GROUND LEASE

 

(2)                                   Landlord agrees with Tenant that if the Adjacent Tract becomes available for purchase, Landlord will exercise its best efforts to promptly consummate the purchase of the Adjacent Tract (and to promptly and fully advise Tenant in writing as to the status of such efforts as well as the time and date of the closing of such purchase).

 

(3)                                   Landlord and Tenant further agree that upon the consummation of the purchase of the Adjacent Tract, such Adjacent Tract shall become part of the Leased Premises (and this Lease shall be amended by written agreement executed by Tenant and Landlord to reflect the addition of the Adjacent Tract to the Leased Premises).

 

(4)                                   Upon the addition of the Adjacent Tract to the Leased Premises, the Annual Rent defined and described in Section 4, below shall be increased by an amount determined as follows:

 

(i)                                      In the event the Adjacent Tract Option is exercised during the Initial Term, the Annual Rent shall be increased by the amount paid actually by Landlord to NDOT as the purchase price for the Adjacent Tract (as evidenced by the Purchaser’s Settlement Statement or such other similar instrument utilized by the title company at the closing of same) multiplied by an annualized “capitalization rate” of eight percent (8%)(By way of illustration only:  assuming a purchase price of $2,000,000.00 and the annualized capitalization rate of 8%, the annual rent amount resulting from the formula set out in this subpart (bb) would be $160,000.00 [$2,000,000.00 x .08=$160,000.00]).

 

(ii)                                 In the event the Adjacent Tract Option is exercised during either the First Extension Term or the Second Extension Term, the Annual Rent shall be increased pursuant to the same alternatives identified in subsection 1.E.(4)(i) , above.

 

(iii)                              Notwithstanding the above, any amounts due for Annual Rent in relation to the Adjacent Tract shall be prorated in accordance with Section 4.D. , below.

 

(iv)   After the expiration of the Initial Term (or the expiration of the First Extension Term, in the event the Adjacent Tract Option is exercised in such extension term), the Annual Rent shall be determined in accordance with Sections 4.B . and 4.C. , as applicable.

 

2.                                       CONTROL OF LEASED PREMISES .

 

Tenant, during the Term of this Lease, shall have exclusive control of the Leased Premises, and Landlord shall take no action pertaining to the Leased Premises (including the construction of new, or the alteration of existing, structures on the Leased Premises) without the prior written consent of Tenant subject to the provisions hereof which require or allow Landlord to take action with respect to the Leased Premises.

 

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3.                                       TERM .

 

A.                                    Initial Term .  The initial Term of this Lease shall commence on                                   , and shall continue for ten (10) calendar years, having a termination date of                            (the “Initial Term”).

 

B.                                      First Extension Term .  Tenant shall have the exclusive, non-revocable right and option, at Tenant’s sole election, to extend the Initial Term of this Lease (the “First Extension Right”) for an additional term of ten (10) years (the “First Extension Term”).  Tenant may exercise the First Extension Right by giving notice to Landlord of its intention so to do at least six (6) months prior to the expiration of the Initial Term.  The First Extension Term shall be upon all of the terms and conditions set out in this Lease.

 

C.                                      Second Extension Term .  Tenant shall have the exclusive, non-revocable right and option, at Tenant’s sole election, to extend the First Extension Term of this Lease (the “Second Extension Right”) for an additional term of ten (10) years (the “Second Extension Term”).  Tenant may exercise the Second Extension Right by giving notice to Landlord of its intention so to do at least six (6) months prior to the expiration of the First Extension Term.  The Second Extension Term shall be upon all of the terms and conditions set out in this Lease.

 

D.                                     Term Defined .  For purposes of this Lease, any reference to “Term” shall mean the Initial Term, the First Extension Term or the Second Extension Term, as the context requires as determined by Tenant, in Tenant’s discretion.

 

4.                                       RENT .  The annual rent to be paid to Landlord by Tenant under the Lease (the “Annual Rent”) shall be as follows:

 

A.                                 Initial Term .  During the Initial Term, Tenant agrees to pay to Landlord as an Annual Rent for the use and occupancy of the Leased Premises, as follows:

 

(1)                                   Years 1-5 :                                             $250,000.00 per year

 

(2)                                   Years 6-10 :                                       $300,000.00 per year

 

B.                                      First Extension Term .  The Annual Rent to be paid to Landlord during the First Extension Term shall be calculated as follows:

 

(1)                                   Years 1-5 :   The Annual Rent for Years 1-5 of the First Extension Term shall be the First Extension Term MAI Valuation Rate.

 

(2)                                   Years 6-10 :  The Annual Rent for Years 6-10 shall be calculated by taking the amount of Annual Rent paid for Year 5 of the First Extension Term multiplied by the CPI Escalation Factor existing on the first day of the sixth year of the First Extension Term.

 

(3)                                   First Extension Term MAI Valuation Rate Defined .  For purposes of this Lease, the term “First Extension Term MAI Valuation Rate” shall mean the ground lease rental rate agreed to by Landlord and Tenant, but if they cannot

 

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agree, then the fair market value ground lease rate for the Leased Premises (based on the fair market value of the Leased Premises and rental rates for ground leases in Carson City, Nevada) as determined by an Appraisal Team, selected as set forth in Section 31.F . The valuation appraisal described in this Section 4.B.(3)  shall be in writing and shall be conducted and prepared in accordance with MAI standards and methodologies and be based on a valuation date which is not more than 60 days prior to the commencement of the First Extension Term.   Such valuation appraisal shall exclude the value of all Improvements (as well as any additions to the Improvements as may have been constructed on the Leased Premises after the commencement date of this Lease and shall further exclude the value of any existing lease on the Leased Premises, including this Lease, or extension rights to this Lease, such that it is appraised as unencumbered real property).

 

C.                                    Second Extension Term .  The Annual Rent to be paid to Landlord during the Second Extension Term shall be calculated as follows:

 

(1)                                   Years 1-5 : The Annual Rent for Years 1-5 of the Second Extension Term shall be the Second Extension Term MAI Valuation Rate.

 

(2)                                   Years 6-10 : The Annual Rent for Years 6-10 shall be calculated by taking the amount of Annual Rent paid for Year 5 of the Second Extension Term multiplied by the CPI Escalation Factor existing on the first day of the sixth year of the Second Extension Term.

 

(3)                                   Second Extension Term MAI Valuation Rate Defined .  For purposes of this Lease, the term “Second Extension Term MAI Valuation Rate” shall mean the ground lease rental rate agreed to by Landlord and Tenant, but if they cannot agree, then the fair market value ground lease rate of the Leased Premises (based on the fair market value of the Leased Premises and rental rates for ground leases in Carson City, Nevada) as determined by an Appraisal Team, selected as set forth in Section 31.F. The valuation appraisal described in this Section 4.C.(3)  shall be in writing and shall be conducted and prepared in accordance with MAI standards and methodologies and be based on a valuation date which is not more than 60 days prior to the commencement of the Second Extension Term.   Such valuation appraisal shall exclude the value of all Improvements (as well as any additions to the Improvements as may have been constructed on the Leased Premises after the commencement date of this Lease and shall further exclude the value of any existing lease on the Leased Premises, including this Lease, or extension rights to this Lease, such that it is appraised as unencumbered real property).

 

D.                                     Monthly Payment .  The Annual Rent described above is to be paid in equal monthly installments in advance on the first day of each and every calendar month of the Term.  The Annual Rent for any other portion of the Term which is less than twelve (12) months shall be the proration of the Annual Rent above which the number of months in such portion of the Term bears to twelve (12).

 

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E.                                       Late Payment .  If, during the Term or any extension thereof, any annual calendar time period, Tenant fails to pay the Annual Rent on or before the tenth (10 ^th ) of the month, then such payments shall bear interest from the first of the month of the lesser of the prime lending rate of U.S. Bank, plus one percent (1%) or the highest rate allowed by the law of the State of Nevada.

 

F.                                       Payments Location .  Payments of Annual Rental shall be made to Landlord at the address specified in Section 14 hereof, or at such other place as Landlord may from time to time in writing direct (not less than thirty (30) days in advance of the date of the address change effective date).

 

G.                                      No Security Deposit . Lessee shall not be obligated to pay a security deposit in connection with this Lease.

 

H.                                     No Set Off .  Annual Rent, and all other sums payable hereunder to or on behalf of Landlord shall be paid (except as permitted herein otherwise or by applicable law) without notice or demand and without set-off, counterclaim, abatement, suspension, deduction or defense.

 

I.                                          CPI Escalation Factor .  For purposes of this Lease, the term “CPI Escalation Factor” shall mean that percentage increase in the Consumer Price Index (“CPI”) established for the West Region of the United States of America for the relevant immediately preceding twelve (12) month time period as provided by the United States Bureau of Labor Statistics.

 

5.                                       TRIPLE NET LEASE .  Landlord and Tenant agree that this Lease is a triple net lease as to the Leased Premises and except as specifically referred herein, Landlord is not obligated to expend any funds in connection with the operation of the Leased Premises.

 

6.                                       FIXTURES; EQUIPMENT .

 

A.                                    Tenant Equipment .  Tenant at its own expense shall provide, install and maintain all trade fixtures, furniture and equipment (collectively such furniture, fixtures and equipment, the “Equipment) reasonably required in Tenant’s sole discretion to enable it to conduct its business on the Leased Premises.  Such Equipment shall remain the property of Tenant and Tenant may remove same at any time prior to the expiration or earlier termination of the Term (and Tenant shall remove same within thirty (30) days of the expiration or earlier termination of this Lease).

 

B.                                      Repair of Leased Premises .  Tenant shall repair at its own expense any damage to the Leased Premises caused by the removal of such Equipment.

 

C.                                      Disclaimer .  Landlord hereby expressly disclaims and waives any rights (whether by Landlord’s lien laws or laws concerning fixtures or otherwise) to the Equipment.

 

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7.                                       USE OF PREMISES .

 

Tenant may use the Leased Premises for any lawful purpose, and in particular (but not limited to), the purpose of operating a hotel, motel, casino, restaurant, bowling center and R.V. park.  Tenant shall conduct its business insofar as the same relates to Tenant’s use and occupancy of the Leased Premises in a lawful manner and in compliance with all governmental laws, rules, regulations and orders applicable to the business of Tenant.  Landlord agrees to promptly execute and deliver to Tenant, upon Tenant’s request, any and all forms and documents, and to assist and cooperate with Tenant at Tenant’s expense, to comply with the provisions of this Section 7 .

 

8.                                       PAYMENT OF TAXES .

 

A.                                    Leased Premises .  Tenant agrees that it shall pay before delinquency any real property taxes and special assessments for public improvements levied or assessed against the Leased Premises and payable during the Term.  Such taxes which are to be paid by Tenant shall be prorated with respect to any taxes levied for a fiscal tax year extending beyond the end of the Term such that Tenant shall pay only such portion of taxes as the portion of the fiscal tax year preceding the end of the Term bears to the entire fiscal tax year.

 

B.                                      Exclusions .  Nothing contained in this Lease shall require Tenant to pay any franchise, corporate, estate, inheritance, succession, stamp, transfer, use, income or excess profits tax of Landlord.

 

C.                                      Special Assessments .  In the event any additional tax or any special assessment is levied or assessed against the Leased Premises, which such additional tax or special assessment becomes due and payable in whole or in part during the Term, Tenant shall pay in a timely manner such part of the tax or assessment that becomes due and payable during the Term.

 

D.                                     Tenant’s Property .  Tenant shall also pay before delinquency any and all taxes and assessments levied or assessed, and becoming payable during the Term, against Tenant’s property located upon the Leased Premises.

 

E.                                       Contest .  Notwithstanding any provision in this Section 8 to the contrary, Tenant may contest any tax or assessment referenced in this Section 8 , provided that such contest is at no expense to Landlord and any late charges or penalties imposed (on such tax amounts due to Tenant’s failure to timely pay same) are paid by Tenant.  Landlord agrees to promptly execute and deliver to Tenant, upon Tenant’s request, any and all forms and documents, and to assist and cooperate with Tenant, at Tenant’s expense, to comply with the provisions in Tenant’s reasonable discretion of this Subsection 8.E .  During such contests, Tenant shall take all steps appropriate, including payment under protest, to prevent foreclosure and public sale or other divesting of Landlord’s title by reason of nonpayment of taxes.  In any event, Tenant shall pay all taxes prior to the issuance of any execution therefore by the applicable jurisdiction unless adequate provisions have been made for the bonding of same.  In the event that a written notice of tax sale is given by the applicable taxing authority, Landlord, upon five (5) days advance written notice to Tenant, shall have the right to pay all past due taxes and any penalties.  Tenant shall pay to Landlord all costs incurred in good faith of any such performance by Landlord within thirty (30) days of Tenant’s receipt of a written invoice supported by reasonable evidence

 

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as to such amounts.  Tenant’s failure to timely pay such amounts to Landlord shall constitute a default.

 

F.                                       Delivery of Tax Receipt .  During the Term of this Lease, Tenant shall provide Landlord with a copy of its paid tax receipt within forty-five (45) days of the date of Tenant’s receipt of a written request from Landlord of same.

 

9.                                       INSURANCE AND INDEMNIFICATION .

 

A.                                    Indemnity .  Tenant, with respect to its use and occupancy of the Leased Premises, agrees to defend, assume legal liability for, indemnify, and hold free and harmless Landlord, its agents, servants, employees, officers, and directors, from any and all loss, damages, liability, cost, or expenses (including, but not limited to, attorneys’ fees, reasonable investigative and discovery costs and court costs) and all other sums which Landlord, its agents, servants, employees, officers, and directors may reasonably pay or become obligated to pay on account of any, all, and every demand, claim, assertion of liability, or action directly caused by the act or omission of Tenant (but not as to claims and liability arising out of the negligent or willful conduct of Landlord or its agents), its agents, servants or employees, whether such claim, demand, assertion of liability or action be for damages or injury to person or property, including the property of Landlord, or death of any person, made by any person, group, or organization, whether employed by either of the parties hereto or otherwise.

 

B.                                      General Liability Insurance . Tenant agrees that it shall, at its own cost and expense, at all times during the term of this Lease, maintain in force a policy or policies of insurance written by one or more responsible insurance carriers, legally qualified to issue such insurance in the State of Nevada which shall insure against liability for injury to and/or death of and/or damage to property of any person or persons, with a combined single policy limit of not less than TWO MILLION DOLLARS ($2,000,000.00).  Such policy or policies shall provide, among other things, that it or they specifically recognize and insure the liability assumed by Tenant pursuant to Section 9.A. hereof.

 

C.                                      Workers Compensation Insurance .  Tenant agrees to maintain and keep in force, during the Term, all employees’ compensation insurance required under applicable worker’s compensation acts, currently referred to in the State of Nevada as State Industrial Insurance.

 

D.                                     Evidence .  Within ten (10) days of Landlord’s written request, Tenant shall deliver the certificates of insurance evidencing the existence in force of the policies of insurance referenced in Section 9.B. , above.  Each of such certificates shall provide that such insurance shall not be canceled or materially amended unless the insurer shall give thirty (30) days prior written notice of such cancellation or amendment to the party designated on such certificate as the holder thereof, which shall include notice to Landlord.

 

E.                                       Self-Insurance Option .  Notwithstanding anything to the contrary contained in this Lease, Tenant shall have the right to self insure as to State Industrial Insurance under Chapter 616, on meeting the requirements set forth herein.

 

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10.                                CONDEMNATION .

 

A.                                    Leased Premises .  Subject to the rights of Tenant hereinafter set forth in this Section 10 , Tenant hereby irrevocably assigns to Landlord any award or payment to which Tenant may be or become entitled by reason of any taking of the Leased Premises or any part thereof, in or by condemnation or eminent domain proceedings pursuant to any law, general or special.  Landlord shall be entitled to participate in any such proceedings at Landlord’s expense.

 

B.                                      Tenant Property .  Notwithstanding anything herein to the contrary, Tenant shall have the right to pursue a claim with and retain any award from the condemning authority or entity for damage to or loss of Tenant’s leasehold estate in the Leased Premises as well as for any other separate damages that Tenant may suffer in relation to the Improvements or the Equipment.

 

C.                                      Governmental Action .  In the event of the temporary requisition of the use or occupancy of the Leased Premises or any part thereof, by any governmental authority, civil or military, Tenant shall retain any award or payment therefore, whether the same shall be paid or payable in respect of Tenant’s leasehold interest, the Improvements, the Equipment or otherwise; provided, however, that Tenant shall continue to pay Annual Rent, and any other sums payable by Tenant hereunder during the period of such temporary requisition.

 

D.                                     Right of Termination .  Notwithstanding the provisions of Section 10.B. , if all of the Leased Premises (or so much thereof as to render the Leased Premises unsuitable for Tenant’s business use, to be determined by Tenant in its sole discretion) be taken or appropriated by some public authority or private corporation having the power of eminent domain, or if the Leased Premises be conveyed by the Landlord or its successors-in-interest for the purpose of avoiding proceedings in appropriation, this Lease shall terminate as of the date of such appropriation or conveyance with the same force and effect as if such date had been originally set forth herein as the expiration date of the Term.  Upon such event, Landlord shall rebate to Tenant the amount of Annual Rent paid under this Lease relating to the time period after such date of termination.

 

E.                                       Partial Taking .  If only a portion of the Leased Premises be taken or appropriated by eminent domain proceedings and if the Leased Premises are still suitable for Tenant’s business use, to be determined by Tenant in its sole discretion, after such taking, this Lease shall terminate as to that portion of the Leased Premises so taken but shall remain in full force and effect as to the remainder of the Leased Premises.  Upon such event, the future rentals to be paid by the Tenant shall be equitably abated in the ratio that the value of the Leased Premises taken bears to the value of the whole of the Leased Premises.

 

F.                                       Restriction Obligation .  To the extent possible, any amounts awarded shall be used by Landlord to fully restore the Leased Premises to its former condition, with excess funds belonging to the Landlord.

 

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G.                                      Consent Required .  For the purpose of this Lease, all amounts payable pursuant to any agreement with a condemning authority which agreement has been made in settlement of or under threat of any condemnation, or other eminent domain proceeding affecting the Leased Premises shall be deemed to constitute an award made in such proceeding; provided, however, that no such agreement shall be made with any condemning authority by either Landlord or Tenant without the written consent of the other.

 

11.                                UTILITIES, ETC .

 

Tenant shall pay during the Term all electrical, water, gas, telephone and other public or private utility charges in connection with its occupancy and use of the Leased Premises, including all business licenses and similar permit fees.

 

12.                                COVENANTS AGAINST LIENS .

 

A.                                    Discharge; Reimbursement .  Except for any indebtedness imposed on Tenant’s leasehold interest in the Leased Premises by Tenant’s lenders pursuant to Section 35 , below (the “Tenant Lender Liens”), Tenant covenants and agrees that it shall not, during the Term, suffer or permit any lien to be attached to or upon the Leased Premises or any part thereof by reason of any act or omission on the part of Tenant, and hereby agrees to save and hold harmless Landlord from or against any such lien or claim of lien.  In the event that any such lien (other than the Tenant Lender Liens) does so attach, and is not released within ninety (90) days after notice to Tenant thereof, or if Tenant has not indemnified Landlord against any such lien within such ninety (90) day period, Landlord, in its sole discretion, may pay and discharge the same and relieve the Leased Premises therefrom. Tenant agrees to repay and reimburse Landlord for the amount so paid by Landlord within thirty (30) days of Tenant’s receipt of a notice for such charges supported by detailed evidence of such expenditures.

 

B.                                      Good Faith Contest .  Notwithstanding the above, Tenant may in good faith contest any mechanics, laborers’, materialmen’s or other liens filed or established against the Leased Premises, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom.  Upon such circumstances, Landlord shall not have the rights set out in Section 12.A. , above, unless by nonpayment of any such items the interest of Landlord will be materially and imminently endangered or the Leased Premises or any part thereof will be subject to imminent material loss or forfeiture, in which event Tenant shall promptly pay and cause to be satisfied and discharged all such unpaid items or secure such payment by posting a bond, in form reasonably satisfactory to Landlord, with the Landlord.  Landlord will cooperate fully with the Tenant in any such contest provided that Tenant shall fully and promptly reimburse Landlord for all reasonable costs incurred by Landlord in that regard.  Tenant shall hold Landlord whole and harmless from any loss, cost or expenses Landlord may reasonably incur related to any such contest.

 

C.                                      Landlord Representation .  Landlord hereby represents and warrants to Tenant that the Leased Premises are free from all liens, encumbrances, claims, impediments to title, encroachments, development restrictions (other than zoning and gaming laws), restrictive covenants, special taxing districts or the like.  Landlord hereby further represents and warrants to Tenant that the Leased Premises are free from any other matter which may impair or restrict Tenant’s business operations or the expansion of, or the construction of additions to, the

 

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Improvements and that the Leased Premises are situated within a zoning and gaming district which is compatible with the use desi