-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, pRYYWnBFkSAOJMPxb6ErXNT0OPsqnhC9rqZ7wH2IbVwv5j2lK+gP9Os0uimMAWxE tPECesRCwgpEcC46Wh8leA== 0000950130-94-000527.txt : 19940331 0000950130-94-000527.hdr.sgml : 19940331 ACCESSION NUMBER: 0000950130-94-000527 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHOWBOAT INC CENTRAL INDEX KEY: 0000089966 STANDARD INDUSTRIAL CLASSIFICATION: 7990 IRS NUMBER: 880090766 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-07123 FILM NUMBER: 94518882 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 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1993 ----------------------------------- [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from Not Applicable ------------------------------- Commission file number 1-7123 ------------ SHOWBOAT, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Nevada 88-0090766 - ------------------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) No.) 2800 Fremont Street, Las Vegas, Nevada 89104 - ------------------------------------------------------------------- --------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (702) 385-9141 -------------- 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 New York Stock Exchange - ------------------------------- ------------------------ 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. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) 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, 1994, was approximately $248,657,620. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ____ No ____ ----------- Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of March 15, 1994: 14,989,445. DOCUMENTS INCORPORATED BY REFERENCE All relevant information contained herein is set forth in full and no documents are incorporated by reference into this Form 10-K. PART I ITEM 1. BUSINESS. -------- General The Company owns and operates two hotels, casinos and bowling centers, the Showboat Hotel, Casino and Bowling Center in Las Vegas, Nevada ("Las Vegas Showboat") and the Showboat Casino Hotel in Atlantic City, New Jersey ("Atlantic City Showboat") and a riverboat casino in New Orleans, Louisiana through its respective Nevada and New Jersey subsidiaries. The Company's wholly-owned Nevada subsidiaries include Showboat Operating Company and Showboat Development Company. Showboat Development Company's wholly owned subsidiaries include Showboat Mohawk, Inc., Showboat Indiana, Inc., Lake Pontchartrain Showboat, Inc. and Showboat Louisiana, Inc. The Company commenced operations on September 9, 1954, as a partnership and was incorporated under the laws of the state of Nevada in 1960. The Company became a registered public company on December 19, 1968. It was listed in the American Stock Exchange in February 1973 and was listed on the New York Stock Exchange on May 30, 1984. The Company operated only the Las Vegas Showboat until March 30, 1987 when the Atlantic City Showboat commenced operations. The Company's New Jersey subsidiaries include its wholly- owned subsidiary Ocean Showboat, Inc. ("OSI"), and OSI's wholly-owned subsidiaries Atlantic City Showboat, Inc. ("ACSI") and Ocean Showboat Finance Corporation ("OSFC"). Unless the context otherwise requires, the "Company" or "SBO," 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. Through its subsidiary, Showboat Louisiana, Inc., the Company acquired a 30% equity interest in Showboat Star Partnership, a Louisiana general partnership which owns a riverboat casino on Lake Pontchartrain in New Orleans, Louisiana named the "Star Casino," for a capital contribution of $18.6 million in 1993. The Star Casino commenced operations on November 8, 1993. Effective March 1, 1994, the Company purchased an additional 20% equity interest in the Showboat Star Partnership from a partner in exchange for $9.0 million. A management agreement entered into between Lake Pontchartrain Showboat, Inc., a subsidiary of the Company ("LPSI"), and Star Casino, Inc., a general partner of Showboat Star Partnership, provides that LPSI shall receive a management fee of 5% of gaming revenues, net of gaming taxes and regulatory boarding fees, in exchange for managing the Star 1 Casino's operations. Star Casino, Inc. assigned the management agreement to the Showboat Star Partnership. The Company's marketing and operating strategy is to develop a high volume of traffic through its casinos, emphasizing slot machine play which accounted for 84.2%, 73.2% and 68.6% of the casino revenues of the Las Vegas Showboat, the Atlantic City Showboat, and the Star Casino, respectively, in 1993. 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 Atlantic City Showboat targets the drive-in customer by providing competitive games and excellent service in an attractive convenient facility. The Star Casino, like the Las Vegas Showboat, targets "locals" with its excellent service, attractive and convenient facility and accessible location. Fiscal Year 1993 Developments Star Casino In July 1993, the Company and Star Casino, Inc., a Louisiana corporation owned by Louie Roussel, III, formed the Showboat Star Partnership, a Louisiana general partnership, to own the Star Casino, a riverboat casino located on the south shore of Lake Pontchartrain in New Orleans, Louisiana. Until March 1, 1994, Showboat Louisiana, Inc. owned 30% of the partnership and Star Casino, Inc. was the managing partner. Effective March 1, 1994, Showboat Louisiana, Inc. purchased from Star Casino, Inc. an additional 20% equity interest in the partnership for $9.0 million and the partners formed a ten member managing committee on which Showboat Louisiana, Inc. appoints five members. The Star Casino offers an aggregate of 21,900 square feet of casino space on three levels containing 762 slot machines and 41 table games. The riverboat facility also includes an approximately 34,000 square foot terminal building containing a bar, restaurant and administrative offices. The casino operations of the Star Casino are managed by the Company through LPSI, which receives a management fee of five percent of gaming revenue, net of gaming taxes and regulatory boarding fees, pursuant to a management agreement. The Star Casino commenced gaming operations on November 8, 1993, after receiving the approval of the Louisiana Riverboat Gaming Commission, the Riverboat Gaming Division of the Louisiana State Police and the U.S. Coast Guard. 2 Development and Management Services Division The Company formed a Development and Management Services Division ("Development Division") in 1993 to investigate and secure new properties in the United States and around the world. The Development Division evaluates all expansion opportunities based upon certain criteria, including but not limited to, demographics, location and competition. Showboat's Development Division also provides management services to support a new facility upon its opening. The Development Division will provide a new project with human resources, marketing, design and construction, management information systems, regulatory compliance, operations and financial services. Expansion Opportunities The Company is evaluating expansion opportunities in emerging gaming markets in the United States and elsewhere in the world. Announced expansion opportunities include: East Chicago, Indiana On February 2, 1994, the Showboat Marina Partnership, consisting of Showboat Indiana Investment Limited Partnership, a wholly-owned limited partnership ("SII"), and Waterfront Entertainment and Development, Inc., an Indiana corporation ("Waterfront"), filed Part I of its gaming application with the Indiana Riverboat Gaming Commission to operate a riverboat casino on Lake Michigan in East Chicago, Indiana. Showboat Marina Partnership intends to file Part II of its gaming application on April 12, 1994. Showboat Marina Partnership is the only applicant for the East Chicago gaming berth. Showboat Marina Partnership is owned 55% by SII and 45% by Waterfront. The Company will invest $17.5 million in the Showboat Marina Partnership and will help the partnership to obtain in excess of $50.0 million in debt financing. East Chicago residents passed a referendum on November 2, 1993 authorizing gaming in East Chicago. St. Regis Mohawk Reservation, New York The Company, through Showboat Mohawk Investment Limited Partnership, a wholly-owned limited partnership ("SMI"), is negotiating with the St. Regis Mohawk Tribe ("Tribe") and Native American Gaming Consultants, a corporation formed under tribal law ("NAGC"), such documents as are necessary to develop, construct, manage and operate Class III gaming on the Tribe's Reservation in Hogansburg, New York. The proposed agreements contemplate that SMI will initially operate Class III games in an approximately 19,000 square foot casino that will be expanded to approximately 40,000 3 square feet. An initial loan in the approximate amount of $35 million will be made to the Tribe by SMI for the purchase of an existing building, the "TVI Site," and for certain improvements to the building. SMI will receive a management fee of 20% of earnings before interest, taxes and depreciation throughout the management term, which will be five years. On October 15, 1993, New York Governor Mario Cuomo signed a Compact with the Tribe, permitting Class III gaming. Class III games include blackjack, craps, roulette, best hand poker, big six, keno, and other authorized games. Any agreements between SMI and the Tribe will be subject to approval by the National Indian Gaming Commission. Sydney, Australia Sydney Harbour Casino Holdings Limited, a corporation consisting of Showboat Australia Pty Limited, a wholly-owned Australian subsidiary of the Company, and Leighton Properties Pty Limited, Australia's largest publicly traded construction group, was selected by the New South Wales Casino Control Authority as one of two companies on the short list for the first casino license in Sydney, Australia. Only one license to operate a casino with table games and slot machines in Sydney, Australia will be awarded by the Casino Control Authority. Private clubs offering slot machines are currently in operation. The Casino Control Authority is expected to make its final selection on or after May 6, 1994. Atlantic City Showboat Expansion During 1993, the Company continued the construction of a three-part $76.2 million expansion project, after credits of $8.8 million from the Casino Reinvestment Development Authority ("CRDA"), at the Atlantic City Showboat. For a discussion of CRDA credits see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The first stage of the expansion was completed in May 1993 and added Atlantic City's first horse race simulcasting facility. Approximately 4,500 square feet of casino space was added in June 1993. With the additional casino space, the Company added approximately 340 slot machines and 28 table games to its Atlantic City Casino in 1993. In the second stage of the expansion, the Company anticipates adding an additional 15,000 square feet of casino space by the Summer of 1994. With the additional casino space, the Company anticipates the addition of approximately 550 slot machines and 10 table games, bringing the then total number of slot machines and table games at the Atlantic City Showboat to approximately 3,000 and 108, respectively. The final stage of the expansion is the addition of a new 284-room hotel tower, now under construction, which is scheduled to 4 open in the Spring of 1995. On July 9, 1993, ACSI purchased approximately four acres of real property abutting the Atlantic City Showboat from the Atlantic City Housing Authority and Urban Redevelopment Agency. ACSI is constructing the new hotel tower on this site. (See "Item 2. Properties -- Atlantic City.") Public Offering of 9 1/4% First Mortgage Bonds due 2008 On May 18, 1993, the Company completed an underwritten public offering of 9 1/4% First Mortgage Bonds due 2008 (the "First Mortgage Bonds") in the principal amount of $275.0 million. The First Mortgage Bonds are guarantied on a senior secured basis by OSI, ACSI and Showboat Operating Company. The First Mortgage 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 First Mortgage 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 the outstanding shares of capital stock of OSI and an intercompany note issued by ACSI in favor of the Company and by a pledge of certain intellectual property rights of the Company. OSI's obligations under its guaranty are secured by a pledge of all of the outstanding shares of capital stock of ACSI. ACSI's obligations under its guaranty are secured by a leasehold mortgage representing a first lien on the Atlantic City Showboat (other than certain assets). Showboat Operating Company's obligations under its guaranty are secured by a pledge of certain of its assets related to the Las Vegas Showboat. Pursuant to the indenture (the "Indenture") for the First Mortgage Bonds among the Company, OSI, ACSI, Showboat Operating Company, and IBJ Schroder Bank & Trust Company (the "Trustee"), the First Mortgage Bonds are not redeemable by the Company prior to May 1, 2000 unless otherwise required by the gaming laws of Nevada, New Jersey, or any other state or country in which the Company or one of its subsidiaries conducts gaming operations, or unless otherwise permitted pursuant to the terms of the Indenture. On or after May 1, 2000, the First Mortgage Bonds are redeemable at the option of the Company, in whole or in part, at the redemption price provided for in the Indenture, together with accrued and unpaid interest, if any, to the redemption date. The Indenture does not contain any sinking fund or mandatory redemption provisions. Approximately $162.3 million of the net proceeds from the public offering of the First Mortgage Bonds was used to defease all of the 11 3/8% Mortgage- Backed Bonds Due 2002. See "Fiscal Year 1993 Developments -- Redemption of 11 3/8% Mortgage-Backed Bonds Due 2002." 5 Redemption of 11 3/8% Mortgage-Backed Bonds Due 2002 On June 17, 1993, OSFC redeemed all of its outstanding 11 3/8% Mortgage- Backed Bonds Due 2002 ("Mortgage-Backed Bonds") at 105.7% of par plus accrued and unpaid interest up to and including the redemption date, in accordance with the terms of the indenture for the Mortgage-Backed Bonds. The redemption price of approximately $162.3 million was paid from a portion of the net proceeds, approximately $268.4 million, realized from the Company's May 1993 public offering of First Mortgage Bonds in June 1993. (See "Fiscal Year 1993 Developments -- Public Offering of 9 1/4% First Mortgage Bonds due 2008.") Redemption of 13% Subordinated Sinking Fund Debentures On January 29, 1993, the Company redeemed all of its outstanding 13% Subordinated Sinking Fund Debentures Due 2004 (the "Debentures"). The principal amount of Debentures outstanding on January 29, 1993 was $32.9 million and, pursuant to the terms of the indenture dated October 1, 1984, were redeemable at the option of the Company, in whole or in part, at a redemption price of 100% of the principal amount plus accrued and unpaid interest up to and including the redemption date. The redemption price of $34.4 million was paid from a portion of the net proceeds, approximately $50.4 million, realized from the Company's December 1992 public offering of common stock. The balance of offering proceeds was applied to pay off and satisfy a construction and term loan of the Company. (See "Fiscal Year 1993 Developments - Satisfaction of Construction and Term Loan and Conversion to Line of Credit.") Satisfaction of Construction and Term Loan and Conversion to Line of Credit On January 29, 1993, the Company applied a portion of the proceeds realized from the Company's December 1992 public offering of common stock to prepay all amounts outstanding under a construction and term loan in the original principal amount of $20.0 million ("Construction Loan"). The outstanding balance of principal and interest under the Construction Loan was $17.3 million. Pursuant to the Construction Loan, originally obtained in June 1990, payments of principal and interest were due monthly under a ten-year amortization schedule, with the balance due September 30, 1996. In July 1992, the Construction Loan was amended to allow the Company to convert the loan to a line of credit. The line of credit was terminated in May 1993 prior to the public offering of the First Mortgage Bonds. 6 Narrative Description of Business Current Las Vegas Operations The Las Vegas Showboat includes an approximately 80,000 square foot casino centrally located in a 482-room 18-story hotel, featuring a 106-lane bowling center, a 408-seat buffet, a 194-seat coffee shop, a 1,300-seat bingo parlor garden, a 150 seat showroom and two specialty restaurants. In addition, 8,300 square feet of meeting room area is available with a seating capacity of 1,000 persons. The Company also owns and operates a 33-room motel directly across from the hotel. The Las Vegas Showboat covers approximately twenty-six acres and is approximately two and one-half miles from the hotel casinos located in downtown Las Vegas or on the "Strip." At the Las Vegas Showboat, the Company sponsors a variety of special events designed to produce a high volume of traffic through its 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 developed its first slot club, the Officer's Club, in 1988. The Officer's Club is designed to attract and reward frequent slot players at the Las Vegas Showboat. Las Vegas Competition The Las Vegas Showboat competes generally with approximately 119 casinos in Clark County, Nevada, which includes the cities of Las Vegas, Henderson, Laughlin and Mesquite. Competition among casinos in Clark County is intense and the Company expects it to remain so in the future. The Company has experienced increased competition from new and existing Las Vegas hotel casinos which have also sought to attract slot machine players and Las Vegas-area residents. The Company anticipates continuing increased competition for these customers. As a result of increased competition for slot machine players and Las Vegas-area residents, and because of the construction of new hotel casinos and the expansion of existing hotel casinos, including the current expansion of Sam's Town Hotel and Casino and the construction of Boulder Station (each of which are located on Boulder Highway near the Las Vegas Showboat), the Company is evaluating various alternatives, including its marketing programs, in order to remain competitive with such newer or expanded facilities for its principal market of slot machine players and Las Vegas-area residents. However, there can be no assurance that implementation of the various alternatives currently being 7 considered by the Company will successfully result in the maintenance or expansion of the Las Vegas Showboat's customer base. The Company believes the legalization of casino gaming, in Colorado, Connecticut, Illinois, Iowa, Indiana, Louisiana, Mississippi, Missouri, New Jersey, and South Dakota, and on various Native American reservations, has not had a material adverse impact on its business in Las Vegas because of the Company's customer base of local area residents. The legalization and commencement of casino gaming in states close to Nevada, particularly California, could have a material adverse effect on the Company's Las Vegas operations. Las Vegas Employees and Labor Relations As of March 1, 1994, the Company's Las Vegas operations employed approximately 1,550 persons, of which approximately 934 or 60% of the employees were represented by collective bargaining agreements. One of the collective bargaining agreements, which covers approximately 698 or 45% of the employees of the Las Vegas Showboat, expires on May 31, 1994. The Company considers its current labor relations to be satisfactory. Atlantic City Operations Since March 30, 1987, the Company, through its New Jersey subsidiaries, has operated the Atlantic City Showboat fronting the Boardwalk in Atlantic City, New Jersey. The Atlantic City Showboat is located at the eastern end of the Atlantic City Boardwalk on an approximately 10 1/2-acre rectangular site. Access to the Atlantic City Showboat's four story podium, which houses the casino and the 20 story hotel tower, 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 has been designed to promote ease of customer access to the casino and all other public areas of the casino hotel. The Atlantic City Showboat contains two public levels. Two pairs of large escalators directly accessible from the two ground level entrances and six elevators provide easy access to the second level. Public areas located on the ground level, in addition to the approximately 80,000 square foot casino, include a 346-seat show lounge, six restaurants, two cocktail lounges, a pizza snack bar, an ice cream parlor, and three shops. Public areas located on the second level include a 573-seat buffet, a 383-seat coffee shop, a snack bar, one cocktail lounge, a private Players Club, a beauty salon, a health spa, approximately 2,000 square feet of space for video games, approximately 27,000 square feet of meeting rooms, convention, board room and exhibition space and the 60-lane bowling center. The Atlantic City Showboat leases the three shops located on the ground level and the beauty salon on the second level. 8 At December 31, 1993, the casino featured 2,411 slot machines, 98 table games and a horse race simulcast facility. The 20-story hotel tower features 516 guest rooms, many of which have a view of the ocean. Included in the number of guest rooms are 59 suites, 40 of which have ocean-front decks. The nine- story parking garage is located on the 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. Two stories of the four story podium are occupied by kitchens, storage for food and other perishables, surveillance and security equipment and personnel, an employee cafeteria, computer equipment and executive and administrative offices. Adjacent to the Atlantic Showboat is the Taj Mahal Casino Hotel ("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. 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 Competition The Atlantic City Showboat competes with eleven other casino hotels in Atlantic City containing, in the aggregate, approximately 718,000 square feet of casino space and 8,900 rooms and with Foxwood's High Stakes Bingo and Casino on the Mashantucket Pequot Indian Reservation in Connecticut. There are several sites on the Boardwalk and in the Marina Area of Atlantic City on which casino hotel facilities could be built in the future. However, no new casino hotel facilities are currently being constructed. The Atlantic City Showboat targets drive-in slot customers by emphasizing its frequent player's slot club. Competition among the casinos in Atlantic City is intense and the Company expects that it will remain so in the future. Casino hotels in Atlantic City generally compete on the basis of promotional allowances, entertainment, advertising, service provided to patrons, caliber of personnel, attractiveness of the hotel and casino areas and related amenities. Casino hotels in Atlantic City also face competition, to some extent, from casinos located in Nevada and in other states inside the United States, Puerto Rico, the Bahamas and other locations outside the United States, and from other forms of wagering such as pari-mutuel racing, jai alai, card parlors, riverboat gaming, lottery games and other legalized gaming activities. Legislation 9 permitting casino gaming has been approved in Colorado, Illinois, Indiana, Iowa, Louisiana, Mississippi, Missouri and South Dakota, and on various Native American reservations. With the exception of Indiana, casinos are in operation in each of those states. In addition, Class III gaming is permitted on Native American reservations in the following states: Arizona, Colorado, Connecticut, Iowa, Louisiana, Michigan, Minnesota, Mississippi, Montana, Nevada, New York, North Dakota, Oregon, South Dakota, Washington and Wisconsin. The legalization and commencement 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. Atlantic City Employees and Labor Relations At March 1, 1994, the Atlantic City Showboat employed approximately 3,160 persons on a full-time basis and approximately 355 persons on a part-time basis. Approximately 1,001 or 32% of the Atlantic City Showboat's full-time employees are covered by collective bargaining agreements. The Atlantic City Showboat considers its employee relations to be satisfactory. The collective bargaining agreement covering the majority of these union employees expires September 14, 1994. 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 casino hotel staff must be licensed by or registered with the applicable New Jersey regulatory authority before commencing work at the Atlantic City Showboat. Louisiana Operations In July 1993, a subsidiary of the Company, Showboat Louisiana, Inc., and Star Casino, Inc., a Louisiana corporation, formed Showboat Star Partnership, a Louisiana general partnership, to own and operate a riverboat casino, the "Star Casino." As of December 31, 1993, Showboat Louisiana, Inc., owned a 30% equity interest in Showboat Star Partnership. Effective March 1, 1994, Showboat Louisiana, Inc. purchased an additional 20% equity interest in the Showboat Star Partnership from another partner. Showboat Star Partnership entered into a management agreement with LPSI to manage and operate the gaming areas at the Star Casino on behalf of the Showboat Star Partnership. LPSI receives, as a management fee, 5% of Star Casino's gaming revenue, net of gaming taxes of 18.5% and boarding fees totalling up to $5.00 per passenger boarding the vessel. Showboat Star Partnership also entered into a marine management agreement with Louisiana Riverboat Services, Inc. to perform non-gaming related services for the Star Casino, including those services related to the crew, operations and maintenance of 10 the riverboat. Louisiana Riverboat Services, Inc. receives a monthly management fee equal to its costs plus a surcharge of 15% of such costs. The Star Casino commenced gaming operations on November 8, 1993. The Star Casino is located on the south shore of Lake Pontchartrain in New Orleans, Louisiana, approximately seven miles from New Orleans' "French Quarter." The vessel, which measures 265 feet long and 78 feet wide, was built to resemble a traditional paddle-wheel riverboat. As of December 31, 1993, the riverboat contained an aggregate of 21,900 square feet of gaming space on three levels, with 762 slot machines and 41 table games. A cocktail lounge is located on each of the three public levels of the riverboat casino. On-shore facilities include a 34,000 square foot terminal building, which contains a restaurant, a cocktail lounge and administrative offices. The on- shore facility provides parking for 1,150 cars. The terminal facilities are designed so that Star Casino passengers must pass through the terminal area in order to board the riverboat and embark on an approximately three-hour excursion cruise on Lake Pontchartrain six times per day. During inclement weather conditions, the riverboat casino operates mock cruises while docked at the terminal facility. Patrons may not enter the riverboat casino during a mock cruise, but may depart from the riverboat at any time. The Star Casino currently operates between the hours of 10:00 a.m. and 4:00 a.m. every day of the week. Louisiana Competition The Star Casino currently experiences direct competition in its primary market area. As of December 31, 1993, the closest legalized gaming casinos were located approximately 50 miles away to the east on the Mississippi "Gold Coast" where eight casinos currently operate. Mississippi permits dockside gaming and most casinos in Mississippi, unlike the Star Casino, do not charge an admissions tax. To compete with the Mississippi casinos, the Star Casino pays for the admissions tax as a complimentary item to its patrons. The Company expects that it will experience additional competition as the emerging casino industry matures. As of December 31, 1993, the state of Louisiana had authorized the licensing of 15 riverboat casinos, 6 of which will operate in or near New Orleans. The Star Casino and one other riverboat located on Lake Charles in southwestern Louisiana were the only riverboat casinos operating in Louisiana as of December 31, 1993. A third riverboat opened in New Orleans on February 10, 1994. Additionally, a single land-based casino operation has been awarded to a joint venture consisting of a group of local New Orleans businessmen and the Promus Company to operate, initially at a 11 temporary location and then at a permanent location, the largest land-based casino in the United States. The temporary land-based casino is anticipated to commence operations in late 1994. The Company expects that many riverboat casinos will be licensed eventually throughout the South and Midwest on the Mississippi River and its tributaries and on other bodies of water in this region and elsewhere throughout the United States. Some of them will be owned by companies that have more gaming industry experience, that are larger and that will have significantly greater financial and other resources than the Company. Proposals have been made in Illinois and Louisiana to increase the numbers of licenses previously authorized for issuance, which could further intensify the competition facing the Company. Given these factors, it is possible that substantial competition will arise which could adversely affect the Company's existing and proposed operations. In any jurisdiction where the Company may commence operations, it will face competition for desirable sites and qualified personnel. The Company also competes with other forms of gaming, including land-based casinos, bingo and pulltab games, card clubs, parimutuel betting on horse racing and dog racing, state-sponsored lotteries, video lottery, video bingo and video poker terminals, as well as other forms of entertainment. Louisiana has authorized video lottery terminals at various types of facilities in the state, including bars, truckstops and racetracks. Louisiana Employees and Labor Relations As of March 1, 1994, the Showboat Star Partnership employed approximately 978 persons on a full-time basis and approximately 5 on a part-time basis. LPSI, which manages and operates the gaming areas at the Star Casino, employed 6 persons on a full-time basis as of March 1, 1994. In addition, Louisiana Riverboat Services, Inc., which operates the riverboat, employed approximately 61 persons on a full-time basis and 3 persons on a part-time basis. All Showboat Star Partnership and LPSI employees associated with gaming must be approved by the Riverboat Gaming Enforcement Division of the Louisiana State Police prior to commencing work in gaming-related areas. 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, 1993, the Company's casinos featured the following slot machines and table games: 12
Las Atlantic Vegas City Star Showboat Showboat Casino ---------- ---------- -------- Slot Machines......... 1,900 2,411 762 "21" Tables........... 20 56 32 Poker Tables.......... 6 6 -- "Craps" Tables........ 2 14 6 Roulette Tables....... 2 11 3 Caribbean Stud Poker.. 2 -- -- Pai Gow Poker Tables.. 1 2 -- Baccarat Tables....... -- 2 -- Mini-Baccarat Tables.. -- 2 -- Red Dog Table......... -- 2 -- Big Six Wheel......... -- 2 -- Sic Bo................ -- 1 --
Additionally, the Las Vegas Showboat contains a race and sports book, a 1,300-seat bingo parlor and a keno area. The Atlantic City Showboat also contains a horse racing simulcast room. At the Las Vegas Showboat, slot machines accounted for 84.2% of casino revenues for the year ended December 31, 1993, 84.5% of casino revenues for the year ended December 31, 1992, and 85.3% of casino revenues for the year ended December 31, 1991. At the Atlantic City Showboat, slot machines accounted for 73.2% of casino revenues for the year ended December 31, 1993, 71.5% of casino revenues for the year ended December 31, 1992, and 68.2% of casino revenues for the year ended December 31, 1991. At the Star Casino, slot machines accounted for 68.6% of casino revenues for the period from the commencement of operations to December 31, 1993. The Las Vegas Showboat operations and the Atlantic City Showboat operations are conducted 24 hours a day, every day of the year. Star Casino conducts activities the maximum number of hours allowable, currently 18 hours a day. 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 Las Vegas Showboat and the Atlantic City Showboat for the years ended December 31, 1993, 1992 and 1991. For other financial information, see the Company's financial statements contained in Item 8. Financial Statements and Supplementary Data. 13
Year Ended Year Ended Year Ended December 31, December 31, December 31, 1993 1992 1991 ----------------- ----------------- ----------------- (dollar amounts in thousands) Amount Percent Amount Percent Amount Percent -------- ------- -------- ------- -------- ------- Revenues: Casino (1) $329,522 87.7 $313,247 88.2 $288,442 87.0 Food and beverage 48,669 12.9 44,511 12.5 46,802 14.1 Rooms 19,355 5.2 17,280 4.9 15,612 4.7 Sports and special events 4,251 1.1 4,443 1.2 4,506 1.4 Other(2) 5,982 1.6 4,932 1.4 4,791 1.4 -------- ----- -------- ----- -------- ----- Total gross revenues (3) 407,779 108.5 384,413 108.2 360,153 108.6 Less compli- mentaries (1) 32,052 8.5 29,177 8.2 28,593 8.6 -------- ----- -------- ----- -------- ----- Total net revenues (3) $375,727 100.0 $355,236 100.0 $331,560 100.0 -------- ----- -------- ----- ======== =====
- --------------- (1) Casino revenues are the net difference between the sums received as winnings and the sums paid 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. (2) Includes management fee revenues in the amount of $.4 million paid to LPSI from Showboat Star Partnership. (3) Does not include interest income. The Atlantic City Showboat offers complimentary meals, drinks and room accommodations to a larger number of customers on an individual basis than does the Las Vegas Showboat. Such promotional allowances (complimentary services) at the Atlantic City Showboat were 9.3% of total net revenues for the year ended December 31, 1993, 8.8% of total net revenues for the year ended December 31, 1992, and 9.4% of total net revenues for the year ended December 31, 1991. In contrast, such promotional allowances (complimentary services) at the Las Vegas Showboat were 5.9% of total net revenues for the year ended December 31, 1993, 6.0% of total net revenues for the year ended December 31, 1992, and 5.8% of total net revenues for the year ended December 31, 1991. 14 Gaming Credit Policy A minimal dollar amount of credit is extended to a limited number of gaming customers at the Las Vegas Showboat and the Star Casino. The Atlantic City Showboat, however, offers substantially more credit to a greater number of customers. 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 casino hotels in Atlantic City. Overall, the Company's gaming receivables were approximately $6.8 million at December 31, 1993, before deducting allowance for doubtful accounts of approximately $2.8 million. In comparison, the Company's gaming receivables were approximately $7.0 million at December 31, 1992, before deducting allowance for doubtful accounts of approximately $3.0 million. At the Atlantic City Showboat, gaming receivables were approximately $6.7 million at December 31, 1993, before deducting allowance for doubtful accounts of approximately $2.8 million. In comparison, gaming receivables at the Atlantic City Showboat were approximately $6.8 million at December 31, 1992, before deducting allowance for doubtful accounts of approximately $2.9 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. Nevada, Louisiana and New Jersey casino gaming debts are required to be evidenced by properly accomplished credit instruments to be legally enforceable in Nevada, Louisiana and New Jersey, respectively. Nevada, Louisiana and New Jersey judgments enforcing such instruments are enforceable in most other states of the United States and certain foreign countries. Annual gaming bad debt expense at the Las Vegas Showboat has been less than .2% of casino revenues for the years ended December 31, 1992 and 1993. Annual gaming bad debt expense at the Atlantic City Showboat was approximately .4% of casino revenues for the year ended December 31, 1993, as compared to approximately .5% for the year ended December 31, 1992. 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 15 personnel are internally trained by the Company. The Company presently intends to promote qualified employees to supervisory and management levels. However, staffing requirements for the Company's casino hotels and for the Company's Gaming Development Division have required that certain supervisory and management personnel be hired from other casino hotels. 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 or New Orleans, Louisiana. In contrast, the Company believes that gaming and hotel revenues are seasonal in Atlantic City due to the harsher weather in Atlantic City during winter months. Regulation and Licensing Nevada Gaming The ownership and operation of casino gaming facilities in Nevada are subject to extensive state and local regulation. The Company's gaming operations are subject to the licensing and regulatory control of the Nevada Gaming Commission ("Nevada Commission"), the Nevada State Gaming Control Board ("Nevada Board"), and the City Council of the City of Las Vegas ("City Board"). The Nevada Commission, the Nevada Board, and the City Board are collectively referred to as the "Nevada Gaming Authorities." The laws, regulations and supervisory procedures of the Nevada Gaming Authorities seek to (i) prevent unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity, (ii) establish and maintain responsible accounting practices and procedures, (iii) maintain effective control over the financial practices of licensees, including establishing 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) prevent cheating and fraudulent practices, and (v) 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. Showboat Operating Company, which operates the Las Vegas Showboat, is required to be licensed by the Nevada Gaming Authorities. The gaming license requires the periodic payment of 16 fees and taxes and is not transferrable. The Company is registered as a publicly traded company by the Nevada Commission 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, Showboat Operating Company without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Company and Showboat Operating Company 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 Showboat Operating Company 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 Showboat Operating Company 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 Showboat Operating Company 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 Showboat Operating Company, the companies involved would have to sever all relationships with such person. In addition, the Nevada Commission may require the Company or Showboat Operating Company to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada. The Company and Showboat Operating Company are required to submit detailed financial and operating reports to the Nevada Commission. Substantially all material loans, leases, sales of 17 securities and similar financing transactions by Showboat Operating Company must be reported to or approved by the Nevada Commission. If it were determined that gaming laws were violated by Showboat Operating Company the gaming licenses it holds could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, Showboat Operating Company, the Company, and the persons involved could be subject to substantial fines for each separate violation of the gaming laws at the discretion of the Nevada Commission. In addition, 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. Nevada law requires any person who acquires more than 5% of the Company's voting securities to report the acquisition to the Nevada Commission. Nevada law 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 18 the Company's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with such investment intent. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation. Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Commission, or the Chairman of the Nevada Board, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any shareholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the Common Stock 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 Showboat Operating Company, 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) gives remuneration in any form to that person, 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 also require the holder of any debt security of a corporation registered under the Nevada Gaming Control Act 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 regulations of the Nevada Commission, 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. 19 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 Gaming Control Act and the regulation of the Nevada Commission. However, to date, the Nevada Commission has not imposed such a requirement. The Company may not make a public offering of its securities without the prior approval of the Nevada Commission if the securities or 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. Such approval, if given, will 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. On November 18, 1993, the Nevada Commission granted the Company approval to make public offerings for a period of one year, subject to certain conditions ("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. 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 other corporate defense tactics that affect corporate gaming licensees in Nevada, and corporations whose stock is publicly traded 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 20 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 (commonly referred to as "greenmail") and before a corporate acquisition opposed by management can be consummated. Nevada's gaming regulations also require prior approval by the Nevada Commission if the Company were to adopt a plan of recapitalization proposed by the Company's Board of Directors in opposition 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 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 21 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 or suitability in Nevada on the ground of personal unsuitability. 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 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 ("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 two 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 22 integrity; and (iv) the qualification of all its financial sources, security holders and holding and intermediate companies. Moreover, each officer, director, principal employee, lender or person directly or indirectly holding any beneficial interest or ownership of the securities of the corporate licensee, and any person deemed by the New Jersey Commission as having the ability to control the corporate licensee or elect a majority of the board of directors of the corporate licensee or other person deemed appropriate by the New Jersey Commission must be found qualified. ACSI's casino license was granted on March 27, 1987, effective April 2, 1987. ACSI's casino license was renewed on March 3, 1993 for the period commencing April 2, 1993 and ending January 31, 1995 (this modified license term was imposed for the administrative convenience of the New Jersey Commission in order to distribute more evenly the casino license renewals throughout the year). In connection therewith, SBO 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. SBO and OSI are holding companies of a New Jersey casino licensee. SBO, OSI and ACSI have charters or articles of incorporation that comply with these regulatory requirements. 23 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 casino hotels. All contracts and leases entered into by a casino licensee are subject to the review of the New Jersey Commission and, if reviewed and found unacceptable, may be voided. All enterprises providing gaming-related equipment or services to a casino licensee must be licensed or good cause must be shown for a waiver of such licensing requirements. All other enterprises dealing with a casino licensee must register with the New Jersey Commission, which may require that they be licensed if they regularly engage in business with casino licensees. The New Jersey Commission could appoint a conservator upon the revocation of or failure to renew a casino license. A conservator would be vested with title to the casino hotel 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 casino hotel. 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 casino hotel 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 twenty-five 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 24 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/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 all other Atlantic City casinos. Through December 31, 1993, the total parking fees paid by ACSI were approximately $.8 million. From time to time new laws and regulations, as well as amendments to existing laws and regulations, relating to gaming activities in New Jersey are proposed or adopted. In addition, the New Jersey casino regulatory authorities from time to time may change their laws, regulations or procedures, including their procedures for renewing licenses. The Company cannot predict what effect, if any, new or amended laws, regulations or procedures would have on the Company. 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 1993) per gaming day. Such reports are required to be made on forms prescribed by the Secre-tary of the Treasury and must be filed with the Commissioner of the 25 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 parent company of OSI is SBO and through a wholly-owned Nevada subsidiary, SBO conducts casino gaming operations in Las Vegas, Nevada. SBO is not required to obtain the prior approval of the Nevada Gaming Authorities to conduct casino gaming operations outside Nevada. However, SBO 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 ASCI 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 ASCI or OSI; (iv) any arrest of an employee of ASCI 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 ASCI or OSI for certain offenses. SBO, 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. SBO 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. Louisiana Gaming The operation and management of riverboat casino facilities in Louisiana are subject to extensive state regulation. The Louisiana Riverboat Economic Development and Gaming Control Act (the "Louisiana Act") became effective on July 18, 1991 and authorized the formation of the Louisiana Riverboat Gaming Commission (the "Louisiana Gaming Commission") and the Riverboat Gaming Enforcement Division of the Louisiana State Police (the "Louisiana Enforcement Division"). Both the Louisiana Gaming Commission and the Louisiana Enforcement Division have promulgated extensive regulations which control riverboat gaming in Louisiana. The Louisiana Act states, among other things, that certain of the policies of the state of Louisiana are to develop a historic riverboat industry that will assist in the growth of the tourism market, to license and supervise the riverboat industry from the period of construction 26 through actual operations, to regulate the operators, manufacturers, suppliers, and distributors of gaming devices and to license all entities involved in the riverboat gaming industry. The Louisiana Act makes it clear, however, that no holder of a license or permit possesses any vested interest in such license or permit and that the license or permit may be revoked at any time. Changes in the Louisiana laws or regulations or in the interpretation of the laws or regulations could materially affect the types of riverboat gaming activities in Louisiana and could have an adverse effect on the Showboat Star Partnership. The Louisiana Act approved the conduct of riverboat gaming activities, in accordance with the Louisiana Act, on twelve separate waterways in Louisiana. The Louisiana Act allows the Louisiana Enforcement Division to issue up to 15 licenses to operate riverboat gaming projects within the state with no more than six in any one parish (county). The Louisiana Act requires that the riverboats be of new construction. No gaming is allowed while a riverboat is docked unless the vessel is docked for less than 90 minutes between excursions, or unless the riverboat is docked for reason of adverse water or weather conditions. All cruises are required to be at least three hours in duration. Each applicant which desires to operate a riverboat casino in Louisiana is required to file an application for a Certificate of Preliminary Approval ("Preliminary Certificate") with the Louisiana Gaming Commission. The applicant is required to submit various information to the Louisiana Gaming Commission including ownership information, details concerning financing, proposed location, preliminary riverboat construction plans, statements of local support or opposition and proposed excursion routes. The issuance of the Preliminary Certificate is purely subjective and must be approved by a majority vote of the Louisiana Gaming Commission. After the Preliminary Certificate is issued, construction of the riverboat, as approved by the Louisiana Gaming Commission, may commence. In addition to the Preliminary Certificate, an applicant is required to apply with the Louisiana Enforcement Division for the necessary gaming licenses. Specifically, the operator, certain of its shareholders and directors and officers are required to submit to thorough background investigations by the Louisiana Enforcement Division. No person may own more than 5% of a gaming operator company or receive any of its profits without being licensed by the Louisiana Enforcement Division. Additionally, the Louisiana Enforcement Division may require any person or entity which it believes has control or influence over an applicant or license holder to submit to an investigation by the Louisiana Enforcement Division. The Louisiana Enforcement Division can deny any application for a gaming license on any findings of nonsuitability 27 and any applicant who is denied a gaming license is not allowed to own or operate any gaming equipment in the state of Louisiana. After an applicant and its operator (and all others required by the Louisiana Enforcement Division) have been approved for the issuance of their license by the Louisiana Enforcement Division, the project must receive a Certificate of Final Approval ("Final Certificate") from the Louisiana Gaming Commission. A Final Certificate will not be issued without all necessary and proper certificates from all regulatory agencies, including the U.S. Coast Guard, the Army Corps, local port authorities and local levee authorities. All certificates and licenses may be issued with certain conditions attached to them. The conditions become requirements of the certificates and licenses and failure to adhere to these conditions will result in revocation of the certificates or licenses. Licenses are issued for an initial period of five years and permits for an initial period of one year. Renewal terms are for one year for both licenses and certificates. Application fees for licenses are $50,000 and for certificates are $25,000. On October 24, 1993, a final certificate was issued to the Showboat Star Partnership. The Company and certain of its directors and officers and certain key personnel must be found suitable by the Louisiana Enforcement Division, and applications for these persons were submitted to the Louisiana Enforcement Division. Employees associated with gaming must also be approved by the Louisiana Enforcement Division prior to working in gaming related areas. These approvals may be immediately revoked for a number of causes as determined by the Louisiana Enforcement Division. The Louisiana Enforcement Division may deny any application for a certificate, permit or license for any cause found to be reasonable by the Louisiana Enforcement Division. The Louisiana Enforcement Division has the authority to require the Company to sever its relationships with any persons for any cause deemed reasonable by the Louisiana Enforcement Division or for failure of that person to file necessary applications with the Louisiana Enforcement Division. Both the Louisiana Enforcement Division and the Louisiana Gaming Commission regulatory schemes are intended to maintain regulatory supervision over control of licensees. Any changes in ownership or control of a licensee through merger, consolidation, acquisition, management or consulting agreements or any form of takeover are conditioned upon approval by the Louisiana Gaming Commission and the Louisiana Enforcement Division. Additionally, all securities issued by a licensed corporation are required to bear, on both sides, a statement of the restrictions imposed by the Louisiana Act. 28 At any time after the licenses have been issued, the Louisiana Enforcement Division may investigate and require the finding of suitability of any beneficial shareholder of the Company. The Louisiana Enforcement Division requires all holders of more than 5% of the license holder to submit to suitability requirements. Additionally, if a shareholder who must be found suitable is a corporate or partnership entity, then the shareholders or partners of that entity must also submit to investigation. The sale or transfer of more than a 5% interest in any riverboat project is subject to Louisiana Enforcement Division approval. Annual fees are charged to each riverboat project as follows: (1) $50,000 per year for the first year and $100,000 for each year thereafter; and (2) 18.5% of the net gaming proceeds. Additionally, the Star Casino must pay the City of New Orleans a boarding fee of $2.50 per patron and an additional fee of $2.50 per patron to the Orleans Levee District. Any violation of the Louisiana Act or the rules promulgated by the Louisiana Gaming Commission or the Louisiana Enforcement Division could result in substantial fines, penalties and criminal actions. Any material and knowing violation of the Louisiana Act (including the making of a material false statement in any application) may be a criminal offense. Violation of the regulations of either the Louisiana Enforcement Division or the Louisiana Gaming Commission may result in civil penalties and disciplinary action including suspension of a license or certificate. Additionally, certificates issued by the Louisiana Gaming Commission or licenses issued by the Louisiana Enforcement Division are revocable privileges and may be revoked at any time. Indiana Gaming In 1993, the state of Indiana passed a Riverboat Gambling Act which created the Indiana Gaming Commission. The Indiana Gaming 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). With the exception of Lake County, a county must pass a referendum approving (by a majority of those who voted) riverboat gaming before riverboat gaming can be legalized in that county. If a referendum fails to pass in any county, another referendum may not be held for another two years. Once a referendum has passed in a county, the statute requires any proposed riverboat to operate from the largest city in that county, unless such city passes a resolution authorizing a riverboat to operate elsewhere in the county. Of the counties on the Ohio River, Vanderburgh, Dearborn, 29 Ohio and Switzerland Counties have passed a gaming referendum, while Warrick, Floyd and Clark Counties have each rejected a referendum. Of the counties on Lake Michigan, LaPorte County approved a gaming referendum, while Porter County rejected a referendum. For Lake County, the statute provides that East Chicago and Hammond may authorize riverboat gaming within such cities, by passage of a municipal referendum. Voters in both cities have passed such referendums. Gary, Lake County's largest city, is exempted by the statute from the gaming referendum requirement altogether. Pursuant to Indiana Gaming Commission resolution, the cost of any referendum is to be borne by all license applicants for the voting county or municipality. The Indiana Gaming 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 Gaming Commission shall adopt rules pursuant to statute for administering the gaming statute and the conditions under which riverboat gaming in Indiana may be conducted. To date, the Indiana Gaming Commission has not promulgated any formal rules but has passed several resolutions which have set forth the application procedure. The Indiana Gaming Commission may suspend or revoke the license of a licensee or impose civil penalties, in some cases without notice or hearing. The Indiana Gaming 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 United States 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 Gaming 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. In determining whether to grant an owner's license to an applicant, the Indiana Gaming 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 30 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 Gaming Commission. The Indiana Gaming Commission may also give favorable consideration to applicants for economically depressed areas and applicants who provide for significant development of a large geographic area. The riverboat must replicate as nearly as possible a historic Indiana steamboat passenger vessel of the 19th Century. Each applicant must pay an application fee of $50,000. 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 Gaming 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. Unless the license has been terminated, expired or revoked, the gaming license may be renewed if the Indiana Gaming 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. Some municipalities have initiated their own review process. The Indiana Gaming Commission has passed a resolution stating that all evaluations by local governments will be important factors in the Indiana Gaming Commission's economic development evaluation process. 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 Gaming 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, or (3) by rule of the Indiana Gaming Commission. A gaming excursion is permitted on the Ohio River only when the river is navigable, as determined by the Indiana Gaming Commission in consultation with the U.S. Army Corps of Engineers. 31 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. The Indiana Gaming 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 Gaming Commission may suspend, limit or revoke the gaming owners license or impose a fine for failure to comply with statutory requirements. U.S. Coast Guard Each cruising riverboat also is regulated by the U.S. Coast Guard, whose regulations affect boat design and stipulate on-board facilities, equipment and personnel (including requirements that each vessel be operated by a minimum complement of licensed personnel) 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 32 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 believes that it has adequate 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 Shipping Act of 1916, as amended, and the Merchant Marine Act of 1936, as amended. A corporation operating any vessel in the coastwise trade, such as the Company, is not considered a United States citizen unless United States citizens own 75% of its outstanding capital stock. Native American Gaming Gaming on Native American lands is extensively regulated under federal law, tribal-state compacts and tribal law. The terms and conditions of management agreements for the operation of gaming facilities on Native American lands are governed by the Indian Gaming Regulatory Act of 1988 ("IGRA"), which is administered by the National Indian Gaming Commission ("NIGC"). Under IGRA, the NIGC must approve all management agreements between Native American tribes and managers of tribal gaming facilities. Any management agreement between the Company and the Tribe will be subject to review and approval by the NIGC and, under possible interpretations of governing law, by the Bureau of Indian Affairs of the U.S. Department of the Interior ("BIA"). The NIGC oversees Class II Native American gaming (essentially bingo and bingo-like games) and, to a lesser degree, Class III gaming (e.g., slots, casino games and banking card games). The actual regulation of Class III gaming is determined pursuant to the terms of tribal-state compacts, which regulate agreements between individual tribes and states that govern gaming on tribal lands. Historically, the U.S. Secretary of the Interior, acting through the BIA, was charged with the review of management agreements and collateral agreements, such as promissory notes and security agreements executed in connection with a management agreement. Although IGRA became law in 1988, the BIA retained approval authority of management agreements and collateral agreements until February 22, 1993, the effective date of the regulations regarding the approval of management agreements by the NIGC. The NIGC regulations provide detailed requirements as to certain provisions which must be included in management agreements, including a term not to exceed five years except that, upon request of a tribe, a term of seven years may be allowed by the NIGC 33 Chairman if the Chairman is satisfied that the capital investment and income projections for the gaming facility require the additional time. Further, the fee received by the manager of a gaming facility may not exceed 30% of net gaming revenues except that a fee of 40% of net gaming revenues may be approved if the NIGC Chairman is satisfied that the capital investment and income projections for the gaming facility require the additional fee. In addition, the Company, its directors, persons with management responsibilities and certain of the Company's owners, must provide background information and be investigated by the NIGC and be found suitable to be affiliated with a gaming operation in order for any management agreement to be approved by the NIGC. The NIGC regulations provide that each of the ten persons who have the greatest direct or indirect financial interest in a management agreement must be found suitable in order for the management agreement to be approved by the NIGC. The NIGC regulations provide that any entity with a financial interest in a management agreement must be found suitable, as must the directors and ten largest shareholders of such entities in the case of a corporate entity, or the ten largest holders of interest in the case of a trust or partnership. The Chairman of the NIGC may reduce the scope of information to be provided by institutional investors. At any time, the NIGC has the power to investigate and require the finding of suitability of any person with a direct or indirect interest in the management agreement, as determined by the NIGC. The Company must pay all fees associated with background investigations by the NIGC. The NIGC regulations require that background information as described above must be submitted for approval within ten days of any proposed change in financial interest in a management agreement. The NIGC regulations do not address any specialized procedures for investigations and suitability findings in the context of publicly held corporations. If, subsequent to the approval of a management agreement, the NIGC determines that any of its requirements pertaining to such management agreement have been violated, it may require the management agreement to be modified or voided, subject to rights of appeal. In addition, any amendments to the management agreement must be approved by the NIGC. The NIGC regulations provide that a management agreement must be disapproved if the NIGC determines that: 1. Any person with a direct or indirect financial interest in, or having management responsibility for, a management agreement (i) has been convicted of a felony or any misdemeanor gaming offense; (ii) if the person's prior activities make him unsuitable to be connected with gaming; (iii) is an elected member of a tribe that is a party to the management agreement; or (iv) has provided 34 false statements to the NIGC or a tribe or has refused to respond to questions from the NIGC. 2. The manager has attempted to influence tribal decisions relating to the gaming operation or has failed to follow the management agreement and applicable tribal ordinances. 3. A trustee would not approve the management agreement. Because the NIGC has only recently been provided the regulatory authority to approve management agreements, it is not yet clear how this authority affects the BIA's statutory rights of approval of agreements between Native American tribes and non-Native Americans which state that, if agreements between non- Native American and Native American tribes do not adhere to certain statutory requirements, such agreements will be void. At present, it is unclear as to whether the BIA intends to assert jurisdiction to approve collateral agreements related to management agreements (such as promissory notes) or whether the NIGC will have approval authority over such collateral agreements. The management agreement and all collateral agreements of the Company will provide for approval both by the BIA and the NIGC. On October 15, 1993, the Tribe and the state of New York entered into a tribal-state compact (the "Tribal-State Compact") regarding the regulation of gaming on tribal lands in New York. The Tribal-State Compact has been approved by the Secretary of the Interior. The Tribal-State Compact as well as tribal regulations provide for the creation of the St. Regis Mohawk Gaming Commission which has regulatory jurisdiction over gaming on tribal lands, rather than the New York Gaming Commission. Prior to the issuance of a management license to the Company, the St. Regis Mohawk Gaming Commission must perform background checks and suitability findings on "parties in interest" to a management agreement, which includes the same persons as required by the NIGC regulations discussed above, but also specifically includes direct lenders and persons who hold at least ten percent of the stock of any corporation which is a party to the management agreement. All investigatory fees of the St. Regis Mohawk Gaming Commission are to be paid by the Company. The directors and officers of the Company will be required to submit background information for St. Regis Mohawk Gaming Commission investigatory purposes. Management officials and key employees of the Company affiliated with the Tribe, as well as distributors and manufacturers of gaming devices whose products are used on the reservation, must be licensed by the St. Regis Mohawk Gaming Commission. In addition, all employees associated with casino 35 gaming must obtain work permits issued by the St. Regis Mohawk Gaming Commission. All holders of casino gaming licenses and work permits (including the Company's license) are subject to immediate revocation of such licenses and work permits under certain circumstances, including (i) the conviction of a felony or any crime of moral turpitude; (ii) unsuitability to be associated with casino gaming; (iii) the violations of or conspiracy to violate the IGRA, the Tribal-State Compact, or other tribal or federal laws applicable to casino gaming; or (iv) the violation of certain tribal conflict of interest laws. IGRA encourages the negotiation of tribal-state compacts covering gaming. The portions of IGRA which deal with the negotiation of such tribal-state compacts have been the subject of controversy between Indian tribes and governors in a number of states. Senator Daniel Inouye, Chairman of the Senate Committee of Indian Affairs, has initiated a series of meetings between tribal and state governments to address issues arising out of the tribal-state compact controversy and other special matters. In addition, there is ongoing litigation regarding the constitutionality of IGRA as a result of its provisions regarding the negotiation of tribal-state compacts. As a result of these meetings and the compact controversy, it is possible that IGRA may be amended by Congress. Though the Tribe and the State of New York have negotiated a compact which has been approved by the NIGC, any changes in IGRA may have an effect on how gaming on tribal lands will be conducted. Sydney, Australia Gaming The New South Wales Casino Control Authority ("Casino Authority") 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. Only one casino license may be in force under the Casino Act at any particular time and that license is to apply to one casino only. In considering an application for a casino license, Section 11 of the Casino Act requires the Casino Authority 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 Casino Authority considers relevant. The term "close associate" is broadly defined in the Casino Act. It includes a director, manager, secretary or other executive 36 of the applicant and any person who holds any share in the capital of the casino business or is entitled to exercise any power to appoint any of the above persons to participate in managerial decisions. The Casino Authority 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 Casino Authority 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 Casino Authority subject to the right of the licensee to make submissions to the Casino Authority in regard to any such proposal. The Casino Authority may also cancel or suspend, or amend the terms or conditions, of a casino license where there are grounds for disciplinary action, including: (i) the casino license being improperly obtained; (ii) the casino operator, a person in charge of the casino, an agent of the casino operator or a casino employee contravening a provision of the Casino Act or a condition of the license; (iii) the casino premises no longer being suitable for the conduct of the casino operations; (iv) the licensee being considered to be no longer a suitable person to give effect to the casino license and the Casino Act; and (v) the public interest that the casino license should no longer remain in force. No right of compensation against the government arises for the cancellation, suspension or variation of the terms and conditions of the casino license. The Casino Authority must not grant an application for a casino license unless it is satisfied that the applicant and each close associate is suitable. In making the determination as to the suitability of the applicant, the Casino Authority 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 37 association who, in the opinion of the Casino Authority, 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 Casino Authority 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 Casino Authority may carry out all such investigations and inquiries as it deems necessary. The costs of the investigation by the Casino Authority are payable to the Casino Authority by the applicant unless the Casino Authority determines otherwise. The Casino Authority may give written direction to a casino operator as to the conduct, supervision or control of operations of the casino. The Casino Authority may investigate a casino from time to time at the discretion of the Casino Authority. Not later than three years after the grant of the casino license, and thereafter in intervals not exceeding three years, the Authority 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 Casino Authority. 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 Casino Authority. 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 Casino Authority. The Casino Authority 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 Casino Authority in writing. The casino must be closed on days and at times that are not days or times specified by the Casino Authority. 38 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. ITEM 2. PROPERTIES. ---------- Las Vegas The 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 408-seat 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 482 guest rooms. The entire facility covers approximately 26 acres, which includes approximately 19.25 acres of improved parking area. The Company also owns and operates the 33-room Showboat Motel located immediately across the street from the Showboat on approximately one acre of land. The facilities are constantly monitored to make sure that the needs of the Company's business and customers are met. The Company holds fee title to all of the above-described properties. The real property, buildings and improvements comprising the Las Vegas Showboat secure the Company's First Mortgage Bonds. All of the above-mentioned land and buildings are leased to Showboat Operating Company, a wholly-owned subsidiary. Atlantic City The Atlantic City Showboat is located on an approximately ten and one-half acre rectangular site which ACSI leases from Resorts International, Inc. ("Resorts") pursuant to a 99-year lease dated October 26, 1983 (as amended, "Lease"). 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 39 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 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 40 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 First Mortgage Bonds are also secured by a first leasehold mortgage on ACSI's interest in the Lease, the Atlantic City Showboat building and future improvements on the leased land as well as certain personal property therein. Such mortgage is subject and subordinate to Resorts' rights under the Lease and its fee interest in the Premises. Subject to certain limited excep-tions, 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 mortgage and the 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. 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 Atlantic City 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 41 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. In addition, the CRDA approved a plan effective November 1992 to widen Delaware Avenue to four traffic lanes and two parking lanes. Delaware Avenue leads directly from White Horse Pike (U.S. Route 30) to the Atlantic City Showboat. ACSI proposed and the CRDA approved that $8.0 million of ACSI's deposits with the CRDA will be used for the widening of Delaware Avenue. In connection with its approval, the CRDA required ACSI to donate $2.0 million of its deposits with the CRDA to certain CRDA programs. The Company anticipates that the widening of Delaware Avenue will be completed by the Spring of 1994. ACSI's Board of Directors routinely authorizes capital expenditures at the Atlantic City Showboat. In addition to the three-part expansion of the Atlantic City Showboat which began in 1993, the Board has authorized expending $17.6 million for recurring annual capital improvements in 1994. None of these recurring annual capital expenditures in 1994 commit the Company to additional capital expenditures in subsequent years. During 1993, the Company continued the construction of a three-part $76.2 million expansion project, after credits of $8.8 million from CRDA, at the Atlantic City Showboat. For a discussion of CRDA credits see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The first stage of the expansion was completed in May 1993 and added Atlantic City's first horse race simulcasting facility. Approximately 4,500 square feet of casino space was added in June 1993. With the additional casino space, the Company added approximately 340 slot machines and 28 table games to its Atlantic City Casino in 1993. In the second stage of the expansion, the Company anticipates adding an additional 15,000 square feet of casino space by the Summer of 1994. With the additional casino space, the Company anticipates the addition of approximately 550 slot machines and 10 table games, bringing the then total number of slot machines and table games at the Atlantic City Showboat to approximately 3,000 and 108, respectively. The final stage of the expansion is the addition of a new 284-room hotel tower, now under construction, which is scheduled to open in the Spring of 1995. On July 9, 1993, ACSI purchased approximately four acres of real property (the "Land") abutting the Atlantic City Showboat from the Atlantic City Housing Authority and Urban Redevelopment Agency ("ACHA"). ACSI is constructing the new 42 hotel tower on this site. ACSI purchased the Land subject to certain conditions which, in most instances, expire upon ACSI completing the construction of the planned improvements. In the event that ACSI fails to comply with the following conditions prior to completion of the improvements, the Land shall revert and become revested in ACHA free and clear of all liens after the expiration of all cure periods including the liens created pursuant to the Indenture for the First Mortgage Bonds: (a) ACSI paying all real estate taxes or ACSI failing to keep the Land free of all liens except for permitted liens; (b) ACSI failing to commence construction of the improvements prior to October 1, 1993 (construction did commence before the required date) and to complete construction of the improvements by July 1, 1995; (c) without first obtaining the written consent of ACHA no stockholder holding 10% or more of the stock of ACSI may transfer its stock and ACSI may not (i) increase its capitalization, (ii) merge with another entity, (iii) amend its corporate documents, or (iv) issue additional stock; and (d) fail to comply with all terms and provisions of the Contract of Sale for Sale of Land for Private Redevelopment between ACHA and ACSI ("Contract of Sale"). On January 4, 1994, ACHA declared ACSI to be in default for noncompliance with certain provisions contained in the Contract of Sale pertaining to affirmative action of ACSI's general contractor's and subcontractors' workforce. Since the declaration of default, ACSI has been diligently working to cure the defaults. Although no assurance can be given in this regard, ACSI management believes that as a result of its efforts ACHA will ultimately rescind its notice of default. The Company believes that it presently is utilizing the Atlantic City facilities at an acceptable level. See Item 1. "BUSINESS" p. 3. The Atlantic City facilities are constantly monitored to make sure that the needs of the Company's business and customers are met. Other Facilities 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 Trump Taj Mahal Associates for 400 parking spaces. This lease expires, unless earlier terminated, on December 31, 1997. ACSI provides, through an independent contractor, a shuttle service for its employees between the two parking areas and the Atlantic City Showboat. Continued availability of such employee parking and 43 shuttle service facility is required as a condition to the renewal of ASCI's casino license. During 1993, ACSI purchased an additional parcel of land nearby for approximately $1.0 million to serve as an overflow for parking. The Company leases office space for the Development Division in Ventnor, New Jersey pursuant to a lease agreement executed on December 20, 1993 between Showboat Operating Company and Ventroy Associates. The term of the lease is five years commencing on January 1, 1994, with monthly rental payments of $11,386. Lake Pontchartrain, Louisiana The Star Casino is located on the south side of Lake Pontchartrain in New Orleans, Louisiana, approximately seven miles from New Orleans' "French Quarter." The terminal building and parking area are located on approximately 19.6 acres. The terminal building is a two-story structure containing approximately 34,000 square feet. The terminal building houses a restaurant and cocktail lounge on the first floor and administrative offices on the second floor. On-site parking for 1,150 cars is located immediately adjacent to the terminal building. Showboat Star Partnership leases land, wharf and water bottom from the Orleans Levee District for use in its riverboat gaming operations. The term of the land lease agreement is for ten years, with four options to renew for a period of ten years each. Additionally, Showboat Star Partnership leases a building from the Orleans Levee District, which is adjacent to its terminal building, pursuant to a lease agreement dated February 1, 1994. The Showboat Star Partnership is currently determining the best use for the additional building. The term of the lease agreement for the additional building is one year, with nine options to renew for a period of one year each. ITEM 3. LEGAL PROCEEDINGS. ----------------- The Company is from time to time involved in legal proceedings arising in the ordinary course of business. The Company is not a party to any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. --------------------------------------------------- Not applicable. 44 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. 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 ------ ------ ----------- Year Ended December 31, 1993 Quarter ended March 31, 1993...... 24 5/8 15 3/8 .025 Quarter ended June 30, 1993....... 24 3/8 17 5/8 .025 Quarter ended September 30, 1993.. 21 1/2 15 3/8 .025 Quarter ended December 31, 1993... 23 3/8 15 5/8 .025 Year Ended December 31, 1992 Quarter ended March 31, 1992...... 14 7/8 8 7/8 .025 Quarter ended June 30, 1992....... 14 5/8 11 3/4 .025 Quarter ended September 30, 1992.. 13 1/2 9 3/4 .025 Quarter ended December 31, 1992... 18 1/4 11 1/4 .025
On March 15, 1994, the closing price of the Company's common stock on the New York Stock Exchange was $19 5/8. 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 dividends. The Company is restricted in the payment of cash, dividends, loans or other similar transactions by the terms of an Indenture executed by it in connection with the issuance of First Mortgage Bonds. See Note 4 to the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. 45 ITEM 6. SELECTED FINANCIAL DATA. -----------------------
Year Ended December 31, ------------------------------------------------ 1993 1992 1991 1990 1989 -------- -------- -------- -------- -------- INCOME STATEMENT (In thousands, except per share data) DATA: Net revenues.......... $375,727 $355,236 $331,560 $334,247 $342,354 Income from operations.......... 45,419 46,508 35,501 27,765 31,107 Income before extra- ordinary items and cumulative effect of change in method of account- ing for income taxes (a)(b)(c)(d) (e)(f).............. 13,464 15,857 6,014 1,081 7,066 Net income............ 7,341 12,449 6,194 5,051 7,066 Income before extra- ordinary items and cumulative effect of change in method of account- ing for income taxes per share (a)(b)(c)(d)(e)(f).. .89 1.37 .53 .10 .62 Net income............ .49 1.08 .55 .45 .62 Cash dividends declared per common share........ .10 .10 .10 .10 .235 December 31, ------------------------------------------------ 1993 1992 1991 1990 1989 -------- -------- -------- -------- -------- BALANCE SHEET DATA: (In thousands) Total assets (a)(f) $470,700 $384,900 $320,032 $331,950 $322,808 (g)................. Long-term debt (including current maturities) (b)(c) (e)(g).............. 280,617 209,116 213,004 231,591 225,812 Shareholders' equity (g)................. 135,158 126,018 64,133 58,848 55,663 Shares outstanding at year-end (g)..... 14,980 14,804 11,350 11,354 11,386
46 ____________________ (a) In 1989, the Company sold the common stock and substantially all of the assets of Showboat Sports, Inc., a wholly-owned subsidiary, for $10.0 million. The Company recognized a gain on the sale of $4.9 million. (b) In the years ended December 31, 1991 and 1990, the Company recognized an extraordinary gain of $.2 million and $4.0 million, respectively, net of tax, as a result of the purchase of $12.1 million and $18.5 million, respectively, of its Mortgage-Backed Bonds. See Note 10 to the Consolidated Financial Statements. (c) 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 Debentures. See Note 10 to the Consolidated Financial Statements. (d) 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. (e) 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 10 to the Consolidated Financial Statements. (f) In 1993, the Company acquired a 30% equity interest in Showboat Star Partnership 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, including the write-off of preopening costs, of $1.3 million is included in income from operations for the quarter ended December 31, 1993. (g) 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. See Notes 4 and 7 to the Consolidated Financial Statements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND ------------------------------------------------- ------------- RESULTS OF OPERATIONS. --------------------- General The consolidated financial statements of the Company include the accounts of SBO and its wholly-owned subsidiaries, Showboat Development Company ("SDC"), Showboat Operating Company ("SOC") and OSI. They also include SDC's wholly- owned subsidiaries LPSI and Showboat Louisiana, Inc. ("SLI") and OSI's wholly- owned subsidiaries which are ACSI and OSFC. SBO and its subsidiaries operate Las Vegas Showboat, Atlantic City Showboat and Star Casino. 47 LPSI was formed in 1993 to manage the Star Casino on Lake Pontchartrain in New Orleans, Louisiana pursuant to a management agreement. SLI was also formed in 1993 to hold a 30% equity interest in Showboat Star Partnership ("SSP") which owns Star Casino, the riverboat casino managed by LPSI. In 1993, the Company invested $18.6 million in SSP for its 30% equity interest. Effective March 1, 1994, the Company acquired an additional 20% equity interest in SSP from a partner for $9.0 million bringing the Company's equity interest to 50%. Operation of Star 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 loss of SSP is included in the Consolidated Statement of Income as equity in loss of an unconsolidated affiliate. Revenues from management fees paid by SSP to LPSI are included in other revenues in the Consolidated Statement of Income. Material Changes in Results of Operations Year Ended December 31, 1993 (1993) Compared to Year Ended December 31, 1992 (1992) Revenues Net revenues for the Company increased to $375.7 million in 1993 from $355.2 million in 1992, an increase of $20.5 million or 5.8%. Casino revenues increased $16.3 million or 5.2% to $329.5 million in 1993 from $313.2 million in 1992. Nongaming revenues, which consist principally of food, beverage, room and bowling revenues, were $78.3 million in 1993 compared to $71.2 million in 1992, an increase of $7.1 million or 10.0%. The Atlantic City Showboat generated $294.2 million of net revenues in 1993 compared to $277.3 million in 1992, an increase of $16.9 million or 6.1%. Casino revenues were $268.8 million in 1993 compared to $254.7 million in 1992, an increase of $14.1 million or 5.5%. The increase in casino revenues was due to an increase in slot machine revenues of $14.7 million or 8.0% to $196.8 million in 1993 from $182.1 million in 1992. This compares to 4.8% growth in slot machine revenues in the Atlantic City market in 1993 compared to 1992. The improved slot revenue growth experienced by the Atlantic City Showboat is attributed to an increase in slot units throughout the year to 2,411 slot units at the end of 1993, up from 2,073 slot units at the end of 1992, an increase of 340 slot units or a weighted average rate of 9.9%. The increase in slot machine revenues was partially offset by the $4.0 million or 5.5% decrease in table games revenues which resulted primarily from the 3.2% decline in table games revenues in the Atlantic City market during 1993 compared to 1992. Casino revenues were positively impacted by the addition of simulcasting and Poker as part of the opening of Jake's Betting Parlor in the second quarter of 1993. These games contributed $2.2 million and $1.1 million, respectively, during the 48 year ended December 31, 1993. Nongaming revenues increased $5.6 million or 12.0% in 1993 to $52.7 million from $47.1 million in 1992. This increase was attributed to promotional programs offering casino customers rooms, food and beverage at a reduced price as well as increases in complimentary services. At the Las Vegas Showboat, net revenues increased to $81.1 million in 1993 from $77.9 million in 1992, an increase of $3.2 million or 4.1%. Casino revenues increased $2.2 million or 3.8% in 1993 to $60.7 million from $58.5 million in 1992. Slot machine revenues showed the greatest improvement in casino revenues with an increase of $1.6 million or 3.4%. Slot machine revenues accounted for 84.2% of casino revenues in 1993 and 84.5% of casino revenues in 1992. Increases in gaming revenues were primarily the result of higher patron volume due to promotions and increased advertising. Nongaming revenues increased $1.0 million or 4.3% in 1993 to $25.1 million from $24.1 million in 1992. These increases were principally in rooms and food and beverage resulting from targeted marketing programs for rooms and promotional programs offering food at a reduced price. LPSI generated $.4 million in management fee revenues in 1993. LPSI receives management fees of 5.0% of Star Casino's casino revenues after gaming taxes of 18.5% and boarding fees totaling $5.00 per passenger boarding the vessel. Star Casino opened November 8, 1993 and generated net revenues of $12.0 million in 1993 consisting primarily of casino revenues of $10.9 million. Income from Operations The Company's income from operations decreased to $45.4 million in 1993 from $46.5 million in 1992, a decrease of $1.1 million or 2.3%. The Company incurred approximately $3.8 million in expenses relating to the pursuit of expansion opportunities in jurisdictions outside of Nevada and New Jersey in 1993 compared to $.9 million in 1992. Income from operations at the Atlantic City Showboat, before management fees, was $44.0 million in 1993 compared to $39.6 million in 1992, an increase of $4.4 million or 11.1%. The increase in income from operations was primarily due to increased revenues which were offset by a $12.5 million or 5.3% increase in operating expenses, before management fees, to $250.3 million in 1993 compared to $237.7 million in 1992. The increase in operating expenses was primarily due to the increased capacity and volume of business. General and administrative expenses increased due to increases in utilities and maintenance costs resulting from the expanded facility. General and administrative expenses were also impacted by an $.8 million or 13.2% increase in real estate taxes 49 and an $.8 million parking assessment absorbed by Atlantic City Showboat. In addition, depreciation expense increased $1.3 million or 7.4% in 1993 as a result of the expansion at the Atlantic City Showboat. Income from operations at the Las Vegas Showboat declined $1.3 million or 16.6% in 1993 to $6.5 million from $7.8 million in 1992. The decrease was primarily due to a $4.5 million or 6.4% increase in operating expenses to $74.6 million in 1993 from $70.1 million in 1992. Increased operating expenses resulted primarily from increases in payroll and payroll related expenses, increased advertising and repairs and maintenance expenses. LPSI incurred a loss from operations of $.4 million which was primarily the result of administrative expenses incurred before the November 8, 1993 opening of Star Casino. The loss from operations of SLI of $.9 million represents SLI's 30% share of the net loss of SLI's unconsolidated affiliate, SSP. SSP had a net loss of $2.8 million resulting primarily from preopening costs of Star Casino of $4.2 million in 1993, of which Showboat's share was $1.3 million. Before the write- off of preopening costs, SSP's income was $1.4 million of which Showboat's share was $.4 million. Other (Income) Expense Other (income) expense consisted of $24.7 million interest expense, net of $1.1 million of capitalized interest, and $3.2 million of interest income in 1993 compared to interest expense of $25.3 million and interest income of $1.4 million in 1992. Two offsetting factors impacted 1993 interest expense. In January 1993, the Company repurchased all of its Debentures and prepaid its construction and term loan that had an outstanding balance of $17.2 million. In June 1993, the Company repurchased all of its Mortgage-Backed Bonds. This resulted in a $14.4 million decrease in interest expense. This decrease was offset by the issuance in May 1993 of $275.0 million of First Mortgage Bonds resulting in a $15.8 million increase in interest expense. In connection with its expansion project at the Atlantic City Showboat, the Company capitalized $1.1 million of interest costs. Income Taxes In 1993, the Company incurred, before the income tax benefit on an extraordinary loss, income taxes of $10.5 million, or an effective rate of 43.8%, compared to $6.8 million, or an effective rate of 29.9% in 1992. Differences between the Company's effective tax rate and statutory federal tax rates are due to permanent differences between financial and tax reporting. In 1993, these differences consisted principally of $.9 million in state income 50 taxes resulting from the utilization, for financial reporting purposes, of New Jersey net operating loss carryforwards, a $.6 million restricted interest assessment, net of tax, resulting from an Internal Revenue Service audit of prior years and $.4 million resulting from the increase in federal tax rates. In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes." The Company adopted the provisions of FAS 109 effective January 1, 1993 without restating prior years' financial statements. The adoption of FAS 109 resulted in a reduction of net deferred tax liability of $.6 million and this amount has been reported separately as a cumulative effect of the change in the method of accounting for income taxes in the 1993 Consolidated Statement of Income. Net Income In 1993, the Company realized income before an extraordinary loss on the extinguishment of debt and the cumulative effect of the change in the method of accounting for income taxes of $23.9 million or $.89 per share. On June 18, 1993, the Company redeemed all of its Mortgage-Backed Bonds at 105.7% of the principal amount plus accrued and unpaid interest up to and including the redemption date. The Company recognized an extraordinary loss, before an income tax benefit, of $11.2 million as a result of the write-off of unamortized debt issue costs of $2.7 million and payment of a 5.7% redemption premium of $8.5 million. The after tax loss was $6.7 million or $.44 per share. The Company also recognized a cumulative effect adjustment for the change in the method of accounting for income taxes of $.6 million or $.04 per share. Net income for 1993 was $7.3 million or $.49 per share. In 1992, the Company realized income before an extraordinary loss on the extinguishment of debt of $15.9 million or $1.37 per share. As a result of the repurchase of the Company's outstanding Debentures, the Company recognized an extraordinary loss, net of tax, of $3.4 million or $.29 per share. This loss resulted from the write-off of original issue discount and issuance costs associated with the Debentures. Net income for 1992 was $12.4 million or $1.08 per share. Year Ended December 31, 1992 (1992) Compared to Year Ended December 31, 1991 (1991) Revenues Net revenues for the Company increased to $355.2 million in 1992 from $331.6 million in 1991, an increase of $23.6 million or 7.1%. Casino revenues increased $24.8 million or 8.6% to $313.2 million in 1992 from $288.4 million in 1991. Nongaming revenues 51 were $71.2 million in 1992 compared to $71.7 million in 1991, a decrease of $.5 million or .7%. The Atlantic City Showboat generated $277.3 million of net revenues in 1992 compared to $260.8 million in 1991, an increase of $16.5 million or 6.3%. Casino revenues were $254.7 million in 1992 compared to $237.2 million in 1991, an increase of $17.5 million or 7.4%. The increase in casino revenues was due primarily to an increase in slot machine revenues of $20.4 million or 12.6% to $182.1 million in 1992 from $161.7 million in 1991. This compares to a 14.2% growth in slot machine revenues in the Atlantic City market in 1992 compared to 1991. Slot machine revenues were also favorably impacted by a one-time reversal of a $1.2 million slot progressive jackpot accrual. Slot machine revenues at the Atlantic City Showboat accounted for 71.5% of casino revenues in 1992 and 68.2% of casino revenues in 1991. The increase in slot machine revenues was partially offset by the $2.9 million or 3.8% decrease in table games revenues to $72.6 million in 1992 from $75.5 million in 1991. The decrease in table games revenues resulted primarily from the Company decreasing the number of table games units by 24 tables in the third quarter of 1991 and by the 3.4% decline in table games revenues in the Atlantic City market during 1992 compared to 1991. Nongaming revenues declined $1.0 million or 2.2% in 1992 to $47.1 million from $48.1 million in 1991. This decrease was primarily attributed to a $3.1 million or 9.4% decline in food and beverage revenues associated with a reduction in promotional offers. The reduction in food and beverage revenues were partially offset by a $1.3 million or 12.8% increase in room revenues due to more effective room utilization and a $.9 million or 77.2% increase in entertainment revenues. At the Las Vegas Showboat, net revenues increased to $77.9 million in 1992 from $70.8 million in 1991, an increase of $7.1 million or 10.1%. Casino revenues increased $7.3 million or 14.3% in 1992 to $58.5 million from $51.2 million in 1991. The most significant improvement in casino revenues occurred in slot machine revenues which increased $5.7 million or 13.1% in 1992. Casino revenues were also favorably impacted by a $1.1 million or 49.9% reduction in bingo losses in 1992. Slot machine revenues continued to dominate casino revenues at 84.5% of casino revenues in 1992 and 85.3% of casino revenues in 1991. Increases in casino revenues were due to an overall increase in the volume of business, principally as a result of the continuation of certain targeted marketing activities. Nongaming revenues increased $.5 million or 2.0% in 1992 to $24.1 million from $23.6 million in 1991. Increases in food and beverage revenues of $.9 million or 6.5% and hotel revenues of $.3 million or 6.3% were offset by a reduction of $.7 million in other revenues as a result of the recognition in 1991 of a one-time benefit of $.8 million from the reversal of an accrual. 52 Income from Operations The Company's income from operations increased to $46.5 million in 1992 from $35.5 million in 1991, an increase of $11.0 million or 31.0%. Income from operations at the Atlantic City Showboat was $39.6 million in 1992 compared to $31.2 million in 1991, an increase of $8.4 million or 26.9%. This increase was primarily due to improved casino revenues caused by the 14.2% slot machine revenue growth experienced in the Atlantic City market in 1992. Operating expenses increased $8.1 million or 3.5% to $237.7 million in 1992 compared to $229.6 million in 1991. The increase in operating expenses was comprised of a $5.6 million or 28.9% increase in promotional coin incentives offered in conjunction with slot marketing programs and a 6.8% increase in general and administrative costs consisting primarily of a $3.0 million increase in payroll and benefits. Increases in operating expenses were offset by a $3.3 million or 16.0% decrease in depreciation and amortization expense to $17.5 million in 1992 from $20.8 million in 1991. Improvements in income from operations, excluding that realized from the reduction in depreciation and amortization expense, occurred principally in the quarter ended March 31, 1992. At the Las Vegas Showboat, income from operations, increased to $7.8 million in 1992 from $4.3 million in 1991, an increase of $3.5 million or 81.4%. The improvement in operating results reflected the continued implementation of cost effective marketing programs which resulted in increased revenues of $7.2 million offset by a $3.7 million or 5.6% increase in operating expenses in 1992 to $70.1 million from $66.4 million in 1991. In general, increases in operating expenses were consistent with increases in volume of business. Income from operations in 1992 was adversely impacted by $.9 million of expenses incurred by the Company in conjunction with the investigation of new gaming opportunities outside of Nevada and New Jersey. Other (Income) Expense In 1992, other (income) expense consisted of $25.3 million of interest expense and $1.4 million of interest income compared to $27.5 million and $2.1 million, respectively, in 1991. Reductions in interest expense of $1.4 million were realized as a result of the fourth quarter 1991 repurchase of $12.1 million of the Mortgage-Backed Bonds. Other reductions in interest expense were primarily a result of reduced principal balances due to scheduled principal amortization. 53 Income Taxes In 1992, the Company incurred income tax expense, before income tax benefit on an extraordinary loss, of $6.8 million, or an effective tax rate of 29.9%, compared to $4.1 million, or an effective tax rate of 40.5%, in 1991. Differences between the Company's effective tax rate and statutory federal tax rates are due to permanent differences between financial and tax reporting which consisted principally of the estimated tax reporting impact of the financial reporting provision for loss on Casino Reinvestment Development Authority obligations and disallowance of certain employee meals. Net Income In 1992, the Company realized income before an extraordinary loss on the extinguishment of debt of $15.9 million or $1.37 per share. The Company recognized an extraordinary loss, net of tax, of $3.4 million or $.29 per share as a result of the write-off of original issue discount and issuance costs associated with the redemption of the Debentures. Net income for 1992 was $12.4 million or $1.08 per share. In 1991, the Company realized income before an extraordinary gain on the extinguishment of debt of $6.0 million or $.53 per share. In 1991, the Company purchased $12.1 million face value of its Mortgage-Backed Bonds and realized an extraordinary gain, net of tax, of $.2 million or $.02 per share. Net income for 1991 was $6.2 million or $.55 per share. Liquidity and Capital Resources As of December 31, 1993, the Company held cash and cash equivalents of $122.8 million compared to $99.6 million at December 31, 1992. In January 1993, the Company utilized $34.4 million of its cash and cash investments to redeem all of its Debentures at par plus accrued interest and $17.3 million to prepay the outstanding balance of the Company's construction and term loan. In May 1993, the Company issued $275.0 million of First Mortgage Bonds. In June 1993, the Company utilized $162.3 million of the proceeds from the sale of the First Mortgage Bonds to redeem all of its outstanding Mortgage-Backed Bonds at 105.7% plus accrued interest. The remaining proceeds have been reserved by the Company to benefit existing facilities and to expand into new facilities or gaming jurisdictions. In 1993, the Company expended approximately $3.8 million in its investigation of expansion opportunities in new jurisdictions. During 1993, the Company expended approximately $59.7 million on capital improvements at its Las Vegas and Atlantic City facilities. The Company is engaged in an $85.0 million expansion 54 project, before credits of $8.8 million from the CRDA, at its Atlantic City facility. During 1993 the Company expended approximately $31.8 million on the expansion project and $27.9 million on recurring capital improvements. The balance of the expansion project is expected to be completed in 1994 and 1995. ACSI's current CRDA funding credit of approximately $8.8 million is approximately 20% of the maximum allowable expansion costs as determined by the CRDA. This percentage represents ACSI's current share of the allowable Atlantic City casino industry total for expansion-related credits. The amount of ACSI's CRDA funding credit could increase to a maximum of 35% or $14.9 million, depending upon whether or not other casino applicants in Atlantic City discontinue their expansion projects for which credit has been applied. Likewise, ACSI's allowed funding credit could decrease in the event that other casino applicants in Atlantic City increase their allowable expansion costs. On May 18, 1993, the Company issued $275.0 million of First Mortgage Bonds. The First Mortgage Bonds are unconditionally guarantied by SOC, OSI and ACSI. Interest on the First Mortgage Bonds is payable semi-annually on May 1 and November 1 of each year. The First Mortgage Bonds are not redeemable prior to May 1, 2000. Thereafter, the First Mortgage Bonds will be redeemable at any time at the option of the Company, in whole or in part, at redemption prices specified in the Indenture. The First Mortgage 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 First Mortgage 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 and an intercompany note by ACSI in favor of SBO and a pledge of certain intellectual property rights of the Company. OSI's obligation under its guaranty is secured by a pledge of all outstanding shares of capital stock of ACSI. ACSI's obligations under its guaranty are secured by a leasehold mortgage representing a first lien on the Atlantic City hotel casino (other than certain assets). SOC's guaranty is secured by a pledge of certain of its assets related to the Las Vegas hotel casino. The Indenture places significant restrictions on SBO and its subsidiaries, including restrictions on making loans and advances by SBO to subsidiaries which 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 the Indenture. The Indenture 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 First Mortgage 55 Bonds, transactions with Affiliates and the investment of SBO and its subsidiaries in certain Investments. In addition, the terms of the Indenture 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 and after giving proforma 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 or 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 Indenture; 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 SBO; Investments by SBO in an amount not to exceed $75 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 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 million in the aggregate; and the purchase, redemption, defeasance of any Pari ---- Passu Indebtedness with a substantially concurrent purchase, redemption, - ----- defeasance, or retirement of the First Mortgage Bonds (on a pro rata basis). ACSI has available a $15.0 million line of credit guarantied by OSI. The line, which expires August 31, 1994, has interest payable at the bank's prime rate of 6.0% plus .5%. Borrowings on this line of credit may not be used for the payment of management fees or to fund ventures in other jurisdictions. At December 31, 1993, ACSI had all the funds available for use. The Company entered into the Showboat Star Partnership agreement to own and operate a riverboat casino on the south shore of Lake Pontchartrain in New Orleans, Louisiana. The Company initially invested $18.6 million for a 30% equity interest in the 56 partnership and subsequently on March 1, 1994, purchased an additional 20% equity interest from a partner for $9.0 million. The Company also has a management agreement for the partnership's gaming operations which provides for a management fee of 5% of gaming revenues, net of gaming taxes of 18.5% and boarding fees totaling up to $5.00 per passenger boarding the vessel. The riverboat casino commenced operations on November 8, 1993. The Company believes it has sufficient capital resources to cover the cash requirements of the Company. 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. The Company is evaluating potential expansion opportunities in new gaming jurisdictions. Additionally, the Company has announced that it is (i) a member of a partnership which is the only applicant for gaming berth for East Chicago, Indiana; (ii) completing negotiations for a tribal casino on the St. Regis Mohawk reservation; and (iii) one of two final applicants for the sole casino in Sydney, Australia. Each of the three identified expansion opportunities will require significant capital investment. The Company anticipates that (i) it will contribute $17.5 million to the East Chicago partnership and obtain financing in excess of $50 million for the construction of a gaming vessel and related land site improvements, (ii) it will initially loan up to $35 million for renovating and outfitting an existing building on the St. Regis Mohawk reservation for the conduct of a gaming business and for working capital purposes; and (iii) it will contribute $150 million (Australian) to the holding company of the Sydney casino licensee if the consortium to which it is a member is awarded the casino license. No assurance can be given that any of the announced opportunities will be realized. If the Company achieves any of the foregoing expansion opportunities, or others, the Company shall make a significant capital investment, and additional financing will be required. The Company anticipates that additional funds shall be obtained through loans or a public offering of equity or debt securities. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ------------------------------------------- Independent Auditors' Report; Consolidated Balance Sheets December 31, 1992 and 1993; Consolidated Statements of Income for the Years Ended December 31, 1993, 1992 and 1991; 57 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1993, 1992 and 1991; Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1992 and 1991; and Notes to Consolidated Financial Statements Schedule II Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties. Schedule V Property and equipment Schedule VI Accumulated Depreciation and Amortization of Property and Equipment Schedule VIII Valuation and Qualifying Accounts Schedule X Supplementary income statement information All other information is omitted because it is inapplicable. 58 Independent Auditors' Report The Shareholders and Board of Directors Showboat, Inc.: We have audited the consolidated financial statements of Showboat, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules 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, 1993 and 1992, and the results of their operations their cash flows for each of the years in the three-year period ended December 31, 1993, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in Notes 1 and 8 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 Las Vegas, Nevada February 18, 1994, except for Note 1 paragraph 3 and Note 12 paragraph 2, which are as of March 1, 1994 -59- SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1993 and 1992 1993 1992 ASSETS --------- --------- (In thousands) Current assets: Cash and cash equivalents $122,787 $99,601 Receivables, net 5,913 5,092 Inventories 2,359 2,411 Prepaid expenses 4,044 3,969 Current deferred income taxes 4,865 3,483 --------- --------- Total current assets 139,968 114,556 --------- --------- Property and equipment: Land 9,425 3,609 Land improvements 541 841 Buildings 261,009 246,090 Furniture and equipment 145,178 122,573 Construction in progress 27,194 7,253 --------- --------- 443,347 380,366 Less accumulated depreciation and amortization 145,527 129,183 --------- --------- 297,820 251,183 --------- --------- Other assets, at cost: Deposits and other assets 7,892 16,074 Investment in Showboat Star Partnership 17,750 - Debt issuance costs, net of accumulated amortization of $323,000 at December 31, 1993 and $3,131,000 at December 31, 1992 7,270 3,087 --------- --------- 32,912 19,161 --------- --------- $470,700 $384,900 ========= ========= -60- (continued) SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1993 and 1992 (continued) 1993 1992 LIABILITIES AND SHAREHOLDERS' EQUITY --------- --------- (In thousands) Current liabilities: Current maturities of long-term debt $3,574 $54,055 Accounts payable 14,173 10,096 Income taxes payable 1,752 1,453 Dividends payable 375 284 Accrued liabilities 23,664 25,167 --------- --------- Total current liabilities 43,538 91,055 --------- --------- Long-term debt 277,043 155,061 --------- --------- Deferred income taxes 14,961 12,766 --------- --------- Commitments and contingencies (Note 12) Shareholders' equity: Common stock, $1 par value; 20,000,000 shares authorized; issued 15,794,578 shares at December 31, 1993 and 1992 15,795 15,795 Additional paid-in capital 71,162 69,374 Retained earnings 54,628 48,778 --------- --------- 141,585 133,947 Less: Cost of shares in treasury, 814,483 shares and 991,043 shares at December 31, 1993 and 1992, respectively (6,370) (7,761) Unearned compensation for restricted stock (57) (168) --------- --------- Total shareholders' equity 135,158 126,018 --------- --------- $470,700 $384,900 ========= ========= See accompanying notes to consolidated financial statements. -61- SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 1993, 1992 and 1991 (In thousands except per share data) 1993 1992 1991 --------- --------- --------- Revenues: Casino $329,522 $313,247 $288,442 Food and beverage 48,669 44,511 46,802 Rooms 19,355 17,280 15,612 Sports and special events 4,251 4,443 4,506 Other 5,982 4,932 4,791 --------- --------- --------- 407,779 384,413 360,153 Less complimentaries 32,052 29,177 28,593 --------- --------- --------- Net revenues 375,727 355,236 331,560 --------- --------- --------- Costs and expenses: Casino 129,898 125,773 115,468 Food and beverage 55,608 51,173 51,388 Rooms 13,083 12,169 11,282 Sports and special events 3,198 3,141 3,140 General and administrative 92,739 84,058 78,022 Selling, advertising and promotion 11,629 10,402 11,067 Depreciation and amortization 23,303 22,012 25,692 --------- --------- --------- 329,458 308,728 296,059 --------- --------- --------- Income from operations from consolidated subsidiaries 46,269 46,508 35,501 Equity in loss of unconsolidated affiliate (850) - - --------- --------- --------- Income from operations 45,419 46,508 35,501 --------- --------- --------- -62- (continued) SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 1993, 1992 and 1991 (In thousands except per share data) (continued) 1993 1992 1991 --------- --------- --------- Income from operations 45,419 46,508 35,501 --------- --------- --------- Other (income) expense: Interest income (3,215) (1,441) (2,098) Interest expense, net of amounts capitalized 24,696 25,335 27,497 --------- --------- --------- 21,481 23,894 25,399 --------- --------- --------- Income before income tax expense, extraordinary items and cumulative effect adjustment 23,938 22,614 10,102 Income tax expense 10,474 6,757 4,088 --------- --------- --------- Income before extraordinary items and cumulative effect adjustment 13,464 15,857 6,014 Extraordinary items, net of income tax (6,679) (3,408) 180 Cumulative effect of change in method of accounting for income taxes 556 - - --------- --------- --------- Net income $7,341 $12,449 $6,194 ========= ========= ========= Income per common and equivalent share: Income before extraordinary items and cumulative effect adjustment $0.89 $1.37 $0.53 Extraordinary items, net of income tax (0.44) (0.29) 0.02 Cumulative effect of change in method of accounting for income taxes 0.04 - - --------- --------- --------- Net income $0.49 $1.08 $0.55 ========= ========= ========= See accompanying notes to consolidated financial statements -63- SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended December 31, 1993, 1992 and 1991 Less Additional Less Unearned Common paid-in Retained Treasury compen- stock capital earnings stock sation Total --------- --------- --------- --------- --------- --------- (In thousands) Balance, December 31, 1990 $12,345 $22,416 $32,405 ($7,765) ($553) $58,848 Net income - - 6,194 - - 6,194 Cash divi- dends ($.10 per share) - - (1,135) - - (1,135) Share trans- actions un- der stock plans - 27 - (19) 15 23 Amortization of un- earned compen- sation - - - - 203 203 --------- --------- --------- --------- --------- --------- Balance, December 31, 1991 $12,345 $22,443 $37,464 ($7,784) ($335) $64,133 --------- --------- --------- --------- --------- --------- -64- (continued) SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended December 31, 1993, 1992 and 1991 (continued) Less Additional Less Unearned Common paid-in Retained Treasury compen- stock capital earnings stock sation Total --------- --------- --------- --------- --------- --------- (In thousands) Balance, December 31, 1991 $12,345 $22,443 $37,464 ($7,784) ($335) $64,133 Net income - - 12,449 - - 12,449 Cash divi- dends ($.10 per share) - - (1,135) - - (1,135) Issuance of 3,450,000 shares of common stock 3,450 46,916 - - - 50,366 Share trans- actions un- der stock plans - 15 - 23 11 49 Amortization of un- earned compen- sation - - - - 156 156 --------- --------- --------- --------- --------- --------- Balance, December 31, 1992 $15,795 $69,374 $48,778 ($7,761) ($168) $126,018 --------- --------- --------- --------- --------- --------- -65- (continued) SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended December 31, 1993, 1992 and 1991 (continued) Less Additional Less Unearned Common paid-in Retained Treasury compen- stock capital earnings stock sation Total --------- --------- --------- --------- --------- --------- (In thousands) Balance, December 31, 1992 $15,795 $69,374 $48,778 ($7,761) ($168) $126,018 Net income - - 7,341 - - 7,341 Cash divi- dends ($.10 per share) - - (1,491) - - (1,491) Share trans- actions un- der stock plans - 1,788 - 1,391 - 3,179 Amortization of un- earned compen- sation - - - - 111 111 --------- --------- --------- --------- --------- --------- Balance, December 31, 1993 $15,795 $71,162 $54,628 ($6,370) ($57) $135,158 ========= ========= ========= ========= ========= ========= See accompanying notes to consolidated financial statements. -66- SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1993, 1992 and 1991 1993 1992 1991 --------- --------- --------- (In thousands) Cash flows from operating activities: Net income $7,341 $12,449 $6,194 Adjustments to reconcile net income to net cash provided by operating activities: Allowance for doubtful accounts 1,849 1,644 2,924 Depreciation and amortization 23,303 22,012 25,692 Amortization of original issue discount and debt issuance costs 744 1,011 811 Provision for deferred income taxes 813 238 1,230 Amortization of unearned compensation 111 156 203 Provision for loss on Casino Reinvestment Development Authority obligation 1,122 1,068 1,057 Equity in loss of unconsolidated affiliate 850 - - Extraordinary (gain) loss on extinguishment of debt 11,166 5,164 (273) Loss on disposition of property and equipment 517 264 350 Increase in receivables, net (2,670) (1,537) (899) (Increase) decrease in inventories and prepaid expenses (23) (265) 599 (Increase) decrease in deposits and other assets (554) 284 (448) Increase (decrease) in accounts payable 85 395 (826) Increase in income taxes payable 968 429 2 Increase (decrease) in accrued liabilities (1,503) 400 1,007 --------- --------- --------- Net cash provided by operating activities 44,119 43,712 37,623 --------- --------- --------- -67- (continued) SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1993, 1992 and 1991 (continued) 1993 1992 1991 --------- --------- --------- (In thousands) Cash flows from investing activities: Acquisition of property and equipment ($59,686) ($21,050) ($13,381) Proceeds from sale of property and equipment 78 105 311 Investment in Showboat Star Partnership (18,600) - - (Increase) decrease in deposits and other assets 4,046 910 (1,097) Deposit for Casino Reinvestment Development Authority obligation (3,289) (3,161) (2,892) --------- --------- --------- Net cash used in investing activities (77,451) (23,196) (17,059) --------- --------- --------- Cash flows from financing activities: Principal payments of long-term debt (3,914) (8,879) (7,635) Proceeds from issuance of long-term debt 275,000 - 1,098 Early extinguishment of debt (208,085) - (11,696) Debt issuance costs (7,593) - (74) Payment of dividends (1,400) (1,141) (1,140) Issuance of common stock 2,510 50,366 - Other - 49 23 --------- --------- --------- Net cash provided by (used in) financing activities 56,518 40,395 (19,424) --------- --------- --------- Net increase in cash and cash equivalents 23,186 60,911 1,140 Cash and cash equivalents at beginning of year 99,601 38,690 37,550 --------- --------- --------- Cash and cash equivalents at end of year $122,787 $99,601 $38,690 ========= ========= ========= -68- (continued) SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1993, 1992 and 1991 (continued) 1993 1992 1991 --------- --------- --------- (In thousands) Supplemental disclosures of cash flow information: Cash paid during the year for: Interest, net of amount capitalized $25,741 $24,562 $26,937 Income taxes 3,650 4,400 2,948 Supplemental schedule of non-cash investing and financing activities: Capital lease obligations incurred in connection with acquisition of equipment - 152 131 Increase (decrease) in property and equipment acquisitions included in construction contracts and reten- tions payable and long-term debt 3,914 1,890 (309) Share transactions under long-term incentive plan - 27 35 Transfer deposits for Casino Reinvestment Development Authority obligation to construction in progress 6,667 - - See accompanying notes to consolidated financial statements. -69- 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, conduct casino gaming operations in Las Vegas, Nevada, Atlantic City, New Jersey and New Orleans, Louisiana. In addition, the Company operates support services including hotel, restaurant, bar, bowling and convention facilities. The consolidated financial statements include the accounts of Showboat, Inc. (SBO) and its wholly-owned subsidiaries which are Showboat Development Company (SDC), Showboat Operating Company (SOC) and Ocean Showboat, Inc. (OSI). They also include SDC's wholly-owned subsidiaries, Lake Pontchartrain Showboat, Inc. (LPSI) and Showboat Louisiana, Inc. (SLI), and OSI's wholly-owned subsidiaries Atlantic City Showboat, Inc. (ACSI) and Ocean Showboat Finance Corporation (OSFC). All material intercompany balances and transactions have been eliminated in consolidation. LPSI was formed in 1993 to manage a riverboat casino in New Orleans, Louisiana pursuant to a management contract. SLI was also formed in 1993 to hold a 30% equity interest in Showboat Star Partnership (SSP) which owns the riverboat casino managed by LPSI. 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 (Note 12). 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 loss of unconsolidated affiliate. LPSI receives a management fee from SSP of 5.0% of casino revenues net of gaming taxes of 18.5% and boarding fees. Management fees are included in other revenues in the Consolidated Statement of Income. Casino Revenue and Complimentaries In accordance with common industry practice, casino revenues are the net of gaming wins less losses. Complimentaries primarily consist of rooms, food and beverage furnished gratuitously to customers. The sales values of such services are included in the respective revenue classifications and are then deducted as complimentaries. Complimentary rates are periodically reviewed and adjusted by management. -70- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Cash Equivalents For purposes of the statements of cash flows, 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, accounts receivable and all current liabilities approximates fair value because of the short maturity of these instruments. See Notes 4 and 11 for additional fair value disclosures. Property and Equipment Property and equipment are stated at cost. Depreciation, including amortization of capitalized leases, is computed using the straight-line method. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized. Estimated useful lives for property and equipment are 5 to 15 years for land improvements, 10 to 40 years for buildings and 2 to 10 years for furniture and equipment. Interest Costs Interest is capitalized in connection with the construction of major facilities. 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 year ended December 31, 1993, $1,085,000 of interest cost was capitalized. No interest was capitalized in the years ended December 31, 1992 and 1991. -71- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Income Taxes In February 1992, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). 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. Effective January 1, 1993, the Company adopted FAS 109 and has reported the cumulative effect of that change in accounting method in the 1993 Consolidated Statement of Income. The Company previously used the asset and liability method under Statement of Financial Accounting Standards No. 96 (FAS 96). Under the asset and liability method of FAS 96, deferred tax assets and liabilities were recognized for all the events that had been recognized in the financial statements. Under FAS 96, the future tax consequences of recovering assets or settling liabilities at their financial statement carrying amounts were considered in calculating deferred income taxes. Generally, FAS 96 prohibited consideration of any other future events in calculating deferred income taxes. The Company and its subsidiaries file a consolidated federal income tax return. For tax reporting purposes, the Company has elected to continue its fiscal year ending June 30. Postemployment and Postretirement Benefits The Company does not currently provide any significant postemployment or postretirement benefits. -72- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. 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 15,099,147, 11,584,275 and 11,410,208 during the years ended December 31, 1993, 1992 and 1991, respectively. Fully-diluted and primary income per common and equivalent share are the same. 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 a gaming license has been granted. 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 amortized over a period not to exceed 12 months using the straight-line method. Costs associated with the preopening of the riverboat casino on Lake Pontchartrain in New Orleans, Louisiana were written-off upon commencement of operations on November 8, 1993 and totaled $4,246,000. The Company's share of those costs of $1,274,000 are included in equity in loss of unconsolidated affiliate in the December 31, 1993 Consolidated Statement of Income. Reclassifications Certain prior year balances have been reclassified to conform to the current year's presentation. -73- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. RECEIVABLES Receivables consist of the following: December 31, ------------------- 1993 1992 --------- --------- (In thousands) Casino $6,816 $6,964 Hotel 1,020 715 Employees 88 86 Other 935 406 --------- --------- 8,859 8,171 Less allowance for doubtful accounts 2,946 3,079 --------- --------- Receivables, net $5,913 $5,092 ========= ========= 3. ACCRUED LIABILITIES Accrued liabilities consist of the following: December 31, ------------------- 1993 1992 --------- --------- (In thousands) Interest $4,240 $6,029 Salaries and wages 8,289 7,540 Taxes, other than taxes on income 1,988 1,641 Medical and liability claims 2,983 3,036 Advertising and promotion 2,397 3,068 Outstanding chips and tokens 1,204 1,308 Other 2,563 2,545 --------- --------- Total accrued liabilities $23,664 $25,167 ========= ========= -74- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. LONG-TERM DEBT Long-term debt consists of the following: December 31, ------------------- 1993 1992 --------- --------- (In thousands) 9 1/4% First Mortgage Bonds due 2008 (a) $275,000 $ - 11 3/8% Mortgage-Backed Bonds Due 2002 (b) - 149,444 13% Subordinated Sinking Fund Debentures Due October 1, 2004 (c) - 32,949 Construction and term loan, repaid in 1993 - 17,192 Capitalized lease obligations (Note 5) 5,617 9,531 --------- --------- 280,617 209,116 Less current maturities 3,574 54,055 --------- --------- $277,043 $155,061 ========= ========= (a) On May 18, 1993, the Company issued $275,000,000 of 9 1/4% First Mortgage Bonds due 2008 (First Mortgage Bonds). The proceeds from the sale of the First Mortgage Bonds were $268,469,000, net of underwriting discounts and commissions. Proceeds from the sale of the First Mortgage 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. The First Mortgage Bonds are unconditionally guarantied by OSI, ACSI and SOC. Interest on the First Mortgage Bonds is payable semi-annually on May 1 and November 1 of each year commencing November 1, 1993. The First Mortgage Bonds are not redeemable prior to May 1, 2000. Thereafter, the First Mortgage Bonds will be redeemable, in whole or in part, at redemption prices specified in the Indenture for the First Mortgage Bonds (Indenture). The First Mortgage 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 First Mortgage Bonds are -75- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. LONG-TERM DEBT (continued) 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 and a pledge of certain intellectual property rights of the Company. OSI's obligation under its guaranty is secured by a pledge of all outstanding shares of capital stock of ACSI. ACSI's obligation under its guaranty is secured by a leasehold mortgage representing a first lien on the Atlantic City hotel casino (other than certain assets). SOC's guaranty is secured by a pledge of certain assets related to the Las Vegas hotel casino. The Indenture places significant restrictions on SBO and its subsidiaries, including restrictions on making loans and advances by SBO to subsidiaries which 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 the Indenture. The Indenture 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 First Mortgage Bonds, transactions with Affiliates and the investment of SBO and its subsidiaries in certain Investments. In addition, the terms of the Indenture 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 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, 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 or 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 -76- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. LONG-TERM DEBT (continued) provisions of the Indenture; 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 SBO; Investments by SBO in an amount not to exceed $75,000,000 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 $75,000,000 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 $125,000,000 in the aggregate; and the purchase, redemption, defeasance of any pari passu Indebtedness with a substantially concurrent purchase, redemption, defeasance, or retirement of the First Mortgage Bonds (on a pro rata basis). (b) In March 1987, the Company issued $180,000,000 of 11 3/8% Mortgage-Backed Bonds Due 2002 (Mortgage-Backed Bonds). Interest was payable semi-annually on March 15 and September 15 of each year. During the years ended December 31, 1991 and 1990, the Company repurchased $12,096,000 and $18,460,000 face value, respectively, of the Mortgage-Backed Bonds (Note 10). In accordance with the provisions of the Indenture for the First Mortgage Bonds, the Mortgage-Backed Bonds were redeemed on June 18, 1993 at 105.7% of par plus accrued interest. (c) During fiscal year 1985, the Company issued $57,500,000 of 13% (effective rate of 15.75%) Subordinated Sinking Fund Debentures Due October 1, 2004 (Debentures), with interest payable semi-annually. The Debentures were redeemable at any time at the option of the Company, in whole or in part, at par plus accrued interest or the Debentures may have been reacquired through purchases in the open market. The Debentures had a mandatory sinking fund requirement beginning October 1, 1991, designed to -77- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. LONG-TERM DEBT (continued) retire 80% of the issue prior to maturity. On October 1, 1992 and 1991, the Company applied $2,875,000 of previously repurchased Debentures toward the sinking fund requirement. On October 29, 1992, the Company made a redemption of $2,875,000 of Debentures. On January 29, 1993, the Company redeemed in full the Debentures at par plus accrued interest (Note 10). At December 31, 1993, the Company's Atlantic City subsidiary, ACSI, had available an unsecured line of credit for general working capital purposes totaling $15,000,000. Interest is payable monthly at the bank's prime rate plus .5%. The Bank's prime rate was 6.0% at December 31, 1993. The line of credit is guarantied by OSI and expires in August 1994. Borrowings on this line of credit may not be used for the payment of management fees or to fund ventures in other jurisdictions. At December 31, 1993, ACSI had all the funds under this line of credit available for use. Maturities of the Company's long-term debt are as follows: Year ending (In thousands) December 31, 1994 $3,574 1995 20 1996 1,950 1997 25 1998 29 Thereafter 275,019 --------- $280,617 ========= The fair value of the Company's First Mortgage Bonds was $283,250,000 at December 31, 1993 based on the quoted market price of the First Mortgage Bonds. The carrying amount of capital leases approximates fair value at December 31, 1993. -78- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. LEASES The Company leases certain furniture and equipment and a warehouse under long-term lease agreements. The leases covering furniture and equipment expire in 1994 and the warehouse lease expires in 2001. The Company has the 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, ------------------- 1993 1992 --------- --------- (In thousands) Building - warehouse $2,050 $2,050 Furniture and equipment 22,621 23,417 --------- --------- 24,671 25,467 Less accumulated amortization 19,456 21,308 --------- --------- $5,215 $4,159 ========= ========= ACSI is leasing 10 1/2 acres of Boardwalk property in Atlantic City, New Jersey for a term of 99 years commencing October 1983. Annual rent payments, which are payable monthly, commenced upon opening of the Atlantic City Showboat. The rent is adjusted annually based upon increases or decreases in the Consumer Price Index. In April 1993, the annual rent increased $243,000 to $8,118,000. ACSI is responsible for taxes, assessments, insurance and utilities. -79- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. LEASES (continued) The following is a schedule of future minimum lease payments for capital leases and operating leases (with initial or remaining terms in excess of one year) as of December 31, 1993: Capital Operating Leases Leases --------- --------- Year ending (In thousands) December 31, 1994 $4,014 $9,537 1995 286 9,773 1996 1,961 9,629 1997 33 9,783 1998 33 9,916 Thereafter 20 797,971 --------- --------- Total minimum lease payments 6,347 $846,609 ========= Less amount representing interest (10.4% to 12.9%) 730 --------- Present value of net minimum capital lease payments $5,617 ========= Rent expense for all operating leases was $9,287,000, $8,659,000 and $8,046,000 for the years ended December 31, 1993, 1992 and 1991, respectively. -80- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. STOCK PLANS On May 17, 1990, the shareholders of SBO approved a long-term incentive plan in which officers and key employees of the Company participate. Up to 600,000 shares of SBO common stock may be awarded to plan participants as either restricted shares or stock options. Restricted shares and options shall vest over a five-year period. The options are exercisable, subject to vesting, over ten years at option prices determined by SBO's Compensation Committee provided that the option price is not less than 100% of the fair market value of the Company's common stock determined on the date of grant of the options. As of December 31, 1993, 127,900 restricted shares have been issued from treasury. On May 17, 1990, the shareholders of SBO approved the Directors' Stock Option Plan whereby options to purchase up to 120,000 shares of SBO common stock may be granted at an option price no less than 100% of the fair market value of the shares on the date of grant. Under the terms of the Directors' Plan, each option shall be exercisable in full one year after the date of grant. Unless special circumstances exist, each option shall expire on the tenth anniversary of the date of grant or two years after the director's retirement. In April 1992, the Board of Directors of the Company adopted the 1992 Employee Stock Option Plan (Plan) for all full-time and part-time employees. The Company reserved an aggregate of 1,000,000 shares of SBO common stock for issuance under the Plan. The exercise price of an option awarded under the Plan cannot be less than the fair market value of the Company's common stock on the date of grant. The number of options granted to an employee is based on the employee's years of service with the Company. Options, all of which expire ten years from the date of grant, are subject to vesting and continued affiliation with the Company. -81- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. STOCK PLANS (continued) A summary of certain stock option information is as follows: Year ended December 31, ----------------------------- 1993 1992 1991 --------- --------- --------- Options outstanding at January 1 901,080 393,570 386,850 Granted 96,550 521,550 21,000 Exercised (176,560) (6,840) (2,280) Forfeited (8,750) (7,200) (12,000) --------- --------- --------- Options outstanding at December 31 812,320 901,080 393,570 ========= ========= ========= Option price range at December 31 $6.50 to $6.50 to $6.50 to $18.00 $14.50 $8.00 Options exercisable at December 31 529,495 120,430 82,245 Unearned compensation in connection with restricted stock issued for future services was 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 $111,000, $156,000 and $203,000 was recognized during the years ended December 31, 1993, 1992 and 1991, respectively. Unearned compensation has been shown as a reduction of shareholders' equity in the accompanying Consolidated Balance Sheets. -82- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 7. SHAREHOLDERS' EQUITY On December 24, 1992, the Company issued 3,450,000 shares of its $1.00 par value common stock in a public offering. The price to the public was $15.50 per share. Net proceeds of the offering, after deducting all associated costs, was $50,366,000 or $14.60 per newly issued share. Proceeds of the offering were used in January 1993 to redeem all of SBO's 13% Subordinated Sinking Fund Debentures Due 2004 and to fully prepay the balance outstanding on the construction and term loan. 8. 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 for the year ended December 31, 1993 was allocated as follows: (In thousands) Continuing operations $10,474 Extraordinary item (4,487) Shareholders' equity, related to compensation expense deferred and reported as a reduction of shareholders' equity for financial reporting purposes (661) --------- $5,326 ========= -83- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. INCOME TAXES (continued) Income tax expense attributable to income from continuing operations consists of: Year ended December 31, ----------------------------- 1993 1992 1991 --------- --------- --------- (In thousands) U.S. federal Current $7,910 $6,519 $2,858 Deferred 965 238 1,230 --------- --------- --------- 8,875 6,757 4,088 --------- --------- --------- State and local Current 1,195 - - Deferred 404 - - --------- --------- --------- 1,599 - - --------- --------- --------- Total Current 9,105 6,519 2,858 Deferred 1,369 238 1,230 --------- --------- --------- $10,474 $6,757 $4,088 ========= ========= ========= In 1992 and 1991, income tax expense of $6,757,000 and $4,088,000, respectively, represents income tax expense from continuing operations before extraordinary items. In 1992, as a result of an extraordinary loss of $5,164,000 (Note 10), the Company recognized an income tax benefit of $1,756,000 resulting in total income tax expense of $5,001,000. In 1991, as a result of an extraordinary gain of $273,000 (Note 10), the Company recognized additional income tax expense of $93,000 resulting in total income tax expense of $4,181,000. -84- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. 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 year ended December 31, 1993 and 34% for the years ended December 31, 1992 and 1991 to pretax income from continuing operations as a result of the following: Year ended December 31, ----------------------------- 1993 1992 1991 --------- --------- --------- (In thousands) Computed "expected" tax expense $8,378 $7,689 $3,435 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 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 930 - - Impact of settlement of Internal Revenue Service examination - (102) - Restricted interest assessment, net of tax 619 - - Impact of graduated tax rates (90) - - Other, net 30 (830) 653 --------- --------- --------- Income tax expense $10,474 $6,757 $4,088 ========= ========= ========= -85- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. INCOME TAXES (continued) The significant components of deferred income tax expense attributable to income from continuing operations for the year ended December 31, 1993 are as follows: (In thousands) Deferred tax expense (exclusive of other components listed below) $762 Adjustment to deferred tax assets and liabilities for enacted changes in tax rates 383 Change in beginning of the year balance of the valuation allowance for deferred tax assets 224 --------- $1,369 ========= For the years ended December 31, 1992 and 1991, deferred income tax expense of $238,000 and $1,230,000, respectively, results from temporary differences in the recognition of income and expenses for income tax and financial reporting purposes. The sources and tax effects of these temporary differences are as follows: Year ended December 31, ------------------- 1992 1991 --------- --------- (In thousands) Depreciation and amortization $1,250 $556 Utilization of credit carryforwards, net 1,145 (676) Provision for loss on Casino Reinvestment Development Authority obligation (1,496) 31 Allowance for doubtful accounts 309 342 Preopening costs 369 1,511 Accrued vacations (359) (149) Impact of settlement of Internal Revenue Service examination (625) - Other, net (355) (385) --------- --------- $238 $1,230 ========= ========= -86- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. INCOME TAXES (continued) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1993 are as follows: (In thousands) Deferred tax assets: Casino Reinvestment Development Authority obligation ($1,566) Accrued vacations (1,621) Allowance for doubtful accounts (1,210) Alternative minimum tax credit carryforwards (2,423) Other (3,606) --------- Total gross deferred tax assets (10,426) Less valuation allowance 601 --------- Net deferred tax assets (9,825) --------- Deferred tax liabilities: Depreciation and amortization 17,350 Capitalized interest 2,571 --------- Total gross deferred tax liabilities 19,921 --------- Net deferred tax liability $10,096 ========= -87- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. INCOME TAXES (continued) Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of the net deferred tax liability at December 31, 1992 relate to the following: (In thousands) Depreciation and amortization $13,931 Utilization of credit carryforwards (2,032) Capitalized interest 2,572 Allowance for doubtful accounts (1,047) Accrued vacations (1,328) Provision for loss on Casino Reinvestment Development Authority obligation (1,496) Other (1,317) --------- Net deferred tax liability $9,283 ========= The valuation allowance for deferred tax assets as of January 1, 1993 was $377,000. The net change in the total valuation allowance for the year ended December 31, 1993 was an increase of $224,000. At December 31, 1993, the Company had available $2,423,000 of alternative minimum tax credit carryforwards which are available to reduce future federal regular income taxes, if any, over an indefinite period. For State of New Jersey income tax purposes, the Company has available $1,144,000 of net operating loss carryforwards which expire through 1997. -88- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. EMPLOYEE BENEFIT PLANS The Company maintains a profit sharing and retirement plan for eligible employees who are not covered by a collective bargaining agreement or by another retirement plan to which the Company is required to contribute. Contributions to the plan are made at the discretion of the Board of Directors of SBO. The benefits are limited to the allocated interest in the fund assets and each participant's account vests over a seven-year period. Contributions accrued by the Company were $195,000, $175,000 and $150,000 for the years ended December 31, 1993, 1992 and 1991, respectively. The Company maintains a retirement and savings plan for eligible employees of ACSI and OSI. 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 ACSI. 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 $1,330,000, $1,110,000 and $776,000 to this plan for the years ended December 31, 1993, 1992 and 1991, respectively. Effective January 1, 1994, SOC and LPSI adopted the provisions of the retirement and savings plan previously available to the eligible employees of ACSI and OSI. The Company has requested a determination letter from the Internal Revenue Service to allow the Company to merge the present profit sharing plan and the retirement and savings plan. The Company's union employees are covered by union-sponsored, collectively-bargained, multi-employer pension plans. The Company contributed and charged to expense $1,197,000, $1,182,000 and $1,184,000 during the years ended December 31, 1993, 1992 and 1991, respectively. These contributions are determined in accordance with the provisions of negotiated labor contracts and generally are based on the number of hours worked. -89- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 10. EXTRAORDINARY ITEMS On June 18, 1993, the Company redeemed all of its remaining Mortgage-Backed Bonds 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. On December 30, 1992, the Company notified debentureholders of its intent to redeem all of the outstanding Debentures at par plus accrued interest on January 29, 1993. Accordingly, at December 31, 1992, the Company reclassified the outstanding principal balance of $32,949,000 to current maturities of long-term debt and recognized an extraordinary loss of $5,164,000 before an income tax benefit of $1,756,000 as a result of the write-off of the unamortized discount and debt issuance costs. The after tax loss was $3,408,000 or $.29 per share. In 1991, OSI purchased $12,096,000 face value of the Company's Mortgage-Backed Bonds for $11,696,000. Accordingly, after a charge of $127,000 for unamortized bond issuance costs, the Company realized an extraordinary gain of $273,000 before income taxes of $93,000 resulting in an after tax gain of $180,000 or $.02 per share. -90- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 11. 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, 1993 and 1992, deposits and other assets include $5,010,000 and $9,431,000, respectively, representing the Company's deposit with the CRDA of $7,488,000 as of December 31, 1993 and $14,121,000 as of December 31, 1992, net of a valuation allowance of $2,478,000 and $4,690,000, 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. The Company has requested and the CRDA has approved that $8,000,000 of the Company's deposits with the CRDA will be used in connection with the expansion of a City street leading to the Atlantic City Showboat. In connection with its approval, the CRDA required the Company to donate $2,000,000 of its deposits with the CRDA to certain public programs. Construction of the City street commenced in the fourth quarter of 1993 and is expected to be completed in 1994. The Company has reclassified these CRDA deposits, net of the valuation allowance, totaling $6,667,000 to construction in progress. When construction is complete, these costs will be amortized over seven years. The CRDA has set aside these deposits in a restricted account and the Company no longer receives the benefit of investment income on these funds. -91- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 11. NEW JERSEY INVESTMENT OBLIGATION (continued) 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. Pending the execution of a Credit Agreement with the CRDA, which states the terms and conditions by which the Company may receive funding credit, the Company may begin applying for and receiving funds from the CRDA as expenditures are made for the construction of the hotel rooms to the extent ACSI has available funds on deposit with the CRDA. The Company has approximately $2,500,000 in available deposits with the CRDA which they may apply for upon execution of the Credit Agreement, with the balance being applied to portions of future CRDA deposits. 12. COMMITMENTS AND CONTINGENCIES During 1993, the Company entered into construction contracts which commit the commit the Company to approximately $39,000,000 in expenditures in 1994 and approximately $7,000,000 in 1995. In December 1993, the Company agreed to purchase an additional 20% equity interest in Showboat Star Partnership from a partner for $9,000,000, increasing the Company's interest in the partnership to 50% subject to the approval of the Louisiana Riverboat Gaming Commission. The Louisiana Riverboat Gaming Commission approved the transaction in February 1994 and effective March 1, 1994, the Company acquired the additional 20% equity interest in Showboat Star Partnership. -92- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 12. COMMITMENTS AND CONTINGENCIES (continued) In February 1994, Showboat and Waterfront Entertainment and Development, Inc. formed the Showboat Marina Partnership (SMP). SMP has filed a gaming application with the Indiana Gaming Commission to operate a riverboat on Lake Michigan in East Chicago, Indiana. Under the terms of the partnership agreement, Showboat will own 55% of SMP and is required to make an initial capital contribution of $1,000,000 and an additional contribution of $16,500,000 at such later dates as specified in the initial development budget. On January 4, 1994 the Atlantic City Housing Authority and Urban Redevelopment Agency (ACHA) declared ACSI to be in default for noncompliance with certain provisions contained in the contract between the two parties for ACSI's purchase of the land in Atlantic City for a new hotel tower currently under construction. Since the declaration of default, ACSI has been diligently working to cure the defaults. Management believes that as result of such efforts ACHA will ultimately rescind its notice of default. The Company is involved in various claims and legal actions arising in the ordinary course of business. Additionally, the Company is presently undergoing an audit by the Internal Revenue Service for the tax years ending June 30, 1989 and 1990. The State of New Jersey is currently auditing the Company's state income tax returns for the tax years ended June 30, 1986 through 1992. 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. -93- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 13. SELECTED QUARTERLY DATA (Unaudited) Summarized unaudited financial data for interim periods for the years ended December 31, 1993 and 1992 are as follows: Quarter ended (a) Year --------------------------------------- ended 3/31/93 6/30/93 9/30/93 12/31/93 12/31/93 --------- --------- --------- --------- --------- (In thousands except per share data) Net revenues $85,496 $92,706 $108,005 $89,520 $375,727 Income from operations (b) 7,685 11,983 18,250 7,501 45,419 Income before extraordinary loss and cumula- tive effect adjustment(c)(d) 1,921 3,751 7,356 436 13,464 Net income (loss) 2,477 (2,928) 7,356 436 7,341 Income before extraordinary loss and cumulative effect adjustment per share(c)(d) 0.13 0.24 0.48 0.03 0.89 Net income (loss) per share 0.16 (0.20) 0.48 0.03 0.49 Quarter ended (a) Year --------------------------------------- ended 3/31/92 6/30/92 9/30/92 12/31/92 12/31/92 --------- --------- --------- --------- --------- (In thousands except per share data) Net revenues $85,523 $89,250 $99,105 $81,358 $355,236 Income from operations 10,074 12,224 18,981 5,229 46,508 Income before extraordinary loss(e) 2,628 3,973 8,426 830 15,857 Net income (loss) 2,628 3,973 8,426 (2,578) 12,449 Income before extraordinary loss per share (e) 0.23 0.34 0.73 0.07 1.37 Net income (loss) per share 0.23 0.34 0.73 (0.22) 1.08 -94- (continued) SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 13. SELECTED QUARTERLY DATA (Unaudited) (continued) (a) Quarterly results may not be comparable due to the seasonal nature of the Atlantic City operation. (b) In 1993, the Company acquired a 30% equity interest in Showboat Star Partnership 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, including the write-off of preopening costs of $1,274,000, is included in income from operations for the quarter ended December 31, 1993. (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 quarter ended June 30, 1993, the Company recognized an extraordinary loss of $6,679,000, net of tax, as a result of the redemption of all of its outstanding Mortgage-Backed Bonds (Note 10). (e) In the quarter ended December 31, 1992, the Company recognized an extraordinary loss of $3,408,000, net of tax, as a result of the planned redemption of all of its outstanding Debentures (Note 10). -95- Schedule II SHOWBOAT, INC. AND SUBSIDIARIES AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES For the Years Ended December 31, 1993, 1992 and 1991
Balance at end Deductions of period ------------------- ------------------- Balance at Amounts beginning Amounts written- Non- Name of debtor period Additions collected off Current Current - --------------------- --------- --------- --------- --------- --------- --------- (In thousands) Year ended December 31, 1993: R. Craig Bird $20 $ - $ - $ - $20 $ - Frank A. Modica 65 - - - 65 - Year ended December 31, 1992: R. Craig Bird $20 $ - $ - $ - $20 $ - Frank A. Modica 65 - - - 65 - Year ended December 31, 1991: R. Craig Bird $20 $ - $ - $ - $20 $ - Frank A. Modica 65 - - - 65 - Under the terms of the original agreements, these notes were due on demand on December 30, 1987 and September 25, 1987, respectively, and no demand was made. The notes were renewed and the notes are currently due on demand on August 4, 1994 and September 11, 1994, respectively. The notes from Mr. Bird and Mr. Modica are unsecured.
-96- Schedule V SHOWBOAT, INC. AND SUBSIDIARIES PROPERTY AND EQUIPMENT (In thousands) Years Ended December 31, 1993, 1992 and 1991
Other changes- add Balance at (deduct) Balance beginning Additions Retire- describe at end Classification of year at cost ments (a) of year - ------------------------------- --------- --------- --------- ------------------- For the year ended December 31, 1993: Land $3,609 $7 $ - $5,809 $9,425 Land improvements 841 - (300) - $541 Buildings 246,090 90 (349) 15,178 $261,009 Furniture and equipment 122,573 2,898 (7,210) 26,917 $145,178 Construction in progress 7,521 67,580 (3) (47,904) $27,194 --------- --------- --------- ------------------- $380,634 $70,575 ($7,862) $ - $443,347 ========= ========= ========= =================== For the year ended December 31, 1992: Land $3,609 $ - $ - $ - $3,609 Land improvements 841 - - - $841 Buildings 243,618 122 (7) 2,357 $246,090 Furniture and equipment 110,159 4,853 (3,312) 10,873 $122,573 Construction in progress 2,342 18,421 (12) (13,230) $7,521 --------- --------- --------- --------- --------- $360,569 $23,396 ($3,331) $ - $380,634 ========= ========= ========= ========= ========= For the year ended December 31, 1991: Land $3,609 $ - $ - $ - $3,609 Land improvements 841 - - - $841 Buildings 240,507 129 - 2,982 $243,618 Furniture and equipment 109,637 6,304 (8,956) 3,174 $110,159 Construction in progress 1,579 7,123 (204) (6,156) $2,342 --------- --------- --------- --------- --------- $356,173 $13,556 ($9,160) $ - $360,569 ========= ========= ========= ========= ========= (a) Reclassified from construction in progress
-97- Schedule VI SHOWBOAT, INC. AND SUBSIDIARIES ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT (In thousands) Years Ended December 31, 1993, 1992 and 1991 Balance Additions at charged to Balance beginning costs and Retire- at end Classification of year expenses ments of year - ------------------------------- --------- --------- --------- --------- For the year ended December 31, 1993: Land improvements $741 $24 ($304) $461 Buildings 42,658 7,019 (293) 49,384 Furniture and equipment 85,784 16,260 (6,362) 95,682 --------- --------- --------- --------- $129,183 $23,303 ($6,959) $145,527 ========= ========= ========= ========= For the year ended December 31, 1992: Land improvements $713 $28 $ - $741 Buildings 36,374 6,288 (4) 42,658 Furniture and equipment 73,010 15,696 (2,922) 85,784 --------- --------- --------- --------- $110,097 $22,012 ($2,926) $129,183 ========= ========= ========= ========= For the year ended December 31, 1991: Land improvements $685 $28 $ - $713 Buildings 30,234 6,143 (3) 36,374 Furniture and equipment 61,632 19,521 (8,143) 73,010 --------- --------- --------- --------- $92,551 $25,692 ($8,146) $110,097 ========= ========= ========= ========= -98- Schedule VIII SHOWBOAT, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (In thousands) Years Ended December 31, 1993, 1992 and 1991 Balance Charged at to costs Charged Balance beginning and to other Deductions at end Description of year expenses accounts (a) of year - --------------------- --------- --------- --------- --------- --------- Year ended December 31, 1993: Allowance for doubtful accounts $3,079 $1,849 $ - $1,982 $2,946 Year ended December 31, 1992: Allowance for doubtful accounts 3,988 1,644 - 2,553 3,079 Year ended December 31, 1991: Allowance for doubtful accounts 5,021 2,924 - 3,957 3,988 (a) Accounts written-off. -99- Schedule X SHOWBOAT, INC. AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION Years ended December 31, 1993, 1992 and 1991 Charged to costs and expenses Year ended December 31, ----------------------------- 1993 1992 1991 --------- --------- --------- (In thousands) Maintenance and repairs $9,455 $9,128 $8,571 ========= ========= ========= Taxes other than payroll and income taxes: Gaming taxes and licenses $26,580 $26,523 $24,378 Property taxes 7,374 6,529 6,088 Other 588 735 712 --------- --------- --------- $34,542 $33,787 $31,178 ========= ========= ========= Advertising costs $14,085 $11,864 $13,923 ========= ========= ========= Amortization of intangible assets is not set forth inasmuch as such items do not exceed one percent of total sales as shown in the related Consolidated Statements of Income. The Company pays no royalties. -100- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND ------------------------------------------------ -------------- FINANCIAL DISCLOSURE. -------------------- Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. -------------------------------------------------- The following information is furnished with respect to each member of the Board of Directors of the Company, each of whom, unless otherwise indicated, has served as a director continuously since the year shown opposite his or her name. Similar information is presented for the executive officers who are not directors. There are no family relationships between or among any of the Company's directors, nominees to the Board of Directors or executive officers, except: (a) J.K. Houssels and Jeanne S. Stewart formerly were married and are the parents of J. Kell Houssels, III; and (b) Carolyn M. Sparks is the daughter of Fred L. Morledge who was a director from 1960 until July 1990, and Mr. Morledge currently holds the title of Director Emeritus of the Company. 101 IDENTIFICATION OF DIRECTORS - ---------------------------
Name and Position with the Age Director Background Information/1/ Company/1/ Since ============================================================================== J.K. HOUSSELS 71 1960 Vice President of the Chairman of the Board, Board of Directors of Director, President and Chief Union Plaza Hotel and Executive Officer of the Casino, Inc., Las Vegas, Company; Director of Atlantic Nevada; until July 25, City Showboat, Inc.; Chairman 1991, Director of First of the Board and Director of Western Financial Showboat Operating Company, Corporation (savings and Showboat Development Company, loan association), Las Ocean Showboat, Inc., Ocean Vegas, Nevada. Showboat Finance Corporation, Showboat Louisiana, Inc., Lake Pontchartrain Showboat, Inc., Showboat Indiana, Inc., Showboat Mohawk, Inc. and Showboat Australia Pty Limited WILLIAM C. RICHARDSON 67 1972 Independent financial Director of the Company and consultant, Los Angeles, Ocean Showboat, Inc. California; since April 1, 1991, arbitrator and mediator for the American Arbitration Association; until March 30, 1991, President, Chief Executive Officer and Vice Chairman of Western Capital Finan- cial Group, Los Angeles, California. JOHN D. GAUGHAN 73 1978 Chairman of the Board and Director of the Company, President of Exber, Inc., Atlantic City Showboat, Inc., doing business as the El Showboat Operating Company, Cortez Hotel and the Showboat Development Company, Western Hotel and Casino, Ocean Showboat, Inc., Ocean Las Vegas, Nevada; Showboat Finance Corporation, Chairman of the Board of Showboat Louisiana, Inc., Lake Union Plaza Hotel and Pontchartrain Showboat, Inc., Casino, Inc., Las Vegas, Showboat Indiana, Inc., Nevada./2/ Showboat Mohawk, Inc. and Showboat Australia Pty Limited JEANNE S. STEWART 71 1979 Retired attorney, Las Director of the Company and Vegas, Nevada. Ocean Showboat, Inc.
102
Name and Position with the Age Director Background Information/1/ Company/1/ Since ============================================================================== FRANK A. MODICA 66 1980 Until December 31, 1989, Chief Operating Officer, President and Chief Execu- Executive Vice President and tive Officer of Atlantic Director of the Company; City Showboat, Inc.; Director, President and Chief Director of First Security Executive Officer of Showboat Bank (formerly Continental Operating Company; Director of National Bank), Las Vegas, Showboat Development Company; Nevada. Director, President and Chief Executive Officer of Ocean Showboat, Inc.; Director and President of Ocean Showboat Finance Corporation; Chairman of the Board of Atlantic City Showboat, Inc.; Director, President and Chief Executive Officer of Showboat Louisiana, Inc. and Lake Pontchartrain Showboat, Inc.; Director and Vice Chairman of Showboat Indiana, Inc. and Showboat Mohawk, Inc.; Director of Showboat Australia Pty Limited H. GREGORY NASKY 51 1983 Of counsel to the law firm Secretary and Director of the Kummer Kaempfer Bonner & Company and all subsidiaries; Renshaw, Las Vegas, Chief Executive Officer and Nevada, general counsel to Managing Director of Showboat the Company, since March Australia Pty Limited 1, 1994. Until March 1, 1994, member of the law firm of Vargas & Bartlett, Las Vegas and Reno, Nevada, previous general counsel to the Company. J. KELL HOUSSELS, III 44 1983 Until January 1, 1990, Director and Vice President of Senior Vice President and the Company; Director of Ocean Chief Operating Officer of Showboat, Inc., Ocean Showboat Atlantic City Showboat, Finance Corporation, Showboat Inc.; November 1985 until Operating Company, Showboat January 1, 1989, Assistant Development Company, Showboat to the President of Louisiana, Inc., Lake Atlantic City Showboat, Pontchartrain Showboat, Inc., Inc. and Showboat Australia Pty Limited; Executive Vice President of Ocean Showboat, Inc.; President and Chief Executive Officer of Atlantic City Showboat, Inc., Showboat Development Company, Showboat Mohawk, Inc. and Showboat Indiana, Inc.
103
Name and Position with the Age Director Background Information/1/ Company/1/ Since ============================================================================== GEORGE A. ZETTLER 66 1986 Since January 1, 1991, Director of the Company and President World Trade Ocean Showboat, Inc. Services Group, Long Beach, California; until January 1, 1991, Presi- dent, United Export Trad- ing Company, Los Angeles, California. CAROLYN M. SPARKS 52 1991 Co-owner of International Director of the Company and Insurance Services, Las Ocean Showboat, Inc. Vegas, Nevada; until January 1991 Vice President, Secretary and Treasurer of International Insurance Services, Ltd.; until December 31, 1990, claims administrator for International Insurance Services, Ltd.; Director of Southwest Gas Corpora- tion; Director of PriMerit Bank - Federal Savings Bank, Las Vegas, Nevada; Regent, University of Nevada System.
- --------------- /1/ Positions held with the Company and any other business experience since 1989 and other directorships in companies with a class of securities registered under Section 12 of the Securities Exchange Act of 1934 ("Exchange Act") or subject to the requirements of Section 15(d) of the Exchange Act and companies registered under the Investment Company Act of 1940. /2/ Mr. Gaughan also owns the Nevada Hotel and Casino, the Gold Spike Inn and Casino, and a controlling interest in the Las Vegas Club Hotel & Casino, each of which is located in Las Vegas, Nevada. NON-DIRECTOR EXECUTIVE OFFICERS - ------------------------------- G. Clifford Taylor, Jr., 48, has been Executive Vice President and Chief Operating Officer of the Company's Nevada subsidiaries since December 1, 1988. He has served as Assistant Secretary of the Company since May 1990. He has also served as Treasurer of the Company and Showboat Operating Company since February 1981, and Showboat Development Company since June 1983. He has been Treasurer of Ocean Showboat, Inc. since December 1983, Atlantic City Showboat, Inc. since June 1984 and Ocean Showboat Finance Corporation since December 1986. He serves at the pleasure of the respective boards of directors. 104 R. Craig Bird, 47, has been Vice President-Financial Administration of the Company since February 1988 and the Executive Vice President and Chief Operating Officer of Showboat Development Company since October 1993. Mr. Bird was Vice President-Financial Administration of Atlantic City Showboat, Inc. from March 1990 to October 1993. He serves at the pleasure of the respective boards of directors. Leann K. Schneider, 40, has been Vice President-Finance and Chief Financial Officer of the Company; Vice President-Finance and Chief Financial Officer of Showboat Operating Company since May 1990; Chief Financial Officer and Treasurer of Showboat Development Company since May 1993; and Treasurer of Showboat Mohawk, Inc., Showboat Louisiana, Inc. and Showboat Grande, Inc. since July 1993 and Treasurer of Showboat Indiana, Inc. since September 1993. From December 1989 until May 1990, she served as Vice President-Financial Relations and Chief Financial Officer of the Company. From December 1988 until December 1989, she served as Vice President-Financial Relations and Acting Chief Financial Officer of the Company. She serves at the pleasure of the respective boards of directors. Mark J. Miller, 37, has served as Executive Vice President and Chief Operating Officer of Atlantic City Showboat, Inc. since October 1993. Vice President-Finance of Ocean Showboat, Inc. since April 1988; and Vice President- Finance and Chief Financial Officer of Ocean Showboat Finance Corporation since April 1991. He served as Vice President-Finance and Chief Financial Officer of Atlantic City Showboat, Inc. from December 1988 to October 1993. He serves at the pleasure of the respective boards of directors. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 - -------------------------------------------------------------------- Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent of the Common Stock, to file with the Securities and Exchange Commission and the New York Stock Exchange initial reports of ownership and reports of changes in ownership of Common Stock. Directors, executive officers and greater than ten percent shareholders are required by Securities and Exchange Commission regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely upon review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 1993, all Section 16(a) filing requirements were complied with except that one report of ownership for one transaction, covering an aggregate of 500 shares, was filed late by J.K. Houssels, and one report of ownership for one 105 transaction, covering an aggregate of three shares, was filed late by George A. Zettler. Mr. Houssels' late filing disclosed a disposition by gift of 500 shares which was inadvertently not timely reported on Mr. Houssels' Forms 4, and Mr. Zettler's late filing disclosed a purchase of Common Stock due to a dividend reinvestment which also was inadvertently not timely reported on Mr. Zettler's Forms 4. The following tables set forth compensation received by J.K. Houssels, the Company's Chief Executive Officer, and the four other highest paid executive officers of the Company during the last fiscal year for each year of the three- year period ended December 31, 1993 for services rendered in all capacities to the Company and its subsidiaries: 106 SUMMARY COMPENSATION TABLE
Annual compensation Long term compensation --------------------------------------- -------------------------------------- Awards Payouts/1/ ---------------------- ------------- Restricted Long-Term Other annual stock Incentive All other compensation awards(s) Options/ Plans payouts compen- Name and principal position Year Salary ($) Bonus ($) ($) ($) SARs (#) ($) sation ($) ---- ----------- ---------- ------------- ---------- -------- ------------- ------------ J.K. Houssels,............. 1993 200,000.00 144,070.00 -0- -0- -0- -0- 8,994.00/3/ President and Chief 1992 200,000.00 128,718.00 36,096.00/2/ -0- -0- -0- 8,728.00/3/ Executive Officer of the 1991 200,000.00 -0- * -0- -0- -0- * Company Frank A. Modica,........... 1993 275,000.00 154,077.00 46,686.00/4/ -0- -0- 110,400.00/5/ -0- Executive Vice President 1992 275,000.00 152,232.00 -0- -0- -0- 95,606.63/6/ -0- and Chief Operating 1991 274,999.92 153,741.01 * -0- -0- 40,627.50/7/ * Officer of the Company J. Kell Houssels, III,..... 1993 275,000.00 164,174.00 -0- -0- -0- 110,400.00/5/ 8,994.00/3/ Vice President of the 1992 275,000.00 164,660.00 -0- -0- -0- 45,412.13/8/ 8,728.00/3/ Company; President and 1991 259,211.54 141,891.28 * -0- -0- 25,005.00/9/ * Chief Executive Officer of Atlantic City Showboat, Inc. R. Craig Bird,............. 1993 171,096.00 79,964.00 -0- -0- -0- 34,500.00/10 / 8,994.00/3/ Vice President- 1992 146,462.00 78,300.00 -0- -0- -0- 6,813.00/11/ 6,736.00/3/ Financial Administration 1991 134,952.68 80,202.49 * -0- -0- 3,750.00/11/ * of the Company Mark J. Miller,............ 1993 165,499.00 81,515.00 -0- -0- -0- 34,500.00/10/ 8,994.00/3/ Executive Vice President 1992 148,308.00 79,787.00 -0- -0- -0- 6,813.00/11/ 6,843.00/3/ and Chief Operating 1991 136,635.12 77,434.46 * -0- -0- 3,750.00/11/ * Officer of Atlantic City Showboat, Inc.
107 *Pursuant to the transitional provisions applicable to the revised rules on executive officer and director compensation disclosure adopted by the Securities and Exchange Commission, for the amounts of "Other Annual Compensation" and "All Other Compensation" for fiscal years ended before December 15, 1992, no disclosure is required. /1/Amounts represented in this column were received by the named individuals under either the Ocean Showboat, Inc. Stock Exchange Plan ("Stock Exchange Plan") or the Company's 1989 Executive Long-Term Incentive Plan ("1989 Plan") or both. Under the Stock Exchange Plan, the Company exchanged restricted shares of Common Stock for shares of Ocean Showboat, Inc. common stock. The restricted shares of Common Stock vested over a seven-year period, with the last of the restricted shares of Common Stock vesting in March 1992. The 1989 Plan is a Company-maintained incentive plan which provides for awards of restricted stock and stock options to key executives of the Company's operating subsidiaries. /2/This amount represents excess coverage life insurance costs. /3/This amount represents the Company's contribution to the named individual's 401(K) Plan account. /4/This amount includes $25,200 in costs for excess coverage life insurance and a $16,176 automobile allowance. /5/This amount represents the vesting of 4,800 shares under the 1989 Plan. /6/Of this amount, $73,806.63 (5,417 shares) vested under the Stock Exchange Plan and $21,800.00 (1,600 shares) vested under the 1989 Plan. /7/This amount represents the vesting of 5,417 shares under the Stock Exchange Plan. /8/Of this amount, $23,612.13 (1,733 shares) vested under the Stock Exchange Plan and $21,800.00 (1,600 shares) vested under the 1989 Plan. /9/Of this amount, $13,005.00 (1,734 shares) vested under the Stock Exchange Plan and $12,000.00 (1,600 shares) vested under the 1989 Plan. /10/This amount represents the vesting of 1,500 shares under the 1989 Plan. /11/This amount represents the vesting of 500 shares under the 1989 Plan. 108 AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of unexercised Value of unexercised in- options/SARs at the-money options/SARs at Shares Value December 31, 1993 (#) December 31, 1993 ($) acquired on realized -------------------------- -------------------------- Name exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable ---- ------------ -------- ----------- ------------- ----------- ------------- J.K. Houssels.......... -0- -0- 12,000 8,000 102,000 68,000 Frank A. Modica........ -0- -0- 16,000 16,000 136,000 136,000 J. Kell Houssels, III.. -0- -0- 19,200 12,800 163,200 108,800 R. Craig Bird.......... -0- -0- 6,000 4,000 51,000 34,000 Mark J. Miller......... -0- -0- 6,000 4,000 51,000 34,000
109 Compensation Committee Interlocks and Insider Participation. - ----------------------------------------------------------- The Company's executive compensation is determined by the Compensation Committee ("Compensation Committee") of the Board of Directors. Until November 1993, the Compensation Committee consisted of Messrs. Zettler and Nasky. In January 1994, the Compensation Committee was reconstituted to consist of Messrs. Zettler and Richardson. At all times during 1993, H. Gregory Nasky was a director of the Company and the Secretary of the Company and its subsidiaries. Mr. Nasky was appointed Chief Executive Officer and Managing Director of Showboat Australia Pty Limited in November 1993. Additionally, Mr. Nasky was a member of the law firm of Vargas & Bartlett, previous general counsel to the Company. On March 1, 1994, Vargas & Bartlett was reorganized from which the law firm of Kummer Kaempfer Bonner & Renshaw was formed and proceeded as general counsel to the Company. Mr. Nasky is of counsel to Kummer Kaempfer Bonner & Renshaw. During 1993, the law firm of Vargas & Bartlett was paid $57,696.61 by the Company's Nevada gaming subsidiary, $53,872.48 by the Company's New Jersey subsidiaries, $350,247.97 by Showboat Development, $196,182.12 by the Company for its public bond offering, and $122,288.25 by the Company for other parent company matters. Compensation of Directors - ------------------------- Remuneration of Non-Employee Directors. For 1993, each non-employee -------------------------------------- director received a retainer of $1,500 per quarter plus attendance fees of $1,000 per meeting attended. Such fees are paid by the Company and OSI, as applicable. In addition, non-employee members of the Compensation Committee and the Audit Committee are paid $850 for each committee meeting attended. Only non-employee directors receive the retainer or attendance fees. Reasonable out- of-pocket expenses incurred in attending scheduled meetings are reimbursed as to all directors. 1989 DIRECTORS' STOCK OPTION PLAN. The Company maintains a director --------------------------------- stock option plan entitled the 1989 Directors' Stock Option Plan ("Option Plan"). The Option Plan is designed to encourage non-employee directors to take a long-term view of the affairs of the Company; to attract and retain new superior non-employee directors; and to aid in compensating non-employee directors for their services to the Company. The Company's non-employee directors are William C. Richardson, John D. Gaughan, Jeanne S. Stewart, George A. Zettler and Carolyn M. Sparks. Stock options granted under the Option Plan are intended to be designated non-qualified options or options not qualified as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended. Subject to adjustment by reason of stock 110 dividend or split or other similar capital adjustments, an aggregate of 120,000 shares of Common Stock are reserved for issuance under the Option Plan. The administration of the Option Plan is carried out by a committee ("Committee") consisting of not less than two non-employee directors of the Company selected by and serving at the pleasure of the Company's Board of Directors. The Committee, unless permitted by holders of the majority of outstanding Common Stock, shall not have any discretion to determine or vary any matters which are fixed under the terms of the Option Plan. Fixed matters include, but are not limited to, which non-employee directors shall receive awards, the number of shares of the Common Stock subject to each option award, the exercise price of any option, and the means of acceptable payment for the exercise of the option. The Committee shall have the authority to otherwise interpret the Option Plan and make all determinations necessary or advisable for its administration. All decisions of the Committee are subject to approval of the Company's Board of Directors. Current members of the Committee are Mr. Zettler and Mr. Richardson. Under the terms of the Option Plan, each option shall be exercisable in full one year after the date of grant. Unless special circumstances exist, each option shall expire on the later of the tenth anniversary of the date of its grant or two years after the non-employee director retires. Each non-employee director initially receives a one-time option to purchase 5,000 shares of Common Stock following his or her election to the Board of Directors. Thereafter, each non-employee director receives a grant to purchase 1,000 shares of Common Stock each year, for five years following his or her election to the Board of Directors. The option exercise price is the greater of $7.625 or the fair market value, as defined under the Option Plan, of the Common Stock on the date such options are granted. The per share exercise price of options granted during 1993 pursuant to the Option Plan was $18.00. As of March 1, 1994, options representing 66,000 shares have been granted to the current five non-employee directors and three former non-employee directors and a director who has since become an employee. Of the outstanding options, options representing 60,000 shares are currently exercisable. The balance may not be exercised until April 27, 1994. As of December 31, 1993, none of the options granted pursuant to the Option Plan have been exercised. 111 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. ----------------------------------------------- -------------- The following table sets forth the number of shares of Common Stock and the number of shares of Common Stock subject to options held by the Company's directors and those executive officers named in the Summary Compensation Table (See "Item 11. Executive Compensation -- Summary Compensation Table."), by all directors and executive officers as a group, and by persons beneficially owning more than 5% of the outstanding Common Stock at the close of business on February 28, 1994. The address for all directors and executive officers of the Company is: Showboat, Inc., 2800 Fremont Street, Las Vegas, Nevada 89104. Security ownership was verified with filings with the Securities and Exchange Commission received by the Company, and according to individual verification as of February 28, 1994, which the Company solicited and received from the beneficial owners listed in the following table:
Name Amount and Nature of Beneficial Ownership - ---------------------------------------------------------------------------------------- Number of Shares Beneficially Owned Number of Shares Total Number Excluding Subject to of Shares Options Shares Subject to Beneficially Beneficially Option/1/ Owned/2/ Owned Percent ------------------ ---------------- --------------- ------- J.K. Houssels/3/.......... 1,179,208/4/ 20,000 1,199,208 8.0 William C. Richardson..... 5,000 9,000 14,000 * John D. Gaughan........... 174,824/5/ 9,000 183,824 1.2 Jeanne S. Stewart......... 406,686 9,000 415,686 2.8 Frank A. Modica........... 71,169/6/ 32,000 103,169 * H. Gregory Nasky.......... 7,209/7/ 9,000 16,209 * J. Kell Houssels, III/8/.. 81,017 32,000 113,017 * George A. Zettler......... 1,955 9,000 10,955 * Carolyn M. Sparks......... 350,058/9/ 7,000 357,058 2.4 R. Craig Bird/10/......... 10,000 10,000 20,000 * Mark J. Miller/11/........ 5,200 10,000 15,200 * All Directors and 2,318,993 186,000 2,504,993 16.5 Executive Officers as a Group (13 persons)............. FMR Corp.................. 1,237,350/12/ 0 1,237,350 8.3 State of Wisconsin 757,000/13/ 0 757,000 5.1 Investment Board..........
- --------------------- * Beneficial ownership does not exceed 1% of the outstanding Common Stock. 112 /1/Unless otherwise specifically stated herein, each person has sole voting power and sole investment power as to the identified Common Stock ownership. /2/Shares subject to currently exercisable options or otherwise subject to issuance within 60 days of February 28, 1994, pursuant to either the 1989 Executive Long-Term Incentive Plan or the 1989 Directors' Stock Option Plan. /3/Mr. Houssels may be deemed to be a control person. Mr. Houssels is the Chairman of the Board, President and Chief Executive Officer of the Company. /4/Mr. Houssels' shareholdings include 11,450 shares held in his individual retirement account and 35,700 shares as a trustee of the J.K. Houssels, Jr., 1976 Trust Agreement. He disclaims beneficial ownership of 7,800 shares owned by his wife and such shares are excluded from this table. /5/Mr. Gaughan's shareholdings include 86,000 shares held by Exber, Inc., a Nevada corporation controlled by Mr. Gaughan, and 69,674 shares over which he shares voting power and investment power with his wife. /6/Mr. Modica is the Executive Vice President and Chief Operating Officer of the Company. Mr. Modica's shareholdings include 2,600 shares over which he shares voting power and investment power with his wife. /7/Mr. Nasky is the Secretary of the Company. Mr. Nasky's shareholdings include 1,000 shares owned by Mr. Nasky's wife over which he does not have voting power or investment power. /8/Mr. Houssels, III is the Vice President of the Company. Mr. Houssels, III is also the President and Chief Executive Officer of Atlantic City Showboat, Inc., a subsidiary of the Company. /9/Mrs. Sparks' shareholdings include 227,000 shares beneficially owned by her as a co-trustee of the Fred L. Morledge Family Trust and 123,058 shares beneficially owned by her as a co-trustee of The Sparks Family Trust. /10/Mr. Bird is the Vice President-Financial Administration of the Company and Chief Operating Officer of Showboat Development Company. /11/Mr. Miller is the Vice President and Chief Operating Officer of Atlantic City Showboat, Inc., a subsidiary of the Company. /12/FMR Corp. ("FMR"), the parent holding company of Fidelity Management & Research Company, reported on a Schedule 13G, dated February 11, 1994, that it has sole investment discretion with respect to all of such shares and sole voting discretion with respect to 51,706 of such shares. With respect to such shares, FMR beneficially owns 880,650 shares or 5.9% of the total outstanding Common Stock at December 31, 1993, on behalf of Fidelity Magellan Fund, an investment company registered under the Investment Company Act of 1940. FMR's address is 82 Devonshire Street, Boston, MA 02109. /13/State of Wisconsin Investment Board ("Investment Board"), a Wisconsin State Agency, reported on a Schedule 13G, dated February 8, 1994, that it has sole voting and investment discretion to all such shares. The Investment Board's address is P.O. Box 7842, Madison, Wisconsin 53707. 113 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. ---------------------------------------------- The Company made an unsecured loan to Frank A. Modica, Chief Operating Officer, Executive Vice President and Director of the Company, in the amount of $64,659.50 on September 30, 1993. Effective January 1, 1994, the loan was reduced to $56,801.75. The loan is payable on demand, or if no demand is made, on December 31, 1994, unless extended. The loan bears no interest, but interest is imputed to Mr. Modica at a rate of 3.91% per annum, compounded monthly. The Company made an unsecured loan to R. Craig Bird, Vice President- Financial Administration of the Company, and his spouse in the amount of $20,400.69 on August 5, 1993. The loan is payable on demand, or if no demand is made on August 4, 1994, unless extended. The loan bears no interest, but interest is imputed to Mr. and Mrs. Bird at a rate of 3.85% per annum, compounded monthly. The Company's subsidiary, Atlantic City Showboat, Inc., leases space at the Atlantic City Showboat to Mr. Bird for the operation of a gift shop and certain vending machines. During 1993, Mr. Bird paid rent and vending commissions to Atlantic City Showboat, Inc. in the amount of $112,888.29 and $39,793.89, respectively. The Company entered into a five-year lease agreement with Exber, Inc. commencing on February 15, 1994, for land nearby the Las Vegas Showboat. Exber, Inc., a Nevada corporation controlled by John D. Gaughan, a Director of the Company, has rights to the land pursuant to a sublease agreement dated November 5, 1966. The Company pays monthly rent of $13,095.80 and has an option to purchase the land and all of Exber, Inc.'s rights thereto for the purchase price of $1.4 million. Carolyn M. Sparks, a Director of the Company, is a co-owner of International Insurance Services, Ltd. The Company engaged International Insurance Services, Ltd. as its insurance adjuster for the Company's Nevada subsidiaries. During 1993, the Company paid International Insurance Services, Ltd. $115,858 for services rendered to the Company. Mr. Nasky was a member of the law firm of Vargas & Bartlett, previous general counsel to the Company. For information regarding fees paid to Vargas & Bartlett, see "Item 11. Executive Compensation -- Compensation Committee Interlocks and Insider Participation." 114 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 at December 31, 1993 and 1992; Consolidated Statements of Income for the Years Ended December 31, 1993, 1992 and 1991; Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1993, 1992 and 1991; Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1992 and 1991; and Notes to Consolidated Financial Statements (2) The following additional information for the Years Ended December 31, 1993, 1992 and 1991 is submitted herewith/ SEE ITEM 8., FINANCIAL STATEMENT AND SUPPLEMENTARY DATA: Schedule II Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties Schedule V Property and equipment Schedule VI Accumulated Depreciation and Amortization of Property and Equipment Schedule VIII Valuation and Qualifying Accounts Schedule X Supplementary income statement information 115 All other schedules are omitted because they are not required, inapplicable, or the information is otherwise shown in the financial statements or notes thereto. (3) Exhibits/1/ Exhibit Number Description/2/ - ------- ----------- 3.01 Restated Articles of Incorporation of the Company dated June 28, 1988 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1988, Part IV, Item 14(a)(3), Exhibit 3.01. 3.02 Restated Bylaws of the Company dated February 25, 1993, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 3.02. 4.01 Specimen common stock certificate for the common stock of the Company, is incorporated herein by reference from the Company's Form 10-Q for the Quarter Ended March 31, 1985, Part II, Item 6(a), Exhibit 4.01. 4.02 Form of Indenture for the 9 1/4% First Mortgage Bonds due 2008 among the Company, OSI, ACSI, SBOC, and Trustee dated May 18, 1993; Guaranty in favor of the Trustee issued by OSI, ACSI and SBOC; and Form of Bond Certificate for the 9 1/4% First Mortgage Bonds due 2008 are incorporated herein by reference from the Company's Form 8-K, dated May 18, 1993, Item 5, Exhibit 28.01. 10.01 Ground Lease between OSI and Resorts International, Inc. ("Resorts") dated October 26, 1983 is incorporated by reference herein from the Company's Form 8-K, as amended by the Form 8, filed with the Securities and Exchange Commission on November 28, 1983. Assignment and Assumption of Leases between OSI and ACSI dated December 3, 1985; First Amendment to Agreement between Resorts and ACSI dated January 15, 1985; Second Amendment to Lease - ---------------- /1/Copies of exhibits to this Form 10-K will be furnished to any requesting security holder who furnishes the Company a list identifying the exhibits to be copied by the Company at a charge of $.25 per page. /2/All exhibits which are incorporated by reference are incorporated from the Company's respective periodic reports, Securities and Exchange Commission File Number 1-7123. 116 Agreement between Resorts and ACSI dated July 5, 1985 are incorporated herein by reference from the Form 10-K 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 and ACSI is incorporated herein by reference from the Form 10-K for the Year Ended June 30, 1986, Part IV, Item 14(a)(3), Exhibit 10.08; Fourth Amendment to Lease Agreement by and between Resorts and ACSI dated December 16, 1986; Fifth Amendment to Lease Agreement between Resorts and ACSI dated March 2, 1987; Sixth Amendment to Lease Agreement between Resorts and ACSI dated March 13, 1987; Indemnity Agreement among Resorts, ACSI, and OSI dated January 15, 1985; Amended Indemnity Agreement among Resorts, ACSI, and OSI dated December 3, 1985 are incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.02; and Seventh Amendment to Lease Agreement between Resorts and ACSI dated October 18, 1988 is incorporated herein by reference from the Company's Form 8-K dated November 16, 1988, Item 7(c), Exhibit 28.01; and Eighth Amendment to Lease Agreement by and between ACSI and Resorts International, Inc. dated May 18, 1993 are incorporated by reference from the Company's Form 8-K, dated May 18, 1993, Item 5, Exhibit 28.06. 10.02 Equipment Lease Agreement by and between Tri-Continental Leasing Corporation and ACSI dated as of April 29, 1986; and Guarantee of SBO dated April 29, 1986 are incorporated herein by reference from the Company's Form 8-K dated April 21, 1986, Item 7(c), Exhibit 10.02; Progress Payment Agreement among Tri-Continental Leasing Corporation, ACSI, Tele-Measurements, Inc. dated April 29, 1986; Purchase Agreement Assignment among Tri-Continental Leasing Corporation, ACSI and Tele-Measurements, Inc. dated April 29, 1986; and Amendment to Lease Agreement dated April 10, 1986 between Tri-Continental Leasing Corporation and ACSI dated April 29, 1987 are incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.05. 10.03 Agreement dated June 26, 1986 between Tri-Continental Leasing Corporation and ACSI; Corporate Guaranty dated June 9, 1986 of SBO are incorporated herein by reference from the Company's Form 8-K, dated June 17, 1986, Item 7(c), Exhibit 10.01; Commitment letter to ACSI from Tri-Continental Leasing Corporation dated May 19, 1986; Purchase Agreement Assignment among Tri-Continental Leasing Corporation, ACSI and DCA Incorporated dated August 1, 1986; Progress Payment Agreement among Tri- 117 Exhibit Number Description - ------- ----------- Continental Leasing Corporation, ACSI and DCA Incorporated dated August 1, 1986; and Amendment to Lease Agreement dated May 22, 1986 between Tri-Continental Leasing Corporation and ACSI among Bell- Atlantic Tri-Con Leasing Corporation, ACSI and SBO dated April 29, 1987 are incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.06. 10.04 Corporate Guaranty of SBO dated June 9, 1986; Equipment Lease between Tri-Continental Leasing Corporation and ACSI dated June 26, 1986; Purchase Agreement Assignment among Tri-Continental Leasing Corporation, ACSI and Bally Manufacturing Corporation dated August 1, 1986; Progress Payment Agreement among Tri-Continental Leasing Corporation, ACSI, and Bally Manufacturing Corporation dated September 1, 1986; Amendment to Lease Agreement dated May 22, 1986 between Tri- Continental Leasing Corporation and ACSI among Bell-Atlantic Tri-Con Leasing Corporation, ACSI and SBO dated April 29, 1987 are incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.07. 10.05 Equipment Lease and Addendum between Bell-Atlantic Tri-Con Leasing Corporation and ACSI dated May 29, 1987; and Corporate Guaranty of SBO dated May 7, 1987 are incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.08. 10.06 Corporate Guaranty of SBO dated May 28, 1987; and Equipment Lease between Bell-Atlantic Tri-Con Leasing Corporation, ACSI and SBO dated August 19, 1987 are incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.09. 10.07 Tax Allocation Agreement among SBO and each of its subsidiaries dated effective May 10, 1993 is incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.11. First Amendment to Tax Allocation Agreement among SBO and each of its subsidiaries dated effective May 10, 1993. 118 Exhibit Number Description - ------- ----------- 10.08 Promissory Note in the principal amount of $56,801.75 between the Company and Frank A. Modica dated December 31, 1993. 10.09 Form of Indemnification Agreement between SBO and each director and officer of the Company is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1987, Part IV, Item 14(a)(3), Exhibit 10.13. 10.10 Statement regarding the Company's Incentive Bonus Plans is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.12. 10.11 Parent Services Agreement by and between Company and ACSI dated November 21, 1985 is incorporated herein by reference from the Company's Form 8-K, dated November 25, 1985, Item 7(c), Exhibit 10.01. Amendment No. 1 to Parent Services Agreement by and between the Company and ACSI dated February 1, 1987 is incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.17. Amendment No. 2 to Parent Services Agreement by and between the Company and ACSI dated December 31, 1990 is incorporated herein by reference from the Company's Form 8-K, dated December 31, 1990, Item 7(c), Exhibit 28.01; and Amendment No. 3 to Parent Services Agreement by and between the Company and ACSI dated May 8, 1991 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1991, Part IV, Item 14(a)(3), Exhibit 10.14. Agreement No. 4 to Parent Services Agreement by and between the Company and ACSI dated August 17, 1993. 10.12 Closing Escrow Agreement among Housing Authority and Urban Redevelopment Agency of the City of Atlantic City, Resorts, ACSI, Trump Taj Mahal Associates Limited Partnership, and Clapp & Eisenberg, P.C. dated as of September 21, 1988; Agreement as to Assumption of Obligations with Respect to Properties among ACSI, Trump Taj Mahal Realty Corp. dated as of September 21, 1988; First Amendment of Agreement as to Assumption of Obligations with Respect to Properties among ACSI, Trump Taj Mahal Associates Limited Partnership, and Trump Taj Mahal Realty Corp. dated as of September 21, 1988; 119 Exhibit Number Description - ------- ----------- Settlement Agreement among ACSI, Trump Taj Mahal Associates Limited Partnership, Trump Taj Mahal Realty Corp., Resorts and the Housing Authority and Urban Renewal Redevelopment Agency of the City of Atlantic City dated October 18, 1988; Tri-Party Agreement among Resorts International, Inc., ACSI and Trump Taj Mahal Associates Limited Partnership dated October 18, 1988; Declaration of Easement and Right of Way Agreement between the Housing Authority and Redevelopment Agency of the City of Atlantic City, as grantor, and ACSI, as grantee, dated October 18, 1988; and Certificate of Trump Taj Mahal Associates Limited Partnership and Resorts, dated November 16, 1988 are incorporated herein by reference from the Company's Form 8-K dated November 16, 1988, Item 7(c), Exhibit 28.01; Revised Second Amendment to Agreement as to Assumption of Obligations with Respect to Properties among ACSI, Trump Taj Mahal Associates Limited Partnership and Trump Taj Mahal Realty Corp. dated as of May 24, 1989, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1989, Part IV, Item 14(a)(3), Exhibit 10.17. 10.13 Lease between the Company and Showboat Operating Company, dated January 1, 1989 is incorporated herein by reference from the Company's Form 8-K, dated January 1, 1989, Item 7(c), Exhibit 28.01. 10.14 Management Services Agreement between SBO and Showboat Operating Company, dated January 1, 1989, is incorporated herein by reference from the Company's Form 8-K, dated January 1, 1989, Item 7(c), Exhibit 28.03. 10.15 Promissory Note in the principal amount of $20,400.69 among SBO, R. Craig Bird and Debra E. Bird, dated August 5, 1993. 10.16 Securities Purchase Contract between the Casino Reinvestment Development Authority and ACSI dated March 29, 1988 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1988, Part IV, Items 14(a)(3), Exhibit 10.23. 10.17 Lease of Retail Store #7 among ACSI, R. Craig Bird and Debra E. Bird dated April 10, 1987; Guaranty of Lease among ACSI, R. Craig Bird and Debra E. Bird are incorporated herein by reference from the Company's Form 120 Exhibit Number Description - ------- ----------- 10-K for the Year Ended December 31, 1988, Part IV, Item 14(a)(3), Exhibit 10.24. 10.18 ACSI Executive Health Examinations Plan effective date January 1, 1989 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1989, Part IV, Item 14(a)(3), Exhibit 10.24. 10.19 ACSI Executive Medical Reimbursement Plan, effective date August 15, 1991, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1991, Part IV, Item 14(a)(3), Exhibit 10.23. 10.20 SBO, Showboat Operating Company, and ACSI 1989 Long Term Incentive Plan As Amended and Restated February 25, 1993 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.23. 10.21 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. is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.24. 10.22 Aircraft Services Agreement by and between SCG Travel, Inc. and ACSI, dated as of October 6, 1989; and First Amendment to Aircraft Services Agreement by and between SCG Travel, Inc. and ACSI dated as of December 18, 1990 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1990, Part IV, Item 14(a)(3), Exhibit 10.30; and Second Amendment to Aircraft Services Agreement by and between SCG Travel, Inc. and ACSI dated as of October 28, 1991 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1991, Part IV, Item 14(a)(3), Exhibit 10.26. 10.23 Equipment Lease Agreement between Valley Leasing Company, Inc. ("Valley"), as lessor, and Showboat Operating Company, as lessee, Lease No. 7700140-1, dated August 15, 1990, Amendments to Equipment Lease Agreement between Valley, as lessor, and Showboat Operating Company, as lessee, Lease No. 7700140-1, dated August 22, 1990, 121 Exhibit Number Description - ------- ----------- Purchase Option between Valley, as lessor, and Showboat Operating Company, as lessee, Lease No. 7700140-1, dated August 15, 1990, Certificate of Guarantor and Authorization of Guaranty between Valley, as lessor, Showboat Operating Company, as lessee, and SBO, as guarantor, Lease No. 7700140-1, dated December 24, 1990, and Continuing Guaranty between Valley, as lessor, Showboat Operating Company, as lessee, and SBO, as guarantor, Lease No. 7700140-1; Equipment Lease Agreement between Valley, as lessor, and Showboat Operating Company, as lessee, Lease No. 7700140-2, dated September 14, 1990, Purchase Option between Valley, as lessor, and Showboat Operating Company, as lessee, for Lease No. 7700140-2, dated September 14, 1990, Certificate of Guarantor and Authorization of Guaranty between Valley, as lessor, Showboat Operating Company, as lessee, and SBO, as guarantor, Lease No. 7700140-2, dated December 24, 1990, and Continuing Guaranty between Valley, as lessor, Showboat Operating Company, as lessee, and SBO as guarantor, Lease No. 7700140-2; Equipment Lease Agreement between Valley, as lessor, and Showboat Operating Company, as lessee, Lease No. 7700140-3, dated December 24, 1990, and Purchase Option between Valley, as lessor, and Showboat Operating Company, as lessee, dated December 24, 1990 are incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1990, Part IV, Item 14(a)(3), Exhibit 10.31. 10.24 SBO 1989 Directors' Stock Option Plan As Amended and Restated February 25, 1993 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.27. 10.25 Deed of Trust, Assignment of Rents, Security Agreement made by the Company to Nevada Title Company for the benefit of Trustee dated as of May 18, 1993; Showboat, Inc. Security and Pledge Agreement between the Company and the Trustee dated as of May 18, 1993; Trademark Security Agreement by SBO in favor of the Trustee dated as of May 18, 1993; Unsecured Indemnity Agreement executed by the Company in favor of the Trustee dated May 18, 1993; and Showboat Operating Company Security Agreement between SBOC and the Trustee dated as of May 18, 1993 are incorporated by reference from the Company's Form 8-K, dated May 18, 1993, Item 5, Exhibit 28.02. 122 Exhibit Number Description - ------- ----------- 10.26 Leasehold Mortgage, Assignment of Rents, Security Agreement ("Guaranty") made by ACSI for the benefit of Trustee dated May 18, 1993; Assignment of Leases and Rents by and between ACSI and Trustee dated as of May 18, 1993; and Ocean Showboat, Inc. Security and Pledge Agreement between OSI and the Trustee dated as of May 18, 1993 are incorporated by reference from the Company's Form 8-K, dated May 18, 1993, Item 5, Exhibit 28.03. 10.27 Intercompany Note in the principal amount of $215.0 million, dated as of May 18, 1993; Assignment of Lease and Rents by and between ACSI and the Company dated as of May 18, 1993; and Issuer Collateral Assignment executed by ACSI in favor of Trustee dated May 18, 1993 are incorporated by reference from the Company's Form 8-K, dated May 18, 1993, Item 5, Exhibit 28.04. 10.28 First Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement among AACSI and the Company dated July 9, 1993 is incorporated by reference from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.01. 10.29 First Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement among ACSI and IBJ Schroder Bank & Trust Company dated July 9, 1993 is incorporated by reference from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.02. 10.30 Assignment of Rights under Agreement by ACSI, as assignee, to IBJ Schroder Bank & Trust Company dated July 9, 1993 is incorporated by reference from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.03. 10.31 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 from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.04. 10.32 Use and Occupancy Agreement between ACHA and ACSI dated July 7, 1993 is incorporated by reference from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.05. 123 Exhibit Number Description - ------- ----------- 10.33 Standard Form of Agreement between Owner and Contractor (AIA Document A111) executed by ACSI and T.N. Ward Company dated July 2, 1993 is incorporated by reference from the Company's Form 8-K, dated July 2, 1993, Item 5, Exhibit 28.01. 10.34 Standard Form of Agreement Between Owner and Contractor (AIA Document A111) executed by ACSI and T.N. Ward Company dated September 15, 1993 is incorporated by reference from the Company's Form 8-K, dated July 2, 1993, Item 5, Exhibit 28.02. 10.35 Showboat Star Partnership Agreement between Star Casino, Inc. and Showboat Louisiana, Inc. dated July 2, 1993 and First Amendment to Showboat Star Partnership Agreement between Star Casino, Inc. and Showboat Louisiana, Inc. dated July 20, 1993 is incorporated by reference from the Company's Form 8-K, dated July 2, 1993, Item 5, Exhibit 28.01; Second Amendment to Showboat Star Partnership Agreement between Star Casino, Inc. and Showboat Louisiana, Inc. dated August 1, 1993; and Third Amendment to Showboat Star Partnership Agreement between Star Casino, Inc and Showboat Louisiana, Inc. dated March 1, 1994. 10.36 Management Agreement by and between Lake Pontchartrain Showboat, Inc. and Star Casino, Inc. dated May 24, 1993 is incorporated by reference from the Company's Form 8-K, dated July 2, 1993, Item 5, Exhibit 28.02. 10.37 Marine Management Services Agreement between Louisiana Riverboat Services, Inc. and Showboat Star Partnership dated September 30, 1993. 10.38 Agreement between Showboat, Inc., Showboat Indiana, Inc., Showboat Operating Company, Showboat Development Company, Showboat Indiana Investment Limited Partnership and Waterfront Entertainment and Development, Inc. dated September 13, 1993; and Showboat Marina Partnership Agreement between Waterfront Entertainment and Development, Inc. and Showboat Investment Limited Partnership dated January 31, 1994. 10.39 Lease between the Company and Exber, Inc. effective January 14, 1994; and Sublease between Dodd Smith and 124 Exhibit Number Description - ------- ----------- John D. Gaughan and Leslie C. Schwartz, dated November 5, 1966. 10.40 Lease between Showboat Star Partnership and Orleans Levee District dated February 18, 1993; First Amendment to Lease dated August 27, 1993. 10.41 Lease between Showboat Star Partnership and Orleans Levee District dated February 1, 1994. 10.42 Lease between Showboat Operating Company and Ventroy Associates executed on December 20, 1993. 21.01 List of Subsidiaries. 23.01 Consent of KPMG Peat Marwick dated March 30, 1994. (b) Reports on Form 8-K. ------------------- None. 125 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by this undersigned, thereunto duly authorized. REGISTRANT: SHOWBOAT, INC. By: /s/ J.K. Houssels ------------------------------- J.K. HOUSSELS, President and Chief Executive Officer (principal executive officer) DATE: March 29, 1994 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 29, 1994 By: /s/ J.K. Houssels ---------------------------------- J.K. Houssels,President and Chief Executive Officer (principal executive officer) March 29, 1994 By: /s/ Leann K. Schneider ------------------------------------ Leann K. Schneider, Vice President- Finance and Chief Financial Officer (principal accounting officer) March 29, 1994 By: /s/ William C. Richardson ----------------------------------- William C. Richardson, Director March 29, 1994 By: /s/ John D. Gaughan ---------------------------------- John D. Gaughan, Director March 29, 1994 By: /s/ Jeanne S. Stewart ------------------------------------ Jeanne S. Stewart, Director March 29, 1994 By: /s/ Frank A. Modica ----------------------------------- Frank A. Modica, Director, Chief Operating Officer and Executive Vice President 126 March __, 1994 By: ___________________________________ H. Gregory Nasky, Director and Secretary March 29, 1994 By: /s/ J. Kell Houssels III ------------------------------------- J. Kell Houssels III, Director and Vice President March 29, 1994 By: /s/ George A. Zettler ----------------------------------- George A. Zettler, Director March 29, 1994 By: /s/ Carolyn M. Sparks ----------------------------------- Carolyn M. Sparks, Director 127 EXHIBIT INDEX ------------- Exhibit Sequential Number Description/1/ Page Number - ------- ----------- ----------- 3.01 Restated Articles of Incorporation of the Company dated June 28, 1988 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1988, Part IV, Item 14(a)(3), Exhibit 3.01. 3.02 Restated Bylaws of the Company dated February 25, 1993, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 3.02. 4.01 Specimen common stock certificate for the common stock of the Company, is incorporated herein by reference from the Company's Form 10-Q for the Quarter Ended March 31, 1985, Part II, Item 6(a), Exhibit 4.01. 4.02 Form of Indenture for the 9 1/4% First Mortgage Bonds due 2008 among the Company, OSI, ACSI, SBOC, and Trustee dated May 18, 1993; Guaranty in favor of the Trustee issued by OSI, ACSI and SBOC; and Form of Bond Certificate for the 9 1/4% First Mortgage Bonds due 2008 are incorporated herein by reference from the Company's Form 8-K, dated May 18, 1993, Item 5, Exhibit 28.01. 10.01 Ground Lease between OSI and Resorts International, Inc. ("Resorts") dated October 26, 1983 is incorporated by reference herein from the Company's Form 8-K, as amended by the Form 8, filed with the Securities and Exchange Commission on November 28, 1983. Assignment and Assumption of Leases between OSI and ACSI dated December 3, 1985; First Amendment to Agreement between Resorts and ACSI dated January 15, 1985; Second Amendment to Lease Agreement between Resorts and ACSI dated July 5, 1985 are incorporated herein by reference - ----------- /1/All exhibits which are incorporated by reference are incorporated from the Company's respective periodic report, Securities and Exchange Commission File Number 1-7123. from the Form 10-K 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 and ACSI is incorporated herein by reference from the Form 10-K for the Year Ended June 30, 1986, Part IV, Item 14(a)(3), Exhibit 10.08; Fourth Amendment to Lease Agreement by and between Resorts and ACSI dated December 16, 1986; Fifth Amendment to Lease Agreement between Resorts and ACSI dated March 2, 1987; Sixth Amendment to Lease Agreement between Resorts and ACSI dated March 13, 1987; Indemnity Agreement among Resorts, ACSI, and OSI dated January 15, 1985; Amended Indemnity Agreement among Resorts, ACSI, and OSI dated December 3, 1985 are incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.02; and Seventh Amendment to Lease Agreement between Resorts and ACSI dated October 18, 1988 is incorporated herein by reference from the Company's Form 8-K dated November 16, 1988, Item 7(c), Exhibit 28.01; and Eighth Amendment to Lease Agreement by and between ACSI and Resorts International, Inc. dated May 18, 1993 are incorporated by reference from the Company's Form 8-K, dated May 18, 1993, Item 5, Exhibit 28.06. 10.02 Equipment Lease Agreement by and between Tri-Continental Leasing Corporation and ACSI dated as of April 29, 1986; and Guarantee of SBO dated April 29, 1986 are incorporated herein by reference from the Company's Form 8-K dated April 21, 1986, Item 7(c), Exhibit 10.02; Progress Payment Agreement among Tri-Continental Leasing Corporation, ACSI, Tele-Measurements, Inc. dated April 29, 1986; Purchase Agreement Assignment among Tri-Continental Leasing Corporation, ACSI and Tele-Measurements, Inc. dated April 29, 1986; and Amendment to Lease Agreement dated April 10, 1986 between Tri-Continental Leasing Corporation and ACSI dated April 29, 1987 are incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.05. Exhibit Number Description - ------- ----------- 10.03 Agreement dated June 26, 1986 between Tri-Continental Leasing Corporation and ACSI; Corporate Guaranty dated June 9, 1986 of SBO are incorporated herein by reference from the Company's Form 8-K, dated June 17, 1986, Item 7(c), Exhibit 10.01; Commitment letter to ACSI from Tri-Continental Leasing Corporation dated May 19, 1986; Purchase Agreement Assignment among Tri-Continental Leasing Corporation, ACSI and DCA Incorporated dated August 1, 1986; Progress Payment Agreement among Tri-Continental Leasing Corporation, ACSI and DCA Incorporated dated August 1, 1986; and Amendment to Lease Agreement dated May 22, 1986 between Tri-Continental Leasing Corporation and ACSI among Bell- Atlantic Tri-Con Leasing Corporation, ACSI and SBO dated April 29, 1987 are incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.06. 10.04 Corporate Guaranty of SBO dated June 9, 1986; Equipment Lease between Tri-Continental Leasing Corporation and ACSI dated June 26, 1986; Purchase Agreement Assignment among Tri-Continental Leasing Corporation, ACSI and Bally Manufacturing Corporation dated August 1, 1986; Progress Payment Agreement among Tri-Continental Leasing Corporation, ACSI, and Bally Manufacturing Corporation dated September 1, 1986; Amendment to Lease Agreement dated May 22, 1986 between Tri- Continental Leasing Corporation and ACSI among Bell-Atlantic Tri-Con Leasing Corporation, ACSI and SBO dated April 29, 1987 are incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.07. 10.05 Equipment Lease and Addendum between Bell-Atlantic Tri-Con Leasing Corporation and ACSI dated May 29, 1987; and Corporate Guaranty of SBO dated May 7, 1987 are incorporated herein by reference from the Company's Form 10-K for Exhibit Number Description - ------- ----------- the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.08. 10.06 Corporate Guaranty of SBO dated May 28, 1987; and Equipment Lease between Bell-Atlantic Tri-Con Leasing Corporation, ACSI and SBO dated August 19, 1987 are incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.09. 10.07 Tax Allocation Agreement among SBO and each of its subsidiaries dated effective May 10, 1993 is incorporated herein by reference from the Company's Form 10-K for the Year Ended June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.11. First Amendment to Tax Allocation Agreement among SBO and each of its subsidiaries dated effective May 10, 1993. 10.08 Promissory Note in the principal amount of $56,801.75 between the Company and Frank A. Modica dated December 31, 1993. 10.09 Form of Indemnification Agreement between SBO and each director and officer of the Company is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1987, Part IV, Item 14(a)(3), Exhibit 10.13. 10.10 Statement regarding the Company's Incentive Bonus Plans is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.12. 10.11 Parent Services Agreement by and between Company and ACSI dated November 21, 1985 is incorporated herein by reference from the Company's Form 8-K, dated November 25, 1985, Item 7(c), Exhibit 10.01. Amendment No. 1 to Parent Services Agreement by and between the Company and ACSI dated February 1, 1987 is incorporated herein by reference from the Company's Form 10-K for the Year Ended June Exhibit Number Description - ------- ----------- 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.17. Amendment No. 2 to Parent Services Agreement by and between the Company and ACSI dated December 31, 1990 is incorporated herein by reference from the Company's Form 8-K, dated December 31, 1990, Item 7(c), Exhibit 28.01; and Amendment No. 3 to Parent Services Agreement by and between the Company and ACSI dated May 8, 1991 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1991, Part IV, Item 14(a)(3), Exhibit 10.14. Agreement No. 4 to Parent Services Agreement by and between the Company and ACSI dated August 17, 1993. 10.12 Closing Escrow Agreement among Housing Authority and Urban Redevelopment Agency of the City of Atlantic City, Resorts, ACSI, Trump Taj Mahal Associates Limited Partnership, and Clapp & Eisenberg, P.C. dated as of September 21, 1988; Agreement as to Assumption of Obligations with Respect to Properties among ACSI, Trump Taj Mahal Realty Corp. dated as of September 21, 1988; First Amendment of Agreement as to Assumption of Obligations with Respect to Properties among ACSI, Trump Taj Mahal Associates Limited Partnership, and Trump Taj Mahal Realty Corp. dated as of September 21, 1988; Settlement Agreement among ACSI, Trump Taj Mahal Associates Limited Partnership, Trump Taj Mahal Realty Corp., Resorts and the Housing Authority and Urban Renewal Redevelopment Agency of the City of Atlantic City dated October 18, 1988; Tri-Party Agreement among Resorts International, Inc., ACSI and Trump Taj Mahal Associates Limited Partnership dated October 18, 1988; Declaration of Easement and Right of Way Agreement between the Housing Authority and Redevelopment Agency of the City of Atlantic City, as grantor, and ACSI, as grantee, dated October 18, 1988; and Certifi-cate of Trump Taj Mahal Associates Limited Partnership and Resorts, dated November 16, 1988 are incorporated herein by reference from the Company's Form 8-K dated November 16, Exhibit Number Description - ------- ----------- 1988, Item 7(c), Exhibit 28.01; Revised Second Amendment to Agreement as to Assumption of Obligations with Respect to Properties among ACSI, Trump Taj Mahal Associates Limited Partnership and Trump Taj Mahal Realty Corp. dated as of May 24, 1989, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1989, Part IV, Item 14(a)(3), Exhibit 10.17. 10.13 Lease between the Company and Showboat Operating Company, dated January 1, 1989 is incorporated herein by reference from the Company's Form 8-K, dated January 1, 1989, Item 7(c), Exhibit 28.01. 10.14 Management Services Agreement between SBO and Showboat Operating Company, dated January 1, 1989, is incorporated herein by reference from the Company's Form 8-K, dated January 1, 1989, Item 7(c), Exhibit 28.03. 10.15 Promissory Note in the principal amount of $20,400.69 among SBO, R. Craig Bird and Debra E. Bird, dated August 5, 1993. 10.16 Securities Purchase Contract between the Casino Reinvestment Development Authority and ACSI dated March 29, 1988 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1988, Part IV, Items 14(a)(3), Exhibit 10.23. 10.17 Lease of Retail Store #7 among ACSI, R. Craig Bird and Debra E. Bird dated April 10, 1987; Guaranty of Lease among ACSI, R. Craig Bird and Debra E. Bird are incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1988, Part IV, Item 14(a)(3), Exhibit 10.24. 10.18 ACSI Executive Health Examinations Plan effective date January 1, 1989 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1989, Part IV, Item 14(a)(3), Exhibit 10.24. Exhibit Number Description - ------- ----------- 10.19 ACSI Executive Medical Reimbursement Plan, effective date August 15, 1991, is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1991, Part IV, Item 14(a)(3), Exhibit 10.23. 10.20 SBO, Showboat Operating Company, and ACSI 1989 Long Term Incentive Plan As Amended and Restated February 25, 1993 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.23. 10.21 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. is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.24. 10.22 Aircraft Services Agreement by and between SCG Travel, Inc. and ACSI, dated as of October 6, 1989; and First Amendment to Aircraft Services Agreement by and between SCG Travel, Inc. and ACSI dated as of December 18, 1990 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1990, Part IV, Item 14(a)(3), Exhibit 10.30; and Second Amendment to Aircraft Services Agreement by and between SCG Travel, Inc. and ACSI dated as of October 28, 1991 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1991, Part IV, Item 14(a)(3), Exhibit 10.26. 10.23 Equipment Lease Agreement between Valley Leasing Company, Inc. ("Valley"), as lessor, and Showboat Operating Company, as lessee, Lease No. 7700140-1, dated August 15, 1990, Amendments to Equipment Lease Agreement between Valley, as lessor, and Showboat Exhibit Number Description - ------- ----------- Operating Company, as lessee, Lease No. 7700140-1, dated August 22, 1990, Purchase Option between Valley, as lessor, and Showboat Operating Company, as lessee, Lease No. 7700140-1, dated August 15, 1990, Certificate of Guarantor and Authorization of Guaranty between Valley, as lessor, Showboat Operating Company, as lessee, and SBO, as guarantor, Lease No. 7700140-1, dated December 24, 1990, and Continuing Guaranty between Valley, as lessor, Showboat Operating Company, as lessee, and SBO, as guarantor, Lease No. 7700140-1; Equipment Lease Agreement between Valley, as lessor, and Showboat Operating Company, as lessee, Lease No. 7700140-2, dated September 14, 1990, Purchase Option between Valley, as lessor, and Showboat Operating Company, as lessee, for Lease No. 7700140-2, dated September 14, 1990, Certificate of Guarantor and Authorization of Guaranty between Valley, as lessor, Showboat Operating Company, as lessee, and SBO, as guarantor, Lease No. 7700140-2, dated December 24, 1990, and Continuing Guaranty between Valley, as lessor, Showboat Operating Company, as lessee, and SBO as guarantor, Lease No. 7700140-2; Equipment Lease Agreement between Valley, as lessor, and Showboat Operating Company, as lessee, Lease No. 7700140-3, dated December 24, 1990, and Purchase Option between Valley, as lessor, and Showboat Operating Company, as lessee, dated December 24, 1990 are incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1990, Part IV, Item 14(a)(3), Exhibit 10.31. 10.24 SBO 1989 Directors' Stock Option Plan As Amended and Restated February 25, 1993 is incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.27. 10.25 Deed of Trust, Assignment of Rents, Security Agreement made by the Company to Nevada Title Company for the benefit of Trustee dated as of Exhibit Number Description - ------- ----------- May 18, 1993; Showboat, Inc. Security and Pledge Agreement between the Company and the Trustee dated as of May 18, 1993; Trademark Security Agreement by SBO in favor of the Trustee dated as of May 18, 1993; Unsecured Indemnity Agreement executed by the Company in favor of the Trustee dated May 18, 1993; and Showboat Operating Company Security Agreement between SBOC and the Trustee dated as of May 18, 1993 are incorporated by reference from the Company's Form 8-K, dated May 18, 1993, Item 5, Exhibit 28.02. 10.26 Leasehold Mortgage, Assignment of Rents, Security Agreement ("Guaranty") made by ACSI for the benefit of Trustee dated May 18, 1993; Assignment of Leases and Rents by and between ACSI and Trustee dated as of May 18, 1993; and Ocean Showboat, Inc. Security and Pledge Agreement between OSI and the Trustee dated as of May 18, 1993 are incorporated by reference from the Company's Form 8-K, dated May 18, 1993, Item 5, Exhibit 28.03. 10.27 Intercompany Note in the principal amount of $215.0 million, dated as of May 18, 1993; Assignment of Lease and Rents by and between ACSI and the Company dated as of May 18, 1993; and Issuer Collateral Assignment executed by ACSI in favor of Trustee dated May 18, 1993 are incorporated by reference from the Company's Form 8-K, dated May 18, 1993, Item 5, Exhibit 28.04. 10.28 First Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement among AACSI and the Company dated July 9, 1993 is incorporated by reference from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.01. 10.29 First Amendment to the Leasehold Mortgage, Assignment of Rents and Security Agreement among ACSI and IBJ Schroder Bank & Trust Company dated July 9, 1993 is incorporated by Exhibit Number Description - ------- ----------- reference from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.02. 10.30 Assignment of Rights under Agreement by ACSI, as assignee, to IBJ Schroder Bank & Trust Company dated July 9, 1993 is incorporated by reference from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.03. 10.31 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 from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.04. 10.32 Use and Occupancy Agreement between ACHA and ACSI dated July 7, 1993 is incorporated by reference from the Company's Form 8-K, dated July 7, 1993, Item 5, Exhibit 28.05. 10.33 Standard Form of Agreement between Owner and Contractor (AIA Document A111) executed by ACSI and T.N. Ward Company dated July 2, 1993 is incorporated by reference from the Company's Form 8-K, dated July 2, 1993, Item 5, Exhibit 28.01. 10.34 Standard Form of Agreement Between Owner and Contractor (AIA Document A111) executed by ACSI and T.N. Ward Company dated September 15, 1993 is incorporated by reference from the Company's Form 8-K, dated July 2, 1993, Item 5, Exhibit 28.02. 10.35 Showboat Star Partnership Agreement between Star Casino, Inc. and Showboat Louisiana, Inc. dated July 2, 1993 and First Amendment to Showboat Star Partnership Agreement between Star Casino, Inc. and Showboat Louisiana, Inc. dated July 20, 1993 is incorporated by reference from the Company's Form 8-K, dated July 2, 1993, Item 5, Exhibit 28.01; Second Amendment to Showboat Star Partnership Agreement between Star Casino, Inc. and Showboat Louisiana, Inc. dated August 1, 1993; and Third Amendment to Showboat Star Exhibit Number Description - ------- ----------- Partnership Agreement between Star Casino, Inc and Showboat Louisiana, Inc. dated March 1, 1994. 10.36 Management Agreement by and between Lake Pontchartrain Showboat, Inc. and Star Casino, Inc. dated May 24, 1993 is incorporated by reference from the Company's Form 8-K, dated July 2, 1993, Item 5, Exhibit 28.02. 10.37 Marine Management Services Agreement between Louisiana Riverboat Services, Inc. and Showboat Star Partnership dated September 30, 1993. 10.38 Agreement between Showboat, Inc., Showboat Indiana, Inc., Showboat Operating Company, Showboat Development Company, Showboat Indiana Investment Limited Partnership and Waterfront Entertainment and Development, Inc. dated September 13, 1993; and Showboat Marina Partnership Agreement between Waterfront Entertainment and Development, Inc. and Showboat Investment Limited Partnership dated January 31, 1994. 10.39 Lease between the Company and Exber, Inc. effective January 14, 1994; and Sublease between Dodd Smith and John D. Gaughan and Leslie C. Schwartz, dated November 5, 1966. 10.40 Lease between Showboat Star Partnership and Orleans Levee District dated February 18, 1993. First Amendment to Lease dated August 27, 1993. 10.41 Lease between Showboat Star Partnership and Orleans Levee District dated February 1, 1994. 10.42 Lease between Showboat Operating Company and Ventroy Associates executed on December 20, 1993. 21.01 List of Subsidiaries. Exhibit Number Description - ------- ----------- 23.01 Consent of KPMG Peat Marwick dated March 30, 1994. (b) Reports on Form 8-K. ------------------- None. EX-10.07 2 FIRST AMENDMENT TO TAX SHARING AGREEMENT EXHIBIT 10.07 SHOWBOAT, INC. AND CONSOLIDATED SUBSIDIARIES AFFILIATED GROUP FIRST AMENDMENT TO TAX SHARING AGREEMENT This First Amendment to Tax Sharing Agreement ("First Amendment") is made as of May __, 1993, by and between Showboat, Inc., a Nevada corporation (the "Parent"), and each of its subsidiaries, Showboat Operating Company, Showboat Development Company, Lake Pontchartrain Showboat, Inc., Ocean Showboat, Inc., Atlantic City Showboat, Inc. and Ocean Showboat Finance Corporation (collectively, the "Subsidiaries"). R E C I T A L S A. The parties hereto (hereinafter sometimes referred to as "Members", or in singular "Member") are a part of an affiliated group ("Affiliated Group") as defined by the Internal Revenue Code of 1986, as amended ("Code"), Section 1504(a). B. The Members entered into a tax sharing Agreement ("Agreement") dated as of the 1st day of the consolidated return year beginning July 1, 1983, whereby the Affiliated Group allocated the consolidated "federal income tax liability" of each party. C. The parties hereto wish: (a) To amend the Agreement to add a Subsidiary, Lake Pontchartrain Showboat, Inc., to the Agreement; (b) to delete a Subsidiary, Showboat Sports, Inc., as a Member of the Agreement; and (c) clarify the calculation pursuant to which the federal income tax liability of the Affiliated Group is distributed amongst the Members. In consideration of the above Recitals and of the covenants and conditions contained herein, the Members hereby agree as follows: 1. The Parent's Subsidiaries are: Showboat Operating Company Showboat Development Company Lake Pontchartrain Showboat, Inc. Ocean Showboat, Inc. Atlantic City Showboat, Inc. Ocean Showboat Finance Corporation 2. All references in the Agreement to the Internal Revenue Code of 1954, as amended, are hereby deleted and replaced with the Code. 3. Paragraph 3, Step 2, Subparagraph (b) is deleted and replaced in its entirety as follows: "Gain or loss on intercompany transactions, whether deferred or not, shall be treated by each Member in the manner required by Regulation Section 1.1502-13, or in any other reasonable manner as determined by the Treasurer of the Parent." 4. The final sentence of Paragraph 3 is hereby deleted. 5. Paragraph 4, subparagraph (b) is hereby deleted and replaced in its entirety with the following: "It is acknowledged that allocations under Step 2 and Step 3 to individual Members of the Affiliated Group will also create liabilities and receivables among the Members as specified in subparagraph (a)." 6. Paragraph 6 is hereby deleted and replaced in its entirety with the following: "Each Member shall pay the Parent its allocated consolidated federal income tax liability under Step 1 of paragraph 3 of this Agreement. Each Member benefiting from net operating losses and tax credits shall pay to the Parent its added tax assessment determined under Step 2 of paragraph 3 of this Agreement. The Parent shall pay to each Member with a net operating loss or tax credits during the taxable year its allocable share of the total of the additional amounts due from other Members pursuant to Step 3 of paragraph 3 of this Agreement. Payments for these allocable shares are to be made no later than ten (10) days after receiving notice of such amounts from the Parent." 7. Paragraph 8 is deleted and replaced in its entirety with the following: "If part or all of an unused consolidated net operating loss for tax credit is allocated to a Member of the Affiliated Group pursuant to 2 Regulation Section 1.1502-79, and it is carried back or forward to a year in which such Member filed a separate income tax return or a consolidated federal income tax return with another affiliated group, any refund or reduction in tax liability arising from the carryback or carryover shall be retained by such Member. (If such refund or reduction goes to some entity other than the Member, then such Member shall vigorously attempt collection of the refund or reduction from such other entity.) Notwithstanding the above, the Parent shall determine whether an election shall be made not to carryback any consolidated net operating loss arising in a consolidated return year (including any portion allocated to a Member under Regulation Section 1.1502-79, in accordance with Section 172(b)(3)(c)." 8. New Paragraphs 22 and 23 shall be added as follows: "22. Notwithstanding any of the foregoing, it is the intent of the Members that the allocation of the consolidated 'federal income tax liability' shall be based on the income and losses of the respective Members on a stand-alone basis with intercompany transactions treated in a reasonable and equitable manner as determined by the Parent. 23. Each Member agrees that it will join Parent in any consolidated, combined, or unitary, state or local income, or franchise tax returns or reports ("Combined Return") as requested by Parent for any taxable year after the Effective Date in which it is a Member. For any taxable year for which a Combined Return is filed that includes a Member, this Agreement shall be applied to all matters relating to such Combined Return in a manner similar to and consistent with its application to Federal income tax matters." 9. Except as expressly amended or modified by this First Amendment, all of the terms and conditions of the Agreement shall remain unchanged and in full force and effect. 3 10. This First Amendment shall be construed and enforced in accordance with the laws of the State of Nevada. DATED as of the date first above-written. SHOWBOAT, INC. SHOWBOAT OPERATING COMPANY By:_______________________ By:_______________________ Its:______________________ Its:______________________ SHOWBOAT DEVELOPMENT COMPANY LAKE PONTCHARTRAIN SHOWBOAT, INC. By:_______________________ By:_______________________ Its:______________________ Its:______________________ OCEAN SHOWBOAT, INC. ATLANTIC CITY SHOWBOAT, INC. By:_______________________ By:_______________________ Its:______________________ Its:______________________ OCEAN SHOWBOAT FINANCE CORPORATION By:_______________________ Its:______________________ 4 EX-10.08 3 PROMISSORY NOTE EXHIBIT 10.08 PROMISSORY NOTE $56,801.75 December 31, 1993 On demand, or if no demand is made, on December 31, 1994, for value received, the undersigned promise to pay to Showboat, Inc. or order (hereafter "Holder"), at 2800 Fremont Street, Las Vegas, Nevada 89104, the principal sum of Fifty-Six Thousand Eight Hundred One and seventy-five/one-hundredths Dollars ($56,801.75) without interest; provided, however, for federal income tax purposes (Revenue Ruling 93-55), interest shall be imputed to the undersigned at the rate of 3.91% per annum, compounded monthly. The undersigned may, at any time, prepay all or any portion of this Note without penalty. Any and all payments hereunder shall be payable in lawful money of the United States, which shall be legal tender in payment of all debts at the time of payment. Should payment of any principal not be made when due, the undersigned shall be in default. If such default is not cured within ten (10) days from the date thereof, the whole sum of principal shall become immediately due and payable at the option of the Holder, and the Holder may exercise any and all rights and remedies it may possess at law or in equity for the collection of this obligation. If any action is taken by Holder (whether by court proceeding or otherwise) to enforce payment of this Note, the undersigned promise to pay to Holder any and all costs of such action, including all reasonable attorneys' fees and costs incurred therein. /s/ Frank A. Modica --------------------------- FRANK A. MODICA EX-10.11 4 AMENDMENT NO. 4 TO PARENT SERVICES AGREEMENT EXHIBIT 10.11 AMENDMENT NO. 4 TO PARENT SERVICES AGREEMENT ------------------------- This Amendment No. 4 to Parent Services Agreement ("Fourth Amendment"), dated August 17, 1993, is entered into by and between Showboat, Inc., a Nevada corporation ("SBO"), and Atlantic City Showboat, Inc., a New Jersey corporation ("ACSI"). BACKGROUND OF AGREEMENT A. SBO and ACSI are parties to a certain Parent Services Agreement dated November 1985, as modified by Amendment No. 1 to Parent Services Agreement dated as of February 1, 1987, Amendment No. 2 to Parent Services Agreement dated as of December 31, 1990, and Amendment No. 3 to Parent Services Agreement dated as of May 8, 1991 (collectively, the "Parent Services Agreement"). B. The previous amendments to the Parent Services Agreement were made necessary, in large part, as a result of the issuance by Ocean Showboat Finance Corporation ("OSFC"), a New Jersey corporation, or $180 million principal amount of 11 3/8% Mortgage-Backed Bonds due 2002 ("OSFC Bonds") pursuant to an Indenture dated as of March 15, 1987 by and among OSFC, an Issuer, Ocean Showboat, Inc., as Guarantor, and First Fidelity Bank, N.A., New Jersey, as Trustee. C. SBO sold $275 million principal amount of 9 1/4% First Mortgage Bonds due 2008 on May 11, 1993 (the "Bond Offering"). SBO used a portion of the proceeds of the Bond Offering to redeem all of the outstanding OSFC Bonds, the result of which was to terminate all obligations of all parties pursuant to the Indenture for the OSFC Bonds and any other documents related to the Indenture. D. SBO and ACSI desire to amend the Parent Services Agreement by deleting in their entirety Amendments No. 1, 2 and 3 to the Parent Services Agreement following approval by the New Jersey Casino Control Commission. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, SBO and ACSI agree as follows: 1. Terms no otherwise defined herein shall have the meaning ascribed such terms in the Parent Services Agreement. Except as provided herein, all other terms, provisions, rights and obligations of SBO to perform Services in accordance with the Parent Services Agreement, shall continue. 2. Effective upon the approval of this Fourth Amendment by the New Jersey Casino Control Commission ("Commission"), all provisions of the following amendments to the Parent Services Agreement shall be deleted in their entirety: A. Amendment No. 1 to Parent Services Agreement. 2 B. Amendment No. 2 to Parent Services Agreement. C. Amendment No. 3 to Parent Services Agreement. 3. Paragraph 3 of the Parent Services Agreement is hereby deleted in its entirety and replaced with the following: 3. Consideration. In consideration of SBO's furnishing the Services ------------- and granting the License, ACSI shall pay to SBO a fee ("Fee") equal to 5 percent (5%) of gross revenues. The Fee shall be paid monthly, not later than 30 days after the end of each calendar month. 4. Paragraph 4 of the Parent Services Agreement is hereby deleted in its entirety and replaced with the following: 4. Term. This Agreement shall continue in effect for ten (10) years, ---- unless and until terminated by either party upon not less than 90 days' prior written notice to the other party. 5. Paragraph 5 of the Parent Services Agreement is hereby deleted in its entirety and replaced with the following: 5. Amendments. This Agreement may be amended only by an instrument ---------- in writing duly executed by the parties hereto. 6. Paragraph 6.5 of the Parent Services Agreement is hereby deleted in its entirety and replaced with the following: 6.5 Third Parties. This Agreement shall in no way impose any ------------- obligation to third parties, and ACSI agrees to indemnify SBO against and hold it harmless from any and all liabilities, fees or expenses, including 3 reasonable attorneys' fees, SBO may incur in the event any such obligation is sought to be imposed against SBO. 7. Paragraph 6.6 of the Parent Services Agreement is amended by deleting therefrom the reference to and address for Carteret Savings and Loan Association. 8. The parties affirm that the intent of this Fourth Amendment is to restore the Parent Services Agreement to its original form, as amended only by this Amendment No. 4 to Parent Services Agreement, and to rescind and terminate all provisions of Amendments No. 1, 2, and 3 to the Parent Services Agreement. IN WITNESS WHEREOF, the parties have caused this Amendment No. 4 to Parent Services Agreement to be executed in their respective corporate names by their duly authorized officers as of the date indicated above. ATLANTIC CITY SHOWBOAT, INC. By:/s/ J.K. Houssels, III --------------------------- J.K. Houssels, III President & Chief Executive Officer SHOWBOAT, INC. By:/s/ J.K. Houssels --------------------------- J.K. Houssels President & Chief Executive Officer 4 EX-10.15 5 PROMISSORY NOTE EXHIBIT 10.15 PROMISSORY NOTE $20,400.69 AUGUST 5, 1993 On demand, or if no demand is made, on August 4, 1994, for value received, the undersigned promise to pay to Showboat, Inc. or order (hereafter "Holder"), at 2800 Fremont Street, Las Vegas, Nevada 89104, the principal sum of Twenty Thousand Four Hundred and sixty-nine/one-hundredths Dollars ($20,400.69) without interest; provided, however, for federal income tax purposes (Revenue Ruling 93-51), interest shall be imputed to the undersigned at the rate of 3.85% per annum, compounded monthly. The undersigned may, at any time, prepay all or any portion of this Note without penalty. Any and all payments hereunder shall be payable in lawful money of the United States, which shall be legal tender in payment of all debts at the time of payment. Should payment of any principal not be made when due, the undersigned shall be in default. If such default is not cured within ten (10) days from the date thereof, the whole sum of principal shall become immediately due and payable at the option of the Holder, and the Holder may exercise any and all rights and remedies it may possess at law or in equity for the collection of this obligation. If any action is taken by Holder (whether by court proceeding or otherwise) to enforce payment of this Note, the undersigned promise to pay to Holder any and all costs of such action, including all reasonable attorneys' fees and costs incurred therein. /s/ R. Craig Bird ------------------------------ R. CRAIG BIRD /s/ Debra E. Bird ------------------------------ DEBRA E. BIRD EX-10.35 6 SECOND AMENDMENT TO SHOWBOAT STAR PARTNERSHIP AGREEMENT EXHIBIT 10.35 SECOND AMENDMENT TO SHOWBOAT STAR PARTNERSHIP AGREEMENT ----------------------------------- This Second Amendment to the Showboat Star Partnership Agreement (the "Second Amendment") is made as of the 1st day of August, 1993 by and among Star Casino, Inc. ("Star"), a Louisiana corporation, and Showboat Louisiana, Inc. ("Showboat"), a Nevada corporation. Capitalized terms not defined herein have the meanings set forth in the Showboat Star Partnership Agreement, as amended. WITNESSETH: WHEREAS, Star and Showboat entered into the Showboat Star Partnership Agreement on the 2nd day of July, 1993, and, thereafter, Star and Showboat entered into the First Amendment to Showboat Star Partnership Agreement as of the 20th day of July, 1993 (the Showboat Star Partnership Agreement as amended being referred to herein as the "Agreement"); and WHEREAS, Star and Showboat desire to amend the Agreement; NOW, THEREFORE, in consideration of the covenants herein contained and intending to be mutually bound, the parties hereto agree as follows: Section 3.7 of the Agreement is amended to read as follows, rather than as previously written: "a. Initial Capital Contributions. Upon the execution of the ----------------------------- Agreement the Majority Partners shall contemporaneously each make the following initial Capital Contributions (each Majority Partner's contribution shall be conditioned on the other making its contribution): (i) Star - $700 (ii) Showboat - $300 b. Capital Contributions following Effective Date. Star shall, ---------------------------------------------- immediately following the effective date of this amendment, or as soon as practicable thereafter, make an additional Capital Contribution consisting of all of its right, title and interest in and to an application for a Louisiana Riverboat Gaming License (the "License Application"). Immediately after the Effective Date, or as soon as practical thereafter, the Majority Partners shall each make the following additional Capital Contributions (each Majority Partner's contribution shall be conditioned on the other's making its contribution): (i) Star - $1,638,108.93 cash, and all of Star's property interests in any way relating to the Casino Facilities. Star shall execute the necessary documentation evidencing the transfer of all of its right, title and interest in and to all of the non-cash assets described in this Section 3.7(b)(i), and the Partnership shall assume all of Star's contractual obligations relating to such assets. Notwithstanding anything contained in this Agreement to the contrary, Star shall provide to Showboat a detailed accounting, with supporting documentation, of the cost of said non-cash assets as of the Effective Date. Star and Showboat hereby agree that the fair market value of the License Application and the non-cash assets described in this Section 3.7b(i) are $33,361,891.07. (ii) Showboat - $15,000,000 cash c. Additional Capital Contributions. Additional Capital -------------------------------- Contributions shall be made by the Majority Partners in the following percentages: Star 70% Showboat 30% 100%" ---- The balance of the Agreement is not changed by this Second Amendment and shall remain in full force and effect. 2 IN WITNESS WHEREOF, the parties have executed this Second Amendment as of the date first above written. STAR CASINO, INC. By: /s/ Louie Roussel, III ------------------------------ LOUIE ROUSSEL, III, President SHOWBOAT LOUISIANA, INC. By: /s/ Frank A. Modica ------------------------------ FRANK A. MODICA, President and Chief Executive Officer 3 ACKNOWLEDGEMENT --------------- STATE OF LOUISIANA PARISH OF JEFFERSON BE IT KNOWN, that on this 26th day of October, 1993, before me, the undersigned Notary, duly commissioned, qualified and sworn within and for the State and Parish aforesaid, personally came and appeared Louie Roussel, III, appearing herein in his capacity as the President of Star Casino, Inc., to be personally known to be the identical person whose name is subscribed to the foregoing instrument as the said officer of the said corporation, and declared and acknowledged to me, Notary, in the presence of the undersigned competent witnesses, that he executed the same on behalf of the said corporation with full authority of its Board of Directors, and that the said instrument is the free act and deed of the said corporation and was executed for the uses, purposes and benefits therein expressed. WITNESSES: /s/ Jane C. Brady ------------------------- /s/ Louie Roussel, III ----------------------------- LOUIE ROUSSEL, III /s/ Donna H. Donohoe ------------------------- /s/ ---------------------- NOTARY PUBLIC 4 STATE OF NEVADA PARISH OF CLARK BE IT KNOWN, that on this 12th day of November, 1993, before me, the undersigned Notary, duly commissioned, qualified and sworn within and for the State and County aforesaid, personally came and appeared Frank A. Modica, appearing herein in his capacity as the President and Chief Executive Officer of Showboat Louisiana, Inc., to be personally known to be the identical person whose name is subscribed to the foregoing instrument as the said officer of the said corporation, and declared and acknowledged to me, Notary, in the presence of the undersigned competent witnesses, that he executed the same on behalf of the said corporation with full authority of its Board of Directors, and that the said instrument is the free act and deed of the said corporation and was executed for the uses, purposes and benefits therein expressed. WITNESSES: /s/ Mary B. Rando ------------------------ /s/ Frank A. Modica ---------------------------- FRANK A. MODICA /s/ G.C. Taylor, Jr. ------------------------ /s/ Jean Y. Zorn -------------------- NOTARY PUBLIC 5 EXHIBIT 10.35 THE INTEREST REPRESENTED BY THIS AGREEMENT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH DISPOSITION WILL NOT VIOLATE SUCH ACT OR ANY STATE SECURITIES LAW OR THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED. STAR CASINO, INC. MAY REQUIRE AN OPINION OF COUNSEL TO SUCH EFFECT PRIOR TO SUCH DISPOSITION. THIRD AMENDMENT TO SHOWBOAT STAR PARTNERSHIP AGREEMENT ----------------------------------- This Third Amendment to the Showboat Star Partnership Agreement (the "Third Amendment") is made as of the first day of March, 1994 by and among Star Casino, Inc., a Louisiana corporation ("Star"), Showboat Louisiana, Inc., a Nevada corporation ("Showboat"), and the Minority Partners whose signatures appear below (the "Minority Partners"). Capitalized terms not defined herein have the meanings set forth in the Showboat Star Partnership Agreement, as amended. WITNESSETH: WHEREAS, Star and Showboat entered into the Showboat Star Partnership Agreement on the 2nd day of July, 1993, and, thereafter, Star and Showboat entered into the First Amendment to Showboat Star Partnership Agreement as of the 20th day of July, 1993 and the Second Amendment to Showboat Star Partnership Agreement as of the 1st day of August, 1993 (the Showboat Star Partnership Agreement as so amended and as amended hereby being referred to hereinafter as the "Agreement"); WHEREAS, the Effective Date has occurred, and Star desires to sell to the Minority Partners, and the Minority Partners desire to purchase, the Percentage Interests described herein, in accordance with Section 2.1 of the Agreement; WHEREAS, the Minority Partners have each entered into a General Partnership Interest Subscription Agreement with Star; WHEREAS, Star desires to sell to Showboat, and Showboat desires to purchase, the Percentage Interest described herein; WHEREAS, Showboat has entered into a General Partnership Interest Purchase Agreement; WHEREAS, Star and Showboat desire to change the management of the Partnership from a Managing Partner to a Management Committee; and WHEREAS, Star, Showboat, and the Minority Partners desire to amend the Agreement in certain other respects; NOW THEREFORE, in consideration of the covenants herein contained and intending to be mutually bound, the parties hereto agree as follows: I. Sale of a Portion of Star's Percentage Interest to Minority Partners. -------------------------------------------------------------------- Effective as of March 1, 1994 (the "Third Amendment Effective Date"), Star hereby sells and delivers to each Minority Partner, and each Minority Partner hereby purchases and accepts from Star, a portion of Star's Percentage Interest such that each Minority Partner will own the Percentage Interest set forth opposite the Minority Partner's name in Section VII below, in accordance with the terms and conditions set forth herein, in the Agreement, and in the General Partnership Interest Subscription Agreements between Star and each Minority Partner. II. Admission of Minority Partners. The parties hereto hereby agree to ------------------------------ admit each Minority Partner as a Partner in the Partnership, and each Minority Partner hereby agrees to be bound by the terms of the Agreement. III. Sale of a Portion of Star's Percentage Interest to Showboat. ----------------------------------------------------------- Effective as of the Third Amendment Effective Date, Star hereby sells and delivers to Showboat, and Showboat hereby purchases and accepts from Star, a portion of Star's Percentage Interest such that Showboat's Percentage Interest will be increased from 30% to 50%, in accordance with the terms and conditions set forth herein, in the Agreement, and in the General Partnership Interest Purchase Agreement between Star and Showboat. IV. Amendment to Section 1.14. Section 1.14 of the Agreement is amended ------------------------- to read as follows, rather than as previously written: "1.14 Management Committee. The Management Committee of the Partnership, -------------------- as designated in Section 5.1 below." V. Amendment to Section 2.6. Section 2.6 of the Agreement is amended to ------------------------ read as follows, rather than as previously written: "2.6 Principal Place of Business. The principal business establishment of --------------------------- the partnership shall be located at 414 Northline Avenue, Metairie, Louisiana 70005. The Management Committee may, in its sole discretion, change the location of the principal business establishment of the Partnership, and if does so, it shall promptly notify the Partners of such new location within five (5) days of such change." VI. Amendment to Section 2.8. Section 2.8 of the Agreement is amended to ------------------------ read as follows, rather than as previously written: "2.8 Certificate. Following the Effective Date, Star shall perform all ----------- acts necessary to assure the prompt filing of such certificate of fictitious name as is required by Louisiana law, and after the Third Amendment Effective Date the Management Committee shall perform all other acts required by Louisiana law or any other law to perfect and maintain the Partnership as a Partnership under the laws of the State of Louisiana." VII. Amendment to Section 3.1. Section 3.1 of the Agreement is amended to ------------------------ read as follows, rather than as previously written: "3.1 Percentage Interests. -------------------- (a) The Percentage Interest of each Majority Partner as of the formation of the Partnership until the Third Amendment Effective Date was: Star 70% Showboat 30% --- 100% (b) The Percentage Interest of each of the Partners as of the Third Amendment Effective Date shall be: Star 40% Showboat 50% Gabe Salloum 1% Southshore Investments, Inc. 4% Richard Schwartz 1% Las Ninas Corporation 4% --- 100%" VIII. Amendment to Section 3.2(e). Section 3.2(e) of the Agreement is --------------------------- amended by adding the following sentences at the end thereof: "On the Third Amendment Effective Date, the Capital Account of Star shall become the Capital Account of each Minority Partner and of Showboat to the extent it relates to the transferred Percentage Interest. Immediately prior to the Third Amendment Effective Date, the Capital Account of Star (part of which will be transferred to the Minority Partners and to Showboat) will only contain Star's initial Capital Contributions made pursuant to Section 3.7a(i) (which is $700) of the Agreement and Star's additional Capital Contributions made pursuant to Sections 3.7b(i) (which is $35,000,000) and 3.7(c) (which is $8,000,000) of the Agreement, and expressly does not include Star's distributive share of Partnership income for the period from the Effective Date through February 28, 1994." IX. Amendment to Section 3.7c. Section 3.7c of the Agreement is amended ------------------------- to read as follows, rather than as previously written: "c. 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) At such times as additional monies are required in order to pay the costs of repairs or renovations to the Casino Facilities, as determined by the Management Committee; or (ii) At such other times as the Management Committee shall determine that additional funds are needed to carry on the business of the Partnership. In either of such events, the Management Committee shall give reasonable notice of the amount of the required additional Capital Contributions and the day on which the Contributions shall be due, and each Partner shall make the Contribution on or before the date specified. Additional Capital Contributions shall be made by the Partners in proportions to their respective Percentage Interests." X. Amendment to Caption of Section 3.8. The caption of Section 3.8 of the ----------------------------------- Agreement is amended to read "Failure of Star or Showboat to Contribute", rather ----------------------------------------- than as previously written. XI. A new section, numbered 3.9, shall be included in the Agreement, reading as follows: "3.9 Failure of a Minority Partner to Contribute. If any or all of ------------------------------------------- the Minority Partners should fail to make any additional Capital Contribution on or before the date such contribution is due, such failure shall constitute a default under this Agreement and the Management Committee may at any time thereafter while the contribution remains unpaid, serve written notice ("Minority Partner Notice of Demand") upon the defaulting Minority Partner requiring it to make the capital contribution, together with all costs and expenses that may have been incurred by the Partnership by reason of the nonpayment. The Minority Partner 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 and such costs and expenses are to be paid. In the event of the nonpayment of the capital contribution at the time and place appointed, Star, Showboat and the Partnership shall have the following rights and obligations: Star and Showboat are authorized by each Minority Partner to make a loan to the defaulting Minority Partner, but paid directly to the Partnership, consisting of the Capital Contribution of such defaulting Minority Partner, together with all costs and expenses that may have been incurred by the Partnership by reason of the nonpayment of each defaulting Minority Partner ("Minority Loan"), in exchange for which Star or Showboat shall receive any and all cash or credit distributions payable to the defaulting Minority Partner until such defaulting Minority Partner repays Star or Showboat the full balance of the Minority Loan with interest thereon at eighteen percent (18%). However, in no event shall the interest rate exceed the maximum lawful rate. Star shall have the first right to enter into the Minority Loan. If Star has not elected to make the Minority Loan within fifteen (15) days of the payment date specified in the Minority Partner notice of demand, Showboat shall make the Minority Loan. In the alternative, if a defaulting Minority Partner instructs the Majority Partner not to enter into the Minority Loan as of the payment date specified in the Minority Partner notice of demand, then Star may make the Capital Contribution and increase its Percentage Interest by an amount equal to the additional Capital Contribution divided by the fair market value of the Minority Partner's Percentage Interest times the Minority Partner's Percentage Interest. In the event that Star has not elected in writing to make the additional Capital Contribution within fifteen (15) days of the payment date specified in the Minority Partner notice of demand, Showboat may make the additional Capital Contribution in lieu of the Minority Partner." XII. Amendment to Section 4.2. Paragraph F of Section 4.2 of the ------------------------ Agreement is amended by substituting the words "Management Committee" wherever the words "Managing Partner" appear within Section 4.2. XIII. Amendment to Section 5. Section 5 of the Agreement is amended to ---------------------- read as follows, rather than as previously written: "5. MANAGEMENT OF THE PARTNERSHIP. ----------------------------- 5.1 Management Committee. -------------------- (a) General. All decisions affecting the management or ------- operation of the Partnership, and decisions relating to admission of new partners, expulsion of a partner, permitting a Partner to withdraw without just cause, termination of the Partnership (except as otherwise provided in this Agreement), and the merger of the Partnership into another entity (except as otherwise provided in this Agreement) shall be made by the Management Committee, consisting of ten persons (each, a "Representative"), as set forth hereinafter. (b) Membership. The membership of the Management Committee ---------- shall consist of ten Representatives. Showboat shall have the right to designate five Representatives, Star shall have the right to designate four Representatives, and the Minority Partners shall have the right to designate one of the Minority Partners, or an officer of a corporate Minority Partner who has been duly authorized to act in such capacity by the corporate Minority Partner, as a Representative. The Representative designated by the Minority Partners shall be selected by majority vote of the Minority Partners, with each Minority Partner having one vote. In the event the Minority Partners are unable to designate a Representative because of a deadlock in the vote, then the Majority Partners shall designate the Minority Partners' Representative. Each Representative shall have the right to cast one vote. Each Representative shall be duly authorized to represent and act on behalf of Showboat, Star, and the Minority Partners, as the case may be, and shall not be deemed to act on behalf of any other Person. The initial Representatives for Showboat are J.K. Houssels, Frank A. Modica, J. Kell Houssels, III, J. Keith Wallace, and Donald L. Tatzin; for Star are Louie J. Roussel, III, Carl J. Eberts, Thomas B. Bender, and Gabe Salloum; and for the Minority Partners is Richard Schwartz. Representatives designated by Showboat and Star shall serve at the pleasure of the Partner appointing them, and the Representative designated by or on behalf of the Minority Partners shall serve for a term of one year. J.K. Houssels will serve as the Chairman of the Management Committee for a term of one year. After the term of the Chairman expires, the successor Chairman shall be appointed by majority vote of the Management Committee. (c) Meetings. Regular meetings of the Management Committee -------- shall be held at least quarterly or at such times as the Management Committee shall decide. Special meetings may be called from time to time by any two Representatives. Notice of a special meeting of the Management Committee shall be sent by the Chairman of the Management Committee to each of the Representatives at their record addresses (as may be changed by written notice to the Partnership) and shall specify the time, date, place and purpose of such meeting. Notification of a special meeting shall be sent within three business days after the Partnership's receipt of a proper request therefor and such meeting shall be held not less than five, nor more than ten, business days after receipt of such request. Any Representative participating in a meeting of the Management Committee shall be deemed to have waived notice of such meeting. Any meeting of the Management Committee may be held at the principal business establishment of the Partnership or at such other location as the Management Committee may deem appropriate. Representatives may participate in a meeting of the Management Committee by conference telephone or other communications equipment by means of which all Representatives participating can hear each other. Any action required or permitted to be taken at any meeting of the Management Committee may be taken without a meeting, if all the Representatives consent thereto in writing. The Management Committee may adopt such other procedural rules with respect to the meetings and other conduct of the Management Committee as it may deem desirable. The Partnership shall promptly reimburse the Representatives for all reasonable out of pocket expenses incurred in connection with meetings of the Management Committee. Any Representative absent from a meeting of the Management Committee may be represented by any other Representative, who may cast the absent Representative's vote according to his written instructions, general or special. (d) Powers of Management Committee. The Management Committee ------------------------------ (acting as provided herein) shall have the right, power, and authority, in the management of the business and affairs of the Partnership, to do or cause to be done any and all acts, at the expense of the Partnership, deemed by the Management Committee to be necessary or appropriate to effectuate the purposes of the Partnership. Subject to the provisions of this Agreement, all decisions made and actions taken on behalf of the Partnership or the Partners by the Management Committee shall be binding upon the Partnership or the Partners, as the case may be. The power and authority of the Management Committee pursuant to this Agreement shall be liberally construed to encompass all acts and activities consistent with the purposes of the Partnership and all acts in which a partnership may engage under the Partnership Laws of the State of Louisiana, as amended from time to time. (e) Votes of Management Committee. Except as otherwise provided ----------------------------- herein, all actions and decisions taken by the Management Committee shall require a majority vote of the Representatives. Notwithstanding the preceding sentence, unless otherwise specified in the budget prepared in accordance with Section 5.2, the Management Committee shall not, except with the approval of at least seven Representatives, cause or permit the Partnership or the Partners, as the case may be, to: (i) Construct, improve, buy, own, sell, convey, exchange, assign, rent, or lease any property (real, personal or mixed), or any interest therein, having a value in excess of $500,000; (ii) Borrow money, issue evidence of indebtedness, secure any 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 in excess of $500,000; (iii) Make or revoke any election which the Partnership is permitted to make 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; (iv) Abandon any of the assets of the Partnership in excess of $5,000; (v) Perform any act in violation of the terms and conditions of this Agreement, Louisiana Partnership Law, or any other applicable law or regulation; (vi) Make, execute, or deliver any general assignment for the benefit of creditors, or any bond, confession of judgment, guaranty, indemnity bond or surety bond; (vii) Initiate or settle any litigation by or against the Partnership or any proceeding before any governmental or regulatory body for more than $50,000; (viii) Vote any shares of stock owned by the Partnership; (ix) Disburse funds that exceed the approved budget by more than five percent (5%); (x) Sell the Riverboat; (xi) Approve budgets; (xii) Admit new partners; (xiii) Terminate the Partnership; (xiv) Expel a Partner; (xv) Permit a Partner to withdraw without just cause; (xvi) Merge the Partnership into another entity, except as otherwise provided herein; or (xvii) Change in any way the Management Agreement dated May 24, 1993, by and between Star and Lake Pontchartrain Showboat, Inc., the interest of Star in which has been assigned to the Partnership. (xviii) Disburse less than seventy (70%) percent of the net earnings of the Partnership to the Partners within twenty (20) days after the end of each calendar month of the Partnership. Notwithstanding the foregoing, and anything contained herein to the contrary notwithstanding, the Management Committee shall have the sole authority to cause the Partnership to merge into another entity for the purpose of offering the securities of such other entity for sale to the public; or to authorize the transfer or merger of Star or Star's interest in the Partnership to an entity for the purpose of offering the securities of such other entity for sale to the public. (f) Delegation of Authority. The Management Committee may delegate ----------------------- all or any of its powers, and the Person to whom such powers are delegated may take any action and perform any services for the Partnership as the Management Committee may approve in writing. Such Person may be authorized by the Management Committee to appoint, employ, contract with, or otherwise deal with any Person, including any of the Partners, in the transaction of the business of the Partnership. (g) Members of the Management Committee shall not be liable to the Partnership or any of the Partners for, and they shall be indemnified and held harmless by the Partnership from and against, any and all claims, demands, liabilities, costs, expenses (including reasonable attorneys' fees and court costs), and damages of any nature whatsoever arising out of or incidental to the Management Committee's management of the Partnership' affairs, except where such claim is based upon the willful misconduct of a member of the Management Committee, or upon action by members of the Management Committee 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 members of the Management Committee, whether available pursuant to this Agreement or by law. 5.2 Budget Committee. The Partnership shall have a Budget Committee with ---------------- the authority and membership set forth in this Section 5.2. (a) Duties. The Budget Committee shall submit a proposed budget of ------ the Management Committee at least thirty days prior to the commencement of the year, quarter or shorter period for which the budget is prepared. The Representatives of the Management Committee who are not members of the Budget Committee shall review the proposed budget and present objections or comments to the Budget Committee within five business days after receipt of the budget. The Budget Committee shall review such objections and comments within five business days after receipt thereof. Promptly thereafter, the Management Committee shall meet to approve the budget or appropriately revise and approve the budget as revised. (b) Membership. The Budget Committee shall be composed of the ---------- Representatives on the Management Committee designated by Showboat. The members of the Budget Committee shall act solely on behalf of the Partners in their capacity as Budget Committee members. Members of the Budget Committee may conduct meetings by conference telephone or other communications equipment by means of which all Representatives participating can hear each other. 5.3 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. Effective as of the Third Amendment Effective Date, each Minority Partner hereby assumes the liabilities of the Partnership existing on the Third Amendment Effective Date (whether known or unknown, and whether absolute, accrued, contingent or otherwise) in the proportion set forth opposite his or its name in Section 3.1(b) above, and Showboat hereby assumes an additional twenty (20%) percent of the liabilities of the Partnership existing on the Third Amendment Effective Date (whether known or unknown, and whether absolute, accrued, contingent or otherwise), and the Minority Partners and Showboat agree that, anything contained in Section 6.3 hereof to the contrary notwithstanding, as among the parties hereto, Star shall have no liability with respect to the proportionate share of existing Partnership liabilities assumed by the Minority Partners and by Showboat hereby. Each Partner agrees to indemnify each 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 10 hereof. 5.4 Other Ventures. Nothing contained herein shall be construed to -------------- prevent any of the Partners from engaging in any other business venture, whether or not in competition with the Partnership nor any of the other Partners, and neither the Partnership nor any other Partners shall have any rights in and to any such ventures, or the profits, losses, or cash flow derived therefrom. 5.5 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) No partner shall be liable for the return of the Capital Contributions of the remaining Partners or for any portion thereof, it being expressly understood that any such return shall be made solely from the assets of the Partnership. 5.6 Reimbursement of Expenses. The Partners shall be entitled to ------------------------- reimbursement for all reasonable direct expenses of the Partnership incurred or paid by such Partners on behalf of the Partnership. 5.7 Casino Management. The Partners acknowledge that the Partnership has ----------------- succeeded to the interest of Star, by virtue of an assignment in an agreement with Lake Pontchartrain Showboat, Inc. ("LPS") to provide LPS the exclusive right to manage and operate the gaming operations associated with the Riverboat. If the aforesaid agreement with LPS is terminated without the concurrence of Showboat, Showboat shall have the option to sell its Interest to Star or the Partnership in accordance with Section 8. 5.8 Reports. The Partnership shall provide written, oral or videotaped ------- reports of the operations of the Casino Facilities and other operations conducted pursuant to Section 2.4 of this Agreement on a weekly basis to the Majority Partners. 5.9 Issuance of Credit. If any Partner approves credit for anyone ------------------ gambling at the Casino Facilities and that credit is not paid, and it is determined that the issuance of such credit was not reasonable under the circumstances, the Partner approving the credit shall be responsible to the Partnership for the unpaid credit. XIV. Amendment to Caption of Section 6. The caption of Section 6 of the --------------------------------- Agreement is amended to read "TRANSFER OF PARTNER'S INTEREST AND ADMISSION OF NEW PARTNERS", rather than as previously written. XV. Amendment to Section 6.1. Section 6.1 of the Agreement is amended by ------------------------ adding a third paragraph thereto, reading as follows: "In addition to, and not in limitation of, the transfer restrictions in the preceding two paragraphs of this Section 6.1, no Partner may (a) sell, assign, pledge, encumber, hypothecate or otherwise transfer or dispose of all or any part of (i) its Interest or (ii) any interest in the entity owning the Interest, or (b) share their Interest as contemplated by Article 2812 of the Louisiana Civil Code, as amended, or (c) offer to do any of the foregoing, if, in any such case such transfer or offer would violate the Securities Act of 1933, as amended, any state securities or "blue sky" law, or the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). No such transfer or offer may be made without the written consent of Star, and as a condition to Star granting its consent to any such transfer or offer, Star may require that it receive an opinion of the Partner proposing any such transfer or offer that the proposed transfer or offer will not violate the Securities Act of 1933, as amended, any state securities or "blue sky" law, or ERISA. This paragraph shall not apply to the 30% Partnership Interest owned by Showboat immediately prior to the Third Amendment Effective Date. A third party to whom a Partner has transferred all or part of its Interest may be admitted to the Partnership as a new Partner if Showboat and Star agree in writing thereto, in which case an appropriate amendment to this Agreement shall be executed." XVI. A new section, numbered 6.4, shall be included in the Agreement, reading as follows: "6.4" Contribution to Capital by a Third Party. A Third Party who ---------------------------------------- makes a contribution of the capital of the Partnership (rather than acquiring all or part of the Interest of an existing Partner) may be admitted to the Partnership as a new Partner if Star and Showboat agree in writing thereto, in which case an appropriate amendment to this Agreement shall be executed." XVII. Amendment to Section 7.1. Section 7.1 of the Agreement is amended ------------------------ and restated to read in its entirety as follows: 7.1 Default by Minority Partner. In the event of the failure of a --------------------------- Minority Partner to comply with any of its obligations and agreements hereunder (the "Defaulting Partner"), and the continuation of such failure for a period of thirty (30) days after receipt by the Defaulting Partner of a written notice from Star specifying the same (the "curative period"), Star shall have the option to purchase the Defaulting Partner's interest in the Partnership for the Fair Market Value thereof, determined pursuant to the procedures set forth in Section 9. In the event that Star wishes to exercise its option, it shall notify all of the other Partners within thirty (30) days following the expiration of the curative period. In the event that Star exercises its option, the "Effective Date" for purposes of the determination set forth in Section 9 shall be the end of the month next proceeding the month in which the curative period expires, and payment shall be made in cash at a closing to be held in New Orleans, Louisiana on a date set by Star not later than ninety (90) days after the expiration of the curative period, 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 ninety (90) day period. In the event Star fails to exercise its option within ninety (90) days following the expiration of the curative period, Showboat shall have the same option as Star had in accordance with this Section. In the event Showboat fails to exercise its option within ninety (90) days following the expiration of Star's option period under this section, the Minority Partners other than the Defaulting Partner's interest in the Partnership for the Fair Market Value thereof, determined pursuant to the procedures set forth in Section 9. The non-defaulting Minority Partners shall be permitted to purchase equal amounts of the Defaulting Partner's interest in the Partnership regardless of the Percentage Interest held by such Minority Partners prior to the Default. In the event one or more non-defaulting Minority Partners fails to exercise its option under this section within sixty (60) days of having such option, any Partner may propose a potential new partner who desires to purchase all of the unpurchased interest of the Defaulting Partner's interest in the Partnership. Upon such proposal, Showboat and Star shall have sixty (60) days upon which to accept or reject the purchase by the proposed new partner. If a potential partner is rejected, new potential partners may be proposed until one is accepted by Showboat and Star within sixty (60) days of proposal. XVIII. Amendment to Section 8.1. The first paragraph of Section 8.1 of ------------------------ the Agreement is amended to read as follows, rather than as previously written: "8.1 In the Event of Default. Except as provided in the next ----------------------- sentence, in the event that either Majority Partner fails to fully and timely perform and fulfill its obligations pursuant to this Agreement, then in such event, a buyout event ("Buyout Event") shall be deemed to exist. The provisions of this Section 8.1 shall not be applicable should either Star or Showboat fail to make any additional Capital Contribution on or before the date such contribution is due, and the rights and obligations of the Majority Partners in such case shall be governed exclusively by Section 3.8 of this Agreement." XIX. Amendment to Section 10.3. Section 10.3 of the Agreement is amended ------------------------- by substituting the words "Management Committee" for the words "Managing Partner" thereof in the first paragraph of Section 10.3. XX. Amendment to Section 11.3(a). Section 11.3(a) of the Agreement is ---------------------------- amended by deleting the words "or Principal" from the first sentence thereof. XXI Amendment to Section 13.1. Section 13.1 of the Agreement is amended ------------------------- by substituting the words "Management Committee" for the words "Managing Partner" thereof. XXII. Amendment to Section 13.3. Section 13.3 of the Agreement is amended ------------------------- by substituting the words "Management Committee" for the words "Managing Partner" thereof. XXIII. Amendment to Section 13.4. Section 13.4 of the Agreement is ------------------------- amended by substituting "John N. Brewer, Esq.; Kummer Kaempfer Bonner & Renshaw" for the words "H. Gregory Nasky, Esq.; Vargas & Bartlett". Additionally, adding the following names and addresses at the end thereof: "Gabe Salloum: Gabe Salloum 7246 Ring Street New Orleans, LA 70124 Southshore Invest- ments, Inc.: Southshore Investments, Inc. 3101 West Napoleon Avenue Metairie, LA 70001 Attn: Carl J. Eberts, Secretary Richard Schwartz: Richard Schwartz 117 West Capital Street Jackson, MS 37201-3005 Las Ninas Corporation: Las Ninas Corporation c/o James H. Roussel Phelps Dunbar 400 Poydras Street Texaco Center New Orleans, LA 70130-3245 Copies to: R. Preston Bolt, Jr. Hand, Arendall, Bedsole, Greaves & Johnston 107 St. Francis Street First National Bank Building Suite 2600 Mobil, AL 36602 Bender Shipbuilding & Repair Co., Inc. 265 South Water Street Mobil, AL 36602 XXIV. Amendment to Section 14,6. Section 14.6 of the Agreement is amended ------------------------- to read as follows, rather than as previously written: "14.6 Amendment. This Agreement may be amended upon authorization of --------- Partners holding, in the aggregate, Percentage Interests equal to or exceeding 75%, and all amendments shall be in writing and signed by or in behalf of all of the Partners before they become effective. Each of the Minority Partners does hereby appoint Star as the true and lawful agent and attorney-in-fact for such Minority Partner to sign and acknowledge any amendment to this Agreement, in such Partner's name and behalf, and to so execute whatever further instruments may be requisite in connection therewith. Such power of attorney is a special power of attorney coupled with an interest, which shall be irrevocable and shall survive the death or incapacity of the Minority Partner." The balance of the Agreement is not changed by this Third Amendment and shall remain in full force and effect. This Third Amendment may be executed in any number or counterparts, which taken together shall constitute one and the same instrument and each of which shall be considered an original for all purposes. IN WITNESS WHEREOF, the parties have executed this Third Amendment as of the date first above written. STAR CASINO, INC. By:_______________________________ LOUIE ROUSSEL, III, President SHOWBOAT LOUISIANA, INC. By: /s/ Frank A. Modica ------------------------------- FRANK A. MODICA, President and Chief Executive Officer THE MINORITY PARTNERS: ------------------------------- GABE SALLOUM 7246 Ring Street New Orleans, LA 70124 SOUTHSHORE INVESTMENTS, INC. By:_______________________________ CARL J. EBERTS, Secretary 3101 West Napoleon Avenue Suite 201 Metairie, LA 70001 ------------------------------- RICHARD SCHWARTZ 117 West Capital Street Jackson, MS 37201-3005 LAS NINAS CORPORATION By:_______________________________ DINA B. MIDDLEKAUFF, President c/o James H. Roussel Phelps Dunbar 400 Poydras Street Texaco Center New Orleans, LA 70130-3245 STATE OF LOUISIANA PARISH OF JEFFERSON BE IT KNOWN, that on this ____ day of ___________, 1994, before me, the undersigned Notary, duly commissioned, qualified and sworn within and for the State and Parish aforesaid, personally came and appeared Louis Roussel, III, appearing herein in his capacity as the President of Star Casino, Inc., to me personally known to be the identical person whose name is subscribed to the foregoing instrument as the said officer of the said corporation, and declared and acknowledged to me, Notary, in the presence of the undersigned competent witnesses, that he executed the same on behalf of the said corporation with full authority of its Board of Directors, and that the said instrument is the free act and deed of the said corporation and was executed for the uses, purposes and benefits therein expressed. WITNESSES: ____________________________ ____________________________ LOUIE ROUSSEL, III _____________________________ ____________________________ NOTARY PUBLIC STATE OF NEVADA COUNTY OF CLARK BE IT KNOWN, that on this ____ day of ___________, 1994, before me, the undersigned Notary, duly commissioned, qualified and sworn within and for the State and County aforesaid, personally came and appeared Frank A. Modica, appearing herein in his capacity as the President and Chief Executive Officer of Showboat Louisiana, Inc., to me personally known to be the identical person whose name is subscribed to the foregoing instrument as the said officer of the said corporation, and declared and acknowledged to me, Notary, in the presence of the undersigned competent witnesses, that he executed the same on behalf of the said corporation with full authority of its Board of Directors, and that the said instrument is the free act and deed of the said corporation and was executed for the uses, purposes and benefits therein expressed. WITNESSES: /s/ John N. Brewer /s/ Frank A. Modica - ---------------------------- ----------------------------------- FRANK A. MODICA - ---------------------------- /s/ Angela M. Peterson ------------------------ NOTARY PUBLIC STATE OF LOUSIANA PARISH OF ___________ BE IT KNOWN, that on this ____ day of ___________, 1994, before me, the undersigned authority, duly commissioned, qualified and sworn within and for the State and Parish aforesaid, personally came and appeared Gabe Salloum, to me personally known to be one of the individual persons who executed the above and foregoing instrument who declared and acknowledged to me, Notary, in the presence of the undersigned competent witnesses, that he executed the above and foregoing instrument of his own free will, as his free act and deed, for the uses, purposes and benefits therein expressed. WITNESSES: ____________________________ ____________________________ GABE SALLOUM _____________________________ ____________________________ NOTARY PUBLIC STATE OF LOUISIANA PARISH OF ___________ BE IT KNOWN, that on this ____ day of ___________, 1994, before me, the undersigned Notary, duly commissioned, qualified and sworn within and for the State and Parish aforesaid, personally came and appeared Carl J. Eberts, appearing herein in his capacity as the Secretary of Southshore Investments, Inc., to me personally known to be the identical person whose name is subscribed to the foregoing instrument as the said officer of the said corporation, and declared and acknowledged to me, Notary, in the presence of the undersigned competent witnesses, that he executed the same on behalf of the said corporation with full authority of its Board of Directors, and that the said instrument is the free act and deed of the said corporation and was executed for the uses, purposes and benefits therein expressed. WITNESSES: _____________________________ ____________________________ CARL J. EBERTS _____________________________ ____________________________ NOTARY PUBLIC STATE OF _____________ COUNTY OF ____________ BE IT KNOWN, that on this ____ day of ___________, 1994, before me, the undersigned authority, duly commissioned, qualified and sworn within and for the State and County aforesaid, personally came and appeared Richard Schwartz, to me personally known to be one of the individual persons who executed the above and foregoing instrument who declared and acknowledged to me, Notary, in the presence of the undersigned competent witnesses, that he executed the above and foregoing instrument of his own free will, as his free act and deed, for the uses, purposes and benefits therein expressed. WITNESSES: _____________________________ _____________________________ RICHARD SCHWARTZ _____________________________ ____________________________ NOTARY PUBLIC STATE OF ____________ COUNTY OF ___________ BE IT KNOWN, that on this ____ day of ___________, 1994, before me, the undersigned Notary, duly commissioned, qualified and sworn within and for the State and County aforesaid, personally came and appeared Dina B. Middlekauff, appearing herein in her capacity as the President of Las Ninas Corporation, to me personally known to be the identical person whose name is subscribed to the foregoing instrument as the said officer of the said corporation, and declared and acknowledged to me, Notary, in the presence of the undersigned competent witnesses, that she executed the same on behalf of the said corporation with full authority of its Board of Directors, and that the said instrument is the free act and deed of the said corporation and was executed for the uses, purposes and benefits therein expressed. WITNESSES: _____________________________ _____________________________ DINA B. MIDDLEKAUFF _____________________________ ____________________________ NOTARY PUBLIC EX-10.37 7 MARINE MANAGEMENT SERVICES AGREEMENT EXHIBIT 10.37 MARINE MANAGEMENT SERVICES AGREEMENT ------------------------------------ This Marine Management Services Agreement (the "Agreement") made this 30th day of September, 1993 by and between Louisiana Riverboat Services, Inc., a Louisiana corporation ("Riverboat Services"), and Showboat Star Partnership, a Louisiana partnership ("SSP"); W I T N E S S E T H WHEREAS, SSP has contracted for the construction of a riverboat gambling vessel to be named the M/V STAR CASINO (hereinafter, the "Star Casino" or the "Vessel"); WHEREAS, SSP proposes to operate the Star Casino pursuant to the Louisiana Riverboat Economic Development and Gaming Control Act, La. R.S. 4:501 et seq -- --- (the "Gaming Act") on Lake Pontchartrain and on other rivers and waterways permitted by the Gaming Act and on such other rivers and waterways as may be required for maintenance of the Vessel or for other purposes; WHEREAS, Riverboat Services has experience in the performance of marine management services for similar types of vessel and holds a permit as a Supplier of Goods and Services under the Gaming Act; WHEREAS, the parties hereto desire to provide for the performance of the non-gambling-related services for the Star Casino as follows: NOW THEREFORE, in consideration of the premises and the mutual covenants herein, Riverboat Services and SSP agree as follows: 1. Marine Management Services. Riverboat Services shall be the exclusive -------------------------- provider of marine management services for the Star Casino. For purposes of this Agreement, the term "marine management services" shall refer, without limitation, to those services related to the crewing, staffing, operation, housekeeping, basic maintenance, provisioning and supply of the Star Casino but shall exclude casino or gaming operations or services. Without intending to limit the generality of the foregoing, Riverboat Services shall staff all marine crew positions on the Vessel (including the master of the Vessel) with mariners who hold appropriate licenses as directed by the United States Coast Guard O.C.M.I. Additionally, Riverboat Services shall take steps, at the cost of SSP, to obtain for each crew member involved with navigation and passenger safety United States Coast Guard-approved certifications for lifeboat, firefighting and first aid. Riverboat Services will require crew members to wear appropriate uniforms approved by SSP. The costs of pre-employment medical and drug testing shall be for the account of SSP. All other hiring costs shall be borne by Riverboat Services. During extended dockside operations, Riverboat Services shall use its best efforts to reduce the crew complement consistent with U.S. Coast Guard requirements and the safety of the passengers, crew, and Vessel. Riverboat Services shall use its best efforts to operate the Vessel to meet the requirements of SSP, consistent with the authority of the master to maintain safe operation of the Vessel and subject to the seaworthiness of the Vessel and acts of God. Riverboat Services shall cause the master to keep full and correct deck and engine room logs of the Vessel operation which shall be made available to SSP for inspection on request at any time. If SSP has reason to be dissatisfied with the conduct of the master or any officer or member of the crew, Riverboat Services on receiving particulars of the complaint shall promptly investigate the matter and if the complaint proves to be well founded, Riverboat Services shall as soon as reasonably possible make appropriate changes in the appointment of master, officers, or crew. Riverboat Services shall use its best efforts to obtain licenses and permits required for the Vessel and to perform appropriate maintenance and repair of the Vessel to assure its seaworthiness and compliance with all applicable United States Coast Guard regulations. Without lifting the generality of the foregoing, Riverboat Services shall provide: (a) consumables and maintenance supplies, excluding fuel and oil, but including battery maintenance and replacement, potable water, oil and fuel filter, top side paint, solvents, grease, chemicals and the like; (b) disposal services including sewerage (black water), dirty motor oil and lubricating oils 3 and garbage in accordance with all applicable laws and regulations; (c) inspection of first aid kits, fire extinguishers and life saving apparatus to assure compliance with all applicable regulations; (d) cleaning for the non-casino areas of the Vessel; and (e) scheduling and conduct of refueling so as to minimize disruption of the Vessel's activities and to comply with all safety and environmental regulations; SSP has selected a supplier for fuel and oil for the Vessel. Riverboat Services agrees to notify SSP monthly of the anticipated fuel and oil requirements of the Vessel for the upcoming month but shall not be liable for any failure of the supplier to perform. Riverboat Services will submit samples of fuel and oil for periodic third-party laboratory testing to determine engine condition. 2. Compensation. Riverboat Services shall be reimbursed for all amounts ------------ expended on behalf of SSP and, in addition, compensated for its efforts on a "cost-plus" basis in an amount equal to fifteen percent (15%) of the services, supplies and products which Riverboat Services performs, provides or arranges the purchasing for SSP. Without lifting the generality of the foregoing, Riverboat Services shall be reimbursed by SSP for the marine management services specified in Paragraph 1 hereof, telephone and 4 communication services, transport and lifting services and similar purchases of services, whether performed by Riverboat Services or others, necessary or appropriate for the non-gaming operations of the Vessel. Should SSP request uniform maintenance costing in excess of $8.00 per person per week, the excess amount shall be paid by SSP. All such amounts, except as specifically provided herein, shall be subject to the fifteen percent (15%) "cost-plus" fee payable to Riverboat Services. Riverboat Services agrees to provide an itemized statement of such amounts and its fee to SSP no later than the tenth (10th) day of each month. Upon demand and during normal business hours, SSP, at its own expense, shall be entitled to ask Ericksen, Krentel, Canton & LaPorte, L.L.P. or other certified public accountants of its selection to audit such itemized statements and Riverboat Services agrees to cooperate with such auditors. Riverboat shall maintain the usual and customary books of account in respect to its services and shall afford SSP and its accountants reasonable access to same during normal business hours. SSP agrees to establish, within five (5) days hereof, an account with First National Bank of Commerce, New Orleans, Louisiana (the "Purchasing Account"). Riverboat Services shall draw upon the Purchasing Account for all amounts to be expended on behalf of SSP and shall be entitled to reimburse itself from the Purchasing Account for all amounts expended by it on behalf of SSP. Within ten (10) days of the receipt of the itemized monthly statement, SSP shall pay to Riverboat Services its monthly fee and 5 shall deposit in the Purchasing Account the amount required to bring the balance of such Purchasing Account to the amount of purchases projected by Riverboat Services to occur over the following one month. In the event its monthly fee is not paid in a timely manner, Riverboat Services shall be entitled to pay itself its monthly fee from the Purchasing Account. Any interest earned on the Purchasing Account shall be for the account of Riverboat Services. Riverboat Services shall use reasonable care in preparing estimates of projected expenses of the Vessel but shall not be liable to SSP for any errors in such estimates or in the event the balance of the Purchasing Account is inadequate for any reason for the operation or maintenance of the Vessel. Expenses for employee training to United States Coast Guard certification for lifeboat, firefighting and first aid requirements (but not to exceed $514.00 per person, but only for those employees who have not already received this training) shall be for the expense of SSP but shall not incur the fifteen percent (15% "cost-plus" fee payable to Riverboat Services. Additionally, SSP agrees to pay to Riverboat Services a set up fee of $25,000 upon the execution of this Agreement. 3. Term of Agreement. The initial term of this Agreement shall be for ----------------- one (1) year from the date hereof. Unless written notice is given to the other party ninety (90) days prior to the expiration of the term of this Agreement it shall be deemed to be automatically renewed for a further one-year period. If, for any 6 reason, SSP fails to obtain a gaming license, this Agreement shall be null and void. If SSP fails to obtain a renewal of its gaming license, or its gaming license is suspended or revoked for more than 30 days, or the vessel becomes unusable for gaming activities for a period reasonably expected to exceed 30 days, this Agreement shall terminate. SSP agrees that during the term of this Agreement and for one (1) year following the date of termination thereof, it shall not attempt to employ any personnel employed by Riverboat Services. 4. Disputes Between the Parties. Shipboard disputes between the parties ---------------------------- shall be referred to the master of the Vessel whose decision shall be binding upon the parties for the duration of his shift. 5. Insurance and Indemnification. SSP shall obtain and maintain ----------------------------- insurance from responsible carriers for the Star Casino in accordance with the insurance requirements set forth in Schedule One of this Agreement. SSP shall hold harmless, defend and indemnify Riverboat Services, its officers, directors and employees for any loss, claim, demand, or suit involving damage to or loss of the Star Casino or for injury, loss or damages (excluding claims for exemplary or punitive damages), however caused, to the extent that such claims are covered by the insurance set forth in Schedule One of this Agreement. SSP shall have no obligation to hold harmless, defend, or indemnify Riverboat Services, its officers, directors, or employees for any loss, claim, demand or suit arising out of or 7 resulting from, in whole or in part, any intentional wrongdoing or misconduct of Riverboat Services, its officers, directors, or employees. Riverboat Services shall have no responsibility for (or liability to any person on account of) the operation or any activities (whether legal or illegal and whether performed by SSP personnel or third parties) taking place within the casino or gambling areas of the Vessel and shall be indemnified by SSP with respect to such operations or activities. It is agreed that SSP shall expressly insure the indemnity obligations it assumes under this paragraph. 6. Representations and Warranties of SSP. SSP represents and warrants to ------------------------------------- Riverboat Services as follows: SSP has the power and authority to execute, deliver and perform this Agreement and to incur the obligations and liabilities to be incurred by it hereunder. SSP has taken all necessary action to authorize its execution, delivery and performance of this Agreement. No governmental approval or consent of any other person is required in connection with the execution, delivery and performance by SSP of this Agreement. This Agreement has been duly executed and delivered by SSP, and constitutes the legal, valid and binding obligation of SSP, enforceable against SSP in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights generally or by general equitable principles. SSP's execution, delivery and performance of this Agreement does not and will not conflict with, or constitute a violation or breach 8 of, or constitute a default under, or result in the creation or imposition of any lien upon the property of SSP by reason of the terms of (a) any contract, mortgage, lien, lease, agreement, indenture, or instrument to which SSP is a party or which is binding upon SSP, (b) any judgment, law, statute, rule or governmental regulation applicable to SSP, or (c) any organizational document of SSP, which in any case materially and adversely affects the property, business, operations or conditions (financial or otherwise) of SSP taken as a whole. SSP (a) is a Louisiana partnership duly organized and validly existing in good standing under the laws of the State of Louisiana and (b) has all requisite power and authority to conduct its business and to own its property as presently owned and conducted, where in any case the failure to have such power and authority would have a material and adverse effect on the property, business, operations or condition (financial or otherwise) of SSP. 7. Representations and Warranties of Riverboat Services. Riverboat ---------------------------------------------------- Services represents and warrants to SSP as follows: Riverboat Services has the corporate power and authority to execute, deliver and perform this Agreement and to incur the obligations and liabilities to be incurred by it hereunder. Riverboat Services has taken all necessary corporate action to authorize its execution, delivery and performance of this Agreement. No governmental approval or consent of any other person is required in connection with the execution, delivery and performance by Riverboat Services of this Agreement. This 9 Agreement has been duly executed and delivered by Riverboat Services, and constitutes the legal, valid and binding obligation of Riverboat Services, enforceable against Riverboat Services in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights generally or by general equitable principles. Riverboat Services' execution, delivery and performance of this Agreement does not and will not conflict with, or constitute a violation or breach of, or constitute a default under, or result in the creation or imposition of any lien upon the property of Riverboat Services by reason of the terms of (a) any contract, mortgage, lien, lease, agreement, indenture, or instrument to which Riverboat Services is a party or which is binding upon Riverboat Services (b) any judgment, law, statute, rule or governmental regulation applicable to Riverboat Services, or (c) the certificate of incorporation or bylaws of Riverboat Services, which in any case materially and adversely affects the property, business, operations or condition (financial or otherwise) of Riverboat Services taken as a whole. Riverboat Services (a) is duly incorporated and organized and validly existing in good standing under the laws of the State of Louisiana and (b) has all requisite corporate power and authority to conduct its business and to own its property as presently owned and conducted, where in any case the failure to have such power and authority would have a material and adverse effect on the property, 10 business, operations or condition (financial or otherwise) of Riverboat Services. 8. Notices. All demands, notices and communications shall be sent to the ------- parties at the following addresses: Louisiana Riverboat Services, Inc. P.O. Box 6686 New Orleans, LA 70174 (504) 362-8994 (504) 581-5983 (Fax) Showboat Star Partnership 4227 Canal Street New Orleans, LA 70119 (504) 486-7275 (504) 484-7199 (Fax) 9. Entire Agreement. Except as otherwise stated herein, this Agreement, ---------------- including the representations and warranties, includes the entire agreement between the parties with respect to the subject matter contained herein and supersedes all prior agreements and understandings, oral and written, with respect thereto. 10. Assignment. Subject to the requirements of the Gaming Act, this ---------- Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors, and assigns, but neither this Agreement nor any of its rights, interests or obligations hereunder shall be assigned by either of the parties hereto without the prior written consent of the other party. Notwithstanding the preceding paragraph, in the event the Star Casino is sold by SSP, SSP agrees to use its best efforts to cause 11 this Agreement to be assigned to and assumed by the buyer of the Vessel. 11. Third Parties. Nothing in this Agreement expressed or implied is ------------- intended to confer on any other party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. 12. Choice of Law. This Agreement shall be governed by and interpreted in ------------- accordance with Admiralty and Maritime laws of the United States and the laws of the State of Louisiana without regard to the conflict of laws thereof. 13. Force Majeure. Neither SSP nor Riverboat Services shall be liable for ------------- any loss, damages, or delay or failure of performance hereunder resulting from any force majeure event, including but not limited to acts of God, fire, action ----- ------- of the elements, epidemics, war (declared or undeclared, warlike actions, insurrection, revolution or civil strife, piracy, civil war or hostile action, strikes or differences with workmen (except disputes relating solely to the employees of SSP or Riverboat Services), acts of the public enemy, federal or state laws, rules, and regulations of any government authorities asserting jurisdiction in the premises, and any other cause beyond the reasonable control of either party which makes continuation of operations impossible. 14. Liens. Riverboat Services shall have no authority to create, incur, ----- or impose any lien or encumbrance upon the Vessel, maritime or otherwise, for any matter, and it shall inform all 12 third parties and subcontractors with whom it has dealings that it has no authority to create, incur, or impose any lien or encumbrance, maritime or otherwise, upon the Vessel. Riverboat Services expressly waives any and all liens or encumbrances on the Vessel, maritime or otherwise, for any services, supplies, or other necessaries, supplied to the Vessel, now or in the future, and Riverboat Services acknowledges that it is relying on the credit of SSP only in entering into this contract and does not and will not rely upon the credit of the Vessel now or in the future. 15. Confidentiality. All information or data obtained by Riverboat --------------- Services in the performance of this agreement is the property of SSP, is confidential, and shall not be disclosed without the prior written consent of SSP. Riverboat Services shall use its best efforts to ensure that it, its subcontractors, employees, and agents shall not disclose any such information or data. 16. Severability. If any portion of this agreement is held to be invalid ------------ or unenforceable for any reason by a court or governmental authority of competent jurisdiction, then such parties will be deemed to be stricken and the remainder of this agreement shall continue in full force and effect. 17. Demise. Nothing herein contained shall be construed as ------ creating a demise or bareboat charter of the Vessel to Riverboat Services. 13 18. Headings. The headings of this agreement are for identification only -------- and shall not be taken into consideration in the interpretation or construction of this Agreement. WITNESSES: LOUISIANA RIVERBOAT SERVICES, INC. /s/ BY: /s/ - ------------------- ----------------------------- ITS: President --------------------------------- /s/ Bob Street - ------------------- SHOWBOAT STAR PARTNERSHIP /s/ Ingrid Cade BY: /s/ - ------------------- --------------------------------- ITS: Managing Partner /s/ ----------------------------- - ------------------- BY: /s/ William J. Guste, Jr. ----------------------------- /s/ ITS: Secretary - ------------------- ----------------------------- 14
SCHEDULE ONE INSURANCE IN THE NAME OF SHOWBOAT STAR PARTNERSHIP STAR CASINO, INC. SHOWBOAT LOUISIANA, INC. LOUISIANA RIVERBOAT SERVICES, INC. _______________________________________ P&I Limit: $ 50,000,000 Hull Limit: 14,000,000 (to verify at inception) Gaming Equipment: 6,000,000 (to verify at inception) Operating Crew: 17 A.O.T. 51 Total Gaming Crew: 230 A.O.T. 1000 Total
15 EX-10.38 8 AGREEMENT EXHIBIT 10.38 AGREEMENT --------- THIS AGREEMENT is made effective as of September 13, 1993 and is made by and among SHOWBOAT, INC. ("Showboat"), SHOWBOAT INDIANA, INC. ("SII"), SHOWBOAT OPERATING COMPANY ("Operating Company"), SHOWBOAT DEVELOPMENT COMPANY ("Development Company"), SHOWBOAT INDIANA INVESTMENT LIMITED PARTNERSHIP ("Subsidiary") and WATERFRONT ENTERTAINMENT AND DEVELOPMENT, INC. ("Waterfront"). RECITALS -------- A. SII and Waterfront have entered into a letter agreement dated September 13, 1993 ("Letter Agreement") in which the parties agreed to form Showboat Marina Partnership ("Partnership"), to be an Indiana general partnership, for the acquisition, design, construction, ownership and operation of an excursion cruise vessel casino development in the City of East Chicago, Indiana to be operated on Lake Michigan ("Project"). B. SII is a newly-formed, wholly-owned subsidiary of Development Company, which is a wholly-owned subsidiary of Showboat. C. Operating Company is a wholly-owned subsidiary of Showboat. D. Subsidiary is a newly-formed Nevada limited partnership, the partners of which are SII, as the sole general partner, and Operating Company, as the sole limited partner (Showboat, Operating Company, Development Company and SII will be collectively referred to as "Parents"). E. SII has assigned its rights under the Letter Agreement to Subsidiary. F. In order to induce Waterfront to enter into the Partnership Agreement for Showboat Marina Partnership, Waterfront desires to enter into certain agreements with Parents with respect to the Partnership, the financial obligations of Subsidiary and certain related matters. NOW, THEREFORE, in consideration of the foregoing and of their mutual promises and to induce Waterfront to enter into the agreement with Subsidiary forming the Partnership ("Partnership Agreement"), the parties hereby agree as follows: 1. Competition. Waterfront acknowledges and agrees that Parents, ----------- Subsidiary and their Affiliates (collectively, "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 and agrees that Showboat Parties may pursue such opportunities, including opportunities in Cook County, Illinois. Showboat Parties shall not engage in other gaming activities in Indiana. Waterfront shall not engage in other gaming activities in Indiana. If Subsidiary, Parents or Waterfront or any of their Affiliates commence gaming operations in Cook County, Illinois, either directly, indirectly as an owner of an equity interest in another entity or indirectly pursuant to a management, consulting or services agreement, the other party (which shall be Waterfront in the case any of the Showboat Parties commences such operations and shall be Subsidiary in the case Waterfront commences such activities) may purchase fifteen percent (15%) of the first party's or its Affiliates' interest in such venture or agreement at the first party's or its Affiliates' purchase price at any time within one year of the opening of such operation(s). In the event that Showboat Parties or Waterfront or their Affiliates enter into a gaming operation in Cook County, Illinois in any of the manners described above, such Person shall covenant that key customers of the Project shall not be solicited by such Person to become customers of the gaming venture in Cook County nor may such Person assign management talent from the Project to the Cook County gaming venture without the consent of the other party to this Agreement whose interest may be impaired, which consent shall not be unreasonably withheld or delayed. 2. Marketing Efforts. Parents, Subsidiary and Waterfront acknowledge and ----------------- agree that the Showboat Parties 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. Subsidiary, in the course of its management of the Project, may refer customers of the Project and other parties to other facilities operated by Parents or other Affiliates of Subsidiary and Parents to utilize gaming, entertainment and other amenities, without payment of any fees to the Partnership or any of its partners. Waterfront acknowledges and agrees that Subsidiary or its Affiliates may distribute promotional materials for Subsidiary, Parents or their Affiliates and facilities, including casinos, at the Project. 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. 2 Michigan Counties Illinois Counties --------------------- --------------------- Berrien Cook Van Buren DuPage Allegan Grundy Cass Lake St. Joseph Will Branch Kendall Kankakee 3. Obligations of Subsidiary. Under the terms of the Partnership ------------------------- Agreement, Subsidiary has several financial obligations, including, but not limited to, the obligation to make capital contributions and/or loans pursuant to the terms thereof. Parents shall contribute or loan to Subsidiary sufficient funds and shall otherwise take all actions necessary to enable Subsidiary to discharge all of its mandatory obligations under the Partnership Agreement. 4. Remedies. In the event of a material breach by any of the parties to -------- this Agreement, the non-breaching party shall be entitled to all remedies at law or in equity and shall be entitled to recover reasonable attorneys' fees if so awarded by a court of competent jurisdiction. 5. Notices. Notices shall be given in the manner provided in the ------- Partnership Agreement, shall be deemed effective as set forth therein and shall be addressed to Waterfront and the Showboat Parties as set forth therein at the addresses for Waterfront and Subsidiary. 6. Multiple Counterparts. This Agreement may be executed in multiple --------------------- counterparts, each of which shall be deemed an original. 7. Definitions. Capitalized terms used, but not defined, herein shall ----------- have the meanings assigned to them in the Partnership Agreement and shall be applicable to Waterfront, Subsidiary, Operating Company, Development Company, SII, and Showboat, even though SII, Operating Company, Development Company and Showboat are not parties signatory to the Partnership Agreement. 8. Term. The term of this Agreement shall extend from the Effective Date ---- and extend until the later of the fifth (5th) anniversary of the Effective Date of this Agreement or the date of termination of the Partnership Agreement, except that this Agreement shall terminate immediately if the Partnership Agreement terminates as the result of a default under the Partnership Agreement by Waterfront or if a buyout of Waterfront's interest in 3 the Partnership occurs pursuant to the provisions of Section 2.9 of the Partnership Agreement. 9. Limitations. Showboat shall not sell, assign, pledge, hypothecate, ----------- encumber or otherwise transfer or dispose of all or any part of its interest in Development Company during the term of the Partnership Agreement. Neither Showboat nor Development Company shall sell, assign, pledge, hypothecate, encumber or otherwise transfer or dispose of all or any part of their interest in SII or Operating Company during the term of the Partnership Agreement. Neither Operating Company nor SII shall cause or allow their interest in Subsidiary or Subsidiary's Interest in the Partnership to be sold, assigned, pledged, encumbered, hypothecated, or otherwise transferred or disposed of in whole or in part without the written consent of Waterfront, except in accordance with the terms of the Partnership Agreement. Neither SII, Operating Company, Development Company nor Showboat shall cause or allow any of the assets of SII or Subsidiary to be assigned, pledged, hypothecated, or encumbered for any reason other than as collateral for the Development Financing or other financing in furtherance of the Project in accordance with the terms of the Partnership Agreement. Neither SII, Operating Company, Development Company nor Showboat shall cause or allow Subsidiary to sell, assign, transfer, or otherwise dispose of any of its assets except for reasonably equivalent value and only in furtherance of the Project in accordance with the terms of the Partnership Agreement provided that the foregoing shall not prohibit Subsidiary from using cash distributions from the Partnership to pay dividends or to repay loans to Parents or others to the extent such cash is or will not be required to fund Subsidiary's obligations under the Partnership Agreement. Neither SII, Operating Company, Development Company nor Showboat shall cause or allow Subsidiary to engage in any business or activities other than the Partnership. Showboat, Operating Company and Development Company, shall not allow SII to engage in any business or activities other than the partnership of the Partnership. If Showboat Parties present a proposal for Development Financing to Waterfront that combines the financing for the Project with another project of Showboat's, Waterfront cannot unreasonably withhold its consent to the pledge or encumbrance of the assets of the Partnership for such combined financing if such combined financing: (i) provides to the Project sufficient funds on a timely basis to satisfy the cash needs established in the Capital Budget; (ii) has materially more favorable terms than financing that could be obtained for the Project without such combination; and 4 (iii) would not materially impair the financial success of the Project when the Projections for the Project and the projections for the combined project are viewed together in the light of the financial burdens imposed by such financing and reasonably compared to the Projections for the Project alone. 10. Board Approval. The parties acknowledge and agree that their -------------- respective Boards of Directors have approved the terms of this Agreement and, as appropriate, the Partnership Agreement. 11. Incorporation by Reference. All of the recitals are incorporated by -------------------------- reference as representations of the Showboat Parties or Waterfront, as the case may be. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written. SHOWBOAT, INC. By: /s/ J.K. Houssels -------------------------------- J.K. Houssels, President SHOWBOAT INDIANA, INC. By: /s/ J. Kell Houssels, III -------------------------------- J. Kell Houssels, III, President SHOWBOAT OPERATING COMPANY By: /s/ Frank A. Modica -------------------------------- Frank A. Modica, President SHOWBOAT DEVELOPMENT COMPANY By: /s/ J. Kell Houssels, III -------------------------------- J. Kell Houssels, III, President 5 SHOWBOAT INDIANA INVESTMENT LIMITED PARTNERSHIP By: Showboat Indiana, Inc. its General Partner By: /s/ J. Kell Houssels, III -------------------------------- J. Kell Houssels, III, President WATERFRONT ENTERTAINMENT AND DEVELOPMENT, INC. By: /s/ Michael A. Pannos -------------------------------- Michael A. Pannos, President 6 EXHIBIT 10.38 SHOWBOAT MARINA PARTNERSHIP AGREEMENT SHOWBOAT MARINA PARTNERSHIP AGREEMENT TABLE OF CONTENTS Page ---- 1. DEFINITIONS.............................................. 1 1.1. Affiliate......................................... 1 1.2. Agreement......................................... 2 1.3. Budget............................................ 2 1.4. Capital Account................................... 2 1.5. Capital Budget.................................... 2 1.6. Capital Contribution.............................. 2 1.7. Carrying Value.................................... 2 1.8. Casino Facilities................................. 3 1.9. Code.............................................. 3 1.10. Commission........................................ 3 1.11. Comparable Companies.............................. 3 1.12. Development Expenses.............................. 3 1.13. Distributable Cash................................ 4 1.14. Effective Date.................................... 4 1.15. Ground............................................ 4 1.16. Indiana Uniform Partnership Act................... 4 1.17. Interest.......................................... 4 1.18. Losses............................................ 4 1.19. Managing Partner.................................. 5 1.20. Minimum Gain...................................... 5 1.21. Nonrecourse Deductions............................ 5 1.22. Opening........................................... 5 1.23. Operating Budget.................................. 5 1.24. Partners.......................................... 5 1.25. Partnership....................................... 5 1.26. Partnership's Auditor............................. 5 1.27. Percentage Interest............................... 5 1.28. Person............................................ 5 1.29. Project........................................... 5 1.30. Regulations....................................... 5 1.31. Vessel............................................ 6 2. FORMATION OF 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............................... 6 2.6. Principal Place of Business....................... 6 2.7. Property of the Partnership....................... 7 i 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....................................... 10 3.5. Preferential Return............................... 10 3.6. Loans............................................. 10 3.7. Excess Interest................................... 10 3.8. Contributions..................................... 11 3.9. Failure to Contribute............................. 12 4. ALLOCATIONS AND DISTRIBUTIONS............................ 13 4.1. Definitions....................................... 13 4.2. Allocation of Income, Gain, Loss, Deduction (including Depreciation), and Credit.............. 13 4.3. Distributions and Investment of Cash.............. 18 4.4. Development Fee................................... 20 5. MANAGEMENT OF THE PARTNERSHIP............................ 20 5.1. Managing Partner.................................. 20 5.2. Restrictions...................................... 21 5.3. Actions Requiring Unanimous Consent of the Partners.......................................... 22 5.4. Dealings with Affiliates.......................... 23 5.5. Removal of Managing Partner....................... 23 5.6. Ground............................................ 23 5.7. Partnership Debts................................. 23 5.8. Delegation of Authority........................... 23 5.9. Other Ventures.................................... 24 5.10. Exculpation from Liability; Indemnification....... 24 5.11. Meetings of Partners.............................. 24 5.12. Reports........................................... 25 5.13. Partnership Development Financing................. 25 5.14. Management Agreement.............................. 26 6. PUT OPTION............................................... 26 7. TRANSFER OF PARTNER'S INTEREST........................... 27 7.1. Restrictions on Transfer.......................... 27 7.2. Right of First Refusal............................ 28 7.3. Continuing Liability.............................. 29 ii 8. PARTNER DEFAULT.......................................... 29 8.1. Definition of Default............................. 29 8.2. Defaults.......................................... 29 8.3. Buyout Remedy..................................... 29 8.4. Injunctive Relief................................. 30 9. DETERMINATION OF FAIR MARKET VALUE....................... 30 9.1. Fair Market Value................................. 30 10. FORCE MAJEURE............................................ 32 10.1 Force Majeure Defined............................. 32 10.2 Actions to Resolve Force Majeure Events........... 32 11. TERMINATION AND LIQUIDATION OF PARTNERSHIP............... 33 11.1. Termination....................................... 33 11.2. Winding Up and Liquidation........................ 33 11.3. Bankruptcy or Insolvency; Involuntary Transfer.... 34 12. DISCLOSURE OF OTHER BUSINESS INTEREST CONFLICTS; BUSINESS OPPORTUNITY.............................................. 35 12.1. Other Business Interests.......................... 35 12.2. Competition....................................... 35 12.3. Business Opportunity.............................. 36 13. TAX MATTERS; BOOKS AND RECORDS; ACCOUNTING............... 37 13.1. Tax Matters....................................... 37 13.2. Indemnity Against Breach.......................... 37 13.3. Records........................................... 38 13.4. Notices........................................... 38 13.5. Reports to Partners............................... 39 14. TRADEMARKS AND LICENSES.................................. 39 14.1. Showboat Marks.................................... 39 14.2. Use of Marks by Partnership....................... 40 15. GENERAL PROVISIONS....................................... 40 15.1. Foreign Gaming Licenses........................... 40 15.2. Entire Agreement.................................. 40 15.3. Counterparts...................................... 40 15.4. Captions.......................................... 40 15.5. Amendment......................................... 41 15.6. Grammatical Changes............................... 41 15.7. Successors and Assigns............................ 41 iii 15.8. Consent of Partners............................... 41 15.9. No Waiver......................................... 41 15.10. Disputes.......................................... 41 15.11. Partial Invalidity................................ 42 15.12. Cooperation with Nevada, Louisiana and New Jersey Gaming Authorities................................ 42 15.13. Administrative/Development/Trademark/License Fees.............................................. 42 15.14. Applicable Law: Jurisdiction...................... 42 iv SHOWBOAT MARINA PARTNERSHIP AGREEMENT ------------------------------------- This Partnership Agreement, dated the 31st day of January, 1994, is executed by and between: WATERFRONT ENTERTAINMENT AND DEVELOPMENT, INC. ("Waterfront"), an Indiana corporation with its registered office at 9111 Broadway, Suite EE, 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, President of its General Partner, Showboat Indiana, Inc., duly authorized hereunto; W I T N E S S E T H: -------------------- WHEREAS, the parties desire to form a partnership on the terms and conditions set forth herein for the construction, acquisition, ownership and operation of an excursion cruise vessel casino on Lake Michigan, Indiana, including all equipment and other property used in connection therewith, and all necessary ancillary facilities to the excursion cruise vessel casino, including, but not limited to, docks, piers, restaurants, entertainment facilities, vehicular parking area, 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 herein; 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 1 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 of 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 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 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 (S) 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: 2 (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(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. ---------- 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 3 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, such 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 execute this Agreement. 1.15. Excess Interest. The difference between the effective interest --------------- rate (including customary fees and costs) per annum of financing is twelve percent (12%) per annum. 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. 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 4 (S) 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. 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. 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 $90,000,000 or be less than $60,000,000, 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). 5 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 30,000 square feet. 2. FORMATION OF PARTNERSHIP; NAME; APPLICABLE LAW; ETC. ---------------------------------------------------- 2.1. Formation of Partnership. The Partners hereby agree that on the ------------------------ Effective Date, a general partnership shall be formed under the laws of the State of Indiana under the name and style of Showboat Marina Partnership. 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. 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. 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 6 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 this 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 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 7 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 (S) 704(b) of the Code and Regulations (S) 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 (S) 754, the amounts of any adjustment to the basis (or Carrying Value) of assets of the Partnership made pursuant to Code (S) 743 shall not be reflected in the Capital Accounts of the Partners, but the amounts of any adjustments to the basis (or Carrying Value) of assets of the Partnership made pursuant to Code (S) 743 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) 8 shall be reflected in the Capital Accounts of the Partner in the manner prescribed in regulations promulgated under Code (S) 704(b). 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 shall be returned to Waterfront by the Partnership; and 9 b. Within six months after the Opening, the Partnership shall return to Waterfront its remaining unpaid Capital Contribution and unreimbursed Development Expenses. If the Partnership has insufficient funds to return such amounts, Showboat shall make an immediate cash Capital Contribution 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. 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. Such loans shall not be considered contributions to the capital of the Partnership, but any lending Partner shall be treated the same as any other creditor of the Partnership. 3.7. Excess Interest. In the event the Development Financing --------------- (defined in Section 5.13) or any renewal or replacement thereof obtained by the Partnership, whether or not from a Partner, has an effective interest rate (including customary fees and costs of the foregoing) for the financing which exceeds twelve percent (12%) per annum, then the following provisions shall apply: a. Notwithstanding Showboat's fifty-five percent (55%) Partnership Interest, Showboat shall be responsible for the payment of seventy- five percent (75%) of the Excess Interest on such loan; b. Notwithstanding Waterfront's forty-five percent (45%) Partnership Interest, Waterfront shall be responsible for the payment of twenty- five percent (25%) of the Excess Interest; c. In recognition of Showboat's bearing the responsibility for payment of a percentage of Excess Interest that is disproportionate to its Partnership Interest, Showboat and Waterfront agree as follows: 10 (i) At Showboat's request, the Partners shall agree to refinance such outstanding debt if such replacement financing is on terms otherwise no less favorable than the then current financing and can be completed at an interest rate below twelve percent (12%) per annum (including customary fees and costs of the financing); (ii) The Partnership shall calculate the difference between the interest on the outstanding principal at twelve percent (12%) per annum and the interest on the refinanced debt on the amount of the principal retired at the actual refinance rate, which amount shall fund a pool of which Showboat shall receive seventy-five percent (75%) and Waterfront shall receive twenty-five percent (25%) until Showboat shall have been repaid the disproportionate share of Excess Interest paid by Showboat. Thereafter, the pool and the payments described in this subsection shall terminate. d. Each Partner's share of the Excess Interest, if any, shall be funded from such Partner's share of the Distributable Cash or other cash to be distributed to such Partner. If there is insufficient cash to satisfy such Partner's obligations, the Managing Partner shall notify such Partner. If Showboat has a shortfall, Showboat shall immediately provide additional cash to the Partnership by way of an additional Capital Contribution to satisfy such obligation. If Waterfront has a shortfall, then if Waterfront does not, within ten (10) days of the date of the notice, make an additional Capital Contribution to cover the shortfall, Showboat shall immediately loan a sufficient amount to the Partnership to cover such shortfall in Waterfront's obligations, which amount shall be deemed a loan to the Partnership on the terms specified in Section 3.9.a. of this Agreement. 3.8. Contributions. ------------- a. Initial Capital Contributions. 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 - $1,000,000 (ii) Showboat - $1,000,000 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: 11 (i) Waterfront - $1,100,000 payable at the times specified in the initial Capital Budget; (ii) Showboat - $16,500,000 payable at the times specified in the initial Capital Budget; 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, 12 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 (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. Notwithstanding the foregoing, the sole remedy of Showboat for a failure by Waterfront to make a Capital Contribution to cover its share of Excess Interest shall be the remedy set out in subsection (iii) above. c. 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. - ------------------------- 13 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 (S) 704(c) of the Code. In accordance with -------------------------------------- (S) 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 (S) 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 (S) 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: (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 14 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. (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 15 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-recourse 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-recourse 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 16 allocated and distributed are hereby expressly consented to by the Partners as an express condition of becoming a Partner. 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 amount of any adjustments to the Carrying Value of any assets of the Partnership pursuant to Section 743 of the Code 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 4.3e, 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 (S) 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 17 the requirements of (S) 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. 4.3. Distributions and Investment of Cash. ------------------------------------ a. Distributable Cash from operations shall be distributed periodically; provided, however, that no distributions of cash shall be made to the Partners unless all amounts due to Partners with regard to loans made to the Partnership pursuant to Sections 3.6, 3.7(d) and 3.9, including interest, have been paid by the Partnership. The Partners anticipate that fifty percent (50%) of all cash receipts from operations plus an allowance for income taxes due on net income attributable to the Partners' Interests shall be distributed to the Partners no less than quarterly. b. Distributable Cash from operations shall be distributed not less frequently than quarterly. All such distributions shall be made to the Parties as follows: (i) first, payment of the Development Fee if not previously paid pursuant to Section 4.4, below; (ii) second, return of Waterfront's Capital Contribution plus unreimbursed Development Expenses if not previously paid pursuant to Section 3.3 above; (iii) third, any accrued and unpaid preferred return on each Partner's outstanding Capital Contribution and expenses pursuant to Section 3.5 above; (iv) fourth, 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 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 and unreimbursed 18 Development Expenses) and (b) the balance of such Distributable Cash shall be available for distribution pursuant to subsection 4.3.b(v) below; (v) the balance, if any, to the Partners in proportion to their respective Percentage Interests. c. All distributions of cash, except for 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: (i) first, payment of the Development Fee if not previously paid pursuant to Section 4.4, below; (ii) second, return of Waterfront's Capital Contribution plus unreimbursed Development Expenses if not previously paid pursuant to Section 3.3 above; (iii) third, any accrued and unpaid preferred return on each Partner's outstanding Capital Contribution and expenses pursuant to Section 3.5 above; (iv) fourth, 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 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 and unreimbursed Development Expenses and (b) the balance of such proceeds shall be available for distribution pursuant to subsection 4.3.d.(v) below; (v) 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. 19 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) 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 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 establishing a community reinvestment fund in a development corporation (funded annually in an amount equal to 1.5% of adjusted gross gaming revenues). Money donated to and accumulated in the community reinvestment fund shall be made available for economic development projects as determined by the City of East Chicago or other appropriate governmental entity. 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 20 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 concurrences 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 totalling, during any one calendar year, more than $500,000 unless in an approved Capital 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 which involve a credit facility to carry out the same totalling, 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; 21 g. Initiate or settle any litigation by or against the Partnership or 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. 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; (vii) a change in the percentage of adjusted gross gaming receipts provided to the development corporation as described in Section 5.1 of this Agreement; or (viii) a change in the Partnership auditor. Notwithstanding subsection 5.3(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. 22 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 except as otherwise provided in Section 5.12. 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. 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 23 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 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 24 operations of the Partnership. The Managing Partner shall distribute daily reports of operations to the Partners. 5.12. Reports. The Partnership shall provide written, oral or ------- videotaped reports of the operations of the Vessel and other operations conducted pursuant to Section 2.4 of this Agreement on a weekly basis to the Partners. 5.13. Partnership Development Financing. 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." 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 to fund such necessary amounts. Showboat shall, on or before March 15, 1994, (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 funds equal to the Development Financing from a reputable financial institution with sufficient assets, all in a timeframe consistent with that set forth in the Capital Budget. The failure of Showboat to timely provide the Development Financing or, in the alternative, to make a sufficient Capital Contribution, shall constitute a breach of this Agreement and a failure of Showboat to make the Capital Contribution, entitling Waterfront to the remedies resulting therefrom in Section 3.9 of this Agreement. 25 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 for the balance of the term of the site control agreement for the Ground substantially in the form attached as Exhibit A. 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 (7th) anniversary of the commencement of gaming operations. The purchase price of Waterfront's Disposition Portion under either option shall be calculated by dividing 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 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 26 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 for 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 (7th) 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 determine 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. Any sale or other transfer or attempted transfer in violation of this Agreement shall be null and void and of no force and effect. 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 27 in such event, the consent of Waterfront and Showboat shall not be unreasonably withheld or delayed. 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 no 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 28 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 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 3.8 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 29 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. 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") 30 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 Fist 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 accurate 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 said seven (7) days, then the Electing Partner shall request such appointment by the president or 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 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. 31 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 fifteen percent (15%) per annum. 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 which exceeds the initial Capital Budget by more than twenty-five percent (25%). 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 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 Partners fail to agree on a course of action then either Partner may terminate this Agreement on thirty days (30) 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 32 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 shall 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 for all damages and losses incurred by such 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; and c. Third, payment of the Development Fee if not previously paid pursuant to Section 4.4, above; d. Fourth, return of Waterfront's capital Contribution plus unreimbursed Development Expenses if not previously paid pursuant to Section 3.3 above; e. Fifth, any accrued and unpaid preferred return on each Partner's outstanding Capital Contribution and unreimbursed Development Expenses pursuant to subsection 3.5 above; 33 f. Sixth, to the extent not previously repaid, each Partner's entire unpaid Capital Contribution and unreimbursed Development Expenses shall be repaid in full from such proceeds; g. Seventh, 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 closing of a sale upon such 34 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 and undertakings, including, without limitation, gaming 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 35 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. 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 36 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. The Partners 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 Section 734 and 743 of the Code of 1986. 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". 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. 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 37 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 claim 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 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 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: 38 Partnership: Showboat Indiana, Inc. 2800 Fremont Street Las Vegas, Nevada 89104 with a copy to: Waterfront Entertainment and Development, Inc. 9111 Broadway, Suite EE Merrillville, Indiana 46410 Waterfront: Waterfront Entertainment & Development, Inc. 9111 Broadway, Suite EE 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: H. Gregory Nasky, Esq. Vargas & Bartlett Seventh Floor 3800 Howard Hughes Parkway Las Vegas, Nevada 89109 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 field of use not only throughout the United States but also in foreign countries. 39 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 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 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 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. 40 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 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. 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 41 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 Nevada, Louisiana and New Jersey Gaming -------------------------------------------------------- Authorities. The Partners shall use their best efforts to cause its officers, - ----------- directors, employees and stockholders to provide the Nevada Gaming Authorities, Louisiana Riverboat Authorities and the New Jersey Casino Control Commission 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 in the states of New Jersey, Louisiana and Nevada. 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. 15.14. Applicable Law: Jurisdiction. ---------------------------- 42 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. 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: /s/ Michael Pannos -------------------------------------- MICHAEL PANNOS, PRESIDENT SHOWBOAT INDIANA INVESTMENT LIMITED PARTNERSHIP, a Nevada Limited Partnership Showboat Indiana, Inc., its General Partner By: /s/ J. Kell Houssels, III -------------------------------------- J. KELL HOUSSELS, III, PRESIDENT 43 EX-10.39 9 LEASE AGREEMENT EXHIBIT 10.39 LEASE AGREEMENT --------------- This Lease Agreement is made between EXBER, INC., a Nevada corporation whose mailing address is 600 E. Fremont Street, Las Vegas, Nevada 89101 ("Lessor"), and SHOWBOAT OPERATING COMPANY, a Nevada corporation, whose mailing address is 2800 Fremont Street, Las Vegas, Nevada 89104 ("Lessee"), with respect to the following: WHEREAS, Lessor is the fee title owner of the property described in Exhibit "A" annexed hereto; and WHEREAS, Lessor is the Sublessee of a certain Sublease dated November 5, 1966, recorded November 10, 1966, as Instrument No. 608645 in the Official Records of Clark County, Nevada, which leases a parcel of property which is described in such Sublease which is annexed hereto as Exhibit "B" (the "Sublease"); and WHEREAS, Lessor agrees to lease (and sublease) and Lessee agrees to take a lease (and Sublease) to the property described in Exhibits "A" and "B". Now, therefore in consideration of the mutual promises herein and other good and valuable consideration, the receipt and sufficiency whereof is hereby acknowledged, the Lessor and Lessee agree as follows: ARTICLE I --------- 1. Lessor's Demise. Upon the terms and conditions hereinafter set forth, --------------- and in consideration of the payment from time to time by the Lessee of the rents hereinafter set forth and in consideration of the prompt performance continuously by the Lessee of each and every of the covenants and agreements hereinafter contained, to be kept and performed by the lessee, the performance of each and every of which is declared to be an integral part of the consideration to be furnished by the Lessee, the Lessor does lease, let and demise to the Lessee and the Lessee does hereby lease of and from the Lessor, the following described premises, situate, lying and being in Clark County, State of Nevada, described in Exhibit "A" and "B" annexed hereto. 2. Conditions. The demise is likewise made subject to the following: ---------- a. Conditions, restrictions and limitations, if any, there be now appearing of record; b. Zoning ordinance of the City of Las Vegas and the State of Nevada, and any other governmental body now existing or which may hereafter exist by reason of any legal authority during the life of this Lease; c. The proper performance by the Lessee of all of the terms and conditions contained in this Lease and in the Sublease. ARTICLE II ---------- TERM AND EXTENDED TERMS ----------------------- 1. Fixed Term. The term of this Lease shall commence February 15, 1994 ---------- and shall expire February 19, 1999. 2. Option to Extend Term. Lessee is given the option to extend the term --------------------- of this Lease and all the provisions contained therein for four (4) terms of five (5) years each ("Extended Terms") following the expiration of the initial term by giving notice of the exercise of the option to Lessor at least six (6) months before the expiration of the term or of any Extended Term, provided that, if Lessee is in default on the date of giving any option notice, the option notice shall be totally ineffective, or if the Lessee is in default on the date any Extended Term is to commence, the Extended Term shall not commence and the Lease shall expire at the end of the initial term or at the end of such Extended Term. In the event the Lease is extended for the Extended Term, the Extended Term shall be upon the same terms, conditions and provisions as the initial Term. ARTICLE III ----------- REPRESENTATIONS AND WARRANTIES ------------------------------ 1. Title. The Lessor represents that it is the fee title owner of the ----- property described on Exhibit "A" and that it holds an assignable leasehold interest in the property described on Exhibit "B". 2. Compliance with Sublease. Lessor shall comply with and be bound by ------------------------ and shall not breach or default under any of the terms, covenants or provisions of the Sublease, and neither the Sublease or any material provision thereof which could have a material 2 adverse affect on Lessee shall be amended, modified, changed, surrendered, or terminated without Lessee's prior written consent which consent shall not be unreasonably withheld or delayed. Lessor has exercised all options to extend the term of the Sublease to November 30, 2000. 3. Liens. Lessor warrants and agrees that other than deminimis matters ----- having no bearing on Lessee's lawful and quiet use and enjoyment of the premises by Lessee and no part of the premises, other than the Sublease, is subject to any existing encumbrance, easement, reservation, right, right-of-way, agreement, lien, covenant, condition, restriction or other defect in or cleared upon its title. 4. Utilities. At the time Lessee will take possession of the premises, --------- all necessary utilities, including electricity, water, sewerage and gas will be available. 5. Obey Laws. Lessee shall obey and observe all ordinances, laws, rules --------- and regulations lawfully relating to the premises, or the use thereof, and will not use or permit the use of the premises or any part thereof for the purpose of carrying on any illegal or immoral business or occupation or for the maintenance of any nuisance. ARTICLE IV ---------- RENT ---- 1. Rent. The rent which the Lessee agrees to pay to the Lessor is Ten ---- Thousand Eight Hundred Thirty-three Dollars ($10,833.00) together with payment of the rent and all other charges to be paid by the Sublessee under the Sublease, the present monthly rental under such Sublease being Two Thousand Sixty-Two and 80/100 Dollars (2,262.80) per month. All rent payments shall be paid on the first day of each month in advance. 2. Place of Payment. Rent shall be payable at such place as the Lessor ---------------- may specify, in writing, from time to time, and a place once specified as the place for the payment of rent shall be such until it shall have been changed by written notice given unto the Lessee by the Lessor, in the manner hereinafter prescribed for the giving of notice. 3. Net Lease. It is the purpose and intent of the Lessor and Lessee that --------- the rent, hereinabove provided to be paid to the Lessor by the Lessee, be absolutely net to Lessor, so that this Lease shall, except as hereinafter provided to the contrary, yield net to Lessor the rent, as hereinabove provided, to be paid in each year during the term of this Lease, and that all costs, expenses 3 and obligations of every kind or nature whatsoever relating to the demised premises, or any improvements thereon, which may arise or become due during the term of this Lease, shall be paid by the Lessee and that the Lessor shall be indemnified and saved harmless by the Lessee from and against the same. ARTICLE V --------- PAYMENT OF TAXES ---------------- 1. Lessee's Obligations. The Lessee covenants and agrees with the Lessor -------------------- that the Lessee shall pay, before any fine, penalty, interest or cost may be added thereto, or become due or be imposed by operation of law for the nonpayment thereof, all taxes, assessments, water and sewer rents, rates and charges, transit taxes, charges for public utilities, excises, levies, licenses and permit fees and other governmental charges, general and special ordinary and extraordinary, unforeseen, of any kind and nature whatsoever, which at any time during the term of this Lease may be assessed, levied, confirmed, imposed upon or grow or become due and payable out of or in respect of, or become a lien on, the demised premises, or any improvements thereon, or any part thereof or any appurtenance thereto, or any use or occupation of the demised premises, and such franchises as may be appurtenant to the use of the demised premises, or any document (to which the Lessee is a party) creating or transferring an interest or estate in the demised premises. 2. Obligations Altered. Nothing herein contained shall require the ------------------- Lessee to pay municipal, state or federal income taxes assessed against the Lessor, municipal, state or federal capital levy, estate, succession, inheritance or transfer taxes of the Lessor, corporate franchise taxes imposed upon any corporate owner of the fee of the demised premises. 3. Mode of Payment. The parties hereto agree that the Lessee shall pay --------------- the taxes and other charges as enumerated in this Article of the Lease and shall deliver official receipts evidencing such payment unto the Lessor, at the place at which rental payments are required to be made, which payment of taxes shall be made and the receipts delivered in accordance with the law then in force governing the payment of such tax or taxes. If, however, the Lessee desires to contest the validity of any tax or tax claim, the Lessee may do so without being in default hereunder as to the Lessee's obligation to pay taxes, provided the Lessee gives the Lessor notice of the Lessee's intention to do so and furnishes the Lessor with a bond with a surety made by a surety company qualified to do business in the State of Nevada, or pays cash to a recognized escrow agent in Clark County, one and one-half times the amount of the tax item or items intended to be contested, conditioned to pay 4 such tax or tax items when the validity thereof shall have been determined, and which written notice and bond or equivalent cash shall be given by the Lessee to the Lessor, not later than a day which is sixty (60) days before the tax item or items proposed to be contested would otherwise become delinquent. Lessor will cooperate fully in any such contest. 4. Lessee's Default. In the event that the Lessee shall fail, refuse or ---------------- neglect to make any or either of the payments in this Article required, then the Lessor may, at its option, pay the same, and the amount or amounts of money so paid, including reasonable attorneys' fees and expenses which might have been reasonable incurred because of or in connection with such payments, together with interest on all such amounts, at the rate of ten percent (10%) per annum, shall be repaid by the Lessee to the Lessor, upon the demand of the Lessor, and the payment thereof may be collected or enforced by the Lessor in the same manner as though such amount were an installment or rent specifically required by the terms of this Lease to be paid by the Lessee to the Lessor, upon the day when the Lessor demands repayment thereof or reimbursement therefor of and from the Lessee; but the election of the Lessor to pay such taxes shall not waive the default thus committed by the Lessee. 5. Proration. The foregoing notwithstanding, the parties hereto --------- understand and agree that the taxes for the first and last years of the terms herein shall be prorated proportionately between the Lessor and the Lessee. ARTICLE VI ---------- LESSOR'S INTEREST NOT SUBJECT TO MECHANIC'S LIENS ------------------------------------------------- 1. No Lien. All persons to whom these presents may come are put on ------- notice of the fact that the Lessee shall never, under circumstances, have the power to subject the interest of the Lessor in the premises to any mechanics' or materialmen's liens or lien of any kind, unless a specific provision to the contrary authorizing in specific terms the creation of such lien or liens, is elsewhere herein contained. Lessee agrees to give notice to Lessor fifteen (15) days prior to commencement of any construction on the leased premises in order that a notice of non-responsibility may be posted thereon. 2. Release of Lien. The Lessee covenants and agrees with the Lessor that --------------- the Lessee will not permit or suffer to be filed or claimed against the interest of the Lessor in the demised premises during the continuance of this Lease, any lien or claim of any kind (excepting for the mortgage referred to in Article XIII hereinafter contained), and if such lien be claimed or filed, it shall be the 5 duty of the Lessee, within thirty (30) days after the Lessor shall have been given written notice of such a claim having been filed among the Public Records of Clark County, Nevada, or within thirty (30) days after the Lessor shall have been given written notice of such claim and shall have transmitted written notice of the receipt of such claim unto the Lessee (whichever thirty (30) day period expires earlier) to cause the premises to be released from such claim, either by payment or by the posting of bond or by the payment unto the court of the amount necessary to relieve and release the premises from such claim, or in any other manner which, as a matter law, will result, within such period of thirty (30) days, in releasing the Lessor and the title of the Lessor from such claim; and the Lessee covenants and agrees, within such period of thirty (30) days, so as to cause the premises and the Lessor's interest therein to be released from the legal effect of such claim. ARTICLE VII ----------- REMEDIES AND RIGHTS OF LESSOR ----------------------------- 1. Governing Law. All of the rights and remedies of the respective ------------- parties shall be governed by the provisions of this instrument and by the laws of the State of Nevada. 2. Rights of Lessor. During the continuance of the Lease, the Lessor ---------------- shall have all rights and remedies which this Lease and the laws of the State of Nevada assures to it. All rights and remedies accruing to the Lessor shall be cumulative, that is, the Lessor may pursue such rights as the law and this Lease affords to him in whatever order the Lessor desires and the law permits without being compelled to resort to any one remedy in advance of any other. ARTICLE VII ----------- INDEMNIFICATION OF LESSOR AGAINST LIABILITY ------------------------------------------- 1. Indemnification by Lessee. The Lessee covenants and agrees with ------------------------- Lessor that during the entire term of the Lease, the Lessee will indemnify and save harmless the Lessor against any and all claims, debts, demands or obligations which may be made against the Lessor or against the Lessor's title in the premises, arising by reason of, or in connection with, any alleged act or omission of the Lessee or any person claiming under, by or through the Lessee which occurred from the date of this Lease; and if it becomes necessary for the Lessor to defend any action seeking to impose any such liability, the Lessee will pay the Lessor all costs of court and reasonable attorneys' fees incurred by the Lessor in effecting such defense in addition to any other sums which the Lessor may be 6 called upon to pay by reason of the entry of a judgment against the Lessor in the litigation in which such claim is asserted. 2. Indemnification by Lessor. The Lessor covenants and agrees with ------------------------- Lessee that during the entire term of the Lease, the Lessor will indemnify and save harmless the Lessee against any and all claims, debts, demands or obligations which may be made against the Lessee or against the Lessee's title in the premises, arising by reason of, or in connection with any alleged act or omission of the Lessor or any claiming under, by or through the Lessor which occurred prior to the commencement date of this Lease; and if it becomes necessary for the Lessee to defend any action seeking to impose any such liability, the Lessor will pay the Lessee all costs of court and reasonable attorneys' fees incurred by the Lessee in effecting such defense in addition to any other sums which the Lessee may be called upon to pay by reason of the entry of a judgment against the Lessee in the litigation in which such claim is asserted. 3. Insurance. From the time when the Lessee commences construction on --------- the demised premises or any part thereof, or from and after any earlier date when the Lessee makes actual use of and occupies the demised premises, or any parts thereof, the Lessee will cause to be written a policy or policies of insurance in the form generally known as public liability and/or owners', landlord and tenant policies and boiler insurance policies and elevator insurance policies, when there be boilers and elevators included in any improvements located on the demised premises, insuring the Lessee against any and all claims and demands made by any person or persons whomsoever for injuries received in connection with the operation and maintenance of the premises, improvements and buildings located on the demised premises or for any other risk insured against by such policies, each class of which policies shall have been written within limits of not less than $1,000,000 for damages incurred or claimed by any one person for bodily injury, or otherwise, plus $100,000 damages to property, and for not less than $1,000,000 for damages incurred or claimed by more than one person for bodily injury, or otherwise, plus $100,000 damages to property. All such policies shall name the Lessee and the Lessor, as their respective interest may appear, as the persons assured by such policies; and the original or a duplicate original of each of such policy or policies shall be delivered by the Lessee to the Lessor promptly upon the writing of such policies, together with adequate evidence of the fact that the premiums are paid. 7 ARTICLE IX ---------- FIRE AND WIND DAMAGE INSURANCE ------------------------------ 1. Lessee's Obligation. The Lessee covenants and agrees with Lessor ------------------- that from and after the time when the Lease commences, the Lessee will keep insured any and all buildings and improvements upon the said premises against all buildings and improvements upon the said premises against all loss or damage by fire and windstorm, and what is generally termed in the insurance trade as "extended coverage," which said insurance will be maintained in an amount which will be sufficient to prevent any party in interest from being or becoming a co- insurer on any part of the risk, which amount shall not be less than the full replacement value, and all of such policies of insurance shall include the name of the Lessor as one of the parties insured thereby and shall fully protect both the Lessor and the Lessee as their respective interest may appear. In the event of destruction of the said buildings or improvements by fire, windstorm or other casualty for which insurance shall be payable and as often as such insurance money shall have been paid to the Lessor and the Lessee, said sums so paid shall be deposited in a joint account of the Lessor and the Lessee in a bank located in Clark County, Nevada, and shall be made available to the Lessee for the construction or repair, as the case may be, of any building or buildings damaged or destroyed by fire, windstorm or other casualty for which insurance money shall be payable and shall be paid out by the Lessor and the Lessee from said joint account from time to time on the estimate of any reliable architect licensed in the State of Nevada, and having jurisdiction of such reconstruction and repair, certifying that the amount of such estimate is being applied to the payment of the reconstruction or repair and at a reasonable cost therefor; provided, however, that it first be made to appear to the satisfaction of the Lessor that the total amount of money necessary to provide for the reconstruction or repair of any building or buildings destroyed or injured, as aforesaid, according to the plans adopted therefor, has been provided by the Lessee for such purpose and its application for such purpose assured. 2. Delivery of Policies. The originals of all such policies shall be -------------------- delivered to the Lessor by the Lessee along with receipted bills evidencing the fact that the premiums therefor are paid; but nothing herein contained shall be construed as prohibiting the Lessee from financing the premiums where the terms of the policies are for three (3) years or more and in such event the receipts shall evidence it to be the fact that the installment premium payment or payments are paid at or before their respective maturities. 8 ARTICLE X --------- LESSEE'S COVENANT TO PAY INSURANCE PREMIUMS ------------------------------------------- The Lessee covenants and agrees with Lessor that the Lessee will pay premiums for all of the insurance policies which the Lessee is obligated to carry under the terms of this Lease, and will deliver to the Lessor evidence of such payment before the payment of any such premiums becomes in default, and the Lessee will cause renewals of expiring policies to be written and the policies or copies thereof, as the Lease may require, to be delivered to Lessor at least ten (10) days before the expiration date of such expiring policies. ARTICLE XI ---------- ASSIGNMENT ---------- 1. Written Assignment; Recording. This Lease shall be assignable by ----------------------------- Lessee only upon the written consent of the Lessor, which consent shall not be unreasonably withheld if the following conditions are satisfied: a. that Lessor approves the financial condition and business reputation of the proposed assignee; b. that the proposed assignee establish with Lessor a deposit to secure its performance of the Lease in a sum equal to three (3) times the monthly rental at the time of assignment, interest on which shall accrue and be paid to the account of the assignee; c. that the proposed assignee shall expressly assume and agree to perform each and every of the covenants of this Lease which, by the terms hereof, the Lessee agrees to keep and perform, which assumption shall be evidenced by written instrument in recordable form, duly recorded in the Official Records of Clark County, Nevada, and an executed original thereof delivered to the Lessor; d. notwithstanding the foregoing, Lessee may assign this Lease to any wholly-owned subsidiary of Lessee's parent corporation. 2. Notice. Each party (Lessor and Lessee) hereby covenants and agrees ------ with the other that such side will, within twenty (20) days after written notice shall have been given that side by the other, requiring a statement of the status of the Lease, give such statement in writing and truthfully, so as to show whether the Lease is in good standing, and, if it is not, the particulars in 9 which it is not, and failure within such period of twenty (20) days so to give such written reply shall constitute a representation that the Lease is in good standing, which representation any person, within twenty (20) days after the expiration of said twenty (20) day period, may rely upon as being true and correct. Notice and the subsequent reply shall be deemed given and time shall begin to run when, respectively such notice and the consequent reply are deposited in the United States registered mails, with sufficient postage prepaid thereon to carry them to their addressed destinations and they shall be addressed to the Lessor and the Lessee at the place and in the manner prescribed as being the places and the manner for giving notice. Such notice shall contain, verbatim, all of the language set forth in this Section 2. 3. Lessee's Primary Liability. If the Lessee's interest in and to this -------------------------- Lease Agreement is assigned, the Lessee's liability for the performance of any of the terms, conditions, covenants and agreements contained herein to be performed by the Lessee, shall remain in full force and effect. ARTICLE XII ----------- CONDEMNATION ------------ 1. Eminent Domain: Cancellation. It is understood and agreed that if, ----------------------------- at any time during the continuance of this Lease, the demised real estate or the improvement or building or buildings located thereon, or any portion thereof be taken or appropriated or condemned by reason of eminent domain, there shall be such division of the proceeds and awards in such condemnation proceedings and such abatement of the rent and other adjustments made as shall be just and equitable under the circumstances. If the Lessor and the Lessee are unable to agree upon what division, annual abatement of rent or other adjustments as are just and equitable, within thirty (30) days after such award has been made, then the matters in dispute shall, by appropriate proceedings, be submitted to a court having jurisdiction of the subject matter of such controversy in Clark County, Nevada, for its decision and determination of the matters in dispute. If the legal title to the entire premises be wholly taken by condemnation, the Lease shall be canceled. 2. Apportionment. Although the title to the building and any ------------- improvements placed by the Lessee upon the demised premises will pass to the Lessor, nevertheless, for purpose of condemnation, the fact that the Lessee placed such buildings on the demised premises shall be taken into account, and the deprivation of the Lessee's use of such buildings and improvements shall, together with the term of the lease remaining, be an item of damage in determining the portion of the condemnation award to which the Less is entitled. In general, it is the intent of this Section that, 10 upon condemnation, the parties hereto shall share in their awards to the extent that their interests, respectively, are depreciated, damaged or destroyed by the exercise of the right of eminent domain. In this connection, if the condemnation is total, the parties agree that the condemnation award shall be allocated so that the then value of the property, as though it were vacant property, shall be allocated to the Lessor, and the then value of the building or buildings thereon shall be allocated between the Lessor and Lessee after giving due consideration to the number of years remaining in the term of this lease and the condition of the buildings at the time of condemnation. ARTICLE XIII ------------ LESSEE'S RIGHT TO BUILD ----------------------- 1. Building Not Mandatory. This Lease is executed with the understanding ---------------------- and agreement that the Lessee is not obligated to construct any buildings or improvements on the demised premises, but if the Lessee desires to construct a building or buildings on the demised premises or any portion thereof, such building or buildings will be architecturally and structurally compatible with existing buildings and improvements. 2. Lessee to Bear Expenses. If and when Lessee desires to construct any ----------------------- building, the Lessee covenants and agrees that the building or buildings must be constructed and paid for wholly at the expense of the Lessee. 3. Alteration and Waste. During the term of this Lease or during any -------------------- Extended Term hereof, the Lessee may alter, change, improve or remodel the Premises or any part thereof in the ordinary course of Lessee's business without the consent of the Lessor, provided such changes are of a kind and quality equal to or superior to those presently in existence, and provided that Lessee shall not remove, demolish or impair the usefulness of any building or improvement situate upon the Premises without the written consent of the Lessor, which consent shall not be unreasonably withheld or denied. Lessor shall execute and deliver upon request of Lessee such instrument or instruments embodying the approval of Lessor which may be required by any public or quasi-public authority for the purpose of obtaining any license or permit for the making of such changes; Lessee shall pay all costs and obligations incurred for such licenses and permits. 4. Financial Commitment. Before commencing the building, the Lessee -------------------- agrees that it will have arranged for financing so that at all times there will be available to the Lessee sufficient funds to pay for the cost of construction of the proposed building or buildings. 11 ARTICLE XIV ----------- DEFAULT ------- 1. Effect of Default by Lessee. It is further covenanted and agreed by --------------------------- and between the parties hereto that in case at any time a default shall be made by the Lessee in the payment of any of the rent herein provided for upon the day such rent becomes due and payable, or in the case of default in relation to liens, as hereinabove provided for, or in case of the sale or forfeiture of the demised premises, or any part thereof, during the demised term for nonpayment of any tax or assessment, or in case the Lessee shall fail to keep insured any building, buildings or improvements which may at any time hereafter be upon such premises, as herein provided for, or shall fail to spend insurance money, as herein provided for, or shall fail to build or rebuild, as herein provided for, or if the Lessee shall fail to keep any mortgage, having a priority over the Lease, in good standing in the manner herein provided for, or if the Lessee shall fail to perform any of the covenants of this Lease by it to be kept and performed following required notices, then, in any of such events, it shall and may be lawful for the Lessor, upon election, to declare the demised term ended and to re-enter upon the premises and the building or buildings and improvements situated thereon, or any part thereof or thereon, either with or without process of law, the Lessee hereby waiving any demand for possession of such premises and any and all buildings and improvements then situated thereon, or the Lessor may have such other remedy as the law and this instrument may afford; and the Lessee covenants and agrees that upon the termination of the demised term, the Lessee will surrender and deliver up the demised premises and property (real and personal) peaceably to the Lessor, or the agent or attorney of the Lessor, immediately upon the termination of the demised term; and if the Lessee, its agent, attorney or tenants shall hold such premises, or any part thereof, one day after the same should be surrendered, according to the terms of this Lease, it shall be deemed guilty of forcible detainer of the premises under the statues and shall be subject to eviction or removal, forcibly or otherwise, with or without process of law. 2. Landlord-Tenant Relationship Only. The parties understand and agree --------------------------------- that the relationship between them is that of Landlord and Tenant, and the Lessee specifically acknowledges that all statutory proceedings in the State of Nevada regulating the relationship of Landlord and Tenant respecting collection of rent or possession of the premises accrue to the Landlord hereunder. 3. Lessor's Remedies. Nothing herein contained shall be construed as ----------------- authorizing the Lessor to declare this Lease in default; however, where the default consists in the non-payment of rent, security, insurance, premiums or taxes until such nonpayment, 12 in violation of the terms of this Lease, shall have continued for thirty (30) days after the respective due dates for payment of such taxes, security, insurance premiums and rent, and where the alleged default consists of some violation other than the non-payment of rent, security, insurance premiums or taxes, the Lessor may not declare this Lease in default until such violation shall have continued for thirty (30) days after the Lessor shall have given the Lessee written notice of such violations of if the default of Lessee is a type which is not reasonably possible to cure within thirty (30) days, or if Lessee has not commenced to cure said default within said thirty (30) day period and does not thereafter diligently prosecute the cure of said default to completion, provided, however, that nothing contained herein shall be construed as precluding the Lessor from having such remedy as may be and become necessary in order to preserve the Lessor's right and the interest of the Lessor in the premises and in this Lease, even before the expiration of the grace or notice periods provided for in this Section; if, under particular circumstances then existing, the allowance of such grace or the giving of such notice would prejudice or endanger the rights and estate of the Lessor in this Lease and in the demised premises. 4. Default Period. All default and grace periods shall be deemed to run -------------- concurrently and not consecutively. 5. Legal Costs; Receiver. Subject to the rights of the holder of any --------------------- first mortgage to which this Lease has been subordinated, the Lessee pledges with, and assigns to, the Lessor all of the rents, issues and profits which might otherwise accrue to the Lessee for the use, enjoyment and operation of the demised premises and, in connection with such pledging of the rents, the Lessee covenants and agrees with the Lessor that if the Lessor, upon the default of the Lessee, elects to file suit in chancery to enforce the Lease and protect the Lessor's rights thereunder, then the Lessor may, as ancillary to such suit, apply to any court having jurisdiction thereof for the appointment of a receiver of all and singular the demised premises, the improvements and buildings located thereon; and, thereupon, it is expressly covenanted and agreed that the court shall, forthwith, appoint a receiver with the usual powers and duties of receivers in like cases, and such appointment shall be made by such court as a matter of strict right to the Lessor and without reference to the adequacy or inadequacy of the value of the property, which is subject to the landlord's lien, or to the solvency or insolvency of the Lessee and without reference to the commission of waste. Nothing in this Section contained shall be construed as empowering the Lessor to collect rents accruing from the premises, unless and until the Lessee is in default. 13 6. Lessor's Default. ---------------- a. Should Lessor default in the performance of any covenant or agreement herein, and such default continue for thirty (30) days after receipt by Lessor of written notice thereof from Lessee, or if the default of Lessor is of a type which is not reasonably possible to cure within thirty (30) days, if Lessor has not commenced to cure said default within said thirty (30) day period and does not thereafter diligently prosecute the curing of said default to completion, Lessee may terminate this Lease upon giving written notice to the Lessor or exercise any other remedy available at law or in equity. b. In the event Lessor's default is of a type which can be cured by the payment of money, Lessee may (but shall not be obligated to ) pay any sums necessary to perform any obligation of Lessor hereunder and set off the cost thereof, with interest as provided herein, from Rent due and to become due pursuant to Article IV hereof. Lessee's right hereunder shall only be effective if Lessor has not made such payment within the applicable grace period. ARTICLE XV ---------- LESSEE'S DUTY TO KEEP PREMISES IN GOOD REPAIR --------------------------------------------- Lessee covenants and agrees with Lessor that during the continuance of this Lease the Lessee will keep in good state of repair and in first class condition any and all buildings, furnishings, fixtures and equipment which are brought or constructed to placed upon the demised premises by the Lessee, nor will the Lessee suffer or permit any strip, waste or neglect of any building or other property to be committed, and that the Lessee will repair, replace and renovate such property as often as it may be necessary in order to keep the buildings and other property which is the subject matter of this Lease in first class repair and condition. ARTICLE XVI ----------- ADDITIONAL COVENANTS OF LESSEE ------------------------------ 1. Legal Use. The Lessee covenants and agrees with the Lessor that the --------- premises will be used for legal purposes only. 2. Insurance Claims. The Lessee covenants and agrees with Lessor that no ---------------- damage or destruction to any building or improvements by fire, windstorm or any other casualty shall be deemed to entitle the Lessee to surrender possession of the 14 premises or to terminate this Lease or to violate any of its provisions or to cause any rebate or reduction in the rent when due or thereafter becoming due under the terms hereof; and if the Lease shall be canceled for the Lessee's default at any time while there remains outstanding any obligation from any insurance company to pay for the damage or any part thereof, then the claim against the insurance company shall, upon the cancellation of the within Lease, be deemed immediately to become the absolute and unconditional property of the Lessor. 3. Termination. The Lessee covenants and agrees with the Lessor that at ----------- the termination of this Lease the Lessee will peaceably and quietly deliver possession of the premises and all improvements, and including any furnishing, fixtures and equipment which the Lessee may have bought, placed or constructed upon the premises pursuant to the provisions of Article XII of this Lease, to the Lessor. 4. Costs of Suits. In the event of litigation between the parties to -------------- enforce any provisions of the within Lease and Sublease, the prevailing party shall be entitled to receive costs of court and reasonable attorneys' fees. ARTICLE XVII ------------ COVENANT OF QUIET ENJOYMENT --------------------------- The Lessor covenants and agrees with Lessee that so long as the Lessee keeps and performs all of the covenants and conditions by the Lessee to be kept and performed, the Lessee shall have quiet and undisturbed and continued possession of the premises, free from any claims against the Lessor and all persons claiming under, by or through the Lessor. ARTICLE XIX ----------- MISCELLANEOUS ------------- 1. Option to Purchase. At any time during the lease period or any ------------------ extension thereof, the Lessee shall have the right and option to purchase the Leased Premises, i.e. the fee title to the property described on Exhibit "A" and the assignment of all Lessor's rights under the Sublease attached as Exhibit "B" for the purchase price of One Million Four Hundred Thousand Dollars ($1,400,000). 2. Notice of Exercise of Option. The notice provided in Section 9 below ---------------------------- shall set forth therein the time of closing and a place of closing. The time of closing shall be designated in the 15 notice of exercise but not later than sixty (60) days after the giving of such notice. 3. Closing. At such closing conference (a) the Lessee shall pay to ------- Lessor (in current funds) the applicable purchase price; (b) the Lessor shall convey good and marketable title of the demised premises to the Lessee free and clear of all encumbrances and title defects other than those which arose at the Lessee's request or by virtue of the Lessee's tenancy; and (c) the Lessor and Lessee shall execute any and all documents which may be necessary to effectuate such closing and the transfer of title contemplated hereunder. 4. Covenants Running With Land. All covenants, promises, conditions and --------------------------- obligations herein contained or implied by law are covenants running with the land and shall attach and bind and inure to the benefit of the Lessor and Lessee and their respective heirs, legal representatives, successors and assigns, except as otherwise provided herein. 5. No Waiver. That no waiver of a breach of any of the covenants in this --------- Lease contained shall be construed to be a waiver of any succeeding breach of the same covenant. 6. Arrears. That all arrearages after a three (3) business day grace ------- period in the payment of rent shall bear interest from the date when due and payable at the rate of ten percent (10%) per annum until paid. 7. Written Modifications. That no modification, release, discharge or --------------------- waiver of any provision hereof shall be of any force, effect or value unless in writing signed by the Lessor, or its duly authorized agent or attorney. 8. Entire Agreement. That this instrument contains the entire agreement ---------------- between parties as of this date and that the execution hereof has not been induced by either party by representations, promises or undertakings not expressed herein and that there are no collateral agreements, stipulations, promises or undertakings whatsoever upon the respective parties in any way touching the subject matter of this instrument which are not expressly contained in this instrument. 9. Notices. That when either party desires to give notice to the other ------- in connection with and according to the terms of this Lease, such notice shall be given by registered mail and it shall be deemed given when it shall have been deposited in the United States registered mails with sufficient postage prepaid thereon to carry it to its addressed destination and such notices shall be addressed as follows: 16 For the Lessor: John D. Gaughan 600 E. Fremont Las Vegas, Nevada 89101 With a Copy to: William Singleton, Esq. Beckley, Singleton, DeLanoy, Jemison & List, Chartered 530 Las Vegas Boulevard South Las Vegas, Nevada 89101 For the Lessee: Showboat, Inc. 2800 Fremont Street Las Vegas, Nevada 89104 With a Copy to: H. Gregory Nasky, Esq. Kummer Kaempfer Bonner & Renshaw 3800 Howard Hughes Parkway Seventh Floor Las Vegas, Nevada 80109 Nothing herein contained shall be construed as prohibiting the parties respectively from changing the place at which notice is thence forth to be given, but no such change shall be effective unless and until it shall have been accomplished by written notice given in the manner set forth in this Section. IN WITNESS WHEREOF, the Lessor and the Lessee have hereunto set their hands and seals, the day and year first above written. EXBER, INC. By: /s/ John D. Gaughan ------------------------------ JOHN D. GAUGHAN, President SHOWBOAT OPERATING COMPANY By: /s/ Frank A. Modica ------------------------------ President and Chief Executive Officer 17 STATE OF NEVADA ) ) ss. COUNTY OF CLARK ) On this _____ day of ____________, 1994, personally appeared before me, a notary public in and for the said County and State, JOHN D. GAUGHAN, known to me to be the President of EXBER, INC., and upon oath did depose that he is the President of said corporation; that the signature to said instrument was made by him as President of said corporation; and that the corporation executed the said instrument freely and voluntarily and for the uses and purposes therein mentioned. /s/ Larry Dolesh - ------------------------ NOTARY PUBLIC STATE OF NEVADA ) ) ss. COUNTY OF CLARK ) On this _____ day of ____________, 1994, personally appeared before me, a notary public in and for the said County and State, _______________________________, known to me to be the ______________________ of __________________, and upon oath did depose that he is the _____________________ of said corporation; that the signature to said instrument was made by him as ________________of said corporation; and that the corporation executed the said instrument freely and voluntarily and for the uses and purposes therein mentioned. /s/ Jean Y. Zorn - ------------------------ NOTARY PUBLIC 18 EXHIBIT "A" 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. in the County of Clark, State of Nevada, 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 U. S. Highway Nos. 93-95-466 (200.00 feet wide); thence along said Southwesterly line South 42 (Degrees) 27' East 1005.87 feet to the TRUE POINT OF BEGINNING; thence continuing along said Southwesterly line South 42 (Degrees) 27' East 250.00 feet; thence South 47 (Degrees) 33' West 250.00 feet; thence South 42 (Degrees) 27' East 150.00 feet; thence South 47 (Degrees) 33' West 132.44 feet to the North line of Oakey Boulevard, as said Boulevard is described in the deed to said County, recorded March 22, 1961 as Document No. 366543 of records of said County; thence along said North line South 69 (Degrees) 56'35" West 159.15 feet to the Southeasterly prolongation of the Southwesterly line of the land described in the deed to Mary A. Olson, recorded March 4, 1960 as Document No. 190293 of Official Records of said County; thence along said Southeasterly prolongation and Southwesterly line of said Olson land North 42 (Degrees) 27' West 292.61 feet to the most Westerly corner of said land; thence along the Northwesterly line of said land North 47 (Degrees) 33' East 500.00 feet to the TRUE POINT OF BEGINNING. 19 EXHIBIT 10.39 EXHIBIT "B" SUBLEASE -------- THIS INDENTURE OF SUBLEASE made and entered into at Las Vegas, Nevada this 5th day of November, 1966, by and between DODD SMITH, of Las Vegas, Nevada hereinafter called "Sublessor" and JOHN D. GAUGHAN and LESLIE C. SCHWARTZ, of Las Vegas, Nevada, hereinafter called "Sublessees," WITNESSETH: WHEREAS, Sublessor holds a Master Lease from JESSIE H. CLARK and IRIS W. CLARK, husband and wife, dated February 1, 1962, for a term of five (5) years from that date, and with option of renewal for an additional term of ten (10) years, upon premises commonly known as 2836 Fremont Street, Las Vegas, Nevada, and more particularly described in Exhibit "A" annexed hereto, which, by this reference is incorporated herein and made a part hereof; and WHEREAS, by an Amendment of Lease dated the 14th day of September, 1966, the term of said Master Lease has been extended to 99 years ending at midnight on the 31st day of January, 2061; and WHEREAS, said Master Lease has been amended in certain other particulars, and is being presently further amended in accordance with the terms of an addendum, which Sublessor represents and warrants as having been approved by the Sublessors, but which addendum has not yet been executed; and WHEREAS, Sublessor represents and warrants that AL SANDO TRAILER SALES, the former Sublessee of said premises, has surrendered its sublease and said premises to the Sublessor by an instrument in writing, and has relinquished all interest therein, and Sublessor is therefore free to enter into this sublease with Sublessees NOW, THEREFORE, in consideration of the premises and of the covenants and agreements of the parties hereto, one to and with the other, hereinafter set forth and contained, the parties hereto do hereby mutually covenant and agree as follows: 1. DEMISE. Sublessor hereby leases, lets and demises to the Sublessees, and ------ Sublessees do hereby rent and take from Sublessor for the term hereinafter mentioned, and for each extended term should the option to extend herein provided be exercised, those certain premises commonly known as 2836 Fremont Street, Las Vegas, Clark County, Nevada, which are more particularly described in Document No. 265139, Book 328 Official Records of Clark County, Nevada, and in Exhibit "A" annexed hereto, which, by this reference is incorporated herein and made a part hereof, together with all and singular the tenements, hereditaments and improvements thereon situated and thereunto appertaining, and together also with all water rights, easements and other rights appurtenant to said property. 2. TERM AND OPTIONS TO EXTEND. The term of this Sublease shall be four (4) -------------------------- years, commencing December 1, 1966 and terminating at midnight November 30, 1976. Provided, however, that if Sublessees shall not then be in default hereunder and this Sublease shall then still be in effect, Sublessees shall have the irrevocable right and option to extend the term of this Sublease for nine (9) -2- successive terms of ten (10) years each running for the following periods: December 1, 1970 to November 30, 1980 December 1, 1980 to November 30, 1990 December 1, 1990 to November 30, 2000 December 1, 2000 to November 30, 2010 December 1, 2010 to November 30, 2020 December 1, 2020 to November 30, 2030 December 1, 2030 to November 30, 2040 December 1, 2040 to November 30, 2050 December 1, 2050 to November 30, 2060 Said options, or any or all of them, may be exercised by Sublessees at any time by giving to the Sublessor notice in writing of the election to exercise the same, such notice being given, however, not less than ten (10) months prior to the expiration of the original or any extended term of this lease. The terms and conditions of this Sublease shall remain the same during each successive extended term, except that there shall be no further option to extend the term of this Sublease beyond November 30, 2060. 3. RENT. Sublessor reserves, and Sublessees covenant and agree to pay as ---- rent for the demised premises the sum of Five Hundred Fifty ($550.00) Dollars per month, payable monthly in advance on the 1st day of each and every month commencing on the 1st day of December, 1966. At their sole option and discretion, Sublessees may pay said rent by paying the sum of Five Hundred ($500.00) Dollars per month thereof directly to the Master Lessors, -3- JESSIE H. CLARK and IRIS W. CLARK, and their successors and assigns, and the remaining Fifty ($50.00) Dollars per month, to Sublessor. RENT ESCALATOR. If the option to extend the term of this Sublease be -------------- exercised, then the rental payments herein reserved shall be adjusted on the fourth yearly anniversary date of the date of commencement of the term of this Sublease, that is, on December 1, 1970, and if the option to extend the term of this Sublease shall thereafter be successively exercised, then the rental payments herein reserved shall also be adjusted on the 1st day of each successive ten (10) year term, commencing on the 1st day of December, 1980, on the basis of the official Consumer and Wholesale Price Index published by the Bureau of Labor Statistics United States Department of Labor, in the manner following: The base period of said Consumer and Wholesale Price Index, as published at page 1059 of the Monthly Labor Review, September 1966, Volume 89, No. 9, is 1957-59, and the Index for that period equals 100. The most current available Consumer and Wholesale Price Index for all items, as so published, and using the aforesaid 1957-1959 index as equal to 100, shows the July 1966 index to be 113.3, which index of 113.3 shall be regarded as the Sublease base of 100 for purposes of rent adjustments under this Sublease. Based on the Consumer and Wholesale Price Index of 113.3 as of the date of execution of this Sublease, the rental shall be raised or lowered at each rent adjustment date as above set forth for the forthcoming ten (10) year term in the ratio of the increase or decrease in the Consumer and Wholesale Price Index on such rent adjustment dates (or the date of the nearest available Consumer and Wholesale Price Index). That is to say, by way of example, taking -4- the Consumer and Wholesale Price Index as of the date of execution of this Sublease (113.3) as constituting the Sublease base of 100, in the event that on the first rent adjustment date, December 1, 1970, said price index has gone up to 123.3 (or an increase of 10% regarding 113.3 as equal to a Sublease base of 100), then the rent for the forthcoming 10 year term shall be increased by 10%, or to the sum of $605.00 per month. Contrariwise, if on December 1, 1980, the Consumer and Wholesale Price Index, shall have gone down to 118.3 (or to an increase of only 5% over the 113.3 index treated herein as equal to a Sublease base of 100) then the rent shall be reduced for the forthcoming 10 year term to where it represents an increase of only 5% over the original rent of $550.00 herein reserved, or the sum of $577.50 per month. PROVIDED, HOWEVER, that no adjustment shall be made for any increases or decreases in the Consumer and Wholesale Price Index of less than 1%, and that, under no circumstances shall the rent be lower than $550.00 per month, irrespective of the Consumer and Wholesale Price Index. 4. TAXES. Sublessees further covenant and agree to pay to the Tax Receiver ----- of Clark County, Nevada when the same shall become due, and before the same shall become delinquent, all real property taxes and current installments of special assessments levied and assessed, or which shall hereafter be levied and assessed upon the demised premises and/or upon any permanent improvements placed thereon by Sublessees, or their Sublessees, successors, or assigns. The parties shall endeavor to cause the Tax Receiver of Clark County, Nevada to send a duplicate original of all bills for taxes or current installments of special assessments directly to Sublessees, but, in the event that this shall not be possible or -5- feasible, Sublessor undertakes to furnish Sublessees with a photocopy of such bills on or before June 15th of each year, and, in any event, in sufficient time so that Sublessees may pay such bills before they become delinquent. Sublessees, and their sublessees, successors, and assigns shall also pay when due, and before the same become delinquent, all personal property taxes levied and assessed upon such personal property as they may bring upon said premises. 5. SECURITY DEPOSIT. Contemporaneously with the execution hereof, ---------------- Sublessees shall pay Sublessor the sum of Five Thousand Five Hundred Dollars ($5,500.00) as a security deposit to secure faithful performance of this Sublease by Sublessees. If Sublessees shall fail to exercise their option to extend the term of this lease for a ten (10) year term commencing on December 1, 1970, and if Sublessees are not then in default hereunder, and this Sublease shall then still be in effect, Sublessor agrees that Sublessees shall have the right to occupy said premises rent free for the last ten (10) months of the original term of this Sublease. If Sublessees shall exercise their option to extend the term of this Sublease for one or more ten (10) years extended terms, then Sublessees shall pay their rent, as due, during the last ten (10) months of the preceding term, and, in such event said security deposit shall be carried forward as a security deposit to secure faithful performance of this Sublease by the Sublessees during each succeeding extended term, and Sublessees not being in default, and this Sublease still then being in effect, Sublessees shall have the right to occupy said premises rent free during the last ten (10) months of the last ten (10) year term hereunder with respect to -6- which Sublessees shall have exercised their option to extend hereunder. PROVIDED, HOWEVER, that it is expressly understood and agreed that Sublessor shall immediately pay said sum of Five Thousand Five Hundred ($5,500.00) Dollars so received by him from Sublessees as a security deposit, to the Master Lessors, as consideration for execution by the Master Lessors of an Addendum to the Amendment of Lease dated September 14, 1966, by the terms of which Addendum the Master Lessors shall sell, assign, transfer and set over to the Sublessor all their right, title and interest whatever in and to any buildings, structures, and improvements now situated upon the demised premises, including but not limited to leasehold improvements made by the Sublessor, and shall authorize and empower the Sublessor to alter, remodel, sell, transfer, remove, or demolish any such buildings, structures, and improvements, now or hereafter, situated upon said premises. Sublessees may, at their option, pay said sum of Five Thousand Five Hundred Dollars ($5,500.00) to Sublessor by check payable jointly to Sublessor and the Master Lessors. 6. USE OF PREMISES. Sublessees shall have the right to use the demised --------------- premises for the purpose of conducting thereon any lawful business or activity, without restriction. Sublessees covenant and agree that they will use and occupy said demised premises in such a way as to conform with all applicable City, County, State and Federal ordinances, laws, rules and regulations and will not willfully violate any thereof. 7. QUIET ENJOYMENT. Sublessor covenants, agrees, and warrants that at all --------------- times during the term, or any extended term -7- hereof, and so long as Sublessees are not in default hereunder, Sublessees shall have the full, peaceful and quiet enjoyment of the demised premises, and FURTHER, that Sublessor has the full right and power to make this sublease. 8. UTILITY CHARGES. Sublessee shall pay when due, and before delinquent, all --------------- charges for light, power, gas, water, sewer, garbage and rubbish disposal and for any and all other public utilities used by Sublessees in connection with their occupancy of said premises. 9. RIGHT OF INSPECTION. Sublessor may at all reasonable times enter upon any ------------------- part of the demised premises, in person or by duly authorized agent, for the purpose of inspecting the same for compliance with the provisions of this Sublease. 10. IMPROVEMENTS. In consideration of the execution of this Sublease by ------------ Sublessees, Sublessor hereby sells, assigns, transfers and sets over to the Sublessees all his right, title and interest, whatever, now existing or hereafter acquired, in and to any buildings, structures, and improvements now situated upon the demised premises, including, but not limited to leasehold improvements made by the Sublessor, or his previous Sublessees, and hereby authorizes and empowers the Sublessees to alter, remodel, sell, transfer, remove or demolish, any and all buildings, structures and improvements, now or hereafter situated upon said premises. Sublessees may at any time during the term, or any extended term, of this Sublease, at their own expense, erect, or cause to be erected, upon said leased premises such buildings, structures, improvements, and excavations as in their sole judgment and discretion shall be necessary or convenient for their occupancy of -8- said premises. Provided, however, that before commencing such construction, Sublessees shall give Sublessor at least 24 hours notice in writing of their intention so to do to enable Sublessor to post and record in conformity with the Mechanics Lien Law of the State of Nevada an appropriate Notice of Non- Responsibility. 11. LIENS AND ENCUMBRANCES. Sublessees agree to keep the leased premises free ---------------------- and clear at all times from any liens or encumbrances made, suffered, or done by Sublessees or any other person or persons acting under their authority, which liens or encumbrances shall constitute a charge against Sublessor's or the Master Lessors' interest in said premises. PROVIDED, however, that nothing herein contained shall be deemed to prohibit Sublessees from mortgaging or otherwise hypothecating their leasehold interest under this Sublease. 12. ASSIGNMENT AND SUBLETTING. Sublessees shall have the full and ------------------------- unrestricted right to assign this Sublease and/or to sublet the whole, or any part, of the demised premises. 13. LIABILITY INSURANCE. Sublessees agree to carry and maintain and have in ------------------- full force and effect throughout the term, or any extended term of this Sublease, Public Liability insurance for the protection of all persons who may suffer injury while in, on, or about the demised premises, wherein the Master Lessors and the Sublessor will be named as co-insured as their interest may appear. The liability limits of said Public Liability insurance shall be $100,000.00 for injury to, or death of, any person, and with like limits per person, of $300,000.00 for injuries or death sustained in any one accident. Sublessees shall be under no obligation to keep in force Workmen's Compensation insurance for the benefit of Master -9- Lessors or Sublessor except at times when there shall be construction in progress at the demised premises, in consequence of which Master Lessors or Sublessor may become liable for the death or injury of workmen employed on such construction. Sublessor shall, on request, be furnished with copies of such insurance policies, and all endorsements thereon, or certificates evidencing such coverage. 14. BANKRUPTCY. If Sublessees shall be adjudged bankrupt or insolvent, in ---------- either voluntary or involuntary proceedings, or make a general assignment for the benefit of creditors, then, at the option of Sublessor, this Sublease shall terminate upon such adjudication or assignment and shall not be assignable by process of law, or treated as an asset of Sublessees, nor pass under the control of any trustee, receiver, or assignee of Sublessees by virtue of any such bankruptcy, insolvency, or general assignment for the benefit of creditors. Provided, however, that the aforesaid provisions shall not be operative in the event that one of the Sublessees alone shall become bankrupt or insolvent or make an assignment for the benefit of creditors, so long as the other Sublessee remains solvent. Provided, further, that no right conferred upon Sublessor in this Paragraph shall be used by Sublessor, or his successors, or assigns, to terminate or defeat the rights of any assignee or sublessee of Sublessor under an assignment of this Sublease or a sublease of all, or a portion, of the leased premises, so long as such assignee, or sublessee, is solvent. Provided, further that no right conferred upon Sublessor in this Paragraph shall be used to terminate or defeat the rights of any mortgagee, beneficiary, or other encumbrancer holding a mortgage, -10- trust deed, or other lien upon the leasehold interest of the Sublessees hereunder. 15. DEFAULT. If Sublessees shall be in default in payment of any rent herein ------- reserved, or in payment of any taxes herein agreed to be paid by Sublessees, or in performance of any other covenants or conditions of this Sublease upon their part to be kept and performed, and if such default shall continue for thirty (30) days from and after service upon the Sublessees, and both of them, of written notice of such default, then, and in such event, Sublessor may, at his option, take such action or pursue such remedy as may be permitted under the laws of the State of Nevada, and may, at his election, retain the unused portion of said security deposit as liquidated damages for such breach. Sublessor agrees to give a like notice of default to every assignee or sublessee of Sublessees holding the demised premises or any part thereof under a recorded assignment or sublease from Sublessees, and also to every mortgagee, beneficiary, or other encumbrancer of the leasehold interest of the Sublessees under a recorded mortgage, deed of trust, or assignment for security. It is further expressly agreed that if Sublessees, or any such assignee or sublessee under the Sublessees, or any such mortgagee, beneficiary, or other encumbrancer of said leasehold interest, shall, within said thirty (30) day period cure such default then this Sublease may not be terminated by the Sublessor, but shall be deemed restored to good standing. 16. SURRENDER OF PREMISES. Upon the expiration of this Sublease by lapse of --------------------- time, or other termination hereof, Sublessees shall surrender the demised premises in as good order and repair as reasonable wear and tear in the prudent use thereof will permit, -11- damage by fire and the elements excepted. Should Sublessees hold over after the expiration of the term, or any extended term, then, unless the term has been extended, as herein provided, such holding over shall be deemed a tenancy from month to month only at the rent and on the terms herein specified. 17. FIRE INSURANCE. Should Sublessees erect any buildings, structures, or -------------- improvements upon the demised premises, such buildings, structures, and improvements shall be considered the property of the Sublessees at all times until the termination of this Sublease by lapse of time, or otherwise. Sublessees may carry fire and other casualty insurance thereon for their own protection, and, in the event of any damage or destruction of such buildings, structures or improvements by fire, or other casualty, occurring at any time prior to the termination of this Sublease by lapse of time, or otherwise, Sublessees shall be entitled to collect and apply for their own use and benefit the full proceeds received from any policy of fire or other casualty insurance then in effect, and shall be under no obligation to repair or rebuild with the proceeds of such insurance. 18. CONDEMNATION. In the event that the demised premises or any part thereof, ------------ shall be condemned by any public authority under the power of eminent domain, so much of the compensation paid by such public authority for such taking as is attributable to the leasehold interest of the Sublessor under the Master Lease and the Leasehold interest of the Sublessees hereunder shall be prorated in the ratio that the unexpired term and all optional extended terms under this Sublease bear to the full unexpired term of the Master Lease. However, any buildings, structures, or improvements erected -12- upon the demised premises by, or at the instance of, Sublessees shall be considered their own property if such condemnation occurs at any time while this Sublease is still in force, and so much of the compensation paid by such public authority for such taking as shall be attributable to the taking of such buildings, structures, and improvements, as distinguished from the land, shall be paid by the public authority effecting such condemnation to the Sublessees. 19. NOTICES. All notices given hereunder by Sublessor to Sublessees shall ------- either be delivered personally to the Sublessees, and each of them, or shall be delivered to both Sublessees by registered mail addressed as follows: JOHN D. GAUGHAN c/o El Cortez Hotel 600 Fremont Street Las Vegas, Nevada. and LESLIE C. SCHWARTZ 2205 Sunland Las Vegas, Nevada All notices given hereunder by Sublessees to Sublessor shall either be delivered personally to the Sublessor, or shall be delivered to Sublessor by registered mail addressed as follows: DODD SMITH 1119 So. Shadow Lane Las Vegas, Nevada Notices so addressed by registered mail and posted at Las Vegas, Nevada shall be deemed given on the date of mailing whether received by the party to whom addressed or not. Either of the parties may at any time, and from time to time, designate to the other in writing, a new address to which all notices intended for such party shall be addressed. -13- 20. PAYMENT AND OFFSET BY SUBLESSEES. In order to protect and preserve their -------------------------------- interest hereunder, Sublessor hereby authorizes and empowers Sublessees to make any payments, and deliver any notices or instruments, which it shall be the obligation of Sublessor to pay or deliver to the Master Lessors under the Master Lease, or which Sublessor shall have the right to pay or deliver to the Master Lessors under the Master Lease, directly to the Master Lessor for the account of the Sublessor, and to offset the amount of such payments against the earliest maturing rents due hereunder to the Sublessor. 21. CONDITIONS PRECEDENT. It is expressly understood and agreed that this -------------------- Sublease shall become effective only if Sublessor shall, within ten (10) days from this date, furnish Sublessees in form suitable for recordation, a duplicate original of said Amendment of Lease dated September 14, 1966 between JESSIE H. CLARK and IRIS W. CLARK, as Lessors and DODD SMITH as Lessee, extending the term of the Indenture of Lease dated February 1, 1962, herein referred to as "Master Lease" to midnight January 31, 2061, and shall also within the like period of ten (10) days from this date furnish Sublessees the Addendum to said Amendment of Lease containing the terms mentioned in Paragraph 5 hereof. At Sublessees' option said ten (10) day period may be extended up to, but not later than November 30, 1966. -14- 22. HEIRS AND ASSIGNS. This Sublease shall inure to the benefit of, and bind, ----------------- the heirs, executors, administrators, successors and assigns of the parties hereto respectively. DATED this 5th day of November, 1966. /s/ Dodd Smith ------------------------------- SUBLESSOR Dodd Smith /s/ John D. Gaughan ------------------------------- John D. Gaughan /s/ Leslie C. Schwartz ------------------------------- SUBLESSEES Leslie C. Schwartz -15- STATE OF NEVADA ) ) ss. COUNTY OF CLARK ) On this 7th day of November 1966, personally appeared before me, a Notary Public in and for said County and State, DODD SMITH, known to me to be the person described in and who executed the foregoing instrument, who acknowledged to me that he executed the same freely and voluntarily and for the uses and purposes therein mentioned. /s/ George Rudiak ------------------------------- NOTARY PUBLIC in and for said County and State. STATE OF NEVADA ) ) ss. COUNTY OF CLARK ) On this 7th day of November 1966, personally appeared before me, a Notary Public in and for said County and State, JOHN D. GAUGHAN, known to me to be the person described in and who executed the foregoing instrument, who acknowledged to me that he executed the same freely and voluntarily and for the uses and purposes therein mentioned. /s/ George Rudiak ------------------------------- NOTARY PUBLIC in and for said County and State. -16- STATE OF NEVADA ) ) ss. COUNTY OF CLARK ) On this 7th day of November 1966, personally appeared before me, a Notary Public in and for said County and State, LESLIE C. SCHWARTZ, known to me to be the person described in and who executed the foregoing instrument, who acknowledged to me that he executed the same freely and voluntarily and for the uses and purposes therein mentioned. /s/ George Rudiak ------------------------------- NOTARY PUBLIC in and for said County and State. -17- EXHIBIT "A" TO SUBLEASE Preliminary Report Title File Number 70872 The land referred to in this Report is situated in the State of Nevada, County of Clark, and is described as follows: 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 West of U.S. Highway Nos. 93-95-466 (Boulder Highway) 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 West line of said Boulder Highway; THENCE South 42 (Degrees) 77' East along the said West line of Boulder Highway - ------ a distance of 1285.87 feet to the TRUE POINT OF BEGINNING; ----------------------- THENCE continuing South 42 (Degrees) 27' East along the last mentioned West - ------ line, a distance of 150 feet to a point (Said point being the Northeast corner of the parcel of land heretofore conveyed to Frank A. Sagstetter and wife and Mary Agnes Olsen by I.A. Stub, by deed dated March 28, 1950, and recorded as Document No. 336399 on the 3rd day of April, 1950, in Book 67 of Deeds, Page 41, Clark County, Nevada records); THENCE South 47 (Degrees) 33' West along the Easterly line of said parcel of - ------ land described in the said Deed from I.A. Stub to Frank A. Sagstetter, et al, a distance of 250 feet to a point; THENCE North 42 (Degrees) 27' West 150 feet to a point; - ------ THENCE North 47 (Degrees) 33' East a distance of 250 feet to the TRUE POINT OF - ------ ------------- BEGINNING. - --------- -18- EX-10.40 10 LEASE AGREEMENT EXHIBIT 10.40 LEASE AGREEMENT --------------- STATE OF LOUISIANA PARISH OF ORLEANS This Agreement entered into by and between The Board of Commissioners of the Orleans Levee District, a political subdivision of the State of Louisiana, herein represented by Robert G. Harvey, President, hereinafter referred to as "Lessor", and Star Casino, Inc., herein represented by its President, Louie Roussel, III, hereinafter referred to as "Lessee". WITNESSETH: I. The Lessor agrees to lease to the Lessee and the Lessee agrees to rent form the Lessor, the following described property (the Leased Property): The certain portions of land, wharf and water bottom in the South Shore Harbor Marina located in the Parish of Orleans, east of Lakefront Airport as more fully set out and outlined in red in Exhibit A and containing 10.71 acres more or less, is described as follows: Parcel #1: The proposed mooring berth for the riverboat casino and the right of exclusive use of the adjacent wharf area. Parcel #2, which encompasses the small parking area adjacent to the mooring berth. Parcel #3: The site of the proposed passenger terminal building on Exhibit A attached. Parcel #4: The approximately 6.2 acre undeveloped land area between South Shore Harbor Boulevard on the north and the south boundary of the South Shore Harbor development. Parcel #6D: So much of 6D as to complete approximately 1.75 acres out of Parcel 6D which is the land bounded by South Shore Harbor Boulevard on the north side of South Shore Harbor Boulevard. Lessor reserves the right of access to its boat repair facility via road access which may be built by Lessee and further that Lessee agrees to permit Lessor right of way on any leased property for construction of a future elevated roadway extending from the airport premises to approximately Mayo or Crowder Boulevard. II. The term of this lease shall be for ten (10) years with four (4) ten (10) year options to renew; the primary term will commence on the date that all permits, licenses or other authority from the State of Louisiana to conduct a riverboat gaming operation are obtained, but in no case later than six months after application for permit was made. If no such permit or license has been received by Lessee within the said six months of Lessee's application therefor, this lease is null and void. III. A. For the 10 year primary term, the minimum rent per annum shall be $700,000 (based on $1.50 per sq. ft. for 10.71 acres more or less) for the property, including land, wharf and water bottom, payable $175,000 quarterly in advance on January 1, April 1, July 1, and October 1 of each year. If the 2 effective date for first payment falls within a quarterly period, the initial rental payment shall be prorated for the remaining portion of the quarter. Said minimum per annum rent shall be adjusted at the beginning of each ten (10) year period as follows: For each option period so exercised, the annual rental shall be adjusted in accordance with an index computed from the U.S. City Average in the table entitled "Consumer Price Index, U.S. City Average and Selected Areas (1982-84=100) all Urban Consumer," published monthly by the Bureau of Labor Statistics of the U. S. Department of Labor. The adjustment shall be computed using the difference in the index (base) for the third month preceding the first month of the first full quarterly payment compared to the corresponding Index Number (current) for the third month preceding the month beginning the second and subsequent ten year terms. In the event the CPI is not published for the subject period, then the next closest and similar indicator shall be used in lieu of CPI. Any option to renew shall be exercised by giving Lessor notice of Lessee's intent, in writing, not less than ninety (90) days nor more than one hundred and fifty (150) days before the end of the primary 3 term, and if exercised, before the end of each ten (10) year option period thereafter. B. Lessee has made a good faith deposit of $250,000.00 with Lessor, receipt of which has been previously acknowledged, which sum shall be applied to future land, wharf and water bottom rentals after the term of this lease begins; or in the event Lessee does not obtain all required authorizations to operate said riverboat within the aforesaid six (6) month period after application, through no fault of Lessee, this lease shall be null and void and then and only then, said deposit shall be returned to Lessee. C. In addition to the rent provided for in Paragraph A, above, Lessee agrees to pay to Lessor rent in an amount equal to $2.50 per person entering the gaming operation. Said per capita rent shall be adjusted at the beginning of each ten (10) year period in the same manner as provided for in Paragraph A, above. This per capita rent is in addition to, and is not to be confused with, any admission fee as may be permitted by Louisiana Revised Statute 4:552, et seq. D. Rental payments provided for in Paragraph A, above, shall begin one hundred twenty (120) days after the 4 issuance of a gaming license to operate, or when gaming operations commence whichever occurs first. Rental payments provided for in Paragraph C, above, begin to accrue when gaming operations commence, and shall be paid monthly and not later than thirty days following the end of each month, and accompanied by a certified statement of attendance. Lessor has the right to inspect all books and records of Lessee as may be required to verify the per capita rental payments. IV. A. The leased premises is to be used solely and exclusively for the operation of a riverboat gaming facility, a passenger terminal, related services and attendant parking facilities. B. The Lessee shall be required to pay for all improvements to the Leased Property required to accommodate its total operation including water, electrical, sewerage, drainage or other services. All lease sites will be metered separately. It is agreed that these include a passenger terminal, which will be constructed on that portion of the Leased Property (Parcel 3) north of South Shore Harbor Boulevard, and a parking facility on that portion of the Leased Property (Parcel 4) south of South Shore Harbor Boulevard. Any change in use of 5 any leased parcel shall first e approved by Lessor and be subject to rental adjustment. All plans and specifications are to be approved by Lessor. C. Lessee shall be in compliance with all provisions of the Americans With Disabilities Act in all facilities and infrastructure required. D. Responsibility for the extension of current services for water, sewerage, drainage, electrical and other services to the leased sites shall be the responsibility of the Lessor. The responsibility for any increases in capacity of the utility services required by Lessee shall be the responsibility of Lessor up to $1 million subject to the approval of Lessor. Roadway improvements as described in the Design Memorandum for South Shore Harbor Boulevard, Phase I, shall be the responsibility of Lessor. E. If requested by Lessor, the Lessee shall advance the costs required to complete the off-site infrastructure improvements described in IV D above, without interest; and Lessor will reimburse the Lessee the cost of all such off-site infrastructure improvements quarterly until fully amortized from the rental payments due under the lease. Lessor will comply with the public bid law in providing these services. The Lessee shall 6 participate in the direction of the construction of these services so that it will be coordinated with the Lessee's development progress. V. Lessee shall provide its own security personnel for the Leased Property and riverboat including Lessee's parking area. Personnel shall be trained and/or licensed in accordance with OLD Police Department requirements. VI. To the maximum extent possible under the law, Lessee agrees to employ Orleans Parish residents, with special interest toward training and employment of Disadvantage Business Enterprise personnel. VII. Lessee agrees to assist and participate in the training of local personnel for the operation of the gaming facility. Lessee shall provide public notice to Orleans Parish residents of training and employment opportunities and shall further provide notice to Orleans Parish educational institutions of its training and employment needs as soon as the needs are known. VIII. A Disadvantaged Business Enterprise Plan shall be submitted by Lessee to Lessor. Its plan will include participation by Disadvantaged Business Enterprises in percentages of total construction cost and in the provision of goods and services which will at least be equal at all times to the percentages adopted by 7 the City of New Orleans in its Disadvantaged Business Enterprise Plan. The DBE plan shall be submitted annually by Lessee to Lessor. IV. Lessee does hereby release, hold harmless and indemnify the Orleans Levee Board, its agents and employees, from, for and against any and all liability, including strict liability, for leasehold surface and improvements, claims, suits, expenses, including attorney fees, incurred by said Board, for damages and/or injury (including death) to persons and/or property, in anyway resulting from or arising out of its occupancy of the leased premises or of any activities connected herewith, except as may be the direct result of Lessor's negligence. Lessee excepts leasehold surface "as is" and acknowledges same to be in satisfactory condition. X. No agreement modifying or abrogating in any manner the express terms and conditions of this lease shall have effect, unless made in writing and signed by all parties hereto and attached as an addendum or amendment to this lease. The Lessee is hereby obligated not to use the premises for any purpose other than that herein expressly enumerated, nor for any unlawful purpose or one that tends to injure or depreciate the premises or reflects discredit upon the South Shore Harbor Marina or the Lessor. XI. 8 At Lessee's expense will carry insurance with not less than an A rated company and provide coverage as follows: 1. GENERAL LIABILITY: $20,000,000 COMBINED SINGLE LIMIT OF LIABILITY: $40,000,000 AGGREGATE 2. WHARFINGERS LEGAL LIABILITY: SAME AS GENERAL LIABILITY 3. WORKERS COMPENSATION: AS PRESCRIBED BY LAW; USL&H ENDORSEMENT INCLUDED 4. PROTECTION & INDEMNITY: $20,000,000 LIMIT PER OCCURRENCE 5. INSURANCE CERTIFICATES SHALL INCLUDE AS ADDITIONAL INSURED "THE BOARD OF COMMISSIONERS OF THE ORLEANS LEVEE DISTRICT" AND INCLUDE A WAIVER OF SUBROGATION. 6. INSURANCE CERTIFICATES SHALL ALSO INDICATE THAT IN THE EVENT OF ANY MATERIAL CHANGE OR CANCELLATION OF THE POLICY, THE INSURANCE COMPANY WILL GIVE TO THE "BOARD OF COMMISSIONERS OF THE ORLEANS LEVEE DISTRICT" THIRTY (30) DAYS WRITTEN NOTICE PRIOR TO SUCH CHANGE OR CANCELLATION. 7. LESSEE AGREES TO OTHER COVERAGES AS MAY BE REASONABLY REQUIRED BY THE MARKET AND THE LESSOR. XII. The Lessee hereby agrees to keep the within leased premises in a neat, sanitary, safe condition, free of any hazard to the public, its guests, employees, patrons, suppliers of materials, 9 and furnishers of service in keeping with good operating practices, including maintenance of all improvements thereon throughout the entire existence of the lease. Lessee agrees to dispose of all liquid and solid waste in accordance with the law. XIII. Lessee is obligated not to make any improvements nor make any additions to the improvements without written approval of the Lessor. XIV. Lessee is obligated not to display in, on, or above the lease premises any sign or decoration, the nature of which is, in the judgment of Lessor, dangerous, unsightly, or detrimental to the property. Lessee is prohibited from painting any signs on the leased property without the written consent of Lessor, and Lessee is obligated to promptly remove at or before the expiration of this lease, any and all signs painted or placed in or upon any part of the leased premises, to Lessor's satisfaction, and Lessee is obligated to pay the cost of said removal, plus attorney's fees in the event of failure to carry out this obligation. XV. Should the premises be vacated or abandoned by Lessee because of ejectment for breach hereof, or otherwise, or should the Lessee begin to remove personal property or goods to the prejudice of the Lessor's lien, then the rent for the unexpired terms with attorney's fees, shall at once become due and exigible, and Lessor, at its option, has the right to cancel the lease, or re- enter and 10 let said premises for such price and on such terms as may be immediately obtainable and apply the net amount realized to the payment of the rent. XVI. At the expiration of the lease or its termination for other causes, Lessee is obligated to immediately surrender possession, and should Lessee fail to do so, he consents to pay any and all damages, but in no case less than five times the rent per day, plus attorney's fees, costs, etc. Lessee also expressly waives any notice to vacate at the expiration of this lease. Should Lessor allow or permit Lessee to remain in the leased premises after the expiration of this lease, this shall not be construed as a reconduction of the lease. XVII. Lessee is obligated to put nothing in or on the leased premises which would forfeit the insurance. XVIII. Subject to all the terms and conditions of this lease, Lessee shall have the right to assign, sublease, or transfer this lease or any part thereof subject to Lessor's approval which will not unreasonably be withheld. Transfer of more than 49% of lessee's stock, whether in one or more transactions, shall constitute a transfer of this lease. XIX. Should the Lessee at any time violate any of the conditions of this lease, including failure to pay rent, or 11 discontinue the use of the premises for the purpose for which they are rented, or fail to pay other expenses assumed under this lease, punctually at maturity, as stipulated, and should violation continue for a period of fifteen (15) days after written notice has been given Lessee, then, at the option of the Lessor the rent for the whole unexpired term of this lease at once becomes due and exigible; and Lessor shall have the further option at once to demand the entire rent for the whole term, or to immediately cancel this lease, all without putting Lessee in default, Lessee to remain responsible for all damages or losses suffered by Lessor, Lessee hereby assenting hereto and expressly waiving the legal notices to vacate the premises. Should an attorney be employed for the enforcement or protection of any claim of Lessor arising from this lease, Lessee shall pay all reasonable attorney fees and costs. It is understood and agreed that upon the expiration of this lease, or its termination or cancellation for any cause, any and all improvements made by Lessee shall become the property of Lessor and Lessee shall not be entitled to any compensation whatsoever for said improvements. XX. Failure to strictly and promptly enforce these conditions shall not operate as a waiver of Lessor's rights, Lessor expressly reserving the right to always enforce prompt payment of rent,or to cancel this lease, regardless of any indulgences or extension previously granted. The receipt and/or deposit by Lessor or Lessor's representative of any rent after cancellation or 12 termination of this lease, will not be considered as a waiver of said cancellation or termination, or of any of the rights of Lessor. XXI. Both parties, irrespective of any negligence whatsoever on the part of either party, mutually agree to hold one another completely free and harmless from any loss or damage to one another's business or property, if said loss or damage is, would be, or could be, totally or partially covered by any type of real or personal property insurance and/or time element coverage (business interruption, profits and commissions, leasehold or rent) payable to either party as an insured, and both parties further agree to waive any and all rights of subrogation or recovery against one another that would inure to the benefit of their respective property insurance carrier(s). In no event, however, shall this mutual waiver of subrogation ever apply to any claim, suit or cause of action by any third party (including but not limited to Lessor's employees, invitees and licensees) arising out of any occurrence resulting in bodily injury, property damage or financial loss to said third party. XXII. In addition to any hold harmless previously provided for hereinabove, Lessee does hereby agree to indemnify and hold harmless Lessor from any liability or responsibility arising from any and all claims and causes of action for injury, damage or otherwise, of and by any person, firm or corporation, occurring on 13 or to the leased premises, resulting from or arising out of any defect or condition of property not part of the leased premises. XXIII. In the event of any violations of the terms and conditions of this lease, Lessee hereby consents and agrees to pay to Lessor an administration fee equal to 1% of the average monthly rental (amortized annually), whether or not said violation is cured within the time or times as provided herein. Failure to pay said fee on or before the date provided for curing said default shall constitute an additional default and Lessor shall have the option of canceling this lease without further notice or formality. Nothing herein shall in any way operate as an extension of any of the terms of this lease nor constitute a waiver of any of Lessor's rights contained herein. XXIV. Lessee assumes full responsibility for all operation of the riverboat, including being aware of all weather conditions. XXV. Lessee recognizes that the premises are outside of flood protection and is exposed to high tides and hazardous weather which may prevail from time to time in Lake Pontchartrain. Lessor assumes no responsibility for damages or other consequences that may result from natural hazards and/or the lack of flood protection. Lessee agrees to evacuate the leased premises upon notice from Lessor of an emergency that threatens the life and safety of the public. 14 XXVI. Lessor hereby grants to Lessee, as part of the consideration for this lease during the primary term, the right of first refusal to acquire from the Orleans Levee District, any development to the following described property which is outlined on Exhibit A attached: Parcel #6A: The undeveloped site and the air rights above the two existing 100 car parking lot occurring between the south bulkhead of the main marina area and the north side of South Shore Harbor Boulevard. Parcel 6B: the approximately 2.05 acre undeveloped site between the south bulkhead of the main marina area and the north side of South Shore Harbor Boulevard and on the east by Parcel #6C and on the west by Parcel #6A. Parcel #6C: the undeveloped site occurring between the south bulkhead of the main marina area and the north side of South Shore Harbor Boulevard. Parcel #8: The 6.8 acre site running east and west along the north peninsular between the proposed access roadway on the north and the bulkhead on the south. 15 Parcel #9: the berth with its major axis running north and south and abutting the bulkhead forming the southern edge of the peninsular. XXVII. Lessee agrees that Lessee shall offer a 10% equity or ownership interest to minorities, at the same price that such interest would be offered to others. Star Casino, Inc., will commission, at its own expense, a Traffic, Transportation, and Neighborhood Impact Plan to be performed by a recognized traffic/planning consultant approved by the Levee District which will receive input from neighborhood organizations. This plan will be submitted to the Orleans Levee District for approval within sixty (60) days. This plan shall address all issues and matters normally addressed by the City Planning Commission of New Orleans for projects located within its jurisdiction under other circumstances, including a plan for directing traffic away from residential thoroughfares in neighborhoods near South Shore Harbor Marina. XXVIII. In the event that changes in the gaming laws or regulations take place, which have the effect of increasing or decreasing net income from the entire leased premises to Lessee, then the per capita rent as defined above will be increased or decreased by that percentage which results from a comparison of the total per capita rent earned during the year prior to the change compared with the total per capita rent earned during the lease 16 year following the year in which the change in the law or regulation took place. XXIX. Lessor warrants; 1. that it will at all times take steps to see to it that the entrance channel to the marina and the berth area occupied by Lessee is and will continue to be kept clear and will be of sufficient depth to insure safe navigation into and out of South Shore Harbor marina. 2. that it will provide at the earliest possible time feasible any existing engineering information in its possession, pertaining to the leased premises and the operational area. 3. that utility services will be made available to serve the Leased Property consisting of electrical, water, fire protection, drainage and sewerage services with all deliberate speed after the signing of the lease. 4. that it will prepare and deliver to the Lessee accurate metes and bounds or alternatively a survey, if necessary, of the leased premises. It is understood between the parties that the descriptions of the parcels and attached Exhibit A generally define the location and shapes of the Leased Property and that the final determination 17 and legal description of each parcel will be based upon these metes and bounds or surveys, if required. XXX. Lessee will assist in developing a program designated to assist compulsive gamblers. This program shall bear the name "Gamblers Anonymous". XXXI. Lessee and Lessor shall at all times warrant that they individually and together comply with all federal, state and local laws and/or ordinances which pertain to pollution control with respect specifically but not limited to hydrocarbons and/or sewerage. WITNESSES: THE BOARD OF COMMISSIONERS OF THE ORLEANS LEVEE DISTRICT /s/ - ----------------------------- /s/ Roy J. Rodney, Jr. By:/s/ Robert G. Harvey - ----------------------------- ---------------------------- ROBERT G. HARVEY President WITNESSES: STAR CASINO, INC. /s/ Gary G. Benoit - ----------------------------- /s/ Linda M. Gutierrez By:/s/ Louie Roussel, III - ----------------------------- ---------------------------- LOUIE ROUSSEL, III President 18 STATE OF LOUISIANA PARISH OF ORLEANS Before me, the undersigned authority, personally came and appeared: ROBERT G. HARVEY, PRESIDENT OF THE BOARD OF COMMISSIONERS OF THE ORLEANS LEVEE DISTRICT who declared and acknowledged to me that he executed the foregoing contract of lease and signed same for the purposes and objects therein expressed, acting in the capacity of President and by order to The Board of Commissioners of the Orleans Levee District. /s/ Robert G. Harvey ------------------------------- ROBERT G. HARVEY Sworn to and subscribed before me, this 18th day of February, 1993. /s/ Richard J. McGinity - ------------------------------- NOTARY PUBLIC 19 STATE OF LOUISIANA PARISH OF ORLEANS Before me, the undersigned authority, personally came and appeared: LOUIE ROUSSEL, III, PRESIDENT, STAR CASINO, INC. who declared and acknowledged to me that he executed the foregoing contract of lease and signed same for the purposes and objects therein expressed. /s/ Louis Roussel, III ------------------------------- LOUIE ROUSSEL, III Sworn to and subscribed before me, this 18th day of February, 1993. /s/ Richard J. McGinity - ------------------------------- NOTARY PUBLIC 20 EXHIBIT "A" ARCHITECT'S DRAWING OF THE LEASED PREMISES 21 EXHIBIT 10.40 FIRST AMENDMENT TO LEASE STATE OF LOUISIANA PARISH OF ORLEANS The First Amendment to Lease entered into by and between the Board of Commissioners of the Orleans Levee District, a political subdivision of the State of Louisiana, represented herein by Robert G. Harvey, President, hereinafter called Lessor, and Star Casino, Inc., represented herein by its President, Louie Roussel, III, and Showboat Star Partnership, represented herein by Louie roussel, III, hereinafter called Lessee. WITNESSETH: WHEREAS, lessor did lease unto Lessee certain land, wharf and water bottom in South Shore Harbor Marina as shown on Drawing Exhibit A, annexed thereto, containing an area of approximately 10.71 acres more or less. WHEREAS, the parties herein now desire to amend said lease in the following respects: 1. By changing the name of Lessee wherever it may appear from Star Casino, Inc., to Showboat Star Partnership. 2. On Page 2, Paragraph II., lines 5 and 7, the word "six" be changed to the word "ten"; 3. On Page 4, Paragraph III.(B), line 8, the words "six (6)" be changed to the words "ten (10)"; 4. On Page 4, Paragraph III.(D), line 2, the words "one hundred twenty (120) days" be deleted. 5. By adding additional paragraphs to read as follows: XXXII. Lessor agrees to lease to Lessee and Lessee agrees to rent from Lessor, for the term and in accordance with the additional conditions set forth herein, additional property designated as Parcel 5A on Drawing No. F-1414, annexed hereto and more fully described as follows: PARCEL 5A A CERTAIN PIECE OR PORTION OF GROUND, together with all the buildings and improvements thereon and all the rights, ways, privileges, servitudes, advantages and appurtenances thereunto belonging or in anywise appertaining, situated in the State of Louisiana, Parish of Orleans, City of New Orleans, Third District in that part known as SOUTH SHORE HARBOR, designated as Parcel 5A, bounded by Lake Pontchartrain (side), South Shore Harbor Boulevard, New Orleans Lakefront Airport, Southern Railroad Right-of-Way (side), Hayne Boulevard (side) and Now or Formerly Clyde Cessna Drive, and is more fully described as follows: COMMENCING at the southwest corner of South Shore Harbor, a 123.41 acre parcel, said corner is at the intersection of the southerly right-of-way line of South Shore Harbor Boulevard and Now or Formerly Clyde Cessna 2 Drive and the west line of South Shore harbor said intersection is located 100 feet north of the centerline of the northmost tracks for Southern Railroad Right-of-Way; THENCE, go long the aforesaid southerly right-of-way line, North 64 degrees 42 minutes 51 seconds East, a distance of 290.08 feet to a point at the intersection of the aforesaid southerly right-of-way line and the projection of the west line of Parcel 5A; THENCE, turn and go along the aforesaid projected west line, North 24 degrees 25 minutes 31 seconds West, a distance of 27.03 feet to the POINT OF BEGINNING; THENCE, go along the west line of Parcel 5A, North 24 degrees 25 minutes 31 seconds West, a distance of 254.68 feet to a point; THENCE, turn and go along a curve to the left, having a radius of 120.00 feet an arc length of 61.92 feet, having a chord of North 19 degrees 59 minutes 28 seconds East, a distance of 61.24 feet to a point of reverse curve; THENCE, turn and go along a curve to the right, having a radius of 58.00 feet an arc length of 35.33 feet, having a chord of North 22 degrees 38 minutes 29 seconds East, a distance of 34.80 feet to a point of tangent; THENCE, turn and go North 40 degrees 07 minutes 00 seconds East, a distance of 854.54 feet to a point; THENCE, turn and go South 49 degrees 53 minutes 29 seconds East, a distance of 179.51 feet to a point on the northerly right-of-way line of South Shore Harbor Boulevard; THENCE, turn and go along the aforesaid northerly right-of-way line, South 40 degrees 06 minutes 37 seconds West, a distance of 458.90 feet to a point of curve; THENCE, continue along the aforesaid northerly right-of-way, and go along a curve to the left, having a radius of 605.93 feet an arc length of length of 262.66 feet, having a 3 chord of South 27 degrees 50 minutes 47 seconds West, a distance of 260.61 feet to a point of tangent; THENCE, turn and continue along the aforesaid northerly right-of-way line, South 15 degrees 35 minutes 37 seconds West, a distance of 91.28 feet to a point of curve; THENCE, continue along the aforesaid northerly right-of-way, and go along a curve to the right, having a radius of 288.84 feet an arc length of 267.69 feet, having a chord of South 41 degrees 58 minutes 42 seconds West, a distance of 258.23 feet to a point at the southwest corner of Parcel 5A, said corner being the POINT OF BEGINNING. The above described portion of ground contains 207,753.87 square feet or 4.7694 acres. All in accordance with a plan of survey by R.P. Fontcuberta, Jr., Registered Professional Land Surveyor, dated April 24, 1993, revised June 11, 1993, more fully set out in Drawing No. F- 1414, annexed hereto. XXXIII. The above described premises is hereby leased for a period of three (3) years from date of commencement. Said lease is for the sole purpose of using as additional parking area for Lessee's gaming operation customers, without restriction to the existing point restaurant customers, at an annual rental of $519,385 (based on $2.50 per square foot) payable $129,846 quarterly in advance, rental payments to be due and to commence at the same time as the rental payments are due and to commence on the primary lease amended hereby. Lessee shall have one (1) option to renew for an additional five (5) years, provided Lessee gives written notice of the intention to exercise said option not more than 180 days or less than ninety (90) days before the expiration 4 of the three (3) year primary term. Should said option be exercised under the terms of this lease, the rental for said option period shall be determined by Lessor based upon the fair market value of the premises, but in no event shall the rent be less than that for the primary term. XXXIV. Lessee agrees to provide at Lessee's sole expense, landscaped areas on this lease site as may be approved by the Orleans Levee District and all design, modifications, construction, relocations, fencing, drainage, utilities and connecting infrastructure, including the marina tenants' parking area north of the herein described leased area and restricted access thereto. Lessee further agrees to provide at its sole expense all requirements for lighting, security and traffic control. 6. All other provisions of the primary lease not specifically amended herein remain in full force and effect. 5 IN WITNESS WHEREOF, the parties hereto have executed this First Amendment to Lease at New Orleans, Louisiana on this 27th day of August, 1993. WITNESSES THE BOARD OF COMMISSIONERS OF THE ORLEANS LEVEE DISTRICT /s/ Dinah D. Borros BY: /s/ Robert G. Harvey -------------------- --------------------------- ROBERT G. HARVEY President /s/ Monica Reyes -------------------- WITNESSES STAR CASINO, INC. /s/ BY: /s/ Louie Roussel, III -------------------- --------------------------- LOUIE ROUSSEL, III President /s/ -------------------- WITNESSES SHOWBOAT STAR PARTNERSHIP /s/ BY: /s/ Louie Roussel, III -------------------- --------------------------- LOUIE ROUSSEL, III /s/ -------------------- 6 STATE OF LOUISIANA PARISH OF ORLEANS Before me, the undersigned authority, personally came and appeared: ROBERT G. HARVEY, PRESIDENT OF THE BOARD OF COMMISSIONERS OF THE ORLEANS LEVEE DISTRICT who declared and acknowledged to me that he executed the foregoing First Amendment of Lease and signed same for the purposes and objects therein expressed, acting in the capacity of President and by order of the Board of Commissioners of the Orleans Levee District. /s/ Robert G. Harvey ------------------------------ ROBERT G. HARVEY Sworn to and subscribed before me, this 27th day of August, 1994. /s/ Joseph H. Hart -------------------- NOTARY PUBLIC * * * * * * * * * * * * * * STATE OF LOUISIANA PARISH OF ORLEANS Before me, the undersigned authority, personally came and appeared: LOUIE ROUSSEL, III, PRESIDENT, STAR CASINO, INC. and SHOWBOAT STAR PARTNERSHIP 7 who declared and acknowledged to me that he is duly authorized to execute the foregoing First Amendment of Lease and signed same for the purposes and objects therein expressed. /s/ Louie Roussel, III ------------------------------ LOUIE ROUSSEL, III Sworn to and subscribed before me, this 27th day of August, 1994. /s/ William J. Guste, Jr. --------------------------- NOTARY PUBLIC 8 EX-10.41 11 LEASE AGREEMENT EXHIBIT 10.41 LEASE AGREEMENT --------------- STATE OF LOUISIANA PARISH OF ORLEANS This Agreement entered into by and between The Board of Commissioners of the Orleans Levee District, a political subdivision of the State of Louisiana, herein represented by Robert G. Harvey, Sr., President, hereinafter referred to as "Lessor", and Showboat Star Partnership, herein represented by Louie Roussel, III, Managing Director, hereinafter referred to as "Lessee." WITNESSETH: I. The Lessor hereby leases to Lessee the interior of the Marina Center, sometimes known as South Shore Harbor Bar & Restaurant and sometimes known as The Point Restaurant, along with certain exterior property which is more fully described, to-wit: South Shore Harbor Marina Center located at South Shore Harbor, east of Lakefront Airport, all as more fully set out and outlined in Addendum A-1, and further as shaded in Addendum A-2, signed by the parties and attached hereto. II. The Lessee agrees that the premises leased herein shall be used solely and exclusively for any lawful purpose. Commercial activity shall be limited to areas described in Article I. Vending machines and/or other sales outlets shall not be placed in public areas except as specifically authorized herein. Lessee is to maintain all public areas within the Marina Center, including restrooms, showers, and laundry facilities. Appropriate charge can be made for laundry facilities. Total area of premises is to be maintained in a clean and sanitary manner. The fuel dock facility controls shall be removed from the building and relocated at Lessor's expense. Lessee will maintain landscaping on ground surrounding the Marina Center, including water, fertilizer, trimming and mowing in accordance with acceptable procedures and practices. The General Public shall have access to the public areas at all times. Lessee shall use biodegradable food and beverage containers and disposable utensils to the maximum extent practicable. Recyclable trash shall be separated as practicable and placed in separate containers. Lessee shall be responsible for pickup, containerization and removal of all trash and garbage from the area defined in Addendum "A-2". Containers shall be sufficient size and shall be unloaded as frequently as needed to prevent accumulation. Garbage shall be placed in separate containers and removed daily. All containers shall be placed in a location and concealed from view as approved by Lessor. III. The period of this lease is for a term of one (1) year beginning on February 1, 1994, together with nine (9) options, each for a period of one (1) year. Said options shall be exercised by giving Lessor notice of Lessee's intent, in writing, not less than ninety (90) days nor more than one hundred and fifty (150) days before the end of the primary term, and, if exercised, before the end of each one (1) year option period thereafter. IV. For the first primary term of one (1) year, Lessee agrees to pay to Lessor a monthly rental of THREE THOUSAND AND NO/100 ($3,000.00) DOLLARS, payable in advance. At the beginning of each one (1) year option period, if such option shall be exercised, the rent shall be adjusted for each one (1) year period as follows: For each option period exercised, the previous annual rental shall be adjusted in accordance with an index computed from the U.S. City Average in the table entitled "Consumer Price Index, U.S. City Average and Selected Areas (1982-84-100) All Urban Consumer," published monthly by the Bureau of Labor Statistics of the U.S. Department of Labor. The adjustment shall be computed using the difference in the 3 index (base) for the third month preceding the first month of the full annual payment compared to the corresponding Index Number (current) for the third month preceding the month beginning the second and subsequent one year terms. In the event the CPI is not published for the subject period, then the next closest and similar indicator shall be used in lieu of the CPI. V. Failure to pay the rent on or before the date due shall ipso facto and without demand or putting into default, terminate and cancel this lease, in accordance with the provisions of L.R.S. 41:1217(B), unless Lessee has secured a written extension of time for payment from Lessor's President or Director, which extension shall not be unreasonably withheld when justifiable cause exists therefor. VI. Lessee does hereby release, hold harmless and indemnify the Orleans Levee Board, its agents and employees, from, for and against any and all liability, including strict liability, claims, suits, expenses, including attorney fees, incurred by said Board, for damages and/or injury to persons and/or property, in any way resulting from or arising out of its occupancy of the leased premises or of any activities connected herewith. 4 VII. No agreement modifying or abrogating in any manner the express terms and conditions of this lease shall have effect, unless approved by the Board of Commissioners of the Orleans Levee District, made in writing and signed by all parties hereto and attached as an addendum to this lease. The Lessee is hereby obligated not to use the premises for any purpose other than that herein expressly enumerated, nor for any unlawful purpose or one that tends to injure or depreciate the building and premises or reflects discredit upon the South Shore Harbor or the Board. VIII. The Lessee hereby agrees to ensure proper decorum by all Lessee's employees, agents or customers while conducting business at South Shore Harbor. IX. The within leased premises and appurtenances, including the locks, keys, plumbing and glass, if any, and all other fixtures, are accepted by the Lessee in their present condition, except for such repairs and improvements as are written into the lease. Save normal wear and tear, the Lessee agrees to keep the premises in the same order as received, during the term of this lease or any extension thereof, to pay all bills for light, gas, and other service, and to comply at the Lessee's expense with all ordinances and laws, now existing, and at the termination or cancellation of this lease to return the premises broom clean and 5 free from trash, and in like good order as received by actual delivery of the keys to Lessor or agent, the usual decay, wear and tear excepted. Costs for water are to be prorated between Lessee and Lessor depending upon usage; with Lessor responsible for exterior public restrooms and Lessee the remainder of water usage. X. The Lessee hereby agrees to carry at its expense a fire and extended coverage policy in the minimum sum of $100,000 on the movable equipment and other contents of the leased premises, regardless of who is the owner of said equipment and other contents to the complete exclusion and exoneration of the Lessor from any liability in connection therewith. It is a further condition of this lease that Lessee is to furnish Lessor, at Lessee's expense, policies for comprehensive General Liability with a combined single limit of One Million Dollars ($1,000,000.00) for Bodily Injury and Property Damage liability, subject to an annual aggregate liability of Two Million Dollars ($2,000,000.00), liquor liability insurance of Five Hundred Thousand Dollars ($500,000.00) for each occurrence, and product liability insurance of One Million Dollars ($1,000,000.00). Such insurance shall be designed to protect the public generally, and the Lessor in particular from claims arising out of injury and/or death to persons, and/or damage to property resulting from accident occurring within or in the immediate vicinity of the premises leased herein and caused by any act or omission of the Lessee, its officers, agents, employees, contractor or persons, firms or 6 corporations otherwise associated with Lessee, excepting coverage in areas known as the docks or piers, where each vessel owner will provide the Lessor with the necessary insurance requirements. Such policy or policies of Lessee's insurance shall have the necessary endorsement attached thereto naming the Lessor as an additional insured. Certificates of insurance as provided for and required by the conditions of this lease shall be presented to the Lessor prior to occupancy, and said policy or policies of insurance shall be maintained throughout the term of this lease. In the event renewals, cancellation, non-renewal or change of said policy or policies, it is understood and agreed that Lessor will receive a 30 day notice of said cancellation and/or renewals/non-renewals. XI. The Lessee hereby agrees to keep the within leased premises in a neat, sanitary, safe condition, free of any hazard to the public, its guests, employees, patrons, suppliers of materials, and furnishers of service in keeping with good operating practices. Lessee also hereby agrees to clean and maintain the cleanliness of all restrooms, showers and laundry facilities located in the Marina Center. XII. Lessee shall maintain all air conditioning and heating equipment, all kitchen equipment including the walk-in cooler and ice machines, provided by Lessor and provide for their necessary preventative maintenance. Lessor shall be responsible for any 7 major repair or replacement. "Major repair or replacement" is defined as any repair over Seven Hundred Fifty and 00/100 Dollars ($750.00). Lessee is not to remove any wiring, conductors, or equipment installed by the Lessee within the structural walls of said leased space, nor is Lessee to remove any duct work that may have been placed on the said premises, and is obligated to pay for any damages to same unless so ordered by the Lessor. All operating equipment and store fixtures installed by Lessee shall remain the property of Lessee. XIII. The Lessee hereby assumes the care, maintenance, replacement and repairs of the glass or plate glass show windows or doors, attached to and forming part of the lease premises. XIV. Lessee assumes the maintenance of the plumbing, including fixtures, outlets and drains, and the protection and repair of said plumbing, etc., even when injured by freeze. XV. Lessee is obligated not to make any additions or alterations whatsoever to the premises without written permission of the Lessor. All additions, alterations, or improvements made by Lessee, no matter how attached, shall remain the property of Lessor, unless otherwise stipulated herein or later agreed to in writing. Lessee expressly waives all rights to compensation for any such improvements; however, Lessor, at its option, may refuse 8 such improvements even if approved and may require the building to be placed in its original condition. XVI. In emergencies or with prior notification to the Lessee, Lessor or Agent or workmen shall have the right to enter the premises at any time for the purpose of making repairs or enter if necessary for the preservation of the property. XVII. Lessee assumes responsibility for the condition of the premises and Lessor will not be responsible for damage caused by leaks in the roof, by bursting of pipes by freezing or otherwise, or by any vices or defects of the leased property, or the consequences thereof, except in the case of positive neglect or failure to take action toward the remedying of such defects within reasonable time after having received written notice from Lessee of such defects and the damage caused thereby. Should Lessee fail to promptly notify Lessor, in writing, of any such defects, Lessee will become responsible for any damage resulting to Lessor or other parties. In case of extreme emergency, if Lessee is required to make necessary repairs to prevent property damage that the Lessor would have otherwise assumed responsibility for Lessor agrees to reimburse Lessee for reasonable expenses incurred. XVIII. Lessee is obligated not to display in, on, or above the lease premises any sign or decoration, the nature of which is, in 9 the judgment of Lessor, dangerous, unsightly, or detrimental to the property. Lessee is prohibited from painting any signs on the leased property without the written consent of Lessor, and Lessee is obligated to promptly remove at or before the expiration of this lease, any and all signs painted or placed in or upon any part of the leased premises, to Lessor's satisfaction, and Lessee is obligated to pay the cost of said removal, plus agent's or attorney's fees, in the event of failure to carry out this obligation. XIX. Should the premises be vacated or abandoned by Lessee because of ejection for breach hereof, or otherwise, or should the Lessee begin to remove personal property or goods to the prejudice of the Lessor's lien, then the rent for the unexpired terms with attorney's fees, shall at once become due and exigible, and Lessor, at its option, has the right to cancel the lease, or re- enter and let said premises for such price and on such terms as may be immediately obtainable and apply the net amount realized to the payment of the rent. XX. At the expiration of the lease, or any extension thereof, or its termination for other causes, Lessee is obligated to immediately surrender possession, and should Lessee fail to do so, he consents to pay any and all damages, but in no case less than five times the rent per day, plus attorney's fees, costs, etc. 10 Lessee also expressly waives any notice to vacate at the expiration of this lease. Should Lessor allow or permit Lessee to remain in the leased premises after the expiration of this lease, this shall not be construed as a reconduction of the lease. XXI. Lessee is obligated to put nothing in the leased premises which would forfeit the insurance, and should any installation made by Lessee increase the rate of insurance on the building or contents as fixed by the Louisiana Rating and Fire Prevention Bureau, or any similar institution, then Lessee is obligated to pay such increased rate of insurance on building and all contents. Should any action by or on behalf of Lessee, including Lessee's occupancy or business, render the Lessor unable to secure proper insurance, Lessor shall have the option of cancelling this lease, Lessee waiving all delays, and agreeing to surrender possession at once, if notified by Lessor to do so. Lessee is obligated to notify Lessor, in writing, any time the leased premises will be unoccupied, so that necessary vacancy permits may be obtained from Lessor's insurers. Failure to comply with this condition will make Lessee liable for any loss or damage sustained. XXII. Lessee may not assign, sublease, or transfer this lease or any part thereof without the written consent of the Lessor which consent will not be unreasonably withheld. Transfer of more than 11 49% of Lessee's ownership interests, whether in one or more transactions, shall constitute a prohibited transfer of this lease. XXIII. Should the Lessee at any time violate any of the conditions of this lease, except failure to pay the rent when due (ipso facto cancellation), or discontinue the use of the premises for the purpose for which they are rented, or fail to pay other expenses assumed under this lease, punctually at maturity, as stipulated, and should violation continue for a period of ten (10) days after written notice has been given Lessee, then, at the option of the Lessor the rent for the whole unexpired term of this lease at once becomes due and exigible; and Lessor shall have the further option at once to demand the entire rent for the whole term, or to immediately cancel this lease, all without putting Lessee in default, Lessee to remain responsible for all damages or losses suffered by Lessor, Lessee hereby assenting hereto and expressly waiving the legal notices to vacate the premises. Should an agent or attorney be employed to give special attention to the enforcement or protection of any claim of Lessor arising from this lease, Lessee shall pay, as fees and compensation to such agent or attorney, an additional sum of twenty percent (20%) of the amount of such claim, the minimum fee, however, to be Two Hundred Fifty ($250.00) Dollars, or if the claim be not for money, then such sum as will constitute a reasonable fee, together with all costs, charges and expenses. 12 XXIV. Failure to strictly and promptly enforce these conditions shall not operate as a waiver of Lessor's rights, Lessor expressly reserving the right to always enforce prompt payment of rent, or to cancel this lease, regardless of any indulgences or extension previously granted. The receipt and/or deposit by Lessor or Lessor's representative of any rent after cancellation or termination of this lease, will not be considered as a waiver of said cancellation or termination, or of any of the rights of Lessor. XXV. If, through no fault, neglect, or design of the Lessee the premises are destroyed by fire or other casualty or damaged to such extent as to render them wholly unfit for occupancy, then this lease shall be cancelled. If, however, the premises can be one hundred and twenty (120) days from date of fire or casualty, the lease shall not be cancelled and Lessor shall notify Lessee within thirty (30) days from date of fire or casualty that Lessor will repair the damage, and Lessee shall be entitled only to such reduction or remission of rent as shall be just and proportionate as mutually agreed to by Lessor and Lessee. XXVI. Any notices, demand or citations under this lease, may be served personally on Lessee or by regular mail addressed to Lessee at the within leased premises. 13 XXVII. The Lessor hereby reserves the right to terminate this lease in the event of violation by the Lessee, and conviction thereof, of any Federal and/or State Law, and City Ordinances, except where violation is based solely on alleged violations of City Ordinances by Lessor. XXVIII. Both parties, irrespective of any negligence whatsoever on the part of either party, mutually agree to hold one another completely free and harmless from any loss or damage to one another's business or property, if said loss or damage is, would be, or could be, totally or partially covered by any type of real or personal property insurance and/or time element coverage (business interruption, profits and commissions, leasehold or rent) payable to either party as an insured, and both parties further agree to waive any and all rights of subrogation of recovery against one another that would inure to the benefit of their respective property insurance carrier(s). In no event, however, shall this mutual waiver of subrogation ever apply to any claim, suit or cause of action by any third party (including but not limited to Lessor's employees, invitees and licensees) arising out of any occurrence resulting in bodily injury, property damage or financial loss to said third party. XXIX. In addition to any hold harmless previously provided for hereinabove, Lessee does hereby agree to indemnify and hold 14 harmless Lessor from any liability or responsibility arising from any and all claims and causes of action for injury, damage or otherwise, of and by any person, firm or corporation, occurring on or to the leased premises, resulting from or arising out of any defect or condition of property under the control of the Lessee. XXX. In the event of any violations of the terms and conditions of this lease, except for non-payment of rent when due (ipso facto cancellation), Lessee hereby consents and agrees to pay to Lessor an administration fee equal to 10% of the average monthly rental (amortized annually), whether or not said violation is cured within the time or times as provided herein. Failure to pay said fee on or before the date provided for curing said default shall constitute an additional default and Lessor shall have the option of cancelling this lease without further notice or formality. Nothing herein shall in any way operate as an extension of any of the terms of this lease nor constitute a waiver of any of Lessor's rights contained herein. XXXI. It is specifically understood between the parties hereto that said parties were not introduced or brought together by any real estate agent or broker and, therefore, there are no realtors' commissions of any kind to be paid by either of the parties hereto. XXXII. Upon termination or cancellation of the Lessee's right of occupancy for any reason, Lessee does hereby expressly waive any 15 and all notice to vacate requirements as may be provided by law and if necessary, without any such notice, Lessor may immediately institute eviction proceedings in any court of competent jurisdiction, in accordance with the law. XXXIII. Lessee is aware that Orleans Levee Board may from time to time hold or authorize special events such as boat shows, boat races, or various festival activities at South Shore Harbor. Lessor reserves the right to limit vehicular traffic and to take such other additional measures and precautions as may be in the interest of public safety. Lessor will not prohibit public access to the public areas during such events; such access may be for pedestrian traffic only. The Orleans Levee Board reserves freedom of right of entry to premises for inspection and for any maintenance required by Lessor, such entry to be upon reasonable notice to Lessee unless in an emergency situation. XXXIV. Lessee recognizes premises are outside of flood protection of Orleans Parish and exposed to high tides and hazardous weather which may prevail from time to time in Lake Pontchartrain. Lessor assumes no responsibility for damages or consequences of such natural hazards. XXXV. Lessee is not responsible under current law for payment of "ad valorem" real estate property tax. 16 IN WITNESS WHEREOF, the parties hereto have executed this Contract of Lease in quadruplicate original, at New Orleans, Louisiana, on this 1st day of February, 1994. THE BOARD OF COMMISSIONERS OF WITNESSES: THE ORLEANS LEVEE DISTRICT /s/ Theodore Lange BY: /s/ Robert G. Harvey, Sr. ----------------------- --------------------------- Robert G. Harvey, Sr. President /s/ Stella L. Lomando ----------------------- SHOWBOAT STAR PARTNERSHIP BY: /s/ Louie Roussel, III ----------------------- Louie Roussel, III Managing Partner STATE OF LOUISIANA PARISH OF ORLEANS On this 1st day of February, 1994, before me, the undersigned, personally came and appeared: ROBERT G. HARVEY, SR. PRESIDENT who declared and acknowledged to me that he executed the foregoing contract of lease and signed same for the purposes and objects 17 therein expressed, acting in the capacity of President and by order of the Board of Commissioners of the Orleans Levee District. /s/ Robert G. Harvey, Sr. ------------------------------ ROBERT G. HARVEY, SR. Sworn to and subscribed before me, this 1st day of February, 1994. /s/ ------------------------ NOTARY PUBLIC * * * * * * * * * * * * * * * * * * * * * * * * * * * STATE OF LOUISIANA PARISH OF ORLEANS On this 1st day of February, 1994, before me, the undersigned authority, personally came and appeared: LOUIE ROUSSEL, III who declared and acknowledged to me that he executed the foregoing contract of lease and signed same for the purposes and objects therein expressed, acting in the capacity of Managing Partner and by authority of Showboat Star Partnership. /s/ Louie Roussel, III ------------------------------ LOUIE ROUSSEL, III Sworn to and subscribed before me, this 1st day of February, 1994. /s/ William J. Guste, Jr. --------------------------- NOTARY PUBLIC 18 Addendum A-1 and A-2 are architectural renderings of the leased premises. 19 EX-10.42 12 LEASE AGREEMENT EXHIBIT 10.42 SHOWBOAT SUITES 103, 104, 105 106, 108, 201, 204 STANDARD LEASE AGREEMENT Ventnor Professional Campus LEASE AGREEMENT --------------- VENTROY ASSOCIATES (LANDLORD) AND SHOWBOAT OPERATING COMPANY (TENANT) IN SUITES 103, 104, 105, 106, 108, 201 and 204 VENTNOR AVENUE BUILDING OF VENTNOR PROFESSIONAL CAMPUS 6601 VENTNOR AVENUE VENTNOR, NJ 08496 STANDARD LEASE AGREEMENT Ventnor Professional Campus As Revised 070193\#4
TABLE OF CONTENTS ----------------- Page ---- ARTICLE I DEMISED PREMISES; PARKING; TERM................. 1 1.1 DEMISED PREMISES................................... 1 1.2 PARKING............................................ 1 1.3 TERM; OPTION TO TERMINATE.......................... 1 ARTICLE II COMMENCEMENT OF TERM........................... 2 2.1 COMMENCEMENT DATE.................................. 2 2.2 NOTICE OF COMPLETION; CERTIFICATION OF COMPLETION.. 3 2.3 NO VIOLATIONS...................................... 3 2.4 POSSESSION; SUBSTANTIAL COMPLETION................. 3 2.5 DELAYS CAUSED BY TENANT............................ 3 2.6 DELAY EXPENSES..................................... 4 2.7 COMPLETION DEADLINE................................ 4 ARTICLE III RENOVATION AND REMODELING OF DEMISED PREMISES. 5 3.1 LANDLORD'S WORK ON THE DEMISED PREMISES............ 5 ARTICLE IV RENT........................................... 5 4.1 MINIMUM RENT....................................... 5 4.2 ADDITIONAL RENT.................................... 5 4.3 LATE CHARGES AND INTEREST ON LATE PAYMENTS......... 6 4.4 COLLATERAL SECURITY................................ 6 ARTICLE V USE............................................. 6 5.1 OFFICE USE; DENSITY................................ 6 5.2 ADVERSE USE........................................ 6 5.3 CONTINUED OCCUPANCY................................ 7 ARTICLE VI REPAIRS; ALTERATIONS; FIXTURES................. 8 6.1 Landlord MAINTENANCE............................... 8 6.2 TENANT MAINTENANCE................................. 8 6.3 OBSTRUCTIONS....................................... 9 6.4 CONSTRUCTION OF IMPROVEMENTS....................... 9 6.5 PERMITS; INSURANCE................................. 12 ARTICLE VII COMMON AREAS.................................. 12 7.1 DEFINITION: CONTROL................................ 12 7.2 EXPENSES........................................... 13 7.3 REIMBURSEMENT OF Landlord.......................... 14 7.4 PROPORTIONATE INSURANCE............................ 15 ARTICLE VIII TAXES........................................ 16 8.1 TAXES.............................................. 16 ARTICLE IX FLOOR LOAD; NOISE.............................. 18 9.1 FLOOR LOAD......................................... 18 9.2 NOISE.............................................. 19
ARTICLE X LAWS, ORDINANCES REQUIREMENTS OF PUBLIC AUTHORITIES.............. 19 10.1 TENANT COMPLIANCE................................. 19 10.2 NOTICE OF VIOLATIONS.............................. 19 10.3 Landlord COMPLIANCE............................... 19 ARTICLE XI INSURANCE...................................... 20 11.1 COMPLIANCE WITH REGULATIONS....................... 20 11.2 TENANT-CAUSED INCREASES........................... 20 11.3 LIABILITY INSURANCE............................... 20 11.4 WAIVER OF SUBROGATION............................. 21 ARTICLE XII DAMAGE BY FIRE OR OTHER CAUSE................. 21 12.1 DAMAGE............................................ 21 12.2 LIMITATION........................................ 22 ARTICLE XIII ASSIGNMENT, SUBLETTING, MORTGAGING........... 22 13.1 CONDITIONS; REQUIREMENTS.......................... 22 13.2 RENT COLLECTION................................... 22 13.3 LEASE OBLIGATIONS................................. 22 ARTICLE XIV NO LIABILITY ON Landlord'S PART............... 23 14.1 Landlord'S LIABILITY............................ 23 ARTICLE XV NAME OF PROPERTY AND BUILDING.................. 23 15.1 NAME OF DEVELOPMENT............................... 23 15.2 BUILDING NAME..................................... 23 ARTICLE XVI CONDEMNATION.................................. 23 16.1 CONDEMNATION...................................... 23 16.2 CONDEMNATION AWARD................................ 24 16.3 TEMPORARY CONDEMNATION............................ 24 ARTICLE XVII ENTRY, RIGHT TO CHANGE PUBLIC PORTIONS OF BUILDING AND SITE................ 26 17.1 ACCESS............................................ 26 17.2 CHANGES TO PUBLIC AREAS OF BUILDING............... 26 17.3 CHANGES TO DEVELOPMENT............................ 26 17.4 NO LIABILITY FOR CHANGES.......................... 27 17.5 RIGHT TO RELOCATE................................. 27 ARTICLE XVIII BANKRUPTCY.................................. 27 18.1 PRIOR TO TERM..................................... 27 18.2 DURING TERM....................................... 27 18.3 Landlord DAMAGES.................................. 28 ARTICLE XIX LANDLORD'S REMEDIES ON DEFAULT, DEFICIENCY.... 28 19.1 DEFAULT........................................... 28 19.2 REMEDIES ON DEFAULT............................... 28 19.3 UNENFORCEABLE PROVISION........................... 29
ii ARTICLE XX LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS........................... 29 20.1 TENANT OBLIGATIONS................................ 29 20.2 ADDITIONAL RENT................................... 30 20.3 RELOCATION OF TENANT.............................. 30 ARTICLE XXI COVENANT OF QUIET ENJOYMENT................... 31 21.1 QUIET ENJOYMENT................................. 31 ARTICLE XXII SERVICES AND EQUIPMENT....................... 31 22.1 Landlord SERVICES................................. 31 22.2 INTERRUPTIONS OF SERVICE.......................... 32 22.3 REIMBURSEMENT OF Landlord......................... 32 ARTICLE XXIII REAL ESTATE BROKERS......................... 32 23.1 BROKERS......................................... 32 ARTICLE XXIV ELECTRICAL, WATER AND SEWER CHARGES.......... 32 24.1 CHARGES......................................... 32 ARTICLE XXV RELOCATION OF TENANT.......................... 32 25.1 RELOCATION OF TENANT............................ 33 ARTICLE XXVI SUBORDINATION................................ 33 26.1 SUBORDINATION..................................... 33 26.2 NOTICE OF MORTGAGEES.............................. 33 26.3 MORTGAGE MODIFICATIONS............................ 33 26.4 NON-DISTURBANCE OF TENANT......................... 34 ARTICLE XXVII LEGAL PROCEEDINGS........................... 35 27.1 WAIVER OF JURY TRIAL.............................. 35 27.2 TENANT CLAIMS; REMEDIES........................... 35 ARTICLE XXVIII SURRENDER OF PREMISES; HOLDOVER............ 35 28.1 SURRENDER; HOLDOVER............................. 35 ARTICLE XXIX RULES AND REGULATIONS........................ 36 29.1 RULES AND REGULATIONS........................... 36 ARTICLE XXX SUCCESSORS AND ASSIGNS........................ 36 30.1 BINDING EFFECT.................................... 36 30.2 Landlord DEFINED.................................. 36 ARTICLE XXXI NOTICES 36 31.1 NOTICES......................................... 36 ARTICLE XXXII NO WAIVER; ENTIRE AGREEMENT................. 37 32.1 NO WAIVER......................................... 37 32.2 ENTIRE AGREEMENT.................................. 37 32.3 SEVERABILITY...................................... 37
iii ARTICLE XXXIII INDEX AND CAPTIONS; ESTOPPEL CERTIFICATE... 37 33.1 CAPTIONS.......................................... 38 33.2 ESTOPPEL CERTIFICATE.............................. 38 ARTICLE XXXIV INABILITY OF Landlord TO PERFORM............. 38 34.1 Landlord PERFORMANCE............................. 38 ARTICLE XXXV NO REPRESENTATIONS BY Landlord................ 38 35.1 NO REPRESENTATIONS............................... 38 ARTICLE XXXVI MEMORANDUM OF LEASE.......................... 39 36.1 MEMORANDUM OF LEASE.......................... 39
EXHIBIT "A" EXHIBIT "B" EXHIBIT "C" EXHIBIT "D" EXHIBIT "E" EXHIBIT "F" iv LEASE AGREEMENT THIS LEASE, made and entered into as of the ____ day of _____________, 1993, by and between VENTROY ASSOCIATES, a partnership having its principal place of business at One Norwegian Plaza, P.O. Box "K", Pottsville, PA 17901 (hereinafter called "Landlord"), and SHOWBOAT OPERATING COMPANY, Delaware and Pacific Avenues, Atlantic City, NJ 08401 (hereinafter called "Tenant"). W I T N E S S E T H: Intending to be legally bound, Landlord and Tenant hereby agree as follows: ARTICLE I DEMISED PREMISES; PARKING; TERM 1.1 DEMISED PREMISES. ---------------- (a) Landlord hereby leases to Tenant and Tenant hereby rents from Landlord Suites 103, 104, 105, 106, 108, 201 and 204, being located on the first and second floors of the Ventnor Avenue Building (hereinafter called the "Building") of the VPC Complex (as herein defined), as generally outlined on the floor plan attached hereto and made part hereof as Exhibit "A" (herein called the "Demised Premises"), said Building being part of the Ventnor Professional Campus (herein called the "VPC Complex"), as more particularly described in Exhibit "B" attached hereto and made part hereof, located at Ventnor and Troy Avenues, in the City of Ventnor, County of Atlantic, and State of New Jersey. (b) The Demised Premises are leased together with the non-exclusive right to use in common with others entitled to use the same, the lobby, public entrances, public stairways, public corridors, public elevators and other public portions of the Building and the automobile parking areas, driveways, footways, and other facilities in the VPC Complex, as may be designated from time to time by Landlord, and to such rules and regulations for the use thereof as may be proscribed from time to time by the Landlord. 1.2 PARKING. ------- (a) Parking shall be available to Tenant and its patrons in the parking area of the VPC Complex. 1.3 TERM; OPTION TO TERMINATE. ------------------------- (a) Term. The term of this Lease shall be five (5) years ---- beginning on the Commencement Date (defined in Article II), unless sooner terminated as hereinafter provided, and if the Commencement Date is other than the first day of the month, plus 1 the number of days from Commencement Date to the last day of such month; commencing on the Commencement Date and ending, unless sooner terminated, on the last day of the month during which the fifth (5th) anniversary of the Commencement Date occurs, yielding and paying the rents and additional rents hereinafter set forth, all on the covenants, conditions, and agreements hereinbefore and hereinafter stated. Promptly after the Commencement date Landlord and Tenant will execute an agreement supplementing this Lease, in the form attached hereto and made part hereof as Exhibit "C" (hereinafter referred to as the "Commencement Date Agreement"), fixing among other things, the commencement and termination date of this Lease. (b) Option to Terminate. Provided that on the exercise date Tenant ------------------- shall not be in default in the performance of any of the terms, covenants and conditions of this Lease, Tenant shall have the option to terminate this Lease effective at any time on and after the expiration of six (6) months and one (1) day following the expiration of the fourth (4th) year of the Term of this Lease. If Tenant elects to exercise said option, it shall do so by giving written notice of such election to Landlord, which notice shall be dated and given not earlier than the first (1st) day of the fifth (5th) year of the Term of this Lease, time being of the essence with respect to such date of exercise. Such notice, to be operative, shall contain an effective date of termination at least six (6) months after the date of such notice. If Tenant exercises said option, the Term shall be automatically reduced to the effective date specified in the written notice of election, provided such election is given in a timely and proper manner in accordance with the terms hereof without the necessity of execution of any further lease, instrument or agreement. If Tenant desires to renegotiate the terms of this Lease in connection with such termination, it shall so notify the Landlord of such intent as part of the written notice of termination, and such negotiations shall commence promptly and be concluded, either with a new lease or no lease no later than ninety (90) days after the termination date. ARTICLE II COMMENCEMENT OF TERM 2.1 COMMENCEMENT DATE. The Term of this Lease and the payment of rent ----------------- hereunder, shall commence on the earlier of January 1, 1994, or date that the ------- -- Demised Premises shall be substantially completed, (the "Commencement Date"). The Demised Premises shall be deemed substantially completed when Landlord has substantially performed the work and additional work required to be performed by Landlord as provided for in Exhibit "D" hereof, and has put in operating condition for Tenant's permitted use under Article V, the service facilities and systems of the Building serving the Demised Premises. 2 2.2 NOTICE OF COMPLETION; CERTIFICATION OF COMPLETION. Land-lord shall ------------------------------------------------- give Tenant at least ten (10) days' prior written notice of the anticipated date of substantial completion of the work to be performed in the Demised Premises by Landlord. Completion of the Demised Premises shall be certified to Tenant in writing by Landlord, and the delivery of such certificate of completion to Tenant shall constitute delivery of possession of the Demised Premises hereunder. Tenant, its agents, servants and contractors, prior to the delivery of possession of the Demised Premises, shall have the right to enter upon the Demised Premises for the purpose of taking measurements therein, but for no other purpose, provided, however, that such entry shall not interfere with or obstruct the progress of the work being done by Landlord. Landlord shall notify Tenant promptly, if after giving such notice the substantial completion date is delayed and shall give Tenant at least five (5) days' prior written notice of the anticipated postponed date of substantial completion. Further postponements shall also require at least five (5) days' prior written notice. 2.3 NO VIOLATIONS. Upon the date of delivery of possession to the Tenant, ------------- the Demised Premises shall be free of all violations, orders or notices of violations of all public authorities. 2.4 POSSESSION; SUBSTANTIAL COMPLETION. ---------------------------------- (a) Tenant's taking possession of the Demised Premises shall be conclusive evidence, as against Tenant, that, at the time such possession was so taken, the work to be performed by Landlord pursuant to Section 3.1 hereof is substantially completed. Within ten (10) business days after the Commencement Date, a representative of Landlord and a representative of Tenant shall survey the Demised Premises for the purpose of determining those items, if any, of the work to be performed by Landlord which remains to be completed, which they shall reduce to an itemized agreed "punch" list, and Landlord agrees to complete the items on such agreed punch list within a reasonable time thereafter. 2.5 DELAYS CAUSED BY TENANT. If the occurrence of any of the conditions ----------------------- specified in this Section 2.5 shall be delayed due to any acts or omission of Tenant or its agents, employees or contractors, the Demised Premises shall be deemed ready for occupancy on the date when they would have been so ready but for such delay. Such delay shall include: (a) Delay in submission of Tenant's plans or specifications or giving authorizations or approvals required for the preparations for or execution of Landlord's work; (b) Delay due to -- 3 (1) Changes made by or on behalf of Tenant in Tenant's plans or in Landlord's work; or (2) Postponement of any of Landlord's work at Tenant's request or because of any of Tenant's work required to be performed in advance of items of Landlord's work so postponed; and (3) Delay due to any other interference with Landlord's work in the Demised Premises or in the building by Tenant, its agents, servants, or employees. 2.6 DELAY EXPENSES. If, as a result of any delays on the part of Tenant -------------- pursuant to the provisions of this Article, Landlord shall sustain any additional costs or damages, Tenant shall pay to Landlord (in addition to the rent payable as a result of the acceleration of the Commencement Date as hereinabove provided) all such reasonable costs and damages that Landlord may sustain as a result thereof. 2.7 COMPLETION DEADLINE. If the Commence Date shall not have occurred by ------------------- January 31, 1994, as said date may be extended pursuant to the provisions of this Section, Tenant shall have the option to cancel and terminate this Lease and the demised term by giving notice to Landlord of such cancellation and termination within thirty (30) days next following January 31, 1994, as such date may be so extended. Upon the giving of such notice, this Lease and the demised term shall expire and come to an end, and Landlord and Tenant shall each be released and discharged of an from any and all further liability under this Lease, except that Tenant shall remain liable for the cost of any special work therefor performed by Landlord at Tenant's request. It is agreed that time is of the essence with respect to any such notice of cancellation and termination, and that Tenant shall have the right to give any such notice after the thirty (30) day period referred to in the immediately preceding sentence, and that any such notice given after the expiration of such period shall have no force or effect. If Tenant shall fail to give timely notice exercising the foregoing option to cancel and terminate this Lease and the demised term, or if Tenant shall use or occupy any part of the Demised Premises for the conduct of business, then, in either case, the demised term shall commence in accordance with the provisions of Section 2.1 and Tenant shall have no further right to cancel and terminate this Lease under the provisions of this Section. Landlord shall have the right to extend the January 31, 1994 date, set forth in this Section by a period equal to the aggregate of: (a) The number of days, if any, which may have elapsed between the date upon which any plan is required to be submitted by Tenant to Landlord and the date of submission by Tenant to the Landlord of such plan; plus 4 (b) The number of days, if any, of delay or delays in substantial completion of the work to be performed by Landlord occasioned by reason of Tenant's delay or delays in submitting any other plans or specifications or estimates, or in giving authorizations, or by reason of any additional work designated by Tenant pursuant thereto, or by reason of any changes by Tenant in any designations previously made by Tenant, or by reason of any other similar acts or omissions of Tenant. ARTICLE III RENOVATION AND REMODELING OF DEMISED PREMISES 3.1 LANDLORD'S WORK ON THE DEMISED PREMISES. Landlord, prior to the --------------------------------------- Commencement Date, shall install and furnish in the Demised Premises all of the work and installations substantially in accordance with the Demised Premises Plan attached hereto and incorporated herein as Exhibit "D" (hereinafter the "Demised Premises Plan"). The Landlord or Tenant shall bear the cost of the completion of the work and installations set forth in the Demised Premises Plan, as is indicated on the Demised Premises Plan. ARTICLE IV RENT 4.1 MINIMUM RENT. During the Term of this Lease, Tenant covenants and ------------ agrees to pay Landlord a fixed minimum rent (the "Minimum Rent") at the annual rate of One Hundred Thirty-Six Thousand Six Hundred Thirty-Two Dollars ($136,632.00). Annual Minimum Rent shall be payable in equal monthly installments in advance on the first day of each month during the term of this Lease at the office of the Landlord or such other place as Landlord may designate in the amount of Eleven Thousand Three Hundred Eighty-Six Dollars ($11,386.00) per month, without any set-off or deduction whatsoever. Tenant agrees to pay such Minimum Rent, and any other payments deemed under this Lease to be Additional Rent, by check payable in lawful money of the United States which, at the time of payment is legal tender for the payment of public and private debts (Landlord to accept such check subject to collection). If the Commencement Date shall be a date other than the first day of a calendar month, Tenant shall on the Commencement Date pay Landlord an amount equal to such proportion of equal monthly installment as the number of days from the Commencement Date to the end of the calendar month in which the Commencement Date occurs bears to the total number of days in such calendar month, and such payment shall represent the pro rata Minimum Rent from the Commencement Date to the end of such calendar month. 4.2 ADDITIONAL RENT. All costs, charges, and expenses which Tenant --------------- assumes, agrees, or is obligated to Landlord pursuant to this Lease and the Schedules attached, shall be deemed additional rent, and, in the event of non- payment Landlord shall have all the 5 rights and remedies with respect thereto as herein provided for in case of non- payment of Minimum Rent. Tenant covenants to pay Landlord the Minimum Rent, additional rent and adjustments of rent as in this Lease provided, when due without notice or demand, at the time and in the manner herein specified. 4.3 LATE CHARGES AND INTEREST ON LATE PAYMENTS. If Tenant fails to pay ------------------------------------------ part of or all of the Minimum Rent, Additional Rent, and/or Tax Rent, as adjusted if applicable, within ten (10) days after it is due, the Tenant shall also pay (i) a late charge equal to one (1%) percent of the unpaid Minimum Rent, Additional Rent, and/or Tax Rent, plus (ii) interest at the rate of twenty-four (24%) percent per annum (two [2] percent per month) or the maximum then allowed by applicable law, whichever is less, on the remaining unpaid balance, retroactive to the date originally due until paid. 4.4 COLLATERAL SECURITY. Landlord acknowledges receipt from Tenant of ------------------- the sum of: Eleven Thousand Three Hundred Eighty-Six $11,386.00) Dollars to be held as collateral security for the payment of any rentals and other sums of money payable by Tenant under this Lease, and for the faithful performance of all other covenants and agreements of Tenant hereunder; the amount of said deposit, without interest, to be repaid to Tenant after the termination of this Lease and any renewal thereof, provided Tenant shall have made all such payments and performed all such covenants and agreements. Upon any default by Tenant hereunder, all or part of said deposit may, at Landlord's sole option, be applied on account of such default, and thereafter Tenant shall promptly restore the resulting deficiency in said deposit. Tenant hereby waives the benefit of any provision of law requiring such deposit to be held in escrow or in trust, and said deposit shall be deemed to be the property of Landlord. ARTICLE V USE 5.1 OFFICE USE; DENSITY. Tenant shall use and occupy the Demised Premises ------------------- only for executive, administrative, accounting and/or clerical offices in connection with Tenant's hotel-casino business, including executive and administrative personnel of Tenant or assignees or subtenants permitted under Article 13.1 hereof only and for no other purpose. 5.2 ADVERSE USE. Tenant shall not suffer or permit the Demised Premises ----------- or any part thereof to be used in any manner, or anything to be done therein, or suffer or permit anything to be brought into or kept in the Demised Premises which would in any way (i) violate any law or requirement of public authorities, (ii) cause structural injury to the Building or any part thereof, (iii) interfere with the normal operations of the heating, air conditioning, ventilating, plumbing or other mechanical or 6 electrical systems of the Building or the elevators installed therein, (iv) constitute a public or private nuisance, (v) alter the appearance of the exterior of the Building or any portion of the interior thereof other than the Demised Premises. 5.3 CONTINUED OCCUPANCY. ------------------- (a) Tenant acknowledges that the continued occupancy of the Demised Premises by Tenant or assignees or subtenants permitted under Article 13.1 hereof, and the regular conduct of business therein by Tenant or such assignees or subtenants, are of the utmost importance to the Landlord in the renewal of other leases of portions of the Building, in the renting of vacant space in the Building, in the providing of electricity, air conditioning, and other services to the tenants in the Building, and in the maintenance of the character and quality of the tenants in the Building. Tenant therefore covenants and agrees that except as otherwise provided in this Section or in any other Section of this Lease where permitted, or where prevented by strikes or other labor troubles or generally applicable laws or public regulation, it will occupy the entire Demised Premises, and will conduct its business therein in the regular and usual manner, throughout the term of this Lease. Tenant acknowledges that Landlord is executing this Lease in reliance upon these covenants, and that these covenants are a material element of consideration inducing the Landlord to execute this Lease. Tenant further agrees that if it vacates the entire Demised Premises, except in the case of constructive eviction or as otherwise permitted by law, or fails to so conduct its business therein, at any time during the term of this Lease, except as permitted by other Sections of this Lease, or where prevented by strikes or other labor troubles or generally applicable laws or public regulations, this will be considered a default and then all Minimum Rent, adjustment to Minimum Rent and additional rent reserved in this Lease from the date of such breach to the expiration date of this Lease shall become immediately due and payable to Landlord. (b) The parties recognize and agree that the damage to Landlord resulting from any breach of the covenants in paragraph (a) of this Section will be extremely substantial, and will be impossible of accurate measurement. The parties therefore agree as follows: (1) If Tenant breaches either of the covenants in Paragraph (a) of this Section and this Lease be terminated because of such default, then, anything in this Lease to the contrary notwithstanding, Landlord shall have the right to reenter the Demised Premises to alter, reconstruct and rent all or any part of the Demised Premises, at any rental to which Landlord shall agree, for any portion of or beyond the original term of this Lease. Any income received by Landlord on any such re-rental shall be the 7 property of Landlord, as compensation for the expenses in connection with the preparation and re-renting of all or any part of the Demised Premises, and, together with the rents and additional rents payable as aforesaid, as liquidated damages for the breach of Tenant. Tenant shall have no right to any portion of the avails from any such reletting except to the extent of any payment made by or due from Tenant to Landlord pursuant to Paragraph (a) of this Section. (c) If any provision of this Section of this Lease or the application hereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Section, or the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each provision of this Section and of this Lease shall be valid and enforced to the fullest extent permitted by law. ARTICLE VI REPAIRS; ALTERATIONS; FIXTURES 6.1 LANDLORD MAINTENANCE. Landlord shall at Landlord's own expense make -------------------- all structural repairs and maintain the exterior and the public areas of the Building in good order and repair, and maintain in good condition and make (a) all repairs to the structure in the Demised Premises, (b) all repairs to all electric wiring, risers, and plumbing facilities serving the Demised Premises (other than any of the foregoing installed by Tenant) and any other repairs necessary to correct any latent defects for one (1) year after the Commencement Date in the Demised Premises (other than defects connected with, or related to, any alterations made or performed by or on behalf of Tenant by persons other than Landlord or Landlord's contractors except that Landlord shall not be required to make any repairs referred to in Subdivisions (a) or (b) of this sentence if Tenant is obligated to make such repairs pursuant to the provisions of Section 6.2. Tenant shall promptly notify Landlord of the necessity of any repairs of which Tenant may have knowledge and for which Landlord may be responsible under the provisions of this Section. 6.2 TENANT MAINTENANCE. Tenant shall take good care of the Demised ------------------ Premises, the fixtures, equipment and appurtenances therein, except those repairs required to be made by Landlord pursuant to Section 6.1, and Tenant shall, at Tenant's own expense, make all repairs to the Demised Premises when needed to preserve them in good working order and condition. All damage or injury to the Demised Premises and its fixtures, glass, appurtenances, and equipment or to the Building or its fixtures, glass, appurtenances, and equipment caused by Tenant moving property in or out of the Building or by installation or removal of furniture, fixtures, or other property, or resulting from fire, explosion, short circuits, 8 flow or leakage of water, steam, gas, sewage, or by frost or by bursting or by leaking of pipes or plumbing or from any other cause of any other kind or nature whatsoever, due to carelessness, omission, neglect, improper conduct, or other cause of Tenant, its servants, employees, agents, visitors, or licensees, shall be repaired, restored, or replaced promptly by Tenant to the reasonable satisfaction of Landlord at Tenant's sole cost and expense except to the extent of such cost and expense, covered by proceeds of insurance recovered by Landlord. All of said repairs and any restorations or replacements required in connection therewith shall be of quality and class at least equal to the original work or installations and shall be done in a good and workmanlike manner. 6.3 OBSTRUCTIONS. Tenant shall not store or place any materials of ------------ whatsoever kind or nature or any obstructions in the lobby, passageways, stairs, on the sidewalks abutting the Building or in any public portions of the Building. 6.4 CONSTRUCTION OF IMPROVEMENTS. Within ten (10) days after the mutual ---------------------------- execution and delivery of this Lease, Tenant shall submit to Landlord drawings and specifications (hereinafter referred to as the "Plans") prepared at Tenant's expense by an architect or engineer retained by Tenant and licensed to practice in the State of New Jersey; the Plans shall show in detail all elements of construction including, without limitation, floor plan, utilities, and Tenant's alterations, decorations, installations, additions, improvements, fixtures, equipment and furnishings. Within ten (10) days after its receipt of the Plans, Landlord, by notice to Tenant, shall approve same, disapprove same (indicating the reasons for its disapproval) or request additional information. If not approved, Tenant, within the ten (10) days following Landlord's notice, shall supply to Landlord the requested information or make the revisions required by Landlord, as the case may be. Within no more than ten (10) days after Landlord has approved the Plans, Tenant (subject to the provisions of this Article) shall apply for all necessary governmental permits required for the construction set forth on the Plans and shall diligently prosecute said applications until said permits are issued. If the necessary permits are not obtained within thirty (30) days after the Plans have been approved by Landlord, Landlord shall have the right to require Tenant to make revisions to said Plans to make same comply with requests of the authority(s) which issue permit(s) in order for Tenant to obtain same. Transmittals of Plans to Landlord shall be in three (3) copies and a reproducible transparency. No one shall commence any work upon the Demised Premises before the Plans are approved by Landlord and Tenant shall have procured and delivered certificates for all insurance reasonably required by Landlord during construction, 9 including builder's risk insurance. Landlord shall not unreasonably withhold its consent to Tenant's plans. Construction shall be in full accordance with the Plans; changes may be only pursuant to Landlord's prior written approval. Within ten (10) days after required building permits are obtained, Landlord, on behalf of and for the account of Tenant, shall commence the construction shown on the Plans and shall diligently prosecute same to completion. During construction, a set of Plans shall be maintained at the Premises available for Landlord's and Tenant's inspection; a set of Plans containing a permit issuing authority(s) stamp(s) of approval shall also be delivered to Landlord's home office prior to commencement of work. At the conclusion of the construction, Tenant shall supply Landlord with a set of reproducible transparencies of "as built" final Plans (the Plans showing the construction actually performed). Any work by or on behalf of Tenant shall be performed in accordance with governing codes and underwriting regulations and only after securing all required approvals and permits. Before opening the Demised Premises for business, Tenant, at its expense, shall obtain a certificate of occupancy (if required) and such other permits as may be required for Tenant's use and occupancy of the Premises, and provide Landlord with true copies of same. Except as may be provided for in the Plans, Tenant shall make no alterations, decorations, installations, additions, or improvements in or to the Demised Premises without Landlord's prior written consent and then only by contractors or mechanics approved in writing by Landlord. Landlord agrees to not unreasonably withhold its consent to any nonstructural alterations, decorations, installations, additions, or improvements proposed to be made by Tenant to adapt the Demised Premises for Tenant's business purposes. All such work, alterations, decorations, installations, additions, or improvements shall be done at Tenant's sole expense and at such time and in such manner as Landlord may from time to time designate and in full compliance with all laws, rules, regulations, and requirements of all governmental bureaus and bodies having jurisdiction thereover. All alterations, decorations, installations, additions, or improvements (other than communications equipment, "devices", or equipment leased by Tenant) shall, at the election of the Landlord (which election shall be made by notice pursuant to the provisions of Article XXXI not less than thirty (30) days prior to the expiration of this Lease or any renewal or extension thereof or if this Lease is terminated prior thereto, then such notice shall be given not later than sixty (60) days after such termination), become the property of the Landlord and shall remain upon and be surrendered with said Demised Premises as a part thereof, as the 10 case may be. In the event the Landlord shall elect otherwise, then such of the alterations, decorations, installations, additions or improvements made by Tenant upon the Demised Premises as the Landlord may select (as well as any communications equipment, "devices", or equipment leased by Tenant) shall be removed by the Tenant and Tenant shall restore the Premises to its original condition (except with respect to those items which Landlord has elected to remain) at Tenant's own cost and expense at or prior to the expiration of the term. As a condition precedent to Landlord's consent to the making by Tenant of alterations, decorations, installations, additions, or improvements to the Demised Premises, in addition to other requirements as provided in this Lease or elsewhere, Tenant agrees to obtain and deliver to Landlord written and conditional waivers of Mechanics' Liens upon the property of which the Demised Premises are a part for any and all work, labor and services to be performed and materials to be furnished in connection with such work and such forms as shall be approved by Landlord's attorneys, signed by all contractors, subcontractors, materialmen, laborers, and workmen to become involved in such work. Notwithstanding the foregoing, if any mechanics' lien is filed against the Demised Premises, or the Building, for work claimed to have been for, or materials claimed to have been furnished to Tenant, it shall be discharged by Tenant within twenty (20) days thereafter, at Tenant's expense, by filing the bond required by law or payment or otherwise. Landlord shall not be liable for any failure of any Building facilities or service including but not limited to the air conditioning and ventilating equipment installed by Landlord caused by alterations, installations, and/or additions by Tenant and Tenant shall correct any such faulty installation. Upon Tenant's failure to correct same, Landlord may make such correction and charge Tenant for the cost thereof. Such sum due Landlord shall be deemed additional rent and shall be paid by Tenant promptly upon being billed therefor. Any of Tenant's property, which shall remain in the Demised Premises following the expiration of the term, or any earlier termination of this Lease, and the removal of Tenant from the Demised Premises may, at the option of Landlord, be deemed to have been abandoned and either may be retained by Landlord as its property or be disposed of at Tenant's expense or at Landlord's option may be disposed of without accountability in such manner as Landlord may see fit. In the event of Tenant's failure to remove any of its property, if Landlord shall cause such property to be removed then any damage caused by the removal thereof and any other damage to the Demised Premises caused by Tenant's removal of its property from the Demised Premises may be repaired at Tenant's cost and expense and Tenant shall pay to Landlord upon demand all such 11 costs and expenses. The provisions hereof shall survive the expiration or termination of this Lease. 6.5 PERMITS; INSURANCE. Prior to commencing any work pursuant to the ------------------ provisions of Section 6.4, Tenant shall furnish to Landlord: (a) Copies of all governmental permits and authorizations which may be required in connection with such work; and (b) A certificate evidencing that Tenant (or Tenant's contractors) has or have procured workmen's compensation insurance covering all persons employed in connection with the work who might assert claims for death or bodily injury against any Landlord, Tenant, or the Building. (c) Such additional personal injury and property damage insurance (over and above the insurance required to be carried by Tenant pursuant to the provisions of Article IX as Landlord may require because of the nature of the work to be done by Tenant, naming Landlord as additional insured. ARTICLE VII COMMON AREAS 7.1 DEFINITION: CONTROL. ------------------- (a) All areas, space, facilities, equipment and signs in and about the VPC Complex, to the extent made available by Landlord for the common and joint use and benefit of Landlord, Tenant, and other tenants and occupants of the VPC Complex and their respective employees, agents, tenants, licensees, customers, and other invitees, are collectively referred to herein as "Common Areas". If and to the extent made available by Landlord, Common Areas shall include, but not be limited to, the sidewalks, parking areas, access roads and drives, driveways, parking decks (if any), landscaped areas, truck serviceways, open and closed pedestrian walkways, corridors, hallways, stairs, ramps, elevators, comfort stations, public washrooms, utility lines and utility rooms, buildings and the VPC Complex. All Common Areas in and about the VPC Complex shall be subject to the conclusive control of Landlord. Landlord shall operate, manage, equip, police, light, service, and maintain the Common Areas all in such manner as Landlord, in its sole discretion, may, from time to time determine (including, without limitation, the right to keep the buildings comprising the VPC Complex open only during certain hours) and Landlord shall have the sole right and exclusive authority to employ all personnel with respect thereto. 12 Landlord hereby expressly reserves the right from time to time to construct, maintain and operate lighting and other facilities, equipment and signs on all of the Common Areas; to police and maintain security for the Common Areas; to use and allow others to use the Common Areas for any purpose; to change the size, area, level, location and arrangement of the Common Areas; to build multi-story parking facilities; to regulate parking by tenants and other occupants of the VPC Complex and their respective employees, agents, subtenants, and licensees; to enforce parking charges (by operation of meters and otherwise) with appropriate provisions for parking ticket validation for tenants; to close temporarily all or any portion of the Common Areas for the purpose of making repairs, changes or alterations thereto or performing necessary maintenance in connection with any emergency, in connection with closing resulting from adverse weather conditions or for any other purpose whatsoever, whether such purpose is similar or dissimilar to the foregoing; to discourage non-employee, agent, customer or invitee parking; to establish, modify and enforce reasonable rules and regulations with respect to the Common Areas and the use to be made thereof. For the term of this Lease Tenant is hereby given the license in common with all others to whom Landlord has or may hereafter grant rights to use, the Common Areas as they may from time to time exist; provided, however, that such license shall at any time be revoked, in whole or in part, or the size, level, location, or arrangement of such Common Areas or the type of facilities at any time forming a part thereof be changed, altered, rearranged or diminished, Landlord shall not be subject to liability therefore, nor shall Tenant be entitled to any compensation or diminution of rent therefore, nor shall such alteration, rearrangement, revocation, change or diminution of such Common Areas be deemed a constructible actual eviction or otherwise be grounds for terminating or modifying this Lease. In order to establish that the VPC Complex or any portion thereof is or will continue to remain private property and to prevent a dedication thereof or the accrual of any rights to any person or to the public thereof, Landlord hereby reserves the unrestricted right, in the Landlord's sole discretion, to close all or any portion of the Common Areas to such extent as in the opinion of Landlord's counsel, may be legally sufficient to prevent such dedication thereof or accrue of any rights to any person or the public thereon. 7.2 EXPENSES. Landlord (subject to reimbursement as set forth in Section -------- 7.3 hereafter) will operate and maintain or cause to be operated and maintained the Common Areas and the VPC Complex. For purposes of this Lease, "Operating Costs" shall be those costs of operating and maintaining, or of causing the operation and maintenance of, the Common Areas and the VPC Complex of which the 13 Demised Premises forms a part in a manner deemed by Landlord to be reasonable and appropriate, as are set forth in Exhibit "E" attached hereto, made part hereof, and incorporated herein by this reference. 7.3 REIMBURSEMENT OF LANDLORD. ------------------------- (a) For each "Accounting Period", as defined in Section 7.3(f) during the term of this Lease, Tenant shall pay the Landlord as additional rent, as Tenant's share of Operating Costs, the sum equal to the product obtained by multiplying the total Operating Costs for such Accounting Period by forty (40%) percent, but in no event more than Thirty-Seven Thousand, Two Hundred Sixty-Six Dollars ($37,266.00) for each Accounting Period (converting to Three Thousand One Hundred Five Dollars and Fifty Cents [$3,105.50] per month). (b) On the first day of each calendar month during that portion of the term hereof falling within the first Accounting Period, Tenant shall pay the Landlord, in advance, without demand or without any set-off or deduction, as an estimated payment on account of the Tenant's proportionate share of the Operating Costs, an amount equal to Three Thousand One Hundred Five Dollars and Fifty Cents ($3,105.50) per month. If the Commencement Date hereof shall not be the first day of the calendar month, Tenant's payment of its proportionate share of Operating Costs for the fractional month between the Commencement Date and the first day of the first full calendar month in the term shall be prorated on a daily basis (calculated on a 30-day month) and shall be paid together with the first payment of fixed Annual Minimum Rent . (c) After the first Accounting Period, Tenant shall continue to pay such estimated amount of Tenant's share of Operating Costs on the first day of each month in advance without demand and without any set-off or deduction. (d) Following the end of each Accounting Period, the Landlord shall furnish to Tenant a written statement in reasonable detail covering the Accounting Period just expired, showing the Operating Costs for such Accounting Period, the amount of Tenant's proportionate share thereof and payments made by Tenant with respect thereto. In making the computations of aforesaid, Landlord's statement shall be conclusive evidence of Operating Costs. (e) If Tenant's proportionate share of Operating Costs exceeds Tenant's payments with respect to any Accounting Period, Tenant shall have no further liability to Landlord for Operating Costs with respect to such Accounting Period; if Tenant's payments exceed Tenant's share of the Operating Costs and the Tenant is not in default hereunder or otherwise indebted to Landlord, Landlord 14 shall refund such excess to Tenant within thirty (30) days; provided, if such overpayment is for the last Lease Year, Landlord shall not be obligated to refund to Tenant the amount of such overpayment until Tenant has fully performed all of its obligations under this Lease, is not indebted to Landlord and is vacated in accordance with the provisions of this Lease. In the event Tenant is indebted to Landlord for any reason whatsoever, Landlord may deduct such amount owed from such overpayment. (f) For the purpose of this Lease, the words "Accounting Period" shall mean the period consisting of twelve (12) consecutive calendar months commencing on a date determined by Landlord and each succeeding twelve (12) calendar month period commencing during the term of this Lease; provided, however, the first Accounting Period shall commence on the Commencement Date and shall terminate on the date immediately preceding such date so determined by Landlord. (g) If the term of this Lease commences after the date the VPC Complex first opens for occupancy by Tenants or terminates (other than by reason of Tenant's default) during an Accounting Period, Tenant's obligation for Tenant's proportionate share of Operating Costs for such Accounting Period shall be equitably prorated. (h) Tenant's obligations under this Section shall survive the expiration or earlier termination of the term of this Lease. 7.4 PROPORTIONATE INSURANCE. ----------------------- (a) For each Accounting Period or portion thereof and during the term hereof, Tenant shall pay to Landlord, as additional rent, as Tenant's proportionate share of the cost of Landlord's policy or policies of fire insurance with extended coverage insuring VPC Complex, including such cost as it relates to the Common Areas (herein collectively called the "cost of insuring"), the sum equal to the product obtained by multiplying the total cost of insuring by the percentage set forth in Section 7.3 hereof. (b) Said sum shall be paid to Landlord on the first day of each calendar month in the term, in advance, without demand and without set-off, in equal monthly installments. If the Commencement Date hereof shall not be on the first day of an Accounting Period, Tenant's first monthly payment of such cost of insuring shall be proportionately adjusted. (c) Tenant's obligation under this Section 7.4 shall survive the expiration or earlier termination of this Lease. 15 (d) Although Tenant shall pay its proportionate share of the cost of insuring, as aforesaid, in addition to and not as a component of, its proportionate share of Operating Costs, for purposes of Article 7.3 with respect to Tenant's maximum liability for its proportionate share of Operating Costs, and for purposes of Articles 16 and 19 of this Lease, the words "Operating Costs" shall be deemed to include such share of the costs of insuring. ARTICLE VIII TAXES 8.1 TAXES. ----- (a) For purposes of this Section 8.1, the word "taxes" shall include all taxes attributable to improvements now or hereinafter made to the VPC Complex or Land, or any part thereof or attributable to the present or future installation in the VPC Complex or Land or any part thereof or fixtures, machinery or equipment, all real estate taxes, assessments, water and sewer rents and other governmental impositions and charges of every kind and nature whatsoever, nonrecurring as well as recurring, special or extraordinary as well as ordinary, foreseen and unforeseen, and each and every installment thereof, which shall or may during the term of this Lease be levied, assessed or imposed, or become due and payable or become liens upon, or arise in connection with use, occupancy or possession of, or any interest in, the VPC Complex or Land or any part thereof, or any land, buildings or other improvements therein. The word "taxes" shall not include any charge, such as water meter charge and sewer rent based thereon, which is measured by the consumption by the actual user of the item or service for which the charge is made. (b) For the "Tax Year" (as defined in this section), during the term of this Lease, Tenant shall pay to Landlord as additional rent (hereinafter called "Tax Rent"), the amount obtained by multiplying the total of all taxes payable during such Tax Year by the percentage set forth in Section 7.3 hereof, computed as of each date Landlord has the right under Section 8.1(c) to bill Tenant for an installment of Tax Rent. Although the Tax Rent shall be in addition to and not as a component of, Tenant's share of Operating Costs, for purposes of Article 7.3 with respect to Tenant's maximum liability for its proportionate share of Operating Costs, the word "Operating Costs" shall include such "Tax Rent". (c) Landlord shall have the right to bill Tenant for Tax Rent during each Tax Year after each receipt by the Landlord of a bill, assessment, levy, notice of imposition or other evidence of taxes due or payable all of which are hereinafter collectively referred to as a "Tax Bill" (whether such bill is a final bill, an estimate of annual taxes or represents a tax bill based upon a 16 final or partial assessment or determination). Tenant shall pay the balance of its Tax Rent within thirty (30) days of receipt from Landlord of a written statement setting forth the taxes for which Landlord has received a tax bill, Tenant share of taxes, and all Tenant's payments therefor made on account of Tax Rent. In making the computations as aforesaid, the Tax Bill or a photocopy thereof submitted by Landlord to Tenant shall be conclusive evidence of the amount of taxes included in the computation of the Tax Rent in question; provided, however, Landlord shall have the right to bill Tenant for Tenant share of the Tax Rent for the last Lease Year in the term hereof whether or not Landlord shall theretofore have received a Tax Bill covering the periods from the date of the Tax Bill which formed the basis and the most recent installment on account of Tax Rent billed to the Tenant to the expiration of the term hereof. If Landlord has not received a Tax Bill for such period, Landlord shall estimate the amount of such installment of Tax Rent on the basis of information contained in the Tax Bill most recently received by Landlord, subject to adjustment when Landlord receives a Tax Bill which includes the period from the date of such Tax Bill to the expiration of the term hereof. Tenant shall pay such adjusted amount upon billing by Landlord. (d) For purposes of this Lease the words "Tax Year" shall mean the twelve (12) full calendar months of the term commencing with the January 1st immediately following the Commencement Date and ending December 31 of such calendar year and each succeeding twelve (12) month period thereafter commencing in the term of this Lease; provided, however, the first Tax Year shall commence on the Commencement Date and terminate on the immediately succeeding December 31st. (e) If, for reasons other than Tenant's default, the term of this Lease terminates on the date other than the last day of the Tax Year, Tenant's Tax Rent shall be equitably prorated. Notwithstanding anything herein to the contrary, for the purpose of computing the Tax Rent due for the first Tax Year, all taxes (equitably prorated) payable during the calendar year in which the first Tax Year shall fall shall be deemed payable during the first Tax Year. (f) If, after Tenant shall have made the required annual payment of Tax Rent, Landlord shall receive a refund of any portion of the taxes included in the computation of such Tax Rent, provided Tenant is not then in default hereunder, within sixty (60) days after receipt of the refund Landlord shall pay to Tenant that percentage of the net refund, after deducting all costs and expenses (including, but not limited to, attorneys' and appraisers' fees) expended or incurred in obtaining such refund, which the portion of the taxes in question paid by the Tenant bears to the entire amount of such taxes immediately prior to the refund. Tenant shall not institute any proceedings with respect to the 17 assessed valuation of the VPC Complex or Land or any part thereof for the purpose of securing a tax reduction. In the event the Landlord shall retain any consultant to negotiate the amount of taxes, tax rate, assessed value and/or other factors influencing the amount of taxes and/or institute any administrative and/or legal proceedings challenging the Tax Rate, assessed value or other factors influencing the amount of taxes, whether or not such action results in a reduction of the amount of taxes, Tenant's Tax Rent shall include the portion of the aggregate of all such reasonable fees, reasonable attorneys' and appraisers' fees and all disbursements, court costs and other similar items paid or incurred by Landlord during the applicable Tax Year with respect to such proceedings which is obtained by multiplying the aggregate of such sums by the percentage set forth in Section 7.3 hereof. (g) If, at any time during the term of this Lease, under laws of any one or more jurisdictions in which the VPC Complex is located, a tax, imposition, charge, assessment, levy excise of license fee as levied on, imposed against, or measured, computed or determined, in whole or in part, by (1) rents payable hereunder (fixed annual minimum tax and/or additional) or (2) the value of any lien placed against the VPC Complex or against the real property comprising the VPC Complex or any obligation secured thereby, or if any other tax (except income tax), imposition, charge, assessment, levy excise or license fee which is not referred to in Section 8.1, however described or denoted, shall be levied or imposed by any such jurisdiction, to the extent that the cost of any of the foregoing shall be imposed, either directly or indirectly, on Landlord, such tax, imposition, charge, assessment, levy, excise or license fee, shall be deemed to constitute "taxes" for the purposes of this Section 8.1. (h) Tenant's obligations under this Section 8.1 shall survive the expiration or earlier termination of this Lease. ARTICLE IX FLOOR LOAD; NOISE 9.1 FLOOR LOAD. Tenant shall not place a load upon any floor of the ---------- Demised Premises which exceeds the load per square foot which such floor is then designed to carry and which is then allowed by law. All business machines and equipment and all other mechanical equipment installed and used by Tenant in the Demised Premises shall be properly shielded and be so placed, equipped, installed and maintained by Tenant at Tenant's own cost and expense in settings of cork, rubber, or spring-type vibration-eliminators or in such other manner as Landlord may reasonably direct so as to be sufficient to eliminate the transmission of noise, vibration, or electrical, or other interference from the Demised Premises to any other area of the Building. The Landlord hereby agrees to include a similar requirement in other leases of space for adjacent floors 18 in the Building, and shall exercise reasonable efforts to require compliance therewith with respect to such transmissions affecting the Demised Premises. 9.2 NOISE. Tenant shall not move any safe, heavy equipment or bulky ----- matter in or out of the Building without Landlord's written consent, which consent Landlord agrees not unreasonably to withhold or delay. If the movement of such items requires special handling, Tenant agrees to employ only persons holding a Master Rigger's License to do said work and all such work shall be done in full compliance with the appropriate Codes of the City of Ventnor, State of New Jersey, and other municipal requirements. All such movements shall be made during hours which will least interfere with the normal operations of the Building, and all damage caused by such movement shall be promptly repaired by Tenant at Tenant's expense. ARTICLE X LAWS, ORDINANCES REQUIREMENTS OF PUBLIC AUTHORITIES 10.1 TENANT COMPLIANCE. Tenant shall, at its expense, comply with all ----------------- laws, orders, ordinances and regulations of federal, state, county and municipal authorities and with any direction made pursuant to law of any public officer or officers which shall, with respect to the occupancy, use or manner of the Demised Premises or to any abatement of nuisance caused by Tenant, impose any violation, order or duty upon Landlord or Tenant arising from Tenant's occupancy, use, or manner of use of the Demised Premises or any installation made therein by or at Tenant's request or require by reason of a breach of any of Tenant's covenants or agreements hereunder. 10.2 NOTICE OF VIOLATIONS. If Tenant receives notice of any violation of -------------------- law, ordinance, rule or regulation applicable to the Demised Premises, it shall give prompt notice thereof to Landlord. If Landlord receives notice of any violation of any such law, order, ordinance, or regulation applicable to the Demised Premises or services, access or other appurtenances to the Demised Premises, especially, but not limited to, any creating and obligation of Tenant under Section 10.1, it shall give prompt notice thereof to Tenant. 10.3 LANDLORD COMPLIANCE. Except as aforesaid, Landlord shall, at its ------------------- expense, comply or cause to be complied with all laws, orders, ordinances, and regulations of federal, state, county and municipal authorities and any direction made pursuant to law of any public officer or officers which shall, with respect to the public portions of the Building, or which affects Tenant's access to the Demised Premises, impose any violation, order, or duty upon Landlord or Tenant and with respect to which Tenant is not 19 obligated by Section 10.1 to comply. Landlord may at its expense contest the validity of any such law, ordinance, rule, order or regulation. ARTICLE XI INSURANCE 11.1 COMPLIANCE WITH REGULATIONS. Tenant shall, at its own cost and --------------------------- expense, comply with all statutes, ordinances, rules, orders, regulations, or requirements of any body having jurisdiction over the Building and Demised Premises with respect to applicable fire standards providing that same relate to Tenant's use or occupancy of the Demised Premises, and Tenant shall not do or permit anything to be done in or upon the Demised Premises or bring or keep anything therein or use the Demised Premises in a manner which increases the rate of insurance upon the Building or on any property or equipment located therein over the rate in effect at the commencement of the term of this Lease. 11.2 TENANT-CAUSED INCREASES. If, because of anything done, caused, or ----------------------- permitted to be done, permitted, or omitted by Tenant, the rate of liability, fire, boiler, sprinkler, water damage, or other insurance (with all extended coverage) on the Building or on the property and equipment of Landlord or any other tenant or subtenant in the Building shall be higher than otherwise would be, Tenant shall reimburse Landlord and the other tenants and subtenants in the Building for the additional insurance premiums thereafter paid by Landlord or by the other tenants and subtenants in the Building which shall have been charged because of the aforesaid reasons and Tenant shall make the reimbursement on the first day of the month following such payment by Landlord or such other tenants or subtenants. 11.3 LIABILITY INSURANCE. Tenant at Tenant's own cost and expense shall ------------------- maintain insurance protecting and indemnifying Landlord and Tenant against any and all claims for injury or damage to persons or property or for the loss of life or of property occurring upon, in or about the Demised Premises, public portions of the Building used by Tenant, its employees, agents, contractors, customers, and invitees; such insurance to afford minimum protection during the term of this Lease, of not less than $3,000,000 in respect of any one occurrence or accident, and not less than $1,000,000 for property damage. All such insurance shall be effected under valid and enforceable policies and shall be issued by insurers authorized to do business with the State of New Jersey of recognized responsibility acceptable by Landlord and shall contain a provision whereby the insurer agrees not to cancel the insurance without thirty (30) days' prior written notice to Landlord. At least thirty (30) days before the Commencement Date, Tenant shall furnish Landlord with a certificate evidencing the aforesaid insurance coverage, and renewal certificate shall be 20 furnished to Landlord at least thirty (30) days prior to the expiration of each policy for which a certificate was therefor furnished. 11.4 WAIVER OF SUBROGATION. Each party agrees to include in each of its --------------------- insurance policies (which each shall provide, insuring the Building and Landlord's property therein against loss, damage, or destruction by fire or other casualty and the rental value thereof, in the case of Landlord, and insuring Tenant's property in the Demised Premises, in the case of Tenant, against loss, damage, or destruction by fire or other casualty) a waiver of the insurer's right of subrogation against the other party or an expressed agreement that such policy shall not be invalidated if the assured waives the right of recovery against any party responsible for a casualty covered by the policy. ARTICLE XII DAMAGE BY FIRE OR OTHER CAUSE 12.1 DAMAGE. If the Demised Premises shall be partially damaged by fire ------ or other cause without the fault or neglect of Tenant, Tenant's servants, employees, agents, visitors, or licensees, the damage shall be repaired by and at the expense of Landlord and the fixed minimum rent until such repairs shall be made shall be apportioned according to the part of the Demised Premises which is usable by Tenant. In the event such partial damage is due to the fault or neglect of Tenant, Tenant's servants, employees, agents, visitors, or licensees, without prejudice to any other rights and remedies of Landlord, and expect as may be provided for in Section 11.4 hereof, without prejudice to the rights of subrogation of Landlord's insurer, the damage shall be repaired by Landlord but there shall be no apportionment or abatement of rent. If the Demised Premises are totally or partially damaged or are rendered wholly or substantially untenantable by fire or other cause, and if Landlord shall decide not to restore or not to rebuild the same, or if the Building shall be substantially damaged so that Landlord shall decide to demolish it or to rebuild it or to remodel it (whether or not Demised Premises have been damaged), then or in any of such events Landlord may, within ninety (90) days after such fire or other cause, give Tenant a notice in writing of such decision, which notice shall be given as in Article XXVII hereof provided, and thereupon the term of this Lease shall expire by lapse of time upon the third day after such notice is given, and Tenant shall vacate the Demised Premises and surrender the same to Landlord. If Tenant shall not be in default under this Lease then upon the termination of this Lease under the conditions provided for in the sentence immediately preceding, Tenant's liability for rent shall cease as of the day following the casualty. 21 12.2 LIMITATION. No damages, compensation, or claims shall be payable by ---------- Landlord for inconvenience, loss of business or annoyance arising from any repair or restoration of any portion of the Demised Premises or of the Building, except for rent abatement as provided in Section 10.1. ARTICLE XIII ASSIGNMENT, SUBLETTING, MORTGAGING 13.1 CONDITIONS; REQUIREMENTS. Tenant will not by operation of law or ------------------------ otherwise, assign, transfer, mortgage, encumber, or hypothecate this Lease, nor sublet or permit the Demised Premises or any part thereof to be used by others, without Landlord's prior written consent in each instance. A consent by Landlord to any assignment or subletting shall not in any manner be construed to relieve Tenant from obtaining Landlord's expressed written consent to any other or further assignment or subletting. In the event that the Tenant is a corporation (professional or otherwise), any sale of its assets, business, and goodwill shall constitute a violation of the prohibition against assignment as set forth herein. In addition thereto, in the event that the Tenant is a corporation as aforesaid, any sale of more than 50% of the outstanding shares of stock as of the date of this Lease or any issuance of additional stock in the corporation which has the effect of diluting the interest of the original shareholders as of the date of this Lease to less than 50% of the total ownership in the Tenant corporation, shall constitute a violation of the prohibition against assignment as set forth herein. 13.2 RENT COLLECTION. If this Lease shall be assigned, or if the Demised --------------- Premises or any part thereof be sublet or occupied by any person or persons other than Tenant, in each case without the consent of Landlord, Landlord may collect rent from the assignee, subtenant or occupant and apply the net amount collected to the rent herein reserved, but no such assignment, subletting, occupancy or collection of rent shall be deemed a waiver of the covenants in this Article, nor shall it be deemed acceptable of the assignee, subtenant or occupant as a tenant, or a release of Tenant from the full performance by Tenant of all the terms, conditions and covenants of this Lease. 13.3 LEASE OBLIGATIONS. Each approved assignee or transferee shall assume ----------------- and be deemed to have assumed this Lease and shall be and remain liable jointly and severally with Tenant for the payment of the rent, additional rent, and adjustments of rent, and for the due performance of all the terms, covenants, conditions, and agreements herein contained on Tenant's part to be performed for the term of this Lease. No assignment shall be binding on Landlord unless such assignee or Tenant shall deliver to Landlord a duplicate original of the instrument of assignment which contains a covenant of assumption by the assignee of all of the obligations 22 aforesaid and shall obtain from Landlord the aforesaid written consent prior thereto. ARTICLE XIV NO LIABILITY ON LANDLORD'S PART 14.1 LANDLORD'S LIABILITY. Landlord and its agents shall not be liable -------------------- for any damage to property of Tenant or of others entrusted to employees of the Building, nor for the loss of or damage to any property of Tenant by theft or otherwise. Landlord and its agents shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain, or snow, or leaks from any part of the Building or from the pipes, appliances or plumbing works or from the roof, street or subsurface or from any other place or by dampness or by any other cause of whatsoever nature, unless caused by or due to the negligence of Landlord, its agents, servants, or employees; nor shall Landlord and its agents be liable for any such damage caused by other tenants or persons in the Building or caused by operations in construction of any private, public or quasi-public work; nor shall Landlord be liable for damages for injury to the personal property of Tenant or others. Tenant shall give immediate notice to Landlord in case of accidents in the Demised Premises or in the Building or of defects therein or in any fixtures or equipment. ARTICLE XV NAME OF PROPERTY AND BUILDING 15.1 NAME OF DEVELOPMENT. The development in which the Building ------------------- containing the demised Premises is located shall be known as "Ventnor Professional Campus," but Landlord shall have the right from time to time to change such name or designation, without Tenant's consent. 15.2 BUILDING NAME. The Building will be known as the "Ventnor Avenue ------------- Building," but Landlord shall have the right from time to time to change such name or designation, without Tenant's consent. ARTICLE XVI CONDEMNATION 16.1 CONDEMNATION. ------------ (a) In the event that all or a material part of the Building shall be condemned or taken in any manner for any public or quasi-public use, this Lease and the term and estate hereby granted shall forthwith cease and terminate as of the date of vesting of title. In the event that only a nonmaterial part of the Building shall be so condemned or taken, then (i) if substantial 23 structural alteration or reconstruction of the Building shall, in the opinion of Landlord, be necessary or appropriate as a result of such condemnation or taking (whether or not the Demised Premises be affected), Landlord may, at its option, terminate this Lease and the term and estate hereby granted as of the date of such vesting of title by notifying Tenant in writing of such termination sixty (60) days following the date on which Landlord shall have received notice of vesting of title, or (ii) if Landlord does not elect to terminate this Lease, as aforesaid, this Lease shall be and remain unaffected by such condemnation or taking, except that the rent shall be abated to the extent, if any, hereinbefore provided. (b) In the event that only a part of the Demised Premises shall be so condemned or taken, then, effective thereafter as of the date Tenant vacates and removes from the part of the Demised Premises so taken, the fixed minimum rent and the Tenant's proportionate share shall be proportionately reduced, and this Lease shall continue as to such part not so taken. Landlord will, in this instance, restore with reasonable diligence the remaining structural portions of the Demised Premises as nearly as practicable to the same condition as it was in prior to such condemnation or taking. (c) In the event of termination in any of the cases hereinabove provided in this Lease and the term and estate hereby granted shall expire as of the date of such termination with the same effect as if that were the date hereinabove set for the expiration of the term of this Lease, and the rent hereunder shall be apportioned as of such date. 16.2 CONDEMNATION AWARD. In the event of any condemnation or taking ------------------ hereinabove mentioned of all or a part of the Building (whether or not the Demised Premises be affected) Landlord shall be entitled to receive the entire award in the condemnation proceeding, including any award made for the value of the estate vested by this Lease in Tenant, and Tenant hereby expressly assigns to Landlord any and all right, title and interest of Tenant now or hereafter arising in or to any such award or any part thereof, and Tenant shall be entitled to receive no part of such award. Notwithstanding the foregoing, Tenant shall be entitled to any award for loss or taking of its fixtures, or its relocation expenses. 16.3 TEMPORARY CONDEMNATION. ---------------------- (a) If the whole or any part of the Demised Premises shall be acquired or condemned for any temporary public or quasi-public use or purpose, for any period ending prior to the end of the term, then, except as otherwise provided in this Section, this Lease and the demised term shall continue in force and effect and Tenant shall continue to pay in full the rent, additional rent and 24 other charges herein reserved without deduction or abatement and Tenant shall be entitled, subject to the provisions of this Section, to any award or payments made for such temporary use, provided, however, that all such awards or payments shall be paid to and held by Landlord as a fund which Landlord shall apply, from time to time, to the extent that such fund avails, to the payment of rent, additional rent and other charges due to Landlord from Tenant under the terms of this Lease provided Tenant is not otherwise in default hereunder beyond any applicable grace period for the curing of such default (if such use is for only a part of the Demised Premises, such awards or payments shall only be applied in payment of the rent, additional rent and other charges allocable to such part of the Demised Premises). If required by Landlord, Tenant shall restore the Demised Premises to its condition prior to such temporary taking. (b) If the whole of the Demised Premises shall be acquired or condemned for any temporary public or quasi-public use or purpose for a period extending beyond the end of the term, this Lease and the demised term shall end as of the date of such taking with the same effect as if said date were the end of the term. (c) If any part, rather than the whole, of the Demised Premises shall be acquired or condemned for any temporary public or quasi-public use or purpose for a period extending beyond the end of the term, such part of the Demised Premises (such part is referred to as the "Eliminated Condemnation Space") shall be eliminated from the Demised Premises from and after the date referred to as the "Elimination Condemnation Date" immediately prior to the commencement of such temporary use, and (1) From and after said date, the Eliminated Condemnation Space shall be eliminated from the Demised Premises for all purposes; (2) Tenant shall surrender the Eliminated Condemnation Space on or prior to the Elimination Condemnation Date in the same manner as if said date were the end of the term but Tenant shall not be required to remove its property or restore the Demised Premises as required by Section 6.4; (3) From and after said Elimination Condemnation Date: (a) The rent, and electric charge, escalation or additional rent computed on a floor area basis shall be equitably reduced on the basis of the area of the Eliminated Condemnation Space and prepaid portion of rent or additional rent for any period after said date allocable to said space shall be refunded by Landlord to Tenant; and 25 (b) The Demised Premises area shall be reduced in the proportion which the area of the Eliminated Condemnation Space bears to the total area of the Demised Premises immediately prior to the Elimination Condemnation Date. ARTICLE XVII ENTRY, RIGHT TO CHANGE PUBLIC PORTIONS OF BUILDING AND SITE 17.1 ACCESS. Tenant shall permit Landlord to erect, use, and maintain ------ pipes and conduits in and through the Demised Premises, which shall be, to the extent possible, concealed. Landlord and its agents shall have the right to enter the Demised Premises for the purpose of making such repairs or alterations as Landlord shall desire, shall be required to make, or shall have the right to make, pursuant to the provisions of this Lease and, subject to the foregoing, shall also have the right to enter the Demised Premises for the purpose of inspecting them or exhibiting them to prospective purchasers or lessees of the Building or to prospective mortgagees or to prospective assignees of any such mortgagee. Landlord shall be allowed to take all material into and upon the Demised Premises that may be required for the repairs or alterations above mentioned without the same constituting an eviction of Tenant in whole or in part and the rent reserved shall in no ways abate, except as otherwise provided in this Lease, while said repairs or alterations are being made, but such repairs shall be made as expeditiously as reasonably possible, and be conducted in such a manner, and on such notice, as to minimize as far as reasonably possible any unreasonable interference with Tenant's use and occupancy of the Demised Premises for the purposes specified in Article V, Section 5.1 hereof. 17.2 CHANGES TO PUBLIC AREAS OF BUILDING. Landlord shall have the right ----------------------------------- at any time without thereby creating any actual or constructive eviction or incurring any liability to Tenant therefore, and without abatement in rent, to change the arrangement or location of entrances, passageways, doors, doorways, corridors, stairs, toilets, and other like portions of the Building and to change the designated express or local stops of elevators servicing the Demised Premises, but such changes shall be designed to avoid any material obstruction or reduction in Tenant's access to the Demised Premises, and other appurtenances. Landlord shall have the right, if necessary, to comply with laws, rules, or requirements of any governmental bureau or agency to move any wall or partition in or dividing the Demised Premises. 17.3 CHANGES TO DEVELOPMENT. Landlord shall have the right at any time ---------------------- without thereby creating any actual or constructive eviction or incurring any liability to Tenant therefore, and without abatement in rent, to make alterations or additions to, and to build additional stories on, and to build adjoining to, the 26 Building in which the Demised Premises are contained, and Tenant shall have no interest of any kind whatsoever in the said additions or additional stores or adjoining buildings. Landlord also reserves the right to construct other buildings or improvements in the Ventnor Professional Campus at any time and from time to time and to make alterations thereto or additions thereto and to build additional stories on such building or buildings and to build adjoining the same and to construct elevated or subterranean parking facilities. 17.4 NO LIABILITY FOR CHANGES. Landlord shall not be liable in any such ------------------------ case for any inconvenience, disturbance, loss of business or any other annoyance arising from the exercise of any or all of the rights of Landlord in this Article XV. 17.5 RIGHT TO RELOCATE. Landlord hereby reserves the right at any time ----------------- and from time to time to make changes or revision in such site plan of Ventnor Professional Campus, including, but not limited to, additions to, and subtractions from, the buildings, parking areas, and other Common Areas (as defined in Section 6.1 hereof) shown on the plan; provided only that the size and location of the Demised Premises shall not be altered and reasonably access thereto shall not be substantially impaired. ARTICLE XVIII BANKRUPTCY 18.1 PRIOR TO TERM. If at any time prior to the date herein fixed as the ------------- Commencement Date there shall be filed by or against the Tenant in any court pursuant to any law a petition in bankruptcy or insolvency or for reorganization, appointment of a receiver or trustee, or an assignment for the benefit of creditors, this Lease shall automatically be cancelled and terminated, in which event neither the Tenant nor any person claiming through or under Tenant or by virtue of any law or order of any court shall be entitled to possession of the Demised Premises and Landlord, in addition to other rights and remedies given by Section 16.3 hereof and by virtue of any other provision herein or elsewhere in this Lease contained or by virtue of any law, may retain as liquidated damages any rent, security deposit or monies received by it from Tenant or others on behalf of Tenant upon the execution hereof. 18.2 DURING TERM. In the event any of the happenings occur as set forth ----------- in 16.1 at the date fixed as the Commencement Date or at any time during the term of this Lease, then and in such events, this Lease, at the option of Landlord, may be cancelled and terminated, in which event neither Tenant nor any person claiming through or under Tenant by virtue of any law or of any order of any court shall be entitled to possession or to remain in possession of the Demised Premises but shall forthwith quit and surrender the premises, and Landlord, in addition to the other rights and 27 remedies Landlord has by virtue of any other provision herein or elsewhere in this Lease contained or by virtue of any statute or rule of law, may retain as liquidated damages any rent, security, deposit or monies received by it from Tenant or others in behalf of Tenant. 18.3 LANDLORD DAMAGES. It is stipulated and agreed that in the event of ---------------- the termination of this Lease pursuant to Sections 18.1 and 18.2 hereof, Landlord shall be entitled to recovery from Tenant as and for liquidated damages in an amount equal to the balance of the rent due for the unexpired portion of the term, less any rent that may actually be received by Landlord for the unexpired term from a reletting of the Demised Premises. Nothing herein contained shall limit or prejudice the right of the Landlord to prove for and obtain as liquidated damages by reason of such termination, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved, whether or not such amount be greater, equal to or less than the amount of the difference referred to above. ARTICLE XIX LANDLORD'S REMEDIES ON DEFAULT, DEFICIENCY 19.1 DEFAULT. If Tenant defaults in the payment of rent, or any ------- additional rent, or defaults in the performance of any of the covenants or conditions hereof, Landlord may give Tenant notice of such default and if Tenant does not cure any default in a payment of rent or additional rent within five (5) days, or cure any default in the performance of any other covenant or condition hereof within ten (10) days, after the giving of such notice (or if such other default is of such a nature that it cannot be completely cured within such period, if Tenant does not commence such curing within such ten (10) days and thereafter proceed with reasonable diligence and in good faith to cure such default), then Landlord may terminate this Lease on not less than ten (10) days' notice to Tenant, and on the date specified in said notice the term of this Lease shall terminate, and Tenant shall then surrender the premises to Landlord, but Tenant shall remain liable as hereinafter provided. If this Lease shall have been so terminated by Landlord, Landlord may at any time thereafter resume possession of the premises by any lawful means and remove Tenant or other occupants and their effects. 19.2 REMEDIES ON DEFAULT. In any case where Landlord has recovered ------------------- possession of the Demised Premises by reason of Tenant's default, Landlord may, at Landlord's option, occupy the Demised Premises or cause the Demised Premises to be redecorated, altered, divided, consolidated with other adjoining premises, or otherwise change or prepared for reletting, and may relet the premises or any part thereof as agent of Tenant or otherwise, for a term or terms 28 to expire prior to, at the same time as, or subsequent to, the original expiration date of this Lease, at Landlord's option, and receive the rent therefor. Rent so received shall be applied first to the payment of such expenses as Landlord may have incurred in connection with the recovery of possession, redecorating, altering, dividing, consolidating with other adjoining premises, or otherwise changing or preparing for reletting, and the reletting, including brokerage and reasonable attorney's fees, and then to the payment of damages and amounts equal to the rent hereunder and to the cost and expenses of performance of the other covenants of Tenant as herein provided. Tenant agrees, in any such case, whether or not Landlord has relet, to pay to Landlord damages equal to the rent and other sums herein agreed to be paid by Tenant, less the net proceeds of the reletting, if any, as ascertained from time to time. In reletting the premises as aforesaid, the Landlord may grant rent concessions, and Tenant shall not be credited therewith. No such reletting shall constitute a surrender and acceptance or be deemed evidence thereof. Tenant hereby waives all right of redemption to which Tenant or any person claiming under Tenant might be entitled by any law now or hereafter in force. Landlord's remedies hereunder are in addition to any remedy allowed either at law or in equity. 19.3 UNENFORCEABLE PROVISION. If any provision of this Article of this ----------------------- Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Article, or the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each provision of this Section and of this Lease shall be valid and be enforced to the fullest extent permitted by law. ARTICLE XX LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS 20.1 TENANT OBLIGATIONS. In the event of a default by Tenant in the ------------------ observance or performance of any term or covenant on its part to be performed under the terms of this Lease, Landlord, without being under any obligation to do so and without thereby waiving such default, may remedy such default for the account and at the expense of Tenant. All expenses in so doing by Landlord shall be paid by Tenant on demand, and if not paid, Landlord, at Landlord's option, in addition to any other remedy, may deem the same to be additional rent. all such sums shall include, but not be limited to, legal expenses and attorney's fees, and any expenditures or obligations for the payment of money or in instituting, prosecuting or defending any action or proceedings commenced before or during the term of this Lease or after the expiration or termination of the term of this Lease, such sums paid or obligations incurred to include legal interest and costs. 29 20.2 ADDITIONAL RENT. All amounts over and above the fixed minimum rent --------------- payable by Tenant to Landlord in accordance with the terms hereof shall be deemed additional rent hereunder and shall be paid by Tenant in the same manner as an installment of the fixed minimum rent within a reasonable time after any such amount shall become payable unless provision is made in this Lease for payment of any such amount on a specific date or within a specific time and, in default of payment may, at the option of Landlord, be added to the next or any other installment of fixed minimum rent subsequently becoming due and Landlord shall have all the rights and remedies in the event of the nonpayment thereof as it would have had in the event of the nonpayment of any installment of fixed minimum rent. Tenant's obligation to pay any additional rent which shall have theretofore become due and payable shall survive the expiration or earlier termination of this Lease. 20.3 RELOCATION OF TENANT. Landlord, at its sole expense, on at least -------------------- sixty (60) days' prior written notice, may require Tenant to move from the Demised Premises to another suite of comparable size and decor in order to permit Landlord to consolidate the Premises with other adjoining space leased or to be leased to another Tenant in the Building; provided, however, that in the event of receipt of any such notice, Tenant, by written notice to Landlord, may elect not to move to the other space and in lieu thereof to terminate this Lease. In the event of any such relocation, Landlord will pay all the expenses of preparing and decorating the new premises so that they will be substantially similar to the Demised Premises and the expense of moving Tenant's furniture and equipment to the relocation premises. Notwithstanding the provisions of this Paragraph, before Tenant shall be permitted to terminate this Lease, Landlord shall give to the permanent mortgagee of the Land and Building (i) a copy of the written notice served upon Tenant to move from the Premises to another suite of comparable size in the Building and (ii) advice respecting Tenant's intention either to relocate in the Building or to terminate the Lease; if such advice indicates that Tenant elects to terminate the Lease rather than relocate, the permanent mortgagee shall advise whether or not the permanent mortgagee consents to such termination, and if the permanent mortgagee does not consent thereto, Landlord shall withdraw its notice of relocation, and the Lease shall continue in full force and effect. At the end of the First Year of this Lease, provided that Tenant is not in default of any of the terms, covenants and conditions of this Lease, Tenant shall have the right to relocate to a larger suite in the Troy Avenue Building, if available. Tenant shall give Landlord at least sixty (60) days' prior written notice before the end of the First Lease Year. Any such move shall be solely at Tenant's expense and all improvements and fit-ups to the new lease area shall be at the sole cost of the Tenant. In the 30 event of such a relocation, this Lease shall be amended to reflect the changes in rent and common area charges resulting from any increases in gross square footage of the new leased premises. ARTICLE XXI COVENANT OF QUIET ENJOYMENT 21.1 QUIET ENJOYMENT. Landlord covenants that if, and so long as, Tenant --------------- pays the rent, and additional rent as herein provided, and performs the covenants to be observed and performed on Tenant's part hereunder, Tenant shall peaceably and quietly have, hold, and enjoy the Demised Premises for the term herein mentioned, subject to the provisions of this Lease. This covenant shall bind Landlord only so long as Landlord is the owner of the Building. ARTICLE XXII SERVICES AND EQUIPMENT 22.1 LANDLORD SERVICES. So long as Tenant is not in default under any of ----------------- the provisions of this Lease, Landlord, at its own cost and expense shall: (a) Provide operatorless passenger elevator service in accordance with Building Plans. Landlord may designate local and express stops for elevators and may change such designation of express and local stops from time to time. (b) Landlord shall supply, at his own cost and expense, the heating and air conditioning equipment serving the Common Areas of the Building. Landlord shall also have responsibility to furnish heating or air conditioning equipment (HVAC units) to the Demised Premises. Tenant shall bear the cost of all electricity used in connection with the furnishing of heating and air conditioning to the Demised Premises as measured by the meter or meters installed for the Demised Premises, and all other charges imposed by any authority on, or measured by, the use of electricity in and for the Demised Premises. Tenant shall in any event cause and keep entirely unobstructed all of the vents, intakes, outlets, and grilles, at all times and shall comply with and observe all regulations and requirements prescribed by Landlord for the proper functioning of the heating and air conditioning system serving the Common Areas. (c) Provide building standard cleaning services in the Common Areas and public portions of the Building except on Saturdays, Sundays, and holidays, similar to first class office buildings in the area. (d) Furnish hot and cold water for the lavatories of the Building. If Tenant requires, uses or consumes water for any purposes, Tenant agrees that Tenant shall install a meter or meters 31 or other means to measure Tenant's water consumption, and Tenant further agrees to pay for the maintenance of said meter equipment and/or to pay Landlord's cost of other means of measuring such water consumption by Tenant. Tenant shall bear the cost of all water consumed as measured by said meter or meters or as otherwise measured, including sewer rents, and all other charges imposed by any authority, on, or measured by, the use of water. 22.2 INTERRUPTIONS OF SERVICE. Landlord reserves the right to interrupt, ------------------------ curtail or suspend the services required to be furnished by Landlord under this Article when the necessity therefor arises by reason of accident, emergency, mechanical breakdown, or when required by any law, order or regulation of any governmental authority or for any other cause beyond the reasonable control of Landlord. No diminution or abatement of rent or other compensation shall or will be claimed by Tenant as a result therefrom. 22.3 REIMBURSEMENT OF LANDLORD. Tenant shall reimburse Landlord for the ------------------------- cost to Landlord of removal from the Demised Premises in the Building of any refuse and rubbish of Tenant not removed by Tenant and Tenant shall pay all bills therefor when rendered. ARTICLE XXIII REAL ESTATE BROKERS 23.1 BROKERS. Other than Eugene Beckman and Stanley Realty Company, by ------- whom Mr. Beckman is employed, Tenant has not dealt with any real estate broker, salesperson, or finder in connection with this Lease, and no other person initiated or participated in the negotiation of this Lease, or showed the premises to Tenant. Tenant hereby agrees to indemnify and hold harmless Landlord, the Partners and the Manager from and against any and all liabilities and claims for commissions and fees arising out of a breach of the foregoing representation. ARTICLE XXIV ELECTRICAL, WATER AND SEWER CHARGES 24.1 CHARGES. In addition to all rentals herein specified, Tenant shall, ------- at its own cost and expense, promptly pay all charges when due for electricity, water and sewer used or consumed in or upon the Demised Premises. Landlord shall provide separate meters for the measurement of said electricity, in the Demised Premises, and Tenant shall install at its expense separate water meters if water is desired in the Leased Premises. Tenant will have meters opened in its name upon delivery of possession of Demised Premises to Tenant by Landlord. ARTICLE XXV RELOCATION OF TENANT 32 25.1 RELOCATION OF TENANT. INTENTIONALLY DELETED. -------------------- ARTICLE XXVI SUBORDINATION 26.1 SUBORDINATION. This Lease is and shall be subject and subordinate to ------------- any lease of air rights which may now or hereafter affect the Building or the Land or the Land and Building and to any amendment, modification, renewal, or extension of any such lease of air rights. This Lease is also subject and subordinate to all mortgages which may or hereafter affect any lease of air rights or the land and/or building and to all renewals, modifications, amendments, consolidations, replacements, or extensions thereof. No further instrument of subordination shall be required by any mortgagee. In confirmation of such subordination, Tenant, without cost or charge to Landlord, shall execute promptly any certificate or instrument of subordination that Landlord may request. If Tenant fails upon reasonable request to execute such a certificate or instrument, Tenant hereby constitutes and appoints Landlord the Tenant's attorney-in-fact to execute any such certificate or certificates or any such instrument or instruments for and on behalf of Tenant. 26.2 NOTICE OF MORTGAGEES. In the event of any act or omission by -------------------- Landlord which would or may give the Tenant the right to terminate this Lease or to claim a partial or total eviction, the Tenant will not exercise any such right until: (a) It has given written notice of any such act or omission to the holder of any leasehold mortgage or of any fee mortgage and to the Landlord or Landlords of any ground lease or leases whose names and addresses previously have been furnished to Tenant by giving such notice, addressed to such holders and such Landlord or Landlords at the last addresses so furnished; and (b) A reasonable period of time for remedying such act or omission shall have elapsed following such giving of notice during which the parties to whom such notice has been given, or any of them, after giving of such notice has not commenced with reasonable diligence the remedying of such act or omission or to cause the same to be remedied. 26.3 MORTGAGE MODIFICATIONS. If, in connection with obtaining temporary ---------------------- or permanent financing for the Land and/or Building, any such lender shall request reasonable modifications of this Lease as a condition to such financing, Tenant agrees that Tenant will not unreasonably withhold, delay or defer the execution of an agreement or modification of this Lease, provided such modifications do not increase the financial obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created or Tenant's reasonable use and enjoyment of the premises. In the 33 event of Tenant's refusal to execute and deliver any such modification agreement within ten (10) days after request therefor by Landlord, Landlord shall have the right to cancel and terminate this Lease and upon such cancellation and termination neither party shall have any further right or obligation to the other arising out of the execution and delivery of this Lease. 26.4 NON-DISTURBANCE OF TENANT. Notwithstanding the provisions relating ------------------------- to subordination in this Lease, so long as this Lease is in full force and effect and Tenant shall not be in default of the terms and provisions hereof, the Tenant shall not be evicted from the Demised Premises nor shall Tenant's leasehold estate under this Lease be terminated or disturbed, nor shall any of Tenant's rights under this Lease be affected in any way, by reason of any default under any superior mortgage or other lien. If the holder of a superior mortgage or lien shall succeed to the rights of Landlord under this Lease, whether through possession, foreclosure action, or delivery of a new lease or deed, then at the request of such parties so succeeding to Landlord's rights (herein sometimes called successor Landlord) and upon such successor Landlord's written agreement to accept Tenant's attornment, Tenant shall attorn to and recognize such successor Landlord as Tenant's Landlord under this Lease, and shall promptly execute and deliver any instrument that such successor Landlord may request to evidence such attornment. If Tenant fails upon reasonable request to execute such instrument Tenant hereby irrevocably appoints Landlord or the successor Landlord the attorney-in-fact of Tenant to execute and deliver such instrument on behalf of Tenant, should Tenant refuse or fail to do so promptly after request. Upon such attornment this Lease shall continue in full force and effect as, or if it were, a direct Lease between successor Landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Lease and shall be applicable after such attornment except that the successor Landlord shall not: (a) Have any liability for refusal or failure to perform or complete Landlord's work or otherwise to prepare the Demised Premises for occupancy in accordance with the provisions of Exhibit "B" of this Lease; (b) Be obligated under Article X to repair, restore, replace, or rebuild the Building or the Demised Premises, in case of total or substantially total damage or destruction, beyond such repair, restoration, and/or rebuilding as can reasonably be accomplished with the net proceeds of insurance actually received by or made available to the successor Landlord; (c) Be liable for any previous act or omission of Landlord under this Lease; 34 (d) Be subject to any offset not expressly provided for in this Lease which shall therefore accrue to Tenant against Landlord; (e) Be bound by any previous modification of this Lease, not expressly provided for in this Lease, by any previous prepayment of more than one month's rent, unless such modification of prepayment shall have been expressly approved in writing by the Landlord or successor Landlord. ARTICLE XXVII LEGAL PROCEEDINGS 27.1 WAIVER OF JURY TRIAL. Landlord and Tenant hereby waive, to the -------------------- extent such waiver is not prohibited by law, the right to a jury trial in any action, summary proceeding or legal proceeding between or among the parties hereto or their successors arising out of this Lease or Tenant's occupancy of the Demised Premises or Tenant's right to occupy the Demised Premises. 27.2 TENANT CLAIMS; REMEDIES. In the event that Tenant claims or asserts ----------------------- that the Landlord has violated or failed to perform a covenant of Landlord not to unreasonably withhold or delay Landlord's consent or approval, or in any case where Landlord's reasonableness in exercising its judgment is in issue, Tenant's sole remedy shall be an action for specific performance, declaratory judgment or injunction and in no event shall Tenant be entitled to any money damages for a breach of such covenant and in no event shall Tenant claim or assert any claims of any money damages in any action or by way of set-off, defense or counterclaim and Tenant hereby specifically waives the right to any money damages or other remedies. ARTICLE XXVIII SURRENDER OF PREMISES; HOLDOVER 28.1 SURRENDER; HOLDOVER. Upon the expiration or other termination of the ------------------- term of this Lease, Tenant shall quit and surrender the Demised Premises in good order and condition. In the event that Tenant shall fail to surrender the Demised Premises upon demand, Landlord, in addition to all other remedies available to it hereunder, shall have the right to receive, as liquidated damages for all the time Tenant shall so retain possession of the premises or any part thereof, an amount equal to twice the minimum rent specified in this Lease, as applied to such period. If Tenant remains in possession of the premises with Landlord's consent but without a new lease reduced to writing and duly executed, Tenant shall be deemed to be occupying the premises as a tenant from month to month, subject to all the covenants, conditions and agreements of this Lease. Tenant's obligation to observe or perform this 35 covenant shall survive the expiration or other termination of the term of this Lease. ARTICLE XXIX RULES AND REGULATIONS 29.1 RULES AND REGULATIONS. Tenant, its servants, employees, agents, --------------------- visitors, and licensees shall observe faithfully and comply strictly with the rules and regulations set forth in Exhibit "F" attached hereto and made a part hereof. Landlord shall have the right from time to time during the term of this Lease to make reasonable changes in and additions to the rules thus set forth. Any failure by Landlord to enforce any rules and regulations now or hereafter in effect, either against Tenant or any other tenant in the Building, shall not constitute a breach hereunder or a waiver of any such rules and regulations, but any rule or regulation not generally enforced against other tenants in the Building will not be discriminatorily enforced against Tenant. ARTICLE XXX SUCCESSORS AND ASSIGNS 30.1 BINDING EFFECT. The covenants, conditions, and agreements contained -------------- in this Lease shall bind and inure to the benefit of the parties hereto and the respective heirs, legal representatives, successors and, except as otherwise provided herein, their assigns. 30.2 LANDLORD DEFINED. The term "Landlord" wherever used in this Lease ---------------- shall be limited to mean and include only the owner or owners of the Building at the time in question or the Tenant under a ground lease effecting the Land and/or the Building, to whom this Lease may be assigned, or an overLandlord if such overLandlord enters into possession, or a mortgagee in possession, so that in the event of any sale, assignment or transfer by any such Landlord, tenant under the ground lease, overLandlord or mortgagee in possession, the seller, assignor or transferor shall thereupon be released and discharged from all covenants, conditions and agreements of Landlord hereinunder thereafter accruing; but such covenants, conditions, and agreements shall be binding upon all successors and assigns, including, without limitation, each new owner, tenant under the ground lease, overLandlord, or mortgagee in possession for the time being of the building, until sold, assigned, or transferred. ARTICLE XXXI NOTICES 31.1 NOTICES. Any notice, request, demand, or communication permitted or ------- required to be given by the terms and provisions of this Lease, either by Landlord to Tenant or Tenant to Landlord, 36 shall be in writing. Unless otherwise required by law, such notice, request, or demand shall be given and shall be deemed to have been served and given by Landlord and received by Tenant, and vice versa, when either party shall have deposited such notice, request, or demand by certified or registered mail, return receipt requested, enclosed in a securely closed post-paid envelope, in a United States Post Office box, addressed to Tenant (1) at the Demised Premises, or (2) until Tenant shall have moved its offices to the Demised Premises, addressed to Tenant at its address as stated on the first page of this Lease; and to Landlord addressed to VenTroy Associates, P.O. Box "K," One Norwegian Plaza, Pottsville, PA 17901. Either party may, by notice sent in like manner as aforesaid, designate a different address or addresses for notices, requests, demands, or communications to it. ARTICLE XXXII NO WAIVER; ENTIRE AGREEMENT 32.1 NO WAIVER. Failure of the Landlord to seek redress for violation of, --------- or to insist upon a strict performance of, any covenant, condition, rule or regulation of this Lease, shall not be deemed to constitute a waiver of the Landlord to at any future time take any action that would have been permitted in the event of an original violation. No provision of this Lease shall be deemed to have been waived by either party, unless such waiver be in writing signed by such party. No endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed in accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy in this Lease provided. 32.2 ENTIRE AGREEMENT. This Lease with the exhibits attached hereto ---------------- contain the entire agreement between Landlord and Tenant and any executory agreement hereafter made between Landlord and Tenant shall be ineffective to change, modify, waive, release, discharge, terminate, or effect an abandonment of this Lease, in whole or in part, unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification, waiver, release, discharge, termination, or the effecting of the abandonment is sought. 32.3 SEVERABILITY. If any term or provision of this Lease shall, to any ------------ extent be invalid or unenforceable, the remainder of this Lease shall not be affected thereby and the balance of the terms and provisions of this Lease shall be valid and enforceable to the fullest extent either hereunder or as permitted by law. ARTICLE XXXIII INDEX AND CAPTIONS; ESTOPPEL CERTIFICATE 37 33.1 CAPTIONS. The index preceding this Lease and the captions of -------- Articles in this Lease are inserted only as a matter of convenience and for reference and they in no way define, limit or describe the scope of this Lease or of the intent of any provision thereof. 33.2 ESTOPPEL CERTIFICATE. The Tenant agrees at any time and from time to -------------------- time, upon not less than ten (10) days' prior written request by the Landlord, to execute, acknowledge and deliver to the Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been modifications that the same is in full force and effect as modified and stating the modifications), and the dates to which the rent and other charges have been paid in advance, if any, it being intended that any such statement delivered pursuant to this Article may be relied upon by a prospective purchaser of Landlord's interest or a mortgagee of Landlord's interest or assignee of any mortgage upon Landlord's interest in the Demised Premises. In the event that the Tenant fails or refuses to give such estoppel certificate, then and in that event, Tenant shall be deemed to have nominated, constituted and appointed Landlord as its attorney-in-fact to execute such estoppel certificate. ARTICLE XXXIV INABILITY OF LANDLORD TO PERFORM 34.1 LANDLORD PERFORMANCE. This Lease and the obligation of the Tenant to -------------------- pay rent or additional rent hereunder and to perform and comply with all other covenants and conditions hereunder on the part of the Tenant to be performed shall in no ways be affected, impaired or excused because of Landlord's delay or failure to perform or comply with any of the covenants or provisions on its part to be performed, nor because Landlord is unable to fulfill any of its obligations under this Lease or to supply or is delayed in supplying any services expressly or impliedly to be supplied or is unable to make, or is delayed in making any repair, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Landlord is prevented or delayed from so doing by reason of strike or labor troubles or any other cause whatsoever including, but not limited to, any rule, order or regulation of any governmental agency. The time given to Landlord to comply with any obligation under this Lease shall be extended for a period of time equal to any period of delay resulting from any of the aforesaid causes. ARTICLE XXXV NO REPRESENTATIONS BY LANDLORD 35.1 NO REPRESENTATIONS. Landlord or Landlord's agents have made no ------------------ representations or promises with respect to the Building, the Land or the Demised Premises except as herein expressly set 38 forth and no rights, easements, or licenses are acquired by Tenant by implication or otherwise except as expressly set forth in the provisions of this Lease, the taking possession of the Demised Premises by Tenant shall be conclusive evidence against Tenant that Tenant accepts said premises and the Building and that same were in good and satisfactory condition at the time such possession was so taken. ARTICLE XXXVI MEMORANDUM OF LEASE 36.1 MEMORANDUM OF LEASE. Tenant covenants not to place this Lease on ------------------- record without consent of Landlord. At the request of Tenant, Landlord will execute a memorandum for recording purposes setting forth the premises herein demised and the term hereof, but to contain no other provisions. IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this Lease as of the day and year first above written. WITNESS: Landlord: VENTROY ASSOCIATES /s/ By: /s/ Christoher Ruzzi (SEAL) ---------------------- ---------------------------- ATTEST: TENANT: SHOWBOAT OPERATING COMPANY /s/ Thomas C. Bonner By: /s/ J. Kell Houssels, III ---------------------- ---------------------------- Secretary or J. Kell Houssels, III, Assistant Secretary Vice President 39 STATE OF : : SS. COUNTY OF : ON THIS _____ day of ____________, 1993, before me appeared __________________________________, to me personally known, who, being by me duly sworn, did say that he is a general partner of VENTROY ASSOCIATES, a partnership of the Commonwealth of Pennsylvania, and that said instrument was signed and sealed on behalf of such partnership, by authority of its partners; and said ___________________________________ acknowledged said instrument to be the free act and deed of said partnership. IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official seal in the County and State aforesaid the day and year first above written. _________________________ Notary Public My commission expires: STATE OF NEW JERSEY : : SS. COUNTY OF ATLANTIC : ON THIS 20th day of December, 1993, before me appeared J. KELL HOUSSELS, III, to me personally known, who, being by me duly sworn, did say that he is the Vice-President of SHOWBOAT OPERATING COMPANY, a corporation of the State of Nevada, and that said instrument was signed and sealed on behalf of such corporation, by authority of its Board of Directors; and said J. KELL HOUSSELS, III acknowledged said instrument to be the free act and deed of said partnership. IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official seal in the County and State aforesaid the day and year first above written. /s/ Thomas C. Bonner ------------------------- 40 EXHIBIT "A"-1 Diagram of Leased Premises Showboat 103, 104, 105, 106 & 108 Page 1 of 2 EXHIBIT "A"-2 Diagram of Leased Premises Showboat 201 & 204 Page 2 of 2 EXHIBIT "B" Tax Map Reference. (N.J.S.A. 46:15-2.1) Municipality of Ventnor City. Block No. 122 Lot No. 1 Account No. No property tax identification number is available on the date of this Deed. Property. The property consists of the land and all the buildings and structures on the land in the City of Ventnor City County of Atlantic and State of New Jersey. The legal description is ALL THAT CERTAIN LOT, tract or parcel of land and premises situate, lying and being in the City of Ventnor, County of Atlantic and State of New Jersey, bounded and described as follows: PARCEL A: BEGINNING at the Northeast corner of Troy and Ventnor Avenues, and extending thence 1) Northwardly in the East line of Troy Avenue, Two hundred and Seventy feet thence 2) Eastwardly parallel with Ventnor Avenue, Two hundred and forty feet to the West line of New Haven Avenue, thence 3) Southwardly in the West line of New Haven Avenue., Two hundred and Seventy feet to the North line of Ventnor Avenue, thence 4) Westwardly in the North line of Ventnor, Two hundred and forty feet to Troy Avenue, the place of beginning. PARCEL B: BEGINNING at the Southeasterly corner of Winchester and Troy Avenue; and extending thence 1) Eastwardly along the Southerly line of Winchester Avenue 40 feet; thence Page 1 of 2 2) Southwardly parallel with Troy Avenue 100 feet; thence 3) Eastwardly parallel with Winchester Avenue 100 feet to the Westerly line of New Haven Avenue; thence 4) Southwardly along the Westerly line of New Haven Avenue 20 feet; thence 5) Westwardly parallel with Winchester Avenue, 240 feet to the Easterly line of Troy Avenue; thence 6) Northwardly along the same, 220 feet to the point and place of BEGINNING. PARCELS A AND B are designated as Lot 1 in Block 123 as shown on the Fax Map of the City of Ventnor [Diagram] Page 2 of 2 EXHIBIT "C" COMMENCEMENT DATE AGREEMENT --------------------------- AND CERTIFICATE --------------- LEASE DATE: - ---------- Landlord: VenTroy Associates - -------- TENANT: - ------ BUILDING: The Ventnor/Troy Avenue Building (the "Building") in the - -------- Ventnor Professional Campus, 6601 Ventnor Avenue, Ventnor, New Jersey 08406 ("VPC"). AREA OF LEASED PREMISES: See Exhibit A-1 attached. - --------------- The undersigned Landlord and Tenant of the above referenced lease ("Lease") hereby certify that: 1. The term of the Lease commenced on _________________, 19___, and Tenant is in full and complete possession of the Premises demised under the Lease and has commenced full occupancy and use of the Premises, such possession having been delivered by Landlord and having been accepted by Tenant. 2. The Lease calls for monthly net rent installments of $____________ for the first _______ (____) years after the rent commencement date. Tenant has/has not yet commenced the payment of Rent, and has applied for its building permits. Subject to conditions beyond Tenants' control, Tenant anticipates that the improvements to the Leased Premises to be constructed by it pursuant to the Lease will be completed and open for business by _________________________, 19___, at which time Tenant will commence the payment of Rent. 3. No advance rental or other payment has been made in connection with the Lease, except rental for the current month and there is no "free rent" or other concession under the remaining term of the Lease. 4. A security deposit in the amount of $____________ is being held by Landlord, which amount is not subject to any set-off or reduction or to any increase for interest or other credit due to Tenant. Page 1 of 2 5. All obligations and conditions under the Lease to be performed to date by Landlord or Tenant have been satisfied, free of defenses and set-offs, including all construction work in the Premises. 6. The Lease is a valid lease and in full force and effect and represents the entire agreement between the parties; there is no existing default on the part of Landlord or Tenant in any of the terms and conditions thereof and no event has occurred which, with the passing of time or giving of notice or both, would constitute an event of default; and the Lease has: ( ) Not been amended, modified, supplemented, extended, renewed or assigned. ( ) Been amended, modified, supplemented, extended, renewed or assigned as follows by the following described agreements: 7. The Lease provides for a primary term of _____ months. The expiration date of the term of the Lease has not yet been determined, but will be the ______ anniversary of the last day of the calendar month during which Tenant's obligation to pay Rent commences; and that ( ) Neither the Lease nor any of the documents listed in Paragraph 6 (if any), contain an option for any additional term or terms. ( ) The Lease and/or the documents listed under Paragraph 6 contain an option for _____ additional term(s) of ____ year(s) and no month(s) (each) at a rent to be determined as follows: 8. Landlord has not rebated, reduced or waived any amounts due from Tenant under the Lease, either orally or in writing, nor has Landlord provided financing for or made loans or advances to, or invested in the business of, Tenant. 9. To the best of Tenant's knowledge, there is no apparent or likely contamination of the Building or VPC by hazardous Materials, and Tenant does not use, nor has Tenant disposed of, Hazardous materials in violation of Environmental Laws on the Building or VPC or the Leased Premises. 10. There are no actions, voluntary or involuntary, pending against the Tenant under the bankruptcy laws of the United States or any state thereof. 11. This certification is made knowing that a lender to which Landlord has granted a mortgage on the VPC Complex, the Building and the Leased Premises, is relying upon the representations herein made. Tenant: SHOWBOAT DEVELOPMENT COMPANY Date: By:________________________________ Name: Title: Attest:____________________________ Name: Title: Landlord: VENTROY ASSOCIATES Date: By:________________________________ Attest:____________________________ Page 2 of 2 EXHIBIT "D" DEMISED PREMISES PLAN --------------------- The Landlord will provide the Tenant with a space within the rentable square feet of leased area, measured from the inside surface of the perimeter glass to the center of any demising partition separating tenants, or tenants from public space, not including any floor penetrations, such as elevator shafts, stairways, chases, and shafts. The Tenant area will be provided with the following "Building Standard Improvements": 12. Ceiling: Mechanically suspended exposed standard grid system with 24" ------- X 48" Armstrong Plateau 725 tiles. 13. Carpeting: Armstrong Notation 36 Wedgewood Blue Carpeting, including --------- standard padding, will be installed in Suites 201, 204, and in portions of Suites 105 and 106 (540 sq. ft. total). Existing carpeting in Suites 103, 104 and 108 shall remain. 14. Floor Tile: Suite 105: install in lunch room area 260 sq. ft. of --------------------- composition tile; Suite 204: install in computer room 98 sq. ft. of --------- composition tile. 15. Demising Partition: Perimeter exterior walls and corridor walls will ------------------ be surfaced with gypsum wall board. Partitioning walls will be 3/8" metal studs two feet on center, 3" insulation, surfaced with 5/8" gypsum wall board. Wall surfaces will receive one base coat of paint and a finish coat, standard vinyl base. 16. Entry Doors: Three (3) 3'-0" wide by 7'-0" high Mohawk Birch solid ----------- core UL fire-rated wood door with hollow metal frame. Standard Schlage or equal latchsets and spring-loaded hinges included. 17. Inside Doors: Twenty-nine (29) 3'-0" wide by 6'-8" high Mohawk Birch ------------ doors with standard Schlage hardware and hinges. 18. Light Fixtures: One (1) 24" X 48" fluorescent fixture with switch and -------------- wiring for every 150 square feet of tenant space, plus fifteen (15) additional high hat light fixtures, if any, as shown on Tenant's plan approved by Landlord. Page 1 of 2 19. Electrical Outlets: Duplex outlets, plus additional dedicated duplex ------------------ outlets for computers, as shown on Tenant's plan approved by Landlord. 20. Switches: All switches, as shown on Tenant's plan approved by -------- Landlord. 21. Smoke/Heat Detectors: One (1) minimum, or more as required by code, -------------------- per Suite. 22. Electrical Service: To Tenant panels, plus wiring adequate to provide ------------------ standard electrical service in and to the Demised Premises, as shown on Tenant's plans approved by Landlord. 23. Window Coverings: Standard blinds for each exterior window in a ---------------- single building - standard color. No other type of blinds allowed to exterior windows. 24. HVAC: Units and main trunk line and registers as per Building Code; ---- added registers and egg crates as shown on plan approved by Landlord. 25. Reception Areas, Suites 105 and 106: as per plan approved by ----------------------------------- Landlord. 26. Lunch Room, Suite 105: Sink, cabinet and counter with plumbing, as --------------------- shown on plan approved by Landlord. 27. Fire Control: As per Building Code. ------------ Tenant will be responsible for computers, computer systems and wiring, telephones, telephone systems and wiring, electrical appliances, electrical wiring relating to computers, computer systems, or word and data processing equipment; and cabinets, plumbing and plumbing fixtures, sinks and built-ins not provided for above or under the Building Standard Improvements (for example, shelving, cabinetry, desks, counters, countertops, etc.) Page 2 of 2 EXHIBIT "E" OPERATING COSTS --------------- For purposes of this Lease, "Operating Costs" shall be the total costs and expenses incurred or accrued and attributed by the Landlord to discharge its obligations under the Lease and to operate, manage, maintain, insure, clean, supervise, replace and repair the Ventnor Professional Campus Complex (the "Complex"); less the proceeds paid to the Landlord under any insurance maintained pursuant to the Lease where the expense to which such proceeds relate was previously included. Without limiting the generality of the foregoing, such cost and expense shall also specifically include all promotional and advertising expenses, all costs and expenses of heating, ventilating and air conditioning, gardening, landscaping, repaving, repaving and replacing walkways and curbing, line painting, lighting, signs, sanitary control, cleaning, building maintenance and janitorial supplies, removal of snow, debris and refuse, water and sewage charges, costs of licenses and permits and all costs associated with qualifying for same, all costs and expenses of fire protection, all security costs, all cost of holiday and other decoration, costs of maintenance, repairs and replacement of all on-site water, sanitary and storm sewer lines, electrical lines, or other utility or service lines, the cost of all roof and building repairs and replacements, all fees for audits and the cost of all governmental inspections and surcharges, including, without limitation, environmental rules, regulations, guidelines or orders; and the cost of depreciation on and rentals of machinery, furnishings, fixtures, and equipment used in connection with the Complex, including depreciation on the heating, ventilating and air-conditioning equipment; the gross wages and salaries of personnel (including any benefits paid or provided) employed to implement all services, to direct parking, to supervise the Complex, including, without limitation, secretarial, office and maintenance personnel and to supervise and accomplish the foregoing, and an administrative fee equal to 15% of the total amount of all Operating Costs; provided that no amount shall be included in such costs and expenses for financing or mortgage charges of the lands and buildings comprising the Complex. In the event of any dispute as to whether any item represents a capital item or expense, the Landlord's accounting practices shall control and be binding on the parties. Page 1 of 1 EXHIBIT "F" VENTNOR PROFESSIONAL CAMPUS RULES AND REGULATIONS 28. The rights of Tenants in the entrances, corridors, and elevators of the Building are limited to ingress to and egress from the tenant's premises for the tenants and their employees, licensees, and invitees, and no tenant shall use, or permit the use of, the entrances, corridors, escalators, or elevators for any other purpose. No tenant shall invite to the tenant's premises, or permit the visit of, persons in such numbers or under such conditions as to interfere with the use and enjoyment of any of the plazas, entrances, corridors, hallways, elevators and other facilities of the Building by other tenants. 29. Fire exists and stairways are for emergency use only, and they shall not be used for any other purposes by the tenants, their employees, licensees or invitees. 30. No tenant shall encumber or obstruct, or permit the encumbrance or obstruction of, any of the sidewalks, plazas, entrances, corridors, hallways, elevators, fire exits, or stairways of the Building. 31. The Landlord reserves the right to control and operate the public portions of the Building and the public facilities, as well as facilities furnished for the common use of the tenants, in such manner as it deems best for the benefit of the tenants generally. 32. The cost of repairing any damage to the public portions of the Building or the public facilities or to any facilities used in common with the other tenants, caused by a tenant or the employees, licensees, or invitees of the tenant, shall be paid by such tenant. 33. The Landlord may refuse admission to the Building outside of ordinary business hours to any person not known to the security person in charge or not properly identified, and may require all persons admitted to or leaving the Building outside of ordinary business hours to register. Tenant's employees, agents and visitors shall be permitted to enter and leave the building whenever appropriate arrangements have been previously made between the Landlord and the Tenant with respect thereto. Each tenant shall be responsible for all persons for whom he requests such permission and shall be liable to the Landlord for all acts of such person person whose presence in the Building at any time shall, in the judgment of the Landlord, be prejudicial to the safety, Page 1 of 8 character, reputation, and interests of the Building or its tenants may be denied access to the Building or may be ejected therefrom. 34. In case of invasion, riot, public excitement, or other commotion the Landlord may prevent all access to the Building during the continuance of the same, by closing the doors or otherwise, for the safety of the tenants and protection of property in the Building. 35. The Landlord may require any person leaving the Building with any package or other object to exhibit a pass from the tenant from whose premises the package or object is being removed, but the establishment and enforcement of such requirement shall not impose any responsibility on the Landlord for the protection of any tenant against the removal of property from the premises of the Tenant. The Landlord shall, in no way, be liable to any tenant for damages or loss arising from the admission, exclusion or ejection of any person to or from the tenant's premises or the Building under the provisions of this rule. 36. No tenant shall obtain or accept for use in its premises ice, drinking water, food, vending machines, beverage, towel, barbering, boot blacking, floor polishing, lighting maintenance, cleaning, or other similar services from any persons not authorized by the Landlord in writing to furnish such services, provided always that Landlord shall authorize a person or persons to provide such services desired by Tenant, and that the charges for such services by persons authorized by the Landlord are not excessive. Such services shall be furnished only at such hours, in such places within the tenant's premises and under such regulations as may be fixed by the Landlord. 37. No awnings or other projections over or around the windows shall be installed by any tenant, and only such window blinds as are permitted by the Landlord shall be used in a tenant's premises. 38. There shall not be used in any space, or in the public halls of the Building, either by the Tenant or by jobbers or others, in the delivery or receipt of merchandise, any hand trucks, except those equipped with rubber tires and side guards. 39. All entrance doors in each tenant's premises shall be left locked when the tenant's premises are not in use. Entrance doors shall not be left open at any time. All windows in each tenant's premises shall be kept closed at all times and all blinds therein above the ground floor shall be lowered when and as reasonably required because of the position of the sun, during the operation of the Building air conditioning system to cool or ventilate the tenant's premises. Page 2 of 8 40. No noise, including the playing of any musical instruments, radio, or television, which, in the judgment of the Landlord, might disturb other tenants in the Building shall be made or permitted by any tenant, and no cooking shall be done in the tenant's premises, except as expressly approved by the Landlord. Nothing shall be done or permitted in any tenant's premises, and nothing shall be brought into or kept in any tenant's premises, which would impair or interfere with any of the Building services or the proper and economic heating, cleaning, or other servicing of the Building or the premises, or the use or enjoyment by any other tenant of any other premises, nor shall there be installed by any tenant any ventilating air conditioning, electrical, or other equipment of any kind which might cause any such impairment or interference. 41. Tenant shall not permit any cooking or food odors emanating within the Demised Premises to seep into other portions of the Building. 42. No acids, vapors, or other materials shall be discharged or permitted to be discharged into the waste lines, vents, or flues of the Building which may damage them. The water and wash closets and other plumbing fixtures in or serving any tenant's premises shall not be used for any purpose other than the purpose for which they were designed or constructed, and no sanitary napkins, paper towels, sweepings, rubbish, rags, acids or other foreign substances shall be deposited therein. All damages resulting from any misuse of the fixtures shall be borne by the tenant who, or whose servants, employees, agents, visitors, or licensees, shall have caused the same. 43. No sign, advertisement, notice, or other lettering shall be exhibited, inscribed, painted, or affixed by any tenant on any part of the outside or inside the premises or the Building without the prior written consent of Landlord. In the event of the violation of the foregoing by any tenant, Landlord may remove the same without any liability, and may charge the expense incurred by such removal to the tenant or tenants violating this rule. Interior signs and lettering on doors and elevators shall be inscribed, painted, or affixed for each tenant by Landlord at the expense of such tenant, and shall be of a size, color and style acceptable to Landlord. Landlord shall have the right to prohibit any advertising by any tenant which impairs the reputation of the Building or its desirability as a building for offices, and upon written notice from Landlord, Tenant shall refrain from or discontinue such advertising. 44. Duplicate keys for a tenant's premises and toilet rooms shall be procured only from the Landlord, which may make a reasonable charge therefor. Upon the termination of a tenant's Page 3 of 8 lease, all keys of the tenant's premises and toilet rooms shall be delivered to the Landlord. 45. No tenant shall mark, paint, drill into, or in any way deface any part of the Building or the premises demised to such tenant. No boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord,and as Landlord may direct. No tenant shall install any resilient tile or similar floor covering in the premises demised to such tenant except in a manner approved by Landlord. 46. No tenant shall use or occupy, or permit any portion of the premises demised to such tenant to be used or occupied, as an office for a public stenographer or typist, or as a barber or manicure shop. No tenant or occupant shall engage or pay any employees in the Building, except those actually working for such tenant or occupant in the Building, nor advertise for laborers giving an address at the Building. 47. No premises shall be used, or permitted to be used, at any time, as a store for the sale or display of goods, wares, or merchandise of any kind, or as a restaurant, shop, booth, bootblack, or other stand, or for the conduct of any business or occupation which predominantly involves direct patronage of the general public in the premises demised to such tenant, or for manufacturing or for other similar purposes, but nothing in this sentence shall prohibit the conduct of the business and services of securities and commodities brokerage and investment banking. 48. The requirements of tenants will be attended to only upon application at the office of the Building. Employees of Landlord shall not perform any work or do anything outside of the regular duties, unless under special instructions from the office of the Landlord. 49. The tenant's employees shall not loiter around the hallways, stairways, elevators, front, roof, or any other part of the Building used in common by the occupants thereof. 50. If the premises demised to andy tenant become infested with vermin, such tenant, at its sole cost and expense, shall cause its premises to be exterminated, from time to time, to the satisfaction of Landlord, and shall employ such exterminators therefor as shall be approved by Landlord. 51. Nothing shall be thrown by tenants, their agents, servants, or employees, out of the windows or doors, or down the passages of the Building. No rooms shall be occupied or used as sleeping or lodging apartments at any time. Page 4 of 8 52. No animals, birds, bicycles or other vehicles shall be allowed in the office, halls, corridors, elevators or elsewhere in the Building. 53. All tenants and occupants shall observe strict care not to leave their windows open when it rains or snows, and, for any fault or carelessness in any of these respects, shall make good any injury sustained by other tenants, and to Landlord for damage to paint, plastering or other parts of the Building, resulting from such default or carelessness. No painting shall be done, nor shall any alterations be made, to any part of the Building by putting up or changing any partitions, doors or windows, nor shall there be any nailing, boring or screwing into the woodwork or plastering, nor shall any connection be made to the electric wires or electric fixtures, without the consent in writing on each occasion of Landlord or its Agent. All glass, locks and trimmings in or upon the doors and windows of the Building shall be kept whole and, when any part thereof shall be broken, the same shall be immediately replaced or repaired and put in order the direction and to the satisfaction of Landlord, or its Agent, and shall be left whole and in good repair. Tenants shall not injure, overload or deface the Building, the woodwork or the walls of the premises, nor carry on upon the premises any noisome, noxious, noisy or offensive business. 54. No Tenant shall (without the Lessor's written consent) install or operate and steam engine, boiler, other machinery or store upon the premises, nor carry on any mechanical business thereon, nor use or allow to be used upon the Demised Premises oil, burning fluids, camphene, gasoline or kerosene for heating, warming or lighting. No article deemed extra hazardous on account of fire and no explosive shall be brought into said premises. No offensive gases or liquids will be permitted. 55. If Tenants require wiring for a business machine or a bell or buzz system, such wiring shall be done by an electrician approved by the Landlord to perform such services in the Building. If telegraphic or telephonic service is desired, the wiring for same shall be done as directed by an electrician approved by the Landlord or by some other employee of Landlord and no boring or cutting for wiring shall be done unless approved by Landlord or its representatives, as stated. 56. Landlord, and its agents, shall have the right to enter the Demised Premises at all reasonable hours for the purpose of making any repairs, alterations, or additions which it shall deem necessary for the safety, preservation, or improvement of the Building, and Landlord shall be allowed to take all material into and upon said premises that may be required to make such repairs, improvements, and additions, or any alterations for the benefit of the Tenant without in any way deemed or held guilty of an eviction Page 5 of 8 of the Tenant; and the rent reserved shall be in no wise abated while said repairs, alterations or additions are being made; and Tenant shall not be entitled to maintain a set-off or counterclaim for damages of Tenant because of the prosecution of any such work. All such repairs, decorations, additions and improvements shall be done during ordinary business hours if any such work is at the request of Lessee to be done during any other hours, Tenant shall pay for all overtime costs. 57. No tenant shall do or permit anything to be done in said premises, or bring or keep anything therein, which will in any way increase the rate of fire insurance on said building, or on property kept therein, or obstruct or interfere with the rights of other tenants, or in any other way injure or annoy them or conflict with the laws relating to fires, or with the regulations of the fire department, or with any insurance policy upon said building or any part thereof, or conflict with any of the rules and ordinances of the Board of Health. 58. Tenant shall not obstruct or interfere with the rights of other tenants of the Building, or of persons having business in the Building, or in any way injure or annoy such tenants or persons. Tenant will not conduct any activity within the Demised Premises which will create excessive traffic or noise anywhere in the Building. 59. Canvassing, soliciting and peddling in the Building are prohibited, and Tenant shall cooperate to prevent such activities. 60. Tenant shall not deposit any trash, refuse, cigarettes, or other substances of any kind within or out of the Building, except in the refuse containers provided therefor. No material shall be placed in the trash boxes or receptacles if such material is of such nature that is may not be disposed of in the ordinary or customary manner of removing and disposing of office building trash and garbage without being in violation of any law or ordinance governing such disposal. Tenant shall be charged the cost of removal for any items left by Tenant that cannot be so removed. All garbage and refuse disposal shall be made only through entryways and elevators provided for such purposes and at such times as Landlord shall designate. Tenant shall not introduce into the Building any substance which might add an undue burden to the cleaning or maintenance of the Demised Premises or the Building. Landlord shall not be responsible to any tenant for any loss of property on the Demised Premises, however occurring, or for damage done to the effects of any tenant by the cleaning service or any other employee or any other person. 61. The Common Areas and roof of the Building are not for the use of the general public, and Landlord shall in all cases retain the right to control or prevent access thereto by all persons whose Page 6 of 8 presence, in the judgment of Landlord, shall be prejudicial to the safety, character, reputation or interests of the Building and its tenants. Tenant shall not enter or install equipment in the mechanical rooms, air conditioning rooms, electrical closets, janitorial closets, or similar areas or go upon the roof of the Building without the prior written consent of Landlord. No tenant shall install any radio or television antenna, loudspeaker, or other device on the roof or exterior walls of the Building. 62. Tenant shall not install or permit the installation of any awnings, shades or mylar films or sunfilters on windows. 63. Tenant shall not use the washrooms, restrooms and plumbing fixtures of the Building, and appurtenances thereto, for any other purpose than the purpose for which they were constructed, and Tenant shall not deposit any sweepings, rubbish, rags or other improper substances therein. Tenant shall not waste water by interfering or tampering with the faucets or otherwise. If Tenant or Tenant's servants, employees, agents, contractors, jobbers, licensees, invitees, guests or visitors cause any damage to such washrooms, restrooms, plumbing fixtures or appurtenances, such damage shall be repaired at Tenant's expense, and Landlord shall not be responsible therefor. 64. Subject to applicable fire or other safety regulations, all doors opening onto Common Areas and all doors upon the perimeter of the Demised Premises shall be kept closed and, during non-business hours, locked, except when in use for ingress and egress. If Tenant uses the Demised Premises after regular business hours or on non-business days, Tenant shall lock any entrance doors to the Building or the Demised Premises after regular business hours or on non-business days, Tenant shall lock any entrance doors to the Building or to the Demised Premises used by Tenant immediately after using such doors. Tenant shall cooperate with energy conservation by limiting use of lights to areas occupied during non-business hours. 65. Employees of Landlord shall not receive or carry messages for or to Tenant or any other person, nor contract with nor render free or paid services to Tenant's servants, employees, contractors, jobbers, agents, invitees, licensees, guests, or visitors. In the event that any of Landlord's employees perform any such services, such employees shall be deemed to be the agents of Tenant regardless of whether or how payment is arranged for such services, and Tenant hereby indemnifies and holds Landlord harmless from any and all liability in connection with any such services and any associated injury or damage to property or injury or death to persons resulting therefrom. 66. For purposes hereof, the terms "Landlord", "Tenant", "Building" and "Demised Premises" are defined as those terms are Page 7 of 8 defined in the Lease to which these Rules and Regulations are attached. The term "Building" shall include the Demised Premises, and any obligations of Tenant hereunder with regard to the Building shall apply with equal force to the Demised Premises and to other parts of the Building. 67. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the agreements, covenants, conditions and provisions of any lease of Demised Premises in the Building. 68. Landlord reserves the right to make such other and reasonable rules and regulations as in its judgment may from time to time be needed for the safety, care and cleanliness of the premises, and for the preservation of good order therein. Page 8 of 8 EX-21 13 LIST OF SUBSIDIARIES EXHIBIT 21.01 LIST OF SUBSIDIARIES -------------------- State of Incorporation/ Names Used In Doing Name Organization Business ---- -------------- ------------------- Showboat Operating Nevada Showboat; Showboat Company Hotel, Casino & Bowling Center; Showboat Motel; Las Vegas Showboat Showboat Development Nevada Showboat Company Development Company Lake Pontchartrain Nevada Lake Pontchartrain Showboat, Inc. Showboat Showboat Nevada Star Casino Louisiana, Inc. Showboat Star Louisiana Star Casino Partnership Ocean Showboat, Inc. New Jersey Ocean Showboat Atlantic City New Jersey Showboat; Showboat Showboat, Inc. Hotel and Casino; Atlantic City Showboat Ocean Showboat New Jersey Ocean Showboat Finance Corporation Finance Corporation EX-23 14 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.01 Independent Auditors' Consent ----------------------------- The Shareholders and Board of Directors Showboat, Inc. We consent to incorporation by reference in the registration statements (Nos. 33-36048, 33-56044 and 33-47945) on Form S-8 of Showboat, Inc. of our report dated February 18, 1994, except for Note 1 paragraph 3 and Note 12 paragraph 2, which are as of March 1, 1994, relating to the consolidated balance sheets of Showboat, Inc. and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, shareholders' equity and cash flows and related schedules for each of the years in the three-year period ended December 31, 1993, which report appears in the December 31, 1993 annual report on Form 10-K of Showboat, Inc. Our report refers to a change in method of accounting to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Las Vegas, Nevada March 30, 1994 -----END PRIVACY-ENHANCED MESSAGE-----