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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
Commission File Number 1-12780
BOARDWALK CASINO, INC.
(Name of small business issuer in its charter)
NEVADA 88-0304201
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3750 LAS VEGAS BLVD. SOUTH
LAS VEGAS, NEVADA 89109
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (702) 735-2400
Securities registered under Section 12(b) of the Exchange Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $.001 Par Value Pacific Stock Exchange
Common Stock Purchase Warrants Pacific Stock Exchange
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
COMMON STOCK PURCHASE WARRANTS
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $27,911,557.
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant: As of January 7, 1997: $15,862,000*.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: $.001 Par Value Common Stock--
7,179,429 shares as of January 7, 1997.
Transitional Small Business Disclosure Format: Yes ; No X
--- ---
* The aggregate market value was determined by multiplying the number of
outstanding shares (excluding those shares held of record by officers,
directors and greater than five percent shareholders) by $4.8125, the
last sales price of the Registrant's common stock as of January 7,
1997, such date being within 60 days prior to the date of filing.
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PART I
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-KSB and other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contains statements that are forward-looking, such as statements relating to
plans for future expansion and other business development activities as well as
other capital spending, financing sources and the effects of regulation
(including gaming and tax regulation) and competition. Such forward-looking
information involves important risks and uncertainties that could significantly
affect anticipated results in the future and, accordingly, such results may
differ from those expressed in any forward-looking statements made by or on
behalf of the Company. These risks and uncertainties include, but are not
limited to, those relating to development and construction activities,
dependence on existing management, debt service (including sensitivity to
fluctuations in interest rates), domestic or global economic conditions, changes
in federal or state tax laws or the administration of such laws and changes in
gaming laws or regulations (including the legalization of gaming in certain
jurisdictions).
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Boardwalk Casino, Inc. (the "Company") is a Nevada corporation that owns
and operates the Holiday Inn-Registered Trademark- Casino Boardwalk in Las
Vegas, Nevada and leases the 1.07 acre shopping center next to the hotel-casino.
The Holiday Inn-Registered Trademark- Casino Boardwalk is situated on a 7.8-acre
site on the Las Vegas Strip between Flamingo Road and Tropicana Avenue. It
includes 653 hotel rooms, approximately 33,000 square feet of casino space, a
coffee shop, a full-service restaurant, a snack bar, an entertainment lounge,
two bars, two outdoor swimming pools and 1,125 garage and surface parking spaces
(including those spaces acquired with the shopping center lease). It also
contains a small gift shop under lease to Holiday Gifts, Inc., a Nevada
corporation owned by Norbert W. Jansen and Avis P. Jansen, the executive
officers, directors and principal shareholders of the Company. The Company has
recently completed a substantial hotel and casino renovation and expansion
program.
Boardwalk Casino, Inc. was incorporated under the laws of the State of
Nevada on July 27, 1993; Holiday Gifts, Inc. was incorporated under the laws of
the State of Nevada on December 23, 1971. The Company's principal executive
office is located at 3750 Las Vegas Boulevard South, Las Vegas, Nevada 89109 and
its telephone number is (702) 735-2400.
LOCATION
The Holiday Inn-Registered Trademark- Casino Boardwalk is strategically
located to take advantage of the development and construction of adjacent mega-
hotel/casino projects. Las Vegas Boulevard, more commonly known as "The Strip,"
is currently the center of gambling activity in Las Vegas. There are other
concentrations of casinos located in downtown Las Vegas and suburban locations.
The Las Vegas Strip has the highest concentration of casino space and hotel
rooms in Southern Nevada and it is the location of substantially all of the
premier Las Vegas hotels.
The Company believes that its highly visible and accessible location is an
important factor in attracting visitors as gaming customers.
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BACKGROUND
Holiday Gifts, Inc. ("HGI") began gaming operations in 1977 under the trade
name "The Slot Joyn't" when it was granted a restricted Nevada gaming license
for 15 slot machines. In 1980, HGI was granted a nonrestricted Nevada gaming
license and expanded its operations at The Slot Joyn't to 35 slot machines. In
1985, VC, Ltd., Limited Partnership, an affiliated limited partnership of which
HGI was the general partner, acquired the adjacent Holiday Inn property and
began operating it under the trade name "Viscount Hotel." Thereafter, HGI
constructed a physical connection between the hotel and casino and, in 1989,
changed the trade name of the combined businesses to the Boardwalk Hotel &
Casino. In September 1995, the Company substantially completed a renovation of
the casino by expanding the casino floor space by 18,000 square feet and
remodeling the front facade of the property. In May 1996, the Company
substantially completed the development and construction of a new 16-story
451-room hotel tower on its property in addition to the existing four- and
six-story towers. As a result of these expansions and other incremental
additions, the Holiday Inn-Registered Trademark- Casino Boardwalk currently
consists of a 653-room hotel and a casino of approximately 33,000 square feet
with 647 slot machines, 20 table games and a full-service race and sports book.
BUSINESS STRATEGY
Management believes that the following key principles have been and will
continue to be integral to its success as a gaming operator.
TARGETED CUSTOMER BASE
The Company's business strategy emphasizes attracting and retaining
customers from two primary market segments, tourism and local patronage. As the
Company's property has developed by the increase of its room base from 202 rooms
to 653 rooms and the completion of its boardwalk exterior facade, the Company
has focused its emphasis on marketing a larger room base and capturing the added
traffic generated by the development of the mega resorts surrounding the
Boardwalk Casino. The Boardwalk Casino is disproportionately large in relation
to its room count, thus allowing for the increase in pedestrian traffic
generated by the room base of surrounding mega resorts and new mega resorts
under construction. The Company believes that its visitor patrons are
discerning customers who enjoy the Company's hotel and casino as an alternate to
the larger surrounding attractions on the Las Vegas Strip.
FOCUS ON REPEAT CUSTOMERS
Generating customer satisfaction and loyalty is a critical component of the
Company's business strategy. The Company attracts customers from both the
tourist and local markets by offering significant value in its dining
experiences and its promotional programs. The Company markets its rooms through
the Holiday Inn reservation system and its internal group tour, meeting and
travel department. The Company believes the local market is primarily
influenced by the actual value of its food operations coupled with specific
promotions. Although perceived value attracts customers to the Holiday
Inn-Registered Trademark- Casino Boardwalk initially, actual value generates
customer loyalty and satisfaction. Management believes that actual value
becomes apparent during the customer's visit through an enjoyable and high
quality entertainment experience.
AFFORDABLE QUALITY
Because the Company targets the frequent repeat customer, management is
committed to providing a quality entertainment experience for its customers at
an affordable price. Dining is a primary motivation
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for a majority of all casino visits by both tourists and local residents, and
management believes that the value offered by the Company's restaurants,
deli, ice cream parlor and snack bar is a major factor in attracting its
customers. The Company offers generous portions of high quality food at
reasonable prices. In addition, the Company provides a high level of value
to its hotel guests by offering moderately priced rooms which are
well-appointed relative to comparably priced Las Vegas hotels. Management
believes that providing affordable quality to customers contributes
significantly to casino patronage.
STRATEGIC LOCATION
Management believes that the location of the Holiday Inn-Registered
Trademark- Casino Boardwalk provides the Company with a significant competitive
edge. With 436 feet of frontage on The Strip, the Company is able to offer
inviting opportunities for the pedestrian traffic generated by the surrounding
mega resorts. The July 1996 opening of the 3,000-room Monte Carlo Hotel and
Casino immediately south of the Company and the Country Star restaurant to its
north have significantly increased the pedestrian traffic on the boardwalk. The
2,200-room New York-New York Hotel and Casino (expected to open in January 1997)
and the 2,000-room addition to the Luxor Hotel and Casino are also expected to
improve pedestrian traffic.
EMPHASIS ON SLOT PLAY
An integral part of the Company's business strategy is an emphasis on slot
machine play. The Company's target market consists of frequent gaming patrons
who seek not only a friendly atmosphere and convenience, but also higher-than-
average payout rates. Accordingly, the Company's slot machine play provides
players with payout rates that are higher than the Las Vegas Strip average
payout rates.
EXPANSION MASTER PLAN
Currently, the Holiday Inn-Registered Trademark- Casino Boardwalk consists
of a 33,000 square feet casino and a hotel containing a total of 653 rooms
within a four-story, a six-story and a 16-story building located on the property
site. The Company's master expansion plan for the Holiday Inn-Registered
Trademark- Casino Boardwalk consisted of three phases: (i) the renovation and
refurbishment of the original hotel rooms, which was completed in May 1994, (ii)
the expansion of the casino, which was substantially completed in September
1995, and (iii) the development and construction of a 16-story, 451-room hotel
tower, a parking garage and surface parking (accommodating 1,125 cars) and the
completion of the 27,000 square foot second floor of the casino. The
development and construction of the 16-story, 451-room hotel tower was
substantially completed in May 1996. The Company anticipates that the
development and construction of the 27,000 square foot second floor of the
casino should be completed by April 1997.
The Company has expanded the casino floor space from 15,000 square feet to
33,000 square feet and increased the number of slot machines from 212 to 647 and
the number of table games from six to 20. In addition, the casino also features
a full-service race and sports book. As part of the casino expansion project,
the Company relocated and increased the seating capacities of its restaurant and
its new coffee shop. Management believes that this expansion was necessary to
respond to its expanding customer base and target markets.
As part of its expansion master plan, the Company remodeled the front
facade of the Holiday Inn-Registered Trademark- Casino Boardwalk to present a
"Coney Island Amusement Park" theme conforming to the historical character and
general architecture of Coney Island, New York's famous amusement park. The
casino has been combined with the new construction, creating a new exterior with
436 feet of horizontal frontage and an estimated height of 53 feet. The
"boardwalk" consists of amusement games and specialty food and/or
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gift shops. New state-of-the-art outdoor signage has completed the design
renovation and casino expansion.
The boardwalk consists of a total of 6,000 square feet of retail space,
including shops, amusement games and food services. Each of the shops along the
boardwalk offers access into the casino. The facade features a full-size model
roller coaster rising 90 feet above the boardwalk. A rotating ferris wheel,
complete with mannequins, is in place on the facade above the boardwalk, as is a
parachute drop with mannequins. The facade features the Company's logo, Jocko
the Clown, whose face stands approximately 45 feet high and whose likeness is
reproduced on certain of the retail merchandise which is sold by the Company's
retail shops.
In May 1996, the Company substantially completed the development and
construction of a new 16-story 451-room hotel tower on its property in addition
to the existing four- and six-story towers. The new 27,000 square foot second
level of the existing casino is currently under construction and will provide a
large buffet area and additional meeting rooms. This new second floor will also
provide a walkway to the parking garage.
On December 16, 1993, the Company entered into a license agreement with
Holiday Inns Franchising, Inc. to operate a "Holiday Inn-Registered Trademark-"
hotel at its location. The agreement, as amended, required the Company to
perform certain construction and renovation work and to open 200 rooms as a
Holiday Inn by May 1, 1994 and a minimum of 300 additional rooms as a Holiday
Inn by April 1, 1996. Thereafter, the Company may open a maximum of 1,000 rooms
as a Holiday Inn by October 1, 1998. The agreement provides that the Company
will pay (i) a monthly royalty of 5% of the gross rooms revenues; (ii) a
"marketing contribution" of 1.5% of the gross rooms revenues; (iii) a
"reservation contribution" of 1.0% of the gross rooms revenues; and (iv) a
monthly Holidex fee of $6.43 for each guest room on the Holidex reservation
system. The license granted under the agreement expires ten years from the date
of the opening of the hotel under the "Holiday Inn" system (June 16, 1994),
subject to earlier termination as set forth therein.
$40 MILLION FIRST MORTGAGE NOTE OFFERING
On April 12, 1995, the Company completed the private sale of a $40 Million
16.5% First Mortgage Note due 2005 (the "Note"). The Note was issued under the
Indenture between Boardwalk Casino, Inc., Issuer and Shawmut Bank, N.A., Trustee
for $40,000,000 16.5% First Mortgage Notes Due March 31, 2005, Dated as of April
7, 1995 (the "Indenture"). The Note is a senior secured obligation of the
Company, limited in aggregate principal amount to $40,000,000, secured by all of
the current property and assets of the Company. The Note bears interest at the
rate of 16.5% per annum, payable in cash semi-annually on March 31 and September
30 of each year, commencing on September 30, 1995. Interest will be paid to the
holder of the Note at the close of business on the March 15 or the September 15,
as the case may be, immediately preceding the respective interest payment date,
or if no interest has yet been paid, on the date of original issue.
Pursuant to a Disbursement and Escrow Agreement entered into by and among
the Trustee, the Company, Bank of America Nevada and Nevada Construction
Services, Inc., the Company deposited $25,845,054 of the net proceeds derived
from the issuance and sale of the Notes into the Collateral Account. The funds
were disbursed on the terms provided in the Disbursement and Escrow Agreement to
pay for construction of the 16-story 451-room hotel tower and related
improvements. All funds in the Collateral Account were pledged as security for
the repayment of the Note.
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The Company may not redeem or prepay the Note without penalty prior to the
date of its Stated Maturity. Commencing on September 30, 2001, the Company may
redeem the Note in whole but not in part at a redemption price equal to (i) the
remaining principal amount thereof, plus (ii) accrued interest to the date of
redemption, plus (iii) a premium equal to the Yield Maintenance Premium. The
Indenture contains certain covenants of the Company, including limitations on
use of proceeds, limitations on restricted payments, limitations on incurrence
of additional indebtedness, limitations on restrictions on distributions from
Restricted Subsidiaries, limitations on capital stock of Restricted
Subsidiaries, limitations on transactions with Affiliates, limitations on Liens,
limitations on activities, limitations on sales of assets, limitation on merger,
sale or consolidation and maintenance of consolidated net worth.
The foregoing summary of the Note and the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by, reference to
all of the provisions of the Note and the Indenture, including the definitions
contained therein of certain terms and those terms made part of the Indenture by
reference to the Trust Indenture Act of 1939 as in effect on the date of the
Indenture. Capitalized terms used herein and not otherwise defined have the
meanings ascribed to them in the Indenture.
As part of the private sale of the Note, the Company issued to the Note
purchaser 1,281,869 common stock purchase warrants exercisable to purchase
1,281,869 shares of Common Stock at $6.00 per share anytime before April 11,
2005. Further, in connection with the private placement and sale of the Note,
the Company issued to the Placement Agent and Financial Advisor (and its
affiliates) an aggregate of 626,823 common stock purchase warrants exercisable
to purchase 626,823 shares of Common Stock at $6.00 per share anytime before
April 11, 2000.
The proceeds of the Note were applied to (i) finance approximately $29.6
million of construction costs for the 16-story 451-room hotel tower, parking
facility, 27,000 square foot second level addition to the existing casino and
related improvements; (ii) finance the retirement of approximately $5.9 million
of existing indebtedness; (iii) pay approximately $1.5 million of fees and
expenses incurred in connection with the offering and sale of the Note; and (iv)
provide approximately $3.0 million for working capital and other corporate
purposes.
PRIVATE FINANCING WITH DIVERSIFIED OPPORTUNITIES GROUP LTD.
On September 25, 1996, the Company completed a private transaction (the
"Transaction") entered into by and among Diversified Opportunities Group Ltd.,
an Ohio limited liability company ("Diversified"), the Company, and Norbert W.
Jansen, individually and as trustee under an agreement dated July 14, 1993
("Jansen"). Pursuant to the terms of a Purchase Agreement dated as of September
24, 1996 (the "Purchase Agreement") among Diversified, the Company and Jansen,
the first phase of the Transaction was consummated on September 25, 1996. In
the first phase of the Transaction, the Company sold to Diversified 571,429
shares of common stock (the "Shares") at a price of $7.00 per share for a total
purchase price of $4,000,000 and issued to Diversified a convertible
subordinated note (the "Note") in the principal amount of $5,000,000. In the
first phase, Jansen also sold to Diversified 182,411 Shares pursuant to the
terms of an Option and Proxy Agreement (the "Option Agreement"). In addition,
as of September 24, 1996, the Company and Diversified also executed a
Registration Agreement (the "Registration Agreement").
The following is a summary of certain terms of the Purchase Agreement, the
Note, the Option Agreement and the Registration Agreement (collectively, "the
Transaction Documents"). This summary of the Transaction Documents is qualified
in its entirety by reference to the Transaction Documents, copies of which have
been filed as exhibits to this Report on Form 10-KSB.
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The principal business of Diversified is developing and acquiring
investments in the gaming industry and managing, supervising, selling or
otherwise disposing of such investments and engaging in activities incidental or
ancillary thereto. There are two members of Diversified, (i) Gary L. Bryenton
and Jeffrey P. Jacobs, as trustees under the Opportunities Trust Agreement dated
February 1, 1996 (the "Trust") and (ii) Jacobs Entertainment Ltd., an Ohio
limited liability company ("Entertainment"). Entertainment is the Manager of
Diversified. Jeffrey P. Jacobs ("Jacobs") and Jacobs Entertainment Inc. (a
corporation in which Jacobs owns 100% of the outstanding capital stock) are the
members of Entertainment and Jacobs is the manager of Entertainment. Both the
Trust and Entertainment were formed primarily to hold their interest in
Diversified.
The first phase of the Transaction closed on September 25, 1996. At such
time, Boardwalk sold to Diversified 571,429 Shares. Pursuant to the Option
Agreement, Jansen sold to Diversified 182,411 Shares. In addition, Boardwalk
issued the Note to Diversified. Diversified has the right, at its option, to
convert the Note into Shares at any time following its receipt of all necessary
licensing approvals from the Nevada State Gaming Control Board (the "Gaming
Board"), the Nevada Gaming Commission (the "Commission") and local licensing
authorities. The Note is convertible into a number of Shares determined by
dividing the then unpaid principal balance of the Note by $7.50. The Note
provides for a variable interest rate of LIBOR plus 2% and interest thereon is
payable on a quarterly basis. The principal of the Note is due and payable in
September 1998.
On November 25, 1996, Diversified was advised by the Gaming Board that the
second phase of the Transaction will not result in a change in control of the
Company pursuant to the regulations of the Gaming Board and the Commission. On
December 2, 1996, phase two of the Transaction was consummated. In phase two,
Diversified purchased an additional 317,589 Shares from Jansen pursuant to the
Option Agreement, and the Company's Board of Directors (the "Board") was
expanded to six directors, with Jacobs being appointed as the sixth director.
The final phase of the Transaction provides Diversified the option to
acquire an additional 1,000,000 Shares from Jansen pursuant to the Option
Agreement. The exercise of this option is subject to Diversified obtaining all
necessary licensing approvals from the Gaming Board, the Commission and the
Nevada local licensing authorities. At such time as Diversified acquires a
total of 1,000,000 Shares from Jansen pursuant to the Option Agreement, the
Company's Board will be expanded to seven directors with the additional director
being designated by Diversified.
The Option Agreement further provides for first refusal and first offer
rights for Diversified on Shares to be sold by Jansen, his estate and family.
The Option Agreement requires that Jansen vote all of his Shares and any other
securities of the Company over which he has control and that he take all
necessary or desirable actions within his control so that: (i) the Board is
established at six directors; (ii) Jacobs is elected to the Board as one of the
six directors; and (iii) once Diversified acquires 1,000,000 or more Shares from
Jansen pursuant to the Option Agreement, the Board is expanded to seven
directors with the additional director to be designated by Diversified.
Diversified is also granted an irrevocable proxy to vote Jansen's Shares if
Jansen fails to comply with the terms of the Option Agreement relating to the
Board, or any restrictive covenants imposed on the Company pursuant to the Note.
The Registration Agreement gives Diversified certain rights with respect to
registering for sale under the Securities Act of 1933, as amended (the "Act"),
and applicable state laws the Shares that it may acquire pursuant to the
Transaction. The Registration Agreement gives Diversified the right, through
September 24, 2001, to demand that the Company effect up to three registrations
(two of which are to be paid by the Company and one of which will be paid by
Diversified) of such Shares subject to the conditions set forth in the
Registration Agreement. In addition, Diversified has the right to have such
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Shares included in certain registrations under the Act that the Company may
effect other than pursuant to such demand, subject to the conditions set forth
in the Registration Agreement.
MARKETING
The Holiday Inn-Registered Trademark- Casino Boardwalk has historically
relied upon limited casino and other promotions designed to appeal to local
residents. With the completion of the expansion of the casino and the hotel,
the Company has implemented an aggressive marketing plan to promote the hotel
and the casino. The Company believes that the "Coney Island" theme exterior
facade will enhance its ability to attract pedestrian traffic currently
generated by the existing mega resorts as well as those mega resorts under
construction and in the planning phase which surround the Holiday Inn-Registered
Trademark- Casino Boardwalk. With its oversized casino in relation to its room
inventory, the "Coney Island" facade, and the Company's inexpensive dining value
offerings, the Company believes that it is positioned to attract the mega resort
customer as an addition to its established local and hotel customer bases.
CURRENT OPERATIONS
GAMING. Historically, the casino has accounted for approximately 40% of
the net revenues of the Holiday Inn-Registered Trademark- Casino Boardwalk.
These revenues were primarily derived from the 212 slot machines and four table
games. With the newly expanded casino, it is anticipated that the gaming
revenue provided by slot machines will continue to be the primary component of
the Company's gaming revenues and income from operations. Currently, the
Holiday Inn-Registered Trademark- Casino Boardwalk has 647 slot machines and 20
table games on its casino floor and operates a full-service race and sports
book. On average, the preponderance of the weekly gaming net revenues are
generated on weekends. The gaming revenues are provided by a broad base of
customers and are not dependent on high-stakes players.
In connection with its gaming activities, the Company follows a policy of
stringent controls in compliance with the standards set by the Nevada Gaming
Authorities. As a matter of policy, the Company does not extend credit to its
gaming customers.
NON-GAMING. The Holiday Inn-Registered Trademark- Casino Boardwalk has 653
rooms, two outdoor pools and a retail gift shop leased to HGI. The Company
offers its hotel rooms at modest prices (as of September 30, 1996, the average
room rate was approximately $60.00). For fiscal year 1995, the Holiday
Inn-Registered Trademark- Casino Boardwalk's average occupancy was approximately
59.42%. For the fiscal year ended September 30, 1996, the average occupancy was
approximately 76.44%. See "Item 6. Management's Discussion and Analysis or Plan
of Operation" for more information regarding the Company's gaming and non-gaming
operations and revenues.
The Company offers a full service restaurant, a coffee shop, a snack bar,
an entertainment lounge and two bars for its casino and restaurant patrons. As
with its hotel accommodations, the Company's food and beverage services are
moderately priced.
COMPETITION
There is intense competition among companies in the gaming industry, many
of which have significantly greater financial resources than the Company. The
Holiday Inn-Registered Trademark- Casino Boardwalk faces competition from all
other casinos and hotels in the Las Vegas areas. The Holiday Inn-Registered
Trademark- Casino Boardwalk competes directly with a number of other operations
targeted to local residents. Indirectly and to a lesser extent, its operations
compete generally with gaming operations in other parts of the State of Nevada,
such as Reno, Laughlin and Lake Tahoe, with facilities in Atlantic City, New
Jersey and other
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parts of the world and with state-sponsored lotteries, on- and off-track
wagering, card parlors, riverboat and Native American gaming ventures and
other forms of legalized gambling. Certain states have recently legalized,
and several other states are currently considering legalizing, casino gaming
in designated areas. Legalized casino gaming in other states and on Native
American reservations represents additional competition to the Company and
could adversely affect the Company's operations, particularly if such gaming
were to occur in areas close to the Company's operations.
EMPLOYEES
As of September 30, 1996, the Company employed 600 full-time employees,
including its three executive officers, 40 managers and supervisors, 160 casino
personnel, 220 food and beverage personnel, 157 hotel personnel and 20
administrative personnel. The Company occasionally employs part-time workers as
needed. None of the Company's employees is covered by a collective bargaining
agreement. The Company believes that its relationship with its employees is
excellent.
REGULATION AND LICENSING
The ownership and operation of casino gaming facilities in Nevada are
subject to (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (the "Nevada Act") and (ii) various local regulations. The Company's
gaming operations are subject to the licensing and regulatory control of the
Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming
Control Board (the "Nevada Board") and the Clark County Liquor and Gaming
Licensing Board (the "CCB"). The Nevada Commission, the Nevada Board and the
CCB are collectively referred to as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing 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.
The Company is required to be licensed by the Nevada Gaming Authorities.
The gaming licenses require the periodic payment of fees and taxes and are not
transferable. The Company is also required to be registered by the Nevada
Commission as a publicly traded corporation ("Registered Corporation") and as
such, it is required periodically to submit detailed financial and operating
reports to the Nevada Commission and furnish any other information that the
Nevada Commission may require.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the 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 the Company must file applications with the Nevada Gaming
Authorities and 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. An applicant for
licensing or an applicant for a finding
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of suitability must pay all 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
licensing, the Nevada Gaming Authorities have the 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, the Company would have to sever all relationships
with such person. In addition, the Nevada Commission may require the Company to
terminate the employment of any person who refused to file appropriate
applications. Determinations of suitability or questions pertaining to
licensing are not subject to judicial review in Nevada.
The Company is required to submit detailed financial and operating reports
to the Nevada Commission. Substantially all material loans, leases, sales of
securities and similar financing transactions of the Company must be reported
to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by the Company, the
gaming licenses it holds could be limited, conditioned, suspended or revoked,
subject to compliance with certain statutory and regulatory procedures. In
addition, the Company and the persons involved could be subject to substantial
fines for each separate violation of the Nevada Act at the discretion of the
Nevada Commission. Further, a supervisor could be appointed by the Nevada
Commission to operate the Company's gaming property and, under certain
circumstances, earnings generated during the supervisor's appointment (except
for the reasonable rental value of the gaming property) could be forfeited to
the State of Nevada. Limitation, conditioning or suspension of any gaming
license of the Company or the appointment of a supervisor could (and revocation
of any gaming license would) have a material adverse effect on the Company's
gaming operations.
Any beneficial holder of Common Stock or any other voting security of the
Company ("Company Voting Securities") regardless of the number of shares owned,
may be required to file an application, be investigated, and have such person's
suitability as a beneficial holder of Company 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 the investigation incurred by the Nevada Gaming
Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires beneficial ownership of
more than 5% of Company Voting Securities to report the acquisition to the
Nevada Commission. The Nevada Act requires that beneficial owners of more than
10% of Company 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
beneficial ownership of more than 10%, but not more than 15%, of Company Voting
Securities may apply to the Nevada Commission for a waiver of such finding of
suitability if such institutional investor holds Company Voting Securities for
investment purposes only. An institutional investor shall not be deemed to hold
Company Voting Securities for investment purposes unless Company 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 other action which the
Nevada Commission finds to be inconsistent with holding Company 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
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of the type normally made by securities analysts for informational purposes
and not to cause a change in 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, limited
partnership, limited liability company 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. Norbert W.
Jansen, the Company's largest stockholder, has been found suitable as a
controlling stockholder of the Company.
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
by 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 stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of Company Voting
Securities 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 stockholder or to have any other relationship with the Company, the Company
(i) pays that person any dividend or interest upon any Company Voting
Securities; (ii) allows that person to exercise, directly or indirectly, any
voting right conferred through securities held by that person; (iii) pays
remuneration in any form to that person for services rendered or otherwise; or
(iv) fails to pursue all lawful efforts to require such unsuitable person to
relinquish the voting securities for cash at fair market value. Additionally,
the CCB has the authority to approve all persons owning or controlling the stock
of any corporation controlling a gaming licensee.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a Registered Corporation to file applications, be investigated
and be found suitable to own such debt security of a Registered Corporation. If
the Nevada Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Registered Corporation can be
sanctioned, including the loss of its approvals, if without the prior approval
of the Nevada Commission, it (i) pays to the unsuitable person any dividend,
interest or any distribution whatsoever; (ii) recognizes any voting right by
such unsuitable person in connection with such securities; (iii) pays the
unsuitable person remuneration in any form; or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation or similar transaction.
The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner of any Company
Voting Securities. The Nevada Commission has the power to require the Company's
stock certificates to bear a legend indicating that the securities are subject
to the Nevada Act. However, to date, the Nevada Commission has not imposed such
a requirement on the Company.
The Company may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. Any approval, if granted, does not constitute a finding,
recommendation or approval of the Nevada Gaming Authorities as to the accuracy
or adequacy of the prospectus or the investment merits of the securities offered
thereby. Any representation to the contrary is unlawful.
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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 such person obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and Nevada Commission in a
variety of stringent standards prior to assuming control of such Registered
Corporation. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated and
licensed as part of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada gaming licenses, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company's
Board of Directors in response to a tender offer made directly to its
stockholders for the purpose of acquiring control of the Company.
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 Company's 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 operators where entertainment is furnished in connection with the
selling of food or refreshments. Nevada Corporate 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 by
the Nevada Board of the Licensee's 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. A Licensee is also subject to
disciplinary action by the Nevada Commission if it knowingly violates any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fails to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engages in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employs a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
The sale of alcoholic beverages by the Company is subject to licensing,
control and regulation by applicable local regulatory agencies. All licenses
are revocable and are not transferable. The agencies
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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 effect upon the operations of the Company.
ITEM 2. DESCRIPTION OF PROPERTY.
See "Item 1. Description of Business" for a complete description of the
Company's property.
Effective October 1, 1996, in connection with the private transaction with
Diversified Opportunities Group Ltd., the Company entered into a lease agreement
(the "Lease Agreement") as the tenant with The Jansen Trust (as hereinafter
defined) as the landlord. The Lease Agreement covers certain land to the north
of the hotel and casino (the "Property") which enables the Company to control
the use of the Property and provides the Company with an option to purchase the
Property for possible expansion of the hotel and casino.
The Property consists of approximately 1.07 acres of land and has 150 feet
of frontage on the Strip. It currently contains a two-story office building
which is leased to several retail and office tenants, including the executive
and administrative offices of the Company. The Lease Agreement commenced
October 1, 1996 and has a term of 24 months, with an option to extend the lease
term for an additional five years and a second, successive, option to extend it
an additional 23 years. The base rent of $70,000 per month ($840,000 per year)
is subject to adjustment after five years. In addition, the Lease Agreement
grants the Company an option to purchase the Property under certain terms and
conditions. The Company believes that the terms of the Lease Agreement are fair
and reasonable and on as beneficial terms as could be obtained from an
unaffiliated third party consistent with other rentals assessed in the market
area for similar facilities.
The Company does not invest in, and has not adopted any policy with respect
to investments in, real estate or interests in real estate, real estate
mortgages or securities of or interests in persons primarily engaged in real
estate activities. It is not the Company's policy to acquire assets primarily
for possible capital gain or primarily for income.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings, other than routine
litigation incidental to the Company's business, to which the Company is a party
or of which any of its property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) The Common Stock is traded in the over-the-counter market and is
quoted on the Nasdaq SmallCap Market under the symbol "BWLK" and on the Pacific
Stock Exchange under the symbol "BWK". For the past two fiscal years, the high
and low bid prices of the Common Stock as reported to the Company by the
National Association of Securities Dealers, Inc. were as follows:
FYE 1996 QUARTER ENDED: HIGH LOW
---------------------- ---- ---
December 31, 1995 6 5/8 5 1/4
March 31, 1996 8 1/2 5 3/4
June 30, 1996 8 9/16 7 1/2
September 30, 1996 6 5/8 5 3/4
FYE 1995 QUARTER ENDED: HIGH LOW
---------------------- ---- ---
December 31, 1994 6 5 1/4
March 31, 1995 5 5/8 5 1/4
June 30, 1995 8 5/8 7 1/2
September 30, 1995 8 5/8 7 3/8
The over-the-counter quotations set forth herein reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
The Warrants are traded in the over-the-counter market and are quoted on
the Nasdaq SmallCap Market under the symbol "BWLKW" and on the Pacific Stock
Exchange under the symbol "BWKW."
(b) On January 7, 1997, the last sale price of the Common Stock as
reported by Nasdaq was $4.8125 per share. As of January 7, 1997, there were at
least 1,900 record and beneficial holders of the Common Stock.
(c) The Company has not paid any dividends on its Common Stock and does
not presently anticipate paying dividends in the foreseeable future. The
Company currently intends to retain all of its earnings from operations for use
in expanding and developing its business. Any future decision as to the payment
of dividends will be at the discretion of the Company's Board of Directors and
will depend upon the Company's earnings, financial position, capital
requirements and such other factors as the Board of Directors deems relevant.
Further, the Indenture between the Company as Issuer and Shawmut Bank, N.A. as
Trustee for $40,000,000 16.5% First Mortgage Notes Due March 31, 2005, Dated as
of April 7, 1995 and the Note issued to Diversified Opportunities Group Ltd.
contain significant limitations on the Company's ability to pay dividends on its
capital stock.
(d) In June 1996, the Company completed a private offering of 15 Units,
each Unit consisting of 10,000 shares of Common Stock valued at $6.25 per share
and 5,000 warrants valued at $0.25 per warrant, for total gross proceeds of
$956,250. Each warrant entitles the holder to purchase one unregistered share
of Common Stock at a price of $7.50 at any time until June 17, 2000. The
issuance of the foregoing securities was made without registration under the
Securities Act in reliance upon the
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exemption provided by Section 4(2) of the Securities Act and in compliance
with Rule 506 of Regulation D under the Securities Act. No underwriter was
involved in the distribution of these securities, and no commissions were
paid in connection therewith. The purchasers of the Units were Tina Hunt
Coots (2 Units), James D. Hunt, Jr. (2 Units), James D. Hunt (4 Units),
Glenna K. Hunt (2 Units), Carl Arfa and Judith Arfa (1 Unit) and Grove, Inc.
(4 Units).
On September 25, 1996, the Company sold to Diversified Opportunities
Group Ltd. ("Diversified"), an Ohio limited liability company, 571,429 shares of
Common Stock at a price of $7.00 per share for a total purchase price of
$4,000,000 and issued to Diversified a convertible subordinated note (the
"Note") in the principal amount of $5,000,000. Subject to regulatory approvals,
the Note is convertible into a number of shares determined by dividing the then
unpaid principal balance of the Note by $7.50. The principal of the Note is due
and payable in September 1998. The issuance of the foregoing securities was
made without registration under the Securities Act in reliance upon the
exemption provided by Section 4(2) of the Securities Act. No underwriter was
involved in the distribution of these securities, and no commissions were paid
in connection therewith.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
Boardwalk Casino, Inc. ("BCI" or the "Company") was formed in
July 1993 for the purpose of operating a casino and a hotel in Las
Vegas, Nevada. See "Notes to Financial Statements".
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
REVENUES:
Casino........................................ $16,897,527 $ 2,128,345
Rooms......................................... 7,224,324 2,824,534
Food and beverage ............................ 4,031,278 1,513,466
Other......................................... 837,895 138,607
----------- -----------
Gross revenues ............................. 28,991,024 6,604,952
Promotional allowances ....................... (1,079,467) (280,502)
----------- -----------
27,911,557 6,324,450
COSTS AND EXPENSES:
Casino........................................ 10,787,868 2,415,562
Rooms......................................... 3,460,334 1,675,696
Food and beverage............................. 4,168,259 1,745,572
Other......................................... 173,138 64,032
Selling, general and administrative........... 5,174,502 2,209,374
Depreciation and amortization................. 2,525,044 840,168
----------- -----------
26,289,145 8,950,404
----------- -----------
Income (loss) from operations.................. 1,622,412 (2,625,954)
----------- -----------
OTHER (INCOME) EXPENSE:
Interest income............................... (395,416) (653,740)
Interest expense.............................. 7,874,115 3,463,556
Interest capitalized.......................... (1,442,493) (1,243,558)
Loss on disposal of fixed assets.............. - 1,100,585
----------- -----------
6,036,206 2,666,843
----------- -----------
Income (loss) before income taxes &
extraordinary item ........................... $(4,413,794) $(5,292,797)
----------- -----------
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RESULTS OF OPERATIONS
The Company is engaged in a three-phase project to expand and renovate
the former existing hotel and casino facilities (the "Expansion"). Phase
one of the Expansion was completed in May 1994 which was the renovation of
the original 202 existing hotel rooms.
Phase two of the Expansion was completed in September 1995 with the
completion of a new casino facility that increased floor space from 15,000
square feet to 33,000 square feet.
The third phase of the Expansion consisted of development and
construction of a new 16-story (451 room) hotel tower, the completion of the
27,000 square foot buffet and meeting rooms on the second floor of the
casino, the completion of 4,500 square feet of meeting room space on the
first floor of the tower, entertainment lounge and the construction of two
parking garages as more fully described below.
The hotel tower was opened in stages under a temporary certificate of
occupancy permit with an additional 128 rooms on February 23, 1996 added to
the existing 202 rooms. Additional rooms were added every few weeks through
May 3, 1996 totaling 642 rooms. The remaining 16th floor, comprised of 11
suites, was available for occupancy by late July 1996.
On December 22, 1995, the first of two parking garages, consisting of
550 spaces, was available for complete use. The second garage, consisting of
440 spaces, was available for complete use on May 3, 1996.
On November 28, 1995, the 105 seat Lighthouse Lounge opened starring
"The Unknown Comic" and additional entertainment throughout the year.
Phase three of the Expansion was substantially completed, excluding the
buffet and meeting rooms on the first and second floors, which are currently
under construction. Of the total estimated cost to complete the buffet and
meeting rooms, the Company has expended approximately $4,171,000 as of
September 30, 1996, leaving an unexpended balance of approximately
$3,600,000. The balance of the construction will be financed using existing
cash, operating cash flow and cash available from other sources as more fully
described in "Liquidity and Capital Resources."
YEAR ENDED SEPTEMBER 30, 1996 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1995
The results of operations for the year ended September 30, 1996 reflect
the revenues and costs associated with the new casino facility open for the
entire year and the additional 451 rooms for approximately one half of the
year. The Company incurred a net loss in the year ended September 30, 1996
of $4,413,794 compared to a net loss of $5,336,826 in the prior year, a
decrease in the net loss of $923,032 (17.3%). The decrease in loss was
attributable to a $4,248,366 (161.8%) increase in income from operations, to
an operating profit of $1,622,412 in 1996 from an operating loss of
$2,625,954 in 1995 which was offset by an increase in net other expenses and
income of $3,369,363.
Net revenues at BCI increased $21,587,107 (341.3%), to $27,911,557 in
1996 from $6,324,450 in 1995. The increase in revenues for fiscal 1996 was
attributable to the following: (i) an increase of $14,769,182 in casino
revenues due to the opening of the new casino which included the opening of a
new race and sports book, (ii) $4,399,790 in additional room revenue due to
the completion during the year of the new hotel tower, (iii) an increase in
food and beverage revenues of $2,517,812 due to increased facilities and a
greater number of patrons, (iv) an increase in other revenues by $699,288 and
(v) offset by the increase in promotional allowances of $798,965. Operating
expenses, including depreciation and amortization, increased $17,338,741
(193.7%) to $26,289,145 in 1996 from $8,950,404 in the prior year. The
increase in operating expenses was due primarily to the addition of a new
casino facility and start-up and increased operating costs of the new hotel
tower.
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CASINO OPERATIONS
For fiscal 1996, casino revenues increased $14,769,182 or 693.9% to
$16,897,527. The increase is attributable to (i) a $7,164,793 increase in
revenue from the race and sports books to $7,150,487 in fiscal 1996 from a
loss of $14,306 for the same period in 1995, (ii) a $5,662,847 increase in
slot machine revenues to $7,401,869 in fiscal 1996 from $1,739,022 for the
same period in 1995 and (iii) a $1,941,542 increase in revenue from table
games to $2,345,171 in fiscal 1996 from $403,629 for the same period in 1995.
Casino expenses increased $8,372,306 (346.6%) to $10,787,868 for fiscal
year 1996 from $2,415,562 for the same period of 1995. The increase in casino
expenses was due to: (i) a new race and sports department which was open for
the entire year with $4,675,063 in additional expense, (ii) the increased
number of table games resulted in increased wages, benefits and taxes of
$1,085,504, (iii) the additional slot machines and table games increased
gaming taxes and participation expenses by $1,157,659 (iv) the cost of
providing complimentary services increased $663,935, (v) the number of casino
and cage personnel was increased to service the additional slot machine
patrons at an additional cost of $469,181 and (vi) a new promotions
department was added at a cost of $228,423.
ROOM OPERATIONS
Room revenues increased $4,399,790, or 155.8%, to $7,224,324 for fiscal
1996 from $2,824,534 for the comparable 1995 period. The increase in room
revenues reflects an increase in room nights sold by 77,431, or 176.2%, to
121,386 for fiscal 1996 from 43,955 for the comparable 1995 period. This
increase was partially offset by a decrease in the average daily room rate by
$4.74 to $59.52 for fiscal 1996 from $64.26 for the same period of 1995.
Fiscal year 1996 had an additional 85,438 room nights available for rental
compared to fiscal year 1995. These additional rooms available during 1996
over 1995 was due to the hotel tower opening in stages with the first 128
additional rooms on February 23, 1996 which added to the existing 202 rooms.
Additional rooms were added every few weeks through May 3, 1996 bringing the
total to 642 rooms. The 16th floor, which is comprised of 11 suites, was
available for occupancy by late July 1996. During the year the Company had
retained a professional sales department which had opened several corporate
accounts, including a national airline for its flight crews. Despite the
85,438 additional room nights available, the hotel occupancy percentage
increased 27.3% to 76.4% for the fiscal year 1996 compared to 60% for fiscal
1995.
Rooms expense increased $1,784,638, or 106.5%, for fiscal 1996 to
$3,460,334 from $1,675,696 for the same period in 1995. This increase is
primarily attributable to (i) an increase in personnel to service the new
hotel tower at a cost of $1,141,238, (ii) additional franchise fees and
travel agent commissions on the additional revenues totaled $433,574, (iii)
additional linen, laundry and room supplies totaled $221,688 and (iv) and
additional credit card fees, uniforms, 800 phone lines and maintenance and
repair costs.
FOOD AND BEVERAGE OPERATIONS
Food and beverage revenues increased by $2,517,812 (166.4%), to
$4,031,278 for fiscal 1996 from $1,513,466 for the comparable 1995 period.
The increase is primarily a result of the new casino facility which had a
full year of operations during fiscal 1996, as well as the opening of the new
hotel tower which had approximately six months of operations during fiscal
1996.
Food and beverage expenses increased $2,422,687 (138.8%), to $4,168,259
for fiscal 1996 from $1,745,572 for 1995 reflecting increases in food and
beverage costs associated with the increased sales.
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Food and beverage expenses as a percentage of gross food and beverage
revenues decreased to 103.4% for fiscal 1996 from 115.3% for fiscal year
1995. This decrease is a result of increased casino promotional activity
with an increase in food and beverage served on a complimentary basis, which
food and beverage costs are included in casino expense.
OTHER OPERATING REVENUES AND EXPENSES
Other revenues increased by $699,288 (504.5%) to $837,895 for fiscal
1996 compared to $138,607 for 1995. The increase was attributable to (i) an
increase of $238,285 in rental income due to the new retail facilities, (ii)
an increase of $226,894 in telephone and movie revenues and (iii) the balance
of the increased revenues from arcade and vending facilities.
The other costs increased $109,106 (170.4%) to $173,138 in fiscal 1996
compared to $64,032 in fiscal 1995. The increase is due primarily to the
additional costs of long-distance service and increased cost of movies
purchased.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization totaled $2,525,044 in 1996, reflecting a
$1,684,876 (200.5%) increase over the 1995 amount of $840,168. The increase
was due to the following: (i) a new casino facility was opened in September
1995 at a cost of $10,897,881, (ii) a new hotel tower was placed in service
May 1996 at a cost of $19,893,988, (iii) two new parking facilities were
completed during the fiscal year at a cost of $6,268,874, (iv) a central
plant was completed September 1995 at a cost of $1,825,842 and (iv)
additional gaming devices and casino equipment at a cost of $3,321,176 were
placed in service starting in September 1995 through fiscal year 1996.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased $2,965,128
(134.2%) to $5,174,502 in 1996 from $2,209,374 in 1995. The increase in
administrative expenses were due to (i) increase in administrative staffing
costs of $1,551,137, (ii) utilities increased $535,604, (iii) facility
maintenance and operating costs increased $335,991, (iv) advertising expenses
increased $195,007 and (v) business insurance increased $152,506 due to the
increased facilities.
OTHER (INCOME) EXPENSE AND EXTRAORDINARY ITEM
In 1996, the Company received $395,416 in interest income as compared to
$653,740 in 1995. The $258,324 (39.5%) decrease is attributable to the
lower invested balance of marketable securities in the 1996 period.
Interest expense increased to $7,874,115 in 1996 from $3,463,556 in 1995
(an increase of $4,410,559 or 127.3%). The increase was the result of
additional borrowing and a full year of interest expense on the BCI Notes in
1996 compared to approximately six months of interest cost on the BCI Notes
in 1995. Approximately $1,442,493 of interest was capitalized in 1996 in
connection with the Expansion compared to $1,243,558 of interest that was
capitalized in 1995.
During 1995 as part of the Expansion, the Company disposed of certain
property and equipment resulting in a loss on disposal of fixed assets of
approximately $1,101,000.
The Company extinguished certain indebtedness during 1995, resulting in
a net extraordinary loss on early extinguishment of $44,029, comprised of (i)
a loss on the extinguishment of the Company's
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12% promissory notes due August 1995, of $64,153; (ii) a loss on indebtedness
repaid with the proceeds of the BCI Notes of $60,827; and (iii) a gain on the
early settlement of a capital lease obligation in the amount of $80,951.
LIQUIDITY AND CAPITAL RESOURCES
In June of 1996, the Company completed a private placement equity
offering in which it sold 15 units (each unit consisting of 10,000 shares of
common stock and 5,000 warrants). The private placement generated net
proceeds of $956,250.
In September 1996, the Company executed a $5,000,000 subordinated,
convertible promissory note. Interest is payable quarterly at the applicable
Eurodollar rate plus 2% with principal due September 23, 1998 if not
converted by the noteholder. Prior to payment in full by the Company and
subject to regulatory approval, the noteholder may convert the unpaid
principal balance of the note into common shares of the Company. The number
of shares into which the note may be converted shall be determined by
dividing the unpaid principal balance by $7.50.
In September 1996, the Company completed a private placement offering
of 571,429 shares of its common stock at a selling price of $7.00 per share.
The Company received net proceeds of $3,735,195 for the stock, after
deducting offering expenses.
The net loss for fiscal 1996 of $4,414,000 and the reduction of
construction related accounts payable resulted in a negative cash flow of
approximately $2,728,000 from operating activities. Although the net loss
for the year ended September 30, 1995 was $5,337,000, the Company had
generated a positive cash flow of approximately $500,000, which was due to
the accruing of interest payable on September 30, 1995 of $2,599,668 on the
$40,000,000 private placement, which was subsequently paid during fiscal year
1996.
Investing activities for fiscal 1996 used approximately $3,425,000,
which was comprised of approximately $21,210,000 expended for the
construction and furnishing of a 16-story 451 room hotel tower and the second
parking garage and restricted cash of approximately $18,000,000 was used to
meet the expansion obligations.
Financing activities provided approximately $14,641,000 from
additional borrowings as well as the issuance of common stock and the
exercise of warrants during the year. Such proceeds were offset by $7,366,000
of principal payments on long-term debt notes payable and capital leases during
fiscal 1996.
The Company had unrestricted cash assets of $4,772,549 (7.6% of total
assets) at September 30, 1996 compared to $3,650,236 (6.3% of total assets)
at September 30, 1995. The ratio of current assets to current liabilities
was .82 to 1 at September 30, 1996 and .52 to 1 September 30, 1995.
With the completion of the new hotel tower and expanded casino,
restaurant, buffet and meeting rooms opened and the presence of its neighbors
(Monte Carlo - June 21, 1996 and New York, New York, - January 3, 1997),
management expects to generate cash flows from operations to improve on its
working capital position in fiscal 1997.
The Company has also arranged for up to $4,000,000 of available working
capital borrowings which
20
<PAGE>
has been made available by a director and a group of other private investors
who have provided other short-term financing to the Company in the past.
Such uncollateralized borrowings are available to the Company on an as-needed
basis through December 31, 1997 on terms substantially similar to those which
had been available to the Company during 1996.
Management believes that the combination of expected cash flows from
operations in 1997, and the proceeds from the private placement transactions,
are sufficient to meet the Company's obligations as they become due during
fiscal 1997. The outstanding warrants to purchase common stock at September 30,
1996 also represent a potential significant source of capital to the Company,
although management cannot control or accurately predict the timing of proceeds
from the exercise of warrants.
21
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
INDEX TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
--------------
Report Of Independent Accountants
Financial Statements:
Balance Sheets As Of September 30, 1996 And 1995
Statements Of Income (Loss) For The Years Ended September 30, 1996 And 1995
Statements Of Cash Flows For The Years Ended September 30, 1996 And 1995
Statements Of Shareholders' Equity For The Years Ended September 30, 1996
And 1995
Notes To Financial Statements
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
--------------
Board of Directors
Boardwalk Casino, Inc.
Las Vegas, Nevada
We have audited the accompanying balance sheets of Boardwalk Casino, Inc. as
of September 30, 1996 and 1995, and the related statements of income (loss),
shareholders' equity and cash flows for the years ended September 30, 1996
and 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Boardwalk Casino, Inc. as of
September 30, 1996 and 1995, and the results of its operations and its cash
flows for the years ended September 30, 1996 and 1995 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Las Vegas, Nevada
November 27, 1996, except for
Notes 6 and 7 as to which the
date is January 6, 1997
23
<PAGE>
BOARDWALK CASINO, INC.
BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
------------
<TABLE>
1996 1995
------------ -----------
<S> <C> <C>
A S S E T S:
Current assets:
Cash and cash equivalents $ 4,772,549 $ 3,650,236
Restricted cash equivalents, in escrow accounts - 1,464,008
Receivables, net of allowance for doubtful accounts of $17,105 (1996) and $5,400 (1995) 439,857 31,087
Inventory 73,719 65,551
Prepaid expenses 573,964 433,962
------------ -----------
Total current assets 5,860,089 5,644,844
------------ -----------
Property and equipment, net of accumulated depreciation of $5,705,685 (1996) and
$3,340,364 (1995) 55,486,285 34,132,377
------------ -----------
Other assets:
Restricted cash equivalents, in escrow accounts - 16,459,115
Deferred costs, net of accumulated amortization of $239,436 (1996) and $79,714 (1995) 1,645,090 1,379,993
Other 179,485 77,682
------------ -----------
Total other assets 1,824,575 17,916,790
------------ -----------
Total assets $ 63,170,949 $57,694,011
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 1,281,657 $ 1,150,830
Construction accounts payable 171,283 2,904,205
Accrued expenses 2,547,615 765,434
Accrued interest expense - 2,600,297
Notes payable - 2,589,628
Current portion of obligations under capital leases 3,115,522 861,616
------------ -----------
Total current liabilities 7,116,077 10,872,010
------------ -----------
Long-term debt 40,909,523 35,731,451
Obligations under capital leases, less current portion 3,400,234 1,474,041
------------ -----------
Total liabilities 51,425,834 48,077,502
------------ -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.001 par value; 15,000,000 shares authorized; none issued - -
Common stock, $.001 par value; 15,000,000 shares authorized; 7,179,429 (1996)
and 6,077,800 (1995) shares issued and outstanding 7,179 6,078
Additional paid-in capital 22,435,083 15,893,784
Accumulated deficit (10,697,147) (6,283,353)
------------ -----------
Total shareholders' equity 11,745,115 9,616,509
------------ -----------
Total liabilities and shareholders' equity $ 63,170,949 $57,694,011
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
BOARDWALK CASINO, INC.
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
------------
<TABLE>
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Casino $16,897,527 $ 2,128,345
Rooms 7,224,324 2,824,534
Food and beverage 4,031,278 1,513,466
Other 837,895 138,607
----------- -----------
Gross revenue 28,991,024 6,604,952
Less promotional allowances (1,079,467) (280,502)
----------- -----------
27,911,557 6,324,450
----------- -----------
Costs and expenses:
Casino 10,787,868 2,415,562
Rooms 3,460,334 1,675,696
Food and beverage 4,168,259 1,745,572
Other 173,138 64,032
Selling, general and administrative 5,174,502 2,209,374
Depreciation and amortization 2,525,044 840,168
----------- -----------
26,289,145 8,950,404
----------- -----------
Income (loss) from operations 1,622,412 (2,625,954)
----------- -----------
Other (income) expense:
Interest income (395,416) (653,740)
Interest expense 7,874,115 3,463,556
Interest capitalized (1,442,493) (1,243,558)
Loss on disposal of property and equipment - 1,100,585
----------- -----------
6,036,206 2,666,843
----------- -----------
Income (loss) before extraordinary item (4,413,794) (5,292,797)
Extraordinary item - loss on early retirement of debt (no current tax
benefit available) - (44,029)
----------- -----------
Net income (loss) ($4,413,794) ($5,336,826)
----------- -----------
----------- -----------
Income (loss) per share of common stock:
Income (loss) before extraordinary item $ (.70) $ (.90)
Extraordinary item - loss on early retirement of debt - (.01)
----------- -----------
Net income (loss) per share of common stock $ (.70) $ (.91)
----------- -----------
----------- -----------
Weighted average common shares outstanding 6,292,287 5,902,033
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
BOARDWALK CASINO, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
----------------
<TABLE>
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($4,413,794) ($5,336,826)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,525,044 840,168
Provision for doubtful accounts 11,705 -
Loss on disposition of property and equipment - 1,100,585
Amortization of original issue discount 462,472 77,223
Extraordinary loss on early retirement of debt - 44,029
Changes in operating assets and liabilities:
(Increase) decrease in receivables (420,475) 18,737
(Increase) in inventory (8,168) (29,149)
(Increase) in prepaid expenses (197,331) (8,685)
Increase in accounts payable, net of amounts
for capital expenditures 130,827 913,353
Increase in accrued expenses 1,782,181 288,199
(Decrease) increase in accrued interest payable (2,600,297) 2,589,864
------------ ------------
Net cash (used in) provided by operating activities (2,727,836) 497,498
------------ ------------
Cash flows from investing activities:
Capital expenditures, net of amounts in accounts payable (21,209,818) (20,546,214)
Net (additions) deductions to restricted cash
equivalents in escrow accounts 17,923,123 (17,923,123)
(Increase) in deferred costs (93,812) -
(Increase) decrease in other assets (44,474) 18,551
------------ ------------
Net cash used by investing activities (3,424,981) (38,450,786)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable borrowings 3,429,611 2,515,600
Principal payments of notes payable (6,303,639) (1,196,593)
Proceeds from long-term debt borrowings,
net of issuance costs 4,668,993 35,272,021
Principal payments of long-term debt - (4,644,818)
Principal payments of capital lease obligations (1,062,235) (568,699)
Proceeds from issuance of common stock and warrants,
net of issuance costs 6,542,400 5,365,046
------------ ------------
Net cash provided by financing activities 7,275,130 36,742,557
------------ ------------
Net increase (decrease) in cash and cash
equivalents 1,122,313 (1,210,731)
Cash and equivalents, beginning of period 3,650,236 4,860,967
------------ ------------
Cash and equivalents, end of period $ 4,772,549 $ 3,650,236
------------ ------------
------------ ------------
Supplemental cash flow information:
Cash paid for interest $10,474,412 $ 796,471
----------- -------------
----------- -------------
Schedule of non-cash investing and financing activities:
Property and equipment acquisitions included in
accounts payable $ 171,283 $ 2,904,205
----------- -------------
----------- -------------
Capitalized lease obligations incurred $ 5,242,336 $ 2,262,050
----------- -------------
----------- -------------
Prepaid insurance financed by note payable $ - $ 94,474
----------- -------------
----------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
BOARDWALK CASINO, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
----------------
<TABLE>
Common Stock
-------------------- Additional
Shares Paid-In Accumulated
Outstanding Amount Capital Deficit Total
----------- ------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balances, September 30, 1994 5,915,000 $5,915 $10,528,901 ($946,527) $ 9,588,289
Issuance of warrants to purchase
common stock in conjunction
with bridge loans - - 374,400 - 374,400
Issuance of warrants to purchase
common stock in conjunction with
BCI Notes, net of issuance costs - - 4,177,366 - 4,177,366
Exercises of warrants, net of
issuance costs 162,800 163 813,117 - 813,280
Net loss - - - (5,336,826) (5,336,826)
--------- ------ ----------- ------------ -----------
Balances, September 30, 1995 6,077,800 6,078 15,893,784 (6,283,353) 9,616,509
--------- ------ ----------- ------------ -----------
Issuance of warrants to purchase
common stock - - 51,617 - 51,617
Issuance of common stock, net of
issuance costs 721,429 721 4,639,107 - 4,639,828
Exercises of warrants, net of
issuance costs 380,200 380 1,850,575 - 1,850,955
Net loss - - - (4,413,794) (4,413,794)
--------- ------ ----------- ------------ -----------
Balances, September 30, 1996 7,179,429 $7,179 $22,435,083 ($10,697,147) $11,745,115
--------- ------ ----------- ------------ -----------
--------- ------ ----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
------------
1. Summary Of Significant Accounting Policies:
NATURE OF OPERATIONS
Boardwalk Casino, Inc. ("BCI" or the "Company") is a Nevada corporation
and was formed in July 1993 for the purpose of operating a casino and a
hotel (collectively, the "Boardwalk Hotel and Casino") in Las Vegas,
Nevada.
CASINO REVENUE
In accordance with industry practice, BCI recognizes as casino revenues the
net win from gaming activities, which is the difference between gaming wins
and losses.
PROMOTIONAL ALLOWANCES
The retail value of hotel accommodations and food and beverage provided to
customers without charge is included in gross revenues and then deducted
as promotional allowances to arrive at net revenues. The estimated costs
of providing such promotional allowances have been classified as gaming
expenses through interdepartmental allocations, as follows:
Year Ended September 30,
------------------------
1996 1995
---- ----
Rooms $ 79,615 $ --
Food and beverage 923,362 359,042
---------- --------
$1,002,977 $359,042
---------- --------
---------- --------
CASH EQUIVALENTS AND CONCENTRATION OF CREDIT RISK
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The Company's
restricted cash was invested in shares of the Pacific Horizon Treasury
Fund which is collateralized by securities issued by the United States
Government. In addition, approximately $2,534,000 of the Company's
unrestricted cash is also invested in shares of the Pacific Horizon
Treasury Fund. At September 30, 1996, the Company has approximately
$3,556,000 on deposit with a single financial institution in excess
of federally insured limits.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method.
Continued
28
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
------------
1. Summary Of Significant Accounting Policies, Continued:
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method. Estimated useful lives for property
and equipment are 10 to 40 years for buildings and improvements and 5
to 7 years for furniture and equipment. Accelerated depreciation
methods are generally used for income tax purposes. Repairs and
maintenance are charged to expense when incurred.
A gain or loss is recognized upon disposal of property and equipment,
and the asset and related accumulated depreciation and amortization
amounts are removed from the accounts.
PREOPENING COSTS
Preopening costs associated with the expansion of the hotel-casino are
expensed as incurred.
DEFERRED COSTS
Costs associated with the issuance of debt are deferred and amortized
over the life of the related indebtedness using the effective interest
method.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are
recognized for the expected 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
SFAS 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of
common stock outstanding during each period. Warrants and options to
purchase common stock which were issued in 1996, 1995 and 1994 were
excluded from the calculation of earnings (loss) per share, as their
inclusion would have been anti-dilutive (by reducing the loss per share).
STOCK-BASED COMPENSATION
In October 1995, Statement of Financial Accounting Standards No. 123
("SFAS 123") was issued. SFAS 123 established fair value-based
financial accounting and reporting standards for all transactions in
which a company acquires goods or services by issuing its equity
instruments or by incurring a liability to its supplier in amounts
based on the price of its common stock or other equity instruments.
Continued
29
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
------------
1. Summary Of Significant Accounting Policies, Continued:
STOCK-BASED COMPENSATION, Continued
SFAS 123 provides that companies may continue to account for employee
stock compensation plans using the accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Companies that elect not to adopt the
fair-value based accounting approach under SFAS 123 for employee stock
compensation plans must nevertheless comply with certain disclosure
requirements and disclose pro forma net income and earnings per share
as if such approach under SFAS 123 had been adopted.
The disclosure requirements of SFAS 123 are effective for financial
statements for fiscal years beginning after December 15, 1995 and the
pro forma disclosure requirements are effective for stock awards
granted in the first fiscal year beginning after December 15, 1994.
The Company plans to utilize the disclosure option allowed by SFAS 123
and continue to account for stock-based compensation under APB 25.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates, particularly with respect to those matters discussed
in Notes 2 and 3.
RECLASSIFICATIONS
Certain amounts in the 1995 financial statements have been reclassified
to conform with the 1996 presentation.
2. Casino Expansion And Related Construction Obligations:
The Company is currently engaged in a three-phase project to expand and
renovate its existing hotel and casino facilities (the "Expansion").
Phase one of the Expansion was the renovation and refurbishment of 202
previously existing hotel rooms, which was completed in May 1994 at an
approximate cost of $2,100,000.
Phase two of the Expansion was the renovation of the casino by
expanding the casino floor space from 15,000 square feet to 33,000
square feet, and increasing the number of slot machines and table
games. In addition, the renovated casino also features a full-service
race and sports book. Phase two of the Expansion was substantially
completed in September 1995 at an approximate cost of $13,924,000.
Continued
30
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
------------
2. Casino Expansion And Related Construction Obligations, Continued:
Phase three of the Expansion is the development and construction of a
new 16-story 451-room hotel tower, the completion of 27,000 square
feet of space on the second floor of the casino which is to provide a
buffet area, meeting rooms and entertainment facilities and the
construction of two parking garages. A general contractor has been
engaged for the construction activities relating to phase three of the
Expansion. Completion of the hotel tower portion of phase three of the
Expansion was substantially completed in May 1996 at an approximate
cost of $19,334,000. Of the total estimated construction cost of the
second floor of the casino, the Company has expended approximately
$4,171,000 as of September 30, 1996, leaving an unexpended balance of
approximately $3,600,000. The balance of the construction will be
financed using existing cash, operating cash flow and cash available
from other sources, as more fully described in Note 3.
3. Operating Results, Financial Condition And Management's Plans:
The results of operations for 1996 and 1995 reflect the impact of
construction-related activity which restricted customer access to the
Company's facilities, and thus negatively impacted operating revenues
and operating results during those years. In addition, in April 1995,
the Company completed a $40 million debt financing of the BCI Notes (as
more fully described in Note 6), which resulted in an annual debt
service requirement, excluding principal, of approximately $6,600,000.
The Company had no significant source of cash flow during 1996 and 1995
prior to the opening of the new hotel tower, to service the increased
interest obligation related to the BCI Notes. The Company raised funds
to meet its interest and other cash obligations in 1996 and 1995
through private placement equity offerings and through short-term notes
payable and bridge loans. As a result of these developments, Boardwalk
Casino, Inc. incurred significant interest expense and net losses of
approximately $4,414,000 and $5,337,000 in 1996 and 1995, respectively,
and has a working capital deficiency of approximately $1,256,000 at
September 30, 1996. Management plans to generate cash from operations
based upon the recent completion and opening in 1996 of the hotel and
casino facilities under its expansion program.
The Company has arranged for up to $4,000,000 of available working
capital borrowings which has been made available by a director and a
group of private investors who have provided other short-term financing
to the Company during 1996 and 1995. Such uncollateralized borrowings
are available to the Company on an as-needed basis through December 31,
1997 on terms substantially similar to those which had been made
available to the Company during 1996.
Management believes that the combination of existing cash, cash flows
from operations and the available borrowing capacity are sufficient to
meet the Company's obligations as they become due during fiscal 1997.
Continued
31
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
------------
4. Property And Equipment:
Property and equipment consists of the following:
September 30,
---------------
1996 1995
---- ----
Land and improvements $ 3,042,769 $ 2,478,414
Buildings and improvements 38,736,144 17,582,058
Gaming equipment 6,163,617 4,808,135
Furniture and other equipment 8,077,178 3,830,737
Construction-in-progress 5,172,262 8,773,397
----------- ----------
61,191,970 37,472,741
Less: accumulated depreciation (5,705,685) (3,340,364)
----------- -----------
$55,486,285 $34,132,377
----------- -----------
----------- -----------
Construction-in-progress at September 30, 1996 is comprised of
construction of phase three of the Company's expansion plan, as more
fully described in Note 2. During 1995, as part of the refurbishment
of the existing facilities, the Company disposed of certain property
and equipment resulting in a loss of approximately $1,101,000.
5. Leases:
The Company has entered into capital lease agreements whereby the
Company leases various equipment under two-, three-, five-, seven- and
twenty-year leases which expire at various dates through 2015.
Capital lease obligations consists of the following:
September 30,
---------------
1996 1995
---- ----
Capital lease obligation, interest rate
of prime plus 3%, monthly principal and
interest payments of $107,267 through
August 1997, collateralized by slot
equipment $1,519,684 $1,602,000
Capital lease obligation, with effective
interest rate of 12.50% due in monthly
installments of $41,817, including
interest, through November 1998,
collateralized by casino and hotel
equipment 948,248 --
Capital lease obligation, interest rate of
10%, semi-annual principal and interest
payments of $20,721 through August 2015,
uncollateralized 337,988 355,556
Capital lease obligation, with effective
interest rate of 12.50% due in monthly
installments of $23,418 through May 1999,
collateralized by slot equipment 600,732 --
Continued
32
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
-------------
5. Leases, Continued:
<TABLE>
September 30,
------------------------
1996 1995
----------- ----------
<S> <C> <C>
Capital lease obligation, with effective interest rate of 12.50% due
in monthly installments of $61,794 through September 1999,
collateralized by hotel furniture, fixtures and equipment $ 1,822,938 -
Capital lease obligations with effective interest rates ranging from
9.36% to 12.90%, due in aggregate monthly installments of $7,619,
and ending at various times in 2001, collateralized by phone equipment 346,070 $ 130,198
Capital lease obligation, with effective interest rate of 12.50% due
in monthly installments of $9,083 through October 2000,
collateralized by signage equipment 347,222 -
Other 592,874 247,903
----------- ----------
6,515,756 2,335,657
Less amounts classified as current (3,115,522) (861,616)
----------- ----------
$ 3,400,234 $1,474,041
----------- ----------
----------- ----------
</TABLE>
Property and equipment include the following property leased under
capital leases as of September 30, 1996 and 1995:
<TABLE>
1996 1995
----------- ----------
<S> <C> <C>
Cost of equipment under capital leases $ 7,001,501 $1,961,088
Less, accumulated depreciation (1,018,864) (30,986)
----------- ----------
$ 5,982,637 $1,930,102
----------- ----------
----------- ----------
</TABLE>
Continued
33
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
-------------
5. Leases, Continued:
Future minimum lease payments, by year and in the aggregate, under capital
leases with initial or remaining terms of one year or more consist of the
following at September 30, 1996.
1997 $ 3,676,551
1998 1,909,832
1999 1,289,360
2000 368,727
2001 134,706
Thereafter 580,188
-----------
Total minimum lease payments 7,959,364
Less amount representing interest (1,443,608)
-----------
Present value of minimum lease payments 6,515,756
Less current portion (3,115,522)
-----------
Long-term obligations under capital leases $ 3,400,234
-----------
-----------
The Company leases as lessor certain retail space in its casino
facilities under operating lease agreements. The leases are short-term
and renewable based upon mutual agreement between the Company and the
lessee. Rental income under these agreements totaled $230,566 and
$12,000 for the years ended September 30, 1996 and 1995, respectively.
6. Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
September 30,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
16.50% First Mortgage Notes due March 31, 2005 (the "BCI Notes") with
interest payable semi-annually, net of unamortized original issue
discount of $4,090,477 (1996) and $4,268,549 (1995) (see below) $35,909,523 $35,731,451
Eurodollar rate plus 2% convertible subordinated note payable due
September 23, 1998 with interest payable quarterly (see below) 5,000,000 -
----------- -----------
$40,909,523 $35,731,451
----------- -----------
----------- -----------
</TABLE>
Continued
34
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
6. Long-Term Debt, Continued:
On April 11, 1995, the Company completed a private placement of the BCI
Notes. The offering generated net proceeds of approximately $30,652,000
(after deducting debt issue costs and approximately $4,620,000 used to
repay principal and accrued interest on existing indebtedness). The BCI
Notes are collateralized by a first mortgage on substantially all of the
assets of the Company, including the expansion project. The Company
recorded an original issue discount of $4,345,772 in connection with the
BCI Notes, related to the issuance of 1,908,692 warrants to purchase
common stock (exercisable at $6.00 per share), based on the estimated
market value of the warrants at the date of issuance. Terms of the
warrants are more fully described in Note 7.
The indenture governing the BCI Notes (the "Indenture") limited the use
of the net proceeds from the offering to fund the cost of the hotel and
casino expansion. The proceeds were placed in escrow with a trustee
pending draw-downs for qualifying project expenditures and were
classified as restricted cash equivalents, in escrow accounts, in the
accompanying financial statements. All of the proceeds from the BCI
Notes have been used as of September 30, 1996. The BCI Notes are not
subject to mandatory redemption, except upon a change of control, decline
in net worth, or certain asset sales, all as defined in the Indenture.
The Company has the option to redeem the BCI Notes, beginning after
September 2001 at a premium, as defined in the Indenture.
The Indenture contains covenants that, among other things, limit the
ability of the Company to pay dividends or incur additional indebtedness.
Additional indebtedness is limited to $5,000,000 of additional
uncollateralized debt issuances and $7,000,000 of equipment leases of
which the recourse portion cannot exceed $2,000,000. As of September 30,
1996, the Company had equipment leases with recourse totaling
approximately $6,178,000. In December 1996, the terms of the Indenture
were modified to allow for an increase in the $2,000,000 recourse portion
of the Indenture for the additional obligations entered into during 1996.
The Indenture also requires the Company to maintain a minimum net worth.
The net worth can be no less than the sum of $6,000,000 plus the proceeds
from the sale of common stock and 50% of the net income of the Company
for all periods beginning after April 1, 1995 (any net loss during that
period may not be deducted for purposes of the calculation).
In September 1996, the Company executed a $5,000,000 subordinated,
convertible promissory note collateralized by a second deed of trust on
the assets of the Company. Interest is payable quarterly at the
applicable Eurodollar rate plus 2% with principal due September 23, 1998
if not converted by the noteholder. Prior to payment in full by the
Company and subject to regulatory approval, the noteholder may convert
the unpaid principal balance of the note into common shares of the
Company. The number of shares into which the note may be converted shall
be determined by dividing the unpaid principal balance by $7.50.
35
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
-------------
6. Long-Term Debt, Continued:
Maturities of BCI's long-term debt are as follows:
Year Ending
September 30,
-------------
1997 $ -
1998 5,000,000
1999 -
2000 -
2001 -
Thereafter 40,000,000
-----------
$45,000,000
-----------
-----------
7. Shareholders' Equity:
A summary of the Company's equity transactions and issuances of warrants
to purchase common stock are summarized in the following paragraphs. At
September 30, 1996 and 1995, the Company had the following warrants to
purchase shares of common stock outstanding:
<TABLE>
Warrants Issued Warrants Issued
Warrants Issued In Connection In Connection
1994 Bridge In Connection With Issuance With Private
Financing With Notes Of BGI Placement
And IPO (a) Payable (b) Notes (c) Offering (d) Total
----------- --------------- --------------- --------------- -----
<S> <C> <C> <C> <C> <C>
Exercise price $5.00 $5.625,$6.00 $6.00 $7.50
and $8.00
Expiration date Feb. 1998 Mar. 1996 to April 2000 to June 2000
Sept. 2000 Apr. 1, 2005
Balances, September 30, 1994 4,130,000 - - - 4,130,000
Issued - 208,000 1,908,692 - 2,116,692
Exercised (162,800) - - - (162,800)
--------- ------- --------- ------ ---------
Balances, September 30, 1995 3,967,200 208,000 1,908,692 - 6,083,892
Issued - - - 75,000 75,000
Exercised (380,200) - - - (380,200)
--------- ------- --------- ------ ---------
Balances, September 30, 1996 3,587,000 208,000 1,908,692 75,000 5,778,692
--------- ------- --------- ------ ---------
--------- ------- --------- ------ ---------
</TABLE>
Continued
36
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
--------------
7. Shareholders' Equity, Continued:
(a) 1994 bridge financing, common stock offering and warrant exercises:
In 1994 the Company issued 450,000 warrants to purchase its common
stock in connection with a bridge financing (the "Bridge Warrants").
Each Bridge Warrant entitles the holder thereof to purchase one share
of common stock at an exercise price of $5.00 per share and expires in
February 1998. The Bridge Warrants contain provisions that protect
the bridge warrantholders against dilution by adjustment of the
exercise price in certain events including, but not limited to, stock
dividends, stock splits, reclassifications or mergers. Upon completion
of the initial public offering of the Company's common stock in
February 1994, the Bridge Warrants were automatically converted into
warrants identical to the Offering Warrants (described below). A
bridge warrantholder does not possess any rights as a shareholder of
the Company.
The Company may redeem the Bridge Warrants at a price of $0.001 per
Bridge Warrant upon 60 days' prior written notice if the closing bid
quotation of the common stock has been at least $10.00 on all 20 of
the trading days ending on the third day prior to the day on which
notice of redemption is given.
On February 11, 1994, the Company completed an initial public offering
of its common stock. The Company issued 1,840,000 shares of common
stock at a selling price of $5.00 per share and issued 3,680,000
warrants (the "Offering Warrants") at a selling price of $0.10 per
warrant. The Company received net proceeds of $7,706,109 for the
stock and warrants, after deducting underwriters' commissions and
offering expenses.
Each Offering Warrant entitles the holder thereof to purchase one
share of common stock at a price of $5.00 per share until February 11,
1998, at which time the Offering Warrant expires. The Offering
Warrants contain provisions that protect the warrantholders against
dilution by adjustment of the exercise price in certain events
including, but not limited to, stock dividends, stock splits,
reclassifications or mergers. A warrantholder does not possess any
rights as a shareholder of the Company.
The Company may redeem the Offering Warrants at a price of $0.001 per
Warrant upon 60 days' prior written notice if the closing bid
quotation of the common stock has been at least $10.00 on all 20 of
the trading days ending on the third day prior to the day on which
notice of redemption is given.
In connection with the offering, the Company also sold the
underwriter, for $100, an option (the "Option") to purchase 160,000
shares of common stock and 320,000 Warrants. The Option has an
exercise price of $7.00 per share of common stock and $0.14 per
Warrant (140% of the respective original offering prices). The Option
is exercisable for a 36-month period, commencing on February 11, 1995
and expiring on February 11, 1998.
During 1996 and 1995, respectively, 380,200 and 162,800 warrants to
purchase the Company's common stock were exercised for an equal number
of shares of the Company's common stock. All of the warrants had an
exercise price of $5.00, resulting in net proceeds to the Company of
$1,850,955 and $813,280 after issuance costs in 1996 and 1995,
respectively.
Continued
37
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
--------------
7. Shareholders' Equity, Continued:
(b) 1995 bridge financing transactions:
The Company issued 50,000 warrants to purchase its common stock in
connection with $1,000,000 of bridge loans, which loans have been
repaid. Each warrant entitles the holder thereof to purchase one
share of common stock at an exercise price of $6.00 per share. The
warrants expire in February 2000. The warrants contain provisions
that protect the warrantholders against dilution by adjustment of the
exercise price in certain events including, but not limited to, stock
dividends, stock splits, reclassifications or mergers. A warrantholder
does not possess any rights as a shareholder of the Company.
The Company issued 150,000 warrants to purchase its common stock in
connection with a 10% note payable issued in 1995, which note has
been repaid. Each warrant entitles the holder thereof to purchase one
share of common stock at an exercise price of $5.625 per share. The
warrants are exercisable between March 1996 and September 2000. The
warrants contain provisions that protect the warrantholders against
dilution by adjustments of the exercise price in certain events
including, but not limited to, stock dividends, stock splits,
reclassifications or mergers. A warrantholder does not possess any
rights as a shareholder of the Company.
The Company issued 8,000 warrants to purchase its common stock in
connection with a $400,000, 12% note payable issued in 1995, which
note has been repaid. Each warrant entitles the holder thereof to
purchase one share of common stock at an exercise price of $8.00 per
share. The warrants expire in September 2005. A warrantholder does
not possess any rights as a shareholder of the Company.
(c) BCI Notes offering:
As discussed in Note 6, the Company issued 1,908,692 warrants to
purchase its common stock in connection with the BCI Notes. Each
warrant entitles the holder thereof to purchase one share of common
stock at an exercise price of $6.00 per share and 626,823 and
1,281,869 of the warrants expire in April 2000 and April 2005,
respectively. The warrants contain provisions that protect the
warrantholders against dilution by adjustment of the exercise price in
certain events including, but not limited to, stock dividends, stock
splits, reclassifications or mergers. A warrantholder does not
possess any rights as a shareholder of the Company.
(d) 1996 private placement equity offering:
During 1996, the Company completed a private placement offering in
which it issued 150,000 shares of its common stock for $6.25 per
share. In connection with the issuance of the common stock, the
Company also sold 75,000 warrants to purchase common stock for $.25
per warrant. Each warrant entitles the holder thereof to purchase one
share of common stock at a price of $7.50 per share until June 2000,
at which time the warrant expires. The Company received net proceeds
of $956,250 for the issuance of the stock and warrants.
Continued
38
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
--------------
7. Shareholders' Equity, Continued:
SEPTEMBER 1996 PRIVATE PLACEMENT EQUITY OFFERING
In September 1996, the Company completed a private placement offering of
571,429 shares of its common stock at a selling price of $7.00 per share.
The Company received net proceeds of $3,735,195 for the stock, after
deducting offering expenses.
INCREASE IN AUTHORIZED SHARES OF COMMON STOCK
In December 1996, the Company's shareholders voted to amend the Company's
articles of incorporation to increase the number of authorized shares of
common stock from 15,000,000 to 50,000,000.
STOCK OPTION PLANS
On April 26, 1994, the Board of Directors adopted (and on March 15, 1995
the shareholders approved) the 1994 Stock Compensation Plan (the "1994
Plan"). The 1994 Plan provides that incentive stock options and
nonqualified stock options may be granted to certain officers, directors
(other than Outside Directors), employees and advisors of the Company or
its subsidiaries, if any, selected by the Compensation Committee.
The Company has granted a total of 745,000 options exercisable at prices
ranging from $6.25 to $9.00 expiring between April 26, 1999 and September
26, 2005. The options were granted at exercise prices equal to the fair
market value (or in the case of options granted to the president and
majority shareholder at 110% of market value) as of the date of grant. The
options vest in 25% increments annually, subject to acceleration upon a
change in control of the Company, as defined in the 1994 Plan agreement.
The grants of 450,000 of the options described above were subject to
shareholder approval of an increase in the authorized number of shares
reserved for issuance under the 1994 Plan to 2,000,000 shares. Such
approval was received during 1996.
OUTSIDE DIRECTORS STOCK OPTION PLAN
On April 26, 1994, the Board of Directors adopted (and on March 15, 1995
the shareholders approved) the Outside Directors Stock Option Plan
(the "Plan").
The Company has granted nonqualified options to three of its directors to
purchase 100,000 shares of the Company's common stock. The options are
exercisable at prices of $6.75 and $6.25 expiring between April 26, 2004
and April 26, 2005. The foregoing options were granted at an exercise
price equal to the fair market value of the common stock as of the date of
grant. The options vest in 25% increments annually, subject to
acceleration upon a change in control of the Company, as defined in the
Plan agreement.
Continued
39
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
--------------
8. Income Taxes:
The following is a reconciliation of income taxes at the Federal statutory
rate with income taxes recorded by the Company:
1996 1995
----------- ------------
Tax benefit computed at federal statutory
income tax rate (35%) ($1,545,000) ($1,868,000)
Unrecognized tax benefit from operating
losses 1,494,000 1,852,000
Other, net 51,000 6,000
----------- -----------
Total income tax provision (benefit) $ - $ -
----------- -----------
----------- -----------
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
consist of the following at September 30, 1996 and 1995:
1996 1995
----------- -----------
DEFERRED TAX ASSETS:
Federal net operating loss carryforward $ 3,524,000 $ 2,051,000
Write-off of existing casino facilities
during expansion - 307,000
Gaming tax assessment 175,000 -
Other 30,000 48,000
----------- -----------
Total deferred tax assets 3,729,000 2,406,000
----------- -----------
DEFERRED TAX LIABILITIES:
Depreciation (674,000) (490,000)
----------- -----------
Total deferred tax liabilities (674,000) (490,000)
Valuation allowance (3,055,000) (1,916,000)
----------- -----------
Net deferred taxes $ - $ -
----------- -----------
----------- -----------
No income tax provision (benefit) has been recorded in the 1996 and 1995
financial statements, and the Company operates wholly in Nevada and,
therefore, has no state income tax liability.
As of September 30, 1996, the Company had a federal net operating loss
carryforward of approximately $10,568,000 which expires between 2009 and
2011.
9. Commitments And Contingencies:
The Company has pending certain legal actions and claims incurred in the
normal course of business and is actively pursuing the defense thereof. In
the opinion of management, these actions and claims are either without
merit or are covered by insurance and will not have a material adverse
effect on the Company's financial position, results of operations or cash
flows.
Continued
40
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
--------------
9. Commitments And Contingencies, Continued:
HOLIDAY INN-REGISTERED TRADEMARK- FRANCHISE AGREEMENT
The Company was granted a Holiday Inn-Registered Trademark- ten-year
franchise license on June 16, 1994 after completing renovation of its
existing hotel, consisting of 126 rooms in a high-rise tower and 75 annex
rooms. The agreement required an application fee of $77,500, (which is
reflected in other assets and is being amortized over the life of the
agreement). The agreement provides that the Company will pay to Holiday
Inn-Registered Trademark- (i) a monthly royalty of 5% of the gross rooms
revenues; (ii) a "marketing contribution" of 1.5% of the gross rooms
revenues; (iii) a "reservation contribution" of 1.0% of the gross rooms
revenues; and (iv) a monthly Holidex fee of $6.43 for each guest room.
The license granted under the agreement expires ten years from the date
of the opening of the hotel under the "Holiday Inn" system, subject to
earlier termination as set forth therein.
GAMING TAX ASSESSMENT
During the last two quarters of 1996, based on the advice of legal counsel,
the Company accrued a total loss contingency of $500,000 related to an
anticipated gaming tax assessment from the Nevada Gaming Control Board
("NGCB"). The NGCB has audited the Company's gaming tax returns in 1996
and the Company believes it is probable that the NGCB will determine that
the Company has improperly deducted certain promotional wagers by patrons
in calculating gross revenue for gaming tax purposes. The Company plans to
appeal an assessment; however, the likelihood of a successful outcome
cannot be determined.
10. Related-Party Transactions:
OFFICE SPACE LEASE
During 1996 and 1995, the Company leased office space and storage
facilities for its corporate offices from the majority shareholders for
approximately $8,375 per month. For the years ended September 30, 1996
and 1995, rent expense under this lease was $101,375 and $43,874,
respectively.
Effective October 1, 1996, the Company amended the lease and the monthly
rental increased to approximately $70,000 per month. The lease term is
for two years and allows the Company to use the facilities for any purpose.
The Company has options to extend the lease up to an additional 28 years.
The lease agreement provides the Company with the first right of refusal to
purchase the land and building at their fair value should the shareholders
decide to sell them. The lease agreement also entitles the Company to the
rental income from the existing lessees during the lease term. The
existing lessees are on short-term renewable leases with current rents
totaling approximately $39,000 per month.
RECEIVABLE FROM HOLIDAY GIFTS, INC.
During the period from October 1, 1993 through February 11, 1994, the
Company paid certain overhead and general and administrative expenses on
behalf of Holiday Gifts, Inc. ("HGI"), a company affiliated through common
ownership. As of September 30, 1996 and 1995, the receivable balance was
$3,499 and $12,682, respectively.
Continued
41
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
--------------
10. Related-Party Transactions, Continued:
RECEIVABLE FROM HOLIDAY GIFTS, INC., Continued
The Company leases retail space to HGI. During the years ended September
30, 1996 and 1995, rental income from HGI was $11,000 and $12,000,
respectively. Effective October 1, 1996, rental income from HGI increased
to $5,000 per month.
11. Bridge Loans And Related Extraordinary Losses:
1995 BRIDGE LOANS
In February 1995, the Company, in a private placement offering, completed
the issuance of 12% promissory notes aggregating $1,000,000. In connection
with the financing, the Company issued lenders 50,000 warrants to purchase
common stock (exercisable at $6.00 per share). These notes were repaid in
April 1995 from the proceeds of the BCI Notes.
Original issue discount of these notes was attributable to the 50,000
warrants and totaled $90,000 of which $25,847 was amortized through April
1995. The balance of the original issue discount ($64,153) was written-
off upon early extinguishment of the debt, and was treated as an
extraordinary loss.
EARLY EXTINGUISHMENT OF INDEBTEDNESS
The Company repaid certain other indebtedness with proceeds from the BCI
Notes in 1995. Unamortized debt issuance costs ($60,827) which had been
capitalized were written-off upon early extinguishment. Additionally, a
settlement was reached with a vendor for an outstanding capital lease
obligation. The settlement of the obligation was for less than the amount
outstanding which resulted in a gain on early extinguishment of debt of
$80,951. Because the Company is in a tax loss carryforward position, no
tax benefit has been recognized for the net extraordinary losses in 1996.
1996 BRIDGE LOANS
In November 1995, the Company executed a $600,000, 10% uncollateralized
promissory note with principal and interest due in May 1996. The note was
paid off with no gain or loss in September 1996 with proceeds from the
$5,000,000 subordinated, convertible note payable executed in September
1996 as more fully described in Note 6.
In December 1995, the Company executed a $500,000, 12% uncollateralized
promissory note to the Company's majority shareholder and CEO with
principal and interest due in September 1996. The note was paid off with
no gain or loss in September 1996 with proceeds from the $5,000,000
subordinated, convertible note payable executed in September 1996 as more
fully described in Note 6.
In March 1996, the Company executed a $500,000, 10% uncollateralized
promissory note to a director of the Company with principal and interest
due in September 1996. The note was paid off with no gain or loss in
September 1996 with proceeds from the $5,000,000 subordinated, convertible
note payable executed in September 1996 as more fully described in Note 6.
Continued
42
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
--------------
11. Bridge Loans And Related Extraordinary Losses, Continued:
1996 BRIDGE LOANS, Continued
In March 1996, the Company executed a $750,000, 12% uncollateralized
promissory note to the Company's majority shareholder and CEO with
principal and interest due in September 1996. The note was paid off with
no gain or loss in September 1996 with proceeds from the $5,000,000
subordinated, convertible note payable executed in September 1996, as more
fully described in Note 6.
12. Fair Value Of Financial Instruments:
The estimated fair value of the Company's financial instruments has been
determined by the Company using available market information and
appropriate valuation methodologies. The carrying amounts of cash and
cash equivalents, accounts receivable, accounts payable, capital lease
obligations and notes payable approximate their respective fair values due
to the short-term maturities and approximate market interest rates of these
instruments. Management is unable to determine a fair value for the
outstanding BCI Notes.
43
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the Company's
directors and executive officers and the positions they hold with the Company.
All directors are elected at the annual meeting of stockholders to serve one
year or until their successors are elected and qualified.
NAME AGE POSITION
- ---- --- --------
Norbert W. Jansen* 78 Chief Executive Officer and
Chairman of the Board of Directors
Forrest J. Woodward, II 54 President and Chief Operating
Officer
Avis P. Jansen 69 Vice President and Director
Louis J. Sposato 46 Chief Financial Officer, Secretary,
Treasurer and Director
James Scibelli 46 Director
Keven J. Picardo 40 Director
Jeffrey P. Jacobs 43 Director
- --------
* Mr. Jansen died on January 6, 1997. The Company has not yet acted to appoint
a new Chief Executive Officer or Chairman of the Board of Directors.
NORBERT W. JANSEN served as the Chairman of the Board of Directors and
the Chief Executive Officer of the Company until his death on January 6,
1997. He had been employed in the gaming industry in various capacities and
at various times since 1947, working first as a race book writer and "21" and
craps dealer, before becoming slot manager at the Silver Slipper in Las Vegas
in 1956. From 1964 to 1967, Mr. Jansen was an owner and officer of the
Pioneer Club in downtown Las Vegas. In the 1960s and early 1970s, Mr. Jansen
was a developer of the Holiday Inn-Center Strip, now Harrah's Las Vegas. Mr.
Jansen had been investigated and licensed by state and local gaming
authorities on numerous occasions. In 1977, Mr. Jansen was licensed as
landlord of The Slot Joyn't, the small casino that subsequently became part
of the Holiday Inn-Registered Trademark- Casino Boardwalk. In 1988 and 1990,
Mr. Jansen was granted limited nonrestricted licenses as an owner, officer
and director of HGI. In 1992, the Nevada Gaming Authorities granted Mr.
Jansen an unlimited nonrestricted license.
FORREST J. WOODWARD, II serves as the President and Chief Operating Officer
of the Company. Mr. Woodward began his gaming career in 1966, serving as
controller of the Pioneer Club and Pioneer
44
<PAGE>
Hotel in Las Vegas until 1969. From 1969 to 1972, he served as controller
and, thereafter, executive vice president of the Flamingo Hotel. From 1972
to 1977, Mr. Woodward served as executive vice president and assistant
general manager of the Thunderbird Hotel. From 1978 to 1985, he served as
executive vice president and assistant general manager of the Desert Inn
Country Club and Spa, with responsibility for all aspects of gaming and hotel
marketing. From 1986 to 1988, Mr. Woodward served as executive vice
president of the Dunes Hotel and Country Club, with responsibility for the
management of the hotel and gaming areas. During 1990, he served as general
manager of the Landmark Hotel and Casino, having been appointed by the
Federal Bankruptcy Court to operate the property. In addition, from 1987 to
1993, Mr. Woodward served as chairman, president and majority shareholder of
Las Vegas Resorts Corporation, a public company engaged in land acquisitions
related to casino hotels. From 1992 to 1993, Mr. Woodward served as senior
vice president - administration for the Stars' Desert Inn Hotel and Country
Club. Thereafter, from 1993 until joining the Company in August 1995, he
served as senior vice president - administration for Sheraton Desert Inn.
His responsibilities at the Desert Inn included all domestic casino
marketing, marketing and operations of gaming activities and operations of
the country club, security and surveillance. Mr. Woodward received his
Bachelor of Science degree from the University of Nevada at Las Vegas in 1968.
AVIS P. JANSEN serves as the Vice President and a director of the Company.
Since 1971, she has served as the president, secretary and treasurer of Holiday
Gifts, Inc., the former operator of the Company's casino. Ms. Jansen is the
wife of Norbert W. Jansen.
LOUIS J. SPOSATO serves as the Chief Financial Officer, Secretary,
Treasurer and a director of the Company. He received his Bachelor of Science
degree in accounting from Fordham University in 1972. From 1983 to 1988, Mr.
Sposato served as comptroller of Union Plaza Hotel & Casino, Las Vegas, Nevada,
where he directed the hotel and casino's administrative functions and compliance
requirements, including Nevada Gaming Commission Regulation 6 (internal control
procedures for all licensees) and Regulation 6A (casino currency transaction
recordkeeping and reporting requirements). From 1988 to 1989, Mr. Sposato
served as assistant controller for Electronic Data Technologies, Las Vegas,
Nevada, with responsibility for implementing their slot machine route accounting
system. From 1989 to 1990, he served as assistant controller of Alexis Park
Resort Hotel, Las Vegas, Nevada, with responsibility for all accounting
functions. Since 1990, Mr. Sposato has also served as controller of Holiday
Gifts, Inc.
JAMES SCIBELLI serves as a director of the Company. Since March 1986, Mr.
Scibelli has served as president of Roberts & Green, Inc., a New York investment
banking firm offering a variety of investment services. Since August 1991, he
has also been an officer and director of SG Capital Corp., a financial
consulting company. Mr. Scibelli serves as a director and a member of the
compensation committee of Acclaim Entertainment, Inc. and a director of B.U.M.
International, Inc. Mr. Scibelli devotes such time as is necessary to the
affairs of the Company.
KEVEN J. PICARDO serves as a director of the Company. From 1984 to 1990,
Mr. Picardo served as an investment advisor and mutual fund director for Paine
Webber Incorporated. From 1990 to 1994, he served as an associate vice
president of Kemper Securities, Inc. During 1994, Mr. Picardo served as senior
vice president of USA Capital Management Group, Inc., Las Vegas, Nevada. Since
October 1995, he serves as senior financial consultant with Signal USA
Securities, Inc., Las Vegas, Nevada. Mr. Picardo devotes such time as is
necessary to the affairs of the Company.
JEFFREY P. JACOBS serves as a director of the Company. Beginning in 1984,
Mr. Jacobs developed the riverfront entertainment district, known as the
"Flats", in Cleveland, Ohio. He also has developed, owns and manages several
apartment complexes in Cleveland and throughout Ohio. In 1996, Mr. Jacobs
became the Chief Executive Officer and Co-Chairman of the Board of Directors of
BlackHawk Gaming
45
<PAGE>
& Development Co. ("BlackHawk"), a publicly traded gaming company
headquartered in Boulder, Colorado that is co-owner and manager of the Gilpin
Hotel & Casino in BlackHawk, Colorado. Additionally, BlackHawk has begun
construction of a new casino/hotel project in BlackHawk, Colorado that is
scheduled to open in early 1998. In 1996, Mr. Jacobs became the Chief
Executive Officer and Chairman of the Board of Directors of Colonial Downs,
which presently owns and operates two off-track betting parlors in the State
of Virginia, has plans to open four more parlors and is constructing the
first horse racing track in the state, which is scheduled to open in 1997.
Mr. Jacobs received his Bachelor of Business Administration degree from the
University of Kentucky in 1975, his Masters of Business Administration from
Ohio State University in 1977 and his Masters of Urban Planning from
Cleveland State University in 1979. He served as a member of the Ohio House
of Representatives from 1984 through 1986. Mr. Jacobs devotes such time as
is necessary to the affairs of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to Rule 16a-3(e) during its most recent fiscal
year and Forms 5 and amendments thereto furnished to the Company with respect to
its most recent fiscal year, and any written representation from the reporting
person (as hereinafter defined) that no Form 5 is required, the Company is not
aware of any person who, at any time during the fiscal year, was a director,
officer, beneficial owner of more than ten percent of any class of equity
securities of the Company registered pursuant to Section 12 of the Exchange Act
("reporting person"), that failed to file on a timely basis, as disclosed in the
above Forms, reports required by Section 16(a) of the Exchange Act during the
most recent fiscal year.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has not established any separate nominating
committee. The Board has established a Compensation Committee, which consists
of Avis P. Jansen and James Scibelli. Its functions are to review and approve
annual salaries and bonuses for all executive officers, review, approve and
recommend to the Board of Directors the terms and conditions of all employee
benefits or changes thereto, and manage and administer the Company's 1994 Stock
Compensation Plan.
The Board of Directors has established an Audit Committee, which consists
of Messrs. Scibelli, Picardo and Sposato. The functions of the Audit Committee
are to recommend annually to the Board of Directors the appointment of the
independent public accountants of the Company, discuss and review the scope and
the fees of the prospective annual audit and review the results thereof with the
independent public accountants, review and approve non-audit services of the
independent public accountants, review compliance with existing accounting and
financial policies of the Company, review the adequacy of the financial
organization of the Company and review management's procedures and policies
relative to the adequacy of the Company's internal accounting controls and
compliance with federal and state laws relating to financial reporting.
The Board of Directors has also established a Stock Option Committee,
which consisted of Messrs. Jansen and Sposato as of September 30, 1996. The
function of the Stock Option Committee is to manage and administer the
Company's Outside Directors Stock Option Plan.
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<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
The following table, and the accompanying explanatory footnotes, includes
annual and long-term compensation information on (i) the Company's Chief
Executive Officer for services rendered in all capacities during the fiscal
years ended September 30, 1996, 1995 and 1994 and (ii) each executive officer
who received total annual salary and bonus for the fiscal year ended September
30, 1996 in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------- ------------
NAME AND
PRINCIPAL FISCAL OTHER ANNUAL OPTIONS
POSITION YEAR SALARY BONUS COMPENSATION GRANTED
-------- ------ -------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Norbert W. Jansen, Chief
Executive Officer 1996 $238,000 0 0 0
1995 225,000 0 0 170,000
1994 200,000 20,000 0 170,000
Forrest J. Woodward, Chief 1996 180,000 0 0 0
Operating Officer 1995 21,000 0 0 130,000
</TABLE>
EMPLOYMENT AGREEMENTS
Effective as of February 11, 1994, the Company entered into a five-year
employment agreement with Norbert W. Jansen as Chief Executive Officer of the
Company which provided for an annual base salary of $275,000 as of September
30, 1996. Effective as of January 1, 1995, the Company entered into a
three-year employment agreement with Louis J. Sposato as Chief Financial
Officer, Secretary and Treasurer of the Company which currently provides for
an annual base salary of $95,000. Effective as of August 15, 1995, the
Company entered into a five-year employment agreement with Forrest J.
Woodward, II as President and Chief Operating Officer of the Company which
currently provides for an annual base salary of $180,000. On each annual
anniversary of the commencement date of each agreement, the period of
employment is automatically extended for one year unless notified in writing
by either party thereto.
DIRECTORS' COMPENSATION
Each non-employee director of the Company receives $1,000 for each meeting
of the Board of Directors attended. In addition, pursuant to the Outside
Directors Stock Option Plan, Avis P. Jansen, James Scibelli and Keven J. Picardo
have each been granted options to purchase shares of Common Stock (subject to
certain vesting requirements). See "- The Outside Directors Stock Option Plan."
THE 1994 STOCK COMPENSATION PLAN
The Company and its shareholders have adopted and approved the 1994 Stock
Compensation Plan, as amended (the "1994 Plan"). Options granted pursuant to
the 1994 Plan constitute either incentive stock
47
<PAGE>
options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or options which constitute nonqualified
options at the time of issuance of such options. The 1994 Plan provides that
incentive stock options and/or nonqualified stock options may be granted to
certain officers, directors (other than Outside Directors), employees and
advisors of the Company or its subsidiaries, if any, selected by the
Compensation Committee. A total of 2,000,000 shares of Common Stock are
authorized and reserved for issuance under the 1994 Plan, subject to
adjustment to reflect changes in the Company's capitalization in the case of
a stock split, stock dividend or similar event. The 1994 Plan is administered
by the Compensation Committee which has the sole authority to interpret the
1994 Plan and make all determinations necessary or advisable for
administering the 1994 Plan. The exercise price for any incentive option
must be at least equal to the fair market value of the shares covered thereby
as of the date of grant of such option. Upon the exercise of the option, the
exercise price thereof must be paid in full either in cash, shares of Common
Stock of the Company or a combination thereof. If and to the extent that any
option to purchase reserved shares shall not be exercised by an optionee for
any reason or if such option to purchase shall terminate as provided by the
1994 Plan, such shares which have not been so purchased thereunder shall
again become available for the purposes of the 1994 Plan unless the 1994 Plan
shall have been terminated.
During the fiscal year ended September 30, 1994, the Company had granted an
aggregate of 295,000 options, including the following options to its executive
officers and Keven J. Picardo (subsequently appointed to the Board of
Directors): Norbert W. Jansen - incentive options to purchase 59,256 shares at
$7.43 per share until April 26, 1999 and nonqualified options to purchase
110,744 shares at $6.75 per share until April 26, 2004; Louis J.
Sposato - incentive options to purchase 90,000 shares at $6.75 per share until
April 26, 2004; and Keven J. Picardo - nonqualified options to purchase 10,000
shares at $6.75 per share until April 26, 2004. Each of the foregoing options
was granted at an exercise price equal to the fair market value of the Common
Stock as of the date of grant (110% with respect to the 59,256 incentive options
granted to Norbert W. Jansen). Further, the options vest and may be exercised
in 25% cumulative increments annually from the date of grant on April 26, 1994,
subject to earlier termination or extension.
During the fiscal year ended September 30, 1995, the Company granted an
aggregate of 455,000 additional options, including the following options to its
executive officers: Norbert W. Jansen - incentive options to purchase 64,000
shares at $6.88 per share until April 26, 2000 and nonqualified options to
purchase 106,000 shares at $6.25 per share until April 26, 2005; Forrest J.
Woodward, II - incentive options to purchase 130,000 shares at $6.00 per share
until May 15, 2005; and Louis J. Sposato - incentive options to purchase 90,000
shares at $6.25 per share until April 26, 2005. Each of the foregoing options
was granted at an exercise price equal to the fair market value of the Common
Stock as of the date of grant (110% with respect to the 64,000 incentive options
granted to Norbert W. Jansen). Further, the options vest and may be exercised
in 25% cumulative increments annually from the date of grant subject to earlier
termination or extension.
During the fiscal year ended September 30, 1996, the Company did not grant
any options under the 1994 Plan.
THE OUTSIDE DIRECTORS STOCK OPTION PLAN
The Company and its shareholders have adopted and approved the Outside
Directors Stock Option Plan, as amended (the "Plan"). The Plan was adopted in
order to enhance the Company's ability to secure and retain highly qualified and
experienced individuals who are not regularly salaried employees of the Company
to serve as directors of the Company. The Plan provides generally that: (i)
the purchase price of the Common Stock under each option granted shall not be
less than the fair market value of the
48
<PAGE>
Common Stock on the date of grant; (ii) no director may be granted during any
calendar year options to purchase more than 20,000 shares of Common Stock;
(iii) no option may be granted for a period of greater than ten years from
the date of grant; and (iv) a maximum of 400,000 shares of Common Stock have
been authorized and reserved for issuance under the Plan.
During the fiscal year ended September 30, 1994, the Company had granted to
each of Avis P. Jansen and James Scibelli nonqualified options to purchase
20,000 shares at $6.75 per share until April 26, 2004. During the fiscal year
ended September 30, 1995, the Company had granted to each of Avis P. Jansen,
James Scibelli and Keven J. Picardo nonqualified options to purchase 20,000
shares at $6.25 per share until April 26, 2005. Each of the foregoing options
was granted at an exercise price equal to the fair market value of the Common
Stock as of the date of grant. Further, the options vest in 25% increments
annually from the date of grant, subject to earlier termination or extension.
During the fiscal year ended September 30, 1996, the Company did not grant any
options under the Plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of December 20, 1996, by (i) all persons known
by the Company to be the owner, of record or beneficially, of more than five
percent of the outstanding Common Stock, (ii) each executive officer and
director of the Company and (iii) all directors and executive officers as a
group. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of Common Stock subject to options
currently exercisable or exercisable within 60 days of December 20, 1996 are
deemed outstanding for computing the percentage of the person holding such
securities but are not outstanding for computing the percentage of any other
person.
As far as is known to management of the Company, no person owned
beneficially more than five percent of the outstanding shares of Common Stock as
of December 20, 1996 except as set forth below.
SHARES BENEFICIALLY
NAME OWNED PERCENT OF SHARES
---- ------------------- -----------------
Norbert W. Jansen and Avis Jansen, 2,750,000 38.3
Trustees u/a/d 07/14/93 (1)
Norbert W. Jansen (1) 2,892,500 (3) 39.5
Avis P. Jansen (1)(2) 2,892,500 (3) 39.5
Forrest J. Woodward (9) 42,500 (4) *
Louis J. Sposato (9) 67,500 (5) *
James Scibelli (9) 420,000 (6) 5.6
Keven J. Picardo (9) 12,000 (7) *
Jeffrey P. Jacobs (10) 1,071,429 14.9
49
<PAGE>
Franklin Custodian Funds, Inc. - 1,281,869 (8) 15.1
Income Series (9)
Diversified Opportunities Group
Ltd. (10) 1,071,429 14.9
All Executive Officers and Directors
as a group (7 persons) 4,505,929 57.8
- -------------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of Common Stock.
(1) The business address of Norbert W. Jansen and Avis Jansen, Trustees u/a/d
07/14/93 (the "Jansen Trust"), Norbert W. Jansen and Avis P. Jansen is 3750
Las Vegas Boulevard South, Las Vegas Nevada 89109. Such shares are held of
record and beneficially by The Jansen Trust but may be deemed to also be
beneficially owned by Mr. Jansen (within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934, as amended) since, as trustee of The
Jansen Trust, Mr. Jansen has the power to direct the voting and disposition
of such shares.
(2) Avis P. Jansen is the spouse of Norbert W. Jansen and is also deemed to
beneficially own the 2,750,000 shares beneficially owned by Norbert W.
Jansen and the Jansen Trust.
(3) Includes options currently exercisable to acquire 127,500 shares of Common
Stock owned by Norbert W. Jansen and options currently exercisable to
acquire 15,000 shares of Common Stock owned by Avis P. Jansen.
(4) Includes options currently exercisable to acquire 32,500 shares of Common
Stock.
(5) Includes options currently exercisable to acquire 67,500 shares of Common
Stock.
(6) Includes options currently exercisable to acquire 15,000 shares of Common
Stock and 355,000 redeemable common stock purchase warrants sold by the
Company in its initial public offering dated February 11, 1994 (the
"Warrants"). Each Warrant entitles the holder thereof to purchase one
share of Common Stock at $5.00 per share at any time until February 11,
1998, subject to earlier redemption under certain circumstances.
(7) Includes options currently exercisable to acquire 10,000 shares of Common
Stock.
(8) Represents warrants currently exercisable to acquire 1,281,869 shares of
Common Stock.
(9) The business address of Messrs. Woodward, Sposato, Scibelli and Picardo is
3750 Las Vegas Boulevard South, Las Vegas, Nevada 89109. The business
address of Franklin Custodian Funds, Inc. - Income Series is 777 Mariners
Island Blvd., San Mateo, California 94404.
(10) The business address of Jeffrey P. Jacobs and Diversified Opportunities
Group Ltd. ("Diversified") is c/o Jacobs Entertainment Ltd., 425 Lakeside
Avenue, Cleveland, Ohio 44114. Such shares are held of record and
beneficially by Diversified but may be deemed to also be beneficially owned
by Mr. Jacobs (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) since Mr. Jacobs has the power to direct
the voting and disposition of such shares.
50
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Effective October 1, 1993, the Company entered into a subscription
agreement (the "VC Subscription Agreement") with all of the partners of VC,
Ltd., Limited Partnership, an affiliated Nevada limited partnership ("VC"). The
sole general partner of VC was Holiday Gifts, Inc., a Nevada corporation ("HGI")
whose sole shareholders are Norbert W. Jansen and Avis P. Jansen, founders,
directors, executive officers and the principal shareholders of the Company. VC
owned certain real property upon which VC owned and operated the Boardwalk
Hotel. Pursuant and subject to the terms and conditions of the VC Subscription
Agreement, the Company acquired all of the VC partners' interests in and to VC,
including the real property and the Boardwalk Hotel (the "Hotel Assets"), by the
issuance to the VC partners of an aggregate of 1,485,714 unregistered shares of
Common Stock. Of these 1,485,714 shares, HGI received 757,714 shares as general
partner of VC and 16,000 shares as a limited partner.
As a result of the foregoing transaction, the Company acquired all of the
liabilities of VC, including the obligations of VC to Bank of America Nevada
f/k/a Valley Bank of Nevada pursuant to certain promissory notes of VC dated
April 25, 1985 in the original principal amount of $4,000,000 and dated December
1, 1987 in the original principal amount of $1,000,000 (collectively, the "Bank
Loans").
Effective October 1, 1993, the Company entered into a purchase and sale
agreement (the "Jansen Acquisition Agreement") with Norbert W. Jansen
("Jansen"), the then president, principal shareholder and a director of the
Company. Jansen owned certain real property upon which HGI operated the
Boardwalk Casino. Pursuant and subject to the terms and conditions of the
Jansen Acquisition Agreement, the Company acquired all of Jansen's interests in
and to the real property and the Boardwalk Casino (the "Casino Assets") by the
issuance to Jansen of 1,605,250 unregistered shares of Common Stock. As a
result of this transaction and as part of the consideration paid by the Company,
the Casino Assets continued to secure the obligations of VC to Bank of America
Nevada f/k/a Valley Bank of Nevada in connection with the Bank Loans.
Effective October 1, 1993, the Company entered into a purchase and sale
agreement (the "HGI Acquisition Agreement") with HGI. Pursuant to prior leases
formerly with VC, Jansen and the Company, HGI operated, among other things, the
casino and related facilities at the Holiday Inn-Registered Trademark- Casino
Boardwalk and was the owner of certain gaming equipment and related assets used
in connection therewith. Pursuant and subject to the terms and conditions of
the HGI Acquisition Agreement, the Company acquired all of HGI's interests in
and to the casino leases and its gaming equipment and devices (the "Gaming
Assets") by the issuance to HGI of 759,036 unregistered shares of Common Stock.
The Company did not obtain any independent market appraisal nor engage an
investment banker to render any opinion with respect to the fairness to the
Company from a financial point of view of the consideration paid by the Company
in each of the foregoing transactions. However, the Company believes that the
terms of each of the foregoing agreements are at least as favorable as could
have been obtained from non-affiliated third parties.
A personal loan to the Jansens, the proceeds of which were advanced to the
Company in 1987, was collateralized by a second trust deed on certain real and
personal property of the Company. Monthly payments of $3,330, including 14%
interest, were made to the Jansens through September 30, 1993. On October 1,
1993, the Jansens converted their outstanding loans and advances to equity,
including this loan with a balance of $195,483; the loan was paid in full in
August 1994.
51
<PAGE>
In 1993, a parcel of land was quitclaimed to Norbert W. Jansen and,
accordingly, Mr. Jansen's loans and advances were reduced by the fair market
value of the land, which exceeded its historical cost by $115,000.
From October 1, 1993 through February 11, 1994, HGI operated the casino
business of the Company subject to a lease (the "Interim Lease"). The Interim
Lease provided for monthly rentals of $32,500. During this period, the Company
paid certain overhead and general and administrative expenses on behalf of HGI
aggregating $56,780. This amount was recorded by the Company as a receivable
from HGI. Upon the completion of the initial public offering, the Interim Lease
terminated and the Company acquired possession of the casino and title to the
gaming assets for a nominal amount.
In October 1994, the Company agreed to assume the $95,000 liability of Mr.
Jansen in connection with the settlement of certain litigation covering a claim
for architectural fees allegedly incurred in designing a building to be built
upon property owned by the Company. The settlement resulted in a significant
discount of the fees sought and the acquisition of the intellectual property
rights in the building and plans. The Company agreed to assume Mr. Jansen's
liability since his efforts to build the building were undertaken on behalf of
the Company, and not in his individual capacity.
On January 10, 1996, the Company borrowed $500,000 from Mr. Norbert Jansen
and issued to Mr. Jansen a 12% uncollateralized promissory note payable upon the
earlier of the completion of a proposed private placement equity offering or
September 30, 1996. The Company utilized the proceeds of this loan to repay, in
part, a note payable to an unaffiliated third party. On September 25, 1996, the
Company repaid the loan to Mr. Jansen in full.
On March 29, 1996, the Company borrowed $500,000 from Mr. Norbert Jansen
and issued to Mr. Jansen a 12% uncollateralized promissory note payable upon the
earlier of the completion of a proposed private placement equity offering or
September 30, 1996. In addition, on March 29, 1996, the Company borrowed
$500,000 from Mr. James Scibelli and issued to Mr. Scibelli a 10%
uncollateralized promissory note payable upon the earlier of the completion of a
proposed private placement equity offering or November 1, 1996. The Company
utilized the proceeds of these loans to satisfy certain indebtedness due April
1, 1996. On September 25, 1996, the Company repaid the loans to Messrs. Jansen
and Scibelli in full.
In April 1996, the Company borrowed $250,000 from Mr. Norbert Jansen and
issued to Mr. Jansen a 10% uncollateralized promissory note payable on demand
after 90 days. The Company utilized the proceeds of this loan as working
capital. On September 25, 1996, the Company repaid the loan to Mr. Jansen in
full.
During the fiscal years ended September 30, 1995 and 1996, the Company
leased office space for certain executive and administrative employees from
Norbert W. Jansen for approximately $8,375 per month, totaling $43,874 and
$101,375, respectively. The Company believes that the rent charged was fair and
reasonable and on as beneficial terms as could have been obtained from an
unaffiliated third party consistent with other rentals assessed in the market
area for similar facilities.
Effective October 1, 1996, in connection with the private transaction with
Diversified Opportunities Group Ltd., the Company entered into a lease agreement
(the "Lease Agreement") as the tenant with The Jansen Trust as the landlord.
The Lease Agreement covers certain land to the north of the hotel and casino
(the "Property") which enables the Company to control the use of the Property
and provides the Company with an option to purchase the Property for possible
expansion of the hotel and casino.
52
<PAGE>
The Property consists of approximately 1.07 acres of land and has 150 feet
of frontage on the Strip. It currently contains a two-story office building
which is leased to several retail and office tenants, including the executive
and administrative offices of the Company. The Lease Agreement commenced
October 1, 1996 and has a term of 24 months, with an option to extend the lease
term for an additional five years and a second, successive, option to extend it
an additional 23 years. The base rent of $70,000 per month ($840,000 per year)
is subject to adjustment after five years. In addition, the Lease Agreement
grants the Company an option to purchase the Property under certain terms and
conditions. The Company believes that the terms of the Lease Agreement are fair
and reasonable and on as beneficial terms as could be obtained from an
unaffiliated third party consistent with other rentals assessed in the market
area for similar facilities.
In September 1996, the Company entered into a long term lease with HGI with
respect to the gift shop within the hotel-casino covering approximately 1,000
square feet for an initial term of ten years, with a 5-year option, at a base
monthly lease payment of the greater of $5.00 per square foot or 10% of the
tenant's gross sales. Prior to September 1996, the Company leased to HGI a
different and smaller store on its property as a gift shop at a monthly rental
of $1,000.
All future transactions with affiliates will be on terms no less favorable
than could be obtained from unaffiliated parties. Any loans to officers,
affiliates and/or shareholders of the Company are subject to the approval by a
majority of the disinterested directors of the Company.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
3.1 Restated Articles of Incorporation of the Registrant.*
3.2 Certificate of Amendment of Articles of Incorporation of the
Registrant.**
3.3 Bylaws of the Registrant.*
4.1 Form of Warrant Agreement.*
4.2 Indenture between Boardwalk Casino, Inc., Issuer and Shawmut
Bank, N.A., Trustee for $40,000,000 16.5% First Mortgage Notes
Due March 31, 2005, Dated as of April 7, 1995.*
10.1 Outside Directors Stock Option Plan of Boardwalk Casino, Inc.**
10.2 1994 Stock Compensation Plan of Boardwalk Casino, Inc.**
10.3 Employment Agreement between Boardwalk Casino, Inc. and Norbert
W. Jansen.**
10.4 Employment Agreement between Boardwalk Casino, Inc. and Louis J.
Sposato.**
10.5 Employment Agreement between Boardwalk Casino, Inc. and Forrest
J. Woodward, II.***
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<PAGE>
10.6 Subscription Agreement between the Company and the Partners of
VC, Ltd., Limited Partnership (the "VC Subscription Agreement").*
10.7 Acquisition Agreement between the Company and Norbert W. Jansen
(the "Jansen Acquisition Agreement").*
10.8 Acquisition Agreement between the Company and Holiday Gifts, Inc.
(the "HGI Acquisition Agreement").*
10.9 Holiday Inns Franchising, Inc. License Agreement with the
Company.*
10.10 Purchase Agreement dated as of September 24, 1996, by and
among Diversified, Jansen and the Company.
10.11 Convertible Subordinated Note dated September 24, 1996,
executed by the Company in favor of Diversified.
10.12 Option and Proxy Agreement dated as of September 24, 1996,
by and among Diversified, Jansen and the Company.
10.13 Registration Agreement dated as of September 24, 1996, by
and between Diversified and the Company.
10.14 Lease Agreement effective as of October 1, 1996, by and
between Jansen and the Company.
23.1 Consent of Coopers & Lybrand L.L.P., independent public
accountants, to the incorporation by reference in the
Registration Statements on Form S-8 (file numbers 333-05019 and
333-05021) of their report dated November 27, 1996, included in
the Registrant's Report on Form 10-KSB for the fiscal year ended
September 30, 1996.
27.1 Financial Data Schedule.
__________
* - incorporated by reference to the Exhibits to the Registration
Statement on Form SB-2 and Post Effective Amendments thereto,
file number 33-71816-LA, declared effective February 11, 1994,
June 29, 1995 and February 6, 1996.
** - incorporated by reference to the Report on Form 10-KSB for the fiscal
year ended September 30, 1994, file number 1-12780.
*** - incorporated by reference to the Report on Form 10-KSB for the
fiscal year ended September 30, 1995, file number 1-12780.
(b) REPORTS ON FORM 8-K. The Company did not file any reports on Form 8-K
during the last quarter of the period covered by this report.
54
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BOARDWALK CASINO, INC.
Registrant
Date: 1/13/97 By: /s/ FORREST J. WOODWARD
-----------------------------------
Forrest J. Woodward, President and
Chief Operating Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
NAME TITLE DATE
---- ----- ----
DECEASED Chief Executive Officer and
- ----------------------------- Chairman of the Board of Directors
Norbert W. Jansen
/s/ AVIS P. JANSEN Vice President and Director 1/13/97
- -----------------------------
Avis P. Jansen
/s/ LOUIS J. SPOSATO Chief Financial Officer, 1/13/97
- ----------------------------- Secretary, Treasurer and Director
Louis J. Sposato
/s/ JAMES SCIBELLI Director 1/13/97
- -----------------------------
James Scibelli
/s/ KEVEN J. PICARDO Director 1/13/97
- -----------------------------
Keven J. Picardo
/s/ JEFFREY P. JACOBS Director 1/13/97
- -----------------------------
Jeffrey P. Jacobs
55
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is made and entered into as of the ______ day of
September, 1996, by and among BOARDWALK CASINO, INC., a Nevada corporation
("Seller"), NORBERT W. JANSEN, individually and as trustee under an agreement
dated July 14, 1993 ("Jansen"), and DIVERSIFIED OPPORTUNITIES GROUP LTD., an
Ohio limited liability company, or its nominee as described in Section 27
("Purchaser").
RECITALS
Seller desires to sell to Purchaser certain Shares (as hereinafter defined)
and issue to Purchaser a convertible subordinated note in the principal amount
of $5,000,000 (the "Note"), and Purchaser desires to acquire the Shares and the
Note from Seller.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing Recitals and of the
warranties, representations, agreements and undertakings hereinafter set forth,
the parties hereto do hereby represent, warrant, covenant and agree as follows:
1. CERTAIN DEFINITIONS
For the purposes of this Agreement, the terms defined in this Section 1
shall have the meanings set out below. All capitalized terms not defined in
this Section 1 shall have the meanings ascribed to them in other parts of this
Agreement.
(a) "Closing Date" shall mean ______________________, 1996, as of the
close of business, or such other date as to which the parties may agree in
writing.
(b) "Closing" shall mean the closing on the Closing Date of the
purchase and sale transaction contemplated by this Agreement.
<PAGE>
(c) "Annual Statement" shall mean Seller's Balance Sheet at September
30, 1995 and the accompanying Statements of Income (Loss), Statements of Cash
Flows and Statements of Shareholders' Equity for Seller's two fiscal years then
ended, together with the schedules and notes related thereto, accompanied by the
applicable report of Coopers & Lybrand L.L.P., Certified Public Accountants, as
filed with the Securities and Exchange Commission ("SEC").
(d) "Interim Statement" shall mean Seller's unaudited Balance Sheet
at June 30, 1996 and the accompanying Statements of Operations and Statements of
Cash Flow for the 9-month period then ended, together with the notes relating
thereto, as filed with the SEC.
(e) "Financial Statements" shall mean the Annual Statement and
Interim Statement.
(f) "Material Adverse Effect" shall mean any event which would, in
the aggregate, have a material adverse effect upon the business, assets,
financial condition or results of operations of Seller on a consolidated basis.
(g) "Purchaser Material Adverse Effect" shall mean any event which
would, in the aggregate, have a material adverse effect upon the business,
assets, financial condition or results of operations of Purchaser.
(h) "Shares" shall mean shares of Seller's Common Stock, $.001 par
value.
2. PURCHASE AND SALE; PRICE
Seller agrees to issue and sell to Purchaser, as the case may be, and
Purchaser agrees to purchase from Seller, the Note and certain of the Shares for
the purchase price and upon and subject to the terms, provisions and conditions
hereinafter set forth.
(a) ISSUANCE OF NOTE. Seller shall issue and Purchaser shall
purchase the Note. The Note shall be in substantially the form and substance of
Exhibit A attached hereto and
-2-
<PAGE>
incorporated herein by reference. The Note shall contain, among other
things, interest at a variable rate per annum equal to Purchaser's costs of
funds (estimated at LIBOR + 2.25%) (the "Charged Rate"). Each change in the
Charged Rate shall result immediately, without notice or demand of any kind,
in a corresponding change in the interest rate under the Note, effective with
respect to the periods on or after the date of such change. Interest due on
the Note shall be payable on a quarterly basis. The principal of the Note
shall be due and payable on the second anniversary of the Closing Date and
shall, commencing on the receipt from the Nevada Gaming Commission (the
"Commission") and the Nevada State Gaming Control Board (the "Gaming Board")
and the authorities of Clark County, Nevada (the Commission, the Gaming Board
and the Clark County Authorities are collectively referred to as the "Nevada
Gaming Authorities") of all requisite licensing, findings of suitability or
other approval required in accordance with Nevada law ("Licensing Approval"),
be convertible into Shares at a conversion price of $7.50 per share. The
Note shall be secured by a second priority lien on the Collateral, as such
term is defined in that certain Indenture dated as of April 7, 1995 between
Seller and Shawmut Bank, N.A., Trustee for $40,000,000 16.5% First Mortgage
Notes Due March 31, 2005 (the "Indenture"). This second priority lien shall
be evidenced by a Deed of Trust and Security Agreement in substantially the
form and substance of Exhibit B attached hereto and incorporated herein by
reference.
(b) PURCHASE OF SHARES. Seller shall sell and Purchaser shall
purchase 571,429 Shares at a price of $7.00 per Share for a total purchase price
of $4,000,000.
(c) ACQUISITION OF AND OPTION FOR JANSEN SHARES. Pursuant to an
Option and Proxy Agreement to be entered into between Purchaser and Jansen (the
"Option Agreement"), Purchaser shall have the obligation to acquire certain
Shares owned by Jansen and the right to
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acquire certain Shares owned by Jansen. The Option Agreement shall be in
substantially the form and substance of Exhibit C attached hereto and
incorporated herein by reference.
(d) PAYMENT OF PURCHASE PRICE. The purchase price of $5,000,000 for
the Note and $4,000,000 for the Shares pursuant to Sections 2(a) and 2(b) above,
shall be paid by Purchaser to Seller by wire transfer or by certified or bank
check at the Closing.
3. AGREEMENTS REGARDING REGISTRATION OF SHARES AND BOARD REPRESENTATION.
(a) At or prior to the Closing, Purchaser and Seller shall execute
and deliver a Registration Agreement (the "Registration Agreement") in
substantially the form and substance of Exhibit D attached hereto and
incorporated herein by reference. The Registration Agreement shall provide for
the registration of all Shares acquired by Purchaser as contemplated hereunder,
including those acquired by conversion of the Note or pursuant to the Option
Agreement.
(b) Within seven (7) days following the earlier to occur of (i)
receipt of a favorable ruling letter from the Gaming Board, satisfactory to
Purchaser and Seller, each in the exercise of its reasonable business judgment,
with respect to the transactions contemplated by this Agreement, or (ii)
Purchaser having obtained Licensing Approval, Seller's Board of Directors (the
"Board") shall be expanded to six persons, one of whom shall be Jeffrey P.
Jacobs ("Jacobs"). Subject to Purchaser having obtained Licensing Approval, at
such time as Purchaser shall have acquired a total of 1,000,000 or more Shares
from Jansen pursuant to the Option Agreement, the Board shall be expanded to
seven members and Purchaser shall be entitled to nominate the additional Board
member.
4. REPRESENTATIONS AND WARRANTIES BY SELLER AND JANSEN.
As a material inducement to Purchaser to enter into this Agreement,
Seller and Jansen, jointly and severally, represent, warrant to and, where
applicable, covenant with Purchaser
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that as of the date hereof and as of the Closing Date (it being acknowledged,
however, that the representations and warranties being made by Jansen are
being made to the best of his actual knowledge):
(a) DUE ORGANIZATION. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada,
has full corporate power and authority to own its properties and to carry on
its business as it is now being conducted, is duly qualified to do business
and is in good standing in all jurisdictions in which it is required to be so
qualified, except where the failure to so qualify or be in good standing
would not, in the aggregate, result in a Material Adverse Effect. Seller has
received all necessary authorizations, consents, licenses and approvals of
the Nevada Gaming Authorities, and other governmental authorities material to
the ownership of its properties and assets and to the conduct of its
business.
(b) POWER AND AUTHORITY; NO CONFLICTS. Seller has full power and
authority (corporate or otherwise) to enter into and carry out the terms of
this Agreement. The execution and delivery by Seller of this Agreement and
the other documents and instruments to be executed and delivered by Seller
pursuant hereto and thereto and the consummation of the transactions
contemplated hereby and thereby by Seller have been duly authorized by the
requisite vote of the Board of Seller. This Agreement has been duly and
validly executed by Seller and constitutes, and when executed and delivered,
each other document and instrument to be executed and delivered by Seller
pursuant hereto, will constitute, a valid and binding agreement of Seller
enforceable against it in accordance with their respective terms subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights generally and except to the extent that the enforceability of rights
and remedies may be limited by general principles of equity. The execution
and delivery of this
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Agreement does not, and, subject to any requisite governmental or other
consents or approvals, the consummation of the transactions contemplated
hereby will not, (i) violate any provision of the Articles of Incorporation,
as amended, of Seller, or the Bylaws of Seller, (ii) violate or conflict with
any law, ordinance, rule, regulation, order, judgment or decree to which
Seller is subject or by which Seller is bound, or (iii) violate or conflict
with or constitute a material default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, or will result in
the termination of, or accelerate the performance required by, or result in
the creation of any lien, security interest, charge or encumbrance upon any
of the properties or assets under, any term or provision of any material
contract, commitment, understanding, arrangement, agreement or restriction of
any kind or character to which Seller is a party or by which any of its
assets or properties may be bound or affected. Except for required approvals
of the Nevada Gaming Authorities, no consent, approval, authorization or
action by any other federal, state, local or foreign governmental agency,
instrumentality, commission, authority, board or body (collectively,
"Governmental Agency") or any other third party is required in connection
with the execution and delivery by Seller of this Agreement and the other
documents and instruments to be executed and delivered by Seller pursuant
hereto or the consummation by Seller of the transactions contemplated herein
or therein.
(c) CAPITAL STRUCTURE. The authorized capital stock of Seller as
of September 11, 1996 consists solely of Fifteen Million (15,000,000) Shares,
of which 6,608,000 are issued and outstanding, and Fifteen Million
(15,000,000) shares ("Preferred Shares") of a preferred class, $.001 par
value, none of which Preferred Shares are issued and outstanding. No Shares
or Preferred Shares are held as treasury shares. All of the outstanding
shares of capital stock of Seller have been duly authorized and validly
issued and are fully paid and nonassessable and free from preemptive rights.
Schedule 4(c) sets forth a list of each stock option, warrant or other right
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to acquire securities of Seller (an "Option") outstanding on the date of this
Agreement. There are no outstanding options, warrants, convertible
securities, subscriptions or other rights or agreements providing for the
issuance or delivery of any additional shares of capital stock of Seller,
except the Options.
(d) VALID ISSUANCE OF SHARES. The Shares that are being purchased
hereunder, when issued, sold and delivered in accordance with the terms of
this Agreement and the Option Agreement, for the consideration expressed
herein and therein, will be duly and validly issued, fully paid and
nonassesszable. The Shares issuable upon conversion of the Note have been
duly and validly reserved for issuance, and when issued upon conversion, will
be duly and validly issued, fully paid and nonassessable.
(e) SUBSIDIARIES. Seller has no subsidiaries, either wholly or
partially owned.
(f) SEC DOCUMENTS. Seller has made available to Purchaser a true
and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by Seller with the SEC since March 31, 1994
(as such documents have since the time of their filing been amended, the
"Seller SEC Documents") which are all of the documents (other than
preliminary material) that Seller was required to file with the SEC since
such date. As of their respective dates, the Seller SEC Documents complied
in all material respects with the requirements of the Securities Act of 1933,
as amended (the "1933 Act"), or the Securities Exchange Act of 1934, as
amended, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Seller SEC Documents, and none of the Seller
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of Seller included in the Seller
SEC Documents comply as to form in all material respects with applicable
accounting
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requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case of
the unaudited statements, as permitted by Form 10-QSB of the SEC) and fairly
present (subject, in the case of the unaudited statements, to normal,
recurring audit adjustments) the consolidated financial position of Seller as
at the dates thereof and the consolidated results of its operations and cash
flows for the periods then ended. To the best of its knowledge Seller is not
now, nor has it ever been, the subject of any inquiry or other investigation
by the SEC ("SEC Investigation"), nor, to the best knowledge of Seller, is
any such SEC Investigation pending or threatened.
(g) TITLE TO ASSETS. Seller has good, marketable and valid title
in and to all of its assets, including all real, personal and intangible
property, and, except for the lien created by the Indenture and as set forth
on Schedule 4(g), holds its assets free and clear of any mortgage,
conditional sale agreement, title retention agreement, security interest,
lease, pledge, hypothecation, lien or other encumbrance.
(h) CONDITION OF ASSETS. All of the assets (whether owned or
leased) that are necessary for the conduct of the business of Seller are in
normal operating condition, free from defects other than such minor defects
as do not materially interfere with the continued use thereof in normal
operations.
(i) INSURANCE. Seller (a) maintains insurance policies with
licensed insurance carriers on such assets, properties and businesses and
against such risks as is customary for companies engaged in its business, or
(b) has reserved on the Financial Statements sufficient funds to cover all
losses known to it arising from such risks. Schedule 4(i) sets forth a list
and brief description (specifying the insurer and describing each pending
claim thereunder) of all
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policies, binders or reserves of fire, liability, workers' compensation,
vehicular and other insurance or self-insurance held by or on behalf of
Seller. All such policies are in full force and effect and insure against
risks and liabilities to an extent and in a manner customary in the industry
in which Seller operates. Except for claims identified on Schedule 4(i),
there are no outstanding unpaid claims under any such policy, binder or
reserve. Except as set forth on Schedule 4(i), there will be no liability of
Seller, as of the Closing Date, under any such insurance policy or ancillary
agreement with respect thereto in the nature of a retroactive rate
adjustment, loss sharing arrangement or other actual or contingent liability
arising wholly or partially out of events occurring prior to the Closing
Date. Seller has received no notice of cancellation or nonrenewal of any
such policy or binder. There is no inaccuracy in any application for such
policies or binders, or any failure to pay premiums due.
(j) DIVIDENDS AND DISTRIBUTIONS. From December 31, 1995 to the
date hereof, Seller has not declared or paid any dividends on any Shares or
Preferred Shares, nor has it made any other payments or distributions thereon
to its shareholders.
(k) SELLER DATA. Seller has made available to Purchaser its
corporate minutes, articles and bylaws, books and records, all material
contracts, summaries of all loans and all leases, evidence of all bank
accounts, an accurate and complete list of each insurance policy currently
providing coverage for the real and personal property owned, operated or
leased together with copies of such policies, information regarding employee
compensation and benefit plans, a list of all outstanding workers
compensation and unemployment claims, all licenses and permits that Seller
has with respect to its operations, and all outstanding citations or
complaints relating to environmental, health or safety laws or regulations
(collectively, the "Seller Data"). Seller acknowledges that Purchaser has
relied on the Seller Data in deciding to execute this Agreement and
consummate the transactions contemplated hereby.
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(l) UNDISCLOSED LIABILITIES. Seller has no liabilities or
obligations of any nature, secured or unsecured (absolute, accrued,
contingent or otherwise and whether due or to become due), which would result
in a Material Adverse Effect, except (i) liabilities and obligations that are
fully reflected, reserved against or disclosed in the Financial Statements,
and (ii) liabilities and obligations incurred in the ordinary course of
business consistent with past practice.
(m) INVESTIGATION OR LITIGATION. Except as set forth on Schedule
4(m), there is no investigation or review pending or to the best knowledge of
Seller threatened by the Nevada Gaming Authorities or any other Governmental
Agency or other party or person with respect to Seller; nor have the Nevada
Gaming Authorities or any other Governmental Agency or other party or person
indicated in writing to Seller an intention to conduct any such investigation
or review; nor, to the knowledge of Seller, is there any valid basis for any
such investigation or review. Except as set forth on Schedule 4(m), there is
no claim, action, suit or proceeding pending before or, to the best knowledge
of Seller, threatened against or affecting Seller at law or in equity by, the
Nevada Gaming Authorities or any other Governmental Agency or other party or
person, nor is there, to the best knowledge of Seller, any valid basis for
any such claim, action, suit or proceeding.
(n) CERTAIN AGREEMENTS. Except as disclosed in the Seller SEC
Documents filed prior to the date of this Agreement or in Schedule 4(n) as of
the date of this Agreement, Seller is not a party to any oral or written (i)
consulting agreement not terminable on 60 days' or less notice, (ii)
agreement with any executive officer or other key employee of Seller, or
(iii) agreement or plan, including any stock option plan, stock appreciation
rights plan, any of the Plans (as defined in Section 4(o)), restricted stock
plan or stock purchase plan, any of the benefits of which will be increased,
or the vesting of the benefits of which will be accelerated, by the
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occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement.
(o) EMPLOYEE BENEFITS.
(i) Schedule 4(o) contains a true and complete list of each
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance or termination pay, hospitalization or other medical, life
or other insurance, supplemental unemployment benefits, profit-sharing,
pension, retirement or other employee benefit plan, program, practice,
agreement or arrangement, including, without limitation, each "employee
benefit plan" as defined in section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), sponsored, maintained,
contributed to or required to be contributed to by Seller or any trade or
business, whether or not incorporated (an "ERISA Affiliate"), whose employees
would, for the purposes of applying certain provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), be aggregated with the
employees of Seller under Section 414(b), (c), (m), (n) and/or (o) of the
Code or which would be deemed to be a member of a "controlled group" within
the meaning of section 4001(a)(14) of ERISA of which Seller is also a
member, for the benefit of current or former employees or directors of Seller
and/or such ERISA Affiliate (the "Plans"). Seller has delivered or made
available to Purchaser true and complete copies of all documents, as they may
have been amended to the date hereof, embodying or relating to the Plans.
(ii) Each of the Plans has been operated and administered in
all material respects in accordance with applicable laws, including but not
limited to ERISA and the Code. No violation of Section 404 of ERISA has
occurred with respect to any Plan.
(iii) There are no pending, or to the best knowledge of
Seller, threatened
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or anticipated claims (other than routine claims for benefits) by, on behalf
of or against any of the Plans or any trusts related thereto.
(p) LABOR MATTERS. Seller has not entered into any collective
bargaining agreements or any other agreements with any labor organization or
any other person or group claiming to represent or bargain collectively for
any of Seller's employees. There are no unfair labor practice charges,
lawsuits, grievances or administrative charges pending or to the best
knowledge of Seller threatened, concerning or affecting Seller. Seller has
received no written notice nor has there been any proceeding or adjudication
questioning whether or alleging or determining that Seller is not in
compliance, in all material respects, with all federal, state and local laws
and regulations with respect to employment, employment practices and terms
and conditions of employment.
(q) TAXES. Seller has (i) timely filed all tax returns, schedules,
declarations, and tax-related documents including, without limitation, all
Forms 5500 pertaining to the Plans (collectively, "Returns") required to be
filed in any jurisdictions to which it is or has been subject, (ii) timely
paid in full all taxes, interest and penalties with respect thereto subject
to audit by the taxing authorities by such jurisdictions and timely made all
deposits of tax required by all applicable taxing jurisdictions, (iii) fully
accrued on its books an amount sufficient to pay all taxes not yet due but
related to operations through the date hereof and will have accrued all taxes
not yet due but which will become due through the Closing Date, (iv) made
timely payments of all taxes required to be deducted and withheld from the
wages paid to employees, and (v) otherwise satisfied, in all material
respects, all legal requirements applicable to it with respect to all
aforementioned obligations to taxing jurisdictions. All Returns filed by
Seller accurately reflect in all material respects their income, expenses,
deductions, credits and loss carryovers and the taxes due and are otherwise
accurate and complete in all material respects and have not been
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amended. Seller has delivered to Purchaser true and complete copies of all
federal and state income and franchise tax returns for each of the taxable
years ended September 30, 1993 through September 30, 1995, inclusive. Seller
has no knowledge that an audit of any of the federal income tax returns of
Seller is in progress and has no reason to believe that any such audit is
contemplated. For purposes of this Section, "tax" and "taxes" (when not
modified by other words such as "income" or "franchise") shall include all
income, gross receipts, franchise, excise, real and personal property, and
other taxes imposed by any federal, state, municipal, local, or other
governmental agency, including assessments in the nature of taxes.
(r) ABSENCE OF CERTAIN CHANGES. Since December 31, 1995, Seller
has not suffered any Material Adverse Effect.
(s) CONDUCT OF BUSINESS. Except as shown on Schedule 4(s), since
the close of business on June 30, 1996, Seller has not, and prior to the
Closing Date will not have, without the prior written consent of Purchaser:
(i) Issued, sold, redeemed, reclassified or purchased any Shares
or Preferred Shares or other corporate securities, warrants
or debt instruments or granted any Options or other rights
in connection therewith, except in connection with the
exercise of warrants outstanding as of June 30, 1996.
(ii) Incurred, paid or settled any obligations, commitments or
liabilities, absolute, accrued, contingent or otherwise,
which would result in a Material Adverse Effect, except
obligations, commitments or liabilities to perform sales
contracts, purchase orders or similar commitments, in each
case incurred, paid or settled in normal amounts and in the
regular and ordinary course of Seller's business.
(iii) Incurred any continuing contract or commitment or other
liability for the future purchase of materials, supplies or
equipment which is not in the regular and ordinary course of
the business, or any contracts or commitments for capital
expenditures in excess of Twenty-Five Thousand Dollars
($25,000) individually or One Hundred Thousand Dollars
($100,000) in the aggregate.
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(iv) Conducted its business other than in the regular and ordinary
course thereof.
(v) Sold, assigned, transferred, encumbered or granted a security
interest in respect of any of its assets.
(vi) Entered into any pension, retirement, deferred compensation,
profit sharing, bonus, retainer, consulting, welfare or
incentive compensation plan or arrangement, or any contract,
or any fringe or other benefits or arrangements, of, with or
for any officer, director, employee or any other person; or
granted any increase in the compensation payable, or to
become payable, by Seller to any of its officers, directors,
employees or other persons (other than customary merit
increases of nonofficers), or in any bonus, insurance,
pension or other benefit plan made for or with any of them.
(vii) Terminated any material contract, agreement, license or other
instrument to which it is a party other than in the regular
and ordinary course of business.
(viii) Changed its Articles of Incorporation, Bylaws or any aspect
of its corporate structure.
(ix) Agreed to do any of the things or made any commitment to
take any of the types of action specified in (i) through
(viii) above.
(t) LEGAL COMPLIANCE. Seller has complied in all material respects
with all applicable laws, rules, regulations, and ordinances of any Governmental
Agency (including, without limitation, all laws and regulations of the Nevada
Gaming Authorities) having jurisdiction, any trademark, tradename or copyright
rules and regulations, and any zoning, occupational safety or environmental
protection laws or any laws relating to the employment of labor. Seller is not
in violation of, or in default under, any terms or provisions of any mortgage,
indenture, security agreement, lease, license, contract, agreement, instrument,
order, arbitration award, judgment, injunction or decree (other than violations
or defaults which individually or in the aggregate would not result in a
Material Adverse Effect). Seller has not received any written notice nor has
there been any proceeding or adjudication questioning whether or alleging or
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determining that the business of Seller is or has been conducted in violation of
any law, ordinance, regulation, order, decree, judgment or injunction. Except
as disclosed on Schedule 4(t), Seller has not received any written notice nor
has there been any proceeding or adjudication questioning whether or alleging or
determining that it has not obtained all permits, licenses and other
authorizations which relate to the assets or the business of Seller. Seller
has not received any written notice nor has there been any proceeding or
adjudication questioning whether or alleging or determining that it is not in
compliance in all material respects with all material terms and conditions of
such permits, licenses and authorizations.
(u) ENVIRONMENTAL PROTECTION.
(i) Seller is in compliance with all Environmental Laws (as
hereinafter defined) applicable to the business of Seller. Seller has disclosed
to Purchaser all outside consultants' reports, internal memoranda, legal
documents and any other information, written or otherwise (including without
limitation, phase 1 and phase 2 reports) in Seller's possession relating to its
and their compliance with all Environmental Laws.
(ii) "Environmental Laws" means all U.S. federal, state, local
and foreign laws and regulations relating to pollution or protection of human
health or the environment (including, without limitation, ambient air, surface
water, ground water, land surface or subsurface strata).
(v) COPYRIGHTS, TRADEMARKS, TRADE NAMES, ETC. Schedule 4(v) contains
an accurate and complete list of all material copyrights, trademark
registrations, trademark applications, service marks, trade names and assumed
names used in Seller's business. Seller has not received written notice nor has
there been any proceeding or adjudication questioning whether or alleging or
determining that the use thereof by Seller infringes on or conflicts with any
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existing patents, trademarks or copyrights or any other rights of any person.
Seller has not received any written notice of any material claim of a third
party to the use of any such names.
(w) CONTRACTS. Except for employment arrangements disclosed on
Schedule 4(n), each contract and commitment (whether written or oral) that
individually involves potential future payments by or to Seller of $50,000 or
more is disclosed on Schedule 4(w) (except as otherwise indicated therein) and
copies of such written contracts or commitments have been provided to Purchaser.
Seller is not, nor has it been during the past three years, a partner in any
partnership or a party to any joint venture.
(x) FULL DISCLOSURE. There is no fact known to Seller which has not
been disclosed to Purchaser in writing, that has caused, or would reasonably be
anticipated to result in, a Material Adverse Effect.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. As a material inducement
to Seller to enter into this Agreement, Purchaser represents, warrants to and,
where applicable, covenants with Seller that as of the date hereof and as of the
Closing Date:
(a) DUE ORGANIZATION. Purchaser is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Ohio, has the requisite power and authority to own its properties and to carry
on its business as it is now being conducted.
(b) POWER AND AUTHORITY; NO CONFLICTS. Purchaser has the requisite
power and authority to enter into and carry out the terms of this Agreement.
The execution and delivery of this Agreement and the other documents and
instruments to be executed and delivered by Purchaser pursuant hereto and the
consummation of the transactions contemplated hereby and thereby by Purchaser
have been duly authorized by all necessary action of Purchaser. This Agreement
has been duly and validly executed and delivered by Purchaser and constitutes,
and when executed and delivered, the other documents and instruments to be
executed and delivered
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by Purchaser will constitute, valid and binding agreements of Purchaser,
enforceable against Purchaser in accordance with their respective terms
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and except to the extent that the enforceability
of rights and remedies may be limited by general principles of equity. The
execution and delivery of this Agreement does not, and, subject to any
requisite governmental or other consents or approvals (including, without
limitation, Licensing Approval of the Nevada Gaming Authorities), the
consummation of the transactions contemplated hereby and thereby will not,
(i) violate any provision of the Articles of Organization or the Operating
Agreement of Purchaser, or (ii) violate or conflict with any law, ordinance,
rule, regulation, order, judgment or decree to which Purchaser is subject or
by which Purchaser is bound (other than violations or conflicts which
individually or in the aggregate would not have a Purchaser Material Adverse
Effect or which would not prevent or delay the consummation of the
transactions contemplated hereby). Except for any required Licensing Approval
of the Nevada Gaming Authorities, no consent, approval, authorization or
action by any Governmental Agency or any other third party is required in
connection with the execution and delivery by Purchaser of this Agreement and
the other documents and instruments to be executed and delivered by Purchaser
pursuant hereto or the consummation by Purchaser of the transactions
contemplated herein or therein.
(c) INVESTMENT PURPOSE. The Shares and the Note being acquired by
Purchaser pursuant to this Agreement and the Option Agreement are being acquired
for Purchaser's own account and not with the view to or for resale in connection
with, any distribution or public offering thereof within the meaning of the 1933
Act. Purchaser understands that the Shares have not been registered under the
1933 Act by reason of their contemplated issuance in a transaction believed to
be exempt from the registration and prospectus delivery requirements of the 1933
Act
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pursuant to Section 4(2) thereof, and in transactions believed to be exempt
from the registration and/or qualification provisions of the appropriate state
securities laws. Purchaser has such knowledge and experience in financial and
business matters that it is capable of independently evaluating the risks and
merits of purchasing or acquiring the Shares. Purchaser is an accredited
investor as defined in Regulation D promulgated under the 1933 Act. Purchaser
has not been formed solely for the purpose of consummating the transactions
contemplated hereby.
5. CLOSING
The Closing hereunder shall take place at 10:00 a.m. on the Closing
Date at the offices of Hahn Loeser & Parks, 3300 BP America Building, 200 Public
Square, Cleveland, Ohio 44114.
6. UNDERTAKINGS.
(a) Prior to the date hereof, Purchaser and its agents and
representatives commenced and, from and after the date hereof, shall be
permitted to continue Purchaser's due diligence review of Seller, in
anticipation of the Closing, and shall have full access to all relevant
information regarding Seller, its assets, the business and the Shares to
determine that all financial and other information that has been and will be
provided to Purchaser is reasonably accurate. Purchaser acknowledges that such
information shall be and remain confidential until the Closing. In the event
the transactions contemplated by this Agreement do not close, Purchaser shall
return to the Seller all documents previously furnished to Purchaser by the
Seller. Purchaser and its agents and representatives hereby agree that they
will not divulge or use any confidential or other proprietary information
regarding Seller, except to the extent (i) required by law, (ii) otherwise
available from third parties, or (iii) previously known to Purchaser from
sources other than the Seller.
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(b) Seller and Jansen shall not divulge or use any confidential or
proprietary information regarding the Purchaser, except to the extent (i)
required by law, (ii) otherwise available from third parties, or (iii)
previously known to Seller or Jansen from sources other than the Purchaser.
8. INTENTIONALLY OMITTED.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser hereunder are subject to the following
conditions, any of which may be waived in writing by Purchaser:
(a) REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties of Seller and Jansen contained in this Agreement
shall be true and correct on the Closing Date with the same effect as if made on
and as of such date. All Schedules and all other information furnished to
Purchaser pursuant to this Agreement shall be updated by Seller as of the
Closing Date.
(b) PERFORMANCE OF AGREEMENTS AND CONDITIONS. Seller and Jansen
shall have performed and complied with all agreements and conditions required by
this Agreement to be performed and complied with by Seller and Jansen, as the
case may be, prior to or at the Closing Date.
(c) SECRETARY'S CERTIFICATE. Seller shall have delivered to
Purchaser a certificate from its Secretary, dated the Closing Date, certifying
in such detail as Purchaser may reasonably request to Seller's and Jansen's
fulfillment of the conditions specified in subsections (a) and (b) above and
such other evidence as to Seller's and Jansen's compliance with the provisions
of this Agreement as Purchaser reasonably may request.
(d) Intentionally Omitted.
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(e) INJUNCTION. On the Closing Date there shall not be in effect any
injunction, writ, temporary restraining order or any other order of any nature
issued by a court or other governmental body or agency of competent jurisdiction
directing that the transactions provided for herein not be consummated as herein
provided, nor shall there be any litigation or proceeding pending or threatened
in respect of the transactions contemplated hereby.
(f) OPTION AGREEMENT. Jansen and Purchaser shall have entered into
the Option Agreement.
(g) REGISTRATION AGREEMENT. Seller and Purchaser shall have entered
into the Registration Agreement.
(h) LEASE. Seller and Jansen shall have entered into a lease for
adjacent real property (the "Lease") in substantially the form and substance of
Exhibit E attached hereto and incorporated herein by reference.
(i) INSTRUMENTS OF TRANSFER AND OTHER DOCUMENTS. Seller shall have
delivered to Purchaser instruments of transfer which vest in Purchaser good and
marketable title to the Shares as required herein, and shall have delivered all
other instruments, certificates and other documents required to be delivered
hereunder.
(j) CONDITION OF BUSINESS AND PROPERTIES. Between the date of this
Agreement and the Closing Date, Seller shall have continued to operate its
business in its regular and ordinary course, and shall not have suffered a
Material Adverse Effect.
(k) GOVERNMENTAL APPROVAL. Nothing in this Agreement shall be
construed to permit Purchaser to acquire control of Seller (as such term is
defined in Nevada Gaming Regulation 16.010(1)) without first obtaining Licensing
Approval.
(l) Intentionally Omitted.
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<PAGE>
(m) OPINION OF COUNSEL. Purchaser shall have received a legal
opinion from Jones, Jones, Close & Brown, Chartered, counsel for Seller and
Jansen, dated as of the Closing Date, in form and substance reasonably
satisfactory to Purchaser's counsel.
(n) DELIVERY OF DOCUMENTS. Seller and Jansen shall have delivered to
Purchaser the documents contemplated by Section 13(a) not otherwise hereinabove
specified.
Seller and Jansen represent and warrant that they have not caused, and they
covenant and agree that they shall not cause, any event that would prevent the
satisfaction of all of the conditions set forth in this Section 9. Seller and
Jansen covenant and agree to take all action reasonably required to satisfy such
conditions.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND JANSEN
The obligations of Seller and Jansen hereunder are subject to the
following conditions, any of which may be waived in writing by Seller and
Jansen:
(a) REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties of Purchaser contained in this Agreement shall be
true and correct on the Closing Date with the same effect as if made on and as
of such date.
(b) PERFORMANCE OF AGREEMENTS AND CONDITIONS. Purchaser shall have
performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by Purchaser prior to or at the
Closing Date.
(c) PRESIDENT'S CERTIFICATE. Purchaser shall have delivered to
Seller and Jansen the certificate of Purchaser's Manager or President, dated the
Closing Date, certifying in such detail as Seller and Jansen reasonably may
request to Purchaser's fulfillment of the conditions specified in subsections
(a) and (b) above and such other evidence as to Purchaser's compliance with the
provisions of this Agreement as Seller and Jansen reasonably may request.
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<PAGE>
(d) OPINION OF COUNSEL. Purchaser shall have delivered to Seller and
Jansen an opinion of Hahn Loeser & Parks, counsel for Purchaser, dated as of the
Closing Date, in form and substance reasonably satisfactory to Seller's and
Jansen's counsel.
(e) INJUNCTION. On the Closing Date there shall not be in effect any
injunction, writ, temporary restraining order or any order of any nature issued
by a court or other governmental body or agency directing that the transactions
provided for herein not be consummated as herein provided, nor shall there be
any litigation or proceeding pending or threatened in respect of the
transactions contemplated hereby.
(f) DELIVERY OF DOCUMENTS. Purchaser shall have delivered to Seller
the documents contemplated by Section 13(b) not otherwise hereinabove specified.
Purchaser represents and warrants that it has not caused, and it covenants
and agrees that it shall not cause, any event that would prevent the
satisfaction of all of the conditions set forth in this Section 10. Purchaser
covenants and agrees to take all action reasonably required to satisfy such
conditions.
11. INDEMNIFICATION BY SELLER AND JANSEN
Seller shall and hereby does indemnify and hold Purchaser harmless
from and against and in respect of any and all loss, damage and expense incurred
by Purchaser, resulting from, arising out of, attributable to, or in any manner
connected with:
(i) Any matter in respect of which Seller shall have made any
misrepresentation, breached any warranty made pursuant to
this Agreement or failed to fulfill any covenant or
agreement on the part of Seller contained in this Agreement
or in any Exhibit, Schedule or certificate or other document
delivered, or to be delivered, by Seller to Purchaser in
connection with this Agreement;
(ii) Any liability of Seller actual or contingent, current or
deferred, not disclosed in the Financial Statements, or any
Exhibit or Schedule furnished pursuant hereto; and
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(iii) Any and all actions, suits, proceedings, demands, assessments
or judgments, costs and expenses (including reasonable legal
and accounting fees and investigation costs) incident to the
foregoing and the enforcement thereof.
Jansen shall and hereby does indemnify and hold Purchaser harmless from and
against and in respect of any and all loss, damage and expense incurred by
Purchaser, resulting from, arising out of, attributable to, or in any manner
connected with any matter in respect of which Jansen shall have made any
misrepresentation, breached any warranty made pursuant to this Agreement or
failed to fulfill any covenant or agreement on the part of Jansen contained in
this Agreement or in any certificate or other document delivered, or to be
delivered, by Jansen to Purchaser in connection with this Agreement and for any
and all actions, suits, proceedings, demands, assessments, or judgments, costs
and expenses (including reasonable legal and accounting fees and investigation
costs) incident to the foregoing and the enforcement thereof.
The indemnification obligations of Seller and Jansen pursuant to this
Section 11 are several and not joint and several.
If any event shall occur or any circumstance arise which might give rise to
a claim in respect of any matter against which Seller and/or Jansen have
indemnified Purchaser hereunder, Purchaser promptly shall give notice thereof to
Seller and/or Jansen. If the matter as to which indemnification may be sought
is a claim by a third party, such notice shall be given within thirty (30) days
after said claim shall have been presented to Purchaser; otherwise such notice
shall be given promptly after Purchaser shall determine that the matter is one
as to which indemnification is sought. Unless the parties otherwise agree in
writing, Seller and/or Jansen shall defend against all such third-party claims
or otherwise satisfy said claims, at their sole cost and expense, through
counsel and accountants designated by them and approved by Purchaser, which
approval shall not be withheld unreasonably. Purchaser shall have the right to
participate with Seller and/or Jansen
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in the defense of any such matter and shall fully cooperate with and make
available to Seller and/or Jansen the business records of Purchaser for said
purpose. If Seller and/or Jansen, after receipt of notification from
Purchaser of a third-party claim, fail to protest, defend or settle any such
third-party claim, demand, suit or proceeding promptly, diligently and in
good faith, Purchaser shall have the right at its discretion to settle,
defend or pay the same, in which event, Seller's and/or Jansen's indemnity
shall extend to and include the amount of said settlement or payment and/or
the costs and legal expenses of such defense.
12. INDEMNIFICATION BY PURCHASER
Purchaser shall and hereby does indemnify and hold Seller harmless
from and against and in respect of any and all loss, damage and expense
incurred by Seller, resulting from, arising out of, attributable to, or in
any manner connected with:
(a) Any matter in respect of which Purchaser shall have made any
misrepresentation, breached any warranty made pursuant to this
Agreement or failed to fulfill any covenant or agreement on the
part of Purchaser contained in this Agreement or in any Exhibit,
Schedule or certificate or other document delivered, or to be
delivered, by Purchaser to Seller in connection with this
Agreement; and
(b) Any and all actions, suits, proceedings, demands, assessments or
judgments, costs or expenses (including reasonable legal and
accounting fees and investigation costs) incident to the
foregoing and the enforcement thereof.
If any event shall occur or any circumstance arises which might give rise
to a claim in respect of any matter against which Purchaser has indemnified
Seller hereunder, Seller shall give notice thereof to Purchaser within thirty
(30) days after said claim shall have been presented to it and, unless the
parties otherwise agree in writing, Purchaser shall defend against said claim or
otherwise satisfy said claim, at its sole cost and expense, through counsel and
accountants designated by Purchaser and approved by Seller, which approval shall
not be unreasonably withheld. Seller shall have the right to participate with
Purchaser in the defense of any such
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matter and shall fully cooperate with and make available to Purchaser the
business records of Seller for said purpose. If Purchaser, after receipt of
notification from Seller of a thirty-party claim, fails to protest, defend or
settle any such third-party claim, demand, suit or proceeding promptly,
diligently and in good faith, Seller shall have the right in its discretion
to settle, defend or pay the same, in which event, Purchaser's indemnity
shall extend to and include the amount of said settlement or payment and/or
the costs and legal expenses of such defense.
13. DOCUMENTS TO BE DELIVERED AT CLOSING
At the Closing on the Closing Date:
(a) Seller and/or Jansen shall deliver to Purchaser the following:
(i) The Note referred to in Section 2(a);
(ii) Certificates representing the Shares being purchased under
Section 2(b) and the Option Agreement, if any;
(iii) The Deed of Trust and Security Agreement referred to in
Section 2(a);
(iv) The Option Agreement referred to in Section 2(c);
(v) The Registration Agreement referred to in Section 3(a);
(vi) The Lease referred to in Section 9(h);
(vii) The certificate referred to in Section 9(c);
(viii) A copy of the Seller's Articles of Incorporation and Bylaws
certified as of the Closing Date by the Secretary thereof;
(ix) The opinion of counsel referred to in Section 9(m);
(x) Certified resolutions of Seller's Board authorizing and
approving this transaction; and
(xi) All other instruments not herein specifically provided for
but which are reasonably necessary or desirable to
effectuate the purpose of this Agreement.
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<PAGE>
(b) DELIVERIES BY PURCHASER. Purchaser shall deliver to Seller
and/or Jansen, as appropriate, the following:
(i) The purchase price due at Closing pursuant to Section 2;
(ii) The Option Agreement referred to in Section 2(c);
(iii) The Registration Agreement referred to in Section 3(a);
(iv) Certified resolutions of the Manager of Purchaser
authorizing this transaction;
(v) The certificate referred to in Section 10(c);
(vi) The opinion of counsel referred to in Section 10(d); and
(vii) All other instruments not herein specifically provided for
but which are reasonably necessary or desirable to effectuate
the purpose of this Agreement.
14. BROKERAGE
Each party represents and warrants to the other that except for Brenner
Securities, Inc., ("Broker") whose compensation shall be the sole responsibility
of Seller, no person or persons assisted in or brought about the negotiation of
this Agreement in the capacity of broker, agent, finder or originator on behalf
of it. Each party ("First Party") agrees to indemnify and hold harmless the
other from any claim asserted against such other party for a brokerage or
agent's or finder's or originator's commission or compensation in respect of
the transaction contemplated by this Agreement by any person (other than Broker
as hereinabove provided) purporting to act on behalf of First Party.
15. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
All representations, warranties and agreements made by Seller, Jansen
or Purchaser pursuant hereto shall survive for a period of three (3) years from
and after the Closing of this
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<PAGE>
transaction. None of the representations, warranties and agreements shall be
affected by any investigation at any time made by or on behalf of any of
Seller, Jansen or Purchaser.
16. REGULATORY CONCERNS
(a) Purchaser acknowledges and understands that notwithstanding
anything to the contrary contained herein if the Commission at any time
determines that Purchaser is unsuitable to hold Shares or other securities of
Seller, then until such Shares or other securities are owned by persons other
than Purchaser, (i) Seller shall not be required or permitted to pay any
dividend or interest with regard to such Shares or other securities, (ii) the
holder of such Shares or other securities shall not be entitled to vote on any
matter as a holder of such Shares or other securities, and such Shares or other
securities shall not for any purposes be included in the Shares or other
securities of the Company entitled to vote, and (iii) Seller shall not pay any
remuneration in any form to the holder of such Shares or other securities.
(b) The parties acknowledge that Purchaser and its affiliates will be
seeking appropriate Licensing Approval from the Nevada Gaming Authorities, and
that no assurance can be given that such Licensing Approval will be issued or
when such Licensing Approval may be issued. The Purchaser agrees to file for
such Licensing Approval as soon as practicable and to pursue their issuance with
reasonable diligence. If Purchaser or its affiliates are (i) found unsuitable,
(ii) denied such Licensing Approval or (iii) do not obtain such Licensing
Approval on or before the third anniversary of the Closing Date, then, subject
to the requirements of the Nevada Gaming Authorities, Seller, upon Purchaser's
request, shall on such third anniversary or such earlier time that there is a
finding of unsuitability or a denial of such Licensing Approval (i) pay off the
indebtedness owing to Purchaser under the Note and/or (ii) redeem the Shares
previously purchased by Purchaser from Seller at a price equal to the
consideration paid for such Shares by Purchaser. The principal balance of the
Note, together with interest owing thereon
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<PAGE>
through the date of the event triggering the payment, shall be paid off
within six (6) months following the date of the event triggering payment or
such shorter period as may be required by the Nevada Gaming Authorities. The
purchase price for the redemption of Shares pursuant to this Section 16(b)
shall be paid without interest and shall be paid in twenty-four (24) equal,
consecutive monthly installments or such shorter period as may be required by
the Nevada Gaming Authorities. The installments shall commence on the first
day of the calendar month following the month in which the event triggering
payment occurred. Further, in the event that the Gaming Board, pursuant to
the ruling letter request described in Section 3(b), requires the
transactions contemplated by this Agreement to be unwound, then, subject to
the requirements of the Gaming Board, the Note shall be paid off and the
Shares shall be redeemed by Seller in accordance with the procedure described
above, except that in such event the purchase price for the Shares shall be
paid within a six (6) month period or such shorter period as may be required
by the Nevada Gaming Authorities.
17. REIMBURSEMENT OF EXPENSES OF PURCHASER
Upon the Closing, Seller shall reimburse Purchaser for and/or pay directly
on behalf of and in the name of Purchaser, all the fees and expenses of
Purchaser's attorneys and accountants' fees incurred in the negotiation and
consummation of the transactions contemplated hereby; provided, however, that
(i) such fees and expenses shall not include any fees and expenses incurred by
Purchaser and its affiliates in connection with obtaining appropriate gaming
licenses in Nevada and (ii) such fees and expenses shall not exceed $100,000.
18. BINDING AGREEMENT
All of the terms and provisions of this Agreement shall inure to the
benefit of, be enforceable by and be binding upon and enforceable against the
parties hereto and their respective heirs and personal representatives,
successors and assigns; provided, however, that except as
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specified in Section 27 hereof, none of the parties hereto may assign its
rights or duties hereunder. Nothing contained in this Agreement shall confer
any rights or remedies upon any other person, firm or corporation.
19. NOTICES
Any notice or other communication required or permitted hereunder
shall be expressed in writing and delivered in person or sent by certified or
registered mail, return receipt requested, or sent by overnight courier service
such as Federal Express and confirmed by certified or registered mail, return
receipt requested, or sent by facsimile (receipt confirmed) to the respective
parties at the following addresses, or at such other addresses as the parties
shall designate by written notice to the other:
PURCHASER: Diversified Opportunities Group Ltd.
c/o Jacobs Entertainment Ltd.
1231 Main Avenue
Cleveland, Ohio 44113
Attn: Jeffrey P. Jacobs
Fax No.: (216) 861-6315
Copy To: Hahn Loeser & Parks
3300 BP America Building
200 Public Square
Cleveland, Ohio 44114
Attn: Stephen P. Owendoff, Esq.
Fax No.: (216) 241-2824
SELLER AND
JANSEN: Boardwalk Casino, Inc.
3750 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Attn: Louis J. Sposato
Fax No.: (702) 739-7918
Copy To: Jones, Jones, Close & Brown, Chartered
3773 Howard Hughes Parkway
Third Floor South
Las Vegas, Nevada 89109
Attn: Gary R. Goodheart, Esq.
Fax No.: (702) 737-7705
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<PAGE>
All notices shall be deemed received on the third business day after mailing or
the first business day after delivery to the overnight courier service or the
same business day if personally delivered or sent by facsimile.
20. SECTION HEADINGS
The section and subsection headings and any table of contents listing
the same contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
21. SCHEDULES AND EXHIBITS
All Schedules and Exhibits referred to in this Agreement are attached
hereto and are hereby incorporated herein and made a part hereof.
22. COUNTERPARTS
This Agreement may be executed in any one or more counterparts, all of
which taken together shall constitute one instrument.
23. COOPERATION
Each party shall cooperate and use its best efforts to consummate the
transaction contemplated herein. In addition, each party shall cooperate and
take such action and execute such other and further documents as reasonably may
be requested from time to time after the Closing Date by any other party to
carry out the terms and provisions and intent of this Agreement.
24. GENDER
Wherever the context of this Agreement so requires or permits, the
masculine herein shall include the feminine or the neuter, the singular shall
include the plural, and the term "person" shall also include "corporation" or
other business entity.
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25. ENTIRE AGREEMENT
This Agreement contains the entire agreement between the parties
hereto, and it is understood and agreed that there are no other covenants,
representations or warranties other than those contained herein. This Agreement
may not be changed or modified except by a writing duly executed by the parties
hereto.
26. WAIVER OF PROVISIONS
The terms, covenants, representations, warranties and conditions of
this Agreement may be waived only by a written instrument executed by the party
waiving compliance. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right at a later date to enforce the same. No waiver by any party of any
condition or the breach of any provision, term, covenant, representation or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation or warranty of this Agreement.
27. ASSIGNMENT BY PURCHASER.
Subject to any required approval of the Nevada Gaming Authorities,
Purchaser may assign its rights and obligations hereunder, in whole or in part,
to one or more corporations, limited liability companies, partnerships, trusts,
or other entities which are under common control with, or controlled through
equity ownership and/or voting control by, Purchaser or Jacobs; it being
acknowledged that any entity in which Jacobs beneficially owns 15% or more of
the voting equity securities and is Chairman of the Board and/or Chief Executive
Officer constitutes common control.
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<PAGE>
28. ARBITRATION.
If any dispute shall arise among the parties with respect to this Agreement
or any of the transactions contemplated hereby, such dispute shall be settled by
arbitration pursuant to this Section 28. In such event, either party hereto may
serve upon the other party a written notice demanding that the dispute be
resolved pursuant to this Section 28. The dispute or claim shall be heard in
Chicago, Illinois by one (1) neutral arbitrator, if the parties can agree on the
selection of said arbitrator, or if unable to agree, each party shall select (1)
arbitrator and the two arbitrators chosen shall select the third arbitrator. If
the dispute shall be heard by three (3) arbitrators, one (1) arbitrator will be
selected by the party initiating the arbitration at the time of the submission
to arbitration. Within seven (7) days after submission, the other party will
select an arbitrator. Within seven (7) days after the first two (2) arbitrators
are chosen, the third arbitrator will be selected. The third arbitrator
selected shall not have any relationship to either of the parties. The
arbitrators shall apply the internal law of the State of Nevada. Said
arbitrator(s) shall be sworn faithfully and fairly to determine the question at
issue. The arbitrator(s) shall afford to the parties a hearing and the right to
submit evidence, with the privilege of cross examination and the right to compel
testimony by applying for subpoena powers to appropriate judicial authority, on
the question at issue, and shall, with all possible speed, make his/their
determination in writing and shall give notice to the parties hereto of such
determination. The concurring determination of the arbitrator, if heard by
one, or of any two of said three arbitrator(s) shall be binding upon the parties
hereto, or, in case no two of the arbitrators shall render a concurring
determination, then the determination of the third arbitrator appointed shall be
binding upon the parties hereto. The decision of the arbitrators shall be final
and binding upon the parties hereto and shall be enforceable in any court having
jurisdiction. Any arbitration shall be conducted in accordance with the then
prevailing Commercial Rules of
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the American Arbitration Association, or the successor party thereto from
time to time in existence. The fees and expenses of the arbitrator(s) shall
be divided equally between the parties so involved. The fees and expenses of
the prevailing party's attorneys in any arbitration proceedings shall be
borne by the non-prevailing party.
29. GOVERNING LAW
This Agreement shall be governed by and construed under the laws of the
State of Nevada.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above set forth.
SELLER:
BOARDWALK CASINO, INC.
By:
-------------------------------------
Title:
----------------------------------------
Norbert W. Jansen, individually and as
trustee under an agreement dated July 14,
1993
PURCHASER:
DIVERSIFIED OPPORTUNITIES GROUP LTD.
By: Jacobs Entertainment Ltd.,
its Manager
By:
--------------------------
Jeffrey P. Jacobs,
President
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<PAGE>
LIST OF EXHIBITS AND SCHEDULES
CONTRACT
EXHIBIT REFERENCE DESCRIPTION
------- --------- -----------
A 2(a) Note
B 2(a) Deed of Trust and Security Agreement
C 2(c) Option Agreement
D 3(a) Registration Agreement
E 9(h) Lease
CONTRACT
SCHEDULE REFERENCE DESCRIPTION
-------- --------- -----------
4(c) 4(c) Options
4(g) 4(g) Liens
4(i) 4(i) Insurance and Claims
4(m) 4(m) Investigations and Litigation
4(n) 4(n) Certain Agreements
4(s) 4(s) Conduct of Business
4(t) 4(t) Legal Compliance
4(o) 4(o) Benefit Plans
4(v) 4(v) Intellectual Property
4(w) 4(w) Contracts
<PAGE>
CONVERTIBLE SUBORDINATED NOTE
$5,000,000.00 Las Vegas, Nevada
September 24, 1996
FOR VALUE RECEIVED, the adequacy of which is hereby acknowledged,
Boardwalk Casino, Inc., a Nevada corporation with its principal office
located at 3750 Las Vegas Blvd. South, Las Vegas, Nevada 89109 (the "Maker"),
hereby promises to pay to the order of Diversified Opportunities Group Ltd.
(the "Holder") with its principal office located at 1231 Main Avenue,
Cleveland, Ohio 44113, the principal sum of Five Million Dollars
($5,000,000.00), together with interest thereon from the date hereof until
payment in full at the Charged Rate (as defined below). This Convertible
Subordinated Note (the "Note") is issued pursuant to that certain Purchase
Agreement dated September 24, 1996 (the "Purchase Agreement") among the
Maker, the Holder and Norbert W. Jansen, individually and as trustee under an
agreement dated July 14, 1993 ("Jansen").
1. PAYMENT OF PRINCIPAL
All principal outstanding hereunder shall be due in one payment, in full,
on September 23, 1998. Principal of and interest on this Note are payable in
lawful money of the United States of America at the Holder's address stated
above, or at such other place as the Holder shall designate to the Maker in
writing.
2. INTEREST
a. For purposes of this Note, the following terms shall have the meanings
given them in this subsection a.:
i. "ADJUSTED EURODOLLAR RATE": For each calendar month until
this Note is paid in full, the rate (rounded upward, if necessary,
to the next one
<PAGE>
hundredth of one percent) determined by dividing the Eurodollar
Rate for such Interest Period by 1.00 minus the Eurodollar
Reserve Percentage;
ii. "EURODOLLAR BUSINESS DAY": A day (other than a Saturday, Sunday or
legal holiday) on which banks are open for business in New York
City and on which there is trading by and between banks in
United States dollar deposits in the interbank Eurodollar
market.
iii. "EURODOLLAR RATE": For each calendar month, the interest rate
per annum (rounded upward, if necessary, to the next
one-sixteenth of one percent) at which United States dollar
deposits are offered to First Bank National Association (the
"Bank") in the interbank Eurodollar market two Eurodollar
Business Days prior to the first day of such calendar month for
delivery in immediately available funds on the first day of
such month and in an amount approximately equal to the
outstanding principal amount of the Note and for a thirty (30)
day maturity; provided, that in lieu of determining the rate in
the foregoing manner, the Holder may substitute the per annum
Eurodollar rate (LIBOR) for United States dollars displayed on
the Telerate Systems, Inc. screen, page 3750 (or other
applicable page), on the first day, of such calendar month.
iv. "EURODOLLAR RESERVE PERCENTAGE": As of any day, that percentage
(expressed as a decimal) which is in effect on such day, as
prescribed by the Federal Reserve Board for determining the
maximum reserve
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<PAGE>
requirement (including any basic, supplemental or emergency
reserves) for a member bank of the Federal Reserve System, with
deposits comparable in amount to those held by the Bank, in
respect of "Eurocurrency Liabilities" as such term is defined
in Regulation D of the Federal Reserve Board. The rate of
interest applicable to the outstanding principal balance of the
Note shall be adjusted automatically on and as of the effective
date of any change in the Eurodollar Reserve Percentage.
b. This Note shall bear interest on the unpaid principal amount at a
variable rate per annum equal to the sum of (1) the Adjusted
Eurodollar Rate, plus (2) two percent (2.00%) (the "Charged Rate").
The Charged Rate shall be adjusted monthly on the first day of each
calendar month and each change in the Charged Rate shall result
immediately, without notice or demand of any kind, in a corresponding
change in the interest rate under the Note. Interest shall be payable
on the last day of each calendar quarter, and, in the event of a
permitted prepayment on the date of such prepayment. The Holder
shall provide the Maker with notice of the Charged Rate periodically
in order to permit the Maker to make timely payments hereunder.
c. Any amount not paid when due under this Note, whether at the date
scheduled for payment or earlier upon acceleration, shall bear
interest until paid in full at a rate per annum equal to the Charged
Rate plus four percent (4.00%) (the "Default Rate").
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<PAGE>
3. FACILITY FEE
Maker shall pay to Holder an annual facility fee (the "Facility Fee")
in the amount of Twelve Thousand Five Hundred Dollars ($12,500). The
Facility Fee shall be due and payable to Holder on the date hereof and on the
same day of each subsequent year until this Note is paid in full.
4. USE OF PROCEEDS
The principal sum of Five Million Dollars ($5,000,000) shall be used by
the Maker solely for working capital purposes.
5. SECURITY
This Note is be secured by a Deed of Trust and Security Agreement of
even date herewith on certain real and personal property owned by the Maker
located in Clark County, Las Vegas, Nevada (the "Deed of Trust").
6. PREPAYMENT Except as may be required by Section 16(b) of the Purchase
Agreement or as otherwise may be required by the Nevada Gaming Authorities
(as defined in the Purchase Agreement), the Maker may not prepay
this Note without the prior written consent of the Holder.
7. COVENANTS. So long as any indebtedness under this Note remains
outstanding, Maker shall not without the prior written consent of the Holder:
a. directly or indirectly declare or pay any dividends or make any
distributions upon any of its common stock or other equity securities;
PROVIDED that the Maker may pay dividends or make distributions on its common
stock or its other equity securities during any fiscal year so long as the
same are permitted pursuant to that certain Indenture dated as of
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April 7, 1995 between the Maker and Shawmut Bank, N.A., Trustee for
$40,000,000 16.5% First Mortgage Notes Due March 31, 2005 (the "Indenture");
b. directly or indirectly redeem purchase or otherwise acquire any of
the Maker's common stock or other equity securities (including, without
limitation, options and other rights to acquire such common stock or other
equity securities), or directly or indirectly redeem, purchase or make any
payments with respect to any stock appreciation rights, phantom stock plans or
similar rights or plans; PROVIDED that the Maker may redeem, purchase or
otherwise acquire outstanding common stock or other equity securities so long as
the same are permitted pursuant to the Indenture;
c. merge or consolidate with any person or permit any subsidiary to merge
or consolidate with any person (other than a wholly-owned subsidiary); PROVIDED
that a subsidiary may merge with another person so long as after such merger the
Maker owns at least 80% of the (i) capital stock of the surviving corporation
possessing the right to vote for the election of directors and (ii) number of
shares of the common stock of the surviving corporation then outstanding;
d. sell, lease or otherwise dispose or, or permit any subsidiary to sell,
lease or otherwise dispose of, more than 50% of the consolidated assets of the
Maker and its subsidiaries (computed on the basis of book value, determined in
accordance with generally accepted accounting principles consistently applied,
or fair market value);
e. issue or sell any shares of the capital stock, or rights to acquire
shares of the capital stock, of any subsidiary to any person (other than the
Holder or a permitted assignee of the Holder) if immediately after such
issuance or sale the Maker owns less than 80% of
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<PAGE>
the (i) capital stock possessing the right to vote for the election of
directors and (ii) the number of shares of the common stock of any subsidiary
then outstanding;
f. liquidate, dissolve or effect a recapitalization or reorganization
in any form of transaction (including, without limitation, any reorganization
into a limited liability company or into partnership or other non-corporate
form); or
g. create, incur, assume or suffer to exist, or permit any subsidiary
to create, incur, assume or suffer to exist, additional indebtedness, unless
the same is permitted pursuant to the Indenture.
Further, in the event the Maker proposes to authorize, issue or enter
into any agreement providing for the issuance (contingent or otherwise) of
equity securities, including without limitation, common stock, preferred
stock, warrants or otherwise, or any notes or debt securities containing
equity features, including, without limitation, any notes or debt securities
convertible into or exchangeable for common stock, preferred stock, or other
equity securities, the Maker shall provide thirty (30) days prior written
notice to the Holder that it plans to effect such a transaction. In such
event, the Holder shall have the right to require the Maker to pay off the
remaining indebtedness owed to the Holder under this Note as a condition to
completing such a transaction; such pay off to occur contemporaneously with
the closing of such a transaction. The Holder shall exercise such right by
delivering written notice to the Maker within twenty (20) days after the
Holder's receipt of the notice described above.
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8. CONVERSION
a. Prior to payment in full of the principal balance of this Note, the
Holder of this Note has the right, at the Holder's option, at any time and
from time to time following the receipt from the Nevada Gaming Authorities
(as defined in the Purchase Agreement) of Licensing Approval (as defined in
the Purchase Agreement), to convert all or any portion of the then unpaid
principal balance of this Note in accordance with the provisions of
subparagraph c. of this Section 8, into shares of Common Stock of Maker,
$.001 par value per share (the "Common Stock"). The number of shares of
Common Stock into which this Note may be converted ("Conversion Shares")
shall be determined by dividing the then unpaid principal balance of this
Note by $7.50 (the "Conversion Price").
b. Any Conversion Shares shall have the registration rights set forth
in the Registration Agreement between the Maker and the Holder dated of even
date herewith.
c. Before the Holder shall be entitled to convert this Note into
Conversion Shares, it shall give written notice by mail, postage prepaid, to
the Maker at its principal corporate office, of the election to convert the
same. Such notice shall state therein the date on which such conversion will
occur. The Maker at its own expense shall, as soon as practicable
thereafter, issue and deliver at such office to the Holder of this Note a
certificate or certificates for the number of Conversion Shares to which the
Holder of this Note shall be entitled. At the time such certificates are
issued, accrued interest on the amount of principal so converted shall be
paid by the Maker to the Holder. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of
conversion specified in such written notice, and the Holder of this Note
shall be treated for all purposes as the record holder of such Conversion
Shares. To the extent
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that the entire unpaid principal balance of this Note is not being converted
into Common Stock, the Holder of this Note shall credit the Note on its books to
the extent of the principal being converted by the Holder into Common Stock.
d. No fractional share of Common Stock shall be issued upon conversion of
this Note. In lieu of the Maker issuing any fractional share to the Holder upon
the conversion of this Note, the Maker shall pay, in cash, to the Holder the
amount of outstanding principal that is applicable to such fractional share.
9. CONVERSION PRICE ADJUSTMENTS.
a. In the event the Maker should at any time or from time to time after
the date of issuance hereof fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of this Note shall be appropriately decreased so that the number of
Conversion Shares issuable upon conversion of this Note shall be increased in
proportion to such increase of outstanding shares.
b. If the number of shares of Common Stock outstanding at any time
after the date hereof is decreased by a combination of the outstanding shares
of Common Stock,
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then, following the record date of such combination, the Conversion Price for
this Note shall be appropriately increased so that the number of Conversion
Shares issuable on conversion hereof shall be decreased in proportion to such
decrease in outstanding shares.
c. In the event of (i) any taking by the Maker of a record of the holders
of any class of securities of the Maker for the purpose of determining the
holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right or (ii) any capital reorganization of
the Maker, any reclassification or recapitalization of the capital stock of the
Maker or any transfer of all or substantially all of the assets of the Maker to
any other person or any consolidation or merger involving the Maker, or (iii)
any voluntary or involuntary dissolution, liquidation or winding up of the
Maker, the Maker will mail to the Holder of this Note a notice specifying (A)
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of such dividend,
distribution or right, (B) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective and the record date for determining
stockholders entitled to vote thereon and (C) the new Conversion Price after
giving effect to the adjustment event which new Conversion Price shall represent
an appropriate increase or decrease in the Conversion Price to preserve the
proportionate amount of Conversion Shares. Such notice shall be mailed at least
twenty (20) days prior to the date described in clause (A) or (B) above.
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d. The Maker shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the Note into such number of Conversion Shares as
shall from time to time be sufficient to effect the conversion of the Note;
and; if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of the entire
outstanding principal amount of this Note, in addition to such other remedies
as shall be available to the Holder of this Note, the Maker will use its best
efforts to take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purposes.
10. EVENTS OF DEFAULT
"Event of Default," whenever used herein, means any one or more of the
following defaults shall have occurred and be continuing (whatever the reason
for such Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law pursuant to any judgment decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):
i. Default in the payment of any installment of interest the
Facility Fee, the principal of this Note or any other amount payable
hereunder when such payment becomes due and payable, whether at maturity,
by acceleration or otherwise, and such default shall continue unremedied
for a period of fifteen (15) days;
ii. Default in the performance or breach of any other agreement,
covenant or warranty of the Maker contained in this Note, and such default
or breach shall continue unremedied for a period of thirty (30) days after
the date on which written
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<PAGE>
notice of such default or breach, requiring the Maker to remedy the same,
shall have been given to the Maker by the Holder, or such longer period
provided that the default is of a nature that cannot be remedied within
30 days and the Maker has within the thirty (30) day period instituted
curative action and diligently and continuously pursues such action to
completion;
iii. The entry of a decree or order by a court having jurisdiction
adjudging the Maker a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Maker under federal bankruptcy law or
any similar federal or state law for the relief of debtors ("Bankruptcy
Law"), or appointing a receiver, liquidator, assignee, trustee,
conservator, sequestrator or assignee in bankruptcy or insolvency of the
Maker or of any substantial part of its property, or ordering the winding
up or liquidation of its affairs, and such decree or order shall have
continued undischarged and unstayed for a period of thirty (30) days;
iv. The Maker shall commence a voluntary case or shall consent to the
entry of an order for relief in any involuntary case under Bankruptcy
Law, or shall consent to the appointment of or taking possession by a
receiver, liquidator, custodian, sequestrator, trustee or assignee of any
substantial part of its property, or shall make an assignment for the
benefit of creditors, or shall fail generally to pay its debts as they
become due;
v. There shall have occurred any circumstance or event which, upon
the lapse of time, the giving of notice, or both, would constitute an
event of default
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under any other indebtedness of the Maker with a principal balance in
excess of $1,000,000, except if the same is cured or waived within any
applicable grace period;
vi. The Maker shall have failed to give written notice within five
(5) days after the occurrence of the event or circumstances described in
clause (v), above; and
vii. Breach or default by the Maker of any representation,
warranty, agreement or covenant pursuant to the Purchase Agreement or any
other agreement between the Holder and Maker or Jansen, including, without
limitation, the Deed of Trust and such breach or default gives rise to an
indemnification obligation of the Maker or Jansen pursuant to the Purchase
Agreement and such parties fail to comply with such indemnification
obligations.
11. REMEDIES
If an Event of Default occurs and is continuing (unless waived in writing
by the Holder), then, and in each and every case, unless the entire principal of
this Note already shall have become due and payable, the Holder may, by a notice
in writing to the Maker, declare the principal of and the accrued interest on
this Note to be immediately due and payable. The principal of and accrued
interest on this Note shall become and shall be immediately due and payable upon
such declaration.
12. MISCELLANEOUS
a. The Maker hereby waives presentment, notice of dishonor, protest and
diligence in bringing suit against the Maker. Acceptance by the Holder of any
payment which is less than the full amount then due and owing hereunder shall
not constitute a waiver of the Holder is right to receive payment in full at
such time or at any prior or subsequent time. The Maker consents that the time
of payment may be extended an
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unlimited number of times before or after maturity without notice to the Maker,
and that the Maker shall not be discharged by reason of any such extension or
extensions of time. No delay or omission on the part of the Holder in
exercising any right hereunder shall operate as a waiver of such right or any
other right under this Note. A waiver on any one occasion shall not be
construed as a bar to or waiver of any such right or remedy on any future
occasion.
b. Notwithstanding the foregoing, if at any time implementation of any
provision hereof shall cause the interest contracted for or charged herein and
collectible hereunder to exceed the applicable lawful maximum rate, then the
interest shall be limited to such lawful maximum.
c. The Maker shall be liable for any and all costs and expenses of
collection, including, without limitation, reasonable attorneys' fees, arising
by virtue of an Event of Default.
d. This Note shall be subject to and construed in accordance with the
laws of the State of Nevada. If any provision herein shall be unenforceable,
such unenforceable provision shall not render the remaining provisions hereof
unenforceable or invalid.
e. This Note shall be binding upon the Maker and the Maker may not
assign its obligations hereunder without the prior written consent of
the Holder. The Holder may assign its rights hereunder, in whole or in
part, to one or more corporations, limited liability companies,
partnerships, trusts or other entities which are under common control
with or controlled through equity ownership and/or voting control by, the
Holder or Jeffrey P. Jacobs; it being acknowledged that any entity in
which Jeffrey P. Jacobs beneficially owns
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15% or more of the voting equity securities and is Chairman of the Board
and/or Chief Executive Officer constitutes common control.
BOARDWALK CASINO, INC.
By:
-------------------------------
Title: Secretary/Treasurer
----------------------------
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OPTION AND PROXY AGREEMENT
THIS AGREEMENT is made as of September ____, 1996, by and among
Boardwalk Casino, Inc., a Nevada corporation (the "Company"), Norbert W.
Jansen, individually and as trustee under an agreement dated July 14, 1993
("Jansen"), and Diversified Opportunities Group Ltd., an Ohio limited
liability company, or its nominee as described in Section 14 ("Investor").
RECITALS
A. Pursuant to a certain Purchase Agreement dated as of even date
herewith (the "Purchase Agreement"), by and among Investor, Jansen and the
Company, Investor is acquiring certain Shares and a Note (as defined in the
Purchase Agreement) of the Company.
B. It is a condition to closing the transactions contemplated by the
Purchase Agreement that Jansen and the Investor enter into this Agreement for
the purposes, among others, of (i) providing the Investor an option to
acquire and a right of first refusal with respect to certain of the Shares of
the Company owned by Jansen, (ii) establishing the composition of the
Company's Board of Directors (the "Board"), (iii) assuring continuity in the
management and ownership of the Company, and (iv) providing certain covenants
for the benefit of Investor.
C. Capitalized terms used but not otherwise defined herein are defined
in Paragraph 9 hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties to this Agreement hereby agree
as follows:
1. ACQUISITION OF AND OPTION FOR JANSEN SHARES.
Subject to the conditions to Closing (as described in the Purchase
Agreement), Investor shall acquire the Shares contemplated by subparagraph
(a), below, and shall be granted an option (the "Option") to acquire from
Jansen additional Shares, as described below:
(a) At Closing Investor shall acquire from Jansen 182,411 Shares at a
purchase price of $7.00 per Share (the "Strike Price"). The
parties acknowledge that Investor is filing with the Gaming
Board (as defined in the Purchase Agreement) a request for a
ruling letter with respect to the transactions contemplated
by the Purchase Agreement. Within 7 days following the
receipt of a favorable ruling letter from the Gaming Board
satisfactory to Purchaser and Seller, each in the exercise of
its reasonable business judgment, Investor shall acquire from
Jansen 317,589 Shares (the "Differential Shares") at the
Strike Price. If, however, the Gaming Board determines that
Investor may not acquire the Differential Shares without
first having obtained Licensing Approval (as defined in the
Purchase Agreement), Investor shall thereafter have the right
but not the obligation
<PAGE>
to acquire the Differential Shares on the terms described in
subparagraph (b) below.
(b) If applicable, Investor shall have the right but not the
obligation to acquire from Jansen and Jansen shall have the
obligation to sell to Investor the Differential Shares. The
exercise price for the Differential Shares shall be determined by
taking the difference of (i) $7.75 less (ii) the Strike Price.
Such difference shall be multiplied by a fraction, the numerator
of which shall be the number of full months (excluding partial
months) elapsed from the Closing until such time as the Investor
obtains Licensing Approval and the denominator of which shall be
18. The product obtained therefrom shall be added to the Strike
Price in order to determine the Exercise Price. For purposes of
illustration if the Closing occurs on September 17, 1996, the
Strike Price was $7 and Investor obtains Licensing Approval on
September 20, 1997, the exercise price for the Differential
Shares would be $7.50 (e.g. $7.75 - $7.00 = $.75 x 12/18 = $.50 +
$7 = $7.50). Investor shall have the right to exercise the
Option for the Differential Shares as described in this
subparagraph (b) by giving written notice to Jansen during the 30
day period following Investor's receipt of Licensing Approval;
provided, however if Investor does not obtain Licensing Approval
on or before the 18 month anniversary of the Closing, such Option
for the Differential Shares as described in this subparagraph (b)
shall be null and void. Thereafter, Investor shall have the
right but not the obligation to acquire the Differential Shares
on the terms described in subparagraph (d) below.
(c) Investor shall have the right but not the obligation to acquire
from Jansen and Jansen shall have the obligation to sell to
Investor up to 1,000,000 Shares at an exercise price of $7.75 per
Share. This right may be exercised by Investor commencing on
receipt of Licensing Approval and continuing until the 18 month
anniversary of the Closing by giving written notice to Jansen.
(d) Investor shall have the right but not the obligation to acquire
from Jansen and Jansen shall have the obligation to sell to
Investor up to an amount equal to the sum of the Differential
Shares plus 1,000,000 Shares (less any Shares acquired by
Investor pursuant to subparagraph (c) above) at an exercise price
of $8.25 per Share. This right may be exercised by Investor at
any time following the expiration of the Option period described
in subparagraph (c) and continuing until the third anniversary
date of the Closing by giving written notice to Jansen.
The exercise of any such Option shall be conditioned upon appropriate
Licensing Approval or other regulatory approval being obtained from the
Nevada Gaming Authorities. The Option shall continue to apply to any Shares
owned by Jansen's estate or family which are acquired from Jansen. The
closing of any purchase and sale of any such Shares pursuant to Paragraphs
1(b), (c) or (d) shall be consummated as soon as practical after the delivery
of the Investor's written election notice to Jansen, but in any event within
15 business days after the delivery of such
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notice. At the closing of the purchase and sale of the Differential Shares
pursuant to Paragraph 1(a), Jansen shall deliver a certificate affirming the
representations and warranties made by Jansen pursuant to the Purchase
Agreement. The purchase price of any Shares acquired pursuant to this
Paragraph 1 shall be payable by Investor in cash by wire transfer or
certified or bank check at the time of transfer and Jansen shall deliver to
Investor certificates representing such Shares in proper form for transfer.
2. FIRST REFUSAL RIGHTS.
(a) TRANSFER OF SHARES. None of Jansen, Jansen's family or his
estate (collectively, the "Selling Party") shall sell, transfer, assign,
pledge or otherwise dispose of (whether with or without consideration and
whether voluntarily or involuntarily or by operation of law) any interest in
any Shares or any securities containing options or rights to acquire any
Shares (a "Transfer"), except pursuant to the provisions of this Paragraph 2.
A Selling Party shall not consummate any Transfer until 14 calendar days
after the later of the delivery to the Investor of such Selling Party's Offer
Notice (as defined below) (the "Election Period"); provided, however, the
Election Period shall be reduced to 7 calendar days if the proposed Transfer
involves an interest in less than 50,000 Shares. The restrictions set forth
in this Paragraph 2 shall not apply with respect to (i) any Shares owned by
Jansen's family members on the date hereof or (ii) any Transfer of Shares
from Jansen's estate to his family members pursuant to the terms of his will
or trust agreement; provided that the restrictions contained in this
Paragraph 2 shall continue to be applicable to the Shares after any such
Transfer and provided further that the transferees of such Shares shall have
agreed in writing to be bound by the provisions of this Agreement affecting
the Shares so transferred.
(b) FIRST OFFER RIGHT. At least 7 or 14 calendar days prior to
making any Transfer, of any Shares or securities, as applicable, the Selling
Party shall deliver a written notice (an "Offer Notice") to the Company and
the Investor. The Offer Notice shall disclose in reasonable detail the
proposed number of Shares or securities to be transferred, the proposed terms
and conditions of the Transfer and the identity of the prospective
transferee(s) (if known). The Investor may elect to purchase a portion of
such Shares or securities, at the price to be paid to the Selling Party and
on the terms proposed in the Offer Notice, equal to the greater of (i) 35% of
the number of Shares offered for sale by the Selling Party or (ii) an amount
determined by multiplying (x) the number of Shares or securities offered for
sale by the Selling Party by (y) the Investor's then percentage ownership of
Shares of the Company, by delivering written notice of such election to the
Selling Party as soon as practical but in any event during the Election
Period. In determining the Investor's percentage ownership, it shall be
assumed that the Investor has purchased 500,000 Shares under Paragraphs 1(a),
(b) and/or (d), has exercised the Option for 1,000,000 Shares under
Paragraphs 1(c) and/or (d) and has converted the Note for 666,667 Shares. If
the Investor has elected to purchase Shares and securities from the Selling
Party, the transfer of such Shares shall be consummated as soon as practical
after the delivery of the election notice(s) to the Selling Party, but in any
event within 15 days after the expiration of the Election Period. At the
time of transfer, the Selling Party shall deliver to the Investor
certificates representing such Shares in proper form for the transfer and the
Investor shall deliver the purchase price in accordance with the terms set
forth in the Offer Notice, including any notes for a Selling Party financed
purchase.
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(c) SHARES NOT ACQUIRED BY THE INVESTOR. To the extent of the
Shares not purchased by the Investor, the Selling Party shall, within 90 days
after the expiration of the Election Period, complete the transfer of such
Shares either in the public market or to the proposed transferee set forth in
the Offer Notice at a price no less than the price per Share specified in the
Offer Notice and on other terms no more favorable to the transferees thereof
than offered to the Investor, and furnish proof of such transfer to the
Investor. Any Shares not transferred within such 90-day period shall be
reoffered to the Investor under this Paragraph 2 prior to any subsequent
Transfer. The Shares so transferred by the Selling Party pursuant to the
Offer Notice shall no longer be subject to the restrictions contained herein
and the legend referred to in Paragraph 7 may be removed at the time of such
transfer.
3. BOARD OF DIRECTORS.
(a) From and after the time that the Board is to be expanded to
six persons pursuant to Section 3(b) of the Purchase Agreement, Jansen shall
vote all of his Shares and any other voting securities of the Company over
which Jansen has voting control and shall take all other necessary or
desirable actions within his control (whether in his capacity as a
stockholder, director, member of a Board committee or officer of the Company
or otherwise, and including, without limitation, attendance at meetings in
person or by proxy for purposes of obtaining a quorum and execution of
written consents in lieu of meetings), so that:
(i) the authorized number of directors on the Board shall
be established at six directors;
(ii) Jeffrey P. Jacobs shall be elected to the Board;
(iii) at such time as the Investor has acquired 1,000,000
or more Shares from Jansen pursuant to this Agreement, the Board shall be
expanded to seven directors and the additional director shall be designated
by the Investor (such additional director together with Jeffrey P. Jacobs
are sometimes referred to collectively as the "Investor Directors"); and
(iv) in the event that either of the Investor Directors
are removed (with or without cause) or cease to, or cannot, serve as a
member of the Board for his elected term of office, the resulting vacancy
on the Board shall be filled by a representative designated by the
Investor.
(b) The Company shall pay the reasonable out-of-pocket expenses
incurred by each Investor Director in connection with attending the meetings of
the Board and any committee thereof.
(c) If the Investor fails to designate a representative to fill a
directorship pursuant to the terms of this Paragraph 3 within 30 days after
written notice, the election of an individual to such directorship shall be
accomplished in accordance with the Company's Bylaws and applicable law.
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4. CERTAIN COVENANTS OF JANSEN.
From and after the Closing, Jansen shall, subject to his fiduciary
duties as a director of the Company, vote all of his Shares and any other
voting securities of the Company over which Jansen has voting control and
shall take all other necessary or desirable actions within his control
(whether in his capacity as a stockholder, director, member of a Board
committee or officer of the Company or otherwise, and including, without
limitation, attendance at such meetings in person or by proxy for purposes of
obtaining a quorum and execution of written consents in lieu of meetings), so
that the Company shall not, without the prior written consent of the
Investor, take any of the actions described in Section 7 of the Note.
5. IRREVOCABLE PROXY. In order to secure Jansen's obligation to vote
his Shares and other voting securities of the Company in accordance with the
provisions of Paragraphs 3 and 4 hereof, Jansen hereby appoints the Investor
as his true and lawful proxy and attorney-in-fact, with full power of
substitution, to vote all of his Shares and other voting securities of the
Company for the election and/or removal of directors and all such other
matters as expressly provided for in Paragraphs 3 and 4. The Investor may
exercise the irrevocable proxy granted to it hereunder at any time Jansen
fails to comply with the provisions of this Agreement, subject to the receipt
of the required Licensing Approval. The proxies and powers granted by Jansen
pursuant to this Paragraph 5 are coupled with an interest and are given to
secure the performance of Jansen's obligations to the Investor under this
Agreement. Such proxies and powers shall be irrevocable and shall survive
the death, incompetency, disability, bankruptcy or dissolution of Jansen and
the subsequent holders of his Shares. If for any reason whatsoever the proxy
described above is deemed to expire after seven years from the date hereof,
this Agreement shall be deemed an agreement entered into in accordance with
Section 78.365(3) of the Nevada General Corporate Law, effective for a term
of 15 years following the date hereof.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Jansen represents and warrants that (i) Jansen is the record
owner of the number of Shares set forth on Schedule A attached hereto, and (ii)
Jansen has not granted and is not a party to any proxy, voting trust or other
agreement which is inconsistent with, conflicts with or violates any provision
of this Agreement. Jansen shall not grant any proxy or become party to any
voting trust or other agreement which is inconsistent with, conflicts with or
violates any provision of this Agreement. Jansen shall at all times during the
term of this Agreement own unencumbered and have available for immediate
transfer to the Investor the number of Shares pursuant to which Investor has
been granted an Option or right to purchase hereunder.
(b) The Investor hereby affirms the representations and warranties
being made by it pursuant to Section 5(c) of the Purchase Agreement.
7. LEGEND.
Each certificate evidencing Shares of Jansen, individually and as
trustee, and each certificate issued in exchange for or upon the transfer of any
such Shares shall also be stamped or otherwise imprinted with a legend in
substantially the following form:
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"The securities represented by this certificate are subject to
the conditions, restrictions and obligations specified in the
Option and Proxy Agreement, dated as of September ____, 1996 and
as amended and modified from time to time, among the issuer (the
"Company"), Norbert W. Jansen, individually and as trustee under
an agreement dated July 14, 1993 and Diversified Opportunities
Group Ltd., or its permitted assignee(s), and the Company
reserves the right to refuse the transfer of such securities
until such conditions, restrictions and obligations have been
fulfilled with respect to such transfer."
Jansen shall deliver all certificates representing Shares held by him,
individually and as trustee, as of the date hereof and the Company shall or
shall cause its transfer agent to imprint such legend on all such certificates.
8. TRANSFER. Prior to transferring any Shares, except for a Transfer to
the Investor and a permitted third party transferee pursuant to Paragraph 2,
Jansen shall cause the prospective transferee (including his family members) to
be bound by all of the obligations of Jansen under this Agreement with respect
to the Shares so transferred and to execute and deliver to the Company and the
Investor a counterpart of this Agreement.
9. DEFINITIONS.
"Affiliate" of a Person means any other Person controlling, controlled by
or under common control with such first Person.
"Board" has the meaning set forth in the recitals.
"Closing" has the meaning set forth in the Purchase Agreement.
"Company" has the meaning set forth in the introductory paragraph.
"Gaming Board" has the meaning set forth in the Purchase Agreement.
"Investor" has the meaning set forth in the introductory paragraph.
"Investor Directors" has the meaning set forth in Paragraph 3.
"Licensing Approval" has the meaning set forth in the Purchase Agreement.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and/or a governmental entity or any
department, agency or political subdivision thereof.
"Purchase Agreement" has the meaning set forth in the recitals.
-6-
<PAGE>
"Shares" means the Company's shares of common stock, $.001 par value.
10. TRANSFERS IN VIOLATION OF AGREEMENT. Any Transfer or attempted
Transfer of any Shares of Jansen in violation of any provision of this Agreement
shall be void, and the Company shall not record such Transfer on its books or
treat any purported transferee of such Shares as the owner of such Shares for
any purpose.
11. AMENDMENT AND WAIVER. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the parties hereto unless such modification, amendment or
waiver is approved in writing by the parties hereto. The failure of any party
to enforce any of the provisions of this Agreement shall in no way be construed
as a waiver of such provisions and shall not affect the right of such party
thereafter to enforce each and every provision of this Agreement in accordance
with its terms.
12. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this
Agreement in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
13. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein,
this Agreement embodies the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
14. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
parties hereto and may not be assigned; provided, however, the Investor may
assign its rights and obligations hereunder, in whole or in part, to one or more
corporations, limited liability companies, partnerships, trusts or other
entities which are under common control with, or controlled, through equity
ownership and/or voting control by, the Investor or Jeffrey P. Jacobs; it being
acknowledged that any entity in which Jeffrey P. Jacobs beneficially owns 15% or
more of the voting equity securities and is the Chairman of the Board and/or
Chief Executive Officer constitutes common control.
15. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
16. REMEDIES. The Investor shall be entitled to enforce its rights under
this Agreement specifically, to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages would not be
an adequate remedy for any breach of the
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<PAGE>
provisions of this Agreement and the Investor may in its discretion apply to
any court of law or equity of competent jurisdiction for specific performance
and/or injunctive relief (without posting a bond or other security) in order
to enforce or prevent any violation of the provisions of this Agreement.
16. NOTICES. Any notice, demand or other communication provided for in or
required by this Agreement shall be given in accordance with Section 19 of the
Purchase Agreement.
17. GOVERNING LAW. All issues and questions concerning the construction,
validity, interpretation and enforceability of this Agreement and the exhibits
and schedules hereto shall be governed by the laws of the State of Nevada.
18. BUSINESS DAYS. If any time period for giving notice or taking action
hereunder expires on a day which is a Saturday, Sunday or legal holiday in the
State of Nevada, the time period shall automatically be extended to the business
day immediately following such Saturday, Sunday or legal holiday.
19. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
BOARDWALK CASINO, INC.
By:
------------------------------------------
Title:
---------------------------------------
---------------------------------------------
Norbert W. Jansen, individually and as
trustee under an agreement dated July 14,
1993
DIVERSIFIED OPPORTUNITIES GROUP LTD.
By: Jacobs Entertainment Ltd., its manager
By:
------------------------------------------
Jeffrey P. Jacobs, President
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<PAGE>
SCHEDULE A
SHARE OWNERSHIP OF JANSEN
-9-
<PAGE>
BOARDWALK CASINO, INC.
REGISTRATION AGREEMENT
THIS AGREEMENT is made as of September __, 1996, between BOARDWALK
CASINO, INC., a Nevada Corporation (the "Company"), and DIVERSIFIED
OPPORTUNITIES GROUP LTD., an Ohio limited liability company, or its nominee as
described in Paragraph 8(e) ("Purchaser").
The parties to this Agreement are parties to a Purchase Agreement dated as
of ______________________, 1996 (the "Purchase Agreement"), pursuant to which
the Company shall issue to Purchaser unregistered Shares and a convertible
subordinated note (the "Note"), which Note is convertible into Shares. It is
contemplated pursuant to the Purchase Agreement that Purchaser and Norbert W.
Jansen, individually and as trustee under an agreement dated July 14, 1993
("Jansen"), shall have entered into an option and proxy agreement (the "Option
Agreement"), pursuant to which Purchaser shall have the obligation to acquire
500,000 Shares and the right to acquire up to an additional 1,000,000 Shares of
the Company owned by Jansen. In order to induce Purchaser to enter into the
Purchase Agreement, the Company has agreed to provide the registration rights
set forth in this Agreement. The execution and delivery of this Agreement is a
condition to the Closing under the Purchase Agreement. Unless otherwise
provided in this Agreement, capitalized terms used herein shall have the
meanings set forth in Paragraph 7 hereof.
The parties hereto agree as follows:
DEMAND REGISTRATIONS.
(a) REQUESTS FOR REGISTRATION. For a period of five (5) years
following the Closing, Purchaser may request registration under the Securities
Act of 1933, as amended (the "Securities Act"), of all or any portion of its
Shares on Form S-1 or any similar long-form registration or on Form S-2 or S-3
or any similar short-form registration ("Short-Form Registrations") if
available. All registrations requested pursuant to this Paragraph 1(a) are
referred to herein as "Demand Registrations". Each request for a Demand
Registration shall specify the approximate number of Shares requested to be
registered and the anticipated per share price range for such offering.
(b) NUMBER OF DEMAND REGISTRATIONS. Purchaser shall be entitled to
request (i) two Demand Registrations in which the Company shall pay all
Registration Expenses (as defined in Paragraph 5) (the "Company-paid
Registrations") and (ii) one Demand Registration in which Purchaser shall pay
its share of the Registration Expenses as set forth in paragraph 5 hereof. A
registration shall not count as one of the permitted Demand Registrations until
it has become effective, and Purchaser is able to register at least 90% of the
Shares requested to be included in such registration by Purchaser; provided that
in any event the Company shall pay all Registration Expenses in connection with
any registration initiated as a Company-paid Registration whether or
not it has become effective. Demand Registrations shall be Short-Form
<PAGE>
Registrations whenever the Company is permitted to use any applicable short
form; provided, however, Purchaser shall have the right to determine whether an
underwriter or underwriters will be retained and shall select any such
underwriter for the sale of Shares included in the Demand Registration, but the
selection shall be subject to the reasonable approval of the Company. The
Company shall use its reasonable best efforts to make Short-Form Registrations
on Form S-3 available for the sale of Shares.
(c) PRIORITY ON DEMAND REGISTRATIONS. Any Person other than
Purchaser who participates in Demand Registrations which are not at the
Company's expense must pay their share of the Registration Expenses as provided
in Paragraph 5 hereof.
(d) RESTRICTIONS ON DEMAND REGISTRATIONS. The Company shall not be
obligated to effect any Demand Registration within 180 days after the effective
date of a previous registration.
2. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever the Company proposes to register
any of its securities under the Securities Act (other than pursuant to a Demand
Registration or on Form S-8 or S-4) and the registration form to be used may be
used for the registration of Shares (a "Piggyback Registration"), the Company
shall give prompt written notice to Purchaser of its intention to effect such a
registration and shall include in such registration all Shares with respect to
which Purchaser requests for inclusion therein within 20 days after the receipt
of the Company's notice.
(b) PIGGYBACK EXPENSES. The Registration Expenses of Purchaser shall
be paid by the Company in all Piggyback Registrations.
(c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration
is an underwritten primary registration on behalf of the Company, and the
managing underwriters advise the Company in writing that in their opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in such offering without adversely affecting the
marketability of the offering, the Company shall include in such registration
(i) first, the securities the Company proposes to sell, (ii) second, the Shares
requested to be included in such registration by Purchaser, and other securities
requested to be included in such registration relating to registration rights
existing on the date hereof, on a pro rata basis, and (iii) third, the other
securities requested to be included in such registration relating to
registration rights granted by the Company after the date hereof.
(d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration
is an underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
adversely affecting the marketability of the offering, the Company shall include
in such registration (i) first, the Shares and other securities requested to be
included therein by Purchaser and other securities requested to be included in
such registration relating to registration rights existing as the date hereof,
on a pro rata basis, and (ii) second, the other
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<PAGE>
securities requested to be included in such registration relating to
registration rights granted by the Company after the date hereof.
3. HOLDBACK AGREEMENTS.
(a) Purchaser shall not effect any public sale or distribution
(including sales pursuant to Rule 144) of equity securities of the Company, or
any securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 180-day period beginning on
the effective date of any underwritten Demand Registration (except as part of
such underwritten registration), unless the underwriters managing the registered
public offering otherwise agree.
(b) The Company (i) shall not effect any public sale or distribution
of its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and during the
60-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration or pursuant to registrations on Form S-8 or any
successor form), unless the underwriters managing the registered public offering
otherwise agree, and (ii) shall cause each holder of at least 5% (on a
fully-diluted basis) of its Shares, or any securities convertible into or
exchangeable or exercisable for Shares, purchased from the Company at any time
after the date of this Agreement (other than in a registered public offering) to
agree not to effect any public sale or distribution (including sales pursuant to
Rule 144) of any such securities during such period (except as part of such
underwritten registration, if otherwise permitted), unless the underwriters
managing the registered public offering otherwise agree.
4. REGISTRATION PROCEDURES. Whenever Purchaser has requested that any
Shares be registered pursuant to this Agreement, the Company shall use its best
efforts to effect the registration and sale of such Shares in accordance with
the intended method of disposition thereof, and pursuant thereto the Company
shall as expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Shares and use its best
efforts to cause such registration statement to become effective; PROVIDED that
before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall furnish to the counsel selected by
Purchaser copies of all such documents proposed to be filed, which documents
shall be subject to the review and comment of such counsel;
(b) notify Purchaser of the effectiveness of each registration
statement filed hereunder and prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than 180 days and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(c) furnish to Purchaser such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement
-3-
<PAGE>
(including each preliminary prospectus) and such other documents as Purchaser
may reasonably request in order to facilitate the disposition of the Shares
owned by Purchaser;
(d) use its best efforts to register or qualify such Shares under
such other securities or blue sky laws of such jurisdictions as Purchaser
reasonably requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable Purchaser to consummate the
disposition in such jurisdictions of the Shares; PROVIDED that the Company shall
not be required to (i) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this subparagraph,
(ii) subject itself to taxation in any such jurisdiction or (iii) consent to
general service of process in any such jurisdiction;
(e) notify Purchaser, at any time when a prospectus is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the statements
therein not misleading, and, at the request of Purchaser, the Company shall
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Shares, such prospectus shall not contain an
untrue statement of a material fact or omit to state any fact necessary to make
the statements therein not misleading;
(f) cause all such Shares to be listed on each securities exchange on
which similar securities issued by the Company are then listed and, if not so
listed, to be listed on the NASD automated quotation system;
(g) provide a transfer agent and registrar for all such Shares not
later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as Purchaser may
reasonably request in order to expedite or facilitate the disposition of such
Shares;
(i) make available for inspection by Purchaser, any underwriter
participating in any disposition pursuant to such registration statement and any
attorney, accountant or other agent retained by Purchaser or underwriter, all
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by Purchaser,
underwriter, attorney, accountant or agent in connection with such registration
statement;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve months beginning with the first day of the Company's first full
calendar quarter after the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
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<PAGE>
(k) permit Purchaser in its sole and exclusive judgment, to
participate in the preparation of such registration or comparable statement;
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Shares included in such registration statement for sale in any jurisdiction,
the Company shall use its best efforts promptly to obtain the withdrawal of such
order;
(m) use its best efforts to cause such Shares covered by such
registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable Purchaser to
consummate the disposition of such Shares; and
(n) obtain a cold comfort letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by cold comfort letters as Purchaser may reasonably request.
5. REGISTRATION EXPENSES.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, fees and disbursements
of custodians, independent certified public accountants, underwriters (excluding
discounts and commissions) and other Persons retained by the Company and fees
and disbursements of counsel for the Company (all such expenses being herein
called "Registration Expenses"), shall be borne as provided in this Agreement,
except that the Company shall, in any event, pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit or quarterly review, the expense of any liability insurance and the
expenses and fees for listing the securities to be registered on each securities
exchange on which similar securities issued by the Company are then listed or on
the NASD automated quotation system.
(b) To the extent Registration Expenses are not required to be paid
by the Company, each holder of securities included in any registration hereunder
shall pay those Registration Expenses allocable to the registration of such
holder's securities so included, and any Registration Expenses not so allocable
shall be borne by all sellers of securities included in such registration in
proportion to the aggregate selling price of the securities to be so registered.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify, to the extent permitted by law,
Purchaser its, members, managers, officers, directors, shareholders, agents and
each Person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except
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<PAGE>
insofar as the same are caused by or contained in any information furnished
in writing to the Company by Purchaser expressly for use therein. In
connection with an underwritten offering, the Company shall indemnify such
underwriters, their officers and directors and each Person who controls such
underwriters (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of Purchaser.
(b) In connection with any registration statement in which Purchaser
is participating, Purchaser shall furnish to the Company in writing such
information and affidavits as the Company reasonably requests for use in
connection with any such registration statement or prospectus and, to the extent
permitted by law, shall indemnify the Company, its directors and officers and
each Person who controls the Company (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities and expenses resulting from any
untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by Purchaser;
provided that Purchaser's obligation to indemnify shall be limited to the gross
amount of proceeds received by Purchaser pursuant to such registration
statement.
(c) Any Person entitled to indemnification hereunder shall (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give prompt notice
shall not impair any Person's right to indemnification hereunder to the extent
such failure has not prejudiced the indemnifying party) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party shall not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Agreement shall
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling person
of such indemnified party and shall survive the transfer of securities. The
Company also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
7. DEFINITIONS.
(a) "AFFILIATES" of a Person means any other Person controlling,
controlled by or under common control with such first Person.
-6-
<PAGE>
(b) "CLOSING" has the meaning set forth in the Purchase Agreement.
(c) "PERSON" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and/or a governmental entity or
any department, agency, or political subdivision thereof.
(d) "SHARES" means, collectively, any shares of the Company's common
stock $.001 par value acquired by Purchaser pursuant to the Purchase Agreement,
issued or issuable upon conversion of the Note or acquired pursuant to the
Option Agreement and any Shares issuable with respect to such shares by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
8. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company shall not hereafter enter
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to Purchaser in this Agreement.
(b) ADJUSTMENTS AFFECTING SHARES. The Company shall not take any
action, or permit any change to occur, with respect to its securities which
would adversely affect the ability of the Purchaser to include such Shares in a
registration undertaken pursuant to this Agreement.
(c) REMEDIES. Purchaser shall be entitled to enforce such rights
specifically to recover damages caused by reason of any breach of any provision
of this Agreement and to exercise all other rights granted by law. The parties
hereto agree and acknowledge that money damages may not be an adequate remedy
for any breach of the provisions of this Agreement and that any party may in its
sole discretion apply to any court of law or equity of competent jurisdiction
(without posting any bond or other security) for specific performance and for
other injunctive relief in order to enforce or prevent violation of the
provisions of this Agreement.
(d) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and Purchaser.
(e) SUCCESSORS AND ASSIGNS. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the parties hereunder and may not be assigned; provided, however,
Purchaser may assign its rights and obligations hereunder, in whole or in part,
to one or more corporations, limited liability companies, partnerships, trusts
or other entities which are under common control with, or controlled, through
equity ownership and/or voting control by, Purchaser or Jeffrey P. Jacobs; it
being acknowledged that any entity in which Jeffrey P. Jacobs beneficially owns
15% or more of the equity securities and is Chairman of the Board and/or Chief
Executive Officer constitutes common control.
(f) SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision
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<PAGE>
of this Agreement is held to be prohibited by or invalid under applicable
law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of this
Agreement.
(g) COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
(h) DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
(i) GOVERNING LAW. All issues and questions concerning the
construction, validity, interpretation and enforcement of this Agreement and the
exhibits and schedules hereto will be governed by the laws of the State of
Nevada, without giving effect to any choice of law or conflict of law rules or
provisions (whether of the State of Nevada or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Nevada.
(j) NOTICES. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be given in accordance with Section 19 of the Purchase
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
BOARDWALK CASINO, INC.
By
----------------------------------
Its
---------------------------------
DIVERSIFIED OPPORTUNITIES
GROUP LTD.
By: Jacobs Entertainment Ltd.
its manager
By
------------------------------
Jeffrey P. Jacobs,
President
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<PAGE>
LEASE AGREEMENT
NORBERT W. JANSEN AND AVIS JANSEN, TRUSTEES OF THE
NORBERT W. JANSEN AND AVIS JANSEN FAMILY TRUST,
u/a/d JULY 14, 1993, AS AMENDED,
LANDLORD
AND
BOARDWALK CASINO, INC., A NEVADA CORPORATION
TENANT
<PAGE>
TABLE OF CONTENTS
1. PREMISES AND TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.1. PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.2. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.3. OPTION TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.4. DEFINITION OF "LEASE TERM" FOLLOWING EXERCISE OF OPTION. . . . . -2-
1.5. NO REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . -2-
2. MATERIAL MODIFICATIONS. . . . . . . . . . . . . . . . . . . . . . . . . -2-
2.1. APPROVAL OF PLANS AND SPECIFICATIONS . . . . . . . . . . . . . . -2-
2.2. LANDLORD'S IMPROVEMENT WORK. . . . . . . . . . . . . . . . . . . -2-
2.3. SUPERVISING ARCHITECT AND GENERAL CONTRACTOR . . . . . . . . . . -3-
2.4. COMPLETION BOND. . . . . . . . . . . . . . . . . . . . . . . . . -3-
2.5. COMMENCEMENT OF TENANT'S CONSTRUCTION. . . . . . . . . . . . . . -3-
2.6. LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
2.7. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
2.8. NO SUBORDINATION OF LANDLORD'S FEE TITLE . . . . . . . . . . . . -4-
2.9. NOTICE OF NON-RESPONSIBILITY . . . . . . . . . . . . . . . . . . -4-
2.10. LIENS AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . -4-
2.11. OWNERSHIP OF IMPROVEMENTS AND TENANT'S PERSONAL PROPERTY . . . . -4-
2.12. LAND USE MATTERS . . . . . . . . . . . . . . . . . . . . . . . . -4-
3. RENT AND SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . -5-
3.1. BASE RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
3.2. INCREASES IN BASE RENT . . . . . . . . . . . . . . . . . . . . . -5-
3.3. PLACE OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . -5-
3.4. SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . -6-
3.5. INTEREST ON TENANT'S OBLIGATIONS; LATE CHARGES . . . . . . . . . -6-
4. HOLDING OVER BY TENANT. . . . . . . . . . . . . . . . . . . . . . . . . -6-
5. LEASEHOLD TITLE INSURANCE . . . . . . . . . . . . . . . . . . . . . . . -6-
6. USES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
6.1. PERMITTED USE. . . . . . . . . . . . . . . . . . . . . . . . . . -7-
6.2. PROHIBITED USES. . . . . . . . . . . . . . . . . . . . . . . . . -7-
7. REPRESENTATIONS AND COVENANTS OF LANDLORD . . . . . . . . . . . . . . . -7-
7.1. TITLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
7.2. CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
7.3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . -7-
7.4. SPECIAL ASSESSMENTS. . . . . . . . . . . . . . . . . . . . . . . -8-
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7.4.1. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
7.5. BINDING OBLIGATION . . . . . . . . . . . . . . . . . . . . . . . -8-
7.6. NO VIOLATION OF LAW. . . . . . . . . . . . . . . . . . . . . . . -8-
7.7. ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . . . . . -8-
7.8. EXISTING LEASES. . . . . . . . . . . . . . . . . . . . . . . . . -8-
7.9. GAMING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
8. UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
9. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
9.1. PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
9.2. CONTEST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
9.3. SUBSTITUTE TAXES . . . . . . . . . . . . . . . . . . . . . . . . -10-
9.4. INSTALLMENT PAYMENTS . . . . . . . . . . . . . . . . . . . . . . -10-
10. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
10.1. FIRE INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . -10-
10.2. LIABILITY INSURANCE. . . . . . . . . . . . . . . . . . . . . . . -11-
10.3. WORKER'S COMPENSATION. . . . . . . . . . . . . . . . . . . . . . -11-
10.4. POLICY REQUIREMENTS. . . . . . . . . . . . . . . . . . . . . . . -11-
11. REPAIRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
12. ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
12.1. LANDLORD CONSENT . . . . . . . . . . . . . . . . . . . . . . . . -12-
12.2. PERMITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
12.3. TENANT'S ARCHITECT . . . . . . . . . . . . . . . . . . . . . . . -12-
12.4. CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
12.5. INSPECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
12.6. LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
12.7. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
13. EQUIPMENT, FIXTURES AND SIGNS . . . . . . . . . . . . . . . . . . . . . -13-
13.1. EQUIPMENT AND FIXTURES . . . . . . . . . . . . . . . . . . . . . -13-
13.2. PERMITTED SIGNAGE. . . . . . . . . . . . . . . . . . . . . . . . -13-
14. DAMAGE BY FIRE OR OTHER CASUALTY. . . . . . . . . . . . . . . . . . . . -13-
14.1. RESTORATION. . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
14.2. USE OF INSURANCE PROCEEDS. . . . . . . . . . . . . . . . . . . . -14-
14.3. ADDITIONAL COST OF RESTORATION . . . . . . . . . . . . . . . . . -14-
14.4. NO RENT ABATEMENT. . . . . . . . . . . . . . . . . . . . . . . . -14-
15. CONDEMNATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
15.1. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
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15.2. PARTIAL CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . -15-
15.3. PAYMENT OF AWARD . . . . . . . . . . . . . . . . . . . . . . . . -15-
16. LIABILITY AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . -15-
16.1. TENANT INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . -15-
16.2. LANDLORD INDEMNITY.. . . . . . . . . . . . . . . . . . . . . . . -15-
16.3. NOTICE OF INDEMNITY. . . . . . . . . . . . . . . . . . . . . . . -15-
16.4. SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
17. RIGHT OF INSPECTION . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
18. WARRANTY OF TITLE AND QUIET ENJOYMENT . . . . . . . . . . . . . . . . . -16-
18.1. QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . -16-
18.2. ENCUMBRANCES . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
18.3. TRANSFER BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . -17-
19. WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . . . . . . . . -17-
20. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
21. NO BROKERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
22. LANDLORD-TENANT RELATIONSHIP. . . . . . . . . . . . . . . . . . . . . . -17-
23. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . -18-
23.1. ASSIGNMENT AND SUBLETTING. . . . . . . . . . . . . . . . . . . . -18-
23.2. NO RELEASE OR NOVATION . . . . . . . . . . . . . . . . . . . . . -18-
23.3. ENCUMBRANCE OR ASSIGNMENT AS SECURITY. . . . . . . . . . . . . . -18-
24. NOTICES AND PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . -24-
25. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
25.1. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . -26-
25.2. LANDLORD'S REMEDIES. . . . . . . . . . . . . . . . . . . . . . . -26-
26. HAZARDOUS MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
26.1. COVENANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
26.2. RIGHT OF ENTRY . . . . . . . . . . . . . . . . . . . . . . . . . -28-
26.3. INDEMNITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
26.4. HAZARDOUS SUBSTANCES DEFINED . . . . . . . . . . . . . . . . . . -29-
27. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
27.1. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
27.2. CAPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
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27.3. MEANINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
27.4. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . -30-
27.5. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . -30-
27.6. TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
27.7. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
27.8. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
27.9. ATTORNEYS' FEES. . . . . . . . . . . . . . . . . . . . . . . . . -30-
27.10. MEMORANDUM OF LEASE. . . . . . . . . . . . . . . . . . . . . . . -30-
27.11. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . -30-
28. GAMING PROVISION. . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
28.1. COOPERATION AND COMPLIANCE BY LANDLORD . . . . . . . . . . . . . -31-
28.2. DENIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
28.3. PURCHASE RIGHT . . . . . . . . . . . . . . . . . . . . . . . . . -31-
29. ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
30. ADJUSTMENT UPON DEMOLITION. . . . . . . . . . . . . . . . . . . . . . . -34-
31. LANDLORD'S SECURITY INTEREST. . . . . . . . . . . . . . . . . . . . . . -34-
31.1. GRANT OF SECURITY INTEREST IN PROJECT PARCELS. . . . . . . . . . -34-
31.2. GRANT OF SECURITY INTERESTS IN FURNITURE, FIXTURES AND
EQUIPMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
31.3. PERFECTION AND PRIORITY. . . . . . . . . . . . . . . . . . . . . -35-
31.4. FAIR MARKET VALUE. . . . . . . . . . . . . . . . . . . . . . . . -36-
31.5. FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . -36-
32. TENANT'S OPTION AND RIGHT OF FIRST REFUSAL TO PURCHASE THE LEASED
PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
33. BINDING OBLIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
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<PAGE>
TABLE OF EXHIBITS
Exhibit A The Land
Exhibit B Schedule of Leases
Exhibit C Permitted Exceptions
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<PAGE>
LEASE AGREEMENT
This Lease Agreement (the "LEASE") is made and entered into by and between
NORBERT W. JANSEN and AVIS JANSEN, trustees of the Norbert W. Jansen and Avis
Jansen Family Trust, u/a/d July 14, 1993, as amended (collectively, "LANDLORD"),
and BOARDWALK CASINO, INC., a Nevada corporation ("TENANT") as of the ____ day
of September, 1996, to take effect on October 1, 1996 (hereinafter, the
"EFFECTIVE DATE").
W I T N E S S E T H :
1. PREMISES AND TERM.
1.1. PREMISES. In consideration of the obligation of Tenant to pay
rent as hereinafter provided and in consideration of the other terms,
provisions and covenants hereof, Landlord hereby demises and leases to
Tenant, and Tenant hereby takes from Landlord, those certain tracts or
parcels of land located in the County of Clark, State of Nevada, and more
particularly described on Exhibit A attached hereto and made a part hereof
(the "LAND"), together with any buildings and other improvements erected or
to be erected thereon (the "IMPROVEMENTS"), and together with all rights,
privileges, easements and appurtenances belonging or in any way pertaining to
the Land (all of the foregoing hereinafter collectively referred to as the
"LEASED PREMISES").
The Leased Premises is now subject to one (1) existing lease and certain
month to month tenancies (collectively the "Existing Leases") as are more
fully described in the Schedule of Leases attached hereto as Exhibit B.
Subject to the following terms of this paragraph, Landlord hereby assigns its
rights and obligation, including any and all security deposits, under the
EXISTING LEASES to Tenant. Tenant will assume the Existing Leases and
indemnify and hold Landlord harmless from any claims arising out of any
breach of the Existing Leases by Tenant which occur from and after the
Effective Date. All rents accruing and received under the Existing Leases
from and after the Effective Date and during the term of this Lease shall be
paid to Tenant; provided, however, that rents received by Tenant pursuant to
the Existing Leases shall first be applied against any rents which became due
and payable during the thirty (30) day period preceding the Effective Date,
and the same shall be paid to Landlord. Concurrently herewith, Landlord
shall provide Tenant with a certificate showing any delinquent or past due
rents under the Existing Leases.
1.2. TERM. The term of this Lease shall commence upon the Effective
Date and shall continue, unless sooner terminated pursuant to the provisions
of this Lease, for twenty-four (24) months (the "LEASE TERM").
1.3. OPTION TERM. Provided Tenant is not then in default beyond any
applicable cure period in the payment of Rent (defined below) or any other
obligation of Tenant to be performed under this Lease, Tenant shall have the
option to extend the Lease Term for an additional five
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<PAGE>
(5) years and a second, successive, option to extend the Lease Term an
additional twenty-three (23) years (the "OPTION TERMS"). Such options shall
be exercised, if at all, by written notice to Landlord not later than three
months prior to the expiration of the Lease Term, or preceding Option Term.
If Tenant fails to exercise any option in a timely manner as provided herein,
the provisions of this Section 1.3 shall have no further force or effect.
1.4. DEFINITION OF "LEASE TERM" FOLLOWING EXERCISE OF OPTION. In the
event Tenant exercises one, or more Options in a timely manner as provided
herein, thereafter, the definition of the term "Lease Term" in this Lease
shall be deemed to include such Option the Extension Term, or terms, as
appropriate.
1.5. NO REPRESENTATIONS. Landlord makes no representations or
warranties concerning the Leased Premises or any matters with respect
thereto, except as expressly stated herein. Except for such representations,
Tenant is entering into this Lease based on its own investigation and
analysis of the Leased Premises and accepts the Leased Premises "as is".
2. MATERIAL MODIFICATIONS.
2.1. APPROVAL OF PLANS AND SPECIFICATIONS. In the event Tenant desires
to make any material modification to the Improvements during the Lease Term,
Tenant shall deliver to Landlord for approval plans, specifications, and
renderings depicting Tenant's proposed modifications. For purposes of this
requirement, a modification shall be deemed material if its cost to implement
exceeds Fifty Thousand Dollars ($50,000) (a "MATERIAL MODIFICATION"). Within
a period of thirty (30) days from the date of delivery of such plans,
specifications, and renderings, Landlord shall either approve the same or
specify its objections thereto and reasons therefor in detail and shall
specify whether such modifications must be removed upon the expiration, or
earlier termination of this Lease by written notice delivered to Tenant on or
before the end of the thirty (30) day period. In the event Landlord shall
specify objections to any Material Modification proposed by Tenant then
Tenant shall either abandon its plan to modify the Leased Premises or shall
promptly revise the plans, specifications, and renderings to fully
accommodate and conform to Landlord's written objections, subject to the
terms of any written agreements between Landlord and Tenant as to the manner
in which any of such objections may be accommodated to the mutual
satisfaction of Landlord and Tenant. Any revision which is approved by
Landlord shall be signed by Landlord and Tenant and shall thereafter be
deemed a part hereof. Within one hundred eighty (180) days after completion
of any Material Modification, Tenant shall deliver a complete set of as-built
plans for the approved improvements to Landlord.
2.2. LANDLORD'S IMPROVEMENT WORK. Landlord shall have no obligation
whatsoever to improve or alter the Land nor to demolish any improvements
which may now be located upon the Land.
2.3. SUPERVISING ARCHITECT AND GENERAL CONTRACTOR. Selection of a
supervising architect and general contractor shall be made by Tenant. The
supervising architect shall be a
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<PAGE>
member in good standing of the American Institute of Architects or any
generally recognized similar organization, duly licensed in the state of
Nevada, or affiliated with an architect licensed in Nevada, if required for
governmental approvals with respect to any proposed renovation, or
construction on the Premises and, if applicable, the general contractor's
financial condition and responsibility shall be such as to enable Tenant to
obtain the completion bond required by the following Section 2.4.
2.4. COMPLETION BOND. Prior to undertaking any Material Modification,
Tenant shall provide Landlord with a completion bond, acceptable to Landlord,
in the amount of the projected cost of constructing the proposed
improvements, and the amount of such bond shall be increased from time to
time to reflect any increases in the projected cost of such construction.
Tenant shall, upon request from Landlord, name Landlord's assignee and/or
lender, if any, as co-obligee on any such bond.
2.5. COMMENCEMENT OF TENANT'S CONSTRUCTION. Within thirty (30) days
after any material portion of the Improvements has been demolished (other
than as a result of fire or other casualty), Tenant shall commence the
construction of the Material Modification and thereafter proceed with
construction with all reasonable diligence and in a good and workmanlike
manner.
2.6. LIABILITY. Tenant covenants and agrees that any modification of
the Improvements shall be constructed, operated, repaired and maintained
without cost or expense to Landlord and in accordance with the requirements
of all laws, ordinances, codes, orders, rules and regulations of all
governmental authorities having jurisdiction over the Leased Premises and in
a good and workmanlike manner. Tenant agrees to defend, indemnify and hold
Landlord, its trustees, beneficiaries, heirs, successors, assigns, agents,
employees and attorneys harmless from and against any and all cost,
liability, expense, damage or injury resulting from or arising in connection
with the construction, operation, repair and maintenance of the Material
Modifications.
2.7. INSURANCE. Prior to commencing any demolition or construction on
the Leased Premises, Tenant, its subcontractors and agents, without cost to
Landlord, shall obtain Builder's Risk Insurance covering such project and
approved improvements to the full extent of the insurable value thereof, and
Tenant shall cause its contractor to obtain or cause to be obtained workers'
compensation insurance covering all persons employed in connection with such
demolition or construction and with respect to whom death or bodily injury
claims could be asserted against Landlord, Tenant or the Leased Premises.
Tenant shall also obtain General Liability Insurance naming both Landlord and
Tenant as co-insureds for the mutual benefit of Landlord, Tenant and the
Leased Premises. All of the aforementioned policies shall be in the form and
shall contain the liability limits specified in Article 10 hereof. Tenant
and its contractors and subcontractors shall have the right, however, to
self-insure with respect to its workers' compensation insurance obligations
to the extent permitted by applicable law.
2.8. NO SUBORDINATION OF LANDLORD'S FEE TITLE. Landlord shall not be
required to subordinate Landlord's fee interest in the Leased Premises or its
reversionary interest in the
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<PAGE>
buildings and improvements now existing or to be constructed thereon to any
lien securing Tenant's construction loan or other financing.
2.9. NOTICE OF NON-RESPONSIBILITY. Landlord may, at Landlord's sole
discretion, record a Notice of Non-Responsibility to assure that Landlord's
interest in the Leased Premises cannot be encumbered by mechanics' liens or
materialmen's liens arising from Tenant's construction activity upon the
Leased Premises. With respect to any work to be commenced by or on behalf of
Tenant, at least ten (10) days before any such work is commenced (or such
additional time as may be reasonably required by Landlord in the future to
reflect changes in the law with respect to posting and/or recording notices
of non-responsibility), Tenant shall notify Landlord of Tenant's intention to
commence any such work.
2.10. LIENS AND FEES. Tenant shall at all times indemnify, save and
hold harmless Landlord and Landlord's trustees, beneficiaries, heirs,
successors, assigns, agents, employees and representatives and the Leased
Premises from and against all liens or claims which may ripen into liens, and
against all reasonable attorneys' fees incurred by Landlord and other costs
and expenses, growing out of or incurred by reason of or with respect to any
demolition or construction done by or for Tenant on the Leased Premises.
Should Tenant fail to fully discharge any such lien or claim, or in the
alternative fail to post a bond sufficient to discharge such lien or claim
within thirty (30) days after written request therefor by Landlord, then
Landlord may, at its option, (i) treat such failure as an Event of Default
pursuant to Paragraph 25.1. Nothing herein shall preclude Tenant from
contesting, at its sole cost and expense, any such claims, or liens.
2.11. OWNERSHIP OF IMPROVEMENTS AND TENANT'S PERSONAL PROPERTY. During
the term of this Lease all trade fixtures and equipment (collectively,
"TENANT'S PERSONAL PROPERTY") shall remain and continue to be the property of
Tenant and may be replaced at any time and from time to time during the term
of this Lease. Tenant's Personal Property may be removed at the expiration
or earlier termination of this Lease if Tenant repairs any damage to the
Improvements caused by such removal and the removal does not affect or in any
way weaken the structural integrity of the Improvements. All Improvements
shall remain on the Leased Premises and automatically become the property of
Landlord upon the expiration or earlier termination of this Lease unless
Landlord gives written notice to Tenant at the time such improvements are
first approved by Landlord, that any or all such Improvements are to be
removed, in which case Tenant shall remove the same and regrade the Land to a
finish grade in accordance with Landlord's reasonable requirements, at
Tenant's sole cost and expense, within sixty (60) days of the expiration or
earlier termination of this Lease or notice from Landlord, whichever is
later, as to that portion of the Leased Premises upon which such Improvement
to be removed is situated.
2.12. LAND USE MATTERS. Provided Landlord's written consent has first
been obtained (which consent will not be withheld if Tenant demonstrates to
Landlord's reasonable satisfaction that the matters described in or contemplated
by this paragraph would not at any time materially adversely affect Landlord's
use or development of the Leased Premises upon the expiration or
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<PAGE>
earlier termination of this Lease, and provided, further, that no Event of
Default then exists), Tenant, at its sole expense and without cost or expense
to Landlord, may apply for and obtain subdivisions, parcel maps, use permits
or zoning changes or variances with respect to the Leased Premises. Subject
to such requirement of prior written consent, and subject to Landlord's
right, at Landlord's cost, to have Landlord's planning and zoning counsel
participate with Tenant in all such matters, Landlord shall, upon notice of
request by Tenant, join with Tenant as necessary in any applications to
obtain such subdivisions, parcel maps, use permits or use or zoning changes
or variances, all at Tenant's expense and without cost or expense to Landlord.
3. RENT AND SECURITY DEPOSIT.
3.1. BASE RENT. For the period beginning upon the Effective Date and
continuing during the Lease Term, Tenant shall pay, in monthly installments,
a base rent of EIGHT HUNDRED FORTY THOUSAND AND NO/100 DOLLARS ($840,000.00)
per annum ($70,000.00 per month) (the "BASE RENT").
Base Rent shall be paid to Landlord in lawful money of the United States
on the first day of each calendar month during the Lease Term, without any
reduction, deduction or setoff; provided that the first installment of Base
Rent shall be due and payable upon the Effective Date. Base Rent for any
partial calendar month during which the Lease Term commences or terminates
shall be prorated based on the actual number of days in such month.
3.2. INCREASES IN BASE RENT. Beginning on the first day of the calendar
month which is the sixty-first (61st) month following the Effective Date, and
upon the same day of each year thereafter during the Lease Term, or any Option
Term (hereinafter, an "ADJUSTMENT DATE"), the Base Rent shall be increased to an
amount equal to the product of the Base Rent payable during the immediately
preceding calendar month multiplied by the Cost of Living Factor. The "COST OF
LIVING FACTOR" for any Adjustment Date during the Lease Term shall be a fraction
whose numerator is the index figure stated as the Consumer Price Index for All
Urban Consumers (CPI-U; U.S. City Average; All Items 1982-84=100) published by
the Bureau of Statistics of the United States Department of Labor (the "INDEX")
for the month in which the Adjustment Date occurs (or the most recent available
Index if the Index for the month in which the Adjustment Date occurs is not
available) and whose denominator is the Index in effect on the Effective Date,
in the case of the first adjustment hereunder, or the Index used for the
immediately preceding Adjustment Date, in the case of all adjustments after the
first adjustment hereunder. If the Index is discontinued, the Cost of Living
Factor shall be based on comparable statistics on changes in the purchasing
power of the consumer dollar for the applicable periods, as published by a
responsible financial periodical report of a recognized governmental or private
authority then generally recognized for such purposes, all as selected by
Landlord.
3.3. PLACE OF PAYMENT. All payments of Base Rent and other sums due
from Tenant to Landlord pursuant to this Lease (sometimes collectively
referred to herein as "RENT") shall be made to Landlord as the same shall
become due in lawful money of the United States of America at the address
specified in Section 24 of this Lease, or to such other party or at such
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other address as hereinafter may be designated by Landlord by written notice
delivered to Tenant at least ten (10) days prior to the next ensuing monthly
rental payment date.
3.4. SECURITY DEPOSIT. No security deposit shall be required of Tenant.
3.5. INTEREST ON TENANT'S OBLIGATIONS; LATE CHARGES.
3.5.1. INTEREST. Any amount due from Tenant to Landlord which is
not paid on the due date shall bear interest at fifteen percent (15%) per
annum from the date such payment is due until paid, but the payment of such
interest shall not excuse or cure any default by Tenant under this Lease.
3.5.2. LATE CHARGE. In the event Tenant is more than ten (10)
days late in paying any installment of rent or other sum due under this
Lease, Tenant shall pay Landlord a late charge equal to five percent (5%) of
the delinquent amount. The parties agree that the amount of such late charge
represents a reasonable estimate of the cost and expense that would be
incurred by Landlord in processing each delinquent payment by Tenant, but the
payment of such late charge shall not excuse or cure any default by Tenant
under this Lease. The parties further agree that the payment of late charges
and the payment of interest provided for in this Section 3.5 are distinct and
separate from one another in that the payment of interest is to compensate
Landlord for the use of Landlord's money by Tenant, while the payment of a
late charge is to compensate Landlord for the additional administrative
expense incurred by Landlord in handling and processing delinquent payments.
4. HOLDING OVER BY TENANT. Should Tenant or any assignee, sublessee
or licensee of Tenant fail to vacate the Leased Premises or any part thereof
after the expiration or earlier termination of the Lease Term, unless
otherwise agreed in writing, such failure to vacate shall constitute and be
construed as a tenancy from month-to-month upon the same terms and conditions
as set forth in this Lease; provided, however, that Tenant shall pay as Base
Rent during any holding over period, an amount equal to one and 50/100 (1.50)
times the Base Rent payable immediately preceding the expiration of the Lease
Term. Nothing contained in this Article 4 shall be construed as a consent by
Landlord to any holding over by Tenant, and Landlord expressly reserves the
right to require Tenant to surrender possession of the Leased Premises upon
the expiration of the Lease Term or upon the earlier termination hereof and
to assert any remedy in law or equity to evict Tenant and/or collect damages
in connection with such holding over.
5. LEASEHOLD TITLE INSURANCE. Tenant shall, at Tenant's expense,
obtain a leasehold title insurance policy through National Title Company, a
Nevada corporation ("ESCROW AGENT") insuring Tenant's interest in the Leased
Premises subject only to standard title policy exceptions and to those title
exceptions set forth on Exhibit "C" attached hereto and made a part hereof
(hereinafter, "PERMITTED EXCEPTIONS").
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6. USES.
6.1. PERMITTED USE. Tenant shall have the right to develop the Leased
Premises for any lawful use. Tenant shall have the right to use and develop
the Leased Premises in conjunction with adjoining property, subject to
Article 31 below. If any governmental license or permit is required for the
lawful conduct of any business or other activity carried on by Tenant in the
Leased Premises, and if the failure to obtain such license or permit would
affect Landlord, Tenant shall procure and maintain such license or permit so
long as the same is so required, make such license or permit available for
inspection, if practicable, by Landlord and comply at all times with all
terms and conditions thereof.
6.2. PROHIBITED USES. Tenant covenants and agrees that it will not use
or suffer or permit any person or persons to use the Leased Premises or any
part thereof for any use or purpose in violation of the laws of the United
States of America or the laws, ordinances, regulations and requirements of
the State of Nevada, Clark County or other lawful authorities having
jurisdiction. Nothing contained herein shall be deemed to prevent Tenant
from contesting the application or interpretation of such laws or the
determinations of any such lawful authority so long as (i) Landlord is given
written notice thereof prior to the commencement of any such contest; (ii)
such contest is prosecuted by Tenant with all reasonable diligence; and (iii)
Tenant provides Landlord with such assurances or security as Landlord may
reasonably require so that neither the Leased Premises nor Landlord's rights
under this Lease may be adversely affected by such contest.
Tenant shall promptly upon demand by Landlord reimburse Landlord for any
additional premium charged for any insurance policy by reason of Tenant's
failure to comply with the provisions of this Article 6.
7. REPRESENTATIONS AND COVENANTS OF LANDLORD. As of the Effective
Date of this Lease, Landlord represents, warrants and covenants to Tenant as
follows:
7.1. TITLE. That Landlord has good and marketable fee simple title to
the Leased Premises, subject to those exceptions which are set forth in
Exhibit "B" and such other matters as would be disclosed by an ALTA survey of
the Leased Premises, possesses full power and authority to deal therewith in
all respects and no other party has any right or option thereto or in
connection therewith;
7.2. CONDEMNATION. That there are no pending or, to the knowledge of
Landlord, threatened condemnation proceedings or actions affecting the Leased
Premises;
7.3. LEGAL PROCEEDINGS. That there are no pending or, to the knowledge
of Landlord, threatened actions or legal proceedings which could adversely
affect the Leased Premises or Tenant's rights under this Lease.
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7.4. SPECIAL ASSESSMENTS. There are no unpaid special assessments for
sewer, sidewalk, water, paving, electrical or power improvements or other
capital expenditures or improvements, matured or unmatured, except the
special assessment of record for the Clark County Beautification District
improvement project pertaining to certain improvements to Las Vegas
Boulevard, South.
7.4.1. TAXES. Real property taxes for the fiscal year 1996 -
1997 are current through the first quarter, 1996.
7.5. BINDING OBLIGATION. That this Lease and the consummation of the
transactions contemplated hereby is valid and binding upon Landlord (and the
individuals executing this Lease on behalf of Landlord represent and warrant
that they are authorized to so act) and does not constitute a default (or an
event which with notice or passage of time or both will constitute default)
under any contract to which Landlord is a party or by which Landlord is bound;
7.6. NO VIOLATION OF LAW. That Landlord has not received notice nor
has Landlord any knowledge of any violation of any law, regulation,
ordinance, order or other requirement of any governmental authority having
jurisdiction over or affecting any part of the Leased Premises;
7.7. ENVIRONMENTAL MATTERS. Landlord has no actual knowledge of any
noncompliance or violation of local, state or federal environmental laws
related to the Leased Premises;
7.8. EXISTING LEASES. The Schedule of Leases attached hereto as
Exhibit B is a true, correct and complete statement of all leases, and/or
accurate description of all tenancies to which the Premises is subject and
Landlord is not in default and is not aware of any default by the tenants
under the Existing Leases. The lease agreement by and between Landlord and
Gary M. Lee, as amended, and the assignment and assumption agreement by and
between Gary M. Lee and IGT, Inc., and the sublease agreement by and between
IGT, Inc. and Schiff Enterprises, LP, heretofore provided to Tenant, are
true, correct and complete copies of said lease agreement, assignment and
assumption agreement and sublease agreement; and
7.9. GAMING. Neither Landlord nor, to the best of Landlord's knowledge
(without investigation), any person or entity associated with Landlord has
ever engaged in any conduct or practices which any of the foregoing persons
should reasonably believe would cause Landlord to be denied any gaming or
other governmental approval which may be required for Tenant to operate its
business upon the Leased Premises.
8. UTILITIES. Tenant shall pay all charges incurred for the use of
utility services at the Leased Premises including, without limitation, gas,
electricity, water, sanitary sewer, storm sewer, cable television, and
telephone. If any of such charges are not separately assessed against the
Leased Premises, Tenant shall pay its pro rata share of such charges, as
reasonably determined by Landlord, within ten (10) days after receipt of
written demand therefor from
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Landlord. Tenant shall pay all utility connection charges, including,
without limitation, any sewer "hook-up" fees and similar charges.
9. TAXES, ASSESSMENTS AND OTHER GOVERNMENTAL IMPOSITIONS.
9.1. PAYMENT. Subject to the following sentence, Tenant shall pay,
within thirty (30) days after written demand from Landlord, all real estate
taxes, assessments (both general and special) and other governmental
impositions which are levied against the Leased Premises, specifically
including, without limitation, all payments due with respect to the Las Vegas
Strip Beautification Project; provided that Tenant shall have no obligation
to pay any of such taxes, assessments and impositions more than ten (10) days
prior to the date the same are due to the taxing authority, and provided,
further, that to the extent the tenants under the Existing Leases are
required to pay the same, compliance with such leases shall constitute
compliance hereunder. Tenant's obligations under this Section 9.1 shall
extend only to taxes, assessments and impositions which are properly
allocable to the Lease Term. Any such tax, assessment, imposition or other
similar expense which is properly allocable to any period prior to the
Effective Date shall be the obligation of the Landlord or tenants under the
Existing Leases.
9.2. CONTEST. Tenant may, if it shall so desire, contest the validity
or amount of any tax or assessment against the Leased Premises, in which
event Tenant may defer the payment thereof during the pendency of such
contest if applicable law so permits; provided, however, that Tenant shall
not allow any tax lien to be foreclosed on the Leased Premises, and, unless
such tax is paid under protest, not later than ten (10) days prior to the
date the same shall become delinquent, Tenant shall have (i) deposited with a
bank or trust company acceptable to Landlord, an amount sufficient to pay
such contested item(s) together with the interest and penalties thereon (as
reasonably estimated by Landlord) with written instructions to said bank or
trust company to apply such amount to the payment of such item(s) when the
amount thereof shall be finally fixed and determined (with the remainder to
be paid to Tenant), or (ii) provided Landlord with other reasonably
acceptable security. Landlord will, at the request of Tenant, cooperate with
Tenant in contesting any such taxes or assessments; provided, however, there
shall be no expense to Landlord in such cooperation. In the event Landlord
is required by law to join in any action or proceeding taken by Tenant to
contest any such taxes or assessments, Tenant shall indemnify, defend and
hold Landlord and Landlord's trustees, beneficiaries, heirs, successors,
assigns, agents, employees and representatives harmless from any and all
costs, fees (including, but not limited to attorneys' fees), expenses,
claims, judgments, orders, liabilities, losses or damage arising out of such
action or proceeding.
If, at any time, in the judgment of Landlord reasonably exercised, it
shall become necessary so to do, Landlord, after written notice to Tenant,
may, under protest if so requested by Tenant, pay such monies as may be
required to prevent the transfer of the Leased Premises to the Clark County
Treasurer or the sale of the Leased Premises or any part thereof, or
foreclosure of the lien created thereon by such item, and such amount shall
become immediately due and payable by Tenant to Landlord, together with
interest thereon at the rate of fifteen percent (15%) per annum, and shall
constitute additional rent hereunder, or at Tenant's option
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and at Tenant's sole cost and expense, in lieu thereof, Tenant shall obtain
lien release bonds in amounts equal to the claims of any such liens or as
otherwise required by applicable law to obtain the full release of such liens.
9.3. SUBSTITUTE TAXES. Notwithstanding anything herein to the
contrary, if at any time during the Lease Term there shall be levied or
assessed in substitution of real estate taxes, in whole or in part, a tax,
assessment or governmental imposition (other than a general gross receipts or
income tax) on the rents received from the Leased Premises or the rents
reserved herein, and said tax, assessment or governmental imposition shall be
imposed upon Landlord and is properly allocable to the Lease Term, Tenant
shall pay same as hereinabove provided, but only to the extent that such new
tax, assessment or governmental imposition is a substitute for real estate
taxes previously imposed.
9.4. INSTALLMENT PAYMENTS. Notwithstanding anything herein to the
contrary, if at any time during the Lease Term any assessment (either general
or special) is levied upon or assessed against the Leased Premises or any
part thereof, and such assessment may be paid in installments, and if Tenant
elects to pay such assessment in installments, Tenant's obligation under this
paragraph to pay such assessment shall be limited to the amount of such
installments (plus applicable interest thereon charged by the taxing
authority, if any) which is properly allocable to the Lease Term.
10. INSURANCE.
10.1. FIRE INSURANCE. Tenant shall maintain and pay for at its sole
cost and expense so called "all risk" fire and extended coverage insurance
(including vandalism and malicious mischief insurance, earthquake insurance
and flood insurance) on the Leased Premises, with a limit of or in an amount
not less than one hundred percent (100%) of the replacement value thereof,
less the cost of excavations, foundation, footings and underground tanks,
conduits, pipes, pilings and other underground items. Payments for losses
shall be made to a third party escrow or construction control account which
is reasonably acceptable to Landlord and Tenant (and, if applicable, any
Leasehold Mortgagee named as loss payee hereunder), and shall be disbursed
from such account to Tenant and Tenant's contractors to pay for the
restoration of the Improvements in accordance with the provisions of this
Lease. Tenant may include the holder of any Leasehold Mortgage as a loss
payee provided that the proceeds of such insurance required hereunder shall
be used for the repair and reconstruction of the Improvements, subject only
to conditions permitted pursuant to Section 23.4. Any such Leasehold
Mortgagee which is named as loss payee shall be deemed an acceptable
construction control escrow for purposes of this Section 10.1.
The full replacement value of the items to be insured under this Section
10.1 shall be determined by the company issuing the insurance policy at the
time the policy is initially obtained. Not more frequently than once every
year, Landlord shall have the right to notify Tenant that it elects to have
the replacement value redetermined by the insurance company. The
redetermination shall be made promptly and in accordance with the rules and
practices of the
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Board of Fire Underwriters or a like board recognized and generally accepted
by the insurance company, and each party shall be promptly notified of the
results by the company. The insurance policy shall be adjusted according to
the redetermination.
10.2. LIABILITY INSURANCE. Tenant shall also insure at its sole cost
and expense against property damage and public liability arising by reason of
occurrences on or about the Leased Premises by maintaining a policy or
policies of commercial general liability insurance including contractual
liability coverage insuring against the tort liabilities assumed under this
Lease, on an "occurrence" basis, with a primary liability limit of not less
than FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00), and an excess coverage
limit of not less than TWENTY MILLION DOLLARS ($20,000,000). Not more
frequently than once each year, if, in the opinion of Landlord's lender or of
the insurance broker retained by Landlord, the amount of public liability and
property damage insurance coverage at that time is not adequate, Tenant shall
increase the insurance coverage as required by Landlord's lender or as may be
reasonably required by Landlord's insurance broker.
10.3. WORKER'S COMPENSATION. Tenant shall maintain (at its sole cost
and expense) workers' compensation and employers' liability insurance
covering all of its employees as required of the laws of the State of Nevada.
Tenant shall have the right to self-insure with respect to such required
coverage to the extent permitted by applicable law.
10.4. POLICY REQUIREMENTS. Except for workers' compensation insurance,
all insurance policies required to be maintained by Tenant hereunder shall be
with responsible insurance companies, authorized to do business in the State
of Nevada if required by law, and, except for workers' compensation policies,
shall name Landlord as an additional insured or, with respect to property
insurance to be maintained pursuant to Section 10.1 above, loss payee, as its
interests may appear, and shall provide for cancellation only upon thirty
(30) days prior written notice to Landlord. Except for workers' compensation
insurance, Tenant shall evidence all insurance coverage by delivering to
Landlord, prior to taking possession of the Land, and thereafter from time to
time upon request by Landlord, certificates issued by the insurance
companies, if any, underwriting such risks. Except for workers' compensation
insurance, Tenant shall, at least ten (10) days prior to the expiration of
any such policy, furnish Landlord with renewals or "binders" thereof or
certificates evidencing the same, or Landlord may order such insurance and
charge the cost thereof to Tenant, which amount shall be payable by Tenant
upon demand as additional rent, together with interest thereon at the rate of
fifteen percent (15%) per annum. With respect to workers' compensation
insurance, Tenant shall furnish Landlord with reasonable evidence that Tenant
has complied with its obligations under this Lease.
11. REPAIRS. Tenant shall maintain and take good care of the Leased
Premises (including any Improvements constructed by Tenant) at its sole cost
and expense during the Lease Term and any Option Terms and shall maintain the
same in a first class condition and state of repair, including repairs to the
interior, exterior and structure, it being understood that Landlord shall not
be required to make any repairs to the Leased Premises during the Lease
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Term. At the end or other termination of this Lease, and subject to Section
2.11 and Section 14.1 of this Lease, Tenant shall deliver up the Land with
the Improvements thereon in good repair and condition, ordinary wear and
tear, depreciation and obsolescence being excepted.
12. ALTERATIONS. Tenant shall have the right to make, at its sole
cost and expense, additions, alterations and changes involving a cost of less
than FIFTY THOUSAND DOLLARS ($50,000.00) (hereinafter referred to as
"ALTERATIONS") in or to the Improvements, provided Tenant shall not then be
in default in the performance of any of Tenant's covenants or agreements in
this Lease, and subject to the following conditions:
12.1. LANDLORD CONSENT. Tenant shall have given written notice to
Landlord at least ten (10) days prior to the commencement of such Alterations
and no Alterations of any kind which would cause the Improvements to
materially deviate from plans, specifications, and renderings approved by
Landlord shall be made without the prior written consent of Landlord.
12.2. PERMITS. No Alterations shall be undertaken until Tenant shall
have procured and paid for, so far as the same may be required, from time to
time, all required permits and authorizations of Clark County and other
governmental authorities having jurisdiction.
12.3. TENANT'S ARCHITECT. Any structural Alteration shall be conducted
under the supervision of an architect (otherwise qualified under Section 2.3
above) or engineer selected by Tenant and no such Alteration shall be made
except in accordance with detailed plans and specifications prepared and
approved in writing by such architect or engineer. Any and all such
Alterations shall conform, in all material respects, to the plans,
specifications, and renderings approved by Landlord.
12.4. CONSTRUCTION. All Alterations shall be pursued promptly to
completion and shall be done in a good and workmanlike manner and in
compliance with all applicable permits and authorizations and building and
zoning laws and with all other laws, ordinances, orders, rules, regulations
and requirements of all federal, state and local governments, departments,
commissions, boards and officers.
12.5. INSPECTION. During the course of any Alterations, and subject to
applicable laws and to Tenant's security policies, Landlord shall have the
right to go upon and inspect the Improvements at all reasonable times and
upon reasonable notice and shall have the right to post and keep posted
thereon notices of non-responsibility or such other notices which Landlord
may deem to be proper for the protection of Landlord's interest in the Leased
Premises in such a manner as not to interfere with Tenant's construction.
12.6. LIENS. Tenant shall indemnify, defend, satisfy and hold harmless
Landlord and Landlord's trustees, beneficiaries, heirs, successors, assigns,
agents, employees and representatives from and against all claims, attorneys'
fees and other costs and expenses growing out of or incurred by reason of or
with respect to liens for labor or materials supplied or claimed to be
supplied in connection with Alterations done by or for Tenant. Should Tenant
fail to fully
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discharge any such lien or claim, or in the alternative fail to post a bond
sufficient to discharge such lien or claim within thirty (30) days after
written request therefor by Landlord, then Landlord, at its option, may treat
such failure as an Event of Default pursuant to paragraph 25.1. Nothing
herein shall prevent Tenant from contesting, at its sole cost and expense,
any such claims, or liens.
12.7. INSURANCE. Prior to making any material Alterations to any
building or work of improvement, Tenant and Tenant's subcontractors and
agents shall obtain Workers' Compensation and Builder's Risk and Liability
Insurance in such amounts and form as required by Section 2.7 hereof.
13. EQUIPMENT, FIXTURES AND SIGNS.
13.1. EQUIPMENT AND FIXTURES. Tenant shall have the right to erect,
install, maintain and operate on the Leased Premises such equipment, trade
and business fixtures, and other personal property as Tenant may deem
necessary or appropriate, and such shall not be deemed to be part of the
Leased Premises, but shall remain the property of Tenant, as provided in
Section 2.11 above. Any such installations shall not materially injure or
deface the Improvements. At any time during the Lease Term and within thirty
(30) days after termination hereof, Tenant shall have the right to remove its
equipment, fixtures, signs and other personal property from the Leased
Premises provided that Tenant is not then in default. Tenant's Personal
Property may be removed at the expiration or earlier termination of this
Lease if Tenant repairs any damage to the Improvements caused by such removal
and the removal does not affect or in any way weaken the structural integrity
of the Improvements; provided that such repair shall not be required and the
structural integrity of the Improvements may be affected or weakened, if
Landlord requires that the Improvements be removed from the Land, and if
Tenant removes the Improvements pursuant to Section 2.11 above. The
foregoing provisions of this Section 13.1 are subject to Landlord's security
interest in Tenant's "FF&E," as provided in Article 31 below; provided that
nothing herein shall be deemed to limit Tenant's right to dispose of items of
Tenant's Personal Property in the ordinary course of Tenant's business, so
long as Tenant maintains Personal Property which is at all times sufficient
for the operation of the Improvements.
13.2. PERMITTED SIGNAGE. Tenant shall be entitled to such signage as
may be permitted under applicable law. Tenant's rights under this Section
13.2 are subject to Tenant's receipt of any and all necessary governmental
approvals, permits and consents.
14. DAMAGE BY FIRE OR OTHER CASUALTY.
14.1. RESTORATION. Except as otherwise provided in this Section 14.1,
Tenant shall repair, at Tenant's cost, any damage to Improvements (except any
damage for which no insurance coverage was obtainable). In the event all or
any substantial portion of the Improvements shall be damaged or destroyed in
whole or in part by fire or any other casualty such that the cost to repair
and restore the Improvement exceeds ten percent (10%) of the
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replacement cost of the Improvements, Tenant shall, at Tenant's option either
(i) proceed diligently to repair or rebuild the Improvements as nearly as
possible to the value, condition, quality and character immediately prior to
such damage or destruction, subject to Tenant's right to alter the same in
accordance with Article 12; or (ii) demolish the Improvements and regrade the
Land to finish grade in accordance with Landlord's reasonable requirements.
14.2. USE OF INSURANCE PROCEEDS. All insurance proceeds with respect to
the Improvements which are paid to Tenant shall, if Tenant elects to rebuild
the Improvements pursuant to Section 14.1, be deposited by Tenant into a
third party escrow or construction control account which is reasonably
acceptable to Landlord and Tenant (and, if applicable, any Leasehold
Mortgagee named as loss payee with respect to such insurance pursuant to
Section 10.1), and shall be disbursed from such account to Tenant and
Tenant's contractor for the payment of the costs of the repair and
restoration of the Improvements. Any such Leasehold Mortgagee which is named
as loss payee shall be an acceptable construction control account for
purposes of this Section 14.2. Notwithstanding the foregoing, if Tenant
elects to demolish the Improvements pursuant to option (ii) of Section 14.1,
all such insurance proceeds which are not required to be paid to a Leasehold
Mortgagee shall be allocated between and distributed to Landlord and Tenant
based upon the remaining unexpired Lease Term as of the date of the
distribution as follows: (i) Tenant shall receive that portion of such
proceeds which is derived by multiplying the amount of available insurance
proceeds by a fraction, the numerator of which is the length of the remaining
unexpired Lease Term (expressed in years) and the denominator of which is
twenty-five (25); and (ii) Landlord shall receive the remaining portion of
such proceeds.
14.3. ADDITIONAL COST OF RESTORATION. If Tenant elects to rebuild the
Improvements pursuant to Section 14.1, and if the insurance proceeds received
by or for the account of Tenant shall be insufficient to pay the entire cost
of such repairs and restoration, Tenant shall supply the amount of any such
deficiency and shall apply the same to the payment of the cost of such repair
and restoration. Under no circumstances shall Landlord be obligated to make
any payment or contribution towards the cost of any repairs and restoration.
14.4. NO RENT ABATEMENT. There shall be no abatement of rent as a
result of any casualty, including without limitation, during the period of
repair and rebuilding of the Leased Premises.
15. CONDEMNATION.
15.1. TERMINATION. If all of the Leased Premises (or if less than all,
but the remaining portion will not permit Tenant to operate its business on
the Leased Premises, with sufficient parking therefor), shall be acquired by
the right of condemnation or eminent domain for any public or quasi-public
use or purpose, or sold to a condemning authority under threat of
condemnation or in lieu thereof, then the Lease Term shall cease and
terminate as of the date of title vesting in such proceeding (or sale) and
all rent shall be paid up to that date.
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15.2. PARTIAL CONDEMNATION. In the event of a partial taking or
condemnation which takes less than a substantial portion of the Leased
Premises and if the remaining portion will permit Tenant to operate its
business on the Leased Premises, with sufficient parking therefor, then
Tenant, at Tenant's sole cost and expense, shall proceed with reasonable
diligence to restore the Leased Premises to a condition, to the extent
practicable, comparable to its condition at the time of such condemnation
less the portion lost in the taking, and this Lease shall continue in full
force and effect but with a pro rata reduction of rent.
15.3. PAYMENT OF AWARD. In the event of any condemnation, taking or
sale as aforesaid, whether whole or partial, Landlord and Tenant shall be
entitled to the portion of the award applicable to their respective interests
in the Leased Premises. Nothing contained in this Section 15.3 shall be
deemed to prevent Tenant from seeking a separate award from the taking
authority for the taking of Tenant's personal property and fixtures or for
relocation and business interruption expenses incurred by Tenant as a result
of the taking.
16. LIABILITY AND INDEMNIFICATION.
16.1. TENANT INDEMNITY. Landlord shall not be liable to Tenant or
Tenant's trustees, beneficiaries, heirs, successors, assigns, employees, agents,
patrons or invitees, or any person whomsoever, for any injury to person or
damage to property occurring during the Lease Term, or any Option Term, or which
is caused by or arising as a result of the negligence, or misconduct of Tenant,
its employees or agents, or of any other person (other than Landlord or
Landlord's employees or agents) entering upon the Leased Premises under express
or implied invitation of Tenant, as well as any such damage or injury which is
caused by or which arises as a result of Tenant's breach of this Lease, and
Tenant agrees to indemnify, defend and hold Landlord and Landlord's trustees,
beneficiaries, heirs, successors, assigns, members, agents, employees and
representatives harmless from any liability, loss, claim, damage, cost or
expense suffered or incurred by Landlord by reason of any such damage or injury.
16.2. LANDLORD INDEMNITY. Tenant shall not be liable to Landlord, or
Landlord's trustees, beneficiaries, heirs, successors, assigns, employees,
agents, patrons, or invitees, or any person whomsoever for any injury to person,
or damage to property occurring prior to the Effective Date, or subsequent to
the surrender of the Premises, or arising out of the gross negligence, or
willful misconduct of Landlord and Landlord agrees to indemnify, defend and hold
Tenant and Tenant's trustees, beneficiaries, heirs, successors, assigns, agents,
employees and representatives harmless from any liability, loss, claim, damage,
cost, or expense suffered, or incurred by Tenant by reason of any such damage,
or injury.
16.3. NOTICE OF INDEMNITY. Upon notice of any such claims of liability
for which indemnification is sought pursuant to Sections 16.1, or 16.2, the
indemnifying party, at its election, shall have the right of defense in such
proceedings, by counsel of its own choosing, at its sole cost and expense. The
party claiming indemnity shall cooperate fully in all respects in any such
defense, including, without limitation, by making available all pertinent
information under its control. If the indemnifying party does not notify
indemnified party within ten (10)
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days of notice of a potential claim that the indemnifying party will defend
the same, or should the indemnifying party fail to file any answer or other
pleading at least five (5) days before the same is due, the indemnified party
may defend or settle such claim or action in such manner as it deems
appropriate, in its sole discretion but, to the extent such claim is properly
subject to indemnity pursuant to Sections 16., or 16.2, above, at the sole
cost and expense of the indemnifying party. If the indemnifying party so
notifies the indemnified party concurrently with its notice of election to
defend, it may defend, but not settle, a claim without waiving its right to
assert that such claim is not subject to the indemnity agreement in this
Article 16. The indemnified party may, at its expense, participate in such
matter with counsel of its own choosing.
16.4. SURVIVAL. The provisions of this Article 16 shall survive the
termination of this Lease.
17. RIGHT OF INSPECTION. Subject to applicable laws and Tenant's
reasonable security policies, Landlord and its agents and representatives shall
be entitled to enter upon and inspect the Leased Premises at any time during
normal business hours upon prior reasonable notice (or, in the case of an
emergency, at any time and with or without notice), provided only that such
inspection shall not unreasonably interfere with Tenant's business.
18. WARRANTY OF TITLE AND QUIET ENJOYMENT.
18.1. QUIET ENJOYMENT. Landlord represents and warrants that it is the
owner in fee simple of the Land, and that it alone will have full right to lease
the Leased Premises for the Lease Term set out herein. Landlord further
represents and warrants that Tenant, on paying the rent and performing its
obligations hereunder, shall peaceably and quietly hold and enjoy the Leased
Premises for the Lease Term without any hindrance, molestation or ejection by
Landlord, its successors or assigns, or those claiming by, through, or under
them or anyone claiming under paramount title to Landlord.
18.2. ENCUMBRANCES. Landlord represents and warrants that, with the
exception of the Permitted Exceptions shown on Exhibit "C," it has not granted
nor created and covenants that it will not grant, create or suffer any claim,
lien, encumbrance, easement, restriction or other charge or exception to title
to the Leased Premises which would have any material adverse effect upon
Tenant's rights or obligations under this Lease; provided, however, that it is
expressly agreed that Landlord, its successors and assigns may subject its
interest in the Leased Premises to mortgage loans if such lender shall agree for
itself, its successors and assigns: (i) to be bound by the terms of this Lease;
(ii) not to disturb Tenant's use or possession of the Leased Premises in the
event of a foreclosure of such lien or encumbrance so long as Tenant is not in
default hereunder; (iii) except as may be required under applicable law, not to
join Tenant as a party defendant in any foreclosure proceeding relating to the
Project or any part thereof. If Landlord's interest in the Land or in this
Lease is sold or conveyed upon the exercise of any remedy provided for in any
such mortgage loan, or otherwise by operation of law, this Lease will not be
affected in any way, and Tenant will attorn to and recognize the new owner as
Tenant's
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Landlord under this Lease. Tenant will confirm such attornment in writing
within ten (10) days after Tenant's receipt of a written request for
attornment.
18.3. TRANSFER BY LANDLORD. Landlord has the absolute right to
transfer all or a part of its interest in this Lease to any successor. In the
event of any sale or other transfer of all of Landlord's interest in the Leased
Premises, other than a transfer for security purposes only, Landlord shall
automatically be relieved of any and all obligations and liabilities on the part
of Landlord accruing from and after the date of such transfer, provided that the
transferee acknowledges in writing that such transferee assumes the terms and
conditions of this Lease.
19. WAIVER OF SUBROGATION. Landlord and Tenant severally waive any and
every claim which arises or may arise in its favor and against the other during
the Lease Term for any and all loss of, or damage to, any of its property
located within or upon, or constituting a part of, the Leased Premises, which
loss or damage is covered by valid and collectible fire and extended coverage,
general liability, liquor liability or worker's compensation insurance policies,
to the extent that such loss or damage is recoverable thereunder. Inasmuch as
the above mutual waivers will preclude the assignment of any aforesaid claim by
way of subrogation (or otherwise) to an insurance company (or any other person),
Landlord and Tenant severally agree immediately to give to each insurance
company which has issued to it policies of insurance, written notice of the
terms of said mutual waivers, and to have said insurance policies properly
endorsed, if necessary, to prevent the invalidation of said insurance coverages
by reason of said waivers.
20. FORCE MAJEURE. The time for performance by Landlord or Tenant
of any term, provision or covenant of this Lease, other than the payment of
amounts due under this Lease, shall be deemed extended by time lost due to
delays resulting from acts of God, strikes, unavailability of building
materials, civil riots, floods, material or labor restrictions by
governmental authority, and any other cause not within the control of
Landlord or Tenant, as the case may be.
21. NO BROKERS. Tenant warrants that is has not had any contact or
dealings with any person or real estate broker which would give rise to the
payment of any finders' fee or brokerage commission by Landlord in connection
with this Lease, and Tenant shall indemnify, hold harmless and defend Landlord
from and against any liability with respect to any finder's fee or brokerage
commission arising out of any act or omission of Tenant. Landlord warrants that
it has not had any contact with any person or real estate broker which would
give rise to the payment of any finders' fee or brokerage commission by Tenant
in connection with this Lease, and Landlord shall indemnify, hold harmless and
defend Tenant from and against any liability with respect to any finders' fee or
brokerage commission arising out of any act or omission of Landlord.
22. LANDLORD-TENANT RELATIONSHIP. It is further understood and agreed
that the Landlord shall in no event be construed or held to be a partner, joint
venturer or associate of Tenant in the conduct of Tenant's business, nor shall
Landlord be liable for any debts incurred
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by Tenant in Tenant's business; but it is understood and agreed that the
relationship is and at all times shall remain that of landlord and tenant.
23. ASSIGNMENT AND SUBLETTING.
23.1. ASSIGNMENT AND SUBLETTING. Tenant shall not assign this Lease or
sublet the whole or any part of the Leased Premises without the prior written
consent of Landlord, which shall not unreasonably be withheld.
23.2. NO RELEASE OR NOVATION. No assignment or subletting or
collection of rent from the assignee or subtenant (including, without
limitation, any assignment pursuant to the preceding Section 23.2) shall be
deemed to constitute a novation or in any way release Tenant from further
performance of its obligations under this Lease, and Tenant shall continue to be
liable under this Lease for the balance of the Lease Term with the same force
and effect as if no such assignment had been made.
23.3. ENCUMBRANCE OR ASSIGNMENT AS SECURITY.
23.3.1. DEFINITIONS.
The term "LEASEHOLD MORTGAGE" as used in this Lease
shall mean a first mortgage, a first deed of trust, a sale - leaseback
(wherein the leaseback is prior to all other security interests in Tenant's
leasehold estate) or other first priority security instrument or device by
which Tenant's leasehold estate is mortgaged, conveyed, assigned, or
otherwise transferred, to secure a debt or other obligation.
23.3.1.1. The term "LEASEHOLD MORTGAGEE" as used in
this Lease shall refer to an institutional lender (i.e., a savings bank,
savings and loan association, commercial bank, trust company, credit union,
insurance company, college, university, real estate investment trust or
pension fund or any other institution which is recognized nationally or
regionally as being in the business of lending money or serving as the
trustee for persons investing in such debt) which is not affiliated with
Tenant and which is the holder of a Leasehold Mortgage (which in the case of
a deed of trust is the beneficiary thereof and in the case of a
sale-leaseback is the lessor) in respect to which the notice provided for by
Section 23.4.3 has been given and received and as to which the provisions of
this Section 23.4 are applicable.
23.3.2. TENANT'S RIGHT TO MORTGAGE ITS LEASEHOLD INTEREST.
Notwithstanding any other provision contained in this Lease, for the purpose of
financing construction or reconstruction permitted by this Lease or refinancing
any such financing, Tenant shall have the right to encumber or assign its
interest in this Lease or assign its interest in any sublease hereunder by
mortgage or deed of trust (hereinafter, collectively, "MORTGAGE") (or by
foreclosure or assignment in lieu of foreclosure under such Mortgage) to any
institutional lender or other lender reasonably acceptable to Landlord as
mortgagee and if such Mortgage is a deed of trust, foreclosure may be had
thereunder by the exercise of a power of sale in accordance
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with the provisions of Chapter 107 of the Nevada Revised Statutes. There may
be no more than one Mortgage on Tenant's interest in the Improvements and
this Lease at any given time.
23.3.3. NOTICE TO LANDLORD. Upon execution of a Mortgage
otherwise entitled to the benefits of a Leasehold Mortgage (or any amendment,
supplement or modification thereto) and in order to be entitled to such
benefits a photostatic copy of such instrument and the obligation secured
thereby shall be promptly delivered to Landlord together with a certification
by Tenant and the Leasehold Mortgagee confirming that the photostatic copy is
a true copy of the Leasehold Mortgage and giving written notice of the name
and mailing address of the Leasehold Mortgagee (which shall be deemed such
Leasehold Mortgagee's address hereunder until changed by notice to Landlord
and Tenant as provided in Article 24), that the Leasehold Mortgage was
recorded in the Official Records of Clark County, Nevada, the date of
recording or filing of record thereof and recorder's instrument number and
book reference or other recorder's index reference, and that such Mortgage is
a first lien on Tenant's interest in the Improvements and this Lease. Until
such true copies and certificate are delivered to Landlord, any such
instrument shall have no force or effect whatsoever on the enforcement by
Landlord of any provisions of this Lease or any rights or remedies hereunder.
23.3.4. CANCELLATION, SURRENDER AND MODIFICATION. No
cancellation, surrender or modification of this Lease shall be effective as
to any Leasehold Mortgagee unless consented to in writing by such Leasehold
Mortgagee.
23.3.5. NOTICE OF DEFAULT AND RIGHT TO CURE. Landlord, upon
providing Tenant any notice of: (i) default under this Lease, (ii) a
termination of this Lease, or (iii) a matter on which Landlord may predicate
or claim a default, shall at the same time provide a copy of such notice to
any Leasehold Mortgagee. From and after such notice has been given to a
Leasehold Mortgagee, such Leasehold Mortgagee shall have the same period,
after the giving of such notice, for remedying any default or acts or
omissions which are the subject matter of such notice or causing the same to
be remedied, as is given Tenant after the giving of such notice to Tenant,
plus in each instance, the additional periods of time specified in Sections
23.4.6 and 23.4.7, to remedy, commence remedying or cause to be remedied the
defaults or acts or omissions which are the subject matter of such notice
specified in any such notice. Landlord shall accept such performance by or at
the instigation of such Leasehold Mortgagee as if the same had been done by
Tenant. Tenant authorizes each Leasehold Mortgagee to take any such action
at such Leasehold Mortgagee's option and does hereby authorize entry upon the
Leased Premises by the Leasehold Mortgagee for such purpose.
23.3.6. TERMINATION FOR TENANT DEFAULT. Anything contained
in this Lease to the contrary notwithstanding, if any default shall occur
which entitles Landlord to terminate this Lease, Landlord shall have no right
to terminate this Lease unless, following the expiration of the period of
time given Tenant to cure such default or the act or omission which gave rise
to such default, Landlord shall notify any Leasehold Mortgagee of Landlord's
intent to so terminate at least thirty (30) days in advance of the proposed
effective date of such termination, if such default is capable of being cured
by the payment of money, and at least forty-five (45)
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days in advance of the proposed effective date of such termination if such
default is not capable of being cured by the payment of money. The
provisions of Section 23.4.7 below shall apply if, during such thirty (30) or
forty-five (45) day cure period, any Leasehold Mortgagee shall:
(a) notify Landlord of such Leasehold Mortgagee's desire to avoid any
termination of this Lease by Landlord; and
(b) pay or cause to be paid all rent and other payments then due and
in arrears as specified in the notice to such Leasehold Mortgagee and
which may become due during such thirty (30) or forty-five (45) day
cure period; and
(c) comply, or in good faith and with reasonable diligence commence
to comply, with all nonmonetary requirements of this Lease then in
default and reasonably susceptible of being complied with by such
Leasehold Mortgagee (provided, however, that such Leasehold Mortgagee
shall not be required during such period to cure or commence to cure
any default consisting of Tenant's failure to satisfy and discharge
any lien, charge or encumbrance against Tenant's interest in this
Lease or the Leased Premises junior in priority to the lien of the
Leasehold Mortgage held by such Leasehold Mortgagee, so long as such
lien, charge or encumbrance does not also encumber or threaten
Landlord's interest in the Land or the Leased Premises);
23.3.7. PROCEDURE OF DEFAULT.
23.3.7.1. If Landlord shall elect to terminate this Lease by
reason of any default of Tenant, and if a Leasehold Mortgagee shall have
proceeded in the manner provided for by Section 23.4.6, the specified date for
the termination of this Lease as fixed by Landlord in its termination notice
shall be extended for a period of six (6) months provided that such Leasehold
Mortgagee shall, during such six (6) month period:
(a) Pay or cause to be paid the rent, additional rent and other
monetary obligations of Tenant under this Lease as the same become
due, and continue its good faith efforts to perform all of Tenant's
other obligations under this Lease, excepting (A) obligations of
Tenant to satisfy or otherwise discharge any lien, charge or
encumbrance against Tenant's interest in this Lease or the Leased
Premises junior in priority to the lien of the Leasehold Mortgage held
by such Leasehold Mortgagee, so long as such lien, charge or
encumbrance does not also encumber or threaten Landlord's interest in
the Land or the Leased Premises and (B) past nonmonetary obligations
then in default and not reasonably susceptible of being cured by such
Leasehold Mortgagee; and
(b) If not enjoined or stayed, take steps to acquire or sell Tenant's
interest in this Lease by foreclosure of the Leasehold Mortgage or
other appropriate means and prosecute the same to completion with due
diligence.
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23.3.7.2. If at the end of such six (6) month period such
Leasehold Mortgagee is complying with Section 23.4.7.1, this Lease shall not
then terminate, and the time for completion by such Leasehold Mortgagee of its
proceedings shall continue so long as such Leasehold Mortgagee is enjoined or
stayed and thereafter for so long as such Leasehold Mortgagee proceeds to
complete steps to acquire or sell Tenant's interest in this Lease by foreclosure
of the Leasehold Mortgage or by other appropriate means with reasonable
diligence and continuity. Nothing in this Section 23.4.7, however, shall be
construed to extend this Lease beyond the Lease Term, nor to require a Leasehold
Mortgagee to continue such foreclosure proceedings after the subject Tenant
default has been cured. If the default shall be cured and the Leasehold
Mortgagee shall discontinue such foreclosure proceedings, this Lease shall
continue in full force and effect as if Tenant had not defaulted under this
Lease.
23.3.7.3. If a Leasehold Mortgagee is complying with Section
23.4.7.1, upon the acquisition of Tenant's leasehold estate herein by such
Leasehold Mortgagee or its designee or any other purchaser at a foreclosure sale
or otherwise, and upon the discharge of any lien, charge or encumbrance against
the Tenant's interest in this Lease or the Leased Premises which is junior in
priority to the lien of the Leasehold Mortgage held by such Leasehold Mortgagee
and which the Tenant is obligated to satisfy and discharge by reason of the
terms of this Lease, this Lease shall continue in full force and effect as if
Tenant had not defaulted under this Lease.
23.3.7.4. The making of a Leasehold Mortgage shall not be deemed
to constitute an assignment or transfer of this Lease or of the leasehold estate
hereby created, nor shall any Leasehold Mortgagee, as such, be deemed to be an
assignee or transferee of this Lease or of the leasehold estate hereby created
so as to require such Leasehold Mortgagee, as such, to assume the performance of
any of the terms, covenants or conditions on the part of Tenant to be performed
hereunder, but the purchaser at any sale of this Lease and of the leasehold
estate hereby created in any proceedings for the foreclosure of any Leasehold
Mortgage, or the assignee or transferee of this Lease and of the leasehold
estate hereby created under any instrument of assignment or transfer in lieu of
the foreclosure of any Leasehold Mortgage, shall be deemed to be an assignee or
transferee within the meaning of this Lease, and shall be deemed to have agreed
to perform all of the terms, covenants and conditions on the part of Tenant to
be performed hereunder from and after the date of such purchase and assignment.
23.3.7.5. Any Leasehold Mortgagee or other acquirer of the
leasehold estate of Tenant pursuant to foreclosure, assignment in lieu of
foreclosure or other proceedings may, upon acquiring Tenant's leasehold estate,
without further consent of Landlord, sell and assign the leasehold estate on
such terms and to such persons and entities as are acceptable to such Mortgagee
or acquirer and thereafter be relieved of all obligations under this Lease,
provided that such assignee is solvent and financially and legally able to
perform the obligations of Tenant for the unexpired Lease Term, in Landlord's
reasonable judgment. No other or further assignment shall be made except in
accordance with the provisions of Article 23 of this Lease. Upon execution of
any assignment permitted to be made to or by the Leasehold Mortgagee a fully
executed copy thereof, together with a written statement of the place of
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recording or filing of record, if any, and a copy of the assumption agreement,
if applicable, shall be delivered promptly to Landlord; and until such delivery
to Landlord such assignment shall have no force or effect whatsoever on the
enforcement by Landlord of any provisions of this Lease or any rights or
remedies hereunder.
23.3.7.6. Notwithstanding any other provisions of this Lease, any
sale of this Lease and of the leasehold estate hereby created in any proceedings
for the foreclosure of any Leasehold Mortgage, or the assignment or transfer or
this Lease and of the leasehold estate hereby created in lieu of the foreclosure
of any Leasehold Mortgage shall be deemed to be a permitted sale, transfer or
assignment of this Lease and of the leasehold estate hereby created.
23.3.7.7. Nothing in this Section 23.4 shall limit Landlord's
ability to enforce this Lease by any means (including, but not limited to, an
action for specific performance and/or injunction) other than termination,
reentry or taking possession after expiration of the cure periods, if any,
provided in Section 25.1.
23.3.8. NEW LEASE. In the event of the termination of this Lease as
a result of Tenant's default, Landlord shall, in addition to providing the
notices of default and termination as required above, provide any Leasehold
Mortgagee with written notice that this Lease has been terminated, together with
a statement of all sums which would at that time be due under this Lease but for
such termination, and of all other defaults, if any, then known to Landlord.
Landlord agrees to enter into a new lease ("NEW LEASE") of the Leased Premises
with such Leasehold Mortgagee or its designee for the remainder of the Lease
Term, effective as of the date of termination, at the rent, and upon the terms,
covenants and conditions (but excluding requirements which are not applicable or
which have already been fulfilled) of this Lease, provided:
(a) Such Leasehold Mortgagee shall make written request upon Landlord
for such New Lease within sixty (60) days after the date such
Leasehold Mortgagee receives Landlord's notice of termination or
actual termination, if later, of this Lease given pursuant to this
Section 23.4.8.
(b) Such Leasehold Mortgagee or its designee shall pay or cause to be
paid to Landlord at the time of the execution and delivery of such New
Lease, any and all sums which would at the time of execution and
delivery thereof be due pursuant to this Lease but for such
termination and, in addition thereto, all reasonable expenses,
including reasonable attorney's fees, which Landlord shall have
incurred by reason of such termination and the execution and delivery
of the New Lease, and which have not otherwise been received by
Landlord from Tenant or other party in interest under Tenant. Upon the
execution of such New Lease, Landlord shall allow to the tenant named
therein as an offset against the sums otherwise due under this Section
23.4.8(b) or under the New Lease, an amount equal to the net income,
if any, derived by Landlord from the Leased
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Premises during the period from the date of termination of this Lease
to the date of the beginning of the lease term of such New Lease. In
the event of a controversy as to the amount to be paid to Landlord
pursuant to this Paragraph (b), the payment obligation shall be
satisfied if Landlord shall be paid the amount not in controversy,
and the Leasehold Mortgage or its designee shall agree to pay any
additional sum ultimately determined to be due plus interest at the
rate of fifteen percent (15%) and such obligation shall be adequately
secured. For purposes of this Section 23.4.8(b), NET INCOME shall
mean gross revenue derived by Landlord from the Leased Premises
during the period from the date of termination of this Lease to the
date of the beginning of the lease term of such New Lease, less all
operating expenses, real and personal property taxes and debt service
payments (with respect to debt incurred to own, operate, alter or
manage the Improvements) incurred or paid by Landlord during such
period.
(c) Such Leasehold Mortgagee or its designee shall agree to cure any
of Tenant's defaults of which said Leasehold Mortgagee was notified by
Landlord's notice of termination and which are reasonably susceptible
of being so cured by Leasehold Mortgagee or its designee.
(d) The tenant under any New Lease shall, upon an assignment of such
leasehold estate, be relieved and discharged from the obligations
imposed on the tenant by such New Lease, provided that the assignee of
such leasehold estate is solvent and financially and legally able to
perform the obligations of the tenant for the unexpired term of the
New Lease, in Landlord's reasonable judgment.
23.3.9. CASUALTY AND CONDEMNATION LOSS. Any Mortgage must be
consistent with and not interfere with Landlord's rights hereunder with respect
to insurance, casualty and condemnation, except that a Leasehold Mortgage may
provide that casualty insurance proceeds with respect to the Leased Premises and
condemnation awards payable with respect to the buildings and other improvements
on the Leased Premises shall only be disbursed for repair, reconstruction or
restoration upon satisfaction of specified conditions. Such conditions shall be
subject to Landlord's approval, which shall not be unreasonably withheld. The
Leasehold Mortgage shall provide that Landlord shall have a reasonable period of
time after Tenant's failure to satisfy such conditions in which to satisfy the
same and that thereupon such proceeds or condemnation awards shall be made
available for repair, reconstruction and restoration as herein provided. The
failure of any Leasehold Mortgagee to make such proceeds or condemnation awards
available shall not relieve Tenant of any obligation hereunder and any failure
of Tenant to repair, reconstruct or restore as provided in this Lease shall
constitute a default. Any Mortgage must provide that Landlord will be notified
of any default thereunder and provided a reasonable opportunity to cure the
same.
23.3.10. ARBITRATION. Landlord shall give any Leasehold Mortgagee
prompt notice of any arbitration or legal proceedings between Landlord and
Tenant involving obligations under this Lease. Any Leasehold Mortgagee shall
have the right to intervene in any such
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proceedings and be made a party to such proceedings at its or Tenant's cost,
and the parties hereto do hereby consent to such intervention. In the event
that any Leasehold Mortgagee shall not elect to intervene or become a party
to any such proceedings, Landlord shall give the Leasehold Mortgagee notice
of, and a copy of, any award or decision made in any such proceedings. In
the event Tenant shall fail to appoint an arbitrator after notice from
Landlord, as provided in Article 29 hereof, a Leasehold Mortgagee shall have
an additional period of thirty (30) days, after notice by Landlord that
Tenant has failed to appoint such arbitrator, to make such appointment, and
the arbitrator so appointed shall thereupon be recognized in all respects as
if he had been appointed by Tenant.
23.3.11. NO MERGER. So long as any Leasehold Mortgage is in
existence, unless any Leasehold Mortgagee shall otherwise expressly consent in
writing, the fee title to the Leased Premises and the leasehold estate of Tenant
therein created by this Lease shall not merge but shall remain separate and
distinct, notwithstanding the acquisition of said fee title and said leasehold
estate by Landlord or by Tenant or by a third party, by purchase or otherwise.
23.3.12. ESTOPPEL. Landlord shall, without charge, at any time and
from time to time hereafter, but not more frequently than once in any one-year
period, within ten (10) days after written request from Tenant to do so, certify
by written instrument duly executed and acknowledged to any Leasehold Mortgagee
or purchaser, or proposed Leasehold Mortgagee or proposed purchaser, or any
other person or entity specified in such request: (a) as to whether this Lease
has been supplemented or amended, and if so, the substance and manner of such
supplement or amendment; (b) as to the validity and force and effect of this
Lease, in accordance with its tenor; (c) as to the existence of any default
hereunder; (d) as to the existence of any offsets, counterclaims or defenses
hereto on the part of Tenant; (e) as to the commencement and expiration dates of
the Lease Term; and (f) as to any other matters as may be reasonably so
requested. Any such certificate may be relied upon by Tenant and any other
person or entity to whom the same may be exhibited or delivered, and the
contents of such certificate shall be binding on the Landlord.
23.3.13. NOTICES. Notices from Landlord to the Leasehold Mortgagee
shall be mailed to the address furnished Landlord pursuant to Section 23.4.3,
and those from the Leasehold Mortgagee to Landlord shall be mailed to the
address designated pursuant to the provisions of Article 24 hereof. Such
notices, demands and requests shall be given in the manner described in Article
24 and shall in all respects be governed by and shall be deemed to be effective
in accordance with the provisions of that Article.
23.3.14. NO SUBORDINATION OF LANDLORD'S FEE TITLE. Landlord shall
not be required to subordinate Landlord's fee interest in the Leased Premises
or its reversionary interest in the buildings and improvements existing or to
be constructed thereon to any lien securing Tenant's construction loan or
other financing.
24. NOTICES AND PAYMENTS. Any notice or document required or
permitted to be delivered hereunder or by law shall be deemed to be
delivered, whether actually received or not,
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(a) when delivered in person, (b) upon confirmed receipt (or the first
business day thereafter if receipt does not occur during business hours on a
business day) if such item is sent by facsimile transmission to the
appropriate party at its fax number set forth below or at such other number
as it shall have thereafter specified by written notice delivered in
accordance with this Article 24 (provided that a copy of such notice is also
sent by another method permitted hereunder within one (1) business day after
the same is transmitted by facsimile), (c) three (3) business days after such
item is deposited in the United States mail, postage prepaid, certified or
registered, return receipt requested, (d) one (1) business day after such
item is deposited with Federal Express or other nationally-recognized
overnight courier, shipping charges prepaid, addressed to the appropriate
party hereto at its address set out below, or at such other address as it
shall have theretofore specified by written notice delivered in accordance
herewith:
LANDLORD: NORBERT W. JANSEN AND AVIS JANSEN, TRUSTEES
978 Bel Air Circle
Las Vegas, NV 89129
with a copy to: Howard M. Miller, Esq.
CARELLI & MILLER
302 East Carson Avenue, Suite 830
Las Vegas, Nevada 89101
Telefax: (702) 384-9546
TENANT: BOARDWALK CASINO, INC.
3750 Las Vegas Boulevard South
Las Vegas, Nevada 89109
with a copy to: Gary R. Goodheart, Esq.
JONES, JONES, CLOSE & BROWN, CHARTERED
3773 Howard Hughes Parkway
Third Floor South
Las Vegas, Nevada 89109
Telefax: (702) 734-2722
Payments of Base Rent and other sums due Landlord from Tenant (collectively
referred to in this Lease as "RENT") shall be deemed to be remitted only upon
actual receipt thereof by Landlord.
If and when included within the term "Landlord" or "Tenant" there is
more than one person or legal entity, all shall jointly arrange among themselves
for one among their numbers to receive at one specified address all such notices
and payments; all parties included within the term "Landlord" or "Tenant," as
appropriate, shall be bound by notices delivered by the other party in
accordance with the provisions of this Article 24 as if each had received such
notice.
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25. DEFAULT.
25.1. EVENTS OF DEFAULT. Each of the following events shall be an
"Event of Default" under this Lease:
25.1.1. Tenant shall fail to pay any installment of rent hereby
reserved prior to the last day of the month in which the same shall become due;
25.1.2. Tenant shall fail to comply with any term, provision or
covenant of this Lease, other than the payment of rent, and shall not cure such
failure within thirty (30) days after written notice thereof is given by
Landlord to Tenant. If such default cannot reasonably be cured within thirty
(30) days, then Tenant shall have an additional reasonable period of time within
which to cure such default so long as Tenant commences to cure such default
within the initial thirty (30) day period and thereafter diligently prosecutes
such cure to completion;
25.1.3. Tenant shall be adjudged insolvent, make a transfer in fraud
of creditors or make an assignment for the benefit of creditors;
25.1.4. Tenant shall abandon the Leased Premises or shall cease
operations in the Premises (except for short time periods not exceeding thirty
(30) days in any twelve (12) month period or ninety (90) days in any sixty (60)
month period and except for interruptions in Tenant's operations which are
caused by events which are beyond Tenant's control, including, without
limitation, casualty damage (but not including Tenant's financial inability to
operate); provided that Tenant may cease operations in the Leased Premises for
one (1) period of up to two (2) years in order to diligently construct major
renovations to, or replacement of, the Improvements;
25.1.5. Tenant shall file a petition under any section or chapter of
the Bankruptcy Reform Act of 1978, as amended, or under any similar law or
statute of the United States or any state thereof, or Tenant shall be adjudged
bankrupt or insolvent in proceedings filed against Tenant thereunder; or
25.1.6. A receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant and Tenant shall not have had such
appointment discharged within thirty (30) days after Tenant receives written
notice of such appointment.
25.2. LANDLORD'S REMEDIES: Upon the occurrence of any Tenant Event of
Default, Landlord shall have the option to pursue any one or more of the
following remedies:
25.2.1. Terminate this Lease, in which event Tenant shall
immediately surrender the Leased Premises to Landlord, and if Tenant fails so to
do, Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession of the Leased
Premises and expel or remove Tenant and any other person
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who may be occupying the Leased Premises, or any part thereof, by force if
necessary, without being liable to prosecution or for any claim for damages;
and Landlord may recover from Tenant:
25.2.1.1. The worth at the time of award of any unpaid rent which
has been earned at the time of such termination; plus
25.2.1.2. The worth at the time of award of any amount by which
the unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss Tenant proves could have been
reasonably avoided; plus
25.2.1.3. The worth at the time of award of the amount by which
the unpaid rent for the balance of the term after the time of the award exceeds
the amount of such rental loss that Tenant proves could be reasonably avoided;
plus
25.2.1.4. All interest, late charges, attorney's fees, costs and
all other charges and sums to be paid by Tenant under this Lease.
25.2.1.5. At Landlord's election, such other amounts in addition
to or in lieu of the foregoing as may be permitted from time to time by
applicable law.
All such amounts shall be computed on the basis of the monthly amount
thereof payable on the date of Tenant's default. As used in Sections 25.2.1.1
and 25.2.1.2 above, the "worth at the time of award" is computed by allowing
interest in the per annum amount equal to two percent (2%) in excess of the
Reference Rate of interest announced from time to time by Bank of America
National Trust and Savings Association (or an equivalent rate announced by a
comparable national bank selected by Landlord in the event Bank of America no
longer announces a Reference Rate), but in no event in excess of the maximum
interest rate permitted by law.
25.2.2. Enter upon and take possession of the Leased Premises and
expel or remove Tenant and other persons who may be occupying the Leased
Premises, or any part thereof, by force if necessary, without being liable to
prosecution or for any claim for damages, and relet the Leased Premises, as
Tenant's agent, and receive the rent therefor; and Tenant agrees to pay Landlord
on demand any deficiency that may arise by reason of such reletting; or
25.2.3. Enter upon the Leased Premises, without being liable to
prosecution or for any claim for damages, and do whatever Tenant is obligated to
do under the terms of this Lease; and Tenant agrees to reimburse Landlord on
demand for any reasonable and necessary expenses which Landlord may incur in
thus effecting compliance with Tenant's obligations hereunder.
Pursuit of any of the foregoing remedies shall not preclude pursuit of any
of the other remedies herein provided or any other remedies provided by law, nor
shall pursuit of any
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remedy herein provided constitute a forfeiture or waiver of any rent due to
Landlord hereunder or of any damage accruing to Landlord by reason of the
violation of any of the terms, provisions and covenants herein contained.
Forbearance by Landlord to enforce one or more of the remedies herein
provided upon the occurrence of an Event of Default shall not be deemed or
construed to constitute a waiver of such default.
26. HAZARDOUS MATERIALS.
26.1. COVENANT. Tenant covenants to Landlord that it will not use, or
allow to be used on the Leased Premises, or bring onto, or allow to be brought
onto, the Leased Premises any Hazardous Substance, as defined below, except as
may be reasonably required in connection with its permitted business on the
Leased Premises, and then only in full compliance with all federal, state or
local laws. Tenant shall require every sublease to contain provisions similar
to the provisions set forth in this Article 26.
26.2. RIGHT OF ENTRY. Subject to applicable laws and Tenant's
reasonable security policies, Landlord reserves the right to enter the Leased
Premises and all Improvements thereon at any reasonable time and upon reasonable
notice, and at any time in exigent circumstances, for the purpose of inspecting
and examining the Leased Premises for the presence of any Hazardous Substance.
If the results of such inspection or examination reveal the presence of
Hazardous Substances in, on or about the Leased Premises, and if Landlord has
reasonable cause to believe that they are present in, on or about the Leased
Premises due to Tenant's failure to be in compliance with Article 26, then
Tenant shall reimburse Landlord for its costs incurred in undertaking such
inspection and examination.
26.3. INDEMNITY. Tenant shall indemnify, defend and hold Landlord and
its trustees, beneficiaries, heirs, successors, assigns, agents, employees and
representatives harmless from any and all Indemnified Costs caused by the
presence of Hazardous Substances in, on or about the Leased Premises which are
placed, or allowed to be placed, in, on or about the Leased Premises by Tenant,
or incurred by Landlord in connection with the release, removal or storage of
any Hazardous Substance placed, or allowed to be placed, in, on or about the
Leased Premises by Tenant. Landlord shall indemnify, defend and hold Tenant and
its trustees, beneficiaries, heirs, successors, assigns, agents, employees and
representatives harmless from any and all Indemnified Costs caused by the
presence of Hazardous Substances in, on, or about the Leased Premises, which are
placed, or allowed to be placed in, on, or about the Leased Premises prior to
the Effective Date, or subsequent to surrender of the Leased Premises by Tenant.
The provisions of this indemnity shall remain in full force and effect and shall
not be affected or impaired by the expiration or any earlier termination of this
Lease and shall survive any such expiration or termination. "INDEMNIFIED COSTS"
means all actual or threatened liabilities, claims, actions, causes of action,
judgments, orders, damages (including foreseeable and unforeseeable
consequential damages), costs, expenses, fines, penalties and losses (including
sums paid in settlement of claims and all consultant, expert and legal fees),
including those incurred in connection with any investigation of site conditions
or any clean-up, remedial, removal or restoration work (whether of the Leased
Premises, or any other property), or any
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resulting damages, harm or injuries to the person or property of any third
parties or to any natural resources. Without limiting the foregoing,
"Indemnified Costs" incurred as a result of any work of cure, mitigation,
cleanup, remediation, removal or restoration shall bear interest at the rate
of fifteen percent (15%) per annum until paid in full. Indemnified Costs
shall include all expenses incurred or suffered pursuant to any order of any
federal, state or local governmental agency relating to the clean-up,
remediation or other responsive action required by any applicable law.
26.4. HAZARDOUS SUBSTANCES DEFINED. As used herein, the term
"HAZARDOUS SUBSTANCES" shall include: (i) petroleum or any of its fractions,
flammable substances, explosives, radioactive materials, hazardous wastes or
substances, toxic wastes or substances or any other similar materials or
pollutants which pose a hazard to the Leased Premises, or to persons on or about
same, cause the Leased Premises to be in violation of any law or local approval,
or are defined as or included in the definition of "HAZARDOUS SUBSTANCES",
"HAZARDOUS WASTES", "HAZARDOUS MATERIALS", or "TOXIC", or words of similar
import under any applicable law, including, but not limited to: (A) the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601, et seq.; (B) the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. Section 1801, et seq.; (C) the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901, et
seq.; and (D) regulations adopted and publications promulgated pursuant to the
aforesaid laws; (ii) asbestos in any form which is or could become friable, urea
formaldehyde foam insulation, transformers or other equipment which contain
dielectric fluid containing levels of polychlorinated biphenyls in excess of 50
parts per million; and (iii) any other chemical, material or substance, exposure
to which is prohibited, limited or regulated by any governmental authority or
may or could pose a hazard to the health and safety of the occupants of the
Leased Premises or the owners and/or occupants of property adjacent to or
surrounding the Leased Premises.
27. MISCELLANEOUS.
27.1. TERMINATION. In the event this Lease is terminated pursuant to a
right to do so herein contained, except as specifically provided herein (such
as, for example, but without limitation, in Section 2.11 (Tenant's obligation to
remove the Improvements and regrade the Land), in Article 4 (the payment of
hold-over rent by Tenant), in Section 13.1 (Tenant's right to remove its
personal property after the expiration of the Lease Term), in Article 16
(indemnity), and in Article 26 above (hazardous materials)) neither Landlord nor
Tenant hereto shall thereafter have any further obligation or liability one to
the other except such obligations as are owed under this Lease through the date
of termination, and this Lease shall be of no further force or effect.
27.2. CAPTIONS. The captions used in this Lease are for convenience
only and shall not be deemed to amplify, modify or limit the provisions hereof.
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27.3. MEANINGS. Words of any gender used in this Lease shall be
construed to include any other gender, and words in the singular shall include
the plural and vice versa, unless the context otherwise requires.
27.4. SUCCESSORS AND ASSIGNS. Subject to the restrictions set forth
herein on assignment and subletting by Tenant, this Lease shall be binding upon
and shall inure to the benefit of Landlord and Tenant and their respective
heirs, legal representatives, successors and assigns.
27.5. ENTIRE AGREEMENT. The Exhibits annexed to this Lease are hereby
incorporated by reference in their entirety with the same force and effect as if
they were set forth in this Lease in their entirety. This Lease contains the
entire agreement of Landlord and Tenant with respect to the subject matter
hereof and can be altered, amended or modified only by written instrument
executed by both of such parties.
27.6. TIME. It is expressly agreed by Landlord and Tenant that time is
of the essence with respect to this Lease. In the event the date for performance
of an obligation or delivery of any notice hereunder falls on a day other than a
business day, then the date for such performance or delivery of such notice
shall be postponed until the next ensuing business day. Any references to
"business days" contained herein are references to normal working business days
(i.e., Monday through Friday of each calendar week, exclusive of Federal and
Nevada state holidays).
27.7. SEVERABILITY. If any term or provision, or any portion thereof,
of this Lease, or application thereof to any person or circumstance shall, to
any extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby and each term and provision of this Lease shall be valid and be enforced
to the fullest extent permitted by law.
27.8. COUNTERPARTS. This Lease may be signed in counterparts with the
same force and effect as if all required signatures were contained in a single,
original instrument.
27.9. ATTORNEYS' FEES. In the event of litigation between the parties
to enforce this Lease, the prevailing party in any such action shall be entitled
to recover reasonable costs and expenses of suit, including, without limitation,
court costs, attorneys' fees, and discovery and related costs.
27.10. MEMORANDUM OF LEASE. Landlord and Tenant shall execute a
memorandum of this Lease and record such memorandum against the Land.
27.11. GOVERNING LAW. This Lease shall be construed, interpreted, and
enforced pursuant to the laws of the State of Nevada.
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28. GAMING PROVISION
28.1. COOPERATION AND COMPLIANCE BY LANDLORD. Landlord, at Tenant's
sole cost and expense, shall promptly apply for and use its best efforts to
obtain all necessary licenses and other approvals and permits, if any, required
of Landlord from any foreign, federal, state or local gaming and liquor
licensing authorities (collectively "GOVERNMENTAL AUTHORITIES") for the
operation by Tenant of its business at the Leased Premises, and shall otherwise
fully cooperate, at Tenant's sole cost and expense, with such Governmental
Authorities in connection with any approval or permit applications of Landlord
or Tenant, or otherwise, which shall include, without limitation, provision of
such information, books and records as may be requested by such authorities and
compliance with all orders and requirements of such Governmental Authorities.
28.2. DENIAL. If at any time (a) Landlord, or any affiliate of
Landlord or either of them, is denied a license or is denied or otherwise unable
to obtain any other approval or permit required by any Governmental Authority
with respect to the operation by Tenant or any affiliate of Tenant or either of
them of its business at the Leased Premises (collectively "APPROVALS"), is
required by any Governmental Authority to apply for an Approval and does not
apply within any required time limit, or withdraws any application for Approval
other than upon a determination by the applicable Governmental Authority that
such Approval is not required, and such denial or failure or withdrawal prevents
Tenant or any affiliate of Tenant or either of them from operating its business;
or (b) any Governmental Authority commences or threatens to commence any suit or
proceeding against Tenant or any affiliate of Tenant or either of them to
terminate or deny any Approval of Tenant or any affiliate of Tenant or either of
them as a result of Landlord or any person associated with Landlord (all of the
foregoing events described in (a) and (b) above are collectively referred to as
a "DENIAL"), if such action may be cured by the replacement of one or more
individuals as shareholders, officers, employees or directors of Landlord or by
a sale of the Leased Premises or disassociation from the applicable person, then
Landlord shall have up to one hundred twenty (120) days from such Denial (but
not more than the period, if any, as may be allowed by the Governmental
Authorities to effect such cure, to replace the disapproved individual with
someone, or sell the Leased Premises to someone, acceptable to the Governmental
Authorities and reasonably acceptable to Tenant. If a cure of the type
described in the preceding sentence is not feasible or permitted, or if the same
is feasible and permitted but not effected within the time limit set forth in
the previous sentence, Tenant shall have the right, in addition to all its other
rights and remedies, to elect to (a) terminate this Lease, or (b) purchase the
Leased Premises as provided in Paragraph 28.3.
28.3. PURCHASE RIGHT. Landlord hereby grants to tenant an option (the
"PURCHASE RIGHT") to purchase the Leased Premises as provided in this Paragraph
28.3.
28.3.1. Tenant may exercise the Purchase Right at any time following
a Denial and the cure period specified in Paragraph 28.2 by delivering written
notice to Landlord specifying a commercially reasonable place at which the close
(the "CLOSING") of escrow
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("ESCROW") shall occur. The Closing shall be ten (10) days after the
determination of the Purchase Price pursuant to Section 28.3.2 below.
28.3.2. The total purchase price for the Leased Premises (the
"PURCHASE PRICE") shall be equal to the sum of (i) present value of all payments
of Base Rent due for the remainder of the Lease Term, computed using an interest
rate equal to the "Prime Rate" of interest, as defined below, for the business
day preceding Tenant's notice pursuant to Section 28.3.1, and (ii) the fair
market value of Landlord's residuary interest in the Leased Premises and the
Improvements. If the parties are unable to agree upon the fair market value of
such residuary interest within ten (10) days after Tenant's exercise of its
Purchase Right pursuant to the preceding Section 28.3.1, such value shall be
determined by arbitration in accordance with the provisions of Article 29;
provided that if Tenant disapproves the value so determined by arbitration,
Tenant shall have the right, to be exercised by written notice to Landlord
within fifteen (15) days after such determination is made, to terminate this
Lease (in which event Tenant shall pay all costs incurred by Landlord under this
Section 28.3). The Purchase Price shall be paid by Tenant at the close of
Escrow in cash.
28.3.3. Upon exercise of the Purchase Right, Landlord shall convey
title to the Leased Premises to Tenant at the close of Escrow by grant, bargain
and sale deed subject only to matters shown in Tenant's leasehold title policy
delivered pursuant to Article 5 of this Lease and matters caused or consented to
in writing by Tenant. At close of Escrow, Landlord shall provide Tenant with a
CLTA owner's policy of title insurance, in the face amount of the Purchase
Price, and otherwise in a form and from an insurer or insurers reasonably
satisfactory to Tenant, with such endorsements and reinsurance as Tenant may
reasonably request, insuring Tenant's title to the Leased Premises, at Tenant's
expense.
28.3.4. Closing costs other than title insurance shall be allocated
in accordance with the then prevailing practice in Las Vegas, Nevada. Rent
shall be prorated as of the date of the close of Escrow. At the close of
Escrow, Landlord shall provide Tenant with a suitable affidavit satisfying the
requirements of the Internal Revenue Code relating to withholding of a portion
of the Purchase Price in the event of a purchase from a foreign person.
28.3.5. Landlord and Tenant shall promptly upon request prepare,
execute and deliver such further documents, and shall promptly obtain
beneficiary statements and similar certificates and perform such other acts as
shall from time to time be reasonably required in effecting the close of Escrow
and the better perfecting, assuring, conveying, assigning, transferring and
confirming unto Tenant the Leased Property and the rights to be conveyed or
assigned.
29. ARBITRATION. If any controversy or claim between the parties hereto
arises out of this Lease, other than a claim by Landlord arising from any
failure by Tenant to pay rent as and when such rent becomes due, and if the
parties are unable to agree by direct negotiations, the parties shall promptly
mediate any such disagreement or dispute under the Commercial Mediation Rules of
the American Arbitration Association. If the parties are unable to resolve
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such disagreement or dispute through mediation within ten (10) days after the
first written notice of an election to mediate, or if the disagreement
concerns the buyout price under Section 28.3, then such disagreement or
dispute (excluding an action by Landlord in unlawful detainer, as provided
above) shall be submitted to binding arbitration under the Commercial
Arbitration Rules of the American Arbitration Association. Notwithstanding
the foregoing, if the resolution of any controversy or claim requires the
participation of a third party who is not required and who declines to
participate in an arbitration proceeding, the parties shall not be required
to proceed with an arbitration of such controversy or claim.
The arbitrators shall be appointed under the Commercial Arbitration Rules
of the American Arbitration Association. As soon as the panel has been convened,
a hearing date shall be set within twenty-one (21) days thereafter. Written
submittals shall be presented and exchanged by both parties ten (10) days before
the hearing date, including reports prepared by experts upon whom either party
intends to rely. At such time the parties will also exchange copies of all
documentary evidence upon which they will rely at the arbitration hearing and a
list of the witnesses whom they intend to call to testify at the hearing. Each
party shall also make its respective experts available for deposition by the
other party prior to the hearing date. The hearings shall be concluded no later
than five (5) days after the initial hearing date. The arbitrators shall make
their award within ten (10) business days after the conclusion of the hearing.
In the event of a three-member panel, the decision in which two (2) of the
members of the arbitration panel concur shall be the award of the arbitrators.
Except as otherwise specified herein, there shall be no discovery or
dispositive motion practice (such as motions for summary judgment or to dismiss
or the like) except as may be permitted by the arbitrators, who shall authorize
only such discovery as is shown to be absolutely necessary to insure a fair
hearing and no such discovery or motions permitted by the arbitrators shall in
any way conflict with the time limits contained herein. Nothing herein shall be
deemed to permit discovery in such arbitration proceeding except as provided
above. The arbitrators shall not be bound by the rules of evidence or civil
procedure, but rather may consider such writings and oral presentations as
reasonable businessmen would use in the conduct of their day-to-day affairs, and
may require the parties to submit some or all of their presentation as the
arbitrators may deem appropriate. It is the intention of the parties to limit
live testimony and cross-examination to the extent absolutely necessary to
insure a fair hearing to the parties on the significant matters submitted to
arbitration. The parties have included the foregoing provisions limiting the
scope and extent of the arbitration with the intention of providing for prompt,
economic and fair resolution of any dispute submitted to arbitration.
The arbitrators shall have the discretion to award the costs of
arbitration, arbitrators' fees and the respective attorneys' fees of each party
between the parties as they see fit.
Judgment upon the award entered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
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Notwithstanding the parties' agreement to mediate or arbitrate their
disputes as provided herein, any party may seek emergency relief in a court of
law without waiving the right to arbitrate.
The arbitrators shall make their award in accordance with applicable law
and this Lease and based on the evidence presented by the parties, and at the
request of either party at the start of the arbitration, shall include in their
award findings of fact and conclusions of law supporting the award.
30. ADJUSTMENT UPON DEMOLITION. If Tenant, in connection with a Material
Modification, desires to demolish the Improvements, provided Landlord's written
consent to the Material Modification has been obtained, Tenant may commence to
demolish the Improvements only after satisfying the principal balance then due
and owing under that certain note secured by a deed of trust in favor of
American Life and Casualty described as item 14 on Exhibit "B" to this Lease, or
any replacement note not to exceed $1,800,000.00 (the "NOTE"). Thereafter, upon
satisfaction of the Note and the full release and reconveyance of any deed of
trust securing the Note, commencing on the first day of the first month
following the recordation of a full reconveyance, the Base Rent shall be reduced
by the sum of $20,000.00 per month for so long as shall be required to reimburse
Tenant an amount equal to the principal balance of the Note paid by Tenant,
together with interest thereon at the rate of ten percent (10%) per annum.
31. LANDLORD'S SECURITY INTEREST.
31.1. GRANT OF SECURITY INTEREST IN PROJECT PARCELS. Prior to
commencing construction of any Material Modification which will integrate any
improvements on the land with improvements on any other parcel of land
("TENANT'S PROJECT") (the date of such commencement is referred to herein as the
"START DATE"), and as additional security for the payment and performance of
Tenant's obligations under this Lease, Tenant shall convey, grant and assign (or
cause to be conveyed, granted and assigned) to Landlord a lien on, security
interest in and assignment of (collectively, "LANDLORD'S LIEN") all of the
right, title and interest which is now owned or hereafter acquired by Tenant or
either of them or any affiliate of either of them in each other parcel of land
(together with all improvements thereon and appurtenances thereto, collectively,
the "PROJECT PARCELS") upon which Tenant's Project, or any part thereof, is to
be located. Without limiting the foregoing, Landlord's Lien shall automatically
extend to and cover any after acquired right, title, or interest in any Project
Parcel (including, without limitation, a fee interest therein). Tenant shall,
at Landlord's request, execute and deliver (or cause to be executed and
delivered) (in recordable form, if appropriate) any instrument reasonably
necessary or appropriate to subject to Landlord's Lien any such after acquired
property, when, and if, Tenant or any affiliate acquires such property. In
addition, if, upon the Start Date, neither Tenant nor any affiliate has yet
acquired any right, title or interest in a Project Parcel, Tenant shall convey,
grant and assign (or cause to be conveyed, granted and assigned) the Landlord's
Lien in such Project Parcel immediately after Tenant or any affiliate has
acquired any right, title or interest therein.
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31.2. GRANT OF SECURITY INTERESTS IN FURNITURE, FIXTURES AND EQUIPMENT.
Prior to the Start Date, Tenant shall, and as additional security for the
payment and performance of Tenant's obligations under this Lease, grant (or
cause to be granted) to Landlord a security interest (the "LANDLORD'S SECURITY
INTEREST") in all items of personal property, whether tangible or intangible,
and whether now owned or hereafter acquired, owned, used or held in connection
with the ownership, operation or maintenance of Tenant's Project, including,
without limitation, all furniture, fixtures and equipment (collectively, the
"FF&E"), whether such items are to be located or used upon the Leased Premises
or upon one more the Project Parcels. Nothing contained herein shall prevent
Tenant from disposing of items of FF&E in the ordinary course of Tenant's
business so long as the FF&E maintained by Tenant is at all times sufficient for
the operation of Tenant's Project.
31.3. PERFECTION AND PRIORITY.
31.3.1. FORMS OF CONVEYANCE. The Landlord's Lien in a Project
Parcel shall be evidenced by a recorded deed of trust, fixture filing, security
agreement and assignment of leases and rents in a commercially reasonable form,
reasonably acceptable to Landlord and Tenant. The Landlord's Security Interest
shall be evidenced by a written security agreement and shall be perfected by the
filing and recordation of appropriate financing statements, all in commercially
reasonable forms, reasonably acceptable to Landlord and Tenant.
31.3.2. PRIORITY. Subject to the following provisions of this
Section 31.3.2, each of Landlord's Lien and Landlord's Security Interest shall
be prior to all other liens and encumbrances on the interests of Tenant or
either of them or any affiliate of either of them, and, concurrently with the
grant of each Landlord's Lien in a Project Parcel (and concurrently with the
acquisition of any after acquired title therein), Tenant shall provide Landlord
with an ALTA lender's policy of title insurance (or an endorsement thereto, in
the case of any after acquired title), in the amount of the current market value
of the subject Project Parcel, as reasonably demonstrated by Tenant's delivery
of an escrow closing statement for its purchase of such parcel or other evidence
of value which is reasonably acceptable to Landlord, insuring the priority of
Landlord's Lien in such collateral. Landlord's Lien and Landlord's Security
Interest shall be subordinated to other financing ("PRIOR DEBT") which satisfies
the following conditions:
31.3.2.1. The amount of the Prior Debt encumbering the Project
Parcels and the FF&E shall not exceed seventy-five percent (75%) of the Fair
Market Value, determined in the manner described in Section 31.4 below, of the
aggregate of the Project Parcels (including improvements) and FF&E in which
Landlord has a security interest.
31.3.2.2. The amount of the Prior Debt encumbering the Project
Parcels shall not exceed seventy percent (70%) of the Fair Market Value,
determined in the manner described in Section 31.4 below, of the aggregate of
the Project Parcels (including improvements) in which Landlord has a security
interest.
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31.3.2.3. The Prior Debt shall specifically provide that Landlord
shall receive notice of any default thereunder and shall have the right to cure
any such default to the extent that Tenant is afforded any such cure rights.
31.3.2.4. Tenant shall provide Landlord with a title insurance
policy, or an appropriate endorsement to Tenant's existing title insurance
policy with respect to the subject collateral, insuring Tenant's subordinated
security interest in an amount equal to the Fair Market Value of that
collateral.
31.3.2.5. Landlord shall have the right to review the loan
documents for the Prior Debt to verify that the conditions to the subordination
of Landlord's security interest, as set forth herein, have been satisfied.
31.4. FAIR MARKET VALUE. Tenant shall provide Landlord with an
appraisal of the "Fair Market Value" of the Project Parcels and of the FF&E
prior to any subordination of Landlord's security interest hereunder. Tenant's
appraisal shall be prepared by a licensed MAI or other qualified appraiser.
Unless Landlord disapproves such appraisal within ten (10) days of its receipt
of the same, the value shown therein shall be deemed to be the Fair Market Value
of the subject collateral; provided that: if Landlord, acting reasonably and in
good faith, disapproves such appraisal, then Landlord shall appoint its own
qualified MAI appraiser within ten (10) days after receipt of Tenant's
appraisal, and Landlord's appraiser shall give its opinion as to the Fair Market
Value of the subject collateral within thirty (30) days after being so
appointed. If the values determined by Landlord's appraiser and Tenant's
appraiser do not differ by more than five percent (5%) of the lower appraisal,
then the "Fair Market Value," as used herein, shall mean the arithmetic average
of such two (2) appraisals. If the two appraisals differ by more than five
percent (5%) of the lower appraisal, then the two appointed appraisers shall
agree upon a third qualified appraiser within ten (10) days after the expiration
of such thirty (30) day period who shall be given copies of the two (2)
preceding appraisals and who shall determine the Fair Market Value within
fifteen (15) days after such third appraiser is engaged, provided that such
final Fair Market Value shall not be greater than the higher of the two previous
appraisals nor less than the lower of the two previous appraisals. Landlord and
Tenant shall each bear the cost of their own appraiser and shall share equally
the cost of the third appraiser. For purposes of determining the ratios under
Section 31.3 in the case of Prior Debt which is construction or FF&E financing,
the Fair Market Value shall be determined on a "completed project" basis.
31.5. FURTHER ASSURANCES. Landlord shall execute, acknowledge and
deliver to Tenant or to Tenant's lender and/or title insurer, as designated by
Tenant, such evidence of the subordination of Landlord's Lien and Landlord's
Security Interest required hereunder as Tenant may reasonably request.
32. TENANT'S OPTION AND RIGHT OF FIRST REFUSAL TO PURCHASE THE LEASED
PREMISES.
32.1. OPTION TO PURCHASE. Provided that the Lease has not expired, or
been terminated and remains in full force and effect, and provided further that
Tenant is not in default in
-36-
<PAGE>
payment of Rent, Tenant shall have the option to purchase the Leased Premises
on the earlier of (i) one hundred twenty (120) months from the first day of
the first calendar month following the Effective Date (the "First Option
Date"), or (ii) the date of the death of the survivor of Norbert W. Jansen or
Avis Jansen (the "ALTERNATE OPTION DATE"), for a purchase price determined as
set forth below (the "OPTION PURCHASE PRICE"). Such option shall be
exercised, if at all, by written notice to Landlord not later than three (3)
months prior to the First Option Date or not later than three (3) months
following the Alternate Option Date. The closing date (hereinafter, the
"PURCHASE OPTION CLOSING DATE") shall be within six months of the Option
Date. The Option Purchase Price shall be paid in cash or by cash equivalent
upon the Purchase Option Closing Date. If Tenant fails to exercise its
option in a timely manner as provided herein, the provisions of this Article
32 shall have no further force or effect.
To determine the Option Purchase Price, Landlord and Tenant shall each
select a licensed MAI or other qualified appraiser to determine the Fair Market
Value of the Leased Premises. The appraisers selected by Landlord and Tenant
shall jointly select a third licensed MAI or other qualified appraiser. Each
appraiser so selected shall prepare, within thirty (30) days, a written
appraisal report setting forth its opinion of the Fair Market Value of the
Leased Premises. The opinions of Fair Market Value shall be ranked according to
value, from highest to lowest, and the middle opinion of Fair Market Value shall
be the Option Purchase Price. Landlord and Tenant shall each bear the cost of
their own appraiser and shall share equally the cost of the third appraiser.
Upon exercise of Tenant's option to purchase the Leased Premises
hereunder, Landlord shall convey title to the Leased Premises to Tenant at
the close of escrow by grant, bargain and sale deed subject only to matters
shown in Tenant's leasehold title policy delivered pursuant to Article 5 of
this Lease and matters caused or consented to in writing by Tenant. At close
of escrow, Landlord shall provide Tenant with a CLTA owner's policy of title
insurance, in the face amount of the Option Purchase Price, and otherwise in
a form and from an insurer or insurers reasonably satisfactory to Tenant,
with such endorsements and reinsurance as Tenant may reasonably request,
insuring Tenant's title to the Leased Premises, at Tenant's expense.
Closing costs other than title insurance shall be allocated in accordance
with the then prevailing practice in Las Vegas, Nevada. Rent shall be prorated
as of the date of the close of escrow. At the close of escrow, Landlord shall
provide Tenant with a suitable affidavit satisfying the requirements of the
Internal Revenue Code relating to withholding of a portion of the Option
Purchase Price in the event of a purchase from a foreign person.
Landlord and Tenant shall promptly upon request prepare, execute and
deliver such further documents, and shall promptly obtain beneficiary statements
and similar certificates and perform such other acts as shall from time to time
be reasonably required in effecting the close of escrow and the better
perfecting, assuring, conveying, assigning, transferring and confirming unto
Tenant the Leased Property and the rights to be conveyed or assigned.
If Tenant elects to purchase the Leased Premises, Landlord may elect to
participate in a tax-free exchange under Section 1031 of the Internal Revenue
Code. Tenant agrees to cooperate with such an exchange by Landlord, so long as
such cooperation is without cost to Tenant and does not materially affect
Tenant's purchase.
-37-
<PAGE>
32.2. TENANT'S RIGHT OF FIRST REFUSAL. During such time as the Lease
is in full force and effect and has not expired or been terminated, and provided
Tenant is not then in default in the payment of Rent, Tenant shall have a right
of first refusal to purchase the Leased Premises in the event that Landlord
shall desire to sell and shall have a bona fide offer to purchase the Lease
Premises, whether directly, or indirectly (such as by sale of stock in a
corporate Landlord or by transfer of a beneficial interest in a trust), which
Landlord wishes to accept. In the event of any such offer, Landlord shall
notify Tenant and provide Tenant with a copy of the offer (the "Notification
Date"). Tenant shall have thirty (30) days from the Notification Date within
which to exercise its right of first refusal. In the event Tenant exercises its
right of first refusal, Tenant shall purchase the Leased Premises on the same
terms and conditions and at the same price specified in such offer, provided
that the closing date shall be the later of the time for closing set forth in
the offer, or sixty (60) days from the Notification Date. If Tenant does not
exercise its right of first refusal with respect to a transaction and that
transaction is not finalized on the terms presented to Tenant within one (1)
year after the expiration of Tenant's right of first refusal, the right of first
refusal shall be reinstated as to that proposed purchase. If Tenant does not
exercise its right of first refusal with respect to a transaction and that
transaction is finalized within such one (1) year period, the transferee shall
take free of Tenant's right of first refusal. Tenant's failure to exercise its
right of first refusal hereunder shall not affect Tenant's right to exercise any
OPTION TO EXTEND THE LEASE TERM, ANY SUBSEQUENT RIGHT OF FIRST REFUSAL, OR
TENANT'S PURCHASE OPTION.
33. BINDING OBLIGATION. Tenant hereby represents and warrants to Landlord
that this Lease and the consummation of the transactions contemplated hereby is
valid and binding upon Tenant (and the individuals executing this Lease on
behalf of Tenant represent and warrant that they are authorized to so act) and
does not constitute a default (or an event which with notice or passage of time
or both will constitute default) under any contract to which Tenant is a party
or by which Tenant is bound. Prior to the Effective Date, Tenant shall provide
Landlord with a certified resolution of the board of directors of Tenant
authorizing the transactions contemplated hereby and the execution and delivery
of this Lease by the persons executing the same on behalf of Tenant.
IN WITNESS WHEREOF, the parties hereto have executed this Lease to be
effective as of the Effective Date.
-38-
<PAGE>
LANDLORD:
NORBERT W. JANSEN and AVIS
JANSEN, Trustees of the
NORBERT W. JANSEN and AVIS
JANSEN FAMILY TRUST, u/a/d
July 14, 1993
By:
---------------------------------
Norbert W. Jansen, Trustee
Date:
-------------------------------
By:
---------------------------------
Avis Jansen, Trustee
Date:
-------------------------------
TENANT:
BOARDWALK CASINO, INC.,
a Nevada corporation
By:
---------------------------------
Its:
--------------------------------
Date:
-------------------------------
-39-
<PAGE>
EXHIBIT "A"
THE LAND
PARCEL I:
A portion of the Northeast Quarter (NE1/4) of the Southeast Quarter (SE1/4) of
Section 20, Township 21 South, Range 61 East, M.D.B. & M., more particularly
described as follows:
BEGINNING at the East Quarter (E1/4) corner of Section 20, Township 21 South,
Range 61 East, M.D.B. & M.; thence North 88 DEG. 44' 24" West, 110.02 feet to a
point on the west right of way line of U.S. Highway No. 91 South; thence South
0 DEG. 02' 15" West along said right of way line 215.00 feet to the TRUE POINT
OF BEGINNING; thence continuing South 0 DEG. 02' 15" West, 150.00 feet to a
point; thence North 89 DEG. 57' 47" West, 167.00 feet to a point; thence North
00 DEG. 02'00" West a distance of 2.92 feet to a point; thence continuing North
0 DEG. 02' 15" East, 150.00 feet to a point; thence South 89 DEG. 57' 47" East,
167.00 feet to the TRUE POINT OF BEGINNING.
Together with an easement for ingress and egress purposes over the South 28.00
feet of the North 30.00 feet of the East 239.03 feet of that portion of Section
20, Township 21 South, Range 61 East, M.D.B. & M., in the County of Clark, State
of Nevada, as follows:
COMMENCING at the East Quarter (E1/4) corner of said Section 20; thence along
the East line of said Section, North 0 DEG. 50' 24" West, 30.01 feet to the
Southeast corner of the land described in the Deed to Howard J. Werner, recorded
March 4, 1959 as Document No. 153963 of Official Records of said County; thence
along the South line of said land, North 88 DEG. 57' 30" West, 109.76 feet to a
point in the West line of U.S. Highway 91; thence along said West line South
0 DEG. 02' 15" West, 215.00 feet to the true point of beginning; thence
continuing along the said West line, South 0 DEG. 02' 15" West, 180.00 feet;
thence North 88 DEG. 57' 47" West, 600.00 feet; thence North 0 DEG. 02' 15"
East, 180.00 feet; thence South 88 DEG. 57' 47" East, 600.00 feet to the true
point of beginning.
PARCEL II:
The South 150.00 feet of the West 72.00 feet of the East 239.03 feet, said
distances being measured along or parallel with the North and East lines of that
portion of Section 20, Township 21 South, Range 61 East, M.D.B. & M., in the
County of Clark, State of Nevada, described as follows:
COMMENCING at the East Quarter (E1/4) corner of said Section 20; thence along
the East line of said Section, North 0 DEG. 50' 24" West, 30.01 feet to the
Southeast corner of the land described in the Deed to Howard J. Werner recorded
March 4, 1959, as Document No. 153963 of Official Records of said County; thence
along the South line of said land, North 88 DEG. 57' 30" West, 109.76 feet to a
point in the West line of U.S. Highway No. 91; thence along said West line,
South 0 DEG. 02' 15" West, 215.00 feet to the true point of beginning; thence
continuing along the said West line, South 0 DEG. 02' 15" West, 180.00 feet;
thence North 88 DEG. 57' 47" West, 600.00 feet; thence
A-1
<PAGE>
North 0 DEG. 02' 15" West, 180.00 feet; thence South 88 DEG. 57' 47" East,
600.00 feet to the true point of beginning.
Together with an easement for ingress and egress purposes over the South 28.00
feet of the North 30.00 feet of the East 239.03 feet of that portion of Section
20, Township 21 South, Range 61 East, M.D.B. & M., in the County of Clark, State
of Nevada, as follows:
COMMENCING at the East Quarter (E1/4) corner of said Section 20; thence along
the East line of said Section, North 0 DEG. 50' 24" West, 30.01 feet to the
Southeast corner of the land described in the Deed to Howard J. Werner, recorded
March 4, 1959 as Document No. 153963 of Official Records of said County; thence
along the South line of said land, North 88 DEG. 57' 30" West, 109.76 feet to a
point in the West line of U.S. Highway 91; thence along said West line South
0 DEG. 02' 15" West, 215.00 feet to the true point of beginning; thence
continuing along the said West line, South 0 DEG. 02' 15" West, 180.00 feet;
thence North 88 DEG. 57' 47" West, 600.00 feet; thence North 0 DEG. 02' 15"
East, 180.00 feet; thence South 88 DEG. 57' 47" East, 600.00 feet to the true
point of beginning.
A-2
<PAGE>
EXHIBIT "B"
SCHEDULE OF LEASES
1. Lease Agreement dated May 17, 1988 by and between Norbert W. Jansen and
Avis P. Jansen as Landlord and Gary M. Lee dba Gary M. Lee Enterprises as
Tenant.
a. Assignment and Assumption Agreement dated July 25, 1988 by and between
Gary M. Lee dba Gary M. Lee Enterprises as Assignor and IGT, Inc., a Nevada
corporation, as Assignee.
b. Sublease Agreement dated March 15, 1990 by and between IGT, Inc., a
Nevada corporation, as Lessor and Schiff Enterprises, a Nevada Limited
Partnership, as Lessee.
2. Certain other month to month tenancies, terminable upon ninety (90) days
notice, as follows:
a. Preferred Equities Corp.
b. Smokeys
c. Boardwalk Offices
B-1
<PAGE>
EXHIBIT "C"
PERMITTED EXCEPTIONS
1. Taxes for the fiscal year 1996-1997, the first installment will become
delinquent August 19, 1996.
2. The lien of supplement taxes, that may be due, but not assessed, for new
construction by the Clark County Assessor per N.R.S. 361.260.
3. The hereinabove described real property is located within the boundaries of
the Clark County Sanitation District and is subject to any fees that may be
charged against property in said District.
4. Special Assessment in Clark County Improvement District 97A amount of
$122,044.49, 2nd installment paid, 3rd installment due February 1, 1997.
5. Special Assessment in Clark County Improvement District 97B, amount of
$3,854.10 as disclosed by Book 941010 as Document No. 01177, recorded
October 10, 1994 (method of payment unknown at this time).
6. Reservations as contained in the Patent from the United States of America
Recorded : August 10, 1933
Document No. : 49724 Book No. : 20 of Deeds
Pages : 536 and 537
Official Records, Clark County, Nevada.
"Subject to any vested and accrued water rights for mining, agricultural,
manufacturing, or other purposes, and rights for ditches and reservoirs
used in connection with such water rights as may be recognized and
acknowledged by the local customs, laws and decisions of courts; and there
is reserved from the lands hereby granted, a right of way thereon for
ditches or canals constructed by the authority of the United States."
7. Any easements for water well and water lines over an undisclosed area as
disclosed by Deed recorded December 30, 1960 as Document No. 222926,
Official Records.
8. A Right of Way and Easement over, under, upon and across a portion of said
land
Granted to : Southern Nevada Power Co.
For : power and communication purposes
Recorded : April 17, 1961
Document No. : 237071 Book No. : 293
Official Records, Clark County, Nevada.
Affects: The South 10 feet of said land.
9. A Right of Way and Easement over, under, upon and across a portion of said
land
Granted to : Southern Nevada Power Co.
C-1
<PAGE>
For : power and communication purposes
Recorded : April 18, 1961
Document No. : 237215 Book No. : 293
Official Records, Clark County, Nevada' as follows:
COMMENCING at the East Quarter corner of said Section 20; thence North 88
DEG. 44' 24" West, 110.02 feet to the West line of U.S. Highway No. 91;
thence South 0 DEG. 02' 15" West along said West line, 215.00 feet to the
POINT OF BEGINNING; thence continue South 0 DEG. 02' 15" West, 150.00 feet;
thence North 89 DEG. 57' 47" West, 167.00 feet; thence North 0 DEG. 02' 15"
East, 150.00 feet; thence South 89 DEG. 57' 47" East, 167.00 feet to the
POINT OF BEGINNING.
10. A Right of Way and Easement over, under, upon and across a portion of said
land
Granted to : Southern Nevada Power Co.
For : power and communication purposes
Recorded : May 2, 1961
Document No. : 239170 Book No. : 295
Official Records, Clark County, Nevada.
Affects the South 6 feet of said land.
11. Terms and conditions contained in Indemnification Agreement by and between
Norbert W. Jansen and Avis P. Jansen, Husband and Wife, and Nevada Power
Company, a Nevada Corporation
Recorded : February 1, 1988
Document No. : 00651 Book No. : 880201
Official Records, Clark County, Nevada.
12. Terms and conditions contained in Access To Equipment Agreement by and
between Nevada Power Company, a Nevada Corporation and Norbert W. Jansen
Recorded : June 8, 1988
Document No. : 00611 Book No. : 880608
Official Records, Clark County, Nevada.
13. A Perpetual Aviation Easement granted to Clark County
Recorded : September 1, 1988
Document No. : 00572 Book No. : 880901
Official Records, Clark County, Nevada.
14. Deed of Trust to secure an indebtedness of the amount stated herein
Dated : May 24, 1991
Trustor : Norbert W. Jansen and Avis P. Jansen
Trustee : National Title Co., a Nevada corporation
Beneficiary : American Life and Casualty, an Iowa corporation
Amount : $2,000,000.00
Recorded : May 24, 1991
Document No. : 01505 Book No. : 910524
C-2
<PAGE>
Official Records, Clark County, Nevada.
15. The existing leases and/or month to month tenancies set forth and described
in the Schedule of Leases, attached hereto as Exhibit "B" to the Lease.
C-3
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the previously filed
registration statements of Boardwalk Casino, Inc. on Forms S-8 (File No.'s
333-05019 and 333-05021) of our report dated November 27, 1996, except for notes
6 and 7 as to which the date is January 6, 1997, on our audits of the
financial statements of Boardwalk Casino, Inc. as of and for the years ended
September 30, 1996 and 1995, included in the Company's Annual Report on Form
10-KSB for the fiscal year ended September 30, 1996.
COOPERS & LYBRAND L.L.P.
Las Vegas, Nevada
January 6, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,772,549
<SECURITIES> 0
<RECEIVABLES> 456,962
<ALLOWANCES> 17,105
<INVENTORY> 73,719
<CURRENT-ASSETS> 5,860,089
<PP&E> 61,191,970
<DEPRECIATION> 5,705,685
<TOTAL-ASSETS> 63,170,949
<CURRENT-LIABILITIES> 7,116,077
<BONDS> 44,309,757
0
0
<COMMON> 7,179
<OTHER-SE> 11,737,936
<TOTAL-LIABILITY-AND-EQUITY> 63,170,949
<SALES> 4,031,279
<TOTAL-REVENUES> 28,991,024
<CGS> 2,268,404
<TOTAL-COSTS> 27,368,612
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,431,622<F1>
<INCOME-PRETAX> (4,413,794)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,413,794)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,413,794)
<EPS-PRIMARY> (.70)
<EPS-DILUTED> (.70)
<FN>
<F1>Note 1 on tag 32 Net of interest capitalized of $1,442,493
</FN>
</TABLE>
