise) or is deemed to be obligated to restore pursuant to the penultimate sentence of Regulations Section 1.704-2(g)(1) and 1.704-2(i)(5); and 2. Debit to such capital account the items described in Regulations Sections 1.704- 1(b)(2)(ii)(d)(4), (5) and (6); and 3. The foregoing provisions regarding the determination of the amount of an Adjusted Capital Account Deficit are intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith 6.05 CURATIVE ALLOCATIONS The allocations set forth in Sections 6.04 (the "Regulatory Allocations") are intended to comply with certain requirements of Regulations Section 1.704-1(b). Notwithstanding any other provisions of this Agreement (other than the Regulatory Allocations), the Regulatory Allocations shall be taken into account in allocating other profits, losses and items of income, gain, loss and deduction among the Partners so that, to the extent possible, the net amount of such allocations of other profits, losses and other items and the Regulatory Allocations to each Partner shall be equal to the net amount that would have been allocated to each such Partner if the Regulatory Allocations had not occurred. 6.06 OTHER ALLOCATION RULES (a) Generally, all Net Profits and Net Losses allocated to Showboat Indiana and Waterfront pursuant to Sections 6.01 through 6.04 hereof, are in turn allocated among the Partners in proportion to the Interest held. In the event the Partners are admitted to the Partnership on different dates during any fiscal year, the Net Profits (or Net Losses) allocated 14 to the Partners for each such fiscal year shall be allocated among the Partners in proportion to the Interest each holds from time to time during such fiscal year in accordance with any convention permitted by law and selected by Showboat Indiana. (b) For purposes of determining the Net Profits, Net Losses or any other items allocable to any period, Net Profits, Net Losses and any other such items shall be determined on a daily, monthly or other basis, as determined by Showboat Indiana using any permissible method under Code Section 706 and the Regulations thereunder. (c) Except as otherwise provided in this Agreement, all items of Partnership income, gain, loss, deduction and any other allocation not otherwise provided for shall be divided among the Partners in the same proportion as they share Net Profits or Net Losses, as the case may be, for the year. (d) The Partners are aware of the income tax consequences of the allocations made by this Article VI and hereby agree to be bound by the provisions of this Article VI in reporting their share of Partnership income and loss for income tax purposes. (e) Solely for the purpose of determining a Partner's proportionate share of the "excess nonrecourse liabilities" of the Partnership within the meaning of Regulations Section 1.752-3(a)(3), the interests in the Partnership profits are in proportion to the Interests held by the Partners. (f) To the extent permitted by Regulations Section 1.704-2(h)(3), Showboat Indiana shall endeavor to treat distributions of Cash Available for Distribution, whether from operations or from the sale or refinancing of Partnership Property as having been made from the proceeds of a Nonrecourse Liability or a Partner Nonrecourse Debt unless such distributions would cause or increase an Adjusted Capital Account Deficit for any Partner. 6.07 TAX ALLOCATIONS CODE SECTION 704(C) In accordance with Code Section 704(c) and the Regulations thereunder, income, gain, loss and deduction with respect to any property contributed to the capital of the Partnership shall, solely for tax purposes, be allocated among the Partners so as to take into account any variation between the adjusted basis of such property to the Partnership for federal income tax purposes and its initial Gross Asset Value. In the event the Gross Asset Value of any Partnership asset is adjusted, subsequent allocations of income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the regulations thereunder. Any elections or other decisions relating to such allocations shall be made by Showboat Indiana in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 6.07 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any person's capital account or share of profits, losses, other items or distributions pursuant to any provision of this Agreement. 15 6.08 CERTAIN ELECTIONS Where a distribution of property is made in the manner provided in Code Section 734 or where a transfer of a Partnership Interest permitted by this Agreement is made in the manner provided in Code Section 743, Showboat Indiana shall have the sole and absolute discretion to file or not to file on behalf of the Partnership, upon any Partner's written request, an election under Code Section 754 in accordance with the procedures set forth in the applicable Regulations. Except insofar as an election pursuant to Code Section 754 has been made with respect to the Interest of any Partner, the determination of profits, losses, distributions, and Capital Accounts shall be made as provided for in this Agreement. With respect to any Partner whose Interest has been affected by an election pursuant to Code Section 754, appropriate adjustments shall be made with respect to the determination of profits, losses, distributions, and Capital Accounts. Each Partner agrees to promptly provide Showboat Indiana with all information necessary to give effect to such election. ARTICLE VII. DISTRIBUTIONS 7.01 OPERATING DISTRIBUTIONS Showboat Indiana shall distribute all Cash Available for Distribution from time to time (but not less frequently than quarterly) as Showboat Indiana may determine; provided, however, that the aggregate amount of each such distribution shall be that amount which Showboat Indiana reasonably determines is not required to be retained by the Partnership to meet the reasonably foreseeable cash requirements and needs of the business and activities of the Partnership and to establish an adequate reserve for the payment of Partnership liabilities and contingencies. All proceeds from the sale or refinancing of part or all of the assets of the Partnership, net of transaction costs, repayment of debt and reasonable reserves shall be distributed to the Partners as promptly as practicable upon receipt thereof. All distributions made pursuant to this Section 7.01 shall be made in cash and shall be divided among the Partners as follows: (a) first, to return Waterfront's Unrecovered Capital Contribution if not previously paid pursuant to this Agreement ; (b) second, to the Partners in an amount equal to the good faith estimate of the income tax liability of each Partner (or each Partners' owner or owners) with respect to the income realized by each Partner, including, without limitation, any income realized pursuant to Section 6.05 hereof, calculated by multiplying such estimated income by the highest combined federal and state income tax rates of each such Partner (or its owners), taking into account whether such Partner (or its owners) will be subject to corporate or individual taxes. (c) third, to the extent not previously repaid, one- fifth (1/5th) (calculated on an annualized basis together with all prior distributions to such Partner in that calendar year) of each Partner's Unrecovered Capital Contribution and loans , such distribution to be made annually beginning one year after the Opening; subject, however, to the limitation that (a) no more than 80% of the Distributable Cash available for disbursement pursuant to the Provisions of this subsection shall be distributed pursuant hereto, provided, however, the 16 Partners may mutually agree to repay more than one-fifth (1/5) of each Partner's Unrecovered Capital Contribution and loans and (b) the balance of such Distributable Cash shall be available for distribution pursuant to subsection 7.01(d) below; and (d) fourth, the balance, if any, to the Partners in proportion to each Partner's respective Interest in effect at the time the distribution is made. 7.02 DISTRIBUTIONS UPON DISSOLUTION OR LIQUIDATION Upon dissolution or liquidation of the Partnership, cash and any other assets being distributed in-kind shall be distributed in the following order of priority: (a) first, to the payment and discharge of all the Partnership's debts and liabilities to creditors other than Partners; (b) second, to the payment and discharge of all the Partnership's debts and liabilities to Partners (other than for any loans made by a Partner to the Partnership and any interest thereon); and (c) third, to the return of Waterfront's Unrecovered Capital Contribution plus unreimbursed Development Expenses if not previously paid pursuant to this Agreement; (d) fourth, to the Partners in an amount equal to the good faith estimate of the income tax liability of each Partner (or each Partners' owner or owners) with respect to the income realized by each Partner, including, without limitation, any income realized pursuant to Section 6.05 hereof, calculated by multiplying such estimated income by the highest combined federal and state income tax rates of each such Partner (or its owners), taking into account whether such Partner (or its owners) will be subject to corporate or individual taxes. (e) fifth, to the extent not previously repaid, to the repayment of each Partner's entire Unrecovered Capital Contribution and loans; (f) fifth, the balance, if any, to the Partners in proportion to their respective positive Capital Account balances. 7.03 RESTORATION OF CAPITAL ACCOUNT Distributions made to a Partner pursuant to Section 7.01 or Section 7.02 shall not be made in violation of Regulations Section 1.704-1(b)(2)(ii)(b)(3). If the Partner's Capital Account has a deficit balance (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs), such Partner shall contribute to the capital of the Partnership the amount necessary to restore such deficit balance to zero in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(3). 17 7.04 METHOD OF DISTRIBUTION In the discretion of Showboat Indiana, a pro rata portion of the distributions that would otherwise be made to the Partners pursuant to Section 7.02 may be: (a) distributed to a trust established for the benefit of the Partners for the purposes of liquidating Partnership assets, collecting amounts owed to the Partnership, and paying any contingent or unforeseen liabilities or obligations of the Partnership or of the Partners arising out of or in connection with the Partnership. The assets of any such trust shall be distributed to the Partners from time to time, in the reasonable discretion of Showboat Indiana, in the same proportions as the amount distributed to such trust by the Partnership would otherwise have been distributed to the Partners pursuant to this Agreement; or (b) withheld to provide a reasonable reserve for Partnership liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Partnership, provided that such withheld amounts shall be distributed to the Partners as soon as practicable. 7.05 DISTRIBUTIONS TO OWNERS OF RECORD Distributions shall be made only to persons who, according to the books and records of the Partnership, are the owners of record on a date to be determined by Showboat Indiana with respect to each distribution. Neither Showboat Indiana nor the Partnership shall incur any liability for making distributions in accordance with the preceding sentence. ARTICLE VIII. BOOKS AND RECORDS, ACCOUNTING, AND TAXES 8.01 FISCAL YEAR OF PARTNERSHIP The fiscal year of the Partnership shall be the calendar year for accounting purposes and June 30 or such other date which is the same date as the majority partner for income tax reporting purposes. 8.02 BOOKS AND RECORDS The Partnership shall maintain full and accurate books and records at its principal place of business, as required under the Indiana Uniform Partnership Act, and all Partners shall have the right to inspect and copy, at the Partner's expense, such books and records during ordinary business hours. Showboat Indiana shall maintain such books and records under the accrual method of accounting and shall have the authority to determine the necessary federal, state and local tax return elections as Showboat Indiana deems advisable and in the best interests of the Partnership. The books shall be closed at the end of each fiscal year. 18 8.03 TAX RETURNS AND REPORTS TO PARTNERS The Partnership shall make a reasonable effort to deliver to each Partner by March 15th of each year, or as soon thereafter as reasonably possible, a copy of each Partner's Internal Revenue Service Form 1065, Schedule K-l, or such successor form, to be filed with the Partner's own tax return. A copy of the income tax returns of the Partnership shall be available to any Partner. The Partnership shall provide the Partners with quarterly unaudited financial statements and annual unaudited financial statements of the Partnership. 8.04 GROSS VALUE ADJUSTMENT OF PARTNERSHIP ASSETS (a) The Gross Asset Values of all Partnership Assets shall be adjusted to equal their respective gross fair market values, as determined by Showboat Indiana, as of the following times: 1. The acquisition of an additional interest in the Partnership (other than pursuant to Section 5.03 hereof) by any new or existing Partner in exchange for more than a de minimus capital contribution; 2. The distribution by the Partnership to a Partner of more than a de minimus amount of Partnership property as consideration for an interest in the Partnership if Showboat Indiana reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership; and 3. The liquidation of the Partnership within the meaning of Regulations Section 1.704- 1(b)(2)(ii)(g). (b) The Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustment to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining capital accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and Section 6.05(d) (Code Section 734(b) or Code Section 743(b) adjustments) hereof; provided, however, that Gross Asset Values shall not be adjusted pursuant to this Section to the extent Showboat Indiana determines that an adjustment pursuant to Section 8.04(a) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this Section. ARTICLE IX. POWERS AND OBLIGATIONS OF PARTNERS 9.01 AUTHORITY OF SHOWBOAT INDIANA Showboat Indiana shall have full, exclusive, and complete authority to direct and manage the affairs of the Partnership with all rights and powers generally conferred by law together with those that are necessary or appropriate for the overall management and control of the Partnership's business, as required under the Indiana Uniform Partnership Act. 19 9.02 DUTIES OF SHOWBOAT INDIANA Showboat Indiana will use its best efforts to carry out the purpose, business, and objectives of the Partnership and will devote such time to Partnership business as is reasonably required. Showboat Indiana will use its best efforts to assure the efficient management and operation of the Partnership and will fully discharge its fiduciary duties to the Partnership and the Partners. Without limiting the generality of the foregoing, and in addition to all other duties imposed by law or this Agreement, Showboat Indiana is obligated to: (a) Subject to the provisions hereof, act in a fiduciary manner regarding the Partnership, the Partners and the Partnership Property; (b) File and publish all certificates, statements, or other documents required by law for the formation and operation of the Partnership and for the conduct of its business in all appropriate jurisdictions; provided, however, that performance will be excused whenever the remaining Partners refuse to cooperate and their cooperation is required in order to perform these duties; (c) Furnish the Partners with the reports and information specified in this Agreement; (d) Maintain complete books of account and records regarding Partnership operations and business affairs; (e) Keep all books and records of the Partnership available for inspection and audit by the Partners or their representatives; (f) Use best efforts to maintain the status of the Partnership as a "partnership" for federal income tax purposes; (g) File all federal, state, or local tax returns and reports and make all other filings which are required by law or governmental agencies; (h) Use reasonable efforts to operate the business of the Partnership; (i) Cause the Partnership at all times to maintain insurance (including liability insurance) in the amounts and against the risks as are generally maintained for comparable property and business; (j) Invest the funds of the Partnership (including reserves) that are not distributed to the Partners and temporarily are not, in Showboat Indiana's opinion, required for the conduct of the Partnership's business in (a) governmentally-insured, interest-bearing savings accounts, (b) short-term governmental obligations, or (c) certificates of deposit of a commercial bank or savings and loan association having at least $10,000,000 of assets; 20 (k) Act as the "tax matters Partner" of the Partnership pursuant to Code Section 6231(a)(7) and cause the Partnership to make such timely federal, state and local income tax elections as may be in the best interests of the Partnership; (l) Subject to the restrictions and conditions set forth in Article XI, admit transferees of Partnership Interests as substitute Partners; (m) Make all decisions concerning the operational aspects of the Partnership and execute and deliver all contracts, deeds, and other instruments in connection therewith; (n) Borrow money on behalf of the Partnership and execute and deliver in the name of the Partnership notes evidencing the same and mortgages, deeds of trust, and any other security instruments securing the same. The signature of Showboat Indiana shall be sufficient to bind the Partnership and all the Partners as to the execution of any documents concerning the Partnership's acquisition, development, rental and/or sale of any or all the Partnership Property or the execution of any mortgages, deeds of trust, or any other security instruments securing any borrowing by the Partnership; (o) Pay from Partnership assets all expenses of organizing and conducting the business of the Partnership, including, without limitation, legal and accounting fees; (p) Execute any and all instruments and take any and all other action necessary or desirable to carry out the purposes and business of the Partnership; (q) Employ, at the expense of the Partnership, such consultants, accountants, attorneys, brokers, escrow agents, property managers and other professionals as Showboat Indiana shall deem necessary or desirable, some of whom may also be employed by Showboat Indiana itself; and (r) Assume the overall duties imposed on a partner by the Indiana Uniform Partnership Act. 9.03 PARTNERSHIP MEETINGS The Partnership may, in Showboat Indiana's discretion, hold annual meetings for any reason. Partnership meetings may be held when and where designated by Showboat Indiana. 9.04 ACTIVITIES OF PARTNERS It is expressly understood that any Partner, any Affiliate or any stockholder of any Partner may engage in any business, investment, or profession, and neither the Partnership nor any other Partner shall have any rights in and to said business, profession or investment, or in the income or profits derived therefrom by reason of this Agreement. The fact that a Partner, or a person or an entity that is an Affiliate of or related to such Partner, is directly or indirectly interested in or connected with any person, firm, or corporation employed by the Partnership to render services or perform a service or to sell or to buy merchandise or other property shall not prohibit Showboat Indiana from employing or contracting with such person, firm, or corporation or from dealing 21 with him or it, and neither the Partnership nor the Partners shall have any rights in or to any income or profits derived therefrom. Showboat Indiana is not obligated to devote its full time to the affairs of the Partnership. Showboat Indiana may become involved in other businesses and ventures. It is likely that Showboat Indiana and its Affiliates will participate in other partnerships which may be in direct competition with the Partnership. Neither the Partnership nor any Partner shall have any right or interest in any business, profession, investment, or business opportunity that Showboat Indiana or its Affiliate is en gaged in, practices, or pursues. Neither Showboat Indiana nor any Affiliate shall be obligated to present any particular investment opportunity to the Partnership, even if the opportunity is of a character that, if presented to the Partnership, could be taken by the Partnership, and Showboat Indiana shall have the right to take for its own account or to recommend to others any investment opportunity. 9.05 LIABILITY OF THE PARTNERS The Partners and any of them shall not be liable in damages or otherwise to the Partnership or the other Partners, or any of them, for any loss suffered by it or them, or any of them, in connection with the activities of the Partnership. The Partners shall not be personally liable for the return of any capital of any remaining Partner, or for the return of any other contribution to the Partnership made by any Partner, other than loans made pursuant to this Agreement. 9.06 INDEMNIFICATION OF THE PARTNERS The Partnership shall indemnify and hold harmless the Partners and any of them from and against any and all loss, liability, claim, damage, and the like, including reasonable attorneys' fees, suffered by a Partner solely by virtue of its acting as a Partner in this Partnership in connection with any activity of the Partnership. The provisions of this Section to hold the Partners harmless and indemnify the Partners, shall be enforceable only against and out of the assets of the Partnership and not against or out of the assets of the Partners, or any of them, individually. 9.07 REPRESENTATIONS Each of the Partners acknowledges and agrees (i) that no representation or promise not expressly contained in this Agreement has been made by any other Partner or by any of such Partner's agents, employees, or representatives; (ii) that this Agreement is not being entered into on the basis of, or in reliance on, any promise or representation, expressed or implied, other than such as is set forth expressly in this Agreement; (iii) that each Partner has had the opportunity to be represented by counsel of said Partner's choice in this matter, including the negotiations and transactions that preceded the execution of this Agreement; and (iv) that each Partner, or counsel representing such Partner, has read this Agreement and each Partner agrees to be bound by the terms contained herein. 22 9.08 RIGHT TO RELY UPON THE AUTHORITY OF SHOWBOAT INDIANA No person dealing with Showboat Indiana shall be required to determine its authority to make any commitment or undertaking on behalf of the Partnership nor to determine any fact or circumstance bearing upon the existence of its authority. In addition, no purchaser of any property or interest owned by the Partnership shall be required to determine the sole and exclusive authority of a Partner to sign and deliver on behalf of the Partnership any such instrument of transfer or to see to the application or distribution of revenues or proceeds paid or credited in connection therewith, unless such purchaser shall have received written notice affecting the same. ARTICLE X. BANK ACCOUNTS 10.01 BANK ACCOUNTS All funds of the Partnership shall be deposited in the name of the Partnership in such bank account or accounts as shall be determined by Showboat Indiana. All withdrawals therefrom shall be made upon checks signed on behalf of the Partnership by such individuals as may be designated from time to time by Showboat Indiana. Showboat Indiana shall not make deposits in or issue any checks against the Partnership bank account without full, proper, and complete supporting records. 10.02 EXPENSES OF THE PARTNERSHIP All operating and administrative expenses of the Partnership shall be billed directly to the Partnership, in the name of the Partnership, and shall be paid by the Partnership from funds received by it. ARTICLE XI. TRANSFER OF A PARTNERSHIP INTEREST 11.01 TRANSFER OF A PARTNER'S INTEREST Except as may otherwise be expressly provided herein, no Partner shall sell, assign, pledge, encumber, hypothecate, or otherwise transfer or dispose of all or any part of its Interest or share of its Interest, as amended, without the written consent of the other Partner. Any sale or other transfer or attempted transfer in violation of this Agreement shall be null and void and of no force and effect. Further, no partner shall be admitted to the Parthership without the unanimous consent of the Partners. Each Partner acknowledges the reasonableness of the restrictions on transfers imposed by this Agreement in view of the relationship of the Partners. Any transfer, with consent, must be of all of such Partner's Interest, unless Waterfront and Showboat Indiana otherwise agree. This prohibition shall include the direct disposition of an Interest, as well as any voluntary transfer (by sale, contract for sale, assignment, pledge, hypothecation or otherwise) of a controlling interest in the stock of a Partner, or the merger or other consolidation of a Partner with or into another Person, but in such event, the consent of Waterfront and Showboat Indiana shall not be unreasonably withheld or delayed. 23 Notwithstanding the foregoing, Waterfront's shareholders may transfer portions of their equity interests, or Waterfront may issue new shares to new shareholders so long as Michael Pannos and Thomas Cappas remain officers, directors and collectively, including immediate family holdings, at least 25% shareholders of Waterfront. At all times stated herein Waterfront shall have not more than 35 shareholders each of whom shall be individuals and a majority of whom shall be residents of the State of Indiana. 11.02 RIGHT OF FIRST REFUSAL In the event that a Partner ("Transferring Partner") intends to make a voluntary transfer of part or all of its Interest to a third party, it shall first offer such Interest to the other Partner ("Remaining Partner"), who shall have a right of first refusal with respect to the acquisition of such Interest. In the event that the Transferring Partner receives a bona fide offer to purchase acceptable to such Partner, then the Remaining Partner shall have a right of first refusal to purchase such Interest at the same price and under the same terms and conditions as are contained in such written offer. Upon receipt of any such acceptable offer, the Transferring Partner shall certify a complete, true and correct copy of such offer to the Remaining Partner. The Remaining Partner shall have a period of thirty (30) days from the date of receipt of such written offer to elect whether or not it intends to accept or reject such offer. If the Remaining Partner desires to purchase the interest from the Transferring Partner upon the same terms and conditions as are set forth in such acceptable offer, then the Remaining Partner shall notify the Transferring Partner within ten (10) days of the receipt of such written offer and shall accompany such notice with an earnest money deposit equivalent to any earnest money deposit that was made with the original offer. If the Remaining Partner fails to notify the Transferring Partner within such ten (10) day period, such failure to so notify shall be deemed a rejection of such offer. Rejection of such offer shall not terminate this right of first refusal as to any other or subsequent sales of the Interest. In the event of the exercise of the right of first refusal, the Remaining Partner shall consummate the sale and purchase of the Interest in accordance with, and within the time limitations set forth in, the terms and conditions of such offer to purchase as originally submitted. In the event that such offer should include as a part of the consideration to be paid any particular or unique property, or the exchange of any other property, the Remaining Partner shall not be required to deliver to the Transferring Partner such property, but may satisfy such obligations by the payment to the Transferring Partner of cash in an amount equivalent in value to such other property. The Transferring Partner may not combine the sale of an interest with the sale of any other asset. A transfer shall include a sale or a contract for sale of all or part of an Interest as well as the sale, contract for sale or assignment of a controlling interest in the Stock of a Partner or a merger or other consolidation of a Partner with or into another Person. 11.03 CONTINUING LIABILITY Unless otherwise agreed, in the event a Partner sells, exchanges, assigns or otherwise transfers its Interest, such Partner shall remain liable for all obligations and liabilities incurred by such Partner as a Partner prior to the effective date of such transfer (including any tax liability of such Partner), but shall be free of any obligations or liabilities incurred on account of the activities of the Partnership after such date. 24 11.04 EFFECTIVENESS OF SUBSTITUTION The failure to obtain the requisite approvals and consents of the Partners to the substitution of an assignee as a Partner of the Partnership shall not, except to the extent that approval by the Indiana Gaming Commission is required, affect the validity or effectiveness of any such instrument as an assignment to an assignee of the right to receive that share of the profits or other compensation by way of income, or the return of contributions, to which his assignor would otherwise be entitled and which were assigned, provided a duly executed and acknowledged written instrument of assignment in proper form and substance, the terms of which are not in contravention of any of the provisions of this Agreement, is filed with the Partnership. However, an assignee of a Partner who has not obtained the requisite approvals and consents has no right to require any information or account of the Partnership transactions or to inspect the Partnership books, or to vote on any matters as to which a Partner would be entitled to vote. Such an assignee of a Partner is only entitled to receive the share of the profits or other compensation by way of income, or the return of capital contributions, to which the assignor would otherwise be entitled. In the event of the admission of a Partner, a permitted withdrawal of a Partner, or transfer by a Partner, this Agreement promptly will be amended as necessary to reflect any changes in the profit and loss allocations of Partners, to reflect the capital contributions of the newly admitted Partner or the withdrawal of capital by any withdrawing Partner, and to set forth any new provisions or to amend any existing provisions of this Agreement that may be necessary or desirable in light of the admission of a Partner or Transfer by a Partner. In the event such an amendment of this Agreement is required, such newly admitted Partner or withdrawing Partner shall bear all costs associated with such amendment. 11.05 DEATH OR LEGAL INCOMPETENCY OF A PARTNER Upon the death or legal incompetency of an individual Partner, his or her personal representative shall have all the rights of a Partner for the purpose of settling or managing the Partner's estate, and such power as the decedent or incompetent possessed to designate a successor as a transferee of his interest in the Partnership, and to join with such transferee in making an application to substitute such transferee as a Partner. The estate of a deceased Partner shall be liable for the decedent's liabilities as a Partner. Upon the bankruptcy, insolvency, dissolution, or other cessation of the existence, as a legal entity, of a non-individual Partner, the authorized representative of such entity shall have the rights of a Partner for the purpose of effecting the orderly disposition of the Interest of said Partner. 11.06 TRANSFER OF ALLOCATIONS In the event of the Transfer of all or any part of the Interest of any Partner, for the fiscal year during which the Transfer occurs, the share of Net Profit or Net Loss or any item of income, gain, loss, deduction, or credit of the Partnership allocable to the Interest transferred shall be allocated between the transferor and the transferee in accordance with the provisions of Code Sections 706(c) and 706(d). 25 11.07 FURTHER LIMITATIONS OF TRANSFERS Notwithstanding any other provision of this Agreement, Transfers of Interests shall be made only in accordance with 68 IAC 5-2, as amended, and no Transfer shall be permitted if: (i) the proposed Transfer or the proposed transferee will or could (a) impair the ability of the Partnership to be taxed as a Partnership under the federal income tax laws, or (b) cause any certificate of suitability, gaming license or similar authorization or license to be denied to the Partnership or, if held by the Partnership, to be suspended, revoked or not renewed; (ii) the Transfer will, or could, cause the Partnership's tax year to close, or the Partnership to terminate, for federal income tax purposes, or impair the validity of the Partnership under Indiana law; or (iii) such Transfer would cause the Partnership to be in default under any agreement relating to any of its indebtedness. Any purported Transfer in violation of the terms of this Section 11.05 shall be null and void and of no force and effect. 11.08 PAYMENT TO WITHDRAWING PARTNER The Partnership shall pay to a withdrawing Partner all amounts then accrued and owing to it, together with an amount equal to the then present fair market value of the withdrawing Partner's interest in income, gains, losses, deductions, credits, distributions, and capital determined by agreement of the withdrawing Partner and any remaining Partners. If there are no remaining Partners or if they cannot agree within thirty (30) days following the effective date of termination of the Partner, the purchase price to be paid by the Partnership shall be the fair market value of such interest determined by appraisal. The withdrawing Partner shall appoint an appraiser who is a member of the Appraisal Institute of the American Association of Real Estate Appraisers (an "MAI" appraiser) and the appraiser so appointed shall determine the fair market value of the withdrawing Partner's interest. The appraiser's determination shall be final and binding upon the Partners, the Partnership and their successors in interest. The costs and expenses of all such appraisal shall be borne by the Partnership. The purchase shall be consummated within thirty (30) days following (i) the date of receipt by the Partnership of the appraisal or (ii) the date of agreement in writing by the withdrawing Partner and the Partnership with respect to the fair market value of the withdrawing Partner's interest in the Partnership. ARTICLE XII. DISSOLUTION OF PARTNERSHIP 12.01 EVENTS OF DISSOLUTION The Partnership shall be dissolved and terminated upon the first to occur of the following events: (a) Upon the filing by any Partner of a bankruptcy under Chapter 11 of the United States Bankruptcy Code, unless the Partners elect to continue the Partnership; (b) Upon retirement or withdrawal by a Partner, unless the Partners elect to continue the Partnership; (c) The expiration of the term of the Partnership; 26 (d) By operation of law; (e) Upon the sale by the Partnership of all or substantially all the Partnership Property and the final distribution of the proceeds thereof (whether the same be cash, notes, or other property); or (f) Upon the termination of the Parent Agreement. (g) Upon the written consent of the Partners. 12.02 WINDING-UP OF PARTNERSHIP BUSINESS (a) Upon termination of the Partnership upon the occurrence of any of the events described in Section 12.01 above, the Partnership shall be dissolved, and Showboat Indiana shall take full account of the Partnership's assets and liabilities. The receivables of the Partnership shall be collected and its assets liquidated as promptly as is consistent with obtaining the fair value thereof upon dissolution. The Partnership shall engage in no further business thereafter other than as necessary to develop, maintain or market the Partnership Property on an interim basis, collect its receivables, and liquidate its assets. (b) Upon completion of winding up the Partnership's affairs and the dissolution of the Partnership, Showboat Indiana shall cause to be prepared, executed, and filed with the Secretary of State of Indiana, a Certificate of Cancellation of Partnership or any certificate required by any amendment of such provision or successor provision. 12.03 DISTRIBUTION OF PARTNERSHIP PROPERTY UPON DISSOLUTION Upon dissolution or liquidation of the Partnership, the proceeds realized upon sale and liquidation of the Partnership Property shall be applied and distributed in accordance with the provisions hereof. 12.04 ASSETS OTHER THAN CASH Assets other than cash that are distributed in kind shall be distributed on the basis of (i) in the case of notes receivable, their then fair market value, and (ii) in the case of real estate or in the case of other assets, their then fair market value as determined by an independent appraiser appointed by Showboat Indiana. As necessary, distributions in kind will be made to the Partners as tenants-in-common, or in trust as provided in Section 7.04(a). If Partnership Property should be sold, and a portion of the consideration for such sale should be notes or other evidences of indebtedness, then such notes or other evidences of loans may be sold or hypothecated to realize funds for distribution to the Partners including at a discount from the face value thereof. Sale or hypothecation of evidences of indebtedness constituting substantially all the assets of the Partnership may be accomplished only with the same consent of the Partners as is necessary for the sale of substantially all the Partnership Property. It is agreed that such sale or borrowing on the security of said notes or other evidence of indebtedness affects the basic structure of the Partnership. 27 12.05 CAPITAL ACCOUNT ADJUSTMENTS To the extent not otherwise recognized to the Partnership, the amount by which the fair market value of any property to be distributed in kind to the Partners exceeds (or is less than) the basis of such property shall be allocated as gain (or loss) to the Partners' capital accounts as if such property had been sold. Such property shall then be distributed at its fair market value with appropriate adjustments made to the capital accounts of the Partners receiving it. ARTICLE XIII. NOTICES All notices, demands, and requests required or permitted to be given pursuant to this Agreement shall be in writing. All notices, demands, and requests to be sent to any Partner shall be deemed to have been properly given when the same are deposited in the United States mail, addressed to such Partner, postage prepaid, registered or certified with return receipt requested, or sent by United Parcel Service, Federal Express, or similar next day service, to such Partner's address as set forth herein, or sent by facsimile transmission with written confirmation of receipt to a known and operating facsimile receiving device designated by such Partner. Any such notice shall be deemed received three (3) days after deposit in the United States mail or with United Parcel Service, Federal Express, or similar next day service; or upon dispatch when sent by facsimile transmission. Any Partner may, by notice to Showboat Indiana given in accordance with this Article XIII, change the address to which all future notices to such Partner shall be mailed. ARTICLE XIV. DISCLOSURE OF OTHER BUSINESS INTEREST CONFLICTS; BUSINESS OPPORTUNITY 14.01 OTHER BUSINESS INTERESTS (a) No Partner shall be required to devote its entire time or attention to the business of the Partnership. (b) All of the Partners understand that the Partners and the stockholders of corporate Partners may be interested, directly or indirectly, individually, or through one or more Affiliates, in various other businesses outside of Cook County, Illinois and the State of Indiana, and non- gaming businesses in East Chicago or elsewhere, not included in this Partnership ("Unrelated Businesses"). The Partners hereby agree that the creation of the Partnership and the assumption by each of the Partners of its duties hereunder shall be without prejudice to its right (or the right of its Affiliates) to have Unrelated Businesses and to receive and enjoy profits or compensation therefrom. 14.02 COMPETITION Waterfront agrees that Showboat Indiana and its Affiliates ("Showboat Parties") are pursuing gaming opportunities throughout the United States and other jurisdictions and may be pursuing gaming opportunities in Cook County, Illinois. Waterfront acknowledges that the Showboat Parties may pursue such opportunities, including opportunities in Cook County, 28 Illinois. Neither the Showboat Parties nor Waterfront shall engage in other gaming activities in Indiana. If Showboat Indiana or Waterfront or any of their Affiliates commence gaming operations in Cook County, Illinois, the other Partner may purchase fifteen percent (15%) of the first Partner's or its Affiliates' interest in such gaming venture at the first Partner's or its Affiliates' purchase price at any time within one (1) year of the opening of such operation(s). In the event that the Showboat Parties or Waterfront or their Affiliates enter into a gaming opportunity in Cook County, Illinois such Partner shall covenant that key customers of the Project shall not be solicited by such Partner to become customers of the gaming venture in Cook County nor may such Partner assign management talent from the Project to the Cook County gaming venture without the consent of the other Partner, which consent shall not be unreasonably withheld or delayed. The Partners acknowledge that Showboat Indiana and/or its Affiliates operate other casinos and may in the future operate additional casinos in different areas of the world, including, without limitation, casinos in the state of Illinois and that marketing efforts may cross over in the same market and with respect to the same potential customer base. Showboat Indiana, in the course of its Affiliates managing the Vessel, may refer customers of the Vessel and other parties to other facilities operated by Affiliates of Showboat Indiana to utilize gaming, entertainment and other amenities, without payment of any fees to the Partnership or the Partners. The Partnership and the Partners acknowledge and agree that Showboat Indiana or its Affiliates may distribute promotional materials for Showboat Indiana or its Affiliates and facilities, including casinos, at the Riverboat. However, if such facility to which a customer of the Project would be referred or which is promoted is within a county identified below, the consent of Waterfront shall be required, which consent may be withheld in Waterfront's sole discretion. MICHIGAN COUNTIES ILLINOIS COUNTIES Berrien Cook Van Buren DuPage Allegan Grundy Cass Lake St. Joseph Will Branch Kentall Kankakee 14.03 BUSINESS OPPORTUNITY In the event that a Partner or any of its Affiliates has the opportunity to acquire an interest in any Unrelated Business (a "Business Opportunity"), whether individually or as a member of a partnership or joint venture or other entity or as a shareholder of a corporation, such Partner or its Affiliate shall not be required to offer such Business Opportunity to the Partnership or to the other Partners except as expressly required hereunder, and the failure of such Partner or its Affiliate to do so shall not constitute a breach of such Partner's fiduciary duty to the Partnership or to the other Partners. 29 ARTICLE XV. MISCELLANEOUS PROVISIONS 15.01 AMENDMENT An amendment to this Agreement may be made only in writing and signed by both Partners. 15.02 FOREIGN GAMING LICENSES If Showboat determines, at its sole discretion, that any of its gaming licenses in other jurisdictions may be adversely affected or in jeopardy because of its status as a Partner, Showboat shall have the option at any such time to sell its Interest, subject to the right of first refusal granted to Waterfront. If this occurs prior to or within the first six (6) months after Opening and Waterfront elects its right of first refusal, Showboat shall receive as sole compensation for Waterfront's purchase of its Interest, the Capital Contribution Showboat has made to the Partnership plus interest thereon at the Federal funds rate for the period during which its Capital Contribution was made to the Partnership. If this occurs after the first six (6) months after Opening and Waterfront elects its right of first refusal, Showboat shall receive as sole compensation for Waterfront's purchase of its interest the fair market value of such interest determined in accordance with Section 9 of the Parent Agreement, payable within ninety (90) days after the determination of the fair market value. In case of a sale by Showboat of its Interest under this Section, the Management Agreement shall terminate upon the consummation of such sale. 15.04 BINDING EFFECT; FURTHER INSTRUMENTS This Agreement shall be binding upon and inure to the benefit of the parties hereto, and their respective heirs, personal representatives, successors, and assigns. The parties hereto agree for themselves and for their heirs, personal representatives, successors, and assigns to execute any and all instruments in writing that may be necessary or proper to carry out the purposes and intent of this Agreement. 15.05 HEADINGS The headings of the paragraphs of this Agreement are inserted solely for convenience of reference and are not a part of or intended to govern, limit, or aid in the construction of any term or provision hereof. 15.06 GENDER AND NUMBER Whenever required by the context, the singular shall be deemed to include the plural, and the plural shall be deemed to include the singular, and the masculine, feminine, and neuter genders shall each be deemed to include the other. 30 15.07 SEVERABILITY In the event that any provision or any portion of any provision contained in this Agreement is found by a Court of competent jurisdiction to be unenforceable, the remaining provisions, and in the event that a portion of any provision is found to be unenforceable, the remaining portion of such provision, shall nevertheless be carried into effect. 15.08 WAIVER OF ACTION FOR PARTITION During the term of the Partnership and during any period of winding up and dissolution of the Partnership, each of the Partners irrevocably waives any right that it may have to maintain any action for partition as to the Partnership Property. 15.09 GOVERNING LAW The Partnership shall be governed and this Agreement shall be construed in accordance with the internal laws, and not the law of conflicts, of the state of Indiana applicable to agreements made and to be performed in such state. 15.10 ARBITRATION; ATTORNEYS' FEES AND COSTS In the event any dispute should arise between the parties hereto as to the validity, construction, enforceability, or performance of this Agreement or any of its provisions, such dispute shall be settled by arbitration before an American Arbitration Association panel. Said arbitration shall be conducted at East Chicago, Indiana, or such other location within the state of Indiana as shall be designated by Showboat Indiana, in accordance with the commercial rules then in use by the American Arbitration Association. The decision of the arbitrator shall be final and may be entered as a judgment by a court of competent jurisdiction. The unsuccessful party to such arbitration shall pay to the successful party all reasonable costs and expenses, including reasonable attorneys' fees, incurred therein by such successful party. The successful party shall be determined by the arbitrator. 15.11 INTEGRATION This Agreement sets forth the entire agreement among the parties with regard to the subject matter hereof. All agreements, covenants, representations, and warranties, express and implied, oral and written, of the parties with regard to the subject matter hereof are contained herein, in the Exhibits hereto, and in the documents referred to herein or implementing the provisions hereof. No other agreements, covenants, representations, or warranties, express or implied, oral or written, have been made by either party to the other as to the subject matter of this Agreement. All prior and contemporaneous conversations, negotiations, possible and alleged agreements and representations, covenants, and warranties as to the subject matter hereof are waived, merged herein, and superseded hereby. 31 15.12 COUNTERPARTS This Agreement may be executed in counterparts and all counterparts so executed shall constitute one Agreement binding on all the parties. It shall not be necessary for each party to execute the same counterpart. 15.13 EXHIBITS Exhibits referred to in this Agreement are incorporated by reference into this Agreement. 32 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. "SHOWBOAT INDIANA": Showboat Indiana Investment Limited Partnership a Nevada limited partnership By: Showboat Indiana, Inc., its general partner By: /s/ Its: Waterfront Entertainment and Development Company an Indiana corporation By: /s/ Its: 33 AGREEMENT OF PARTNERSHIP OF SHOWBOAT MARINA INVESTMENT PARTNERSHIP EXHIBIT A SCHEDULE OF PARTNERS' INTERESTS
PARTNER DATE OF INITIAL PARTNER'S (NAME & ADDRESS) ADMISSION CAPITAL PERCENTAGE CONTRIBUTION INTEREST Showboat Indiana Investment March 1, 1996 $55.00 55% Limited Partnership Fremont Street Las Vegas, Nevada 89109 Waterfront Entertainment March 1, 1996 $45.00 45% and Development, Inc. Polo Club Drive, Suite D Merrillville, Indiana 46410 $100.00 100%
34 AGREEMENT OF PARTNERSHIP OF SHOWBOAT MARINA CASINO PARTNERSHIP AN INDIANA GENERAL PARTNERSHIP AGREEMENT OF PARTNERSHIP OF SHOWBOAT MARINA CASINO PARTNERSHIP AN INDIANA GENERAL PARTNERSHIP TABLE OF CONTENTS PAGE ARTICLE I. DEFINITIONS 1 1.01 Affiliate 1 1.02 Cash Available for Distribution 2 1.03 Code 2 1.04 Depreciation 2 1.05 Gross Asset Value 2 1.06 Gross Revenue 2 1.07 Interest or Partnership Interest 3 1.08 Majority Interest 3 1.09 Net Profits or Net Losses 3 1.10 Nonrecourse Debt or Partner Nonrecourse Debt 3 1.11 Original Capital Contribution 3 1.12 Partner 3 1.13 Partnership 3 1.14 Partnership Property 3 1.15 Regulations 3 1.16 Unrecovered Capital Contribution 4 ARTICLE II. FORMATION AND ORGANIZATION MATTERS 4 2.01 Agreement of General Partnership 4 2.02 Fictitious Business Name Statement 4 2.03 Name 4 2.04 Purpose 4 2.05 Term 4 2.06 Principal Place of Business 5 2.07 Title to Property 5 2.08 Licensing 5 i ARTICLE III. CAPITAL CONTRIBUTIONS 5 3.01 Showboat Marina 5 3.02 Investment 6 3.03 No Interest on Capital Contributions 6 3.04 Withdrawal of Capital Contributions 6 3.05 Additional Capital Contributions 6 3.06 Adjustment of Capital Contributions 6 ARTICLE IV. CAPITAL ACCOUNTS 7 4.01 Increases 7 4.02 Decreases 7 4.03 Other Adjustments 8 4.04 General Provisions 8 ARTICLE V. LOANS 9 5.01 Partner's Loans to the Partnership 9 5.02 Other Loans to the Partnership 9 5.03 Showboat Marina Advances and Affiliate Loans 9 5.04 Loans from the Partnership 10 ARTICLE VI. ALLOCATIONS OF PROFITS AND LOSSES 10 6.01 Determination of Net Profits and Net Losses 10 6.02 Net Profits 10 6.03 Net Losses 11 6.04 Special Allocations 11 6.05 Curative Allocations 12 6.06 Other Allocation Rules 12 6.07 Tax Allocations Code Section 704(c) 13 6.08 Certain Elections 13 ARTICLE VII. DISTRIBUTIONS 14 7.01 Operating Distributions 14 7.02 Distributions Upon Dissolution or Liquidation 14 7.03 Restoration of Capital Account 15 7.04 Method of Distribution 15 7.05 Distributions to Owners of Record 15 ARTICLE VIII. BOOKS AND RECORDS, ACCOUNTING, AND TAXES 15 8.01 Fiscal Year of Partnership 15 8.02 Books and Records 15 8.03 Tax Returns and Reports to Partners 16 8.04 Gross Value Adjustment of Partnership Assets 16 ARTICLE IX. POWERS AND OBLIGATIONS OF PARTNERS 17 9.01 Authority of Showboat Marina 17 9.02 Duties of Showboat Marina 17 9.03 Partnership Meetings 18 9.04 Activities of Partners 19 9.05 Liability of the Partners 19 ii 9.06 Indemnification of the Partners 19 9.07 Representations 19 9.08 Right to Rely Upon the Authority of Showboat 20 Marina ARTICLE X. BANK ACCOUNTS 20 10.01 Bank Accounts 20 10.02 Expenses of the Partnership 20 ARTICLE XI. TRANSFER OF A PARTNERSHIP INTEREST 20 11.01 Transfer of Investment's Interest. 20 11.02 Transfer of Showboat Marina's Interest 21 11.03 Effectiveness of Substitution 22 11.04 Death or Legal Incompetency of a Partner 23 11.05 Transfer of Allocations 23 11.06 Further Limitations of Transfers 23 11.07 Payment to Withdrawing Partner 23 11.08 Continuing Liability 24 ARTICLE XII. DISSOLUTION OF PARTNERSHIP 24 12.01 Events of Dissolution 24 12.02 Winding-Up of Partnership Business 24 12.03 Distribution of Partnership Property Upon 25 Dissolution 12.04 Assets Other Than Cash 25 12.05 Capital Account Adjustments 25 ARTICLE XIII. NOTICES 25 ARTICLE XIV. MISCELLANEOUS PROVISIONS 26 14.01 Limited Power of Attorney 26 14.02 Amendment 26 14.03 Binding Effect; Further Instruments 27 14.04 Headings 27 14.05 Gender and Number 27 14.06 Severability 27 14.07 Waiver of Action for Partition 27 14.08 Governing Law 27 14.09 Arbitration; Attorneys' Fees and Costs 28 14.10 Integration 28 14.11 Counterparts 28 14.12 Exhibits 28 iii AGREEMENT OF PARTNERSHIP OF SHOWBOAT MARINA CASINO PARTNERSHIP AN INDIANA GENERAL PARTNERSHIP THIS AGREEMENT OF PARTNERSHIP of SHOWBOAT MARINA CASINO PARTNERSHIP, AN INDIANA GENERAL PARTNERSHIP (this "Agreement"), is made as of this 1st day of March, 1996, by and between SHOWBOAT MARINA PARTNERSHIP, an Indiana general partnership ("Showboat Marina"), and SHOWBOAT MARINA INVESTMENT PARTNERSHIP, an Indiana general partnership ("Investment"). RECITALS A. The parties hereto have joined together for the purpose of forming a general partnership pursuant to the Uniform Partnership Act under the laws of the state of Indiana, upon the terms and conditions and for the purposes hereinafter set forth. B. The parties desire to form a general partnership on the terms and conditions set forth herein, for the purpose of managing and operating a gaming vessel in East Chicago, Indiana. NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and with the intention of being bound by this Agreement, the parties stipulate and agree as follows: ARTICLE I. DEFINITIONS For purposes of this Agreement, and in addition to terms defined elsewhere herein, the following terms shall have the following meanings: 1.01 AFFILIATE The term Affiliate shall refer to (i) any person ("first person") directly or indirectly controlling, controlled by, or under common control with a second person, or owning or controlling 10% or more of the outstanding securities of that second person; (ii) any officer, director, partner or member of the immediate family of that first person; and (iii) if that second person is an officer, director or partner, any company for which that second person acts in that capacity. "Person" includes any individual, partnership, corporation, limited liability company, association or other legal entity. The term "control" (including the terms "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise. 1.02 CASH AVAILABLE FOR DISTRIBUTION The cash available for distribution shall mean Gross Revenue less cash expenditures (including but not limited to, gaming loss, debt service and operating expenses) and amounts set aside for reserves, but not including any amount which, if distributed, would cause a default of any covenant contained in any indenture or any financing agreement between the Partnership and a third party lender, including, without limitation, the indenture relating to the First Mortgage Notes due 2003 (the "First Mortgage Notes") issued by the Partnership, for so long as such indenture remains in effect.. 1.03 CODE The Internal Revenue Code of 1986, as amended, codified as Title 26 of the U.S. Code. 1.04 DEPRECIATION For each fiscal year or other period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided, however, that if the federal income tax depreciation, amortization, or other cost recovery deduction for such year is zero, depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by Showboat Marina. 1.05 GROSS ASSET VALUE With respect to any asset, the asset's adjusted basis for federal income tax purposes, except that the initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market value of such asset, as determined by the contributing Partner and the Partnership. The Gross Asset Value of any Partnership assets distributed to any Partner shall be the fair market value of such asset on the date of distribution. 1.06 GROSS REVENUE All of the revenue generated by the Partnership Property and miscellaneous sources, including, without limitation, all cash receipts from operation of the Partnership Property and cash proceeds from (a) any loan secured by the Partnership Property, (b) a sale or refinancing of all or part of the Partnership Property remaining after retirement of debt secured by such Partnership Property and all expenses relating to the transaction and retention of reasonable reserves, and (c) net condemnation proceeds. 2 1.07 INTEREST OR PARTNERSHIP INTEREST The proportionate interest of a Partner in the profits, losses, and capital of the Partnership, set forth as such Partner's "Percentage Interest" on Exhibit A hereto. 1.08 MAJORITY INTEREST Any combination of Partnership Interests that, in the aggregate, constitutes more than fifty percent (50%) of all Partnership Interests. 1.09 NET PROFITS OR NET LOSSES The net income or loss of the Partnership, as determined by the auditors or accountants employed by the Partnership, in accordance with Section 703 of the Code, applied consistently with prior periods. 1.10 NONRECOURSE DEBT OR PARTNER NONRECOURSE DEBT Any debt or liability of the Partnership as to which no Partner has any liability for repayment, beyond its investment in the Partnership. 1.11 ORIGINAL CAPITAL CONTRIBUTION The amount contributed by a Partner to the capital of the Partnership upon its formation or upon the Partner's admission thereto. 1.12 PARTNER Initially, Showboat Marina and Investment, and thereafter any person or entity who holds a Partnership Interest and is admitted as a substitute Partner in accordance with this Agreement. 1.13 PARTNERSHIP Showboat Marina Casino Partnership, an Indiana general partnership. 1.14 PARTNERSHIP PROPERTY The Partnership's interest in such property, whether real or personal, as may from time to time belong to the Partnership. 1.15 REGULATIONS The regulations promulgated by the U.S. Treasury Department under the Code. 3 1.16 UNRECOVERED CAPITAL CONTRIBUTION The Original Capital Contribution made by a Partner to the Partnership reduced by any distributions to said Partner which constitute a return of capital, thereby decreasing such Partner's Capital Account. ARTICLE II. FORMATION AND ORGANIZATION MATTERS 2.01 AGREEMENT OF GENERAL PARTNERSHIP Showboat Marina and Investment agree to associate themselves together as a general partnership pursuant to the provisions of the Indiana Uniform Partnership Act (IC 23-4-1-1 et seq.), as amended from time to time, and upon the terms and conditions set forth in this Agreement. 2.02 FICTITIOUS BUSINESS NAME STATEMENT Showboat Marina shall execute and promptly cause to be filed in the applicable Indiana counties, a certificate of assumed or fictitious business name, or such other document that may be required, with respect to the name of the Partnership and with respect to any other assumed or fictitious business names used by the Partnership in carrying out its purpose. 2.03 NAME The name of the Partnership shall be Showboat Marina Casino Partnership. 2.04 PURPOSE The purposes of the Partnership are to (a) develop, construct, manage and operate a gaming vessel and related support facilities, (b) acquire, lease, sell, or otherwise dispose of properties used or useful in connection with the foregoing, (c) carry on any other activities necessary or incidental to the foregoing, and (d) engage in any other business if such business is approved and agreed upon unanimously by the Partners prior to entering into such business. 2.05 TERM The term of the Partnership shall commence upon the execution of this Agreement and shall continue until the earlier of either (i) December 31, 2023; or (ii) the sale of all or substantially all of the Partnership Property (the "Initial Term"); unless the life of the Partnership shall be terminated or extended pursuant to law or any provision of this Agreement. The term of the Partnership shall be continued automatically for successive one-year terms (each, a "Renewal Term")after December 31, 2023 until terminated as provided herein. If Showboat Marina desires that the Partnership terminate upon the expiration of the Initial Term of the Partnership or any Renewal Term thereafter, Showboat Marina shall give written notice to Investment of its intention to cause such termination at least ninety (90) days prior to the end of the Initial Term or any Renewal Term thereafter. The Partnership shall terminate thereafter at the end of the Initial Term 4 or such Renewal Term, as the case may be, and shall thereafter be liquidated in accordance with the provisions hereof. 2.06 PRINCIPAL PLACE OF BUSINESS The location of the principal place of business of the Partnership shall be: 2001 E. Columbus Drive, East Chicago, Indiana 46312, or at such other place as Showboat Marina may from time to time determine. 2.07 TITLE TO PROPERTY Legal title to all Partnership Property shall be taken and at all times held in the name of the Partnership. 2.08 LICENSING Each Partner covenants to use its best efforts to diligently obtain all state and local licenses, including gaming licenses, necessary to conduct gaming operations in the Project. The Partners agree to provide each other with copies of all applications, reports, letters and other documents filed or provided to the state or local licensing authorities. In the event that either Partner as a result of a communication or action by the Commission or on the basis of consultations with its gaming counsel and/or other professional advisors, reasonably believes in good faith, with the concurrence of the other Partner's board of directors, that the Commission is likely to: (i) fail to license and/or approve the Partnership or its Affiliates to own and operate any gaming related businesses; (ii) grant required gaming licensing and/or approval only upon terms and conditions which are unacceptable to the Partners or their respective general partners; (iii) significantly delay the licensing and/or approval contemplated under this Agreement; or (iv) revoke any existing license or casino operating contract of the Partnership or its Affiliates, due to concerns of any aspect of the suitability of a particular shareholder or owner of an interest in a Partner or its Affiliate, then the Partner shall divest itself of its interest in the Affiliate or cause such shareholder or owner of an interest in the Partner or the Affiliate to divest itself of such interest. If, however, the events described in subparagraphs (i) through (iv) arise from concerns with respect to the suitability of a particular Partner ("Selling Party") then the Selling Party's entire interest in the Partnership may be purchased by the other Partner at a purchase price equal to the greater of the then fair market value of the Selling Party's Partnership Interest. ARTICLE III. CAPITAL CONTRIBUTIONS 3.01 SHOWBOAT MARINA Showboat Marina shall contribute cash and net assets valued at Thirty-eight Million Six Hundred Ten Thousand Dollars ($38,610,000.00) to the capital of the Partnership. The Interest of Showboat Marina in the Partnership shall be ninety-nine percent (99%). 5 3.02 INVESTMENT Investment shall contribute Three Hundred Ninety Thousand Dollars ($390,000) to the capital of the Partnership. The Interest of Investment in the Partnership shall be one percent (1%). 3.03 NO INTEREST ON CAPITAL CONTRIBUTIONS Capital contributions to the Partnership shall not bear interest. 3.04 WITHDRAWAL OF CAPITAL CONTRIBUTIONS Except as expressly provided in this Agreement, no part of the contributions of any Partner to the capital of the Partnership may be withdrawn by such Partner without the prior written consent of Showboat Marina. The Partners shall not have the right to receive property, other than cash, in return for their capital contributions, but this shall not be construed to limit the Partners' rights to receive their respective Interest in any property distributions made pursuant to this Agreement. 3.05 ADDITIONAL CAPITAL CONTRIBUTIONS At such time as the partners of Showboat Marina unanimously determine that additional capital ("Additional Capital Contribution") is required by the Partnership, such Additional Capital Contribution shall be made by the Partners in proportion to the Partners' Interests in the Partnership. If any Partner shall fail to make any Additional Capital Contribution, then Showboat Marina shall have the right to acquire, on behalf of the Partnership, such additional capital as may be required, from whatever sources, in whatever amounts, and upon whatever terms and conditions Showboat Marina deems necessary and appropriate, in its business judgment, to meet the ongoing needs of the Partnership. 3.06 ADJUSTMENT OF CAPITAL CONTRIBUTIONS As of any date, a Partner's capital contribution shall be deemed to be adjusted as follows: (a) Increased by the amount of any Partnership liabilities which, in connection with distributions pursuant to Section 7.01 or Section 7.02 hereof, are assumed by such Partner or are secured by any Partnership Property distributed to such Partner; and (b) Reduced by the amount of cash and the Gross Asset Value of any Partnership Property distributed to such Partner pursuant to Section 7.01 or Section 7.02 hereof; and (c) Reduced by the amount of any liabilities of such Partner assumed by the Partnership or which are secured by any property contributed by such Partner to the Partnership. 6 ARTICLE IV. CAPITAL ACCOUNTS There shall be established and maintained on the books of the Partnership a separate capital account ("Capital Account") for each Partner. The Partnership shall maintain such Capital Accounts in accordance with the capital account maintenance rules of Regulations Section 1.704-1(b)(2)(iv), as such rules may be amended from time to time. Unless otherwise required by such rules, the Capital Account of each Partner shall be maintained for such Partner in accordance with the following provisions: 4.01 INCREASES Each Partner's Capital Account shall be increased by: (a) The amount of the Partner's cash or, to the extent permitted by the terms of any Development Financing, in kind capital contributions to the Partnership; and (b) The fair market value of any property contributed by the Partner to the Partnership (net of liabilities secured by any such contributed property that the Partnership is considered to assume or take subject to for purposes of Section 752 of the Code); and (c) The amount of Net Profits (or items thereof) allocated to the Partner pursuant to Article VI.; and (d) Any other increases required by the Regulations. If Section 704(c) of the Code applies to property contributed by a Partner to the Partnership, then the Partners' Capital Accounts shall be adjusted in accordance with Regulations Section 1.704-1(b)(2)(iv)(g). 4.02 DECREASES Each Partner's Capital Account shall be decreased by: (a) The amount of Net Losses allocated to the Partner pursuant to Article VI.; and (b) All amounts paid or distributed to the Partner pursuant to Article VII., other than amounts required to be treated as a payment for property or services under the Code; and (c) The fair market value of any property distributed in kind to the Partner (net of any liabilities secured by such distributed property that such Partner is considered to assume or take subject to for purposes of Section 752 of the Code); and (d) Any other decreases required by the Regulations. 7 4.03 OTHER ADJUSTMENTS (a) Before decreasing a Partner's Capital Account (as described above) with respect to the distribution of any property to such Partner, all Partners' Capital Accounts shall be adjusted to reflect the manner in which the unrealized income, gain, loss, and deduction inherent in such property (that has not been previously reflected in the Partners' Capital Accounts) would be allocated among the Partners if there were a taxable disposition of such property by the Partnership on the date of distribution, in accordance with Regulations Section 1.704-1(b)(2)(iv)(e). (b) Partners' Capital Accounts shall be adjusted in accordance with, and upon the occurrence of an event as permitted by Regulations Section 1.704-1(b)(2)(iv)(f), or the receipt of Additional Capital Contributions pursuant to Section 3.06(b), hereof, to reflect a revaluation of the Partnership's assets on the Partnership's books. Such adjustments to the Partners' Capital Accounts shall be made in accordance with Regulations Section 1.704-1(b)(2)(iv)(g) for allocations of depreciation, depletion, amortization and gain or loss with respect to such revalued property. 4.04 GENERAL PROVISIONS (a) COMPLIANCE WITH REGULATIONS - All provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b)(2)(iv), and shall be interpreted and applied in a manner consistent with such Regulations. In the event Showboat Marina shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Partnership or Showboat Marina) are computed in order to comply with such Regulations, Showboat Marina may make such modification, provided that it is not likely to have a material effect on the amount distributable to any Partner pursuant to Section 7.02 hereof upon the dissolution of the Partnership. (b) DETERMINATION OF LIABILITIES - In determining the amount of any liability for purposes of Sections 4.01(b) and 4.02(c) above, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and any Regulations promulgated thereunder. (c) FEDERAL INCOME TAX ELECTIONS - Showboat Marina may on behalf of the Partnership, make all elections for federal income tax purposes, including but not limited to an election, pursuant to Code Section 754, to adjust the basis of the Partnership's assets under Code Sections 734 or 743. In the event an election pursuant to Code Section 754 is made, upon the adjustment to the basis of the Partnership's assets, the Capital Accounts of all Partners shall be adjusted in accordance with the requirements of Regulation Section 1.704-1(b)(2)(iv)(m). 8 (d) TRANSFER OF PARTNERSHIP INTEREST - In the event any Interest in the Partnership is transferred to a transferee who is entitled to be admitted to the Partnership as a substitute Partner in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred Interest. ARTICLE V. LOANS 5.01 PARTNER'S LOANS TO THE PARTNERSHIP No Partner shall lend or advance money to or for the Partnership's benefit without the prior written consent of Showboat Marina. If any Partner shall make loans or lend money to the Partnership or advance money on its behalf, the amount of any such loan or advance shall not be an increase in the Partner's Capital Contribution or Interest, nor shall it entitle such Partner to any increase in his share of the distributions of the Partnership, nor subject such Partner to any greater proportion of the losses which the Partnership may sustain. The amount of any such loan or advance shall be a debt due from the Partnership to such Partner, at such rates and on such terms as shall be reasonably determined by Showboat Marina. 5.02 OTHER LOANS TO THE PARTNERSHIP If Showboat Marina determines that funds are reasonably necessary for maintaining and protecting the assets of the Partnership, conducting its business, or making capital improvements (or similar expenditures), Showboat Marina is authorized (but not obligated) to borrow the needed funds on the Partnership's behalf on commercially reasonable terms existing at the time of the borrowing, and all or any portion of the Partnership Property may be pledged or conveyed as security for the indebtedness. Without limiting the foregoing, the Partners agree that Showboat Marina is authorized to cause the Partnership to issue and sell up to $140.0 million in principal amount of its First Mortgage Notes on such terms and conditions (including interest rate, maturity date security and covenants) as shall be acceptable to Showboat Marina. 5.03 SHOWBOAT MARINA ADVANCES AND AFFILIATE LOANS From time to time, Showboat Marina may advance to the Partnership such funds as shall be required for the business expenses or other obligations of the Partnership. Such loan or advance shall become an obligation and liability of the Partnership, shall be evidenced in writing by a promissory note (whether secured by Partnership Property or unsecured) or other document of indebtedness and shall bear interest and otherwise be subject to the terms and conditions as shall be provided in such note or document; provided, however, any interest paid to Showboat Marina on any such loans or advances shall not exceed the interest that would be charged by independent commercial lending institutions or private lenders for similar loans for the same purpose and in the same locality as the Partnership Property. Showboat Marina shall not require a prepayment charge or penalty on any such loan. Showboat Marina shall not provide permanent financing for the Partnership. Showboat Marina shall be entitled to receive repayment of any loans or advances made by Showboat Marina pursuant to any section hereof prior to any distributions to Investment, including distributions pursuant to the provisions herein. 9 5.04 LOANS FROM THE PARTNERSHIP No loans shall be made from the Partnership to any Partner. ARTICLE VI. ALLOCATIONS OF PROFITS AND LOSSES 6.01 DETERMINATION OF NET PROFITS AND NET LOSSES The amount of Net Profits or Net Losses available for allocation for each fiscal year or other period, shall be an amount equal to the Partnership's taxable income or loss for such year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(l) shall be included in taxable income or loss) with the following adjustments: (a) Any income of the Partnership that is exempt from federal income tax or not otherwise taken into account in computing net profits or net losses pursuant to this Section 6.01, shall be added to such taxable income or loss; and (b) Any expenditures of the Partnership described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing net profits or losses pursuant to this Section 6.01 shall be subtracted from such taxable income or loss; and (c) In the event the Gross Asset Value of any Partnership Property is adjusted pursuant to Section 8.04, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Profits or Net Losses; and (d) Gain or loss resulting from any disposition of any Partnership Property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the Partnership Property disposed of, notwithstanding that the adjusted tax basis of such Partnership Property differs from its Gross Asset Value; and (e) In lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account depreciation for such fiscal year or other period, computed in accordance with Section 1.04. Notwithstanding any other provision of this Section 6.01, any items which are specially allocated pursuant to Sections 6.04 or 6.05 hereof shall not be taken into account in computing Net Profits or Net Losses. 6.02 NET PROFITS After giving effect to any special allocations set forth in Sections 6.04 and 6.05 hereof, Net Profits for any fiscal year shall be allocated to the Partners in proportion to their respective Partnership Interests. 10 6.03 NET LOSSES After giving effect to the special allocations set forth in Section 6.04 and 6.05 hereof, Net Losses for any fiscal year shall be allocated to the Partners in proportion to their respective Partnership Interests; provided however that no Net Loss may be allocated to a partner with a negative Capital Account unless all Partners have a negative Capital Account. 6.04 SPECIAL ALLOCATIONS (a) MINIMUM GAIN CHARGEBACK - Except as otherwise provided in Regulations Section 1.704-2(i)(4), notwithstanding any other provision of this Section 6.04, if there is a net decrease in Partnership Minimum Gain, as defined in the Regulations, during any Partnership fiscal year, each Partner who would otherwise have an Adjusted Capital Account Deficit (as defined below) at the end of such year shall be specially allocated items of Partnership income and gain for such year (and, if necessary subsequent years) in an amount and manner sufficient to eliminate such Adjusted Capital Account Deficit as quickly as possible. The items to be so allocated shall be determined in accordance with Regulations Section 1.704-2(i). This Section is intended to comply with the minimum gain chargeback requirement Regulations Section 1.704-2(i)(4), and shall be interpreted consistently therewith. (b) QUALIFIED INCOME OFFSET - In the event any Partner unexpectedly receives any adjustments, allocations or distributions described in Regulations Section 1.704-l(b)(2)(ii)(d)(4), (5) or (6); items of Partnership income and gain shall be specially allocated to each such Partner in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such Partner as quickly as possible, provided that an allocation pursuant to this Section 6.04(b) shall be made only if and to the extent that such Partner would have an Adjusted Capital Account Deficit after all other allocations have been made as if this Section were not in this Agreement. (c) NON-RECOURSE DEDUCTIONS - Non-recourse deductions for any fiscal year or other period shall be allocated ninety-nine percent (99%) to Showboat Marina and one percent (1%) to Investment. (d) CODE SECTION 754 ADJUSTMENTS - To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704- 1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss ( if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Partners in the manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such section of the Regulations. (e) ADJUSTED CAPITAL ACCOUNT DEFICIT - The Adjusted Capital Account Deficit with respect to any Partner shall be the deficit balance, if any, in such Partner's Capital Account as of the end of the relevant fiscal year, after giving effect to the following adjustments: 11 (1) Credit to such Capital Account any amounts which such Partner is obligated to restore (pursuant to any provision of this agreement, pursuant to the terms of such Partner's promissory note, if any, or otherwise) or is deemed to be obligated to restore pursuant to the penultimate sentence of Regulations Section 1.704-2(g)(1) and 1.704-2(i)(5); and (2) Debit to such capital account the items described in Regulations Sections 1.704- 1(b)(2)(ii)(d)(4), (5) and (6); and (3) The foregoing provisions regarding the determination of the amount of an Adjusted Capital Account Deficit are intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith 6.05 CURATIVE ALLOCATIONS The allocations set forth in Sections 6.04 (the "Regulatory Allocations") are intended to comply with certain requirements of Regulations Section 1.704-1(b). Notwithstanding any other provisions of this Agreement (other than the Regulatory Allocations), the Regulatory Allocations shall be taken into account in allocating other profits, losses and items of income, gain, loss and deduction among the Partners so that, to the extent possible, the net amount of such allocations of other profits, losses and other items and the Regulatory Allocations to each Partner shall be equal to the net amount that would have been allocated to each such Partner if the Regulatory Allocations had not occurred. 6.06 OTHER ALLOCATION RULES (a) Generally, all Net Profits and Net Losses allocated to Showboat Marina and Investment pursuant to Sections 6.01 through 6.04 hereof, are in turn allocated among the Partners in proportion to the Interest held. In the event the Partners are admitted to the Partnership on different dates during any fiscal year, the Net Profits (or Net Losses) allocated to the Partners for each such fiscal year shall be allocated among the Partners in proportion to the Interest each holds from time to time during such fiscal year in accordance with any convention permitted by law and selected by Showboat Marina. (b) For purposes of determining the Net Profits, Net Losses or any other items allocable to any period, Net Profits, Net Losses and any other such items shall be determined on a daily, monthly or other basis, as determined by Showboat Marina using any permissible method under Code Section 706 and the Regulations thereunder. (c) Except as otherwise provided in this Agreement, all items of Partnership income, gain, loss, deduction and any other allocation not otherwise provided for shall be divided among the Partners in the same proportion as they share Net Profits or Net Losses, as the case may be, for the year. 12 (d) The Partners are aware of the income tax consequences of the allocations made by this Article VI and hereby agree to be bound by the provisions of this Article VI in reporting their share of Partnership income and loss for income tax purposes. (e) Solely for the purpose of determining a Partner's proportionate share of the "excess nonrecourse liabilities" of the Partnership within the meaning of Regulations Section 1.752-3(a)(3), the interests in the Partnership profits are in proportion to the Interests held by the Partners. (f) To the extent permitted by Regulations Section 1.704-2(h)(3), Showboat Marina shall endeavor to treat distributions of Cash Available for Distribution, whether from operations or from the sale or refinancing of Partnership Property as having been made from the proceeds of a Nonrecourse Liability or a Partner Nonrecourse Debt unless such distributions would cause or increase an Adjusted Capital Account Deficit for any Partner. 6.07 TAX ALLOCATIONS CODE SECTION 704(C) In accordance with Code Section 704(c) and the Regulations thereunder, income, gain, loss and deduction with respect to any property contributed to the capital of the Partnership shall, solely for tax purposes, be allocated among the Partners so as to take into account any variation between the adjusted basis of such property to the Partnership for federal income tax purposes and its initial Gross Asset Value. In the event the Gross Asset Value of any Partnership asset is adjusted, subsequent allocations of income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the regulations thereunder. Any elections or other decisions relating to such allocations shall be made by Showboat Marina in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 6.07 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any person's capital account or share of profits, losses, other items or distributions pursuant to any provision of this Agreement. 6.08 CERTAIN ELECTIONS Where a distribution of property is made in the manner provided in Code Section 734 or where a transfer of a Partnership Interest permitted by this Agreement is made in the manner provided in Code Section 743, Showboat Marina shall have the sole and absolute discretion to file or not to file on behalf of the Partnership, upon any Partner's written request, an election under Code Section 754 in accordance with the procedures set forth in the applicable Regulations. Except insofar as an election pursuant to Code Section 754 has been made with respect to the Interest of any Partner, the determination of profits, losses, distributions, and Capital Accounts shall be made as provided for in this Agreement. With respect to any Partner whose Interest has been affected by an election pursuant to Code Section 754, appropriate adjustments shall be made with respect to the determination of profits, losses, distributions, and Capital Accounts. Each 13 Partner agrees to promptly provide Showboat Marina with all information necessary to give effect to such election. ARTICLE VII. DISTRIBUTIONS 7.01 OPERATING DISTRIBUTIONS Showboat Marina shall distribute all Cash Available for Distribution from time to time (but not less frequently than quarterly) at such times as Showboat Marina may determine; provided, however, that the aggregate amount of each such distribution shall be that amount which Showboat Marina reasonably determines is not required to be retained by the Partnership to meet the reasonably foreseeable cash requirements and needs of the business and activities of the Partnership and to establish an adequate reserve for the payment of Partnership liabilities and contingencies. All proceeds from the sale or refinancing of part or all of the assets of the Partnership, net of transaction costs, repayment of debt, repurchase obligations and reasonable reserves shall be distributed to the Partners as promptly as practicable upon receipt thereof. All distributions made pursuant to this Section 7.01 shall be made in cash and shall be divided among the Partners as follows: (a) First, to reimburse Showboat Marina for all out-of-pocket expenses incurred by Showboat Marina concerning the Project which have not previously been reimbursed to Showboat Marina, including, without limitation, legal and other professional fees incurred to organize the Partnership; (b) The balance, if any, among the Partners in proportion to each Partner's respective Interest in effect at the time the distribution is made. 7.02 DISTRIBUTIONS UPON DISSOLUTION OR LIQUIDATION Upon dissolution or liquidation of the Partnership, cash and any other assets being distributed in-kind shall be distributed in the following order of priority: (a) First, to the payment and discharge of all of the Partnership's debts and liabilities (including any debts and liabilities of the Partners who are creditors of the Partnership) and including the establishment of any necessary contingency reserves; (b) Second, to Showboat Marina to the extent the amount described in Section 7.01(a) has not previously been satisfied; and (c) The balance, if any, to the Partners, in proportion to their positive capital accounts as of the date of such distribution, after giving effect to all contributions, distributions and allocations for all periods, including the period during which such distribution occurs. 14 7.03 RESTORATION OF CAPITAL ACCOUNT Distributions made to a Partner pursuant to Section 7.01 or Section 7.02 shall not be made in violation of Regulations Section 1.704-1(b)(2)(ii)(b)(3). If the Partner's Capital Account has a deficit balance (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs), such Partner shall contribute to the capital of the Partnership the amount necessary to restore such deficit balance to zero in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(3). 7.04 METHOD OF DISTRIBUTION In the discretion of Showboat Marina, a pro rata portion of the distributions that would otherwise be made to the Partners pursuant to Section 7.02 may be: (a) distributed to a trust established for the benefit of the Partners for the purposes of liquidating Partnership assets, collecting amounts owed to the Partnership, and paying any contingent or unforeseen liabilities or obligations of the Partnership or of the Partners arising out of or in connection with the Partnership. The assets of any such trust shall be distributed to the Partners from time to time, in the reasonable discretion of Showboat Marina, in the same proportions as the amount distributed to such trust by the Partnership would otherwise have been distributed to the Partners pursuant to this Agreement; or (b) withheld to provide a reasonable reserve for Partnership liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Partnership, provided that such withheld amounts shall be distributed to the Partners as soon as practicable. 7.05 DISTRIBUTIONS TO OWNERS OF RECORD Distributions shall be made only to persons who, according to the books and records of the Partnership, are the owners of record on a date to be determined by Showboat Marina with respect to each distribution. Neither Showboat Marina nor the Partnership shall incur any liability for making distributions in accordance with the preceding sentence. ARTICLE VIII. BOOKS AND RECORDS, ACCOUNTING, AND TAXES 8.01 FISCAL YEAR OF PARTNERSHIP The fiscal year of the Partnership shall be the calendar year for accounting purposes and June 30 or such other date which is the same date as the majority partner for income tax reporting purposes. 8.02 BOOKS AND RECORDS The Partnership shall maintain full and accurate books and records at its principal place of business, as required under the Indiana Uniform Partnership Act, and all Partners shall have the 15 right to inspect and copy, at the Partner's expense, such books and records during ordinary business hours. The Partnership shall maintain such books and records under the accrual method of accounting. Showboat Marina shall have the authority to determine the necessary federal, state and local tax return elections as it deems advisable and in the best interests of the Partnership. The books shall be closed at the end of each fiscal year. 8.03 TAX RETURNS AND REPORTS TO PARTNERS The Partnership shall make a reasonable effort to deliver to each Partner by March 15th of each year, or as soon thereafter as reasonably possible, a copy of each Partner's Internal Revenue Service Form 1065, Schedule K-l, or such successor form, to be filed with the Partner's own tax return. A copy of the income tax returns of the Partnership shall be available to any Partner upon reasonable request to the Partnership. The Partnership shall provide the Partners with quarterly unaudited financial statements and annual unaudited financial statements of the Partnership. 8.04 GROSS VALUE ADJUSTMENT OF PARTNERSHIP ASSETS (a) The Gross Asset Values of all Partnership Assets shall be adjusted to equal their respective gross fair market values, as determined by Showboat Marina, as of the following times: 1. The acquisition of an additional interest in the Partnership (other than pursuant to Section 5.03 hereof) by any new or existing Partner in exchange for more than a de minibus capital contribution; 2. The distribution by the Partnership to a Partner of more than a de minimus amount of Partnership property as consideration for an interest in the Partnership if Showboat Marina reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership; and 3. The liquidation of the Partnership within the meaning of Regulations Section 1.704-1(b)(2)(ii) (g). (b) The Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustment to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining capital accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and Section 6.05(d) (Code Section 734(b) or Code Section 743(b) adjustments) hereof; provided, however, that Gross Asset Values shall not be adjusted pursuant to this Section to the extent Showboat Marina determines that an adjustment pursuant to Section 8.04(a) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this Section. 16 ARTICLE IX. POWERS AND OBLIGATIONS OF PARTNERS 9.01 AUTHORITY OF SHOWBOAT MARINA Showboat Marina shall have full, exclusive, and complete authority to direct and manage the affairs of the Partnership with all rights and powers generally conferred by law together with those that are necessary or appropriate for the overall management and control of the Partnership's business, as required under the Indiana Uniform Partnership Act 9.02 DUTIES OF SHOWBOAT MARINA Showboat Marina will use its best efforts to carry out the purpose, business, and objectives of the Partnership and will devote such time to Partnership business as is reasonably required. Showboat Marina will use its best efforts to assure the efficient management and operation of the Partnership and will fully discharge its fiduciary duties to the Partnership and the Partners. Without limiting the generality of the foregoing, and in addition to all other duties imposed by law or this Agreement, Showboat Marina is obligated to: (a) Subject to the provisions hereof, act in a fiduciary manner regarding the Partnership, the Partners and the Partnership Property; (b) File and publish all certificates, statements, or other documents required by law for the formation and operation of the Partnership and for the conduct of its business in all appropriate jurisdictions; provided, however, that performance will be excused whenever the remaining Partners refuse to cooperate and their cooperation is required in order to perform these duties; (c) Furnish the Partners with the reports and information specified in this Agreement; (d) Maintain complete books of account and records regarding Partnership operations and business affairs; (e) Keep all books and records of the Partnership available for inspection and audit by the Partners or their representatives; (f) Use best efforts to maintain the status of the Partnership as a "partnership" for federal income tax purposes; (g) File all federal, state, or local tax returns and reports and make all other filings which are required by law or governmental agencies; (h) Use reasonable efforts to operate the business of the Partnership; (i) Cause the Partnership at all times to maintain insurance (including liability insurance) in the amounts and against the risks as are generally maintained for comparable property and business; 17 (j) Invest the funds of the Partnership (including reserves) that are not distributed to the Partners and temporarily are not, in Showboat Marina's opinion, required for the conduct of the Partnership's business in (a) governmentally-insured, interest-bearing savings accounts, (b) short-term governmental obligations, or (c) certificates of deposit of a commercial bank or savings and loan association having at least $100,000,000 of assets; (k) Act as the "tax matters Partner" of the Partnership pursuant to Code Section 6231(a)(7) and cause the Partnership to make such timely federal, state and local income tax elections as may be in the best interests of the Partnership; (l) Subject to the restrictions and conditions set forth in Article XI, admit transferees of Partnership Interests as substitute Partners; (m) Make all decisions concerning the operational aspects of the Partnership and execute and deliver all contracts, deeds, and other instruments in connection therewith; (n) Borrow money on behalf of the Partnership, including without limitation through the issuance and sale of the First Mortgage Notes, and execute and deliver in the name of the Partnership notes evidencing the same and mortgages, deeds of trust, and any other security instruments securing the same. The signature of Showboat Marina shall be sufficient to bind the Partnership and all the Partners as to the execution of any documents concerning the Partnership's acquisition, development, rental and/or sale of any or all the Partnership Property or the execution of any mortgages, deeds of trust, or any other security instruments securing any borrowing by the Partnership; (o) Pay from Partnership assets all expenses of organizing and conducting the business of the Partnership, including, without limitation, legal and accounting fees; (p) Execute any and all instruments and take any and all other action necessary or desirable to carry out the purposes and business of the Partnership; (q) Employ, at the expense of the Partnership, such consultants, accountants, attorneys, brokers, escrow agents, property managers and other professionals as Showboat Marina shall deem necessary or desirable, some of whom may also be employed by Showboat Marina itself; and (r) Assume the overall duties imposed on a partner by the Indiana Uniform Partnership Act. 9.03 PARTNERSHIP MEETINGS The Partnership may, in Showboat Marina's discretion, hold annual meetings for any reason. Partnership meetings may be held when and where designated by Showboat Marina. 18 9.04 ACTIVITIES OF PARTNERS It is expressly understood that any Partner, any Affiliate or any stockholder of any Partner may engage in any business, investment, or profession, and neither the Partnership nor any other Partner shall have any rights in and to said business, profession or investment, or in the income or profits derived therefrom by reason of this Agreement. The fact that a Partner, or a person or an entity that is an Affiliate of or related to such Partner, is directly or indirectly interested in or connected with any person, firm, or corporation employed by the Partnership to render services or perform a service or to sell or to buy merchandise or other property shall not prohibit Showboat Marina from employing or contracting with such person, firm, or corporation or from dealing with him or it, and neither the Partnership nor the Partners shall have any rights in or to any income or profits derived therefrom. Showboat Marina is not obligated to devote its full time to the affairs of the Partnership. Showboat Marina may become involved in other businesses and ventures. It is likely that Showboat Marina and its Affiliates will participate in other partnerships which may be in direct competition with the Partnership. Neither the Partnership nor any Partner shall have any right or interest in any business, profession, investment, or business opportunity that Showboat Marina or its Affiliate is engaged in, practices, or pursues. Neither Showboat Marina nor any Affiliate shall be obligated to present any particular investment opportunity to the Partnership, even if the opportunity is of a character that, if presented to the Partnership, could be taken by the Partnership, and Showboat Marina shall have the right to take for its own account or to recommend to others any investment opportunity. 9.05 LIABILITY OF THE PARTNERS The Partners and any of them shall not be liable in damages or otherwise to the Partnership or the other Partners, or any of them, for any loss suffered by it or them, or any of them, in connection with the activities of the Partnership. The Partners shall not be personally liable for the return of any capital of any remaining Partner, or for the return of any other contribution to the Partnership made by any Partner, other than loans made pursuant to this Agreement. 9.06 INDEMNIFICATION OF THE PARTNERS The Partnership shall indemnify and hold harmless the Partners and any of them from and against any and all loss, liability, claim, damage, and the like, including reasonable attorneys' fees, suffered by a Partner solely by virtue of its acting as a Partner in this Partnership in connection with any activity of the Partnership. The provisions of this Section to hold the Partners harmless and indemnify the Partners, shall be enforceable only against and out of the assets of the Partnership and not against or out of the assets of the Partners, or any of them, individually. 9.07 REPRESENTATIONS Each of the Partners acknowledges and agrees (i) that no representation or promise not expressly contained in this Agreement has been made by any other Partner or by any of such 19 Partner's agents, employees, or representatives; (ii) that this Agreement is not being entered into on the basis of, or in reliance on, any promise or representation, expressed or implied, other than such as is set forth expressly in this Agreement; (iii) that each Partner has had the opportunity to be represented by counsel of said Partner's choice in this matter, including the negotiations and transactions that preceded the execution of this Agreement; and (iv) that each Partner, or counsel representing such Partner, has read this Agreement and each Partner agrees to be bound by the terms contained herein. 9.08 RIGHT TO RELY UPON THE AUTHORITY OF SHOWBOAT MARINA No person dealing with Showboat Marina shall be required to determine its authority to make any commitment or undertaking on behalf of the Partnership nor to determine any fact or circumstance bearing upon the existence of its authority. In addition, no purchaser of any property or interest owned by the Partnership shall be required to determine the sole and exclusive authority of a Partner to sign and deliver on behalf of the Partnership any such instrument of transfer or to see to the application or distribution of revenues or proceeds paid or credited in connection therewith, unless such purchaser shall have received written notice affecting the same. ARTICLE X. BANK ACCOUNTS 10.01 BANK ACCOUNTS All funds of the Partnership shall be deposited in the name of the Partnership in such bank account or accounts as shall be determined by Showboat Marina. All withdrawals therefrom shall be made upon checks signed on behalf of the Partnership by such individuals as may be designated from time to time by Showboat Marina. Showboat Marina shall not make deposits in or issue any checks against the Partnership bank account without full, proper, and complete supporting records. 10.02 EXPENSES OF THE PARTNERSHIP All operating and administrative expenses of the Partnership shall be billed directly to the Partnership, in the name of the Partnership, and shall be paid by the Partnership from funds received by it. ARTICLE XI. TRANSFER OF A PARTNERSHIP INTEREST 11.01 TRANSFER OF INVESTMENT'S INTEREST. Investment shall not voluntarily or involuntarily sell, transfer, assign, gift, encumber, pledge, or convey (collectively, for purposes of this Section 11.01 "Transfer") all or any part of its Interest in the Partnership, except as provided herein. (a) In the event Investment (for purposes of this Section 11.01, "Transferring Partner") desires to voluntarily Transfer all or any part of its Interest, it shall so notify 20 Showboat Marina in writing and submit to Showboat Marina such information (for purposes of this Section 11.01, "Transfer Notice") concerning the proposed Transfer, transferee, consideration, and terms and conditions relating thereto as Showboat Marina may require in its sole and absolute discretion. Within ten (10) days after receiving the Transfer Notice, Showboat Marina shall have the option to acquire all or part of the Interest proposed to be transferred. After such ten (10)-day period, the remaining Interest proposed to be transferred which has not been acquired by Showboat Marina may, subject to the consent of Showboat Marina, which consent may not be unreasonably withheld, be transferred by the Transferring Partner upon the terms and conditions contained in the Transfer Notice. (b) Any transferee acquiring an Interest pursuant to Section 11.01 (a) above shall be entitled to be admitted to the Partnership as a substituted Partner, and this Agreement shall be amended to reflect such admission provided that the following conditions are complied with: 1. Showboat Marina approves the form and content of the instrument of assignment; 2. The Transferring Partner and the transferee and their spouses, if necessary, execute and acknowledge such other instrument or instruments as Showboat Marina may deem necessary or desirable to effectuate such admission; 3. The transferee acknowledges all the terms and provisions of this Agreement as the same may have been amended and agrees to be bound by the same; 4. The transferee pays or obligates himself or itself to Showboat Marina for all reasonable expenses connected with such admission including, but not limited to, legal fees and costs (i.e. the cost of filing and publishing any amendment to this Agreement); 5. The transferee provides the Partnership, if required by Showboat Marina, proof of the investment intent and financial status of the transferee; and 6. If requested, the transferring Partner shall provide an opinion from counsel acceptable to Showboat Marina that the transfer will not violate the registration requirements of applicable state or federal securities laws, and otherwise complies with all applicable federal and state securities laws. 11.02 TRANSFER OF SHOWBOAT MARINA'S INTEREST Showboat Marina shall not voluntarily or involuntarily sell, transfer, assign, gift, encumber, pledge, or convey (collectively, for purposes of this Section 11.02 "Transfer") all or any part of its Interest in the Partnership, except as provided herein. (a) In the event Showboat Marina (for purposes of this Section 11.02, "Transferring Partner") desires to voluntarily Transfer all or any part of its Interest, it shall so notify Investment in writing and submit to Investment such information (for purposes of this Section 11.02, "Transfer Notice") concerning the proposed Transfer, transferee, 21 consideration, and terms and conditions relating thereto as Investment may reasonably require. Within ten (10) days after receiving the Transfer Notice, Investment shall have the option to acquire all or part of the Interest proposed to be transferred. After such ten (10)-day period, the remaining Interest proposed to be transferred which has not been acquired by Investment may, subject to the consent of Investment which consent may not be unreasonably withheld, be transferred by the Transferring Partner upon the terms and conditions contained in the Transfer Notice. (b) Any transferee acquiring an Interest pursuant to Section 11.02 (a) above shall be entitled to be admitted to the Partnership as a substituted Partner, and this Agreement shall be amended to reflect such admission provided that the following conditions are complied with: 1. The Transferring Partner and the transferee and their spouses, if necessary, execute and acknowledge such other instrument or instruments as Investment may reasonably request to effectuate such admission; 2. The transferee acknowledges all the terms and provisions of this Agreement as the same may have been amended and agrees to be bound by the same; 3. The transferee provides the Partnership, if requested by the Partnership, proof of the investment intent and financial status of the transferee; and 4. If requested, the Transferring Partner shall provide an opinion from counsel that the transfer will not violate the registration requirements of applicable state or federal securities laws, and otherwise complies with all applicable federal and state securities laws. 11.03 EFFECTIVENESS OF SUBSTITUTION The failure to obtain the requisite approvals and consents of the Partners to the substitution of an assignee as a Partner of the Partnership shall not, except to the extent that approval by the Indiana Gaming Commission is required, affect the validity or effectiveness of any such instrument as an assignment to an assignee of the right to receive that share of the profits or other compensation by way of income, or the return of contributions, to which his assignor would otherwise be entitled and which were assigned, provided a duly executed and acknowledged written instrument of assignment in proper form and substance, the terms of which are not in contravention of any of the provisions of this Agreement, is filed with the Partnership. However, an assignee of a Partner who has not obtained the requisite approvals and consents has no right to require any information or account of the Partnership transactions or to inspect the Partnership books, or to vote on any matters as to which a Partner would be entitled to vote. Such an assignee of a Partner is only entitled to receive the share of the profits or other compensation by way of income, or the return of capital contributions, to which the assignor would otherwise be entitled. In the event of the admission of a Partner, a permitted withdrawal of a Partner, or transfer by a Partner, this Agreement promptly will be amended as necessary to reflect any changes in the profit and loss allocations of Partners, to reflect the capital contributions of the newly admitted Partner or the withdrawal of capital by any withdrawing Partner, and to set forth 22 any new provisions or to amend any existing provisions of this Agreement that may be necessary or desirable in light of the admission of a Partner or Transfer by a Partner. In the event such an amendment of this Agreement is required, such newly admitted Partner or withdrawing Partner shall bear all costs associated with such amendment. 11.04 DEATH OR LEGAL INCOMPETENCY OF A PARTNER Upon the death or legal incompetency of an individual Partner, his or her personal representative shall have all the rights of a Partner for the purpose of settling or managing the Partner's estate, and such power as the decedent or incompetent possessed to designate a successor as a transferee of his interest in the Partnership, and to join with such transferee in making an application to substitute such transferee as a Partner. The estate of a deceased Partner shall be liable for the decedent's liabilities as a Partner. Upon the bankruptcy, insolvency, dissolution, or other cessation of the existence, as a legal entity, of a non-individual Partner, the authorized representative of such entity shall have the rights of a Partner for the purpose of effecting the orderly disposition of the Interest of said Partner. 11.05 TRANSFER OF ALLOCATIONS In the event of the Transfer of all or any part of the Interest of any Partner, for the fiscal year during which the Transfer occurs, the share of Net Profit or Net Loss or any item of income, gain, loss, deduction, or credit of the Partnership allocable to the Interest transferred shall be allocated between the transferor and the transferee in accordance with the provisions of Code Sections 706(c) and 706(d). 11.06 FURTHER LIMITATIONS OF TRANSFERS Notwithstanding any other provision of this Agreement, transfers of Interests shall be made only in accordance with 68 IAC 5-2 and no Transfer shall be permitted if: (i) the proposed Transfer or the proposed transferee will or could (a) impair the ability of the Partnership to be taxed as a Partnership under the federal income tax laws, or (b) cause any certificate of suitability, gaming license or similar authorization or license to be denied to the Partnership or, if held by the Partnership, to be suspended, revoked or not renewed; (ii) the Transfer will, or could, cause the Partnership's tax year to close, or the Partnership to terminate, for federal income tax purposes, or impair the validity of the Partnership under Indiana law; or (iii) such Transfer would cause the Partnership to be in default under any agreement relating to any of its indebtedness. Any purported Transfer in violation of the terms of this Section 11.06 shall be null and void and of no force and effect. 11.07 PAYMENT TO WITHDRAWING PARTNER The Partnership shall pay to a withdrawing Partner all amounts then accrued and owing to it, together with an amount equal to the then present fair market value of the withdrawing Partner's interest in income, gains, losses, deductions, credits, distributions, and capital determined by agreement of the withdrawing Partner and any remaining Partners. If there are no remaining Partners or if they cannot agree within thirty (30) days following the effective date of termination of the Partner, the purchase price to be paid by the Partnership shall be the fair market 23 value of such interest determined by appraisal. The withdrawing Partner shall appoint an appraiser who is a member of the Appraisal Institute of the American Association of Real Estate Appraisers (an "MAI" appraiser) and the appraiser so appointed shall determine the fair market value of the withdrawing Partner's interest. The appraiser's determination shall be final and binding upon the Partners, the Partnership and their successors in interest. The costs and expenses of all such appraisal shall be borne by the Partnership. The purchase shall be consummated within thirty (30) days following (i) the date of receipt by the Partnership of the appraisal or (ii) the date of agreement in writing by the withdrawing Partner and the Partnership with respect to the fair market value of the withdrawing Partner's interest in the Partnership. 11.08 Continuing Liability In the event a Partner transfers its Interest, it shall remain liable for all liabilities incurred by such Partner prior to the transfer. ARTICLE XII. DISSOLUTION OF PARTNERSHIP 12.01 EVENTS OF DISSOLUTION The Partnership shall be dissolved and terminated upon the first to occur of the following events: (a) Upon the filing by any Partner of a bankruptcy under Chapter 11 of the United States Bankruptcy Code, unless the Partners elect to continue the Partnership; (b) Upon retirement or withdrawal by a Partner, unless the Partners elect to continue the Partnership; (c) The expiration of the term of the Partnership; (d) By operation of law; (e) Upon termination of the Amended & Restated Showboat Marina Partnership Agreement dated as of March 1, 1996; (f) Upon the sale by the Partnership of all or substantially all the Partnership Property and the final distribution of the proceeds thereof (whether the same be cash, notes, or other property); or (g) Upon the written consent of the Partners. 12.02 WINDING-UP OF PARTNERSHIP BUSINESS (a) Upon termination of the Partnership upon the occurrence of any of the events described in Section 12.01 above, the Partnership shall be dissolved, and Showboat Marina shall take full account of the Partnership's assets and liabilities. The receivables of the Partnership shall be collected and its assets liquidated as promptly as is consistent with 24 obtaining the fair value thereof upon dissolution. The Partnership shall engage in no further business thereafter other than as necessary to develop, maintain or market the Partnership Property on an interim basis, collect its receivables, and liquidate its assets. (b) Upon completion of winding up the Partnership's affairs and the dissolution of the Partnership, Showboat Marina shall cause to be prepared, executed, and filed with the Secretary of State of Indiana, a Certificate of Cancellation of Partnership or any certificate required by any amendment of such provision or successor provision. 12.03 DISTRIBUTION OF PARTNERSHIP PROPERTY UPON DISSOLUTION Upon dissolution or liquidation of the Partnership, the proceeds realized upon sale and liquidation of the Partnership Property shall be applied and distributed in accordance with the provisions hereof. 12.04 ASSETS OTHER THAN CASH Assets other than cash that are distributed in kind shall be distributed on the basis of (i) in the case of notes receivable, their then fair market value, and (ii) in the case of real estate or in the case of other assets, their then fair market value as determined by an independent appraiser appointed by Showboat Marina. As necessary, distributions in kind will be made to the Partners as tenants-in-common, or in trust as provided in Section 7.04(a). If Partnership Property should be sold, and a portion of the consideration for such sale should be notes or other evidences of indebtedness, then such notes or other evidences of loans may be sold or hypothecated to realize funds for distribution to the Partners including at a discount from the face value thereof. Sale or hypothecation of evidences of indebtedness constituting substantially all the assets of the Partnership may be accomplished only with the same consent of the Partners as is necessary for the sale of substantially all the Partnership Property. It is agreed that such sale or borrowing on the security of said notes or other evidence of indebtedness affects the basic structure of the Partnership. 12.05 CAPITAL ACCOUNT ADJUSTMENTS To the extent not otherwise recognized to the Partnership, the amount by which the fair market value of any property to be distributed in kind to the Partners exceeds (or is less than) the basis of such property shall be allocated as gain (or loss) to the Partners' capital accounts as if such property had been sold. Such property shall then be distributed at its fair market value with appropriate adjustments made to the capital accounts of the Partners receiving it. ARTICLE XIII. NOTICES All notices, demands, and requests required or permitted to be given pursuant to this Agreement shall be in writing. All notices, demands, and requests to be sent to any Partner shall be deemed to have been properly given when the same are deposited in the United States mail, addressed to such Partner, postage prepaid, registered or certified with return receipt requested, or sent by United Parcel Service, Federal Express, or similar next day service, to such Partner's 25 address as set forth herein, or sent by facsimile transmission with written confirmation of receipt to a known and operating facsimile receiving device designated by such Partner. Any such notice shall be deemed received three (3) days after deposit in the United States mail or with United Parcel Service, Federal Express, or similar next day service; or upon dispatch when sent by facsimile transmission. Any Partner may, by notice to Showboat Marina given in accordance with this Article XIII, change the address to which all future notices to such Partner shall be mailed. ARTICLE XIV. MISCELLANEOUS PROVISIONS 14.01 LIMITED POWER OF ATTORNEY Investment, by its execution of this Agreement, irrevocably constitutes and appoints Showboat Marina as Investment's true and lawful attorney-in-fact and agent, with full power and authority in Investment's name, place, and stead to execute, acknowledge and deliver and to file or record in any appropriate public office (i) any certificate or other instrument that may be necessary, desirable, or appropriate to qualify or to continue the Partnership or to transact business as a Partnership in any jurisdiction in which the Partnership conducts business; (ii) any amendment to this Agreement or to any certificate or other instrument that may be necessary, desirable, or appropriate including an amendment to reflect the admission of a Partner, the withdrawal of a Partner, or the transfer of all or any part of the interest of a Partner in the Partnership or any additional capital contributions or withdrawal of capital contributions made by a Partner, all in accordance with the provisions of this Agreement; (iii) any certificates or instruments that may be appropriate, necessary, or desirable to reflect the dissolution and termination of the Partnership; and (iv) any certificates necessary to comply with the provisions of this Agreement. This power of attorney shall be deemed to be coupled with an interest and shall survive a subsequent bankruptcy, death, adjudication of incompetence, disability, incapacity, dissolution, or termination of Investment as well as the transfer by Investment of the Interest in the Partnership. Notwithstanding the existence of this power of attorney, Investment agrees to join in the execution, acknowledgment, and delivery of the instruments referred to above if requested to do so by Showboat Marina. This power of attorney to Showboat Marina is a limited power of attorney that does not authorize Showboat Marina to act on behalf of Investment except to execute the documents described in this paragraph. 14.02 AMENDMENT Subject to Section 14.01 above, an amendment to this Agreement may be made only in writing and signed by all the Partners. Notwithstanding the foregoing, this Agreement may be amended from time to time by Showboat Marina without the consent of Investment (i) to add to the representations, duties, or obligations of Showboat Marina or its Affiliates or to surrender any right or power granted to Showboat Marina or its Affiliates herein, for the benefit of Investment; (ii) to cure any ambiguity, to correct or supplement any provision that may be inconsistent with any other provision, or to make any other provisions with respect to matters or questions arising under this Agreement that will not be inconsistent with the provisions of this Agreement; (iii) to delete or add any provision of this Agreement required to be so deleted or added by the staff of the Securities and Exchange Commission or state securities officials, which addition or deletion is 26 deemed by the official to be for the benefit or protection of Investment; (iv) to elect for the Partnership to be governed by any successor Indiana statute governing general partnerships; and (v) as otherwise provided for pursuant to this Agreement. Showboat Marina shall notify Investment within a reasonable time of the adoption of any such amendment. 14.03 BINDING EFFECT; FURTHER INSTRUMENTS This Agreement shall be binding upon and inure to the benefit of the parties hereto, and their respective heirs, personal representatives, successors, and assigns. The parties hereto agree for themselves and for their heirs, personal representatives, successors, and assigns to execute any and all instruments in writing that may be necessary or proper to carry out the purposes and intent of this Agreement. 14.04 HEADINGS The headings of the paragraphs of this Agreement are inserted solely for convenience of reference and are not a part of or intended to govern, limit, or aid in the construction of any term or provision hereof. 14.05 GENDER AND NUMBER Whenever required by the context, the singular shall be deemed to include the plural, and the plural shall be deemed to include the singular, and the masculine, feminine, and neuter genders shall each be deemed to include the other. 14.06 SEVERABILITY In the event that any provision or any portion of any provision contained in this Agreement is found by a Court of competent jurisdiction to be unenforceable, the remaining provisions, and in the event that a portion of any provision is found to be unenforceable, the remaining portion of such provision, shall nevertheless be carried into effect. 14.07 WAIVER OF ACTION FOR PARTITION During the term of the Partnership and during any period of winding up and dissolution of the Partnership, each of the Partners irrevocably waives any right that itmay have to maintain any action for partition as to the Partnership Property. 14.08 GOVERNING LAW The Partnership shall be governed and this Agreement shall be construed in accordance with the internal laws, and not the law of conflicts, of the state of Indiana applicable to agreements made and to be performed in such state. 27 14.09 ARBITRATION; ATTORNEYS' FEES AND COSTS In the event any dispute should arise between the parties hereto as to the validity, construction, enforceability, or performance of this Agreement or any of its provisions, such dispute shall be settled by arbitration before an American Arbitration Association panel. Said arbitration shall be conducted at East Chicago, Indiana, or such other location within the state of Indiana as shall be designated by Showboat Marina, in accordance with the commercial rules then in use by the American Arbitration Association. The decision of the arbitrator shall be final and may be entered as a judgment by a court of competent jurisdiction. The unsuccessful party to such arbitration shall pay to the successful party all reasonable costs and expenses, including reasonable attorneys' fees, incurred therein by such successful party. The successful party shall be determined by the arbitrator. 14.10 INTEGRATION This Agreement sets forth the entire agreement among the parties with regard to the subject matter hereof. All agreements, covenants, representations, and warranties, express and implied, oral and written, of the parties with regard to the subject matter hereof are contained herein, in the Exhibits hereto, and in the documents referred to herein or implementing the provisions hereof. No other agreements, covenants, representations, or warranties, express or implied, oral or written, have been made by either party to the other as to the subject matter of this Agreement. All prior and contemporaneous conversations, negotiations, possible and alleged agreements and representations, covenants, and warranties as to the subject matter hereof are waived, merged herein, and superseded hereby. 14.11 COUNTERPARTS This Agreement may be executed in counterparts and all counterparts so executed shall constitute one Agreement binding on all the parties. It shall not be necessary for each party to execute the same counterpart. 14.12 EXHIBITS Exhibits referred to in this Agreement are incorporated by reference into this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. 28 "SHOWBOAT MARINA": Showboat Marina Partnership, an Indiana general partnership By: Showboat Indiana Investment Limited Partnership, a Nevada limited partnership, its partner By: Showboat Indiana, Inc., its general partner By: ___________________________________ Its:___________________________________ "INVESTMENT": Showboat Marina Investment Partnership, an Indiana general partnership By: Showboat Indiana Investment Limited Partnership, a Nevada limited partnership, its partner By: Showboat Indiana, Inc., its general partner By: ___________________________________ Its:___________________________________ 29 EXHIBIT A SCHEDULE OF PARTNERS' INTERESTS PARTNER'S PARTNER DATE OF INITIAL PERCENTAGE (NAME & ADDRESS) ADMISSION CAPITAL INTEREST CONTRIBUTION _________________________________________________________________ Showboat Marina Partnership 2001 E. Columbus Drive March 1,1996 $38,610,000 99% East Chicago, Indiana 46312 Showboat Marina Investment Partnership 2001 E. Columbus Drive March 1,1996 $390,000 1% East Chicago, Indiana 46312 ----------- ----- $39,000,000 100% 30 [Original on letterhead] SHOWBOAT MARINA PARTNERSHIP April 8, 1994 The Honorable Robert A. Pastrick Mayor, City of East Chicago 4525 Indianapolis Boulevard East Chicago, Illinois 46312 RE: Gaming Vessel Development Project Dear Mayor Pastrick: Since last fall Showboat Marina Partnership ("Showboat") has had the privilege of pursing the development of a casino gaming vessel to be docked on the shore of Lake Michigan in the City of East Chicago ("City") at the Pastrick Marina, together with additional land-based facilities to support the gaming vessel (the "Project"). In connection with that effort, we have conducted numerous community informational forums during which we explained our concept of the project to the residents of the City and, even more importantly, received comments and suggestions from them concerning our proposal. Most recently, we had the opportunity to participate in the work of the several gaming tasks forces that you organized to make recommendations to your office with respect to the gaming proposal and the economic benefits expected to flow from this new industry. Based upon the recommendations of the Mayor's Gaming Task Force, Investing in the People, we have engaged in negotiations with the City to identify and agree upon certain economic incentives that the City requires of Showboat in connection with the Project. This preliminary agreement ("Agreement") is intended to memorialize the agreements between the City and Showboat concerning development of the Project. A. ECONOMIC DEVELOPMENT CONTRIBUTION 1. Upon commencement of gaming operations, Showboat agrees to contribute annually to and for the benefit of economic development, education and community development in the City an amount equal to three (3%) percent of Showboat's adjusted gross receipts (as that term is defined in the Indiana Riverboat Gambling Act) (Contribution"). (Based upon the pro forma financial projections for the Project which will be included in Showboat's final application to the Indiana Gaming Commission, Showboat estimates that such Contribution will range from approximately six million ($6,000,000) dollars to seven and one- half million ($7,500,000) dollars annually for the initial two and one-half years of operation and from approximately four million ($4,000,000) dollars to five million ($5,000,000) dollars annually thereafter. 2. Showboat proposes that its Contribution be distributed as follows: a. One (1%) percent to the City. Showboat suggests that the City establish or select a board to determine the best use of these funds. In addition to the City's portion of the Contribution, and as more particularly described later in this Agreement, Showboat agrees to cause certain programs to be instituted or projects to be commenced in 1994 and 1995 (or to provide the necessary funding therefor), without regard to the issuance of a gaming license to Showboat for the operation of the gaming vessel. b. One (1%) percent to the Twin City Education Foundation, Inc., ("TCEF"), an Indiana nonprofit corporation. TCEF will be independent of Showboat. Members of a seven member Board of Trustees of TCEF will be selected from or by the following entities or individuals: . Two representatives of two largest employers . Mayor . Common Council . Board of Trustees of the School City . Chamber of Commerce . East Chicago Education Foundation In addition, at Showboat's option, Showboat shall be permitted to name an individual to the Board of Trustees of TCEF. TCEF will focus on funding training programs that prepare workers for the 21st century. Training for riverboat-related jobs will not be funded by TCEF. TCEF will administer as one of its programs a scholarship program (funded initially with a minimum of $50,000) for post-secondary education for residents of East Chicago. Showboat agrees that at least $25,000 shall be set aside annually from this scholarship fund for the benefit of qualifying eighth graders entering high school. Such funds will be placed in individual interest bearing trust accounts for the benefit of such qualifying students and will be made available to them as college scholarships upon their graduation from high school and enrollment in institutions of higher education; provided that they have complied with the requirements of the scholarship program during their high school tenure. Showboat further agrees that the balance of TCEF's funds will be dedicated to educational programs (both academic and vocational) in and around the City, with priority being given to programs in the City and for City residents. c. One (1%) percent to the East Chicago Community Foundation, Inc. ("ECCF"), an Indiana nonprofit corporation. ECCF will be independent of Showboat. ECCF will receive, evaluate and select for funding proposals from individuals or entities within the City, and will fund community development projects within the City. A fifteen-to-twenty-one member Board of Trustees will be selected by or from the following individuals or entities: . Various Neighborhood Leaders . Mayor . Common Council . Chamber of Commerce . Board of Trustees of the School City In addition, at Showboat's option, Showboat shall be permitted to name an individual to the Board of Trustees of ECCF. The majority of Board members will represent neighborhoods. 3. Showboat intends to maximize the effectiveness of the funds contributed to TCEF and ECCF by "leveraging" such contributions, possibly by ratios as high as 5 to 1 depending upon the projects undertaken by such corporations. In this context "leveraging" includes using foundation funds as seed money that will attract other investment and using foundation funds to provide matching monies for university, governmental, and other endowments. The City and Showboat acknowledge, however, that such leveraging will be fully successful only if staff persons who are skilled and experienced in pursing and obtaining grants from governmental and other entities are employed by such corporations. Accordingly, Showboat will require as a continuing condition of its Contribution that an appropriate portion of the funds contributed to TCEF and ECCF shall be allocated to administrative and professional salaries to support the leveraging concept. B. EAST CHICAGO SECOND CENTURY, INC. 1. In addition to the Contribution described above, Showboat desires to be a catalyst for meaningful and significant economic, commercial and housing development in the City. In order to assist in the pursuit of these objectives, Showboat has formed East Chicago Second Century, Inc. ("Second Century"), a for-profit corporation. Showboat agrees to fund Second Century annually in an amount equal to three-fourths (.75%) percent of adjusted gross receipts from its casino vessel operation. 2. Showboat intends to maximize the effectiveness of Second Century by endeavoring to "leverage" the amounts with which Second Century is funded, possibly by as much as an 8 to 1 ratio. In this context leveraging means using funds as seed money and using Second Century funds as equity contributions in various projects. In order to accomplish this goal, Second Century will employ staff persons who are experienced in economic and housing development, with particular expertise in applying for and obtaining grants from governmental and other entities. 3. Showboat agrees further that (i) all of Second Century's development activities will be directed to sites located within the City, (ii) all projects pursued by Second Century will conform to the City's development and master plans, and (iii) all projects will receive prior approval from the City. Showboat acknowledges that certain projects have already been identified by the Mayor's Gaming Task Force, which projects Second Century is prepared to undertake as priority projects in the manner mutually determined by the City and Second Century. 4. By execution of this Agreement, the City authorizes Second Century, at its option, to proceed with development of the Washington High School and Michigan Avenue sites, subject to all required regulatory approvals. Showboat agrees that all funds expended in connection with these projects will be funded by and through Second Century and that such expenditures will not diminish the amount of the Contribution in any way. Even if a gaming license is not granted, Showboat agrees that Second Century will proceed with the development of the Washington High School site. C. ADDITIONAL COMMITMENTS BY SHOWBOAT 1. Reimbursement of City Expenses. Showboat agrees to reimburse the City certain reasonable and necessary expenses incurred by the City in connection with development of the Project. These expenses include but are not limited to the following: . professional planning fees; . professional design fees; . engineering; . construction of infrastructure, utilities or other improvements at the Pastrick Marina or elsewhere and related to the Project; . legal fees and costs; . financial consulting fees; . consulting fees of other professionals whose services are deemed reasonably necessary by the City. 2. Reimbursement of Payroll Expenses of City Planner. Showboat acknowledges that the City requires the services of a full-time City Planner, that the City currently does not employ anyone in that capacity, and that the City has no funds budgeted for such position for 1994. Accordingly, Showboat agrees that it shall provide the funds necessary to enable the City to hire a professional planner in 1994 at a cost to Showboat not to exceed $70,000 annually, with the understanding that the City will include the expenses of the professional planner in its 1995 municipal budget. 3. Projects to be Funded in 1994 and 1995. The City has advised Showboat that certain projects and programs are of great importance to the residents of East Chicago. The City has required that Showboat agree to fund the following programs and projects regardless of the issuance of a gaming license to Showboat. Showboat agrees, therefore, to fund the following to a maximum of the estimated expenditures listed for each project or program: a. Healthy East Chicago Wellness Program, with estimated expenditures of $100,000 in 1994 and $100,000 in 1995. b. Comprehensive market development assessment for the Main Street/Broadway, Chicago Avenue/Indianapolis Boulevard, and Columbus Drive corridors, with estimated expenditures of $70,000 in 1994. c. City capital improvement projects as determined by the City, with expenditures of $250,000 in 1994 and $250,000 in 1995. d. Development of a small business incubator program at the abandoned Pepsi-Cola Bottling Plant building, 1112 W. Chicago Avenue, with estimated expenditures of $250,000 in 1994 and $250,000 in 1995. e. Engineering fees related to the water marketing project for extension of the City's water main to south Lake County, with estimated expenditures of $250,000 in 1994 and $250,000 in 1995. Showboat acknowledges that the foregoing is only a partial list of projects and programs which the City has identified. Showboat agrees to continue to cooperate with the Mayor's Gaming Task Force and the City to accomplish these and certain other projects and programs described in INVESTING IN THE PEOPLE as determined by the City. The City agrees that fifty (50%) of the funds expended by Showboat in connection with the projects and programs described in this paragraph shall be credited against the City's one (1%) percent share of the Contribution payable to the City during the first and, if necessary, second years of operations. Credits will not be carried over to the third and later years of operations without the City's approval. Expenditures that are not pre-approved by the City will not be eligible for the credit. 4. Employment Assistance. Showboat agrees to assist the City in employing individuals required to staff positions necessary to carry out the projects and programs contemplated by this Agreement. 5. Other Studies. Showboat agrees to reimburse the City for the costs of any studies not specifically described herein which the City is required to perform in connection with the Project. Such expenses incurred by Showboat shall be credited against the City's one percent (1%) share of the contribution in the manner described in paragraph 3, above. 6. Labor. Showboat agrees to use local, unionized labor in construction of the Project as well as the other projects to be undertaken by TCEF, ECCF and Second Century. 7. Opening Day. The City and Showboat agree that time is of the essence in this Agreement. Accordingly, Showboat agrees that it shall at all times exert its good faith efforts to cause the Project to be completed and open to the public for regular gaming operations on or before April 30, 1995. Showboat acknowledges that the agreement contained in this paragraph will require that Showboat continue to expend funds prior to the issuance of a gaming license, and Showboat hereby agrees to continue to make such expenditures. 8. Assessment and Training Center. The Mayor's Gaming Task Force has identified as a top priority the need to establish an assessment and training center for the benefit primarily of the youth, but ultimately of all residents, of the City. Showboat agrees to commence promptly the work required to organize and establish such center. Such expenses incurred by Showboat shall be credited against the City's one percent (1%) share of the contribution in the manner described in paragraph 3, above. 9. Training for East Chicago Residents. Showboat agrees to provide training scholarships in the form of cost-free training for residents of East Chicago who are hired as employees for the Project. D. COMMITMENTS BY THE CITY In consideration of the foregoing agreements made by Showboat, Showboat has asked that the City take certain actions for the benefit of the Project. Your Honor's signature below will confirm that the City agrees to: 1. Support Showboat's application for an owner's license to the Indiana Gaming Commission. 2. Work diligently in a cooperative effort with Showboat to achieve the following: a. Continued progress and ultimate completion of the Cline Avenue extension project currently in the design phase; b. Construction or expansion of roadways to facilitate ingress to and egress from the gaming vessel site; c. Acquisition (either by conveyance or lease) of land necessary for convenient and efficient construction and operation of the Project; d. Construction of such infrastructure as is necessary to support the Project; e. Expedited issuance of permits and approvals from all governmental agencies having jurisdiction over the Project. 3. Cooperate with and assist TCEF, ECCF and Second Century to facilitate the achievement of the respective goals and objectives of each entity to the extent that those goals are compatible with the City's development goals. 4. Cooperate with and assist TCEF, ECCF, and Second Century to achieve maximum "leveraging" of the funds made available to those corporations by Showboat and effective use of such corporations' resources. 5. Cooperate with Showboat to assure and promote public health, safety and welfare. E. OTHER MATTERS 1. Showboat acknowledges the City's desire that gaming operations commence as promptly as possible and that the economic benefits of the Project begin to flow to the City and its residents as early as possible, with the expectation that gaming operations will commence not later than April 30, 1995. Accordingly, Showboat and the City agree that time is of the essence of this Agreement. 2. Showboat agrees that it shall continue its negotiations with the City and that, within 90 days of the date of this Agreement, the City and Showboat shall execute a definitive Development Agreement, setting forth specially and in detail all obligations of Showboat related to the development of the Project. The parties acknowledge that achieving this goal will require actions to be taken by governmental units and that if these actions are not completed in a timely manner, the time table may not be met. 3. This Agreement is subject to the approval of the Board of Directors of Showboat, Inc. at its meeting April 26, 1994. We are excited about the opportunities that this Project presents for both the City and Showboat. If this letter accurately sets forth the basic provisions of our Agreement, I request that you sign the letter on behalf of the City and return a copy to me. Thank you for your efforts to date in support of this Project. Respectfully submitted, SHOWBOAT MARINA PARTNERSHIP /s/ Thomas C. Bonner Thomas C. Bonner Executive Vice President and Chief Operating Officer 1802 East Columbus Drive East Chicago, Indiana 46312 (219) 392-1111 April 8, 1994 Agreed to and accepted by, subject to the ratification of the Common Counsel of the City of East Chicago: CITY OF EAST CHICAGO /s/ Robert A. Pastrick Robert A. Pastrick Mayor Date: /s/ April 8th 1994 [Original on Letterhead] SHOWBOAT MARINA April 18, 1995 The Honorable Robert A. Pastrick Mayor, City of East Chicago 4525 Indianapolis Blvd. East Chicago, Indiana 46312 RE: Gaming Vessel Development Project Dear Mayor Pastrick: Pursuant to the economic development agreement executed April 8, 1994 ("Agreement"), Showboat Marina Partnership ("Showboat") undertook certain obligations, including the obligation to continue to cooperate with the Mayor's Gaming Task Force ("Task Force") to accomplish projects and programs described in Investing in the People. Showboat has negotiated with City Planner Russ Taylor, who was designated as the representative of the Task Force for this purpose. We wish to report to you that these negotiations have resulted in Showboat's agreement to fund the items on the attached list. as part of these negotiations, Mr. Taylor has advised us that the City does not wish Showboat to provide funding for the small business incubator program, which had originally been scheduled for a total of $500,000 of funding. The $500,000 has been redirected to new items. When added to the previous items in the agreement, the net amount of fixed sum commitments is more than $5,800,000. In addition to these items, Showboat will commit to four community development projects as follows: 1. Washington School Site Residential Development: Showboat commits that East Chicago Second Century funds will be used to build approximately 68 townhouses for moderate income citizens from East Chicago on an abandoned school site. The project cost is estimated at $5,000,000. 2. Michigan Avenue Retail Development: Showboat commits that East Chicago Second Century funds will be used to build a 5- to 8-unit retail center near the Showboat Marina Casino employee parking lot. The project cost is estimated at $4,000,000. 3. Homebuyer Guarantee Program: in order to increase home ownership, Showboat will create a pool of $5,000,000 for a minimum of 250 East Chicago residents through a mortgage guarantee program of up to 25% of a home's purchase price. The result of full utilization of this program would be $20,000,000 in the residential real estate market. 4. Down Payment Assistance: As a further step in increased home ownership, Showboat will also create a pool of $500,000 to provide down payment assistance of 5% of the purchase price not to exceed $5,000 for first-time home buyers who are employees of Showboat Marina Casino. Please note that Showboat has agreed that the four programs described above and the items listed on the attachment are not subject to the fifty percent (50%)credit against future incentive payments to the City contained in the Agreement. As a publicly traded company, the expenditures described in this letter are subject to ratification by the Board of Directors of Showboat, Inc. In addition, at this time we would like to take the opportunity to briefly summarize the revised estimates of the benefits that the City and its residents are expected to receive under the Agreement. These estimates are based upon our current revenue projections for the project, and could change as we continue to refine our research. - We estimate that the value of the 3% of adjusted gross gaming revenues that will be dedicated to the City, the Twin City Education Foundation, and the East Chicago Community Foundation will range from $25.3 million to $28.7 million in the first 5 years of licensure. - We project that the additional .75% to be used for community investment will result in additional contributions ranging from $6.6 million to $7.4 million over that same period. - The value of job training to be provided to employees is projected to be approximately $1.3 million. In addition, Showboat intends to develop a tuition reimbursement program for non-gaming educational endeavors which will be open-ended. However, our experience at our other properties shows that the annual expenditure is likely to be approximately $50,000. - The contribution to the Cline Avenue Ramp is projected to be $3.5 million. Depending upon our success in achieving our revenue projections, which we believe are realistic for the East Chicago market, the net impact of the Agreement with the additions (and deletion) set forth in this letter has the potential to exceed $52 million. The five-year value of incentives per resident of the City of East Chicago is over $1,500. These figures do not include anticipated leveraged funds of approximately $70,000,000, as estimated by our experts, nor have we included actual hard dollar investment in the Showboat Marina Casino project of approximately $100,000,000. In order to present a complete picture of the economic and community development benefits for the City of East Chicago, Showboat requests the opportunity to present a detailed update on the status of the project to the Common Council. It continues to be our pleasure to work with the City on this project. Very truly yours, SHOWBOAT MARINA PARTNERSHIP Thomas C. Bonner Chief Executive Officer Enclosure cc: Russ Taylor ITEMS TO BE PURCHASED BY SHOWBOAT FOR CITY Item Category Description Est. Cost 1. Neigh. Donation of Demolition $ 200,000 2. Neigh. Graffiti Removal Machine $ 40,000 3. Neigh. Donation to New Addition Revitalization (RONA) $ 50,000 4. Neigh. Rehab City Little League Fields 120,360 5. Neigh. Landscape and Sidewalk Program $ 150,000 Neighborhood subtotal $ 560,360 6. Law Enf. Hire Gang and Violence Consultant $ 50,000 7. Law Enf. 5 Police Cars and 2 D.A.R.E. Vans $ 122,990 8. Law Enf. Hire Additional Policemen $1,071,790 9. Law Enf. Additional Police Equipment: Evidence Collection Vehicle, Mini Paddy Wagon, Mobile Police Station $ 164,320 10. Law Enf. Emergency Management Department $ 100,000 Law Enforcement subtotal $1,509,100 11. OPS Ambulance $ 54,650 12. OPS Fire Equipment and Apparatus $ 174,870 13. OPS Pumper Fire Truck $ 190,000 14. OPS Drug Rehabilitation Program $ 100,000 15. OPS Gamblers Anonymous Contribution $ 60,000 Other Public Safety subtotal $ 579,520 16. Schools School City Athletic van $ 58,950 17. Schools Computer Hardware for Schools $ 500,000 Schools subtotal $ 558,950 18. Inf & Eqpt Utility Boom Truck $ 69,450 19. Inf & Eqpt Brownell Hydraulic Boat Handler $ 150,000 20. Inf & Eqpt Computer with 16 meg RAM microchip $ 3,700 21. Inf & Eqpt Past Expenses of City Employee on Showboat $ 1,230 22. Inf & Eqpt Kennedy Avenue Matching Funds for Construction $ 400,000 23. Inf & Eqpt Computer Equipt. for Public Information Office $ 12,020 24. Inf & Eqpt Engineering Equipment $ 66,360 25 Inf & Eqpt Digital Aerial Mapping $ 125,000 26. Inf & Eqpt Transportation System Maintenance Equipment $ 67,000 27 Inf & Eqpt New and Relocated Slips into new harbor $ 404,800* 28. Inf & Eqpt Desk Top Publishing Equipment and Software $ 50,000 Infrastructure & Equipment Subtotal $1,349,560 Total all items $4,557,490 REVISED 4/13/95 * Contingent on approval of Phase 1. REDEVELOPMENT PROJECT LEASE BY AND BETWEEN THE CITY OF EAST CHICAGO, INDIANA AND SHOWBOAT MARINA PARTNERSHIP REDEVELOPMENT PROJECT LEASE THIS REDEVELOPMENT PROJECT LEASE ("Lease"), made and entered into as of the 19th day of October, 1995, by and between the CITY OF EAST CHICAGO, DEPARTMENT OF REDEVELOPMENT, existing pursuant to Indiana Code 36-7-14 (the "City") and SHOWBOAT MARINA PARTNERSHIP, an Indiana general partnership ("Tenant"), WITNESSETH THE FOLLOWING: Recitals: A. Pursuant to IC 36-7-14 and IC 36-7-25 (collectively, the "Act"), the Indiana General Assembly has authorized redevelopment commissions to approve plans for and determine that geographic areas within redevelopment districts are redevelopment areas. B. The East Chicago Redevelopment Commission (the "Commission"), pursuant to the provisions of IC 36-7-14-41 and Resolution No. 1165 and 1166, established a redevelopment area within the East Chicago Redevelopment District known as the Lake Front Development Area (the "Area") and adopted a redevelopment plan for the Area, which resolution and Plan were amended by Resolution No. 1213 (collectively, the "Plan"). C. The Commission has determined, in order to fulfill the purposes and objectives of the Plan, to acquire certain real property within the Area, and has acquired certain real property in accordance with the provisions of applicable law. D. The Commission has, pursuant to and in accordance with the provisions of the Act, offered the real property so acquired for lease and has received an offer from Tenant for the lease of said real property which is in accordance with the offering documents and meets the requirements and fulfills the purposes and objectives of the Plan. E. The Commission has determined that the development of the Redevelopment Project (as defined herein) as proposed in Tenant's offer will be beneficial to the citizens and taxpayers of East Chicago, Indiana, and that it is in the best interests of the citizens and taxpayers of the East Chicago Redevelopment District for the City to enter into a lease as set forth herein. F. Pursuant to and in furtherance of the foregoing, the parties desire to enter into this lease. 2 Lease Agreement NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants of the parties herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the City hereby demises and lets to Tenant, and Tenant hereby leases from the City, the Leased Premises, for the term and upon the covenants, terms and conditions herein contained, and in connection therewith the parties now agree as follows: ARTICLE I. Leased Premises Section 1.01. Description of the Leased Premises. The Leased Premises shall be and consist of certain real property described in Exhibit "A" attached hereto and incorporated herein by this reference and all rights, privileges, easements and other interests appurtenant to such Leased Premises (collectively called the "Leased Premises"). Upon the completion of any survey required or permitted hereunder, the legal description contained in Exhibit "A" shall be amended to reflect the legal description included in such survey to the extent such legal description differs from the description in Exhibit "A" attached hereto. To the extent required or permitted under this Lease, Tenant shall have the right to construct upon the Leased Premises any and all buildings, structures and improvements and to make any alterations thereof for the Redevelopment Project as described in Section 5.02. Section 1.02. Leasehold Title Insurance. Prior to the Possession Date, Tenant may obtain a commitment issued by Chicago Title Insurance Company (the "Title Company") for a leasehold policy of title insurance, in which commitment said insurance company shall agree that, after execution, delivery and recordation of a memorandum of this Lease and payment of the applicable premiums, it will insure, for (to be determined by Tenant) Dollars ($ ) Tenant's leasehold interest in the Leased Premises, subject only to current nondelinquent real estate taxes and such other matters as Tenant shall agree to in writing and with such policy endorsements as Tenant or any Provider may request. Tenant shall provide a copy of the commitment to City. In the event Tenant deems unacceptable any defect in title or other matter disclosed in such commitment or any refusal of the Title Company to agree to issue any policy endorsement ("Title Defect"), Tenant may either waive such Title Defect or may give written notice to City of such Title Defect, and City shall have fifteen (15) days in which to cure such Title Defect. In the event City fails to effect such a cure, Tenant may terminate this Lease by written notice to City and obtain a refund of any sums paid as rental to the date of such notice, or Tenant may waive such Title Defect. Section 1.03. Boundary Survey. Prior to the Possession Date, Tenant may, at Tenant's expense, obtain a boundary survey of the Leased Premises. Such survey shall be prepared to the standards for an Indiana Land Title Association Minimum Standard Detail Survey and shall 3 certify as to whether any portion of the Leased Premises is located within a flood hazard zone. Tenant shall provide a copy of the survey to City. Such survey shall contain such other certifications as Tenant or any Provider may request. In the event the survey discloses any matter that is unacceptable to Tenant, Tenant may either waive such matter or may give written notice to City of such unacceptable matter, and City shall have fifteen (15) days in which to cure such matter. In the event City fails to effect such a cure, Tenant may terminate this Lease by written notice to City and obtain a refund of any sums paid as rental to the date of such notice, or Tenant may waive such matter. Section 1.04. Environmental Assessment. Prior to the Possession Date, Tenant may conduct such environmental assessments as it deems prudent in its sole discretion. Tenant shall provide copies to City of any such environmental assessments performed. If such assessments reveal environmental conditions that are not acceptable to Tenant, Tenant may terminate this Lease by giving notice thereof in writing to the City, if, within fifteen (15) days after notice of such condition, the City refuses to undertake a cure of such environmental condition. If the City undertakes a cure of any such environmental condition, it shall complete such cure diligently to the satisfaction of Tenant and any Provider. Section 1.05. Covenants of the City. The City's demise to Tenant hereunder is expressly made subject to the following: (a) The lien of real estate taxes, if any, and all general and special governmental assessments, dues, charges and impositions not delinquent; (b) All easements, restrictions, agreements, covenants and other matters of record to which Tenant consents in writing; (c) The rights of the public to reasonable access to the marina basin adjacent to the real estate conveyed to the City by the East Chicago Park and Recreation Board pursuant to a Quitclaim Deed dated May 17, 1994 and the beach area located on the eastern portion of the such real estate, which areas shall be administered by the East Chicago Park and Recreation Department, which rights shall be incorporated in an appropriate easement(s) agreement among the City, the Tenant and the East Chicago Park and Recreation Board. 4 ARTICLE II. Term Section 2.01. Term an Holdover. The term of this Lease shall be deemed to have commenced on the date that Tenant receives from the Indiana Gaming Commission a certificate of suitability as authorized under regulations of said Commission (the "Commencement Date"). The parties shall execute a separate writing acknowledging the Commencement Date, which shall be recorded in the Office of the Recorder of Lake County, Indiana. This Lease shall continue to and including the thirtieth anniversary of the Commencement Date or the last day of any renewal term under Section 2.04 hereof, (the "Termination Date"), unless sooner terminated under the provisions of this Lease (the "Term"). In the event that Tenant remains in possession of the Leased Premises with the consent of the City after the expiration of this Lease, without any extension or renewal of the Term, Tenant shall be deemed to be a tenant from month-to-month, at a monthly rental of one-twelfth (1/12) the then current rental of the Leased Premises and subject to all other covenants, terms and conditions of this Lease, insofar as applicable to a month-to- month tenancy shall be terminable by either party upon thirty (30) days written notice to the other, delivered as of and prior to the end of any calendar month. The exercise by Tenant of its right under Section 17.02 of this Lease to enter the Leased Premises during the sixty (60) day period following the expiration of this Lease for the purpose of removing of trade fixtures, business equipment and personal property from the Leased Premises to the extent permitted by Section 17.02 of this Lease shall not be deemed to constitute a holding over or create a tenancy from month-to-month hereunder. Tenant shall, however, during such period continue to be bound by the duties, covenants and agreements of Tenant under this Lease, including, without limitation, the covenants and agreements relating to insurance and indemnification, excepting only the obligation to pay rent. Section 2.02. Early Termination by Tenant. At any time subsequent to the eighth anniversary of the Commencement Date, in the event that Tenant, in its sole discretion, shall determine that it is no longer economically feasible to operate the Redevelopment Project, Tenant may terminate this lease upon ninety (90) days written notice to the City. Upon termination, the Tenant shall pay, in a lump sum, an amount equal to one year's annual rental at the time of termination. The duties and obligations of the parties in the event of an early termination under this Section shall be the same as the duties and obligations of the parties set forth in this Lease upon expiration of this Lease at the end of its full term. Section 2.03. License Contingency. The City acknowledges that the ability of Tenant to perform its obligations under this Lease is contingent upon Tenant acquiring from the State of Indiana a license to operate a riverboat gaming casino. In the event that (a) a person other than Tenant is issued such license or (b) Tenant has not received a certificate of suitability under the regulations of the Indiana Gaming Commission within three (3) years of the date of the Commencement Date, does not have its license renewed, or has its license revoked or suspended, either party may terminate this Lease by written notice to the other party. In the event the Lease is not so terminated, the obligations of the parties shall continue hereunder, 5 except that any obligations of Tenant hereunder relating to the operation of a riverboat gaming casino shall be suspended until such time, if any, that Tenant obtains a certificate of suitability, a renewal of its license, or the issuance of a license that has been suspended or revoked. In the event the Lease is terminated and all or a portion of the Leased Premises is subsequently leased to a person other than Tenant who has obtained a license to operate a riverboat gaming casino, Tenant shall be reimbursed by such new tenant for all its costs and expenses incurred in connection with the work described in Section 5.01 hereof, which costs shall be documented to the City's reasonable satisfaction, and the City shall also use its good faith efforts to cause any new tenant of the Leased Premises to reimburse Tenant for all leasehold expenditures made by Tenant to the date of termination, including, but not limited to, rental payments made and the costs and expenses of all leasehold improvements, fixtures and equipment. Tenant reserves the right upon termination of the Lease for the reasons stated in this Section 2.03 to demolish or remove all leasehold improvements, fixtures and equipment constructed or installed by it, in which event the City shall have no obligation under the preceding sentence to seek reimbursement of the costs of leasehold improvements to the extent such have been demolished or removed. Section 2.04. Renewal Terms. The term of this Lease may be extended for two (2) additional thirty (30) year terms at the election of the Tenant in writing, which election may be made at any time prior to the expiration of the then existing term. Section 2.05. Early Possession. Tenant shall be entitled to exclusive possession of the Lease Premises from and after the Possession Date, and the parties shall be bound by the terms and provisions of this Lease from and after the Possession Date, provided that Tenant shall not be obligated to pay any annual rental payment (except for the 1/2 payment payable upon execution hereof as provided in Section 4.01) until the Commencement Date. ARTICLE III. Definitions The following terms, whenever appearing in this Lease with initial capital letters, shall have the respective meanings set forth or referred to in this Article III: (a) "Condemnation Proceeds" shall mean the total aggregate award resulting from any condemnation proceedings with respect to the Leased Premises and Redevelopment Project, exclusive of any award to Tenant or any of its sublessees or licensees as an award for loss of business or moving expenses. (b) "Construction Period" shall mean the period during which the Redevelopment Project is initially constructed. (c) "Constructive Total Taking" shall mean a taking in a condemnation proceeding of such scope that the remaining portion of the Leased Premises and 6 Redevelopment Project would be insufficient to permit the economically feasible operation of the Leased Premises and Redevelopment Project. (d) "Environmental Laws" shall mean federal, state and local laws and implementing regulations, effective on or after the Commencement Date, relating to pollution or protection of the environment, including laws or regulations relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes into the environment (including without limitation ambient air, surface water, ground water or land), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminates, chemical or industrial, toxic or hazardous substances or wastes. Such laws shall include, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. Sec. 9601, et seq. ("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Sec. 3251, et seq., the Federal Water Pollution Control Act, as amended, 33 U.S.C. Sec. 466 et seq. ("Clean Water Act"), and Indiana Code, Title 13 - Environment, as amended. (e) "Event of Default" shall have the meaning set forth in Section 11.01 herein. (f) "Possession Date" shall mean the date upon which the City receives written notice from Tenant of Tenant's election to take possession of the Leased Premises. (g) "Redevelopment Project" shall have the meaning set forth in Section 5.02 herein. (h) "Provider" shall mean an entity empowered to make loans, enter into other financing arrangements, own, lease, purchase or sell property or by any other means provide for buildings and other improvements and equipment on real estate, and the acquisition and disposal of interests in such buildings, improvements, equipment an real estate which furnishes to Tenant (its successors and assigns) the primary source of funds, buildings, improvements, equipment or other things secured by or in connection with any mortgage, assignment, lease, sublease, purchase subject to seller's right of repurchase or other encumbrance, financing, sale or lease document or agreement whatsoever, relating to the financing, refinancing, construction, sale, lease or development of the Redevelopment Project. (i) "Termination Date" shall have the meaning set forth in Article II herein. (j) "Trustee" shall have the meaning set forth in Article XXII herein. (k) "Unavoidable Delays" shall mean any delay in the achievement of any deadline required under this Lease by reason of fire, casualty, strikes, lockout, labor 7 troubles, failure of power, governmental authority, riots, insurrection, war or other reason of like nature, or failure of timely performance by the other party, which delay, hindrance or prevention of performance is not within the reasonable control of the party obligated to perform and is not avoidable by reasonable diligence. ARTICLE IV. Lease Consideration Section 4.01. Rent. The consideration for this Lease shall be (a) an annual rental of Four Hundred Thousand Dollars ($400,000.00), subject to the adjustments as provided below, through the Term and any extension of the Term pursuant to Section 2.04 and (b) Tenant's undertakings for the development of the Redevelopment Project on the leased Premises as described in Section 5.02. The annual rental shall be payable to the City on the Commencement Date and on each anniversary of the Commencement Date by check subject to collection at the address of the City specified in Article XX hereinbelow, provided that the first annual rental payment shall be paid one-half (1/2) upon execution of this Lease and one-half (1/2) upon the Commencement Date. Section 4.02. Adjustments to Annual Rent. The annual rental payable hereunder shall be adjusted beginning on the third anniversary date of the Commencement Date and on the same date of every third year thereafter, each such date being called a Rental Adjustment Date. Such adjustments shall be based upon increases in the Consumer Price Index (hereinafter the "Index"), all items, published by the Bureau of Labor Statistics, United States Department of Labor. In computing the rental adjustment for each rental Adjustment Date (the "Current Rental Adjustment Date") the Index last published preceding the last preceding Rental Adjustment Date (the "Prior Rental Adjustment Date") (or preceding the Commencement Date in event of the first adjustment), shall be the base Index for purposes of calculating the annual rental for the three (3) year period commencing on the Current Rental Adjustment Date. Any increase in the Index from the base Index to the Index last published preceding the Current Rental Adjustment Date shall be computed as a percentage and the annual rental to be paid by Tenant during the three (3) year period commencing on the Current Rental Adjustment Date shall be the annual rental payable by Tenant for the period immediately prior to the Current Rental Adjustment Date multiplied by the sum of One Hundred Percent (100%) plus such change in the Index; but shall in no event be less than the annual rental payable by Tenant for the period immediately prior to the Current Rental Adjustment Date. Nothwithstanding the foregoing the rental adjustment made for any Rental Adjustment Date shall not exceed One Hundred Five Percent (105%) of the annual rental determined on the Prior Rental Adjustment Date (or the Commencement Date in the event of the first adjustment). 8 ARTICLE V. Construction of Redevelopment Project Section 5.01. The City's Assistance. (a) The City shall in good faith take all procedural steps that are reasonably and lawfully required and necessary to enable the Tenant, its sublessees and/or a not-for-profit building corporation to finance and construct a breakwall, public parking facility, roadwork for ingress and egress and utilities (sewer, water, gas, electric, etc.) to the Redevelopment Project. The parties acknowledge that such activity is to be financed through a lease financed through a lease financing under applicable Indiana statutes. Section 5.02. Redevelopment Project. The "Redevelopment Project" shall mean: (a) The development and construction of a first-class riverboat casino to be developed and operated by Tenant, as licensed to do so under the provisions of IC-4033, which may include land-based facilities, including, but not limited to restaurants, entertainment facilities and parking areas, and other facilities or uses necessary and desirable for the operation of the riverboat casino, all in accordance with the provisions of the Lakefront Development Area Redevelopment Plan, as amended, and substantially in accordance with Tenant's bid submitted to City on August 9, 1994. (b) Any and all buildings, structures, improvements, fixtures, equipment and appurtenances necessary or incidental to the construction, maintenance and operation of the project described in paragraph (a) and any alterations thereof. Section 5.03. Completion of the Redevelopment Project. Tenant shall within one hundred eighty (180) days after receipt of a certificate of suitability from the Indiana Gaming Commission cause the commencement of construction of the Redevelopment Project and diligently pursue such construction to completion in a good and workmanlike manner. Tenant shall use its best efforts to cause the construction of the Redevelopment Project to be completed to such an extent that, subject to Unavoidable Delays (which shall not include failure to obtain financing), the Redevelopment Project is substantially ready for operation no later than eighteen (18) months following the receipt of such certification of suitability (the "Substantial Completion Date"). In the event the Redevelopment Project is not substantially ready for operation by the Substantial Completion Date, Tenant agrees to pay to City, as liquidated damages, the sum of $250,000.00 per month until the Redevelopment Project is substantially ready for operation, it being agreed between the parties that actual damages to the City for such failure cannot be determined; provided, however, that Tenant shall not be liable for the payment of such liquidated damages if it has, prior to the Substantial Completion Date, opened a temporary riverboat gaming casino for operation. 9 Section 5.04. Compliance with Laws, Insurance Policies. Tenant shall cause the construction of the Redevelopment Project, and the same to be constructed and completed, in compliance with all requirements of law (including Environmental laws and building codes) and all ordinances, regulations, rules or orders of any public agency or authority relating thereto. Tenant shall provide evidence of insurance coverages, in the form of certificates of new policies or endorsements to existing policies, showing Tenant to be insured during the period of construction, under policies providing the coverages required under Article XII hereinbelow, and naming the City as an additional insured, as appropriate. Tenant shall comply with all requirements and conditions of such policies to ensure continuation of the same throughout the course of the construction of the Redevelopment Project. ARTICLE VI. Mortgages: Financing Documents and Liens Section 6.01. Fee Mortgages or Liens. The City hereby covenants and agrees that during the term of this Lease (and any extension or renewal hereof), the City shall not mortgage, pledge or otherwise create security interests or other liens or encumbrances upon or affecting the City's fee estate in the Leased Premises or its reversionary interest in the Redevelopment Project, or any part thereof which is superior to the interest of Tenant or the Provider or encumbers the interests of Tenant, except with the prior written consent of Tenant and the Provider except for such liens as may be created by statute or law; provided that such liens or encumbrances are in all events subordinate to the interests of Tenant hereunder and the interests of any tenant under any lease entered into pursuant to 6.03(f) herein. Section 6.02. Leasehold and Project Financing Documents. Tenant and every successor and assignee of Tenant shall have the right, at any time and from time-to-time, without the City's consent, to mortgage, assign, lease, sublease, sell with right to lease back or repurchase or otherwise pledge or hypothecate its entire interest under this Lease or the entirety of the Leased Premises and the Redevelopment Project, in each case as collateral security for or in connection with any loan or other furnishing of funds, building construction, fixtures or equipment, from the Provider, to finance or refinance its interests in the Leased Premises and the Redevelopment Project or to obtain fixtures, equipment or construction in connection with the Redevelopment Project; provided, that the primary security for such financing or refinancing or such construction or provision of fixtures or equipment shall consist of Tenant's interests in the Leased Premises and Redevelopment Project and the income therefrom together with letters of credit, cash collateral accounts, guarantees and similar credit-enhancement documents. Section 6.03. Notices and Rights Upon Default. Tenant shall provide the City with conformed copies of any and all encumbrances or financing documents given upon its interest in the Leased Premises and the Redevelopment Project, and shall give the City written notice of the name and address of the Provider involved in any such transactions. If the foregoing information has been provided to the City, the City agrees that so long as any such encumbrance 10 or financing document shall remain unsatisfied of record or until written notice of satisfaction is given to the City by such Provider, the following provisions shall apply: (a) Contemporaneously with any notice by the City to Tenant, the City shall serve upon such Provider a copy of each notice given to Tenant under this Lease. No such notice shall be effective as against such Provider unless and until a copy thereof is served upon such Provider. (b) In the case of any Monetary Event of Default (as such term is defined in Article XI of this Lease), the City shall not terminate this Lease until thirty (30) days after the later of (a) expiration of Tenant's applicable cure period, or (b) receipt by such Provider of its copy of any such notice to remedy or cause to be remedied the Monetary Event of Default which is the basis of the notice; and further provided, that said thirty-day period shall be extended by a time commensurate with any period during which the said Provider cannot take action against Tenant or the Leased Premises on account of the stay under Sec. 362 of the Bankruptcy Code or comparable provision under any future laws relating to the protection of debtors. The City shall accept performance by such Provider as performance by Tenant. If Tenant has had its license revoked or denied, the City may terminate this Lease under Section 2.03 without regard to this paragraph (b). (c) In the case of any Non-Monetary Event of Default or Bankruptcy Event of Default (as such terms are defined in Article XI of this Lease), the City shall not terminate this Lease without first giving to the Provider a reasonable time within which to cure such default, if possible, or to institute and complete foreclosure or other appropriate legal or equitable proceedings, obtain possession of the Leased Premises (including possession by a receiver), or otherwise acquire Tenant's estate under this Lease. In the case of a Bankruptcy Event of Default, such default shall be deemed to be cured upon the Provider completing such proceedings or otherwise obtaining Tenant's estate under this Lease. In the case of any Non-Monetary Event of Default, the Provider shall have forty-five (45) days from the date on which it obtains possession and control of the Leased Premises to cure the Non-Monetary Event of Default; provided, that, if the Non-Monetary Event of Default is susceptible of being cured only by any such Provider's acquisition of title to Tenant's estate under this Lease, such Provider shall have forty-five (45) days from the date on which such title is acquired by any of them to cure such Event of Default. In the event that it is not possible to effect such cure within said forty-five (45) day period for reasons not within the control of such Provider, said forty-five (45) day period shall be extended as necessary to effect such cure so long as any such Provider gives the City notice of intention to cure with a written proposal outlining the action the Provider intends to take and a schedule (timetable) therefor (the "Cure Proposal") and commences efforts to cure within said period and thereafter continuously and diligently pursues the same to completion in accordance with the Cure Proposal. 11 The provisions of this paragraph (c) of this Section 6.03 are conditioned on such Provider promptly commencing and diligently pursuing to completion appropriate legal or equitable proceedings against the Leased Premises or otherwise attempting with reasonable diligence to obtain possession of the Leased Premises and/or Tenant's estate under this Lease. The right of the Provider under this paragraph (c) shall be exercisable concurrently, not sequentially. For purposes of this paragraph (c), possession of the Leased Premises by a receiver or trustee in bankruptcy shall not be deemed possession by the Provider. (d) Such Provider shall not be required to continue possession or continue foreclosure proceedings under this Section 6.03 if the particular Event of Default has been cured by Tenant. (e) No amendment, modification, surrender or cancellation of this Lease (other than a termination by the City in compliance with the conditions of this Article VI or except as may be permitted pursuant to Section 2.02 or 2.03 hereof) shall be effective without written approval of the Provider of which the City has been given notice as provided above; and so long as such Provider shall have an interest of record in the Leased Premises and/or Redevelopment Project, no unification of the respective interests of the City and Tenant therein in any one person or entity (other than a termination of this Lease by the City in compliance with the conditions of this Article VI or except as may be permitted pursuant to Section 2.02 or 2.03 hereof) shall be deemed to create a merger of such interests. The City and Tenant shall not enter into any agreement modifying, canceling or surrendering this Lease without the prior written consent of such Provider. (f) In the event of the termination of this Lease for any reason prior to the expiration of the Term, whether by summary proceedings to dispossess, service of notice to terminate or otherwise, the City shall serve upon the Provider of which the City has been given notice as provided above a written notice that the Lease has been terminated together with a statement of any and all sums which would at that time be due under this Lease but for such termination and of all other defaults, if any, under this Lease then known to the City. To the extent then permitted by law, such Provider shall thereupon have the option to obtain a new lease in accordance with and upon the following terms and conditions: (i) Upon the written request of such Provider, within thirty (30) days after service of such notice that the Lease has been terminated, the City shall enter into a new lease pursuant to the next paragraph for the Leased Premises and Redevelopment Project with such Provider (or its designee). (ii) Such new lease shall be entered into at the cost of the tenant thereunder, shall be effective as of the date of termination of this Lease, and shall be for the remainder of the Term and at the rent and upon all the agreements, 12 terms, covenants and conditions hereof, including any applicable rights of extension. Such new lease shall required the tenant to perform any unfulfilled obligation of Tenant under this Lease. Upon the execution of such new lease, the tenant named therein shall pay any and all sums which at the time of the execution thereof shall be due under this Lease but for such termination. (g) Any notice or other communication which the City shall desire or is required to give or to serve upon the Provider of which the City has been given notice under this Lease shall be in writing and shall be served by Registered or Certified Mail, return receipt requested, addressed to such Provider at its address as set forth in any encumbrance of financing document, or in the last assignment thereof delivered to the City pursuant to this Article VI, or at such other address as shall be designated by such Provider by notice in writing given to the City. (h) Any notice or other communication which such Provider shall desire or is required to give to or serve upon the City shall be deemed to have been duly given or served if sent by Registered or Certified Mail to the City in accordance with Article XX of this Lease or at such other addresses as shall be designated by the City by notice in writing given to such Provider by registered mail. Section 6.04. Provider's Liability. If the Provider shall acquire title to Tenant's interest in this Lease, by foreclosure of a mortgage thereon or by assignment in lieu of foreclosure, or by any other legal or equitable proceedings, or by an assignment from a nominee or wholly owned subsidiary corporation of such Provider, or under a new lease pursuant to this Article VI, such Provider may assign such lease to a person holding a license to operate a riverboat gaming casino and shall have no liability for the performance or observance of the covenants and conditions in such lease contained on Tenant's part to be performed and observed from and after the date of such assignment. Any Provider acquiring title to Tenant's interest in this Lease shall be required within 12 months thereafter to either obtain a license to operate a riverboat gaming casino or to assign the Lease to a person holding such a license, and, in the event such Provider fails to so obtain a license or assign the Lease within such time period, this Lease shall automatically terminate. Section 6.05. No Obligation to Cure. Nothing contained in this Lease shall require the Provider to cure or undertake to cure any default of Tenant, unless and until such Provider elects to exercise any right under the foregoing Section 6.03 as to which such cure or undertaking to cure is a condition. Section 6.06. Notice to the City. Tenant shall provide the City written notice of any default by Tenant pursuant to any encumbrance or other financing documents upon or against Tenant's interest in the Leased Premises and Redevelopment Project, and Tenant shall obtain the agreement of the Provider that said Provider will provide the City with notice of any default by Tenant of its agreements with the Provider. Tenant shall also attempt in good faith to obtain 13 the agreement of the Provider to accept any cure tendered by the City (without obligation of the City to undertake any such cure) of any such default. Section 6.07. Further Assurances. The City hereby covenants and agrees to execute such additional documents and to take such additional actions as the Provider may reasonably require to further assure, implement and give effect to the security of such Provider under any encumbrance or financing document which such provider and Tenant may hereafter enter into in connection with the financing or refinancing of the costs of the Redevelopment Project, subject, however, to the provisions of Section 6.02 of this Lease and provided that the form and substance of such documents are reasonably satisfactory to the City or that such actions do not adversely affect the City. ARTICLE VII. Discharge of Liens Section 7.01. Covenant Against Liens. Tenant shall not create or permit to be created or to remain, and shall promptly discharge, any mechanic's, laborer's or materialmen's lien or any conditional sale agreement, title retention agreement or mortgage, which might be or become a lien, encumbrance or charge upon the Leased Premises or any part thereof having any priority or preference over or ranking on a parity with the estate, rights and interests of the City in the Leased Premises or any part thereof. Section 7.02. Contesting of Liens. If any mechanic's, laborer's or materialmen's lien shall be filed at any time against the Leased Premises or any part thereof, Tenant shall cause the same to be discharged of record within sixty (60) days after notice of the filing thereof by payment, deposit, bond or order of a court of competent jurisdiction; provided, that Tenant shall have the right to contest the validity of such lien in any manner permitted by law, so long as Tenant shall provide to the City title insurance, bond or other assurance or security in an amount equal to one hundred percent (100%) of the amount of the claim, if and to the extent that the claimed lien has, or lawfully may, attach to or adversely affect the City's interest in the Leased Premises, and shall thereafter diligently proceed to cause such lien to be removed or discharged. If Tenant shall fail to discharge or seek to discharge any such lien affecting the Leased Premises, then the City may, but shall not be obligated to, discharge the same, either by paying the amount claimed to be due or by procuring the discharge of such lien by depositing in court a bond for the amount claimed, or by giving security in such other manner as is, or may be permitted by law, and Tenant shall reimburse and indemnify the City in respect thereto, together with all costs, including attorneys' fees related thereto or incurred in connection therewith. 14 ARTICLE VIII. Assignments and Subleases Section 8.01. Assignment and Sublease. Tenant may assign its interest in this lease to a person who has obtained a license to operate a riverboat gaming casino, a not-for-profit building corporation, a Provider or a Trustee and may sublease or permit to be sub-subleased all or any part of the Leased Premises all without the consent of the City, provided that any assignment to a Provider or Trustee shall terminate and be of no effect, if within twelve (12) months of such assignment, such Provider or Trustee has been unable to further assign the Lease to a person that has obtained a license to operate a riverboat gaming casino or has failed to obtain such a license on its own behalf, an such limitation shall be stated on any document assigning such lease. A trustee in bankruptcy shall be permitted to assign this Lease for a period of twelve (12) months following its assumption of the lease to a person that has obtained a license to operate a riverboat gaming casino or to any other person approved by the City. Any assignment of Tenant's entire interest in the Lease shall, to the extent required by law, be subject to the approval of the Indiana Gaming Commission. Section 8.02. Tenant's Liability Upon Assignment. Notwithstanding the assignment of the Lease by Tenant, Tenant shall remain liable for the performance of all of the obligations of Tenant under the Lease, until such assignee has obtained a license to operate a riverboat gaming casino. ARTICLE IX. Use Limitations Section 9.01. Use by Tenant. The Leased Premises shall be used primarily for the construction, development and operation of the Redevelopment Project as described in Section 5.02 above, and secondarily for incidental uses reasonably related thereto of the nature enumerated in Section 5.02(b) of this Lease, or in the event the Provider has an interest herein under circumstance permitted by Section 6.02 of this Lease and obtains possession of the Leased Premises and the Redevelopment Project, for the operation of a riverboat gaming casino and for related incidental uses by such new lessee. Section 9.02. Compliance with Laws, Insurance Policies, etc. Through the Term, Tenant, at its sole cost and expense, shall promptly comply with all present an future laws (including Environmental Laws, building and zoning laws), ordinances, orders, rules, regulations and requirements of all federal, state and municipal governments, departments, commissions, boards and officers, including, but not limited to the Indiana Gaming Commission, and all orders, rules and regulations of the National Board of Fire Underwriters, the Indiana Board of Fire Underwriters, or any other body or bodies exercising similar functions, which may be applicable to the leased Premises, or to the use or manner of use of the Leased Premises, or to the owners, tenants or occupants thereof; provided, that Tenant shall be entitled to contest in 15 good faith by appropriate proceedings any such legal requirements unless and until such contest shall subject the City to any penalty or sanction, and until such time as a final determination is made with respect to such legal requirements or until the City is subjected to a penalty or sanction for Tenant's noncompliance, Tenant shall not be deemed to be in default under this Section 9.02. Tenant shall indemnify and hold the City harmless against all penalties, sanctions, costs, expenses, liabilities, claims, actions and causes of action, including attorneys' fees caused by Tenant's contesting of any proceedings or charge under this Section 9.02. Tenant shall likewise observe and comply with the requirements of all policies of insurance required to be supplied coverage, or cancellation thereof. Section 9.03. Covenant Against Waste. Tenant shall not do or suffer any waste to the Leased Premises or Redevelopment Project or any part thereof or any property adjacent thereto, or allow the Leased Premises or Redevelopment Project to be used in violation of a certificate of occupancy, if any, covering or affecting the use of the Leased Premises or Redevelopment project or any part thereof, or in any manner which may, in law, constitute a nuisance, public or private. Tenant shall not permit use of any portion of the Leased Premises by the public in such manner as shall create prescriptive rights in, or an implied dedication to, the public or any third person. Tenant shall not allow the Leased Premises to be used so as to violate the Environmental Laws, including the "release" or "threatened release" of any "hazardous substance," "pollutant" or "contaminant," as those terms are defined in CERCLA, in, at or upon the Leased Premises. ARTICLE X. Repairs and Maintenance Throughout the Term, Tenant, at its sole cost and expense, shall maintain the Leased Premises and Redevelopment Project in good repair and order and in safe and clean condition and shall make, from time-to-time, all necessary repairs, renewals and replacements thereof. In no event shall the City be required to make any repairs, improvements, additions, replacements, reconstructions or other changes to the Leased Premises or Redevelopment Project or perform any maintenance thereon during the Term. ARTICLE XI. Default Provisions Section 11.01. Events of Default. Any of the following shall constitute an "Event of Default" hereunder: (a) If Tenant shall fail or refuse to pay when due any rent or any other sum or charge payable under this Lease, and such default shall continue for a period of thirty (30) days after notice from the City to Tenant specifying the items in default (herein called a "Monetary Event of Default"); 16 (b) If Tenant shall fail or refuse to perform or comply with any of the agreements, terms, covenants or conditions provided in this Lease (other than those referred to in the foregoing paragraph (a) or the following paragraph (c) of this Section) for a period of thirty (30) days after notice from the City to Tenant specifying the items in default; provided, however, that in the event such failure by its nature or due to Unavoidable Delays cannot be cured within such thirty (30) day period, then such thirty (30) day period shall be extended until such failure is cured, so long as Tenant gives the City notice of intention to cure with a written proposal outlining the action Tenant intends to take and a schedule (timetable) therefor ("Tenant's Cure Proposal") and commences its efforts to cure within such period and thereafter continuously and diligently (subject to Unavoidable Delays) pursues the same to completion in accordance with Tenant's Cure Proposal (herein collectively called a "Non-Monetary Event of Default"); or (c) If (i) Tenant shall be adjudicated to be bankrupt or insolvent, or (ii) Tenant shall make an assignment for the benefit of creditors or shall file any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present Bankruptcy Code or any future federal bankruptcy act or any other present or future federal, state or other bankruptcy or insolvency state law, or (iii) Tenant shall seek, consent to or acquiesce in the appointment of any bankruptcy or insolvency trustee, receiver or liquidator of Tenant or of all or any substantial part of its properties or of the Leased Premises, or (iv) within sixty (60) days after the commencement of any proceeding against Tenant seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present Bankruptcy Code or any future federal bankruptcy act or any other present or future federal, state or other bankruptcy or insolvency statute or law, such proceeding shall not have been dismissed or such appointment shall not have been vacated or stayed (herein collectively called a "Bankruptcy Event of Default"); then and in any such event, Tenant's rights under this Lease shall terminate (subject, however, to the rights of the Provider to notice and cure provided for in Article VI of this Lease) sixty (60) days after the election of the City, made in writing to Tenant no more than sixty (60) days after the later of such event or the expiration of any applicable cure period, to terminate this Lease, and upon such election and the expiration of such ten (10) day period the rights of Tenant to the use and possession of the Leased Premises under this Lease, including such rights under any extension privileges whether or not exercised, shall expire and terminate (subject, however, to the rights of the Provider to notice and cure provided for in Article VI of this Lease). Section 11.02. Surrender. Upon any such termination of Tenant's rights under this Lease pursuant to Section 11.01, hereof, Tenant shall quit and peacefully surrender the Leased Premises to the City in accordance with the provisions of Section 17.01 hereof. 17 Section 11.03. No Waiver. No failure by either the City or Tenant to insist upon the strict performance of any agreement, term, covenant or condition hereof or to exercise any right or remedy consequent upon a breach thereof shall constitute a waiver of any such breach or of such agreement, term, covenant or condition. No agreement, term, covenant or condition hereof to be performed or complied with by the City or Tenant, as the case may be, shall be altered or modified except by a written instrument executed by the City and Tenant. No waiver of any breach shall affect or alter this Lease, but each and every agreement, term, covenant and condition hereof shall continue in full force and effect with respect to any other then existing or subsequent breach thereof. Section 11.04. Cumulative Remedies. Each right and remedy provided for in this Lease shall be cumulative and shall be in addition to every other right or remedy provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of this exercise by the City or Tenant of any such rights or remedies shall not preclude the simultaneous or later exercise by the party in question of any such rights or remedies, except as otherwise expressly provided in this Lease. The provisions of this Article XI are hereby expressly made subject to the provisions of Article XX and the rights and remedies of the Provider under Article VI. ARTICLE XII. Insurance Section 12.01. Tenant's Liability Insurance. From the Possession Date and throughout the Term, Tenant shall maintain in force the following types and amounts of liability insurance, covering Tenant and, during any period in which construction, renovation, alteration or substantial repair work is being performed by third parties on the Redevelopment Project, Tenant's construction contractors, subcontractors and agents, as appropriate; and at all times naming the City as an additional insured: (a) Comprehensive General Liability Insurance ("Occurrence" Form): (i) Basic coverage and limits: Bodily injury,including death resulting therefrom, and Property Damage to a Combined Single Limit of $1,000,000 per occurrence. A $1,000,000 annual aggregate limit applies to P remises-Operations Property Damage Liability and to the hazards of Products/Completed Operations and Contractual Liability. (ii) Extensions of coverage to include: Blanket contractual liability for written or oral contracts; Broad form property damage; Blanket explosion, collapse and underground coverage. 18 (b) Umbrella Excess Liability: (i) Limits: (A) Bodily Injury, Personal Injury and Property Damage to a limit of $5,000,000 per occurrence excess of the primary Comprehensive General Liability and Employer's Liability, subject to a Project aggregate limit for all insured interests of $5,000,000 excess of the Primary annual aggregate limits. (ii) Coverage: Includes all underlying extensions of coverage. (c) Changes in Limits: Notwithstanding the foregoing, and so long as City is named as an additional insured on Tenant's liability insurance, the policy limits of Tenant's insurance for tort claims shall not be less than the maximum liability of the City for tort claims under the Indiana Tort Claims Law (IC 34-4-16.5), as the same may be amended from time-to-time. Section 12.02. Automobile Liability Insurance. Throughout the Term, Tenant shall maintain in force, in its own name only and not in the name of the City or other third parties, automobile liability insurance covering the use of all owned, non- owned and hired vehicles, with bodily injury and/or property damage liability limits of $1,000,000 (combined single-limit per accident). Section 12.03. Tenant's Workers' Compensation and Employer's Liability Insurance. Throughout the Term, Tenant shall maintain the following amounts of workers, compensation and employer's liability insurance, covering Tenant and, during any period in which construction, renovation, alteration or repair works being performed by third parties on the Redevelopment Project, Tenant's construction contractors, subcontractors and agents, as appropriate, and at all times naming the City as an additional insured. (a) Coverage A - Statutory Benefits: Liability imposed by the Workers, Compensation and/or Occupational Disease statute of the State of Indiana and any other state or governmental authority if related to the work performed on the Redevelopment Project. (b) Coverage B - Employer's Liability Limits of $1,000,000 Bodily Injury by accident $1,000,000 Bodily Injury by disease, and $1,000,000 Policy Limit by disease. (c) Extensions of Coverage to include: Broad Form All States Endorsement 19 Sixty (60) days notice of cancellation. Section 12.04. Tenant's Casualty-Loss Insurance. During the period of original construction of the Redevelopment Project, and during any period in which construction, renovation, alteration or repair work is being performed by third parties on the Redevelopment Project, Tenant shall maintain in force builder's "all risk" property damage coverage to protect Tenant, its construction contractors, subcontractors and agents, as appropriate, and naming the City as an additional insured. At all times during the Term, Tenant shall maintain in force, through such builder's all-risk coverage or through separate casualty-loss policies, insurance covering the Leased Premises and the Redevelopment Project, including all equipment in or appurtenant to the Leased Premises or Redevelopment Project essential to the operation and maintenance of the buildings (as distinguished from equipment for operation of the business conducted upon the Leased Premises) and all alterations, changes or additions thereto, naming the City, the Provider and Tenant, as their respective interests may appear, as insureds and insuring the Leased Premises and the Redevelopment Project against loss or damage by fire or other casualties covered by customary extended coverage endorsements, in such amounts as Tenant determines. Section 12.05. Proof of Insurance. All insurance provided for in this Article XII shall be effected under valid and enforceable policies, issued by insurers of recognized responsibility authorized to do business in Indiana. Upon the execution of this Lease, and thereafter not less than fifteen (15) days prior to the expiration dates of any expiring policies theretofore furnished pursuant to this Article XII, originals of the policies (or, in the case of general public liability insurance, certificates of the insurers), shall be delivered by Tenant to the City bearing notations evidencing the payment of premiums or accompanied by other evidence satisfactory to the City of such payment; except, that whenever the Leased Premises shall be subject to any mortgage or other form of financing instrument to secure any debt of Tenant such policies of insurance may be lodged with the Provider until the mortgage debt shall be paid, and certificates of such policies shall meanwhile be delivered to the City. Section 12.06. Notice of Cancellation. The insurance required by this Article XII shall contain a provision (to the extent that such provision is commercially available) that coverages afforded under the policies will not be canceled, not renewed or materially changed until sixty (60) days prior written notice has been given to both the City and Tenant and any other persons named as insured thereunder. Section 12.07. Adjustment in Insurance. Tenant shall provide such insurance, with such coverages and in such amounts, as may be agreed upon from time-to-time between Tenant and the Provider. Section 12.08. Waiver of Subrogation. The City and Tenant waive all rights against each other and against those for whom the other is legally liable for (i) all losses or damages covered by insurance provided for under this Article XII to the extent the upper limits of such 20 insurance are adequate to cover such damages, it being the intent of this clause to allocate all risk of such loss to such insurance and (ii) for all losses and damages which are not covered by insurance but which could have been insured against by the insured. If the policies of insurance provided under this Article XII require an endorsement to provide for continued coverage where there is a waiver of subrogation, Tenant will cause such policies to be so endorsed. Section 12.09. Application of Proceeds for Redevelopment Project. The proceeds of any and all policies of insurance upon the Redevelopment Project maintained pursuant to Section 12.04 of this Article XII shall be used as a trust fund toward the repair, reconstruction, replacement or rebuilding of the Redevelopment Project. Accordingly, all such policies of insurance shall provide that, as to any loss in excess of $500,000.00, all proceeds payable at any time and from time-to-time by any insurance company under such policies shall be paid to the Trustee for the benefit of Tenant, the City, the Provider and any other person or entity having any interest under any such policy and applied by such Trustee as provided in this Lease. Tenant shall pay the reasonable charges of the Trustee for its services hereunder. The City, Tenant, the Provider and any other person or entity having an interest under any such insurance policy shall cooperate with and aid the Trustee in collecting any and all insurance money and will execute and deliver as requested by the Trustee any and all proofs, receipts, releases and other instruments whatsoever which may be necessary or proper for such purpose. In the event that any person having an interest under any such insurance policy shall fail or neglect to cooperate or to execute, acknowledge and deliver any such instrument, the Trustee may, as the agent or attorney-in-fact of any such person, execute and deliver any proofs of loss or any other instruments as may seem desirable to the Trustee for the collection of such insurance moneys, and all such person or entities having obtained an interest in any such insurance policy shall be deemed to have irrevocably nominated constituted and appointed the Trustee its proper and legal attorney-in-fact for such purpose. As to all other policies, the proceeds shall be paid to the insured party or parties as their interests shall appear and in proportion to their respective insured losses. Section 12.10. Special Provisions. If reasonably obtainable, all such policies of insurance maintained pursuant to Section 12.01 and 12.03 hereinabove shall provide that the proceeds thereof shall be payable without regard to any fault or negligence of the City, Tenant, any contractor or agent of Tenant or any other person or entity having an interest under any such policy which may have caused or contributed to such loss and without any rights of the insurance company of set-off, counterclaim or deduction against the City or Tenant. Section 12.11. General Provisions. In the event Tenant shall fail or refuse to obtain any insurance required by this Article XII, the City may obtain such insurance. The costs of such insurance shall constitute additional rent payable by Tenant upon demand by the City. 21 ARTICLE XIII. Indemnification Section 13.01. Indemnification by Tenant. Subject to the provisions of Section 12.08 and regardless of whether separate, several, joint or concurrent liability may be imposed upon the City, Tenant shall, but only to the extent permitted by law, at its sole cost and expense, indemnify and save harmless the City and any member, officer, director, agent, partner, trustee or employee thereof against and from any and all claims, liability and damages arising from or in connection with (a) Tenant's possession, use or control of the Leased Premises or the Redevelopment Project, (b) any occurrence or circumstance on or related to the Leased Premises or Redevelopment Project (including the loss or damage to any property, including the Leased Premises, the injury to or death of any person, or the contamination of or adverse effects on the environment, which result from any pollutant or from any chemical, hazardous or toxic substances or wastes emitted from or discharged by the Redevelopment Project while occupied by Tenant), or (c) Tenant's breach of any covenant or obligation under this lease, other than claims, liability or damages arising from failure of the City to perform or the negligence of the City in the performance of, any of its obligations hereunder or arising out of any willful acts of the City. The indemnification provided by this Section 13.01 shall include all costs, counsel fees, expenses and liabilities incurred in connection with any such claim, action or proceeding brought thereon; and in case any action or proceeding shall be brought against the City by reason of any such claim, Tenant, upon written notice from the City, shall defend such action or proceeding. The terms of this Section 13.01 shall survive any termination of this Lease. Section 13.02. Indemnification by the City. Subject to the provisions of Section 12.08 and regardless of whether separate, several, joint or concurrent liability may be imposed upon Tenant, the City shall, but only to the extent permitted by law, at its sole cost and expense, indemnify and save harmless Tenant and the Provider from and against any and all claims, liability and damages arising from the sole negligence of the City or arising out of any willful acts of the City. The indemnification provided by this Section 13.02 shall include all costs, counsel fees, expenses and liabilities incurred in connection with any such claim, action or proceeding brought thereon. In case any action or proceeding shall be brought against Tenant or the Provider by reason of any such claim, the City upon written notice from Tenant or such Provider shall defend such action and proceeding. The terms of this Section 13.01 shall survive any termination of this Lease. ARTICLE XIV. Casualty Damage Section 14.01. Tenant's Obligation to Repair. In the event that, at any time during the Term, the Redevelopment Project shall be destroyed or damaged in whole or in part by fire or other cause within the extended coverage of the casualty insurance policies or builder's risk policies required to be maintained by Tenant in accordance with Article XII of this Lease, then 22 Tenant shall cause the same to be repaired, restored, replace or rebuilt within a period of time which, under all prevailing circumstances, shall be reasonable. In the repair or restoration of the Redevelopment Project under this Article XIV, Tenant will, as nearly as practicable, repair, restore, replace or rebuild the Redevelopment Project so damaged or destroyed to the condition and character of the Redevelopment Project existing immediately prior to such occurrence, subject to applicable zoning and buildings laws then in existence. Tenant shall be entitled to apply all insurance proceeds of policies maintained pursuant to Article XII of this Lease remaining after any required payments to the Provider to such repair, restoration, replacement and rebuilding. Tenant shall notify the City in writing of any payments (whether total or partial) made of insurance proceeds. If the insurance proceeds recovered in respect of any such insured damage or destruction, less any cost of recovery and any amounts required to be applied to repayment of the Provider, shall be insufficient to pay the entire cost of such repair, restoration, replacement or rebuilding, Tenant may bear the cost of such deficiency or in lieu of undertaking such repair, restoration, replacement or rebuilding, terminate this Lease upon written notice to the City. The time within which Tenant must perform any obligations under this Section 14.01 shall include a reasonable time to obtain and close the necessary equity or mortgage loan or other financing to cover any deficiency that Tenant agrees to bear. Section 14.02. Disbursement of Insurance Proceeds in the Event of Repair by Tenant. The Trustee shall permit any insurance proceeds paid to it to be applied in payment of the cost of such repair, restoration, replacement and rebuilding of the Redevelopment Project by Tenant pursuant to the foregoing Section 14.01 as the same progresses, payments to be made against applications for payment properly certified by Tenant's supervising architect or other appropriate certifying official. The Trustee shall contribute out of such insurance proceeds with respect to each such certified application for payment an amount in proportion to such payment as the whole amount received by the Trustee shall bear to the total estimated cost of repairing or rebuilding the Redevelopment Project. If the insurance proceeds should exceed the cost of repairing or rebuilding the Redevelopment Project, the Trustee shall pay the balance remaining after payment of the cost of repairing or rebuilding the Redevelopment Project to Tenant. The Trustee may deduct from any insurance proceeds paid to it the amount of its charges for acting as such trustee and any reasonable expenses incurred by it in connection with such trust. Section 14.03. Prompt Performance of Work by Tenant. All work of repairing, replacing, restoring or rebuilding the Redevelopment Project by Tenant pursuant to the foregoing Section 14.01 shall be commenced within one hundred twenty (120) days after settlement shall have been made with the insurance companies, the insurance money shall have been paid to the Trustee and all necessary permits for such work shall have been obtained. All such work shall be governed by the provisions of Section 5.04 of this Lease and shall be completed within a reasonable time, under all prevailing circumstances. In case any mortgage, financing lease or other financing document on Tenant's interest in the leased Premises or Redevelopment Project shall be in force at the time of any damage to or destruction of the Redevelopment Project, then, the Provider which is a party thereto is authorized to repair, replace, restor or rebuild the Redevelopment Project under the same terms and conditions as are applicable in the case of repair, restoration, replacement, or rebuilding by Tenant. The Provider so repairing, restoring, 23 replacing or rebuilding the Redevelopment Project shall, subject to compliance with all the conditions contained in this Article XIV, be subrogated to the rights of Tenant to the insurance proceeds payable as a result of the damage or destruction, and shall be entitled to have (and the City and Tenant hereby authorize the Trustee to so pay) all said insurance proceeds paid out by the Trustee in the same manner in every respect as if the Provider were Tenant under this Lease. ARTICLE XV. Condemnation Section 15.01. Total Condemnation. If, at any time during the Term, there shall be a permanent total taking or a permanent Constructive Total Taking of the Leased Premises or Redevelopment Project in condemnation proceedings or by any right of eminent domain, Tenant may by written notice to the City elect to end the Term on the date of such taking, and Tenant shall remove its personal property from the Leased Premises without delay. The rent and all other items payable to Tenant under this Lease shall be prorated and paid to the date of such taking. Section 15.02. Proceeds of Total Condemnation. In the event of any such permanent total taking or Constructive total Taking of the Leased Premises and Redevelopment Project and the termination of this Lease, the Condemnation Proceeds shall be allocated as follows: (a) To the City for its fee interest in the Leased Premises (including its interest as landlord under this Lease, and reversionary interest in the Redevelopment Project); and then, (b) To Tenant for its leasehold estate in the Leased Premises and its fee interest in the Redevelopment Project (subject to the City's reversionary interest therein) immediately prior to such total taking or Constructive Total Taking. Nothing herein contained shall impair the right to Tenant or any of its sublessees, licensees, concessionaires or others to the full award, compensation or damages payable as an award for loss of business or for moving expenses. Section 15.03. Partial Condemnation. In the event of a taking less than a Constructive Total Taking, this Lease shall not terminate or be affected in any way, except as provided in the following Sections 15.04, 15.05 and 15.06. In such case, the Condemnation Proceeds shall be apportioned and paid, to the extent available in the following priority: (a) The Condemnation Proceeds shall be payable in trust to Tenant for application by Tenant to the cost of restoring and rebuilding the Redevelopment Project as required by the following Section 15.04; and 24 (b) The Condemnation Proceeds, if any, remaining after restoration shall, subject to the requirements of any financing documents and the rights of the Provider, be retained by Tenant, except to the extent of an equitable portion of the Condemnation Proceeds allocable by agreement of the City and Tenant to the City on account of any taking of its reversionary fee title interest to any portion of the Leased Premises. If Tenant and the City cannot agree upon the amount of such payment, the amount of such payment shall be determined by an independent appraiser selected by agreement of the City and Tenant. Section 15.04. Restoration. In the event of a taking less than a Constructive Total Taking, Tenant, at its sole cost and expense (but subject to reimbursement from the Condemnation Proceeds) and regardless of whether the Condemnation Proceeds are sufficient for the purpose, shall proceed with due diligence to restore and rebuild the remaining portion of the Redevelopment Project, to the extent feasible to the condition and character in which the same was immediately prior to such taking. All such work in connection with the restoration and rebuilding of the Redevelopment Project shall be governed by the provisions of Section 5.04 of this Lease. Section 15.05. Rent Adjustment. In the event of a taking of the character referred to in the foregoing Section 15.03, this Lease shall terminate as to the portion of the Leased Premises so taken and the rent payable hereunder shall be proportionally adjusted from the date of the taking. Such adjustment shall be based on the ratio between the fair market value of Tenant's leasehold estate in the Leased Premises at the date of taking to the faire market value of such leasehold estate remaining immediately thereafter, valued for the use being made of the Leased Premises by Tenant immediately prior to such partial taking. Section 15.06. Temporary Condemnation. If, at any time during the Term, the whole or any part of the Leased Premises or Redevelopment Project shall be taken in Condemnation Proceedings or by any right of eminent domain for temporary use or occupancy, except to the extent that Tenant may be prevented from so doing pursuant to the terms of the order of the condemning authority, or by the practical effects of such temporary taking, Tenant shall perform and observe all of the terms, covenants, conditions and obligations of this lease on Tenant's part to be performed and observed as though such taking and not occurred. In the event of any such taking of the character described in this Section 15.06, Tenant shall be entitled to receive the entire amount of the Condemnation Proceeds awards for such taking, whether paid by way of damages, rent, costs of moving or restoration or otherwise, unless such period of temporary use or occupancy shall extend beyond the Term, in which case the Condemnation Proceeds shall be apportioned between the City and Tenant as of the date of termination of this Lease. Upon the expiration of any such period of temporary use or occupancy, if it be during the Term, Tenant will, to its sole cost and expense, restore the Leased Premises, as nearly as practicable, to the condition and character in which the same were immediately prior to such taking. Any portion of the Condemnation Proceeds received by Tenant as compensation for the cost of restoration of the Leased Premises shall, if such period of temporary use or occupancy shall extend beyond the Term (and Tenant has not exercised its option to purchase), be paid to the City on the date 25 of termination of this Lease, and Tenant shall be thereby relieved of its obligation hereunder to perform such restoration. Section 15.07. Rights to Appear. The City, Tenant and the Provider shall have the right to participate in any Condemnation Proceeding for the purpose of protecting their rights hereunder, and in this connection, specifically and without limitation, to introduce evidence to establish the value of or damage to the Leased Premises or Redevelopment Project. Section 15.08. Rights of Provider. Notwithstanding anything to the contrary contained in this Lease, the provisions of this Lease relating to the application of any proceeds arising from the taking of any part or all of the Leased Premises or Redevelopment Project in Condemnation Proceedings shall be subject to any rights reserved by the Provider having an interest herein under circumstances permitted by Section 6.02 of this Lease, to apply to the indebtedness to such Provider, all or any part of such proceeds. Section 15.09. City's Exercise of Eminent Domain. To the extent permitted by law, City agrees not to use its powers of eminent domain in a manner that is inconsistent with the provisions of this Lease or that materially interferes with the enjoyment of the benefits hereof to Tenant. ARTICLE XVI. Consents and Approvals Section 16.01. Standards of Consent. Where any provision of this Lease requires the consent, cooperation or approval of either party, each party agrees that, except as otherwise expressly provided in this Lease (such as by use of words to the effect of "sole" and/or "complete" discretion), it will not unreasonably withhold, condition or delay such consent, cooperation or approval, and the reasonableness of each party's determination shall be evaluated in accordance with any particular standards governing such particular consent or approval as expressly set forth in this Lease, or if no standards are expressly set forth, then in accordance with all relevant facts and circumstances. Where any provision of this Lease requires one party to do anything to the satisfaction of the other party, the other party agrees that it will not unreasonably refuse to state its satisfaction with such action. Section 16.02. Waiver of Claims. Notwithstanding anything contained in this Lease, neither party shall have any claim, and hereby waives the right to any claim, against the other party for money damages or off-set by reason of any refusal, withholding or dealing by the other party of any consent, cooperation, approval or statement of satisfaction, and in such event, the requesting party's only remedies therefor shall be an action for declaratory relief or specific performance to enforce any such requirement; provided, that this waiver shall not apply as to an refusal withholding or delay made in bad faith. 26 ARTICLE XVII. Surrender Section 17.01. Surrender of Leased Premises. Except as herein otherwise expressly provided in this Lease, Tenant shall surrender and deliver upon the Leased Premises to the City at the expiration or other termination of this Lease or of Tenant's right to possession hereunder, without fraud or delay, in good order, condition and repair, except for reasonable wear and tear after the last necessary repair, replacement or restoration made by Tenant and except for damage by reason of any temporary condemnation to the extent Tenant is relieved of its obligation to restore the Leased Premises under Section 15.06 of this Lease, free and clear of all liens and encumbrances except the liens for taxes and assessments not then due and payable, matters reflected in Section 1.05 hereinabove and any matters created, caused or consented to by the City, and without any payment or allowance whatever by the City on account of any improvements made by Tenant. The Redevelopment Project shall become the property of the City upon such expiration or termination. Section 17.02. Removal of Certain Property. All trade fixtures, business equipment and personal property furnished by or at the expense of Tenant or any subtenant shall be removed by or on behalf of Tenant within sixty (60) days following the expiration or other termination of this Lease but only if and to the extent that the removal thereof will not cause physical injury or damage to the Leased Premises or necessitate changes or repairs to the same. Section 17.03. Property Not Removed. Any personal property of Tenant or any subtenant which shall remain in or upon the Leased Premises for more than sixty (60) days after Tenant or any subtenant has surrendered possession of the Leased Premises shall be deemed to have been abandoned by Tenant or such subtenant, and at the option of the City, such property: (a) shall be retained by the City as its property; (b) shall be disposed of by the City in such manner as the City shall determine, without accountability to any person; or (c) shall be promptly removed by Tenant at Tenant's expense upon written request from the City. The City shall not be responsible for any loss or damage occurring to any property owned by Tenant or any subtenant. Section 17.04. City's Right to Require Removal of Improvements. Upon surrender of the Leased Premises, the City may require Tenant, its sublessees or a not-for-profit building corporation to remove any improvements constructed by Tenant, its sublessees or a not-for-profit building corporation on the Leased Premises. Section 17.05. Survival of Terms. The terms of this Article XVII shall survive any termination of this Lease. 27 ARTICLE XVIII. Quiet Enjoyment Section 18.01. Tenant's Right to Quiet Enjoyment. The City hereby warrants and represents that Tenant, upon paying rent and other charges herein provided for, and upon observing and keeping all covenants, agreements and conditions of this Lease to be kept on its part, and also during the applicable periods specified in Section 11.01 of this Lease for curing any alleged default (subject, however, to the provisions of Section 6.03(b) and (c) of this Lease), shall quietly have and enjoy the Leased Premises during the Term without hindrance or molestation by anyone claiming by, through or under the City, subject, however, to the exceptions, reservations and conditions of this Lease. Section 18.02. The City's Right of Entry. Tenant shall permit the City and its authorized representatives, upon reasonably prior notice, to enter the Leased Premises for the purpose of (a) inspecting the Leased Premises, or (b) making any repairs or performing any work in the Leased Premises or Redevelopment Project that may be necessary by reason of Tenant's failure to make any such repairs or performs any such work. The City, however, shall proceed with such repairs no sooner than ten (10) days after receipt of written notice to Tenant, specifying the needed repairs and only if Tenant has not begun such repairs within such 10 day period. Nothing herein shall imply duty upon the part of the city to do any such work, and performance thereof by the City shall not constitute a waiver of Tenant's default in failing to perform the same. During the progress of any work in the Leased Premises of Redevelopment Project performed by the City pursuant to the provisions of this Article XVIII, the City may keep and store therein all necessary materials, tools, supplies and equipment. The City shall not be liable for inconvenience, annoyance, disturbance, loss of business or other damage to Tenant or any subtenant by reason of making such repairs or performing any such work, or on account of bringing materials, tools, supplies and equipment into the Leased Premises or Redevelopment Project during the course thereof, and the obligations of Tenant under this Lease shall not be affected thereby. The City shall have the right to enter the Leased Premises without notice in the case of any emergency which required the exercise of the City's governmental powers for the preservation or protection of the public health or safety. ARTICLE XIX. Certificates Each party shall, at the requesting party's cost and expense, as reasonably requested by the other party from time-to- time and within ten (10) days after request by the other party, certify by written instrument, duly executed, acknowledged and delivered to the requesting party or any other person, firm or corporation specified by the requesting party: 28 (a) That this Lease is unmodified and in full force and effect, or, if there have been any modifications, that the same is in full force and effect as modified and stating the modifications; (b) Whether or not there are, to the best of the certifying party's knowledge and belief, then existing any set-offs or defenses against the enforcement of any of the agreements, terms, covenants or conditions hereof and any modifications hereof upon the part of Tenant to be performed or complied with, and, if so, specifying the same; (c) The rent then payable under this Lease and the dates, if any, to which the rent and any other charges hereunder have been paid; (d) The dates of commencement and expiration of the Term; (e) Whether or not, to the best knowledge of the certifying party, the other party is in default in the performance of any covenant, agreement or condition contained in this Lease and, if so, specifying each such default. ARTICLE XX. Notices Any and all notices, demands, requests, submissions, approvals, consents, disapprovals, objections, offers or other communications or documents required to be given, delivered or served or which may be given, delivered or served under or by the terms and provisions of this Lease or pursuant to law or otherwise, shall be in writing and shall not be effective unless and until received; provided, that such notice shall be presumed to have been received, if hand-delivered, on the date of such delivery, and, if mailed, on the third business day following the date on which it is sent by Registered or Certified Mail, return receipt requested, first-class postage prepaid thereon and deposited with any regularly maintained United States Post Office, branch Post Office, Post Office Station or Substation, at the following addresses: If to the City: City of East Chicago 4920 Larkspur Drive P.O. Box 394 East Chicago, IN 46312 Attn: John Artis, Director If to Tenant: Showboat Marina Partnership Attn: 29 or to such other address as either party shall specify to the other by similarly given notice. ARTICLE XXI. Limitation of Liability The term "the City" as used in this Lease, as far as the covenants and agreements of the City in this Lease are concerned, shall be construed to mean only the holder or holders of the City's interest in this Lease at the time in question. Any transfer or transfers of the City's interest, other than a transfer for security prior to foreclosure thereof, shall be subject to Tenant's prior written approval, which shall not be unreasonably withheld, provided, however, that Tenant's approval shall not be required for a transfer to another entity created or established by the Indiana General Assembly having all of the City's present powers and authority with regard to this Lease and the Leased Premises. Subject to the foregoing, in the event of any transfer of the City's interest, if Tenant receives any executed assignment instrument permitted under the terms of this Lease, wherein the assignee of the City assumes and agrees to perform all of the liabilities and covenants of the City hereunder, then the City herein named (and in case of any subsequent transfer, the then transferor) shall be automatically freed and relieved, as to occurrences after the date of such transfer, from all duties and obligations relating to the performance of any covenants or agreement on the part of the City to be performed or observed after such transfer. Any funds in which Tenant has an interest and which are in the hands of the City at the time of such transfer shall be turned over to the transferee, and any amount then due and payable to Tenant shall be paid to Tenant by the then transferor. It is the intent of this Article XXI that the provisions of this Lease shall be binding upon the City, its successors and assigns only during and in respect to the respective successive periods of ownership. In any event, and notwithstanding any other provision of this Lease, neither the City (including any successor or the City) nor any member, officer, director, agent, partner, trustee or employee thereof shall be liable in an individual or personal capacity for the performance or nonperformance of any agreement, covenant or obligation of the City contained in this Lease, and the City's liability shall be limited to the value of Leased Premises in its then current condition. ARTICLE XXII. Trustee Whenever in Articles XII or XIV of this Lease a "Trustee" is mentioned, or any action by the "Trustee" is required, the following provisions shall apply: 30 (a) So long as there exists on the Leased Premises a mortgage or other financing lease, assignment or other financing document given pursuant to Article VI of this Lease, the Provider shall, if it so elects, act as Trustee for purposes of this Lease. Such Provider shall also be entitled to designate any bank, savings bank or savings and loan association having an office in East Chicago, Indiana, to act as Trustee should such Provider elect not to act as Trustee or, having once elected to act as Trustee, elect to cease acting as Trustee and designate a successor Trustee. (b) If the Provider elects not to act as Trustee or elects to cease acting as Trustee and does not designate, within ten (10) days of a written request by the City or Tenant, a substitute or successor Trustee, the City and Tenant shall promptly designate by agreement a bank, savings bank or savings and loan association having an office in East Chicago, Indiana, to act as Trustee. If the City and Tenant cannot reach agreement on such designation within thirty (30) days, the determination shall be made by random selection among the Trustees proposed by the City and Tenant; provided, that the City and Tenant shall not submit more than two (2) proposed Trustees each for purposes of such selection. (c) In the event that any financing documents then in force do not make provisions as to the duties of the Trustee, the City and Tenant shall enter into an agreement with the Trustee appropriately covering the duties of the Trustee hereunder, upon such terms and conditions as may be reasonably necessary to allow the Trustee to perform its functions as required under this Lease and on such other terms and conditions as such Trustee shall reasonably require; provided, that the City shall not be required to assume any obligations or liabilities other than as provided in this Lease; and provided further, that the Trustee shall be required to turn over any funds held by it to a successor Trustee in the event any successor Trustee is designated pursuant to paragraph (d) of this Article. (d) In the event that any Trustee or substitute or successor Trustee fails or refuses to act as required by the provisions of this Lease or the agreement identified in the preceding paragraph, the City and Tenant shall promptly designated by agreement a successor Trustee meeting the requirements of paragraph (b) of this Article and shall enter into an agreement with such successor Trustee as required by paragraph (c) of this Article. If the City and tenant cannot agree on a successor Trustee within fifteen (15) days after both receive notice of the Trustee's failure or refusal to act, the determination shall be made by random selection among the Trustees proposed by the City and Tenant, provided that the City and Tenant shall not submit more than two (2) proposed Trustees each for purposes of such selection. 31 (e) The fees and charges of every Trustee, substitute Trustee and successor Trustee acting hereunder shall be borne solely by Tenant and shall be paid in such manner and frequency as required by any such Trustee. (f) If the Provider shall elect not to act as Trustee, such Provider shall nevertheless be entitled to be a party to any agreement between the City, Tenant and the Trustee. ARTICLE XXIII. Miscellaneous Provisions Section 23.01. Severability. If any term or provision of this Lease or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each and every term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. Section 23.02. Attorneys' Fees. In the event that either Party should default under any of the provisions of this Lease and the nondefaulting party should employ attorneys or incur other expenses for the collection of rent or the enforcement of performance or observance of any obligation or agreement on the part of the defaulting party herein contained, the defaulting party hereby agrees that it will on demand therefor pay to the nondefaulting party all reasonable attorneys' fees (including paraprofessional fees) and such other expenses incurred by the nondefaulting party. Section 23.03. Force Majeure. In case by reason of force majeure either party hereto shall be rendered unable wholly or in part to carry out its obligations under this Lease other than the obligation of Tenant to make the rental payments required under the terms hereof, then except as otherwise provided in this Lease, if such party shall give notice and full particulars of such force majeure in writing to the other party within a reasonable time after the occurrence of the event or a cause relied on, the obligations of the party giving such notice, so far as they are affected by such force majeure, shall be suspended during the continuance of the inability then claimed, but for no longer period, and such party shall endeavor to remove or overcome such inability with all reasonable dispatch. Section 23.04. No Oral Modification. All prior understandings and agreements between the parties are merged within this Lease, which alone fully and completely sets forth the understanding of the parties, and this Lease may not be changed orally or in any manner other than by an agreement in writing and signed by the party against whom enforcement of the change is sought. 32 Section 23.05. Remote Vesting. This Lease and all rights and interests created hereby are intended to comply in all respects with applicable common or statutory law, including the common law Rule Against Perpetuities or analogous statutory restrictions. Section 23.06. Covenants to Bind and Benefit Respective Parties. The covenants and agreements herein contained shall bind and inure to the benefit of the City, its successor and assigns, and Tenant, its successors and assigns, but this Section shall not be construed as a consent to any assignment made otherwise then permitted by Article VIII of this Lease. Section 23.07. Recordation. The parties hereto, on the request of either of them, shall enter into a memorandum of this Lease, in recordable form, setting forth the identities of the City and Tenant, the date of the expiration of the Term, and such other information as the City and Tenant shall agree upon. Upon any extension hereof, an amendment to such agreement shall be executed and recorded reflecting such renewal and the expiration date thereof. Section 23.08. Captions and Table of Contents. The captions of this Lease are for convenience and reference only and in no way define, limit or describe the scope of intent of this Lease nor in any way affect this Lease. The table of contents preceding this Lease but under the same cover is for the purpose of convenience and reference only and is not to be deemed or construed in any way as part of this Lease, nor supplemental thereto or amendatory thereof. Section 23.09. Disclaimer of Relationship. Nothing contained in this Lease, nor any act of the City or Tenant, shall be deemed or construed by any person to create any relationship of limited or general partnership, joint venture or agency relationship between the City and Tenant, nor any third party beneficiary in favor of any person, either with respect to this Lease or with respect to any financing undertaken in connection herewith. Section 23.10. Governing Law. This Lease and the performance thereof shall be governed, interpreted, construed and regulated by the laws of the State of Indiana. Section 23.11. Amendments to Accommodate Financing. The City agrees to make all reasonable amendments to this Lease in order to accommodate the requirements of any Provider providing financing to Tenant. Section 23.12. Street Vacations and Zoning Matters. The City covenants to use all good faith efforts to remedy any deficiencies in zoning of the Leased Premises which would prevent the development of the Redevelopment Project. The City agrees to undertake, at Tenant's cost and expense, all vacations of streets, highways, alleys, easements or other public ways requested by Tenant to permit the development of the Redevelopment Project and the full realization of its benefits under this Lease. 33 IN WITNESS WHEREOF, the City and Tenant have executed this Lease as of the date first above written. CITY OF EAST CHICAGO SHOWBOAT MARINA PARTNERSHIP DEPARTMENT OF REDEVELOPMENT By: /s/ Walter M. Matusell By: /s/ T.C. Bonner President, East Chicago Redevelopment Commission Title: President Attest: Attest: /s/ Deidrei J. Bugg(?) /s/ Paul W. Sykes Secretary, East Chicago Paul W. Sykes Redevelopment Commission Assistant Secretary 34 PROMISSORY NOTE $9,316,367.05 January 1, 1996 FOR VALUE RECEIVED, Showboat Indiana Investment Limited Partnership, a limited partnership organized and existing under the laws of the State of Nevada ("Maker"), promises to pay to Showboat, Inc., a corporation organized and existing under the laws of the State of Nevada, or order ("Holder"), at 3720 Howard Hughes Parkway, Ste. 200, Las Vegas, NV 89109, or at such other place as Holder may designate in writing, up to the principal balance of Nine Million Three Hundred Sixteen Thousand, Three Hundred Sixty-Seven and 05/One Hundredths Dollars ($9,316,367.05), plus interest as hereinafter provided. Interest shall be calculated on a daily basis (based on a 365-day year), at 14% ("Base Rate"). Principal and interest shall be payable upon the earlier to occur of (i) demand or (ii) December 31, 1996 (the "Maturity Date"). All payments on this Promissory Note shall be applied first to discharge all accrued but unpaid interest on the unpaid principal balance hereof, and the remainder to be applied to the principal balance. The Holder's acceptance of any payment less than the amount then due shall not, in any manner, effect or prejudice the rights of the Holder to receive the unpaid balance then due and payable. The failure to pay the unpaid principal sum on the Maturity Date or the failure to pay any other sum when the same shall become due and payable shall constitute an event of default ("Event of Default") hereunder, and upon the occurrence of an Event of Default, all sums evidenced hereby, including the entire principal balance, all accrued and unpaid interest and all other amounts due hereunder shall, at the election of the Holder, and without demand or notice to maker, become immediately due and payable and the Holder may exercise its rights under this Note, and other rights under applicable law. Upon the occurrence of an Event of Default by Maker, the unpaid principal balance, and all accrued and unpaid interest due hereunder and all other costs shall together be treated as the principal balance of this Promissory Note and shall bear interest at the rate of three (3) percentage points per annum greater than the Base Rate (the "Default Rate"), from the date of the Event of Default until the entire principal sum and such interest and costs have been paid in full. Maker shall have the right to prepay at any time all or any portion of this Promissory Note without penalty. It is not the intent of Holder to collect interest or other loan charges in excess of the maximum amount permitted by Nevada law. If interest or other loan charges collected or to be collected by the Holder exceed any applicable permitted limits then (i) any such interest or other loan charges shall be reduced by the amount necessary to reduce the interest or other loan charges to the permitted limits, and (ii) any sums already collected from the Maker which exceeded permitted limits will be refunded to the Maker. The Holder may choose to make such refund by reducing the principal balance of the indebtedness hereunder or by making a direct payment to the Maker. Maker agrees to waiver demand, diligence, presentment for payment and protest, notice of acceleration, extension, dishonor, maturity, protest, and default hereunder. The Holder may accept late or partial payments even though they are marked "payment in full," without losing, prejudicing or waiving any rights hereunder. Maker agrees to pay all costs of collection, and all costs of suit and preparation for such suit (whether at trial or appellate level), in the event the unpaid principal sum of this Promissory Note, or any payment of principal or interest is not paid when due. No amendment, modification, change, waiver or discharge shall be effective unless evidenced by an instrument in writing and signed by the party against whom enforcement of any waiver, amendment, change, modification or discharge is sought. If any provision hereof is invalid, or unenforceable, the other provisions hereof shall remain in full force and effect and shall be construed to effectuate the provisions hereof. The provisions of this Promissory Note shall be binding and inure to the benefit of the successors and assigns of the parties hereto. A waiver by Holder of failure to enforce any covenant or condition of this Promissory Note, or to declare any default hereunder, shall not operate as a waiver of any subsequent default or affect the right of Holder to exercise any right or remedy not expressly waived in writing. This Promissory Note shall be construed in accordance with and governed by Nevada law. All payments of principal and interest are hereby required to be made in the form of lawful money of the United States of America. Time is of the essence with respect to this Promissory Note and each and every covenant, condition, term and provision hereof. Whenever the context requires or permits, the singular shall include the plural, plural shall include the singular and the masculine, feminine and neuter shall be freely interchangeable. IN WITNESS WHEREOF, Maker has executed this Promissory Note at Las Vegas, Nevada as of the day first above written. Maker: SHOWBOAT INDIANA INVESTMENT LIMITED PARTNERSHIP, a Nevada limited partnership ITS GENERAL PARTNER: SHOWBOAT INDIANA, INC. By: Its: EX-10.35 5 EXHIBIT 10.35 LIMITED LIABILITY COMPANY AGREEMENT OF SHOWBOAT ROCKINGHAM COMPANY, LLC, A NEW HAMPSHIRE LIMITED LIABILITY COMPANY LIMITED LIABILITY COMPANY AGREEMENT OF SHOWBOAT ROCKINGHAM COMPANY, L.L.C., A NEW HAMPSHIRE LIMITED LIABILITY COMPANY TABLE OF CONTENTS PAGE ARTICLE I. RECITALS AND DEFINITIONS 2 1.1 Recitals 2 ARTICLE II. OFFICES 6 2.1 Principal Office 6 ARTICLE III. PURPOSE 6 3.1 Purpose 6 ARTICLE IV. CAPITAL 6 4.1 Capital Contributions 6 4.2 Capital Accounts 10 4.3 Federal Income Tax Elections 11 4.4 Members Invested Capital 12 4.5 Development Financing 12 4.6 Excess Interest 12 4.7 Interest 13 ARTICLE V. MEMBERS 13 5.1 Powers 13 5.2 Compensation to Members 13 5.3 Other Ventures 14 5.4 Meetings of Members 14 5.5 Action By Written Consent 14 5.6 Place of Meetings of Members 15 5.7 Annual Meetings 15 5.8 Annual Meetings: Notice 15 ii 5.9 Special Meetings 15 5.10 Waiver of Notice 15 5.11 Adjourned Meetings And Notice Thereof 15 5.12 Delegation of Authority To Members and Managers 16 5.13 Admission of New Members 16 5.14 Cooperation of the Member 16 5.15 Company Action by Members 16 ARTICLE VI. MANAGERS 17 6.1 Election 17 6.2 Removal, Resignation and Vacancies 17 6.3 Managers' Power 18 6.4 Company Action by Managers 18 6.5 Bank Accounts 19 6.6 Meetings of Managers 19 6.7 Action by Written Consent 20 6.8. Place of Meetings of Managers 20 6.9 First Meeting 20 6.10 Special Meetings 20 6.11 Notice 20 6.12 Remuneration of Managers 20 6.13 Deadlock 20 ARTICLE VII. TRANSFER OF MEMBERS' INTERESTS 20 7.1 Transfer of Members' Interests 20 7.2 No Transfer Permitted Under Certain Circumstances 21 7.3 Permitted Transferees 21 ARTICLE VIII. COMPULSORY BUY-SELL PROVISION 22 8.1 Offer to Purchase 22 8.2 Acceptance 22 8.3 Purchase Price 23 8.4 Payment of Purchase Price 23 8.5 Closing 23 8.6 Government Approval 23 ARTICLE IX. DEFAULTING MEMBER 23 9.1 Option to Purchase Member's Interest 23 iii 9.2 Offer to Purchase Shares of Rockingham Shareholders 24 9.3 Determination of Purchase Price 25 9.4 Payment of Purchase Price 25 9.5 Closing 25 ARTICLE X. RIGHT OF FIRST REFUSAL 26 10.1 Third Party Offer 26 10.2 Acceptance of Offer 26 10.3 Third Party Sale 27 10.4 Re-Application of Provisions 27 10.5 An Offer to Purchase Showboat's Interest 27 ARTICLE XI. APPRAISAL 28 11.1 Appraisal 28 ARTICLE XII. GENERAL SALE PROVISIONS 28 12.1 Application of Sale Provisions 28 12.2 Defined Terms 28 12.3 Obligations of Vendor 28 12.4 Release of Guarantees etc. 29 12.5 Deliveries to Vendor 29 12.6 Repayment of Debts 30 12.7 Non-Completion by Vendor 30 12.8 Non-Completion by Purchaser 30 12.9 Restrictions on Business 31 12.10 No Joint Liability 31 12.11 Consents 31 ARTICLE XIII. PROFITS AND LOSSES 31 13.1 Net Profits and Losses 31 13.2 Allocations of Deductions 31 13.3 Special Allocations 31 13.4 Curative Allocations 33 13.5 Federal Income Tax 33 ARTICLE XIV. DISTRIBUTIONS 33 14.1 Operating Distributions 33 14.2 Payment of Member Loans 33 iv 14.3 Distribution on Dissolution and Liquidation 34 ARTICLE XV. ACCOUNTING AND RECORDS 34 15.1 Records and Accounting 34 15.2 Access to Accounting Records 34 15.3 Annual Tax Information 34 15.4 Interim Statements and Reports 34 ARTICLE XVI. TERM 35 16.1 Term 35 ARTICLE XVII. DISSOLUTION OF THE COMPANY AND TERMINATION OF A MEMBER'S INTEREST 35 17.1 Dissolution 35 17.2 Bankruptcy, Insolvency or Dissolution 35 ARTICLE XVIII. INDEMNIFICATION 35 18.1 Indemnity 35 18.2 Indemnity for Actions By or In the Right of The Company 36 18.3 Indemnity If Successful 36 18.4 Expenses 36 18.5 Advance Payment of Expenses 37 18.6 Other Arrangements Not Excluded 37 ARTICLE XIX. MISCELLANEOUS PROVISIONS 38 19.1 Time is of the Essence 38 19.2 Default Interest Rate 38 19.3 Counterparts 38 19.4 Execution by Facsimile 38 19.5 Force Majeure 38 19.6 Complete Agreement 38 19.7 Amendments 39 19.8 Governing Law 39 19.9 Headings 39 19.10 Severability 39 19.11 Expenses 39 19.12 Heirs, Successors and Assigns 39 19.13 Power of Attorney 39 v 19.15 Compliance with Laws 40 19.16 Background Investigations 40 19.17 Compliance with Other Agreements 41 19.18 Governmental Approval 41 19.19 Licensing Requirements 41 19.20 Foreign Gaming Licenses 42 19.21 Press Releases 42 19.22 Uncertainties 42 ARTICLE XX. CONFIDENTIALITY AND NON-USE 43 20.1 Disclosure of Propriety Information 43 20.2 Use of Proprietary Information 44 20.3 Destruction or Return of Confidential Information 44 20.4 Exception 44 20.5 Survival 44 ARTICLE XXI. ARBITRATION 44 21.1 Appointment of Arbitrators 44 21.2 Inability to Act 45 ARTICLE XXII. FORCE MAJEURE 45 22.1 Force Majeure Defined 45 22.2 Actions to Resolve Force Majeure Events 46 ARTICLE XXIII. TERMINATION 46 23.1 Termination Events 46 23.2 Notice of Termination 47 23.3 Remedies Upon Termination 47 ARTICLE XXIV. NOTICES 48 EXHIBIT 3. THE COMMON AREA 50 1.01 The Common Area Defined 50 1.02 The Company's Easement to Use the Common Area 50 1.03 Operation and Maintenance of Common Area 51 1.04 Common Area Maintenance Cost 52 1.05 Accounting 53 1.06 Plans and Budgets 53 vi LIMITED LIABILITY COMPANY AGREEMENT OF SHOWBOAT ROCKINGHAM COMPANY, L.L.C., A NEW HAMPSHIRE LIMITED LIABILITY COMPANY THIS LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement") is made and entered into as of July 27, 1995, 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. An affiliate of Showboat lent $8.85 million to Rockingham in consideration of, among other things, the formation of an entity to own a private non-racing gaming business at Rockingham Park , a racetrack owned and operated by Rockingham. B. Rockingham and Showboat have agreed to form, as of the date hereof, the Company. C. The Members will be the registered and beneficial owners of 100% of the total Interest (as defined below) in the Company. D. The Members desire to enter into a limited liability company agreement to govern the affairs of the Company and the conduct of its business, including, without limitation, the rights and restrictions on the transfer of shares of a Member's Interest in the Company owned by the current and future Members of the Company. E. The Members desire to set forth their agreements as to the development and management of the Project (defined hereafter) and the proposed gaming operations of the Company at Rockingham Park in the event and with the expectation that (i) the State of New Hampshire enacts legislation which permits a gaming business to be operated at a racetrack facility such as the Rockingham Park and (ii) the gaming licensing authority specified in the legislation permitting gaming selects and licenses the Members. F. The Members acknowledge their mutual desire to enter into this Agreement despite the numerous uncertainties which must be resolved or clarified to each party's satisfaction. Both parties undertake to negotiate in good faith in a timely fashion such addenda to this Agreement as are necessary to continue the effectiveness of this Agreement and to revise the assumptions and underlying facts upon which this Agreement is based. NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement, 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 Agreement, the Members agree as follows: ARTICLE I. RECITALS AND DEFINITIONS 1.1 RECITALS The foregoing Recitals are true and correct. 1.2 DEFINITIONS The following defined terms are used in this Agreement: "Act" shall mean the New Hampshire Limited Liability Company Act as set forth in the New Hampshire Revised Statutes Annotated 304-C:1 to 304-C:85, inclusive, as amended from time to time. "Affiliate" shall mean a Person who directly or indirectly or through one or more intermediaries (i) controls, is controlled by, or is under common control with the Person in question; (ii) is an officer, director or 5% shareholder, partner in or trustee of any Person referred to in the preceding clause; or (iii) is a spouse, father, mother, son, daughter, brother, sister, grandchild, uncle, aunt, nephew or niece of any Person described in clauses (i) and (ii). "Agreement" shall mean this Limited Liability Company Agreement as originally executed and as amended, modified, supplemented, or restated from time to time, as the context may require. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Company" shall mean Showboat Rockingham Company, L.L.C. and includes any successor entity resulting from any merger, amalgamation, reorganization, arrangement or other combination of the Showboat Rockingham Company, L.L.C. and any other Person. "Control" shall mean, in relation to a Person that is a corporation, the ownership, directly or indirectly, of voting securities of such Person carrying more than 50% of the voting rights attaching to all voting securities of such Person and which are sufficient, if exercised, to elect a majority of its board of directors; "Controls" and "Controlled" shall have similar meanings. "Debt" shall mean, in relation to any Person (i) all indebtedness of such Person for borrowed money, including obligations with respect to bankers' acceptances; (ii) all indebtedness of such Person for the deferred purchase price of property or services represented by a note or other security; (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person; (iv) all obligations under leases which shall have been or should be, in accordance with GAAP consistently applied, recorded as capital leases in respect of which such Person is liable as lessee; (v) all reimbursement 2 obligations in respect of letters of credit issued at the request of such Person; and (vi) all Debt Guaranteed by such Person. "Debt Guaranteed" by any Person shall mean all Debt of the kinds referred in (i) through (v) of the definition of Debt which is directly or indirectly guaranteed by such Person, or which such Person has agreed (contingently or otherwise) to purchase or otherwise acquire, or in respect of which such Person has otherwise assured or agreed to indemnify a creditor against loss. "Defaulting Member" shall have the meaning assigned to that term in Section 9.1. "Development Financing" is defined in Section 4.5. "Effective Date" shall mean the date upon which the Members sign this Agreement. "Excess Interest" shall mean the difference between the interest rate of the Development Financing or replacement Development Financing specified in Section 4.6(b) obtained pursuant to Section 4.5 and 14% per annum. In no event shall the Excess Interest exceed 4.5% per annum, even if the interest rate exceeds 18.5% per annum. "Extraordinary Resolution": (a) of the Managers shall mean a resolution that is: (i) approved at a properly constituted meeting of the Managers for the purpose of considering the proposed resolution by at least 80.0% of the Managers ; or (ii) consented to by all of the Managers by an instrument or instruments in writing. (b) of the Members shall mean a resolution that is: (i) approved at a properly constituted meeting of Members convened for the purpose of considering the proposed resolution by Members holding at least 80% of the Percentage Interests ; or (ii) consented to by all of the Members by an instrument or instruments in writing. "Full Gaming" shall mean that the enabling legislation for privately owned non-racing gaming permits gaming of (i) more than 500 electronic games of chance or skill or (ii) any combination of games which includes table games. During Full Gaming the Percentage Interest of Rockingham shall be 50% and the Percentage Interest of Showboat shall be 50%. Notwithstanding the foregoing, the Company shall not conduct simulcasting, inter- track wagering and pari-mutuel activities. "GAAP" shall mean, at any time, accounting principles generally accepted in the United States of America at such time. "Gaming Area" shall mean those areas reserved for the operation of electronic games of chance or skill, table games or any other legal forms of gaming permitted under applicable law, 3 and ancillary service areas, including reservations and admissions, cage, vault, count room, surveillance room and any other room or area or activities therein regulated or taxed by the Gaming Authority by reason of gaming operations. "Gaming Authority" shall mean the New Hampshire gaming authority set forth in the enabling legislation or regulations promulgated thereunder. "Governmental Authorities" shall mean the Gaming Authority, the Nevada Gaming Control Board, the Nevada Gaming Commission, the New Jersey Casino Control Commission, the New South Wales Casino Control Authority, the Casino Authority, the New Hampshire Pari-Mutuel Commission and such other authority governing gaming in states or countries in which the Company or any of the Members currently conduct or in the future may conduct gaming operations. "Gross Gaming Revenues" shall mean all of the revenue from the operation of the Gaming Area, including, but not limited to, table games, electronic games of chance, electronic games of skill and admission fees. "Invested Capital" is defined in Section 4.4 of this Agreement. "Limited Gaming" shall mean gaming where the enabling legislation limits the Project to no more than 500 electronic games of chance and prohibits other games (e.g., a prohibition against any variety of table games). "Limited Gaming Adjustment" shall mean an adjustment in the scope of the Project, reduction of fees, adjustment in income sharing and the like in the event the enabling legislation provides only for Limited Gaming, and such Limited Gaming Adjustment shall be in effect until the enabling legislation permits Full Gaming unless otherwise agreed in writing by the Members. During Limited Gaming the Percentage Interests shall be 70% for Rockingham and 30% for Showboat. "Management Agreement" shall mean that certain Management Agreement of even date herewith, entered into between the Company and an affiliate of Showboat for the management of the Project. "Manager(s)" shall mean the person(s) elected by the Members to manage the Company. "Members" shall mean Rockingham and Showboat and any of their Permitted Transferees or other Person who acquires, with the unanimous written consent of the other Members, and directly or beneficially owns an Interest in accordance with the provisions of this Agreement. "Member's Interest" or "Interest" shall mean a Member's ownership interest in the Company, including the Member's share of the profits and losses of the Company and the right to receive distributions of the Company's assets. 4 "Member Loan" shall mean any loan by a Member to the Company other than the Capital Loan (defined in Section 4.1(b) "Parties" shall mean the parties to this Agreement, and "Party" shall mean any of them. "Percentage Interest" shall mean each Member's Invested Capital as a percentage of all Members' Invested Capital. The Members' initial percentage interests therefore are as follows: Showboat 50% Rockingham 50% "Permitted Rockingham Transferee" shall mean, in the case of a particular Rockingham Shareholder, (i) an entity, all of the voting securities or other ownership interests of which are owned by the Rockingham Shareholder, free and clear of any agreement or any option or right capable of becoming an agreement entitling any other Person (other than a Permitted Rockingham Transferee)to acquire such voting securities or other ownership interests in whole or in part; (ii) an inter vivos family or testamentary trust for the benefit of the Rockingham Shareholder or for the benefit of the Rockingham Shareholder, his spouse, children or grandchildren; (iii) the Rockingham Shareholder's parent, spouse, child or grandchild; (iv) a voting trust or similar agreement comprised of Rockingham Shareholders or Permitted Rockingham Transferees; and/or (v) another Rockingham Shareholder. "Permitted Transferee" shall mean, in the case of a particular Member, an entity, all of the voting securities or other ownership interests of which are owned by the Member (or parent corporation of the Member) free and clear of all liens, charges, claims and encumbrances of any nature whatsoever (including any agreement or any option or right capable of becoming an agreement entitling any other Person to acquire such voting securities or other ownership interests in whole or in part). "Person" shall mean any individual, partnership, limited partnership, limited liability company, corporation, unincorporated association, joint venture, trust, governmental entity or other entity. "Project" shall mean a gaming establishment and related improvements which may include restaurants, entertainment facilities, retail outlets and other ancillary facilities, including shared facilities, administrative offices, parking and easements, ordinarily accompanying a privately owned non-racing gaming establishment to be located at Rockingham Park. The Project shall not include the Race Track Operations. "Promissory Note" shall mean that certain promissory note made by Rockingham to the benefit of Showboat Development Company in the principal amount of $8.85 million dated December 28, 1994. "Race Track Operations" shall mean any permissable activity permitted by applicable statutes or regulations to be conducted at Rockingham Park, Rockingham County, Salem, New 5 Hampshire excluding all gaming activities, other than simulcasting, inter-track wagering, sale of lottery tickets and pari-mutuel activities, permitted by Limited and Full Gaming. "Regulations" shall mean rulings issued by the US Treasury as interpretations of the Code. "Rockingham" shall mean Rockingham Venture, Inc., a New Hampshire corporation, or its Permitted Transferees and its successors and assigns. "Rockingham Shareholders" shall mean Joseph E. Carney, Jr., Thomas F. Carney, Max Hugel and Edward J. Keelan, or any of the Permitted Rockingham Transferees and their successors and assigns. "Rockingham Shares" shall mean the shares of capital stock of Rockingham. "Sale Transaction" shall mean a purchase and sale of a Member's Interest between or among parties hereto pursuant to the provisions of Articles 8, 9, 10, 11 or 12 as the case may be. "Showboat" shall mean Showboat New Hampshire, Inc., a Nevada corporation, or its Permitted Transferees and its successors and assigns. "Vendor" shall mean any Party who elects or is required to sell its Interest pursuant to a Sale Transaction. ARTICLE II. OFFICES 2.1 PRINCIPAL OFFICE The principal office of the Company in the state of New Hampshire shall be at Rockingham Park, Rockingham Park Boulevard, Salem, New Hampshire 03079. The Members may change said principal office at any time from one location to another in the state of New Hampshire. ARTICLE III. PURPOSE 3.1 PURPOSE The purpose of the Company shall be to engage in the development, ownership and operation of the Project. Any business beyond the business described herein shall require the unanimous written consent of the Members. ARTICLE IV. CAPITAL 4.1 CAPITAL CONTRIBUTIONS (a) Initial Capital Contributions. Immediately after the Effective Date, the Members shall contemporaneously each make the following initial capital contributions (each Member's contribution shall be conditioned on the other making its contribution): 6 (i) Rockingham $1,000.00 (ii) Showboat $1,000.00 (b) Additional Capital Contributions. The Members shall make additional capital contributions to the Company under the following circumstances, which amounts shall be credited to their respective capital accounts: (i) Upon the enactment of legislation which authorizes Limited Gaming at Rockingham Park on or before December 31, 1999 (except, however, Showboat may extend such period in its sole discretion for two successive twelve-month periods in the event that progress towards gaming legislature is evident) then: (1) Rockingham shall contribute such space as is necessary for the operation of the Project in the existing facility of Rockingham Park and all necessary easements, rights-of-way, licenses, common areas, customer and employee parking facilities. At the time of enactment of Limited Gaming the Members agree to attach as Exhibit 1 to this Agreement which exhibit shall specify the location of the space at the existing Rockingham Park facility which will be utilized for the Limited Gaming space. (2) 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 cease and shall be forgiven by the Company 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. (3) The capital contributions detailed in 4.1(b)(i)(1) and (2), whether cash or assets, when added to the initial contribution, shall be deemed to result in a 70% contribution by Rockingham and a 30% contribution by Showboat. (ii) Upon the passage of enabling legislation which authorizes a privately owned non-racing gaming business (operating Full Gaming or pursuant to the mutual agreement of the Members) at Rockingham Park on or before December 31, 1999 (except, however, 7 Showboat may extend such period in its sole and absolute discretion for two successive twelve month periods in the event that progress towards gaming legislation is evident) or thereafter if the enabling legislation first authorizes Limited Gaming and thereafter Full Gaming is authorized then: (1) Rockingham shall contribute approximately fifteen (15) acres of land at the Rockingham Park premises plus related easements, licenses (excluding any Rockingham Park pari-mutuel license) and rights of way, etc., use of common areas and existing clubhouse space for the Project. In the event such legislation enables development of a hotel in connection with the Project, Rockingham shall additionally contribute approximately ten (10) acres of land for a hotel to be constructed, owned, and managed by the Company. Unless otherwise repaid by Rockingham, all land contributed shall be subject to the existing 13.5% Senior New Hampshire Development Authority Bonds (the "13.5% Bonds") or any other bonds or other indebtedness secured by the real estate resulting from a refinancing of the 13.5% Bonds so long as the total amount of such refinancing does not exceed the then current balance of the 13.5% Bonds plus any debt service reserve requirements which in no case shall exceed $7,000,000. Attached hereto as Exhibit 2 is a drawing of the Rockingham Park premises generally specifying the location of the 15 and 10 acre parcels of land. (2) Showboat shall contribute (i) the principal balance of the Promissory Note (if not previously contributed) exclusive of any unpaid due balances and said Promissory Note shall be deemed paid in full as provided in 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 (3) The capital contributions detailed in 4.1(b)(ii)(1) and (2), whether cash or assets, when added to any previous contributions, including the contributions made by the Members for Limited Gaming, shall be deemed to be equal in value. (iii) The Promissory Note shall be forgiven by the Company in equal portions over 4 years commencing on the date of contribution of the Promissory Note to the Company and upon the anniversary of the date of the contribution to the Company thereafter. Payment of interest on the principal of the Promissory Note by Rockingham shall be suspended from the date the Promissory Note is contributed to the Company by Showboat. 8 (iv) Attached hereto as Exhibit 3 and incorporated herein by reference are the agreements regarding the use of common areas by the businesses owned and operated by the Company and Rockingham. (v) The Company acknowledges that Rockingham is currently conducting Race Track Operations and that such operations may require Rockingham to make structural and other changes to the Rockingham Park facility from time to time. Such changes may adversely affect the placement of the gaming area of the Company at the Rockingham Park facility. The Company and Rockingham agree to discuss all such changes in advance of Rockingham making the change to the Rockingham Park facility and, in the event such structural change would affect the Project or the proposed location for the Project, that Rockingham shall not make such structural or other change unless the Company has approved the change in writing. The Company shall not unreasonably withhold its consent to the proposed structural or other change requested by Rockingham. Moreover, Rockingham and Showboat shall enter into a Cooperation Agreement to coordinate construction and operational activities of the Project with the Race Track Operations. (vi) In either Limited Gaming or Full Gaming, the Project shall be operated in and near Rockingham's Race Track Operations. The Company and Rockingham shall agree to conduct their respective operations in such a manner so has to minimize any adverse impact of their respective operations on the other. (c) The capital of the Company shall be the sums of cash or the agreed fair market value of the property or services (or combination of cash, property and services) contributed to the Company by the Members in such amounts or value as are set out opposite the name of each of the Members on Schedule A-1 attached hereto and incorporated herein by this reference which shall be amended from time to time by the Managers to reflect a current list of the names and addresses of each current Member. In the event that property is contributed by a Member as its capital contribution, such property shall be contributed to the Company free and clear of all liens and other interests except as may otherwise be agreed in writing by all Members. A transfer of any membership Interest shall not be effective until it has been recorded in the records of the Company. (d) At such time as the Members unanimously determine that additional capital is required by the Company, such additional capital contributions shall be made by the Members in proportion to the Members' Percentage Interest. If any Member should fail to make any additional capital contribution on or before the date such contribution is due, the Members who had contributed the additional contribution shall advance to the Company an amount equal to the noncontributing Member's additional capital contribution, and the amount so advanced by the contributing Members shall be considered a loan to the Company ("Additional Contribution Loan"). Said Additional Contribution Loan shall accrue interest at the then prevailing interest rates charged by banks in the Boston, Massachusetts metropolitan area plus a 1% origination fee on the principal of the Additional Contribution Loan. Additionally, the Additional Contribution Loan shall be entitled to the noncontributing Member's distributions until the Additional Capital Loan is repaid. Notwithstanding the foregoing the noncontributing Member shall continue to receive distributions in an amount equal to the noncontributing Member's portion of federal and 9 state income tax liability of the Company as if the Company was a taxable entity in the State of New Hampshire. (e) Showboat shall plan and implement necessary predevelopment, development and preopening activities. Showboat and Rockingham each agree to fund 50% of any funds required as preapproval, start-up expenses of the Project, principally for lobbying for the enactment of gaming legislation, consulting, advertising and such other services as is necessary for the start- up of operations including the enactment of gaming legislation authorizing privately-owned non-racing gaming at facilities such as Rockingham Park. Showboat agrees to advance up to the first $1 million of such expenses, if necessary, with Rockingham funding the next $1 million of such expenses, if necessary. All funds so expended will become preopening expense and will be reimbursed to Showboat and Rockingham, as appropriate, upon obtaining the Development Financing. No funds shall be distributed for a pre-opening activity unless such distribution is specified in a pre-opening budget. For each 6 month period, Rockingham and Showboat shall develop a budget for such pre- opening activities. Neither Rockingham nor Showboat shall deviate from the budget except as otherwise approved in writing by both Members. Only expenses specified by the budget or otherwise approved in writing by the Members shall be reimbursed by the Company. Additionally, the Member seeking reimbursement shall provide the other Member a detailed accounting, with supporting documentation, of such expenses on a monthly basis. The Member seeking reimbursement shall be reimbursed within 15 days of receipt of the detailed accounting. 4.2 CAPITAL ACCOUNTS Capital Accounts shall be established on the Company's books representing the Members' respective capital contributions to the Company. The term "Capital Account" shall mean the capital account maintained for such Member in accordance with the following provisions: (a) Each Member's Capital Account shall be increased by: (i) The amount of the Member's cash or agreed value in- kind capital contributions to the Company pursuant to Section 4.1 hereof; (ii) The fair market value of any property contributed by the Member to the Company (net of liabilities secured by any such contributed property that the Company is considered to assume or take subject to for purposes of Section 752 of the "Code"); (iii) The amount of Net Profits (or items thereof) allocated to the Member pursuant to Article XIII hereof; and (iv) Any other increases required by Regulations issued pursuant to the Code. If Section 704(c) of the Code applies to property contributed by a Member to the Company, then the Members' Capital Accounts shall be adjusted in accordance with Regulations Section 1.704-1(b)(2)(iv)(g). (b) Each Member's Capital Account shall be decreased by: 10 (i) The amount of Net Losses allocated to the Member pursuant to Article XIII hereof; (ii) All amounts paid or distributed to the Member pursuant to Article XIV hereof, other than amounts required to be treated as a payment for property or services under the Code; (iii) The fair market value of any property distributed in-kind to the Member (net of any liabilities secured by such distributed property that such Member is considered to assume or take subject to for purposes of Section 752 of the Code); and (iv) Any other decreases required by the Regulations. Before decreasing a Member's Capital Account (as described above) with respect to the distribution of any property to such Member, all Members' accounts shall be adjusted to reflect the manner in which the unrealized income, gain, loss, and deduction inherent in such property (that has not been previously reflected in the Members' Capital Accounts) would be allocated among the Members if there were a taxable disposition of such property by the Company on the date of distribution, in accordance with Regulations Section 1.704-1(b)(2)(iv)(e). (c) In determining the amount of any liability for purposes of Sections 4.2(a) and 4.2(b) hereof, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and any Regulations promulgated thereunder. (d) Members' Capital Accounts shall be adjusted in accordance with, and upon the occurrence of an event described in Regulations Section 1.704-1(b)(2)(iv)(f), including the addition of new Members pursuant to Section 5.13 hereof or the receipt of additional capital contributions pursuant to Section 4.6 hereof, to reflect a revaluation of the Company's assets on the Company's books. Such adjustments to the Members' Capital Accounts shall be made in accordance with Regulations Section 1.704- 1(b)(2)(iv)(g) for allocations of depreciation, depletion, amortization and gain or loss with respect to such revalued property. (e) All provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. The Members shall make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b). 4.3 FEDERAL INCOME TAX ELECTIONS (i) The Managers, acting at a meeting of Managers or by written consent, shall make all elections for federal income tax purposes, including but not limited to an election, pursuant to Code Section 754, to adjust the basis of the Company's assets under Code Sections 734 or 743. In the event an election pursuant to Code Section 754 11 is made by the Managers, upon the adjustment to the basis of the Company's assets, the Members' Capital Accounts shall be adjusted in accordance with the requirements of Regulation Section 1.704-1(b)(2)(iv)(m). 4.4 MEMBERS INVESTED CAPITAL The "Invested Capital" of a Member shall be the sum of any cash contributed by said Member to the Company, and the deemed fair market value of any property contributed by said Member to the Company, less the amount of any liabilities of such Member assumed by the Company or which are secured by property contributed by such Member to the Company. In the event the Company's assets are revalued pursuant to Section 4.2(d) hereof resulting in an adjustment to the Members' Capital Accounts, the Members' "Invested Capital" shall, for purposes of this Agreement, be deemed to be each Member's respective Capital Account balance immediately after such revaluation. 4.5 DEVELOPMENT FINANCING Showboat shall use its best efforts to obtain on behalf of the Company third-party debt financing in amount sufficient to fund the initial development of the Project pursuant to plans approved by the Members (the "Development Financing") following the enactment of legislation permitting Full Gaming in the State of New Hampshire. The Development Financing shall be non- recourse to Rockingham and its shareholders. The Development Financing may be secured by the Company's assets or cash flows only. In the event the third party lender requires the Company to issue equity warrants or any participation in permanent equity, such equity shall be charged against Showboat's interest in the Company. 4.6 EXCESS INTEREST In the event the Development Financing (defined in Section 4.5) or any renewal or replacement thereof obtained by the Company, whether or not from a Member, has an interest rate, inclusive of non-permanent participating interests (such non- permanent participating interests shall terminate contemporaneously with the satisfaction of the Development Financing) and other payments and fees paid for the use of the financing not applied towards the reduction of principal or in payment of actual costs and expenses incurred and actually paid by lender, for the financing which exceeds fourteen percent (14%) per annum, then the following provisions shall apply: (a) Notwithstanding Showboat's fifty percent (50%) Interest, Showboat shall be responsible for the payment of all of the Excess Interest on such loan; (b) In recognition of Showboat's bearing the responsibility for payment of all of the Excess Interest that is disproportionate to its Interest, Showboat and Rockingham agree that at Showboat's request, the Company shall agree to refinance such outstanding debt if such replacement financing is available on terms otherwise no less favorable than the then current financing, including such financing being nonrecourse to Rockingham, and can be completed at an effective interest rate below the Development Financing rate currently in place, where all proposed refinancing expenses are amortized into the replacement interest rate. If the effective replacement financing rate exceeds fourteen percent (14%), Showboat shall be responsible for the payment of all of the Excess Interest on such loan. Excess Interest, if any, shall be funded from 12 Showboat's share of the Distributable Cash or other cash to be distributed to Showboat. If there is insufficient cash to satisfy Showboat's obligations, the Manager shall notify Showboat. Showboat shall immediately provide additional cash to the Company by way of an additional Capital Contribution to satisfy such obligation. 4.7 INTEREST Except as may otherwise be provided for herein, no interest shall be paid or credited to the Members on their Capital Accounts or upon any undistributed profits left on deposit with the Company. ARTICLE V. MEMBERS 5.1 POWERS Subject to the provisions of the Certificate of Organization, this Limited Liability Company Agreement and the provisions of the Act, all powers shall be exercised by or under the authority of, and the business and affairs of the Company shall be controlled by, the Members. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the Members shall have the following powers: (a) Subject to the provisions of Section 6.1, to select and remove all Managers, agents and employees of the Company, prescribe such powers and duties for them as may be consistent with the Act, with the Certificate of Organization or this Limited Liability Company Agreement, fix their compensation, and require from them security for faithful service. (b) To change the principal office of this Company from one location to another within New Hampshire; to fix and locate from time to time one or more subsidiary offices of the Company; and to designate any place within or without the state of New Hampshire for the holding of any Members' meeting or meetings. Each of the Members covenants and agrees to exercise the rights and votes attaching to the Member's Interest at all times and to use its best efforts to cause its nominees for Manager to act at all times so that the provisions of this Agreement shall govern the affairs of the Company to the maximum extent permitted by law. In the event of any conflict between the provisions of this Agreement and the provisions of the Certificate of Organization, each of the Members covenants and agrees to take or cause to be taken such steps and proceedings as may be required under New Hampshire law or otherwise to amend such Certificate of Organization to resolve such conflict so that the provisions of this Agreement shall, to the maximum extent permitted by law, at all times prevail. 5.2 COMPENSATION TO MEMBERS By Extraordinary Resolution of the Members, the Company shall have authority to pay to any Member reasonable compensation for said Member's services to the Company. It is understood that the salary paid to any Member under the provisions of this Section shall be determined without regard to the income of the Company and shall be considered as an operating 13 expense of the Company and shall be deducted as an expense item in determining the net profits and losses of the Company. 5.3 OTHER VENTURES Except as may otherwise be provided for herein, nothing contained in this Agreement shall be construed to restrict or prevent, in any manner, any Member from engaging in any other businesses or investments, including, without limitation, any similar or competitive gaming operation; provided, however, a Member shall obtain the prior written consent of the other Members to engage in any similar or competitive activities without the express written consent of all other Members within an area having a radius of thirty (30) miles from the existing boundaries of Rockingham Park, Salem, New Hampshire, except that Showboat or its Affiliates and/or any other Rockingham Permitted Transferee may pursue any gaming opportunity/activity with Yankee Greyhound Racing, Inc., or its successors or assigns, at Seabrook, a New Hampshire greyhound racing facility. The Members acknowledge that Showboat and/or its Affiliates and Rockingham and/or its Affiliates operate other gaming facilities and may in the future operate additional gaming facilities in different areas of the world, and that marketing efforts may cross over in the same markets and with respect to the same potential customer base. The Members agree that the Parties may refer customers of the Project to other facilities operated by Showboat and/or its Affiliates or Rockingham and/or its Affiliates to utilize gaming, entertainment and other amenities, without payment of any fees to any Member or the Company. Notwithstanding the foregoing, in the event that Showboat or one of its Affiliates invests in or manages a gaming facility in New England Showboat or its Affiliate shall keep all information regarding the operations of such gaming business and the business of the Project confidential in accordance with Article XX. 5.4 MEETINGS OF MEMBERS Management of the Company is vested in, and all actions of the Members are taken by the Members in proportion to their Percentage Interest at the time of the action taken. Except as specifically otherwise provided herein, the Members' votes to approve a matter or to take any action shall be by the vote of Members at a meeting, which meeting may be held by telephone, in person or by proxy or without a meeting by unanimous written consent. For any meeting of Members, the presence in person or by proxy of Members owning 80% of the Percentage Interest at the time of the action taken constitutes a quorum for the transaction of business. Members vote in proportion to their Percentage Interest and, except for an action that requires an Extraordinary Resolution, an action approved at a meeting by Members owning more than 50% of the Percentage Interest ("Majority") of that quorum shall be the action of the Members. From and after the date a Member becomes a Defaulting Member the votes of such Member, or its nominee Managers, or both of them, as the case may be, shall be excluded for purposes of determining whether a decision, action or matter has been approved by the Members or Managers, respectively. 5.5 ACTION BY WRITTEN CONSENT Any action may be taken by the Members without a meeting if authorized by the unanimous written consent of Members. 14 5.6 PLACE OF MEETINGS OF MEMBERS All annual meetings and special meetings of the Members shall be held at any place designated by the Members, or, if no such place is designated, then at the principal office of the Company. Annual meetings and special meetings may be held by telephone if designated in the notice of the meeting. 5.7 ANNUAL MEETINGS The annual meeting of the Members shall be held on the 1st day of May of each year at the hour of 10:00 a.m., beginning with the year 1996 or on such other date and time as the Members shall specify in writing. Should said day fall upon a legal holiday, then any such annual meeting of Members shall be held at the same time and place on the next day which is not a legal holiday. 5.8 ANNUAL MEETINGS: NOTICE Written notice of each annual meeting signed by a Manager or by such other person or persons as the Members shall designate, shall be given to each Member, either personally or by mail or other means of written communication, charges prepaid, addressed to such Member at his address appearing on the books of the Company or given by him to the Company for the purpose of notice. If a Member gives no address, notice shall be deemed to have been given him if sent by mail or other means of written communication addressed to the place where the principal office of the Company is situated. All such notices shall be sent to each Member entitled thereto not less than seven (7) nor more than sixty (60) calendar days before each annual meeting, and shall specify the place, the day and the hour of such meeting. 5.9 SPECIAL MEETINGS Special meetings of the Members, for any purpose or purposes whatsoever, may be called at any time by a Manager or by any Member. Except in special cases where other express provision is made by statute, notice of such special meetings shall be given in the same manner as for annual meetings of Members. Notices of any special meeting shall specify, in addition to the place, day and hour of such meetings the purpose or purposes for which the meeting is called. 5.10 WAIVER OF NOTICE The transactions of any meeting of the Members, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present, and if, either before or after the meeting, each of the Members not present sign a written waiver of notice or a consent to holding such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the records or made a part of the minutes of the meeting. 5.11 ADJOURNED MEETINGS AND NOTICE THEREOF Any Members' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the Percentage Interests present in person or represented by proxy at the meeting. In the absence of a quorum no business other than the adjournment thereof may be transacted at the meeting. Other than by announcement at the 15 meeting at which such adjournment is taken, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting. However, when any Members' meeting, either annual or special, is adjourned for thirty (30) days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. 5.12 DELEGATION OF AUTHORITY TO MEMBERS AND MANAGERS By Extraordinary Resolution, the Members or Managers may at any time or times, and for such period as the Members shall determine, delegate their authority to determine questions relating to specific areas of the conduct, operation, and management of the Company. Until such direction or delegation of authority is made, however, the Members and Managers shall have the authority set forth in this Article V and Article VI below. 5.13 ADMISSION OF NEW MEMBERS New Members may be admitted to membership in the Company only with the unanimous consent of the existing Members. A new Member must agree in writing to be bound by the terms and provisions of the Certificate of Organization and this Limited Liability Company Agreement, as amended, and upon admission the new Member shall have all rights and duties of a Member of this Company. 5.14 COOPERATION OF THE MEMBER One of the reasons for entering into this Agreement is to create and recognize the fiduciary rights/obligations between Members delineated in this Agreement. In that regard, the Members shall cooperate fully with each other during the term of this Agreement to facilitate the performance by the Company of the Company's obligations and responsibilities set forth in this Agreement and to procure and maintain all construction, operating and gaming licenses and permits related to the Project. 5.15 COMPANY ACTION BY MEMBERS The taking of any of the following decisions or actions or the implementation of any of the following matters by the Company shall require Extraordinary Resolution of the Members: (a) sale of all or substantially all of the assets of the Company; (b) incurring indebtedness in excess of $10,000,000; (c) approval of the initial development and business plans and budgets for the Project; (d) amendments to the Management Agreement, Certificate of Organization or Limited Liability Company Agreement of the Company or termination of the Management Agreement; (e) material changes in the nature of the Company's business; (f) application for additional gaming licenses by the Company; (g) a change in the auditor of the Company. 16 ARTICLE VI. MANAGERS 6.1 ELECTION (a) The Members agree that the business of the Company shall be managed by six (6) Managers. So long as Showboat has a membership interest in the Company, Showboat and any of its Permitted Transferees shall have the right to nominate at least one-half (1/2) of all of the Managers, and a Showboat nominated Manager shall be the General Manager of the Company. The General Manager shall be the chief executive officer of the Company and shall be active in the management of the business of the Company. All of the Members other than Showboat and their Permitted Transferees shall have the right to nominate the remaining number of Managers. Each Manager of this Company shall be chosen annually by the Members and each shall hold office until such Manager shall resign or shall be removed or otherwise disqualified to serve, or the Manager's successor shall be elected and qualified. (b) Each Member shall vote at all meetings of Members, unless they are a Defaulting Member, and shall use its best efforts to cause its nominee Managers to act, in such a manner as to ensure that the nominees for Manager designated pursuant to Section 6.1(a) are elected or appointed and maintained in office as Managers. (c) In the event a Member transfers only a portion of its Interest to a Permitted Transferee, the right of such Member, if any, to nominate any Manager under Subsection 6.1(a) shall be exercised by such Member and the Permitted Transferee jointly or, in the event the Member and Permitted Transferee are unable to agree as to the exercise of such powers, by the original Member alone as attorney-in-fact for each of them. (d) If a Member acquires all of the Interest of another Member, the Member acquiring such Interest shall be entitled to nominate the Managers, if any, which the other Member was formerly entitled to nominate. (e) In the event that a nominee Manager of any Member resigns from the office of Manager, such Member shall forthwith deliver or cause to be delivered to the Company a resignation and release of such nominee Manager in a form satisfactory to the Company. (f) From and after the date that a Member becomes a Defaulting Member, the right of such Member to nominate any Managers shall be suspended and the nominee Managers of such Defaulting Member shall immediately resign. In the event of the failure of the Defaulting Member to obtain such resignations, the remaining Managers shall be entitled to remove such nominee Managers from office and replace them with nominees designated by the remaining Members. 6.2 REMOVAL, RESIGNATION AND VACANCIES (a) Subject to Section 6.1 above, a Member may remove any of its nominee Managers, either with or without cause in accordance with the terms of this Agreement. Any Manager may resign at any time by giving written notice to the Members. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 17 (b) In the event that a vacancy in the office of any Manager arises for any reason whatsoever, and provided that the Member entitled to nominate a replacement Manager is not a Defaulting Member, such vacancy shall be filled by the election or appointment of a Manager nominated by the same procedure as that by which its predecessor was nominated in accordance with the provisions of Section 6.1, Until such vacancy is filled, the Managers shall not transact any business or exercise any of its powers or functions, save and except as may be necessary to elect or appoint such new Manager and preserve the business and assets of the Company. (c) If a replacement Manager is not elected within ten (10) days of such vacancy occurring because of the failure of the Member who is entitled to nominate such replacement Manager to designate a nominee, thereafter the Managers then in office shall be entitled to transact business and exercise all of the powers and functions of the Managers. A decision or action of the majority of the Managers then in office shall be deemed to be the decision or action by Extraordinary Resolution of the Managers, and a decision or action of all of the Managers then in office shall be deemed to be the unanimous decision or action of the Managers. 6.3 MANAGERS' POWER The Managers shall have the right to make the following decisions or actions at a properly constituted meeting of Managers by at least a majority of the Managers: (a) To select and remove all employees, agents and representatives of the Company, prescribe such powers and duties for them as may be consistent with law, with the Certificate of Organization or this Limited Liability Company Agreement, fix their compensation, and require from them security for faithful service. (b) To conduct, manage and control the affairs and business of the Company, and to make such rules and regulations therefor consistent with the Act, with the Certificate of Organization or this Limited Liability Company Agreement. (c) To change the principal office of this Company from one location to another within New Hampshire; to fix and locate from time to time one or more subsidiary offices of the Company; and to designate any place within or without the State of New Hampshire for the holding of any Members' meeting or meetings. 6.4 COMPANY ACTION BY MANAGERS The taking of any of the following decisions or actions or the implementation of any of the following matters by the Company shall require an Extraordinary Resolution of the Managers; (a) Except as otherwise provided for herein, construct, improve, buy, own, sell, convey, exchange, assign, rent, or lease any property (real, personal or mixed), or any interest therein totaling, during any one calendar year, more than $500,000 unless in an approved budget; (b) Borrow money, issue evidence of indebtedness, secure any such indebtedness by mortgage, deed of trust, pledge, or other lien, or execute agreements, notes, mortgages, deeds of trust, assignments, security agreements, financing statements or other documents relating thereto 18 which involve a credit facility to carry out the same totaling, during any one calendar year, more than $500,000 in a single or related transactions; (c) Abandon any of the assets of the Company in excess of $50,000 in a single or related transactions; (d) Perform any act in violation of the terms and conditions of this Agreement; (e) Make, execute, or deliver any general assignment for the benefit of creditors or any bond, confession of judgment, guaranty, indemnity bond or surety bond; (f) Initiate or settle any litigation by or against the Company or any proceeding before any governmental or regulatory body for more than $100,000; (g) Disburse funds that exceed an approved budget by more than 5%. Any such variance in excess of 5% shall be promptly reported to the Managers with reasonable explanations. (h) Sell, lease or otherwise dispose of substantially all of the assets of the Project; (i) Approve annual business plans and budgets with respect to operations and capital expenditures. (j) Appoint an executive committee and other committees, and to delegate to the executive committee any of the power and authority of the Managers in the management of the business affairs of the Company. A Manager, in its discretion, may or may not be a member of an executive committee. (k) Amend the Management Agreement or the Limited Liability Company Agreement. 6.5 BANK ACCOUNTS From time to time, the General Manager may designate a person or persons to open and maintain one or more bank accounts; rent safety deposit boxes or vaults; sign checks, written directions, or other instruments to withdraw all or any part of the funds belonging to the Company and on deposit in any savings account or checking account; negotiate and purchase certificates of deposit, obtain access to the Company's safety deposit box or boxes, and, generally, sign such forms on behalf of the Company as may be required to conduct the banking activities of the Company. 6.6 MEETINGS OF MANAGERS The quorum for a meeting of the Managers shall be four (4) Managers, of whom at least two (2) Managers shall be nominees of Showboat and two (2) Managers shall be nominees of Rockingham. At least seven (7) days' prior written notice of any meeting of the Managers must be given unless all of the Managers waive such notice. 19 6.7 ACTION BY WRITTEN CONSENT Any action may be taken by the Managers without a meeting if authorized by the unanimous written consent of the Managers. 6.8. PLACE OF MEETINGS OF MANAGERS All regular and special meetings of the Managers shall be held at any place within or without the state of New Hampshire which has been designated from time to time by resolution of the Managers or by written consent of all of the Managers. In the absence of such designation, regular or special meetings shall be held at the principal office of the Company. 6.9 FIRST MEETING The first meeting of the newly elected Managers shall be held immediately following the adjournment of the meeting of the Members and at the place thereof. 6.10 SPECIAL MEETINGS Special meetings of the Managers, for any purpose or purposes whatsoever, may be called at any time by a Manager. 6.11 NOTICE Except in special cases where other express provision is made by statute, notice of any meeting of the Managers shall be given in the same manner as for meetings of the Members, including waiver of notice of such meetings. 6.12 REMUNERATION OF MANAGERS Unless otherwise determined by an Extraordinary Resolution of the Members, no amount shall be payable by way of salary, bonus or other remuneration to any Manager for acting as such. Each Manager shall be entitled to be reimbursed for reasonable out-of-pocket traveling and subsistence expenses incurred while attending meetings of, or otherwise being engaged in the business of, the Company. 6.13 DEADLOCK In the event of a deadlock in the Managers, each of Rockingham and Showboat shall select one representative to negotiate a resolution of such deadlock. ARTICLE VII. TRANSFER OF MEMBERS' INTERESTS 7.1 TRANSFER OF MEMBERS' INTERESTS The Interest of each Member of this Company is personal property. Except as otherwise provided in this Limited Liability Company Agreement, the transfer, directly or indirectly, of a Member's Interest is restricted. The transfer of a Member's interest shall include a gift, sale, transfer, assignment, hypothecation, pledge, encumbrance or any other disposition, whether voluntary or involuntary, by operation of law or otherwise, including, without limitation, any transfer occurring upon or by virtue of the bankruptcy, insolvency or dissolution of a Member; the 20 appointment of a receiver, trustee, conservator or guardian for a Member or his property; pursuant to any loan or security agreement under which any of the Member's Interests are pledged or otherwise serve as collateral, as well as the transfer of any such Interest in the event recourse is made to such collateral; or the transfer, directly or indirectly, of any voting securities or other ownership interest in a Member. Unless the proposed transferee of a transfer or assignment of a Member's Interest receives the unanimous written consent of the Members (excluding the proposed transferee), which consent may be unreasonably withheld by any Member, the transferee of the Member's Interest has no right to participate in the management of the business and affairs of the Company or to become a Member. The transferee is only entitled to receive the share of profits or other compensation by way of income and the return of contributions, to which the transferring Member would otherwise be entitled. If the transfer is approved by all of the other Members of the Company by unanimous written consent, the transferee has all the rights and powers and is subject to all the restrictions and liabilities of his assignor, has the right to participate in the management of the business and affairs of the Company and becomes a substituted Member. 7.2 NO TRANSFER PERMITTED UNDER CERTAIN CIRCUMSTANCES Notwithstanding any other provision of this Agreement, a Member shall not transfer all or any part of its Interest if such transfer would cause the termination of the Company for federal income tax purposes, would jeopardize any gaming license or would violate any applicable federal or state securities laws, unless unanimously agreed by all Parties. 7.3 PERMITTED TRANSFEREES Each Member shall be entitled, upon prior written notice to the Company and the other Members, with explanation for the transfer and a representation and warranty that the transferee is a Permitted Transferee as defined herein, to transfer the whole or any part of its Interest to any Permitted Transferee of the Member. No such transfer shall be or become effective, however, until such Permitted Transferee executes and delivers to the Company a counterpart copy of this Agreement or a written agreement in form and substance satisfactory to the other Members agreeing to be bound by the terms and conditions hereof formerly applicable to the transferor of such Interest. No such transfer shall release or discharge the transferor from any of its liabilities or obligations under this Agreement until it becomes effective and, then, only to the extent provided herein. In addition, Rockingham agrees not to record in its books or register any attempted transfer of shares of capital stock of Rockingham in violation of this Agreement. Each Rockingham Shareholder shall be entitled, upon prior written notice to the Company and the other Members, with adequate explanation for the transfer and a representation and warranty that the transferee is a Permitted Rockingham Transferee as defined herein, to transfer the whole or any part of its voting securities or ownership interest in Rockingham (the "Rockingham Shares") to any Permitted Rockingham Transferee of the Rockingham Shareholder. No such transfer shall become effective, however, until such Permitted Rockingham Transferee executes and delivers to the Company a counterpart copy of this Agreement or a written agreement in form and substance satisfactory to the Members agreeing to be bound by the terms and conditions hereof formerly applicable to the transferor of such Shares. No such transfer shall 21 release or discharge the transferor from any liabilities or obligations under this Agreement until it becomes effective, and, then, only to the extent provided herein. In addition, Rockingham agrees not to record in its books or registers any attempted transfer of shares of capital stock of Rockingham by the Rockingham Shareholders in violation or contrary to the terms of this Agreement. ARTICLE VIII. COMPULSORY BUY-SELL PROVISION 8.1 OFFER TO PURCHASE In the event that any Member fails to fully and finally perform and fulfill its material obligations pursuant to this Agreement, except in the event of a Force Majeure Event or the events identified in Articles IX and XXIII, then in such event a "Buyout Event" shall be deemed to have occurred. At any time after the occurrence of a Buyout Event, the non-performing Member(s) or its Permitted Transferee shall have the right to take the actions set out in this Section 8.1. The non-performing Member(s) or its Permitted Transferee which first takes such action is referred to in this Article as the "Offering Members". The Offering Members may notify the remaining Members (the "Remaining Member") in writing that it will offer to purchase all, but not less than all, of the Interest owned by the Remaining Member. The Remaining Member shall have a period of thirty (30) days to cure the Buyout Event. If the Buyout Event is not cured within said period the Offering Members may offer to purchase all, but not less than all, of the Interest owned by the Remaining Member which notice shall specify in the offer the terms of the purchase and sale including the price (the "Designated Price") to be paid for the Interest owned by the Remaining Member. 8.2 ACCEPTANCE (a) Within forty-five (45) days after the receipt by the Remaining Member(s) of the offer from the Offering Members pursuant to Section 8.1, the Remaining Member(s) shall advise the Offering Member(s) in writing either: (i) that the Remaining Member(s) accept the offer made by the Offering Member(s) to purchase the Interest owned by it on the terms and conditions set out in the offer; or (ii) that the Remaining Member(s) elect to purchase all the Interest owned by the Offering Member(s) on the terms and conditions set forth in the offer. During such forty-five (45) day period, the Remaining Member(s) may not make an offer under Section 8.1. (b) If the Remaining Member(s) elect to purchase the Interest of the Offering Member(s), (i) they shall thereupon be conclusively deemed to have made an offer to purchase the Interest of the Offering Member(s) on the terms and conditions, including the Designated Price, set out in the offer referred to in Section 8.1, and the Offering Member(s) shall be conclusively deemed to have accepted such offer of the Remaining Member(s); and (ii) each Remaining Member(s) shall purchase from each Offering Member(s) the proportionate share of such Offering Member's Interest that the Percentage Interests of the Remaining Member(s) is of the total Percentage Interest held by Remaining Member(s), but such Remaining Member(s) may agree among 22 themselves to purchase the Interest of the Offering Member(s) in different proportions and such purchase may be made by any of the Remaining Member(s) jointly or by any one of them alone. (c) If the Remaining Member(s) accept the offer of the Offering Member(s) or fail to advise the Offering Member(s) in writing within the period specified in Subsection 8.2(a) of their intention to purchase the Interest of the Offering Member(s), (i) the Remaining Member(s) shall be conclusively deemed to have accepted the offer made by the Offering Member(s) to purchase the Interest owned by the Remaining Member(s) on the terms and conditions set out in the offer; and (ii) each Offering Member shall purchase from each Remaining Member the proportionate share of such Remaining Member's Interest that the Percentage Interest of the Offering Member is of the total Percentage Interests held by the Offering Member(s), but such Offering Member(s) may agree to purchase the Interest of the Remaining Member(s) in different proportions and such purchase may be made by any of the Offering Member(s) jointly or by any one of them alone. (d) The Member(s) who have accepted or been deemed to have accepted an offer under this Section 8.2 shall be the "Vendor" and the Member(s) who have elected or are required to purchase the Interest under this Section 8.2 shall be the "Purchaser." 8.3 PURCHASE PRICE The purchase price for the Interest of the Vendor shall be the Designated Price (the "Purchase Price"). 8.4 PAYMENT OF PURCHASE PRICE The Purchase Price shall be paid by the Purchaser in full by cash, wire transfer of immediately available funds or certified check at the Time of Closing. 8.5 CLOSING The purchase and sale of the Purchased Shares resulting from the acceptance or deemed acceptance of the offer pursuant to Section 8.2 (a "Sale Transaction") shall be completed at the Time of Closing and the Place of Closing on the date which is one hundred twenty (120) days following the date of such acceptance or deemed acceptance or such longer or shorter time required by the Gaming Authority (the "Date of Closing") subject to the receipt of regulatory approvals pursuant to Section 8.6 hereof. The Sale Transaction shall be effected in accordance with the general sale provisions set forth in Article XII. 8.6 GOVERNMENT APPROVAL No transfer of an Interest pursuant to the provisions of this Article VIII shall occur, except with the prior written approval of any relevant Gaming Authority, if the same is required. ARTICLE IX. DEFAULTING MEMBER 9.1 OPTION TO PURCHASE MEMBER'S INTEREST If a Member shall become a "Defaulting Member" as a result of the occurrence of any of the following events or is otherwise deemed pursuant to this Agreement to be a Defaulting 23 Member, the non-defaulting Members or their Permitted Transferees shall have the option to purchase all of the Defaulting Member's Interest (the "Purchased Interest") at the fair market value of such Purchased Interest (the "Purchase Price") as determined in accordance with this Agreement at the time of the exercise of the option: (a) If a Member is declared bankrupt or makes a proposal in bankruptcy or otherwise becomes the subject of bankruptcy, insolvency, liquidation, dissolution, winding up or similar proceeding; (b) If a Member makes an assignment for the benefit of creditors or otherwise acknowledges its insolvency; (c) If a Member allows its shares to be foreclosed upon by a third party; (d) If a Member ceases paying its debts as they mature (other than those being contested in good faith and by appropriate proceedings); (e) If a Member, directly or indirectly, transfers its Interest or any portion thereof in the Company 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 (f) If a Member adversely affects the gaming license of the Company due to concerns of any aspect of the suitability of such Member or any of its shareholders. (g) If a Member fails to obtain all appropriate licenses. (h) If a Member fails to make its equity investment in the Company at such time or times as required. (i) If, in the discretion of Showboat, any of Showboat's gaming licenses may be adversely affected due to its interest in the Company, Showboat can elect to become a Defaulting Member. (j) Any Member is deemed not suitable under the New Hampshire statute, significantly delays the licensing process or materially adversely affects the pari-mutuel license of Rockingham if a pari-mutuel license is required to obtain or maintain the Full Gaming or Limited Gaming license. 9.2 OFFER TO PURCHASE SHARES OF ROCKINGHAM SHAREHOLDERS In the event that (i) the gaming license of the Company is materially adversely affected due to concerns of any aspect of the suitability of a particular Rockingham Shareholder or (ii) a Rockingham Shareholder transfers or attempts to transfer his Rockingham Shares other than as provided in Article VII (in either event under subsections (i) or (ii) above, the Rockingham Shareholder shall be referred to hereinafter as the "Defaulting Rockingham Shareholder"), and the continuation of such adverse impact or violation for a period of thirty (30) days after receipt by the Defaulting Rockingham Shareholder of written notice from the non-Defaulting Rockingham Shareholders or a Member specifying the same (the "curative period"), then the non- Defaulting 24 Rockingham Shareholders shall have the option to purchase the Defaulting Shareholders' Rockingham Shares for a mutually agreed purchase price. In the event that the non-Defaulting Rockingham Shareholders fail to purchase all of the Rockingham Shares of the Defaulting Rockingham Shareholder within forty-five (45) days following the curative period, Showboat may lend the purchase price to Rockingham to purchase the Rockingham Shares held by the Defaulting Rockingham Shareholder.. Upon receipt of the purchase price from Showboat, Rockingham shall immediately use such funds to redeem the Rockingham Shares held by the Defaulting Rockingham Shareholder. The loan of the purchase price by Showboat to Rockingham shall be pursuant to the then prevailing interest rates in the Boston, Massachusetts metropolitan area plus a 1% origination fee on the purchase price. Rockingham shall execute a promissory note and all distributions payable to Rockingham in accordance with this Agreement, except except for such sum which is equal to Rockingham's portion of federal and state income tax liability of the Company as if the Company was a taxable entity in the state of New Hampshire, shall be paid to Showboat until the promissory note shall have been paid in full. 9.3 DETERMINATION OF PURCHASE PRICE Except as otherwise provided in Section 9.2, the non- defaulting Member or its Permitted Transferee exercising an option under Section 9.1 (the "Buyer") and the Defaulting Member (the "Vendor" in this Article IX) shall mutually arrive at an agreeable Purchase Price within ten (10) days of the occurrence of an event giving rise to the existence of an option under Section 9.1 (a "Triggering Event"). The Purchase Price shall be the greater of the fair market value of the Purchased Interest or the value of unreturned Equity Contribution of the Defaulting Member. If the parties cannot agree upon the Purchase Price within such ten (10) day period, the Purchase Price shall be value as determined by the appraisal provisions of Article XI. 9.4 PAYMENT OF PURCHASE PRICE The Purchase Price shall be paid by the Purchaser in full by cash or certified check on the Date of Closing as determined pursuant to Section 9.5. 9.5 CLOSING (a) The closing of the transaction of purchase and sale contemplated by this Article IX (a "Sale Transaction") shall take place at the Place of Closing at the Time of Closing on the date (in this Article IX the "Date of Closing") that, unless the Vendor and Buyer otherwise agree, is the latest of: (i) the date which is one hundred twenty (120) days after the relevant Triggering Event: (ii) the date which is seven (7) days following the receipt of all necessary governmental releases or approvals required to be obtained in order to effect a valid transfer of the Purchased Shares (and the Parties covenant and agree to use their best efforts to obtain such consents, releases or approvals); and (iii) the date which is thirty (30) days after the Purchase Price is finally determined in accordance with the provisions of Section 9.3. 25 (b) The Sale Transaction shall be effected in accordance with the general sale provisions of Article XII. ARTICLE X. RIGHT OF FIRST REFUSAL 10.1 THIRD PARTY OFFER (a) No transfer by any Member of any Interest to any Person other than a Permitted Transferee of such Member or another Member shall be effected except in compliance with this Article X. Any transfer effected in compliance with this Article X shall also be in compliance with Article VII. (b) If any Member or Members (the "Offeror") receives a bona fide written offer (a "Third Party Offer") from any Person dealing at arm's length with the Parties (the "Buyer") to purchase all or less than all of the Interest owned by the Offeror (the "Purchased Interest"), which Third Party Offer is acceptable to the Offeror, the Offeror shall, by notice in writing to the other Members (the "Offerees"), offer to sell the Purchased Interest to the Offerees at the same price and upon the same terms and conditions as are contained in the Third Party Offer (the "Offer"). (c) The Offer (i) shall identify in reasonable detail the Buyer and, if the Buyer is not an individual, identify those Persons who, together with their Affiliates, control the Buyer; (ii) shall be accompanied by a true and complete copy of the Third Party Offer setting forth all of the terms and conditions of the Third Party Offer; and (iii) shall provide such information concerning the business experience and expertise of the Buyer and its financial condition as is reasonably available to the Offeror. The Offer shall not be revocable except with the consent of the Offerees and shall be open for acceptance by the Offerees for a period of ten (10) days from the date received by them (the "Offer Period"). 10.2 ACCEPTANCE OF OFFER (a) If the Offer is accepted by any of the Offerees within the Offer Period, then the Offeror (the "Vendor") shall sell and the Offerees accepting the Offer (the "Purchaser") shall purchase the Purchased Interest upon the terms and conditions contained in the Offer. (b) If there is more than one Purchaser, the Purchasers shall purchase the Purchased Interest from the Offeror in the same proportions that the Percentage Interest of each Purchaser is to the total Percentage Interests held by all Purchasers, but such Purchasers may agree to purchase the Purchased Interest in different proportions and such purchase may be made by any of the Purchasers jointly or by any one of them alone. (c) The closing of the transaction of purchase and sale pursuant to the Offer (a "Sale Transaction") shall take place at the Place of Closing at the Time of Closing on the date which is thirty (30) days after the expiration of the Offer Period (the "Date of Closing"). The Sale Transaction shall be effected in accordance with the general sale provisions of Article XII. 26 10.3 THIRD PARTY SALE (a) If the Offerees do not accept the Offer during the Offer Period, then, subject to the provisions of this Section 10.3, the Offeror shall be entitled, within a period of sixty (60) days after the expiration of the Offer Period, to sell the Purchased Interest to the Buyer in accordance with the Third Party Offer. (b) The Managers before consenting to the transfer of the Purchased Interest to the Buyer shall be entitled to require proof that the sale to the Buyer took place in accordance with the Third Party Offer and the Managers shall refuse to permit the recording of the transfer of the Purchased Interest if, in the opinion of the Managers, the Purchased Interest were sold otherwise than in accordance with the provisions of the Third Party Offer. (c) No disposition to any Buyer pursuant to any Third Party Offer shall be valid or effective until the Buyer shall have executed a counterpart copy of this Agreement or a written agreement in form and substance satisfactory to the Company and the other Members agreeing to be bound by the terms and conditions hereof. (d) Contemporaneously with the completion of the transaction of purchase and sale under the Third Party Offer the Offeror shall (i) repay any indebtedness owing by the Offeror to the Company; and (ii) deliver to the Company and the remaining Members the documents referred to in Sections 12.3(a), (d) and (f). At such time, the remaining Members shall deliver to the Offeror the documents referred to in Section 12.5. 10.4 RE-APPLICATION OF PROVISIONS If a sale of the Purchased Interest to the Buyer pursuant to the Third Party Offer is not completed within the sixty (60) day period referred to in Subsection 10.3(a), no sale of the Purchased Interest shall be made without the Offeror again complying with the terms of this Article X. 10.5 AN OFFER TO PURCHASE SHOWBOAT'S INTEREST With respect to any proposed transfer of any of Showboat's Interest other than a transfer to an Affiliate of Showboat whose capital stock or interests are beneficially owned 100% by Showboat, Inc. or as otherwise permitted in writing by Rockingham, Showboat and its Affiliates shall have the obligation to require the proposed transferee to purchase the same percentage of Rockingham's Interest as the proposed transferee intends to purchase from Showboat pursuant to the same terms and conditions that the proposed transferee intends to purchase Showboat's Interest or portion thereof. The purchase price for Rockingham's Interest shall be at the same price per percentage Interest as the percentage price per share of Showboat's Interest. Showboat shall give Rockingham twenty (20) days notice of the proposed transfer of Interests and Rockingham shall accept or decline its participation in the proposed transfer in said twenty (20) day period. If the proposed transferee fails or refuses to purchase Rockingham's Interest if Rockingham timely exercised its participation in the proposed transfer in accordance with the terms hereof, or if Showboat fails to give any notice specified herein, then Showboat and its Affiliates shall not be permitted to make the proposed transfer, and any such attempted transfer shall be void and of no effect. 27 ARTICLE XI. APPRAISAL 11.1 APPRAISAL In the event that the value of the Company must be determined, each Member will choose an employ, at its sole expense, an appraiser qualified to appraise gaming operations. Within twenty-one (21) calendar days, each appraiser will deliver to the Member and the Member shall exchange the written appraisals of value of the Company. The appraisers, shall calculate the appraised value of the Company to be the greater of (i) the Company's book value; (ii) the income capitalization approach to value which analyzes net operating income of the subject property which is then capitalized into an indication of value; or (iii) some other appropriate method which an appraiser uses to make a valuation of a gaming business as of the time of the appraisal. Based upon such appraisals, if the Members cannot agree on a value, the appraisers shall, in accordance with Section 17.3, choose a third appraiser. Such third appraiser shall be paid by the Members and, within twenty-one (21) days of engagement, shall deliver the third appraisal of the property. The third appraisal, if within 5% (+) of either of the two appraisals, shall be deemed to be the correct appraisal. In the event that the discrepancy is in excess of 5% (+) of either of the original appraisals, the value shall be computed as the average of the three (3) appraisals. ARTICLE XII. GENERAL SALE PROVISIONS 12.1 APPLICATION OF SALE PROVISIONS Except as may otherwise be provided in this Agreement, the provisions of this Article XII shall apply to any sale of the Interest between or among the Members or, to the extent applicable, between Members and the Company, pursuant to the provisions of Articles VIII, IX, X and XII or Section 12.8 of this Article XII as the case may be. 12.2 DEFINED TERMS For the purpose of this Article XII, the terms "Vendor", "Purchaser", "Date of Closing", "Purchase Price" and "Purchased Interest" with respect to any Sale Transaction shall have the meanings attributed thereto in Article VIII, IX, X or XI, as the case may be. As used in this Article and in Articles VIII, IX and X. "Time of Closing" shall be 2 p.m. eastern time on the Date of Closing. 12.3 OBLIGATIONS OF VENDOR At or prior to the Time of Closing, each Vendor shall: (a) deliver to the Company signed resignations of the Vendor and its nominees, if any, as Managers, officers and employees of the Company, as the case may be; (b) assign and transfer to the Purchaser the Purchased Interest and deliver the membership certificate(s), if any, representing the Purchased Interest duly endorsed for transfer to the Purchaser or as directed by it; 28 (c) do all other things required in order to deliver good and marketable title to the Purchased Interest to the Purchaser free and clear of any claims, liens and encumbrances whatsoever including, without limitation, the delivery of any governmental releases and declarations of transmission (provided that, if at the Time of Closing the Purchased Interest is not free and clear of all claims, liens and encumbrances whatsoever, the Purchaser may, without prejudice to any other rights which it may have, purchase the Purchased Interest subject to such claims, liens and encumbrances and, in that event, the Purchaser shall, at the Time of Closing, assume all obligations and liabilities with respect to such claims, liens and encumbrances and the Purchase Price payable by the Purchaser for the Purchased Interest shall be satisfied, in whole or in part, as the case may be, by such assumption and the amount so assumed by the Purchaser shall be deducted from the Purchase Price payable at the Time of Closing); (d) deliver to the Company a release by each of the Vendor and its nominees, if any, of all claims against the Company with respect to any matter or thing up to and including the Time of Closing in their capacities as a Manager, officer, Member, employee or creditor of the Company, as the case may be, except for (i) any claims which might arise out of the Sale Transaction, or (ii) any claims which might arise out of the intentional misconduct, gross negligence or fraud of the Purchaser, in a form satisfactory to the Company acting reasonably; (e) deliver to the remaining Members a release by the Vendor and its nominees in their capacity as a Manager, officer and Member of the Company of all of their claims against each remaining Member and their respective nominees, if any, in their capacities as a Member, Manager or officer of the Company, except for (i) any claims which might arise out of the Sale Transaction, or (ii) any claims which might arise out of the intentional misconduct, gross negligence or fraud of the Purchaser, in a form satisfactory to the remaining Members acting reasonably. 12.4 RELEASE OF GUARANTEES ETC. If, at the Time of Closing, the Vendor, any principal of the Vendor or any other Person for and on behalf of the Vendor, shall have any guarantees, securities or covenants lodged with any Person to secure any indebtedness, liability or obligation of the Company and/or the remaining Members, then the remaining Members shall use their reasonable best efforts to deliver or cause to be delivered to the Vendor or cancel or cause to be canceled all of such guarantees, securities and covenants at the Time of Closing. If, notwithstanding such reasonable best efforts, the delivery or cancellation of any such guarantee, security or covenant is not obtained, the remaining Members shall deliver to the Vendor an indemnity of such Vendor, principal or other Person in writing, in form reasonably satisfactory to counsel for the Vendor, indemnifying them against any and all claims, demands, costs, expenses, damages, liabilities and suits which may be or which shall have been paid, suffered or incurred by them with respect to the said guarantee, security or covenant. 12.5 DELIVERIES TO VENDOR At or prior to the Time of Closing, each of the remaining Members shall: (a) deliver to each of the Vendor and its nominees, if any, a release by it, in its capacity as a Manager, officer and Member of the Company, of all of its claims against the Vendor and its 29 nominees in its capacity as a Member, Manager or officer of the Company, except for (i) any claims which may arise out of the Sale Transaction, or (ii) any claims which might arise out of the intentional misconduct, gross negligence or fraud of the Vendor, in a form satisfactory to the Vendor acting reasonably; and (b) cause the Company to deliver to each of the Vendor and its nominees a release by the Company of all its claims against each of the Vendor and its nominees with respect to any matter or thing arising as a result of the Vendor or its nominees being a Member, Manager or officer of the Company, as the case may be, except for (i) any claims which might arise out of the Sale Transactions, or (ii) any claims which might arise out of the intentional misconduct, gross negligence or fraud of the Vendor, in a form satisfactory to the Vendor acting reasonably. 12.6 REPAYMENT OF DEBTS If, at the Time of Closing, the Company is indebted to the Vendor in an amount recorded on the books of the Company and verified by the Auditor, the Company shall repay such amount to the Vendor at the Time of Closing. If, at the Time of Closing, the Vendor is indebted to the Company in an amount recorded on the books of the Company and verified by the Auditors, the Vendor shall repay such amount to the Company at the Time of Closing and, if the Vendor fails to make such repayment, the Purchaser shall be entitled to pay the amount of such indebtedness to the Company from the Purchase Price and the amount of the Purchase Price payable to the Vendor shall be reduced accordingly. 12.7 NON-COMPLETION BY VENDOR If, at the Time of Closing, the Vendor fails to complete the Sale Transaction for any reason other than Purchaser's default, the Purchaser shall have the right, if not in default under this Agreement, without prejudice to any other rights which it may have, upon payment of the Purchase Price payable to the Vendor at the Time of Closing to the credit of the Vendor in the main branch of the Company's bankers in the City of Boston, to execute and deliver, on behalf of and in the name of the Vendor, such deeds, transfers, share certificates, resignations or other documents that may be necessary to complete the Sale Transaction and each Member, to the extent it may be a Vendor hereunder, hereby irrevocably appoints any Member who becomes a Purchaser in a Sale Transaction its attorney-in-fact on its behalf, with no restriction or limitation in that regard and declaring that this power of attorney may be exercised during any subsequent legal incapacity on its part. 12.8 NON-COMPLETION BY PURCHASER If, at the Time of Closing, the Purchaser fails to complete a Sale Transaction for any reason other than Vendor's default, the Vendor shall have the right (without prejudice to any other rights which it may have), at its option, exercisable within a period of thirty (30) days following the Date of Closing of such Sale Transaction upon notice to the Purchaser, to purchase from the Purchaser all the Interest owned by the Purchaser for an amount equal to 75% of the Purchase Price payable pursuant to the Sale Transaction which the Purchaser has neglected or refused to perform, less all costs incurred by the Vendor in connection with the failure by the Purchaser to complete the Sale Transaction, and the provisions of this Article XII shall apply to the purchase by the Vendor of the Purchaser's Interest pursuant to this Section 12.8. 30 12.9 RESTRICTIONS ON BUSINESS If the provisions of any of Articles VIII, IX, X or XI, Section 12.8 of this Article XII hereof become applicable, then from such date until the Time of Closing, the Members shall not do, nor cause, nor permit to be done anything except that which is in the ordinary course of business of the Company. 12.10 NO JOINT LIABILITY For greater certainty, the Parties hereto acknowledge and agree that where a Sale Transaction involves more than one Purchaser, the Purchasers in such Sale Transaction are not jointly liable for the payment of the Purchase Price for the Purchased Interest and any indebtedness purchased hereunder, but are only liable for their proportionate share thereof. 12.11 CONSENTS The Parties acknowledge that the completion of any Sale Transaction shall be subject, in any event, to the receipt of all necessary government, regulatory and lender consents and approvals to the transfer of Interest contemplated thereby, including the Gaming Authorities. ARTICLE XIII. PROFITS AND LOSSES 13.1 NET PROFITS AND LOSSES Except as otherwise provided in Section 13.2, 13.3 and 13.4 hereof, all Company income, gains, losses, deductions and credit for each Company taxable year shall be allocated among the Members in proportion to their Percentage Interests on the last day of such taxable year. 13.2 ALLOCATIONS OF DEDUCTIONS (a) COMPANY NONRECOURSE DEDUCTIONS. Except as otherwise required by Section 13.3 and 13.4 hereof, all Nonrecourse Deductions of the Company for any taxable year shall be shared by the Members in proportion to their Percentage Interests on the last day of such taxable year. The amount of Nonrecourse Deductions of the Company shall be determined in accordance with Regulations Section 1.704-2(c). (b) MEMBER NONRECOURSE DEDUCTIONS. Except as otherwise required by Section 13.3 and 13.4 hereof, all Member Nonrecourse Deductions of the Company for any taxable year shall be allocated in accordance with Regulations Section 1.704-2(i)(1). The amount of Member Nonrecourse Deductions shall be determined in accordance with Regulations Section 1.704-2(i)(2). 13.3 SPECIAL ALLOCATIONS (a) QUALIFIED INCOME OFFSET. Except as otherwise provided in Section 13.3(b) hereof, in the event any Member unexpectedly receives any adjustments, allocations or distributions described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company income and gain shall be specially allocated to each such Member in an amount and manner sufficient to 31 eliminate, to the extent required by the Regulations, the adjusted capital account deficit of such Member as quickly as possible. (b) MINIMUM GAIN CHARGEBACK. Notwithstanding any other provision of this Section 13.3, if there is a net decrease in Company Minimum Gain during any Company fiscal year, each Member who would otherwise have an adjusted capital account deficit at the end of such year shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount and manner sufficient to eliminate such Member's adjusted capital account deficits as quickly as possible. The items to be so allocated shall be determined in accordance with Regulations Section 1.704-1(b)(4)(iv)(e). Notwithstanding any other provision of this Section 13.3, if there is a net decrease in Minimum Gain attributable to Member Nonrecourse debt during a Company Taxable Year, each Member with a share of the Minimum Gain attributable to such member Nonrecourse Debt shall be allocated items of income and gains for such year (and, if necessary, subsequent years) in accordance with Regulations Section 1.704-(i)(4). The items to be so allocated shall be determined in accordance with Regulations Section 1.704-2(i). This Section 13.3(b) is intended to comply with the minimum gain chargeback requirements in such sections of the Regulations and shall be interpreted consistently therewith. (c) ALLOCATION OF REMAINING INCOME AND GAINS ON SALE OR OTHER DISPOSITION. Except as otherwise required by this Section 13.3, income and gains arising from the sale, exchange, transfer or disposition or condemnation of all or substantially all of the Company's property shall be allocated, for Federal income tax purposes, among those who shall be Members on the date of such transaction or transactions as follows: (i) If one or more Members has a negative Capital Account after such Member's Capital Account is adjusted to reflect any allocation of gains under Section 13.2(b) but before such Member's Capital Account is adjusted to reflect any distribution under Section 14.3 with respect to the disposition to which this Section 13.3(c) is being applied, such income and gains shall be allocated to such Members in proportion to their negative Capital Accounts until each such Member's Capital Account equals zero. (ii) To the extent one or more Member's Capital Account balance is less than (A) the total of all Members' Capital Account balances times (B) such Member's Percentage Interest in the Company (a "Capital Disparity"), such income and gains shall be allocated among such Members in proportion to Capital Disparities until all of the Members' Capital Accounts are, as nearly as possible, in proportion to their Percentage Interests. (iii) The balance of such income and gains shall be allocated to the Members in proportion to their Percentage Interests. (d) ASSIGNMENTS. In the event of an assignment of an interest in the Company (other than an assignment by reason of the death of a Member), the assignor's distributive share of Company income, gains, loss, deductions and credits and expenditures not deductible in computing its taxable income (in respect of the interest so assigned) shall be the share of such items attributable to such interest accruing prior to such assignment (based on an interim closing of the books of the 32 Company), and the Assignee's share shall be the share of such items attributable to such interest after such assignment (based on such interim closing). (e) MANDATORY SECTION 704(C) ALLOCATIONS. Notwithstanding the foregoing, to the extent that Code Section 704(c), Regulations Section 1.704-3, 1.704-1(b)(2)(iv), or any other regulations which may be proposed or promulgated under Code Section 704(c), require allocations of Company income, gains, losses or deductions in a manner which is different than that set forth above, the provisions of Section 704(c) and the regulations thereunder shall control such allocations among the Members. In the absence of a contrary agreement among the Members, such items shall be allocated in accordance with the "Traditional method with curative allocations" set forth in Regulations Section 1.704- 3(c) or any successor regulation. 13.4 CURATIVE ALLOCATIONS The allocations set forth in Section 13.2 and 13.3 (the "Regulatory Allocations") are intended to comply with Regulations Section 1.704-1(b), Regulations Section 1.704-2 and Regulations Section 1.704-3, and shall be interpreted and applied in a manner consistent therewith. Notwithstanding any other provisions of this Section (other than the Regulatory Allocations), the Regulatory Allocations shall be taken into account in allocating other profits, losses and items of income, gain, loss and deduction among the Members so that, to the extent possible, the net amount of such allocations of other profits, losses and other items in the Regulatory Allocations to each Member shall be equal to the net amount that would have been allocated to each such Member if the Regulatory Allocations had not occurred. 13.5 FEDERAL INCOME TAX It is the intent of this Company and its Members that this Company will be governed by the applicable provisions of Subchapter K, of Chapter 1, of the Code. ARTICLE XIV. DISTRIBUTIONS 14.1 OPERATING DISTRIBUTIONS The Company's Cash Available For Distribution shall, at such times as the Managers of the Company deem advisable, be distributed among the Members in proportion to their respective balances of Percentage Interest, as of the date of any such distribution. The term "Cash Available For Distribution" shall mean the total cash revenues generated by the Company's operations (including proceeds from the sale or refinancing of Company assets), less all cash expenditures of the Company for debt service and operating expenses, and less a reasonable amount determined by the Company to be set aside for reserves. In no event shall Cash Availible For Distributions be less than the amount equal to the Member's portion of federal and state income tax liablilty of the Company as if the Company was a taxable entity in the State of New Hampshire. 14.2 PAYMENT OF MEMBER LOANS Under all circumstances, Member Loans shall be repaid first out of any Cash Available for Distribution after payment of taxes as provided in Section 14.1. If a difference exists between the Members in the amount of Member Loans made to the Company, any Member with more 33 Member Loans outstanding (in value) than another Member shall receive the first distributions of any available cash until that Member's Loan is in parity with the other Member Loans, if any, unless otherwise provided herein. Thereafter, the Member Loans will be repaid ratably to the Members with Loans. It is the intention of the Members that Member Loans will be repaid as cash is available for distribution and may result in revolving payments to the Members as additional Member Loans are advanced to the Company. 14.3 DISTRIBUTION ON DISSOLUTION AND LIQUIDATION In the event of the dissolution and liquidation of the Company for any reason, after the payment of or provision for creditors pursuant to the Act and other applicable law, the Company's assets shall be distributed among the Members in accordance with their respective positive Capital Account balances, in accordance with Regulations Section 1.704- 1(b)(2)(ii)(b)(2). ARTICLE XV. ACCOUNTING AND RECORDS 15.1 RECORDS AND ACCOUNTING The Company shall cause an accurate, current and complete accounting system in connection with its operation of the Project. The books and records shall be kept in accordance with GAAP consistently applied and in accordance with federal tax law. Such books and records shall be kept on a calendar year basis. Books and accounts shall be maintained at the principal office of the Company and at the Project, or at other locations as determined from time to time by the Company. The Members, or any of them, shall have the right to inspect the books and records of the Company at any time during normal business hours with reasonable notice of such inspection. 15.2 ACCESS TO ACCOUNTING RECORDS Each Member, and his duly authorized representative, shall have access to the accounting records at the principal office of the Company and the right to inspect and copy the books and records at reasonable times. The Company shall keep all records required to be kept at the registered office of the Company. 15.3 ANNUAL TAX INFORMATION The Managers shall use their best efforts to cause the Company to deliver to each Member within ninety (90) days after the end of each fiscal year all information necessary for the preparation of such Member's federal income tax return. 15.4 INTERIM STATEMENTS AND REPORTS On or before the thirtieth (30th) day of each month, the Company shall furnish the Managers with an unaudited operating statement for the preceding calendar month detailing the Gross Gaming Revenues received from the Project and ancillary services and expenses incurred. The Gross Gaming Revenues detail shall specify drop figure accounts on all gaming revenues. Additionally, the Managers shall meet in person or by telephone at least once each month to discuss the Company's operations. The Company shall provide written, oral or videotaped reports on the operations of the Project on a monthly basis to the Managers. 34 ARTICLE XVI. TERM 16.1 TERM The term of this Company shall begin on the date the Certificate of Organization is filed with the New Hampshire Secretary of State and shall continue for a period not to exceed fifty (50) years, unless terminated prior thereto in accordance with the provisions hereof, by unanimous agreement of the Members or pursuant to the Act. ARTICLE XVII. DISSOLUTION OF THE COMPANY AND TERMINATION OF A MEMBER'S INTEREST 17.1 DISSOLUTION This Company must be dissolved on the death, retirement, resignation, expulsion, bankruptcy or dissolution of a Member or occurrence of any other event which terminates a Member's continued membership in the Company, unless the business of the Company is continued by the consent of all the remaining Members of the Company. 17.2 BANKRUPTCY, INSOLVENCY OR DISSOLUTION In the event a Member (the "Bankrupt Member") institutes or consents to any proceeding under the federal bankruptcy laws relating to the Member or to all or any part of its property; or is unable or admits in writing to its inability to pay its debts as they mature, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any part of its property; or applies for or consents to the liquidation or dissolution of such Member or all or substantially all of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of the Member and the appointment continues undischarged or unstayed for thirty (30) calendar days; or any proceeding under the federal bankruptcy laws or any other applicable laws relating to such Member or to all or any part of its property is instituted without the consent of such Member and continues undischarged or unstayed for sixty (60) calendar days, if all the remaining Members consent to the continuation of the business of the Company, the remaining Members shall have the right to purchase the entire Interest of the Bankrupt Member in the manner set forth in Article IX. ARTICLE XVIII. INDEMNIFICATION 18.1 INDEMNITY This Company does hereby indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the Company, by reason of the fact that he is or was a Manager, Member, employee or agent of this Company, or is or was serving at the request of this Company as manager, director, officer, employee or agent of another limited liability company or corporation, against expenses, subject to the provisions of Section 18.4 hereof, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he 35 acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of this Company, and, with respect to a criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of this Company, and that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. 18.2 INDEMNITY FOR ACTIONS BY OR IN THE RIGHT OF THE COMPANY This Company does hereby indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of this Company to procure a judgment in its favor by reason of the fact that he is or was a Member, Manager, employee or agent of this Company, or is or was serving at the request of this Company as a Member, Manager, director, officer, employee or agent of another limited-liability company, corporation, partnership, joint venture, trust or other enterprise against expenses, subject to the provisions of Section 18.4 hereof, including amounts paid in settlement and attorneys' fees actually and reasonably incurred by him in connection with the defense or settlement of the actions or suit if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of this Company. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to this Company or for amounts paid in settlement to this Company, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. 18.3 INDEMNITY IF SUCCESSFUL To the extent that a Member, Manager, employee or agent of this Company has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 18.1 and 18.2, or in defense of any claim, issue or matter therein, this Company does hereby indemnify such person or entity against expenses, subject to the provisions of Section 18.4 hereof, including attorneys' fees, actually and reasonably incurred by him in connection with the defense. 18.4 EXPENSES Any indemnification under Sections 18.1 and 18.2, unless ordered by a court or advanced pursuant to Section 19.5 below, must be made by this Company only as authorized in the specific case upon a determination that indemnification of the Member, Manager, employee or agent is proper in the circumstances. The determination must be made: (a) By a majority vote of a quorum of Members who were not parties to the act, suit or proceeding; or 36 (b) By a majority vote of Managers who were not parties to the act, suit or proceeding; or (c) If a quorum consisting of Members or Managers who were not parties to the act, suit or proceeding cannot be obtained, by independent legal counsel pursuant to a written opinion. 18.5 ADVANCE PAYMENT OF EXPENSES The expenses of Members and Managers incurred in defending a civil or criminal action, suit or proceeding shall be paid by this Company as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the Member or Manager to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by this Company. The provisions of this subsection do not affect any rights to advancement of expenses to which personnel other than Members or Managers may be entitled under any contract or otherwise by law. 18.6 OTHER ARRANGEMENTS NOT EXCLUDED The indemnification and advancement of expenses authorized in or ordered by a court pursuant to this Article XVIII: (a) Does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the Certificate of Organization or any agreement, vote of Members or otherwise, for either an action in his official capacity or an action in another capacity while holding his office, except that indemnification, unless ordered by a court pursuant to Section 18.2 above or for the advancement of expenses made pursuant to Section 18.5 above, may not be made to or on behalf of any Member or Manager if a final adjudication establishes that his acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action. (b) Continues for a person who has ceased to be a Member, Manager, employee or agent and inures to the benefit of the heirs, executors and administrators of such a person. (c) ROCKINGHAM'S INDEMNITY. Rockingham hereby agrees to indemnify, defend and hold the Company harmless from and against and in respect of any losses incurred by the Company arising from: (i) Any debts, liabilities, penalties, fines, sanctions, assessments and obligations relating to its business and operations of the Rockingham Park; (ii) All reasonable costs and expenses, including reasonable attorney's fees, incurred by the Company in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters pursuant to which Rockingham has agreed to indemnify the Company. (d) THE COMPANY'S INDEMNITY. Company hereby agrees to indemnify, defend and hold Rockingham harmless from and against and in respect of any losses incurred by Rockingham in the operation of Rockingham Park arising from: 37 (i) Any debts, liabilities, penalties, fines, sanctions, assessments and obligations relating to its business and operations of the Project ; (ii) All reasonable costs and expenses, including reasonable attorney's fees, incurred by Rockingham in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters pursuant to which the Company has agreed to indemnify Rockingham. ARTICLE XIX. MISCELLANEOUS PROVISIONS 19.1 TIME IS OF THE ESSENCE Time is of the essence with respect to all time periods set forth in this Agreement. 19.2 DEFAULT INTEREST RATE Any sum accruing to any Party under this Agreement which shall not be paid when due shall bear interest at a rate per annum equal to the Wall Street Journal prime rate plus 5% from the date such payment becomes due and payable until it is paid in full with said interest. 19.3 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. 19.4 EXECUTION BY FACSIMILE This Agreement may be executed by facsimile and if so executed shall be legal, valid and binding on any Party executing in such manner. 19.5 FORCE MAJEURE Whenever this Agreement requires an act to be performed within a specified time period or to be completed diligently, such periods are subject to "unavoidable delays." Unavoidable delays include delays caused by acts of God, acts of war, civil commotions, riots, strikes, lockouts, acts of government in either its sovereign or contractual capacity, perturbation in telecommunications transmissions, inability to obtain suitable labor or materials, accident, fire, water damages, flood, earthquake, or other natural catastrophes. 19.6 COMPLETE AGREEMENT This Limited Liability Company Agreement, and the Certificate of Organization, constitute the complete and exclusive statement of the Agreement among the Members with respect to the subject matter contained therein. This Agreement and the Articles replace and supersede all prior agreements by and among the Members or any of them. This Agreement and the Articles supersede all prior written and oral statements and no representation, statement, or condition or 38 warranty not contained in this Agreement or the Articles will be binding on the Members or be of any force and effect whatsoever. 19.7 AMENDMENTS This Limited Liability Company Agreement may be amended by the Members but only at a special or annual meeting of the Members, not by written consent, and only if the notice of the intention to amend the Limited Liability Company Agreement was contained in the notice of the meeting, or such notice of a meeting is waived by all Members. 19.8 GOVERNING LAW This Limited Liability Company Agreement, and its application, shall be governed exclusively by its terms and by the laws of the State of New Hampshire without reference to its choice of law provisions. 19.9 HEADINGS The headings in this Limited Liability Company Agreement are inserted for convenience only and are in no way intended to describe, interpret, define, or limit the scope, extent or intent of this Limited Liability Company Agreement or any provisions contained herein. 19.10 SEVERABILITY If any provision of this Limited Liability Company Agreement or the application thereof to any person or circumstance shall be deemed invalid, illegal or unenforceable to any extent, the remainder of this Limited Liability Company Agreement and the application thereof shall not be affected and shall be enforceable to the fullest extent permitted by law. 19.11 EXPENSES If any litigation or other proceeding is commenced in connection with or related to this Agreement, the prevailing party shall be entitled to recover from the losing party all of the incidental costs and reasonable attorneys' fees, whether or not a final judgment is rendered. 19.12 HEIRS, SUCCESSORS AND ASSIGNS Each and all of the covenants, terms, provisions and agreements contained in this Limited Liability Company Agreement shall be binding upon and inure to the benefit of the existing Members, all new and substituted Members, and their respective assignees (whether permitted by this Agreement or not), heirs, legal representatives, successors and assigns. 19.13 POWER OF ATTORNEY Each Member, in accepting this Agreement, makes, constitutes and appoints the Managers and each of them, with full power of substitution, as his, her, or its attorney-in-fact and personal representative to sign, execute, certify, acknowledge, file and record the Certificate of Organization, and to sign, execute, certify, acknowledge, file and record all appropriate instruments amending the Certificate of Organization and this Limited Liability Company Agreement on behalf of each such Member. In particular, the Manager as attorney-in-fact may 39 sign, acknowledge, certify, file and record on behalf of each Member such instruments, agreements and documents which: (1) reflect any amendments to the Certificate of Organization or Limited Liability Company Agreement; (2) reflect the admission or withdrawal of a Member; and (3) may otherwise be required of the Company, a Member or by law. The Power of Attorney herein given by each Member is a durable power and will survive the disability or incapacity of the principal. 19.15 COMPLIANCE WITH LAWS (a) At all times during the term of this Agreement, each Member agrees that its actions, and those of its representatives, agents, and consultants, will be entirely in accordance with all applicable laws, rules, ordinances and regulations of all states, counties, districts and municipalities in which such Member conducts business on behalf of the Company, and also will follow applicable federal laws, rules and regulations. (b) In connection with this Agreement, the Members each acknowledge that certain casino gaming licenses are currently issued to and held by Showboat or its Affiliates the states of Nevada, New Hampshire and New Jersey, and the state of New South Wales, Australia, and that Showboat or its Affiliates may in the future apply for gaming licenses in additional states or foreign countries. The laws of such jurisdictions may require Showboat to disclose private or otherwise confidential information about the other Members and their respective principals, lenders and affiliates. The Members each agree to refrain from all conduct that may negatively affect Showboat's licenses or license applications. If any representative, agent, Affiliate, of Rockingham is required to be licensed, qualified or found suitable by the Gaming Authorities and is denied such status by such Gaming Authority, Showboat shall immediately sell its interest in the Company in the manner specified in Article IX. 19.16 BACKGROUND INVESTIGATIONS (a) The Members each acknowledge that Showboat or its Affiliates currently conduct gaming operations in Nevada, New Jersey, and will conduct gaming operations in New South Wales, Australia. Such gaming operations are highly regulated by Gaming Authorities of these states and that such regulations impose upon Showboat an affirmative duty to investigate the backgrounds of entities or individuals with whom Showboat does business. Furthermore, such regulations require that Showboat and its Affiliates, which includes the Company and the Rockingham, subject themselves to rigorous investigation. Furthermore, Showboat or its Affiliates may in the future apply for licensure in other jurisdictions, including states of the United States or foreign countries which may have similar regulations. Gaming authorities in other jurisdictions may request information regarding entities and persons with whom Showboat does business. Accordingly, the Members each agree, if requested by Showboat, to use their best efforts to supply and to cause its principals, directors, officers, major shareholders, owners and any other key individuals, to supply such information and execute such affidavits and documents, including personal history disclosure documents and personal financial disclosure documents as Showboat may reasonably request. Showboat shall reimburse Rockingham or Rockingham's shareholders, officers, or directors, as the case may be, for such shareholder's officer's, or director's expenses incurred due to supplying such information to the Gaming Authorities. Furthermore, gaming regulations require that Showboat and its Affiliates be of good repute. 40 Rockingham and its principals, directors, officers, stockholders, owners and Affiliates represent that they are of good repute. (b) The Members each acknowledge that Rockingham or its Affiliates currently conduct pari-mutuel operations in New Hampshire. Such operations are regulated by Gaming Authorities of New Hampshire and that such regulations impose upon the Rockingham an affirmative duty to investigate the backgrounds of entities or individuals with whom Rockingham does business. Furthermore, such regulations require that Rockingham and its Affiliates subject themselves to investigation. Accordingly, the Members each agree, if requested by Rockingham, to use their best efforts to cause their principals, directors, officers, major shareholders, owners and any other key individuals, to supply such information and execute such affidavits and documents, including personal history disclosure documents and personal financial disclosure documents as Rockingham may reasonably request. Rockingham shall reimburse Showboat or Showboat's shareholders, officers or directors, as the case may be, for such shareholder's, officer's, or director's expenses incurred due to supplying such information to the Gaming Authority except for such disclosure which is required to obtain or maintain a license for the Project. Showboat and its principals, directors, and officers represent that they are of good repute. 19.17 COMPLIANCE WITH OTHER AGREEMENTS Each Member shall use its best efforts to perform, or cause to be performed, all obligations of the Company under any agreement negotiated in connection herewith or pursuant hereto, including, without limitation, the Management Agreement of even date herewith between the Company and an Affiliate of Showboat. 19.18 GOVERNMENTAL APPROVAL Each Members shall use their best efforts to cause the Company to obtain all necessary licenses, permits and approvals from all applicable governmental authorities with respect to the construction and development of the Project. 19.19 LICENSING REQUIREMENTS Each Member covenants to use its best efforts to diligently obtain all state and local licenses, including gaming licenses, necessary to conduct gaming operations at the Project. The Members agree to provide the other Members with copies of all applications, reports, letters, and other documents filed or provided to the state or local licensing authorities. In the event that any Member as a result of a communication or action by the Gaming Authority (including, without limitation, the New Hampshire Racing Commission) or on the basis of consultations with its gaming counsel and/or other professional advisors, reasonably believes in good faith, with the concurrence of the Managers, that the Gaming Authority are likely to: (i) fail to license and/or approve the Company or its Affiliates to own and operate any gaming related businesses; (ii) grant required gaming licensing and/or approval only upon terms and conditions which are unacceptable to the Company; (iii) significantly delay the licensing and/or approval contemplated under this Agreement; or (iv) revoke any existing license or gaming operating contract of the Company or its Affiliates, in each case due to concerns of any aspect of the suitability of a particular Member or its shareholders, then the Company shall cause such Member to divest itself of such Interest by sale to the other Members in the manner set forth in Article IX. 41 19.20 FOREIGN GAMING LICENSES If Showboat determines, at its sole discretion, that any gaming licenses held by Showboat or its Affiliates in other jurisdictions may be adversely affected or in jeopardy because of its status as a Member, Showboat shall have the option at any such time to sell its Interest, subject to the right of first refusal pursuant to Article X. If this occurs prior to or within the first six (6) months after commencement of operations at the Project and Rockingham elects its right of first refusal, Showboat shall receive as sole compensation for Rockingham's purchase of its Interest, the capital contribution Showboat has made to the Company. In case of a sale by Showboat of all of its Interest under this Section, the Management Agreement shall terminate upon the consummation of such sale. 19.21 PRESS RELEASES The Company shall establish policies and procedures regarding the issuance of any press release. No press release shall be issued except as prepared in accordance with such policies and procedures. Press releases of any Member or its Affiliates concerning the Project or the Company shall be submitted to the Company in accordance with the policies and procedures for the Company's approval, with the exception of any press releases required to be made by any Member or its Affiliates pursuant to various securities laws applicable to such Member or its affiliates. 19.22 UNCERTAINTIES Due to the fact that, among other things: (i) gaming legislation has not been enacted in New Hampshire; (ii) gaming regulations have not been adopted; and (iii) gaming licenses have not been issued (each of the foregoing are collectively referred to herein as "Uncertainties"), Showboat and Rockingham agree to cooperate with each other and respect each other's opinions in resolving issues which may arise after the date hereof. The Parties acknowledge that legislation which has been considered by the New Hampshire Legislature requires that gaming licenses be limited to the holders of pari-mutuel licensees or entities in which they have an interest. In the event that such legislation, or similar legislation, is enacted, certain remedies set forth in this Limited Liability Company Agreement may not be available to Showboat. 42 19.23 ADDITIONAL UNDERSTANDINGS (a) The Parties acknowledge and agree that under no circumstances shall any of the remedies or rights set forth in this Limited Liability Company Agreement be exercised in any way which would adversely affect the operation of pari-mutuel wagering, simulcasting and inter-track wagering conducted by Rockingham at Rockingham Park, including, without limitation, any requirement that Rockingham sell all or any portion of its interest in Rockingham Park or Rockingham Venture Inc. (b) Notwithstanding any other provision of this Limited Liability Company Agreement to the contrary, all remedies of Showboat, whether under this Limited Liability Company Agreement, under law, or at equity against Rockingham, shall be limited in recourse to Rockingham's Interest and the profits and distributions resulting therefrom. Under no circumstances shall Showboat have recourse against the Rockingham Shareholders or assets of Rockingham other than Rockingham's Interest. (c) Notwithstanding any other provision of this Limited Liability Company Agreement, the Parties acknowledge and agree that the performance of any of the obligations set forth herein by Rockingham may be subject to (i) restrictions contained in the Loan and Trust Agreement dated as of December 1, 1983 and as amended (the "Senior LTA"), by and among the Business Development Authority of the State of New Hampshire (the "Authority"), Rockingham, and the First National Bank of Boston, as Trustee (the "Trustee"); and (ii) provisions of RSA 284 and the regulations promulgated by the New Hampshire Pari-Mutuel Commission. Based upon the foregoing, any obligations to be performed by Rockingham pursuant to this Limited Liability Company Agreement may be subject to enactment of laws authorizing Limited Gaming or Full Gaming, consent of the Trustee and the Authority, approval of the New Hampshire Pari-Mutuel Commission, and compliance with all applicable regulations of the New Hampshire Pari-Mutuel Commission. ARTICLE XX. CONFIDENTIALITY AND NON-USE 20.1 DISCLOSURE OF PROPRIETY INFORMATION Unless otherwise provided for herein, each Party hereto agrees for itself and its respective Affiliates, agents, representatives and consultants that it shall not disclose, reveal or make available to any third party, and that it shall take all steps necessary or desirable to prevent the Company from disclosing, revealing or making available to any third party, any confidential or proprietary information, whether of a technical, financial, commercial or other nature ("Confidential Information"), received directly or indirectly from or in respect of any other Party or in respect of the Company, except as authorized in writing by such other Party (or in the case of the Company by all parties) and except that either Party may disclose such information: (a) to its employees, agents, representatives and consultants or employees of the Company to whom, and to the extent that, such disclosure is necessary in furtherance of the purposes of this Agreement, provided, however, that the disclosing Party shall be responsible for ensuring that such persons comply with the confidentiality and non-use provisions of this Article 43 XX, and shall take the steps necessary to ensure such compliance, whether by agreement, establishment of internal regulations, or otherwise; or (b) to the extent required by applicable law, judicial or administrative process or by any Governmental Authority. 20.2 USE OF PROPRIETARY INFORMATION Each Party hereto agrees that it shall not use and that it shall take all steps necessary or desirable to prevent the Company from using, any Confidential Information received from another Party or from the Company except as specifically provided in this Agreement or as otherwise expressly authorized in writing by the relevant Party (or in the case of the Company by all Parties). 20.3 DESTRUCTION OR RETURN OF CONFIDENTIAL INFORMATION All documents received by a Party (the "Receiving Party") containing Confidential Information of another Party or the Company and all documents derived or prepared from such documents and all copies thereof shall be inventoried by the Receiving Party, marked with a suitable label to indicate their confidential status (to the extent such documents are not already so marked) and segregated from all other papers of the Receiving Party. Upon termination of this Agreement for any reason, such documents and all copies thereof in the possession or control of the Receiving Party or its present or former employees, agents, representatives, or consultants relating to the Confidential Information of the other Party (the "Disclosing Party") shall be destroyed under the supervision of the Disclosing Party or returned to the Disclosing Party, at the Disclosing Party's discretion, and the receiving Party shall immediately cease using the Confidential Information of the disclosing Party. 20.4 EXCEPTION A Party (in this Section 20.4, the "Disclosing Party") shall not be obligated to keep confidential or shall not incur any liability for the use or disclosure to a third party of any information that (i) has fallen into the public domain through no unauthorized act of the Disclosing Party; (ii) was received from a third party not under any obligation to refrain from revealing such information; or (iii) was in the Disclosing Party's possession prior to the receipt from another Party or the Company. 20.5 SURVIVAL Notwithstanding anything to the contrary herein, the provisions of this Article XX shall survive and inure to the benefit of and be binding upon the Parties for a period of five (5) years subsequent to the date of termination of this Agreement. ARTICLE XXI. ARBITRATION 21.1 APPOINTMENT OF ARBITRATORS If any dispute shall arise or if any issue left open hereunder cannot be resolved between the Parties hereto after negotiating in good faith to reach a just and equitable solution satisfactory to 44 the Parties within fifteen (15) days, such dispute is to be referred first to a committee of four persons who shall meet in an attempt to resolve said dispute or open issue. The committee shall consist of two persons appointed by Rockingham and two persons appointed by Showboat. If an agreement cannot be reached to resolve the dispute by the committee within fifteen (15) days, the dispute or open issue will be resolved by binding arbitration before arbitrators having not less than 10 years experience in the gaming industry. In the event an appraisal of the Project or other assets needs to be performed, such appraisal is to be settled by binding arbitration before arbitrators having not less than 10 years experience in the gaming industry. Any award of the arbitrators may be filed in a court of law as a final judgment. Any such arbitration shall be in accordance with the rules and regulations adopted by the American Arbitration Association or as the Parties otherwise agree. Either Party may serve upon the other Party a written notice of the demand that the dispute or appraisal is to be resolved pursuant to this Article. Within thirty (30) days after the giving of such notice, each of the Parties hereto shall nominate and appoint an arbitrator (or appraiser, as the case may be) and shall notify the other Party in writing of the name and address of the arbitrator so chosen. Upon the appointment of the two arbitrators as HEREINABOVE provided, said two arbitrators shall forthwith, within fifteen (15) days after the appointment of the second arbitrator, and before exchanging views as to the question at issue, appoint in writing a third arbitrator ("Selected Arbitrator") and give written notice of such appointment to each of the Parties hereto. In the event that the two arbitrators shall fail to appoint or agree upon the Selected Arbitrator within said fifteen (15) day period, the Selected Arbitrator shall be selected by the Parties themselves if they so agree upon such Selected Arbitrator within a further period of ten (10) days. If a Selected Arbitrator shall not be appointed or agreed upon within the time herein provided, then either Party on behalf of both may request such appointment in accordance with the American Arbitration Association. Rockingham and Showboat shall share equally the cost of the Selected Arbitrator. Said arbitrators shall be sworn faithfully and fairly to determine the question at issue. The arbitrators shall afford to Rockingham and Showboat 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 their determination in writing and shall give notice to the Parties hereto of such determination. The concurring determination of any two of said three arbitrators shall be binding upon the Parties, or, in case no two of the arbitrators shall render a concurring determination, then the determination of the Selected Arbitrator shall be binding upon the Parties hereto. Each Party shall pay the fees of the arbitrator appointed by it, and the fees of the Selected Arbitrator shall be divided equally between Rockingham and Showboat. 21.2 INABILITY TO ACT In the event that an arbitrator appointed as aforesaid shall thereafter die or become unable or unwilling to act, his successor shall be appointed in the same manner provided in this Article for the appointment of the arbitrator so dying or becoming unable or unwilling to act. ARTICLE XXII. FORCE MAJEURE 22.1 FORCE MAJEURE DEFINED The following events are beyond the control of either Partner (a "Force Majeure Event"): 45 (a) The unavailability of financing in the marketplace except at rates in excess of eighteen and one/half (18 1/2%) per annum, inclusive of cash flow participation interests. (b) A delay in the opening of the Project for more than one hundred eighty (180) days after the opening date is established by the Company or a closure of the Project after Opening for more than one hundred eighty (180) days. (c) Any other event which materially alters the assumptions and underlying facts upon which this Agreement is based and which is reasonably expected by both Members pursuant to a projection prepared within 90 days of the commencement of Gaming Activities to reduce the projected internal rate of return to Showboat by more than thirty percent (30%) compared to such projection. 22.2 ACTIONS TO RESOLVE FORCE MAJEURE EVENTS In the event of a Force Majeure Event the Members agree to first meet in a good faith effort to mutually agree on appropriate courses of action to be taken in connection with a Force Majeure Event, including the economic effect thereof. In the event that the Members fail to agree on a course of action then either Member may terminate this Agreement on thirty days (30) written notice to the other Member. In the event of such termination, Showboat shall recover its total equity contributions to the date of termination in the following manner: (i) as a subordinated obligation of Rockingham's new "replacement" gaming venture if Rockingham is successful in commencing non-racing gaming operation; (ii) repayments of the equity contributions shall commence five years after the "replacement" gaming venture commences operations; and (iii) no interest shall accrue on Showboat's equity contribution until the repayment of the debt commences in accordance with subparagraph (ii) above. Interest shall accrue at 18% per annum. ARTICLE XXIII. TERMINATION 23.1 TERMINATION EVENTS This Agreement shall terminate upon the occurrence of the following: (a) on December 31, 1999, in the event that the New Hampshire legislature has not enacted legislation permitting Gaming Activities at a facility such as the Rockingham Park , provided, however, Showboat in its sole and absolute discretion may extend the time period for two successive twelve month periods in the event such legislation is believed to be imminent; (b) upon the effective date of passage of legislation making it unlawful to operate Gaming Activities in the state of New Hampshire or the entry of an order or judgment from a court of appropriate jurisdiction declaring such legislation unconstitutional or invalid under the laws of the state of New Hampshire (the termination shall be delayed if any court order is duly appealed and its effectiveness is suspended); (c) thirty (30) days after the New Hampshire Gaming Authority denies Rockingham or Showboat any gaming license necessary to conduct gaming at the Project; 46 (d) upon Showboat's failure to secure and maintain all approvals from Governmental Authorities governing or regulating Showboat or its Affiliates to conduct gaming in the state of New Hampshire. (e) Showboat fails, after making good faith efforts to meet its financing obligations. (f) upon a change in the ownership of Showboat, Inc. or its Affiliates resulting in a change in the control of Showboat, unless Rockingham consents within thirty (30) days prior to the change in control of Showboat, which consent may not be unreasonably withheld, in writing to such change in control. For purposes of this section, "control" means the possession, directly of 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% or more of a publicly traded corporation, or more than 50% of a non-publicly traded corporation. (g) upon mutual agreement of the parties. 23.2 NOTICE OF TERMINATION In the event of an occurrence specified in Section 23.1 (a) through (f), either Showboat or Rockingham, as appropriate, shall terminate this Agreement by giving five (5) day's written notice, and the Term of this Agreement shall expire by limitation at the expiration of said last day specified in the notice as if said date was the date herein originally fixed for the expiration of the Term hereof. 23.3 REMEDIES UPON TERMINATION (a) Prior to Commencing Gaming Operations. (i) In the event of an occurrence specified in Section 23.1(a) or (b) or in the event of an occurrence specified in Section 23.1(c), (d) or (f) and neither Member continues in the development of the Project the Company shall be liquidated and each Member shall receive its pro rata share of the liquidation proceeds. (ii) In the event of an occurrence specified in Section 23.1(c), (d), (e) or (f) which terminates this Agreement but the other party continues to participate in the development of the Project, then the withdrawing Member shall be paid by the non-withdrawing Member the value of the withdrawing Member's equity contributions to the date of termination as specified in Section 4.1 in the following manner: (i) as a subordinated obligation of the non-withdrawing Member's new "replacement" gaming venture; (ii) repayments of the equity contributions, including, if the withdrawing Member is Showboat, the then principal balance and accrued but unpaid interest on the Capital Loan, shall commence five years after the "replacement" gaming venture commences operations; and (iii) no interest shall accrue on the equity contributions until the repayment of the debt commences in accordance with subparagraph (ii) above. Interest shall accrue on the equity contributions at 18% per annum. (b) After Commencing Gaming Operations. 47 (i) In the event of the occurrence specified in Section 23.1(b), each Member agrees to work with the other to minimize each Member's loss. (ii) In the event of an occurrence specified in Section 23.1(c), (d) or (f), the non-defaulting Member shall purchase the defaulting Member's interest in this Agreement pursuant to Article IX. The purchase price shall be reduced by the damage suffered by the non-defaulting Member. ARTICLE XXIV. NOTICES All notices provided for in this Agreement or related to this Agreement, which any Member desires to serve on the other, shall be in writing, and any and all notices or other papers or instruments related to this Agreement shall be deemed sufficiently served or delivered on the date of mailing if sent (i) by United States registered or certified mail (return receipt requested), postage prepaid, in an envelope properly sealed, (ii) by a facsimile transmission where written acknowledgment of receipt of such transmission is received and a copy of the notice is mailed with postage prepaid, or (iii) by a nationally recognized overnight carrier service providing for receipted delivery, addressed as follows: Showboat: with a copy to: J.K. Houssels, III John N. Brewer, Esq. President Kummer Kaempfer Bonner & Showboat New Hampshire Renshaw Inc. 3800 Howard Hughes 6601 Ventnor Avenue Parkway Ventnor, NJ 08046 Seventh Floor Las Vegas, NV 89109 Rockingham: with a copy to: Joseph E. Carney, Jr. Thomas Carney President Suite 200 Rockingham Venture, Inc. 1101 North Congress Rockingham Park Avenue Rockingham Park Boulevard Boynton Beach, Florida Salem, NH 03079 33426 Either Rockingham or Showboat may change the address or name of addressee applicable to subsequent notices (including copies of said notices as hereinafter provided) or instruments or other papers to be served upon or delivered to the other party, by giving notice to the other party as aforesaid, provided that notice of such change shall not be effective until the fifth day after mailing or facsimile transmission. 48 IN WITNESS WHEREOF, this Limited Liability Company Agreement was adopted by a unanimous vote of all the Members of this Company at the organizational meeting thereof held on ___________________, 1995. Members: ROCKINGHAM VENTURE, INC., a New Hampshire corporation By:________________________________ Joseph E. Carney, Jr. President SHOWBOAT NEW HAMPSHIRE, INC., a Nevada corporation By: /s/ J.K. Houssels, III J.K. Houssels, III President ACKNOWLEDGED AND AGREED TO WITH RESPECT TO ARTICLES VII AND IX ONLY: Rockingham Shareholders: ___________________________________ ___________________________________ ___________________________________ ___________________________________ 49 EXHIBIT 3. THE COMMON AREA 1.01 THE COMMON AREA DEFINED Rockingham shall continue to separately operate its racing business at Rockingham Park. Accordingly, portions of Rockingham Park will be available to the patrons, invitees, employees and licensees of the Company and Rockingham as a Common Area. The Common Area shall be all areas within Rockingham Park which are made available as hereinafter provided for the general use, convenience and benefit of the Company, Rockingham and their respective patrons, invitees, employees, and licensees. The Common Area includes, but is not limited to, common entrances, lobbies, malls, restrooms (not located within the areas exclusively controlled by the Company or Rockingham), elevators, stairways and accessways, loading docks, ramps, drives, platforms and any passageways and serviceways thereto, parking areas, roadways, sidewalks, walkways, driveways and utility lines and systems, employee locker rooms, employee lunch rooms, employee parking, executive offices, boiler room, delivery areas and loading docks, storage areas, trash receptacles, and other areas specified for the joint use of Rockingham and the Company, or their agents, employees or affiliates. 1.02 THE COMPANY'S EASEMENT TO USE THE COMMON AREA (a)(i) Rockingham grants the Company a nonexclusive easement to use the Common Area and to permit the Company's patrons, employees and invitees, as appropriate, to use the Common Area. The easement may be enjoyed in common with Rockingham and its employees and invitees. (a)(ii) Rockingham may grant utility easements over and under portions of the Common Area to utility companies and governmental entities and to their employees and contractors as long as such easements do not materially interfere with the use thereof. (b)(i) Any use of, or construction in the Common Area pursuant to this Section shall be conducted with due regard for the businesses operated by the Company and Rockingham at Rockingham Park. The use of or construction in the Common Area shall also be conducted with due regard for the convenience and comfort of the customers of Rockingham and the Company to use the Common Area for parking, passage, maneuvering, egress, ingress, loading and unloading. Accordingly, during any period in which the Company is conducting business, Rockingham shall endeavor to avoid, to the extent possible and economically reasonable, unreasonable noise levels as a result of construction or excavation in the Common Area, and Rockingham shall take reasonable steps to prevent any obstructions, as well as dust and debris from the areas of construction and excavation from coming onto other portions of the Common Area or the Premises. Additionally, any construction work shall be conducted in a manner so as to not materially interfere with the business of Rockingham. Rockingham and the Company shall consult with each other as to the scheduling of and sequence of construction work and shall conduct such work at times which will not materially interfere with their respective operations. 50 1.03 OPERATION AND MAINTENANCE OF COMMON AREA (a) STANDARDS. From and after the date upon which the Project is open for business, Rockingham shall operate, or cause to be operated, the Common Area in good order, condition and repair. Rockingham shall have the right to select from time to time, a person or persons, other than Rockingham to operate and maintain the Common Area, provided, however, that such selection shall not diminish Rockingham's responsibility for such operation and maintenance. Without limiting the generality of the foregoing, Rockingham, in the operation and maintenance of the Common Area, shall do all things necessary and appropriate in a manner consistent with the operation of a first-class gaming facility, including but not limited to: (i) Maintain the floor of the Common Area smooth and evenly covered with the type of flooring material originally installed thereon, or such substitute thereof as shall be in all respects equal in quality, appearance and durability. (ii) Remove all papers, debris, filth and refuse from the Common Area and wash or thoroughly sweep the surface of the Common Area with frequency sufficient to maintain a clean, attractive appearance. (iii) Clean lighting fixtures within the Common Area and relamp and reballast as needed. (iv) Maintain and replace the landscaping within the Common Area in a first-class manner, with plants and materials in good thriving condition, which create an attractive appearance. (v) Maintain all signs and lighting fixtures of the Common Area in a clean and orderly condition, including relamping and repairing as may be required, and all such signs and lighting fixtures must provide appropriate illumination. (vi) Employ courteous and well-trained personnel to patrol the Common Area to maintain a safe and secure atmosphere during business hours, and thereafter, during such other hours as may be deemed necessary. (vii) Maintain and keep in a clean and sanitary condition public restrooms and all other common use facilities within the Common Area including any drainage systems. (viii) Clean, repair and maintain all utility systems that are a part of the Common Area. (ix) Clean and maintain the structure of the Clubhouse of Rockingham Park, the roof, skylights, wall surfaces, doors and other appurtenances to the Clubhouse. (x) Maintain the heating, ventilating and cooling system of the Common Area, if applicable, in good order, condition and repair, so that at all times the same shall operate at least during the same hours of the same days that the heating, ventilating and cooling system are serving the Project or the Rockingham Race Track. 51 (xi) Maintain such appropriate automobile parking area entrance, exit and directional signs, markers and lights in Rockingham Park as shall be reasonably required. (xii) Repaint striping, markers, directional signs, etc., as necessary to maintain in first-class condition the parking area. (xiii) Comply with all laws, including zoning laws and the Americans With Disabilities Act, in the management and operation of the Common Area. 1.04 COMMON AREA MAINTENANCE COST The term "Common Area Maintenance Cost" refers to and means the total of all monies paid out during a fiscal year by Rockingham for reasonable costs and expenses directly relating to the maintenance, repair, operation and management of the Common Area. All costs shall be prorated in a mutually agreeable basis between Rockingham and the Company based upon the relationship which the Common Area contributed to the Company bears to total Common Areas in Rockingham Park. Such costs shall include, but not be limited to: (i) All rental charges for equipment and costs of small tools and supplies; (ii) All acquisition costs of maintenance equipment which cannot be capitalized; (iii) Policing, security protection, traffic direction, control and regulation of the parking areas and areas of ingress and egress; (iv) The cost of cleaning and removal of rubbish, dirt and debris from the Common Area; (v) The cost of landscape maintenance and supplies for the Common Area; (vi) All charges for utilities services utilized in connection with the Common Area together with all costs of maintaining lighting fixtures and the cost of repairing and maintaining common utility lines in the Common Area (in the event that utility services are not separately metered, utilities shall be prorated on a mutually agreeable basis between Rockingham and the Company based upon the relationship which the Common Area controlled by the Company bears to the total Common Areas of Rockingham Park); (vii) Premiums for all fire and extended coverage, public liability and property damage insurance carried by Rockingham on the Rockingham Park under the provisions of this Agreement, or by law or regulation; (viii) All real property taxes and assessments on the Common Area required to be paid by Rockingham; (ix) All accounting and salary costs for the management of the Common Area. 52 1.05 ACCOUNTING Rockingham shall keep complete and accurate books and records, in accordance with generally accepted accounting principles consistently applied, of the Common Area Maintenance Cost and shall retain those books and records at its principal office at Rockingham Park. Rockingham shall preserve for a period of five (5) years following the date of the payments by the Company of its respective portion of the Common Area Maintenance Cost all such books and records, including any payroll and time records, vouchers, receipts, correspondence and memos pertaining to the Common Area Maintenance Cost. The Company has the right, during the performance of the Common Area maintenance by Rockingham and for the aforesaid period of five (5) years following its respective payments of the Common Area Maintenance Cost, to examine and audit such books and records, including the right to copy a portion or portions thereof, at reasonable times during business hours, upon notice to Rockingham given not less than five (5) days in advance of any such examination. In the event that any audit shall disclose any error in the determination of the amount of Common Area Maintenance Cost, an appropriate adjustment shall promptly be made to correct the Common Area Maintenance Cost and the Company's share of Common Area Maintenance Cost. If the Common Area Maintenance Cost or any party's share shall have been overstated by more than three percent (3%), Rockingham shall pay, at its sole cost and expense, all of the reasonable costs and expenses connected with such audit. 1.06 PLANS AND BUDGETS (a) Rockingham shall furnish the Company with a Common Area Budget, a preliminary budget within one hundred twenty (120) days following the enabling legislation and a definitive Common Area Budget, on or before ninety (90) calendar days prior to the opening of the Project which budget shall be for the period commencing on the first business day on which the Project begins gaming operations until December 31. On or before October 1 of each year Rockingham shall furnish the Company with a Common Area Budget for the next calendar year. Rockingham shall use its best efforts to comply with the Common Area Budget. (b) The Company shall approve or disapprove the Common Area Budget within twenty (20) days of receipt of the budget, provided that if Company does not give written notice to Rockingham of its approval or disapproval within such time period, the Common Area Budget shall be deemed approved. In the event that the Company disagrees with any line item contained in the Common Area Budget, the Company shall discuss its disagreement with Rockingham. Rockingham will, within ten (10) days of notice of the Company's disagreement, offer constructive corrections to resolve the Company's concerns. During any period that Owner disapproved of the Common Area Budget, Rockingham will continue to maintain the Common Area in accordance with the Common Area Budget for the preceding year as the same may be adjusted for increases year-to- year in the Consumer Price Index applicable to the Salem, New Hampshire area. (c) The Common Area Budget may be amended from time to time with the Company's approval, which approval shall not be unreasonably withheld or delayed, after submission by Rockingham or the Company, as applicable, of the amendments to such budget and the rationale for such amendments. 53 MANAGEMENT AGREEMENT BY AND AMONG SHOWBOAT ROCKINGHAM COMPANY, LLC, SHOWBOAT OPERATING COMPANY AND ROCKINGHAM VENTURE, INC. MANAGEMENT AGREEMENT TABLE OF CONTENTS PAGE ARTICLE 1. RECITALS AND DEFINITIONS 2 ARTICLE 2. PRE-ENACTMENT PERIOD 7 Section 2.01 No Current Legislation 7 Section 2.02 Duties During Pre-enactment Period 7 ARTICLE 3. APPOINTMENT/TERM/OPTION TO EXTEND TERM 7 Section 3.01 Appointment 7 Section 3.02 Term 7 Section 3.03 Opening the Project 7 ARTICLE 4. OWNER AND MANAGER DEVELOPMENT OBLIGATIONS DURING DEVELOPMENT TERM 8 Section 4.01 Construction of Project/Compliance with Law 8 Section 4.02 Engagement of Manager As Consultant 8 Section 4.03 Preliminary Plans and Specifications 8 Section 4.04 Pre-Opening Committee 8 Section 4.05 Obligations during Development Term. 9 Section 4.06 Construction 9 Section 4.07 Pre-Opening Services by Manager. 9 Section 4.08 Payment of Pre-Opening Expenses 9 ARTICLE 5. OPERATIONS 9 Section 5.01 Accounting Procedures and Services Books and Records 9 Section 5.02 Manager's Access to Gaming Financial Records 10 Section 5.03 Audits 10 Section 5.04 Monthly Financial Statements 10 Section 5.05 Expenses 11 Section 5.06 Standards. 11 Section 5.07 Plans and Budgets. 12 Section 5.08 Management 13 Section 5.09 Bank Accounts 14 i Section 5.10 Owner's Advances 14 Section 5.11 Cooperation of Owner and Manager 15 Section 5.12 Financing Matters. 15 Section 5.13 Conflict of Interest/Non-Competition 16 ARTICLE 6. MANAGEMENT FEE 16 Section 6.01 Payments to Manager. 16 ARTICLE 7. MANAGER'S RIGHT OF FIRST REFUSAL FOR CONCESSIONS 17 ARTICLE 8. REAL PROPERTY TAXES AND ASSESSMENTS, AND PAYMENTS TO THE GAMING AUTHORITY 17 Section 8.01 Payment of Real Estate Taxes and Assessments 17 Section 8.02 Exceptions 17 ARTICLE 9. USE AND OCCUPANCY OF THE PROJECT 18 Section 9.01 Uses 18 Section 9.02 Showboat Marks 18 Section 9.03 Rockingham Marks 18 ARTICLE 10. MAINTENANCE AND REPAIRS 18 Section 10.01 Owner's Maintenance and Repairs 18 ARTICLE 11. INSURANCE AND INDEMNITY 19 Section 11.01 Owner Insurance Obligations 19 Section 11.02 Parties Insured 20 Section 11.03 Approved Insurance Companies 20 Section 11.04 Approval of Insurance Coverage 21 Section 11.05 Failure to Obtain Required Insurance 21 Section 11.06 Waiver of Subrogation 21 Section 11.07 Mutual Cooperation 21 Section 11.08 Delivery of Insurance Policies 21 Section 11.09 Indemnification by Manager 21 Section 11.10 Indemnification by Owner 22 Section 11.11 Selection of Counsel/Conduct of Litigation 22 ii ARTICLE 12. CASUALTY 23 ARTICLE 13. TAKING OF THE PROJECT 23 Section 13.01 Definitions. 23 Section 13.02 Entire Taking of the Support Areas 23 Section 13.03 Duty to Restore 24 ARTICLE 14. DISPOSITION OF INSURANCE PROCEEDS AND AWARDS 24 Section 14.01 Trustee 24 Section 14.02 Deposits of Insurance Proceeds and Awards 24 Section 14.03 Procedure for Distribution of Insurance Proceeds and Awards 24 ARTICLE 15. ASSIGNMENT AND SUBLETTING 26 ARTICLE 16. AFFIRMATIVE COVENANTS OF MANAGER 26 Section 16.01 Corporate Status 26 Section 16.02 Compliance with Laws 26 Section 16.03 Gaming Approvals 27 Section 16.04 Confidential Information 27 Section 16.05 Gaming Applications 27 Section 16.06 Compliance With Other Agreement 27 ARTICLE 17. AFFIRMATIVE COVENANTS OF OWNER 27 Section 17.01 Corporate Status 27 Section 17.02 Maintenance of Insurance 28 Section 17.03 Compliance with Laws 28 Section 17.04 Cooperation with Gaming Authorities 28 Section 17.05 Confidential Information 28 Section 17.06 Compliance with Loan Covenants 29 Section 17.07 Non-Interference 29 Section 17.08 Gaming Applications 29 Section 17.09 Title/Quiet Enjoyment 29 ARTICLE 18. REPRESENTATIONS AND WARRANTIES 29 Section 18.01 Owner Corporate Status 29 Section 18.02 Manager Corporate Status 29 Section 18.03 Authorization/No Conflict 30 Section 18.04 Permits/Approvals 30 Section 18.05 Accuracy of Representations 30 iii Section 18.06 Maintenance of Gaming and Other Licenses 30 Section 18.07 Condition of Project During Term 30 Section 18.09 Impair Reputation 31 ARTICLE 19. ARBITRATION 31 SECTION 19.01 APPOINTMENT OF ARBITRATORS 31 SECTION 19.02 INABILITY TO ACT 32 ARTICLE 20. DEFAULT/STEP-IN RIGHTS 32 Section 20.01 Definition 32 Section 20.02 Manager's Defaults 32 Section 20.03 Step-In Rights 33 Section 20.04 Owner's Default 33 Section 20.05 Bankruptcy 34 Section 20.06 Reorganization/Receiver 34 Section 20.07 Delays and Omissions 34 Section 20.08 Disputes in Arbitration 34 ARTICLE 21. TERMINATION 34 Section 21.01 Terminating Events 34 Section 21.02 Notice of Termination 35 Section 21.03 Remedies Upon Termination. 35 Section 21.04 Delivery of Project 35 ARTICLE 22. HAZARDOUS MATERIALS 36 Section 22.01 No Hazardous Materials 36 Section 22.02 Compliance With Laws 36 Section 22.03 Indemnification By Owner 36 Section 22.05 Hazardous Material Defined 37 ARTICLE 23. NOTICES 37 ARTICLE 24. MISCELLANEOUS 38 Section 24.01 Time of the Essence 38 Section 24.02 Heirs, Successors, Assigns 38 Section 24.03 Construction 38 Section 24.04 Governing Law 38 Section 24.05 Severability 38 iv Section 24.06 Relation of the Parties 38 Section 24.07 No Broker or Finder 38 Section 24.08 Attorneys' Fees 39 Section 24.09 Entire Agreement 39 Section 24.10 Counterparts 39 Section 24.11 Force Majeure 39 Section 24.12 No Warranties 39 Section 24.13 Headings 39 Section 24.14 Waiver 40 v MANAGEMENT AGREEMENT This Management Agreement ("Agreement") is dated as of July 27, 1995, and is made and entered into by and among Showboat Rockingham Company, L.L.C., a New Hampshire limited liability company or its successors and assigns ("Owner"), whose address is Rockingham Park Boulevard, Salem, New Hampshire 03079, Showboat Operating Company, a Nevada corporation, or its successors and assigns ("Manager"), whose address is 2800 Fremont Street, Las Vegas, Nevada 89104, and Rockingham Venture, Inc., a New Hampshire corporation, whose address is Rockingham Park Boulevard, Salem, New Hampshire 03079. RECITALS A. An affiliate of Manager lent $8.85 million to Rockingham Venture, Inc., a New Hampshire corporation ("Rockingham") and a member of Owner, in consideration of, among other things, the ownership of and management of a non-racing gaming business at Rockingham Park ("Rockingham Park"). B. Rockingham and an Affiliate of Manager have formed, as of the date hereof, Owner. C. Upon the enactment of legislation permitting a gaming business Owner shall design and develop the Project (defined in Article 1) in order to conduct a gaming business at Rockingham Park. D. Manager has experience in designing gaming premises, and in starting up and conducting a gaming business. E. Owner desires to engage Manager as a consultant to Owner in designing the gaming area, training staff and installing gaming equipment for public use, and, upon completion of the construction of the Project and/or rehabilitation of the area designated for the Project and all ancillary facilities, including the receipt of all gaming and other approvals, to manage and operate the Project. F. Manager desires to be engaged as a consultant to assist in the design of the gaming area of the Project and, upon completion of the construction of the Project and/or rehabilitation of the area designated for the Project , to manage and operate the Project. G. Owner and Manager desire to set forth their agreements as to the development and management of the Project and the proposed non-racing gaming operations at Rockingham Park in the event and with the expectation that (i) the State of New Hampshire enacts legislation which permits a privately owned non- racing gaming business to operate at a racetrack such as Rockingham Park and (ii) the gaming licensing authority specified in the legislation permitting gaming selects and licenses both Owner and Manager. H. Owner and Manager acknowledge their mutual desire to enter into this Agreement despite the numerous uncertainties which must be resolved or clarified to each party's satisfaction. Both parties undertake to negotiate in good faith in a timely fashion such addenda to this Agreement as are necessary to continue the effectiveness of this Agreement and to revise the assumptions and underlying facts upon which this Agreement is based. NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and with the intention of being bound by this Agreement, the parties stipulate and agree as follows: ARTICLE 1. RECITALS AND DEFINITIONS The foregoing Recitals are true and correct. The following defined terms are used in this Agreement: "Affiliate" shall mean a person who, directly or indirectly, or through one or more intermediaries, (i) controls, is controlled by, or is under common control with the Person in question; (ii) is an officer, director, 5% stockholder, partner in or trustee of any Person referred to in the preceding clause; or (iii) is a spouse, father, mother, son, daughter, brother, sister, uncle, aunt, nephew, niece or grandchild of any Person described in clauses (i) and (ii). "Agreement" shall mean this Management Agreement as originally executed and as amended, modified, supplemented, or restated from time to time, as the context may require. "Audit Day" is defined in Section 5.03. "Audited Statements" is defined in Section 5.03. "Award" is defined in Section 13.01. "Bad Debts" shall mean the amount equal to gaming accounts receivables which have not been collected for more than 120 days. "Bank Accounts" is defined in Section 5.09. "Bankroll" shall mean an amount reasonably determined by Manager as funding required to bankroll Gaming Activities, but in no case less than the amount required by New Hampshire gaming law. In no event shall such Bankroll include amounts necessary to cover Operating Expenses or Operating Capital. Bankroll shall include the funds located on the tables, if permitted, in the gaming devices, cages, vault, counting rooms, or in any other location in the Gaming Area where funds may be found and funds in a bank account identified by Owner for any additional amount required by New Hampshire gaming law or such other amount as is reasonably determined by Manager. 2 "Business Days" shall mean all weekdays except those that are official holidays of the state of New Hampshire or the US government. Unless specifically stated as "Business Days," a reference in this Agreement to "days" means calendar days. "Commencement Date" shall mean the first day on which a revenue-paying customer is admitted to the Project. "Construction" shall mean the construction of new stand- alone facilities, construction of additions to existing facilities and/or rehabilitation of existing facilities as each, any or all relate to the Project. "Control" shall mean, in relation to a Person that is a corporation, the ownership, directly or indirectly, of voting securities of such Person carrying more than 50% of the voting rights attaching to all voting securities of such Person and which are sufficient, if exercised, to elect a majority of its board of directors; "Controls" and "Controlled" shall have similar meanings. "Cooperation Agreement" shall mean that certain agreement between Rockingham Venture, Inc. and Owner dated ________, 1995. "Default" or "Event of Default" is defined in Section 20.01. "Default Interest Rate" shall mean prime rate published in the WALL STREET JOURNAL, Money Rate Section, plus 4% per annum. "Development Term" shall mean the period beginning on the date of this Agreement and ending on the Commencement Date. "Earnings" shall mean Gross Revenues less Operating Expenses. "Effective Date" is defined in Section 3.02. "FF&E" shall mean all furniture, furnishings, equipment, and fixtures, including gaming equipment, computers, housekeeping and maintenance equipment, necessary or convenient to the operations of the Project in conformity with this Agreement and in accordance with applicable law. "Full Gaming" shall mean that the enabling legislation permits privately owned non-racing gaming to (i) more than 500 electronic games of chance or skill at the Project or (ii) any combination of games, which includes table games. "Gaming Activities" shall mean the cage, table games, slot machines, video machines, electronic games of chance, electronic games of skill, or any other form of gaming managed by Manager in the Gaming Area. "Gaming Area" shall mean those areas reserved for the operation of electronic games of chance or skill, table games or any other legal forms of gaming permitted under applicable law, which may include reservations and admissions, cage, vault, count room, surveillance room and 3 any other room or area or activities therein regulated or taxed by the Gaming Authority by reason of gaming operations. "Gaming Authority" shall mean the New Hampshire gaming commission or other such body or bodies set forth in the enabling legislation or regulations promulgated thereunder. "Gaming Taxes" shall mean any tax imposed by the Governmental Authorities on Gross Gaming Revenue. "Governmental Authorities" shall mean the United States, the state of New Hampshire, county of Rockingham, Town of Salem, any other political subdivision in which the Project is located or does business, and any court or political subdivision agency, commission, board or instrumentality or officer thereof, whether federal, state or local, having or exercising jurisdiction over Owner, Manager or the Project. "Gross Gaming Revenue" shall mean all of the revenue from the operation of the Gaming Area including, but not limited to, table games, if permitted, electronic games of chance, and electronic games of skill and admission fees. "Gross Revenue" shall mean Gross Gaming Revenues plus all other revenues resulting from the operation of the Project. "Hazardous Material" is defined in Section 22.04. "Impositions" is defined in Section 8.01. "Incentive Management Fee" shall mean Three Percent (3%) of Earnings before any interest expense, income taxes, capital lease rentals, depreciation and amortization. "Initial Inventory" shall mean the list of operating supplies required for the operation of the Project for the initial 30-day period following the Commencement Date. "Initial Inventory Price" shall mean the cost of purchasing the Initial Inventory. "Institution" is defined in Section 14.01. "Institutional Mortgage" is defined in Section 14.01. "Limited Gaming" shall mean gaming where the enabling legislation limits the Project to no more than 500 electronic games of chance and prohibits other games (e.g. a prohibition against any variety of table game). "Limited Gaming Adjustment" shall mean an adjustment in the scope of the Project, reduction in fees, adjustment in income sharing and the like, in the event the enabling legislation provides only for Limited Gaming, and such Limited Gaming Adjustment shall be in effect until the enabling legislation permits Full Gaming unless otherwise agreed in writing by the equity holders of Owner. 4 "Limited Liability Company Agreement" shall mean the Limited Liability Company Agreement dated _______________, 1995 by and between Rockingham and an Affiliate of Manager governing the operations of Owner. "Loan Documents" shall mean all of the documents evidencing, securing and relating to any indebtedness owing by Owner to any person, including, without limitation, all promissory notes, loan agreements, mortgages, pledges, assignments, certificates, indemnities and other instruments or agreements. "Management Fee" shall mean that sum which is equal to 1.5% of Gross Gaming Revenue up to One Million and no/100ths Dollars ($1,000,000.00) per year, plus the Incentive Management Fee. "Management Fee Account" shall be the bank account established by Manager into which the Management Fee shall be deposited. "Manager Pre-Opening Expenses" are those expenses incurred during the Development Term including, but not limited to, travel by Manager employees, officers and directors, rent, regulatory fees, salaries, wages and benefits, and other costs of Manager employees which are operational in nature. "Manager's Management Team" is defined in Section 5.06(d). "Nevada Gaming Authorities" shall mean the Nevada Gaming Commission and the Nevada Gaming Control Board. "New Hampshire Gaming Act" shall mean such statutes enacted by the State of New Hampshire which permit Gaming Activities. "Operating Budget" shall mean the budget for the Operating Expenses of the Project. "Operating Capital" shall mean such amount in the Bank Accounts as will be reasonably sufficient to assure the timely payment of all current liabilities of the Project, including its operations, during the term of this Agreement, and to permit Manager to perform its management responsibilities and obligations hereunder, with reasonable reserves for unanticipated contingencies and for short term business fluctuations resulting from monthly variations from the Operating Budget. "Operating Expenses" shall mean actual expenses incurred following the Commencement Date in operating the Project, including, but not limited to, the Management Fee, gaming supplies, maintenance of the Gaming Area, marketing and promotions, uniforms, complimentaries, employee training, employee compensation and entitlements, restaurant equipment and supplies, gift shop fixtures and stock, and Gaming Taxes, employee compensation and entitlements, including Manager's employees assigned to the Project, Operating Supplies, common area expenses, maintenance costs, fuel costs, utilities and taxes. 5 "Operating Supplies" shall mean gaming supplies, paper supplies, cleaning materials, marketing materials, maintenance supplies, uniforms and all other materials used in the operation of the Project. "Owner's Advances" is defined in Section 5.11. "Person" shall mean any individual, partnership, limited partnership, limited liability company, corporation, unincorporated association, joint venture, trust generated entity or other entity. "Pre-enactment Period" shall mean the period commencing as of the Effective Date and ending upon the date upon which either Full Gaming or Limited Gaming is permitted by the state of New Hampshire. "Pre-Opening Budget" shall mean the budget of anticipated Pre-Opening Expenses. "Pre-Opening Expenses" shall mean all costs and expenses incurred by Owner and Owner's Affiliates and Manager and/or Manager's Affiliates in implementing the Pre-Opening Plan, including, without limitation, the Manager's Pre-Opening Expenses, the costs of recruitment and training for all employees of the Project, costs of licensing or other qualification of employees prior to the Commencement Date, the cost of pre-opening sales, marketing, advertising, promotion and publicity, the cost of obtaining all operating permits, and permits for employees, and the fees and expenses of lawyers and other professionals and consultants retained by Owner and Manager in connection therewith. "Pre-Opening Plan" shall mean the plan and schedule for implementing and performing the Pre-Opening Services. "Pre-Opening Services" is defined in Section 4.07. "Project" shall mean a gaming establishment and related improvements which may include restaurants, entertainment facilities, retail outlets and other ancillary facilities, including shared facilities, administrative offices, parking and easements, ordinarily accompanying a privately owned non-racing gaming establishment to be located at Rockingham Park. The Project shall not include the Race Track Operations "Race Track Operations" shall mean any permissable activity permitted by applicable statutes or regulations to be conducted at Rockingham Park, Salem, New Hampshire, excluding all Gaming Activities other than simulcasting, inter-track wagering, sale of lottery tickets and pari-mutuel activities, permitted by Limited Gaming or Full Gaming. "Taking" is defined in Section 13.01. "Taking Date" is defined in Section 13.01. "Term" is defined in Section 3.02. 6 "Trustee" is defined in Section 14.01. ARTICLE 2. PRE-ENACTMENT PERIOD SECTION 2.01 NO CURRENT LEGISLATION Manager and Owner acknowledge that the State of New Hampshire has not enacted any legislation as of the date hereof which permits any Person to conduct Gaming Activities. SECTION 2.02 DUTIES DURING PRE-ENACTMENT PERIOD Until such time as legislation is enacted by the New Hampshire State Legislature and such legislation becomes effective Manager agrees to provide to Owner such services as may be necessary, appropriate and legally permissible for lobbying for the passage of such legislation which would authorize Gaming Activities at Rockingham Park as may be reasonably requested by Owner. ARTICLE 3. APPOINTMENT/TERM/OPTION TO EXTEND TERM SECTION 3.01 APPOINTMENT Owner hereby appoints and employs Manager to act as its agent for the supervision and control of the management of the Project on Owner's behalf, upon the terms and conditions set forth herein. Manager hereby accepts such appointment and undertakes to manage the Project upon the terms and conditions hereinafter set forth. SECTION 3.02 TERM This Agreement shall be effective upon execution ("Effective Date"). The terms of this Agreement (the "Term") shall commence upon the date on which all of the conditions specified in Article 2 have been satisfied and shall continue for a period which is coterminous to the Limited Liability Company Agreement or for such period that an Affiliate of Manager owns an equity interest in Owner. Notwithstanding the foregoing, Owner and Manager acknowledge that enabling legislation for Gaming Activities has not been enacted in the state of New Hampshire. Owner and Manager agree to make any necessary changes to this Agreement upon enactment of such enabling legislation so that this Agreement fully complies with the enabling legislation. SECTION 3.03 OPENING THE PROJECT The Commencement Date shall be a date established by Owner upon giving written notice thereof to Manager and shall be a date no earlier than 10 days after, and no later than 15 days after, the satisfaction of all the following conditions: (i) the Project architect has issued to Owner a certificate of substantial completion confirming that the Project has been substantially completed in accordance with the plans and specifications, (ii) the Project interior designer has issued to Owner a certificate of substantial completion confirming that the FF&E has been substantially installed in the Project in accordance with the FF&E specifications contained in the plans and specifications, (iii) all operating permits for the Project and its operations (including, without limitation, a certificate of occupancy or local equivalent, gaming, liquor and restaurant licenses) 7 have been obtained, (iv) the Operating Capital and the Bankroll for the Gaming Area has been furnished by Owner, (v) Manager shall have given written notice to Owner that all operational systems have been tested on a "dry-run" basis to the satisfaction of Manager and, to the extent required by applicable law, the Gaming Authority, and (vi) all other material state and federal governmental requirements necessary to open, occupy and operate the Project, have been satisfied. Manager shall use its best efforts in the performance of its duties under this Agreement to assist Owner in achieving the satisfaction of all of the foregoing requirements. ARTICLE 4. OWNER AND MANAGER DEVELOPMENT OBLIGATIONS DURING DEVELOPMENT TERM SECTION 4.01 CONSTRUCTION OF PROJECT/COMPLIANCE WITH LAW Owner, at its sole cost and expense, shall construct the Project and install the FF&E. The Project and its systems (including but not limited to plumbing, heating, air conditioning, electrical, and life safety systems, if applicable) shall comply with the New Hampshire Gaming Act, and all regulations promulgated thereunder, all appropriate building, fire and zoning codes and the Americans With Disabilities Act. SECTION 4.02 ENGAGEMENT OF MANAGER AS CONSULTANT Owner engages Manager to be Owner's consultant in the Construction, configuration, layout, interior design and landscape design associated with the Project. Additionally, Manager shall recommend to Owner and advise Owner as to the suggested placement of all gaming equipment and ancillary furnishings and the configuration of ancillary areas within the Project. SECTION 4.03 PRELIMINARY PLANS AND SPECIFICATIONS Owner shall prepare preliminary design plans, working drawings, and specifications of the Project. Manager shall evaluate the preliminary design plans, working drawings and assist Owner in designing the Project including the plans prepared pursuant to the Consulting Services Agreement. Owner shall have the sole and exclusive right to manage, direct, control, coordinate and prosecute the Construction and the installation of the FF&E. SECTION 4.04 PRE-OPENING COMMITTEE Owner and Manager shall form a Pre-Opening Committee which shall consist of four persons, two persons appointed by Rockingham and two persons appointed by Manager immediately upon passage of enabling legislation permitting Gaming Activities. Within six (6) weeks of the date thereof, Manager shall prepare and submit to the Pre-Opening Committee the Pre-Opening Budget for the Pre-Opening Committee's approval. The Pre-Opening Committee shall also prepare promptly the Pre-Opening Plan detailing each party's responsibilities (including those set forth in Section 4.07) and the time frame for the performance of such responsibilities during the Development Term. Each party agrees to use its best efforts to timely complete each task, in accordance with the Pre-Opening Plan and the Pre-Opening Budget. Manager agrees not to exceed the Pre-Opening Budget without the prior approval of Owner. 8 SECTION 4.05 OBLIGATIONS DURING DEVELOPMENT TERM. (a) Owner represents that it will commence Construction and agrees to diligently complete same following the passage of the enabling legislation permitting Gaming Activities. (b) Owner and Manager shall file all applications necessary to obtain all required permits and other approvals necessary to operate the Project as contemplated by this Agreement. SECTION 4.06 CONSTRUCTION The construction of the Project shall be in accordance with appropriate laws, regulations and ordinances of any kind and nature. SECTION 4.07 PRE-OPENING SERVICES BY MANAGER. (a) Prior to the Commencement Date, Manager, as agent of Owner, shall perform or arrange for others to perform the following services on behalf of and for the account of Owner pursuant to the Pre-Opening Plan and Pre-Opening Budget (the "Pre-Opening Services"). (b) Manager shall implement the marketing portion of the approved Pre-Opening Plan, including, but not limited to, direct sales, media and direct mail advertising, promotion, publicity and public relations designed to attract customers to the Project from and after the Commencement Date. (c) Manager shall recruit, hire, provide orientation to and train all executive and general staff of the Project, including all personnel to be utilized during the period from the date hereof until the Commencement Date in accordance with the Pre-Opening Plan. (d) Manager shall prepare and deliver to Owner a list of all Operating Supplies necessary to operate the Project no later than 10 days prior to the anticipated Commencement Date and Owner shall purchase the initial inventories for the Project no later than 10 days prior to the Commencement Date. SECTION 4.08 PAYMENT OF PRE-OPENING EXPENSES The cost of the Pre-Opening Expenses shall be paid by Owner. Pre-Opening Expenses and the time schedule for incurring such expense shall be established in the Pre-Opening Budget and Pre- Opening Plan. Owner shall deposit such sums to fund the Pre- Opening Expenses in accordance with the schedules as shall be established by the parties in the Pre-Opening Plan and Pre- Opening Budget and Owner shall maintain sufficient funds therein to timely provide for any and all Pre-Opening Expenses. ARTICLE 5. OPERATIONS SECTION 5.01 ACCOUNTING PROCEDURES AND SERVICES BOOKS AND RECORDS Manager shall cause Owner's employees to maintain a complete accounting system in connection with the operation of the Project. The books and records shall be kept in accordance with generally accepted accounting principles consistently applied and in accordance with federal 9 tax laws. Such books and records shall be kept on a calendar year basis. Books and accounts shall be maintained at the Project. Manager shall use its best efforts to cause Owner to comply with all requirements with respect to internal controls in accounting and Owner shall prepare and provide all required reports under the rules and regulations of the Gaming Authority regarding the operations of the Project. The cost of preparing such reports shall be an Operating Expense. All operating bank accounts shall be maintained in the state of New Hampshire. SECTION 5.02 MANAGER'S ACCESS TO GAMING FINANCIAL RECORDS Manager, at its option and at its sole cost and expense, may engage and appoint a representative to review, examine, and copy the gaming books and records, including all daily reports, prepared by Owner detailing the results of operations of Owner's business conducted from the Project during regular business hours. Any representative's review, examination and copying shall be conducted in such a manner so as to not be disruptive to Owner's operations. Such representative shall at all times be bound by Manager's confidentiality covenant contained in Section 17.05 hereof. SECTION 5.03 AUDITS Owner shall engage a certified public accountant to audit the operations of the Project as of and at the end of each calendar year (or portion thereof) occurring after the date of this Agreement (the "Audited Statements") by a nationally recognized reputable accounting firm ("Regular Auditor"), and a sufficient number of copies of the Audited Statements shall be furnished to Owner and Manager as soon as available to permit Owner and Manager to meet any public reporting requirements as may be applicable to them, but in no event later than seventy- five (75) days following the end of such fiscal period (such 75th day to be the "Audit Day"). All costs and expenses incurred in connection with the preparation of the Audited Statements shall be an Operating Expense. Nothing herein contained shall prevent either party from designating an additional reputable accounting firm ("Special Auditor") to conduct an audit of the Project as of the end of the calendar year during regular business hours at the requesting party's expense; provided, however, that if the additional audit shall reveal a discrepancy within the control of Manager in the computation of Gross Gaming Revenue of more than 5% from the audit performed by the Regular Auditor, then the special audit shall be paid for by Manager. In the event of any dispute between the Regular Auditor and the Special Auditor as to any item subject to audit, the Regular Auditor and the Special Auditor shall select a third national, reputable accounting firm whose resolution of such dispute shall bind the parties. SECTION 5.04 MONTHLY FINANCIAL STATEMENTS On or before the last day of each month, Owner shall prepare under the supervision of Manager an unaudited operating statement for the preceding calendar month detailing the Gross Revenue and expenses incurred in the operation of the Project and an unaudited balance sheet (the "Monthly Financial Statements"). The Monthly Financial Statements shall include a statement detailing drop figure accounts on all Gross Gaming Revenue. 10 SECTION 5.05 EXPENSES All costs, expenses, funding or operating deficits and Operating Capital, real property and personal property taxes, insurance premiums and other liabilities incurred due to the gaming and nongaming operations of the Project shall be the sole and exclusive financial responsibility of Owner, except for those instances herein where it is expressly and specifically stated that such costs and expenses shall be the responsibility of Manager. It is understood that statements herein indicating that Manager shall furnish, provide or otherwise supply, present or contribute items or services hereunder shall not be interpreted or construed to mean that Manager is liable or responsible to fund or pay for such items or services, except in those instances specifically mentioned herein. SECTION 5.06 STANDARDS. (a) Manager shall exclusively manage and maintain the Project in a manner utilizing standards and procedures which is comparable to the management of privately-owned non-racing gaming businesses of the same or similar type, class and quality, located in New Hampshire subject to such adjustments as Manager in its reasonable discretion deems necessary to adjust to the Salem, New Hampshire gaming market. Manager shall establish such standards and procedures in its sole discretion, subject only to standards and procedures required by law. (b) Owner hereby agrees that Manager shall have uninterrupted control of and the exclusive responsibility for the operation of the Project during the Term of this Agreement. Owner will not interfere or involve itself with the day-to-day operation of the Project, and Manager shall operate the Project free of eviction or disturbance by Owner or any third party claiming by, through or under Owner. Manager acknowledges that it is a fiduciary with respect to Owner, and agrees that it will discharge its fiduciary duties and responsibilities in the control and operation of the Project in good faith and for the purposes of maximizing Gross Revenue; provided, however, that in no event shall Owner make any claim against Manager on account of any alleged errors of judgment made in good faith in connection with the operation of the Project. Manager agrees that, notwithstanding the foregoing, it shall not alter the interior and exterior design and architecture, including color schemes of the Project, nor make any structural engineering modifications without the prior written consent of Owner. (c) All persons employed in connection with the operations of the Project, including the Gaming Area located therein, shall be employees of Owner or a subsidiary of Owner, except for Manager's Management Team. Manager shall determine the fitness and qualifications of all employees, whether Owner employees or Manager's Management Team, subject only to New Hampshire gaming licensing standards. Manager shall hire, supervise, direct the work of, and discharge all personnel working in the Project. Manager shall determine the wages and conditions of employment of all employees, all of which shall be comparable to the existing standards therefor in New Hampshire for employees of gaming operations. Manager and Owner shall consult, and if Owner approves, Manager may hire at Owner's expense consultants or independent contractors for surveillance, security and other matters. All wages, bonuses, compensation and entitlements of employees of the Project and the Manager's Management Team (although not employees of the Project), shall be an expense of Owner. 11 (d) Manager shall assign experienced gaming executives to direct and supervise the management of the Project on a full time basis (the "Manager's Management Team"). Manager shall solely select individuals who shall collectively represent Manager's Management Team. (e) Manager shall formulate, coordinate and implement promotions and sales programs for Project operations and Owner shall cause the Project to participate in such sales and promotional campaigns and, as appropriate, activities involving complimentary food, beverages and other items or services to patrons of the Project in Manager's sole discretion in the exercise of good management practice. All such promotion and sales programs shall be an expense of Owner. SECTION 5.07 PLANS AND BUDGETS. (a) Manager shall furnish Owner with the Operating Budget on or before ninety (90) calendar days prior to the opening of the Project and 60 days prior to the end of each calendar year thereafter.. Manager shall use its best efforts to comply with the Operating Budget to meet or exceed the goals set forth therein. (b) Owner shall consider the Operating Budget within thirty (30) days of receipt of the budget, provided that if Owner does not give written notice to Manager of its approval or failure to approve within such time period, the Operating Budget shall be deemed approved. Owner's approval of the Operating Budget cannot be unreasonably withheld or delayed. Owner may hire a consultant to evaluate the Operating Budget. In the event that Owner disagrees with any line item contained in the Operating Budget, Owner shall discuss its disagreement with Manager. Manager will, within 10 days of notice of Owner's disagreement, offer constructive corrections to resolve Owner's concerns. A representative of Owner and Manager shall meet within five (5) business days thereafter to discuss the constructive corrections, if necessary. If the representatives are unable to resolve Owner's concerns the matter(s) shall be resolved in an arbitration pursuant to Article 19. During any period that Owner disapproves or fails to approve of the Operating Budget, Manager will continue to manage the Project in accordance with the Operating Budget for the preceding year as the same may be adjusted for increases year-to-year in the Consumer Price Index applicable to the Salem, New Hampshire area and as long as the assumptions underlying the preceding year's Operating Budget remain substantially true. (c) The Operating Budget may be amended from time to time with Owner's and Manager's approval, which approvals shall not be unreasonably withheld or delayed, after submission by Manager or Owner, as applicable, of the amendments to such budget and the rationale for such amendments. (d) Manager and Owner make no guaranty, warranty or representation whatsoever in regard to the Operating Budget, same being intended as reasonable estimates only. (e) Manager shall use its best efforts to not underperform the Operating Budget, as amended and supplemented, by 15% of the budgeted earnings before taxes, interest, depreciation and amortization.. Additionally, Manager shall prepare a capital expenditure budget. The budget shall set forth the assumptions and qualifications underlying its preparation. In the event that Manager's operation of the Project underperforms budgeted earnings before taxes, interest, depreciation and amortization by more than 15% of the agreed to Operating Budget for three consecutive years commencing with the fourth full calendar year of operations then Owner 12 may terminate this Agreement. Owner shall, in addition to all other amounts due and payable hereunder, pay to Manager the Termination Fee provided below, as liquidated damages for the early termination of the Agreement. Owner's obligation to pay for all indemnification and defense claims, to maintain insurance after termination (with respect to occurrences before termination) and to pay for all costs of operating the Project prior to termination shall be in addition to and shall survive termination of this Agreement and payment of the Termination Fee. The Termination Fee that shall be payable by Owner to Manager in the event of, and at the time of, termination of this Agreement due to the above described failure to meet Operating Budget is an amount equal to three (3) times the average amount of annual management fees earned in the twelve months preceding the termination. OWNER RECOGNIZES AND AGREES THAT, IF THIS AGREEMENT IS TERMINATED FOR THE REASONS SPECIFIED ABOVE AS ENTITLING MANAGER TO RECEIVE THE TERMINATION FEE, MANAGER WOULD SUFFER AN ECONOMIC LOSS BY VIRTUE OF THE RESULTING LOSS OF THE MANAGEMENT FEES WHICH WOULD OTHERWISE HAVE BEEN EARNED UNDER THIS AGREEMENT. BECAUSE SUCH FEES VARY IN AMOUNT DEPENDING ON THE REVENUES AND EXPENSES OF THE PROJECT AND ACCORDINGLY WOULD BE EXTREMELY DIFFICULT AND IMPRACTICABLE TO ASCERTAIN WITH CERTAINTY, THE PARTIES AGREE THAT THE TERMINATION FEE PROVIDED IN THIS AGREEMENT HAS BEEN DETERMINED TO CONSTITUTE A REASONABLE ESTIMATE OF LIQUIDATED DAMAGES TO MANAGER. IT IS AGREED THAT MANAGER SHALL NOT BE ENTITLED TO MAINTAIN A CAUSE OF ACTION AGAINST OWNER FOR SPECIFIC PERFORMANCE OF THIS AGREEMENT OR ACTUAL DAMAGES IN EXCESS OF THE TERMINATION FEE IN ANY CONTEXT WHERE THE TERMINATION FEE IS TO BE MANAGER'S REMEDY, AND RECEIPT OF SUCH FEE (TOGETHER WITH ALL OTHER AMOUNTS DUE AND PAYABLE BY OWNER TO MANAGER WITH RESPECT TO EVENTS OCCURRING PRIOR TO OR IN CONNECTION WITH THE TERMINATION OF THIS AGREEMENT AND MANAGER'S CONTINUING RIGHT TO INSURANCE COVERAGE, INDEMNIFICATION FOR PRE AND POST TERMINATION OCCURRENCES, AND PROTECTION OF THE SHOWBOAT TRADEMARKS BY INJUNCTIVE AND OTHER APPROPRIATE RELIEF) SHALL BE MANAGER'S SOLE REMEDY AGAINST OWNER IN SUCH CASE. SECTION 5.08 MANAGEMENT Manager shall have the discretion and authority to determine operating policies and procedures, standards of operating, staffing levels and organization, win-payment arrangements, standards of service and maintenance, food and beverage quality and service, pricing, and other policies affecting the Project, or the operation thereof, including but not limited to admissions and parking, to implement all such policies and procedures, and to perform any act on behalf of Owner which Manager deems necessary or desirable in its reasonable business judgment for the operation and maintenance of the Project on behalf of, for the account of, and at the expense of Owner. 13 SECTION 5.09 BANK ACCOUNTS Immediately upon giving written notice to Manager of the Commencement Date, Owner shall have established bank accounts that are necessary for the operation of the Project, including an account for the Bankroll, and to effect the Pre-Opening Plan at various banking institutions chosen by Owner and reasonably acceptable to Manager (such accounts are hereinafter collectively referred to as the "Bank Accounts"). The Bank Accounts shall be in Owner's name. Checks drawn on the Bank Accounts shall be signed only by representatives of Manager who are covered by the fidelity insurance described in Section 11.01 and Manager may be the only signatures on checks drawn on the Bank Accounts which are not payable to Affiliates of Manager or do not exceed Fifty Thousand and no/100ths Dollars ($50,000). Any checks payable to an Affiliate of Manager or checks exceeding Fifty Thousand and no/100ths Dollars ($50,000) shall be executed by a representative of Owner and a representative of Manager. The Bank Accounts shall be interest bearing accounts if such accounts are reasonably available and all interest thereon shall be credited to the Bank Accounts. All Gross Revenue shall be deposited in the Bank Accounts and Manager shall use its best efforts to cause Owner to pay out of the Bank Accounts, to the extent of the funds therein, from time to time, all Operating Expenses and other amounts required by Manager to perform its obligations under this Agreement. All funds in the Bank Accounts shall be separate from any other funds of any of Owner's Affiliates and Owner may not commingle any of Owner's funds with the funds of any of Owner's Affiliates in the Bank Accounts. Owner shall bear the risk of the insolvency of any financial institutions holding such Bank Accounts. SECTION 5.10 OWNER'S ADVANCES Owner shall advance to Manager on a timely and prompt basis immediately available funds to conduct the affairs of the Project and maintain the Gaming Area (hereinafter referred to as "Owner's Advances") as set forth in this Agreement and as otherwise provided hereunder. (a) Pre-Opening Budget. Owner shall timely deposit in the Bank Accounts the amounts set forth in the Pre-Opening Plan and Pre-Opening Budget or any revisions thereof approved by Owner in accordance with such Plan or budget. (b) Initial Cash Needs. Two (2) weeks prior to the Commencement Date, Owner shall fund the Operating Capital necessary to commence operating the Project, in an amount not to exceed the estimated operating expenses for eight (8) weeks, as set forth in the Operating Budget, and an amount equal to the Bankroll. (c) Operating Capital. During the Term of this Agreement, within five (5) Business Days after receipt of written notice from Manager, Owner shall fund Owner's Advances in such a fashion so as to adequately insure that the Operating Capital set forth in the Operating Budget as revised is sufficient to support the uninterrupted and efficient ongoing operation of the Project. The written request for any additional Operating Capital shall be submitted by Manager to Owner on a monthly basis based on the interim statements and the Operating Budget as revised. (d) Payment of Expenses. Owner shall pay from the Gross Revenue the following items in the order of priority listed below, subject to the laws of the state of New Hampshire, on or 14 before their applicable due date: (i) Operating Expenses (including taxes and Management Fee), (ii) emergency expenditures to correct a condition of an emergency nature, including structural repairs, which require immediate repairs to preserve and protect the Project, (iii) required payments to the state of New Hampshire, or the Town of Salem, and (iv) principal, interest and other payments due the holder of any Institutional Mortgage. In the event that funds are not available for payment of the Operating Expenses in their entirety all state and local taxes shall be paid first from the available funds. SECTION 5.11 COOPERATION OF OWNER AND MANAGER Owner and Manager shall cooperate fully with each other during the Term of this Agreement to facilitate the performance by Manager of Manager's obligations and responsibilities set forth in this Agreement and to procure and maintain all construction and operating permits. Owner shall provide Manager with such information pertaining to the Project necessary to the performance by Manager of its obligations hereunder as may be reasonably and specifically requested by Manager from time to time. SECTION 5.12 FINANCING MATTERS. (a) If Owner, or any Affiliate of Owner shall, at any time, sell or offer to sell any securities issued by Owner or any Affiliate of Owner through the medium of any prospectus or otherwise and which relates to the Project or its operation, it shall do so only in compliance with all applicable laws, and shall clearly disclose to all purchasers and offerees that, except to the extent of Manager or its Affiliates' interest in Owner, (i) neither Manager nor any of its Affiliates, officers, directors, agents or employees shall in any way be deemed to be an issuer or underwriter of such securities, and (ii) Manager and its Affiliates, officers, directors, agents and employees have not assumed and shall not have any liability arising out of or related to the sale or offer of such securities, including without limitation, any liability or responsibility for any financial statements, projections or other information contained in any prospectus or similar written or oral communication. Manager shall have the right to approve any description of Manager or its Affiliates, or any description of this Agreement or of Owner's relationship with Manager hereunder, which may be contained in any prospectus or other communications, and Owner agrees to furnish copies of all such materials to Manager for such purposes not less than twenty (20) days prior to the delivery thereof to any prospective purchaser or offeree. Owner agrees to indemnify, defend or hold Manager and its Affiliates, officers, directors, agents and employees, free and harmless from any and all liabilities, costs, damages, claims or expenses arising out of or related to the breach of Owner's obligations under this Section 5.12. Manager agrees to reasonably cooperate with Owner in the preparation of such agreements and offerings. (b) Notwithstanding the above restrictions, subject to Manager's right of review set forth in Section 5.12(a), Owner may represent that the Project shall be managed by Manager and Manager may represent that it manages the Project and both may describe the terms of this Agreement and the physical characteristics of the Project in regulatory filings and public or private offerings. Moreover, nothing in this Section shall preclude the disclosure of (i) already public information, or (ii) audited or unaudited financial statements from the Project required by the terms of this Agreement or (iii) any information or documents required to be disclosed to or filed with the Governmental Authorities, or (iv) the amount of the Management Fees earned in any period. Both parties shall use their best efforts to consult with the other concerning disclosures as to the Project. Owner and 15 Manager shall cooperate with each other in providing financial information concerning the Project and Manager that may be required by any lender or required by any Governmental Authority. (c) In the event that the holder of any Institutional Mortgage requires the collateral assignment of this Agreement as further security for its loan, Manager shall consent to such assignment; provided, however, that such collateral assignment shall contain non-disturbance provisions satisfactory to Manager and provided further that in no event shall Manager be required to accept any reduction or subordination of its Management Fee or to diminish any right which it may have under this Agreement. SECTION 5.13 CONFLICT OF INTEREST/NON-COMPETITION Owner acknowledges that Manager and/or its Affiliates operate other casinos and may in the future operate additional casinos in different areas of the world, and that marketing efforts may cross over in the same markets and with respect to the same potential customer base. Manager, in the course of managing the Project, may refer customers of the Project and other parties to other facilities operated by Affiliates of Manager to utilize gaming, entertainment and other amenities, without payment of any fees to Owner. Owner consents to such activities and agrees that such activities will not constitute a conflict of interest. Owner acknowledges and agrees that Manager may distribute promotional materials for Manager's Affiliates and facilities, including casinos, at the Project. Either Manager or Owner and/or their Affiliates in the future may acquire an interest or operate other casinos, including, without limitation, any similar or competitive gaming operation, so long as such operation is not within a thirty (30) mile radius of the boundaries of Rockingham Park, Salem, New Hampshire, surrounding Salem, New Hampshire, without the written approval of the members of Owner, except for activities by the Manager and/or its Affiliates at Seabrook, a New Hampshire greyhound racing facility with Yankee Greyhound Racing, Inc. or its successors or assigns which requires no further approval of Owner or any of its Affiliates. ARTICLE 6. MANAGEMENT FEE SECTION 6.01 PAYMENTS TO MANAGER. (a) The Management Fee shall be paid monthly. Manager shall deposit the Management Fee into the Management Fee Account for any calendar month in which the Project conducts gaming operations by the twentieth (20th) day of the following month. The Management Fee shall be deemed paid upon deposit in the Management Fee Account. Contemporaneously with the payment of the Management Fee Manager shall deliver to Owner the calculation of the Management Fee to Owner. (b) In the event of Limited Gaming, pursuant to the Limited Gaming Adjustment, the Management Fee shall be suspended. Upon commencement of Full Gaming, the payment of the Management Fee shall recommence. Notwithstanding the foregoing, in the event of Limited Gaming and if Rockingham and Manager agree to build a gaming facility outside of the existing facility at Rockingham Park, the payment of the Management Fee shall recommence even though Full Gaming is not permitted in the operation of the Project. 16 ARTICLE 7. CONCESSIONS AT ROCKINGHAM PARK After licensing and during the term of this Agreement, in the event that Rockingham obtains the right to provide concession services at Rockingham Park, and Rockingham elects not to provide such concession services, Rockingham will provide to Manager the non-exclusive opportunity to bid to manage the concessions at Rockingham Park. Notwithstanding the foregoing, Showboat shall manage the concessions of the Project to the extent possible. Upon such occurrence, Rockingham shall notify Manager of Manager's opportunity to bid on the concessions at Rockingham Park. Manager shall have a period of thirty (30) days to submit to Rockingham, as applicable, its offer to manage the concessions. If Rockingham accepts such offer of Manager, Manager and Rockingham shall immediately prepare a management agreement for such concessions. Manager acknowledges that concession services at Rockingham Park are currently provided pursuant to a contract with Servomation Corporation, Rockingham and Rockingham Ventures dated August 22,1983, as amended by that First Amendment Concession Agreement among Service Corporation, Rockingham and Rockingham Ventures, dated January 11, 1989 and said contract includes such portions of the Project which are common with Rockingham Park. Rockingham covenants and agrees that the Concession Agreement shall not be amended, modified or extended as it applies, if at all, to the Project without the written approval of Manager. ARTICLE 8. REAL PROPERTY TAXES AND ASSESSMENTS, AND PAYMENTS TO THE GAMING AUTHORITY SECTION 8.01 PAYMENT OF REAL ESTATE TAXES AND ASSESSMENTS Owner shall be responsible for the payment when due, if any, of all property taxes and assessments, including, without limitation, assessments for benefits from public works or improvements, levies, fees, and all other governmental charges, general or special, ordinary or extraordinary, foreseen or unforeseen, together with interest and penalties thereon, which may heretofore or hereafter be levied upon or assessed against the Project. All charges set forth in this Section 8.01 are herein called "Impositions." If any Impositions are levied or assessed against the Project which may be legally paid in installments, Owner shall have the option to pay such Impositions in installments except that each installment thereof, and any interest thereon, must be paid by the final date fixed for the payment thereof. In the event of the enactment, adoption or enforcement by any governmental authority (including the United States, any state and any political or governmental subdivision) of any assessment, levy or tax, whether sales, use or otherwise, on or in respect of the Management Fee and charges set forth herein, Manager shall pay such assessment, levy or tax. SECTION 8.02 EXCEPTIONS Nothing contained in this Agreement shall be construed to require Owner to pay any estate, inheritance or succession tax, any capital levy, corporate franchise tax, business enterprise tax, business profits tax, any net income or excess profits tax or other similar tax of Manager. 17 ARTICLE 9. USE AND OCCUPANCY OF THE PROJECT SECTION 9.01 USES Manager agrees to manage the Project continuously during the Term hereof only for the purpose of legally operating a gaming establishment and related ancillary services. Manager and Owner shall not use or allow the Project or any part thereof to be used or occupied for any unlawful purpose or for any dangerous or other trade or business not customarily deemed acceptable to relevant gaming or pari-mutuel operations. In no event may Manager or Owner conduct ancillary uses which violate the New Hampshire Gaming Act. In addition, Manager shall not knowingly permit any unlawful occupation, business or trade to be conducted on the Project or any use to be made of the Project contrary to any law, ordinance or regulation as aforesaid with respect thereto. SECTION 9.02 SHOWBOAT MARKS Manager or its Affiliates (excluding Owner) are the owners of the trademark "Showboat," its logos, trademarks, tradenames, service marks, and any variation or extension of such name (collectively "Showboat Trademark.") Manager shall operate the Project under the Showboat Trademark, and shall grant to Owner a non-exclusive personal and non-transferable right to use the Showboat Trademark at the Rockingham Race Track, Salem, New Hampshire in connection with the operation of the Project, pursuant to a trademark license agreement satisfactory to Manager. Notwithstanding the foregoing, Owner acknowledges that its use of the Showboat Trademark shall not create in Owner's favor any right, title, or interest in or to the Showboat Trademark, but all rights of ownership and control of the Showboat Trademark shall reside solely in Manager. SECTION 9.03 ROCKINGHAM MARKS Rockingham or its Affiliates (excluding Owner) are the owners of the trademark "Rockingham," its logos, trademarks, tradenames, service marks, and any variation or extension of such name (collectively "Rockingham Trademark"). Rockingham shall permit the Project to use the Rockingham Trademark, and shall grant to Owner a non-exclusive personal and non-transferable right to use the Rockingham Trademark at the Rockingham Race Track, Salem, New Hampshire in connection with the operation of the Project, pursuant to a trademark license agreement satisfactory to Rockingham. Notwithstanding the foregoing, Owner acknowledges that its use of the Rockingham Trademark shall not create in Owner's favor any right, title, or interest in or to the Rockingham Trademark, but all rights of ownership and control of the Rockingham Trademark shall reside solely in Rockingham. ARTICLE 10. MAINTENANCE AND REPAIRS SECTION 10.01 OWNER'S MAINTENANCE AND REPAIRS Owner, at its cost, shall maintain, in good condition and repair, the following: (a) The structural parts of the Project; 18 (b) The electrical, plumbing, and sewage systems of the Project; (c) Heating, ventilating, and air conditioning systems servicing the Project. Owner shall have ten (10) days after notice pursuant to Article 22 from Manager to commence to perform its obligations under Section 10.01, except that (i) Owner shall perform its obligations immediately upon receipt of oral notice from Manager if the nature of the problem presents a hazard or emergency; or (ii) Owner shall perform and complete its obligations within twelve (12) hours after receipt of written or oral notice from Manager if the nature of the problem interferes with gaming operations in the Project. If Owner does not perform its obligations within the time limitations in this Section, Manager may perform the obligations of Owner and have the right to be reimbursed for the sum it actually expends in the performance of Owner's obligations. Any amounts paid by Manager shall be due from Owner on the first (1st) day of the month occurring after any such payment, with interest paid at the Default Rate of Interest from the date of payment thereof by Manager until repayment thereof by Owner. ARTICLE 11. INSURANCE AND INDEMNITY SECTION 11.01 OWNER INSURANCE OBLIGATIONS Owner covenants and agrees that it will at all times stated herein, at its sole cost and expense, of this Agreement, keep the Project insured, with: (a) full repair and replacement coverage endorsements, against all risks including, but not limited to, fire, ice, floods and earthquakes, and against loss or damage by such other, further and additional risks as now are or hereafter may be available by standard extended coverage forms or endorsements in an amount sufficient to prevent Manager or Owner from becoming a co-insurer of any loss, but in no event in an amount less than one hundred percent (100%) of the full insurable replacement value of the Project. So long as Owner is not in default under this Agreement, all proceeds of insurance not otherwise applied for the purpose of repairing, replacing or restoring the damage insured against or applied to an Institutional Mortgage shall be paid over to Owner. Owner shall obtain such insurance coverage at the time that it obtains possession of the Project, and Owner shall maintain such insurance thereafter until the termination of this Agreement. (b) general comprehensive public liability insurance including Broad Form Liability coverage (including coverage for false arrest, wrongful detention and invasion of privacy, and coverage for elevators, if any, on the Project) against claims for bodily injury, death or property damage occurring on, in or about the Project, the ancillary facilities and the adjoining streets, sidewalks and passageways, such insurance to afford protection, with respect to any one occurrence, of not less than $1,000,000 and no less than $5,000,000 in the aggregate or such higher amount as Owner and Manager may from time to time reasonably agree to be maintained, which insurance shall also cover Owner's liability under any indemnity contained herein, it being understood that the standard of reasonableness shall be that amount of insurance which a prudent owner of a comparable property would maintain. Owner shall also obtain and maintain a $40,000,000 umbrella liability policy in excess of the general comprehensive public liability policy. Owner shall obtain such general comprehensive 19 public liability insurance at the time that Owner employs its first employee, and Owner shall maintain such insurance until the termination of this Agreement. (c) adequate boiler and pressure vessel insurance on all equipment, parts thereof and appurtenances attached or connected to the Project which by reason of their use or existence are capable of bursting, erupting, collapsing or exploding. (d) such other insurance as Owner and Manager may from time to time reasonably agree to be maintained or as may be required by lenders of Owner in such amounts and against such insurable hazards which at the time is customary in the case of businesses similarly situated. (e) for the mutual benefit of Owner and Manager, maintain liquor liability insurance in an amount to be determined by Owner, covering Manager and Owner under any liquor liability laws which may currently be in existence or which may hereafter be enacted as they would be applicable to Manager's operations of the Project. Owner shall obtain such insurance on or before the Commencement Date, and Owner shall maintain such insurance until the termination of the Agreement. (f) all required workmen's compensation insurance or equivalent New Hampshire industrial accident coverage. Owner shall obtain such insurance at the time that Owner employs its first employee, and Owner shall maintain such insurance until the termination of this Agreement. (g) business interruption resulting from losses covered under policies covering buildings will be required in an amount sufficient to protect losses for a period of six (6) months. Owner shall obtain such insurance on or before the Commencement Date, and Owner shall maintain such insurance until the termination of this Agreement. (h) crime insurance which includes fidelity and such other crime coverages as may be desired in the amount of $5,000,000. Owner shall obtain such insurance at the time that Owner employs its first employee, and Owner shall maintain such insurance until the termination of this Agreement. SECTION 11.02 PARTIES INSURED The policies with respect to such insurance as described in Section 11.01 shall name Owner and Manager as parties insured thereby and such policies shall require all insurance proceeds except for liability and third party insurance to be paid to a Trustee as designated pursuant to Article 14. Such policies shall also contain, when requested by Owner or Manager, a mortgagee clause or clauses naming the mortgagee or mortgagees involved and/or the holder or such mortgage or mortgages as parties insured thereby (in the form required by such mortgagee or mortgagees) all as their respective interests may appear and with loss payable provisions accordingly. SECTION 11.03 APPROVED INSURANCE COMPANIES Insurance procured under this Article 11 shall be placed with reputable, financially sound insurance companies, with a Best guide rating of A-10 admitted in the state of New Hampshire, acceptable to Owner and Manager, as the parties may mutually agree. 20 SECTION 11.04 APPROVAL OF INSURANCE COVERAGE Each year, Owner shall submit to Manager a summary of the insurance coverage maintained by Owner (including deductibles) with respect to the Project and each party shall have thirty (30) days thereafter to give its comments thereon to the other. If a submitting party receives no written comments from the other party within said period, the insurance program shall be deemed approved for that year. SECTION 11.05 FAILURE TO OBTAIN REQUIRED INSURANCE In the event Owner fails, neglects, or refuses to maintain any of the insurance required under the provisions of this Article 11, then Manager may procure or renew such insurance, and any amounts paid therefor by Manager shall be due from Owner on the first day of the month occurring after any such payment, with interest at the Default Interest Rate from the date of payment thereof by Manager until repayment thereof to Manager by Owner. SECTION 11.06 WAIVER OF SUBROGATION As long as the insurer of a party is willing to include a waiver of subrogation in the policies insuring against the loss or damages referred to in this Article 11 without an extra charge, the parties shall cause the waiver of subrogation to be included in the policies. If an insurer of a party is willing to include a waiver of subrogation in an insurance policy only if an extra charge is paid, the party carrying the insurance shall be required to cause the waiver of subrogation to be included in the policy only if the other party pays the extra charge. SECTION 11.07 MUTUAL COOPERATION Owner shall cooperate with Manager to the extent Manager may reasonably require, and Manager shall cooperate with Owner to the extent Owner may reasonably require in connection with the prosecution or defense of any action or proceeding arising out of, or for the collection of any insurance proceeds and will execute and deliver to Owner or Manager, as the case may be, such instruments as may be properly required to facilitate the recovery of any insurance proceeds (including the endorsement by Owner or Manager over to the Trustee of all checks evidencing said insurance proceeds). SECTION 11.08 DELIVERY OF INSURANCE POLICIES Owner shall deliver promptly the original or duplicate policies or certificates of insurers satisfactory to Manager evidencing all the insurance which is then required to be maintained by Owner hereunder. Owner shall, within thirty (30) days prior to the expiration of any such insurance, deliver to Manager original or duplicate policies or other certificates of the insurers evidencing the renewal of such insurance. SECTION 11.09 INDEMNIFICATION BY MANAGER Manager covenants and agrees that it will protect, keep and defend Owner forever harmless and indemnified against and from any penalty or damage or charges imposed for any violation of any laws or ordinances including, but not limited to, gaming statutes and regulations, whether occasioned by the neglect of Manager or those holding under Manager, and that 21 Manager will at all times protect, indemnify and save and keep Owner harmless against and from any and all claims and against and from any and all loss, cost, damage or expense, including reasonable attorneys' fees, arising out of any failure of Manager in any respect to comply with and perform all the requirements and provisions hereof except where any penalty, damage, charges, loss, cost or expense is caused by the sole or negligent or the wanton or willful acts of Owner's directors, officers, employees, agents or stockholders. Without limiting the generality of the foregoing and with the inclusion of the same exceptions as set forth above, Manager covenants and agrees that it will protect, keep and defend Owner forever harmless and indemnified against any and all debt, claim, demand, suit or obligation of every kind, character and description which may be asserted, claimed, filed or brought against Owner where such claim arises out of or is asserted in connection with Manager's management of the Project, including any claim by any subtenant, guest, licensee or invitee of Manager. This indemnity does not apply to loss or damage occasioned by defects in the Project. SECTION 11.10 INDEMNIFICATION BY OWNER Owner covenants and agrees that it will protect, keep and defend Manager forever harmless and indemnified against and from any penalty or damage or charges imposed for any violation of any laws or ordinances including, but not limited to, gaming statutes and regulations, whether occasioned by the neglect of Owner or those holding under Owner, and that Owner will at all times protect, indemnify, defend and save and keep harmless Manager against and from any and all claims and against and from any and all loss, cost, damage or expense, including reasonable attorneys' fees, arising out of any failure of Owner in any respect to comply with and perform all of the requirements and provisions hereof except where any penalty, damage, charges, loss, cost or expense is caused by the negligent or the wanton or willful acts of Manager's officers, agents, employees or stockholders. Without limiting the generality of the foregoing, and with the inclusion of the same exceptions as set forth above, Owner covenants and agrees it will protect, keep and defend Manager forever harmless and indemnified against any and all debt, claim, demand, suit or obligation of every kind, character and description which may be asserted, claimed, filed or brought against Manager where such claim arises out of or is asserted in connection with Owner's ownership of the Project. This indemnity does not apply to loss or damage occasioned by defects in the Project. SECTION 11.11 SELECTION OF COUNSEL/CONDUCT OF LITIGATION Defense counsel engaged by Manager or Owner, as indemnitor, shall be reasonably acceptable to Manager and Owner, as indemnitee. Without limiting the generality of the foregoing, indemnitee shall be promptly provided with copies of all claims and pleadings (as well as correspondence, memos, documents and discovery with respect thereto, unless within the scope of any applicable privilege) relating to any such matters. Indemnitee shall be given prior written notice of all meetings, conferences and judicial proceedings and shall be afforded an opportunity to attend and participate in same. Indemnitee shall have the right to engage independent counsel, at its sole expense, to represent indemnitee as additional and/or co-counsel in all such proceedings, trials, appeals and meetings with respect thereto. 22 ARTICLE 12. CASUALTY In case of any damage or loss to the Project by reason of fire or otherwise, Manager shall give immediate notice thereof to Owner. If the Project shall at any time be damaged or destroyed by fire or otherwise, Owner shall at its sole option promptly repair or rebuild same at Owner's expense, so as to make the Project at least equal to the Project existing immediately prior to such occurrence and as nearly similar to it in quality and character as shall be practicable and reasonable. Owner shall submit for Manager's approval, which approval Manager shall not unreasonably withhold or delay, complete detailed plans and specifications for such rebuilding or construction. Promptly after receiving Manager's approval of said plans and specifications, Owner shall begin such repairs and rebuilding and shall prosecute the same to completion with diligence, subject, however, to strikes, lockouts, acts of God, embargoes, governmental restrictions, and other foreseeable causes beyond the reasonable control of Owner. Insofar as a certificate of occupancy may be necessary with respect to such repairs or construction, Owner shall obtain a temporary or final certificate of occupancy or similar certificate before the Project shall be occupied by Manager. Such repairs, rebuilding or construction shall be completed free and clear of mechanics' or other liens, in accordance with the building code and all applicable laws, ordinances, regulations or orders of any state, municipal or other public authority affecting the same. ARTICLE 13. TAKING OF THE PROJECT SECTION 13.01 DEFINITIONS. (a) "Permanent Taking" means the permanent taking (more than one year) of, or permanent damage to, property as a result of the exercise of a power of eminent domain or purchase under the threat of the exercise where such taking cannot be corrected by contribution of additional land for relocation of the Project. (b) "Temporary Taking" means the temporary taking (one year or less) of, or temporary damage to, property as a result of the exercise of a power of eminent domain or purchase under the threat of the exercise. (c) "Taking Date" means the date on which a condemning authority shall have the right of possession of property pursuant to a Permanent Taking or a Temporary Taking. (d) "Award" means the award for, or proceeds of, a taking less all fees and expenses incurred in connection with collecting the award or proceeds including the reasonable fees and disbursements of attorneys, appraisers, and expert witnesses. SECTION 13.02 ENTIRE TAKING OF THE SUPPORT AREAS The following shall apply if all or a part of the Project are taken pursuant to a Permanent Taking or a Temporary Taking: (a) Owner shall be entitled to any Award. 23 (b) If all of the Project is taken pursuant to a Permanent Taking, this Agreement shall be terminated as of the Taking Date. (c) If a portion of the Project is taken pursuant to a Permanent Taking which renders it uneconomic to continue operation of the Project in Manager's reasonable judgment, Manager shall have the option to terminate this Agreement by giving Owner notice of termination within ten (10) days after Owner gives Manager notice of the Permanent Taking. This Agreement will terminate five (5) days after Manager delivers its written termination notice to Owner. SECTION 13.03 DUTY TO RESTORE If part of the Project is taken pursuant to a Permanent Taking and this Agreement is not terminated, then Owner shall restore the Project to an architectural unit as near as possible to its function and condition immediately prior to the Permanent Taking. The restoration shall begin promptly after the Taking Date and shall be prosecuted diligently. If a party shall have an option to terminate with respect to the Permanent Taking, then Owner may delay the beginning of the restoration until the option is waived or until the time within which the option may be exercised expires. ARTICLE 14. DISPOSITION OF INSURANCE PROCEEDS AND AWARDS SECTION 14.01 TRUSTEE Other than the lien created by the 13.5% Senior New Hampshire Development Authority Bonds or permitted replacement financing, if the Project is encumbered by an Institutional Mortgage, the "Trustee" shall be the Institutional Mortgagee or a national bank designated by such mortgagee. If the Project is not encumbered by a Mortgage, the "Trustee" shall be a commercial bank which maintains an office in New Hampshire and the total assets of which exceed $1 billion, and the Trustee shall be selected by Owner subject to the reasonable approval of Manager. An "Institutional Mortgage" is a Mortgage granted to an Institution. An "Institution" is a bank, insurance company, trust company, savings and loan association, real estate investment trust, pension trust, governmental entity or similar institution. An "Institutional Mortgagee" is the holder of Mortgage of Owner's interest in the Project. SECTION 14.02 DEPOSITS OF INSURANCE PROCEEDS AND AWARDS In the event this Agreement is not terminated all insurance proceeds and Awards shall be paid to the Trustee. If this Agreement is terminated, all Insurance Proceeds and Awards shall be paid to Owner and Manager as their interests may apply. All funds paid to the Trustee shall be held by the Trustee, and the Trustee shall disburse them solely in accordance with this Article. SECTION 14.03 PROCEDURE FOR DISTRIBUTION OF INSURANCE PROCEEDS AND AWARDS The following shall apply unless this Agreement is terminated and the termination is not nullified. 24 (a) The Trustee shall make payments to Owner or Manager, as appropriate, out of the insurance proceeds or Awards to be applied to the cost of repair or restoration. The payments shall be made as the repair or restoration progresses. (b) The Trustee shall comply with the following requirements which shall be contained in escrow instructions, if required by the Trustee, with respect to the payments: (i) The Trustee shall not make payments more frequently than once each month. (ii) Until the repair or restoration is complete, the Trustee shall make no payment unless the sum of the payment requested and all previous payments shall be less than ninety percent (90%) of the cost of the repair or restoration to date. (iii) The Trustee shall make no payment unless the balance of the insurance proceeds or Awards shall be at least sufficient to complete the repair or restoration. (iv) The Trustee shall make no payment unless it receives a certificate of Owner or Manager, as appropriate, and a certificate of Owner's or Manager's architect or engineer, as appropriate, in accordance with part (c) of this subsection. (v) The Trustee shall receive, prior to any payment, a certificate from the Title Insurance Company stating that there are no liens filed of record. (c) The certificate of Owner or Manager shall be certified as true and correct by an officer of Owner or Manager and shall set forth the following information: (i) The estimated cost of the repair or restoration. (ii) The nature of the work to be done and the materials furnished which form the basis for the requested payments. (iii) That the requested payment does not exceed the reasonable cost of the work and materials. (iv) That none of the work or materials has been made the basis for any previous payment. (v) That, insofar as the work has been completed, the work complies with the requirements of this Agreement, applicable legal requirements, and insurance requirements. (vi) That all contractors, laborers, suppliers and subcontractors that have performed work shall have been paid any amount then payable to them. (d) The architect's or engineer's certificates shall be certified by an architect or engineer familiar with the work. The certificate shall be certified as true and correct to the best of the knowledge, information and belief of the architect or engineer and shall be based upon periodic on-site 25 inspections of, and testing by, the architect or engineer. The architect or engineer selected by one party shall be reasonably satisfactory to the other party. The architect or engineer shall certify that, in the opinion of the architect or engineer, the Trustee shall have complied with the requirements of clauses (ii) and (iii) of part (b) of this subsection; shall verify that the statements set forth in clauses (iii), (iv) and (v) of part (c) of this subsection are true; and shall set forth the information required by clauses (i) and (ii) of part (c) of this subsection. (e) Any balance of insurance proceeds or Awards after the cost of any repair or restoration shall have been paid in full shall be paid to Owner or Manager, as their interests appear, and shall be the sole property of such party. ARTICLE 15. ASSIGNMENT AND SUBLETTING Except as provided in Section 5.12(c), neither Owner or Manager shall assign this Agreement or any interest therein without the express prior written consent of the other party, which consent shall not be unreasonably withheld. However, Manager may assign or transfer this Agreement to any Affiliate which Affiliate is beneficially owned entirely by Showboat, Inc., provided, that a counterpart original of such assignment is delivered to Owner on or before the effective date of such assignment, and provided further that such Affiliate expressly assumes and agrees to be bound by all of the terms and conditions of this Agreement. ARTICLE 16. AFFIRMATIVE COVENANTS OF MANAGER Manager hereby covenants and agrees that so long as this Agreement remains in effect: SECTION 16.01 CORPORATE STATUS Manager shall preserve and maintain its corporate rights, franchises and privileges in Nevada and New Hampshire. SECTION 16.02 COMPLIANCE WITH LAWS Manager 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 Project, including, without limitation, any laws, rules, regulations, orders and requests for information of the Gaming Authority, the Nevada Gaming Authorities, the New Jersey Casino Control Commission, and the New South Wales Casino Control Authority. Manager shall also follow applicable federal laws, rules, and regulations. In connection with this Agreement, Manager acknowledges that certain casino gaming licenses are currently issued to and held by Owner's Affiliates, and Owner's Affiliates may in the future apply for gaming licenses in additional states or foreign countries. The laws of such jurisdictions may require Owner's Affiliates to disclose private or otherwise confidential information about Manager and its respective principals, lenders and Affiliates. Manager agrees to refrain from all conduct that may negatively affect such licenses or license applications. Manager further agrees that this Agreement shall terminate immediately at Owner's option if any representative, agent or Affiliate of Manager is required to be licensed, qualified or found suitable 26 by any gaming authority where it is currently licensed and is denied such status by such gaming authority; provided, however, that upon the termination of any such agreement, Owner shall be obligated to reimburse Manager immediately for any Management Fees and all other amounts due to Manager under this Agreement. SECTION 16.03 GAMING APPROVALS Manager shall use its best efforts to obtain the approval of the Nevada Gaming Authorities, the New Jersey Casino Control Commission, and the New South Wales Casino Control Authority to permit it to conduct gaming operations in the state of New Hampshire and shall use its best efforts to secure and maintain such approvals necessary for the conduct of gaming operations at the Project. SECTION 16.04 CONFIDENTIAL INFORMATION Manager agrees for itself and its Affiliates, agents, representatives and consultants to hold in the strictest confidence and not to disclose to any person, entity, party, firm or corporation (other than agents or representatives of Manager who are also bound by this section) without the prior express written consent of Owner (except as such disclosures are required in applications or by applicable securities or gaming laws) any of Owner's confidential data, whether related to the Project or to general business matters, which shall come into their possession or knowledge. In addition, Manager agrees that it shall cause all documents, drawings, plans or other materials developed by Owner in connection with the Project to be returned to the Owner in the event of termination of this Agreement and that Manager shall not make use of such information in connection with the Project or any other undertaking by Manager without the prior express written consent of Owner. SECTION 16.05 GAMING APPLICATIONS Manager agrees to use its best efforts to expeditiously prepare and file all gaming license applications necessary for it to perform its obligations under this Agreement. SECTION 16.06 COMPLIANCE WITH OTHER AGREEMENT Manager agrees to comply with all terms of the Agreement between Owner and Rockingham, the Administrative Agreement Between Owner and Manager, and the Trademark Services Agreement between Showboat, Inc., and Owner, each dated as of the date hereof. ARTICLE 17. AFFIRMATIVE COVENANTS OF OWNER Owner hereby covenants and agrees that so long as this Agreement remains in effect: SECTION 17.01 CORPORATE STATUS Owner shall preserve and maintain its corporate rights, franchises and privileges as a limited liability company in New Hampshire, including without limitation its right to own a gaming establishment. 27 SECTION 17.02 MAINTENANCE OF INSURANCE Owner shall, in accordance with the provisions of Article 11 of this Agreement, maintain insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as are usually carried by companies engaged in similar business and owning similar properties in the same general area in which Owner operates, and which may be necessary to satisfy the requirements of Owner's lenders, as well as the mutual approvals and agreements of the parties hereto as is specified in Article 11 hereof. SECTION 17.03 COMPLIANCE WITH LAWS Owner 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 Project, including, without limitation, any laws, rules, regulations, orders and requests for information of the Gaming Authority, the Nevada Gaming Authorities, Gaming Authorities, the New Jersey Casino Control Commission, and the New South Wales Casino Control Authority. Owner shall also follow applicable federal laws, rules, and regulations. In connection with this Agreement, Owner acknowledges that certain casino gaming licenses are currently issued to and held by Manager's Affiliates by the States of Nevada and New Jersey, and the State of New South Wales, Australia, and Manager or its Affiliates may in the future apply for gaming licenses in additional states or foreign countries. The laws of such jurisdictions may require Manager to disclose private or otherwise confidential information about Owner and its respective principals, lenders and Affiliates. Owner agrees to refrain from all conduct that may negatively affect such licenses or license applications. Owner further agrees that this Agreement shall terminate immediately at Manager's option if any representative, agent or Affiliate of Owner is required to be licensed, qualified or found suitable by Nevada, New Jersey, New South Wales or other gaming authority and is denied such status by such gaming authority; provided, however, that upon the termination of any such agreement, Owner shall be obligated to reimburse Manager immediately for any Management Fees and all other amounts due to Manager under this Agreement. SECTION 17.04 COOPERATION WITH GAMING AUTHORITIES Owner shall use its best efforts to cause its officers, directors, employees and stockholders to provide any gaming authority which governs or may govern gaming facilities of Affiliates of Manager with necessary documents and information. SECTION 17.05 CONFIDENTIAL INFORMATION Owner agrees for itself and its Affiliates, agents, representatives and consultants to hold in the strictest confidence and not to disclose to any person, entity, party, firm or corporation (other than agents or representatives of Owner who are also bound by this section) without the prior express written consent of Manager (except as such disclosures are required in applications or by applicable securities or gaming laws) any of Manager's confidential data, whether related to the Project or to general business matters, which shall come into their possession or knowledge. In addition, Owner agrees that it shall cause all documents, drawings, plans or other materials developed by Manager in connection with the Project to be returned to the Manager in the event 28 of termination of this Agreement and that Owner shall not make use of such information in connection with the Project or any other undertaking by Owner without the prior express written consent of Manager. SECTION 17.06 COMPLIANCE WITH LOAN COVENANTS Owner shall comply with and be bound by and shall not breach or default under any of the terms, covenants or provisions of any mortgage, loan, financing or debt covenant applicable to it. SECTION 17.07 NON-INTERFERENCE Owner agrees and shall use its best efforts to cause its shareholders, directors, officers, and employees to not interfere with or attempt to influence day-to-day operations of the Project (except in accordance with this Agreement). SECTION 17.08 GAMING APPLICATIONS Owner agrees to use its best efforts to expeditiously prepare and file all gaming license applications necessary for it to perform its obligations under this Agreement. SECTION 17.09 TITLE/QUIET ENJOYMENT Owner represents and covenants that it has acquired, or will acquire before the commencement of any construction of the Project and thereafter, and will maintain a valid and continuing fee estate for the Project subject to the Cooperation Agreement and the exceptions permitted in the Limited Liability Company Agreement. Owner covenants, during the Term that Manger shall and may peaceably possess and quietly enjoy the Project in accordance with the terms of this Agreement, free from molestation, eviction and disturbance by Owner or by any other Person. Owner shall, at Owner's expense, undertake and prosecute all actions, judicially or otherwise, required to assure such quiet enjoyment and peaceable possession by Manager. ARTICLE 18. REPRESENTATIONS AND WARRANTIES SECTION 18.01 OWNER CORPORATE STATUS Owner represents and warrants that it is a limited liability company duly organized, validly existing and in good standing under the laws of the state of New Hampshire, that Owner has full corporate power and authority to enter into this Agreement and perform its obligations hereunder, and that the officers of Owner who executed this Agreement on behalf of Owner are in fact officers of Owner and have been duly authorized by Owner to execute this Agreement on its behalf. SECTION 18.02 MANAGER CORPORATE STATUS Manager represents and warrants that it is a corporation duly organized, validly existing and in good standing under the laws of the state of Nevada, and qualified to do business in the State of New Hampshire, that Manager has full corporate power and authority to enter into this Agreement and perform its obligations hereunder, and that the officers of Manager who executed 29 this Agreement on behalf of Manager are in fact officers of Manager and have been duly authorized by Manager to execute this Agreement on its behalf. SECTION 18.03 AUTHORIZATION/NO CONFLICT The execution, delivery and performance by Owner and Manager, as applicable, of this Agreement has been duly authorized by all necessary corporate action (including any necessary stockholder action) on the part of Owner and Manager, as applicable, and no further action or approval is required in order to constitute this Agreement as the valid and binding obligations of Owner and Manager, enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by Owner and Manager, as applicable, does not and will not (a) violate or conflict with any provisions of their respective articles of incorporation or bylaws, or of any law, rule, regulation of the Gaming Authorities, or any order, writ, judgment, decree, determination, or award presently in effect having applicability to Owner or Manager; (b) result in a breach of any condition or provision of, or constitute a default under, any indenture, loan or credit agreement or any other agreement or instrument to which Owner or Manager is a party or by which Owner or Manager may be bound or affected; or (c) result in, or require, the creation or imposition of any lien, claim, charge or encumbrance of any nature upon or with respect to any of the properties now owned or hereafter acquired by Owner or Manager. SECTION 18.04 PERMITS/APPROVALS Owner and Manager possess adequate franchises, licenses, permits, orders and approvals of all federal, state and local governmental or regulatory bodies required for them to carry on their businesses as presently conducted; all of such franchises, licenses, permits, orders and approvals are in full force and effect, and no suspension or cancellation of any of them is threatened; and none of such franchises, licenses, permits, orders or approvals will be adversely affected by the consummation of the transactions contemplated by this Agreement. SECTION 18.05 ACCURACY OF REPRESENTATIONS No representation or warranty of Owner or Manager in this Agreement nor any information, exhibit, memorandum, schedule or report furnished by Owner or Manager in connection with this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements of fact contained therein not misleading. SECTION 18.06 MAINTENANCE OF GAMING AND OTHER LICENSES Owner and Manager agree to provide the other party with copies of all applications, reports, letters, and other documents filed or provided to the Gaming Authorities. Both parties agree to use their best efforts to secure and maintain any license needed for the operation of the Project. SECTION 18.07 CONDITION OF PROJECT DURING TERM During the Term of this Agreement, Owner shall maintain the Project in first-class condition and repair. All areas of the Project shall be adequately illuminated and adequately patrolled by security guards. 30 SECTION 18.09 IMPAIR REPUTATION Owner will do nothing to embarrass or impair Manager's good name and reputation. Manager will do nothing to embarrass or impair Owner's good name and reputation. ARTICLE 19. ARBITRATION SECTION 19.01 APPOINTMENT OF ARBITRATORS IF ANY DISPUTE SHALL ARISE OR IF ANY ISSUE LEFT OPEN HEREUNDER CANNOT BE RESOLVED BETWEEN THE PARTIES HERETO, SUCH DISPUTE IS TO BE REFERRED FIRST TO A COMMITTEE OF FOUR PERSONS WHO SHALL MEET IN AN ATTEMPT TO RESOLVE SAID DISPUTE OR OPEN ISSUE. THE COMMITTEE SHALL CONSIST OF TWO PERSONS APPOINTED BY ROCKINGHAM AND TWO PERSONS APPOINTED BY MANAGER. IF AN AGREEMENT CANNOT BE REACHED TO RESOLVE THE DISPUTE BY THE COMMITTEE, THE DISPUTE OR OPEN ISSUE WILL BE RESOLVED BY BINDING ARBITRATION BEFORE ARBITRATORS HAVING NOT LESS THAN 10 YEARS EXPERIENCE IN THE GAMING INDUSTRY. ANY AWARD OF THE ARBITRATORS MAY BE FILED IN A COURT OF LAW AS A FINAL JUDGMENT. ANY SUCH ARBITRATION SHALL BE IN ACCORDANCE WITH THE RULES AND REGULATIONS ADOPTED BY THE AMERICAN ARBITRATION ASSOCIATION OR AS THE PARTIES OTHERWISE AGREE. EITHER PARTY MAY SERVE UPON THE OTHER PARTY A WRITTEN NOTICE OF THE DEMAND DISPUTE OR APPRAISAL TO BE RESOLVED PURSUANT TO THIS ARTICLE. WITHIN THIRTY (30) DAYS AFTER THE GIVING OF SUCH NOTICE, EACH OF THE PARTIES HERETO SHALL NOMINATE AND APPOINT AN ARBITRATOR (OR APPRAISER, AS THE CASE MAY BE) AND SHALL NOTIFY THE OTHER PARTY IN WRITING OF THE NAME AND ADDRESS OF THE ARBITRATOR SO CHOSEN. UPON THE APPOINTMENT OF THE TWO ARBITRATORS AS HEREINABOVE PROVIDED, SAID TWO ARBITRATORS SHALL FORTHWITH, WITHIN FIFTEEN (15) DAYS AFTER THE APPOINTMENT OF THE SECOND ARBITRATOR, AND BEFORE EXCHANGING VIEWS AS TO THE QUESTION AT ISSUE, APPOINT IN WRITING A THIRD ARBITRATOR ("SELECTED ARBITRATOR") AND GIVE WRITTEN NOTICE OF SUCH APPOINTMENT TO EACH OF THE PARTIES HERETO. IN THE EVENT THAT THE TWO ARBITRATORS SHALL FAIL TO APPOINT OR AGREE UPON THE SELECTED ARBITRATOR WITHIN SAID FIFTEEN (15) DAY PERIOD, THE SELECTED ARBITRATOR SHALL BE SELECTED BY THE PARTIES THEMSELVES IF THEY SO AGREE UPON SUCH SELECTED ARBITRATOR WITHIN A FURTHER PERIOD OF TEN (10) DAYS. IF A SELECTED ARBITRATOR SHALL NOT BE APPOINTED OR AGREED UPON WITHIN THE TIME HEREIN PROVIDED, THEN EITHER PARTY ON BEHALF OF BOTH MAY REQUEST SUCH APPOINTMENT BY THE AMERICAN ARBITRATION ASSOCIATION (OR ITS SUCCESSOR OR SIMILAR ORGANIZATION IF THE AMERICAN ARBITRATION ASSOCIATION IS NO LONGER IN EXISTENCE). OWNER AND MANAGER SHALL SHARE EQUALLY THE COST OF THE SELECTED ARBITRATOR. SAID ARBITRATORS SHALL BE 31 SWORN FAITHFULLY AND FAIRLY TO DETERMINE THE QUESTION AT ISSUE. THE ARBITRATORS SHALL AFFORD TO OWNER AND MANAGER 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 THEIR DETERMINATION IN WRITING AND SHALL GIVE NOTICE TO THE PARTIES HERETO OF SUCH DETERMINATION. THE CONCURRING DETERMINATION OF ANY TWO OF SAID THREE ARBITRATORS SHALL BE BINDING UPON THE PARTIES, OR, IN CASE OF NO TWO OF THE ARBITRATORS SHALL RENDER A CONCURRING DETERMINATION, THEN THE DETERMINATION OF THE SELECTED ARBITRATOR SHALL BE BINDING UPON THE PARTIES HERETO. EACH PARTY SHALL PAY THE FEES OF THE ARBITRATOR APPOINTED BY IT, AND THE FEES OF THE SELECTED ARBITRATOR SHALL BE DIVIDED EQUALLY BETWEEN OWNER AND MANAGER. SECTION 19.02 INABILITY TO ACT IN THE EVENT THAT AN ARBITRATOR APPOINTED AS AFORESAID SHALL THEREAFTER DIE OR BECOME UNABLE OR UNWILLING TO ACT, HIS SUCCESSOR SHALL BE APPOINTED IN THE SAME MANNER PROVIDED IN THIS ARTICLE FOR THE APPOINTMENT OF THE ARBITRATOR SO DYING OR BECOMING UNABLE OR UNWILLING TO ACT. ARTICLE 20. DEFAULT/STEP-IN RIGHTS SECTION 20.01 DEFINITION The occurrence of any one or more of the following events which is not cured within the time permitted shall constitute a default under this Agreement (hereinafter referred to as a "Default" or an "Event of Default") as to the party failing in the performance or effecting the breaching act. SECTION 20.02 MANAGER'S DEFAULTS If Manager shall (a) fail to perform or materially comply with any of the covenants, agreements, terms or conditions contained in this Agreement applicable to Manager (other than monetary payments) and such failure shall continue for a period of thirty (30) days after written notice thereof from Owner to Manager specifying in detail the nature of such failure, or, in the case such failure is of a nature that it cannot, with due diligence and good faith, be cured within thirty (30) days, if Manager fails to proceed promptly and with all due diligence and in good faith to cure the same and thereafter to prosecute the curing of such failure to completion with all due diligence within ninety (90) days thereafter, or (b) take or fail to take any action to the extent required of Manager under this Agreement that creates a default under or breach of any loan document, any related contract or any requirement of the Gaming Authorities, unless Manager cures such default or breach prior to the expiration of applicable notice, grace and cure periods, if any; provided, however, that Manager shall only be required to cure any defaults with respect to which Manager has a duty hereunder. If the only result of the failure by Manager to act is a monetary loss to Owner which is not otherwise capable of being cured by Manager, then Manager 32 shall not be in Default if Manager reimburses Owner for such losses within ten (10) Business Days of incurring such loss or otherwise protects Owner against such loss in a manner reasonably acceptable to Owner. SECTION 20.03 STEP-IN RIGHTS (a) If Owner funds are available, and Manager fails to pay when due any amount which it is Manager's responsibility to pay pursuant to this Agreement, then Owner, after five (5) Business Days written notice to Manager with respect to any Operating Expense, and with respect to non-Operating Expense with such notice, if any, as may be reasonable under the circumstances (except in the event that Manager has exposure to potential liability in connection with making such payments in which case Owner shall give Manager two (2) days written notice), and without waiving or releasing Manager from any responsibility of Manager hereunder, Owner may (but shall not be required to) pay such amounts (including fines, penalty, interest and late payment fees) and take all such action as may be necessary in respect thereof. Manager shall, following such payments by Owner, promptly reimburse Owner from the Bank Accounts to the extent funds are available the amount which Manager failed to pay when due. In addition, unless Manager has not acted with reasonable diligence in failing to make such payments then, to the extent that Manager's lack of reasonable diligence in this connection has resulted in fines, penalty, interest or late payment fees in excess of Twenty-Five Thousand and no/100ths Dollars ($25,000.00) in any twelve (12) month period, then Manager shall immediately disburse to Owner from Gross Revenue, following such payments by Owner, such amounts as may be necessary to reimburse Owner for such payments and Manager shall promptly deposit into the appropriate Bank Accounts, from Manager's own funds, the full amount of any fines, penalty, interest or late payment fees paid in connection therewith. (b) If Manager fails to take any action which it is Manager's responsibility under this Agreement to take and the result is to expose the Project to a material loss or patrons to a material risk of physical safety, then Owner, upon five (5) days written notice to Manager (except in any emergency in which case Owner shall give Manager such notice, if any, as is reasonable under the circumstances), without saving or releasing Manager from any obligation of Manager hereunder, may (but shall not be required to) take such actions as may be necessary to preserve Owner's assets from such a material loss and/or to protect the patrons. Manager shall, following any payments by Owner made with respect to such actions, promptly reimburse Owner from the Bank Accounts, to the extent funds are available, the amount which Owner has expended. In addition, unless Manager has acted with reasonable diligence in failing to take such action then, to the extent that Manager's lack of reasonable diligence in this connection has resulted in fines or late payment fees in excess of Twenty-Five Thousand and no/100ths Dollars ($25,000.00) in any twelve month period, then Manager shall immediately disburse to Owner from Gross Revenue, following payment of such amounts by Owner, such amounts as are necessary to reimburse Owner for any fines or late payment fees by Owner in connection with taking such action on Manager's behalf and Manager shall also deposit into the appropriate Bank Account, from Manager's own funds, the full amount of such payment made to Owner. SECTION 20.04 OWNER'S DEFAULT If Owner shall (a) fail to make any monetary payment required under this Agreement, including, but not limited to, debt service, Incentive Management Fee or Owner's Advances, on or before the due date recited herein and said failure continues for five (5) Business Days after 33 written notice from Manager specifying such failure, (b) fail to pay the entire Management Fee for a period of six (6) months, or (c) fail to perform or materially comply with any of the other covenants, agreements, terms or conditions contained in this Agreement applicable to Owner (other than monetary payments) and such failure shall continue for a period of thirty (30) days after written notice thereof from Manager to Owner specifying in detail the nature of such failure, or, in the case such failure is of a nature that it cannot, with due diligence and good faith, cure within thirty (30) days, if Owner fails to proceed promptly and with all due diligence and in good faith to cure the same and thereafter to prosecute the curing of such failure to completion with all due diligence within ninety (90) days thereafter. SECTION 20.05 BANKRUPTCY If either party (i) applies for or consents to the appointment of a receiver, trustee or liquidator of itself or any of its property, (ii) makes a general assignment for the benefit of creditors, (iii) is adjudicated a bankrupt or insolvent, or (iv) files a voluntary petition in bankruptcy or a petition or an answer seeking reorganization or an arrangement with creditors, takes advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation Law, or admits the material allegations of a petition filed against it in any proceedings under any such law. SECTION 20.06 REORGANIZATION/RECEIVER If an order, judgment or decree is entered by any court of competent jurisdiction approving a petition seeking reorganization of Manager or Owner, as the case may be, or appointing a receiver, trustee or liquidator of Manager or Owner, as the case may be, or of all or a substantial part of any of the assets of Manager or Owner, as the case may be, and such order, judgment or decree continues unstayed and in effect for a period of sixty (60) days from the date of entry thereof. SECTION 20.07 DELAYS AND OMISSIONS No delay or omission as to the exercise of any right or power accruing upon any Event of Default shall impair the non- defaulting party's exercise of any right or power or shall be construed to be a waiver of any Event of Default or acquiescence therein. SECTION 20.08 DISPUTES IN ARBITRATION Notwithstanding the provisions of this Article 19, any occurrence which would otherwise constitute an Event of Default hereunder shall not constitute an Event of Default for so long as such dispute is subject to arbitration pursuant to the arbitration provisions of Article 19. ARTICLE 21. TERMINATION SECTION 21.01 TERMINATING EVENTS This Agreement shall terminate upon the occurrence of the following: (a) in the event of a terminating event specified in the Limited Liability Company Agreement or the date on which an Affiliate of Manager no longer owns an equity interest in Owner; 34 (b) upon the occurrence of an Event of Default under this Agreement and the time to cure has lapsed; or (c) upon a change in the ownership of the Manager or its Affiliates resulting in a change in the control of the Manager, unless Owner consents within thirty (30) days prior to the change in control of Manager or its Affiliates, which consent may not be unreasonably withheld, in writing to such change in control. For purposes of this section, "control" means the possession, directly of 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% or more of a publicly traded corporation, or more than 50% of a non-publicly traded corporation . (d) upon the occurrence of a taking as specified in Article 13. SECTION 21.02 NOTICE OF TERMINATION In the event of an occurrence specified in Section 21.01(a)- (b), either Manager or Owner, as appropriate, shall terminate this Agreement by giving five (5) days written notice, and the Term of this Agreement shall expire by limitation at the expiration of said last day specified in the notice as if said date was the date herein originally fixed for the expiration of the Term. SECTION 21.03 REMEDIES UPON TERMINATION. (a) Prior to Commencing Gaming Operations. In the event that this Agreement is terminated prior to commencing gaming operations and if the termination is not the result of an Event of Default caused by Manager, Owner shall reimburse Manager all Manager's Pre-Opening Expenses. (b) After Commencement of Gaming Operations. Owner shall pay to Manager all earned Management Fees. SECTION 21.04 DELIVERY OF PROJECT Upon termination of this Agreement for any reason, Manager shall assign and transfer to Owner all of Manager's rights, title, and interest in and to all transferable licenses and permits with respect to the operation of the Project, save and except the "Showboat Trademark" which will and shall remain the property of Manager. Manager shall peacefully vacate the Project. No signs or personalized property bearing the "Showboat Trademark" shall be purchased or used by Owner without prior written arrangements between Owner and Manager, which may need a license from its parent company, Showboat, Inc. Upon surrender, any exterior signs inscribed with the "Showboat Trademark" shall be removed as soon as is practicable, and in any event within fifteen (15) days of the date of termination. Additionally, any personalized property bearing a "Showboat Trademark" (including without limitation, ashtrays, office supplies, linen, glassware, paper goods, promotional items, guest checks, uniforms, carpets, and upholstery) shall also be removed as soon as practicable, and in any event within thirty (30) days of the date of termination. 35 ARTICLE 22. HAZARDOUS MATERIALS SECTION 22.01 NO HAZARDOUS MATERIALS Prior to Construction, Owner will provide Manager with an Environmental Site Assessment Phase I Investigation relating to the Project. Owner will represent and warrant after inquiry and investigation prior to the completion of Construction, that: (i) any handling, removing, transportation, storage, treatment or usage of Hazardous Materials or toxic substances that has occurred in the Project to date has been in compliance with all applicable federal, state and local laws, regulations and ordinances; (ii) no leak, spill, release, discharge, emission or disposal of Hazardous Materials or toxic substances has occurred in the Project to date; and (iii) the Project is free of asbestos, toxic or Hazardous Materials as of the date that the term of this Agreement commences. SECTION 22.02 COMPLIANCE WITH LAWS Owner agrees to comply with all federal, state and local environmental and real estate laws, including the Americans With Disabilities Act relating to Owner's construction, ownership, management and operation of the Project. Manager agrees to comply with all federal, state and local environmental and real estate laws, including the Americans With Disabilities Act relating to Manager's management and operation of the Project. All expenses incurred in such compliance shall be Operating Expenses. SECTION 22.03 INDEMNIFICATION BY OWNER Owner agrees to indemnify, defend and hold Manager and its officers, employees and agents harmless from any claims, judgments, damages, penalties, fines, costs, liabilities (including sums paid in settlements of claims) or loss including reasonable attorneys' fees, consultant fees, and expert fees (consultants and experts to be selected by Manager) which arise during or after the Term as a result of any breach of Owner's representation and warranty contained in Section 22.01 or as a result of Owner's failure to perform its covenant contained in Section 22.02. Without limiting the generality of the foregoing, the indemnification provided by this Section shall specifically cover costs incurred in connection with any investigation of site conditions or any clean-up, remedial, removal or restoration work required by any federal, state or local governmental agency or political subdivision because of the presence or suspected presence of asbestos, other toxic or Hazardous Material in the Project, or the soil, groundwater or soil vapor on or under the Project, unless the Hazardous Materials are present solely as a result of the actions of Manager, its officers, shareholders, employees or agents. The foregoing indemnity shall survive the expiration or earlier termination of this Agreement. Section 22.04 Indemnification by Manager Manager agrees to indemnify, defend and hold Owner and its officers, employees and agents harmless from any claims, judgments, damages, penalties, fines, costs, liabilities (including sums paid in settlements of claims) or loss including reasonable attorneys' fees, consultant fees, and expert fees (consultants and experts to be selected by Owner) which arise during or after the Term as a result of any breach of Manager's representation and warranty contained in Section 22.02. Without limiting the generality of the foregoing, the indemnification provided by this 36 Section shall specifically cover costs incurred in connection with any investigation of site conditions or any clean-up, remedial, removal or restoration work required by any federal, state or local governmental agency or political subdivision because of the presence or suspected presence of asbestos, other toxic or Hazardous Material in the Project, or the soil, groundwater or soil vapor on or under the Project, unless the Hazardous Materials are present solely as a result of the actions of Owner, its officers, shareholders, employees or agents. The foregoing indemnity shall survive the expiration or earlier termination of this Agreement. SECTION 22.05 HAZARDOUS MATERIAL DEFINED "Hazardous Material," as used in this Agreement, shall be any substance or material if defined or designated as a hazardous or toxic substance, or other similar term, by any federal, state or local law, statute, regulation, or ordinance affecting the Project. ARTICLE 23. NOTICES All notices provided for in this Agreement or related to this Agreement, which either party desires to serve on the other, shall be in writing, and any and all notices or other papers or instruments related to this Agreement shall be deemed sufficiently served or delivered on the date of mailing if sent (i) by United States registered or certified mail (return receipt requested), postage prepaid, in an envelope properly sealed, (ii) by a facsimile transmission where written acknowledgment of receipt of such transmission is received and a copy of the transmission is mailed with postage prepaid, or (iii) by a nationally recognized overnight delivery service provided for receipted delivery, addressed as follows: Owner: Manager: Showboat Rockingham Company, Showboat Operating Company L.L.C. Vice President Finance and c/o President and Chief Chief Financial Officer Executive Officer 2800 Fremont Street Showboat New Hampshire Inc. Las Vegas, NV 89104 6601 Ventnor Avenue Ventnor, NJ 08046 Rockingham: with a copy to: Joseph E. Carney, Jr. John N. Brewer, Esq. President Kummer Kaempfer Bonner & Rockingham Venture, Inc. Renshaw Rockingham Park 3800 Howard Hughes Parkway Rockingham Park Boulevard Seventh Floor Salem, NH 03079 Las Vegas, NV 89109 Either Owner or Manager may change the address or name of addressee applicable to subsequent notices (including copies of said notices as hereinafter provided) or instruments or other papers to be served upon or delivered to the other party, by giving notice to the other party as aforesaid, provided that notice of such change shall not be effective until the fifth (5th) day after mailing or facsimile transmission. 37 ARTICLE 24. MISCELLANEOUS SECTION 24.01 TIME OF THE ESSENCE Time is of the essence with respect to all time periods set forth in this Agreement. SECTION 24.02 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. SECTION 24.03 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 Owner or Manager. This Agreement shall be construed without regard to any presumption or other rule requiring construction against the party causing the same to be drafted. SECTION 24.04 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. SECTION 24.05 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. SECTION 24.06 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 other than as principal and agent. All debts and liabilities incurred by Manager within the scope of the authority granted and permitted hereunder in the course of its management and operation of the Project shall be the debts and liabilities of Owner only, and Manager shall not be liable for such debts and liabilities except as specifically stated to the contrary herein. SECTION 24.07 NO BROKER OR FINDER Each party represents to the other that it has not engaged any finder, broker or agent for whose commission or fee the other party could be liable. Each party covenants and agrees to indemnify and hold the other party free and harmless at all times in respect of any and all liabilities, actions, suits, proceedings, demands, assessments, judgments, costs and expenses, including attorneys fees, arising from, by reason of, or in connection with any fees, commissions or other compensation which shall be alleged to be due to any finder, broker, agent or other similar representative in connection with this transaction, if the person is found to have been 38 engaged by either party or if such services are found to have been provided at the request of either party. SECTION 24.08 ATTORNEYS' FEES Should either party institute an arbitration, action or proceeding to enforce any provisions 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. SECTION 24.09 ENTIRE AGREEMENT This Agreement covers in full each and every agreement of every kind or nature whatsoever between the parties hereto concerning this Agreement, and all 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 custom to the contrary notwithstanding. SECTION 24.10 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. SECTION 24.11 FORCE MAJEURE Whenever this Agreement requires an act to be performed within a specified time period or to be completed diligently, such periods are subject to "unavoidable delays." Unavoidable delays include delays caused by acts of God, acts of war, civil commotions, riots, strikes, lockouts, acts of government in either its sovereign or contractual capacity, perturbation in telecommunications transmissions, inability to obtain suitable labor or materials, accident, fire, water damages, flood, earthquake, or other natural catastrophes. SECTION 24.12 NO WARRANTIES Manager shall use its best efforts to render the services contemplated by this Agreement in good faith to Owner, but hereby explicitly disclaims any and all warranties, express or implied, including but not limited to the success or profitability of the Project. 39 SECTION 24.13 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 an way modify, restrict or amend any of the terms or provisions hereof. SECTION 24.14 WAIVER The waiver by one party of any default or breach of any of the provisions, covenants or conditions hereof of the part of the other party to be kept and performed shall not be a waiver of any preceding or subsequent breach or any other provisions, covenants or conditions contained herein. DATED as of the day first above written. "Manager" "Owner" SHOWBOAT OPERATING COMPANY, SHOWBOAT ROCKINGHAM COMPANY, a Nevada corporation L.L.C., a limited liability company, by Showboat New Hampshire, Inc., its Manager By: /s/ Leann Schneider By:_____________________________ Treasurer ACKNOWLEDGED AND AGREEDTO WITH RESPECT TO ARTICLE 7 ONLY: ROCKINGHAM VENTURE, INC., a New Hampshire corporation By:_________________________ 40 ADMINISTRATIVE SERVICES AGREEMENT This Administrative Services Agreement ("Agreement"), dated as of the 27th day of July, 1995, between Showboat Operating Company, a Nevada corporation whose principal office is located at 2800 Fremont Street, Las Vegas, Nevada 89104 ("Showboat"), and Showboat Rockingham Company, LLC, a New Hampshire limited liability company whose principal office is located at Rockingham Park Boulevard, Salem, New Hampshire 03079 ("Owner"). W I T N E S S E T H: WHEREAS, Showboat and its management are experienced in providing corporate administrative services to casinos and restaurant operations; and WHEREAS, Owner contemplates that the state of New Hampshire may enact gaming legislation and, if permitted by such legislation and licensed by the appropriate licensing authority, construct a gaming facility at Rockingham Park (the "Project"); and WHEREAS, Owner has appointed Showboat as the manager and operator of the Project; and WHEREAS, Owner desires to engage Showboat to render certain corporate administrative services to Owner in order for Owner to manage and operate the Project all as more fully described herein; and WHEREAS, Showboat desires to render such services to Owner; and WHEREAS, the parties hereto are desirous of setting forth the terms of compensation for the services to be rendered by Showboat hereunder; and NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties herein contained, the parties agree as follows: ARTICLE 1.0 - SERVICES TO BE PROVIDED 1.1. THE SERVICES. Upon the terms and conditions described herein, Showboat shall provide to Owner the corporate administrative services (the "Services") set forth in Exhibit A, which is attached hereto and made a part hereof. 1.2. CONTINUED OWNER PERFORMANCE. Any Services to be performed by Showboat hereunder shall not be performed as a substitute for Owner performance, but shall assist, support or supplement the routine functions and responsibilities of the employees, officers and Managers of Owner. 1.3. SHOWBOAT PERSONNEL. All Showboat personnel engaged to render the Services shall remain the employees of Showboat, and Showboat shall be responsible for their compensation and for withholding federal or state income taxes. The costs and expenses incurred by Showboat for consultants, agents and independent contractors selected and engaged to perform Services for Owner shall be engaged directly by Owner and paid directly by Owner or reimbursed to Showboat upon demand. Any such consultants, agents and independent subcontractors shall separately invoice and account for Services to Owner. To the extent that Showboat itself or any Showboat personnel, other than consultants, agents and independent 2 contractors, must be licensed or approved by the authorized gaming authority in the State of New Hampshire, however, Owner shall bear the expense of obtaining such regulatory approvals and Showboat shall cooperate fully in order to obtain all necessary regulatory approvals. 1.4. SHOWBOAT PERFORMANCE/RESPONSIBILITY. Showboat undertakes to provide the Services hereunder with the same degree of care and diligence it uses in providing such Services for its own operations. In providing the Services hereunder, Showboat shall not be liable to Owner for errors or omissions hereunder except to the extent that such errors and omissions constitute gross negligence or willful misconduct. Under no circumstances shall any of Showboat's employees, officers, agents, directors, or stockholders be liable to Owner for any errors or omissions by Showboat hereunder. ARTICLE 2.0 - PAYMENT OF COMPENSATION 2.1. FEES. Owner shall pay to Showboat fees for the Services rendered hereunder equal to one percent (1%) of Owner's Earnings before any interest expense, income taxes, capital lease rentals, depreciation and amortization. Earnings shall have the meaning specified in that certain Management Agreement among Showboat, Owner and Rockingham Venture, Inc. dated as of the date hereof (the "Management Agreement"). Showboat and owner agree that the fees provided for by this Section 2.1 constitute their good faith determination of the fair market value of such services. 2.2. PARTIAL YEARS. Fees for partial fiscal years and months hereunder shall be prorated. 3 2.3. TAXES. Showboat and Owner agree that in the event any tax or assessment (other than any such tax or assessment on income) is required to be paid as a result of the performance of the Services by Showboat hereunder, Owner shall be solely responsible for the payment of such tax or assessment. 2.4. FISCAL YEAR: BOOKS AND RECORDS. Owner shall keep at its usual place of business books and records relating to gross revenues and the payment to be made hereunder containing such true entries as may be necessary or proper to ascertain the amount of payments to be made to Showboat hereunder. Owner shall produce, during normal business hours, said books and records and make them available for inspection or audit by duly authorized agents of Showboat, shall permit such agents to make copies thereof, and shall give such information as may be necessary or proper to enable the amount of payment due hereunder to be ascertained and verified. ARTICLE 3.0 - TERM AND TERMINATION 3.1. TERM. The term of this Agreement shall begin as of the date hereof and shall continue for a term of the earlier to occur of (i) 50 years or (ii) the termination of the Management Agreement. 3.2. FORCE MAJEURE. Neither party shall be liable in any manner for failure or delay of performance of all or any part of this Agreement, directly or indirectly, owing to an act of God, governmental orders or restrictions, strikes or other labor disturbances, riots, embargoes, revolutions, wars (declared or undeclared), sabotage, fires, floods, or any other causes or circumstances beyond the control of the parties. The party suffering such delay or failure shall 4 give prompt notice to the other party and shall exert its best efforts to remove the causes or circumstances of nonperformance with all possible dispatch. If any of the causes or circumstances above continue for more than six (6) months, either party hereto may elect to terminate this Agreement by written notice to the other party. 3.3. ACCRUED PAYMENTS. Termination of the Agreement pursuant to Section 3.2 hereof shall not affect the right of Showboat to any fees accrued hereunder prior to the date of such termination. 3.4. 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 thirty (30) days thereafter, the nondefaulting party shall be entitled to pursue any remedies available to it, including but not limited to, the termination of the Agreement upon notice to the defaulting party. ARTICLE 4.0 - GENERAL PROVISIONS 4.1. OTHER SERVICES. Nothing in this Agreement shall be construed to prohibit Showboat from undertaking to provide additional services to Owner not described in this Agreement or in the exhibits hereto on terms and conditions (including the fees therefore) satisfactory to each of Showboat and Owner. 5 4.2. INDEPENDENT PARTIES. Nothing in this Agreement shall be construed as creating a partnership or a joint venture between Showboat and Owner, or making either party an agent or employee of the other party, but in all of its operations hereunder Showboat shall be an independent contractor for Owner. No employee of Showboat who renders any service hereunder shall be considered, construed, or deemed to be an employee of Owner as a result thereof. 4.3. INTEGRATION, MODIFICATION AND WAIVER. This Agreement constitutes the entire agreement between Showboat and Owner pertaining to the subject matter hereof and supersedes all prior understandings of the parties. No supplement, modifications or amendment of this Agreement shall be binding upon either Showboat or Owner unless executed in writing by each of them. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. 4.4. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the state of New Hampshire without giving effect to the conflict of laws principles thereof. 4.5. NOTICES. Any notice or other communication required or permitted under this Agreement shall be deemed given when: (a) it is personally delivered; (b) it is transmitted by telecopy, telex, or telegram with confirmation of receipt and a copy of the document transmitted is also mailed, to the recipient, postage prepaid; (c) the day after it is sent by a nationally recognized overnight courier service; or (d) five (5) days after it is sent by United States mail with postage prepaid, addressed to the respective party at its address set forth in the first paragraph of 6 this Agreement, attention: President if for Showboat or General Manager if for Owner. Either party may change the address or telecopy number to which notices or other communications are to be given under this Agreement by furnishing the other party with written notice of such change in accordance with this Section 4.5. 4.6. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Neither party may assign this Agreement or any of its rights or obligations under this Agreement without the prior written consent of the other party. 4.7. HEADINGS. The headings used in this Agreement are for convenience of reference only and are not intended to affect the interpretation of this Agreement. 4.8. SEVERABILITY. If any provision of this Agreement or the application of any provision to any party or circumstance shall, to any extent, be adjudged invalid or unenforceable, the application of the remainder of such provision to such party or circumstance, the application of such provision to other parties or circumstances, and the application of the remainder of this Agreement shall not be affected thereby. Each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 4.9. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 7 4.10. 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. 4.11. NO WARRANTIES. Showboat shall use its best efforts to provide the services in good faith to Owner, but disclaims any and all warranties, express or implied, including, but not limited to, the success or profitability of the business conducted by Owner. Nothing contained herein shall be deemed to confer on Showboat the right or ability to manage Owner's business. Management of Owner's business shall solely be the function and responsibility of Owner. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their representatives thereunto duly authorized. SHOWBOAT OPERATING COMPANY a Nevada corporation By: /s/ Leann Schneider Name: Title: Treasurer SHOWBOAT ROCKINGHAM COMPANY, LLC, By:______________________________ Name: 8 EXHIBIT A SERVICES TO BE PROVIDED Pursuant to the Administrative Services Agreement entered into by the Parties, Owner engages Showboat to render, or cause to be rendered, the following corporate administrative services in connection with Owner's operations. 1. Human Resource services, including: provision of policy development and operating guidelines for standardization of operation philosophy and principles for employee management; and establishment of uniform controls for selection and licensing of key management personnel, compensation and benefits. 2. Accounting and financial services, including: development of standards and procedures for internal audits and supervision; review and evaluation of internal audits; assistance with the development of policies, standards and procedures for accounting and supervision; and, provision of technical accounting advisory services and review of financial statements and other accounting records maintained by Owner. 3. Data processing services, including: development of policies, standards and procedures governing data processing operations: assistance in the acquisition of software programs; coordination of hardware acquisitions; and, review and evaluation of data processing systems and operations. 9 4. Tax planning and compliance, including: review of federal and state income tax returns; review of estimated tax payments; and assistance in the coordination of Internal Revenue Service and state agency examinations. 5. General administrative services, including: consultation on selection of consultants for strategic planning efforts; assistance in the evaluation and acquisition of insurance policies and establishment of standards and policies related to all insurance-related matters; assistance in the development of standards and policies related to safety programs and supervision of such programs; and such other administrative services as may be appropriate. 10 TRADEMARK LICENSE AGREEMENT THIS TRADEMARK LICENSE AGREEMENT (this "Agreement") made as of July 27, 1995, by and between Showboat, Inc., a Nevada corporation ("Licensor"), and Showboat Rockingham Company, LLC, a New Hampshire limited liability company ("Licensee"). RECITALS A. Licensor is the owner of the trademark "Showboat", its logos, trademarks, tradenames, service marks, and any variation or extension of such name ("Trademark"). B. Licensor and Licensee desire that the Licensee be permitted to use the Trademark in connection with the operation of a privately-owned non-racing gaming establishment (the "Project") located at Rockingham Park, Salem, New Hampshire (the "Territory"). 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, the Licensor and Licensee agree as follows: 1. LICENSE. The Licensor grants to the Licensee the non-exclusive, personal and nontransferable right to use the Trademark in the Territory in connection with the operation of the Project. 2. OPERATION OF PROJECT. The Licensee shall operate the Project in a first-rate manner, consistent with the quality of other gaming operations on the eastern seaboard of the United States, and shall use the Trademark only in connection with the operations of the Project, and the quality of the operations of the Project shall be satisfactory to the Licensor, as determined in its sole discretion. 3. INSPECTION. The Licensee will permit only authorized representatives of the Licensor to inspect, at all reasonable times, the operations of the Project. 4. USE OF TRADEMARK. Whenever the Licensee uses the Trademark in advertising or in any other manner in connection with the Project, the Licensee shall clearly indicate the Licensor's ownership of the Trademark. The Licensee shall provide the Licensor with samples of all signs, advertising, promotional material, literature, packages and labels prepared by or for the Licensee and intended to be used by Licensee. When using the Trademark under this Agreement, the Licensee undertakes to comply with all laws pertaining to trademarks in force at any time in the Territory. 5. REGISTRATION OF LICENSEE. If the law requires, or if requested by the Licensor or its duly authorized representative, the Licensee shall execute any such documents and to take such action as may be necessary to implement an application to register the Licensee as a Permitted User or to retain, enforce or defend the Trademark. 6. ASSIGNMENT OF LICENSEE. The right granted in Paragraph 1 hereof shall not be transferable without the Licensor's prior written consent, which consent may be granted or withheld in Licensor's sole discretion, PROVIDED, HOWEVER, that the Licensee shall have the right to use the Trademark in the Territory for the purpose of exercising the rights granted hereunder. 7. INDEMNITY. The Licensor assumes no liability to the Licensee or to third parties with respect to the operations of the Project or to the use of the Trademark in the Territory, and the Licensee hereby defends, indemnifies and holds harmless the Licensor against all losses, damages and expenses, including attorneys' fees, incurred as a result of or related to claims of third persons involving the operations of the Project or use of the Trademark. 8. COMPENSATION. Licensee shall pay to Showboat monthly fees for the Services rendered hereunder equal to three percent (3%) of Licensee's Earnings before any interest expense, income taxes, capital lease rentals, depreciation and amortization. Earnings shall have the meaning specified in that certain Management Agreement among Showboat, Licensee and Rockingham Venture, Inc. dated as of the date hereof (the "Management Agreement"). Payment of the fee payable hereunder shall be paid in the manner and at the times as the Management Fee is paid to Showboat under the Mangement Agreement. Showboat and Licensee agree that the fees provided for by this Section 2.1 constitute their good faith determination of the fair market value of such services. 9. TERM. (a) The term of this Agreement shall commence on the enactment of privately owned non-racing gaming legislation and shall continue in effect for a term of 50 years thereafter or upon the earlier termination of the Management Agreement. (b) If the Licensee or any sublicensee makes any assignment of assets or business for the benefit of creditors, or if a trustee or receiver is appointed to administer or conduct its business or affairs, or if it is adjudged in any legal proceeding to be either voluntary or involuntary bankrupt, then all the rights granted herein shall forthwith cease and terminate without prior notice or legal action by the Licensor and without any further obligation or liability to Licensor. (c) Should the Licensee fail to comply with any provision of this Agreement, the Licensor may terminate this Agreement without prior notice or legal action and without any further obligation or liability to Licensor. The Licensor shall have the right to determine unilaterally whether or not the conditions envisioned by this subparagraph exist, and the Licensor's determination shall be final. 2 10. OWNERSHIP OF TRADEMARK. The Licensee acknowledges the Licensor's exclusive right, title and interest in and to the Trademark including its trademarks, logos, service marks, and any variation or extensions thereof (collectively, "Showboat Intellectual Property" and will not at any time do or cause to be done any act or thing contesting or in any way impairing or tending to impair any part of such right, title, and interest. In connection with the use of the Trademark, the Licensee shall not in connection with the use of the Trademark, the Licensee shall not in any manner represent that it has any ownership in the Trademark or registration hereof, and the Licensee acknowledges that use of the Trademark shall not create in the Licensee's favor any right, title, or interest in or to the Trademark, but all uses of the Trademark by the Licensee shall insure to the benefit of the Licensor. Upon termination of this Agreement in any manner provided herein, the Licensee will cease and desist from all use of the Trademark in any way (and will deliver up to the Licensor, or its duly authorized representatives, all material and papers upon which the Trademark appears), and the Licensee shall at no time adopt or use, without the Licensor's prior written consent, any word or mark which is likely to be similar to or confusing with the Trademark. 11. NOTICES. Any notices required or permitted to be given under this Agreement shall be deemed sufficiently given if mailed by certified mail, postage prepaid, addressed to the party to be notified at its address shown at the beginning of this Agreement, or at such other address as may be furnished in writing to the notifying party. IN WITNESS WHEREOF this Agreement has been executed as of the day and year first above written. "Licensor" "Licensee" SHOWBOAT, INC. SHOWBOAT ROCKINGHAM COMPANY, LLC By: /S/ J.K. Houssels III By:___________________________ 3 EX-10.37 6 EXHIBIT 10.37 PROMISSORY NOTE $5,024,470.26 January 1, 1996 FOR VALUE RECEIVED, Showboat Missouri, a corporation organized and existing under the laws of the State of Nevada ("Maker"), promises to pay to Showboat, Inc., a corporation organized and existing under the laws of the State of Nevada, or order ("Holder"), at 3720 Howard Hughes Parkway, Ste. 200, Las Vegas, NV 89109, or at such other place as Holder may designate in writing, up to the principal balance of Five Million Twenty- Four Thousand Four Hundred Seventy and 26/One Hundredths Dollars ($5,024,470.26), plus interest as hereinafter provided. Interest shall be calculated on a daily basis (based on a 365-day year), at 14% ("Base Rate"). Principal and interest shall be payable upon the earlier to occur of (i) demand or (ii) December 31, 1996 (the "Maturity Date"). All payments on this Promissory Note shall be applied first to discharge all accrued but unpaid interest on the unpaid principal balance hereof, and the remainder to be applied to the principal balance. The Holder's acceptance of any payment less than the amount then due shall not, in any manner, effect or prejudice the rights of the Holder to receive the unpaid balance then due and payable. The failure to pay the unpaid principal sum on the Maturity Date or the failure to pay any other sum when the same shall become due and payable shall constitute an event of default ("Event of Default") hereunder, and upon the occurrence of an Event of Default, all sums evidenced hereby, including the entire principal balance, all accrued and unpaid interest and all other amounts due hereunder shall, at the election of the Holder, and without demand or notice to maker, become immediately due and payable and the Holder may exercise its rights under this Note, and other rights under applicable law. Upon the occurrence of an Event of Default by Maker, the unpaid principal balance, and all accrued and unpaid interest due hereunder and all other costs shall together be treated as the principal balance of this Promissory Note and shall bear interest at the rate of three (3) percentage points per annum greater than the Base Rate (the "Default Rate"), from the date of the Event of Default until the entire principal sum and such interest and costs have been paid in full. Maker shall have the right to prepay at any time all or any portion of this Promissory Note without penalty. It is not the intent of Holder to collect interest or other loan charges in excess of the maximum amount permitted by Nevada law. If interest or other loan charges collected or to be collected by the Holder exceed any applicable permitted limits then (i) any such interest or other loan charges shall be reduced by the amount necessary to reduce the interest or other loan charges to the permitted limits, and (ii) any sums already collected from the Maker which exceeded permitted limits will be refunded to the Maker. The Holder may choose to make such refund by reducing the principal balance of the indebtedness hereunder or by making a direct payment to the Maker. Maker agrees to waiver demand, diligence, presentment for payment and protest, notice of acceleration, extension, dishonor, maturity, protest, and default hereunder. The Holder may accept late or partial payments even though they are marked "payment in full," without losing, prejudicing or waiving any rights hereunder. Maker agrees to pay all costs of collection, and all costs of suit and preparation for such suit (whether at trial or appellate level), in the event the unpaid principal sum of this Promissory Note, or any payment of principal or interest is not paid when due. No amendment, modification, change, waiver or discharge shall be effective unless evidenced by an instrument in writing and signed by the party against whom enforcement of any waiver, amendment, change, modification or discharge is sought. If any provision hereof is invalid, or unenforceable, the other provisions hereof shall remain in full force and effect and shall be construed to effectuate the provisions hereof. The provisions of this Promissory Note shall be binding and inure to the benefit of the successors and assigns of the parties hereto. A waiver by Holder of failure to enforce any covenant or condition of this Promissory Note, or to declare any default hereunder, shall not operate as a waiver of any subsequent default or affect the right of Holder to exercise any right or remedy not expressly waived in writing. This Promissory Note shall be construed in accordance with and governed by Nevada law. All payments of principal and interest are hereby required to be made in the form of lawful money of the United States of America. Time is of the essence with respect to this Promissory Note and each and every covenant, condition, term and provision hereof. Whenever the context requires or permits, the singular shall include the plural, plural shall include the singular and the masculine, feminine and neuter shall be freely interchangeable. IN WITNESS WHEREOF, Maker has executed this Promissory Note at Las Vegas, Nevada as of the day first above written. Maker: SHOWBOAT MISSOURI, a Nevada corporation By: /s/ Its: EX-10.38 7 EXHIBIT 10.38 LOAN AND GUARANTY AGREEMENT DATED AS OF JULY 14, 1995 AMONG SHOWBOAT, INC. AS BORROWER AND SHOWBOAT OPERATING COMPANY, OCEAN SHOWBOAT, INC. AND ATLANTIC CITY SHOWBOAT, INC. AS GUARANTORS AND NATWEST BANK, N.A. AS LENDER 1. DEFINITIONS 1 2. THE LOANS 12 SECTION 2.01. REVOLVING CREDIT FACILITY LOANS. 12 SECTION 2.02. TERM LOAN FACILITY. 12 SECTION 2.03. MAKING OF LOANS. 12 SECTION 2.04. NOTES. 13 SECTION 2.05. INTEREST ON NOTES 13 SECTION 2.06. FEES 14 SECTION 2.07. PREPAYMENT OF LOANS 14 3. REPRESENTATIONS AND WARRANTIES 14 SECTION 3.01. CORPORATE EXISTENCE AND POWER 15 SECTION 3.02. CORPORATE AUTHORITY AND NO 15 VIOLATION SECTION 3.03. GOVERNMENTAL APPROVAL 15 SECTION 3.04. FINANCIAL CONDITION 16 SECTION 3.05. NO MATERIAL ADVERSE CHANGE 16 SECTION 3.06. SUBSIDIARIES 16 SECTION 3.07. TRADEMARKS, PATENTS AND OTHER 16 RIGHTS SECTION 3.08. FICTITIOUS NAME 17 SECTION 3.09. TITLE TO PROPERTIES 17 SECTION 3.10. UCC FILING INFORMATION 17 SECTION 3.11. LITIGATION 17 SECTION 3.12. FEDERAL RESERVE REGULATIONS 18 SECTION 3.13. INVESTMENT COMPANY ACT 18 SECTION 3.14. ENFORCEABILITY 18 SECTION 3.15. TAXES 18 SECTION 3.16. COMPLIANCE WITH ERISA 18 SECTION 3.17. AGREEMENTS 19 SECTION 3.18. DISCLOSURE 19 SECTION 3.19. ENVIRONMENTAL LIABILITIES 19 SECTION 3.20. LABOR MATTERS 20 4. CONDITION OF LENDING 20 SECTION 4.01. CONDITIONS PRECEDENT TO THE LOANS 20 SECTION 4.02. CONDITIONS PRECEDENT TO EACH 24 BORROWING SECTION 4.03. CONDITIONS TO CONVERSION 25 5. AFFIRMATIVE COVENANTS 25 SECTION 5.01. FINANCIAL STATEMENTS, REPORTS, 25 ETC. i SECTION 5.02. CORPORATE EXISTENCE; COMPLIANCE 27 WITH STATUTES SECTION 5.03. INSURANCE 27 SECTION 5.04. TAXES AND CHARGES; INDEBTEDNESS IN ORDINARY COURSE OF BUSINESS. 28 SECTION 5.05. CORPORATE NAME; CHIEF EXECUTIVE 29 OFFICE SECTION 5.06. ERISA COMPLIANCE AND REPORTS 29 SECTION 5.07. USE OF PROCEEDS 30 SECTION 5.08. ACCESS TO BOOKS AND RECORDS; 30 EXAMINATIONS SECTION 5.09. MAINTENANCE OF PROPERTIES 30 SECTION 5.10. MATERIAL CHANGES 30 SECTION 5.11. ENVIRONMENTAL LAWS 31 SECTION 5.12. FURTHER ASSURANCES; SECURITY 31 INTERESTS SECTION 5.13. PROJECT EXPANSIONS 32 SECTION 5.14. ANNUAL CLEANUP PERIOD 32 6. NEGATIVE COVENANTS 33 SECTION 6.01. LIMITATION OF INDEBTEDNESS 33 SECTION 6.02. LIMITATION OF GUARANTIES 33 SECTION 6.03. CHANGE IN BUSINESS 33 SECTION 6.04. CONSOLIDATION, MERGER, SALE 34 OR PURCHASE OF ASSETS,ETC. SECTION 6.05. LIMITATION ON LIENS 34 SECTION 6.06. EXECUTIVE OFFICES 35 SECTION 6.07. SALE AND LEASEBACK 35 SECTION 6.08. ERISA COMPLIANCE 35 SECTION 6.09. TRANSACTIONS WITH AFFILIATES 36 SECTION 6.10. AMENDMENTS TO EXISTING DOCUMENTS 36 SECTION 6.11. HAZARDOUS MATERIALS 36 SECTION 6.12. NO FURTHER NEGATIVE PLEDGES 36 SECTION 6.13. CAPITAL FUNDS 37 SECTION 6.14. LEVERAGE RATIO 37 SECTION 6.15. DEBT SERVICE COVERAGE RATIO 37 SECTION 6.16. ACCOUNTING PRACTICES 37 SECTION 6.17. LIMITATION ON RESTRICTIONS ON 37 SUBSIDIARY DIVIDENDS AND OTHER DISTRIBUTIONS, ETC. 7. EVENTS OF DEFAULT 38 8. GUARANTY 40 SECTION 8.01. AGREEMENT OF GUARANTY 40 SECTION 8.02. NO IMPAIRMENT OF GUARANTY 41 SECTION 8.03. CONTINUATION AND REINSTATEMENT, 42 ETC. ii SECTION 8.04. LIMITATION ON GUARANTEED AMOUNT 42 9. MISCELLANEOUS 42 SECTION 9.01. NOTICES 42 SECTION 9.02. SURVIVAL OF AGREEMENT, 43 REPRESENTATIONS AND WARRANTIES, ETC. SECTION 9.03. SUCCESSORS AND ASSIGNS; 43 SYNDICATIONS; LOAN SALES; PARTICIPATIONS. SECTION 9.04. EXPENSES; DOCUMENTARY TAXES 44 SECTION 9.05. INDEMNITY 44 SECTION 9.06. CHOICE OF LAW 45 SECTION 9.07. NO WAIVER 45 SECTION 9.08. EXTENSION OF MATURITY 45 SECTION 9.09. AMENDMENTS, ETC 46 SECTION 9.10. SEVERABILITY 46 SECTION 9.11. SERVICE OF PROCESS 46 SECTION 9.12. HEADINGS 47 SECTION 9.13. EXECUTION IN COUNTERPARTS 47 SECTION 9.14. ENTIRE AGREEMENT 47 EXHIBITS: Exhibit 2.04(a) Revolving Note Exhibit 2.04(b)-1 Note Amendment Agreement (Floating Rate) Exhibit 2.04(b)-2 Note Amendment Agreement (Fixed Rate) Exhibit 4.01(p) Officers' Certificate SCHEDULES: Schedule 3.06 List of Showboat, Inc. Subsidiaries Schedule 3.07 Proprietary Rights Needed to Conduct Business Which Showboat, Inc. and/or its Subsidiaries Neither Possess Nor Have License to Use Schedule 3.08 Fictitious or Trade Names Schedule 3.09 List of Real Property Owned or Leased by Showboat, Inc. and/or its Subsidiaries Schedule 3.10 Principal Executive Office and Location of Records Schedule 3.11 List of Pending Lawsuits/Proceedings Schedule 3.17 List of Agreements of Showboat, Inc. and its Subsidiaries For Which Loss or Termination May Have Material Adverse Effect Schedule 3.19 Environmental Liabilities Schedule 6.05 Existing Liens iii LOAN AND GUARANTY AGREEMENT THIS LOAN AND GUARANTY AGREEMENT (the "Agreement") is entered into on July 14, 1995, between and among NATWEST BANK, N.A. a national banking association (hereinafter called "Lender"), with a business office 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 (hereinafter 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. W I T N E S S E T H WHEREAS, the Borrower has requested that the Lender make available a committed revolving credit facility in the amount of $25,000,000 for a term of 2 years, after which time the facility may, at the discretion of the Borrower, be converted to a term loan having a remaining term of 3 years; and WHEREAS, subject to the terms and conditions set forth herein, the Lender is willing to make the credit facilities available to the Borrower; and WHEREAS, the Loan is to be secured by a first lien and security interest in the Atlantic City Showboat and the Las Vegas Showboat, which mortgages and liens are to be in pari passu with the liens and security interests held by the Trustee, and by the guaranty of the Guarantors. NOW THEREFORE, in consideration of the mutual promises and covenants set forth below, the parties hereto hereby agree as follows: 1. DEFINITIONS For the purposes hereof unless the context otherwise requires, the following terms shall have the meanings indicated, all accounting terms not otherwise defined herein will have the respective meanings accorded to them under GAAP and all terms defined in the New Jersey Uniform Commercial Code and not otherwise defined herein shall have the respective meanings accorded to them therein. Unless the context otherwise requires, any of the following terms may be used in the singular or plural, depending on the reference: "ACSI" means Atlantic City Showboat, Inc. "AFFILIATE" means any Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, a Person shall be deemed to be "controlled by" another Person if such Person possesses, directly or indirectly, power either to (i) vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (ii) direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "AGREEMENT" means this Loan Agreement, together with all modifications and amendments thereto. "APPLICABLE LAW" means all provisions of statutes, rules, regulations and orders of governmental bodies or regulatory agencies applicable to a Person, and all orders and decrees of all courts and arbitrators in proceedings or actions in which the Person in question is a party. "ATLANTIC CITY SHOWBOAT" means (i) all of ACSI's interest in its hotel casino and related properties located at 801 Boardwalk, Atlantic City, New Jersey and any Project Expansion relating thereto and (ii) any contiguous property acquired by the Borrower or any of its Subsidiaries and any Project Expansion relating thereto. "AUSTRALIAN JOINT VENTURE" means Sydney Harbour Casino Holdings, Ltd., the holding company for the Sydney Harbour Casino, Sydney, New South Wales, Australia, or Sydney Harbour Casino Pty, Ltd. or any other Affiliate of the Borrower holding an interest in the proposed casino in New South Wales, Australia. "BOND INDENTURE" means that certain Indenture executed by the Borrower dated as of May 18, 1993 in connection with the issuance by the Borrower of its 9 1/4% First Mortgage Bonds due 2008. "BONDS" means the 9 1/4% First Mortgage Bonds due 2008 issued by the Borrower under the Bond Indenture. "BORROWER" means Showboat, Inc. "BORROWING" means a borrowing of funds by the Borrower being either a Floating Rate or a LIBOR Based Rate Borrowing advanced by the Lender hereunder on any given day under the Revolving Loan Facility. "BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which banks in the State of New York or the State of New Jersey are permitted to close; provided, however, that when used in connection with a LIBOR Borrowing, the term Business Day shall also exclude any day on which banks are not open for dealings in dollar deposits on the London Interbank Market. 2 "CAPITAL FUNDS" means the Consolidated Tangible Net Worth of the Borrower less on a consolidated basis the value on the Borrower's books of (i) unamortized debt issuance costs and (ii) loans by the Borrower directly or indirectly to or its investments, directly or indirectly, in Non-Recourse Subsidiaries and Unconsolidated Subsidiaries, plus (iii) Subordinated Debt. "CAPITAL LEASE" as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee which, in accordance with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person. "CHANGE OF CONTROL" means any of the following events: (i) the sale, lease, transfer, conveyance or other disposition of all or substantially all of the assets of the Borrower and its Subsidiaries; (ii) the liquidation or dissolution of the Borrower, (iii) the Borrower becomes aware of (by way of a report or any other filing pursuant to Section 13(d) of the Securities and Exchange Act (the "Exchange Act"), proxy vote, written notice or otherwise) the acquisition by any "Person" or related group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision to either of the foregoing, including any "group" acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than the Existing Management, in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of 30% or more of the total voting power entitled to vote in the election of the Board of Directors of the Borrower or such other Person surviving the transaction; (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the Borrower's Board of Directors (together with any new directors whose election or appointment by such board or whose nomination for election by the shareholders of the Borrower was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Borrower's Board of Directors then in office; or (v) the Borrower fails to own, directly or indirectly, 100% of the Las Vegas Showboat or the Atlantic City Showboat or 100% of any Person holding a gaming license to operate either the Las Vegas Showboat or the Atlantic City Showboat. "CLOSING DATE" means the date on which the conditions precedent to the making of the Loans as set forth in Section 4.01 have been satisfied or waived, which shall in no event be later than July 15, 1995. "CODE" means the Internal Revenue Code of 1986 and the rules and regulations issued thereunder, as now and hereafter in effect, or any successor provision thereto. "COLLATERAL" means any assets of the Borrower or of the Guarantors defined as Collateral in any of the Loan Documents. 3 "CONSOLIDATED EBITDA" means, without duplication, for any period for which such amount is being determined, the sum of the amounts for such period of (i) net income, (exclusive of (a) interest income, (b) extraordinary items, and (c) the Borrower's equity in income of any Non-Recourse Subsidiaries or Unconsolidated Subsidiaries but including cash distributions of Consolidated EBITDA of Non-Recourse Subsidiaries or Unconsolidated Subsidiaries received from Non-Recourse Subsidiaries or Unconsolidated Subsidiaries), (ii) provision for income taxes, (iii) depreciation expense, (iv) Consolidated Interest Expense, (v) amortization expense, and (vi) any other non-cash items reducing net income, but each of the above (ii) through (v) only to the extent reducing net income less (vii) any non-cash items increasing net income. All of the foregoing items (i) through (vii) are otherwise to be determined on a consolidated basis for Borrower and its consolidated subsidiaries in accordance with GAAP. However, notwithstanding the foregoing, the financial information as to items (ii) through (vii) of any Non-Recourse Subsidiaries shall be excluded from the calculation of Consolidated EBITDA hereunder. "CONSOLIDATED INTEREST EXPENSE" means for any period for which such amount is being determined, gross interest expense (including that properly attributable to Capital Leases in accordance with GAAP) of the Borrower and its Subsidiaries on a consolidated basis; including, without limitation, all capitalized interest, all commissions, discounts and other fees and charges under interest rate protection agreements (including amortization of discount), but excluding interest expense of any Non-Recourse Subsidiary. "CONSOLIDATED TANGIBLE NET WORTH" means as at any date of determination, the sum of the capital stock and additional paid- in capital plus retained earnings (or minus accumulated deficit) of the Borrower and its Subsidiaries on a consolidated after-tax basis determined in accordance with GAAP less the value on the Borrower's books of all intangible assets, on a consolidated basis. However, the equity of the Borrower or its Subsidiaries in any Non-Recourse Subsidiaries and the debt held by the Borrower or its Subsidiaries of any Non-Recourse Subsidiaries shall be excluded in the calculation of Consolidated Tangible Net Worth. "CONSOLIDATED TOTAL LIABILITIES" means the amount of liabilities (excluding liabilities of Non-Recourse Subsidiaries) which would appear on a consolidated balance sheet of the Borrower and its Subsidiaries prepared in accordance with GAAP. Consolidated Total Liabilities shall also include without duplication the amount of all Guaranties, except that Consolidated Total Liabilities shall include guaranties insuring the completion of any construction or development projects only if performance thereon has been demanded, and if performance has been demanded such guaranties shall be included to the extent of the maximum reasonably anticipated liability of the Borrower and its Subsidiaries under such guaranties. "CONTRIBUTION AGREEMENT" means the Contribution Agreement substantially in the form of Exhibit 4.01(q) hereto to be entered into by the Borrower and the Guarantors. 4 "CONVERSION DATE" means July 14, 1997. "CPLTD" means current portion of long term debt (excluding CPLTD of Non-Recourse Subsidiaries) as determined in accordance with GAAP. "DEBT SERVICE COVERAGE RATIO" means, for any period, the ratio of the Consolidated EBITDA for such period to the sum of the following: (a) the CPLTD for such period, plus (b) Consolidated Interest Expense for such period plus (c) the current portion of amounts payable under Capital Leases for such period and (d) dividends paid or declared for such period. Non- Recourse Subsidiaries are to be excluded in such calculation. "DEBT" means any liability on a Claim. For purposes of this definition, "Claim" means any (i) right to payment whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, or (ii) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, legal, equitable, secured or unsecured. "DEFAULT" means any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "ENVIRONMENTAL ACTIONS" refers to any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, proceeding, judgment, letter or other communication from any federal, state, local, or municipal agency, department, bureau, office or other authority, or any third party involving a violation of any Environmental Laws or a Hazardous Discharge (i) from or onto any of the real properties or assets owned or leased by the Borrower or any of its Subsidiaries or any tenant, subtenant, prior tenant or prior subtenant of such real properties or (ii) from or onto any facilities which received solid wastes or Hazardous Materials from the Borrower, or any of its Subsidiaries or any tenant, subtenant, prior tenant or prior subtenant of the real properties. "ENVIRONMENTAL LAW" means any and all applicable federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees or requirements of any Governmental Authority regulating, relating to or imposing liability or standards of conduct concerning any Hazardous Material or environmental protection or health and safety, as now or may at any time hereafter be in effect, including without limitation, the Clean Water Act also known as the Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C. Sec. 1251 et seq., the Clean Air Act ("CAA"), 42 U.S.C. Sec. 7401 et seq., the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA"), 7 U.S.C. Sec. 300f et seq., the Surface Mining Control and Reclamation Act Sec. 1201 et seq., ("SMCRA"), 30 U.S.C. Sec. 1201 et seq., the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. Sec. 9601 et seq., as amended by the Superfunded Amendment and Reauthorization Act of 1986 ("SARA"), the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. Sec. 5 6901 et seq., the Occupational Safety and Health Act as amended ("OSHA), 29 U.S.C. Sec. 655 and Sec. 657, relevant state laws, together, in each case, with any amendment thereto, and the regulations adopted thereunder and all substitutions thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as such Act may be amended, and the regulations promulgated thereunder. "EVENT OF DEFAULT" shall have the meaning given such term in Article 7 hereof. "EXISTING MANAGEMENT" means J. K. Houssels, members of his family and his estate. "FIXED RATE OPTION" means the option of the Borrower to elect to pay a fixed rate on the Term Loan Facility pursuant to Section 2.05(c) below. "FLOATING RATE BORROWING" means a Borrowing under the Revolving Loan Facility as to which Borrower has elected the Floating Rate Option. "FLOATING RATE OPTION" means Borrower's option, as applicable, to pay interest on Borrowings under the Revolving Loan Facility at the Revolving Loan Floating Rate pursuant to Section 2.03(a) or at the Term Loan Floating Rate on the Term Loan pursuant to Section 2.05(c) below. "GAAP" means generally accepted accounting principles applied in a manner consistent with the most recent accountant- prepared financial statements of the Borrower furnished and acceptable to the Lender pursuant to Section 3.04 of this Agreement, subject, however to such changes in accounting policies and procedures as shall be in accordance with generally accepted accounting principles. "GAMING AUTHORITY" means any agency, authority, board, bureau, commission, department, office or instrumentality of any nature whatsoever of the United States federal or foreign government, any state, province or any city or other political subdivision or otherwise and whether now or hereafter in existence, or any officer or official thereof, including, without limitation, the Nevada Gaming Commission, the Nevada State Gaming Control Board, the City Council of the City of Las Vegas, and the New Jersey Casino Control Commission with authority to regulate any gaming operation (or proposed gaming operation) owned, managed or operated by the Borrower or any of its Subsidiaries. "GAMING CONTROL ACTS" means the Nevada Gaming Control Act and the New Jersey Casino Control Act, as from time to time amended, or any successor provision of law, and the regulations promulgated thereunder. "GAMING PERMITS" means every license, franchise, permit or other authorization on the Closing Date or thereafter required to own, lease, operate or otherwise conduct casino gaming at the Las Vegas Showboat and the Atlantic City Showboat, including, without limitation, all such licenses granted under the Gaming Control Acts, the regulations of the Gaming Authorities and other applicable laws. 6 "GOVERNMENTAL AUTHORITY" means any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, or any court, in each case whether of the United States or foreign. "GUARANTORS" means each of SBOC, OSI and ACSI. "GUARANTY" means as to any Person, any direct or indirect obligation of such Person guaranteeing or intended to guarantee any Indebtedness, Capital Lease, dividend or other monetary obligation ("primary obligation") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, or (c) to purchase property, securities or services, in each case, primarily for the purpose of assuring the owner of any such primary obligation. The amount of any Guaranty shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder). "HAZARDOUS DISCHARGE" means any releasing, spilling, leaking, pumping, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping of Hazardous Materials from or at any of the properties owned or leased by the Borrower, its Subsidiaries or any tenant, subtenant, prior tenant or prior subtenant of the real properties as well as any at or from any facility which received solid waste or Hazardous Materials generated by the Borrower, its Subsidiaries or any tenant, subtenant, prior tenant or prior subtenant of the real properties. "HAZARDOUS MATERIALS" means any compound, element, chemical or compound exhibiting a flammable, explosive, radioactive, corrosive, reactive or toxic characteristic or which is defined as a hazardous material, hazardous waste, hazardous or toxic substance, or similar material under any Environmental Law. This term shall also include raw materials used or stored by Borrower building components, including but not limited to asbestos- containing materials and manufactured products to the extent any of these contain hazardous materials. "INDEBTEDNESS" of any Person means, without duplication, (i) the principal of and premium (if any) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all Capitalized Lease obligations of such Person; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations 7 (other than obligations described in clauses (i), (ii) and (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third business day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (v) all obligations existing at the time under hedging obligations, foreign currency hedges and similar agreements; (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons and all dividends and distributions of other Persons for the payment of which, in either case, such Person is responsible or liable as obligor, guarantor or otherwise; and (vii) all obligations of the type referred to in clauses (i) through (vi) of other Persons secured by any Lien on any property as asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured. "INTEREST PERIOD" means as to any LIBOR Rate Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day (or if there is no corresponding day, the last day) in the calendar month that is 1,2,3, or 6 months thereafter as Borrower may elect; provided, however, that (i) if any Interest Period would end on a day which shall not be a Business Day, such interest period shall be extended to the next succeeding Business Day, and (ii) no interest period with respect to a LIBOR Rate Borrowing may be selected which would end later than the Conversion Date. "INVESTMENTS" means, with respect to any Person, all investments by such Person in other Persons, including Affiliates (in the form of loans, Guaranties, advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, equity interests or other securities and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP). "LAS VEGAS SHOWBOAT" means (i) the Borrower's hotel casino and related properties at 2800 Fremont Street, Las Vegas, Nevada and any Project Expansion relating thereto and (ii) any contiguous property acquired by the Borrower or any of its Subsidiaries and any Project Expansion relating thereto. "LENDER" means Natwest Bank, N.A., its successors and assigns. "LEVERAGE RATIO" means the ratio of (a) the sum of (i) Total Liabilities less (ii) Subordinated Debt over (b) the sum of (i) Consolidated Tangible Net Worth and (ii) total Subordinated Debt. "LIBOR BASED RATE" means the interest rate payable on LIBOR Rate Borrowings pursuant to the Revolving Note, being the sum of the Adjusted LIBOR Rate as defined in the Note plus 250 basis points (2.50%). 8 "LIBOR RATE BORROWING" means a Borrowing under the Revolving Loan Facility as to which Borrower has elected the LIBOR Based Rate. "LIEN" means any interest in property securing an obligation owed to, or a claim, right or interest of, any Person, whether created by agreement, statute or common law, including without limitation security interest, lien, encumbrance, mortgage, assignment, pledge, conditional sale, lease, consignment or bailment. "LOAN" means the Revolving Loan Facility and/or the Term Loan. "LOAN DOCUMENTS" means this Agreement and all other agreements, documents or instruments, now or hereafter executed and delivered to evidence or secure the Loan or any of the Obligations. "MATERIAL ADVERSE EFFECT" means any circumstances or condition which either individually or when aggregated with other circumstances or conditions has a material adverse effect upon the business, assets or condition, financial or otherwise, of the Borrower and its Subsidiaries taken as a whole. "MORTGAGES" means that certain Leasehold Mortgage, Assignment of Rents and Security Agreement issued by ACSI in favor of the Lender (the "Leasehold Mortgage") and that certain Deed of Trust, Assignment of Rents and Security Agreement issued by the Borrower in favor of Lender (the "Deed of Trust"), as amended, supplemented or modified from time to time. "MULTI-EMPLOYER PLAN" means a plan described in Section 3(37) of ERISA. "NON-RECOURSE SUBSIDIARY" means (i) a Subsidiary (other than any Guarantor) or (ii) any entity in which the Borrower or any of its Subsidiaries has an equity investment and pursuant to a contract or otherwise has the right to direct the day-to-day operation of such entity that, in each case, meets all of the requirements of the definition of a "Non-Recourse Subsidiary" contained in Section 1.01 of the Bond Indenture as such definition is set forth in the Bond Indenture dated May 18, 1993. The amendment, modification or termination of the Bond Indenture shall not affect this definition of Non-Recourse Subsidiary herein. "NOTE INDENTURE" means that certain indenture executed by the Borrower in connection with its 13% Senior Subordinated Notes due 2009 dated August 10, 1994. "NOTES" OR "NOTES" means the Revolving Note and/or the Revolving Note as amended by the Term Note executed and delivered by the Borrower to the Lender to secure the Loan. "OBLIGATIONS" means and includes all loans, advances, debts, liabilities, obligations, guaranties, covenants and duties owing by the Borrower to the lender of any kind and 9 description (whether or not evidenced by this Agreement, any note or other instrument or any other agreement between the Lender and the Borrower and whether or not for the payment of money), direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, whether similar or dissimilar to advances made under this Agreement, including without limitation any debt, liability or obligation owing from the Borrower to others which the Lender may obtain or has obtained as security by assignment or otherwise. "OBLIGOR" refers to the Borrower and the Guarantors or any of them. "OSI" means Ocean Showboat, Inc., a New Jersey corporation. "PBGC" means the Pension Benefits Guaranty Corporation. "PERMITTED LIENS" means (a) Liens in favor of the Borrower; (b) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Borrower or any Subsidiary of the Borrower; PROVIDED, that such Liens were in existence prior to the contemplation of such merger or consolidation and less than one year prior to such Person becoming merged into or consolidated with the Borrower or any of its Subsidiaries; (c) Liens on property existing at the time of acquisition thereof by the Borrower or any Subsidiary of the Borrower; PROVIDED, that such Liens were in existence prior to the contemplation of such acquisition and less than one year prior to such acquisition; (d) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (e) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; PROVIDED, that any reserve or other appropriate provisions as shall be required in conformity with GAAP shall have been made therefor; (f) ground leases in respect of the real property on which facilities owned or leased by the Borrower or any of its Subsidiaries are located; (g) Liens arising from UCC financing statements regarding property leased by the Borrower or any of its Subsidiaries; (h) easements, rights-of-way, navigational servitudes, restrictions, minor defects or irregularities in title and other similar charges or encumbrances which do not interfere in any material respect with the ordinary conduct of business of the Borrower and its Subsidiaries; and (i) Liens in favor of the Trustee under the Bond Indenture. "PERSON" means individual, corporation, partnership, trust, unincorporated association or organization, joint venture, governmental authority, or any other entity. "PLAN" means an employee pension benefit plan described in Section 3(2) of ERISA, other than a Multiemployer Plan. "PRIME RATE" as used in this Agreement shall mean that rate of interest defined as the Prime Rate in the Note. 10 "PROJECT EXPANSION" means any addition, improvement, extension or capital repair to the Las Vegas Showboat or the Atlantic City Showboat or any contiguous or adjacent property, including the purchase of real estate or improvements thereon, but excluding separable furniture. "REPORTABLE EVENT" means any reportable event as defined in Section 4043(b) of ERISA, other than a reportable event as to which provision for 30-day notice to the PBGC would be waived under applicable regulations had the regulations in effect on the Closing Date been in effect on the date of occurrence of such reportable event. "REVOLVING LOAN FACILITY" means the Revolving Loan Facility provided pursuant to Section 2.01 below. "REVOLVING LOAN FLOATING RATE" means a floating rate equal to the Lender's Prime Rate plus one-half of one percent (.50%). "REVOLVING NOTE" means the Note referred to in Section 2.04(a) "SBOC" means Showboat Operating Company. "SENIOR SUBORDINATED NOTES" means 13% Senior Subordinated Notes to 2009 issued by Borrower under Indenture dated August 10, 1994. "SUBORDINATED DEBT" means indebtedness of the Borrower on a consolidated basis (but excluding Subordinated Debt of Non- Recourse Subsidiaries) which is subordinated in payment to all other Indebtedness and to trade obligations of the Borrower. "SUBSIDIARY" means (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more of the other Subsidiaries of that Person or a combination thereof and (ii) any Non-Recourse Subsidiaries. "TERM LOAN" means the term loan to be extended under Section 2.02 hereof. "TERM LOAN FLOATING RATE" means a floating rate equal to the Lender's Prime Rate plus one percent (1%). "TERM NOTE" means the Note Amendment Agreement referred to in Section 2.04(b). "TRUSTEE" means IBJ Schroder Bank & Trust Company or its successor as Indenture Trustee under the Bond Indenture. 11 "UCC" refers to the New Jersey Uniform Commercial Code, N.J.S.A. 12A:1-101 et seq., as it may be amended from time to time. "UNCONSOLIDATED SUBSIDIARIES" means Subsidiaries of a Person or other entities in which such Person holds an equity interest which are not consolidated for financial reporting purposes with the financial statements of such Person under GAAP. 2. THE LOANS SECTION 2.01. REVOLVING LOAN FACILITY. Lender agrees, upon the terms and subject to the conditions hereof, to make advances to the Borrower from time to time from the Closing Date up to and including the Business Day prior to the Conversion Date, in an aggregate amount at any one time outstanding of no more than $25,000,000. SECTION 2.02. TERM LOAN FACILITY. On the Conversion Date, upon the terms and subject to the conditions hereof, the principal amount outstanding under the Revolving Loan Facility shall be converted to a term loan payable under the terms described below. Once repaid, amounts outstanding under the Term Loan may not be reborrowed. SECTION 2.03. MAKING OF LOANS. (a) Each Borrowing under the Revolving Loan Facility shall be a Floating Rate Borrowing or a LIBOR Rate Borrowing as the Borrower may request subject to and in accordance with this Section and the Revolving Note. Subject to the other provisions of this Section, Borrowings of more than one type may be outstanding at the same time. (b) The Borrower shall give the Lender at least three Business Days' prior written, telecopier, facsimile or telephonic (promptly confirmed in writing) notice of each LIBOR Rate Borrowing and at least one Business Day's prior written, telecopier, facsimile or telephonic (promptly confirmed in writing) notice of each Floating Rate Borrowing. Each such notice in order to be effective must be received by the Lender not later than 2:00 p.m. Each such notice shall be irrevocable and shall specify whether the Borrowing then being requested is a LIBOR Rate or a Floating Rate Borrowing and in the case of LIBOR Rate Borrowings, the Interest Period or Interest Periods with respect thereto. If no election of Interest Period is specified in such notice in the case of LIBOR Rate Borrowings, such notice shall be deemed to be a request for an Interest Period of one month. If no election is made as to the type of Borrowing, such notice shall be deemed a request for a Floating Rate Borrowing. 12 (c) The aggregate amount of any Borrowing of new funds shall be in an aggregate principal amount of (x) with respect to LIBOR Rate Borrowings, $500,000 (or such lesser amount as shall equal the available but unused portion of the Revolving Credit Facility) or such greater amount which is an integral multiple of $100,000, and (y) with respect to Floating Rate Borrowings, $500,000 (or such lesser amount as shall equal the available but unused portion of the Revolving Credit Facility) or such greater amount which is an integral multiple of $100,000. SECTION 2.04. NOTES. (a) The Revolving Credit Borrowings shall be evidenced by a promissory note substantially in the form of Exhibit 2.04(a) in the face of amount of $25,000,000 (the "Revolving Note"), payable to the order of the Lender, duly executed on behalf of the Borrower and dated the Closing Date. The outstanding principal balance of the Revolving Note shall be payable on the Conversion Date, subject to the provisions hereof regarding conversion to the Term Loan. (b) The Term Loan made hereunder shall be evidenced by the Revolving Note as amended by the Note Amendment Agreement (the "Term Note") substantially in the form of Exhibit 2.04(b)-1 if the Borrower chooses the Floating Rate Option under Section 2.05 below, or 2.04(b)-2 if the Borrower chooses the Fixed Rate Option, in the face amount of the Term Loan, payable to the order of the Lender, duly executed on behalf of the Borrower and dated the Conversion Date. If the Borrower chooses the Fixed Rate Option, the Borrower shall make equal payments of principal and interest in an amount sufficient to amortize the Term Loan over a remaining term of three (3) years. If the Floating Rate Option is elected, interest shall be paid monthly as accrued, along with equal monthly payments of principal over the following three (3) year period in amounts sufficient to fully repay the Term Loan. The Term Note shall mature on July 14, 2000. SECTION 2.05. INTEREST ON NOTES (a) In the case of a LIBOR Rate Borrowing under the Revolving Loan Facility, interest shall be payable at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the LIBOR Based Rate. Interest shall be payable as set forth in the Revolving Note. (b) In the case of a Floating Rate Borrowing under the Revolving Loan Facility, interest shall be payable at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the Revolving Loan Floating Rate. Interest shall be payable on each Floating Rate Borrowing as set forth in the Revolving Note. 13 (c) Interest on the Term Loan shall accrue at the Borrower's option either (i) at the Term Loan Floating Rate or (ii) at a fixed rate determined by the Lender three (3) Business Days prior to the Conversion Date. The Lender shall notify the Borrower four (4) Business Days prior to the Conversion Date of the Fixed Rate which would be applicable if the Borrower chose the Fixed Rate Option. The Borrower will notify the Lender three (3) Business Days prior to the Conversion Date as to which rate option it elects as to the Term Loan. If no rate option is selected, the Borrower will be presumed to have chosen the Floating Rate Option. (d) Anything in this Agreement or the Notes to the contrary notwithstanding, the interest rate on the Loans shall in no event be in excess of the maximum permitted by Applicable Law. SECTION 2.06. FEES (a) The Borrower agrees to pay to the Lender an origination fee of $250,000.00, $25,000.00 of which has been paid, and the balance of which shall be paid at Closing. (b) The Borrower agrees to pay to the Lender on the last Business Day of each March, June, September and December in each year (commencing on the last Business Day of September, 1995) and (pro-rated for the period from June 30 through the Conversion Date) on the Conversion Date, a commitment fee of 3/8 of one percent per annum, computed on the basis of the actual number of days elapsed over a year of 360 days, on the average daily unused amount of the Lender's commitment under the Revolving Loan Facility. Such commitment fee shall accrue from the Closing Date. (c) The Borrower agrees to pay additional loan fees for certain Revolving Loan Facility Borrowings as set forth in Section 5.07. SECTION 2.07. PREPAYMENT OF LOANS The Borrower's right to prepay principal under the Loans and the right of the Lender to reimbursement for costs resulting from such prepayment are governed by the terms of the Notes. 3. REPRESENTATIONS AND WARRANTIES In order to induce the Lender to enter into this Agreement and to make the Loans provided for herein, Borrower makes the following representations and warranties to, and agreements with, the Lender, all of which shall survive the execution and delivery of this Agreement, the issuance of the Notes and the making of the Loans: 14 SECTION 3.01. CORPORATE EXISTENCE AND POWER. Each Obligor has been duly organized and is validly existing and in good standing under the laws of its respective jurisdiction of incorporation and is in good standing as a foreign corporation in all jurisdictions where the nature of its properties or business so requires it and where a failure to be in good standing as a foreign corporation would have a Material Adverse Effect. Each of the Obligors has the corporate power to own its properties and carry on its businesses as now being conducted, to execute, deliver and perform, as applicable, its obligations under this Agreement, the Notes and the other Loan Documents and other documents contemplated hereby to which it is a party. SECTION 3.02. CORPORATE AUTHORITY AND NO VIOLATION. The execution, delivery and performance of this Agreement and the other Loan Documents, the borrowings hereunder and the execution and delivery of the Notes and the grant to the Lender of a security interest in the Collateral as contemplated by this Agreement and the mortgage lien contemplated by the Mortgages (a) have been duly authorized by all necessary corporate action on the part of each Obligor, (b) will not violate any provision of any Applicable Law applicable to any party or any of their respective properties or assets, (c) will not violate any provision of the Certificate of Incorporation or By-Laws of any Obligor, or any indenture, any agreement for borrowed money, any bond, note or other similar instrument or any other material agreement to which any Obligors are a party or by which any Obligor or any of their respective properties or assets are bound, (d) will not violate, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement, bond, note, instrument or other agreements of any Obligor and (e) will not result in the creation or imposition of any Lien upon any property or assets of any Obligor other than pursuant to this Agreement or any other Loan Document. SECTION 3.03. GOVERNMENTAL APPROVAL. Except for approval from the New Jersey Casino Control Commission and the requirement of providing a 30-day post-closing notice to the Nevada Gaming Commission, no action, consent or approval of, or registration or filing with, or any other action by any Governmental Authority, is required in connection with the execution, delivery and performance by the Obligors of this Agreement or the other Loan Documents except for (i) filings of UCC-1 financing statements in the appropriate offices and (ii) the filing of the Mortgages with the real estate recording offices in the counties in which the real property interest described in such Mortgages are located. The New Jersey Casino Control Commission has granted approval of the transaction contemplated by this Agreement. 15 SECTION 3.04. FINANCIAL CONDITION. (a) The audited consolidated financial statements of Borrower at December 31, 1994, in the form previously delivered to the Lender, are complete and correct in all material respects and have been prepared in accordance with GAAP. Such financial statements fairly present the financial condition of the Borrower at the date and for the period indicated and reflect all known liabilities, contingent or otherwise, that GAAP requires, as of such dates, to be shown, reserved against or disclosed in notes to financial statements. (b) The unaudited consolidated financial statements for the period ending March 31, 1995, in the form previously delivered to Lender are complete and correct in all material respects. Such financial statements fairly present in all material respects the financial condition of Borrower at the date and for the period indicated and reflect all known liabilities, contingent or otherwise, that GAAP requires as of such dates, to be shown, reserved against or disclosed in notes to financial statements. (c) The audited balance sheet and related statements of income and cash flows of ACSI at December 31, 1994, and the unaudited balance sheet and related financial statements for the period ending March 31, 1995 in the form previously delivered to the Lender are prepared in accordance with GAAP. Such financial statements fairly present in all material respects the respective financial condition of ACSI at the respective dates and for the respective periods indicated and reflect all known liabilities, contingent or otherwise that GAAP requires as of such dates, to be shown, reserved against or disclosed in notes to financial statements. SECTION 3.05. NO MATERIAL ADVERSE CHANGE. Except for the sale of the Showboat Star Partnership, there has been no material adverse change in the business, assets, condition (financial or otherwise) or results of operations of Borrower since December 31, 1994. SECTION 3.06. SUBSIDIARIES. Annexed hereto as Schedule 3.06 is a correct and complete list as of the date hereof of all Subsidiaries of the Borrower showing, as to each Subsidiary, its name, the jurisdiction of its incorporation and the ownership of the capital stock of such Subsidiary. SECTION 3.07. TRADEMARKS, PATENTS AND OTHER RIGHTS. (a) Except as specifically noted on Schedule 3.07, the Obligors possess or have a license to use all patents, trademarks, tradenames, and any other material proprietary rights (collectively the "Proprietary Rights") which are required to conduct their respective businesses as conducted by Borrower and its Subsidiaries. 16 (b) Except as set forth on Schedule 3.07, (i) there is no claim, suit, action or proceeding pending or to the Borrower's knowledge threatened against Borrower that involves a claim of infringement of any material Proprietary Right and (ii) neither the Borrower nor any of its Subsidiaries has any knowledge of any existing infringement by any other person of any of the material Proprietary Rights. SECTION 3.08. FICTITIOUS NAME. None of the Obligors are doing business or intends to do business other than under its full corporate name, including, without limitation, under any trade name or other doing business name, except as set forth on Schedule 3.08 hereto. SECTION 3.09. TITLE TO PROPERTIES. The Borrower and Subsidiaries will have at the Closing Date good title or valid leasehold interests to each of the properties and assets reflected on the balance sheets referred to in Section 3.04 other than properties or assets disposed of in the ordinary course of business since the date of such balance sheets and all such properties and assets are free and clear of Liens, except Permitted Liens and existing Liens listed on Schedule 6.05. Schedule 3.09 is a list of all real properties owned or leased by the Borrower or a Subsidiary. SECTION 3.10. UCC FILING INFORMATION. The principal executive office of each Obligor is on the date hereof as set forth on Schedule 3.10 hereto, which office is the place where each Obligor is "located" for the purpose of Section 9-103(3)(d) of the Uniform Commercial Code in effect in the State of New Jersey and the State of Nevada, and the place where each Obligor keeps the records concerning the Collateral on the date hereof or regularly keep any goods included in the Collateral on the date hereof are also listed on Schedule 3.10 hereto. SECTION 3.11. LITIGATION. Schedule 3.11 is a list of all lawsuits or other proceedings pending or, to the knowledge of Borrower, threatened against or affecting the Borrower, or any Subsidiary, or any of the respective properties with potential liability in excess of $500,000 or this Agreement or any of the transactions contemplated thereby by or before any Governmental Authority or arbitrator. None of the lawsuits set forth on Schedule 3.11 should reasonably be expected to have a Material Adverse Effect on this Agreement or any of the transactions contemplated hereby. Neither the Borrower nor any of the Subsidiaries is in default with respect to any order, writ, injunction, decree, rule or regulation of any Governmental Authority, which default would have a Material Adverse Effect. 17 SECTION 3.12. FEDERAL RESERVE REGULATIONS. None of the Obligors are engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any margin stock as defined in Regulation U of the Board of Governors of the Federal Reserve System. No part of the proceeds of the Loan will be used, whether immediately, incidentally or ultimately, to purchase or carry any such stock, to extend credit to others for the purpose of purchasing or carrying any such stock or for any other purpose violative of or inconsistent with any of the provisions of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. SECTION 3.13. INVESTMENT COMPANY ACT. The Borrower is not, or will not during the term of this Agreement be, (x) an "investment company", within the meaning of the Investment Company Act of 1940, as amended or (y) subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or any foreign, federal or local statute or regulation limiting its ability to incur indebtedness for money borrowed or guarantee such indebtedness as contemplated hereby or by any other Loan Documents. SECTION 3.14. ENFORCEABILITY. Subject to applicable Gaming Control Acts, this Agreement, the Notes and the other Loan Documents when executed will constitute legal, valid and enforceable obligations of the Borrower and the other Obligors, as applicable (subject, as to enforcement, to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and to general principles of equity.) SECTION 3.15. TAXES. The Borrower and each of its Subsidiaries have filed or caused to be filed all federal, state and local tax returns which are required to be filed, and have paid or have caused to be paid all taxes as shown on said returns or on any assessment received by them in writing, to the extent that such taxes have become due, except as permitted by Section 5.04 hereof. SECTION 3.16. COMPLIANCE WITH ERISA. Each of the Borrower and its Subsidiaries, as applicable, is in compliance in all material respects with the provisions of ERISA and the Code applicable to Plans, and the regulations and published interpretations thereunder, if any, which are applicable to it. None of the Borrower or any of its Subsidiaries have, with respect to any Plan established or maintained by it, engaged in a prohibited transaction which would subject it to a material tax or penalty on prohibited transactions imposed by ERISA or Section 4975 of the Code. No liability to the PBGC that is material to the Borrower and its Subsidiaries taken as a 18 whole has been or is expected to be incurred with respect to any Plan and there has been no Reportable Event and no other event or condition that presents a material risk of termination of a Plan by the PBGC. None of the Borrower and its Subsidiaries has engaged in a transaction which would result in the incurrence of a material liability under Section 4069 of ERISA. As of the Closing Date, none of the Borrower and Subsidiaries has incurred any liability that would be material to the Borrower and its Subsidiaries taken as a whole on account of a partial or complete withdrawal (as defined in Sections 4203 and 4205 of ERISA, respectively) with respect to any Multiemployer Plan. SECTION 3.17. AGREEMENTS. None of the Borrower and its Subsidiaries, is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party which could reasonably be expected to have a Material Adverse Effect. Schedule 3.17 is a list of all agreements of the Borrower and its Subsidiaries, the loss or termination of which could reasonably be expected to have a Material Adverse Effect. SECTION 3.18. DISCLOSURE. Neither this Agreement nor any other Loan Document nor any other agreement, document, certificate or statement furnished to the Lender by or on behalf of any Obligor in connection with the transactions contemplated hereby, at the time it was furnished contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, under the circumstances under which they were made not misleading. SECTION 3.19. ENVIRONMENTAL LIABILITIES. (a) To the knowledge of the Borrower and except as set forth in Schedule 3.19, none of the Borrower or any of its Subsidiaries has used, stored, treated, transported, manufactured, refined, generated, handled, produced or disposed of any Hazardous Materials on, under, at, from, or in any way affecting any of their properties or assets, or otherwise, in any manner in violation of any Environmental Law, except in each instance such violations as in the aggregate would not have a material adverse effect upon the Borrower and its Subsidiaries taken as a whole. (b) To the knowledge of the Borrower and except as set forth in Schedule 3.19, none of the Borrower or its Subsidiaries has any obligations or liabilities, known or unknown, matured or not matured, absolute or contingent, assessed or unassessed, where such would reasonably be expected to have a Materially Adverse Effect and no Environmental Actions have been filed against the Borrower or its Subsidiaries or any of their respective employees, agents, representatives or predecessors in interest in connection with or in any way arising from or relating to the Borrower or its Subsidiaries or any of their 19 respective properties, or relating to or arising from or attributable, in whole or in part, to the manufacturing, processing, distributing, using, treating, storing, disposing, transporting or handling of any Hazardous Materials, by any other Person at or on or under any of the real properties owned or used by the Borrower or its Subsidiaries or any other location where any of the foregoing could reasonably be expected to have a Materially Adverse Effect. SECTION 3.20. LABOR MATTERS. Neither Borrower nor any Subsidiary thereof has, in the last five years, experienced any strike, lockout, slowdown or work stoppage due to labor disagreements which has had or may have a Materially Adverse Effect and, to the knowledge of the Borrower or any of its Subsidiaries, there is no such strike, lockout, slowdown or work stoppage threatened against the Borrower or any of its Subsidiaries. 4. CONDITION OF LENDING SECTION 4.01. CONDITIONS PRECEDENT TO THE LOANS. The obligation of the Lender to complete closing hereunder and make the Revolving Credit Facility available is subject to the following conditions precedent: (a) Corporate Documents of the Borrower. At the time of the closing of the Revolving Loan Facility 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 (iv) a certificate of the Secretary of the Borrower dated the Closing 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 borrowings hereunder, the execution, delivery and performance in accordance with their respective terms of this Agreement, the Notes, and any other documents required or 20 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, the Notes 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 making of the Revolving Loan, 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 Closing 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 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 Closing Date, the Lender shall have received the Revolving Note, executed on behalf of the Borrower, dated the date thereof, 21 and payable to the order of the Lender in the principal amount equal to the Revolving Loan Facility. (d) Opinions of Counsel. The Lender shall have received the favorable written opinion, dated the Closing Date and addressed to the Lender of (i) Kummer, Kaempfer, Bonner & Renshaw, counsel to the Obligors substantially in the form of Exhibit 4.01(d) hereto, and (ii) such local counsel as the Lender may request regarding perfection of the security interests, validity of the Mortgages and other similar matters. (e) Financial Information. The Lender shall have received and be reasonably satisfied with an unaudited statement for Borrower for each month subsequent to December 31, 1994 through April 30, 1995. (f) ERISA. The Lender shall have received copies of all Plans of the Borrower and its Subsidiaries that are in existence on the Closing Date, 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. (g) Mortgages. The Loans will be secured by the Deed of Trust executed by the Borrower in favor of the Lender creating a first priority pari passu Lien on the Las Vegas Showboat (including, without limitation, the fee and leasehold interests as well as interests in all furniture, furnishings, fixtures, equipment and other personal property, which are not subject to any Lien permitted to be granted under Section 6.05 hereof in favor of any third party lender providing financing for the acquisition or the lease thereof). The obligations of ACSI hereunder will be secured by its Mortgage and the Assignment of Leases and Rents executed by ACSI in favor of the Lender creating a first priority pari passu Lien on the Atlantic City Showboat (including, without limitation, its fee and leasehold interests as well as interests in all furniture, furnishings, fixtures, equipment and other personal property, which are not subject to any Lien permitted to be granted under Section 6.05 hereof in favor of any third party lender providing financing for the acquisition or the lease thereof). The Lender shall receive evidence reasonably satisfactory to it that the Borrower and ACSI have sufficient right, title and interest to mortgage the real property interests covered under the Mortgages and that all security and mortgage documents necessary to provide the Lender with valid first mortgage liens on the real property interest described in the Mortgages (in pari passu with the Trustee for the benefit of the holders of the Bonds subject to Permitted Liens) have been filed and/or recorded or delivered to the Lender (or to the duly authorized agent of the title insurance company issuing the mortgage title insurance policies in favor of the Lender) in form satisfactory for filing. Lender shall have further received an assignment of rents and leases as to each of the mortgaged properties in the form agreed to by Lender and Borrower. 22 (h) Australian Joint Venture. The Lender shall have received a statement prepared and signed by Borrower's counsel summarizing the constituent documents for the Australian Joint Venture and stating the opinion of Borrower's counsel to the effect that (i) neither the Borrower nor any of the Guarantors are, directly or indirectly, through a Subsidiary or otherwise, by way of Guaranty or otherwise, contingent or not contingent, liable for any obligations incurred by or arising out of the Australian Joint Venture and (ii) neither the Borrower nor any of the Guarantors have incurred, directly or indirectly, through a Subsidiary or otherwise any liability under any agreements or commitments to contribute capital to, maintain the net worth of or extend loans or Guarantees for the benefit of the Australian Joint Venture other than as to funds already contributed and reported in writing to the Lender. (i) Intercreditor Agreement. An Intercreditor Agreement shall have been executed and delivered by each of Lender, Borrower and the Trustee as to the Atlantic City Showboat and by the Trustee and Lender as to the Las Vegas Showboat in form acceptable to the Lender and in accordance with the Indenture. (j) Title Insurance, etc. The Lender shall have received as to the Atlantic City Showboat and the Las Vegas Showboat legal, valid and binding 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 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. (k) Surveys, etc. Lender shall have received a 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 and sufficient to induce the Borrower's title insurance company to remove the survey exception. (l) 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. (m) 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. (n) 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 23 insurance policies required by Section 5.03 (a) and (b) hereof have been obtained and are in full force and effect. (o) UCC Financing Statements and UCC Searches, etc. The Obligor shall have received, 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. (p) Officers' Certificate. The Lender shall have received a certificate executed by the Chief Executive Officer and Senior Financial Officer of the Borrower substantially in the form of Exhibit 4.01(p) hereto. (q) Contribution Agreement. The Obligors shall have executed and delivered the Contribution Agreement. SECTION 4.02. CONDITIONS PRECEDENT TO EACH BORROWING. The obligation of the Lender to advance each Borrowing, including its initial advance (but excluding continuations and conversions), is subject to the following conditions precedent: (a) Notice. The Lender shall have received a notice with respect to such borrowing as required by Article 2 hereof. (b) Representations and Warranties. The representations and warranties set forth in Article 3 hereof and in the other Loan Documents shall be true and correct in all material respects on and as of the date of each Borrowing hereunder (except to the extent that such representations and warranties related solely to an earlier date) with the same effect as if made on and as of such date except as affected by subsequent transactions contemplated by or permitted by the terms of this Agreement. (c) No Event of Default. On the date of each Borrowing hereunder, the Borrower shall be in material compliance with all of the terms and provisions set forth herein to be observed or performed and no Event of Default or Default shall have occurred and be continuing. (d) Additional Documents. The Lender shall have received from the Borrower on the date of each Borrowing such documents and information as it may reasonably request prior to such date relating to the satisfaction of the conditions in this Section 4.02. 24 Each Borrowing shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the matters specified in paragraphs (b) and (c) of this Section. SECTION 4.03. CONDITIONS TO CONVERSION. The Conversion of the Revolving Loan Facility to the Term Loan shall be subject to the following conditions: (a) Representations and Warranties. The representations and warranties set forth in Article 3 hereof and in the other Loan Documents shall be true and correct in all material respects on and as of the Conversion Date (except to the extent that such representations and warranties related solely to an earlier date) with the same effect as if made on and as of such date except as affected by subsequent transactions contemplated by or permitted by the terms of this Agreement. (b) No Event of Default. On the Conversion Date, the Borrower shall be in material compliance with all of the terms and provisions set forth herein to be observed or performed and no Event of Default or Default shall have occurred and be continuing. (c) No Violations. The Term Loan shall not violate or constitute a breach under the Bond Indenture, the Note Indenture or any other agreement binding upon the Borrower or its Subsidiaries. (d) Delivery of Term Note. The Borrower shall have executed and delivered the Term Note. (e) Additional Documents. The Lender shall have received from the Borrower on or prior to the Conversion Date such documents and information as it may reasonably request prior to such date relating to the satisfaction of the conditions in this Section 4.03. 5. AFFIRMATIVE COVENANTS From the Closing Date and for so long as the Revolving Loan Facility shall be in effect or any amount shall remain outstanding under any Note or unpaid under this Agreement, the Borrower agrees that, unless the Lender shall otherwise consent in writing, it will, and will cause each of its Subsidiaries to: SECTION 5.01. FINANCIAL STATEMENTS, REPORTS, ETC. Deliver to Lender: 25 (a) (i) As soon as is practicable, but in any event within 120 days after the end of each fiscal year of the Borrower, the audited consolidated balance sheet of the Borrower and its Subsidiaries as at the end of, and the related consolidated statements of income, shareholders' equity and cash flows for such year, accompanied by an opinion of KPMG Peat Marwick or such other independent certified public accountants of recognized standing as shall be retained by the Borrower and as shall be reasonably satisfactory to the Lender, which report and opinion shall be prepared in accordance with generally accepted auditing standards relating to reporting and which report and opinion must (A) be unqualified as to going concern and scope of audit and shall state that such financial statements fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as at the dates indicated and the results of the operations and cash flow for the periods indicated and (B) contain no material exceptions or qualifications except for qualifications relating to accounting changes (with which such independent public accountants concur) in response to FASB releases or other authoritative pronouncements and (ii) as soon as practicable, but in any event within 150 days after the end of each fiscal year of Borrower, the audited consolidating balance sheet of the Borrower and its Subsidiaries as at the end of the related fiscal year and the audited consolidating statements of income, shareholders' equity and cash flow for such fiscal year, along with a report and opinion of independent certified public accountants as in (i) above; (b) Annually, within 120 days of fiscal year end, a copy of the Borrower's report on Form 10-K as filed with the Securities and Exchange Commission, along with a copy of the Borrower's annual report to shareholders; (c) As soon as is practicable, but in any event sixty (60) days after the end of each fiscal quarter of ACSI, a copy of the quarterly statement of ACSI as filed with the New Jersey Casino Control Commission. (d) Promptly upon receipt thereof, copies of all reports, if any, submitted by independent certified public accountants to the Borrower or any Subsidiary in connection with each annual, interim or special audit of the financial statements of the Borrower or any Subsidiary, including, without limitation, the comment letter submitted by such accountants to management in connection with their annual audit; (e) Promptly upon their becoming available, copies of all regular and periodic reports and all registration statements and prospectuses, if any, filed by any of them with any securities exchange or with the Securities and Exchange Commission, or any comparable foreign bodies, and of all press releases and other statements made available generally by any of them to the public concerning material developments in the business of the Borrower or its Subsidiaries; (f) Promptly upon any executive officer of an Obligor obtaining actual knowledge (a) of any Default or (b) that any Person has given any notice to any Obligor or taken any other action with respect to a claimed default or event or condition of the type referred to 26 in paragraph (e) of Article 7 or any condition or event which would be required to be disclosed in a current report required to be filed by the Borrower with the Securities and Exchange Commission on Form 8-K if the Borrower were required to file such reports under the Securities Exchange Act of 1934, as amended, or the rules and regulations thereunder (or any successor thereof), a certificate of the president or Senior Financial Officer of the Borrower specifying the nature and period of existence of any such condition or event, or specifying the notice given or action taken by such holder or Person and the nature of such claimed Event of Default or condition and what action the applicable Obligor has taken, is taking and proposes to take with respect thereto; (g) Promptly upon any executive officer of an Obligor obtaining actual knowledge of (a) the institution of, or threat of, any action, suit, proceeding, investigation or arbitration by any Governmental Authority or other Person against the Borrower, any of its Subsidiaries or any of their assets, which involves a claim or amount in dispute in excess of $500,000 or (b) any material development in such action, suit, proceeding, investigation or arbitration (whether or not previously disclosed to the Lender), which, in each case might reasonably be expected to have a Material Adverse Effect, the Obligor shall promptly give notice thereof to the Lender and provide such other information as may be reasonably available to it (without waiver of any applicable evidentiary privilege) to enable the Lender to evaluate such matters; and, in addition to the requirements set forth in clauses (a) and (b) of this Section 5.01, the Borrower upon request shall promptly give notice of the status of any action, suit, proceeding, investigation or arbitration covered by a report delivered to the Lender pursuant to clause (a) or (b) above to the Lender and provide such other information as may be reasonably available to it to enable the Lender to evaluate such matters; and (h) With reasonable promptness, such other information and data with respect to the Borrower and its Subsidiaries as from time to time may be reasonably requested by Lender. SECTION 5.02. CORPORATE EXISTENCE; COMPLIANCE WITH STATUTES. Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its corporate existence, other than with respect to actions permitted by this Agreement, and use best efforts to preserve, renew and keep in full force and effect all material rights, licenses, permits and franchises and comply in all material respects with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, any Governmental Authority. SECTION 5.03. INSURANCE. (a) Keep its assets which are of an insurable character insured (to the extent and for time periods consistent with normal industry practices) by financially sound and reputable insurers against loss or damage by fire, explosion, theft, business interruption or 27 other hazards with coverages which are currently referred to as "basic", "special", "differences in conditions", "earthquake" and "building maintenance" and with such coverages written on a replacement cost basis and with such self-insured retention or deductible levels, as are consistent with normal industry practices and the Borrower's past practices. (b) Maintain with financially sound and reputable insurers, commercial general liability insurance and such other insurance against all other hazards and risks and liability to persons and property to the extent and in the manner customary for companies in similar businesses; provided however, that workmen's compensation insurance or similar coverage may be effected with respect to its operations in any particular state or other jurisdiction through an insurance fund operated by such state or jurisdiction. (c) Cause all such above-described insurance (excluding worker's compensation insurance) to (1) provide for the benefit of the Lender that 30 days' (10 days in the case of cancellation for non-payment of premium) prior written notice of suspension, cancellation, termination, modification, non-renewal or lapse or material change of coverage shall be given to the Lender; (2) name Lender as the loss payee (except for third-party liability insurance), provided, however, that absent a Default or Event of Default, the Lender shall, except to the extent otherwise provided herein, instruct the insurer to direct that any insurance proceeds be paid to the Borrower; and (3) to the extent the Lender shall not be liable for premiums or calls, name the Lender as additional assureds. (d) The proceeds of any insurance resulting from any damage to or loss or destruction of any Collateral shall be disposed of in accordance with the Mortgages and shall be subject to the Indenture and the Intercreditor Agreements. SECTION 5.04. TAXES AND CHARGES; INDEBTEDNESS IN ORDINARY COURSE OF BUSINESS. Duly pay and discharge, or cause to be paid and discharged, before the same shall become delinquent, all federal, state or local taxes, assessments, levies and other governmental charges, imposed upon the Borrower or its Subsidiaries or their respective properties, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies which if unpaid might by law become a Lien upon any of the property of either the Borrower or its Subsidiaries; provided, however, that any such tax, assessment, charge, levy or claim need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Borrower shall have set aside on its books reserves (the presentation of which is segregated to the extent required by GAAP) adequate with respect thereto if reserves shall be deemed necessary by the Borrower in accordance with GAAP; and provided, further, that the Borrower will pay all such taxes, assessments, levies or other governmental charges forthwith upon the commencement of proceedings to foreclose any Lien which may have attached as security therefor (unless the same is fully bonded or otherwise effectively stayed). The Borrower and its Subsidiaries will promptly pay when due, or in conformance 28 with customary trade terms, all other material Indebtedness incident to its operations; provided, however, that any such Indebtedness need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Borrower shall have set aside on its books reserves (the presentation of which is segregated to the extent required by GAAP) adequate with respect thereto if reserves shall be deemed necessary, and provided, further that the Borrower will pay all such Indebtedness which, if unpaid, would result in a Lien on its properties. SECTION 5.05. CORPORATE NAME; CHIEF EXECUTIVE OFFICE. None of the Obligors will change its corporate name or the location of their respective chief executive offices or any of the offices where any such entity keeps the books and records with respect to the Collateral owned by it without (i) giving the Lender 15 days' written notice of such change and (ii) filing any additional UCC financing statements, mortgages, and such other documents reasonably requested by the Lender or which are otherwise necessary or desirable to continue the first perfected security interest of the Lender. SECTION 5.06. ERISA COMPLIANCE AND REPORTS. Furnish to the Lender (a) as soon as practicable, and in any event within 30 days after any executive officer (as defined in Regulation C under the Securities Act of 1933) of the Borrower or any Subsidiary knows that (A) any Reportable Event with respect to any Plan has occurred, a statement of the Senior Financial Officer of the Borrower, setting forth details as to such Reportable Event and the action which it proposes to take with respect thereto, together with a copy of the notice, if any, required to be filed by the Borrower or any of its Subsidiaries of such Reportable Event given to the PBGC or (B) an accumulated funding deficiency has been incurred or an application has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard or an extension of any amortization period under Section 412 of the Code with respect to a Plan, a Plan has been or is proposed to be terminated in a "distress termination" (as defined in Section 4041(c) of ERISA) proceedings have been instituted to terminate a Plan or a Multiemployer Plan, a proceeding has been instituted to collect a delinquent contribution to a Plan or a Multiemployer Plan, or either Borrower or any of its Subsidiaries will incur any liability (including any contingent or secondary liability) to or on account of the termination of or withdrawal from a Plan under Sections 4062, 4063, 4064 of ERISA or the withdrawal or partial withdrawal from a Multiemployer Plan under Sections 4201 or 4204 of ERISA, a statement of the Senior Financial Officer of the Borrower, setting forth details as to such event and the action it proposes of the Lender, copies of each annual and other report with respect to each Plan and (c) promptly after receipt thereof a copy of any notice the Borrower or any of its Subsidiaries may receive from the PBGC relating to the PBGC's intention to terminate any Plan or to appoint a trustee to administer any Plan. 29 SECTION 5.07. USE OF PROCEEDS. Use the proceeds of the Revolving Credit Facility solely for general corporate purposes, except that the Borrower may utilize the proceeds of a Borrowing under the Revolving Loan for Investments in or loans to Subsidiaries constituting new projects or for the acquisition cost of new projects only if (i) prior to the Lender's making of the advance for such purpose, the Borrower shall provide to the Lender a written statement signed and certified by its Chief Financial Officer describing the utilization of the funds, and (ii) upon the making of such advance, the Borrower shall pay to the Lender a fee equal to three fourths of one percent (.75%) of the advance. SECTION 5.08. ACCESS TO BOOKS AND RECORDS; EXAMINATIONS. Maintain or cause to be maintained at all times books and records of its financial operations (in accordance with GAAP) which shall be true and complete in all material respects and provide the Lender and its representatives access, upon not less than 24 hours advance notice, to all such books and records and to any of their properties or assets during regular business hours, in order that the Lender and its representatives may make such audits and examinations and make abstracts from such books, accounts, records and other papers and may discuss the affairs, finances and accounts with, and be advised as to the same by, officers and independent accountants, all as the Lender and its representatives may deem appropriate. Provided that no Event of Default or Default exists, the Lender shall limit to one the number of field examinations to be performed in each year by the Lender or its representatives, and the cost of such field examination shall be limited to $15,000 each. SECTION 5.09. MAINTENANCE OF PROPERTIES. Keep its properties which are material to its business in good repair, working order and condition consistent with industry practice and, from time to time (i) make all necessary and proper repairs, renewals, replacements, additions and improvements thereof and (ii) comply in all material respects at all times with the provisions of all material leases and other material agreements to which it is a party so as to prevent any material loss or forfeiture thereof or thereunder. SECTION 5.10. MATERIAL CHANGES. Report to the Lender promptly after any executive officer of the Borrower obtains actual knowledge of any Material Adverse Change in the financial condition or business of the Borrower or any Subsidiary thereof. 30 SECTION 5.11. ENVIRONMENTAL LAWS. (a) Promptly notify the Lender following receipt by an officer of the Borrower or any Subsidiary thereof of any actual or threatened Environmental Action or any violation or potential violation of or non-compliance with, or liability or potential liability under any Environmental Laws which, when taken together with all other pending violations could reasonably be expected to have a Material Adverse Effect on the Borrower and its Subsidiaries taken as a whole, and promptly furnish to the Lender all material notices of any nature which the Borrower or any Subsidiary thereof may receive from the Governmental Authority or other Person with respect to any Environmental Action, violation, or potential violation of or non-compliance with, or liability or potential liability under any Environmental Laws which, in any case or when taken together with all such other notices, could reasonably be expected to have a Material Adverse Effect. (b) Comply in all material respects with and use reasonable efforts to ensure compliance by all tenants and subtenants with all Environmental Laws, and obtain and comply in all material respects with and maintain and use reasonable best efforts to ensure that all tenants and subtenants obtain and comply with all licenses, approvals, registrations or permits required by Environmental Laws. (c) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal, reporting and other actions required under all Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities subject to the Borrower's or any Subsidiary's right to contest or negotiate any such order or directive in good faith and in compliance with Environmental Laws provided such contest or negotiation is promptly commenced. (d) Defend, indemnify and hold harmless the Lender and its respective employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities (including strict liability), settlements, damages, costs and expenses of whatever kind or nature, known or unknown, contingent or otherwise, arising out of, or in any way related to the violation of or non-compliance with any Environmental Laws, or any orders, requirements or demands of Governmental Authorities by the Borrower or any Subsidiary thereof, including, without limitation, reasonable attorney and consultant fees, investigation and laboratory fees, court costs and litigation expenses, but excluding therefrom all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses arising out of or resulting from (i) the gross negligence or willful misconduct of any indemnified party or (ii) any acts or omissions of any indemnified party occurring after any indemnified party is in possession of, or controls the operation of, any property or asset. SECTION 5.12. FURTHER ASSURANCES; SECURITY INTERESTS. (a) Upon the reasonable request of the Lender duly execute and deliver, or cause to be duly executed and delivered, at the cost and expense of the Borrower, such further 31 instruments as may be necessary or proper, in the reasonable judgment of the Lender, to provide the Lender with a perfected Lien in the Collateral, and to carry out the provisions and purposes of the Loan Documents. (b) Upon the reasonable request of the Lender, promptly perform or cause to be performed any and all acts and execute or cause to be executed any and all documents (including, without limitation, the execution, amendment or supplementation of any financing statement and continuation statement or other statement) for filing under the provisions of the UCC and the rules and regulations thereunder, or any other statute, rule or regulation of any applicable foreign, federal, state or local jurisdiction, which are necessary or advisable, from time to time, in order to grant and maintain in favor of the Lender the security interest in the Collateral contemplated by the Loan Documents, and Liens on real property owned by the Borrower or its Subsidiaries, subject to no other Liens except as may be expressly permitted hereunder. (c) Promptly undertake to deliver or cause to be delivered to the Lenders from time to time such other documentation, consents, authorizations, approvals and orders in form and substance reasonably satisfactory to the Lender, as the Lender shall deem reasonably necessary or advisable to perfect or maintain the Liens of the Lender for the benefit of the Lender. SECTION 5.13. PROJECT EXPANSIONS. Without affecting the obligations of the Borrower or any Subsidiary under the Mortgage, in the event that the Borrower or any Subsidiary thereof at any time after the date hereof acquires any interest in any Project Expansion, including, without limitation, any leasehold interest (each such interest an "After Acquired Property"), the Borrower shall promptly provide written notice thereof to the Lender, setting forth in reasonable detail a description of the interest acquired, the location of the After Acquired Property, any structures or improvements thereon and an appraisal or its good-faith estimate of the current value of such real property. The Borrower or its Subsidiary will grant and record a mortgage to the Lender on such Project Expansion to the extent not already encumbered in favor of the Lender. In such event, the Borrower or its Subsidiary, as the case may be, shall execute and deliver to the Lender a Mortgage substantially in the form of the applicable Mortgage, together with such of the documents or instruments described in Section 4.01 (j) as the Lender shall reasonably require. The Borrower shall pay all fees and expenses, including, without limitation, reasonable attorneys' fees and expenses and all title insurance charges and premiums, in connection with their obligations under this Section 5.13. SECTION 5.14. ANNUAL CLEANUP PERIOD. The Borrower shall ensure that during any 365 day period during the term of the Revolving Loan Facility, there shall be a period of at least thirty (30) consecutive days 32 during which time there is no outstanding balance under the Revolving Loan Facility hereunder. 6. NEGATIVE COVENANTS From the date of the initial Loan and for so long as the Revolving Loan Facility shall be in effect or any amount shall remain outstanding under any Note or unpaid under this Agreement, unless the Lender shall otherwise consent in writing, the Borrower agrees that it will not, nor will it permit any Subsidiary thereof (other than a Non-Recourse Subsidiary, it being understood that the term "Subsidiaries" as used in this Article refers to Subsidiaries other than Non-Recourse Subsidiaries) to, directly or indirectly: SECTION 6.01. LIMITATION OF INDEBTEDNESS. Without the prior written consent of the Lender, incur, assume or suffer to exist any Indebtedness: (a) which is secured by a Lien on the Collateral (except for Indebtedness secured by purchase money security interests expressly permitted by Section 6.05 below and the Mortgages and for refinancings of the Bond Indenture pursuant to which (i) no additional funds are borrowed in excess of the refinanced amount of principal, plus transaction costs, (ii) all other terms, including interest rate, are not disadvantageous to the Borrower, and (iii) the maturity of the debt is not thereby shortened); or (b) which would violate the terms of the Bond Indenture or the Note Indenture as such terms currently provide without regard to any waiver of the application of such terms or modification of such terms. SECTION 6.02. LIMITATION OF GUARANTIES. Assume or incur any Guaranties: (a) which are secured by a Lien on the Collateral; or (b) which would violate the terms of the Bond Indenture or the Note Indenture as such terms currently provide without regard to any waiver of the application of such terms or modification of such terms. SECTION 6.03. CHANGE IN BUSINESS. Engage in any business other than a gaming related business, including without limitation, the gaming business and other business necessary for, incident to, connected with or arising out of the gaming business (including developing and operating lodging facilities, sports or entertainment facilities, transportation services or other related activities or enterprises and any additions or improvements thereto). 33 SECTION 6.04. CONSOLIDATION, MERGER, SALE OR PURCHASE OF ASSETS, ETC. Neither the Borrower nor any of its Subsidiaries (in one transaction or series of transactions) will wind up, liquidate or dissolve its affairs, or enter into any transaction of merger or consolidation, or sell or otherwise dispose of all or substantially all or any of the shares of a Guarantor or more than 30% in value of its assets or agree to do or suffer any of the foregoing, except: (a) any Subsidiary of the Borrower may be wound up, liquidated or dissolved, or all or any part of its property or assets may be sold to any wholly-owned domestic Subsidiary of the Borrower or to the Borrower, or merged or consolidated with or into any wholly-owned domestic Subsidiary of the Borrower or into the Borrower; or (b) a merger in which the Borrower or one of its Subsidiaries is the surviving corporation, provided there has been no Change of Control and after giving effect to the transaction there shall have been no Default or Event of Default. The ability of the Borrower or ACSI to dispose of any of the Collateral is further restricted by the Mortgages (Section 1.10 of the Deed of Trust and Section 1.16 of the Leasehold Mortgage respectively). SECTION 6.05. LIMITATION ON LIENS. Suffer any Lien on its property, except: (a) deposits under Worker's Compensation, unemployment insurance and Social Security laws or to secure statutory obligations or surety or appeal bonds or performance or other similar bonds in the ordinary course of business, or statutory Liens of landlords, carriers, warehousemen, mechanics and material men and other similar Liens, in respect to liabilities which are not yet due and payable or which are being contested in good faith, Liens for taxes not yet due and payable, and Liens for taxes due and payable, the validity or amount of which is currently being contested in good faith by appropriate proceedings (but provided in each case the foreclosure of such Lien shall not have been commenced unless fully bonded or otherwise effectively stayed); (b) easements, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of the business of such Person; (c) Liens upon real and/or tangible personal property, which property was acquired after the date of this Agreement (by purchase, construction or otherwise) by the Borrower or any Subsidiary, each of which Liens existed on such property before the time of its acquisition and was not created in anticipation thereof; provided, however, that no such Lien shall extend to or cover any property so acquired and improvements thereon; 34 (d) Liens arising out of attachments, judgments or awards as to which an appeal or other appropriate proceedings for contest or review are promptly commenced (provided that foreclosure or other enforcement proceedings shall not have been commenced unless fully bonded or otherwise effectively stayed); (e) Liens created under any Loan Document; (f) Existing Liens listed on Schedule 6.05; (g) Permitted Liens; (h) Liens on the assets acquired or leased with the proceeds of Indebtedness permitted to be incurred pursuant to Section 6.01 to acquire or to lease tangible assets, provided that such Lien does not extend to any property or assets other than the property or assets so acquired; and (i) Liens securing a refinance of the Bond Indenture meeting the requirements of Section 6.01(a) above. SECTION 6.06. EXECUTIVE OFFICES. Transfer executive offices, change the corporate name or location of records for Receivables, or keep Inventory or equipment at locations not presently kept or maintained without compliance with Section 5.05. SECTION 6.07. SALE AND LEASEBACK. Enter into any arrangement with any Person or Persons, whereby in contemporaneous transactions the Borrower sells essentially all of its right, title and interest in a material asset and the Borrower acquires or leases back the right to use such property. SECTION 6.08. ERISA COMPLIANCE. Engage in a "prohibited transaction", as defined in Section 406 of ERISA or Section 4975 of the Code, with respect to any Plan or Multiemployer Plan or knowingly consent to any other "party in interest" or any "disqualified person", as such terms are defined in Section 3(14) of ERISA and Section 4975(e)(2) of the Code, respectively, engaging in any "prohibited transaction", with respect to any Plan or Multiemployer Plan maintained by the Borrower; or permit any Plan maintained by the Borrower to incur any "accumulated funding deficiency", as defined in Section 302 of ERISA or Section 412 of the Code, unless such incurrence shall have been waived in advance by the Internal Revenue Service; or terminate any Plan in a manner which could result in the imposition of a Lien on any property of the Borrower pursuant to Section 4068 of ERISA; or breach or knowingly permit any employee or officer or any trustee or administrator of any Plan maintained by 35 Borrower to breach any fiduciary responsibility imposed under Title I of ERISA with respect to any Plan; engage in any transaction which would result in the incurrence of a liability under Section 5069 of ERISA; or fail to make contributions to a Plan or Multiemployer Plan which results in the imposition of a Lien on any property of the Borrower or any Subsidiary pursuant to Section 302(f) of ERISA or Section 412(n) of the Code, if the occurrence of any of the foregoing events would result in a liability which is materially adverse to the financial condition of the Borrower and its Subsidiaries taken as a whole or would materially and adversely affect the ability of the Borrower to perform its obligations under this Agreement or the Notes. SECTION 6.09. TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into any transaction with an Affiliate on terms less favorable (including, but not limited to, price and credit terms) to the Borrower and the Subsidiaries than would be the case if such transaction had been effected by arms length with a Person other than an Affiliate: SECTION 6.10. AMENDMENTS TO EXISTING DOCUMENTS. Amend, waive or in any manner alter the terms of the Bond Indenture or the Note Indenture after the Closing Dates, if such amendment, waiver or alteration would materially adversely affect the Lender. SECTION 6.11. HAZARDOUS MATERIALS. Cause or permit any of its properties or assets to be used to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce or process Hazardous Materials, except in compliance in all material respects with all applicable Environmental Laws, nor release, discharge, dispose of or permit or suffer any release or disposal as a result of any intentional act or omission on its part of Hazardous Materials onto any such property or asset in material violation of any Environmental Law. SECTION 6.12. NO FURTHER NEGATIVE PLEDGES. Except with respect to prohibitions against other encumbrances on specific property encumbered to secure payment of particular Indebtedness (which Indebtedness related solely to such specific property, and improvements and accretions thereto, and is otherwise permitted hereby), enter into any agreement (other than this Agreement and the other Loan Documents) prohibiting the creation or assumption of any Lien upon the properties or assets of the Borrower or any of its Subsidiaries, whether now owned or hereafter acquired or requiring an obligation to be secured if some other obligation is secured. 36 SECTION 6.13. CAPITAL FUNDS. Permit Capital Funds at any time during the periods referenced below to fall below the amounts indicated below for such period: closing - 12/30/95 $50,000,000 12/31/95 - 12/30/96 55,000,000 12/31/96 - 12/30/97 60,000,000 12/31/97 - 12/30/98 65,000,000 12/31/98 - 12/30/99 70,000,000 12/31/99 and thereafter 75,000,000 SECTION 6.14. LEVERAGE RATIO. Permit the Leverage Ratio at the end of any fiscal quarter of the Borrower to exceed 1.70:1. SECTION 6.15. DEBT SERVICE COVERAGE RATIO. 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 quarter combined with the three previous fiscal quarters to be less than the amount indicated below for the applicable fiscal quarters indicated below: 4th Qtr. 1994 - 3d Qtr. 1995 1.50x 4th Qtr. 1995 - 3d Qtr. 1996 1.30x 4th Qtr. 1996 - 3d Qtr. 1998 1.40x 4th Qtr. 1998 and thereafter 1.50x. SECTION 6.16. ACCOUNTING PRACTICES. Modify or change financial accounting treatments or financial reporting practices except as otherwise required by changes in GAAP or alter its fiscal year end. SECTION 6.17. LIMITATION ON RESTRICTIONS ON SUBSIDIARY DIVIDENDS AND OTHER DISTRIBUTIONS, ETC. Except to the extent otherwise provided in this Agreement, and except as required by a Gaming Control Act or directives of Gaming Authorities as a condition to the renewal of a Gaming Permit concerning the Atlantic City Showboat or the Las Vegas Showboat, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any of the Subsidiaries of the Borrower to (i) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by the Borrower or any of its Subsidiaries, or pay any Indebtedness owed to the Borrower or any of its Subsidiaries, (ii) make loans or advances to the Borrower or 37 any of its Subsidiaries or (iii) subject to customary provisions in contracts or other agreements entered into in the ordinary course of business, transfer any of its properties or assets to the Borrower or any of its Subsidiaries. 7. EVENTS OF DEFAULT In the case of the happening and during the continuance of any of the following events (herein called "Events of Default"): (a) any material representation or warranty made by any Obligor in this Agreement or any other Loan Document or any statement or representation made in any report, financial statement, certificate or other document furnished by or on behalf of the Borrower or any Subsidiary to the Lender under this Agreement, shall prove to have been false or misleading in any material respect when made or delivered; (b) default shall be made in the payment of any principal of or interest on the Note or of any fees or other amounts payable by the Borrower hereunder, when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise, and, in the case of payments of interest, such default shall continue unremedied for five Business Days, and in the case of payments other than of any principal amount of, or interest on, the Note, such default shall continue remedied for five Business Days after receipt by the Borrower of an invoice therefor; (c) default shall be made by the Borrower or its Subsidiaries in the due observance or performance of any covenant, condition or agreement contained in Section 5.01 (with respect to notice of Default or Events of Default) or Article 6 of this Agreement; (d) default shall be made by the Borrower or any Subsidiary in the due observance or performance of any other covenant, condition or agreement to be observed or performed pursuant to the terms of this Agreement, the Mortgages or any other Loan Document and such default shall continue unremedied for 30 days, in each case after the Borrower receives written notice from the Lender; (e) default in payment shall be made with respect to any Indebtedness of the Borrower or any Subsidiary in an amount or amounts over $250,000.00 in the aggregate, or in any amount if an Obligation to the Lender, or default with respect to the performance of any other obligation incurred in connection with any such Indebtedness, if the effect of such default is, or with the giving of notice or passage of time or both would be, to accelerate the maturity of such Indebtedness or to permit the holder thereof (after giving effect to any applicable grace periods) to cause such Indebtedness to become due prior to its stated maturity or any such Indebtedness shall not be paid when due, whether at the due date thereof or at acceleration thereof or otherwise; 38 (f) the Borrower or any Subsidiary shall generally not pay its debts as they become due or shall admit in writing its inability to pay its debts, or shall make a general assignment for the benefit of creditors; or any Obligor shall commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property or shall file an answer or other pleading in any such case, proceeding or other action admitting the material allegations of any petition, complaint or similar pleading filed against it or consenting to the relief sought therein; any Obligor shall take any action to authorize any of the foregoing; (g) any involuntary case, proceeding or other action against the Borrower or any Subsidiary shall be commenced seeking to have an order for relief entered against it as debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under the law relating to banking, appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property, and such case, proceeding or other action (i) results in the entry of any order for relief against it or (ii) shall remain undismissed for a period of sixty (60) days; (h) final judgment(s) for the payment of money in excess of $250,000 shall be rendered against an Obligor which within thirty (30) days from the entry of such judgment shall not have been discharged or stayed pending appeal or which shall not have been discharged within thirty (30) days from the entry of a final order of affirmance on appeal; (i) a Reportable Event relating to a failure to meet minimum funding standards or an inability to pay benefits when due shall have occurred with respect to any Plan under the control of an Obligor and shall not have been remedied within 45 days after the occurrence of such Reportable Event, and (i) the Lender shall have notified the Borrower that the Lender made a good faith determination that, on the basis of such "Reportable Event", there are reasonable grounds to believe that such Reportable Event will result in a liability which is materially adverse to the Borrower and its Subsidiaries taken as a whole, (ii) a trustee shall be appointed by a United States District Court to administer such Plan or (iii) the PBGC shall institute proceedings to terminate such Plan; (j) any Person shall have (or an Obligor shall assert that any Person has) a right in the Collateral prior or equal to that of the Lender or the Mortgages shall cease to be in full force and effect or shall no longer grant to the Lender a first mortgage Lien in the property interests subject thereto, in each case, only to Permitted Liens in effect on the date hereof; 39 (k) There has occurred any revocation, suspension or loss of any Gaming Permit required to operate the Las Vegas Showboat or the Atlantic City Showboat (other than any revocation, suspension or loss resulting from an Event of Loss) which results in the cessation of business at either the Las Vegas Showboat or the Atlantic City Showboat for a period of more than 90 consecutive days; then, in every such event and at any time thereafter during the continuance of such event, the Lender may take either or both of the following actions, at the same or different times: terminate forthwith the Revolving Loan Facility and/or declare the principal of and the interest on the Loan and the Note and all other amounts payable hereunder or thereunder to be forthwith due and payable, whereupon the same shall become and be forthwith due and payable, without presentment, demand, protest, notice of acceleration, notice of intent to accelerate or other notice of any kind, all of which are hereby expressly waived, anything in this Agreement or in the Note to the contrary notwithstanding. If an Event of Default specified in paragraphs (f) or (g) above shall have occurred, the principal of and interest on the Loan and the Note and all other amounts payable hereunder or thereunder shall thereupon and concurrently become due and payable without presentment, demand, protest, notice of acceleration, notice of intent to accelerate or other notice of any kind, all of which are hereby expressly waived, anything in this Agreement or the Note to the contrary notwithstanding and the Revolving Loan Facility of the Lender shall thereupon forthwith terminate; (l) Entry of a final order or judgment of a court of competent jurisdiction, which judgment has not been stayed on appeal, directing the Borrower to convey to the Atlantic City Housing Authority its title to real property owned by it and constituting part of the Atlantic City Showboat known as Block 13, Lot 144.03, on the tax map of the City of Atlantic City. 8. GUARANTY SECTION 8.01. AGREEMENT OF GUARANTY. (a) Each Guarantor unconditionally and irrevocably guarantees the due and punctual payment by, and performance of, the Obligations (including interest accruing on and after the filing of any petition in bankruptcy or of reorganization of the obligor whether or not post filing interest is allowed in such proceeding). Each Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, without notice or further assent from it (except as may be otherwise required herein), and it will remain bound upon this guaranty notwithstanding any extension or renewal of any Obligation. (b) To the extent permitted by Applicable Law, each Guarantor waives presentation to, demand for payment from and protest to, as the case may be, the Borrower or any other guarantor, and also waives notice of protest for nonpayment. The obligations of each Guarantor hereunder shall not be affected by (i) the failure of the Lender to assert any claim or demand or to enforce any right or remedy against the Borrower or any other guarantor under the provisions of this Agreement or any other agreement or otherwise; (ii) any extension or renewal of any provision hereof or thereof; (iii) the failure of the Lender to obtain the consent of the Guarantors with respect to any rescission, waiver, compromise, acceleration, amendment or modification of any of the terms or provisions of this Agreement, the Note or of any other agreement; (iv) the release, exchange, waiver or 40 foreclosure of any security held by the Lender for the Obligations or any of them; (v) the failure of the Lender to exercise any right or remedy against any other guarantor of the Obligations; or (vi) the release or substitution of any guarantor. (c) Each Guarantor further agrees that this guaranty constitutes a guaranty of performance and of payment when due and not just of collection, and, to the extent permitted by Applicable Law, waives any right to require that any resort be had by the Lender to any security held for payment of the Obligations or to any balance of any deposit, account or credit or the books of the Lender in favor of the Borrower, any other guarantor or to any other Person. (d) Each Guarantor hereby expressly assumes all responsibilities to remain informed of the financial condition of the Borrower and any circumstances affecting the ability of the Borrower to perform under this Agreement. (e) Each Guarantor's guaranty shall not be affected by the genuineness, validity, regularity or enforceability of the Obligations, the Note or any other instrument evidencing any Obligations, or by the existence, validity, enforceability, perfection, or extent of any collateral therefor or by any other circumstance relating to the Obligations which might otherwise constitute a defense to this Guaranty. The Lender makes no representation or warranty in respect to any such circumstances and has no duty or responsibility whatsoever to the Guarantors in respect to the management and maintenance of the Obligations or any collateral security for the Obligations. (f) The Guarantors consent to the provisions of the paragraph of the Note entitled "Security Interest." SECTION 8.02. NO IMPAIRMENT OF GUARANTY. The obligations of the Guarantors hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason including, without limitation, any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense or set-off, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of the Guarantors hereunder shall not be discharged or impaired or otherwise affected by the failure of the Lender to assert any claim or demand or to enforce any remedy under this Agreement or any other agreement, by any waiver or modification of any provision thereof, by any default, failure or modification of any provision thereof, by any default, failure or delay, willful or otherwise, in the performance of the Obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of the Guarantors or would otherwise operate as a discharge of the Guarantors as a matter of law, unless and until the Obligations are paid in full. 41 SECTION 8.03. CONTINUATION AND REINSTATEMENT, ETC. (a) Each Guarantor further agrees that its guaranty hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Obligation is rescinded or must otherwise be restored by the Lender upon the bankruptcy or reorganization of the Borrower or the Guarantors, or otherwise. In furtherance of the provisions of this Article 8 and not in limitation of any other right which the Lender may have at law or in equity against the Borrower or any Guarantor by virtue hereof, upon failure of the Borrower to pay any Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice or otherwise, each Guarantor hereby promises to and will, upon receipt of written demand by the Lender, forthwith pay or cause to be paid to the Lender in cash an amount equal to the unpaid amount of all the Obligations with interest thereon at a rate of interest equal to the rate specified in the Notes, and thereupon the Lender shall assign such Obligation, together with all security interests, if any, then held by the Lender in respect of such Obligation, to the Guarantors making such payments. (b) Upon the payment in full of all principal of and interest on the Notes and any other amounts payable by the Borrower under the Loan Documents, the Guarantors shall be subrogated to the rights of the holders of the Notes in respect of any payment or other obligation with respect to which an amount has been payable by the Guarantors hereunder. The Guarantors shall not seek to exercise any rights of subrogation, reimbursement or indemnity arising from payments made by the Guarantors pursuant to the provisions of this Agreement until the full and complete payment or performance and discharge of the Obligations. SECTION 8.04. LIMITATION ON GUARANTEED AMOUNT. Notwithstanding any other provision of this Article 8, the amount guaranteed by the Guarantors hereunder shall be limited to the extent, if any, required so that its obligations under this Article 8 shall not be subject to avoidance under Section 548 of the Bankruptcy Code or to being set aside or annulled under any applicable state law relating to fraud on creditors. In determining the limitations, if any, on the amount of any Guarantor's obligations hereunder pursuant to the preceding sentence, any rights of subrogation or contribution which such Guarantor may have under this Article 8 or applicable law shall be taken into account. 9. MISCELLANEOUS SECTION 9.01. NOTICES. Notices and other communications provided for herein shall be in writing and shall be delivered or mailed (or in the case of telegraphic communication, if by telex, facsimile telecopy or other telegraphic communications equipment of the sending party hereto, 42 delivered by such equipment) addressed, if to the Lender to it at 1300 Atlantic Avenue, Mezzanine Level, Atlantic City, New Jersey 08401, Attn: John T. Harrison, Vice President, or Showboat, Inc. Account Officer, or if to the Borrower or a Guarantor, to it at its address set forth on the signature page or such other address as such party may from time to time designate by giving written notice to the other parties hereunder. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the fifth Business Day after the date when sent by registered or certified mail, postage prepaid, return receipt requested, if by mail, or when delivered to the telegraph company, charges prepaid, if by telegram, or when receipt is acknowledged, if by any telecopy communications equipment of the sender, in each case addressed to such party as provided in this Section 9.01 or in accordance with the latest unrevoked written direction from such party. SECTION 9.02. SURVIVAL OF AGREEMENT, REPRESENTATIONS AND WARRANTIES, ETC. All warranties, representations and covenants made by the Borrower herein or in any certificate or other instrument delivered by it or on its behalf in connection with this Agreement shall be considered to have been relied upon by the Lender and issuance and delivery to the Lender of the Notes regardless of any investigation made by the Lender or on its behalf and shall continue in full force and effect so long as any amount due or to become due hereunder is outstanding and unpaid and so long as the Revolving Loan Facility has not been terminated. All statements in any such certificate or other instrument shall constitute representations and warranties by the Borrower hereunder. SECTION 9.03. SUCCESSORS AND ASSIGNS; SYNDICATIONS; LOAN SALES; PARTICIPATIONS. (a) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party (provided, however, that the Borrower may not assign its rights hereunder without the prior written consent of the Lender), and all covenants, promises and agreements by or on behalf of the Borrower which are contained in this Agreement shall inure to the benefit of the successors and assigns of the Lender. (b) The Lender may without the consent of the Borrower sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its commitment, to advance funds hereunder and the Loans owing to it and the Note or Notes held by it); provided, however, that any such Lender's obligations under this Agreement shall remain unchanged. (c) The Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.03, disclose to the assignee or participant any other financial information concerning Obligors furnished to the Lender. 43 (d) The Borrower consents that the Lender may at any time and from time to time pledge or otherwise grant a security interest in any Loan or any Note evidencing such Loan (or any part thereof) to any Federal Reserve Bank. SECTION 9.04. EXPENSES; DOCUMENTARY TAXES. The Borrower agrees to pay all reasonable out-of-pocket expenses incurred by the Lender in connection with the preparation, execution, delivery and administration of this Agreement (including the cost of field examination fees), the Note and the making of the Loan, as well as all reasonable out-of- pocket expenses incurred by the Lender in the enforcement or protection of the rights of the Lender in connection with this Agreement or the Note, and with respect to any action which may be instituted by any Person against the Lender in respect of the foregoing, or as a result of any transaction, action or nonaction arising from the foregoing, including but not limited to the fees and disbursements of any counsel for the Lenders. Such payments shall be made on demand. The Borrower agrees that it shall indemnify the Lender and hold it harmless against any documentary taxes, assessments or charges made by an Governmental Authority by reason of the execution and delivery of this Agreement or the Note. The obligations of the Borrower under this Section shall survive the termination of this Agreement and/or the payment of the Loan. SECTION 9.05. INDEMNITY. Further, by the execution hereof, the Borrower agrees to indemnify and hold harmless the Lender and its directors, officers, employees and agents (each an "Indemnified Party") from and against any and all expenses, losses, claims, damages and liabilities arising out of any claim, litigation, investigation or proceeding in any way relating to the transactions contemplated hereby, but excluding therefrom all expenses, losses, claims, damages, and liabilities arising out of or resulting from the gross negligence or willful misconduct of any Indemnified Party. If any proceeding, including any governmental investigation, shall be instituted involving any Indemnified Party, in respect of which indemnity may be sought against the Borrower, such Indemnified Party shall promptly notify the Borrower in writing, and the Borrower shall assume the defense thereof on behalf of such Indemnified Party including the employment of counsel (reasonably satisfactory to such Indemnified Party) and payment of all reasonable expenses. Any Indemnified Party shall have the right to employ separate counsel in any such proceeding and participate in the defense thereof, but the fees and expenses of such separate counsel shall be at the expense of such Indemnified Party unless (i) the employment of such separate counsel has been specifically authorized by the Borrower or (ii) the named parties to any such action (including any impleaded parties) include such Indemnified Party and the Borrower and such Indemnified Party shall have been advised by its counsel that there may be one or more legal defenses available to such Indemnified Party which are different from or additional to those available to the Borrower (in which case the Borrower shall not have the right to assume the defense of such action on behalf of such Indemnified Party, it being understood, however, that the Borrower shall not, in connection with any one such action 44 or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees or expenses of more than one separate firm of attorneys for all such Indemnified Parties). The Borrower shall not be liable for any settlement of any such proceeding effected without the written consent of the Borrower, but if settled with the written consent of the Borrower or if there is a final judgment for the plaintiff in any such action, the Borrower agrees to indemnify and hold harmless any Indemnified Party from and against any loss or liability by reason of such settlement or judgment. At any time after the Borrower has assumed the defense of any proceeding involving any Indemnified Party in respect of which indemnity has been sought against the Borrower, such Indemnified Party may elect, by written notice to the Borrower, to withdraw its request for indemnity and thereafter the defense of such proceeding shall be maintained by counsel of the Indemnified Party's choosing and at the Indemnified Party's expense. The obligations of the Borrower under this Section 9.05 shall survive the termination of this Agreement and/or payment of the Loans. SECTION 9.06. CHOICE OF LAW. THIS AGREEMENT AND THE NOTES HAVE BEEN EXECUTED AND DELIVERED IN THE STATE OF NEW JERSEY AND SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SUCH STATE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE AND, IN THE CASE OF PROVISIONS RELATING TO INTEREST RATES, ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. SECTION 9.07. NO WAIVER. No failure on the part of the Lender to exercise, and not delay in exercising, any right, power or remedy hereunder or under the Note shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law. SECTION 9.08. EXTENSION OF MATURITY. Should any payment of principal of or interest on the Note or any other amount due hereunder become due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, in the case of principal, interest shall be payable thereon at the rate herein specified in the Notes during such extension. 45 SECTION 9.09. AMENDMENTS, ETC. No modification, amendment or waiver of any provision of this Agreement, and no consent to any departure by the Borrower herefrom, shall in any event be effective unless the same shall be in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. SECTION 9.10. SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 9.11. SERVICE OF PROCESS. EACH OBLIGOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE COURTS OF THE STATE OF NEW JERSEY AND TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF BROUGHT BY THE LENDER. EACH OBLIGOR TO THE EXTENT PERMITTED BY APPLICABLE LAW (A) HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURTS, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF THE ABOVE-NAMED COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THIS AGREEMENT OR THE SUBJECT MATTER HEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURT, AND (B) HEREBY WAIVES THE RIGHT TO ASSERT IN ANY SUCH ACTION, SUIT OR PROCEEDING ANY OFFSETS OR COUNTERCLAIMS EXCEPT COUNTERCLAIMS THAT ARE COMPULSORY. EACH OBLIGOR HEREBY CONSENTS TO SERVICE OF PROCESS BY MAIL AT ITS ADDRESS AS SET FORTH ON THE SIGNATURE PAGE HEREOF. EACH OBLIGOR AGREES THAT THIS SUBMISSION TO JURISDICTION AND CONSENT TO SERVICE OF PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF THE LENDER. FINAL JUDGMENT AGAINST A BORROWER IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN ANY OTHER JURISDICTION (A) BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND THE AMOUNT OF 46 INDEBTEDNESS OR LIABILITY OF THE OBLIGOR THEREIN DESCRIBED OR (B) IN ANY OTHER MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER JURISDICTION, PROVIDED, HOWEVER, THAT THE LENDER MAY AT ITS OPTION BRING SUIT, OR INSTITUTE OTHER JUDICIAL PROCEEDINGS AGAINST AN OBLIGOR OR ANY OF ITS ASSETS IN ANY STATE OR FEDERAL COURT OF THE UNITED STATES OR OF ANY COUNTRY OR PLACE WHERE AN OBLIGOR OR SUCH ASSETS MAY BE FOUND. SECTION 9.12. HEADINGS. Section headings used herein are for convenience only and are not to affect the construction of or be taken into consideration in interpreting this Agreement. SECTION 9.13. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same instrument. SECTION 9.14. ENTIRE AGREEMENT. This Agreement, together with the Loan Documents hereof, constitutes the entire agreement among the parties hereto with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and the year first written. BORROWER: SHOWBOAT, INC. By: /s/ R. Craig Bird Name: R. Craig Bird Title: Executive Vice President of Finance and Administration Address: 2800 Fremont Street Las Vegas, NV 89104 GUARANTORS: SHOWBOAT OPERATING COMPANY By: /s/ Leann Schneider Name: Leann Schneider Title: Treasurer Address: 2800 Fremont Street Las Vegas, NV 89104 OCEAN SHOWBOAT, INC. By: /s/ R. Craig Bird Name: R. Craig Bird Title: Vice President of Finance and Administration Address: 801 Boardwalk Atlantic City, N.J. 08401 ATLANTIC CITY SHOWBOAT, INC. By: /s/ Herbert R. Wolfe Name: Herbert R. Wolfe Title: President/CEO Address: 801 Boardwalk Atlantic City, N.J. 08401 LENDER: NATWEST BANK, N.A. By: /s/ John Harrison Name: John Harrison Title: Vice President Address: 1300 Atlantic Avenue Mezzanine Level Atlantic City, N.J. 08401 REVOLVING NOTE $25,000,000.00 July 14, 1995 FOR VALUE RECEIVED, the undersigned (hereinafter referred to as "BORROWER") promises to pay to the order of NATWEST BANK, N.A. (hereinafter "LENDER"), at any of its banking offices the principal sum of Twenty-five Million Dollars ($25,000,000.00), or so much thereof as may be advanced pursuant to the terms of the Revolving Loan Facility established under that certain Loan and Guaranty Agreement between the Borrower, the Lender and the Guarantors named therein (the "Loan Agreement"), together with interest thereon, to be payable commencing on the first day of August, 1995, and continuing on the first day of each month thereafter. As to each Borrowing under the Revolving Loan Facility, interest from the date thereof shall accrue on the unpaid principal balance thereof as follows at the Borrower's option at either (i) the Prime Rate (as hereinafter defined) plus one-half of one percent (.5%) (the "Floating Rate" or "Floating Rate Option"); or (ii) the LIBOR Based Rate (the "LIBOR Rate Option"). Lender's PRIME RATE of interest shall mean that rate of interest so designated and established by the Lender from time to time as its reference rate in making loans but which is not necessarily the lowest rate of interest charged by the Lender. The LIBOR Based Rate shall mean a rate per annum equal to Two Hundred Fifty Basis Points (2.5%) plus the Adjusted LIBOR Rate with respect to the applicable LIBOR Interest Period. Each determination of a LIBOR Based Rate shall be made by the Lender and shall be conclusive and binding upon the Borrower absent manifest error. The term "Adjusted LIBOR Rate" shall mean a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the product arrived at by multiplying the Base LIBOR Rate with respect to the applicable LIBOR Interest Period by a fraction (expressed as a decimal), the numerator of which shall be the number one and the denominator of which shall be the number one minus the aggregate reserve percentages (expressed as a decimal) from time to time established by the Board of Governors of the Federal Reserve System of the United States and other banking authority to which the Lender is now or hereafter subject, including, but not limited to, at the ratios provided in such Regulation, from time to time, it being agreed that any portion of the Principal bearing interest at a LIBOR Based Rate shall be deemed to constitute Eurocurrency Liabilities, as defined by such Regulation, and it being further agreed that such Eurocurrency Liabilities shall be deemed subject to such reserve requirements without benefit of or credit for prorations, exceptions or offsets that may be available to the Lender from time to time under such Regulation and irrespective of whether the Lender actually maintains all or any portion of such reserve. The "Base LIBOR Rate" applicable to a particular LIBOR Interest Period shall mean a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the rate at which dollars approximately equal in amount to the Principal of the applicable Borrowing and for a maturity equal to the applicable LIBOR Interest Period are offered in immediately available funds by the National Westminster Bank to leading banks in the London Interbank Market for Eurodollars at approximately 11:00 a.m., London time, three (3) Business Days prior to the commencement of such LIBOR Interest Period. The term "LIBOR Interest Period" shall mean the period of time defined in the Loan Agreement during which a particular LIBOR Rate will be applicable to any Principal balance in accordance with the provisions of this Note. No LIBOR Interest Period shall extend beyond the Conversion Date. The Principal balance with respect to which a particular LIBOR Interest Period is applicable will bear interest at the LIBOR Based Rate pertaining to such LIBOR Interest Period from and including the first day of such LIBOR Interest Period to, but not including, the last day of such LIBOR Interest Period. Subject to the paragraph immediately below, the Borrower may elect the LIBOR Based Rate only upon written notice to Lender no later than three (3) Business Days prior to the day upon which such Borrowing is requested. If such notice is not received by the Lender by or on such date, the Floating Rate Option shall be deemed to have been elected. Principal of any LIBOR Rate Borrowing shall be due on the last day of the applicable Interest Period. If not repaid, such principal shall be deemed to have been converted to a Floating Rate Borrowing as of such date, unless three (3) Business Days prior to the last day of such Interest Period the Borrower shall have given notice of a LIBOR Rate Borrowing with respect to such principal amounts intended to be reborrowed as a LIBOR Rate Borrowing. The entire sum of principal, interest, costs and other sums due hereunder shall be due and payable in full on July 14, 1997 (the "Conversion Date") unless the principal sum hereof is converted to a term loan pursuant to the provisions of Section 2.02 of the Loan Agreement. Capitalization terms used herein which are not otherwise defined shall have the meaning set forth in the Loan Agreement. LIMITATION ON RATE OPTIONS - Anything herein to the contrary notwithstanding, if, on or prior to the determination of a LIBOR Rate for any Interest Period, the Lender determines in good faith (which determination shall be conclusive) that: (1) By reason of any event affecting the money markets in the United States or the applicable interbank Eurodollar market, quotations of interest rates for the relevant deposits are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the rate of interest for this Loan; or (2) The rates of interest referred to in this Agreement do not accurately reflect the cost to the Lender of making or maintaining such Loans for such period, then the Lender shall give the Borrower notice thereof (and shall thereafter give the Borrower prompt notice of the cessation, if any, of such condition), and so long as such condition remains in effect, the Lender shall be under no obligation to make the LIBOR Rate Option available and the Borrower shall, on the last day of the then current Interest Period, either prepay, without premium or penalty, this Note or select the Floating Rate Option. PREPAYMENTS (i) The Borrower shall have the right at any time and from time to time to prepay any Floating Rate Borrowing, in whole or in part, without premium or penalty. All prepayments shall be accompanied by accrued interest to the date of prepayment, and shall be applied in inverse order of maturity. (ii) In the case of a LIBOR Rate loan, full or partial prepayments in multiples of $100,000.00 shall be permitted during a LIBOR Interest Period provided the Borrower gives Lender not less than five (5) business days prior written notice and such prepayment shall be applied in inverse order of maturity and shall be accompanied by payment of accrued interest to and including the date of prepayment together with Lender's standard LIBOR Rate indemnification fee, which indemnifies the Lender against any and all loss and reasonable expenses which the Lender may sustain or incur as a consequence of the receipt or recovery by the Lender of any Libor Rate borrowing pursuant to this Note and the Loan and Guaranty Agreement, whether by prepayment, acceleration or otherwise. Without limiting the effect of the foregoing, the amount to be paid by the Borrower to the Lender in order to so indemnify the Lender for any loss occasioned by any of the events described above, and as liquidated damages therefor, shall be equal to the excess, discounted to its present value as of the date so received or recovered, of (i) the amount of interest which otherwise would have accrued on the principal balance so received or recovered at the Libor Based Rate during the period (the "Indemnity Period") commencing with the date of such receipt or recovery (the "Commencement Date") to the Rollover Date over (ii) the amount of interest which would be earned by the Lender during the Indemnity Period if it invested, on the Commencement Date, the principal amount so received or recovered at the rate per annum determined by the Lender as the rate it would bid in the London Interbank Market for a deposit of Eurodollars in an amount approximately equal to such principal amount (or part thereof) for a period of time comparable to the Indemnity Period. The term "Rollover Date" applicable to a particular LIBOR Interest Period shall mean the last day of such LIBOR Interest Period. In the event a prepayment is made by virtue of a sale or further encumbering of any security for this Note, or application of insurance proceeds or condemnation award, or is voluntarily made after an Event of Default has occurred, the applicable prepayment premium as set forth under this paragraph will be due and payable on demand. SECURITY INTEREST - As security for the prompt payment as and when due of all amounts due under this Note, and the Loan Documents including any renewals, extensions and/or modifications hereof (hereinafter collectively referred to as the "LIABILITIES"), in addition to any other security agreement or document granting Lender any rights in any of Obligor's ("OBLIGOR", as used herein, shall include Borrower and all endorsers, sureties and guarantors) property for the purpose of securing the Liabilities, Obligor hereby grants to Lender, subject to the terms of Intercreditor agreements between Lender, Borrower, Guarantor and IBJ Schroder Bank & Trust Company of even date herewith (collectively the "Intercreditor Agreement"), a lien and security interest in and to all property of Obligor, or any of them, which at any time Lender shall have in its possession, or which is in transit to it, including without limitation any balance or share belonging to Obligor or Lender, and any other amounts which may be owing from time to time by Lender to Obligor, or any of them. Said lien and security interest shall be independent of any right of set-off which Lender may have. Such right of set-off shall be deemed to occur at the time Lender first restricts access of Obligor to property in Lender's possession, although such set-off may be entered upon Lender's books and records at a later time. EVENTS OF DEFAULT - An "Event of Default" hereunder shall have the meaning set forth in the Loan Agreement. LENDER'S RIGHTS UPON DEFAULT - Upon the occurrence of any Event of Default (subject to any applicable grace and cure period therefor), Lender may: (1) accelerate the maturity of this Note and demand immediate payment of all outstanding principal and accrued interest. (2) exercise its right of set-off and all of the rights, privileges and remedies of a secured party under the Uniform Commercial Code and all of its rights and remedies under any security agreement, pledge agreement, mortgage, power, this Note or any other note, or other agreement, instrument or document issued in connection with or arising out of any of the Liabilities, all of which remedies shall be cumulative and not alternative. The net proceeds of any collateral held by Lender as security for any of the Liabilities shall be applied first to the expenses of Lender in preparing the collateral for sale, selling and the like, including, without limitation, reasonable attorneys' fees and expenses incurred by Lender (including fees and expenses of any litigation incident to any of the foregoing), and second, in such order as Lender may elect, in its sole discretion, to the complete satisfaction of all of the Liabilities together with all interest thereon. To the extent permitted by applicable law, Obligor waives and releases any right to require Lender to collect any of the Liabilities to Lender from any other collateral under any theory of marshalling of assets or otherwise, and specifically authorizes Lender to apply any collateral proceeds in which Obligor has any right, title or interest against any of Obligor's Liabilities to Lender in any manner that Lender may determine. (3) make a late charge of five percent (5%) of any amount due and unpaid for a period of fifteen (15) days or more. (4) Upon five (5) Business Day's written notice to Borrower, begin accruing interest, in addition to any interest provided for above, at a rate not to exceed five percent (5%) per annum on the unpaid principal balance; provided, however, that no interest shall accrue hereunder in excess of the maximum amount of interest then allowed by law. Borrower agrees to pay such accrued interest upon demand. The default rate set forth herein is strictly a measure of liquidated damages to Lender based upon Lender's excess costs involved in the redeployment of funds and is not meant to be construed as a penalty. MISCELLANEOUS - Borrower hereby waives protest, notice of protest, presentment, dishonor, notice of dishonor, demand, and notice of demand. If this Note is placed in the hands of an attorney for collection, Borrower shall reimburse Lender for any and all of its reasonable attorneys' fees whether or not suit be brought, together with all actual costs and expenses of any legal proceedings. Interest shall be calculated hereunder for the actual number of days that the principal is outstanding, based on a year of three hundred sixty (360) days, unless otherwise specified. As to Floating Rate Borrowings changes in the rate of interest hereon shall become effective on the days on which Lender announces changes in its Prime Rate. THIS NOTE HAS BEEN DELIVERED TO AND ACCEPTED BY LENDER IN AND SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW JERSEY. THE PARTIES AGREE TO THE JURISDICTION OF THE FEDERAL AND STATE COURTS LOCATED IN NEW JERSEY IN CONNECTION WITH ANY MATTER ARISING HEREUNDER, INCLUDING THE COLLECTION AND ENFORCEMENT HEREOF. TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, AND LENDER, BY ITS ACCEPTANCE OF THIS NOTE AND THE MORTGAGE SECURING THE LOAN, IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT OR COUNTERCLAIM ARISING IN CONNECTION WITH, OUT OF OR OTHERWISE RELATING TO THIS NOTE, THE MORTGAGE, THE LOAN AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT NOW OR HEREAFTER EXECUTED AND DELIVERED IN CONNECTION THEREWITH OR THE LOAN. REGULATORY CHANGES; ADDITIONAL FEES - If any regulatory change or existing law or regulation shall either (i) impose, modify or deem applicable, or result in the application of, any reserve, special deposit, capital maintenance, capital ratio or similar requirement against fixed rate loans or loan commitments made by the Lender or against any other extensions of credit or commitments to extend credit or other assets of or any deposits or other liabilities taken or entered into by Lender or (ii) impose on Lender any other condition regarding the Loan or the Prime Rate, and the result of any event referred to in clause (i) or (ii) above shall be to increase the cost to Lender of making or maintaining, or to impose upon Lender or increase any capital requirement applicable as a result of the making or maintenance of this Loan or the obligation of the Borrower hereunder or to reduce the amounts receivable by the Lender hereunder (which increase in cost or increase in (or imposition of) capital requirements or reduction in amounts receivable may be determined by Lender's reasonable allocation of the aggregate of such cost increases, capital increases or impositions or reductions in amounts receivable resulting from such events) then, upon written demand by the Lender, the Borrower shall pay to the Lender not later than five (5) business days following the date of such written demand from time to time as specified by the Lender, such amounts or additional fees which shall be sufficient to compensate Lender for such increased cost or increase in (or imposition of) capital requirements or reduction in amounts receivable by the Lender, together with interest on each such amount from the date demanded until payment in full thereof at the Prime Rate provided in this Note. Upon the occurrence of any event referred to in clause (i) or (ii) above, a certificate setting forth in reasonable detail the increased cost, reduction in amounts receivable or amounts necessary to compensate the Lender as a result of an increase in (or imposition of) capital requirements submitted by the Lender to the Borrower, shall be conclusive, absent manifest error or bad faith, as to the amount thereof. For purposes of this Section, in calculating the amount necessary to compensate the Lender for any increase in or imposition of capital requirements, the Lender shall be deemed to be entitled to a rate of return on capital (after federal, state and local taxes) of fifteen percent (15%) per annum. Borrower has duly executed this Note the day and year first above written, and has hereunto set Borrower's hand and seal. ATTEST: SHOWBOAT, INC. /s/ H. Gregory Nasky By: /s/ R. Craig Bird [Corporate Seal] Recording Requested By and Return Recorded Counterparts to: Peter W. Leibundgut, Esquire Clark, Ladner, Fortenbaugh & Young Woodland Falls Corporate Park 200 Lake Drive East Suite 300 Cherry Hill, New Jersey 08002 DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT MADE BY SHOWBOAT, INC. and SHOWBOAT OPERATING COMPANY Nevada Corporations, as Trustor, to NEVADA TITLE COMPANY a Nevada corporation as Trustee, for the benefit of NATWEST BANK, N.A., a National Banking Association THIS INSTRUMENT IS TO BE FILED AND INDEXED IN THE REAL ESTATE RECORDS AND IS ALSO TO BE INDEXED IN THE INDEX OF FINANCING STATEMENTS OF CLARK COUNTY, NEVADA, UNDER THE NAMES OF SHOWBOAT, INC. AS "DEBTOR" AND NATWEST BANK, N.A. AS SECURED PARTY. TABLE OF CONTENTS ARTICLE ONE COVENANTS OF TRUSTOR 1.1 Performance of Loan Documents 10 1.2 General Representations, Covenants and Warranties 10 1.3 Compliance with Legal Requirements 10 1.4 Taxes 10 1.5 Insurance 11 1.6 Condemnation 13 1.7 Care of Trust Estate 14 1.8 Environmental Laws 14 1.9 Leases 15 1.10 Further Encumbrance, Sale or Other Disposition of 15 Collateral 1.11 Partial Releases of Trust Estate 16 1.12 Future Advances 17 1.13 Further Assurances 17 1.14 Security Agreement and Financing Statements 17 1.15 Assignment of Rents 19 1.16 Expenses 19 1.17 Beneficiary's Cure of Trustor's Default 19 1.18 Use of Land 20 1.19 Material Space Leases 20 1.20 Compliance with Permitted Lien Agreements 20 1.21 Defense of Actions 20 1.22 Affiliates 20 1.23 Title Insurance 20 ARTICLE TWO CORPORATE LOAN PROVISIONS 2.1 Interaction with Indenture and Loan Agreement 20 2.2 Other Collateral 21 ARTICLE THREE DEFAULTS 3.1 Event of Default 21 ARTICLE FOUR REMEDIES 4.1 Acceleration of Maturity 22 4.2 Protective Advances 22 4.3 Institution of Equity Proceedings 22 4.4 Beneficiary's Power of Enforcement 22 4.5 Beneficiary's Right to Enter and Take Possession, Operate and Apply Income 23 4.6 Leases 24 4.7 Purchase by Beneficiary 24 4.8 Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws 24 4.9 Receiver 25 4.10 Suits to Protect the Trust Estate 25 4.11 Proofs of Claim 25 i 4.12 Trustor to Pay the First Mortgage Bonds and Promissory 25 Note on Any Default in Payment: Application of Monies by Beneficiary 4.13 Delay or Omission: No Waiver 25 4.14 No Waiver of One Default to Affect Another 25 4.15 Discontinuance of Proceedings: Position of Parties 26 Restored 4.16 Remedies Cumulative 26 4.17 Interest After Event of Default 26 4.18 Foreclosure: Expenses of Litigation 26 4.19 Deficiency Judgments 27 4.20 Waiver of Jury Trial 27 4.21 Exculpation of Beneficiary 27 ARTICLE FIVE RIGHTS AND RESPONSIBILITIES OF TRUSTEE; OTHER PROVISIONS RELATING TO TRUSTEE 5.1 Exercise of Remedies by Trustee 27 5.2 Rights and Privileges of Trustee 27 5.3 Resignation or Replacement of Trustee 28 5.4 Authority of Beneficiary 28 5.5 Effect of Appointment of Successor Trustee 28 5.6 Confirmation of Transfer and Succession 28 5.7 Ratification 28 5.8 Exculpation 28 5.9 Endorsement and Execution of Documents 28 5.10 Multiple Trustees 29 5.11 Terms of Trustee's Acceptance 29 ARTICLE SIX MISCELLANEOUS PROVISIONS 6.1 Heirs, Successors and Assigns Included in Parties 29 6.2 Notices 29 6.3 Addresses for Notices, Etc. 29 6.3.1Change of Address 30 6.4 Headings 30 6.5 Invalid Provisions to Affect No Others 30 6.6 Changes and Priority Over Intervening Liens 30 6.7 Estoppel Certificates 30 6.8 Governing Law 30 6.9 Required Notices 31 6.10 Reconveyance 31 6.11 Attorneys Fees 31 6.12 Late Charges 31 6.13 Cost of Accounting 31 6.14 Right of Entry 31 6.15 Corrections 31 6.16 Statute of Limitations 31 6.17 Subrogation 32 6.18 Joint and Several Liability 32 6.19 Context 32 6.20 Time 32 6.21 Interpretation 32 6.22 Effect of NRS 57.030 32 6.23 Application of certain Deed of Trust Provisions to 32 Showboat Operating Company ii ARTICLE SEVEN POWER OF ATTORNEY 7.1 Grant of Power 32 7.2 Possession and Completion 32 7.3 Plans 32 7.4 Employment of Others 32 7.5 Security Guards 32 7.6 Compromise Claims 33 7.7 Legal Proceedings 33 7.8 Other Acts 33 SCHEDULE A LAND DESCRIPTION SCHEDULE B LIST OF EXISTING ENCUMBRANCES iii DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT Pursuant to Section 1.10 of that certain Deed of Trust, Assignment of Rents and Security Agreement, dated as of May 18, 1993 made by Showboat, Inc. as Trustor, to Nevada Title Company, as Trustee for the benefit of IBJ Schroder Bank & Trust Company as Beneficiary, recorded on May 18, 1993 in Book 930513, Document No. 00390 the lien created by this instrument ranks pari passu with the lien created by said Deed of Trust. THIS DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT (hereinafter called Deed of Trust") is made as of July 14, 1995, made by 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 of NATWEST BANK, N.A., a national banking association ("Beneficiary"), as trustee under that certain Loan Agreement dated as of even date herewith among Beneficiary, as trustee, Trustor as borrower and Ocean Showboat, Inc., a New Jersey corporation, Atlantic City Showboat, Inc., a New Jersey corporation, and Showboat Operating Company, a Nevada corporation, as Guarantors. DEFINITIONS - As used in this Deed of Trust, the following terms have the meanings hereinafter set forth: "ACCOUNTS RECEIVABLE", shall have the meaning set forth in Section 9-106 (NRS 104.9106) of the UCC for the term "account." "ACSI" means Atlantic City Showboat, Inc., a New Jersey corporation. "ACSI GUARANTY" means that certain Guaranty as set forth in the Loan Agreement as of the date hereof made by ACSI in favor of Beneficiary. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person, and, with respect to any specified natural Person, any other Person having a relationship by blood, marriage or adoption not more remote than first cousins with such natural Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with") as used with respect to any Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities or by agreement or otherwise; provided, however, that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed control. "APPURTENANT RIGHTS" means all and single tenements, hereditaments, rights, reversions, remainders, development rights, privileges, benefits, easements (in gross or appurtenant), rights-of-way, gores or strips of land, streets, ways, alleys, passages, sewer rights, water courses, water rights and powers, and all appurtenances whatsoever and claims or demands of Trustor at law or in equity in any way belonging, benefitting, relating or appertaining to the Land, the airspace over the Land, the Improvements or any of the Trust Estate encumbered by this Deed of Trust, or which hereinafter shall in any way belong, relate or be appurtenant thereto, whether now owned or hereafter acquired by Trustor. "ATLANTIC CITY SHOWBOAT" means the Showboat Casino Hotel in Atlantic City, New Jersey. "BANKRUPTCY" means, with respect to any Person, that such Person is or becomes bankrupt or insolvent or: (a) is the subject of any order for relief under any Bankruptcy Law; (b) commences a voluntary proceeding under any Bankruptcy Law; (c) consents to the entry of an order for relief in an involuntary proceeding under any Bankruptcy Law; (d) consents to the appointment of, or taking possession by any Receiver; (e) makes any assignment for the benefit of creditors; (f) is unable or fails, or admits in writing its inability, to pay its debts as such debts become due; (g) is the subject of any involuntary proceeding under any Bankruptcy Law or involuntary appointment of a Receiver, and such involuntary proceeding or appointment is not dismissed and terminated within 90 days; (h) is the subject of any other proceeding or relief similar to any of the foregoing under any law; (i) is the subject of a warrant of attachment, execution, or similar process with respect to such Person or any substantial part of such Person's property, which warrant or similar process remains in effect for sixty days without having been bonded or discharged; or (j) otherwise ceases to do business as a going concern. 1 "BANKRUPTCY CODE" means the United States Bankruptcy Code, 11 U.S.C. 101 et seq. "BANKRUPTCY LAW" means the Bankruptcy Code, and any other state or federal insolvency, reorganization, moratorium or similar law for the relief of debtors. "BENEFICIARY" means NATWEST BANK, N.A., a national banking association, as lender under the Loan Agreement. "BONDHOLDERS" means the holders of the First Mortgage Bonds. "BUSINESS DAY" means any day that is not a Saturday, a Sunday or a day on which banking institutions in the State of Nevada or New York are not required to be open. "COLLATERAL" means the property described in granting clauses (A) through (O). "DEEDS OF TRUST" means collectively (1) that certain Leasehold Mortgage, Assignment of Rents and Security Agreement made by ACSI (as mortgagor) in favor of Beneficiary (as mortgagee), and this Deed of Trust, both dated the date hereof, securing, among other things, the Promissory Note, the ACSI Guaranty. "DISBURSEMENT REQUEST" means a certificate in the form of Exhibit "A" attached hereto and completed as to all information required therein, with all required attachments attached and executed by the president and a vice-president or at least two vice-presidents of Trustor on behalf of Trustor. "ENVIRONMENTAL LAWS" means any and all laws and Legal Requirements relating to environmental matters, pollution, or hazardous substances, including: the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. 9601-9657; the Resource Conservation and Recovery Act of 1976,42 U.S.C. 6901 ET SEQ.; the Hazardous Materials Transportation Act (49 U.S.C. 1801 ET SEQ.); the Nevada Hazardous Materials Act (NRS Chapters 459 et seq.); any other Laws that may form the basis of any claim, action, demand, suit, proceeding, hearing, or notice of violation that is based on or related to the generation, manufacture, processing, distribution, use, existence, treatment, storage, disposal, transport, or handling, or the emission, discharge, release, or threatened release into the environment, of any hazardous substance, or other threat to the environment. "EVENT OF DEFAULT" has the meaning set forth in Section 3.1 hereof. "EXISTING ENCUMBRANCES" means those matters set forth on Schedule B attached hereto and incorporated herein by reference and constituting a prior lien, claim or encumbrance upon the Trust Estate or any other prior lien, claim or encumbrance upon the Trust Estate specifically consented to in writing by Beneficiary. "FF&E" means all furniture, fixtures, equipment, appurtenances and personal property now or in the future contained in, used in connection with, attached to, or otherwise useful or convenient to the use, operation, or occupancy of, or placed on, but unattached to, any part of the Land or Improvements whether or not the same constitutes real property or fixtures in the State of Nevada, including all removable window and floor coverings, all furniture and furnishings, heating, lighting, plumbing, ventilating, air conditioning, refrigerating, incinerating and elevator and escalator plants, cooking facilities, vacuum cleaning systems, public address and communications systems, sprinkler systems and other fire prevention and extinguishing apparatus and materials, motors, machinery, pipes, appliances, equipment, fittings, fixtures, and building materials, together with all venetian blinds, shades, draperies, drapery and curtain rods, brackets, bulbs, cleaning apparatus, mirrors, lamps, ornaments, cooling apparatus and equipment, ranges and ovens, garbage disposals, dishwashers, mantels, and any and all such property which is at any time installed in, affixed to or placed upon the Land or Improvements. "FF&E FINANCING AGREEMENT" shall have the meaning ascribed to that term in Section 1.10(d) hereof. "FIRST MORTGAGE BONDS" means Trustor's 9 1/4 % First Mortgage Bonds due May 1, 2008, issued pursuant to the Indenture, or any notes exchanged therefor as contemplated in the Indenture. "GAMING AUTHORITY" means any agency, authority, board, bureau, commission, department, office or instrumentality of any nature whatsoever of the United States federal or foreign government, any state, province or any city 2 or other political subdivision or otherwise and whether now or hereafter in existence, or any officer or official thereof with authority to regulate any gaming operation (or proposed gaming operation) owned, managed or operated by the Trustor or any of its Subsidiaries, including, without limitation, the Nevada Gaming Commission, The Nevada State Gaming Control Board, the City Council of the City of Las Vegas, and the New Jersey Casino Control Commission. "GAMING CONTROL ACTS" means the laws, regulations and supervision procedures of the Nevada Gaming Control Act and the New Jersey Casino Control Act, as from time to time amended, or any successor provision of law, and the regulations promulgated thereunder and such other laws, regulations and supervision procedures of the United States federal or foreign government, any state, province or any city or other political subdivision or otherwise and whether now or hereafter in existence, or any officer or official thereof with authority to regulate any gaming operation (or proposed gaming operation) owned, managed, or operated by the Trustor or any of its subsidiaries including, without limitation, the Nevada Gaming Commission, the Nevada State Gaming Control Board, the City Council of the City of Las Vegas, and the New Jersey Casino Control Commission. "GAMING PERMITS" means every license, franchise, permit or other authorization on the date of the Indenture or thereafter required to own, lease, operate or otherwise conduct casino gaming at the Las Vegas Showboat and the Atlantic City Showboat, including, without limitation, all such licenses granted under the Gaming Control Acts, the regulations of the Gaming Authorities and other applicable laws. "GOVERNMENTAL AUTHORITY" means any agency, authority, board, bureau. commission, department, office, public entity, or instrumentality of any nature whatsoever of the United States federal or foreign government, any state, province or any city or other political subdivision or otherwise, whether now or hereafter in existence, or any officer or official thereof, including, without limitation, any Gaming Authority. "GUARANTORS" means each of (i) SBOC, OSI and ACSI and (ii) any other Subsidiary that executes a Subsidiary Guaranty in accordance with the provisions of the Loan Agreement, and their respective successors and assigns. "HAZARDOUS MATERIAL" shall mean any material or substance that, whether by its nature or use, is now or hereafter defined as hazardous waste, hazardous substance, pollutant or contaminant under any Environmental Law, or which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and which is now or hereafter regulated under any Environmental Law, or which is or contains petroleum, gasoline, diesel fuel or another petroleum hydrocarbon product. "IBJ" means IBJ Schroder Bank & Trust Company, Trustee under the Indenture. "IMPOSITION" means any taxes, assessments, water rates, sewer rates, maintenance charges, other governmental impositions and other charges now or hereafter levied or assessed or imposed against the Trust Estate or any part thereof. "IMPROVEMENTS" means (1) all the buildings, structures, facilities and improvements of every nature whatsoever now or hereafter situated on the Land or any real property encumbered hereby, and (2) all fixtures, machinery, appliances, goods, building or other materials, equipment, including without limitation all gaming equipment and devices, all bowling balls, bowling shoes, bowling pins, pin-setting and ball-return machines, ball drilling and polishing machines, racks, cases, cabinets, trophies, towels, furniture, furnishings, machinery, equipment and supplies relating to the operation of the bowling center located on the Land, and all machinery, equipment, engines, appliances and fixtures for generating or distributing air, water, heat, electricity, light, fuel or refrigeration, or for ventilating or sanitary purposes, or for the exclusion of vermin or insects, or for the removal of dust, refuse or garbage; all wall-beds, wall-safes, built-in furniture and installations, shelving, lockers, partitions, doorstops, vaults, motors, elevators, dumb-waiters, awnings, window shades, venetian blinds, light fixtures, fire hoses and brackets and boxes for the same, fire sprinklers, alarm, surveillance and security systems, computers, drapes, drapery rods and brackets, mirrors, mantels, screens, linoleum, carpets and carpeting, plumbing, bathtubs, sinks, basins, pipes, faucets, water closets, laundry equipment, washers, dryers, ice-boxes and heating units; all kitchen and restaurant equipment, including but not limited to silverware, dishes, menus, cooking utensils, stoves, refrigerators, ovens, ranges, dishwashers, disposals, water heaters, incinerators, furniture, fixtures and furnishings, communication systems, and equipment; all cocktail lounge supplies, including but not limited to bars, glassware, bottles and tables used in connection with the Land; all chaise lounges, hot tubs, swimming pool heaters and equipment and all other recreational equipment (computerized and otherwise), beauty and barber equipment, and maintenance supplies used in connection with the Land; all specifically designed 3 installations and furnishings, and all furniture, furnishings and tangible personal property of every nature whatsoever now or hereafter owned or leased by Trustor or in which Trustor has any rights or interest and located in or on, or attached to, or used or intended to be used or which are now or may hereafter be appropriated for use on or in connection with the operation of the Land or any real or personal property encumbered hereby or any other Improvements, or in connection with any construction being conducted or which may be conducted thereon, and all extensions, additions, accessions, improvements, betterments, renewals, substitutions, and replacements to any of the foregoing, and all of the right, title and interest of Trustor in and to any such property (subject to any Permitted Liens), which, to the fullest extent permitted by law, shall be conclusively deemed fixtures and improvements and a part of the real property hereby encumbered. "INDEBTEDNESS" means all indebtedness whatsoever of Trustor to Beneficiary. "INDENTURE" means that certain indenture, dated as of May 18, 1993, by and among IBJ, as Trustee, Trustor, as issuer, and ACSI, OSI, and SBOC, as guarantors, as such Indenture is amended or supplemented from time to time in accordance with the terms thereof. "INSOLVENT" means with respect to any person or entity, that such person or entity shall be deemed to be insolvent if he or it is unable to pay his or its debts as they become due and/or if the fair market value of his or its assets does not exceed his or its aggregate liabilities. "INTANGIBLE COLLATERAL" means, subject to the terms and conditions of the Indenture, (a) the rights to use all names and all derivations thereof now or hereafter used by Trustor in connection with the Land or Improvements, including, without limitation, the names "Showboat" and "Showboat Casino" in the State of Nevada, including any variations thereon, together with the goodwill associated therewith, and all names, logos, and designs used by Trustor, or in connection with the Land or in which Trustor has rights, with the exclusive right to use such names, logos and designs wherever they are now or hereafter used in connection with the Las Vegas Showboat, and any and all other trade names, trademarks or service marks, whether or not registered, now or hereafter used in the operation of the Las Vegas Showboat, including, without limitation, any interest as a lessee, licensee or franchisee, and, in each case, together with the goodwill associated therewith; (b) subject to the absolute assignment contained herein, the Rents; (c) any and all books, records, customer lists, concession agreements, supply or service contracts, licenses, permits, governmental approvals (to the extent such licenses, permits and approvals may be pledged under applicable law), signs, goodwill, casino and hotel credit and charge records, supplier lists, checking accounts, safe deposit boxes (excluding the contents of such deposit boxes owned by persons other than Trustor and its subsidiaries), cash, instruments, chattel papers, documents, unearned premiums, deposits, refunds, including but not limited to income tax refunds, prepaid expenses, rebates, tax and insurance escrow and impound accounts, if any, actions and rights in action, and all other claims, including without limitation condemnation awards and insurance proceeds, and all other contract rights and general intangibles resulting from or used in connection with the operation of the Trust Estate and in which Trustor now or hereafter has rights; (d) all of Trustor's documents, instruments, contract rights, and general intangibles including, without limitation, all permits, licenses, franchises and agreements required for the use, occupancy or operation of any Improvements (to the extent such licenses, permits and approvals are not prohibited from being pledged under applicable law); and (e) general intangibles, vacation license resort agreements or other time share license or right to use agreements, including without limitation all rents, issues, profits, income and maintenance fees resulting therefrom, whether any of the foregoing is now owned or hereafter acquired. "INTERCREDITOR AGREEMENT" means, collectively, the Intercreditor Agreements, of even date herewith, entered into between Beneficiary, IBJ, Trustor, and ACSI. "INVENTORY" shall have the meaning set forth in section 9-109(4) of the UCC. "LAND" means the real property situated in the City of Las Vegas, County of Clark, State of Nevada, more specifically described in Schedule A attached hereto and incorporated herein by reference, including any after acquired title thereto. "LAS VEGAS SHOWBOAT" means the Showboat Casino Hotel in Las Vegas, Nevada, as more particularly described in the Prospectus and any other facilities, businesses or enterprises owned or operated by Trustor on the Land. 4 "LAS VEGAS SHOWBOAT EXPANSION" means any addition, improvement, extension or capital repair to the Las Vegas Showboat or related or ancillary facilities. "LEGAL REQUIREMENTS" means all applicable restrictive covenants, applicable zoning and subdivision ordinances and building codes, all applicable health and Environmental Laws and regulations, all applicable gaming laws and regulations, and all other applicable laws, ordinances, rules, regulations, judicial decisions, administrative orders, and other requirements of any Governmental Authority having jurisdiction over Trustor, the Trust Estate and/or any Affiliate of Trustor, in effect either at the time of execution of this Deed of Trust or at any time during the term hereof, including, without limitation, all Environmental Laws and Gaming Control Acts. "LIEN" means with respect to any portion of the Trust Estate, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such portion of the Trust Estate, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "LOAN AGREEMENT" means that certain Loan and Guaranty Agreement between Trustor, Beneficiary, ACSI, SBOC and OSI. "LOAN" means the definition as set forth in the Loan Agreement. "LOAN DOCUMENTS" means the Promissory Note, the ACSI Guaranty, the Loan and Guaranty Agreement and any other Related Document or any other documents evidencing, guaranteeing or securing the Obligations of Trustor to Beneficiary under such document. "MATERIAL SPACE LEASE" means a Space Lease that provides for an annual rent in excess of $100,000 or covers at least ten percent (10%) of the Trust Estate. "NRS" means the Nevada Revised Statutes as in effect from time to time. "OBLIGATIONS" means the payment and performance of each covenant and agreement of Trustor contained in this Deed of Trust and the Loan Documents. "OSI" means Ocean Showboat, Inc., a New Jersey corporation. "OSI GUARANTY" means the Guaranty, contained in the Loan Agreement dated as of the date hereof and made by OSI in favor of Beneficiary. "PERMITTED DISPOSITIONS" means the sale, transfer or other disposition of Collateral not to exceed an aggregate value of $3,000,000.00 per annum. "PERMITTED LIENS" means Liens that are permitted in the Loan Agreement and the Indenture. "PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or any governmental agency or political subdivision thereof. "PROCEEDS" has the meaning assigned to it under the UCC and, in any event, shall include but not be limited to (i) any and all proceeds of any insurance (including, without limitation, property, casualty and title insurance), indemnity, warranty or guaranty payable from time to time with respect to any of the Trust Estate; (ii) any and all proceeds in the form of accounts, security deposits, tax escrows (if any), down payments (to the extent the same may be pledged under applicable law), collections, contract rights, documents, instruments, chattel paper, liens and security instruments, guaranties or general intangibles relating in whole or in part to the Las Vegas Showboat and all rights and remedies of whatever kind or nature Trustor may hold or acquire for the purpose of securing or enforcing any obligation due Trustor thereunder; (iii) any and all payments in any form whatsoever made or due and payable from time to time in connection with any requisition, 5 confiscation, condemnation, seizure or forfeiture of all or any part of the Trust Estate by any Governmental Authority; (iv) subject to the absolute assignment contained herein, the Rents or other benefits arising out of, in connection with or pursuant to any Space Lease of the Trust Estate; and (v) any and all other amounts from time to time paid or payable in connection with any of the Trust Estate; provided, however, that the Trustor is not authorized to dispose of any of the Trust Estate unless such disposition is a Permitted Disposition. "PROMISSORY NOTE" means that certain Revolving Note as same may be amended pursuant to the Loan Agreement, between Borrower and Mortgagee as Lender, both of even date herewith, in the maximum aggregate amount of $25,000,000.00.. "PROSPECTUS" means that certain prospectus, dated as of May 18, 1993, relating to the offering of the First Mortgage Bonds, and all supplements, schedules or other attachments thereto. "PROTECTIVE ADVANCES" shall have the meaning set forth in Section 4.2 herein. "RECEIVER" means, with respect to any Person (including Trustor), any receiver, trustee, custodian, debtor in possession, liquidator, sequestrator, administrator, conservator, or other successor appointed (whether by a court or otherwise) pursuant to any creditor's exercise of remedies against such Person, or pursuant to a Bankruptcy of such Person, or for purposes of reorganization or liquidation, or otherwise for the benefit of such Person's creditors, or under any similar circumstances, or otherwise having similar powers over such Person or its property, whether such Receiver acts on an interim, temporary, or final basis and whether such appointment applies to all or any significant portion of such Person's assets or property, including or not including any of the Trust Estate. "RELATED DOCUMENTS" means, collectively, the OSI Guaranty, the ACSI Guaranty, the SBOC Guaranty, the Deeds of Trust, and any and all pledges, security agreements, guaranties, financing statements, filings, instruments or other agreements or assignments executed by the Trustor or the Guarantors in order to evidence, secure, perfect, notice or guaranty the Loan Documents and the Promissory Note or any guaranty of the foregoing obligations. "RENTS" means all rents, room revenues, income, receipts, issues, profits, revenues and maintenance fees, room, food and beverage revenues, license and concession fees, income, proceeds and other benefits to which Trustor may now or hereafter be entitled from the Land, the Improvements, the Facility Leases or Space Leases or any property encumbered hereby or any business or other activity conducted by Trustor at the Land or the Improvements. "SBOC" means Showboat Operating Company, a Nevada corporation. "SBOC GUARANTY" means the Subsidiary Guaranty issued by SBOC and dated as of the date hereof and made by SBOC in favor of Beneficiary. "SPACE LEASES" means any and all leases, subleases, lettings, licenses, concessions, operating agreements, management agreements, and all other agreements affecting the Trust Estate that Trustor has entered into, taken by assignment, taken subject to, or assumed; or has otherwise become bound by, now or in the future, that give any person or any entity other than Trustee the right to conduct its business on, or otherwise use, operate or occupy, all or any portion of the Land or Improvements and any leases, agreements or arrangements permitting anyone or any entity other than Trustee to enter upon or use any of the Trust Estate to extract or remove natural resources of any kind, together with all amendments, extensions, and renewals of the foregoing entered into in compliance with this Deed of Trust, together with all rental, occupancy, service, maintenance or any other similar agreements pertaining to use or occupation of, or the rendering of services at the Land, the Improvements or any part thereof. "SPACE LESSEE(S)" means any and all tenants, licensees, or other grantees of the Space Leases and any and all guarantors, sureties, endorsers or others having primary or secondary liability with respect to such Space Lease. "SUBSIDIARY GUARANTIES" means, collectively, the OSI Guaranty, the ACSI Guaranty, the SBOC Guaranty and any other guaranties issued pursuant to the Loan Agreement. 6 "TANGIBLE COLLATERAL" means all personal property, goods (other than intangible personal property), equipment, supplies, building and other materials of every nature whatsoever and all other tangible personal property constituting a part or portion of the Las Vegas Showboat and/or used in the operation of the hotel, casino, restaurants, stores, parking facilities, bowling alley and all other commercial operations on the Land or Improvements, including but not limited to communication systems, visual and electronic surveillance systems and transportation systems and not constituting a part of the real property subject to the real property lien of this Deed of Trust and including all property and materials stored therein in which Trustor has an interest and all tools, utensils, food and beverage, liquor, uniforms, linens, housekeeping and maintenance supplies, vehicles, fuel, advertising and promotional material, blueprints, surveys, plans and other documents relating to the Land or Improvements, and all construction materials and all furnishings, fixtures and equipment, including, but not limited to, all bowling balls, bowling shoes, bowling pins, pin-setting and ball return machines, ball drilling and polishing machines, racks, cases, cabinets, trophies, towels, furniture, furnishings, machinery, equipment and supplies relating to the operation of the bowling center located on the Land, to the extent permitted by all applicable Gaming Control Acts, all gaming equipment and devices which are or are to be installed and used in connection with the operation of the Las Vegas Showboat, those items of furniture, fixtures and equipment which are to be purchased or leased by Trustor, machinery and any other item of personal property in which Trustor now or hereafter own or acquire an interest or right, and which are used or useful in the construction, operation, use and occupancy of the Las Vegas Showboat; to the extent permitted by the applicable contract or applicable law, all gaming and financial equipment, computer equipment, calculators, adding machines, gaming tables, video game and slot machines, and any other electronic equipment of every nature used or located on any part of the Land or Improvements, and all present and future right, title and interest of Trustor in and to any casino operator's agreement, license agreement or sublease agreement used in connection with the Land or Improvements; excluding therefrom, however, all Inventory. "365(H) ELECTION" means Trustor's election to treat a Facility Lease as terminated under Sec. 365(h) of the Bankruptcy Code or any similar Bankruptcy Law, or any comparable right provided under any other Bankruptcy Law, together with all rights, remedies and privileges related thereto. "TITLE INSURER" means Nevada Title Company, a Nevada corporation. "TRUST ESTATE" means all of the property described in Granting Clauses (A) through (O) below, inclusive, and each item of property therein described, provided, however, that such term shall not include the property described in Granting Clause (P) below. "TRUSTEE" means Nevada Title Company, a Nevada corporation. "TRUSTOR" means collectively Showboat, Inc., a Nevada corporation and Showboat Operating Company, a Nevada corporation, and includes not only the original Trustor hereunder, but also any successors or assigns of the Trust Estate, or any part thereof, at any time and from time to time, as the case requires. "UCC" means the Uniform Commercial Code in effect in the State of Nevada from time to time, NRS chapters 104 and 104A. Capitalized terms used in this Deed of Trust which are not otherwise defined herein shall have the meaning ascribed to such terms in the Indenture. W I T N E S S E T H: IN CONSIDERATION OF TEN DOLLARS AND OTHER GOOD AND VALUABLE CONSIDERATION; THE RECEIPT AND SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, AND FOR THE PURPOSE OF SECURING an in pari passu first priority Lien in an aggregate amount of $25,000,000.00 plus advances, if any, made by the Trustee or Beneficiary to preserve the Collateral, subject to the terms and conditions set forth in the Intercreditor Agreement, in favor of Beneficiary (1) the due and punctual payment of the indebtedness evidenced by the Promissory Note and Loan Agreement; (2) the performance of each covenant and agreement of Trustor contained in the Loan Agreement herein or in the other Loan Documents; (3) the payment of such additional loans or advances as hereafter may be made to Trustor or its successors or assigns, when evidenced by a promissory note or notes reciting that they are secured by this Deed of Trust; provided, however, that any and all future advances to Trustor made for the improvement, protection or 7 preservation of the Trust Estate, together with interest at the interest rate on the Promissory Notes, shall be automatically secured hereby unless such a note or instrument evidencing such advances specifically recites that it is not intended to be secured hereby and (4) the payment of all sums expended or advanced by Beneficiary under or pursuant to the terms hereof or to protect the security hereof, together with interest thereon as herein provided, Trustor, in consideration of the premises, and for the purposes aforesaid, does hereby GRANT, ASSIGN, BARGAIN, CONVEY, PLEDGE, RELEASE, HYPOTHECATE, WARRANT, AND TRANSFER UNTO TRUSTEE IN TRUST FOR THE BENEFIT OF BENEFICIARY: (A) The Land. (B) TOGETHER WITH the Improvements. (C) TOGETHER WITH all Appurtenant Rights. (D) TOGETHER WITH the Tangible Collateral. (E) TOGETHER WITH the Intangible Collateral. (F) TOGETHER WITH (i) all the estate, right, title and interest of Trustor of, in and to all judgments and decrees, insurance proceeds, awards of damages and settlements hereafter made resulting from condemnation proceedings or the taking of any of the property described in Granting Clauses (A), (B), (C), (D) and (E) hereof or any part thereof under the power of eminent domain, or for any damage (whether caused by such taking or otherwise) to the property described in Granting Clauses (A), (B), (C), (D) and (E) hereof or any part thereof, or to any Appurtenant Rights thereto, and Beneficiary is hereby authorized to collect and receive said awards and proceeds and to give proper receipts and acquittance therefor, and (subject to the terms hereof) to apply the same toward the payment of the Indebtedness and other sums secured hereby, notwithstanding the fact that the amount owing thereon may not then be due and payable; (ii) all proceeds of any sales or other dispositions of the property or rights described in Granting Clauses (A), (B), (C), (D) and (E) hereof or any part thereof whether voluntary or involuntary, provided, however, that the foregoing shall not be deemed to permit such sales, transfers, or other disposition except as specifically permitted herein; and (iii) whether arising from any voluntary or involuntary disposition of the property described in Granting Clauses (A), (B), (C), (D) and (E), all Proceeds, products, replacements, additions, substitutions, renewals and accessions, remainders, reversions and after-acquired interest in, of and to such property. (G) TOGETHER WITH the absolute assignment of any Space Leases or any part thereof that Trustor has entered into, taken by assignment, taken subject to, or assumed, or has otherwise become bound by, now or in the future, together with all of the following (including all "Cash Collateral" within the meaning of the Bankruptcy Code) arising from the Space Leases: (a) Rents (subject, however, to the aforesaid absolute assignment to Beneficiary and the conditional permission hereinafter given to Trustor to collect the Rents), (b) all guaranties, letters of credit, security deposits, collateral, cash deposits, and other credit enhancement documents, arrangements and other measures with respect to the Space Leases, (c) all of Trustor's right, title, and interest under the Space Leases, including the following: (i) the right to receive and collect the Rents from the lessee, sublessee or licensee, or their Successor(s), under any Space Lease(s) and (ii) the right to enforce against any tenants thereunder and otherwise any and all remedies under the Space Leases, including Trustor's right to evict from possession any tenant thereunder or to retain, apply, use, draw upon, pursue, enforce or realize upon any guaranty of any Space Lease; to terminate, modify, or amend the Space Leases; to obtain possession of, use, or occupy, any of the real or personal property subject to the Space Leases; and to enforce or exercise, whether at law or in equity or by any other means, all provisions of the Space Leases and all obligations of the tenants thereunder based upon (A) any breach by such tenant under the applicable Space Lease (including any claim that Trustor may have by reason of a termination, rejection, or disaffirmance of such Space Lease pursuant to any Bankruptcy Law) and (B) the use and occupancy of the premises demised, whether or not pursuant to the applicable Space Lease (including any claim for use and occupancy arising under landlord-tenant law of the State of Nevada or any Bankruptcy Law). Permission is hereby given to Trustor, so long as no Event of Default has occurred and is continuing hereunder, to collect and use the Rents, as they become due and payable, but not in advance thereof. Upon the occurrence of an Event of Default and the expiration of any applicable cure or grace period, the permission hereby given to Trustor to collect the Rents shall automatically terminate, but such permission shall be reinstated upon a cure of such Event of Default. Beneficiary shall have the right, at any time and from time to time, to notify any Space Lessee of the rights of Beneficiary as provided by this section. 8 Notwithstanding anything to the contrary contained herein, the foregoing provisions of this Paragraph (G) shall not constitute an assignment for purposes of security but shall constitute an absolute and present assignment of the Rents to Beneficiary, subject, however, to the conditional license given to Trustor to collect and use the Rents as hereinabove provided; and the existence or exercise of such right of Trustor shall not operate to subordinate this assignment to any subsequent assignment, in whole or in part, by Trustor. (H) TOGETHER WITH all of Trustor's right, title and interest in and to any and all maps, plans, specifications, surveys, studies, tests, reports, data and drawings relating to the development of the Land or the Las Vegas Showboat and the construction of the Improvements, including, without limitation, all marketing plans, feasibility studies, soils tests, design contracts and all contracts and agreements of Trustor relating thereto including, without limitation, architectural, structural, mechanical and engineering plans and specifications, studies, data and drawings prepared for or relating to the development of the Land or the Las Vegas Showboat or the construction, renovation or restoration of any of the Improvements or the extraction of minerals, sand, gravel or other valuable substances from the Land. (I) TOGETHER WITH, to the extent permitted by applicable law, all of Trustor's right, title, and interest in and to any and all licenses, permits, variances, special permits, franchises, certificates, rulings, certifications, validations, exemptions, filings, registrations, authorizations, consents, approvals, waivers, orders, rights and agreements (including options, option rights and contract rights) now or hereafter obtained by Trustor from any Governmental Authority having or claiming jurisdiction over the Land, the FF&E, the Las Vegas Showboat, or any other element of the Trust Estate or providing access thereto, or the operation of any business on, at, or from the Land including, without limitation, any Gaming Permits; provided, that upon an Event of Default hereunder or under the Indenture and the expiration of any applicable cure or grace period, if Beneficiary is not qualified under the Gaming Control Acts to hold such Gaming Permits, then Beneficiary shall designate an appropriately qualified third party to which an assignment of such Gaming Permits can be made in compliance with the Gaming Control Acts. (J) TOGETHER WITH all water stock, water permits and other water rights relating to the Land. (K) TOGETHER WITH all oil and gas and other mineral rights, if any, in or pertaining to the Land and all royalty, leasehold and other rights of Trustor pertaining thereto. (L) TOGETHER WITH any and all monies and other property, real or personal, which may from time to time be subjected to the lien hereof by Trustor or by anyone on its behalf or with its consent, or which may come into the possession or be subject to the control of Trustee or Beneficiary pursuant to this Deed of Trust or any Loan Document, including, without limitation, any Protective Advances under this Deed of Trust; and all of Trustor's right, title, and interest in and to all extensions, improvements, betterments, renewals, substitutes for and replacements of, and all additions, accessions, and appurtenances to, any of the foregoing that Trustor may subsequently acquire or obtain by any means, or construct, assemble, or otherwise place on any of the Trust Estate, and all conversions of any of the foregoing; it being the intention of Trustor that all property hereafter acquired by Trustor and required by any Loan Document or this Deed of Trust to be subject to the lien of this Deed of Trust or intended so to be shall forthwith upon the acquisition thereof by Trustor be subject to the lien of this Deed of Trust as if such property were now owned by Trustor and were specifically described in this Deed of Trust and granted hereby or pursuant hereto, and Trustee and Beneficiary are hereby authorized, subject to Gaming Control Acts, to receive any and all such property as and for additional security for the obligations secured or intended to be secured hereby. Trustor agrees to take any action as may reasonably be necessary to evidence and perfect such liens or security interests, including, without limitation, the execution of any documents reasonably necessary to evidence and perfect such liens or security interests. (M) TOGETHER WITH, to the extent permitted by the Act, any and all Accounts Receivable, royalties, earnings, income, proceeds, products, rents, revenues, reversions, remainders, issues, profits, avails, production payments, and other benefits directly or indirectly derived or otherwise arising from any of the foregoing, all of which are hereby assigned to Beneficiary, who, except as otherwise expressly provided in this Deed of Trust, is authorized to collect and receive the same, to give receipts and acquittances therefor and to apply the same to the Obligations secured hereunder, whether or not then due and payable. (N) TOGETHER WITH Proceeds of the foregoing property described in Granting Clauses (A) through (M). 9 (O) TOGETHER WITH (i) Trustor's rights further to assign, sell, encumber or otherwise transfer or dispose of the property described in Granting Clauses (A) through (N) inclusive, above, for debt or otherwise. (P) EXPRESSLY EXCLUDING, HOWEVER, (i) Inventory; and (ii) FF&E (to the extent that (a) Trustor is permitted to enter into a FF&E Financing Agreement for such FF&E under the Indenture and Loan Agreement and (b) such FF&E Financing Agreement prohibits Beneficiary from maintaining a security interest in the FF&E covered thereby); together with the proceeds of the property described in this Granting Clause (P). Trustor, for itself and its successors and assigns, covenants and agrees to and with Trustee that, at the time or times of the execution of and delivery of these presents or any instrument of further assurance with respect thereto, Trustor has good right, full power and lawful authority to assign, grant, convey, warrant, transfer, bargain or sell its interests in the Trust Estate in the manner and form as aforesaid, and that the Trust Estate is free and clear of all liens and encumbrances whatsoever, except the Existing Encumbrances and Permitted Liens, and Trustor shall warrant and forever defend the above-bargained property in the quiet and peaceable possession of Trustee and its successors and assigns against all and every person or persons lawfully or otherwise claiming or to claim the whole or any part thereof, except for Permitted Liens. Trustor agrees that any greater title to the Trust Estate hereafter acquired by Trustor during the term hereof shall be automatically subject hereto. ARTICLE ONE COVENANTS OF TRUSTOR The Beneficiary has been induced to make the Loan on the basis of the following material covenants, all agreed to by Trustor: 1.1 Performance of Loan Documents. Trustor shall perform, observe and comply with each and every provision hereof, and with each and every provision contained in the Loan Documents and shall promptly pay to Beneficiary, when payment shall become due, the principal with interest thereon and all other sums required to be paid by Trustor under this Deed of Trust and the Loan Documents. 1.2 General Representations, Covenants and Warranties. Trustor or its counsel represents, covenants and warrants that: (a) Showboat, Inc. has good and marketable title to an indefeasible fee estate in the Land, free and clear of all encumbrances except Permitted Liens, and that it has the right to hold, occupy and enjoy its interest in the Trust Estate, and has good right, full power and lawful authority to subject the Trust Estate to the Lien of this Deed of Trust and pledge the same as provided herein and, subject to the Gaming Control Acts, Beneficiary may at all times peaceably and quietly enter upon, hold, occupy and enjoy the entire Trust Estate in accordance with the terms hereof; (b) neither Trustor nor any Affiliate of Trustor is Insolvent and no bankruptcy or insolvency proceedings are pending or contemplated by or, to the best of Trustor's knowledge, against Trustor or any Affiliate of Trustor; (c) all costs arising from construction of any Improvements, the performance of any labor and the purchase of all Tangible Collateral and Improvements have been or shall be paid when due unless same are being contested in good faith and adequately bonded; (d) the Land has frontage on, and direct access for ingress and egress to dedicated street(s); (e) Trustor shall at all times conduct and operate the Trust Estate in a manner so as not to lose the right to conduct gaming activities at the Las Vegas Showboat; (f) no material part of the Trust Estate has been damaged, destroyed, condemned or abandoned; and (g) no part of the Trust Estate is the subject of condemnation proceedings and Trustor has no knowledge of any contemplated or pending condemnation proceeding with respect to any portion of the Trust Estate. 1.3 Compliance with Legal Requirements. Trustor shall promptly, fully, and faithfully comply with all Legal Requirements and shall cause all portions of the Trust Estate and its use and occupancy to fully comply with Legal Requirements at all times, whether or not such compliance requires work or remedial measures that are ordinary or extraordinary, foreseen or unforeseen, structural or nonstructural, or that interfere with the use or enjoyment of the Trust Estate. 1.4 Taxes. Trustor shall pay all Impositions as they become due and payable and shall deliver to Beneficiary promptly upon Beneficiary's request, evidence satisfactory to Beneficiary that the Impositions have been paid or are not delinquent. Trustor shall not suffer to exist, permit or initiate the joint assessment of the real and personal property, or any 10 other procedure whereby the lien of the real property taxes and the lien of the personal property taxes shall be assessed, levied or charged to the Land as a single lien, except as may be required by law. In the event of the passage of any law deducting from the value of real property for the purposes of taxation any lien thereon, or changing in any way the taxation of deeds of trust or obligations secured thereby for state or local purposes, or the manner of collecting such taxes and imposing a tax, either directly or indirectly, on this Deed of Trust or the First Mortgage Bonds, Trustor shall pay all such taxes. 1.5 Insurance. (a) HAZARD INSURANCE REQUIREMENTS AND PROCEEDS. (1) Hazard Insurance. Trustor shall at its sole expense obtain for, deliver to, assign and maintain for the benefit of Beneficiary, during the term of this Deed of Trust, insurance policies insuring the Trust Estate and liability insurance policies, all in accordance with the requirements of Section 4.17 of the Indenture and Par. 5.03 of the Loan Agreement. Trustor shall pay promptly when due any premiums on such insurance policies and on any renewals thereof. The form of such policies and the companies issuing them shall be reasonably acceptable to Beneficiary. All such policies and renewals thereof shall be held by Beneficiary and shall contain a noncontributory standard mortgagee or beneficiary endorsement (Form 438 BFU or its equivalent) making losses payable to Beneficiary as its interest may appear and shall name the Beneficiary as an additional insured. At least thirty (30) days prior to the expiration date of all such policies, renewals thereof satisfactory to Beneficiary shall be delivered to Beneficiary together with receipts evidencing the payment of all premiums on such insurance policies and renewals. In the event of loss, Trustor shall give immediate written notice to Beneficiary and Beneficiary may make proof of loss if not made promptly by Trustor. In the event of the foreclosure of this Deed of Trust or any other transfer of title to the Trust Estate in extinguishment of the indebtedness and other sums secured hereby, all right, title and interest of Beneficiary in and to all insurance policies and renewals thereof then in force shall pass to the purchaser or grantee, upon delivery of written notice to Beneficiary within thirty (30) days following the occurrence of such loss. (2) Payment of Proceeds to Beneficiary. Pursuant to its rights granted hereunder in all proceeds from any insurance policies, Beneficiary is hereby authorized and empowered at its option to adjust or compromise any loss under any insurance policies on the Trust Estate and to collect and receive the proceeds from any such policy or policies. Each insurance company is hereby authorized and directed to make payment for all such losses directly to Beneficiary alone and not to the Trustor and Beneficiary jointly. After deducting from such insurance proceeds any reasonable expenses incurred by Beneficiary in the collection or handling such funds, including reasonable attorneys' fees, Beneficiary shall apply such insurance proceeds as follows: (A) Trustor shall notify Beneficiary, within one (1) year following the event giving rise to a payment under an insurance policy ("Loss"), to inform Beneficiary whether or not Trustor intends to restore the Improvements or any portion thereof and provide an Officers' Certificate (as defined in the Indenture) certifying that such restoration is allowed under Section 4.10(d) of the Indenture. If Trustor notifies Beneficiary that it intends to restore the Improvements or any portion thereof, and such restoration is allowed under the Indenture, then Trustor shall have the right to use the balance of such award or settlement in accordance with the provisions of Section 1 .5(a)(3) hereof to reimburse Trustor or pay for the costs of such rebuilding, reconstruction or repair by Trustor pursuant to this Section 1.5(a)(2)(A). Any proceeds allocable to Improvements which Trustor has elected not to restore shall be applied in accordance with Section 4.5 of the Indenture. Trustor shall not invest or use any insurance proceeds from the Loss of the Improvements to purchase or invest in real estate, real property, or accessions or improvements to real estate or real property, except for the restoration of the Improvements in accordance with this Section 1.5(a). (B) If Trustor fails to notify Beneficiary that it intends to restore the Improvements within said one (1) year period as provided in Section 1.5(a)(2)(A) hereof, or Trustor has elected not to restore the Improvements or any portion thereof, or a Purchase Offer is required under Section 4.10 of the Indenture, or in the event there remain any insurance proceeds following such reconstruction or repair, then in any such event, subject to the Intercreditor Agreement, such award or settlement or amounts then remaining shall be applied in accordance with Section 4.10 of the Indenture. 11 (3) Restoration. Provided that (A) the Indenture does not require a repurchase of the First Deed of Trust Notes and the maturity of the First Deed of Trust Notes has not been accelerated under the Indenture at the time of a Loss, or at the time Trustor seeks the benefit of this paragraph, and (B) Beneficiary reasonably determines that Trustor has the ability (including financial ability) to restore the Improvements or any portion thereof to a condition substantially the same as prior to the Loss, and pay for the complete costs of such restoration (taking into account available insurance proceeds), Beneficiary agrees that Trustor shall have the right to require Beneficiary to apply the insurance proceeds received by Beneficiary under the provisions of Section 1.5(a)(2) on account of such Loss for the purpose of the restoration of the Trust Estate in the following manner and upon satisfaction of the following conditions: If the insurance proceeds resulting from the Loss of the Improvements or any portion thereof are made available to Trustor under the provisions of this Section l.5(a)(3), then upon the occurrence of a Loss, Trustor shall, following its election to restore the Improvements under Section 1.5(a)(2)(A) hereof, commence the restoration of the Improvements to as good and substantially the same condition as such property was prior to such Loss and upon commencement thereof shall diligently prosecute the same to completion. (A) Subject to the terms and conditions of the Intercreditor Agreement, such insurance proceeds shall be paid over to Beneficiary or its designee, as depository for the disbursement thereof as provided herein. In the event such proceeds are to be used to restore the Improvements, such proceeds shall be invested in Investment Grade Securities, as defined in the Indenture, the interest from which shall inure to the benefit of Trustor. Pending disbursement of such proceeds, Trustor hereby grants to Beneficiary a security interest in such Investment Grade Securities and pledges such Investment Grade Securities to Beneficiary as further security for the indebtedness secured hereby. If an Event of Default occurs (and any applicable cure or grace period has expired) prior to the completion of the restoration, Beneficiary at its option shall, during the continuance of such Event of Default, have the right to either apply all or any portion of such Investment Grade Securities toward restoration of the Trust Estate or toward any amounts secured hereby. (B) The manner of disbursement by the depository of such insurance proceeds shall be by written request of Trustor, not more than once per week, and only if (l) said depository has not received any notice from Beneficiary or Trustee that an Event of Default has occurred hereunder or under the Indenture or Loan Agreement and (2) the depository shall have received a commitment from Title Insurer, attached to the Disbursement Request, evidencing the Title Insurer's unconditional commitment to issue an endorsement in the form of a 122 CLTA Endorsement insuring the continuing priority of the lien of this Deed of Trust as security for each advance of funds from the insurance proceeds. Trustor covenants and agrees (a) to comply with all material covenants and conditions set forth in the Indenture and which are incorporated herein by reference to the extent such provisions are applicable to the restoration of the Improvements, or any portion thereof and (b) to cause each Disbursement Request to be true, correct and complete. (C) If IBJ and Beneficiary reasonably determine that the amount of the insurance proceeds available for the restoration work to be completed under Section 1.5(a)(2)(A) hereunder shall be insufficient for the performance and completion of such work, Trustor covenants and agrees, as a condition precedent to any disbursement of insurance proceeds to deliver to Beneficiary an amount, which, together with the insurance proceeds, shall be sufficient to pay the total amount necessary or reasonably required to restore the Trust Estate as herein provided, and which amounts shall be disbursed in accordance with subsection (iii) of this section. (D) Without limiting the generality of the foregoing provisions, the restoration work and the performance thereof shall be subject to and performed in accordance with each of the following provisions: (1) such work and the performance thereof shall be conducted in a first-class, workmanlike manner, shall not permanently weaken nor impair the structural strength of any existing Improvements, nor change the character thereof or the purpose for which the same may be used, nor lessen the value of the Trust Estate; (2) before the commencement of any such work, the plans and specifications (the "Plans") therefor shall be filed with and approved by all Governmental Authorities having jurisdiction and all necessary licenses, permits and/or authorizations from all Governmental Authorities shall have been obtained, and all such work shall be done subject to and in accordance with all applicable Legal Requirements; (3) before commencing any such work, Trustor shall have delivered to Beneficiary the Plans and a line item budget setting forth with reasonable particularity the cost of completing such work together with a certificate in a form, and from a licensed architect, reasonably satisfactory to Beneficiary certifying (a) that the execution of the work described in the Plans will substantially restore the Trust Estate and 12 (b) that the budget constitutes a reasonable appreciation of the cost of restoring the Trust Estate in accordance with the Plans; and (4) before commencing any such work, should Beneficiary so request, Trustor shall, at Trustor's expense, give to Beneficiary surety company labor and material, payment and performance bonds in a company or companies and in form reasonably satisfactory to Beneficiary (or other security guaranteeing performance satisfactory to Beneficiary) in an aggregate amount equal to one hundred twenty percent (120%) of the estimated cost of such work, guaranteeing the completion of such work, free and clear of all liens, encumbrances, claims, chattel mortgages, conditional bills of sale and security agreements; provided, however, that such bonds or other security shall not be required from contractors which, in Beneficiary's reasonable judgment do not need to post such bonds or provide such security. Notwithstanding the foregoing, to the extent that the restoration work is contracted for under fixed-price contracts, such surety company labor and material payment and performance bonds (or other security guaranteeing performance satisfactory to Beneficiary) may be equal to one hundred ten percent (110%) of the amount of such fixed price contracts. (b) Insurance Escrow. In order to secure the performance and discharge of the Trustor's obligations under this Section 1.5, but not in lieu of such obligations, Trustor shall, upon a failure to pay or provide such insurance at the times and in the manner required herein, pay over to Beneficiary an amount equal to one-twelfth (1/12th) of the next maturing annual insurance premiums for each month that has elapsed since the last date to which such premiums were paid; and Trustor shall, in addition, pay over to Beneficiary, on the first day of each month, sufficient funds (as estimated from time to time by Beneficiary in its sole discretion) to permit Beneficiary to pay said premiums when due. Such deposits shall not be, nor be deemed to be, trust funds but may be commingled with the general funds of Beneficiary, and no interest shall be payable in respect thereof except as required by law. Upon demand by Beneficiary, Trustor shall deliver to Beneficiary such additional monies as are necessary to make up any deficiencies in the amounts necessary to enable Beneficiary to pay such premiums when due. (c) Compliance with Insurance Policies. Trustor shall not violate or permit to be violated any of the conditions or provisions of any policy of insurance required by the Loan Agreement, Indenture, or this Deed of Trust and Trustor shall so perform and satisfy the requirements of the companies writing such policies that, at all times, companies of good standing reasonably satisfactory to Beneficiary shall be willing to write and/or continue such insurance. Trustor further covenants to promptly send to Beneficiary all notices relating to any violation of such policies or otherwise affecting Trustor's insurance coverage or ability to obtain and maintain such insurance coverage. 1.6 Condemnation. Pursuant to its rights in condemnation awards and proceeds, IBJ and Beneficiary shall be entitled to the receipt of all compensation awards, damages, claims, rights of action and proceeds of, or on account of, any damage or taking through condemnation and is hereby authorized, at its option, to commence, appear in and prosecute in its own or Trustor's names any action or proceeding relating to any condemnation and to settle or compromise any claim in connection therewith, and Trustor hereby appoints Beneficiary as their attorney-in-fact to take any action in Trustor's names pursuant to Beneficiary's rights hereunder. Immediately upon obtaining knowledge of the institution of any proceedings for the condemnation of the Trust Estate or any portion thereof, Trustor shall notify Trustee and Beneficiary of the pendency of such proceedings. Trustor from time to time shall execute and deliver to Beneficiary all instruments requested by it to permit such participation provided, however, that such instruments shall be deemed as supplemental to the foregoing grant of permission to Trustee and Beneficiary, and unless otherwise required, the foregoing permission shall, without more, be deemed sufficient to permit Trustee and/or Beneficiary to participate in such proceedings on behalf of Trustor. All such compensation awards, damages, claims, rights of action and proceeds, and any other payments or relief, and the right thereto, are included in the Trust Estate, and Beneficiary, after deducting therefrom all its expenses, including reasonable attorneys fees, shall apply such proceeds as follows: (a) In the event that any Land or Improvements are condemned (whether by one or successive condemnation proceedings), proceeds of such condemnation shall be applied in accordance with the provisions of Section 4.10 of the Indenture. (b) If such condemnation affects Improvements or any Land upon which Improvements are located (other than a condemnation of all of the Trust Estate (discussed in Section 1.6(c) hereinbelow), Trustor shall notify Beneficiary within one (1) year following the conclusion of such condemnation proceeding whether or not Trustor intends to (i) restore the Improvements or replace the Improvements with substantially similar improvements, (ii) replace the Improvements with other improvements which are not substantially similar to the Improvements lost or damaged through condemnation, or (iii) not restore the Improvements. In the event that Trustor makes an election pursuant to 1.6(b)(i) or 13 (ii) hereinabove, Trustor shall cause such restoration to be completed substantially in accordance with the provisions of Section 1.5(a)(3) hereof. In the event Trustor makes an election pursuant to l.6(b)(ii) above, then, in addition to any other obligations of Trustor hereunder, Trustor shall deliver to Beneficiary an MAI appraisal performed by an MAI appraiser selected by Trustor and reasonably satisfactory to IBJ and Beneficiary showing that the value of the Trust Estate upon completion of such restoration shall be in an amount not less than 100% of the indebtedness secured by this Deed of Trust (calculated as if Trustor had been entitled to, and had drawn down the entire undrawn amount of any further advances Trustor may be entitled to receive from Beneficiary) and any indebtedness secured by a Permitted Lien which is secured on a pari passu basis with the lien hereof. In the event that there shall remain any balance of such award after the payment of settlement costs and the payment of costs of demolition, repair, restoration and replacement under 1.6(b)(i) or (ii) above, any balance shall be retained by Trustor. (c) In the event that (i) the Improvements are not so rebuilt, reconstructed or substituted with other improvements, or repaired in accordance with Section 1.6(b) hereof, (ii) Trustor fails to notify Beneficiary within said one (1) year period as provided in Section 1.6(b) hereof or elects under 1 .6(b)(iii) hereof not to restore, repair, replace or substitute such Improvements or (iii) all or substantially all of the Trust Estate is condemned, then such award or settlement shall be applied in accordance with the provisions of Section 4.10 of the Indenture. 1.7 Care of Trust Estate. (a) Trustor shall preserve and maintain the Trust Estate in good condition and repair. Trustor shall not permit, commit or suffer to exist any waste, impairment or deterioration of the Trust Estate or of any part thereof that in any manner materially impairs Beneficiary's security hereunder and shall not take any action which will increase the risk of fire or other hazard to the Trust Estate or to any part thereof. (b) Except for Permitted Dispositions, no part of the Improvements shall be removed, demolished or materially altered, without the prior written consent of Beneficiary, which consent shall not be unreasonably withheld. Trustor shall have the right, without such consent, to remove and dispose of free from the lien of this Deed of Trust any part of the Improvements as from time to time may become worn out or obsolete, provided that either (i) such removal or disposition does not materially adversely affect the value of the Trust Estate or (ii) prior to or promptly following such removal, any such property shall be replaced with other property of substantially equal utility and of a value at least substantially equal to that of the replaced property when first acquired and free from any security interest of any other person (subject to Permitted Liens), and by such removal and replacement Trustor shall be deemed to have subjected such replacement property to the lien of this Deed of Trust. 1.8 Environmental Laws. (a) Trustor shall comply with all Environmental Laws. If Trustor fails to do so, then Beneficiary may cause the Trust Estate to so comply and Trustor shall indemnify Beneficiary with respect to any expenditures that Beneficiary reasonably incurs in doing so. This shall not limit any other rights or remedies available to Beneficiary. (b) Trustor shall have 90 days to cure any lien imposed on any portion of the Trust Estate pursuant to any Environmental Laws or such greater period of time as permitted by the Governmental Authority which has imposed the lien. (c) Trustor shall notify Beneficiary immediately of Trustor's discovery of (i) any contamination of any portion of the Trust Estate which may require remediation; or (ii) any past or present violation of any Environmental Law on any portion of the Trust Estate. (d) Turstor will defend, indemnify, and hold harmless Beneficiary, its employees, agents, officers, and directors, from and against any and all claims, demands, penalties, causes of action, fines, liabilities, settlements, damages, costs, or expenses of whatever kind or nature, known or unknown, foreseen or unforeseen, contingent or otherwise (including, without limitation, counsel and consultant fees and expenses, investigation and laboratory fees and expenses, court costs, and litigation expenses) arising out of, or in any way related to, (i) any breach by the Trustor of any of the provisions set forth above, (ii) the presence, disposal, spillage, discharge, emission, leakage, release, or threatened release of any Hazardous Material which is at, in, on, under, about, from or affecting the Trust Estate, including, without limitation, any damage or injury resulting from any such Hazardous Material to or affecting the Trust Estate or the soil, water, air, vegetation, buildings, 14 personal property, persons or animals located on the Trust Estate or on any other property or otherwise, (iii) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to any such Hazardous Material, (iv) any lawsuit brought or threatened, settlement reached, or order or directive of or by any governmental authority relating to such Hazardous Material, or (v) any violation of any Environmental Law. 1.9 Leases. (a) Trustor represents and warrants that: (i) Trustor has delivered to Beneficiary true, correct and complete copies of all Material Space Leases, including all amendments and modifications, written or oral existing as of the Issue date; (ii) Trustor has not executed or entered into any modifications or amendments of the Material Space Leases, either orally or in writing, other than written amendments that have been disclosed to Beneficiary in writing; (iii) no default now exists under any Space Lease; (iv) no event has occurred that, with the giving of notice or the passage of time or both, would constitute such a default or would entitle Trustor or any other party under such Space Lease to cancel the same or otherwise avoid its obligations; (v) Trustor has not accepted prepayments of installments of Rent under any Space Leases, except for that certain Lease Agreement among SBOC and Mordechai Yerushalamin dated July 8, 1992, more than one month in advance of the date when the same are due, except for security deposits not in excess of one month's Rent; (vi) except for the Existing Encumbrances and this assignment Trustor has not executed any assignment or pledge of any of the Existing Encumbrances, Space Leases, the Rents, or of Trustor's right, title and interest in the same; and (vii) this Deed of Trust conforms and complies with all Space Leases, does not constitute a violation or default under any Space Lease, and is and shall at all times constitute a valid lien (subject only to Permitted Liens) on Trustor's interests in the Space Leases. (b) Trustor shall not enter into any new Space Leases or any modifications or amendments of existing Space Leases in the future other than written, bona fide amendments or modifications entered into in arms-length transactions. 1.10 Further Encumbrance, Sale or Other Disposition of Collateral. (a) Trustor covenants that at all times prior to the discharge of the Promissory Note or Loan Documents, except for Permitted Liens and Permitted Dispositions, Trustor shall not, without the consent of Beneficiary, make nor suffer to exist, nor enter into any agreement for, any sale, assignment, exchange, mortgage, transfer, Lien, hypothecation or encumbrance of all or any part of the Trust Estate, including, without limitation, the Rents. As used herein, "transfer" includes the actual transfer or other disposition, whether voluntary or involuntary, by law, or otherwise, except those transfers specifically permitted herein, provided, however, that "transfer" shall not include the granting of utility or other beneficial easements with respect to the Trust Estate which have been granted by Trustor and are reasonably necessary to the construction, maintenance or operation of the Las Vegas Showboat. (b) Any Permitted Lien described in the definition of "Permitted Liens" set forth in Section 1.01 of the Indenture and 1 of the Loan Agreement which is junior to the lien of the Loan Documents (a "Subordinate Deed of Trust") shall be permitted hereunder so long as there shall have been delivered to Beneficiary, not less than thirty (30) days prior to the date thereof, a copy thereof which shall contain express covenants in form and substance reasonably satisfactory to Beneficiary to the effect that: (i) the Subordinate Deed of Trust is in all respects subject and subordinate to this Deed of Trust; (ii) if any action or proceeding shall be brought to foreclose the Subordinate Deed of Trust (regardless of whether 15 the same is a judicial proceeding or pursuant to a power of sale contained therein), no tenant of any portion of the Trust Estate shall be named as a party defendant nor shall any action be taken with respect to the Trust Estate which would terminate any occupancy or tenancy of the Trust Estate, or any portion thereof, without the consent of Beneficiary; (iii) any Rents, if collected through a receiver or by the holder of the Subordinate Deed of Trust, shall be applied first to the obligations secured by this Deed of Trust, including principal and interest due and owing on or to become due and owing on the First Mortgage Bonds, and then to the payment of maintenance expenses, operating charges, taxes, assessments, and disbursements incurred in connection with the ownership, operation, and maintenance of the Trust Estate; and (iv) if any action or proceeding shall be brought to foreclose the Subordinate Deed of Trust, prompt notice of the commencement thereof shall be given to Beneficiary. (c) Trustor agrees that in the event the ownership of the Trust Estate or any part thereof becomes vested in a person other than Trustor, Beneficiary may, without notice to Trustor, deal in any way with such successor or successors in interest with reference to this Deed of Trust, the First Mortgage Bonds, the Promissory Note, and other Obligations hereby secured without in any way vitiating or discharging Trustor's or any Guarantor's, surety's or endorser's liability hereunder or upon the obligations hereby secured. No sale of the Trust Estate and no forbearance to any person with respect to this Deed of Trust and no extension to any person of the time for payment of the First Mortgage Bonds, and other sums hereby secured given by Beneficiary shall operate to release, discharge, modify, change or affect the original liability of Trustor, or such Guarantor, surety or endorser either in whole or in part. (d) This Deed of Trust may be subordinated to the liens of any FF&E Financing Agreements (as hereinafter defined in this Section 1.10(d)) and any future or further advances made thereunder and to any modifications, renewals or extensions thereof to which the lien of this Deed of Trust attaches. Trustor covenants and agrees to comply with all of the terms and conditions set forth in any FF&E Financing Agreement. If Trustor shall fail to make any payment of principal of or pursuant to any FF&E Financing Agreement on its part to be performed or observed, except where Trustor is contesting such payment in good faith, then Beneficiary may make such payment of the principal of or interest on the sums secured by such security interest or may make any payment in order to perform or observe any other term, covenant, condition or agreement of any FF&E Financing Agreement on Trustor's part to be performed or observed and any and all sums so expended by Beneficiary or Trustee shall be secured by this Deed of Trust and shall be repaid by Trustor upon demand, together with interest thereon at the interest rate on the First Mortgage Bonds from the date of advance. In furtherance of such subordination, Beneficiary shall execute, acknowledge and deliver to Trustor, at Trustor's expense, any and all such evidence and document the subordination of this Deed of Trust in accordance with the foregoing provisions of this Section 1.10(d). As used herein, "FF&E Financing Agreement" shall mean any financing (i) as to which the lender holds a security interest in only the assets purchased by such financing for the payment of principal and interest, (ii) which is permitted by the Indenture to be incurred and (iii) the proceeds of which are used to acquire or lease the FF&E subject to such security interest. 1.11 Partial Releases of Trust Estate. Trustor may from time to time (i) transfer a portion of the Trust Estate (including any temporary taking) to any person legally empowered to exercise the power of eminent domain, (ii) make a Permitted Disposition or (iii) grant utility and other easements reasonably necessary for the construction and operation of the Las Vegas Showboat, which grant or transfer is for the benefit of the Trust Estate. In each such case, Beneficiary shall execute and deliver any instruments necessary or appropriate to effectuate or confirm any such transfer or grant, free from the lien of this Deed of Trust, provided. however, that Beneficiary shall execute a lien release or subordination agreement, as appropriate, for matters described in clauses (i) and (iii) above only if Beneficiary and Trustee shall have received the following: (a) A written request of Trustor, dated as of the date of such transfer, grant or release and signed by an authorized officer of Trustor, requesting Beneficiary and Trustee to execute one or more described instruments, and certifying that (i) no Event of Default hereunder, and no event which with notice or lapse of time or both would constitute such Event of Default, has occurred and is continuing and that the conditions of this Section 1.11 have been fulfilled, (ii) the transfer, grant or release is not materially adverse to the proper conduct of the business of Trustor on the Land, (iii) in the case of a transfer of property whose value is greater than $1,000,000 to a person legally empowered to exercise the power of eminent domain, the consideration being paid for the portion of the Trust Estate being transferred, and that such consideration is not less than the fair market value of such portion, and in the case of a grant or release of easements or other rights, the consideration, if any, being paid for such grant or release, (iv) in the case of a transfer to a person legally empowered to exercise the power of eminent domain, that such transfer is being made in anticipation that such portion would 16 otherwise be taken under the power of eminent domain, and (v) that such transfer, grant or release does not materially impair the use of the Trust Estate for the purposes for which it is then held by Trustor; (b) A counterpart of the instrument pursuant to which such transfer, grant or release is to be made, and each instrument which Beneficiary or Trustee is requested to execute in order to effectuate or confirm such transfer, grant or release; (c) In the case of a transfer to a person legally empowered to exercise the power of eminent domain, which transfer involves property whose value is greater than $6,000,000, an opinion of counsel to Trustor to the effect that the assignee or grantee of the portion of the Trust Estate being transferred is legally empowered to take such portion under the power of eminent domain; and (d) Such other instruments, certificates (including evidence of authority) and legal opinions as Beneficiary or Trustee may reasonably request. Any consideration received for a transfer to any person empowered to exercise the right of eminent domain shall be subject to Section 1.6 hereof. 1.12 Future Advances. All funds advanced in the reasonable exercise of Beneficiary's judgment that the same are needed to protect its security hereunder are deemed to be obligatory advances and are to be added to the total indebtedness secured by this Deed of Trust and such indebtedness shall be increased accordingly. All sums so advanced shall be secured by this Deed of Trust with the same priority of Lien as the security for the Obligations secured hereunder. 1.13 Further Assurances. (a) At its sole cost and without expense to Trustee or Beneficiary, Trustor shall do, execute, acknowledge and deliver any and all such further acts, deeds, conveyances, notices, requests for notices, financing statements, continuation statements, certificates, assignments, notices of assignments, agreements, instruments and further assurances, and shall mark any chattel paper, deliver any chattel paper or instruments to Beneficiary and take any other actions that are reasonably necessary, prudent, or requested by Beneficiary or Trustee to perfect or continue the perfection and first priority in pari passu of Beneficiary's security interest in the Trust Estate, to protect the Collateral against the rights, claims, or interests of third persons other than holders of Permitted Liens or to effect the purposes of this Deed of Trust, including the security agreement and the absolute assignment of Rents contained herein, or for the filing. registering or recording thereof. (b) Trustor shall forthwith upon the execution and delivery of this Deed of Trust, and thereafter from time to time, cause this Deed of Trust and each instrument of further assurance to be filed, indexed, registered, recorded, given or delivered in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the lien hereof upon, and the title of Trustee and/or Beneficiary to, the Trust Estate. 1.14 Security Agreement and Financing Statements. Trustor (as debtor) hereby grants to Beneficiary (as creditor and secured party) a present and future security interest in all Tangible Collateral, Intangible Collateral, FF&E (to the extent Beneficiary is permitted, in each applicable FF&E Financing Agreement, to maintain a security interest therein). Improvements, all other personal property now or hereafter owned or leased by Trustor or in which Trustor has or will have any interest, to the extent that such property constitutes a part of the Trust Estate (whether or not such items are stored on the premises or elsewhere). Proceeds of the foregoing comprising a portion of the Trust Estate and all proceeds of insurance policies and consideration awards arising therefrom and all proceeds, products, substitutions, and accessions therefor and thereto, subject to Beneficiary's rights to treat such property as real property as herein provided (collectively, the "Personal Property"). Trustor shall execute any and all documents and writings. including without limitation financing statements pursuant to the UCC. as may be reasonably necessary or prudent to preserve and maintain the priority of the security interest granted hereby on property which may be deemed subject to the foregoing security agreement or as Beneficiary may reasonably request, and shall pay to Beneficiary on demand any reasonable expenses incurred by Beneficiary in connection with the preparation, execution and filing of any such documents. Trustor hereby authorizes and empowers Beneficiary to execute and file, on Trustor's behalf, all financing statements and refiling and continuations thereof as Beneficiary deems reasonably necessary or advisable to create, preserve and protect said security interest. This Deed of Trust constitutes both a real property deed of trust and a "security agreement," within the meaning of the UCC, and the Trust Estate includes both 17 real and personal property and all other rights and interests, whether tangible or intangible in nature, of Trustor in the Trust Estate. Trustor by executing and delivering this Deed of Trust has granted to Beneficiary, as security of the Obligations, a security interest in the Trust Estate. (a) FIXTURE FILING. Without in any way limiting the generality of the immediately preceding paragraph or of the definition of the Trust Estate, this Deed of Trust constitutes a fixture filing under Section 9-402 of the UCC (NRS 104.9402). For such purposes, (i) the "debtor" is Trustor and its address is the address given for it in the initial paragraph of this Deed of Trust; (ii) the "secured party" is the Beneficiary and its address for the purpose of obtaining information is the address given for it in the initial paragraph of this Deed of Trust; (iii) the real estate to which the fixtures are or are to become attached is Trustor's interest in the land; and (iv) the record owner of such real estate is Showboat, Inc. (b) REMEDIES. This Deed of Trust shall be deemed a security agreement as defined in the UCC and the remedies for any violation of the covenants, terms and conditions of the agreements herein contained shall include any or all of (i) those prescribed herein, and (ii) those available under applicable law, and (iii) those available under the UCC, all at Beneficiary's sole election. In addition, a photographic or other reproduction of this Deed of Trust shall be sufficient as a financing statement for filing wherever filing may be necessary to perfect or continue the security interest granted herein. (c) DEROGATION OF REAL PROPERTY. It is the intention of the parties that the filing of a financing statement in the records normally having to do with personal property shall never be construed as in anyway derogating from or impairing the express declaration and intention of the parties hereto as hereinabove stated that everything used in connection with the production of income from the Trust Estate and/or adapted for use therein and/or which is described or reflected in this Deed of Trust is, and at all times and for all purposes and in all proceedings both legal or equitable, shall be regarded as part of the real property encumbered by this Deed of Trust irrespective of whether (i) any such item is physically attached to the Improvements, (ii) serial numbers are used for the better identification of certain equipment items capable of being thus identified in a recital contained herein or in any list filed with Beneficiary, or (iii) any such item is referred to or reflected in any such financing statement so filed at any time. It is the intention of the parties that the mention in any such financing statement of (1) rights in or to the proceeds of any fire and/or hazard insurance policy, or (2) any award in eminent domain proceedings for a taking or for loss of value, or (3) Trustor's interest as lessors in any present or future Space Lease or rights to Rents, shall never be construed as in anyway altering any of the rights of Beneficiary as determined by this Deed of Trust or impugning the priority of Beneficiary's real property lien granted hereby or by any other recorded document, but such mention in the financing statement is declared to be for the protection of Beneficiary in the event any court or judge shall at any time hold with respect to the matters set forth in the foregoing clauses (1), (2) and (3) that notice of Beneficiary's priority of interest to be effective against a particular class of persons, including but not limited to, the federal government and any subdivisions or entity of the federal government, must be filed in the UCC records. (d) PRIORITY; PERMITTED FINANCING OF TANGIBLE COLLATERAL. Except as provided in Section 1.10(d) hereof, all Personal Property of any nature whatsoever, which is subject to the provisions of this security agreement, shall be purchased or obtained by Trustor in its name and free and clear of any lien or encumbrance, except for Existing Encumbrances and Permitted Liens and the lien hereof, for use only in connection with the business and operation of the Las Vegas Showboat, and shall be and at all times remain free and clear of any lease or similar arrangement, chattel financing, installment sale agreement, security agreement and any encumbrance of like kind, so that Beneficiary's security interest shall attach to and vest in Trustor for the benefit of Beneficiary, with the priority herein specified, immediately upon the installation or use of the Personal Property at the Land and Trustor warrants and represents that Beneficiary's security interest in the Personal Property is a validly attached and binding security interest, properly perfected and prior to all other security interests therein except as otherwise permitted in this Agreement. (e) PRESERVATION OF CONTRACTUAL RIGHTS OF COLLATERAL. Trustor shall, prior to delinquency, default, or forfeiture, perform all obligations and satisfy all material conditions required on its part to be satisfied to preserve its rights and privileges under any contract, lease, license, permit, or other authorization (i) under which it holds any Tangible Collateral or (ii) which constitutes part of the Intangible Collateral except where Trustor is contesting such obligations in good faith. (f) REMOVAL OF COLLATERAL. Except as otherwise permitted herein, none of the Tangible Collateral shall be removed from the Trust Estate without Beneficiary's prior written consent, and except damaged or obsolete Tangible Collateral which is either no longer usable or which is removed temporarily for repair or improvement or removed for replacement on the Trust Estate with Tangible Collateral of similar function. 18 (g) CHANGE OF NAME. Trustor shall not change its corporate or business name, or do business within the State of Nevada under any name other than such name, or any trade name(s) other than those as to which Trustor gives prior written notice to Beneficiary of its intent to use such trade names, or any other business names (if any) specified in the financing statements delivered to Beneficiary for filing in connection with the execution hereof, without providing Beneficiary with the additional financing statement(s) and any other similar documents deemed reasonably necessary by Beneficiary to assure that its security interest remains perfected and of undiminished priority in all such Personal Property notwithstanding such name change. 1.15 Assignment of Rents. The assignment of Leases and Rents set out above in Granting Clause (G) shall constitute an absolute and present assignment to Beneficiary, subject to the license herein given to Trustor to collect the Rents, and shall be fully operative without any further action on the part of any party, and specifically Beneficiary shall be entitled upon the occurrence of an Event of Default hereunder, and the expiration of any applicable cure or grace period, to all Rents, whether or not Beneficiary takes possession of the Trust Estate, or any portion thereof. The absolute assignment contained in Granting Clause (G) shall not be deemed to impose upon Beneficiary any of the obligations or duties of Trustor provided in any such Space Lease (including, without limitation, any liability under the covenant of quiet enjoyment contained in any lease in the event that any lessee shall have been joined as a party defendant in any action to foreclose this Deed of Trust and shall have been barred and foreclosed thereby of all right, title and interest and equity of redemption in the Trust Estate or any part thereof). 1.16 Expenses. (a) Trustor shall pay when due and payable all costs, including without limitation, those reasonable appraisal fees, recording fees, taxes, brokerage fees and commissions, abstract fees, title policy fees, escrow fees, attorneys' and paralegal fees, travel expenses, fees for inspecting architect(s) and engineer(s) and all other costs and expenses of every character which have been incurred or which may hereafter be incurred by Beneficiary or any assignee of Beneficiary in connection with the preparation and execution of loan documents, amendments thereto or instruments, agreements or documents of further assurance, the funding of the loan secured hereby, and the enforcement of any Loan Document; and (b) Trustor shall, upon demand by Beneficiary, reimburse Beneficiary or any assignee of Beneficiary for all such reasonable expenses which have been incurred; and (c) Trustor shall indemnify Beneficiary with respect to any transaction or matter in any way connected with any portion of the Trust Estate, this Deed of Trust, including any occurrence at, in, on, upon or about the Trust Estate (including any personal injury, loss of life, or property damage), or Trustor's use, occupancy, or operation of the Trust Estate, or the filing or enforcement of any mechanic's lien, or otherwise caused in whole or in part by any act, omission or negligence occurring on or at the Trust Estate, including failure to comply with any Legal Requirement or with any requirement of this Deed of Trust that applies to Trustor, or any Person's violation of any environmental law or any contamination of any portion of the Trust Estate. If Beneficiary is a party to any litigation as to which either Trustor is required to indemnify Beneficiary (or is made a defendant in any action of any kind against Trustor or relating directly or indirectly to any portion of the Trust Estate) then, at Beneficiary's option, Trustor shall undertake Beneficiary's defense, using counsel satisfactory to Beneficiary (and any settlement shall be subject to Beneficiary's consent), and in any case shall indemnify Beneficiary against such litigation. Trustor shall pay all reasonable costs and expenses, including reasonable legal costs, that Beneficiary pays or incurs in connection with any such litigation. Any amount payable under any indemnity in this Deed of Trust shall be a demand obligation, shall be added to, and become a part of, the secured obligations under this Deed of Trust, shall be secured by this Deed of Trust, and shall bear interest at the default interest rate on the Promissory Note. Such indemnity shall survive any release of this Deed of Trust and any Foreclosure. 1.17 Beneficiary's Cure of Trustor's Default. If Trustor defaults in the payment of any tax, assessment, lien, encumbrance or other Imposition, in its obligation to furnish insurance hereunder, or in the performance or observance of any other covenant, condition or term of this Deed of Trust or any Loan Document (including any obligation relating to Trustor's performance under any Facility Lease), Beneficiary may, but is not obligated to, to preserve its interest in the Trust Estate, perform or observe the same, and all payments made (whether such payments are regular or accelerated payments) and reasonable costs and expenses incurred or paid by Beneficiary in connection therewith shall become due and payable immediately. The amounts so incurred or paid by Beneficiary, together with interest thereon at the default interest rate on the Promissory Note from the date incurred until paid by Trustor, shall be added to the indebtedness and secured by the lien of this Deed of Trust. Beneficiary is hereby empowered to enter and to authorize others to enter upon the Land or any 19 part thereof for the purpose of performing or observing any such defaulted covenant, condition or term, without thereby becoming liable to Trustor or any person in possession holding under Trustor, provided, however, such entry upon the Land shall be done in such manner so as not to disrupt the Trustor's business conducted thereon. No exercise of any rights under this Section by Beneficiary shall cure or waive any Event of Default or notice of default hereunder or invalidate any act done pursuant hereto or to any such notice, but shall be cumulative of all other rights and remedies. 1.18 Use of Land. Trustor covenants that the Trust Estate shall be used and operated in a manner consistent with the description of the Las Vegas Showboat in the Prospectus open during such days and hours as are customarily observed by casino- hotels located in Las Vegas, Nevada. 1.19 Material Space Leases. Trustor shall not enter into any Material Space Lease without first obtaining Beneficiary's consent in writing, which consent shall not be unreasonably withheld, as to (i) such Material Space Lease and (ii) the identity of the Space Lessee thereunder. 1.20 Compliance with Permitted Lien Agreements. Trustor or any Affiliate of Trustor shall comply with each and every material obligation contained in any agreement pertaining to a material Permitted Lien. 1.21 Defense of Actions. Trustor shall appear in and defend any action or proceeding affecting or purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee, and shall pay all reasonable costs and expenses, including cost of title search and insurance or other evidence of title, preparation of survey, and reasonable attorneys' fees in any such action or proceeding in which Beneficiary or Trustee may appear or may be joined as a party and in any suit brought by Beneficiary based upon or in connection with this Deed of Trust or any Loan Document. Nothing contained in this section shall, however, limit the right of Beneficiary to appear in such action or proceeding with counsel of its own choice, either on its own behalf or on behalf of Trustor at the Trustor's sole cost and expense. 1.22 Affiliates. (a) SUBJECT TO TRUST DEED. Trustor shall cause all of its Affiliates in any way involved with the operation of the Trust Estate or the Las Vegas Showboat to observe the covenants and conditions of this Deed of Trust to the extent necessary to give the full intended effect to such covenants and conditions and to protect and preserve the security of Beneficiary hereunder. Trustor shall, at Beneficiary's request, cause any such Affiliate to execute and deliver to Beneficiary or Trustee such further instruments or documents as Beneficiary may reasonably deem necessary to effectuate the terms of this Section 1.22. (b) RESTRICTION ON USE OF SUBSIDIARY OR AFFILIATE. Trustor shall not use any Affiliate in the operation of the Trust Estate or the Las Vegas Showboat if such use would in any way impair the security for the First Mortgage Bonds and the Indenture or circumvent any covenant or condition of this Deed of Trust or of any other Loan Document. 1.23 Title Insurance. Promptly after the execution and delivery of this Deed of Trust, Trustor shall cause to be delivered to Trustee at Trustor's expense, one or more ALTA extended coverage Lender's Policies of Title Insurance showing fee title to the Land vested in Trustor and the lien of this Deed of Trust to be a perfected lien on a pari passu basis, prior to any and all encumbrances other than Permitted Liens. ARTICLE TWO CORPORATE LOAN PROVISIONS 2.1 Interaction with Indenture and Loan Agreement. (a) INCORPORATION BY REFERENCE. All terms, covenants, conditions, provisions and requirements of the Indenture and Loan Agreement are incorporated by reference in this Deed of Trust. Any capitalized term used in this Deed 20 of Trust without definition, but defined in the Indenture or Loan Agreement, shall have the same meaning here as in the Indenture. (b) CONFLICTS. Notwithstanding any other provision of this Deed of Trust, the terms and provisions of this Deed of Trust shall be subject and subordinate to the terms of the Indenture, Intercreditor Agreement and Loan Agreement. To the extent that the Indenture, Intercreditor Agreement or Loan Agreement provides Trustor with a particular cure or notice period, or establishes any limitations or conditions on Beneficiary's actions with regard to a particular set of facts, Trustor shall be entitled to the same cure periods and notice periods, and Beneficiary shall be subject to the same limitations and conditions, under this Deed of Trust, in place of the cure periods, notice periods, limitations and conditions provided for under this Deed of Trust; provided, however, that such cure periods, notice periods, limitations and conditions shall not be cumulative as between the Indenture, Intercreditor Agreement or Loan Agreement and this Deed of Trust. In the event of any conflict or inconsistency between the provisions of this Deed of Trust and those of the Indenture, Intercreditor Agreement or Loan Agreement, including, without limitation, any conflicts or inconsistencies in any definitions herein or therein, the provisions or definitions of the Indenture, Intercreditor Agreement or Loan Agreement shall govern. 2.2 Other Collateral. This Deed of Trust is one of a number of security agreements to secure the debt delivered by or on behalf of Trustor pursuant to the Promissory Note and the other Loan Documents and securing the Obligations secured hereunder. All potential junior Lien claimants are placed on notice that, under any of the Loan Documents or otherwise (such as by separate future unrecorded agreement between Trustor and Beneficiary), other collateral for the Obligations secured hereunder (i. e., collateral other than the Trust Estate) may, under certain circumstances, be released without a corresponding reduction in the total principal amount secured by this Deed of Trust. Such a release would decrease the amount of collateral securing the same indebtedness, thereby increasing the burden on the remaining Trust Estate created and continued by this Deed of Trust. No such release shall impair the priority of the lien of this Deed of Trust. By accepting its interest in the Trust Estate, each and every junior Lien claimant shall be deemed to have acknowledged the possibility of, and consented to, any such release. Nothing in this paragraph shall impose any obligation upon Beneficiary nor impair its Pari Passu Lien rights hereunder. ARTICLE THREE DEFAULTS 3.1 Event of Default. The term "Event of Default," wherever used in this Deed of Trust, shall mean any one or more of the following events (whether any such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) The failure by Trustor to pay any principal, premium or interest when due, whether at maturity, upon redemption, or otherwise, under the Promissory Note or First Mortgage Bonds. (b) The occurrence of an Event of Default and the expiration of any applicable cure or grace period under any Loan Document. (c) A sale, lease, sublease, encumbrance or other transfer in violation of Section 1.10 (Further Encumbrances) hereof. (d) Failure by Trustor to duly keep, perform and observe any other covenant, condition, agreement, term, representation or warranty in this Deed of Trust or any Loan Document to be performed or observed by Trustor for a period of sixty (60) days after notice from Beneficiary. (e) Any representation or warranty of Trustor in this Deed of Trust shall prove to be incorrect in any material respect as of the time when the same shall have been made. (f) The entry by any court of competent jurisdiction of a judgment or decree that an undertaking by Trustor as herein provided to pay the Promissory Note or Bonds or any interest thereon, or any taxes, assessments, levies, liabilities, obligations or encumbrances is legally inoperative or cannot be enforced, so as to affect adversely either the security 21 of this Deed of Trust, the indebtedness or other Obligations secured hereby, the rate of interest on the First Mortgage Bonds or all or any portion of the indebtedness, and such judgment shall not be appealed and stayed pending appeal within ten (10) days after such notice. ARTICLE FOUR REMEDIES 4.1 Acceleration of Maturity. Following an Event of Default and the expiration of any applicable cure or grace period, Beneficiary may (except that such acceleration shall be automatic if the Event of Default is caused by a Trustor's Bankruptcy), declare the Indebtedness and all other sums secured hereby, to be due and payable immediately, and upon such declaration such principal and interest and other sums shall immediately become due and payable without demand, presentment, notice or other requirements of any kind (all of which Trustor waives to the extent permitted by law to do so) notwithstanding anything in this Deed of Trust or any Loan Document or applicable law to the contrary. 4.2 Protective Advances. If Trustor fails to make any payment or perform any other obligation under the First Mortgage Bonds, the Promissory Note, or any other Loan Document, then without thereby limiting Beneficiary's other rights or remedies, waiving or releasing any of Trustor's obligations, or imposing any obligation on Beneficiary, Beneficiary may either advance any amount owing or perform any or all actions that Beneficiary reasonably considers necessary or appropriate to cure such default. All such advances shall constitute "Protective Advances." No sums advanced or performance rendered by Beneficiary shall cure, or be deemed a waiver of any Event of Default. 4.3 Institution of Equity Proceedings. Following an Event of Default and the expiration of any applicable cure or grace period, Beneficiary may institute an action, suit or proceeding in equity for specific performance of this Deed of Trust, the Loan Agreement or any Loan Document, all of which shall be specifically enforceable by injunction or other equitable remedy. Trustor waives any defense based on laches or any applicable statue of limitations. 4.4 Beneficiary's Power of Enforcement. (a) Following an Event of Default and the expiration of any applicable cure or grace period, Beneficiary shall be entitled, at its option and in its sole and absolute discretion, to prepare and record on its own behalf, or to deliver to Trustee for recording, if appropriate, written declaration of default and demand for sale and written Notice of Breach and Election to Sell (or other statutory notice) to cause the Trust Estate to be sold to satisfy the obligations hereof, and in the case of delivery to Trustee, Trustee shall cause said notice to be filed for record. (b) After the lapse of such time as may then be required by law following the recordation of said Notice of Breach and Election to Sell, and notice of sale having been given as then required by law, including compliance with all applicable Gaming Control Acts, Trustee, without demand on Trustor, shall sell the Trust Estate or any portion thereof at the time and place fixed by it in said notice, either as a whole or in separate parcels, and in such order as it may determine, at public auction to the highest bidder, of cash in lawful money of the United States payable at the time of sale. Trustee may, for any cause it deems expedient, postpone the sale of all or any portion of said property until it shall be completed and, in every case, notice of postponement shall be given by public announcement thereof at the time and place last appointed for the sale and from time to time thereafter Trustee may postpone such sale by public announcement at the time fixed by the preceding postponement. Trustee shall execute and deliver to the purchaser its Deed, Bill of Sale, or other instrument conveying said property so sold, but without any covenant or warranty, express or implied. The recitals in such instrument of conveyance of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including Beneficiary, may bid at the sale. (c) After deducting all costs, fees and expenses of Trustee and of this Deed of Trust, including, without limitation, costs of evidence of title and reasonable attorneys' fees of Trustee or Beneficiary in connection with a sale, Trustee shall apply the proceeds of such sale to payment of all sums expended under the terms hereof not then repaid, with accrued interest at the default interest rate on the Promissory Note then to the payment of all other sums then secured hereby and the remainder, if any, to the person or persons legally entitled thereto as provided in NRS 40.462. 22 (d) Subject to compliance with applicable Gaming Control Acts, following any Event of Default and the expiration of any applicable cure or grace period, Beneficiary may, either with or without entry or taking possession of the Trust Estate, and without regard to whether or not the indebtedness and other sums secured hereby shall be due and without prejudice to the right of Beneficiary thereafter to bring an action or proceeding to foreclose or any other action for any default existing at the time such earlier action was commenced, proceed by any appropriate action or proceeding: (1) to enforce payment of the Promissory Note, to the extent permitted by law, or the performance of any term hereof or any other right; (2) to foreclose this Deed of Trust in any manner provided by law for the foreclosure of mortgages or deeds of trust on real property and to sell, as an entirety or in separate lots or parcels, the Trust Estate or any portion thereof pursuant to the laws of the State of Nevada or under the judgment or decree of a court or courts of competent jurisdiction, and Beneficiary shall be entitled to recover in any such proceeding all costs and expenses incident thereto, including reasonable attorneys' fees in such amount as shall be awarded by the court; (3) to exercise any or all of the rights and remedies available to it under the Loan Agreement; and (4) to pursue any other remedy available to it. Beneficiary shall take action either by such proceedings or by the exercise of its powers with respect to entry or taking possession, or both, as Beneficiary may determine. (e) The remedies described in this Section 4.4 may be exercised with respect to all or any portion of the Personal Property, either simultaneously with the sale of any real property encumbered hereby or independent thereof. Beneficiary shall at any time be permitted to proceed with respect to all or any portion of the Personal Property in any manner permitted by the UCC. Trustor agrees that Beneficiary's inclusion of all or any portion of the Personal Property in a sale or other remedy exercised with respect to the real property encumbered hereby, as permitted by the UCC, is a commercially reasonable disposition of such property. 4.5 Beneficiary's Right to Enter and Take Possession, Operate and Apply Income. (a) Subject to the Intercreditor Agreement and compliance with applicable Gaming Control Acts, following an Event of Default and the expiration of any applicable cure or grace period, (i) Trustor, upon demand of Beneficiary, shall forthwith surrender to Beneficiary the actual possession and, if and to the extent permitted by law, Beneficiary itself, or by such officers or agents as it may appoint, may enter and take possession of all the Trust Estate including the Personal Property, without liability for trespass, damages or otherwise, and may exclude Trustor and its agents and employees wholly therefrom and may have joint access with Trustor to the books, papers and accounts of Trustor; and (ii) Trustor shall pay monthly in advance to Beneficiary on Beneficiary's entry into possession, or to any receiver appointed to collect the Rents, all Rents then due and payable. (b) If Trustor shall for any reason fail to surrender or deliver the Trust Estate, the Personal Property or any part thereof after Beneficiary's demand, Beneficiary may obtain a judgment or decree conferring on Beneficiary or Trustee the right to immediate possession or requiring Trustor to deliver immediate possession of all or part of such property to Beneficiary or Trustee and Trustor hereby specifically consents to the entry of such judgment or decree. Trustor shall pay to Beneficiary or Trustee, upon demand, all reasonable costs and expenses of obtaining such judgment or decree and reasonable compensation to Beneficiary or Trustee, their attorneys and agents, and all such costs, expenses and compensation shall, until paid, be secured by the lien of this Deed of Trust. (c) Subject to compliance with applicable Gaming Control Acts, upon every such entering upon or taking of possession, Beneficiary or Trustee may hold, store, use, operate, manage and control the Trust Estate and conduct the business thereof, and, from time to time in its sole and absolute discretion and without being under any duty to so act: (1) make all necessary and proper maintenance, repairs, renewals, replacements, additions, betterments and improvements thereto and thereon and purchase or otherwise acquire additional fixtures, personalty and other property; (2) insure or keep the Trust Estate insured; (3) manage and operate the Trust Estate and exercise all the rights and powers of Trustor in their name or otherwise with respect to the same; (4) enter into agreements with others to exercise the powers herein granted Beneficiary or Trustee, all as Beneficiary or Trustee from time to time may determine; and, subject to the absolute assignment of the Leases 23 and Rents to Beneficiary, Beneficiary or Trustee may collect and receive all the Rents, including those past due as well as those accruing thereafter; and shall apply the monies so received by Beneficiary or Trustee in such priority as Beneficiary may determine to (1) the payment of interest and principal due and payable on the Promissory Note, (2) the deposits for taxes and assessments and insurance premiums due, (3) the cost of insurance, taxes, assessments and other proper charges upon the Trust Estate or any part thereof; (4) the reasonable compensation, expenses and disbursements of the agents, attorneys and other representatives of Beneficiary or Trustee; and (5) any other reasonable and necessary charges or costs required to be paid by Trustor under the terms hereof; and (5) rent or sublet the Trust Estate or any portion thereof for any purpose permitted by the Facility Lease or this Deed of Trust. Beneficiary or Trustee shall surrender possession of the Trust Estate and the Personal Property to Trustor only when all that is due upon such interest and principal, tax and insurance deposits, and all amounts under any of the terms of the Loan Agreement or this Deed of Trust, shall have been paid and all defaults made good. The same right of taking possession, however, shall exist if any subsequent Event of Default shall occur and be continuing. 4.6 Leases. Beneficiary is authorized to foreclose this Deed of Trust subject to the Intercreditor Agreement and the rights of any tenants of the Trust Estate, and the failure to make any such tenants parties defendant to any such foreclosure proceedings and to foreclose their rights shall not be, nor be asserted by Trustor to be, a defense to any proceedings instituted by Beneficiary to collect the sums secured hereby or to collect any deficiency remaining unpaid after the foreclosure sale of the Trust Estate, or any portion thereof. Unless otherwise agreed by Beneficiary in writing, all Space Leases executed subsequent to the date hereof, or any part thereof, shall be subordinate and inferior to the lien of this Deed of Trust, except that from time to time Beneficiary may execute and record among the land records of the jurisdiction where this Deed of Trust is recorded, subordination statements with respect to such of said Space Leases as Beneficiary may designate in its sole discretion, whereby the Space Leases so designated by Beneficiary shall be made superior to the lien of this Deed of Trust for the term set forth in such subordination statement. From and after the recordation of such subordination statements, and for the respective periods as may be set forth therein, the Space Leases therein referred to shall be superior to the lien of this Deed of Trust and shall not be affected by any foreclosure hereof. All such Space Leases shall contain a provision to the effect that the Trustor and Space Lessee recognize the right of Beneficiary to elect and to effect such subordination of this Deed of Trust and consents thereto. 4.7 Purchase by Beneficiary. Upon any foreclosure sale (whether judicial or nonjudicial), Beneficiary may bid for and purchase the property subject to such sale and, upon compliance with the terms of sale, may hold, retain and possess and dispose of such property in its own absolute right without further accountability. 4.8 Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws. Trustor agrees to the full extent permitted by law that if an Event of Default occurs, neither Trustor nor anyone claiming through or under it shall or will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension or redemption laws now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Deed of Trust or the absolute sale of the Trust Estate or any portion thereof or the final and absolute putting into possession thereof, immediately after such sale, of the purchasers thereof, and Trustor for itself and all who may at any time claim through or under it, hereby waives, to the full extent that it may lawfully so do, the benefit of all such laws, and any and all right to have the assets comprising the Trust Estate marshalled upon any foreclosure of the lien hereof and agrees that Trustee or any court having jurisdiction to foreclose such lien may sell the Trust Estate in part or as an entirety. 4.9 Receiver. Following an Event of Default and the expiration of any applicable cure or grace period, Beneficiary, to the extent permitted by law and in accordance with all applicable Gaming Control Acts, and without regard to the value, adequacy or occupancy of the security for the indebtedness and other sums secured hereby, shall be entitled as a matter of right if it so elects to the appointment of a receiver to enter upon and take possession of the Trust Estate and to collect all Rents and apply the same as the court may direct, and such receiver may be appointed by any court of competent jurisdiction upon application by Beneficiary. Beneficiary may have a receiver appointed without notice to Trustor or any third party, and Beneficiary may waive any requirement that the receiver post a bond. Beneficiary shall have the power to designate and select the Person who shall serve as the receiver and to negotiate all terms and conditions under which such receiver shall serve. Any receiver appointed on Beneficiary's behalf may be an Affiliate of Beneficiary. The expenses, including receiver's fees, reasonable attorneys' fees, costs and agent's compensation, incurred pursuant to the powers herein contained shall be secured by this Deed of Trust. The right to enter and take possession of and to manage and operate the Trust Estate 24 and to collect all Rents, whether by a receiver or otherwise, shall be cumulative to any other right or remedy available to Beneficiary under this Deed of Trust, the Indenture or otherwise available to Beneficiary and may be exercised concurrently therewith or independently thereof. Beneficiary shall be liable to account only for such Rents (including, without limitation, security deposits) actually received by Beneficiary, whether received pursuant to this section or any other provision hereof. Notwithstanding the appointment of any receiver or other custodian, Beneficiary shall be entitled as pledgee to the possession and control of any cash, deposits, or instruments at the time held by, or payable or deliverable under the terms of this Deed of Trust to, Beneficiary. 4.10 Suits to Protect the Trust Estate. Beneficiary shall have the power and authority to institute and maintain any suits and proceedings as Beneficiary, in its sole and absolute discretion, may deem advisable (a) to prevent any impairment of the Trust Estate by any acts which may be unlawful or any violation of this Deed of Trust, (b) to preserve or protect its interest in the Trust Estate, or (c) to restrain the enforcement of or compliance with any legislation or other Legal Requirement that may be unconstitutional or otherwise invalid, if the enforcement of or compliance with such enactment, rule or order might impair the security hereunder or be prejudicial to Beneficiary's interest 4.11 Proofs of Claim. In the case of any receivership, Insolvency, Bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceedings affecting Trustor, any Affiliate or any guarantor, co-maker or endorser of any of Trustor's obligations, its creditors or its property, Beneficiary, to the extent permitted by law, shall be entitled to file such proofs of claim or other documents as it may deem to be necessary or advisable in order to have its claims allowed in such proceedings for the entire amount due and payable by Trustor under the Promissory Note or any other Loan Document, at the date of the institution of such proceedings, and for any additional amounts which may become due and payable by Trustor after such date. 4.12 Trustor to Pay the First Mortgage Bonds and Promissory Note on Any Default in Payment: Application of Monies by Beneficiary. (a) In case of a foreclosure sale of all or any part of the Trust Estate and of the application of the proceeds of sale to the payment of the sums secured hereby, Beneficiary shall be entitled to enforce payment from Trustor of any additional amounts then remaining due and unpaid and to recover judgment against Trustor for any portion thereof remaining unpaid, with interest at the default interest rate on the Promissory Note. (b) Trustor hereby agrees to the extent permitted by law, that no recovery of any such judgment by Beneficiary or other action by Beneficiary and no attachment or levy of any execution upon any of the Trust Estate or any other property shall in any way affect the Lien and security interest of this Deed of Trust upon the Trust Estate or any part thereof or any Lien, rights, powers or remedies of Beneficiary hereunder, but such Lien, rights, powers and remedies shall continue unimpaired as before. (c) Any monies collected or received by Beneficiary under this Section 4.12 shall be first applied to the payment of the reasonable compensation, expenses and disbursements of the agents, attorneys and other representatives of Beneficiary, and the balance remaining shall be applied to the payment of amounts due and unpaid under the First Mortgage Bonds and Promissory Note. (d) The provisions of this section shall not be deemed to limit or otherwise modify the provisions of any guaranty of the indebtedness evidenced by the First Mortgage Bonds and Promissory Note. 4.13 Delay or Omission: No Waiver. No delay or omission of Beneficiary or Bondholder to exercise any right, power or remedy upon any Event of Default (and after the expiration of any applicable cure or grace period) shall exhaust or impair any such right, power or remedy or shall be construed to waive any such Event of Default or to constitute acquiescence therein. Every right, power and remedy given to Beneficiary whether contained herein or in the Indenture or otherwise available to Beneficiary may be exercised from time to time and as often as may be deemed expedient by Beneficiary. 4.14 No Waiver of One Default to Affect Another. No waiver of any Event of Default hereunder shall extend to or affect any subsequent or any other Event of Default then existing, or impair any rights, powers or remedies consequent thereon. If Beneficiary or any Bondholder (a) grants forbearance or an extension of time for the payment of any sums secured hereby; (b) takes other or additional security for the payment thereof; (c) waives or does not exercise any right 25 granted in the First Mortgage Bonds, the Indenture, this Deed of Trust, the Loan Agreement, or any other Loan Document; (d) releases any part of the Trust Estate from the lien or security interest of this Deed of Trust or any other instrument securing the First Mortgage Bonds or the Loan; (e) consents to the filing of any map, plat or replat of the Land; (f) consents to the granting of any easement on the Land; or (g) makes or consents to any agreement changing the terms of this Deed of Trust, the Loan Agreement, or any Loan Document subordinating the lien or any charge hereof, no such act or omission shall release, discharge, modify, change or affect the original liability under the First Mortgage Bonds, this Deed of Trust or any other Loan Document or otherwise of Trustor, or any subsequent purchaser of the Trust Estate or any part thereof or any maker, co-signer, surety or guarantor. No such act or omission shall preclude Beneficiary from exercising any right, power or privilege herein granted or intended to be granted in case of any Event of Default then existing or of any subsequent Event of Default, nor, except as otherwise expressly provided in an instrument or instruments executed by Beneficiary, shall the lien or security interest of this Deed of Trust be altered thereby, except to the extent expressly provided in any releases, maps, easements or subordinations described in clause (d), (e), (f) or (g) above of this Section 4.14. In the event of the sale or transfer by operation of law or otherwise of all or any part of the Trust Estate, Beneficiary, without notice to any person, firm or corporation, is hereby authorized and empowered to deal with any such vendee or transferee with reference to the Trust Estate or the indebtedness secured hereby, or with reference to any of the terms or conditions hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any of the liabilities or undertakings hereunder, or waiving its right to declare such sale or transfer an Event of Default as provided herein. Notwithstanding anything to the contrary contained in this Deed of Trust or any Loan Document, (i) in the case of any non-monetary Event of Default (and after the expiration of any applicable cure or grace period), Beneficiary may continue to accept payments due hereunder without thereby waiving the existence of such or any other Event of Default and (ii) in the case of any monetary Event of Default, Beneficiary may accept partial payments of any sums due hereunder without thereby waiving the existence of such Event of Default if the partial payment is not sufficient to completely cure such Event of Default. 4.15 Discontinuance of Proceedings: Position of Parties Restored. If Beneficiary shall have proceeded to enforce any right or remedy under this Deed of Trust by foreclosure, entry of judgement or otherwise and such proceedings shall have been discontinued or abandoned for any reason, or such proceedings shall have resulted in a final determination adverse to Beneficiary, then and in every such case Trustor and Beneficiary shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of Beneficiary shall continue as if no such proceedings had occurred or had been taken. 4.16 Remedies Cumulative. No right, power or remedy, including without limitation remedies with respect to any security for the First Mortgage Bonds, conferred upon or reserved to Beneficiary by the Subsidiary Guaranties, this Deed of Trust, the other Deeds of Trust or any other Loan Document is exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or under any Loan Document, now or hereafter existing at law, in equity or by statute, and Beneficiary shall be entitled to resort to such rights, powers, remedies or security as Beneficiary shall in its sole and absolute discretion deem advisable. 4.17 Interest After Event of Default. If an Event of Default shall have occurred and is continuing, all sums outstanding and unpaid under the Promissory Note and this Deed of Trust shall, at Beneficiary's option, bear interest at the default interest rate on the Promissory Note until such Event of Default has been cured. Trustor's obligation to pay such interest shall be secured by this Deed of Trust. 4.18 Foreclosure: Expenses of Litigation. If foreclosure be made by Trustee, reasonable attorneys' fees for services in the supervision of said foreclosure proceeding shall be allowed to the Trustee and Beneficiary as part of the foreclosure costs. In the event of foreclosure of the lien hereof, there shall be allowed and included as additional indebtedness all reasonable expenditures and expenses which may be paid or incurred by or on behalf of Beneficiary for attorneys' fees, appraiser's fees, outlays for documentary and expert evidence, stenographers' charges, publication costs, and costs (which may be estimated as to items to be expended after foreclosure sale or entry of the decree) of procuring all such abstracts of title, title searches and examinations, title insurance policies and guaranties, and similar data and assurances with respect to title as Beneficiary may deem reasonably advisable either to prosecute such suit or to evidence to a bidder at any sale which may be had pursuant to such decree the true condition of the title to or the value of the Trust Estate or any portion thereof. All expenditures and expenses of the nature in this section mentioned, and such expenses and fees as may be incurred in the protection of the Trust Estate and the maintenance of the lien and security interest of this Deed of Trust, including the fees of any attorney employed by Beneficiary in any litigation or proceeding affecting this Deed of Trust or any Loan Document, 26 the Trust Estate or any portion thereof, including, without limitation, civil, probate, appellate and bankruptcy proceedings, or in preparation for the commencement or defense of any proceeding or threatened suit or proceeding, shall be immediately due and payable by Trustor, with interest thereon at the default interest rate on the Promissory Note, and shall be secured by this Deed of Trust. Trustee waives its right to any statutory fee in connection with any judicial or nonjudicial foreclosure of the lien hereof and agrees to accept a reasonable fee for such services. 4.19 Deficiency Judgments. If after foreclosure of this Deed of Trust or Trustee's sale hereunder, there shall remain any deficiency with respect to any amounts payable under the Promissory Note or hereunder or any amounts secured hereby, and Beneficiary shall institute any proceedings to recover such deficiency or deficiencies, all such amounts shall continue to bear interest at the default interest rate on the Promissory Note. Trustor waives, to the extent permitted by applicable law, any defense to Beneficiary's recovery against Trustor of any deficiency after any foreclosure sale of the Trust Estate. Trustor expressly waives, to the extent permitted by applicable law, any defense or benefits that may be derived from any statute granting Trustor any defense to any such recovery by Beneficiary. In addition, Beneficiary and Trustee shall be entitled to recovery of all of their reasonable costs and expenditures (including without limitation any court imposed costs) in connection with such proceedings, including their reasonable attorneys' fees, appraisal fees and the other costs, fees and expenditures referred to in Section 4.18 above. This provision shall survive any foreclosure or sale of the Trust Estate, any portion thereof and/or the extinguishment of the lien hereof. 4.20 Waiver of Jury Trial. Beneficiary and Trustor each waive, to the extent permitted by applicable law, any right to have a jury participate in resolving any dispute, whether sounding in contract, tort, or otherwise arising out of, connected with, related to, or incidental to the relationship established between them in connection with the First Mortgage Bonds, the Promissory Note, the Loan Agreement, this Deed of Trust or any Loan Document. Any such disputes shall be resolved in a bench trial without a jury. 4.21 Exculpation of Beneficiary. The acceptance by Beneficiary of the assignment contained herein with all of the rights, powers, privileges and authority created hereby shall not, prior to entry upon and taking possession of the Trust Estate by Beneficiary, be deemed or construed to make Beneficiary a "mortgagee in possession"; nor thereafter or at any time or in any event obligate Beneficiary to appear in or defend any action or proceeding relating to the Space Leases, the Rents or the Trust Estate, or to take any action hereunder or to expend any money or incur any expenses or perform or discharge any obligation, duty or liability under any Space Lease or to assume any obligation or responsibility for any security deposits or other deposits except to the extent such deposits are actually received by Beneficiary, nor shall Beneficiary, prior to such entry and taking, be liable in any way for any injury or damage to person or property sustained by any Person in or about the Trust Estate. ARTICLE FIVE RIGHTS AND RESPONSIBILITIES OF TRUSTEE; OTHER PROVISIONS RELATING TO TRUSTEE Notwithstanding anything to the contrary in this Deed of Trust, Trustor and Beneficiary agree as follows. 5.1 Exercise of Remedies by Trustee. To the extent that this Deed of Trust or applicable law, including all applicable Gaming Control Acts, authorizes or empowers Beneficiary to exercise any remedies set forth in Article Four hereof or otherwise, or perform any acts in connection therewith, Trustee (but not to the exclusion of Beneficiary unless so required under the law of the State of Nevada) shall have the power to exercise any or all such remedies, and to perform any acts provided for in this Deed of Trust in connection therewith, all for the benefit of Beneficiary and on Beneficiary's behalf in accordance with applicable law of the State of Nevada. In connection therewith, Trustee: (a) shall not exercise, or waive the exercise of, any Beneficiary's Remedies (other than any rights of Trustee to any indemnity or reimbursement), except at Beneficiary's request, and (b) shall exercise, or waive the exercise of, any or all of Beneficiary's remedies at Beneficiary's request, and in accordance with Beneficiary's directions as to the manner of such exercise or waiver. Trustee may, however, decline to follow Beneficiary's request or direction if Trustee shall be advised by counsel that the action or proceeding, or manner thereof, so directed may not lawfully be taken or waived. 5.2 Rights and Privileges of Trustee. To the extent that this Deed of Trust requires Trustor to indemnify Beneficiary or reimburse Beneficiary for any expenditures Beneficiary may incur, Trustee shall be entitled to the same 27 indemnity and the same rights to reimbursement of expenses as Beneficiary, subject to such limitations and conditions as would apply in the case of Beneficiary. To the extent that this Deed of Trust negates or limits Beneficiary's liability as to any matter, Trustee shall be entitled to the same negation or limitation of liability. To the extent that Trustor, pursuant to this Deed of Trust, appoints Beneficiary as Trustor's attorney in fact for any purpose, Beneficiary or (when so instructed by Beneficiary) Trustee shall be entitled to act on Trustor's behalf without joinder or confirmation by the other. 5.3 Resignation or Replacement of Trustee. Trustee may resign by an instrument in writing addressed to Beneficiary, and Trustee may be removed at any time with or without cause (i.e., in Beneficiary's sole and absolute discretion) by an instrument in writing executed by Beneficiary. In case of the death, resignation, removal or disqualification of Trustee or if for any reason Beneficiary shall deem it desirable to appoint a substitute, successor or replacement Trustee to act instead of Trustee originally named (or in place of any substitute, successor or replacement Trustee), then Beneficiary shall have the right and is hereby authorized and empowered to appoint a successor, substitute or replacement Trustee, without any formality other than appointment and designation in writing executed by Beneficiary, which instrument shall be recorded if required by the law of the State of Nevada. The law of the State of Nevada shall govern the qualifications of any Trustee. The authority conferred upon Trustee by this Deed of Trust shall automatically extend to any and all other successor, substitute and replacement Trustee(s) successively until the Obligations have been paid in full or the Trust Estate has been sold hereunder or released in accordance with the provisions of the Loan Documents. Beneficiary's written appointment and designation of any Trustee shall be full evidence of Beneficiary's right and authority to make the same and of all facts therein recited. No confirmation, authorization, approval or other action by Trustor shall be required in connection with any resignation or other replacement of Trustee. 5.4 Authority of Beneficiary. If Beneficiary is a banking corporation, state banking corporation or a national banking association and the instrument of appointment of any successor or replacement Trustee is executed on Beneficiary's behalf by an officer of such corporation, state banking corporation or national banking association, then such appointment shall be conclusively presumed to be executed with authority and shall be valid and sufficient without proof of any action by the board of directors or any superior officer of Beneficiary. 5.5 Effect of Appointment of Successor Trustee. Upon the appointment and designation of any successor, substitute or replacement Trustee, Trustee's entire estate and title in the Trust Estate shall vest in the designated successor, substitute or replacement Trustee. Such successor, substitute or replacement Trustee shall thereupon succeed to and shall hold, possess and execute all the rights, powers, privileges, immunities and duties herein conferred upon Trustee. All references herein to Trustee shall be deemed to refer to Trustee (including any successor or substitute appointed and designated as herein provided) from time to time acting hereunder. 5.6 Confirmation of Transfer and Succession. Upon the written request of Beneficiary or of any successor, substitute or replacement Trustee, any former Trustee ceasing to act shall execute and deliver an instrument transferring to such successor, substitute or replacement Trustee all of the right, title, estate and interest in the Trust Estate of Trustee so ceasing to act, together with all the rights, powers, privileges, immunities and duties herein conferred upon Trustee, and shall duly assign, transfer and deliver all properties and moneys held by said Trustee hereunder to said successor, substitute or replacement Trustee. 5.7 Ratification. Trustor hereby ratifies and confirms any and all acts that any Trustee may properly take or perform by virtue of this Deed of Trust and in accordance with all applicable laws. 5.8 Exculpation. Trustee shall not be liable for any error of judgment or act done by Trustee in good faith, or otherwise be responsible or accountable under any circumstances whatsoever, except for Trustee's gross negligence, willful misconduct or knowing violation of law. Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by it hereunder, believed by it in good faith to be genuine. All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by law). Trustee shall be under no liability for interest on any moneys received by it hereunder. 5.9 Endorsement and Execution of Documents. Upon Beneficiary's written request, Trustee shall, without liability or notice to Trustor, execute, consent to, or join in any instrument or agreement in connection with or necessary to effectuate the purposes of the Loan Documents. Trustor hereby irrevocably designates Trustee as its attorney-in-fact to execute, acknowledge and deliver, on Trustor's behalf and in Trustor's name, all instruments or agreements necessary to 28 implement any provision(s) of this Deed of Trust or to further perfect the lien created by this Deed of Trust on the Trust Property. This power of attorney shall be deemed to be coupled with an interest and shall survive any disability of Trustor. 5.10 Multiple Trustees. If Beneficiary appoints multiple trustees, then any Trustee, individually, may exercise all powers granted to Trustee under this instrument, without the need for action by any other Trustee(s). 5.11 Terms of Trustee's Acceptance. Trustee accepts the trust created by this Deed of Trust upon the following terms and conditions. (a) DELEGATION. Trustee may exercise any of its powers through appointment of attorney(s)-in-fact or agents. (b) COUNSEL. Trustee may select and employ legal counsel (including any law firm representing Beneficiary). Trustor shall reimburse all reasonable legal fees and expenses that Trustee may thereby incur. (c) SECURITY. Trustee shall be under no obligation to take any action upon any Event of Default unless furnished security or indemnity, in form satisfactory to Trustee, against costs, expenses, and liabilities that Trustee may reasonably incur. (d) COSTS AND EXPENSES. Trustor shall reimburse Trustee, as part of the Obligations secured hereunder, for all reasonable disbursements and expenses (including reasonable legal fees and expenses) incurred by reason of and as provided for in this Deed of Trust, including any of the foregoing incurred in Trustee's administering and executing the trust created by this Deed of Trust and performing Trustee's duties and exercising Trustee's powers under this Deed of Trust. (e) RELEASE. Upon payment of the Obligations secured hereunder, Beneficiary shall request Trustee to release this Deed of Trust and shall surrender all the Obligations secured hereunder to Trustee. Trustee shall release this Deed of Trust without charge to Trustor. Trustor shall pay all costs of recordation, if any. ARTICLE SIX MISCELLANEOUS PROVISIONS 6.1 Heirs. Successors and Assigns Included in Parties. Whenever one of the parties hereto is named or referred to herein, the heirs, successors and assigns of such party shall be included, and subject to the limitations set forth in Section 1.10, all covenants and agreements contained in this Deed of Trust, by or on behalf of Trustor or Beneficiary shall bind and inure to the benefit of its heirs, successors and assigns, whether so expressed or not. 6.2 Notices. Whenever any notice, report, demand or other instrument is authorized or required to be given or furnished under this Deed of Trust to Beneficiary, an additional copy of such notice, report, demand or other instrument shall be given or furnished to the trustee under the Indenture, as collateral assignee of this Deed of Trust pursuant hereto. 6.3 Addresses for Notices. Etc. (a) Any notice, report, demand or other instrument authorized or required to be given or furnished under this Deed of Trust to Trustor or Beneficiary shall be deemed given or furnished (i) when addressed to the party intended to receive the same, at the address of such party set forth below, and delivered at such address or (ii) three (3) days after the same is deposited in the United States mail as first class certified mail, return receipt requested, postage paid, whether or not the same is actually received by such party: Beneficiary: Natwest Bank, N.A. 22 Route 70 W Cherry Hill, NJ 08002 Attention: John T. Harrison, Vice President 29 With a copy to: Peter W. Leibundgut, Esquire Clark, Ladner, Fortenbaugh & Young Woodland Falls Corporate Park 200 Lake Drive East, Suite 300 Cherry Hill, New Jersey 08002 Trustor: Showboat, Inc. 2800 Fremont Street Las Vegas, Nevada 89104 Attention: Chief Financial Officer With a copy to: John N. Brewer, Esquire Kummer, Kaempfer, Bonner & Renshaw 3800 Howard Hughes Parkway Las Vegas, Nevada 89109 Trustee: Nevada Title Company 3320 West Sahara Suite 200 Las Vegas, Nevada 89102-6067 6.3.1 Change of Address. Any person may change the address to which any such notice, report, demand or other instrument is to be delivered or mailed to that person, by furnishing written notice of such change to the other party but no such notice of change shall be effective unless and until received by such other party. 6.4 Headings. The headings of the articles, sections, paragraphs and subdivisions of this Deed of Trust are for convenience of reference only, are not to be considered a part hereof, and shall not limit or expand or otherwise affect any of the terms hereof. 6.5 Invalid Provisions to Affect No Others. In the event that any of the covenants, agreements, terms or provisions contained herein or in the First Mortgage Bonds, the Indenture or any other Loan Document shall be invalid, illegal or unenforceable in any respect, the validity of the lien hereof and the remaining covenants, agreements, terms or provisions contained herein or in the First Mortgage Bonds, the Indenture, the Subsidiary Guaranties or any other Loan Document shall be in no way affected, prejudiced or disturbed thereby. To the extent permitted by law, Trustor waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect. 6.6 Changes and Priority Over Intervening Liens. Neither this Deed of Trust nor any term hereof may be changed, waived, discharged or terminated orally, or by any action or inaction, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. Any agreement hereafter made by Trustor and Beneficiary relating to this Deed of Trust shall be superior to the rights of the holder of any intervening lien or encumbrance. 6.7 Estoppel Certificates. Within ten (10) Business Days after Beneficiary's written request, Trustor shall from time to time execute a certificate, in recordable form (an "Estoppel Certificate"), stating, except to the extent it would be inaccurate to so state: (a) the current amount of the Obligations secured hereunder and all elements thereof, including principal, interest, and all other elements; (b) Trustor has no defense, offset, claim, counterclaim, right of recoupment, deduction, or reduction against any of the Obligations secured hereunder; (c) none of the Loan Documents have been amended, whether orally or in writing; (d) Trustor has no claims against Beneficiary of any kind; (e) any Power of Attorney granted to Beneficiary is in full force and effect; and (f) such other matters relating to this Deed of Trust, any Loan Documents and the relationship of Trustor and Beneficiary as Beneficiary shall reasonably request. In addition, the Estoppel Certificate shall set forth the reasons why it would be inaccurate to make any of the foregoing assurances ('a" through 'f"). 30 6.8 Governing Law. This Deed of Trust shall be construed, interpreted, enforced and governed by and in accordance with the laws of the State of Nevada, without regard to its choice of law provisions. 6.9 Required Notices. Trustor shall notify Beneficiary promptly of the occurrence of any of the following and shall immediately provide Beneficiary a copy of the notice or documents referred to: (i) receipt of notice from any Governmental Authority relating to all or any material part of the Trust Estate if such notice relates to a default or act, omission or circumstance which would result in a default after notice or passage of time or both; (ii) receipt of any notice from any tenant leasing all or any material portion of the Trust Estate if such notice relates to a default or act, omission or circumstance which would result in a default after notice or passage of time or both; (iii) receipt of notice from the holder of any Permitted Lien relating to a default or act, omission or circumstance which would result in a default after notice or passage of time or both; (iv) the commencement of any proceedings or the entry of any judgment, decree or order materially affecting all or any portion of the Trust Estate or which involve the potential liability of Trustor or its Affiliates in an amount in excess of $25,000,000 (other than for personal injury actions and related property damage suits which have been acknowledged by the insurer to be covered by such insurance); or (v) commencement of any judicial or administrative proceedings or the entry of any judgment, decree or order by or against or otherwise affecting Trustor or any Affiliate of Trustor, a material portion of the Trust Estate, or a material portion of the Personal Property, or any other action by any creditor or lessor thereof as a result of any material default under the terms of any lease. 6.10 Reconveyance. Upon written request of Beneficiary stating that all sums secured hereby have been paid, and upon surrender of this Deed of Trust to Trustee for cancellation and retention and upon payment of its fees, Trustee shall reconvey, without warranty, the property then held hereunder. The recitals in such reconveyance of any matters or facts shall be conclusive proof of the truthfulness thereof. The grantee in such reconveyance may be described as "the person or persons legally entitled thereto." 6.11 Attorneys Fees. Without limiting any other provision contained herein, Trustor agrees to pay all reasonable costs of Beneficiary or Trustee incurred in connection with the enforcement of this Deed of Trust or the taking of this Deed of Trust as security for the repayment of the Promissory Note, including without limitation all reasonable attorneys' fees whether or not suit is commenced, and including, without limitation, fees incurred in connection with any probate, appellate, bankruptcy, deficiency or any other litigation proceedings, all of which sums shall be secured hereby. 6.12 Late Charges. By accepting payment of any sum secured hereby after its due date, Beneficiary does not waive its right to collect any late charge thereon or interest thereon at the default interest rate on the Promissory Note, if so provided, not then paid or its right either to require prompt payment when due of all other sums so secured or to declare default for failure to pay any amounts not so paid. 6.13 Cost of Accounting. Trustor shall pay to Beneficiary, for and on account of the preparation and rendition of any accounting, which Trustor may be entitled to require under any law or statute now or hereafter providing therefor, the reasonable costs thereof. 6.14 Right of Entry. Subject to compliance with applicable Gaming Control Acts, Beneficiary may at any reasonable time or times, upon no less than 24 hours advance notice (except in the case of an emergency), make or cause to be made entry upon and inspections of the Trust Estate or any part thereof in person or by agent. 6.15 Corrections. Trustor shall, upon request of Trustee, promptly correct any defect, error or omission which may be discovered in the contents of this Deed of Trust or in the execution or acknowledgement hereof, and shall execute, acknowledge and deliver such further instruments and do such further acts as may be necessary or as may be reasonably requested by Trustee to carry out more effectively the purposes of this Deed of Trust, to subject to the lien and security interest hereby created any of Trustor's properties, rights or interest covered or intended to be covered hereby, and to perfect and maintain such lien and security interest. In the event that there is a new Facility Lease, Trustor shall execute a supplemental Deed of Trust if requested by Beneficiary. 6.16 Statute of Limitations. To the fullest extent allowed by the law, the right to plead, use or assert any statute of limitations as a plea or defense or bar of any kind, or for any purpose, to any debt, demand or obligation secured or to be secured hereby, or to any complaint or other pleading or proceeding filed, instituted or maintained for the purpose of enforcing this Deed of Trust or any rights hereunder, is hereby waived by Trustor. 31 6.17 Subrogation. Should the proceeds of the loan made by Beneficiary to Trustor, repayment of which is hereby secured, or any part thereof, or any amount paid out or advanced by Beneficiary, be used directly or indirectly to pay off, discharge, or satisfy, in whole or in part, any prior or superior lien or encumbrance upon the Trust Estate, or any part thereof, then, as additional security hereunder, Trustee, on behalf of Beneficiary, shall be subrogated to any and all rights, superior titles, liens, and equities owned or claimed by any owner or holder of said outstanding liens, charges, and indebtedness, however remote, regardless of whether said liens, charges, and indebtedness are acquired by assignment or have been released of record by the holder thereof upon payment. 6.18 Joint and Several Liability. All obligations of Trustor hereunder, if more than one, are joint and several. Recourse for deficiency after sale hereunder may be had against the property of Trustor, without, however, creating a present or other lien or charge thereon. 6.19 Context. In this Deed of Trust, whenever the context so requires, the neuter includes the masculine and feminine, and the singular includes the plural, and vice versa. 6.20 Time. Time is of the essence of each and every term, covenant and condition hereof. Unless otherwise specified herein, any reference to "days" in this Deed of Trust shall be deemed to mean "calendar days." 6.21 Interpretation. As used in this Deed of Trust unless the context clearly requires otherwise: The terms "herein" or "hereunder" and similar terms without reference to a particular section shall refer to the entire Deed of Trust and not just to the section in which such terms appear; the term "lien" shall also mean a security interest, and the term "security interest" shall also mean a lien. 6.22 Effect of NRS 57.030. To the extent not inconsistent herewith, the provisions of NRS 57.030 are included herein by reference. 6.23 Application of Certain Deed of Trust Provisions to Showboat Operating Company. The parties hereto acknowledge that many of the provisions set forth herein are inapplicable to the Collateral owned by Showboat Operating Company whose participation herein as co-trustor is premised solely upon pledging Collateral comprised of certain equipment, personal property and fixtures. To the extent any provision herein is inapplicable to same, Showboat Operating Company shall be relieved from compliance therewith. ARTICLE SEVEN POWER OF ATTORNEY 7.1 Grant of Power. Trustor irrevocably appoints Beneficiary and any successor thereto as its attorney-in-fact, with full power and authority, including the power of substitution, exercisable only during the continuance of an Event of Default following the expiration of any applicable cure or grace period to act, subject to all applicable Gaming Control Acts, for Trustor in its name, place and stead as hereinafter provided: 7.2 Possession and Completion. To take possession of the Land and Las Vegas Showboat, remove all employees, contractors and agents of Trustor therefrom, complete or attempt to complete the work of construction, and market, sell or lease the Land and the Las Vegas Showboat. 7.3 Plans. To make such additions, changes and corrections in the current Plans as may be necessary or desirable, in Beneficiary's reasonable discretion, or as it deems proper to complete the restoration of the Las Vegas Showboat. 7.4 Employment of Others. To employ such contractors, subcontractors, suppliers, architects, inspectors, consultants, property managers and other agents as Beneficiary, in its discretion, deems proper for the restoration of the Las Vegas Showboat, for the protection or clearance of title to the Land or Personal Property, or for the protection of Beneficiary's interests with respect thereto. 7.5 Security Guards. To employ watchmen to protect the Land and the Las Vegas Showboat from injury. 32 7.6 Compromise Claims. To pay, settle or compromise all bills and claims then existing or thereafter arising against Trustor, which Beneficiary, in its discretion, deems proper for the protection or clearance of title to the Land or Personal Property, or for the protection of Beneficiary's interests with respect thereto. 7.7 Legal Proceedings. To prosecute and defend all actions and proceedings in connection with the Land or the Las Vegas Showboat. 7.8 Other Acts. To execute, acknowledge and deliver all other instruments and documents in the name of Trustor that are necessary or desirable, to exercise Trustor's rights under all contracts concerning the Land or the Projects, including, without limitation, under any Space Leases, and to do all other acts with respect to the Land or the Las Vegas Showboat that Trustor might do on its own behalf, as Beneficiary, in its reasonable discretion, deems proper. IN WITNESS WHEREOF, Trustor has executed this Deed of Trust, Assignment of Rents and Security Agreement the day and year first above written. SHOWBOAT, INC. a Nevada corporation, as Trustor By: /s/ R. Craig Bird Name: R. Criag Bird Title: Executive Vice President Finance and Administration SHOWBOAT OPERATING COMPANY a Nevada corporation, as Trustor By: /s/ Leann Schneider Name: Leann Schneider Title: Treasurer 33 STATE OF NEVADA : : ss. COUNTY OF CLARK : This instrument was acknowledged before me on July 28, 1995 by R. Craig Bird as Executive Vice President-Finance and Administration of Showboat, Inc. /s/ Jean Y. Zorn NOTARY PUBLIC STATE OF NEVADA : : ss. COUNTY OF CLARK : This instrument was acknowledged before me on July 28, 1995 by Leann Schneider as Treasurer of Showboat Operating Co. /s/ Jean Y. Zorn NOTARY PUBLIC 34 SCHEDULE A LAND DESCRIPTION PARCEL ONE (1) : THAT PORTION OF GOVERNMENT LOT THREE (3) IN SECTION 1, TOWNSHIP 21 SOUTH, RANGE 61 EAST, M.D.B. & M., DESCRIBED AS FOLLOWS: BEGINNING AT THE POINT OF INTERSECTION OF THE WEST LINE OF SAID GOVERNMENT LOT THREE (3) WITH THE SOUTHWESTERLY RIGHT OF WAY LINE OF U.S. HIGHWAY NOS. 93-95-466 (200 FEET WIDE); THENCE SOUTH 42 DEGREES 27' EAST ALONG THE SAID RIGHT OF WAY LINE A DISTANCE OF 244.63 FEET TO THE TRUE POINT OF BEGINNING; THENCE CONTINUING SOUTH 42 DEGREES 27' EAST A DISTANCE OF 404.01 FEET TO A POINT OF THE SOUTH LINE OF SAID LOT THREE (3); THENCE SOUTH 89 DEGREES 37' WEST ALONG THE SAID SOUTH LINE A DISTANCE OF 405.99 FEET TO A POINT ON THE EASTERLY RIGHT OF WAY LINE OF ATLANTIC STREET (60 FEET WIDE); THENCE NORTH 0 DEGREES 10' 30" WEST ALONG THE SAID EASTERLY RIGHT OF WAY LINE, A DISTANCE OF 173.12 FEET TO A POINT; THENCE NORTH 47 DEGREES 33' EAST A DISTANCE OF 181.63 FEET TO THE TRUE POINT OF BEGINNING. PARCEL TWO (2) : THAT PORTION OF THE SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 1, TOWNSHIP 21 SOUTH, RANGE 61 EAST, M.D.B. & M., LYING WESTERLY OF U.S. HIGHWAY #93-95-466 (BOULDER HIGHWAY), MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGINNING AT THE INTERSECTION OF THE NORTH LINE OF THE SAID SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) WITH THE WEST LINE OF THE U.S. HIGHWAY #93-95-466; THENCE SOUTH 42 DEGREES 27' EAST ALONG THE SAID WEST LINE OF THE HIGHWAY A DISTANCE OF 135.87 FEET TO A POINT; THENCE SOUTH 47 DEGREES 33' WEST A DISTANCE OF 500 FEET TO A POINT; THENCE NORTH 42 DEGREES 27' WEST AND PARALLEL WITH THE AFOREMENTIONED WEST LINE OF THE U.S. HIGHWAY TO A POINT IN THE WEST LINE OF THE SAID SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SAID SECTION 1; THENCE NORTH ALONG THE LAST MENTIONED WEST LINE TO THE NORTHWEST CORNER OF SAID SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 1; CONTINUED THENCE NORTH 89 DEGREES 37' 50" EAST ALONG THE NORTH LINE OF SAID SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) A DISTANCE OF 435.99 FEET TO THE POINT OF BEGINNING. EXCEPT THE INTEREST IN THE WEST 30 FEET OF THE ABOVE DESCRIBED PROPERTY AS CONVEYED TO THE COUNTY OF CLARK BY DEED DATED APRIL 17, 1950 AS DOCUMENT NO. 131015 OF OFFICIAL RECORDS, CLARK COUNTY, NEVADA RECORDS, FOR STREET PURPOSES. PARCEL THREE (3) : THAT PORTION OF THE SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 1, TOWNSHIP 21 SOUTH, RANGE 61 EAST, M.D.B. & M., DESCRIBED AS FOLLOWS: COMMENCING AT THE INTERSECTION OF THE NORTH LINE OF THE SAID SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 1, WITH THE WEST LINE OF THE STATE HIGHWAY (BOULDER HIGHWAY); THENCE SOUTH 42 DEGREES 27' EAST ALONG THE SAID WEST LINE OF THE STATE HIGHWAY A DISTANCE OF 135.87 FEET TO THE TRUE POINT OF BEGINNING; THENCE SOUTH 47 DEGREES 33' WEST A DISTANCE OF 500 FEET TO A POINT; THENCE SOUTH 42 DEGREES 27' EAST AND PARALLEL WITH THE WEST LINE OF THE SAID STATE HIGHWAY A DISTANCE OF 200 FEET TO A POINT; THENCE NORTH 47 DEGREES 33' EAST A DISTANCE OF 500 FEET TO A POINT IN THE AFOREMENTIONED WEST LINE OF THE STATE HIGHWAY; THENCE NORTH 42 DEGREES 27"; WEST ALONG THE SAID WEST LINE OF THE HIGHWAY A DISTANCE OF 200 FEET TO THE TRUE POINT OF BEGINNING. PARCEL FOUR (4) : THAT PORTION OF THE SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 1, TOWNSHIP 21 SOUTH, RANGE 61 EAST, M.D.B. & M., DESCRIBED AS FOLLOWS: COMMENCING AT THE POINT OF INTERSECTION OF THE NORTH LINE OF THE SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SAID SECTION 1, WITH THE SOUTHWESTERLY RIGHT OF WAY LINE OF U.S. HIGHWAY NOS. 93-95-466 (200 FEET WIDE); THENCE SOUTH 42 DEGREES 27' EAST ALONG THE SAID RIGHT OF WAY LINE A DISTANCE OF 735.87 FEET TO A POINT; THENCE SOUTH 47 DEGREES 33' WEST A DISTANCE OF 500 FEET TO THE MOST SOUTHERLY CORNER OF THAT CERTAIN PARCEL OF LAND CONVEYED BY HARRY MACK ET AL TO RICHARD M. CLOUGH ET UX BY DEED RECORDED JUNE 3, 1949 AS DOCUMENT NO. 314105, CLARK COUNTY, NEVADA RECORDS, THE TRUE POINT OF BEGINNING; CONTINUED THENCE SOUTH 89 DEGREES 57' 35" WEST AND PARALLEL TO THE SOUTH LINE OF THE SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SAID SECTION 1 A DISTANCE OF 560.41 FEET MORE OR LESS TO A POINT ON THE WEST LINE OF THE SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SAID SECTION 1; THENCE NORTH 01 DEGREES 12' 57" WEST ALONG THE LAST MENTIONED WEST LINE A DISTANCE OF 615.67 FEET MORE OR LESS TO A POINT DISTANT SOUTH 47 DEGREES 33' WEST 500 FEET FROM THE AFOREMENTIONED SOUTHWEST RIGHT OF WAY LINE; THENCE SOUTH 42 DEGREES 27' EAST PARALLEL TO A DISTANT 500 FEET FROM THE SAID SOUTHWESTERLY RIGHT OF WAY LINE A DISTANCE OF 833.74 FEET TO THE TRUE POINT OF BEGINNING. EXCEPT THE INTEREST IN THE WEST THIRTY (30) FEET OF THE ABOVE DESCRIBED PROPERTY AS CONVEYED TO THE COUNTY OF CLARK BY DEED DATED APRIL 17, 1950 AS DOCUMENT NO. 131015 OF OFFICIAL RECORDS, CLARK COUNTY, NEVADA RECORDS, FOR STREET PURPOSES. PARCEL FIVE (5) : THAT PORTION OF THE SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 1, TOWNSHIP 21 SOUTH, RANGE 61 EAST, M.D.M., DESCRIBED AS FOLLOWS: BEGINNING AT THE SOUTHWEST CORNER OF THE SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SAID SECTION 1; THENCE NORTH 0 DEGREES 12' 57" WEST ALONG THE WEST LINE THEREOF A DISTANCE OF 477.8 FEET TO THE SOUTHWEST CORNER OF THAT CERTAIN PARCEL OF LAND CONVEYED TO IRVING KING, ET UX, BY DEED RECORDED MAY 3, 1951 AS DOCUMENT NO. 370209 OF CLARK COUNTY, NEVADA RECORDS. THENCE ALONG THE SOUTH LINE OF SAID CONVEYED PARCEL NORTH 89 DEGREES 57' 35" EAST, 560.41 FEET TO THE SOUTHEAST CORNER OF SAID CONVEYED PARCEL, SAID SOUTHEAST CORNER BEING DISTANT SOUTH 47 DEGREES 33' 00" WEST, 500 FEET FROM THE SOUTHWESTERLY LINE OF U.S. HIGHWAY NOS. 93-05-466 (BOULDER HIGHWAY); THENCE SOUTH 42 DEGREES 27' 00" EAST, PARALLEL WITH THE SOUTHWESTERLY LINE OF SAID HIGHWAY, 579.45 FEET TO A POINT DISTANT 50 FEET NORTH OF AND MEASURED AT RIGHT ANGLES TO THE SOUTH LINE OF THE SAID SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4); THENCE NORTH 89 DEGREES 56' 35" EAST, PARALLEL WITH THE LAST MENTIONED SOUTH LINE, 179.23 FEET TO THE SOUTHEAST CORNER OF THAT CERTAIN PARCEL OF LAND COVEYED TO I.A. STUB BY DEED RECORDED JANUARY 4, 1950 AS DOCUMENT NO. 330010 OF SAID COUNTY RECORDS; THENCE SOUTH 47 DEGREES 33' 00" WEST, ALONG THE SOUTHWESTERLY PROLONGATION OF THE SOUTHEASTERLY LINE OF SAID PARCEL CONVEYED BY DOCUMENT NO. 330010, A DISTANCE OF 74.13 FEET; continued THENCE SOUTH 89 DEGREES 57' 43" WEST, ALONG THE SOUTH LINE OF THE SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SAID SECTION 1, A DISTANCE OF 1074.24 FEET TO THE POINT OF BEGINNING. EXCEPT THEREFROM THE INTEREST IN AND TO THE SOUTH 40.00 FEET OF SAID LAND, AS CONVEYED TO THE COUNTY OF CLARK, FOR ROAD PURPOSES, BY DEED RECORDED MARCH 22, 1951, AS DOCUMENT NO. 366543 OF CLARK COUNTY NEVADA RECORDS. ALSO EXCEPT THEREFROM THE INTEREST IN AND TO THE WEST 30 FEET OF SAID LAND AS CONVEYED TO THE CITY OF LAS VEGAS, FOR ROAD PURPOSES BY DEED RECORDED OCTOBER 9, 1962, AS DOCUMENT NO. 316163 OF OFFICIAL RECORDS OF CLARK COUNTY, NEVADA. ALSO EXCEPT THEREFROM THAT CERTAIN SPANDREL AREA IN THE SOUTHWEST CORNER THEREOF AS CONVEYED TO THE CITY OF LAS VEGAS BY DEED RECORDED JUNE 23, 1966 IN BOOK 725 AS DOCUMENT NO. 582913 AND JULY 19, 1966 IN BOOK 731 AS DOCUMENT NO. 587980, OF OFFICIAL RECORDS. PARCEL SIX (6) : THAT PORTION OF THE SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 1, TOWNSHIP 21 SOUTH, RANGE 61 EAST, M.D.M., LYING WEST OF U.S. HIGHWAY NOS. 93-95-466, MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING AT THE INTERSECTION OF THE NORTH LINE OF THE SAID SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) WITH THE WESTERLY LINE OF THE U.S. HIGHWAY NOS. 93-95-466 (BOULDER HIGHWAY); THENCE SOUTH 42 DEGREES 27' EAST ALONG THE WEST LINE OF SAID U.S. HIGHWAY A DISTANCE OF 335.87 FEET TO THE TRUE POINT OF BEGINNING; THENCE SOUTH 47 DEGREES 33' WEST A DISTANCE OF 500.00 FEET TO A POINT; THENCE SOUTH 47 DEGREES 27' EAST AND PARALLEL WITH THE AFOREMENTIONED WEST LINE OF THE U.S. HIGHWAY A DISTANCE OF 100 FEET TO A POINT; THENCE NORTH 47 DEGREES 33' EAST A DISTANCE OF 500 FEET TO A POINT IN THE WEST LINE OF THE U.S. HIGHWAY; THENCE NORTH 42 DEGREES 27' WEST ALONG THE LAST MENTIONED WEST LINE A DISTANCE OF 100 FEET TO THE TRUE POINT OF BEGINNING. continued PARCEL SEVEN (7) : THAT PORTION OF THE SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 1, TOWNSHIP 21 SOUTH, RANGE 61 EAST, M.D.M., LYING SOUTHWESTERLY OF THE U.S. HIGHWAY NOS. 93-95-466, MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING AT THE INTERSECTION OF THE NORTH LINE OF SAID SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) WITH THE SOUTHWESTERLY LINE OF SAID U.S. HIGHWAY NOS. 93-95-466 (BOULDER HIGHWAY); THENCE SOUTH 42 DEGREES 27' EAST ALONG THE SOUTHWESTERLY LINE OF THE SAID HIGHWAY A DISTANCE OF 435.87 FEET TO THE MOST EASTERLY CORNER OF THAT CERTAIN PARCEL OF LAND CONVEYED BY LOUIS MACK, ET AL TO VAUGHN O. HOLT, ET UX, BY DEED DATED SEPTEMBER 13, 1948 AND RECORDED SEPTEMBER 16, 1948 AS DOCUMENT NO. 295909, CLARK COUNTY, NEVADA RECORDS, BEING THE POINT OF BEGINNING; THENCE SOUTH 47 DEGREES 33' WEST ALONG THE SOUTHEASTERLY LINE OF THE SAID CONVEYED PARCEL, A DISTANCE OF 500 FEET TO THE MOST SOUTHERLY CORNER OF THE PARCEL CONVEYED TO SAID VAUGHN O. HOLT; THENCE SOUTH 42 DEGREES 27' EAST AND PARALLEL WITH THE SAID SOUTHWESTERLY LINE OF THE U.S. HIGHWAY A DISTANCE OF 100 FEET TO A POINT; THENCE NORTH 47 DEGREES 33' EAST A DISTANCE OF 500 FEET TO A POINT IN SAID SOUTHWESTERLY LINE OF THE HIGHWAY; THENCE NORTH 47 DEGREES 27' WEST, ALONG THE LAST MENTIONED SOUTHWESTERLY LINE A DISTANCE OF 100 FEET TO THE TRUE POINT OF BEGINNING. continued PARCEL EIGHT (8) : THAT PORTION OF THE SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 1, TOWNSHIP 21 SOUTH, RANGE 61 EAST, M.D.B. & M., LYING SOUTHWESTERLY OF U.S. HIGHWAY NOS. 93-95-466, MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING AT THE INTERSECTION OF THE NORTH LINE OF SAID SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) WITH THE SOUTHWESTERLY LINE OF SAID U.S. HIGHWAY NOS. 93-95-466 (BOULDER HIGHWAY); THENCE NORTH 42 DEGREES 27' EAST ALONG THE SOUTHWESTERLY LINE OF THE SAID HIGHWAY A DISTANCE OF 535.87 FEET TO THE MOST EASTERLY CORNER OF THAT CERTAIN PARCEL OF LAND CONVEYED BY LOUIS MACK, ET AL TO KARL L. SCHOTT BY DEED RECORDED NOVEMBER 22, 1948, AS SHOWN AS DOCUMENT NO. 300678, CLARK COUNTY, NEVADA RECORDS, BEING THE TRUE POINT OF BEGINNING; THENCE SOUTH 47 DEGREES 33' WEST ALONG THE SOUTHEASTERLY LINE OF THE LAST MENTIONED CONVEYED PARCEL A DISTANCE OF 500 FEET TO THE MOST SOUTHERLY CORNER OF THE SAID PARCEL CONVEYED TO KARL L. SCHOTT; THENCE SOUTH 42 DEGREES 27' EAST AND PARALLEL WITH THE SAID SOUTHWESTERLY LINE OF U.S. HIGHWAY NOS. 93-95-466 A DISTANCE OF 100 FEET TO A POINT; THENCE NORTH 47 DEGREES 33' EAST A DISTANCE OF 500 FEET TO A POINT IN THE AFOREMENTIONED SOUTHWESTERLY LINE OF THE U.S. HIGHWAY; THENCE NORTH 42 DEGREES 27' WEST ALONG THE LAST MENTIONED SOUTHWESTERLY LINE A DISTANCE OF 100 FEET TO THE TRUE POINT OF BEGINNING. continued PARCEL NINE (9) : THAT PORTION OF THE SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 1, TOWNSHIP 21 SOUTH, RANGE 61 EAST, M.D.B. & M., (CLARK COUNTY, NEVADA) BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING AT THE NORTH INTERSECTION OF THE NORTH LINE OF THE SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF SAID SECTION 1, AND THE SOUTHWESTERLY RIGHT-OF-WAY LINE OF U.S. HIGHWAY NOS. 93-95-466 (200.00 FEET WIDE); THENCE SOUTH 42 DEGREES 27' 00" EAST ALONG THE SAID SOUTHWESTERLY RIGHT-OF-WAY LINE A DISTANCE OF 635.87 FEET TO A POINT BEING THE MOST EASTERLY CORNER OF THAT CERTAIN PARCEL OF LAND AS CONVEYED TO FIRST NATIONAL BANK OF NEVADA, A NATIONAL BANKING ASSOCIATION, BY DEED RECORDED DECEMBER 12, 1962 AS DOCUMENT NO. 327145 OFFICIAL RECORDS, CLARK COUNTY, NEVADA, SAID POINT ALSO BEING THE TRUE POINT OF BEGINNING; THENCE SOUTH 47 DEGREES 33' 0" WEST ALONG THE SOUTHEASTERLY LINE OF SAID FIRST NATIONAL BANK PARCEL A DISTANCE OF 500.00 FEET TO A POINT IN THE NORTHEASTERLY LINE OF THAT CERTAIN PARCEL OF LAND CONVEYED TO IRVING KING, ET UX BY DEED RECORDED MAY 3, 1951 AS DOCUMENT NO. 37209 OFFICIAL RECORDS, CLARK COUNTY, NEVADA; THENCE SOUTH 42 DEGREES 27' 00" EAST ALONG THE NORTHEASTERLY LINE OF SAID KING PARCEL A DISTANCE OF 400.00 FEET TO A POINT BEING THE MOST WESTERLY CORNER OF THAT CERTAIN PARCEL OF LAND AS CONVEYED TO THE I.A. STUB BY AN AGREEMENT DATED AUGUST 19, 1948 AS DOCUMENT NO. 294205 OFFICIAL RECORDS, CLARK COUNTY, NEVADA; THENCE NORTH 47 DEGREES 33' 00" EAST ALONG THE NORTHWESTERLY LINE OF SAID STUB PARCEL A DISTANCE OF 500.00 FEET TO A POINT IN THE AFOREMENTIONED SOUTHWESTERLY RIGHT-OF-WAY LINE OF U.S. HIGHWAY NOS. 93-95-466; THENCE NORTH 47 DEGREES 27' 00" WEST ALONG SAID RIGHT-OF-WAY LINE A DISTANCE OF 400.00 FEET TO THE TRUE POINT OF BEGINNING. SCHEDULE B List of Existing Encumbrances (1) TAXES: State and County Taxes for the fiscal period of 1995 to 1996, a lien now due and payable in the total amount of $515,564.46 First installment of $128,891.46 unpaid delinquent third Monday in August Second installment of $128,891.00 upaid delinquent first Monday in October Third installment of $128,891.00 unpaid delinquent first Monday in January Fourth installment of $128,891.00 unpaid delinquent first Monday in March AFFECTS: PARCELS 1 THROUGH 5 (2) TAXES: State and County Taxes for the fiscal period of 1995 to 1996, a lien now due and payable in the total amount of $23,851.99 First installment of $5,965.99 unpaid delinquent third Monday in August Second installment of $5,962.00 unpaid delinquent first Monday in October Third installment of $5,962.00 unpaid delinquent first Monday in January Fourth installment of $5,962.00 unpaid delinquent first Monday in March AFFECTS: PARCELS 6 THROUGH 9 (3) SUPPLEMENTAL TAXES: Any supplemental taxes which may become a lien on the subject property by reason of increased valuations due to land use or improvement, NRS 361.260, or otherwise. (4) PATENT: Reservations and Easements in the patent from the State of Nevada, recorded November 30, 1902, in Book 3 "F" of Miscellaneous Records, Page 270, Lincoln County, Records. Affects: Parcel 1 (5) PATENT: Reservations and Easements in the patent from the State of Nevada, recorded September 11, 1911, in Book 2 of Deeds, Page 62 as Document No. 3168 of Official Records. Affects: Parcels 2 through 9 (6) EASEMENT: An easement affecting that portion of said land and for the purposes therein and incidental purposes thereto, in favor of NEVADA POWER COMPANY, for electrical lines, recorded October 14, 1959, as Document No. 176384 of Official Records. Affects: The South 10 feet of Parcel 8 (7) EASEMENT: An easement affecting that portion of said land and for the purposes therein and incidental purposes thereto, in favor of SOUTHERN NEVADA POWER COMPANY, for electrical lines, recorded April 18, 1961, as Document No. 237213 of Official Records. Affects: The Southeasterly 6.00 feet of Parcel 3; the Southerly 6.00 feet; and the Southeasterly 400.00 feet of the Northeasterly 6.00 feet of Parcel 4 A portion of said right-of-way has been relinquished by instrument entitled "PARTIAL RELINQUISHMENT OF RIGHT-OF-WAY GRANT" executed by NEVADA POWER COMPANY, recorded July 27, 1972 as Document No. 209184 of Offical Records. Affects: The Southeasterly 6.00 feet of Parcel 3 (8) EASEMENT: An easement affecting that portion of said land and for the purposes therein and incidental purposes thereto, in favor of SOUTHERN NEVADA POWER COMPANY, for electrical lines, recorded May 17, 1961, as Document No. 241058 and recorded June 20, 1961 as Document No. 245546 of Official Records. Affects: The Northerly 6.00 feet of Parcel 5 (9) EASEMENT: An easement affecting that portion of said land and for the purposes therein and incidental purposes thereto, in favor of NEVADA POWER COMPANY, for electrical lines, recorded June 19, 1962, as Document No. 273434 of Official Records. Affects: The Westerly 50.00 feet of the Southerly 10.00 feet of the Northerly 156.00 feet of said Southeast Quarter of the Northwest Quarter. SAVING AND ACCEPTING that portion within Atlantic Avenue (60 feet wide). Affects: Parcel 2 (10) EASEMENT: An easement affecting that portion of said land and for the purposes therein and incidental purposes thereto, in favor of NEVADA POWER COMPANY, for electrical and communication lines, recorded June 5, 1962, as Document No. 294462 of Official Records. Affects: The Southeasterly 6.00 feet of Parcel 9 (11) EASEMENT: An easement affecting that portion of said land and for the purposes therein and incidental purposes thereto, in favor of NEVADA POWER COMPANY, for electrical lines, recorded April 4, 1963, as Document No. 350080 of Official Records. Affects: A strip of land 12.00 feet in width being 6.00 feet on each side of the following described centerline: COMMENCING at the Southeast Quarter (SE 1/4) of the Northwest Quarter (NW 1/4) of said Section 1; thence North 0 degrees 10' 00" West a distance of 155.00 feet to a point; thence North 89 degrees 59' 00" East a distance of 30.00 feet to a point on the East line of Atlantic Street, said point being the POINT OF BEGINNING; thence continuing North 89 degrees 59' 00" East a distance of 25.00 feet to the point of ending. Affects: Parcel 1 (12) EASEMENT: An easement affecting that portion of said land and for the purposes therein and incidental purposes thereto, in favor of NEVADA POWER COMPANY, for electrical lines, recorded April 26, 1963, as Document No. 355007 of Official Records. Affects: The South 250.00 feet of the Easterly 6.00 feet of Parcel 6 (13) EASEMENT: An easement affecting that portion of said land and for the purposes therein and incidental purposes thereto, in favor of NEVADA POWER COMPANY, for electrical lines, recorded June 21, 1963, as Document No. 366400 of Official Records. Affects: The Easterly 6.00 feet of Parcel 6 (14) EASEMENT: An easement affecting that portion of said land and for the purposes therein and incidental purposes thereto, in favor of NEVADA POWER COMPANY, for electrical lines, recorded June 21, 1963, as Document No. 366415 of Official Records. Affects: Westerly 6.00 feet of Parcel 7 (15) EASEMENT: An easement affecting that portion of said land and for the purposes therein and incidental purposes thereto, in favor of CENTRAL TELEPHONE COMPANY, for communication lines, recorded November 23, 1971, as Document No. 147041 of Official Records. The exact location and extent of said easement is not disclosed in the document of record. Affects: Parcel 9 (16) EASEMENT: An easement affecting that portion of said land and for the purposes therein and incidental purposes thereto, in favor of NEVADA POWER COMPANY and CENTRAL TELEPHONE COMPANY, for electrical and communication lines, recorded March 21, 1972, as Document No. 175649 of Official Records. Affects: The South 6.00 feet of Parcel 6 (17) EASEMENT: An easement affecting that portion of said land and for the purposes therein and incidental purposes thereto, in favor of NEVADA POWER COMPANY and CENTRAL TELEPHONE COMPANY, for electrical and communication facilities, recorded April 3, 1975, as Document No. 466430 of Official Records. Affects: Strips of land 10.00 feet in width being 5.00 feet on each side of the following centerlines: CENTERLINE NO. 1: COMMENCING at the point of intersection of the North line of the Southeast Quarter (SE 1/4) of the Northwest Quarter (NW 1/4) of said Section 1, with the Westerly line of the U.S. Highway Nos. 93-95-466 (Boulder Highway); thence South 42 degrees 27' 00" East along the West line of said highway a distance of 530.87 feet to a point hereinafter designated as Point 1; thence South 47 degrees 33' 00" West a distance of 505.00 feet to a point; thence South 42 degrees 27' 00" East a distance of 105.00 feet to a point hereinafter designated as Point 2; thence continuing South 42 degrees 27' 00" East a distance of 68.00 feet to a point hereinafter desifnated as Point 3; thence continuing South 42 degrees 27' 00" East a distance of 32.00 feet to the POINT OF BEGINNING; thence continuing South 42 degress 27' 00" East a distance of 276.00 feet to a point hereinafter designated as Point 4; thence continuing South 42 degrees 27' 00" East to a point on Grantor's Southerly property line, said point being the point of ending of Centerline No. 1. Continued CENTERLINE NO. 2: BEGINNING at aforementioned Point 1; thence South 47 degrees 33' 00" West a distance of 535.00 feet to the Point of ending of Centerline No. 2. CENTERLINE NO. 3: BEGINNING at aforementioned Point 2; thence South 47 degress 33' 00" West a distance of 30.00 feet to the point of ending of Centerline No. 3. CENTERLINE NO. 4: BEGINNING at aforementioned Point 3; thence South 47 degrees 33' 00" West a distance of 30.00 feet to the point of ending of Centerline No. 4. CENTERLINE NO. 5: BEGINNING at aforementioned Point 4; thence South 47 degrees 33' 00" West a distance of 30.00 feet to the point of ending of Centerline No. 5. Affects: Parcels 4, 5 and 7 (18) EASEMENT: An easement affecting that portion of said land and for the purposes therein and incidental purposes thereto, in favor of NEVADA POWER COMPANY, for an electrical substation, recorded April 29, 1975, as Document No. 473255 of Official Records. Affects: COMMENCING at Southwest (SW) corner of the Southeast Quarter (SE 1/4) of the Northwest Quarter (NW 1/4) of said Section 1; thence South 89 degrees 43' 39" East along the South line of the Southeast Quarter (SE 1/4) of the Northwest Quarter (NW 1/4) of said Section 1, per File 8 of Surveys, page 49, in the Office of the County Recorder, a distance of 30.00 feet to a point; thence North 00 degrees 00' 25" West a distance of 449.50 feet to a point; thence North 89 degrees 31' 40" East a distance of 425.00 feet to the POINT OF BEGINNING; thence continuing North 89 degrees 31' 40" East a distance of 80.00 feet to a point; thence South 00 degrees 28' 20" East a distance of 25.00 feet to a point; thence South 89 degrees 31' 40" West a distance of 80.00 feet to a point; thence North 00 degrees 28' 20" West a distance of 25.00 feet to the POINT OF BEGINNING. Affects: Parcel 5 (19) EASEMENT: An easement affecting that portion of said land and for the purposes therein and incidental purposes thereto, in favor of NEVADA POWER COMPANY, for electrical lines, recorded November 1, 1978, in Book 964 as Document No. 923075 of Official Records. Affects: PARCEL NO. 1: A strip of land 10.00 feet in width being 5.00 feet on each side of the following described centerline: COMMENCING at the centerline intersection of Atlantic Street and Clifford Avenue; thence North 89 degrees 46' 20" East, 30.00 feet; thence North 00 degrees 13' 40" West per File 13 of Surveys, page 26, recorded June 5, 1963 as Document No. 363093 in Book 450 of Official Records, Clark County, Nevada, a distance of 39.00 feet to the POINT OF BEGINNING; thence North 89 degrees 46' 20" East, 45.00 feet; thence South 51 degrees 02' 30" East, 128.00 feet to a point hereinafter designated as Point A, said point also being the point of ending of said centerline. PARCEL NO. 2: A strip of land 20.00 feet in width being 10.00 feet on each side of the following described centerline: BEGINNING at the aforementioned Point A; thence South 51 degrees 02' 30" East, 30.00 feet to the point of ending of said centerline. Affects: Parcels 1 and 2 (20) TERM, COVENANTS, CONDITIONS AND PROVISIONS in an instrument entitiled, "ENCROACHMENT AGREEMENT", by and between CITY OF LAS VEGAS, a municipal corporation and SHOWBOAT, INC. recorded October 27, 1986, in Book 861027 as Document No. 00778, of Official Records. (21) A LEASE executed by and between the parties named herein, for the term and upon and subject to all of the terms, covenants, and provisions contained therein; Dated: January 1, 1989 Lessor: SHOWBOAT, INC., a Nevada corporation Lessee: SHOWBOAT OPERATING COMPANY, a Nevada corporation Term: 10 YEARS Disclosed by: MEMORANDUM OF LEASE (WITH CANCELLLATION OF PRIOR LEASE) Recorded: June 21, 1990 in Book 900621 as Document No. 00420 Affects: All Parcels The herein above referenced lease was suboridnated to the lien or charge of the Deed of trust referred to as Item No. 24 by document entitiled "SUBORDINATION AGREEMENT", recorded May 18, 1993 in Book 930518 as Document No. 00392. (22) EASEMENT: An easement affecting that portion of said land and for the purposes therein and incidental purposes thereto, in favor of NEVADA POWER COMPANY, for underground electric system(s), recorded September 21, 1990, in Book 900921 as Document No. 00787 of Official Records. Affects: A strip of land 6.00 feet in width, being 3.00 feet on each side of the following described centerline: COMMENCING at the intersection of the North (N) line of the Southeast Quarter of the Northwest Quarter (SE 1/4 NW 1/4) of said Section 1 with the West line of the U.S. Highway 93-95-466; thence South 42 degrees 27' 00" East, along the West right-of-way line of said U.S. Highway 93-95-466, a distance of 124.37 feet; thence South 48 degrees 05' 25" West, 26.43 feet to a point hereinafter referred to as POINT "A", being also the POINT OF BEGINNING; thence continuing South 48 degrees 05' 25" West, 231.94 feet; thence North 42 degrees 31' 33" West, 205.50 feet to a point hereinafter referred to as POINT "B", being the point of ending. The sideline boundaries of said Strip shall be lengthened or shortened so as to intersect at the angle point. Also, the following described parcels of land: PARCEL 1: BEGINNING at POINT "A"; thence North 42 degrees 27' 00" West, 37.49 feet; thence North 47 degrees 33' 00" East, 26.43 to a point on the Westerly right of way line of the U.S. Highway 93-95-466; thence South 42 degrees 27' 00" East, along said Westerly right of way line, 66.85 feet; thence South 42 degrees 33' 00" West, 26.43 feet; thence North 42 degrees 27' 00" West, 29.36 feet to the POINT OF BEGINNING. PARCEL 2: BEGINNING at POINT "B"; thence North 46 degrees 45' 10" East, 15.61 feet; thence North 43 degrees 14' 50" West, 23.00 feet; thence South 46 degrees 45' 10" West, 20.10 feet; thence South 43 degrees 14' 50" East, 23.00 feet; thence North 46 degrees 45' 10" East, 4.49 feet to the POINT OF BEGINNING. Affects: Parcels 2 and 3 (23) FINANCING STATEMENT: The effect of a FINANCING STATEMENT to secure an indebtedness of the amount stated herein, executed by SHOWBOAT OPERATING COMPANY, in favor of SIGN SYSTEMS, in the amount of $3,515,512.00, dated March 10, 1993, and recorded March 19, 1993 in Book 930319 as Document No. 00860 of Official Records. Affects: Pylon Display Sign situated on said property (Exact Location not disclosed) (24) DEED OF TRUST: A Deed of Trust to secure an indebtedness of $215,000,000.00 and any other amounts payable under the terms thereof: Recorded: May, 18 1993 in Book 930518 Document No. 00390 of Official Records. Dated: May 18, 1993 Trustor: SHOWBOAT, INC., A NEVADA CORPORATION Trustee: NEVADA TITLE COMPANY, A NEVADA CORPORATION Beneficiary: IBJ SCHRODER BANK & TRUST COMPANY, A NEW YORK BANKING CORPORATION AS INDENTURE TRUSTEE The amount due, terms and conditions of the indebtedness should be determined by contacting the owner if the debt. Affects: All Parcels (25) FINANCING STATEMENT: the effect of a FINANCING STATEMENT to secure an indebtedness of the amount stated herein, executed by SHOWBOAT, INC., A NEVADA CORPORATION, in favor of IBJ SCHRODER BANK & TRUST COMPANY, A NEW YORK BANKING CORPORATION, AS TRUSTEE UNDER THAT CERTAIN INDENTURE DATED AS OF MAY 17, 1993, in the amount of $ (NOT SET OUT), dated May 17, 1993, and recorded May 18, 1993 in Book 930518 as Document No. 00391 of Official Records. Affects: All Parcels (26) FINANCING STATEMENT: The effect of a FINANCING STATEMENT to secure an indebtedness of the amount stated herein, executed by SHOWBOAT OPERATING COMPANY, in favor of IBJ SCHRODER BANK & TRUST COMPANY, in the amount of $ (NOT SET OUT), dated (NOT SET OUT), and recorded May 18, 1993 in Book 930518 as Document No. 00393 of Official Records. Affects: All Parcels (27) MECHANICS LIEN: A claim of MECHANIC'S LIEN by COM CON, INC., a Nevada corporation, recorded July 1, 1993 in Book 930701 of Official Records as document number 01081. Amount: $71,879.11 (28) MECHANICS LIEN: A claim of MECHANIC'S LIEN by DAN BRADLEY'S GLASS SHOP, recorded July 23, 1993 in Book 930723 of Official Records as document number 00895. Amount: $8,100.00 (29) MECHANICS LIEN: A claim of MECHANIC'S LIEN by MORENA TILE, recorded August 3, 1993 in Book 930803 of Official Records as document number 00963. Amount: $4,653.40 (30) MECHANICS LIEN: A claim of MECHANIC'S LIEN by THE LABOR EXCHANGE, recorded August 9, 1993 in Book 930809 of Official Records as document number 01307. Amount: $12,150.40 (31) MECHANICS LIEN: A claim of MECHANIC'S LIEN by VERSA-TILE, recorded September 16, 1993 in Book 930916 of Official Records as document number 00913. Amount: $7,451.40 (32) LIS PENDENS: An action commenced in the DISTRICT COURT, CLARK COUNTY, NEVADA, dated December 17, 1993, Case No. A328549, entitled, "AN ACTION TO FORECLOSE UPON THE NOTICE OF CLAIM OF LIEN FILED BY PLAINTIFF", COM CON, INC., a Nevada Corporation - -vs- NEW HOTEL SHOWBOAT, INC., a Nevada Corporation Notice of Pendency of said Action was recorded December 22, 1993 in Book 931222 as Dcoument No. 01263 of Official Records. Affects: Mechanic's Lien shown as Item No. 27 herein. Said Lis pendens was Amended by Notice recorded December 29, 1993 in Book 931229 as Document No. 01492 of Official Records. NOTE: COM CON, INC., A NEVADA CORPORATION filed a petition for relief under Chapter 7 of the Bankruptcy Code on March 21, 1995 in the U.S. Bankruptcy Court, District of Nevada, Case No. 95-1093. Recording Requested By and Return Recorded Counterparts to: Peter W. Leibundgut, Esquire Clark, Ladner, Fortenbaugh & Young Woodland Falls Corporate Park 200 Lake Drive East Suite 300 Cherry Hill, New Jersey 08002 LEASEHOLD IN PARI PASSU MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT MADE BY ATLANTIC CITY SHOWBOAT, INC, a New Jersey Corporation, as Mortgagor, for the benefit of NATWEST BANK, N.A., a National Banking Corporation ***************************************************************** THIS INSTRUMENT IS TO BE FILED AND INDEXED IN THE REAL ESTATE RECORDS OF ATLANTIC COUNTY, NEW JERSEY, UNDER THE NAMES OF ATLANTIC CITY SHOWBOAT, INC., AS "MORTGAGOR" AND RESORTS INTERNATIONAL, INC. AS "LESSOR." THIS MORTGAGE OPERATES AS A FIXTURE FILING AND THE RECORD OWNERS OF THE PROPERTY LOCATED IN ATLANTIC CITY, COUNTY OF ATLANTIC, STATE OF NEW JERSEY, ARE ATLANTIC CITY SHOWBOAT, INC., AND RESORTS INTERNATIONAL, INC. THIS MORTGAGE OPERATES AS A FEE MORTGAGE WITH RESPECT TO REAL PROPERTY OWNED BY MORTGAGOR AS DESCRIBED HEREIN AND AS A LEASEHOLD MORTGAGE WITH RESPECT TO REAL PROPERTY OWNED BY RESORTS INTERNATIONAL, INC. AND LEASED BY MORTGAGOR AS DESCRIBED HEREIN. 1 TABLE OF CONTENTS ARTICLE ONE COVENANTS OF MORTGAGOR 1.1 Performance of Loan Documents 17 1.2 General Representations, Covenants and Warranties 17 1.3 Compliance with Legal Requirements 18 1.4 Taxes 18 1.5 Insurance 18 1.6 Condemnation 21 1.7 Care of Mortgaged Property 22 1.8 Environmental Laws 22 1.9 Leases 24 1.10 Treatment of Facility Leases in Bankruptcy 26 1.11 Rejection of Facility Leases by Facility Lessor 27 1.12 Assignment of Claims to Mortgagee 27 1.13 Offsets by Mortgagor 27 1.14 Mortgagor's Acquisition of Interest in Leased 28 Parcels 1.15 New Facility Leases Issued to Mortgagee 28 1.16 Further Encumbrance, Sale or Other Disposition of 28 Collateral 1.17 Partial Releases of Mortgaged Property 29 1.18 Lien Subrogation 30 1.19 Further Assurances 30 1.20 Security Agreement and Financing Statements 30 1.21 Assignment of Rents 32 1.22 Expenses 33 1.23 Mortgagee's Cure of Mortgagor's Default 33 1.24 Use of Land 34 1.25 Material Space Leases 34 1.26 Compliance with Permitted Lien Agreements 34 1.27 Defense of Actions 34 1.28 Affiliates 34 1.29 Future Advances 34 1.30 Title Insurance 34 1.31 Exculpation of Mortgagee 34 ARTICLE TWO CORPORATE LOAN PROVISIONS 2.1 Interaction with Indenture, Loan Agreement and 35 Intercreditor Agreement 2.2 Other Collateral 35 ARTICLE THREE DEFAULTS 3.1 Event of Default 35 2 PAGE ARTICLE FOUR REMEDIES 4.1 Acceleration of Maturity 36 4.2 Protective Advances 37 4.3 Institution of Equity Proceedings 37 4.4 Mortgagee's Power of Enforcement 37 4.5 Mortgagee's Right to Enter and Take Possession, 38 Operate and Apply Income 4.6 Leases 39 4.7 Purchase by Mortgagee 39 4.8 Waiver of Appraisement, Valuation, Stay, Extension 39 and Redemption Laws 4.9 Receiver 39 4.10 Suits to Protect the Mortgaged Property 40 4.11 Proofs of Claim 40 4.12 Mortgagor to Perform Obligations; Application of 40 Monies by Mortgagee 4.13 Delay or Omission; No Waiver 41 4.14 No Waiver of One Default to Affect Another 41 4.15 Discontinuance of Proceedings; Position of Parties 41 Restored 4.16 Remedies Cumulative 41 4.17 Interest After Event of Default 42 4.18 Foreclosure; Expenses of Litigation 42 4.19 Deficiency Judgments 42 4.20 Waiver of Jury Trial 42 4.21 Reasonable Use and Occupancy 42 4.22 Exculpation of Mortgagee 43 ARTICLE FIVE MISCELLANEOUS PROVISIONS 5.1 Heirs, Successors and Assigns Included in Parties 43 5.2 No Merger 43 5.3 Addresses for Notices, Etc 44 5.3.1 Change of Address 44 5.4 Headings 44 5.5 Invalid Provisions to Affect No Others 44 5.6 Changes and Priority Over Intervening Liens 45 5.7 Estoppel Certificates 45 5.8 Governing Law 45 5.9 Required Notices 45 5.10 Continued Priority of Lien 45 5.11 Attorneys' Fees 45 5.12 Late Charges 46 5.13 Cost of Accounting 46 5.14 Right of Entry 46 5.15 Corrections 46 5.16 Statute of Limitations 46 5.17 Subrogation 46 3 Page 5.18 Joint and Several Liability 46 5.19 Context 46 5.20 Time 47 5.21 Interpretation 47 5.22 Exhibits and Schedules 47 5.23 Integration 47 5.24 Recording of Mortgage, Etc 47 5.25 Consents 47 5.26 Usury Laws 47 5.27 Gaming Control Acts 47 ARTICLE SIX POWER OF ATTORNEY 6.1 Grant of Power 48 6.2 Possession and Completion 48 6.3 Employment of Others 48 6.4 Security Guards 48 6.5 Compromise Claims 48 6.6 Legal Proceedings 48 6.7 Other Acts 48 EXHIBIT A FORM OF DISBURSEMENT REQUEST AND CERTIFICATE SCHEDULE A LAND DESCRIPTION, INCLUDING LEASE DESCRIPTION SCHEDULE B LIST OF EXISTING ENCUMBRANCES 4 LEASEHOLD IN PARI PASSU MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT Pursuant to Section 1.16 of that certain Leasehold Mortgage, Assignment of Rents and Security Agreement, dated as of May 18, 1993 among Atlantic City Showboat, Inc., as mortgagor and Showboat, Inc., as mortgagee, recorded in the office of the Clerk of Atlantic County on May 19, 1993 in Book 5028 Page 284 as amended by that certain First Amendment to Leasehold Mortgage, Assignment of Rents and Security Agreement dated July 9, 1993 recorded May 19, 1993 in Mortgage Book 5095, page 209; and pursuant to that Leasehold Mortgage, Assignment of Rents and Security Agreement made by Atlantic City Showboat, Inc. to IBJ Schroder Bank & Trust Company (as Trustee) recorded May 19, 1993 in Mortgage Book 5020, page 1 as amended by that First Amendment to Leasehold Mortgage Assignment of Rents and Security Agreement recorded July 28, 1993 in Mortgage Book 5095, page 209 as amended by that Second Amendment to Leasehold Mortgage Assignment of Rents and Security Agreement dated as of July 6, 1995; and, pursuant to Section 1.10 of that certain Deed of Trust, Assignment of Rents and Security Agreement, dated as of May 18, 1993 made by Showboat, Inc., as Trustor, to Nevada Title Company, as Trustee for the benefit of IBJ Schroder Bank and Trust Company as Beneficiary, recorded on May 18, 1993 in Book 5500, page 284, the lien created by this instrument ranks PARI PASSU with the liens created by said Leasehold Mortgages, and Deed of Trust as amended. THIS LEASEHOLD MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT (hereinafter called "Leasehold Mortgage") is made as of July 6, 1995, by and between ATLANTIC CITY SHOWBOAT, INC., a New Jersey corporation ("Mortgagor"), whose address is 801 Boardwalk, Atlantic City, New Jersey 08401, and NATWEST BANK, N.A. a National Banking Association, ("Mortgagee"). DEFINITIONS - As used in this Leasehold Mortgage, the following terms have the meanings hereinafter set forth: "ACCOUNTS RECEIVABLE" shall have the meaning set forth in Section 9-106 of the UCC for the term "account." "ACSI GUARANTY" means that certain guaranty made by Mortgagor in favor of Mortgagee under the Loan Agreement. "ACSI PROMISSORY NOTE" means that certain promissory note in the amount of $215,000,000.00 between Atlantic City Showboat, Inc., as payor and Showboat, Inc. as payee. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person, and, with respect to any specified natural Person, any other Person having a relationship by blood, marriage or adoption not more remote than first cousins with such natural Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with") as used with respect to any Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities or by agreement or otherwise; PROVIDED, HOWEVER, that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed control. "APPURTENANT RIGHTS" means all and singular tenements, hereditaments, rights, reversions, remainders, development rights, privileges, benefits, easements (in gross or appurtenant), rights-of-way, gores or strips of land, streets, ways, alleys, passages, sewer rights, water courses, water rights and powers, and all appurtenances whatsoever and claims or demands of Mortgagor at law or in equity in any way belonging, benefitting, relating or appertaining to Mortgagee's interest in the Land under any Facility Lease or otherwise, the airspace over the Land, the 5 Improvements or any of the Mortgaged Property encumbered by this Leasehold Mortgage, or which hereinafter shall in any way belong, relate or be appurtenant thereto, whether now owned or hereafter acquired by Mortgagor. "ATLANTIC CITY SHOWBOAT" means the Showboat Casino Hotel in Atlantic City, New Jersey, as more particularly described in the Prospectus and any other facilities, businesses or enterprises owned or operated by Mortgagor on the Land. "ATLANTIC CITY SHOWBOAT EXPANSION" means any addition, improvement, extension or capital repair to the Atlantic City Showboat or related or ancillary facilities. "BANKRUPTCY" means, with respect to any Person, that such Person is or becomes bankrupt or Insolvent or: (a) is the subject of any order for relief under any Bankruptcy Law; (b)commences a voluntary proceeding under any Bankruptcy Law; (c) consents to the entry of an order for relief in an involuntary proceeding under any Bankruptcy Law; (d) consents to the appointment of, or taking possession by any Receiver; (e) makes any assignment for the benefit of creditors; (f) is unable or fails, or admits in writing its inability, to pay its debts as such debts become due; (g) is the subject of any involuntary proceeding under any Bankruptcy Law or involuntary appointment of a Receiver, and such involuntary proceeding or appointment is not dismissed and terminated within 90 days; (h) is the subject of any other proceeding or relief similar to any of the foregoing under any law; (i) is the subject of a warrant of attachment, execution, or similar process with respect to such Person or any substantial part of such Person's property, which warrant or similar process remains in effect for sixty days without having been bonded or discharged; or (j) otherwise ceases to do business as a going concern. "BANKRUPTCY CODE" means the United States Bankruptcy Code, 11 U.S.C. 101 et seq. "BANKRUPTCY LAW" means the Bankruptcy Code and any other state or federal insolvency, reorganization, moratorium or similar law for the relief of debtors. "BONDHOLDERS" means the holders of the First Mortgage Bonds. "BORROWER" means Showboat, Inc., a Nevada corporation. "BUSINESS DAY" means any day that is not a Saturday, a Sunday or a day on which banking institutions in the State of New Jersey or the State of New York are not required to be open. "COLLATERAL" means the property described in granting clauses (A) through (S) (subject to the exclusions set forth in clause T) below. "DEEDS OF TRUST" means collectively (1) that certain Deed of Trust, Assignment of Rents and Security Agreement made by Showboat, Inc., dated of even date herewith, and securing, among other things, the Loan Agreement; and (2) this Mortgage. "DEP" means the New Jersey Department of Environmental Protection and Energy together with its successors. "DISBURSEMENT REQUEST" means a certificate in the form of Exhibit "A" attached hereto and completed as to all information required therein, with all required attachments attached and executed by the president and a vice-president or at least two vice-presidents of Mortgagor on behalf of Mortgagor. "ENVIRONMENTAL LAWS" means any and all laws and Legal Requirements relating to environmental matters, pollution, or hazardous substances, including: the Comprehensive Environmental Response, Compensation and 6 Liability Act of 1980,42 U.S.C. 9601-9657; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. 6901 et seq.; the Hazardous Materials Transportation Act (49 U.S.C. 1801 et seq.); ISRA; the Spill Act; any other Laws that may form the basis of any claim, action, demand, suit, proceeding, hearing, or notice of violation that is based on or related to the generation, manufacture, processing, distribution, use, existence, treatment, storage, disposal, transport, or handling, or the emission, discharge, release, or threatened release into the environment, of any hazardous substance, or other threat to the environment. "EVENT OF DEFAULT" has the meaning set forth in Section 3.1 hereof. "EXISTING ENCUMBRANCES" means those matters set forth on Schedule "B" attached hereto constituting a prior lien, claim or encumbrance upon the Mortgaged Property or any other prior lien, claim or encumbrance upon the Mortgaged Property specifically consented to in writing by Mortgagee. "FACILITY LEASE(S)" means all of Mortgagor's estate, right, title and interest in, to and under (1) the Resorts Lease, as it may be amended, restated, renewed or extended from time to time in the future in compliance with this Leasehold Mortgage, including any options to purchase, extend, or renew provided for in the Resorts Lease and (2) any or all other lease(s) or sublease(s) with respect to the Atlantic City Showboat, under which Mortgagor is lessee or sublessee, as such (sub)lease(s) may be amended, restated, renewed, modified, supplemented, or extended from time to time in the future in compliance with this Leasehold Mortgage, including any options to purchase, extend or renew provided for in such (sub)lease(s). "FACILITY LEASE DAMAGE CLAIMS" means all of Mortgagor's claims and rights to the payment of damages that may arise from Facility Lessor's failure to perform under any Facility Lease, or rejection of any Facility Lease under any Bankruptcy Law. "FACILITY LESSOR" means each lessor under each Facility Lease. "FF&E" means all furniture, fixtures, equipment, appurtenances and personal property now or in the future owned or leased by Mortgagor contained in, used in connection with, attached to, or otherwise useful or convenient to the use, operation, or occupancy of, or placed on, but unattached to, any part of the Land or Improvements whether or not the same constitutes real property or fixtures in the State of New Jersey, including all removable window and floor coverings, all furniture and furnishings, heating, lighting, plumbing, ventilating, air conditioning, refrigerating, incinerating and elevator and escalator plants, cooking facilities, vacuum cleaning systems, public address and communications systems, sprinkler systems and other fire prevention and extinguishing apparatus and materials, motors, machinery, pipes, appliances, equipment, fittings, fixtures, and building materials, together with all venetian blinds, shades, draperies, drapery and curtain rods, brackets, bulbs, cleaning apparatus, mirrors, lamps, ornaments, cooling apparatus and equipment, ranges and ovens, garbage disposals, dishwashers, mantels, and any and all such property which is at any time installed in, affixed to or placed upon the Land or Improvements. "FF&E FINANCING AGREEMENT" shall have the meaning ascribed to that term in Section 1.16(d) hereof. "FIRST MORTGAGE BONDS" means Mortgagee's 9-1/4% First Mortgage Bonds due May 1, 2008, issued pursuant to the Indenture, or any notes exchanged therefor as contemplated in the Indenture. "GAMING AUTHORITY" means any agency, authority, board, bureau, commission, department, office or instrumentality of any nature whatsoever of the United States federal or foreign government, any state, province or any city or other political subdivision or otherwise and whether now or hereafter in existence, or any officer or official thereof with authority to regulate any gaming operation (or proposed gaming operation) owned, managed or operated by the Issuer or any of its Subsidiaries, including, without limitation, the Nevada Gaming Commission, 7 The Nevada State Gaming Control Board, the City Council of the City of Las Vegas, and the New Jersey Casino Control Commission. "GAMING CONTROL ACTS" means the laws, regulations and supervision procedures of the Nevada Gaming Control Act and the New Jersey Casino Control Act, as from time to time amended, or any successor provision of law, and the regulations promulgated thereunder and such other laws, regulations and supervision procedures of the United States federal or foreign government, any state, province or any city or other political subdivision or otherwise and whether now or hereafter in existence, or any officer or official thereof with authority to regulate any gaming operation (or proposed gaming operation) owned, managed, or operated by the Mortgagor or any of its subsidiaries including, without limitation, the Nevada Gaming Commission, the Nevada State Gaming Control Board, the City Council of the City of Las Vegas, and the New Jersey Casino Control Commission. "GAMING PERMITS" means every license, franchise, permit or other authorization on the date of the Indenture or thereafter required to own, lease, operate or otherwise conduct casino gaming at the Las Vegas Showboat and the Atlantic City Showboat, including, without limitation, all such licenses granted under the Gaming Control Acts, the regulations of the Gaming Authorities and other applicable laws. "GOVERNMENTAL AUTHORITY" means any agency, authority, board, bureau, commission, department, office, public entity or instrumentality of any nature whatsoever of the United States federal or foreign government, any state, province or any city or other political subdivision or otherwise, whether now or hereafter in existence, or any officer or official thereof, including, without limitation, any Gaming Authority. "GUARANTORS" means each of (i) SBOC, OSI and Mortgagor and (ii) any other Subsidiary that executes a Subsidiary Guaranty in accordance with the provisions of the Loan Agreement, and their respective successors and assigns. "HAZARDOUS MATERIALS" means any hazardous substance or toxic chemical and shall include, without limitation, gasoline, refined petroleum products, explosives, radioactive materials, asbestos, polychlorinated biphenyls or related or similar materials, or any other substance or material defined as a hazardous or toxic substance or waste or toxic pollutant by any federal, state or local law, ordinance, rule, or regulation, including without limitation, Environmental Laws. "IBJ" means IBJ Schroder Bank & Trust Company, Trustee under the Indenture. "IMPOSITIONS" means all taxes, assessments, water rates, sewer rents, maintenance charges, other governmental inspections and other charges now or hereafter levied or assessed or imposed against the Mortgaged Property or any part thereof. "IMPROVEMENTS" means (1) all the buildings, structures, facilities and improvements of every nature whatsoever now or hereafter situated on the Land or any real property encumbered hereby, and (2) all of the following to the extent owned or leased by Mortgagor: all fixtures, machinery, appliances, goods, building or other materials and equipment, including without limitation all gaming equipment and devices, all bowling balls, bowling shoes, bowling pins, pin-setting and ball return machines, ball drilling and polishing machines, racks, cases, cabinets, trophies, towels, furniture, furnishings, machinery, equipment and supplies relating to the operation of the bowling center located on the Land, and all machinery, equipment, engines, appliances and fixtures for generating or distributing air, water, heat, electricity, light, fuel or refrigeration, or for ventilating or sanitary purposes, or for the exclusion of vermin or insects, or for the removal of dust, refuse or garbage; all wall-beds, wall-safes, built-in furniture and installations, shelving, lockers, partitions, doorstops, vaults, motors, elevators, dumb-waiters, awnings, window shades, venetian blinds, light fixtures, fire hoses and brackets and boxes for the same, fire sprinklers, alarm, surveillance and security systems, computers, drapes, drapery rods and brackets, mirrors, mantels, screens, linoleum, 8 carpets and carpeting, plumbing, bathtubs, sinks, basins, pipes, faucets, water closets, laundry equipment, washers, dryers, ice- boxes and heating units; all kitchen and restaurant equipment, including but not limited to silverware, dishes, menus, cooking utensils, stoves, refrigerators, ovens, ranges, dishwashers, disposals, water heaters, incinerators, furniture, fixtures and furnishings, communication systems, and equipment; all cocktail lounge supplies, including but not limited to bars, glassware, bottles and tables used in connection with the Land; all chaise lounges, hot tubs, swimming pool heaters and equipment and all other recreational equipment (computerized and otherwise), beauty and barber equipment, and maintenance supplies used in connection with the Land; all specifically designed installations and furnishings, and all furniture, furnishings and tangible personal property of every nature whatsoever now or hereafter owned or leased by Mortgagor or in which Mortgagor has any rights or interest and located in or on, or attached to, or used or intended to be used or which are now or may hereafter be appropriated for use on or in connection with the operation of the Land or any real or personal property encumbered hereby or any other Improvements, or in connection with any construction being conducted or which may be conducted thereon, and all extensions, additions, accessions, improvements, betterments, renewals, substitutions, and replacements to any of the foregoing, and all of the right, title and interest of Mortgagor in and to any such property (subject to any Permitted Liens), which, to the fullest extent permitted by law, shall be conclusively deemed fixtures and improvements and a part of the real property hereby encumbered. "INDENTURE" means that certain indenture, dated as of May 18, 1993, by and among the Mortgagee, as issuer, Mortgagor, OSI and SBOC, as guarantors, and Trustee, as trustee, as such Indenture is amended or supplemented from time to time in accordance with the terms thereof. "INSOLVENT" means with respect to any person or entity, that such person or entity shall be deemed to be insolvent if he or it is unable to pay his or its debts as they become due and/or if the fair market value of his or its assets does not exceed his or its aggregate liabilities. "INTANGIBLE COLLATERAL" means, subject to the terms and conditions of the Indenture, (a) the rights to use all names and all derivations thereof now or hereafter used by Mortgagor in connection with the Land or Improvements, including, without limitation, the names "Atlantic City Showboat," "Atlantic City Showboat Casino" and any use of the name "Showboat Casino" in the State of New Jersey, including any variations thereon, together with the goodwill associated therewith, and all names, logos, and designs used by Mortgagor, or in connection with the Land or in which Mortgagor has rights, with the exclusive right to use such names, logos and designs wherever they are now or hereafter used in connection with the Atlantic City Showboat, and any and all other trade names, trademarks or service marks, whether or not registered, now or hereafter used in the operation of the Atlantic City Showboat, including, without limitation, any interest as a lessee, licensee or franchisee, and, in each case, together with the goodwill associated therewith; (b) subject to the absolute assignment contained herein, the Rents; (c) any and all books, records, customer lists, concession agreements, supply or service contracts, licenses, permits, governmental approvals (to the extent such licenses, permits and approvals may be pledged under applicable law), signs, goodwill, casino and hotel credit and charge records, supplier lists, checking accounts, safe deposit boxes (excluding the contents of such deposit boxes owned by persons other than Mortgagor and its subsidiaries), cash, instruments, chattel papers, documents, unearned premiums, deposits, refunds, including but not limited to income tax refunds, prepaid expenses, rebates, tax and insurance escrow and impound accounts, if any, actions and rights in action, and all other claims, including without limitation condemnation awards and insurance proceeds, and all other contract rights and general intangibles resulting from or used in connection with the operation of the Mortgaged Property and in which Mortgagor now or hereafter has rights; (d) all of Mortgagor's documents, instruments, contract rights, and general intangibles including, without limitation, all permits, licenses, franchises and agreements required for the use, occupancy or operation of any Improvements (to the extent such licenses, permits and approvals are not prohibited from being pledged under applicable law); and (e) general intangibles, vacation license resort agreements or other time share license or right to use agreements, including without limitation all rents, issues, profits, income and maintenance fees resulting therefrom, whether any of the foregoing is now owned or hereafter acquired. 9 "INTERCREDITOR AGREEMENT" means, collectively, the Intercreditor Agreements, of even date herewith, entered into between Mortgagee, IBJ, Borrower, and Mortgagor. "INVENTORY" shall have the meaning set forth in section 9- 109(4) of the UCC. "ISRA" means the Industrial Site Recovery Act, N.J. S A.13: 1K-6 et seq. "LAND" means the real property situated in Atlantic City, County of Atlantic, State of New Jersey, more specifically described in Schedule A attached hereto, including any after acquired title thereto. "LEGAL REQUIREMENTS" means all applicable restrictive covenants, applicable zoning and subdivision ordinances and building codes, all applicable health and environmental laws and regulations, all applicable gaming laws and regulations, and all other applicable laws, ordinances, rules, regulations, judicial decisions, administrative orders, and other requirements of any Governmental Authority having jurisdiction over Mortgagor, the Mortgaged Property and/or any Affiliate of Mortgagor, in effect either at the time of execution of this Leasehold Mortgage or at any time during the term hereof, including, without limitation, all Environmental Laws and Gaming Control Acts. "LIEN" means with respect to any portion of the Mortgaged Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such portion of the Mortgaged Property whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "LOAN AGREEMENT" means that certain Loan and Guaranty Agreement between Borrower, Mortgagor, Mortgagee, SBOC and OSI of even date herewith. "LOAN DOCUMENTS" means this Leasehold Mortgage, the Promissory Note, the Loan Agreement, the In PARI PASSU Assignment of Leases and Rents, the Intercreditor Agreements, and any other documents evidencing, guaranteeing or securing the Obligations of Borrower, Mortgagor and Guarantors to Mortgagee or IBJ under such document. "MATERIAL SPACE LEASE" means any Space Lease that provides for an annual rent in excess of $100,000. "MORTGAGED PROPERTY" means all of the property described in Granting Clauses (A) through (S) below, inclusive, and each item of property therein described, provided, however, that such term shall not include the property described in Granting Clause (T) below. "MORTGAGEE" means NatWest Bank, N.A. a national banking corporation, and any assignee of its rights hereunder or of the Promissory Note secured hereby. "MORTGAGOR" means Atlantic City Showboat, Inc., a New Jersey corporation and includes not only the original Mortgagor hereunder, but also any successors or assigns of the Mortgagor, or any part thereof, at any time and from time to time, as the case requires. "OBLIGATIONS" means the payment and performance of each covenant and agreement of Mortgagor contained in this Leasehold Mortgage and the Loan Documents. "OSI" means Ocean Showboat, Inc., a New Jersey corporation. 10 "OSI GUARANTY" means the Subsidiary Guaranty contained in the Loan Agreement of even date herewith made by OSI in favor of Mortgagee. "PERMITTED DISPOSITION" means the sale, transfer or other disposition of Collateral not to exceed an aggregate value of $3,000,000.00 per annum. "PERMITTED LIENS" means Liens that are permitted under Section 6.05 of the Loan Agreement. "PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or any governmental agency or political subdivision thereof. "PLANS" shall have the meaning ascribed to that term in Section 1.5 hereof. "PROCEEDS" has the meaning assigned to it under the UCC and, in any event, shall include but not be limited to (i) any and all proceeds of any insurance (including without limitation property casualty and title insurance), indemnity, warranty or guaranty payable from time to time with respect to any of the Mortgaged Property; (ii) any and all proceeds in the form of accounts, security deposits, tax escrows (if any), down payments (to the extent the same may be pledged under applicable law), collections, contract rights, documents, instruments, chattel paper, liens and security instruments, guaranties or general intangibles relating in whole or in part to the Atlantic City Showboat and all rights and remedies of whatever kind or nature Mortgagor may hold or acquire for the purpose of securing or enforcing any obligation due Mortgagor thereunder; (iii) any and all payments in any form whatsoever made or due and payable from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Mortgaged Property by any Governmental Authority; (iv) subject to the absolute assignment contained herein, the Rents or other benefits arising out of, in connection with or pursuant to any Space Lease of the Mortgaged Property; and (v) any and all other amounts from time to time paid or payable in connection with any of the Mortgaged Property; PROVIDED, HOWEVER, that the Mortgagor is not authorized to dispose of any of the Mortgaged Property unless such disposition is a Permitted Disposition. "PROMISSORY NOTE" means that certain Revolving Note as same may be amended pursuant to the Loan Agreement, between Borrower and Mortgagee as Lender, both of even date herewith, in the maximum aggregate amount of $25,000,000.00. "PROSPECTUS" means that certain prospectus, dated as of May 18, 1993, relating to the offering of the First Mortgage Bonds of Mortgagor, and all supplements, schedules or other attachments thereto. "PROTECTIVE ADVANCES" has the meaning set forth in Section 4.2. "RECEIVER" means, with respect to any Person (including Mortgagor), any receiver, trustee, custodian, debtor in possession, liquidator, sequestrator, administrator, conservator, or other successor appointed (whether by a court or otherwise) pursuant to any creditor's exercise of remedies against such Person, or pursuant to a Bankruptcy of such Person, or for purposes of reorganization or liquidation, or otherwise for the benefit of such Person's creditors, or under any similar circumstances, or otherwise having similar powers over such Person or its property, whether such Receiver acts on an interim, temporary, or final basis and whether such appointment applies to all or any significant portion of such Person's assets or property, including or not including any of the Mortgaged Property. "RENTS" means all rents, income, receipts, issues, profits, revenues and maintenance fees, room, food and beverage revenues, license and concession fees, income, proceeds and other benefits to which Mortgagor may now or hereafter be entitled from the Land, the Improvements, the Facility Leases or Space Leases or any property encumbered hereby or any business or other activity conducted by Mortgagor at the Land or the Improvements. 11 "RESORTS" means Resorts International, Inc., a Delaware corporation. "RESORTS LEASE" means that certain Lease Agreement dated as of October 26, 1983 between Resorts and 0S1, 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 0S1 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) that 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 18, 1993 in Deed Book 5500, page 284. "SBOC" means Showboat Operating Company, a Nevada corporation. "SBOC GUARANTY" means the Guaranty of even date herewith and made by SBOC in favor of Mortgagee. "SPACE LEASES" means any and all leases, subleases, lettings, licenses, concessions, operating agreements, management agreements, and all other agreements affecting the Mortgaged Property that Mortgagor has entered into, taken by assignment, taken subject to, or assumed, or has otherwise become bound by, now or in the future, that give any person or entity other than Mortgagor the right to conduct its business on, or otherwise use, operate or occupy, all or any portion of the Land or Improvements and any leases, agreements or arrangements permitting anyone or any entity other than Mortgagor to enter upon or use any of the Mortgaged Property to extract or remove natural resources of any kind, together with all amendments, extensions, and renewals of the foregoing entered into in compliance with this Leasehold Mortgage, together with all rental, occupancy, service, maintenance or any other similar agreements pertaining to use or occupation of, or the rendering of services at the Land, the Improvements or any part thereof. "SPACE LESSEE(S)" means any and all tenants, licensees, or other grantees of the Space Leases and any and all guarantors, sureties, endorsers or others having primary or secondary liability with respect to such Space Lease. "SPILL ACT" means the Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 ET SEQ. together with any amendments or revisions thereof and any regulations promulgated pursuant thereto. "SUBSIDIARY GUARANTIES" means, collectively, the OSI Guaranty, the ACSI Guaranty, the SBOC Guaranty and any other guaranties issued pursuant to the Loan Agreement with respect to the Borrower's obligations thereunder. "TANGIBLE COLLATERAL" means all personal property, goods (other than intangible personal property), equipment, supplies, building and other materials of every nature whatsoever and all other tangible personal property constituting a part or portion of the Atlantic City Showboat and/or used in the operation of the hotel, casino, restaurants, stores, parking facilities, bowling alley and all other commercial operations on the Land or 12 Improvements, including but not limited to communication systems, visual and electronic surveillance systems and transportation systems and not constituting a part of the real property subject to the real property lien of this Leasehold Mortgage or any Facility Lease and including all property and materials stored therein in which Mortgagor has an interest and all tools, utensils, food and beverage, liquor, uniforms, linens, housekeeping and maintenance supplies, vehicles, fuel, advertising and promotional material, blueprints, surveys, plans and other documents relating to the Land or Improvements, and all construction materials and all furnishings, fixtures and equipment, including, but not limited to, all bowling balls, bowling shoes, bowling pins, pin-setting and ball return machines, ball drilling and polishing machines, racks, cases, cabinets, trophies, towels, furniture, furnishings, machinery, equipment and supplies relating to the operation of the bowling center located on the Land; to the extent permitted by all applicable Gaming Control Acts, all gaming equipment and devices which are or are to be installed and used in connection with the operation of the Atlantic City Showboat and those items of furniture, fixtures and equipment which are to be purchased or leased by Mortgagor, machinery and any other item of personal property in which Mortgagor now or hereafter own or acquire an interest or right, and which are used or useful in the construction, operation, use and occupancy of the Atlantic City Showboat; to the extent permitted by the applicable contract or applicable Gaming Control Acts, all gaming and financial equipment, computer equipment, calculators, adding machines, gaming tables, video game and slot machines, and any other electronic equipment of every nature used or located on any part of the Land or Improvements, and all present and future right, title and interest of Mortgagor in and to any casino operator's agreement, license agreement or sublease agreement used in connection with the Land or Improvements; excluding therefrom, however, all Inventory. "365(H) ELECTION" means Mortgagor's election to treat a Facility Lease as terminated under 365(h) of the Bankruptcy Code or any similar Bankruptcy Law, or any comparable right provided under any other Bankruptcy Law, together with all rights, remedies and privileges related thereto. "TITLE INSURER" means Commonwealth Land Title Insurance Company, a Pennsylvania corporation. "TRUSTEE" means IBJ Schroder Trust & Bank Company, a New York corporation, as trustee under the Indenture. "UCC" means the Uniform Commercial Code in effect in the State of New Jersey from time to time. Capitalized terms used in this Leasehold Mortgage which are not otherwise defined herein shall have the meaning ascribed to such terms in the Loan Agreement. In the event of a substantive conflict between capitalized terms used herein and in the Loan Agreement, the Loan Agreement shall govern. WI T N E S S E T H: IN CONSIDERATION OF TEN DOLLARS AND OTHER GOOD AND VALUABLE CONSIDERATION; THE RECEIPT AND SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, AND FOR THE PURPOSE OF SECURING as an in PARI PASSU first priority Lien, subject to the terms and conditions set forth in the Intercreditor Agreement, in favor of Mortgagee (I) the Promissory Note and the payment of all sums payable thereunder as such sums become due and payable; (2) the performance of each covenant and agreement of Mortgagor which is (a) to be performed for the benefit of Mortgagee and (b) contained in the Loan Agreement, in this Leasehold Mortgage or in the other Loan Documents; (3) the payment of such additional loans or advances as hereafter may be made to Mortgagor or its successors or assigns, when evidenced by a promissory note or notes reciting that they are secured by this Leasehold Mortgage; PROVIDED, HOWEVER, that any and all future advances made to Mortgagor for the improvement, protection or preservation of the Mortgaged Property together with interest at the rate then payable on the Promissory Note, shall be automatically secured hereby unless such a note or instrument evidencing such advances specifically recites that it is not intended to be secured hereby; and 13 (4) the payment of all sums expended or advanced by Mortgagee under or pursuant to the terms hereof or to protect the security hereof, together with interest thereon as herein provided. Mortgagor does hereby GRANT, ASSIGN, BARGAIN, CONVEY, HYPOTHECATE, MORTGAGE, PLEDGE, RELEASE, TRANSFER AND GRANT A SECURITY INTEREST IN AND WARRANT UNTO MORTGAGEE, UPON THE TERMS AND CONDITIONS OF THIS LEASEHOLD MORTGAGE, WITH POWER OF SALE AND RIGHT OF ENTRY AS PROVIDED BELOW: (A) Any present or future interest in the Land. (B) TOGETHER WITH the Improvements. (C) TOGETHER WITH all Appurtenant Rights. (D) TOGETHER WITH the Tangible Collateral. (E) TOGETHER WITH the Intangible Collateral. (F) TOGETHER WITH any fee simple interest in the Land and all that certain leasehold estate and interest of the Mortgagor in and to the Land, together with any and all other, further or additional, title, estates, interests or rights which may at any time be acquired by Mortgagor in or to the Land demised by the Resorts Lease, and Mortgagor expressly agrees that if Mortgagor shall, at any time (whether by exercise of the purchase option set forth in Article 24 of the Resorts Lease or otherwise) prior to payment in full of all indebtedness secured hereby, acquire fee title to or any other greater interest in the Land, the lien of this Mortgage shall attach, extend to, cover and be a lien upon such fee simple title or other greater estate involving real property. (G) TOGETHER WITH all of Mortgagor's estate, right, title and interest in, to and under any other Facility Lease now or hereafter on or affecting any of the Land or property described in Granting Clause (B), (C) or (D) hereof or any part thereof, together with all credits, deposits, options (including any options to purchase or renew set forth in the Facility Lease(s)), privileges, rights, estate, title and interest of Mortgagor as tenant or subtenant under the Facility Lease(s), and all books and records which contain records of payments of rent or security made under the Facility Lease(s) and all Facility Lease Damage Claims. (H) TOGETHER WITH all modifications, extensions and renewals of any Facility Lease. (I) TOGETHER WITH all credits, deposits, options, privileges and rights of the Mortgagor, as lessee under any Facility Lease. (J) TOGETHER WITH (i) all the estate, right, title and interest of Mortgagor of, in and to all judgments and decrees, insurance proceeds, awards of damages and settlements hereafter made resulting from condemnation proceedings or the taking of any of the property described in Granting Clauses (A), (B), (C), (D), (E), (F), (G), (H) and (I) hereof or any part thereof under the power of eminent domain, or for any damage (whether caused by such taking or otherwise) to the property described in Granting Clauses (A), (B), (C), (D), (E), (F), (G), (H) and (I) hereof or any part thereof, or to any Appurtenant Rights thereto, and Mortgagee is hereby authorized to collect and receive said awards and proceeds and to give proper receipts and acquittance therefor, and (subject to the terms hereof) to apply the same toward the payment of the indebtedness and other sums secured hereby, notwithstanding the fact that the amount owing thereon may not then be due and payable; (ii) all proceeds of any sales or other dispositions of the property or rights described in Granting Clauses (A), (B), (C), (D), (E), (F), (G), (H) and (I) hereof or any part thereof whether voluntary or involuntary, provided, however, that the foregoing shall not be deemed to permit such sales, transfers, or other dispositions except as specifically permitted herein; and (iii) whether arising from any voluntary or involuntary disposition of the property described 14 in Granting Clauses (A), (B), (C), (D), (E), (F), (G), (H) and (I) all Proceeds, products, replacements, additions, substitutions, renewals and accessions, remainders, reversions and after-acquired interest in, of and to such property. (K) TOGETHER WITH the absolute assignment of any Space Leases or any part thereof that Mortgagor has entered into, taken by assignment, taken subject to, or assumed, or has otherwise become bound by, now or in the future, together with all of the following (including all "Cash Collateral" within the meaning of the Bankruptcy Code) arising from the Space Leases: (a) Rents (subject, however, to the aforesaid absolute assignment to Mortgagee and the conditional permission hereinafter given to Mortgagor to collect the Rents), (b) all guaranties, letters of credit, security deposits, collateral, cash deposits, and other credit enhancement documents, arrangements and other measures with respect to the Space Leases, (c) all of Mortgagor's right, title, and interest under the Space Leases, including the following: (i) the right to receive and collect the Rents from the lessee, sublessee or licensee, or their Successor(s), under any Space Lease(s) and (ii) the right to enforce against any tenants thereunder and otherwise any and all remedies under the Space Leases, including Mortgagor's right to evict from possession any tenant thereunder or to retain, apply, use, draw upon, pursue, enforce or realize upon any guaranty of any Space Lease; to terminate, modify, or amend the Space Leases; to obtain possession of, use, or occupy, any of the real or personal property subject to the Space Leases; and to enforce or exercise, whether at law or in equity or by any other means, all provisions of the Space Leases and all obligations of the tenants thereunder based upon (A) any breach by such tenant under the applicable Space Lease (including any claim that Mortgagor may have by reason of a termination, rejection, or disaffirmance of such Space Lease pursuant to any Bankruptcy Law) and (B) the use and occupancy of the premises demised, whether or not pursuant to the applicable Space Lease (including any claim for use and occupancy arising under landlord-tenant law of the State of New Jersey or any Bankruptcy Law). Notwithstanding the foregoing, permission is hereby given to Mortgagor, so long as no Event of Default has occurred and is continuing hereunder, to collect and use the Rents and to exercise the rights set forth in Granting Clause (K)(c)(ii) in accordance with the provisions of the Leasehold Mortgage, as they become due and payable, but not in advance thereof. Upon the occurrence of an Event of Default and the expiration of any applicable cure or grace period, the permission hereby given to Mortgagor to collect the Rents and to exercise the rights set forth in Granting Clause (K)(c)(ii) in accordance with the provisions of the Leasehold Mortgage shall automatically terminate, but such permission shall be reinstated upon a cure of such Event of Default. Mortgagee shall have the right, at any time and from time to time, to notify any Space Lessee of the rights of Mortgagee as provided by this section. Notwithstanding anything to the contrary contained herein, the foregoing provisions of this Paragraph (K) shall not constitute an assignment for purposes of security but shall constitute an absolute and present assignment of the Rents to Mortgagee, subject, however, to the license given to Mortgagor to collect and use the Rents as hereinabove provided; and the existence or exercise of such right of Mortgagor shall not operate to subordinate this assignment to any subsequent assignment, in whole or in part, by Mortgagor. (L) TOGETHER WITH all of Mortgagor's right, title and interest in and to any and all maps, plans, specifications, surveys, studies, tests, reports, data and drawings relating to the development of the Land or the Atlantic City Showboat and the construction of the Improvements, including, without limitation, all marketing plans, feasibility studies, soils tests, design contracts and all contracts and agreements of Mortgagor relating thereto including, without limitation, architectural, structural, mechanical and engineering plans and specifications, studies, data and drawings prepared for or relating to the development of the Land or the Atlantic City Showboat or the construction, renovation or restoration of any of the Improvements or the extraction of minerals, sand, gravel or other valuable substances from the Land. (M) TOGETHER WITH, to the extent permitted by applicable law, all of Mortgagor's right, title, and interest in and to any and all licenses, permits, variances, special permits, franchises, certificates, rulings, certifications, validations, exemptions, filings, registrations, authorizations, consents, approvals, waivers, orders, rights and agreements (including options, option rights and contract rights) now or hereafter obtained by Mortgagor from 15 any Governmental Authority having or claiming jurisdiction over the Land, the FF&E, the Atlantic City Showboat, or any other element of the Mortgaged Property or providing access thereto, or the operation of any business on, at, or from the Land including, without limitation, any Gaming Permits; PROVIDED, that upon an Event of Default hereunder or under the Indenture and the expiration of any applicable cure or grace period, if Mortgagee is not qualified under the Gaming Control Acts to hold such Gaming Permits, then Mortgagee shall designate an appropriately qualified third party to which an assignment of such Gaming Permits can be made in compliance with the Gaming Control Acts. (N) TOGETHER WITH all water stock, water permits and other water rights relating to the Land. (O) TOGETHER WITH all oil and gas and other mineral rights, if any, in or pertaining to the Land and all royalty, leasehold and other rights of Mortgagor pertaining thereto. (P) TOGETHER WITH any and all monies and other property, real or personal, which may from time to time be subjected to the lien hereof by Mortgagor or by anyone on its behalf or with its consent, or which may come into the possession or be subject to the control of Mortgagee pursuant to this Leasehold Mortgage or any Loan Document, including, without limitation, any Protective Advances under this Leasehold Mortgage; and all of Mortgagor's right, title, and interest in and to all extensions, improvements, betterments, renewals, substitutes for and replacements of, and all additions, accessions, and appurtenances to, any of the foregoing that Mortgagor may subsequently acquire or obtain by any means, or construct, assemble, or otherwise place on any of the Mortgaged Property, and all conversions of any of the foregoing; it being the intention of Mortgagor that all property hereafter acquired by Mortgagor and required by this Leasehold Mortgage or the Indenture to be subject to the lien of this Leasehold Mortgage or intended so to be shall forthwith upon the acquisition thereof by Mortgagor be subject to the lien of this Leasehold Mortgage as if such property were now owned by Mortgagor and were specifically described in this Leasehold Mortgage and granted hereby or pursuant hereto, and Mortgagee is hereby authorized to receive any and all such property as and for additional security for the obligations secured or intended to be secured hereby. Mortgagor agrees to take any action as may reasonably be necessary to evidence and perfect such liens or security interests, including, without limitation, the execution of any documents reasonably necessary to evidence and perfect such liens or security interests. (Q) TOGETHER WITH, to the extent permitted by the Act, any and all Accounts Receivable, royalties, earnings, income, proceeds, products, rents, revenues, reversions, remainders, issues, profits, avails, production payments, and other benefits directly or indirectly derived or otherwise arising from any of the foregoing, all of which are hereby assigned to Mortgagee, who, except as otherwise expressly provided in this Leasehold Mortgage, is authorized to collect and receive the same, to give receipts and acquittances therefor and to apply the same to the Obligations secured hereunder, whether or not then due and payable. (R) TOGETHER WITH Proceeds of the foregoing property described in Granting Clauses (A) through (Q). (S) TOGETHER WITH Mortgagor's rights further to assign, mortgage, sell, encumber or otherwise transfer or dispose of the property described in Granting Clauses (A) through (R) inclusive, above, for debt or otherwise. (T) EXPRESSLY EXCLUDING, HOWEVER, (i) Inventory; and (ii) FF&E (to the extent that (a) Mortgagor is permitted to enter into a FF&E Financing Agreement for such FF&E under the Indenture and the Loan Agreement and (b) such FF&E Financing Agreement prohibits Mortgagee from maintaining a security interest in the FF&E covered thereby); together with the proceeds of the property described in this Granting Clause (T). 16 Mortgagor, for itself and its successors and assigns, covenants and agrees to and with Mortgagee that, at the time or times of the execution of and delivery of these presents or any instrument of further assurance with respect thereto, Mortgagor has good right, full power and lawful authority to assign, grant, convey, warrant, transfer, bargain or sell its interests in the Mortgaged Property in the manner and form as aforesaid and that the Mortgaged Property is free and clear of all liens and encumbrances whatsoever, except the Existing Encumbrances and Permitted Liens, and Mortgagor shall warrant and forever defend the above-bargained property in the quiet and peaceable possession of Mortgagee and its successors and assigns against all and every person or persons lawfully or otherwise claiming or to claim the whole or any part thereof, except for Permitted Liens. Mortgagor agrees that any greater title to the Mortgaged Property hereafter acquired by Mortgagor during the term hereof shall be automatically subject hereto. PROVIDED HOWEVER, these presents are upon the express condition that, if Borrower, Mortgagor and/or any other Guarantor shall well and truly pay, or cause to be paid, to Mortgagee all amounts required to be so paid under the Loan Documents, including without limitation, the ACSI Guaranty and shall well and truly abide by and perform each of the Obligations, then, these presents and the estate granted hereby shall terminate, cease and be void. ARTICLE ONE COVENANTS OF MORTGAGOR 1.1 PERFORMANCE OF LOAN DOCUMENTS. Mortgagor shall perform, observe and comply with, or cause to be performed, observed or complied with, each and every provision hereof, and with each and every provision contained in the Loan Documents and shall promptly pay to Mortgagee, when payment shall become due, the principal with interest thereon and all other sums required to be paid by Mortgagor under this Leasehold Mortgage and the Loan Documents. 1.2 GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES. Mortgagor represents, covenants and warrants that: (a) Mortgagor has good and marketable leasehold title to a Leasehold estate in a portion of the Land, free and clear of all encumbrances except Permitted Liens, and that it has the right to hold, occupy and enjoy its interest in the Mortgaged Property, and has good right, full power and lawful authority to mortgage and pledge the same as provided herein and, subject to the Gaming Control Acts, Mortgagee may at all times peaceably and quietly enter upon, hold, occupy and enjoy the entire Mortgaged Property in accordance with the terms hereof; (b) Mortgagor has good and marketable title to a fee estate (subject and subordinate to a reversionary interest of the Housing Authority of the City of Atlantic City in certain of the real property described on Schedule A) in that portion of the Land which is not covered by the Resorts Lease, free and clear of all encumbrances except Permitted Liens, and that it has the right to hold, occupy and enjoy its interest in the Mortgaged Property, and has good right, full power and lawful authority to mortgage and pledge the same as provided herein and Mortgagee may at all times peaceably and quietly enter upon, hold, occupy and enjoy the entire Mortgaged Property in accordance with the terms hereof; (c) neither Mortgagor nor any Affiliate of Mortgagor is Insolvent and no bankruptcy or insolvency proceedings are pending or contemplated by or, to the best of Mortgagor's knowledge, against Mortgagor or any Affiliate of Mortgagor; (d) all costs arising from construction of any Improvements, the performance of any labor and the purchase of all Tangible Collateral and Improvements have been or shall be paid when due, unless same are being contested in good faith and adequately bonded; (e) the Mortgaged Property has frontage on, and direct access for ingress and egress to dedicated street(s); (f) Mortgagor shall at all times conduct and operate the Mortgaged Property in a manner so as not to lose the right to conduct gaming activities at the Atlantic City Showboat; (g) no material part of the Mortgaged Property has been damaged, destroyed, condemned or abandoned; (h) no part of the Mortgaged Property is the subject of condemnation proceedings and Mortgagor has no knowledge of any contemplated or pending condemnation proceeding with respect to any portion of the Mortgaged Property; (i) Mortgagor shall warrant, defend and preserve its fee, easement and leasehold rights and title to the Mortgaged 17 Property and (j) no Space Lessee has been granted an option to purchase or right of first refusal with respect to Mortgagor's interest in the Mortgaged Property. 1.3 COMPLIANCE WITH LEGAL REQUIREMENTS. Mortgagor shall promptly, fully, and faithfully comply with all Legal Requirements and shall cause all portions of the Mortgaged Property and its use and occupancy to fully comply with Legal Requirements at all times, whether or not such compliance requires work or remedial measures that are ordinary or extraordinary, foreseen or unforeseen, structural or nonstructural, or that interfere with the use or enjoyment of the Mortgaged Property. 1.4 TAXES. Mortgagor shall pay all Impositions as they become due and payable and shall deliver to Mortgagee promptly upon Mortgagee's request, evidence satisfactory to Mortgagee that the Impositions have been paid or are not delinquent. Mortgagor shall not suffer to exist, permit or initiate the joint assessment of the real and personal property, or any other procedure whereby the lien of the real property taxes and the lien of the personal property taxes shall be assessed, levied or charged to the Land as a single lien, except as may be required by law. In the event of the passage of any law deducting from the value of real property for the purposes of taxation any lien thereon, or changing in any way the taxation of mortgages or obligations secured thereby for state or local purposes, or the manner of collecting such taxes and imposing a tax, either directly or indirectly, on this Leasehold Mortgage or the Promissory Note, Mortgagor shall pay all such taxes. If at any time any Governmental Authority shall require internal revenue or other documentary stamps or any other tax on the Promissory Note or this Leasehold Mortgage, then, if Mortgagor lawfully pays for such stamps or tax, including interest and penalties thereon, to or for Mortgagee, Mortgagor shall pay, when payable, for all such stamps and taxes, including interest and penalties thereon. Mortgagor shall not be entitled to any credit against any of the indebtedness secured by the Leasehold by reason of the payment of taxes in respect of the Mortgaged Property. 1.5 INSURANCE. (a) Hazard Insurance Requirements and Proceeds. (1) HAZARD INSURANCE. Mortgagor shall at its sole expense obtain for, deliver to, assign and maintain for the benefit of Mortgagee, during the term of this Leasehold Mortgage, insurance policies insuring the Mortgaged Property and liability insurance policies, all in accordance with the requirements of Section 4.17 of the Indenture and of the Loan Agreement. Mortgagor shall pay promptly when due any premiums on such insurance policies and on any renewals thereof. The form of such policies and the companies issuing them shall be reasonably acceptable to Mortgagee. All such policies and renewals thereof shall be held by Mortgagee and shall contain a lender's loss payable endorsement, and a noncontributory standard mortgagee or beneficiary endorsement (Form 438 BFU or its equivalent) making losses payable to Mortgagee as its interests may appear and shall name the Mortgagee as an additional insured. At least thirty (30) days prior to the expiration date of all such policies, renewals thereof satisfactory to Mortgagee shall be delivered to Mortgagee together with receipts evidencing the payment of all premiums on such insurance policies and renewals. Should Mortgagor fail to deliver such receipts, Mortgagee shall have the right, but shall not be obligated, to purchase such insurance and pay such premium as Mortgagee shall deem advisable and the amount of any such premium shall be added to Mortgager's liability secured hereby. In the event of loss, Mortgagor shall give immediate written notice to Mortgagee and Mortgagee may make proof of loss if not made promptly by Mortgagor. In the event of the foreclosure of this Leasehold Mortgage or any other transfer of title to the Mortgaged Property in extinguishment of the indebtedness and other sums secured hereby, all right, title and interest of Mortgagee in and to all insurance policies and renewals thereof then in force, shall pass to the purchaser or grantee upon delivery of written notice to Mortgagee within thirty (30) days following the occurrence of such loss. (2) PAYMENT OF PROCEEDS TO MORTGAGEE. Pursuant to its rights granted hereunder in all proceeds from any insurance policies, Mortgagee is hereby authorized and empowered at its option to adjust 18 or compromise any loss under any insurance policies on the Mortgaged Property and to collect and receive the proceeds from any such policy or policies. Each insurance company is hereby authorized and directed to make payment for all such losses directly to Mortgagee alone and not to Mortgagor and Mortgagee jointly. After deducting from such insurance proceeds any reasonable expenses incurred by Mortgagee in the collection or handling such funds, including reasonable attorneys' fees, Mortgagee shall apply such insurance proceeds as follows: (A) Mortgagor shall, within one (1) month following the event giving rise to a payment under an insurance policy ("Loss"), notify and inform Mortgagee whether Mortgagor intends to restore the Improvements or any portion thereof and provide an Officers Certificate (as defined in the Indenture) certifying that such restoration is allowed under Section 4.10(d) of the Indenture and the Loan Agreement. If Mortgagor notifies Mortgagee that it intends to restore the Improvements or any portion thereof, and such restoration is allowed under the Indenture and the Loan Agreement, then Mortgagor shall have the right to use the balance of such award or settlement in accordance with the provisions of Section 1.5(a)(3) hereof to reimburse Mortgagor or pay for the costs of such rebuilding, reconstruction or repair by Mortgagor pursuant to this Section 1.5(a)(2)(A). Any proceeds allocable to Improvements which Mortgagor has elected not to restore shall be applied in accordance with Section 4.10 of the Indenture. Mortgagor shall not invest or use any insurance proceeds from the Loss of the Improvements to purchase or invest in real estate, real property, or accessions or improvements to real estate or real property, except for the restoration of the Improvements in accordance with Section 1 .5(a)(3). (B) If Mortgagor fails to notify Mortgagee that it intends to restore the Improvements within said one (1) year period as provided in Section 1.5 (a)(2)(A) hereof, or Mortgagor has elected not to restore the Improvements or any portion thereof, or a Purchase Offer is required under Section 4.10 of the Indenture, or in the event there remain any insurance proceeds following such reconstruction or repair, then in any such event such award or settlement or amounts then remaining shall be applied in accordance with Section 4.10 of the Indenture and the Loan Agreement. (3) RESTORATION. Provided that (1) the Indenture does not require a repurchase of the First Mortgage Bonds and the maturity of the First Mortgage Bonds has not been accelerated under the Indenture at the time of a Loss, or at the time Mortgagor seeks the benefit of this paragraph, (2) the Loan Agreement does not require an acceleration of the Promissory Note and Loan evidenced thereby, and (3) Mortgagee reasonably determines that Mortgagor has the ability (including financial ability) to restore the Improvements or any portion thereof to a condition substantially the same as prior to the Loss, and pay for the complete costs of such restoration (taking into account available insurance proceeds), Mortgagee agrees that Mortgagor shall have the right to require Mortgagee to apply the insurance proceeds received by Mortgagee under the provisions of Section 1.5(a)(2) on account of such Loss for the purpose of the restoration of the Mortgaged Property in the following manner and upon satisfaction of the following conditions: (A) If the insurance proceeds resulting from the Loss of the Improvements or any portion thereof are made available to Mortgagor under the provisions of this section 1.5(a)(3), then upon the occurrence of a Loss, Mortgagor shall, following its election to restore the Improvements under Section 1.5(a)(2)(A) hereof, commence the restoration of the Improvements to as good and substantially the same condition as such property was prior to such Loss and upon commencement thereof shall diligently prosecute the same to completion. (B) Subject to the Intercreditor Agreement, such insurance proceeds shall be paid over to Mortgagee or its designee, as depository for the disbursement thereof as provided herein. In the event such proceeds are to be used to restore the Improvements, such proceeds shall be invested in Investment Grade Securities (the interest from which shall inure to the benefit of Mortgagor). Pending disbursement of such proceeds, Mortgagor hereby grants to Mortgagee a security interest in such 19 Investment Grade Securities and pledges such Investment Grade Securities to Mortgagee as further security for the indebtedness secured hereby. Mortgagor shall file all documents and take all other steps necessary to perfect the pledge of the Investment Grade Securities. If an Event of Default occurs (and any applicable cure or grace period has expired) prior to the completion of the restoration, Mortgagee at its option shall, during the continuance of such Event of Default, have the right to either apply all or any portion of such Investment Grade Securities toward restoration of the Mortgaged Property or toward any amounts secured hereby. (C) The depository of such insurance proceeds shall disburse such proceeds following Mortgagor's delivery of a Disbursement Request, not more than once per week and only if (1) said depository has not received any notice from Mortgagee that an Event of Default has occurred hereunder or under the Indenture or (2) the depository shall have received a commitment from Title Insurer, attached to the Disbursement Request, evidencing the Title Insurer's unconditional commitment to issue an endorsement in the form of a 122 CLTA Endorsement insuring the continuing priority of the lien of the Mortgage as security for each advance of funds from the insurance proceeds. Mortgagor covenants and agrees (a) to comply with all material covenants and conditions set forth in the Indenture and the Loan Agreement and which are incorporated herein by reference to the extent such provisions are applicable to the restoration of the Improvements or any portion thereof and (b) to cause each Disbursement Request to be true, correct and complete. (D) If Mortgagee reasonably determines that the amount of the insurance proceeds available for the restoration work to be completed under Section 1.5(a)(2)(A) hereunder shall be insufficient for the performance and completion of such work, Mortgagor covenants and agrees, as a condition precedent to any disbursement of insurance proceeds, to deliver to Mortgagee an amount, which, together with the insurance proceeds, shall be sufficient to pay the total amount necessary or reasonably required to restore the Mortgaged Property as herein provided, and which amounts shall be disbursed in accordance with subsection (iii) of this section. (E) Without limiting the generality of the foregoing provisions, the restoration work and the performance thereof shall be subject to and performed in accordance with each of the following provisions: (1) such work and the performance thereof shall be conducted in a first-class, workmanlike manner, shall not permanently weaken nor impair the structural strength of any existing Improvements, nor change the character thereof or the purpose for which the same may be used, nor lessen the value of the Mortgaged Property; (2) before the commencement of any such work, the plans and specifications (the "Plans") therefor shall be filed with and approved by all Governmental Authorities having jurisdiction and all necessary licenses, permits and/or authorizations from all Governmental Authorities shall have been obtained, and all such work shall be done subject to and in accordance with all applicable Legal Requirements; (3) before commencing any such work, Mortgagor shall have delivered to Mortgagee the Plans and a line item budget setting forth with reasonable particularity the cost of completing such work together with a certificate in a form, and from a licensed architect, reasonably satisfactory to Mortgagee certifying (a) that the execution of the work described in the Plans will substantially restore the Mortgaged Property and (b) that the budget constitutes a reasonable estimate of the cost of restoring the Mortgaged Property in accordance with the Plans; and (4) before commencing any such work, should Mortgagee so request, Mortgagor shall, at Mortgagor's expense, give to Mortgagee surety company labor and material, payment and performance bonds in a company or companies and in form reasonably satisfactory to Mortgagee (or other security guaranteeing performance satisfactory to Mortgagee) in an aggregate amount equal to one hundred twenty percent (120%) of the estimated cost of such work, guaranteeing the completion of such work, free and clear of all liens, encumbrances, claims, chattel mortgages, conditional bills of sale and security agreements; PROVIDED, HOWEVER, that such bonds or other security shall not be required from contractors which, in the reasonable judgment of Mortgagee 20 do not need to post such bonds or provide such security. Notwithstanding the foregoing, to the extent that the restoration work is contracted for under fixed-price contracts, such surety company labor and material payment and performance bonds (or other security guaranteeing performance satisfactory to Mortgagee) may be equal to one hundred ten percent (110%) of the amount of such fixed price contracts. (b) Insurance Escrow. In order to secure the performance and discharge of the Mortgagor's obligations under this Section 1.5, but not in lieu of such obligations, Mortgagor shall, upon a failure to pay or provide such insurance, at the times and in the manner required herein, pay over to Mortgagee an amount equal to one-twelfth (1/12th) of the next maturing annual insurance premiums for each month that has elapsed since the last date to which such premiums were paid; and Mortgagor shall, in addition, pay over to Mortgagee, on the first day of each month, sufficient funds (as estimated from time to time by Mortgagee in its sole discretion) to permit Mortgagee to pay said premiums when due. Such deposits shall not be, nor be deemed to be, trust funds but may be commingled with the general funds of Mortgagee, and no interest shall be payable in respect thereof except as required by law. Upon demand by Mortgagee, Mortgagor shall deliver to Mortgagee such additional monies as are necessary to make up any deficiencies in the amounts necessary to enable Mortgagee to pay such premiums when due. (c) Compliance with Insurance Policies. Mortgagor shall not violate or permit to be violated any of the conditions or provisions of any policy of insurance required by the Indenture or this Leasehold Mortgage and Mortgagor shall so perform and satisfy the requirements of the companies writing such policies that, at all times, companies of good standing reasonably satisfactory to Mortgagee shall be willing to write and/or continue such insurance. Mortgagor further covenants to promptly send to Mortgagee all notices relating to any violation of such policies or otherwise affecting Mortgagor's insurance coverage or ability to obtain and maintain such insurance coverage. Mortgagor shall not obtain insurance as to the Mortgaged Property except that of which Mortgagee is aware and which complies with the provisions of this Leasehold Mortgage, the Indenture, and the Loan Agreement. 1.6 CONDEMNATION. Pursuant to its rights in condemnation awards and proceeds Mortgagee shall be entitled to the receipt of all compensation awards, damages, claims, rights of action and proceeds of, or on account of, any damage or taking through condemnation and is hereby authorized, at its option, to commence, appear in and prosecute in its own or Mortgagor's name any action or proceeding relating to any condemnation and to settle or compromise any claim in connection therewith, and Mortgagor hereby appoints Mortgagee as its attorney-in-fact to take any action in Mortgagor's name pursuant to Mortgagee's rights hereunder. Immediately upon obtaining knowledge of the institution of any proceedings for the condemnation of the Mortgaged Property or any portion thereof, Mortgagor shall notify Mortgagee of the pendency of such proceedings. Mortgagor from time to time shall execute and deliver to Mortgagee all instruments requested by it to permit such participation provided, however, that such instruments shall be deemed as supplemental to the foregoing grant of permission to Mortgagee, and unless otherwise required, the foregoing permission shall, without more, be deemed sufficient to permit Mortgagee to participate in such proceedings on behalf of Mortgagor. All such compensation awards, damages, claims, rights of action and proceeds, and any other payments or relief, and the right thereto, are included in the Mortgaged Property, and Mortgagee, after deducting therefrom all its expenses, including reasonable attorneys fees, shall apply such proceeds as follows: (a) In the event that any Land or Improvements are condemned (whether by one or successive condemnation proceedings), proceeds of such condemnation shall be applied in accordance with the provisions of Section 4.10 of the Indenture. (b) Mortgagor shall notify Mortgagee within one (1) year following the conclusion of such condemnation proceeding whether or not Mortgagor intends to (i) restore the Improvements or replace the Improvements with substantially similar improvements, (ii) replace the Improvements with other improvements which are not substantially similar to the Improvements lost or damaged through condemnation, or (iii) not restore 21 the Improvements. In the event that Mortgagor makes an election pursuant to 1.6(b)(i) or (ii) hereinabove, Mortgagor shall cause such restoration to be completed substantially in accordance with the provisions of Section 1 .5(a)(3) hereof. In the event Mortgagor makes an election pursuant to 1.6(b)(ii) above, then, in addition to any other obligations of Mortgagor hereunder, Mortgagor shall deliver to Mortgagee an MAI appraisal performed by an MAI appraiser selected by Mortgagor and reasonably satisfactory to Mortgagee showing that the value of the Mortgaged Property upon completion of such restoration shall be in an amount not less than 100% of the indebtedness secured by this Leasehold Mortgage and any indebtedness secured by a Permitted Lien which is secured on a PARI PASSU basis with or which is senior to the lien hereof. In the event that there shall remain any balance of such award after the payment of settlement costs and the payment of costs of demolition, repair, restoration and replacement under 1 .6(b)(i) or (ii) above, any balance shall be retained by Mortgagor. (c) In the event that (i) the Improvements are not so rebuilt, reconstructed or substituted with other improvements, or repaired in accordance with Section 1.6(b) hereof, (ii) Mortgagor fails to notify Mortgagee within said one (1) year period as provided in Section 1.6(b) hereof or elects under 1.6 (b)(iii) hereof not to restore, repair, replace or substitute such Improvements or (iii) all or substantially all of the Mortgaged Property is condemned, then such award or settlement shall be applied in accordance with the provisions of Section 4.10 of the Indenture, PROVIDED, HOWEVER, should any events described in clauses 1.6(c)(i), 1.6(c)(ii), or l.6(c)(iii) occur, Mortgagor shall not invest any portion of any such award or settlement in real property, real estate, improvements or accessions to real estate or real property. 1.7 CARE OF MORTGAGED PROPERTY. (a) Mortgagor shall preserve and maintain the Mortgaged Property in good condition and repair. Mortgagor shall not permit, commit or suffer to exist any waste, impairment or deterioration of the Mortgaged Property or of any part thereof that in any manner materially impairs Mortgagee's security hereunder, and shall not take any action which will increase the risk of fire or other hazard to the Mortgaged Property or to any part thereof. (b) Except for Permitted Dispositions, no part of the Improvements shall be removed, demolished or materially altered without the prior written consent of Mortgagee, which consent shall not be unreasonably withheld. Mortgagor shall have the right, without such consent, to remove and dispose of free from the lien of this Leasehold Mortgage any part of the Improvements as from time to time may become worn out or obsolete, provided that either (i) such removal or disposition does not materially adversely affect the value of the Mortgaged Property or (ii) prior to or promptly following such removal, any such property shall be replaced with other property of substantially equal utility and of a value at least substantially equal to that of the replaced property when first acquired and free from any security interest of any other person (subject to Permitted Liens), and by such removal and replacement Mortgagor shall be deemed to have subjected such replacement property to the lien of this Leasehold Mortgage. 1.8 ENVIRONMENTAL LAWS. (a) Mortgagor represents and warrants that, to the best of Mortgagor's knowledge, after due inquiry and investigation, (a) there are no Hazardous Materials on or at the Mortgaged Property, except those in compliance with all applicable federal, state and local laws, ordinances, rules and regulations, and (b) neither Mortgagor nor any occupant of, nor any prior owner or occupant of, the Mortgaged Property has received any notice or advice of violations of any applicable federal, state or local law, ordinance, rule or regulation from any governmental agency or any source whatsoever with respect to Hazardous Materials on, from or affecting the Mortgaged Property. Mortgagor covenants that the Mortgaged Property shall be kept free of Hazardous Materials except in compliance with all applicable federal, state and local laws, ordinances, rules and regulations, and neither Mortgagor nor any occupant of the Mortgaged Property shall use, transport, store, dispose of or in any manner deal 22 with Hazardous Materials on the Mortgaged Property, except in compliance with all applicable federal, state and local laws, ordinances, rules and regulations. Mortgagor shall comply with, and ensure compliance by all occupants or the Mortgaged Property with, all applicable federal, state and local laws, ordinances, rules and regulations, including Environmental Laws. Mortgagor shall have 90 days to cure any lien imposed on any portion of the Mortgaged Property pursuant to Environmental Laws. In the event that Mortgagor receives any notice or advice from any governmental agency or any source whatsoever with respect to Hazardous Materials on, from or affecting the Mortgaged Property, Mortgagor shall immediately notify Mortgagee. Mortgagor shall conduct and complete all investigations, studies, sampling, and testing and all remedial actions necessary to clean up and remove all Hazardous Materials on or at the Mortgaged Property in accordance with all applicable federal, state, and local laws, ordinances, rules and regulations or as Mortgagee may reasonably require. (b) Mortgagor represents and warrants that, to the best of Mortgagor's knowledge after due inquiry and investigation, no lien has attached to the Mortgaged Property as a result of any action by DEP or its designee pursuant to the Spill Compensation Fund, as such term is defined in the Spill Act, expending monies from said fund to pay for "cleanup and removal costs" or "natural resources" damages as a result of any "discharge" of any "hazardous substances" on or at the Mortgaged Property, as such terms are defined in the Spill Act. Mortgagor further represents, warrants and covenants that Mortgagor did not in the past, and does not now, own, operate or control and shall not prior to the satisfaction and discharge of the lien of this Mortgage acquire, own, operate or control any "major facility" (as such term is defined in the Spill Act) or any hazardous or solid waste disposal facility. (c) If a lien is filed against the Mortgaged Property pursuant to the Spill Act, Mortgagor shall immediately either (i) pay the claim and remove the lien from the Mortgaged Property, or (ii) furnish (a) a bond satisfactory to Mortgagee and the title insurance company which insured the priority of lien of this Mortgage in the amount of the claim out of which the lien arises, or (b) other security reasonably satisfactory to the Mortgagee in an amount sufficient to discharge the claim of which the lien arises. (d) Upon Mortgagee's request in connection with the "closing, terminating or transferring of operations" (as such term is defined in ISRA) relating to Mortgagor or any one or more of the Tenants (as hereinafter defined), Mortgagor shall promptly provide Mortgagee with: (i) a letter of non-applicability from the DEP accompanied by the supporting affidavit of the applicant or an attorney's opinion letter addressed to Mortgagee, from counsel satisfactory to a Mortgagee and in a form satisfactory to Mortgagee's counsel, stating that ISRA does not apply to such closing, terminating or transferring of operations; or (ii) a Negative Declaration (as such term is defined in ISRA) duly and finally approved by DEP; or (iii) a Cleanup Plan (as such term is defined in ISRA) duly and finally approved by DEP; or (iv) an Administrative Consent Order ("ACO"), issued by the DEP permitting the closing, terminating or transferring of operations; or (v) other administrative approval issued by DEP permitting the closing, terminating or transferring of operations. Nothing in this subsection (d) shall be construed as limiting Mortgagor's obligation to otherwise comply with ISRA. 23 (e) If Mortgagor complies with subsection (d) of this Section by obtaining an approved and final Cleanup Plan or ACO, Mortgagor shall promptly implement and prosecute to completion or cause to be so implemented and prosecuted, the Cleanup Plan or the requirements of the ACO, as the case may be, in accordance with the schedules contained therein or as may be otherwise ordered or directed by DEP. Mortgagor expressly understands and acknowledges that Mortgagor's compliance with the provisions of this subsection (e) may require Mortgagor to expend funds or do acts after the expiration or termination of the term of one or more leases. Mortgagor shall expend such funds though the terms of the relevant Lease shall have previously in any such Lease or the provisions of ISRA have placed the burden of compliance on the Tenant. (f) The obligations and liabilities of Mortgagor under this Section shall survive any entry of a judgment of foreclosure or a foreclosure sale or the delivery of a deed in lieu of foreclosure of this Leasehold Mortgage. (g) The Mortgagor will defend, indemnify, and hold harmless Mortgagee, its employees, agents, officers, and directors, from and against any and all claims, demands, penalties, causes of action, fines, liabilities, settlements, damages, costs, or expenses of whatever kind or nature, known or unknown, foreseen or unforeseen, contingent or otherwise (including, without limitation, counsel and consultant fees and expenses, investigation and laboratory fees and expenses, court costs, and litigation expenses) arising out of, or in any way related to, (i) any breach by the Mortgagor of any of the provisions set forth above, (ii) the presence, disposal, spillage, discharge, emission, leakage, release, or threatened release of any Hazardous Material which is at, in, on, under, about, from or affecting the Mortgaged Property, including, without limitation, any damage or injury resulting from any such Hazardous Material to or affecting the Mortgaged Property or the soil, water, air, vegetation, buildings, personal property, persons or animals located on the Mortgaged Property or on any other property or otherwise, (iii) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to any such Hazardous Material, (iv) any lawsuit brought or threatened, settlement reached, or order or directive of or by any governmental authority relating to such Hazardous Material, or (v) any violation of any Environmental Law. 1.9 LEASES. (a) Mortgagor represents and warrants that: (i) Mortgagor has delivered to Mortgagee true, correct and complete copies of all Facility Leases and Material Space Leases, including all amendments and modifications, written or oral existing as of the date hereof; (ii) Mortgagor has not executed or entered into any modifications or amendments of the Facility Leases or Material Space Leases, either orally or in writing, other than written amendments that have been disclosed to Mortgagee in writing; (iii) no default now exists under any Facility Lease or Space Lease; (iv) except for the Bankruptcy of Resorts, no event has occurred that, with the giving of notice or the passage of time or both, would constitute such a default or would entitle Mortgagor or any other party under such Facility Lease or Space Lease to cancel the same or otherwise avoid its obligations; (v) Mortgagor has not accepted prepayments of installments of Rent under any Space Leases more than one month in advance of the date when the same are due, except for security deposits not in excess of one month's Rent; 24 (vi) except for this Leasehold Mortgage and the Existing Encumbrances, Mortgagor has not executed any assignment or pledge of any of the Facility Leases or the Space Leases, the Rents, or of Mortgagor 's right, title and interest in the same; (vii) this Leasehold Mortgage conforms and complies with all Facility Leases and Space Leases, does not constitute a violation or default under any Facility Lease or Space Lease, and is and shall at all t imes constitute a valid lien (subject only to Permitted Liens) on Mortgagor's interests in the Facility Leases and Space Leases; and (viii) all rents (including additional rents and other charges reserved in the Facility Lease) have been paid to the extent they were due and payable to the date hereof. (b) Subject to Section 5.2 of this Leasehold Mortgage, Mortgagor shall not enter into any new Facility Leases or Space Leases or any modifications or amendments of existing FacilityLeases or Space Leases in the future other than written, bona fide amendments or modifications entered into in arms- length transactions. Mortgagor will not, without the prior written consent of Mortgagee, which consent shall not be unreasonably withheld, modify, supplement, change or amend the Resorts Lease, PROVIDED, HOWEVER, that Mortgagor may modify, supplement, change or amend the Resorts Lease (other than Article 26 thereof), without Mortgagee's prior written consent, (i) to the extent necessary to comply with the requirements of any of the Gaming Control Acts or any order, rule or regulation of any Gaming Control Authority or other state or local governmental body or authority having jurisdiction to require the Resorts or Mortgagor to change the Resorts Lease, or (ii) if the following items shall have been delivered to Mortgagee prior to the occurrence of any such amendment and as a condition to the effectiveness thereof: (A) opinion of an investment banking firm of national character, reputation and prominence to the effect that the proposed amendment does not materially impair the security of this Leasehold Mortgage, which opinion may be given in reliance upon the opinion required by clause (B) below, (B) an opinion of independent legal counsel given to Mortgagee to the effect that the proposed amendment does not impair the rights of Mortgagee under the Resorts Lease and this Leasehold Mortgage to foreclose this Leasehold Mortgage and take possession of the Facility Lease, and (C) such other instruments, statements, agreement and documents as such investment banking firm or such counsel may require in order to render the opinions described in clauses (A) and (B) above. Mortgagor shall send notice and a copy of any new Facility Lease, any new Material Space Lease or any amendment or modification of a Space Lease which causes such Space Lease to become a Material Space Lease to Mortgagee with a certificate attached thereto from a licensed real estate broker in the State of New Jersey attesting to the substantially fair market terms and conditions of such transaction. (c) Promptly after the date hereof, and again promptly after execution of any amendment to this Leasehold Mortgage, Mortgagor shall notify each Facility Lessor of the execution and delivery of this Leasehold Mortgage or amendment, as the case may be. (d) Mortgagor shall pay, when due and payable, the rentals, additional rentals, and other charges required by, and payable under, each Facility Lease in accordance with such Facility Lease. (e) Mortgagor shall perform and observe all terms, covenants, and conditions that Mortgagor must perform and observe as lessee under the Facility Leases, and do everything necessary to preserve and to keep unimpaired Mortgagor's rights under the Facility Leases. Mortgagor shall provide all insurance required by any Facility Lease. All such insurance shall also comply with this Leasehold Mortgage. Mortgagor shall enforce the Facility Lessor's obligations under each of the Facility Leases so that Mortgagor may enjoy all its rights as lessee under the Facility Leases. Mortgagor shall furnish to Mortgagee all information that Mortgagee may reasonably request from time to time concerning Mortgagor's compliance with Facility Leases. 25 (f) Subject to the Gaming Control Acts, Mortgagor hereby irrevocably delegates to Mortgagee, following an Event of Default and the expiration of any applicable cure or grace period, the nonexclusive authority to exercise any or all of Mortgagor's rights, including the right to give any and all notices to the Facility Lessor, under each and every Facility Lease, whether or not Mortgagor has failed to exercise any such right. Nothing in the foregoing delegation of authority shall be deemed to impose any obligation or duty upon Mortgagee. (g) Mortgagor shall promptly deliver to Mortgagee a copy of any notice of default or termination that it receives from any Facility Lessor. Mortgagor shall promptly notify Mortgagee of any request that either party to a Facility Lease makes for arbitration pursuant to such Facility Lease and of the institution of any such arbitration. Mortgagor shall promptly deliver to Mortgagee a copy of the arbitrators' determination in each such arbitration. (h) Mortgagor shall renew all Facility Leases when and as permitted in accordance with their terms except to the extent Mortgagee directs otherwise in writing. Mortgagor shall not, without Mortgagee's consent, fail or refuse to take timely and appropriate action to renew any Facility Lease when and as permitted by such Facility Lease. (i) Mortgagor shall not, without Mortgagee's consent which consent shall not be unreasonably withheld, consent or refuse to consent to any action that any Facility Lessor or any third party takes or desires to take under or with respect to any Facility Lease. (j) Mortgagor shall not subordinate, or consent to the subordination of, any Facility Lease to any mortgage or deed of trust encumbering the Facility Lessor's estate in the affected portion of the Mortgaged Property. (k) Mortgagor's obligations under this Leasehold Mortgage are independent of and in addition to Mortgagor's obligations under any Facility Lease. Nothing in this Leasehold Mortgage shall be construed to require Mortgagor or Mortgagee to take or omit to take any action that would cause a default under any Facility Lease. (l) Mortgagor promptly shall notify Mortgagee orally after learning of the commencement of any Bankruptcy affecting any Facility Lessor or the occurrence of any event that, with the passage of time, could constitute such a Bankruptcy. Mortgagor also shall give written notice of such event to Mortgagee, which shall include any information available to Mortgagor as to the date of such filing, the court in which such petition was filed, and the relief sought in such petition. Mortgagor promptly shall deliver to Mortgagee any and all notices, summonses, pleadings, applications, and other documents that Mortgagor receives in connection with any Facility Lessor's Bankruptcy and any related proceedings. (m) Each Material Space Lease hereafter entered into shall provide (i) that it is subordinate to this Leasehold Mortgage, (ii) that the Space Lessee shall attorn to the Mortgagee and (iii) that the tenant must comply, at its own cost, with ISRA. 1.10 TREATMENT OF FACILITY LEASES IN BANKRUPTCY. (a) 365(h) Election. If any Facility Lessor rejects or disaffirms, or seeks or purports to reject or disaffirm, any Facility Lease pursuant to any Bankruptcy Law, then Mortgagor shall not exercise the 365(h) Election except as otherwise provided in this paragraph. To the extent permitted by law, Mortgagor shall not suffer or permit the termination of any Facility Lease by exercise of the 365(h) Election or otherwise without Mortgagee's consent. Mortgagor acknowledges that because the Facility Leases are a primary element of Mortgagee's security for the Obligations secured hereunder, it is not anticipated that Mortgagee would consent to termination of any 26 Facility Lease. If Mortgagor makes any 365(h) Election in violation of this Leasehold Mortgage, then such 365(h) Election shall be void and of no force or effect. (b) Assignment to Mortgagee. Mortgagor hereby assigns to Mortgagee the 365(h) Election with respect to any Facility Lease. Mortgagor acknowledges and agrees that the foregoing assignment of the 365(h) Election and related rights is one of the rights that Mortgagee may use at any time to protect and preserve Mortgagee's other rights and interests under this Leasehold Mortgage. Mortgagor further acknowledges that exercise of the 365(h) Election in favor of terminating any Facility Lease would constitute waste prohibited by this Leasehold Mortgage. Mortgagor acknowledges and agrees that the 365(h) Election is in the nature of a remedy available to Mortgagor under a Facility Lease, and is not a property interest that Mortgagor can separate from the Facility Lease as to which it arises. Therefore, Mortgagor agrees and acknowledges that exercise of the 365(h) Election in favor of preserving the right to possession under a Facility Lease shall not be deemed to constitute Mortgagee's taking or sale of the Mortgaged Property (or any element thereof) and shall not entitle Mortgagor to any credit against the Obligations secured hereunder or otherwise impair Mortgagee's Remedies. (c) Scope of Collateral. Mortgagor acknowledges that if the 365(h) Election is exercised in favor of Mortgagor's remaining in possession under the affected Facility Lease, then Mortgagor's resulting occupancy rights, as adjusted by the effect of Section 365 of the Bankruptcy Code, shall then be part of the Mortgaged Property and shall be subject to the lien of this Leasehold Mortgage. 1.11 REJECTION OF FACILITY LEASES BY FACILITY LESSOR. If any Facility Lessor rejects or disaffirms a Facility Lease or purports or seeks to disaffirm such Facility Lease pursuant to any Bankruptcy Law, then: (a) Continuance of Possession. Mortgagor shall attempt to remain in possession of the premises demised under such Facility Lease and shall perform all acts necessary for Mortgagor to remain in such possession for the unexpired term of such Facility Lease (including all renewals), whether the then existing terms and provisions of such Facility Lease require such acts or otherwise; and (b) Extension of Lien Under Bankruptcy Code. All the terms and provisions of this Leasehold Mortgage and the lien created by this Leasehold Mortgage shall remain in full force and effect and shall extend automatically to all of Mortgagor's rights and remedies arising at any time under, or pursuant to, 365(h) of the Bankruptcy Code, including all of Mortgagor's rights to remain in possession of the Mortgaged Property. 1.12 ASSIGNMENT OF CLAIMS TO MORTGAGEE. Mortgagor, immediately upon learning that any Facility Lessor has failed to perform the terms and provisions under any Facility Lease (including by reason of a rejection or disaffirmance or purported rejection or disaffirmance of such Facility Lease pursuant to any Bankruptcy Law), shall notify Mortgagee of any such failure to perform. Mortgagor unconditionally assigns, transfers, and sets over to Mortgagee the Facility Lease Damage Claims. This assignment constitutes a present, irrevocable, and unconditional assignment of the Facility Lease Damage Claims, and shall continue in effect until the Obligations secured hereunder have been satisfied in full. 1.13 OFFSETS BY MORTGAGOR. If pursuant to Section 365(h)(2) of the Bankruptcy Code or any other similar Bankruptcy Law, Mortgagor seeks to offset against the rent under any Facility Lease the amount of any Facility Lease Damage Claim, then Mortgagor shall notify Mortgagee of its intent to do so at least 20 days before effecting such offset. Such notice shall set forth the amounts proposed to be so offset and the basis for such offset. If Mortgagee objects to all or any part of such offset, then Mortgagor shall not effect any offset of the amounts to which Mortgagee objects. If Mortgagee approves such offset, then Mortgagor may effect such offset as set forth in Mortgagor's notice. Neither Mortgagee's failure to object, nor any objection or other communication between Mortgagee and Mortgagor that relates to such offset, shall constitute Mortgagee's approval of any such offset. Mortgagor shall indemnify Mortgagee against any offset against the rent reserved in any Facility Lease. 27 1.14 MORTGAGOR'S ACQUISITION OF INTEREST IN LEASED PARCELS. If Mortgagor acquires the fee or any other interest in any of Land or Improvements, such acquired interest shall immediately become subject to the lien of this Leasehold Mortgage as fully and completely, and with the same effect, as if Mortgagor now owned it and as if this Leasehold Mortgage specifically described it, without need for the delivery and/or recording of a supplement to this Leasehold Mortgage or any other instrument. In the event of any such acquisition, the fee and leasehold interests in such Land or Improvements, unless Mortgagee elects otherwise in writing, remain separate and distinct and shall not merge, notwithstanding any principle of law to the contrary. 1.15 NEW FACILITY LEASES ISSUED TO MORTGAGEE. If any Facility Lease is for any reason whatsoever terminated before the expiration of its term and, pursuant to any provision of such Facility Lease, and Mortgagee or its designee shall acquire from Facility Lessor a new lease of the relevant leased parcel, then Mortgagor shall have no right, title or interest in or to such new lease or the estate created thereby. If, however, the Promissory Note has been satisfied, then Mortgagee shall convey (as Mortgagor shall direct) without warranty its right, title and interest in such new lease or estate, provided that Mortgagor simultaneously pays any taxes, fees, expenses and including, without limitation, reasonable legal fees and expenses, relating to such conveyance. 1.16 FURTHER ENCUMBRANCE, SALE OR OTHER DISPOSITION OF COLLATERAL. (a) Mortgagor covenants that at all times prior to the discharge of this Mortgage, except for Permitted Liens and Permitted Dispositions, Mortgagor shall not, without Mortgagee's prior written consent, make nor suffer to exist, nor enter into any agreement for, any sale, assignment, exchange, mortgage, transfer, Lien, hypothecation or encumbrance of all or any part of the Mortgaged Property, including, without limitation, the Rent as used herein, "transfer" includes the actual transfer or other disposition, whether voluntary, involuntary, by law, or otherwise, except those transfers specifically permitted herein, provided however, that "transfer" shall not include the granting of utility or other beneficial easements with respect to the Mortgaged Property which have been granted by Mortgagor and are reasonably necessary to the construction, maintenance or operation of the Atlantic City Showboat. Notwithstanding any other provisions hereof, the liens created by that certain Leasehold Mortgage, Assignment of Rents and Security Agreement made by Mortgagor in favor of Trustee and SBI and recorded in the records of the Atlantic County Recorder, on May 19, 1993 in Book 5028 Page 1; and the First Amendment to Leasehold Mortgage, Assignment of Rents and Security Agreement dated July 9, 1993 recorded July 28, 1993 in Mortgage Book 5028, page 79; and in the Second Amendment to Leasehold Mortgage, Assignment of Leases and Rents and Security Agreement dated as of July 6, 1995; and the Leasehold Mortgage, Assignment of Rents and Security Agreement made by Atlantic City Showboat, Inc. to Showboat, Inc. recorded May 19, 1993 in Mortgage Book 5028, page 79, as amended, shall be PARI PASSU Encumbrances. (b) Any Permitted Lien described in the definition of "Permitted Liens" set forth in Section 1.01 of the Indenture which is junior to the lien of the Loan Documents (a "Subordinate Mortgage") shall be permitted hereunder so long as there shall have been delivered to Mortgagee, not less than thirty (30) days prior to the date thereof, a copy thereof which shall contain express covenants in form and substance satisfactory to Mortgagee to the effect that: (i) the Subordinate Mortgage is in all respects subject and subordinate to this Leasehold Mortgage; (ii) if any action or proceeding shall be brought to foreclose the Subordinate Mortgage (regardless of whether the same is a judicial proceeding or pursuant to a power of sale contained therein), no tenant of any portion of the Mortgaged Property shall be named as a party defendant nor shall any action be taken with respect to the Mortgaged Property which would terminate any occupancy or tenancy of the Mortgaged Property, or any portion thereof, without the consent of Mortgagee; (iii) any Rents, if collected through a receiver or by the holder of the Subordinate Mortgage, shall be applied first to the obligations secured by this Leasehold Mortgage, including principal and interest due and owing on or to become due and owing on the Promissory Note, and then to the payment of maintenance expenses, operating charges, taxes, assessments, and disbursements incurred in connection with the ownership, operation, and maintenance of the Mortgaged Property; and (iv) if any action or 28 proceeding shall be brought to foreclose the Subordinate Mortgage, prompt notice of the commencement thereof shall be given to Mortgagee. (c) Mortgagor agrees that in the event the Leasehold interest held by Mortgagor in the Mortgaged Property or any part thereof becomes vested in a person other than Mortgagor, Mortgagee may, without notice to Mortgagor, deal in any way with such successor or successors in interest with reference to this Leasehold Mortgage, the Promissory Note and other Obligations hereby secured without in any way vitiating or discharging Mortgagor's or any Guarantor's, surety's or endorser's liability hereunder or upon the obligations hereby secured. No sale of the Mortgaged Property and no forbearance to any person with respect to this Leasehold Mortgage and no extension to any person of the time for payment of the Promissory Note, and other sums hereby secured given by Mortgagee shall operate to release, discharge, modify, change or affect the original liability of Mortgagor, or such Guarantor, surety or endorser either in whole or in part. (d) This Leasehold Mortgage may be subordinated to the liens of any FF&E Financing Agreements (as hereinafter defined in this Section 1.16(d) and any future or further advances made thereunder and to any modifications, renewals or extensions thereof to which the lien of this Leasehold Mortgage attaches. Mortgagor covenants and agrees to comply with all of the terms and conditions set forth in any FF&E Financing Agreement. If Mortgagor shall fail to make any payment of principal of or pursuant to any FF&E Financing Agreement on its part to be performed or observed, except where Mortgagor is contesting such payment in good faith, then Mortgagee may make such payment of the principal of or interest on the sums secured by such security interest or may make any payment in order to perform or observe any other term, covenant, condition or agreement of any FF&E Financing Agreement on Mortgagor's part to be performed or observed and any and all sums so expended by Mortgagee shall be secured by this Leasehold Mortgage and shall be repaid by Mortgagor upon demand, together with interest thereon at the interest rate on the Promissory Note from the date of advance. In furtherance of such subordination, Mortgagee shall execute, acknowledge and deliver to Mortgagor, at Mortgagor's expense, any and all such evidence and document the subordination of this Leasehold Mortgage in accordance with the foregoing provisions of this Section 1.16(d). As used herein, "FF&E Financing Agreement" shall mean the agreement with respect to any financing (i) as to which the lender holds a security interest in only the assets purchased with the proceeds of such financing for the payment of principal and interest, (ii) which is permitted by the Loan Agreement to be incurred and (iii) the proceeds of which are used to acquire or lease the FF&E subject to such security interest. 1.17 PARTIAL RELEASES OF MORTGAGED PROPERTY. Mortgagor may from tim to time (i) transfer a portion of the Mortgaged Property (including any temporary taking) to any person legally empowered to exercise the power of eminent domain, (ii) make a Permitted Disposition or (iii) grant utility and other easements reasonably necessary for the construction and operation of the Atlantic City Showboat, which grant or transfer is for the benefit of the Mortgaged Property. In each such case, Mortgagee shall execute and deliver any instruments necessary or appropriate to effectuate or confirm any such transfer or grant, free from the lien of this Leasehold Mortgage, provided, however, that Mortgagee shall execute a lien release or subordination agreement, as appropriate, for matters described in clauses (i) and (iii) above only if Mortgagee shall have received the following: (a) A written request of Mortgagor, dated as of the date of such transfer, grant or release and signed by an authorized officer of Mortgagor, requesting Mortgagee to execute one or more described instruments, and certifying that (i) no Event of Default hereunder, and no event which with notice or lapse of time or both would constitute such Event of Default, has occurred and is continuing and that the conditions of this Section 1.17 have been fulfilled, (ii) the transfer, grant or release is not materially adverse to the proper conduct of the business of Mortgagor on the Land, (iii) in the case of a transfer of property whose value is greater than $1,000,000 to a person legally empowered to exercise the power of eminent domain, the consideration being paid for the portion of the Mortgaged Property being transferred, and that such consideration is not less than the fair market value of such portion, and in the case of a grant or release of easements or other rights, the consideration, 29 if any, being paid for such grant or release, (iv) in the case of a transfer to a person legally empowered to exercise the power of eminent domain, that such transfer is being made in anticipation that such portion would otherwise be taken under the power of eminent domain, and (v) that such transfer, grant or release does not materially impair the use of the Mortgaged Property for the purposes for which it is then held by Mortgagor; (b) A counterpart of the instrument pursuant to which such transfer, grant or release is to be made, and each instrument which Mortgagee is requested to execute in order to effectuate or confirm such transfer, grant or release; (c) In the case of a transfer to a person legally empowered to exercise the power of eminent domain, which transfer involves property whose value is greater than $6,000,000, an opinion of counsel, who may be counsel to Mortgagor, to the effect that the assignee or grantee of the portion of the Mortgaged Property being transferred is legally empowered to take such portion under the power of eminent domain; (d) An opinion of counsel, who may be counsel to Mortgagor to the effect that the transfer of property does not violate New Jersey's subdivision laws and that the transferred property and the remaining portions of the Land constitute legally subdivided lots; (e) Such other instruments, certificates (including evidence of authority) and opinions as Mortgagee may reasonably request. Any consideration received for a transfer to any person empowered to exercise the right of eminent domain shall be subject to Section 1.6 hereof. 1.18 LIEN SUBROGATION. As further security, Mortgagee shall be subrogated to any and all liens or encumbrances prior or superior to this Leasehold Mortgage, whether or not released of record, to the extent paid out of the proceeds received in exchange for the indebtedness or obligations secured by this Leasehold Mortgage. 1.19 FURTHER ASSURANCES. (a) At its sole cost and without expense to Mortgagee, Mortgagor shall do, execute, acknowledge and deliver any and all such further acts, deeds, conveyances, notices, requests for notices, financing statements, continuation statements, certificates, assignments, notices of assignments, agreements, instruments and further assurances, and shall mark any chattel paper, deliver any chattel paper or instruments to Mortgagee and take any other actions that are reasonably necessary, prudent or requested by Mortgagee to perfect or continue the perfection and first priority (in PARI PASSU) of Mortgagee's security interest in the Mortgaged Property, to protect the Mortgaged Property against the rights, claims, or interests of third persons other than holders of Permitted Liens or to effect the purposes of this Leasehold Mortgage, including the security agreement and the absolute assignment of Rents contained herein, or for the filing, registering or recording thereof. (b) Mortgagor shall forthwith upon the execution and delivery of this Leasehold Mortgage, and thereafter from time to time, cause this Leasehold Mortgage and each instrument of further assurance to be filed, indexed, registered, recorded, given or delivered in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the lien hereof upon, and the title of Mortgagee to, the Mortgaged Property. 1.20 SECURITY AGREEMENT AND FINANCING STATEMENTS. Mortgagor (as debtor) hereby grants to Mortgagee (as creditor and secured party) a present and future security interest in all Tangible Collateral, Intangible Collateral, FF&E (to the extent Mortgagee is permitted in each applicable FF&E Financing Agreement to maintain a security interest therein), Improvements, all other personal property now or hereafter owned or leased by 30 Mortgagor or in which Mortgagor has or will have any interest, to the extent that such property constitutes a part of the Mortgaged Property (whether or not such items are stored on the premises or elsewhere), Proceeds of the foregoing comprising a portion of the Mortgaged Property and all proceeds of insurance policies and condemnation awards arising therefrom and all proceeds, products, substitutions, and accessions therefor and thereto, subject to Mortgagee's rights to treat such property as real property as herein provided (collectively, the "PERSONAL PROPERTY") Mortgagor shall execute any and all documents and writings, including without limitation financing statements pursuant to the UCC, as may be reasonably necessary or prudent to preserve and maintain the priority of the security interest granted hereby on property which may be deemed subject to the foregoing security agreement or as Mortgagee may reasonably request, and shall pay to Mortgagee on demand any reasonable expenses incurred by Mortgagee in connection with the preparation, execution and filing of any such documents. Mortgagor hereby authorizes and empowers Mortgagee to execute and file, on Mortgagor's behalf, all financing statements and refiling and continuations thereof as Mortgagee deems necessary or advisable to create, preserve and protect said security interest. This Leasehold Mortgage constitutes both a real property mortgage and a "security agreement," within the meaning of the UCC and the Mortgaged Property includes both real and personal property and all other rights and interests, whether tangible or intangible in nature, of Mortgagor in the Mortgaged Property. Mortgagor by executing and delivering this Leasehold Mortgage has granted to Mortgagee, as security for the Debt, a security interest in the Mortgaged Property. (a) Fixture Filing. Without in any way limiting the generality of the immediately preceding paragraph or of the definition of Mortgaged Property, this Leasehold Mortgage constitutes a fixture filing under Section 9-402 of the UCC. For such purpose, (i) the "debtor" is Mortgagor and its address is the address given for it in the initial paragraph of this Leasehold Mortgage; (ii) the "secured party" is Mortgagee, and its address for the purpose of obtaining information is the address given for it in the initial paragraph of this Leasehold Mortgage; (iii) the real estate to which the fixtures are or are to become attached is Mortgagor's interest in the Land; and (iv) the record owner of such real estate is Resorts. (b) Remedies. The remedies for any violation of the covenants, terms and conditions of the agreements herein contained shall include any or all of (i) those prescribed herein and (ii) those available under applicable law, and (iii) those available under the UCC, all at Mortgagee's sole election. In addition, a photographic or other reproduction of this Leasehold Mortgage shall be sufficient as a financing statement for filing wherever filing may be necessary to perfect or continue the security interest granted herein. (c) Derogation of Real Property. It is the intention of the parties that the filing of a financing statement in the records normally having to do with personal property shall never be construed as in anyway derogating from or impairing the express declaration and intention of the parties hereto as hereinabove stated that everything used in connection with the production of income from the Mortgaged Property and/or adapted for use therein and/or which is described or reflected in this Leasehold Mortgage is, and at all times and for all purposes and in all proceedings both legal or equitable, shall be regarded as part of the real property encumbered by this Leasehold Mortgage irrespective of whether (i) any such item is physically attached to the Improvements, (ii) serial numbers are used for the better identification of certain equipment items capable of being thus identified in a recital contained herein or in any list filed with Mortgagee, or (iii) any such item is referred to or reflected in any such financing statement so filed at any time. It is the intention of the parties that the mention in any such financing statement of (1) rights in or to the proceeds of any fire and/or hazard insurance policy, or (2) any award in eminent domain proceedings for a taking or for loss of value, or (3) Mortgagor's interest as lessor in any present or future Space Lease or rights to Rents, shall never be construed as in anyway altering any of the rights of Mortgagee as determined by this Leasehold Mortgage or impugning the priority of Mortgagee's real property lien granted hereby or by any other recorded document, but such mention in the financing statement is declared to be for the protection of Mortgagee in the event any court or judge shall at any time hold with respect to the matters set forth in the foregoing clauses (1), (2) and (3) that notice of Mortgagee's priority of interest to be 31 effective against a particular class of persons, including but not limited to, the federal government and any subdivisions or entity of the federal government, must be filed in the UCC records. (d) Priority; Permitted Financing of Tangible Collateral. Except for Permitted Liens and as provided in Section 1.16(b) hereof, all Personal Property of any nature whatsoever, which is subject to the provisions of this security agreement, shall be purchased or obtained by Mortgagor in its name and free and clear of any lien or encumbrance, except for Existing Encumbrances and Permitted Liens and the lien hereof, for use only in connection with the business and operation of the Atlantic City Showboat, and shall be and at all times remain free and clear of any lease or similar arrangement, chattel financing, installment sale agreement, security agreement and any encumbrance of like kind, so that Mortgagee's security interest shall attach to and vest in Mortgagor for the benefit of Mortgagee, with the priority herein specified, immediately upon the installation or use of the Personal Property at the Land and Mortgagor warrants and represents that Mortgagee's security interest in the Personal Property is a validly attached and binding security interest, properly perfected and prior to all other security interests therein except as otherwise permitted in this Agreement. (e) Preservation of Contractual Rights of Collateral. Mortgagor shall, prior to delinquency, default, or forfeiture, perform all obligations and satisfy all material conditions required on its part to be satisfied to preserve its rights and privileges under any contract, lease, license, permit, or other authorization (i) under which it holds any Tangible Collateral or (ii) which constitutes part of the Intangible Collateral except where Mortgagor is contesting such obligations in good faith. (f) Removal of Collateral. Except as otherwise permitted herein, none of the Tangible Collateral shall be removed from the Mortgaged Property without Mortgagee's prior written consent, and except damaged or obsolete Tangible Collateral which is either no longer usable or which is removed temporarily for repair or improvement or removed for replacement on the Mortgaged Property with Tangible Collateral of similar function. (g) Change of Name. Mortgagor shall not change its corporate or business name, or do business within the State of New Jersey under any name other than such name, or any trade name(s) other than those as to which Mortgagor gives prior written notice to Mortgagee of its intent to use such trade names, or any other business names (if any) specified in the financing statements delivered to Mortgagee for filing in connection with the execution hereof, without providing Mortgagee with the additional financing statement(s) and any other similar documents deemed reasonably necessary by Mortgagee to assure that its security interest remains perfected and of undiminished priority in all such Personal Property notwithstanding such name change. 1.21 ASSIGNMENT OF RENTS. The assignment of Leases and Rents set out above in Granting Clauses (F), (G), (H), (I) and (K) shall constitute an absolute and present assignment to Mortgagee, subject to the license herein given to Mortgagor to collect the Rents and to exercise the rights set forth in Granting Clause (K)(c)(ii), and shall be fully operative without any further action on the part of any party, and specifically Mortgagee shall be entitled upon the occurrence of an Event of Default hereunder and the expiration of any applicable cure or grace periods to all Rents, whether or not Mortgagee takes possession of the Mortgaged Property, or any portion thereof. The absolute assignment contained in Granting Clause (K) shall not be deemed to impose upon Mortgagee any of the obligations or duties of Mortgagor provided in any such Space Lease (including, without limitation, any liability under the covenant of quiet enjoyment contained in any lease in the event that any lessee shall have been joined as a party defendant in any action to foreclose this Leasehold Mortgage and shall have been barred and foreclosed thereby of all right, title and interest and equity of redemption in the Mortgaged Property or any part thereof). Mortgagor hereby consents to the appointment of a receiver to collect all Rents under any Space Lease upon the occurrence of an Event of Default and the expiration of any applicable cure or grace periods. 32 1.22 EXPENSES. (a) Mortgagor shall pay when due and payable all costs, including without limitation, those reasonable appraisal fees, recording fees, taxes, brokerage fees and commissions, abstract fees, title policy fees, escrow fees, attorneys and paralegal fees, travel expenses, fees for inspecting architect(s) and engineer(s) and all other costs and expenses of every character which have been incurred or which may hereafter be incurred by Mortgagee or any assignee of Mortgagee in connection with the preparation and execution of loan documents, amendments thereto or instruments, agreements or documents of further assurance, the funding of the Loan secured hereby, and the enforcement of any Loan Document; and (b) Mortgagor shall, upon demand by Mortgagee, reimburse Mortgagee or any assignee of Mortgagee for all such reasonable expenses which have been incurred or which shall be incurred by it; and (c) Mortgagor shall indemnify Mortgagee with respect to any transaction or matter in any way connected with any portion of the Mortgaged Property, this Leasehold Mortgage, including any occurrence at, in, on, upon or about the Mortgaged Property (including any personal injury, loss of life, or property damage), or Mortgagor's use, occupancy, or operation of the Mortgaged Property, or the filing or enforcement of any mechanic's lien, or otherwise caused in whole or in part by any act, omission or negligence occurring on or at the Mortgaged Property, including failure to comply with any Legal Requirement or with any requirement of this Leasehold Mortgage that applies to Mortgagor, or any Person's violation of any environmental law or any contamination of any portion of the Mortgaged Property. If Mortgagee is a party to any litigation as to which either Mortgagor is required to indemnify Mortgagee (or is made a defendant in any action of any kind against Mortgagor or relating directly or indirectly to any portion of the Mortgaged Property) then, at Mortgagee's option, Mortgagor shall undertake Mortgagee's defense, using counsel satisfactory to Mortgagee (and any settlement shall be subject to Mortgagee's consent), and in any case shall indemnify Mortgagee against such litigation. Mortgagor shall pay all reasonable costs and expenses, including reasonable legal costs, that Mortgagee pays or incurs in connection with any such litigation. Any amount payable under any indemnity in this Leasehold Mortgage shall be a demand obligation, shall be added to, and become a part of, the secured obligations under this Leasehold Mortgage, shall be secured by this Leasehold Mortgage, and shall bear interest at the interest rate on the Promissory Note. Such indemnity shall survive any release of this Leasehold Mortgage and any Foreclosure. 1.23 MORTGAGEE'S CURE OF MORTGAGOR'S DEFAULT. If Mortgagor defaults in the payment of any tax, assessment, lien, encumbrance or other imposition, in its obligation to furnish insurance hereunder, or in the performance or observance of any other covenant, condition or term of this Leasehold Mortgage or any Loan Document (including any obligation relating to Mortgagor's performance under any Facility Lease), Mortgagee may, but is not obligated to, to preserve its interest in the Mortgaged Property, perform or observe the same, and all payments made (whether such payments are regular or accelerated payments) and reasonable costs and expenses incurred or paid by Mortgagee in connection therewith shall become due and payable immediately. The amounts so incurred or paid by Mortgagee, together with interest thereon at the default interest rate on the Promissory Note from the date incurred until paid by Mortgagor, shall be added to the indebtedness and secured by the lien of this Leasehold Mortgage. Mortgagee is hereby empowered to enter and to authorize its agents to enter upon the Land or any part thereof for the purpose of performing or observing any such defaulted covenant, condition or term, without thereby becoming liable to Mortgagor or any person in possession holding under Mortgagor; provided, however, such entry upon the Land shall be done in such manner so as not to disrupt the Mortgagor's business conducted thereon. No exercise of any rights under this Section by Mortgagee shall cure or waive any Event of Default or notice of default hereunder or invalidate any act done pursuant hereto or to any such notice, but shall be cumulative of all other rights and remedies. 33 1.24 USE OF LAND. Mortgagor covenants that the Mortgaged Property shall be used and operated in a manner consistent with the description of the Atlantic City Showboat in the Prospectus open during such days and hours as are customarily observed by casino-hotels located in Atlantic City, New Jersey. 1.25 MATERIAL SPACE LEASES. Mortgagor shall not enter into any Material Space Lease without first obtaining Mortgagee's consent in writing, which consent shall not be unreasonably withheld or delayed. A copy of such Material Space Lease and (ii) the identity of the Space Lessee thereunder shall be furnished to Mortgagee by Mortgagor upon receipt of such request. 1.26 COMPLIANCE WITH PERMITTED LIEN AGREEMENTS. Mortgagor or any Affiliate of Mortgagor shall comply with each and every material obligation contained in any agreement pertaining to a material Permitted Lien. 1.27 DEFENSE OF ACTIONS. Mortgagor shall appear in and defend any action or proceeding affecting or purporting to affect the security hereof or the rights or powers of Mortgagee, and shall pay all reasonable costs and expenses, including cost of title search and insurance or other evidence of title, preparation of survey, and reasonable attorneys' fees in any such action or proceeding in which Mortgagee may appear or may be joined as a party and in any suit brought by Mortgagee based upon or in connection with this Leasehold Mortgage or any Loan Document. Nothing contained in this section shall, however, limit the right of Mortgagee to appear in such action or proceeding with counsel of its own choice, either on its own behalf or on behalf of Mortgagor. 1.28 AFFILIATES. (a) Subject to Leasehold Mortgage. Mortgagor shall cause all of its Affiliates in any way involved with the operation of the Mortgaged Property or the Atlantic City Showboat to observe the covenants and conditions of this Leasehold Mortgage to the extent necessary to give the full intended effect to such covenants and conditions and to protect and preserve the security of Mortgagee hereunder. Mortgagor shall, at Mortgagee's request, cause any such Affiliate to execute and deliver to Mortgagee such further instruments or documents as Mortgagee may reasonably deem necessary to effectuate the terms of this Section 1.28. (b) Restriction on Use of Subsidiary or Affiliate. Mortgagor shall not use any Affiliate in the operation of the Mortgaged Property or the Atlantic City Showboat if such use would in any way impair the security for the Promissory Note or circumvent any covenant or condition of this Leasehold Mortgage or of any other Loan Document. 1.29 FUTURE ADVANCES. All funds advanced in the reasonable exercise of Mortgagee's judgment that the same are needed to protect its security hereunder are deemed to be obligatory advances and are to be added to the total indebtedness secured by this Leasehold Mortgage and such indebtedness shall be increased accordingly. All sums so advanced shall be secured by this Leasehold Mortgage with the same priority of Lien as the security for the Obligations secured hereunder. 1.30 TITLE INSURANCE. Promptly after the execution and delivery of this Leasehold Mortgage, Mortgagor shall cause to be delivered to Mortgagee at Mortgagor's expense, one or more ALTA extended coverage Lender's Policies of Title Insurance showing leasehold title to the Land vested in Mortgagor and the lien of this Leasehold Mortgage to be a perfected lien, prior to any and all encumbrances other than Permitted Liens. 1.31 EXCULPATION OF MORTGAGEE. The acceptance by Mortgagee of the assignment contained herein with all of the rights, powers, privileges and authority created hereby shall not, prior to entry upon and taking possession of the Mortgaged Property by Mortgagee, be deemed or construed to make Mortgagee a "mortgagee in possession"; nor thereafter or at any time or in any event obligate Mortgagee to appear in or defend any action or proceeding relating to the Space Leases, the Rents or the Mortgaged Property, or to take any action hereunder 34 or to expend any money or incur any expenses or perform or discharge any obligation, duty or liability under any Space Lease or to assume any obligation or responsibility for any security deposits or other deposits except to the extent such deposits are actually received by Mortgagee, nor shall Mortgagee, prior to such entry and taking, be liable in any way for any injury or damage to person or property sustained by any Person in or about the Mortgaged Property. ARTICLE TWO CORPORATE LOAN PROVISIONS 2.1 INTERACTION WITH INDENTURE, LOAN AGREEMENT AND INTERCREDITOR AGREEMENT. (a) Incorporation Reference. All terms, covenants, conditions, provisions and requirements of the Loan Agreement and Intercreditor Agreement are incorporated by reference in this Leasehold Mortgage. (b) Conflicts. Notwithstanding any other provision of this Agreement, the terms and provisions of this Leasehold Mortgage shall be subject and subordinate to the terms of the Loan Agreement and the Indenture. To the extent that the Loan Agreement provides Mortgagor with a particular cure or notice period, or establishes any limitations or conditions on Mortgagee's actions with regard to a particular set of facts, Mortgagor shall be entitled to the same cure periods and notice periods, and Mortgagee shall be subject to the same limitations and conditions, under this Leasehold Mortgage, in place of the cure periods, notice periods, limitations and conditions provided for under this Leasehold Mortgage; PROVIDED, HOWEVER, that such cure periods, notice periods, limitations and conditions shall not be cumulative as between the Loan Agreement and this Leasehold Mortgage. In the event of any conflict or inconsistency between the provisions of this Leasehold Mortgage and those of the Loan Agreement, including, without limitation, any conflicts or inconsistencies in any definitions herein or therein, the provisions or definitions of the Indenture, Loan Agreement and Intercreditor Agreement shall govern. 2.2 OTHER COLLATERAL. This Leasehold Mortgage is one of a number of security agreements to secure the debt delivered by or on behalf of Mortgagor pursuant to the Indenture and the other Loan Documents and securing the Obligations secured hereunder. All potential junior Lien claimants are placed on notice that, under any of the Loan Documents or otherwise (such as by separate future unrecorded agreement between Mortgagor and Mortgagee), other collateral for the Obligations secured hereunder (i.e., collateral other than the Mortgaged Property) may, under certain circumstances, be released without a corresponding reduction in the total principal amount secured by this Leasehold Mortgage. Such a release would decrease the amount of collateral securing the same indebtedness, thereby increasing the burden on the remaining Mortgaged Property created and continued by this Leasehold Mortgage. No such release shall impair the priority of the lien of this Leasehold Mortgage. By accepting its interest in the Mortgaged Property, each and every junior Lien claimant shall be deemed to have acknowledged the possibility of, and consented to, any such release. Nothing in this paragraph shall impose any obligation upon Mortgagee. ARTICLE THREE DEFAULTS 3.1 EVENT OF DEFAULT. The term "Event of Default," wherever used in this Leasehold Mortgage, shall mean any one or more of the following events (whether any such event shall be voluntary or involuntary or come 35 about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) The failure by Mortgagor to pay any principal, premium or interest when due, whether at maturity, upon redemption, or otherwise, under the Promissory Note if such failure results in the failure to pay in full any principal, premium or interest when due (after any grace period) on the Promissory Note. (b) The occurrence of an Event of Default and the expiration of any applicable cure or grace period under any Loan Document. (c) Failure by Mortgagor to perform any obligation under any Facility Lease and (if such Facility Lease provides for a cure period) such failure continues for a period equal to (a) the cure period provided in such Facility Lease, if any, less (b) five Business Days. (d) A sale, lease, sublease, encumbrance or other transfer in violation of Section 1.16 (Further Encumbrances) hereof. (e) Failure by Mortgagor to duly keep, perform and observe any other covenant, condition, agreement, term, representation or warranty in this Leasehold Mortgage or any Loan Document to be performed or observed by Mortgagor for a period of sixty (60) days after notice from Mortgagee. (f) Any representation or warranty of Mortgagor in this Leasehold Mortgage shall prove to be incorrect in any material respect as of the time when the same shall have been made. (g) The entry by any court of competent jurisdiction of a judgment or decree that an undertaking by Mortgagor as herein provided to pay or perform its obligation under the ACSI Guaranty or any interest on amounts payable thereon, or any taxes, assessments, levies, liabilities, obligations or encumbrances is legally inoperative or cannot be enforced, so as to affect adversely either the security of this Leasehold Mortgage, the indebtedness or other Obligations secured hereby, the rate of interest on the Promissory Note or all or any portion of the indebtedness, and such judgment shall not be appealed and stayed pending appeal within ten (10) days after the entry thereof. (h) The Bankruptcy of Mortgagor. ARTICLE FOUR REMEDIES 4.1 ACCELERATION OF MATURITY. Following an Event of Default and the expiration of any applicable cure or grace period, Mortgagee may (except that such acceleration shall be automatic if the Event of Default is caused by Mortgagor's Bankruptcy) declare all indebtedness or sums secured hereby, including the Promissory Note, to be due and payable immediately, and upon such declaration such principal and interest and other sums shall immediately become due and payable without demand, presentment, notice or other requirements of any kind (all of which Mortgagor waives to the extent permitted by law to do so) notwithstanding anything in this Leasehold Mortgage or any Loan Document or applicable law to the contrary. 36 4.2 PROTECTIVE ADVANCES. If Mortgagor fails to make any payment or perform any other obligation under the Promissory Note or any other Loan Document, then without thereby limiting Mortgagee's other rights or remedies, waiving or releasing any of Mortgagor's obligations, or imposing any obligation on Mortgagee, Mortgagee may either advance any amount owing or perform any or all actions that Mortgagee considers necessary or appropriate to cure such default. All such advances and the expense of all such actions shall constitute "Protective Advances." No sums advanced or performance rendered by Mortgagee shall cure, or be deemed a waiver of any Event of Default. 4.3 INSTITUTION OF EQUITY PROCEEDINGS. Following an Event of Default and the expiration of any applicable cure or grace period, Mortgagee may institute an action, suit or proceeding in equity for specific performance of this Leasehold Mortgage, the ACSI Guaranty or any Loan Document, all of which shall be specifically enforceable by injunction or other equitable remedy. Mortgagor waives any defense based on laches or any applicable statue of limitations. 4.4 MORTGAGEE'S POWER OF ENFORCEMENT. (a) Following an Event of Default and the expiration of any applicable cure or grace period, Mortgagee may, subject to compliance with applicable Gaming Control Acts, either with or without entry or taking possession of the Mortgaged Property, and without regard to whether or not the indebtedness and other sums secured hereby shall be due and without prejudice to the right of Mortgagee thereafter to bring an action or proceeding to foreclose or any other action for any default existing at the time such earlier action was commenced, proceed by any appropriate action or proceeding: (1) to enforce the ACSI Promissory Note, to the extent permitted by law, or the performance of any term hereof or any other right; (2) to foreclose this Leasehold Mortgage in any manner provided by law for the foreclosure of mortgages or deeds of trust on real property and to sell, as an entirety or in separate lots or parcels, the Mortgaged Property or any portion thereof pursuant to the laws of the State of New Jersey or under the judgment or decree of a court or courts of competent jurisdiction, and Mortgagee shall be entitled to recover in any such proceeding all costs and expenses incident thereto, including reasonable attorneys' fees in such amount as shall be awarded by the court; (3) to exercise any or all of the rights and remedies available to it under the Loan Documents; and (4) to pursue any other remedy available to it. Mortgagee shall take action either by such proceedings or by the exercise of its powers with respect to entry or taking possession, or both, as Mortgagee may determine. (b) Following an Event of Default and the expiration of any applicable cure or grace period, Mortgagee may, subject to the Intercreditor Agreement and compliance with applicable Gaming Control Acts and other applicable law, sell the Mortgaged Property, and all estate, right, title, interest, claim and demand of Mortgagor therein, and all rights of redemption thereof, at one or more sales, as an entirety or in parcels, with such elements of real and personal property, and at such time and place and upon such terms, as it may deem expedient, or as may be required by applicable law, and in the event of a sale of less than all of the Mortgaged Property, this Mortgage shall continue as a lien and security interest on the remaining portion of the Mortgaged Property. (c) The remedies described in this Section 4.4 may be exercised with respect to all or any portion of the Personal Property, either simultaneously with the sale of any real property encumbered hereby or independent thereof. Mortgagee shall at any time be permitted to proceed with respect to all or any portion of the Personal Property in any manner permitted by the UCC. Mortgagor agrees that Mortgagee's inclusion of all or any portion of the Personal Property in a sale or other remedy exercised with respect to the real property encumbered hereby, as permitted by the UCC, is a commercially reasonable disposition of such property. Mortgagor agrees that Mortgagee may dispose of any or all of the Personal Property at the same time and place and after giving the same notice provided for in this Leasehold Mortgage in connection with a nonjudicial foreclosure sale under the terms and conditions set forth in this Leasehold Mortgage. In this connection, Mortgagor agrees that the sale of the real estate, leaseholds and Improvements described in this Leasehold Mortgage and the Personal Property or any part 37 thereof may be conducted separately and/or together; and that in the event the real estate, leaseholds and Improvements described herein and the Personal Property or any part thereof are sold together, Mortgagee shall not be obligated to allocate the consideration received as between the real estate, leaseholds and Improvements and the Personal Property. The Personal Property need not be present at the place of sale. 4.5 MORTGAGEE'S RIGHT TO ENTER AND T AKE POSSESSION. OPERATE AND APPLY INCOME. (a) Following an Event of Default and the expiration of any applicable cure or grace period, (i) subject to the Intercreditor Agreement and compliance with applicable Gaming Control Acts and other applicable law, Mortgagor upon demand of Mortgagee, shall forthwith surrender to Mortgagee the actual possession and, if and to the extent permitted by law, Mortgagee itself, or by such officers or agents as it may appoint, may enter and take possession of all the Mortgaged Property including the Personal Property, without liability for trespass, damages or otherwise, and may exclude Mortgagor and its agents and employees wholly therefrom and may have joint access with Mortgagor to the books, papers and accounts of Mortgagor; and (ii) Mortgagor shall pay monthly in advance to Mortgagee on Mortgagee's entry into possession, or to any receiver appointed to collect the Rents, all Rents then due and payable. (b) If Mortgagor shall for any reason fail to surrender or deliver the Mortgaged Property, the Personal Property or any part thereof after Mortgagee's demand, Mortgagee may obtain a judgment or decree conferring on Mortgagee the right to immediate possession or requiring Mortgagor to deliver immediate possession of all or part of such property to Mortgagee and Mortgagor hereby specifically consents to the entry of such judgment or decree. Mortgagor shall pay to Mortgagee, upon demand, all reasonable costs and expenses of obtaining such judgment or decree and reasonable compensation to Mortgagee, its attorneys and agents, and all such costs, expenses and compensation shall, until paid, be secured by the lien of this Leasehold Mortgage. (c) Upon every such entering upon or taking of possession, Mortgagee may, subject to compliance with applicable Gaming Control Acts, hold, store, use, operate, manage and control the Mortgaged Property and conduct the business thereof, and, from time to time in its sole and absolute discretion and without being under any duty to so act: (1) make all necessary and proper maintenance, repairs, renewals, replacements, additions, betterments and improvements thereto and thereon and purchase or otherwise acquire additional fixtures, personalty and other property; (2) insure or keep the Mortgaged Property insured; (3) manage and operate the Mortgaged Property and exercise all the rights and powers of Mortgagor in their name or otherwise with respect to the same; (4) enter into agreements with others to exercise the powers herein granted Mortgagee, all as Mortgagee from time to time may determine; and, subject to the absolute assignment of the Leases and Rents to Mortgagee, Mortgagee may collect and receive all the Rents, including those past due as well as those accruing thereafter; and shall apply the monies so received by Mortgagee in such priority as Mortgagee may determine to (l) the payment of all amounts due and payable on the Promissory Note; (2) the deposits for taxes and assessments and insurance premiums due, (3) the cost of insurance, taxes, assessments and other proper charges upon the Mortgaged Property or any part thereof; (4) the reasonable compensation, expenses and disbursements of the agents, attorneys and other representatives of Mortgagee; and (5) any other reasonable and necessary charges or costs required to be paid by Mortgagor under the terms hereof; and 38 (5) rent or sublet the Mortgaged Property or any portion thereof for any purpose permitted by the Facility Lease or this Leasehold Mortgage. Mortgagee shall surrender possession of the Mortgaged Property and the Personal Property to Mortgagor only when all that is due upon such interest and principal, tax and insurance deposits, and all amounts under any of the terms of the Promissory Note, the Loan Agreement, Loan Documents, or this Leasehold Mortgage, shall have been paid and all defaults made good. The same right of taking possession, however, shall exist if any subsequent Event of Default shall occur and be continuing. If Mortgagor shall exercise any right or remedy herein contained, Mortgagee shall not be deemed to have entered into or taken possession of the Mortgaged Property except upon the exercise of its option to do so evidenced by Mortgagee's overt act to do so, nor shall Mortgagee be deemed to be a mortgagee in possession by reason of such entry or taking possession. 4.6 LEASES. Mortgagee is authorized to foreclose this Leasehold Mortgage subject to the rights of any tenants of the Mortgaged Property, and the failure to make any such tenants parties defendant to Intercreditor Agreement and any such foreclosure proceedings and to foreclose their rights shall not be, nor be asserted by Mortgagor to be, a defense to any proceedings instituted by Mortgagee to collect the sums secured hereby or to collect any deficiency remaining unpaid after the foreclosure sale of the Mortgaged Property, or any portion thereof. Unless otherwise agreed by Mortgagee in writing, all Space Leases executed subsequent to the date hereof, or any part thereof, shall be subordinate and inferior to the lien of this Leasehold Mortgage, except that from time to time Mortgagee may execute and record among the land records of the jurisdiction where this Leasehold Mortgage is recorded, subordination statements with respect to such of said Space Leases as Mortgagee may designate in its sole discretion, whereby the Space Leases so designated by Mortgagee shall be made superior to the lien of this Leasehold Mortgage for the term set forth in such subordination statement. From and after the recordation of such subordination statements, and for the respective periods as may be set forth therein, the Space Leases therein referred to shall be superior to the lien of this Leasehold Mortgage and shall not be affected by any foreclosure hereof. All such Space Leases shall contain a provision to the effect that the Mortgagor and Space Lessee recognize the right of Mortgagee to elect and to effect such subordination of this Leasehold Mortgage and consents thereto. 4.7 PURCHASE BY MORTGAGEE. Upon any foreclosure sale (whether judicial or nonjudicial), Mortgagee may bid for and purchase the property subject to such sale and, upon compliance with the terms of sale, may hold, retain and possess and dispose of such property in its own absolute right without further accountability. 4.8 WAIVER OF APPRAISEMENT, VALUATION, STAY, EXTENSION AND REDEMPTION LAWS. Mortgagor agrees to the full extent permitted by law that if an Event of Default occurs, neither Mortgagor nor anyone claiming through or under it shall or will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension or redemption laws now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Leasehold Mortgage or the absolute sale of the Mortgaged Property or any portion thereof or the final and absolute putting into possession thereof, immediately after such sale, of the purchasers thereof, and Mortgagor for itself and all who may at any time claim through or under it, hereby waives, to the full extent that it may lawfully so do, the benefit of all such laws, and any and all right to have the assets comprising the Mortgaged Property marshalled upon any foreclosure of the lien hereof and agrees that Mortgagee or any court having jurisdiction to foreclose such lien may sell the Mortgaged Property in part or as an entirety and cash collateral as derived from the Mortgaged Property. 4.9 RECEIVER. Following an Event of Default and the expiration of any applicable cure or grace period, Mortgagee, to the extent permitted by law and applicable Gaming Control Acts and without regard to the value, adequacy or occupancy of the security for the indebtedness and other sums secured hereby, shall be entitled as a matter of right if it so elects to the appointment of a receiver to enter upon and take possession of the 39 Mortgaged Property and to collect all Rents and apply the same as the court may direct, and such receiver may be appointed by any court of competent jurisdiction upon application by Mortgagee. Mortgagee may have a receiver appointed without notice to Mortgagor or any third party, and Mortgagee may waive any requirement that the receiver post a bond. Mortgagee shall have the power to designate and select the Person who shall serve as the receiver and to negotiate all terms and conditions under which such receiver shall serve. Any receiver appointed on Mortgagee's behalf may be an Affiliate of Mortgagee. The expenses, including receiver's fees, reasonable attorneys' fees, costs and agent's compensation, incurred pursuant to the powers herein contained shall be secured by this Leasehold Mortgage. The right to enter and take possession of and to manage and operate the Mortgaged Property and to collect all Rents, whether by a receiver or otherwise, shall be cumulative to any other right or remedy available to Mortgagee under this Leasehold Mortgage, the Indenture or otherwise available to Mortgagee and may be exercised concurrently therewith or independently thereof. Mortgagee shall be liable to account only for such Rents (including, without limitation, security deposits) actually received by Mortgagee, whether received pursuant to this section or any other provision hereof. Notwithstanding the appointment of any receiver or other custodian, Mortgagee shall be entitled as pledgee to the possession and control of any cash, deposits, or instruments at the time held by, or payable or deliverable under the terms of this Leasehold Mortgage to, Mortgagee. 4.10 SUITS TO PROTECT THE MORTGAGED PROPERTY. Mortgagee shall have the power and authority to institute and maintain any suits and proceedings as Mortgagee, in its sole and absolute discretion, may deem advisable (a) to prevent any impairment of the Mortgaged Property by any acts which may be unlawful or any violation of this Leasehold Mortgage, (b) to preserve or protect its interest in the Mortgaged Property, or (c) to restrain the enforcement of or compliance with any legislation or other Legal Requirement that may be unconstitutional or otherwise invalid, if the enforcement of or compliance with such enactment, rule or order might impair the security hereunder or be prejudicial to Mortgagee's interest. 4.11 PROOFS OF CLAIM. In the case of any receivership, Insolvency, Bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceedings affecting Mortgagor, any Affiliate or any guarantor, co-maker or endorser of any of Mortgagor's obligations, its creditors or its property, Mortgagee, to the extent permitted by law, shall be entitled to file such proofs of claim or other documents as it may deem to be necessary or advisable in order to have its claims allowed in such proceedings for the entire amount due and payable by Mortgagor under the Promissory Note, this Leasehold Mortgage or any other Loan Document, at the date of the institution of such proceedings, and for any additional amounts which may become due and payable by Mortgagor after such date. 4.12 MORTGAGOR TO PERFORM OBLIGATIONS; APPLICATION OF MONIES BY MORTGAGEE. Subject to the Intercreditor Agreement: (a) In lieu of a foreclosure sale of all or any part of the Mortgaged Property and of the application of the proceeds of sale to the payment of the sums secured hereby, Mortgagee shall be entitled to enforce payment from Mortgagor of any additional amounts then remaining due and unpaid and to recover judgment against Mortgagor for any portion thereof remaining unpaid, with interest at the interest rate on the Promissory Note. (b) Mortgagor hereby agrees to the extent permitted by law, that no recovery of any such judgment by Mortgagee or other action by Mortgagee and no attachment or levy of any execution upon any of the Mortgaged Property or any other property shall in any way affect the Lien and security interest of this Leasehold Mortgage upon the Mortgaged Property or any part thereof or any Lien, rights, powers or remedies of Mortgagee hereunder, but such Lien, rights, powers and remedies shall continue unimpaired as before. (c) Any monies collected or received by Mortgagee under this Section 4.12 shall be first applied to the payment of reasonable compensation, expenses and disbursements of the agents, attorneys and other 40 representatives of Mortgagee, and the balance remaining shall be applied to the payment of amounts due and unpaid under the Promissory Note, and this Leasehold Mortgage. 4.13 DELAY OR OMISSION; NO WAIVER. No delay or omission of Mortgagee, any holder of the Note or any Bondholder to exercise any right, power or remedy upon any Event of Default and the expiration of any applicable cure or grace period shall exhaust or impair any such right, power or remedy or shall be construed to waive any such Event of Default or to constitute acquiescence therein. Every right, power and remedy given to Mortgagee whether contained herein or in the Indenture or otherwise available to Mortgagee may be exercised from time to time and as often as may be deemed expedient by Mortgagee. 4.14 NO WAIVER OF ONE DEFAULT TO AFFECT ANOTHER. No waiver of any Event of Default hereunder shall extend to or affect any subsequent or any other Event of Default then existing, or impair any rights, powers or remedies consequent thereon. If Mortgagee or any Bondholder (a) grants forbearance or an extension of time for the payment of any sums secured hereby; (b)takes other or additional security for the payment thereof; (c) waives or does not exercise any right granted in the ASCI Guaranty, this Leasehold Mortgage or any other Loan Document; (d) releases any part of the Mortgaged Property from the lien or security interest of this Leasehold Mortgage or any other instrument securing the Promissory Note; (e) consents to the filing of any map, plat or replat of the Land; (f) consents to the granting of any easement on the Land; or (g) makes or consents to any agreement changing the terms of this Leasehold Mortgage or any Loan Document subordinating the lien or any charge hereof, then no such act or omission shall release, discharge, modify, change or affect the original liability under the Promissory Note, this Leasehold Mortgage, any other Loan Document or otherwise of Mortgagor, or any subsequent purchaser of the Mortgaged Property or any part thereof or any maker, co-signer, surety or guarantor. No such act or omission shall preclude Mortgagee from exercising any right, power or privilege herein granted or intended to be granted in case of any Event of Default then existing or of any subsequent Event of Default, nor, except as otherwise expressly provided in an instrument or instruments executed by Mortgagee, shall the lien or security interest of this Leasehold Mortgage be altered thereby, except to the extent expressly provided in any releases, maps, easements or subordinations described in clause (d), (e), (f) or (g) above of this Section 4.14. In the event of the sale or transfer by operation of law or otherwise of all or any part of the Mortgaged Property, Mortgagee, without notice to any person, firm or corporation, is hereby authorized and empowered to deal with any such vendee or transferee with reference to the Mortgaged Property or the indebtedness secured hereby, or with reference to any of the terms or conditions hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any of the liabilities or undertakings hereunder, or waiving its right to declare such sale or transfer an Event of Default as provided herein. Notwithstanding anything to the contrary contained in this Leasehold Mortgage or any Loan Document, (i) in the case of any non-monetary Event of Default and the expiration of any applicable cure or grace period, Mortgagee may continue to accept payments due hereunder without thereby waiving the existence of such or any other Event of Default and (ii) in the case of any monetary Event of Default, Mortgagee may accept partial payments of any sums due hereunder without thereby waiving the existence of such Event of Default if the partial payment is not sufficient to completely cure such Event of Default. 4.15 DISCONTINUANCE OF PROCEEDINGS; POSITION OF PARTIES RESTORED. If Mortgagee shall have proceeded to enforce any right or remedy under this Leasehold Mortgage by foreclosure, entry of judgment or otherwise and such proceedings shall have been discontinued or abandoned for any reason, or such proceedings shall have resulted in a final determination adverse to Mortgagee, then and in every such case Mortgagor and Mortgagee shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of Mortgagee shall continue as if no such proceedings had occurred or had been taken. 4.16 REMEDIES CUMULATIVE. No right, power or remedy, including without limitation remedies with respect to any security for the Promissory Note, conferred upon or reserved to Mortgagee by the ACSI Guaranty, this Leasehold Mortgage or any Loan Document is exclusive of any other right, power or remedy, but each and 41 every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or under any Loan Document, now or hereafter existing at law, in equity or by statute, and Mortgagee shall be entitled to resort to such rights, powers, remedies or security as Mortgagee shall in its sole and absolute discretion deem advisable. 4.17 INTEREST AFTER EVENT OF DEFAULT. If an Event of Default shall have occurred and is continuing, all sums outstanding and unpaid under the Promissory Note and this Leasehold Mortgage shall, at Mortgagee's option, bear interest at the default interest rate on the Promissory Note until such Event of Default has been cured. Mortgagor's obligation to pay such interest shall be secured by this Leasehold Mortgage. 4.18 FORECLOSURE: EXPENSES OF LITIGATION. If foreclosure be made by Mortgagee, reasonable attorneys' fees for services in the supervision of said foreclosure proceeding shall be allowed to Mortgagee as part of the foreclosure costs. In the event of foreclosure of the lien hereof, there shall be allowed and included as additional indebtedness all reasonable expenditures and expenses which may be paid or incurred by or on behalf of Mortgagee for attorneys fees, appraiser's fees, outlays for documentary and expert evidence, stenographers' charges, publication costs, and costs (which may be estimated as to items to be expended after foreclosure sale or entry of the decree) of procuring all such abstracts of title, title searches and examinations, title insurance policies and guaranties, and similar data and assurances with respect to title as Mortgagee may deem reasonably advisable either to prosecute such suit or to evidence to a bidder at any sale which may be had pursuant to such decree the true condition of the title to or the value of the Mortgaged Property or any portion thereof. All expenditures and expenses of the nature in this section mentioned, and such expenses and fees as may be incurred in the protection of the Mortgaged Property and the maintenance of the lien and security interest of this Leasehold Mortgage, including the reasonable fees of any attorney employed by Mortgagee in any litigation or proceeding affecting this Leasehold Mortgage or any Loan Document, the Mortgaged Property or any portion thereof, including, without limitation, civil, probate, appellate and bankruptcy proceedings, or in preparation for the commencement or defense of any proceeding or threatened suit or proceeding, shall be immediately due and payable by Mortgagor, with interest thereon at the default interest rate on the Promissory Note, and shall be secured by this Leasehold Mortgage. 4.19 DEFICIENCY JUDGMENTS. If after foreclosure of this Leasehold Mortgage hereunder, there shall remain any deficiency with respect to any amounts payable under the Promissory Note or hereunder or any amounts secured hereby, and Mortgagee shall institute any proceedings to recover such deficiency or deficiencies, all such amounts shall continue to bear interest at the default interest rate under the Promissory. Mortgagor waives to the extent permitted by applicable law, any defense to Mortgagee's recovery against Mortgagor of any deficiency after any foreclosure sale of the Mortgaged Property. Mortgagor expressly waives to the extent permitted by applicable law, any defense or benefits that may be derived from any statute granting Mortgagor any defense to any such recovery by Mortgagee. In addition, Mortgagee shall be entitled to recovery of all of its reasonable costs and expenditures (including without limitation any court imposed costs) in connection with such proceedings, including its reasonable attorneys' fees, appraisal fees and the other costs, fees and expenditures referred to in Section 4.18 above. This provision shall survive any foreclosure or sale of the Mortgaged Property, any portion thereof and/or the extinguishment of the lien hereof. 4.20 WAIVER OF JURY TRIAL. Mortgagee and Mortgagor each waive to the extent permitted by applicable law, any right to have a jury participate in resolving any dispute, whether sounding in contract, tort, or otherwise arising out of, connected with, related to, or incidental to the relationship established between them in connection with the Promissory Note, this Leasehold Mortgage or any Loan Document. Any such disputes shall be resolved in a bench trial without a jury. 4.21 REASONABLE USE AND OCCUPANCY. Subject to all applicable Gaming Control Acts in addition to the rights which Mortgagee may have herein, upon the occurrence of any Event of Default, Mortgagee, at its option, may require Mortgagor to pay monthly in advance to Mortgagee, or any receiver appointed to collect the Rents, 42 the fair and reasonable rental value for the use and occupation of such part of the Mortgaged Property as may be occupied by Mortgagor or may require Mortgagor to vacate and surrender possession of the Mortgaged Property to Mortgagee or to such receiver and, in default thereof, Mortgagor may be evicted by summary proceedings or otherwise. 4.22 EXCULPATION OF MORTGAGEE. The acceptance by Mortgagee of the assignment contained herein with all of the rights, powers, privileges and authority created hereby shall not, prior to entry upon and taking possession of the Mortgaged Property by Mortgagee, be deemed or construed to make Mortgagee a "mortgagee in possession"; nor thereafter or at any time or in any event obligate Mortgagee to appear in or defend any action or proceeding relating to the Space Leases, the Rents or the Mortgaged Property, or to take any action hereunder or to expend any money or incur any expenses or perform or discharge any obligation, duty or liability under any Space Lease or to assume any obligation or responsibility for any security deposits or other deposits except to the extent such deposits are actually received by Mortgagee, nor shall Mortgagee, prior to such entry and taking, be liable in any way for any injury or damage to person or property sustained by any Person in or about the Mortgaged Property. ARTICLE FIVE MISCELLANEOUS PROVISIONS 5.1 HEIRS, SUCCESSORS AND ASSIGNS INCLUDED IN PARTIES. Whenever one of the parties hereto is named or referred to herein, the heirs, successors and assigns of such party shall be included, and subject to the limitations set forth in Section 1.16, all covenants and agreements contained in this Leasehold Mortgage, by or on behalf of Mortgagor or Mortgagee shall bind and inure to the benefit of its heirs, successors and assigns, whether so expressed or not. 5.2 NO MERGER. If both the lessor's and the lessee's interests under any Facility Lease shall at any time become vested in any one person, this Mortgage and the lien and security interest created hereby shall not be destroyed or terminated by the application of the doctrine of merger and, in such event, Mortgagee shall continue to have and enjoy all of the rights and privileges of Mortgagee hereunder as to the estate subject to the lien of this Mortgage. If Mortgagor elects to acquire the fee simple interest in any portion of the Land, then, as a condition to such acquisition, Mortgagor shall deliver to Mortgagee an opinion of independent legal counsel to the effect that the ownership of lessee's interest under the Facility Lease and the fee simple interest in the Land by Mortgagor shall not cause or result in, by operation of law or otherwise, a merger of the lessee's interest under the Facility Lease and the fee simple interest in the Land and that Mortgagee shall be entitled to continue to have and enjoy all of the rights of Mortgagee hereunder as to the estate subject to the lien of the Mortgage. Notwithstanding the foregoing, if Mortgagor elects to merge the lessee's interest under the Facility Lease and the fee simple interest in the Land, or otherwise, Mortgagor shall cause the following items to be delivered to Mortgagee as a condition thereto: (a) an opinion of independent legal counsel to Mortgagee to the effect that Mortgagee has a valid and enforceable first priority security interest in PARI PASSU in the Mortgaged Property and in the fee simple interest in the Land, subject to the Permitted Liens, which opinion may be given in reliance on the search conducted by the title insurance company described in clause (b) below, (b) a validly-issued and fully-paid title insurance policy of a title insurance company reasonably acceptable to Mortgagee, insuring Mortgagee's first priority security interest in PARI PASSU in the Improvements and the fee simple interest in the Land, subject to the Permitted Liens, and (c) such other instruments, statements, agreements and documents, including any supplements to this Mortgage as Mortgagee or its counsel may require in order to (i) subject to the lien hereby created the fee simple interest in the Land, and (ii) perfect and maintain a first priority security interest in PARI PASSU in the Mortgaged Property, subject 43 to the Permitted Liens. Upon compliance with the foregoing requirements, Mortgagee shall execute and deliver a written instrument in recordable form to Mortgagor to confirm its consent to the merger of such estates. 5.3 ADDRESSES FOR NOTICES, ETC. (a) Any notice, report, demand or other instrument authorized or required to be given or furnished under this Leasehold Mortgage to Mortgagor or Mortgagee shall be deemed given or furnished (i) when addressed to the party intended to receive the same, at the address of such party set forth below, and delivered at such address or (ii) three (3) days after the same is deposited in the United States mail as first class certified mail, return receipt requested, postage paid, whether or not the same is actually received by such party: Mortgagor: Showboat, Inc. 2800 Freemont Street Las Vegas, Nevada 89104 Attention: Chief Financial Officer With a copy to: Atlantic City Showboat, Inc. 801 Boardwalk Atlantic City, NJ 08401 Attn: General Counsel Mortgagee: NatWest Bank, N.A. 22 Route 70 W Cherry Hill, NJ 08002 Attn: John T. Harrison, V.P. With a copy to: Peter W. Leibundgut, Esq. Clark, Ladner, Fortenbaugh & Young Woodland Falls Corporate Park 200 Lake Drive East - Suite 300 Cherry Hill, NJ 08002 5.3.1 CHANGE OF ADDRESS. Any person may change the address to which any such notice, report, demand or other instrument is to be delivered or mailed to that person, by furnishing written notice of such change to the other party, but no such notice of change shall be effective unless and until received by such other party. 5.4 HEADINGS. The headings of the articles, sections, paragraphs and subdivisions of this Leasehold Mortgage are for convenience of reference only, are not to be considered a part hereof, and shall not limit or expand or otherwise affect any of the terms hereof. 5.5 INVALID PROVISIONS TO AFFECT NO OTHERS. In the event that any of the covenants, agreements, terms or provisions contained herein or in the Promissory Note, the ACSI Guaranty or any Loan Document shall be invalid, illegal or unenforceable in any respect, the validity of the lien hereof and the remaining covenants, agreements, terms or provisions contained herein or in the Promissory Note, the Loan Agreement, the ACSI Guaranty or any other Loan Document shall be in no way affected, prejudiced or disturbed thereby. To the extent 44 permitted by law, Mortgagor waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect. 5.6 CHANGES AND PRIORITY OVER INTERVENING LIENS. Neither this Leasehold Mortgage nor any term hereof may be changed, waived, discharged or terminated orally, or by any action or inaction, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. Any agreement hereafter made by Mortgagor and Mortgagee relating to this Leasehold Mortgage shall be superior to the rights of the holder of any intervening lien or encumbrance. 5.7 ESTOPPEL CERTIFICATES. Within ten (10) Business Days after Mortgagee's written request, Mortgagor shall from time to time execute a certificate, in recordable form (an "Estoppel Certificate"), stating, except to the extent that it would be inaccurate to so state: (a) the current amount of the Obligations secured hereunder and all elements thereof, including principal, interest, and all other elements; (b) Mortgagor has no defense, offset, claim, counterclaim, right of recoupment, deduction, or reduction against any of the Obligations secured hereunder; (c) none of the Loan Documents have been amended, whether orally or in writing; (d) Mortgagor has no claims against Mortgagee of any kind; (e) any Power of Attorney granted to Mortgagee is in full force and effect; and (f) such other matters relating to this Leasehold Mortgage, any Loan Documents and the relationship of Mortgagor and Mortgagee as Mortgagee shall request. In addition, the Estoppel Certificate shall set forth the reasons why it would be inaccurate to make any of the foregoing assurances ("a" through "f"). 5.8 GOVERNING LAW. This Leasehold Mortgage shall be construed, interpreted, enforced and governed by and in accordance with the laws of the State of New Jersey without regard to its choice of law provisions. 5.9 REQUIRED NOTICES. Mortgagor shall notify Mortgagee promptly of the occurrence of any of the following and shall immediately provide Mortgagee a copy of the notice or documents referred to: (a) receipt of notice from any Governmental Authority relating to all or any material part of the Mortgaged Property if such notice relates to a default or act, omission or circumstance which would result in a default after notice or passage of time or both; (b) receipt of any notice from any tenant leasing all or any material portion of the Mortgaged Property if such notice relates to a default or act, omission or circumstance which would result in a default after notice or passage of time or both; (c) receipt of notice from the holder of any Permitted Lien relating to a default or act, omission or circumstance which would result in a default after notice or passage of time or both; (d) the commencement of any proceedings or the entry of any judgment, decree or order materially affecting all or any portion of the Mortgaged Property or which involve the potential liability of Mortgagor or its Affiliates in an amount in excess of $250,000.00 (other than for personal injury actions and related property damage suits which have been acknowledged by the insurer to be covered by such insurance); or (e) commencement of any judicial or administrative proceedings or the entry of any judgment, decree or order by or against or otherwise affecting Mortgagor or any Affiliate of Mortgagor, a material portion of the Mortgaged Property, or a material portion of the Personal Property, or any other action by any creditor or lessor thereof as a result of any default under the terms of any lease. 5.10 CONTINUED PRIORITY OF LIEN. This Leasehold Mortgage, the ASCI Guaranty, the Promissory Note, the other Loan Documents, and the Obligations are subject to "modification" (as such term is defined in Chapter 353 of the Public Laws of 1985, N.J.S.A. 46:9-8.1 et seq.), and the priority of the lien of this Mortgage with respect to any and all modifications (as so defined) shall relate back to and remain as it was at time of the recording of this Mortgage (as if such modification were originally included in this Mortgage or as if the modification occurred at the time of the recording of this Mortgage), as provided in such statute. 5.11 ATTORNEYS' FEES. Without limiting any other provision contained herein, Mortgagor agrees to pay all reasonable costs of Mortgagee incurred in connection with the enforcement of this Leasehold Mortgage or the taking of this Leasehold Mortgage as security for the performance of SBI's obligations under the Promissory Note, 45 including without limitation all reasonable attorneys' fees whether or not suit is commenced, and including, without limitation, fees incurred in connection with any probate, appellate, bankruptcy, deficiency or any other litigation proceedings, all of which sums shall be secured hereby. 5.12 LATE CHARGES. By accepting payment of any sum secured hereby after its due date, Mortgagee does not waive its right to collect any late charge thereon or interest thereon at the applicable interest rate on the Promissory Note, if so provided, not then paid or its right either to require prompt payment when due of all other sums so secured or to declare default for failure to pay any amounts not so paid. 5.13 COST OF ACCOUNTING. Mortgagor shall pay to Mortgagee, for and on account of the preparation and rendition of any accounting, which Mortgagor may be entitled to require under any law or statute now or hereafter providing therefor, the reasonable costs thereof. 5.14 RIGHT OF ENTRY. Subject to compliance with applicable Gaming Control Acts, Mortgagee may at any reasonable time or times, upon no less than 24 hours advance notice (except in the case of an emergency), make or cause to be made entry upon and inspections of the Mortgaged Property or any part thereof in person or by agent. 5.15 CORRECTIONS. Mortgagor shall, upon request of Mortgagee, promptly correct any defect, error or omission which may be discovered in the contents of this Leasehold Mortgage or in the execution or acknowledgement hereof, and shall execute, acknowledge and deliver such further instruments and do such further acts as may be necessary or as may be reasonably requested by Mortgagee to carry out more effectively the purposes of this Leasehold Mortgage, to subject to the lien and security interest hereby created any of Mortgagor's properties, rights or interest covered or intended to be covered hereby, and to perfect and maintain such lien and security interest. In the event that there is a new Facility Lease, Mortgagor shall execute a supplemental Mortgage if requested by Mortgagee. 5.16 STATUTE OF LIMITATIONS. To the fullest extent allowed by the law, the right to plead, use or assert any statute of limitations as a plea or defense or bar of any kind, or for any purpose, to any debt, demand or obligation secured or to be secured hereby, or to any complaint or other pleading or proceeding filed, instituted or maintained for the purpose of enforcing this Leasehold Mortgage or any rights hereunder, is hereby waived by Mortgagor. 5.17 SUBROGATION. Should the proceeds of the Obligations which are hereby secured, or any part thereof, or any amount paid out or advanced by Mortgagee, be used directly or indirectly to pay off, discharge, or satisfy, in whole or in part, any prior or superior lien or encumbrance upon the Mortgaged Property, or any part thereof, then, as additional security hereunder, Mortgagee shall be subrogated to any and all rights, superior titles, liens, and equities owned or claimed by any owner or holder of said outstanding liens, charges, and indebtedness, however remote, regardless of whether said liens, charges, and indebtedness are acquired by assignment or have been released of record by the holder thereof upon payment. 5.18 JOINT AND SEVERAL LIABILITY. All obligations of Mortgagor hereunder, if more than one, are joint and several. Recourse for deficiency after sale hereunder may be had against the property of Mortgagor, without, however, creating a present or other lien or charge thereon. 5.19 CONTEXT. In this Leasehold Mortgage, whenever the context so requires, the neuter includes the masculine and feminine, and the singular includes the plural, and vice versa. 46 5.20 TIME. Time is of the essence of each and every term, covenant and condition hereof. Unless otherwise specified herein, any reference to "days" in this Leasehold Mortgage shall be deemed to mean "calendar days." 5.21 INTERPRETATION. As used in this Leasehold Mortgage unless the context clearly requires otherwise: The terms "herein" or "hereunder" and similar terms without reference to a particular section shall refer to the entire Leasehold Mortgage and not just to the section in which such terms appear; the term "lien" shall also mean a security interest, and the term "security interest" shall also mean a lien. 5.22 EXHIBITS AND SCHEDULES. All Exhibits and Schedules attached hereto shall be deemed a part hereof and incorporated herein by reference. 5.23 INTEGRATION. This Leasehold Mortgage, the Exhibits hereto, the Loan Documents and any other agreement or document contemplated by the Loan Agreement or Loan Documents constitute the entire agreement of the parties hereto and thereto with respect to the subject matter hereof and thereof. There are no oral agreements. 5.24 RECORDING OF MORTGAGE, ETC. Mortgagor forthwith upon the execution and delivery of this Leasehold Mortgage and thereafter, from time to time, shall cause this Leasehold Mortgage, and any security instrument creating a lien or security interest or evidencing the lien hereof upon the Mortgaged Property and each instrument of further assurance, to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the lien or security interest hereof upon, and the interest of Mortgagee in, the Mortgaged Property. Mortgagor shall pay all filing, registration or recording fees, and all expenses incident to the preparation, execution and acknowledgment of this Leasehold Mortgage, any modification of or supplement to this Leasehold Mortgage or the Obligations, any security instrument with respect to the Mortgaged Property and any instrument of further assurance, and all federal, state, county and municipal, taxes, duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of this Leasehold Mortgage, any modification of or supplement to this Leasehold Mortgage or the Obligations, any security instrument with respect to the Mortgaged Property or any instrument of further assurance, except where prohibited by law so to do. Mortgagor shall hold harmless and indemnify Mortgagee, its successors and assigns, against any liability incurred by reason of the imposition of any tax on the making and recording of this Leasehold Mortgage. 5.25 CONSENTS. Whenever any provision of this Leasehold Mortgage calls for the consent of Mortgagee, such consent shall be deemed given, unless within twenty days after receiving Mortgagor's request for such consent, Mortgagee informs Mortgagor that such consent will not be forthcoming. 5.26 USURY LAWS. This Leasehold Mortgage and the Promissory Note are subject to the express limitations that at no time shall Mortgagor be obligated or required to pay interest on the Promissory Note at a rate which could subject the holder of the Promissory Note to either civil or criminal liability as a result of being in excess of the maximum interest rate which Mortgagee is permitted by applicable law (Federal or State, whichever is more favorable to Mortgagee) to collect or receive. If by the terms of this Leasehold Mortgage or the ACSI Promissory Note, Mortgagor is at any time required or obligated to pay interest at a rate in excess of such maximum rate, the rate of interest under the same shall be deemed to be immediately reduced to such maximum rate and the interest payable shall be computed at such maximum rate and all prior interest payments in excess of such maximum rate shall be applied and shall be deeded to have been payments in reduction of the principal balance of the Promissory Note. 5.27 GAMING CONTROL ACTS. Mortgagee acknowledges that every provision of the Leasehold Mortgage and the other Loan Documents is subject to and may be limited, restricted or invalidated by Gaming Control Act(s), 47 including the Act, notwithstanding anything to the contrary contained or not contained in this Leasehold Mortgage or the other Loan Documents. ARTICLE SIX POWER OF ATTORNEY 6.1 GRANT OF POWER. Mortgagor irrevocably appoints Mortgagee and any successor thereto as its attorney-in-fact, with full power and authority, including the power of substitution, exercisable only during the continuance of an Event of Default following the expiration of any applicable cure or grace period to act, subject to all applicable Gaming Control Acts, for Mortgagor in its name, place and stead as hereinafter provided: 6.2 POSSESSION AND COMPLETION. To take possession of the Land and Atlantic City Showboat, remove all employees, contractors and agents of Mortgagor therefrom and market, sell, assign or lease the Mortgaged Property and the Atlantic City Showboat. 6.3 EMPLOYMENT OF OTHERS. To employ such contractors, subcontractors, suppliers, architects, inspectors, consultants, property managers and other agents as Mortgagee, in its discretion, deems proper for the completion of the restoration of the Atlantic City Showboat, for the protection or clearance of title to Mortgaged Property, or for the protection of Mortgagee's interests with respect thereto. 6.4 SECURITY GUARDS. To employ watchmen to protect the Land and Atlantic City Showboat from injury. 6.5 COMPROMISE CLAIMS. To pay, settle or compromise all bills and claims then existing or thereafter arising against Mortgagor, which Mortgagee, in its discretion, deems proper for the completion of the Atlantic City Showboat, for the protection or clearance of title to the Land or Personal Property, or for the protection of Mortgagee's interests with respect thereto. 6.6 LEGAL PROCEEDINGS. To prosecute and defend all actions and proceedings in connection with the Land or the Atlantic City Showboat. 6.7 OTHER ACTS. To execute, acknowledge and deliver all other instruments and documents in the name of Mortgagor that are necessary or desirable, to exercise Mortgagor's rights under all contracts concerning the Land or the Atlantic City Showboat, including, without limitation, under any Facility Leases or Space Leases, and to do all other acts with respect to the Land or Atlantic City Showboat that Mortgagor might do on its own behalf, as Mortgagee, in its reasonable discretion, deems proper. 48 MORTGAGOR HEREBY ACKNOWLEDGES RECEIPT, WITHOUT CHARGE, OF A TRUE COPY OF THIS MORTGAGE. IN WITNESS WHEREOF, Mortgagor has executed this Leasehold Mortgage, Assignment of Rents and Security Agreement the day and year first above written. ATLANTIC CITY SHOWBOAT, INC. a New Jersey corporation, as Mortgagor By: /s/ Herbert R. Wolfe Name: Herbert R. Wolfe Title: President/CEO Attest: By: /s/ Luther Anderson Name: Luther Anderson Title: Asst. Secretary, Atlantic City Showboat, Inc. 49 STATE OF NEVADA ) ) ss. COUNTY OF CLARK) On this 14th day of July, 1995, before me, the undersigned, personally appeared Herbert R. Wolfe, the President/CEO of Atlantic City Showboat, Inc. who, I am satisfied, is the person who signed the foregoing instrument, and he did acknowledge under oath that he signed, sealed with the corporate seal, and delivered the same in (his/her) capacity as such officer ad that the foregoing instrument is the voluntary act and deed of such corporation, made by virtue of the authority of its board of directors. /s/ Denise L. Perrone Notary Public 50 EXHIBIT "A" FORM OF DISBURSEMENT REQUEST AND CERTIFICATE [DATE] ATTENTION___________________________ RE: DISBURSEMENT REQUEST OF $_____________ GENTLEMEN: PURSUANT TO SECTION 1.5 (A)(3)(B) OF THAT CERTAIN DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT DATED AS OF JULY 14, 1995, MADE BY SHOWBOAT, INC., A NEVADA CORPORATION ("TRUSTOR") IN FAVOR OF NATWEST BANK, N.A., TRUSTOR, REQUESTS THAT A DISBURSEMENT OF $____________________________ (THE "DISBURSEMENT") BE MADE TO ACCOUNT NO. ______________________ AT ________________________BANK (THE "SEGREGATED ACCOUNT"), FOR USE BY TRUSTOR IN CONNECTION WITH THE CAPITALIZED TERMS USED HEREIN SHALL HAVE THE MEANING AFFORDED THEM UNDER THE DEED OF TRUST. IN CONNECTION WITH THE REQUESTED DISBURSEMENT, THE PARTIES SIGNING BELOW HEREBY REPRESENT, WARRANT AND CERTIFY AS FOLLOWS: 1. THE DISBURSEMENT WILL BE APPLIED TO THE FOLLOWING LINE ITEMS IN THE BUDGET IN THE FOLLOWING AMOUNT: DESCRIPTION AMOUNT ___________________________ __________________ ___________________________ __________________ ___________________________ __________________ ___________________________ __________________ ___________________________ __________________ FOLLOWING DISBURSEMENT OF THE FUNDS REQUESTED PURSUANT TO THIS DISBURSEMENT REQUEST, THE BALANCE OF THE SEGREGATED ACCOUNT WILL NOT EXCEED $100,000 HEREUNDER. ALL FUNDS HERETOFORE DISBURSED FROM THE SEGREGATED ACCOUNT HAVE BEEN USED ONLY TO PAY EXPENSES DESCRIBED IN PREVIOUS DISBURSEMENT REQUESTS. 2. THE AMOUNT REQUESTED HEREUNDER RELATES ONLY TO AMOUNTS THAT HAVE BEEN PAID TO MATERIALMEN, ENGINEERS, ARCHITECTS, CONTRACTORS, AND SUBCONTRACTORS FOR WORK THAT IS PART OF THE RESTORATION OF THE TRUST ESTATE. THE CONSTRUCTION PERFORMED AS OF THE DATE HEREOF IS IN ACCORDANCE WITH THE PLANS AND ALL LEGAL REQUIREMENTS FOR RESTORATION OF THE TRUST ESTATE AND THE DISBURSEMENT IS APPROPRIATE IN LIGHT OF THE PERCENTAGE OF CONSTRUCTION COMPLETED AND THE AMOUNT OF STORED MATERIALS. 3. APPROPRIATE EVIDENCE OF LIEN RELEASES OR TITLE INSURANCE ENDORSEMENTS HAVE BEEN RECEIVED FOR ALL WORK, MATERIALS AND/OR SERVICES PERFORMED AND/OR DELIVERED IN CONNECTION WITH THE VARIOUS COMPONENTS OF THE RESTORATION OF THE DEED OF TRUST PREMISES. THE TITLE ENDORSEMENTS REQUIRED BY SECTION 1.5(A)(3)(B) OF THE DEED OF TRUST ARE ATTACHED HERETO. 4. THE BUDGET IN EFFECT ACCURATELY SETS FORTH THE ANTICIPATED COSTS OF RESTORING THE TRUST ESTATE, AND THERE ARE SUFFICIENT FUNDS AVAILABLE FROM INSURANCE PROCEEDS, CONDEMNATION PROCEEDS AND ADDITIONAL AMOUNTS PAID BY TRUSTOR TO BENEFICIARY IN ACCORDANCE WITH SECTION 1.5(A)(3)(D) OF THE DEED OF TRUST TO COMPLETE THE VARIOUS COMPONENTS OF THE RESTORATION OF THE DEED OF TRUST PREMISES WITHIN THE LINE ITEM ALLOCATIONS ESTABLISHED FOR THOSE COMPONENTS CONTAINED IN THE BUDGET. 5. THERE IS NO EVENT OF DEFAULT UNDER THE DEED OF TRUST OR INDENTURE OR ANY EVENT, OMISSION OR FAILURE OF A CONDITION WHICH WOULD CONSTITUTE AN EVENT OF DEFAULT UNDER THE DEED OF TRUST OR INDENTURE AFTER NOTICE OR LAPSE OF TIME OR BOTH. 6. NO CIRCUMSTANCES HAVE OCCURRED WHICH WOULD PROVIDE BENEFICIARY WITH ANY DEFENSES AGAINST ENFORCEMENT OF THE DEED OF TRUST. THE FOREGOING REPRESENTATIONS, WARRANTIES AND CERTIFICATIONS ARE TRUE AND CORRECT AND BENEFICIARY IS ENTITLED TO RELY ON THE FOREGOING IN AUTHORIZING AND MAKING THE DISBURSEMENT. SHOWBOAT, INC., A NEVADA CORPORATION BY:________________________________ NAME:______________________________ TITLE:_____________________________ SHOWBOAT OPERATING COMPANY, A NEVADA CORPORATION BY:________________________________ NAME:______________________________ TITLE:_____________________________ SCHEDULE "A" DESCRIPTION OF THE LAND PREMISES A 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 (50.00 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 beginning point being in the division line between Lots 140 and 144.05 in Block 13 as shown on the Atlantic City Tax Map, and extending from said beginning point; thence 1. South 27 degrees, 38 minutes, 00 seconds East, in and along said division line, parallel with New Jersey Avenue, 1432.20 feet to the Interior or Inland Line of the Public Park; 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. Continuing in and along same, South 59 degrees, 24 minutes, 40 seconds West, 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, 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, parallel with Pacific Avenue, 25.00 feet to a point in the easterly line of Lot 129.02; thence 6. North 27 degrees, 28 minutes, 00 seconds West, in and along same, parallel with New Jersey Avenue, 80.00 feet to the southerly line of Pacific Avenue, said point being North 62 degrees, 32 minutes, 00 seconds East, 577.00 feet from the easterly line of Virginia Avenue (80.00 feet wide); 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. 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 140, Tax Map of the City of Atlantic City, New Jersey. 1 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 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 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 2 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. 3 PREMISES B ALL THOSE CERTAIN, lots and parcels of land lying and being in the City of Atlantic City, County of Atlantic and State of New Jersey, being more particularly described as follows: TRACT 1 Beginning at the intersection of the northerly line of Atlantic Avenue (100 feet wide), with the easterly line of Maryland Avenue (50 feet wide), and extending from said beginning point; thence 1. North 27 degrees, 28 minutes, 00 seconds west in and along the easterly line of Maryland Avenue, 550.00 feet to the southerly line of Arctic Avenue (60 feet wide); thence 2. North 62 degrees, 32 minutes, 00 seconds east in and along same, 230.50 feet to the westerly line of lot 7 in block 109; thence 3. South 27 degrees, 28 minutes, 00 seconds east in and along same, 105.00 feet to the north line of lot 68; thence 4. North 62 degrees, 32 minutes, 00 seconds east in and along same, 25.00 feet to the westerly line of lot 8; thence 5. North 27 degrees, 28 minutes, 00 seconds west in and along same, 105.00 feet to the southerly line of Arctic Avenue; thence 6. North 62 degrees, 32 minutes, 00 seconds east in and along same, 94.50 feet to the westerly line of Delaware Avenue (82 feet wide); thence 7. South 27 degrees, 28 minutes, 00 seconds east in and along same, 400.00 feet to the northerly line of lot 62; thence 8. South 62 degrees, 32 minutes, 00 seconds west in and along same, 60.00 feet to the easterly line of lot 61; thence 9. South 27 degrees, 28 minutes, 00 seconds east in and along same, 25.00 feet to the northerly line of lot 72; thence 10. South 62 degrees, 32 minutes, 00 seconds west in and along same, 40.00 feet to the westerly line of lot 61; thence 11. North 27 degrees, 28 minutes, 00 seconds west in and along same, 25.00 feet to the southerly line of lot 80; thence 12. South 62 degrees, 32 minutes, 00 seconds west in and along same, 7.00 feet to the easterly line of lot 74; thence 13. South 27 degrees, 28 minutes, 00 seconds east in and along same, 150.00 feet to the northerly line of Atlantic Avenue; thence 14. South 62 degrees, 32 minutes, 00 seconds west in and along same, 243.00 feet to the point and place of beginning. 4 BEING KNOWN AS LOTS 97, 98, 71, 96, 38, 39, 74, 61, 35, 34, 33, 53, 54, 31, 30, 29, 28, 27, 68, 49, 48, 82, 81, 8, 6, 5, 10, 95, 94, 84, 83, 65, 66, 11, 69, 87, 88, 89, 63, 64, 90, 91, 86, 85, 15, 16, 17, 92, 93, 19, 20, 26, 75, 76, 77, 78, 79, 80 and the area of a former public alley in Block 109, Atlantic City Tax Map, Atlantic City, New Jersey. TRACT II: BEGINNING at the intersection of the westerly line of Delaware Avenue (82 feet wide) with the northerly line of Atlantic Avenue (100 feet wide), and extending from said beginning point; thence 1. South 62 degrees, 32 minutes, 00 seconds west in and along the northerly line of Atlantic Avenue, 71.10 feet to the easterly line of lot 47 in block 109; thence 2. North 27 degrees, 28 minutes, 00 seconds in and along same, 100.00 feet to the southerly line of lot 72; thence 3. North 62 degrees, 32 minutes, 00 seconds east in and along same and continuing in and along the southerly line of lot 62, 71.10 feet to the westerly line of Delaware Avenue; 4. South 27 degrees, 28 minutes, 00 seconds east in and along same, 100.00 feet to the point and place of beginning. BEING known as Lot 42 in Block 109 as shown on the Atlantic City Tax Map, Atlantic City, New Jersey. 5 RECITAL: PREMISES A 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. ASSIGNMENT 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. AMENDMENT TO SHORT FORM 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 AGREEMENT: 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 AGREEMENT: 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. RESTATED THIRD AMENDMENT TO LEASE AGREEMENT: 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 AGREEMENT: 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 AGREEMENT: 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 AGREEMENT: 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 AGREEMENT: between Resorts International Inc., a Delaware Corporation and Atlantic City Showboat, Inc., a New Jersey Corporation dated October 18, 1988 recorded December 19, 1988 in Deed Book 4814 page 231. EIGHTH AMENDMENT TO LEASE: between Resorts International Inc. (Delaware Corp.) and Atlantic City Showboat Inc. (New Jersey Corp.) dated May 18, 1993 recorded May 18, 1993 in Deed Book 550 page 284. RECITAL: (As To Fee Estate) BEING the same premises which Resorts International, Inc. of New Jersey, a New Jersey Corporation by a deed dated October 28, 1986 and recorded on December 24, 1986 in Atlantic County in Deed Book 4366 page 214 granted and conveyed unto Resorts International, Inc., a Delaware Corporation in fee. 6 SCHEDULE B EXISTING ENCUMBRANCES 1. Lease 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. 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. 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 dated 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. 2. LEASEHOLD MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT: made by Atlantic City Showboat, Inc., a New Jersey Corporation to IBJ Schroder Bank & Trust Company, a New York Banking Corporation (as Trustee) dated May 18, 1993 recorded May 19, 1993 in Mortgage Book 5028 page 1; to secure $275,000,000.00. A. ASSIGNMENT OF RENTS AND LEASES by ACSI, Inc. to IBJ dated May 18, 1993, recorded on May 19, 1993 in Mortgage Book 5028, page 66. B. FIRST AMENDMENT TO LEASEHOLD MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT: dated July 9, 1993 recorded July 28, 1993 in Mortgage Book 5095 page 209. C. SECOND AMENDMENT to the Leasehold Mortgage, Assignment of Rents and Security Agreement between Atlantic City Showboat, Inc. and Showboat, Inc., dated as of July 6, 1995 and intended to be forthwith recorded in the Atlantic County Clerk's Office. 3. LEASEHOLD MORTGAGE ASSIGNMENT OF RENTS AND SECURITY AGREEMENT: made by Atlantic City Showboat, Inc., a New Jersey Corporation to Showboat, Inc., a Nevada Corporation dated May 18, 1993 recorded May 19, 1993 in Mortgage Book 5028 page 79; to secure $215,000,000.00. A. ASSIGNMENT OF RENTS AND LEASES: by Atlantic City Showboat, Inc., a New Jersey Corporation to Showboat, Inc., a Nevada Corporation dated May 18, 1993 recorded May 19, 1993 in Mortgage Book 5028 page 144. B. ISSUER COLLATERAL ASSIGNMENT: by Showboat, Inc., a Nevada Corporation to IBJ Schroder Bank & Trust Company, a New York banking corporation dated May 18, 1993 recorded May 19, 1993 in Assignment Book 624 page 195. C. FIRST AMENDMENT TO THE LEASEHOLD MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT: dated July 9, 1993 recorded July 28, 1993 in Mortgage Book 5095 page 226. D. SECOND AMENDMENT to the Leasehold Mortgage, Assignment of Rents and Security Agreement between Atlantic City Showboat, Inc. and IBJ Schroder Bank & Trust Company as Trustee, dated as of July 6, 1995 and intended to be forthwith recorded in the Atlantic County Clerk's Office. 4. FINANCING STATEMENT: Atlantic City Showboat Inc. (New Jersey Corp.) Debtor to IBJ Schroder Bank & Trust Company, as trustee Secured Party filed May 19, 1993 #13205. 2 A. Amended July 21, 1993 #13685 5. FINANCING STATEMENT: Atlantic City Showboat Inc. (New Jersey Corp.) Debtor filed May 19, 1993 #13206. A. Amended July 21, 1993 #13686 6. FINANCING STATEMENT: Atlantic City Showboat Inc., Debtor to Bell Atlantic Tri-Con Leasing filed June 11, 1993 #13362. 7. FINANCING STATEMENT: Atlantic City Showboat Inc., Debtor to Bell-Atlantic Tri-Con Leasing filed December 13, 1993 #14556. 8. FINANCING STATEMENT: Atlantic City Showboat Inc., Debtor, to Bell-Atlantic Tri-Con Leasing filed December 13, 1993 #14557. 9. FINANCING STATEMENT: Atlantic City Showboat Inc., Debtor, to Bell Atlantic Tri-Con Leasing filed December 13, 1993 #14558. 10. FINANCING STATEMENT: Atlantic City Showboat Inc., Debtor, to Citi-Lease filed August 2, 1991 #1410565. 11. FINANCING STATEMENT: Atlantic City Showboat Inc., Debtor, to Bell Atlantic Tri-Con filed June 16, 1993 #1515591. 12. FINANCING STATEMENT: Atlantic City Showboat Inc., Debtor, to Bell Atlantic Tri-Con filed June 17, 1993 #1515700. 13. FINANCING STATEMENT: Atlantic City Showboat Inc., Debtor, to Bell Atlantic Tri-Con filed February 15, 1994 #1554169. 14. FINANCING STATEMENT: Atlantic City Showboat Inc., Debtor, to Bell Atlantic Tri-Con filed February 15, 1994 #1554172. 15. FINANCING STATEMENT: Atlantic City Showboat Inc., Debtor, to Bell Atlantic Tri-Con filed February 15, 1994 #1554175. 16. FINANCING STATEMENT: Atlantic City Showboat Inc., Debtor, to Bell Atlantic Tri-Con filed February 11, 1991 #1383827. 17. FINANCING STATEMENT: Atlantic City Showboat Inc., Debtor, to Cannon Financial Services, Inc. dated December 8, 1994 #1607251. 18. FINANCING STATEMENT: Atlantic City Showboat Inc., Debtor, to IBJ dated May 25, 1993 #1511984. 19. FINANCING STATEMENT: Atlantic City Showboat Inc., Debtor, to IBJ dated May 25, 1993 #1511986. 3 20. FINANCING STATEMENT: Atlantic City Showboat Inc., Debtor, to [?] dated [?] #1430675. 21. FINANCING STATEMENT: Atlantic City Showboat Inc., Debtor, to Bell Atlantic Tri-Con Leasing filed June 25, 1993 #13459. 22. 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. (Lot 140) 23. 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. (Lot 140) 24. Restrictions, covenants, agreements, and easements contained in Deed Book 2436 page 110; Misc. Book 12 page 242; and Misc. Book 12 page 377. (Lot 140) 25. 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. (Lot 140) NOTE: Certificate of Final Completion Showboat Parcel dated March 20, 1987 recorded April 2, 1987 in Deed Book 4426, page 331. Certificate of Final Completion Service Road and Extension dated March 20, 1987 recorded April 2, 1987 in Deed Book 4426, page 335. 26. Rights granted to the Atlantic City Electric Company in Deed Book 1991 page 100. (Lots 140, 144.03, 144.06 and 144.04) 27. Subject to an easement within a portion of the fifty feet wide service road lying within the insured premises and more particularly described as Parcel D of Premises A set forth in Schedule A to Commonwealth Land Title Insurance Company title insurance commitment #L950152 (third revision) dated June 30, 1995. (Lot 140) 28. Easement for Service Road (50 feet wide) (Parcel B) and Easement within Showboat Lands (Parcel D) construction and in use partially across lands and premises of adjoining owner on Northwest, (City of Atlantic City). (Lot 140) 29. 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. 4 Reilly, recorded August 11, 1899 in Deed Book 233, page 41. (Lot 140) 30. 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. (This exception is limited to the area southerly side of the 1852 high water line on the survey made by Arthur W. Ponzio dated January 8, 1985), last revised March 10, 1987. (Lot 140) 31. Declaration of Easement and Rights of Way Agreement between Atlantic City Showboat Inc. a New Jersey Corporation and Housing Authority and Redevelopment Agency of City of Atlantic City recorded in Deed Book 4814 page 215. (Lot 140) 32. Rights granted to Atlantic City Electric Company and New Jersey Bell Telephone Company in Deed Book 4903 page 245. (Lot 140) 33. FEE MORTGAGE: made by Resorts International Inc. (Delaware Corp.) to the Bank of New York dated September 14, 1990 recorded September 27, 1990 in Mortgage Book 4445 page 209; to secure $105,333,000.00 A. ASSIGNMENT OF LEASES AND RENTS: by Resorts International Inc. (Delaware Corp.) to the Bank of New York dated September 14, 1990 recorded September 27, 1990 in Deed Book 5136 page 45. B. LANDLORD'S WAIVER between Resorts International, Inc. and Maryland National Leasing Corporation dated September 18, 1986, recorded December 30, 1986 in Deed Book 4372, page 282. (Lot 140) BLOCK 109 34. RELEASE AND TERMINATION: dated May 28, 1993 recorded June 22, 1993 in Deed Book 5515 page 124. 35. Subject to conditions set forth in Vacation Ordinance No. 82 of 1993 recorded in Vacation Book 17 page 91. (Premises B) 36. Easement and right of way as set forth in Deed Book 1140 page 196. (Affects Lot 8) 37. Rights of the City of Atlantic and the public in, over and along the westerly 3 feet of the premises as set forth in Deed Book 177 page 138 and Deed Book 402 page 106. (Affects Lot 61) 38. Rights granted to the Atlantic City Electric Company as in Deed Book 3155 page 42. (Affects Lot 11) 39. Rights granted to Atlantic City Electric and New Jersey Bell Telephone Company in Deed Book 5671 page 234. 5 40. Rights granted to Atlantic City Electric Company in Deed Book 5609 page 248. 6 PREMISES B Being the same premises which Paul Harris by a deed dated March 15, 1993 recorded March 17, 1993 in Atlantic County in Deed Book 5477 page 1 granted and conveyed unto Atlantic City Showboat Inc. (N.J. Corp.) in fee. BEING the same premises which the City of Atlantic City, a Municipal Corporation of the State of New Jersey by a deed dated February 28, 1994 recorded March 3, 1994 in Atlantic County in Deed Book 5616 page 145 granted and conveyed unto Atlantic City Showboat, Inc., in fee. BEING the same premises which Paul Harris by a deed dated May 19, 1994 recorded May 27, 1994 in Atlantic County in Deed Book 5646 page 307 granted and conveyed unto Atlantic City Showboat Inc., a New Jersey Corporation in fee. ALSO including that portion of an alleyway (off Delaware Avenue) that became vested in Atlantic City Showboat Inc. (NJ Corp.) by virtue of Vacation Ordinance No. 82 of 1993 filed on September 9, 1994 in Vacation Book 17 page 91. 7 [Original on Showboat Casino Hotel Atlantic City Letterhead] July 26, 1995 Mr. John Harrison Vice President NatWest Bank N.A. 22 Route 70 West Cherry Hill, NJ 08002 RE: NatWest to Showboat, Inc., $25,000,000.00 Revolving Credit Facility Dear Mr. Harrison: In connection with the above-captioned credit facility, Atlantic City Showboat, Inc. ("ASCI") was required to grant you a mortgage lien on certain premises (the "Tower Property") in the City of Atlantic City, County of Atlantic and State of New Jersey known and designated as Lot 144.03, Block 13 on the Tax Map of the City of Atlantic City, which premises were acquired from the Housing Authority and Redevelopment Agency of the City of Atlantic City (the "Authority"). However, under and pursuant to that certain deed dated July 7, 1993, and recorded July 14, 1993 in Deed Book 5524, Page 201, ACSI is prohibited from executing and delivering a mortgage covering the Tower Property until issuance by the Authority of a Certificate of Completion under and pursuant to the terms of certain contracts between the Authority and ACSI. Litigation (captioned ATLANTIC CITY SHOWBOAT, INC. V. HOUSING AUTHORITY & URBAN REDEVELOPMENT AGENCY OF THE CITY OF ATLANTIC) is currently pending in the Superior Court of New Jersey, Atlantic County, pursuant to which ACSI is seeking, INTER ALIA to overturn an Authority resolution whereby the Authority has declared ACSI in default of the above-referenced contracts between the Authority and ACSI. The Authority contends that such declared default, if sustained, implicates reverter of the Tower Property as well as other property acquired by ACSI from the Authority (the "Undeveloped Authority Properties"). Under and pursuant to the Loan and Guaranty Agreement (the "Loan Agreement") evidencing the above-referenced credit facility, the Tower Property constitutes part of the Atlantic City Showboat as defined in the Loan Agreement, as to which property ACSI is required to execute and deliver a mortgage to you to secure ACSI's obligation under the Loan Agreement. You have confirmed that you are willing to close under the Loan Agreement notwithstanding that ACSI is unable to execute and deliver a mortgage covering the Tower Property as well as the Undeveloped Authority Properties, acquired from the Authority. In consideration thereof, the undersigned parties hereby agree as follows: Mr. John Harrison -2- July 26, 1995 1. The mortgage granted under the Loan Agreement as to the Atlantic City Showboat shall not include the Tower Property and the Undeveloped Authority Properties. 2. Simultaneous with closing under the Loan Agreement, ACSI will execute and deliver in escrow to the Lender's counsel a mortgage spreader agreement (the "Spreader Agreement") covering the Tower Property. Said instrument will be held in escrow by Lender's counsel until the litigation is resolved and a Certificate of Completion is issued by the Housing Authority. Within five (5) Business Days after issuance of a Certificate of Completion covering the Tower Property, you will deliver the Spreader Agreement to the Clerk of Atlantic County for recording. Notwithstanding the foregoing, NatWest acknowledges that ACSI, as part of a settlement relating to the litigation referenced above, may convey a part of the Tower Property to the Housing Authority (the "Tower Carve-out Property"). The conveyance by ACSI of the Tower Carve-out Property shall consist of unimproved land and shall not adversely affect the use and occupancy of the remaining Tower Property which shall contain all of the improvements presently part of the Tower Property (the "Remaining Tower Property") or other Mortgaged Property. It is further contemplated that the Remaining Tower Property may be augmented by a conveyance by the Housing Authority of real property contiguous to the Remaining Tower Property. In the event of such conveyance by ACSI, the legal description appended to the Spreader Agreement shall be revised and a revised legal description of the Remaining Tower Property, prepared by a licensed New Jersey surveyor, shall be substituted therefor. Additionally, ACSI shall deliver to NatWest a revised survey depicting the Remaining Tower Property. 3. Upon recording of the Spreader Agreement, ACSI will execute and deliver such other and further instruments as shall be necessary or appropriate to grant to the Lender a first mortgage lien on the Tower Property as required by the Loan Agreement, in PARI PASSU with the lien of the Indenture Trustee. 4. From time to time and upon request, we shall keep you apprised of the status of the litigation and provide you with copies of pleadings and other significant documents in connection therewith. 5. Upon issuance of a Certificate of Completion covering any of the Undeveloped Authority Property, ACSI will execute and deliver to you a Mortgage Spreader Agreement substantially in the form of the Spreader Agreement granting to you a first mortgage lien on such property IN PARI PASSU with the lien of the Indenture Trustee. 6. In the event we receive an adverse decision in the litigation, paragraph 7 of the Loan Agreement shall govern. 7. All capitalized terms not otherwise defined herein shall have the meaning set forth in the Loan Agreement. Thank you for your cooperation. Mr. John Harrison -3- July 26, 1995 Very truly yours, ATLANTIC CITY SHOWBOAT, INC. By: /s/ Kathleen Caracciolo Kathleen Caracciolo Vice President Finance THE UNDERSIGNED HEREBY AGREE TO THE TERMS HEREOF: BORROWER: SHOWBOAT, INC. By: /s/ R. Craig Bird Name: R. Craig Bird Title: V/P Finance and Administration Address: 2800 Freemont Street Las Vegas, NV 89104 GUARANTORS: SHOWBOAT OPERATING COMPANY By: /s/ Leann Schneider Name: Leann Schneider Title: Treasurer Address: 2800 Freemont Street Las Vegas, NV 89104 OCEAN SHOWBOAT, INC. By: /s/ R. Craig Bird Name: Title: Vice President Finance and Adm Address: 801 Boardwalk Atlantic City, NJ 08401 Mr. John Harrison -4- July 26, 1995 ATLANTIC CITY SHOWBOAT, INC. By: /s/ Kathleen Caracciolo Name: Kathleen Caracciolo Title: Vice President Finance Address: 801 Boardwalk Atlantic City, NJ 08401 LENDER: NATWEST BANK, N.A. By: /s/ John Harrison Name: John Harrison Title: Vice President Address: 1300 Atlantic Avenue Mezzanine Level Atlantic City, NJ 08401 ADDENDUM #1 (attached to and forming a part of the Letter dated July 26, 1995, from Atlantic City Showboat, Inc. to NatWest Bank, N.A.) 8. This will confirm that, notwithstanding that the Lender is not now receiving a mortgage on the Tower Property and the Undeveloped Authority Properties, the Lender is, however, receiving and ACSI is granting to Lender, under the terms set forth in the Leasehold Mortgage, a security interest in any Collateral (as defined in the Leasehold Mortgage) which is located on or used in connection with the Tower Property and the Undeveloped Authority Properties, provide said Collateral does not constitute real estate, and the Leasehold Mortgage shall be deemed to be amended hereby to said effect. 9. The Letter dated July 26, 1995, together with this Addendum #1 thereto, shall be attached to and form a part of the Loan Agreement and the Leasehold Mortgage. THE UNDERSIGNED HEREBY AGREE TO THE TERMS HEREOF: BORROWER: GUARANTORS: SHOWBOAT, INC. SHOWBOAT OPERATING COMPANY By: /s/ R. Craig Bird By: /s/ Leann Schneider R. Craig Bird, Exec. V.P. Leann Schneider, Treasurer Finance & Adm. 2800 Fremont Street 2800 Fremont Street Las Vegas, NV 89104 Las Vegas, NV 89104 LENDER: ATLANTIC CITY SHOWBOAT, INC. NATWEST BANK, N.A. By: /s/ Kathleen Caracciolo By: /s/ John T. Harrison Kathleen Caracciolo, V.P. John T. Harrison Finance Vice President 801 Boardwalk 1300 Atlantic Avenue Atlantic City, NJ 08401 Atlantic city, NJ 08401 OCEAN SHOWBOAT, INC. By: /s/ R. Craig Bird R. Craig Bird, V.P. Financial Administration 801 Boardwalk Atlantic City, NJ 08401 Record and return to: Peter W. Leibundgut, Esquire Clark, Ladner, Fortenbaugh & Young Woodland Falls Corporate Park 200 Lake Drive East Cherry Hill, NJ 08002 IN PARI PASSU ASSIGNMENT OF LEASES AND RENTS THIS ASSIGNMENT OF LEASES AND RENTS (the "Assignment") is dated as of July 14, 1995 by ATLANTIC CITY SHOWBOAT, INC., a New Jersey corporation ("Assignor"), in favor of NATWEST BANK, N.A a national banking association ("Assignee"). RECITALS WHEREAS, under that certain Loan and Guaranty Agreement dated as of July 14, 1995 (as it may be amended from time to time, the "Loan Agreement"), among Assignee as lender ("Lender"), Showboat, Inc., a Nevada corporation as borrower ("Borrower" or "SBI") and Assignor, Ocean Showboat, Inc., a New Jersey corporation ("0SI"), and Showboat Operating Company, a Nevada corporation, as guarantors, Borrower will issue to Assignee a $25,000,000.00 principal amount Revolving Note as may be amended pursuant to the Loan Agreement (the "Promissory Note"). WHEREAS, Assignor is the lessee under that certain Lease Agreement (the "Resorts Lease") dated as of October 26, 1983 between Resorts International, Inc. ("Resorts") and OSI, recorded January 18, 1984 in Deed Book 3878, page 1, as assigned to Assignor pursuant to that certain Assignment and Assumption of Lease made December 3, 1984 between OSI and Assignor, recorded December 24, 1984 in Deed Book 4004, page 310, and as amended by (i) that certain First Amendment to Lease Agreement dated as of January 15, 1985 between Resorts and Assignor, 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 Assignor, 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 Assignor, 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 Assignor, 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 Assignor, 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 Assignor, 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 Assignor, 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 Assignor, 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 Assignor, recorded May 18, 1993 in Deed Book 5500 page 284. The Resorts Lease covers, among other things, that certain real property located in Atlantic City, New Jersey, more particularly described in Schedule "A" attached hereto (the "Land"). WHEREAS, Assignee has agreed to loan $25,000,000.00 of the proceeds of the Promissory Note to SBI (the "SBI Loan"). Assignor has agreed to execute certain additional documents to evidence and secure the SBI Loan, including, without limitation, (1) that certain Leasehold Mortgage, Assignment of Rents and Security Agreement (the "Mortgage") made by Assignor in favor of Assignee, dated as of even date herewith, encumbering, among other things, all of Assignor's interests in and to the Resorts Lease; and (2) this Assignment. The Promissory Note, the Mortgage, this Assignment and all other documents now or hereafter evidencing, guaranteeing or securing the SBI Loan shall be referred to collectively herein as the "Loan Documents." All amounts owing to Assignee under the Promissory Note shall be referred to collectively herein as the "Debt." Capitalized terms not otherwise defined herein shall have the meanings set forth for such terms in the Loan Agreement and Promissory Note. WHEREAS, Assignor has previously assigned all of its right, title and interest in the Resorts Lease to SBI which assignment was recorded on May 19, 1993, in Mortgage Book 5028, page 144. SBI then collaterally assigned, with Assignor's consent, all of its rights, title and interest in said assignment to IBJ Schroder Bank & Trust Company ("Trustee") which assignment was recorded on May 19, 1993 in Assignment of Mortgage Book 624, page 195. Said collateral assignment was given in order to induce the issuance of $275,000,000.00 9-1/4% First Mortgage Bonds under a certain Indenture, which Indenture provides for additional secured lending on a PARI PASSU basis with the Trustee. WHEREAS, to induce Assignee to make the SBI Loan and to secure its guaranty thereof, and subject to (i) the terms of an intercreditor agreement between Assignee and Trustee of even date herewith (the "Intercreditor Agreement") and (ii) the provisions of the New Jersey Casino Control Act, as amended from time to time and the regulations promulgated thereunder from time to time (collectively, the "Act"), Assignor wishes to assign, pledge and encumber, as security for the Debt, all of Assignor's right, title and interest in and to any and all leases, subleases, lettings, licenses, concessions, operating agreements, management agreements, and all other agreements affecting the Land and the improvements now or in the future located or constructed thereon (the "Improvements") that Assignor has entered into, taken by assignment, taken subject to, or assumed, or has otherwise become bound by, now or in the future, that give any person the right to conduct 2 its business on, or otherwise use, operate or occupy, all or any portion of the Land or Improvements and any leases, agreements or arrangements permitting anyone to enter upon or use any of the Land to extract or remove natural resources of any kind (together with all amendments, extensions, and renewals of the foregoing and all rental, occupancy, service, maintenance or any other similar agreements pertaining to use or occupation of, or the rendering of services at the Land, the Improvements or any part hereof, the "Space Leases"). AGREEMENT NOW THEREFORE, in consideration of Assignee making the SBI Loan and to secure its guaranty thereof, Assignor hereby agrees as follows: ASSIGNOR hereby assigns, grants and transfers to Assignee Assignor's entire interest in and to all Space Leases; TOGETHER WITH the immediate and continuing right to collect and receive all of the rents, income, issues and profits arising from the Space Leases or otherwise from the use or occupancy of the Land and the Improvements, now or hereafter due (herein called collectively the "Rents"), including (without limitation) base rents, minimum rents, additional rents, percentage rents; charges for parking, maintenance, taxes and insurance; deficiency rents for damages following default; the premium payable by any lessee upon the exercise of a cancellation privilege originally provided in any Space Leases; all proceeds payable under any policy of insurance covering loss of rent resulting from any destruction or damage to the Land and the Improvements; and all other rights and claims of any kind which Assignor may have against any lessee or any other occupant of the Land and the Improvements in respect of the Land and the Improvements. SUBJECT, however, to the terms of the Intercreditor Agreement and the provisions of the Act. THIS ASSIGNMENT is an absolute, unconditional and present assignment by Assignor to Assignee of the Leases and Rents, and not merely the passing of a security interest. Upon the execution and delivery of this Assignment, title to the Rents shall vest in Assignee, and no further act shall be required to effectuate such conveyance. THIS ASSIGNMENT is made on the following terms, covenants and conditions: 3 l. REPRESENTATIONS AND WARRANTIES. Assignor represents and warrants, as to the Leases now existing, that except for the assignments to SBI, as subsequently collaterally assigned to Trustee, and the Lender, (a) Assignor is the sole owner of the entire lessor's interest in the Space Leases; (b) the Space Leases are valid and enforceable and have not been altered or amended in any manner whatsoever, except for such amendments as have been delivered to Assignee; (c) except as provided herein, none of the Rents has been assigned or otherwise pledged or hypothecated; (d) none of the Rents has been collected for more than one (1) month in advance; (e) the premises demised under the Space Leases have been completed and the tenants under the Space Leases have accepted the same and have taken possession of the same on a rent-paying basis; (f) there exists no offset or defense to the payment of any portion of the Rents; and (g) Assignor has the power to execute and deliver, and hereby does voluntarily execute and deliver, this Assignment. 2. CERTAIN COVENANTS. Assignor shall perform and observe all the covenants contained in the Mortgage relating to the Space Leases and the Rents. 3. LICENSE TO COLLECT. This Assignment constitutes a present, absolute assignment of the Space Leases and the Rents. Nevertheless, subject to the terms of this Section 3, Assignee grants to Assignor a revocable license to collect (but not prior to accrual) the Rents. After an Event of Default, Assignor shall hold the Rents in trust for Assignee for the payment of such sums. Upon or at any time after an Event of Default (as such term is defined in the Mortgage) and the expiration of any applicable cure or grace period, the license granted to Assignor herein shall be, at the election of Assignee, automatically revoked. 4. REMEDIES OF ASSIGNEE. Subject to compliance with applicable Gaming Control Acts and the Intercreditor Agreement, upon or at any time after an Event of Default and the expiration of any applicable cure or grace period, Assignee may, at its option, without waiving such Event of Default, without notice and without regard to the adequacy of the security for the Debt, either in person or by agent, with or without bringing any action or proceeding, or by a receiver appointed by a court, take any or all of the following actions: (a) revoke the license granted in the immediately preceding Section of this Assignment; (b) take possession of the Land and the Improvements and have, hold, manage, lease and operate the Land and the Improvements on such terms and for such period of time as Assignee may deem proper, with full power to make from time to time all alterations, renovations, repairs or replacements thereto or thereof as may seem proper to Assignee; 4 (c) either with or without taking possession of the Land and the Improvements, in its own name, demand, sue for and otherwise collect and receive all Rents, including those past due and unpaid, and may apply the Rents to the payment of the following in such order and proportion as Assignee in its sole discretion may determine, any law, custom or use to the contrary notwithstanding: (i) all expenses of managing and securing the Land and the Improvements, including (without limitation) the salaries, fees and wages of a managing agent and such other employees or agents as Assignee may deem necessary or desirable, and all reasonable expenses of operating and maintaining the Land and the Improvements, including (without limitation) all taxes, charges, claims, assessments, water charges, sewer rents ,and premiums for all insurance which Assignee may deem necessary or desirable, and the cost of all alterations, renovations, repairs or replacements, and all reasonable expenses incident to taking and retaining possession of the Land and the Improvements; and (ii) the Debt, including (without limitation) all costs and reasonable attorneys' fees. In addition to the rights which Assignee may have herein and subject to the Intercreditor Agreement upon the occurrence of an Event of Default and the expiration of any applicable cure or grace period, Assignee, at its option, either may require Assignor to pay monthly in advance to Assignee, or any receiver appointed to collect the Rents, the fair and reasonable rental value for the use and occupation of such part of the Land and the Improvements as may be in possession of Assignor, or may require Assignor to vacate and surrender possession of the Land and the Improvements to Assignee or to such receiver and, in default thereof, Assignor may be evicted by summary proceedings or otherwise. For purposes of this Section 4, Assignor grants to Assignee its irrevocable power of attorney, coupled with an interest, to take any and all of the aforementioned actions and any or all other actions designated by Assignee for the proper management and preservation of the Land and the Improvements. The exercise by Assignee of the remedies granted it in this Section 4 and the collection of the Rents and the application thereof as herein provided shall not be considered a waiver of any Event of Default. 5. NO LIABILITY OF ASSIGNEE. Assignee shall not be liable for any loss sustained by Assignor resulting from Assignee's failure to let the Land and the Improvements after an Event of Default and the expiration of any applicable cure or grace period or from any other act or omission of Assignee in managing the Land and the Improvements after an Event of Default and the expiration of any applicable cure or grace period, unless such loss is caused by the willful misconduct, gross negligence or bad faith of Assignee. Assignee shall not be obligated to perform or discharge any obligation, duty or liability under the Space Leases or under or by reason of this Assignment. Without limiting 5 the generality of the immediately preceding sentence, Assignee shall not be bound by or liable under any covenant of quiet enjoyment contained in any Space Lease in the event that the lessee thereunder is joined as a party defendant in any action to foreclose the Mortgage and is barred and foreclosed thereby of its interest in the Land and the Improvements. Except for the gross negligence, willful misconduct or bad faith of Assignee, Assignor shall indemnify Assignee and hold Assignee harmless from and against any and all liability, loss or damage which may or might be incurred under the Space Leases or under or by reason of this Assignment and from any and all claims and demands whatsoever, including the defense of any such claims or demands which may be asserted against Assignee by reason of any alleged obligations and undertakings on its part to perform or discharge any of the terms, covenants or agreements contained in the Leases. Should Assignee incur any such liability, loss or damage, the amount thereof, including reasonable costs, expenses and reasonable attorneys' fees, together with interest thereon at the interest rate on the SBI Promissory Note, shall be secured hereby and by the Mortgage,and Assignor shall pay Assignee therefor immediately upon demand and upon the failure of Assignor so to do Assignee may, at its option, declare the Note and all other sums secured by the Mortgage immediately due and payable. Except for the gross negligence, willful misconduct or bad faith of Assignee, this Assignment shall not operate to place any obligation or liability for the control, care, management or repair of the Land and the Improvements upon Assignee, nor for the carrying out of any of the terms and conditions of the leases; nor shall it operate to make Assignee responsible or liable for any waste committed on the Land and the Improvements by the tenants or any other parties, or for any dangerous or defective condition of the Land and the Improvements, including without limitation the presence of any Hazardous Materials (as defined in the Mortgage), or for any negligence in the management, upkeep, repair or control of the Land and the Improvements resulting in loss or injury or death to any tenant, licensee, employee or stranger. 6. NOTICE TO LESSEES. Upon an uncured event of default, Assignor hereby irrevocably authorizes and directs the lessees and other occupants under the Space Leases, upon receipt from Assignee of an express written notice, to pay over to Assignee all Rents and to continue so to do until otherwise notified by Assignee. Assignor agrees that lessees shall have the right to rely upon any such notice from Assignee, and that lessees shall pay the Rents to Assignee without any obligation and without any right to inquire as to whether an Event of Default has occurred, notwithstanding any claim of Assignor to the contrary. Assignor shall have no claim against lessees for any Rents paid by them to Assignee. 7. FUTURE SPACE LEASES. This Assignment is and shall be automatically effective as to each and every Space Lease entered into after the date hereof, without any necessity of any further or supplemental assignment. 6 8. RELEASE OF SECURITY. Assignee may take or release security for the payment of the Promissory Note, may release any party primarily or secondarily liable therefor and may apply any security held by it to the reduction or satisfaction of the Debt without prejudice to any of its rights under this Assignment. 9. OTHER REMEDIES. Nothing contained in this Assignment and no act done or omitted by Assignee pursuant to the powers and rights granted to Assignee hereunder shall be deemed to be a waiver by Assignee of its rights and remedies under any of the Loan Documents, and this Assignment is made and accepted without prejudice to any of the rights and remedies possessed by Assignee under the terms thereof. The right of Assignee to collect the debt and to enforce any other security therefor held by it may be exercised by Assignee either prior to, simultaneously with, or subsequent to any action taken by it hereunder. 10. NO MORTGAGEE IN POSSESSION. Nothing herein contained shall be construed as constituting Assignee a "mortgagee in possession" in the absence of the taking of actual possession of the Land and the Improvements by Assignee. In the exercise of the powers herein granted to Assignee, no liability shall be asserted or enforced against Assignee, all such liability being expressly waived and released by Assignor. 11. CONFLICT OF TERMS. In case of any conflict between the terms of this Assignment and the terms of the Mortgage, the terms of the Mortgage shall prevail. 12. NO ORAL CHANGES. This Assignment 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 Assignor or Assignee, but only by an agreement in writing signed by the party against whom the enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. 13. NO IMPAIRMENT (a) The failure of Assignee to insist upon strict performance of any term hereof shall not be deemed to be a waiver of any term of this Assignment. (b) Assignor shall not be relieved of Assignor's obligations hereunder or in respect of the Debt by reason of any or all of the following: (i) the failure of Assignee to comply with any request of Assignor or any guarantor to take any action to realize upon this Assignment or otherwise enforce any of the provisions hereof or of the Debt; or 7 (ii) the release, regardless of consideration, of the whole or any part of the Land and the Improvements or any other security for the SBI Promissory Note, or of any person liable for the First Mortgage Bonds or any portion thereof; or (iii) any agreement or stipulation by Assignee with Assignor or (without any necessity of notice to or consent by Assignor) with any subsequent owner of the Land and the Improvements, extending the time of payment or otherwise modifying or supplementing the terms of the Debt, this Assignment or of any instrument or agreement executed in connection herewith; any and all of which may be done by Assignee without any necessity of notice to or consent by the holder of any subordinate lien or encumbrance or any other person, and without in any manner impairing this Assignment of its priority. (c) Assignee may resort for the payment of the Debt to any other security held by Assignee in such order and manner as Assignee, in its discretion, may elect. (d) Assignee may take action to recover the Debt, or any portion thereof, without prejudice to the right of Assignee thereafter to enforce this Assignment. (e) No omission on the part of Assignee to name any tenant as a defendant in any foreclosure proceeding shall impair in any way whatsoever the entitlement of Assignee to a deficiency judgment or diminish the amount of the deficiency. (f) Acceptance of any payment after the occurrence of any default or Event of Default shall not be deemed a waiver or cure of such default or Event of Default and shall not impair any acceleration of the maturity of the Debt or any other right or remedy to enforce the Debt or this Assignment. Acceptance of any payment less than any amount then due shall be deemed an acceptance on account only. (g) The rights of Assignee under this Assignment and under the Loan Documents shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others. No act of Assignee shall be construed as an election to proceed under any one provision hereof or thereof to the exclusion of any other provision. Assignee shall not be limited exclusively to the rights and remedies herein or therein stated but shall be entitled to every right and remedy now or hereafter afforded at law or in equity. 8 14. INAPPLICABLE PROVISIONS. If any term, covenant or condition of this Assignment is held to be invalid, illegal or unenforceable in any respect, this Assignment shall be construed without such provision. 15. GOVERNING LAW. This Assignment shall be construed and enforced in accordance with the laws of the state of New Jersey. 16. TERMINATION OF ASSIGNMENT. This Assignment shall continue to be effective until payment in full of the Debt and the delivery and recording of a satisfaction or discharge of the Mortgage duly executed by Assignee, whereupon this Assignment shall be terminated. The affidavit, certificate, letter or statement of any officer of Assignee showing any part of the Debt to remain unpaid shall, absent manifest error, constitute conclusive evidence of the continuing effectiveness of this Assignment, and any person is hereby authorized to rely thereon. THIS ASSIGNMENT, including the covenants, warranties, powers and other provisions herein contained, shall inure to the benefit of Assignee and any subsequent holder of the Mortgage, and shall be binding upon Assignor, its heirs, successors and assigns, including any subsequent lessee under the Resorts Lease. IN WITNESS WHEREOF, Assignor has executed this instrument the day and year first above written. Attest witness: ATLANTIC CITY SHOWBOAT, INC., a New Jersey corporation /s/ Luther G. Anderson By: /s/ Herbert R. Wolfe Luther G. Anderson Name: Herbert R. Wolfe Assistant Secretary Title: President/CEO 9 STATE OF NEW JERSEY ) ) ss: COUNTY OF ATLANTIC ) On this 2nd day of August, 1995, before me, the undersigned, personally appeared Herbert R. Wolfe, the President/ CEO of Atlantic City Showboat, Inc., who, I am satisfied, is the person who signed the foregoing instrument, and he did acknowledge under oath that he signed, sealed with the corporate seal, and delivered the same in (his/her) capacity as such officer and that the foregoing instrument is the voluntary act and deed of such corporation, made by virtue of the authority of its board of directors. /s/ Denise L. Perrone Notary Public 10 SCHEDULE "A" DESCRIPTION OF THE LAND PREMISES A 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 (50.00 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 beginning point being in the division line between Lots 140 and 144.05 in Block 13 as shown on the Atlantic City Tax Map, and extending from said beginning point; thence 1. South 27 degrees, 38 minutes, 00 seconds East, in and along said division line, parallel with New Jersey Avenue, 1432.20 feet to the Interior or Inland Line of the Public Park; 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. Continuing in and along same, South 59 degrees, 24 minutes, 40 seconds West, 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, 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, parallel with Pacific Avenue, 25.00 feet to a point in the easterly line of Lot 129.02; thence 6. North 27 degrees, 28 minutes, 00 seconds West, in and along same, parallel with New Jersey Avenue, 80.00 feet to the southerly line of Pacific Avenue, said point being North 62 degrees, 32 minutes, 00 seconds East, 577.00 feet from the easterly line of Virginia Avenue (80.00 feet wide); 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. 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 140, Tax Map of the City of Atlantic City, New Jersey. 1 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 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 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 2 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. 3 PREMISES B ALL THOSE CERTAIN, lots and parcels of land lying and being in the City of Atlantic City, County of Atlantic and State of New Jersey, being more particularly described as follows: TRACT 1 Beginning at the intersection of the northerly line of Atlantic Avenue (100 feet wide), with the easterly line of Maryland Avenue (50 feet wide), and extending from said beginning point; thence 1. North 27 degrees, 28 minutes, 00 seconds west in and along the easterly line of Maryland Avenue, 550.00 feet to the southerly line of Arctic Avenue (60 feet wide); thence 2. North 62 degrees, 32 minutes, 00 seconds east in and along same, 230.50 feet to the westerly line of lot 7 in block 109; thence 3. South 27 degrees, 28 minutes, 00 seconds east in and along same, 105.00 feet to the north line of lot 68; thence 4. North 62 degrees, 32 minutes, 00 seconds east in and along same, 25.00 feet to the westerly line of lot 8; thence 5. North 27 degrees, 28 minutes, 00 seconds west in and along same, 105.00 feet to the southerly line of Arctic Avenue; thence 6. North 62 degrees, 32 minutes, 00 seconds east in and along same, 94.50 feet to the westerly line of Delaware Avenue (82 feet wide); thence 7. South 27 degrees, 28 minutes, 00 seconds east in and along same, 400.00 feet to the northerly line of lot 62; thence 8. South 62 degrees, 32 minutes, 00 seconds west in and along same, 60.00 feet to the easterly line of lot 61; thence 9. South 27 degrees, 28 minutes, 00 seconds east in and along same, 25.00 feet to the northerly line of lot 72; thence 10. South 62 degrees, 32 minutes, 00 seconds west in and along same, 40.00 feet to the westerly line of lot 61; thence 11. North 27 degrees, 28 minutes, 00 seconds west in and along same, 25.00 feet to the southerly line of lot 80; thence 12. South 62 degrees, 32 minutes, 00 seconds west in and along same, 7.00 feet to the easterly line of lot 74; thence 13. South 27 degrees, 28 minutes, 00 seconds east in and along same, 150.00 feet to the northerly line of Atlantic Avenue; thence 14. South 62 degrees, 32 minutes, 00 seconds west in and along same, 243.00 feet to the point and place of beginning. 4 BEING KNOWN AS LOTS 97, 98, 71, 96, 38, 39, 74, 61, 35, 34, 33, 53, 54, 31, 30, 29, 28, 27, 68, 49, 48, 82, 81, 8, 6, 5, 10, 95, 94, 84, 83, 65, 66, 11, 69, 87, 88, 89, 63, 64, 90, 91, 86, 85, 15, 16, 17, 92, 93, 19, 20, 26, 75, 76, 77, 78, 79, 80 and the area of a former public alley in Block 109, Atlantic City Tax Map, Atlantic City, New Jersey. TRACT II: BEGINNING at the intersection of the westerly line of Delaware Avenue (82 feet wide) with the northerly line of Atlantic Avenue (100 feet wide), and extending from said beginning point; thence 1. South 62 degrees, 32 minutes, 00 seconds west in and along the northerly line of Atlantic Avenue, 71.10 feet to the easterly line of lot 47 in block 109; thence 2. North 27 degrees, 28 minutes, 00 seconds in and along same, 100.00 feet to the southerly line of lot 72; thence 3. North 62 degrees, 32 minutes, 00 seconds east in and along same and continuing in and along the southerly line of lot 62, 71.10 feet to the westerly line of Delaware Avenue; 4. South 27 degrees, 28 minutes, 00 seconds east in and along same, 100.00 feet to the point and place of beginning. BEING known as Lot 42 in Block 109 as shown on the Atlantic City Tax Map, Atlantic City, New Jersey. 5 RECITAL: PREMISES A 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. ASSIGNMENT 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. AMENDMENT TO SHORT FORM 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 AGREEMENT: 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 AGREEMENT: 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. RESTATED THIRD AMENDMENT TO LEASE AGREEMENT: 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 AGREEMENT: 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 AGREEMENT: 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 AGREEMENT: 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 AGREEMENT: between Resorts International Inc., a Delaware Corporation and Atlantic City Showboat, Inc., a New Jersey Corporation dated October 18, 1988 recorded December 19, 1988 in Deed Book 4814 page 231. EIGHTH AMENDMENT TO LEASE: between Resorts International Inc. (Delaware Corp.) and Atlantic City Showboat Inc. (New Jersey Corp.) dated May 18, 1993 recorded May 18, 1993 in Deed Book 550 page 284. RECITAL: (As To Fee Estate) BEING the same premises which Resorts International, Inc. of New Jersey, a New Jersey Corporation by a deed dated October 28, 1986 and recorded on December 24, 1986 in Atlantic County in Deed Book 4366 page 214 granted and conveyed unto Resorts International, Inc., a Delaware Corporation in fee. 6 PREMISES B Being the same premises which Paul Harris by a deed dated March 15, 1993 recorded March 17, 1993 in Atlantic County in Deed Book 5477 page 1 granted and conveyed unto Atlantic City Showboat Inc. (N.J. Corp.) in fee. BEING the same premises which the City of Atlantic City, a Municipal Corporation of the State of New Jersey by a deed dated February 28, 1994 recorded March 3, 1994 in Atlantic County in Deed Book 5616 page 145 granted and conveyed unto Atlantic City Showboat, Inc., in fee. BEING the same premises which Paul Harris by a deed dated May 19, 1994 recorded May 27, 1994 in Atlantic County in Deed Book 5646 page 307 granted and conveyed unto Atlantic City Showboat Inc., a New Jersey Corporation in fee. ALSO including that portion of an alleyway (off Delaware Avenue) that became vested in Atlantic City Showboat Inc. (NJ Corp.) by virtue of Vacation Ordinance No. 82 of 1993 filed on September 9, 1994 in Vacation Book 17 page 91. 7 INTERCREDITOR AGREEMENT FOR PARI PASSU INDEBTEDNESS RELATING TO ATLANTIC CITY SHOWBOAT INTERCREDITOR AGREEMENT, dated July 14, 1995, 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 NatWest Bank, N.A., (the "Lender"). The term "Collateral" as used herein means the following: all of the properties and assets in which the Trustee has a lien or security interest pursuant to the Indenture (as defined below) or any other Related Document, in which the Company has a lien or security interest pursuant to the ACSI Intercompany Note (as hereinafter defined), and which properties and assets are to be subject to a lien or security interest in favor of the Lender of the priority specified in this Intercreditor Agreement. WHEREAS, the Company has issued its 9-1/4% First Mortgage Bonds due May 1, 2008 (the "First Mortgage Bonds") under that certain indenture, (the "Indenture"), dated as of May 18, 1993, among the Company, Ocean Showboat, Inc., ACSI, and Showboat Operating Company, as guarantors, and the Trustee, as amended or supplemented from time to time; WHEREAS, the First Mortgage Bonds are secured by, INTER ALIA a Deed of Trust, Assignment of Rents and Security Agreement (the "Deed of Trust") in favor of Trustee on certain real property situated in the City of Las Vegas, County of Clark, State of Nevada and assets of the Company and are guaranteed by ACSI (the "Guaranty") and such guaranty is secured by a Leasehold Mortgage, Assignment of Rents and Security Agreement (the "Leasehold Mortgage") on the Showboat Hotel Casino in Atlantic City, New Jersey (the "Atlantic City Showboat"); WHEREAS, ACSI has issued an intercompany note ("the ACSI Intercompany Note") in favor of the Company in the principal amount of $215,000,000 representing a loan made to ACSI by the Company with the proceeds from the sale of the First Mortgage Bonds; WHEREAS, the ACSI Intercompany Note is secured by a Leasehold Mortgage, Assignment of Rents and Security Agreement (the "Intercompany Leasehold Mortgage," and together with the Leasehold Mortgage, collectively the "Leasehold Mortgages") on the Atlantic City Showboat; WHEREAS, the Company has collaterally assigned all of its interest in the ACSI Intercompany Note and the Intercompany Leasehold Mortgage to the Trustee as security for the Company's obligations under the First Mortgage Bonds; WHEREAS, the Company and ACSI propose to provide the Lender with a lien or security interest in the Collateral as security for Indebtedness of the Company and ACSI as guarantor thereof; WHEREAS, it has been agreed by the Trustee, that the Company and its Subsidiaries, subject to the terms and provisions of the Indenture, be permitted to obtain additional financing from other lenders to finance the costs of various improvements and for other purposes; WHEREAS, the Indenture permits the Company and its Subsidiaries, subject to certain limitations, to create or cause to be created additional liens and security interests in the Collateral in favor of Persons other than the Trustee and the Company which will have equal priority with the lien of the Leasehold Mortgages or any other applicable Related Document pursuant to an Intercreditor Agreement and requires the Trustee and the Company, upon fulfillment of certain conditions precedent, to execute and deliver an Intercreditor Agreement in substantially the form hereof to the holder of the Indebtedness to be secured by such additional liens and security interests (or such holder's agent, trustee or other authorized representative); WHEREAS, the Company and/or ACSI have entered into a Revolving Note, Loan and Guaranty Agreement, In PARI PASSU Leasehold Mortgage, Assignment of Rents and Security Agreement, In PARI PASSU Deed of Trust, Assignment of Rents and Security Agreement, In PARI PASSU Assignment of Leases and Rents and certain other documents and agreements all of even date herewith, providing for the grant to the Lender of liens, mortgages and security interests in certain of the property and assets constituting the Collateral (" Lender's Documents") (the property and assets constituting the Collateral in which each of the Trustee, the Company and the Lender have obtained liens, mortgages or security interests being referred to herein as the "PARI PASSU Collateral"); WHEREAS, the aggregate outstanding principal amount of the First Mortgage Bonds at the date hereof is $275,000,000.00; WHEREAS, the aggregate outstanding principal amount of the ACSI Intercompany Note at the date hereof is $215,000,000.00; 2 WHEREAS, the maximum aggregate principal amount of Indebtedness to be provided by Lender is $25,000,000.00; WHEREAS, the parties hereto desire to set forth their agreement as to the nature of priority of the liens, mortgages and security interests held by the Trustee, the Company and the Lender in the PARI PASSU Collateral and certain other matters related thereto. NOW, THEREFORE, in consideration of the mutual premises and agreements herein contained it is hereby agreed as follows: 1. DEFINITIONS.- As used in this Agreement, the following terms have the meanings hereinafter set forth: "Bankruptcy Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq. "Bankruptcy Law" means Title 11, United States Code, and any other state or federal insolvency, reorganization, moratorium or similar law for the relief of debtors. "Bankruptcy Proceeding" means any proceeding commenced under any Bankruptcy Law. "PARI PASSU PARTIES" means, collectively, the Trustee and the Lender. All capitalized terms used herein which are not otherwise defined herein shall have the meaning ascribed to such terms in the Indenture. 2. LIEN ACKNOWLEDGMENT. (a) The Trustee hereby agrees that each lien, mortgage, and security interest of the Trustee in the property and assets constituting the PARI PASSU Collateral pursuant to the Indenture and Related Documents to the extent of the obligations secured by such lien, mortgage or security interest (provided that the aggregate principal amount of Indebtedness secured by such lien, mortgage or security interest shall not exceed $275,000,000.00), shall be equal in priority with (i) each lien, mortgage or security interest of the Company in the property and assets constituting the PARI PASSU Collateral pursuant to the Intercompany Leasehold Mortgage, to the extent of the obligations secured by such lien, mortgage or security interest (provided that the aggregate principal amount of Indebtedness secured by such lien, mortgage or security interest shall not exceed $215,000,000.00) (which represents the principal amount of Indebtedness under the ACSI Intercompany Note on the date of this Intercreditor Agreement) and (ii) each lien, mortgage, or security interest of the Lender in the property and assets constituting the PARI PASSU Collateral pursuant to the Lender's Documents, to the extent of the obligations secured by such liens, mortgages or security interests (provided that the aggregate principal 3 amount of the indebtedness secured by such liens, mortgages or security interests shall not exceed the lesser of $25,000,000.00 or the principal amount extended by Lender under the Lender's Documents and not repaid by the Company and/or ACSI (which represents the principal amount of Indebtedness to be provided by Lender's Documents). (b) The Company hereby agrees that each lien, mortgage or security interest of the Company in the property and assets constituting the PARI PASSU Collateral pursuant to the Intercompany Leasehold Mortgage, to the extent of the obligations secured by such lien, mortgage or security interest (provided that the aggregate principal amount of Indebtedness secured by such lien, mortgage or security interest shall not exceed $215,000,000.00) (which represents the principal amount of Indebtedness under the ACSI Intercompany Note on the date of this Intercreditor Agreement), shall be equal in priority with, (i) each lien, mortgage or security interest of the Trustee in the property and assets constituting the PARI PASSU Collateral pursuant to the Deed of Trust and the Related Documents, to the extent of the obligations secured by such lien, mortgage or security interest (provided that the aggregate principal amount of Indebtedness secured by such lien, mortgage or security interest shall not exceed $275,000,000.00) (which represents the principal amount of Indebtedness under the Indenture on the date of this Intercreditor Agreement) and (ii) each lien, mortgage, or security interest of the Lender in the property and assets constituting the PARI PASSU Collateral pursuant to the Lender's Documents, to the extent of the obligations secured by such liens, mortgages or security interests (provided that the aggregate principal amount of the indebtedness secured by such liens, mortgages or security interests shall not exceed the lesser of $25,000,000.00 or the principal amount extended by Lender under the Lender's Documents and not repaid by the Company and/or ACSI) (which represents the principal amount of Indebtedness to be provided by Lender's Documents). (c) The Lender hereby agrees that each lien, mortgage or security interest of the Lender in the property and assets constituting the PARI PASSU Collateral pursuant to the Lender's Documents, to the extent of the obligations secured by such lien, mortgage or security interest (provided that the aggregate principal amount of the Indebtedness secured by such lien, mortgage or security interest shall not exceed the lesser of $25,000,000.00 or the principal amount extended by Lender under the Lender's Documents and not repaid by the Company and/or ACSI (which represents the principal amount of Indebtedness to be provided by Lender's Documents) shall be equal in priority with (i) each lien, mortgage or security interest of the Trustee in the property and assets constituting the PARI PASSU Collateral pursuant to the Deed of Trust and the Related Documents, to the extent of the obligations secured by such lien, mortgage or security interest (provided that the aggregate principal amount of Indebtedness secured by such lien, mortgage or security interest shall not exceed $275,000,000.00) (which represents the principal amount of Indebtedness under the Indenture on the date of this Intercreditor Agreement) and (ii) each lien, mortgage, or security interest of the Company in the property and assets constituting the PARI PASSU Collateral pursuant to the Intercompany Leasehold Mortgage, to the extent of the obligations secured by such lien, mortgage, or security interest (provided that the aggregate 4 principal amount of Indebtedness secured by such lien, mortgage or security interest shall not exceed $215,000,000.00) (which represents the principal amount of Indebtedness under the ACSI Intercompany Note on the date of this Intercreditor Agreement). 3. LIEN PRIORITY. The priorities of the liens, mortgages or security interests established, altered or specified herein are applicable irrespective of: (i) the time or order of attachment or perfection thereof; (ii) the method of perfection; (iii) the time or order of filing or recording of financing statements, mortgages or other instruments; or (iv) any amendments to the liens, mortgages or security interests established, altered or specified herein, provided that such amendments do not alter the aggregate principal amount of the Indebtedness secured by such lien, mortgage or security interest; and (v) the time or order of foreclosure, taking of possession or the exercise of any remedy; PROVIDED, HOWEVER that the priorities of any liens, mortgages or security interests which are not established, altered or specified herein shall be unaffected and shall exist and continue in accordance with applicable law. The agreements in paragraph 2 hereof are solely for the purpose of establishing the relative priorities of the interests of the PARI PASSU Parties in the PARI PASSU Collateral and shall not inure to the benefit of any other Person. 4. CONTROLLING PARTY. The PARI PASSU Party or Parties holding a majority in principal amount of Indebtedness of the Company and ACSI secured by the PARI PASSU Collateral (the "Controlling Party") shall have the sole right, without the affirmative consent of any of the other PARI PASSU Parties (the "Minority Party"), and on behalf of itself and each PARI PASSU Party, to (i) request to take any action, or fail to request to take any action, to enforce or exercise any right or remedy with respect to the PARI PASSU Collateral and to foreclose upon, collect, dispose of the PARI PASSU Collateral or any portion thereof; and (ii) exercise any right or remedy, or decline to exercise any right or remedy, with respect to the PARI PASSU Collateral in any Bankruptcy Proceeding, including, without limitation, any right of election under Sections 1111(b) or 365(h) of the Bankruptcy Code, any other rights of election, determinations, proofs of claims or other rights or remedies in connection with any Bankruptcy Proceeding; PROVIDED that each Minority Party shall have the right to file its own proof(s) of claim in any Bankruptcy Proceeding; and PROVIDED FURTHER that the Company agrees that irrespective of the amount of Indebtedness of ACSI held by the Company, it shall not be a Controlling Party hereunder and the Company and the Lender agree that the Trustee shall act as the Controlling Party on behalf of the Company in the event that the 5 Company would be the Controlling Party hereunder except for the operation of this clause. 5. MINORITY PARTY AGREEMENTS. In accordance with paragraph 4 hereof, the Minority Party agrees (regardless of whether any individual PARI PASSU Party agrees, disagrees or abstains with respect to any action or failure to act by the Controlling Party) that the Controlling Party shall have the authority to act or fail to act, as it deems necessary in its sole discretion, with respect to the rights and remedies of all of the PARI PASSU Parties and that the Controlling Party shall have no liability for acting or failing to act (provided such action or failure to act does not conflict with the express terms of this Agreement). Each PARI PASSU Party further acknowledges and agrees that, until the obligations under the Indenture and the Guaranty are no longer outstanding, the only right of such PARI PASSU Party with respect to the PARI PASSU Collateral is to be secured by the PARI PASSU Collateral as and to the extent provided in its respective loan document or agreement and as provided herein and to receive a share of the proceeds of the PARI PASSU Collateral, if any, to the extent provided under paragraph 6 hereof; PROVIDED HOWEVER that, until the obligations under the Indenture and the Guaranty are no longer outstanding, in no event shall any rights or benefits accorded any PARI PASSU Party include any right to challenge, contest or dispute any action taken or not taken, by the Controlling Party, the Collateral Agent (as hereinafter defined) or any other PARI PASSU Party in accordance with this Agreement, and, until the obligations under the Indenture and the Guaranty are no longer outstanding, in no event shall the security interest granted to the Lender under this Agreement entitle any PARI PASSU Party to enforce its respective rights in respect of the PARI PASSU Collateral except through the Controlling Party and the Collateral Agent (as hereinafter defined) in accordance with this Agreement. In addition, the Minority Party agrees that it (i) shall not attack nor challenge the validity, perfection or priority of the Controlling Party's lien with respect to the PARI PASSU Collateral; (ii) will release all liens, mortgages and security interests in all or any portion of the PARI PASSU Collateral (to the extent of its respective interest therein) in the event that the Controlling Party elects to sell all or any portion of the PARI PASSU Collateral in exercising any right or remedy with respect to the PARI PASSU Collateral; and (iii) waives any right of election it may have under Sections 1111(b) or 365(h) of the Bankruptcy Code, or any other rights of election, determinations, proofs of claims or other rights or remedies in connection with any Bankruptcy Proceeding with respect to the PARI PASSU Collateral. 6. ALLOCATION OF PAYMENTS. The PARI PASSU Parties each agree that all money or funds collected with respect to the PARI PASSU Collateral (including, without limitation, any net condemnation proceeds or other awards, insurance or other loss recoveries which are required or permitted under each of the documents and agreements governing the PARI PASSU Collateral, and any property (real and personal) and any amounts in respect of any deficiency recoveries) in connection with the enforcement or exercise of any right or remedy with respect to the PARI PASSU Collateral following the acceleration of the Indebtedness of ACSI to any of the PARI PASSU Parties, shall be directed to a collateral agent appointed by the Controlling Party on behalf of all of the PARI PASSU Parties (the "Collateral Agent"), which Collateral Agent shall be instructed by the Controlling Party to distribute such money, 6 funds or other property in the following order of priority: FIRST: to the payment to each PARI PASSU Party in respect of all reasonable expenses in connection with the collection or realization of such cash or funds or the administration of this Agreement in connection with the collection or realization of such cash or funds; SECOND: to each such PARI PASSU Party a proportion of such remaining money or funds as the total outstanding obligations secured by a lien, mortgage or security interest on the PARI PASSU Collateral held by such PARI PASSU Party bears to the total amount of outstanding obligations secured by liens, mortgages or security interests on the PARI PASSU Collateral held by all PARI PASSU Parties until all such secured obligations of such PARI PASSU Party have been paid in full (disregarding any reduction of any such secured obligations arising or occurring because of a foreclosure sale or the exercise of any other right or remedy with respect to the PARI PASSU Collateral); provided, however, that in no event shall the principal amount received by the Trustee with respect to the Guaranty and the ACSI Intercompany Note exceed $275,000,000; THIRD: to the Trustor under the Leasehold Mortgages or other obligor under any other applicable Related Document or to whosoever may be lawfully entitled to receive the same as a court of competent jurisdiction may direct. 7. ENFORCING RIGHTS. Each PARI PASSU Party agrees not to take any action whatsoever to enforce any term or provision of its respective security document or this Agreement or to enforce any of its rights in respect of the PARI PASSU Collateral, except through the Controlling Party in accordance with paragraphs 5 and 6 hereof; PROVIDED HOWEVER that this Agreement shall not prevent any PARI PASSU Party from enforcing or exercising any right or remedy with respect to the PARI PASSU Collateral granted to it by its respective documents and agreements to the extent that such enforcement or exercise of rights or remedies does not impair the security interest of the Controlling Party or any other PARI PASSU Party in the PARI PASSU Collateral; nor shall this Agreement grant any of the PARI PASSU Parties any right or remedy under the documents or agreements of the other PARI PASSU Parties. 8. DISTRIBUTIONS. The Company, ACSI, the Trustee and the Lender each agree that if any PARI PASSU Party receives any money, funds or other property that are distributed pursuant to paragraph 7 above (or any similar provision in any other Intercreditor Agreement substantially in the form of this Agreement), such money, funds or other property shall not discharge any secured obligation held by the Person receiving such money, funds or other property to the extent such money, funds or other property were distributed to any other Person. In the event that any payment in respect of, or distribution of, the PARI PASSU Collateral, of any kind or character, whether in cash, property or securities, shall be received by any PARI PASSU Party before all Indebtedness secured by PARI PASSU Collateral is paid in full, such payment or distribution shall be held in trust for the benefit of, and shall be paid over to, the PARI PASSU Parties in accordance with paragraph 6 above. 7 9. COMMUNICATIONS TO THE COMPANY AND ACSI. Each of the PARI PASSU Parties agrees to transmit to the Controlling Party a copy of any communication sent by such PARI PASSU Party to the Company, ACSI or any other Person (contemporaneously with the transmittal of any such communication) with respect to any event of default, any acceleration of Indebtedness, or any notice of sale of any PARI PASSU Collateral as a result of a default. The Controlling Party will then transmit a copy of same to the other PARI PASSU Parties. Any failure by any PARI PASSU Party to furnish a notice pursuant to this paragraph 9 shall in no way diminish the rights of such party hereunder. 10. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, without regard to its choice of law provisions, and shall be binding upon and inure to the benefit of the PARI PASSU Parties, and their respective successors, designees and assigns. 11. DEFINED TERMS. All terms used herein which are defined in the New Jersey Uniform Commercial Code shall have the meanings therein stated, unless the context otherwise requires. 12. NOTICES. All notices or other communications required or permitted hereunder shall be in writing and shall be given by personal delivery or United States mail, first class, registered or certified, postage prepaid, return receipt requested, addressed to the parties at the addresses indicated on the signature pages hereof. Each such notice or other communication shall be deemed given on (a) the date of receipt of personal delivery thereof, or (b) if not by mail (as aforesaid), the date which is three (3) business days after such communication is deposited in the mail (postage prepaid as aforesaid). Any party may change its address for notice by notice to the other parties hereto in accordance with the foregoing. 13. FURTHER ASSURANCES. Each of the PARI PASSU Parties (including the Trustee), upon the request of any PARI PASSU Party, shall execute and deliver and cause to be recorded with the appropriate authorities an Intercreditor Agreement substantially in the form of this Agreement, which Intercreditor Agreement shall be effective if and only if all PARI PASSU Parties shall have executed and delivered the same or a counterpart thereof. Simultaneously with the repayment or other discharge of Indebtedness secured by any PARI PASSU Collateral, the PARI PASSU Party whose Indebtedness is so repaid or discharged shall execute and deliver such instruments as may be reasonably required by any of the other PARI PASSU Parties to release or extinguish such PARI PASSU Party's interest in the PARI PASSU Collateral. 14. LIABILITY. No PARI PASSU Party shall be liable to any other PARI PASSU Party for any action taken by it, including the payment of any monies hereunder, in connection with this Agreement, provided the same was taken in good faith and did not constitute gross negligence or willful misconduct. 8 15. AMENDMENTS. Each PARI PASSU Party shall have the right to alter or amend its respective loan agreements and documents and to release or take additional collateral pursuant thereto. Nothing in this agreement is intended to alter or amend the obligations of any PARI PASSU Party with respect to the Company or any of its Subsidiaries under its respective loan agreements and documents. Nothing herein is intended to confer upon the Company or any of its Subsidiaries any right or benefit with respect to any PARI PASSU Party and the Company and its Subsidiaries hereby acknowledge that they have no right to enforce the terms hereunder against any PARI PASSU Party. Their signatures hereto are merely to acknowledge this agreement, which is for the sole benefit of the PARI PASSU Parties. 16. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 17. SEVERABILITY. In the event any provision hereof is determined to be unenforceable or invalid, such provision or such part thereof which may be unenforceable shall be deemed severed from this Agreement and the remaining provisions carried out with the same force and effect as if the severed provision or part thereof had not been made a part hereof. IN WITNESS WHEREOF, the Company, ACSI, Lender and the Trustee, as trustee, have caused this Agreement to be duly executed as of the date first above written. COMPANY: ATTEST: SHOWBOAT, INC., a Nevada corporation 2800 Fremont Street Las Vegas, Nevada 89104 /s/ John N. Brewer By: /s/ R. Craig Bird Assistant Secretary ACSI: ATLANTIC CITY SHOWBOAT, INC., a New Jersey corporation 801 Boardwalk Atlantic City, NJ 08401 /s/ John N. Brewer By: /s/ Herbert R. Wolfe Assistant Secretary 9 LENDER: NATWEST BANK, N.A. 1300 Atlantic Avenue Atlantic City, New Jersey 08401 /s/ Susan D. Hanratty By: /s/ John T. Harrison Attorney at Law of John T. Harrison New Jersey Vice President TRUSTEE: IBJ SCHRODER BANK & TRUST COMPANY One State Street New York, New York 10004 /s/ Susan Lavelle By: /s/ Max Volman Assistant Secretary Max Volman Vice President 10 INTERCREDITOR AGREEMENT FOR PARI PASSU INDEBTEDNESS RELATING TO LAS VEGAS SHOWBOAT INTERCREDITOR AGREEMENT, dated July 14, 1995, among IBJ Schroder Bank & Trust Company as trustee (the "Trustee") under the Indenture (as hereinafter defined), Showboat, Inc., a Nevada corporation (the "Company"), and NatWest Bank, N.A. (the "Lender"). The term "Collateral" as used herein means the following: all of the property, real and personal, and other assets of the Company in which the Trustee has a lien or security interest pursuant to the Indenture or any other Related Document. WHEREAS, the Company has issued its 9-1/4% First Mortgage Bonds due May 1, 2008 (the "First Mortgage Bonds") under that certain indenture, (the "Indenture"), dated as of May 18, 1993, among the Company, Ocean Showboat, Inc., Atlantic City Showboat, Inc. ("ACSI"), and Showboat Operating Company, as guarantors, and the Trustee, as amended or supplemented from time to time; WHEREAS, the First Mortgage Bonds are secured by, INTER ALIA, a Deed of Trust, Assignment of Rents and Security Agreement (the "Deed of Trust") on the Showboat Hotel, Casino and Bowling Center in Las Vegas, Nevada (the "Las Vegas Showboat") and other assets of the Company; WHEREAS, the Company proposes to provide the Lender with a lien or security interest in the Collateral as security for Indebtedness of the Company; WHEREAS, it has been agreed by the Trustee, that the Company and its Subsidiaries, subject to the terms and provisions of the Indenture, be permitted to obtain additional financing from other lenders to finance the costs of various improvements and for other purposes; WHEREAS, the Indenture permits the Company, subject to certain limitations, to create or cause to be created additional liens and security interests in the Collateral in favor of Persons other than the Trustee and the Company which will have equal priority with the lien of the Deed of Trust or any other applicable Related Document pursuant to an Intercreditor Agreement and requires the Trustee and the Company, upon fulfillment of certain conditions precedent, to execute and deliver an Intercreditor Agreement in substantially the form hereof to the holder of the Indebtedness to be secured by such additional liens and security interests (or such holder's agent, trustee or other authorized representative); WHEREAS, the Company and/or ACSI have entered into a Revolving Note, Loan and Guaranty Agreement, In PARI PASSU Leasehold Mortgage, Assignment of Rents and Security Agreement, In PARI PASSU Deed of Trust, Assignment of Rents and Security Agreement, In PARI PASSU Assignment of Leases and Rents and certain other documents and agreements all of even date herewith, providing for the grant to the Lender of liens, mortgages and security interests in certain of the property and assets constituting the Collateral (" Lender's Documents") (the property and assets constituting the Collateral in which each of the Trustee, the Company and the Lender have obtained liens, mortgages or security interests being referred to herein as the "PARI PASSU Collateral"); WHEREAS, the aggregate outstanding principal amount of the First Mortgage Bonds at the date hereof is $275,000,000.00; WHEREAS, the parties hereto desire to set forth their agreement as to the nature of priority of the liens, mortgages and security interests held by the Trustee and the Lender in the PARI PASSU Collateral and certain other matters related thereto; NOW, THEREFORE, in consideration of the mutual premises and agreements herein contained it is hereby agreed as follows: 1. DEFINITIONS. As used in this Agreement, the following terms have the meanings hereinafter set forth: "Bankruptcy Code" means the United States Bankruptcy Code, 11 U.S.C Sec. 101 et seq. "Bankruptcy Law" means Title 11, United States Code, and any other state or federal insolvency, reorganization, moratorium or similar law for the relief of debtors. "Bankruptcy Proceeding" means any proceeding commenced under any Bankruptcy Law. "PARI PASSU Parties means, collectively, the Trustee and the Lender. All capitalized terms used herein which are not otherwise defined herein shall have the meaning ascribed in such terms in the Indenture. 2. LIEN ACKNOWLEDGMENT. (a) The Trustee hereby agrees that each lien, mortgage, and security interest of the Trustee in the property and assets constituting the PARI PASSU Collateral pursuant to the Deed of Trust and the Related Documents, to the extent of the obligations secured by such lien, mortgage or security interest (provided that the aggregate principal amount of Indebtedness secured by such lien, mortgage or security interest shall not exceed $275,000,000.00), shall be equal in priority with each lien, mortgage, or security interest of the Lender in the property and assets constituting the PARI PASSU Collateral pursuant to the Lender's Documents, to the extent of the obligations secured by such liens, mortgages or security interests (provided that the aggregate principal amount of the Indebtedness secured by such liens, mortgages or security interests shall not exceed the 2 lesser of $25,000,000.00 or the principal amount extended by Lender to the Company under the Lender's Documents and not repaid by the Company or ACSI). (b) The Lender hereby agrees that each lien, mortgage or security interest of the Lender in the property and assets constituting the PARI PASSU Collateral pursuant to the Lender's Documents, to the extent of the obligations secured by such lien, mortgage or security interest (provided that the aggregate principal amount of the Indebtedness secured by such lien, mortgage or security interest shall not exceed the lesser of $25,000,000.00 or the principal amount extended by Lender under the Lender's Documents and not repaid by the Company and/or ACSI ) shall be equal in priority with each lien, mortgage or security interest of the Trustee in the property and assets constituting the PARI PASSU Collateral pursuant to the Deed of Trust and the Related Documents, to the extent of the obligations secured by such lien, mortgage or security interest (provided that the aggregate principal amount of Indebtedness secured by such lien, mortgage or security interest shall not exceed $275,000,000.00. 3. LIEN PRIORITY. The priorities of the liens, mortgages or security interests established, altered or specified herein are applicable irrespective of: (i) the time or order of attachment or perfection thereof; (ii) the method of perfection; (iii) the time or order of filing or recording of financing statements, mortgages or other instruments; or (iv) any amendments to the liens, mortgages or security interest established, altered or specified herein, provided that such amendment does not alter the aggregate principal amount of the Indebtedness secured by such lien, mortgage or security interest; and (v) the time or order of foreclosure, taking of possession or the exercise of any remedy; PROVIDED, HOWEVER, that the priorities of any liens, mortgages or security interests which are not established, altered or specified herein shall be unaffected and shall exist and continue in accordance with applicable law. The agreements in paragraph 2 hereof are solely for the purpose of establishing the relative priorities of the interests of the PARI PASSU Parties in the PARI PASSU Collateral and shall not inure to the benefit of any other Person. 4. CONTROLLING PARTY. The PARI PASSU Party or Parties holding a majority in principal amount of Indebtedness of the Company secured by the PARI PASSU Collateral (the "Controlling Party") shall have the sole right, without the affirmative consent of any of the other PARI PASSU Parties (the "Minority Party"), and on behalf of itself and each PARI 3 PASSU Party, to (i) request to take any action, or fail to request to take any action, to enforce or exercise any right or remedy with respect to the PARI PASSU Collateral and to foreclose upon, collect, dispose of the PARI PASSU Collateral or any portion thereof; and (ii) exercise any right or remedy, or decline to exercise any right or remedy, with respect to the PARI PASSU Collateral in any Bankruptcy Proceeding, including, without limitation, any right of election under Sections 1111(b) or 365(h) of the Bankruptcy Code, any other rights of election, determinations, proofs of claims or other rights or remedies in connection with any Bankruptcy Proceeding; PROVIDED that each Minority Party shall have the right to file its own proof(s) of claim in any Bankruptcy Proceeding. 5. MINORITY PARTY AGREEMENTS. In accordance with paragraph 4 hereof, the Minority Party agrees (regardless of whether any individual PARI PASSU Party agrees, disagrees or abstains with respect to any action or failure to act by the Controlling Party) that the Controlling Party shall have the authority to act or fail to act, as it deems necessary in its sole discretion, with respect to the rights and remedies of all of the PARI PASSU Parties and that the Controlling Party shall have no liability for acting or failing to act (provided such action or failure to act does not conflict with the express terms of this Agreement). Each PARI PASSU Party further acknowledges and agrees that, until the obligations under the Indenture are no longer outstanding, the only right of such PARI PASSU Party with respect to the PARI PASSU Collateral is to be secured by the PARI PASSU Collateral as and to the extent provided in its respective loan document or agreement and as provided herein and to receive a share of the proceeds of the PARI PASSU Collateral, if any, to the extent provided under paragraph 6 hereof; PROVIDED, HOWEVER, that, until the obligations under the Indenture are no longer outstanding, in no event shall any rights or benefits accorded any PARI PASSU Party include any right to challenge, contest or dispute any action taken or not taken, by the Controlling Party, the Collateral Agent (as hereinafter defined) or any other PARI PASSU Party in accordance with this Agreement, and, until the obligations under the Indenture are no longer outstanding, in no event shall the security interest granted to the Lender under this Agreement entitle any PARI PASSU Party to enforce its respective rights in respect of the PARI PASSU Collateral except through the Controlling Party and the Collateral Agent (as hereinafter defined) in accordance with this Agreement. In addition, the Minority Party agrees that it (i) shall not attack nor challenge the validity, perfection or priority of the Controlling Party's lien with respect to the PARI PASSU Collateral; (ii) will release all liens, mortgages and security interests in all or any portion of the PARI PASSU Collateral (to the extent of its respective interest therein) in the event that the Controlling Party elects to sell all or any portion of the PARI PASSU Collateral in exercising any right or remedy with respect to the PARI PASSU Collateral; and (iii) waives any right of election it may have under Sections 1111(b) or 365(h) of the Bankruptcy Code, or any other rights of election, determinations, proofs of claims or other rights or remedies in connection with any Bankruptcy Proceeding with respect to the PARI PASSU Collateral. 6. ALLOCATION OF PAYMENTS. The PARI PASSU Parties each agree that all money or funds collected with respect to the PARI PASSU Collateral (including; without limitation, any net condemnation proceeds or other awards, insurance or other loss recoveries which 4 are required or permitted under each of the documents and agreements governing the PARI PASSU Collateral, and any property (real and personal) and any amounts in respect of any deficiency recoveries) in connection with the enforcement or exercise of any right or remedy with respect to the PARI PASSU Collateral following the acceleration of the Indebtedness of the Company to any of the PARI PASSU Parties, shall be directed to a collateral agent appointed by the Controlling Party on behalf of all of the PARI PASSU Parties (the "Collateral Agent"), which Collateral Agent shall be instructed by the Controlling Party to distribute such money, funds or other property in the following order of priority: FIRST: to the payment to each PARI PASSU Party in respect of all reasonable expenses in connection with the collection or realization of such cash or funds or the administration of this Agreement in connection with the collection or realization of such cash or funds; SECOND: to each such PARI PASSU Party a proportion of such remaining money or funds as the total outstanding obligations secured by a lien, mortgage or security interest on the PARI PASSU Collateral held by such PARI PASSU Party bears to the total amount of outstanding obligations secured by liens, mortgages or security interests on the PARI PASSU Collateral held by all PARI PASSU Parties until all such secured obligations of such PARI PASSU Party have been paid in full (disregarding any reduction of any such secured obligations arising or occurring because of a foreclosure sale or the exercise of any other right or remedy with respect to the PARI PASSU Collateral); THIRD: to the Trustor under the Deed of Trust or other obligor under any other applicable Related Document or to whosoever may be lawfully entitled to receive the same as a court of competent jurisdiction may direct. 7. ENFORCING RIGHTS. Each PARI PASSU Party agrees not to take any action whatsoever to enforce any term or provision of its respective security document or this Agreement or to enforce any of its rights in respect of the PARI PASSU Collateral, except through the Controlling Party in accordance with paragraphs 5 and 6 hereof; PROVIDED, HOWEVER, that this Agreement shall not prevent any PARI PASSU Party from enforcing or exercising any right or remedy with respect to the PARI PASSU Collateral granted to it by its respective documents and agreements to the extent that such enforcement or exercise of rights or remedies does not impair the security interest of the Controlling Party or any other PARI PASSU Party in the PARI PASSU Collateral; nor shall this Agreement grant any of the PARI PASSU Parties any right or remedy under the documents or agreements of the other PARI PASSU Parties. 8. DISTRIBUTIONS. The Company, the Trustee and the Lender each agree that if any PARI PASSU Party receives any money, funds or other property that are distributed pursuant to paragraph 7 above (or any similar provision in any other Intercreditor Agreement substantially in the form of this Agreement), such money, funds or other property shall not discharge any secured obligation held by the Person receiving such money, funds or other property to the extent such money, funds or other property were distributed to any other Person. In the event that any payment in respect of, or distribution of, the PARI PASSU Collateral, of any kind or character, whether in cash, property or securities, shall be received by any PARI PASSU Party before all Indebtedness secured by PARI PASSU Collateral 5 is paid in full, such payment or distribution shall be held in trust for the benefit of, and shall be paid over to, the PARI PASSU Parties in accordance with paragraph 6 above. 9. COMMUNICATIONS. Each of the PARI PASSU Parties agrees to transmit to the Controlling Party a copy of any communication sent by such PARI PASSU Party to the Company, or any other Person (contemporaneously with the transmittal of any such communication) with respect to any event of default, any acceleration of Indebtedness, or any notice of sale of any PARI PASSU Collateral as a result of a default. The Controlling Party will transmit a copy of said notice to the other PARI PASSU Parties. Any failure by any PARI PASSU Party to furnish a notice pursuant to this paragraph 9 shall in no way diminish the rights of such party hereunder. 10. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada, without regard to its choice of law provisions, and shall be binding upon and inure to the benefit of the PARI PASSU Parties, and their respective successors, designees and assigns. 11. DEFINED TERMS. All terms used herein which are defined in the Nevada Uniform Commercial Code shall have the meanings therein stated, unless the context otherwise requires. 12. NOTICES. All notices or other communications required or permitted hereunder shall be in writing and shall be given by personal delivery or United States mail, first class, registered or certified, postage prepaid, return receipt requested, addressed to the parties at the addresses indicated on the signature pages hereof. Each such notice or other communication shall be deemed given on (a) the date of receipt of personal delivery thereof, or (b) if not by mail (as aforesaid), the date which is three (3) business days after such communication is deposited in the mail (postage prepaid as aforesaid). Any party may change its address for notice by notice to the other parties hereto in accordance with the foregoing. 13. FURTHER ASSURANCES. Each of the PARI PASSU Parties (including the Trustee), upon the request of any PARI PASSU Party, shall execute and deliver and cause to be recorded with the Clerk of Clark County, Nevada an Intercreditor Agreement substantially in the form of this Agreement, which Intercreditor Agreement shall be effective if and only if all PARI PASSU Parties shall have executed and delivered the same or a counterpart thereof. Simultaneously with the repayment or other discharge of Indebtedness secured by any PARI PASSU Collateral, the PARI PASSU Party whose Indebtedness is so repaid or discharged shall execute and deliver such instruments as may be reasonably required by any of the other PARI PASSU Parties to release or extinguish such PARI PASSU Party's interest in the PARI PASSU Collateral. 14. LIABILITY. No PARI PASSU Party shall be liable to any other PARI PASSU Party for any action taken by it, including the payment of any monies hereunder, in connection 6 with this Agreement, provided the same was taken in good faith and did not constitute gross negligence or willful misconduct. 15. AMENDMENTS. Each PARI PASSU Party shall have the right to alter or amend its respective loan agreements and documents and to release or take additional collateral pursuant thereto. Nothing in this agreement is intended to alter or amend the obligations of any PARI PASSU Party with respect to the Company or any of its Subsidiaries under its respective loan agreements and documents. Nothing herein is intended to confer upon the Company or any of its Subsidiaries any right or benefit with respect to any PARI PASSU Party and the Company and its Subsidiaries hereby acknowledge that they have no right to enforce the terms hereunder against any PARI PASSU Party. Their signatures hereto are merely to acknowledge this agreement, which is for the sole benefit of the PARI PASSU Parties. 16. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 17. SEVERABILITY. In the event any provision hereof is determined to be unenforceable or invalid, such provision or such part thereof which may be unenforceable shall be deemed severed from this Agreement and the remaining provisions carried out with the same force and effect as if the severed provision or part thereof had not been made a part hereof. IN WITNESS WHEREOF, the Trustee, the Company, Lender and the Trustee, as trustee, have caused this Agreement to be duly executed as of the date first above written. ATTEST: SHOWBOAT, INC., a Nevada corporation 2800 Fremont Street Las Vegas, Nevada 89104 /s/ John N. Brewer By: /s/ R. Craig Bird Assistant Secretary Name: R. Craig Bird Title: Exec. VP Finance & Administration 7 IBJ SCHRODER BANK & TRUST COMPANY One State Street New York, New York 10004 /s/ Susan Lavelle By: /s/ Max Volmar Susan Lavelle Name: Max Volmar Assistant Secretary Title: Vice President NATWEST BANK, N.A. 1300 Atlantic Avenue Atlantic City, New Jersey 08401 /s/ Susan D. Hanratty By: /s/ John Harrison Susan D. Hanratty Name: John Harrison Attorney at Law of Title: Vice President New Jersey 8 EX-10.39 8 EXHIBIT 10.39 TO 10-K EXHIBIT 10.39 PROMISSORY NOTE $51,314,535.94 January 1, 1996 FOR VALUE RECEIVED, Showboat Fifteen, Inc., a corporation organized and existing under the laws of the State of Nevada ("Maker"), promises to pay to Showboat, Inc., a corporation organized and existing under the laws of the State of Nevada, or order ("Holder"), at 3720 Howard Hughes Parkway, Ste. 200, Las Vegas, NV 89109, or at such other place as Holder may designate in writing, up to the principal balance of Fifty-One Million Three Hundred Fourteen Thousand Five Hundred Thirty-Five and 94/One Hundredths Dollars ($51,314,535.94), plus interest as hereinafter provided. Interest shall be calculated on a daily basis (based on a 365-day year), at 10.25% ("Base Rate"). Principal and interest shall be payable upon the earlier to occur of (i) demand or (ii) December 31, 1996 (the "Maturity Date"). All payments on this Promissory Note shall be applied first to discharge all accrued but unpaid interest on the unpaid principal balance hereof, and the remainder to be applied to the principal balance. The Holder's acceptance of any payment less than the amount then due shall not, in any manner, effect or prejudice the rights of the Holder to receive the unpaid balance then due and payable. The failure to pay the unpaid principal sum on the Maturity Date or the failure to pay any other sum when the same shall become due and payable shall constitute an event of default ("Event of Default") hereunder, and upon the occurrence of an Event of Default, all sums evidenced hereby, including the entire principal balance, all accrued and unpaid interest and all other amounts due hereunder shall, at the election of the Holder, and without demand or notice to maker, become immediately due and payable and the Holder may exercise its rights under this Note, and other rights under applicable law. Upon the occurrence of an Event of Default by Maker, the unpaid principal balance, and all accrued and unpaid interest due hereunder and all other costs shall together be treated as the principal balance of this Promissory Note and shall bear interest at the rate of three (3) percentage points per annum greater than the Base Rate (the "Default Rate"), from the date of the Event of Default until the entire principal sum and such interest and costs have been paid in full. Maker shall have the right to prepay at any time all or any portion of this Promissory Note without penalty. It is not the intent of Holder to collect interest or other loan charges in excess of the maximum amount permitted by Nevada law. If interest or other loan charges collected or to be collected by the Holder exceed any applicable permitted limits then (i) any such interest or other loan charges shall be reduced by the amount necessary to reduce the interest or other loan charges to the permitted limits, and (ii) any sums already collected from the Maker which exceeded permitted limits will be refunded to the Maker. The Holder may choose to make such refund by reducing the principal balance of the indebtedness hereunder or by making a direct payment to the Maker. Maker agrees to waiver demand, diligence, presentment for payment and protest, notice of acceleration, extension, dishonor, maturity, protest, and default hereunder. The Holder may accept late or partial payments even though they are marked "payment in full," without losing, prejudicing or waiving any rights hereunder. Maker agrees to pay all costs of collection, and all costs of suit and preparation for such suit (whether at trial or appellate level), in the event the unpaid principal sum of this Promissory Note, or any payment of principal or interest is not paid when due. No amendment, modification, change, waiver or discharge shall be effective unless evidenced by an instrument in writing and signed by the party against whom enforcement of any waiver, amendment, change, modification or discharge is sought. If any provision hereof is invalid, or unenforceable, the other provisions hereof shall remain in full force and effect and shall be construed to effectuate the provisions hereof. The provisions of this Promissory Note shall be binding and inure to the benefit of the successors and assigns of the parties hereto. A waiver by Holder of failure to enforce any covenant or condition of this Promissory Note, or to declare any default hereunder, shall not operate as a waiver of any subsequent default or affect the right of Holder to exercise any right or remedy not expressly waived in writing. This Promissory Note shall be construed in accordance with and governed by Nevada law. All payments of principal and interest are hereby required to be made in the form of lawful money of the United States of America. Time is of the essence with respect to this Promissory Note and each and every covenant, condition, term and provision hereof. Whenever the context requires or permits, the singular shall include the plural, plural shall include the singular and the masculine, feminine and neuter shall be freely interchangeable. IN WITNESS WHEREOF, Maker has executed this Promissory Note at Las Vegas, Nevada as of the day first above written. Maker: SHOWBOAT FIFTEEN, INC., a Nevada corporation By: Its: EX-21.01 9 EXHIBIT 21.01 TO 10-K
EXHIBIT 21.01 LIST OF SUBSIDIARIES STATE OF NAME INCORPORATION/ NAMES USED IN DOING ORGANIZATION BUSINESS Atlantic City Showboat, New Jersey Showboat; Showboat Hotel Inc. and Casino; Atlantic City Showboat Ocean Showboat, Inc. New Jersey Ocean Showboat Ocean Showboat Finance New Jersey Ocean Showboat Finance Corporation Corporation Showboat Operating Company Nevada Showboat; Showboat Hotel, Casino & Bowling Center; Las Vegas Showboat Showboat Development Nevada Showboat Development Company Company Showboat Australia Pty Australia Not applicable Limited Sydney Harbour Casino Australia Not applicable Holdings Limited Sydney Casino Management Australia Not applicable Pty Limited Sydney Harbour Casino Australia Sydney Harbour Casino Properties Pty Limited Showboat Indiana, Inc. Nevada Not applicable Showboat Indiana Nevada Not applicable Investment, L.P. Showboat Marina Partnership Indiana Showboat Marina; East Chicago Showboat Showboat Marina Casino Indiana Showboat Marina; East Partnership Chicago Showboat Showboat Marina Finance Indiana Not applicable Corporation Showboat Marina Investment Indiana Not applicable Partnership Showboat New Hampshire, Nevada Not applicable Inc. Showboat Rockingham New Hampshire Not applicable Company, L.L.C. Showboat Missouri, Inc. Nevada Not applicable
EX-23.01 10 EXHIBIT 23.01 TO 10-K EXHIBIT 23.01 ACCOUNTANTS' CONSENT 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 and (No. 33-62431) on Form S-3 of Showboat, Inc. of our report dated March 11, 1996, relating to the consolidated balance sheets of Showboat, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995, which report appears in the December 31, 1995 annual report on Form 10-K of Showboat, Inc. Our report refers to a change in the method of accounting for income taxes in 1993 to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES. /s/ KPMG Peat Marwick LLP Las Vegas, Nevada March 19, 1996 EX-27 11
5 1000 YEAR DEC-31-1995 DEC-31-1995 29605 77322 11129 2681 2808 134731 541786 186872 649395 53716 392369 0 0 15795 158145 649395 423213 428592 0 210339 171556 1605 29692 24610 11435 13175 0 0 0 13175 .84 .84
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