Exhibit 10.12
LEASE
THIS LEASE
(the “Lease”) is made
and entered into as of
March , 1999,
by and between CRIPPLE CREEK DEVELOPMENT CORP . d/b/a the
GOLD RUSH HOTEL & CASINO , a Colorado corporation with
offices at 195 Pine Cone Road, Spearfish, South Dakota, BLUE
BUILDING DEVELOPMENT, INC. d/b/a GOLD DIGGER’S
CASINO , a
corporation with offices at 195 Pine Cone Road, Spearfish, South
Dakota, MARK BROCKLEY , an individual residing in Spearfish,
South Dakota, and ANNESSE BROCKLEY , an individual residing
in Spearfish, South Dakota (collectively, the
“Lessor”), and GOLD RUSH I, LLC , a Colorado
limited liability company with offices at 2001 Killebrew Drive,
Suite 306, Minneapolis, Minnesota (the “Lessee”), and
SOUTHWEST CASINO AND HOTEL CORP., a Minnesota corporation
with offices at 2001 Killebrew Drive, Suite 306, Minneapolis,
Minnesota (the “Guarantor”). Lessor and Lessee
are sometimes referred to in this Lease as a Party or the
Parties.
W I T N E S S E T
H:
1.
ASSETS . In consideration of
the payment of rent and the keeping and performance of the
covenants and agreements by Lessee as hereinafter set forth, Lessor
hereby leases and demises to Lessee the assets, which consist of
the Gold Rush Hotel & Casino (the “Gold Rush”),
Gold Digger’s Casino (“Gold Digger’s), and any
and all. improved and unimproved realty and the improvements
thereon, personal property, liquor licenses, and other assets of
every kind and description, tangible and intangible, which are in
any way related to or affiliated with the operation of the Gold
Rush and Gold Digger’s, including without limitation, (j) the
Gold Rush, (ii) Gold Digger’s, (iii) all parking lots, (iv)
the Rock Shop, (v) the building in which the marketing office is
currently housed, (vi) the convenience store/former gasoline
station, vii) the arcade, (ix) all gaming-related assets, including
gaming equipment (except slot machines, which shall not be leased
to Lessee by Lessor), furniture and fixtures, surveillance
equipment, and all restaurant and bar furniture and fixtures and
furnishings, (x) all hotel-related assets, including furniture and
fixtures, (xi) all inventory, (xii) all cash in gaming machines,
cash registers or elsewhere in, or required to be in, the Gold
Rush, Gold Digger’s or any other improved property governed
by this Lease, (xiii) all cash in banks or financial institutions
held for the account or benefit of Lessor, (xiv) all books and
records of Lessor, (xv) all intangible assets, including customer
lists and profiles, customer tracking lists and data and any
compilations thereof, mailing lists, computer programs, trade
names, trademarks, service marks, copyrights, and patents, and
(xvi) all amounts owed Mark Brockley and/or Annesse Brockley in
connection with resolution of litigation between them and their
former business associates arising out of or relating to operation
of the Assets, which amounts Mark Brockley and Annesse Brockley
represent they will use their best efforts to collect (the
“Assets”).
Notwithstanding the foregoing, the
Assets shall not include (i) an automobile currently reflected on
Lessor’s books, provided that Lessor is not and shall
not be obligated to pay any debt or release any encumbrance in
connection with the automobile, (ii) the real property known as 127
Carr Avenue, Cripple Creek. Colorado, or (iii) slot machines
located in or on the various premises included among the
Assets.
The automobile shall be removed from
Lessor’ s books as an asset of Lessor and shall be owned by
and paid for by the Brockleys individually.
Legal descriptions of all of the
real property contained in the Assets are reflected on Exhibit I
attached hereto and incorporated by reference herein.
All slot machines used in connection
with operation of the Gold Rush and Gold Digger’s will remain
on those premises, and Lessor shall give Lessee a bill of sale for
each and all of them in form and substance satisfactory to Lessee
reflecting Lessor’s transfer of interest in them to Lessee as
of the Commencement Date. The transfer shall be at no cost to
Lessee, provided that , in the event Lessee shall during the
Lease Term replace any such slot machine, the salvage value of such
machine, less any debt or other encumbrance placed on it by Lessor
and due as of the Commencement Date, shall be paid to Lessor within
thirty (30) days of such replacement.
An inventory of the Assets,
including, for this purpose, the slot machines, is reflected on the
inventory attached hereto as Exhibit 2 and incorporated by
reference herein. Notwithstanding the foregoing, the Parties
understand and agree that they shall revise Exhibit 2 if
appropriate as of the Commencement Date of the Lease as herein
defined.
The cash identified in Sections
1(xii) and 1(xiii) above is referred to collectively in this Lease
as “the Cash”.
2.
TERM .
A.
Lease
Term/Conditions Precedent . The term of the
Lease shall commence when each and all of the following conditions
have been satisfied — (i) execution of the Lease by both
Parties, together with all exhibits and appendices herein
described, (ii) approval of the Lease by the Colorado Division of
Gaming (the “Division”) and the Colorado Limited Gaming
Control Commission (the “Commission”), (iii)
Lessee’s obtaining such gaming license(s)as the Division and
Commission shall require, (iv) Lessee’s obtaining such liquor
licenses as state and local liquor licensing agencies shall
require, and (v) Lessor’s providing Lessee with an opinion of
Lessor’s counsel, or such other assurance in form and
substance satisfactory to Lessee, that Lessor owns and has the
legal right to lease the Assets ( the “Conditions
Precedent”). The date on which the Conditions Precedent
are fully satisfied shall be the commencement date of the Lease
(the “Commencement Date”), and the Lease shall be for a
term at twenty (20) years and several months thereafter, ending on
the earlier of June 30, 2019 or the date in the year 2019 on
which the gaming license(s) applicable to the Gold Rush and Gold
Digger’s expire, unless earlier terminated as provided in
Section 17 and otherwise herein (the “Lease
Term”).
The Parties hope to satisfy the
first of the Conditions Precedent (i.e., execution of this Lease
and of the related exhibits and appendices) by March 18, 1999.
The Parties anticipate that barring unforeseen complications, and
assuming the full. cooperation of the Parties, the remaining
Conditions Precedent can be satisfied, if at all, by April 8,
1999, assuming State and local liquor licensing authorities have
approved the conversion and transfer of Lessor’s liquor
licenses by that date, and that Lessee may occupy the Assets as of
that date. Notwithstanding the foregoing, the Parties
understand and agree that the Lease Term shall be comprised of two
distinct periods – (i) a formal due diligence period which
shall continue until June 30, 1999
during which period Lessee shall operate the
Assets and conduct such due diligence as Lessee deems necessary and
appropriate (the “Due Diligence Period”) and (ii) a
twenty (20) year period thereafter.
B.
Due Diligence
Period . During the Due
Diligence Period described in Section 2.A above, Lessee shall
operate and manage the Assets and continue its due diligence
examination of Lessor and the Assets. Lessee may, at any time
during the Due Diligence Period, terminate the Lease, for any
reason or for no reason, immediately upon written notice to Lessor,
provided that if Lessee does so terminate this Lease during
the Due Diligence Period, Lessee shall remain in and continue to
manage the Assets are herein contemplated for a period of sixty
(60) days, during which sixty (60) day period Lessee shall pay rent
as provided in Section 3 hereof. In the event Lessee
terminates the Lease during the Due Diligence Period, Lessee shall
pay no penalty, liquidated damages, or termination or other fee,
compensation or penalty.
During the period between execution
of this Lease and satisfaction of each and all of the Conditions
Precedent, and thereafter during the formal Due Diligence Period
defined in Section 2.A. above, Lessee shall have full and
complete access at any time to public and private records relating
to the Assets, and Lessor shall use its best efforts to make all
such information and records available to Lessee. Upon
execution of this Lease, Lessor shall simultaneously deliver to
Lessee for Lessee’s use in conducting its due diligence
examination copies of (i) the title insurance policy(ies) described
in Section 9 hereof, (ii) all leases involving the Assets,
(iii) all parking agreements relating to the Assets, (iv) all
joint venture, strategic alliance and partnership agreements
relating to the Assets (including, by way of example, Megabucks and
similar agreements), (v) all joint marketing agreements relating to
the Assets, (vi) all sharing agreements relating to the Assets, and
(vii) all soil tests, design or engineering studies, drawings,
plans, and other documents and materials relating to Lessor’s
acquisition and development of the Assets in Lessor’s
possession or subject to its control.
The materials identified in this
Section 2.B.(i)-(vii) shall also be reflected on schedules
prepared by Lessor and delivered by Lessor to Lessee by no later
than April 1, 1999. The schedules shall indicate the terms of
the scheduled documents and shall be attached to this Lease as
Exhibits 3 - 9 and incorporated by reference herein.
C.
Holding
Over . Nothing contained in
this Lease shall be deemed to permit Lessee to use or occupy the
Assets after the expiration of the Lease Term If Lessee continues
to occupy the Assets after such expiration, such occupancy shall
(unless the Parties hereto otherwise agree in writing) be deemed to
create a month to month tenancy at a monthly rental, equal to one
hundred ten percent (110%) of the annual rent prorated on a monthly
basis for the month prior to the commencement of the holdover
period. Such holdover occupancy shall be subject to all of
the terms and conditions of this Lease
D.
Definition of
Lease Year . The term “Lease
Year” shall mean a period of twelve (12) full consecutive
calendar months. The first Lease year shall correspondence as
of the Commencement Date.
3.
RENT .
A.
During the Due
Diligence Period . Lessee shall pay no
Base Rent or Additional Annual Rent (as those terms are defined
herein) before May 15, 1999. except as otherwise provided in this
Section 3.A., for purposes of this Lease, “Base
Rent” shall mean the sum of Forty Thousand Dollars ($40,000)
per month, payable in advance during each month of the Lease Term,
Less any offsets as provided for in this Lease.
On May 15, 1999, assuming the Lease
has not been terminated, Lessee shall pay Lessor Fifteen Thousand
Dollars ($15,000) as Base Rent for the period May 15 through May
31, 1999. Thereafter, commencing as of June 1, 1999, and for
so long as the Lease is in effect, Lessee shall pay Lessor Base
Rent of Forty Thousand Dollars (40,000) per month as provided
above, except for the month of July 1999, for which month
Lessee shall pay Base Rent of Fifty Thousand Dollars
($50,000).
During the Due Diligence period,
Lessee shall pay current liabilities incurred by Lessee during its
operation of the assets from operating cash flow and capital
contributions, if any, made by Lessee during the Due Diligence
Period. All revenues and cash flow generated on or for the
benefit of the Assets by Lessee during the Due Diligence Period
shall remain at and be used for the operation of the Assets,
including the payment of on-site wages and salaries and other
overhead expense. Lessee shall not receive a management fee,
however, nor shall any expenses or obligations of Lessee’s
parent or affiliated corporations unrelated to the Assets be
included in determining expenses associated with operating the
Assets during the Due Diligence Period.
B.
Following the
Due Diligence Period . During the balance of
the Lease Term following expiration of the Due Diligence Period,
Lessee shall pay Lessor (1) the Base Rent as above defined, and
(ii) Additional Annual Rent based on the combined annual net income
of the Gold Rush and Gold Digger’s in any fiscal year as
follows:
|
If Combined Net Income
Is
|
|
Additional Annual Rent
Due
|
|
|
|
|
|
|
|
$
|
1,000,000
|
|
$
|
72,000
|
|
|
|
|
|
|
|
$
|
800,000
|
|
$
|
57,600
|
|
|
|
|
|
|
|
$
|
600,000
|
|
$
|
43,200
|
|
|
|
|
|
|
|
$
|
400,000
|
|
$
|
28,800
|
|
For purposes of determining the
amount of Additional Annual Rent Due, if any, for any fiscal year,
expenses and obligations attributable to Lessee’s parent or
affiliated corporations which are unrelated to the Assets shall not
be included in calculating the combined net income of the Gold Rush
and Gold Digger’s.
The Additional Annual Rent payments
shall not be cumulative; only the highest combined net income
figure shall be used in the calculation. For example, if the
combined net income of the Gold Rush and Gold Digger’s in any
fiscal year is $1,000,000, the Additional Annual Rent due shall be
$72,000, not the sun of $28,800, $43,200, $57,600 and
$72,000.
C.
Late
Fee . In the event Lessee
shall fail to pay Base Rent for any month by the fifteenth day of
the month in which it is due, Lessee shall pay Lessor a late lee of
Five Thousand Dollars ($5,000).
D.
Net
Lease . Except as otherwise
provided herein, it is the intent of Lessor and Lessee that the
rent to be paid during the Lease Term shall be a net return to
Lessor, free of expense, charge, or reduction with respect to the
Assets. Except as otherwise provided herein, Lessee shall pay
all Operating Expenses of the Assets during the Lease Term.
For purposes of this Lease, “Operating Expenses” are
defined as:
(1)
All real property
taxes and assessments levied against the Assets by any governmental
authority, provided however , that the term “taxes or
assessments”, as used herein, shall not include any net
federal or state income taxes levied or assessed on Lessor, unless
such taxes are a specific substitute for real property taxes.
“Assessment” shall include so-called special
assessments imposed by any authority having the direct power to
tax, including any city, county, state or federal government.
For purposes of this Lease, any special assessments shall be deemed
payable in such number of installments as is permitted by
law.
(2)
Costs incurred in
connection with providing energy for the Assets, including costs of
propane, butane, natural gas, steam, electricity, solar energy and
fuel oils, coal or any other energy sources.
(3)
Costs of water
and sanitary and storm drainage services.
(4)
Costs of general
maintenance and repairs occasioned by normal wear and tear or the
Assets experienced during the Lease Term, provided, however, that
Lessee shall have no obligation to make improvements to the
Assets. If, however, Lessee does make improvements to the
Assets, Lessee shall provide general maintenance and repair to them
as well.
(5)
Costs of
obtaining insurance insuring Lessor in the amount of
($ )
for damage to property.
“Operating Expenses”
shall not include:
(a)
Costs associated
with making such repairs, corrections, investments or adjustments
as are required by any permits, certificates, laws, rules, and
building and other codes and regulations of governmental agencies
or authorities in effect as of the Commencement Date (collectively,
the “Codes”) of which Lessor had actual knowledge and
failed to disclose to Lessee in writing. In particular,
Lessor represents now and will, if accurate, represent as of the
Commencement Date, that Lessor has received no notice of violation
of the Americans With Disabilities Act in connection with operation
of the Assets.
(b)
Costs associated
with making such repairs, corrections, investments or adjustments
as are necessitated by structural or other defects of or in the
Assets of which Lessor had actual knowledge and failed to disclose
to Lessee in writing prior to the Commencement Date.
(c)
Costs of repairs
or other work occasioned by fire, windstorm or other insured
casualty to the extent or insurance proceeds received.
(d)
Costs of repairs
or rebuilding necessitated by condemnation.
(e)
Any interest on
borrowed money or debt amortization.
(f)
Depreciation of
the Assets.
E.
Place of
Payment . Rent and such other
amounts as Lessee is required to pay Lessor shall be payable at
Lessor’s notice address reflected in Section 20.E.
hereof.
4.
Assumed Payments
. Lessor and Lessee
understand that Lessor has a significant amount of accounts payable
and other indebtedness relating to the Assets, the precise amounts
of which may not have not been determined as of the Commencement
Date. On or before April 1, 1999, Lessor shall provide
Lessee with information and a schedule as described in
Section 2.8. hereof reflecting the precise nature and amounts
of all such accounts payable and indebtedness, including the
amounts, terms and conditions of payment (including balloon
payments, if any), and current status of the obligations, which
schedule shall be attached to this Lease as Exhibit 10 and be
incorporated by reference herein. Upon completion of Exhibit
10, Lessor shall incur no further obligations nor change any
existing obligations (except by payment) relating to the
Assets.
Subject to the provisions of this
Section 4, Lessee shall, during the Lease Term, pay, in
accordance with the specific terms and conditions contained on
Exhibit 10, such long terms liabilities and accounts payable owed
by Lessor (the “Assumed Payments”). Lessee shall
make the Assumed Payments directly to Lessor’s lenders and
creditors listed on Exhibit 10, and Lessor shall obtain such
consent from its lenders and creditors as are necessary to permit
Lessee to make such payments directly to them.
During the Due Diligence Period,
Lessor shall use its best efforts to ensure that the total Assumed
Payments shall not exceed One Hundred Thirty Thousand Dollars
($130,000) per month. Upon expiration of the Due Diligence
Period, and for the balance of the Lease term, Lessor shall use its
best efforts to ensure that the total Assumed Payments shall not
exceed One Hundred Twenty-Five Thousand Dollars ($125,000) per
month. Should the total Assumed Payments exceed One Hundred
Thirty Thousand Dollars ($130, 000) per month during the Due
Diligence Period, or One Hundred Twenty-Five Thousand Dollars per
month ($125,000) thereafter during the Lease Term, Lessee may, at
its option, (i) pay such additional amount and set such payments
off against rent or other payments due hereunder, (ii) terminate
the Lease, or (iii) pursue such additional remedies as are
available to Lessee pursuant to this Lease.
Should Lessee opt to terminate the
Lease, Lessee shall pay no penalty, liquidated damages, or
termination or other fee, penalty or damages to Lessor.
The Parties expressly understand and
agree that Lessee shall only be responsible for making the Assumed
Payments during the Lease Term, and only in the amounts and in
accordance with the terms and conditions indicated on Exhibit
10. Should the Lease be terminated or expire according to its
terms, Lessee shall not be responsible for and shall have
no
obligation to continue making the Assumed
Payments or pay any long terms liabilities, accounts payable or
other financial obligations of Lessor which have not been paid on
the date the Lease is terminated or expires.
5.
USE OF PREMISES
.
A.
Lessee may use
the assets for any lawful purpose, including, without limitation,
restaurant operations, hotel operations, retail sales operations,
entertainment, an arcade, parking, casino operations as
contemplated by the Gaming Act (the Gaming Act and all amendments
and gaming regulations now existing or hereafter adopted, and all
gaming related laws of the City of Cripple Creek and the county of
Teller, are sometimes collectively referred to in this Lease as the
“Gaming Laws”), and for any other ancillary or related
use as may be permitted by Law. Lessor shall have no control
over or power to influence decisions concerning operation of the
Assets.
B.
Lessor agrees to
cooperate as reasonably required by Lessee in obtaining and
maintaining such licenses for the Assets as Lessee shall require
and shall, in particular, execute any and all documents necessary
to obtain such licenses. Lessor shall not cause any such
licenses to be denied, revoked, not renewed, or suspended, whether
through actions of Lessor prior to the issuance of such licenses or
thereafter during the Lease Term.
C.
Lessor further
agrees that from and after the date the Parties execute this Lease,
Lessor shall not grant or convey any easement, lease, encumbrance,
license, permit, or any other legal or beneficial interest in or to
the Assets without the prior, written consent of Lessee, nor shall
Lessor violate, or allow the violation of, any law, ordinance, rule
or regulation affecting the Assets. Lessor shall do or cause
to be done all things reasonably within Lessor’s control to
preserve intact and unimpaired any and all rights of way,
easements, grants, appurtenances. privileges, and licenses in favor
at or constituting any portion of the Assets.
D.
Subject to the
provisions of Section 3.D. hereof, Lessee shall, at its own
expense, keep the Assets in good repair and tenantable condition
and shall indemnity Lessor against any loss, damage or expense
arising by reason of any failure of Lessee so to keep the Assets or
due to any act or neglect of Lessee, its agents, employees,
contractors, invitees, licensees, tenants or assignees.
Lessee shall make no structural modifications to the Gold Rush or
Gold Digger’s without Lessor’s consent, which consent
shall not be unreasonably withheld, provided that Lessee
shall not be required to obtain Lessor’s consent to
structural modifications mandated by the Codes in effect on the
Commencement Date or as they may be from time to time
adopted.
E.
Subject to the
provisions of Sections 2.B. and 3.D. hereof, Lessee’s taking
of possession of the Assets shall be conclusive evidence that
Lessee (i) accepts the Assets as suitable for the purposes for
which the same are leased, and (ii) accepts the Assets and all
related improvements and appurtenances and each and every part
thereof as being in satisfactory condition. Subject to the
provisions of Section 3.D. hereof, Lessor shall not be liable,
except in the event of gross negligence or willful misconduct, to
Lessee or any of Lessee’s agents, employees, licensees,
servants, or invitees for any injury or damage to person or
property due to the condition or design of any defect in the Assets
or related improvements or their mechanical
systems and equipment which
may exist or occur, and Lessee, with respect to itself and its
agents, employees, licensees, servants, and invitees shall
expressly assume all risks of injury or damage to person or
property, either proximate or remote, by reason of the condition of
the Assets.
F.
Except as
otherwise provided herein, Lessee shall, at its own expense, comply
with all statutes, regulations, rules, ordinances and orders of any
governmental body, department or agency thereof which apply to or
result from Lessee’s use or occupancy of the
Assets.
6.
ADDITIONAL IMPROVEMENTS,
MECHANIC’S LIENS .
A.
Additional
Improvements . Lessee may, from time
to time, at Lessee’s expense, construct or install other
improvements on the Assets, and make such changes, alterations and
additions to the Assets as Lessee shall deem necessary or desirable
(the “Additional Improvements”). Where
appropriate or required, Additional Improvements will be conducted
under the supervision of an architect or engineer licensed in the
State of Colorado and selected by Lessee in its sole
discretion.
In particular, following expiration
of the Due Diligence Period, and assuming the Lease has not been
terminated, Lessee shall use its reasonable efforts to finance and
construct an entertainment center on property comprising a portion
of the Assets, provided that Lessor and Lessee understand and agree
that Lessee shall have no obligation to finance and/or build an
entertainment center unless, among other things, the design and
function are acceptable to Lessee and Lessor and are necessary for
and compatible with successful operation of the Assets, as
determined in Lessee’s sole discretion, (ii) financing on
terms deemed reasonable by Lessee in Lessee’s sole discretion
is available, (iii) all necessary permits can be obtained, and (iv)
Lessor’s interest is subordinated and a first mortgage can be
placed on the entertainment center.
B.
Mechanic’s
Liens . In connection with
the construction of any Additional Improvements, Lessee shall cause
the payment of all proper and valid invoices and charges of all
contractors, subcontractors, suppliers, materialmen and similar
parties who furnish services or materials in connection with the
construction process. In the event any party records a
mechanic’s lien to enforce any claim for services or
materials alleged to have been provided in connection with the
Assets, Lessee shall so advise Lessor in writing and shall cause
the same to be released of record within sixty (60) days after the
recordation thereof, and Lessee shall be liable to satisfy and
cause a discharge of any such mechanic’s lien
claim.
Notwithstanding the foregoing,
Lessee shall have the right to contest any such mechanic’s
lien claim, provided that Lessee conducts such contest in a timely
manner and with due diligence, and that Lessee provides Lessor with
either cash, a surety bond or a letter of credit (as Lessee shall
decide in its sole discretion) in an amount equal to one hundred
twenty-five percent (125%) of the lien claim. In the event
Lessee loses any such contest, and all further rights of appeal
have expired, Lessee shall satisfy the mechanic’s lien claim
in full prior to any foreclosure sale or other disposition of the
Assets in order to satisfy the claim.
7.
CONTRIBUTION TO
CAPITAL . Upon expiration of
the Due Diligence Period, and assuming this Lease has not been
terminated, Lessee shall contribute Five Hundred Thousand Dollars
($500,000) to be allocated among vault cash, working capital,
retirement of accounts payable and such other purposes as Lessee
and Lessor shall agree and determine in writing, provided
that such contribution shall be reduced pro rata by an
contribution to capital made by Lessee during the Due Diligence
Period.
In addition, upon expiration of the
Due Diligence Period, and assuming this Lease has not been
terminated, Lessee may, in its sole discretion, borrow up to One
Million Dollars ($1,000,000) to be used as Lessee shall determine
in its sole discretion to improve and upgrade the Assets.
Consistent with the provisions of Section 13 hereof, Lessee is
authorized by this Lease to utilize gaming and other equipment now
among the Assets as collateral for any such borrowing.
Notwithstanding the foregoing, Lessee shall have no obligation to
make any such borrowing or improve or upgrade the assets,
however.
8.
PURCHASE OF LESSOR’S
CASE . Immediately prior to
the Commencement Date, Lessee shall physically count all cash
located in gaming machines, cash registers or elsewhere in, or
required to be in, the Gold Rush, Gold Digger’s or any other
improved property governed by this Lease, and shall be given a
current accounting of all cash in banks or financial institutions
for the account or benefit of Lessor and the Assets (collectively,
the “Cash”). If the Cash totals between Three Hundred
Thousand Dollars ($300,000) and Three Hundred Fifty Thousand
Dollars ($350,000), and if this Lease is entered into and is not
terminated, Lessee shall pay Lessor Three Hundred Fifty Thousand
Dollars ($350,000) for the Cash as follows:
(a)
Forty Thousand Dollars ($40,000) on
the Commencement Date (reflecting a $10,000 credit for the deposit
paid upon the Parties’ execution of the Term Sheet which
preceded this Lease);
(b)
One Hundred Thousand Dollars
($100,000) on May 30, 1999;
(c)
One Hundred Thousand Dollars
($100,000) on June 30, 1999; and
(d)
One Hundred Thousand Dollars
($100,000) on July 30, 1999.
It the Cash is less than Three
Hundred Dollars ($300,000), Lessee may, at its option and in its
sole discretion, either (i) decline to enter into, or terminate,
this Lease (without further obligation of any sort to Lessor), or
(ii) enter into this Lease and pay Lessor Three Hundred Fifty
Thousand Dollars ($350,000) for the Cash.
If the Cash exceeds Three Hundred
Fifty Thousand Dollars ($350,000), which excess amount is referred
to here as the “Excess Cash”, and assuming this Lease
is entered into and is not terminated, Lessee shall execute a
promissory note to secure payment of the Excess Cash, which
promissory note shall bear no interest and shall provide for
payment of the amount owed in monthly installments of Five Thousand
Dollars ($5,000) until paid in full or until the Lease is
terminated, whichever first occurs.
9.
TITLE TO ASSETS AND
IMPROVEMENTS . By April 1,
1999, Lessor shall, at its expense, obtain a title insurance policy
insuring Lessee’s leasehold interest in the
Assets,
which title insurance shall
evidence Lessor’s fee simple interest ownership in the Assets
subject only to (i) mortgage liens or security interests acceptable
to Lessee, (ii) general property taxes for the current year, and
(iii) such easements, rights of way, restrictions and other title
matters as Lessee shall deem, in its sole discretion, not to
adversely affect the value of, or Lessee’s intended use of,
the Assets (collectively, the “Permitted
Exceptions”). The title insurance policy shall be
attached to this Lease as Exhibit 4 and shall be incorporated
herein by reference. Lessor warrants that Landlord has fee
simple title to the Assets, free and clear of all encumbrances save
for the Permitted Exceptions.
Lessor shall he the owner of all
improvements paid for and constructed by Lessee upon the Assets, as
the same may be altered, expanded and/or improved in accordance
with this Lease, except that any gaming or other equipment
purchased by Lessee for use in operating the Assets shall be the
property of Lessee. Except as here provided, upon the
expiration or earlier termination of this Lease, all improvements
then existing upon the Assets shall revert to and become the
property of Lessor without compensation to Tenant.
Lessee shall surrender the Assets at
the end of the Lease Term or upon earlier termination of the Lease
in good condition and repair, reasonable wear and tear and fire and
other casualty excepted.
10.
QUIET
ENJOYMENT . So long as Lessee is not in
default under this Lease, Lessee shall peaceably and quietly use
and enjoy the Assets during the Lease term without hindrance or
interruption by Lessor or any other person or persons lawfully or
equitably claiming by, through or under Lessor.
Notwithstanding the foregoing, Lessor may conduct reasonable
inspections of the Assets and the casinos’ operational
financial records upon providing ten (10) days prior notice of such
inspections to Lessee.
11.
CASUALTY AND
RESTORATION OF THE PREMISES . If the Assets shall
be damaged by fire or other casualty, Lessee may, at its option,
(i) terminate the Lease, retain such insurance proceeds as relate
to improvements made by Lessee on the Assets prior to the casualty,
and permit use of whatever portion of the remaining proceeds is
necessary to restore the Assets to their condition as of the date
of the execution at this Agreement, or (ii) retain all insurance
proceeds received as a result of the casualty, use the same to
restore the Assets to their condition as of the Commencement Date
of this Lease, and continue to make rent payments during the Lease
Term. Lessee shall notify Lessor in writing within thirty
(30) days following the occurrence of any casualty concerning which
of these two Options Lessee has chosen, and rent shall abate during
the thirty (30) day period.
12.
CONDEMNATION
. If any
portion of the Assets shall be taken by right of eminent domain or
by condemnation or shall be conveyed in lieu of any such taking,
Lessee may terminate this Lease and retain such condemnation
proceeds as relate to improvements made by Lessee on the Assets
prior to the taking or condemnation.
13.
LESSEE’S RIGHT TO
ENCUMBER . Lessee may at any
time during the Lease Term encumber the leasehold estate by
mortgage or deed or trust. Such right of Lessee to encumber
the leasehold estate shall be a continuing right and shall not be
deemed to be exhausted by the exercise thereof on one or more
occasions. Any such encumbrance shall be
expressly subject to the
provisions of this Lease, shall not encumber Lessor’s fee
simple interest in the Assets, and shall be subordinate to any
loans to which Lessor has subordinated its fee simple
interest.
14.
ASSIGNMENT
. Lessee
shall be free to assign this Lease and any estate or interest
therein upon written notice to Lessor, provided that
notwithstanding any such assignment or transfer, Lessee shall at
all times remain liable for the payment of the rent and all other
payment obligations herein specified to be paid by Lessee and for
compliance with all Lessee’s other obligations under this
Lease.
Lessor may assign this Lease upon
written notice to Lessee, provided that such assignment is
permitted by the Colorado Limited Gaming Act (the
“Act”) and the regulations promulgated pursuant to the
Act (the “Regulations”), and further provided
that any such assignment shall be subject to Lessee’s
right of first refusal as provided in Section 20.L.
hereof.
15.
DEFAULT BY LESSEE
.
A.
Definition of
Event of Default . Each one of the
following events is herein referred to as an “Event of
Default”:
(1)
Any failure by
Lessee to pay the rent or any other monetary sums required to be
paid hereunder on the date such sums are due and the continuance of
such failure for a period of fifteen (15) days after written notice
of such failure from Landlord.
(2)
The filing of any
petition or the commencement of any case or proceeding by Lessee
under any provision or chapter of the Federal Bankruptcy Act, the
Federal Bankruptcy code, or any other federal or state law relating
to insolvency, bankruptcy, or reorganization or the adjudication
that Lessee is insolvent or bankrupt or the entry of an order for
relief under the Federal Bankruptcy Code with respect to
Lessee.
(3)
The filing of any
petition or the commencement of any case or proceeding described in
subparagraph (2) above against Lessee, unless such petition and all
proceedings initiated thereby are dismissed within sixty (60) days
from the date of such filing; the filing of an answer by Lessee
admitting the allegations of any such petition; the appointment of
or taking possession by a custodian, trustee or receiver for all or
any assets of Lessee, unless such appointment is vacated or
dismissed within sixty (60) days from the date of such
appointment.
(4)
Lessee shall fail
to perform any of the other agreements terms, covenants, or
conditions hereof on Lessee’s part to be performed and such
non-performance shall continue for a period of thirty (30) days
after written notice thereof by Lessor to Lessee or, if such
performance cannot be reasonably had within such thirty (30) day
period, Lessee shall not in good faith have commenced such
performance within such thirty (30) day period and shall not
diligently proceed therewith to completion.
B.
Remedies of
Lessor . If any one or more
Events of Default shall happen, then Lessor shall have the right at
Lessor’s election, then or at any time thereafter, either
to;
(1)
Make any payment
or take any action to cure any such default by Lessee in such
manner and to such extent as Lessor may in good faith deem
necessary or desirable.
(2)
Give Lessee
written notice in accordance with the Colorado forcible entry and
detainer laws, terminate this Lease as of the date of
Lessee’s default or as of any later date specified in the
notice, and demand and recover possession of the Assets from
Lessee.
(3)
Re-enter and take
possession of all or any part of the Assets and expel Lessee
therefrom. After recovering possession of the Assets, Lessor
shall use reasonable efforts to re-let the Assets.
C.
Remedies
Cumulative . Each of the remedies
described above, and all of the remedies available to Lessor at law
or in equity upon a default by Lessee, including the right to sue
for damages, shall be cumulative with and in addition to one
another, and may be exercised simultaneously or successively, as
Lessor may deem appropriate, without any exercise of one remedy
being deemed an election of remedies or a waiver to the exclusion
of any other remedy.
16.
DEFAULT BY
LESSOR .
A.
Definition of
Default . Lessor shall be in
default under this Lease if Lessor:
(1)
Permits or causes
the Assets to be or became encumbered by additional and/or greater
liens than those identified as Permitted Exceptions in
Section 9 and on Exhibit 10 hereof.
(2)
Fails to timely
and fully pay debt underlying the liens identified as Permitted
Exceptions.
(3)
Fails to disclose
any material financial obligation. For purposes of this
Section 16.A.3, an undisclosed financial obligation shall be
deemed material if it is equal to One Hundred Thousand Dollars
($100,000) or more in the aggregate. In addition, to other
remedies available to Lessee in the event of Lessor’s
default, Lessor shall indemnify and hold Lessee harmless from any
material financial obligation of Lessor not disclosed as required
by this Lease. In the event of Lessor’s failure to make
the required disclosure, Lessee may, at its sole option and in its
sole discretion, (i) terminate this Lease without further
obligation of any kind to Lessor or Lessor’s creditors, (ii)
pay directly the undisclosed obligation and set the amount of the
payment oft against rent or any other amounts owed Lessor by
Lessee, or (iii) enforce Lessor’s indemnification as herein
contemplated. In the event Lessee opts to pay such additional
amount and set such payments off against rent or other payments due
hereunder, such set off shall be at the maximum rate of ten percent
(10%) per month of the additional amount paid by Lessee until the
entire additional amount has been set off. By way of example
only, should Lessee pay an additional amount of Fifty Thousand
Dollars ($50,000) pursuant to this Section 4, that amount
shall be set off against rent and other payments owed Lessor at the
rate of Five Thousand Dollars ($5,000) per month for ten (10)
months.
(4)
Fails to cap the
Assumed Payments at the monthly levels described in Section 4
hereof, or fails to pay any amount in excess of the
cap.
(5)
Violate or fails
to perform in connection with any warranty or representation
contained in Section 19 hereof.
(6)
Fails to comply
with any term, condition or obligation of Lessor under the Lease,
and such failure to comply continues for a period of thirty (30)
days after Lessee gives Lessor written notice of such
failure.
B.
Remedies of
Lessee . In addition to such
remedies as are described in other Sections and provisions of this
Lease, upon the occurrence of any default by Lessor, after
expiration of any applicable cure periods, Lessee shall have the
right, at its election, then or at any time thereafter, to exercise
any one or more of the following remedies:
(1)
Make any payment
or take any action to cure any such default by Lessor in such
manner and to such extent as Lessee may in good faith deem
necessary or reasonable, and set off any such payment against rent
or other payments otherwise owed Lessor.
(2)
Terminate this
Lease as of the date of the default by Lessor, or as of any later
date specified in a written notice of termination to Lessor,
without payment of any penalty, liquidated damages, or termination
or other fee or penalty to Lessor.
(3)
Commence an
action to specifically enforce any of Lessor’s obligations
under the Lease.
C.
Remedies
Cumulative . Each of the remedies
described above, and all of the remedies available to Lessee at law
or in equity upon a default by Lessor, including the right to sue
for damages, shall be cumulative with and in addition to one
another, and may be exercised simultaneously or successively, as
Lessee may deem appropriate, without any exercise of one remedy
being deemed an election of remedies or a waiver to the exclusion
of any other remedy.
17.
TERMINATION BY LESSEE
. In
addition to the foregoing, Lessee shall have the right to terminate
this Lease on June 30, 2004, for any reason or for no reason,
upon thirty (30) days written notice to Lessor, and without payment
or penalty of any kind to Lessor.
18.
LESSOR’S ADDITIONAL
REPRESENTATIONS AND WARRANTIES . Lessor represents and
warrants that to the best of Lessor’s knowledge and belief as
of the Commencement Date of this Lease:
A.
Except for the
Order To Show Cause proceeding pending before the Commission (the
“Commission Proceeding”), there is no litigation
pending or threatened which in any manner affects the
Assets.
B.
There are no
violations of any federal, state, or local law, code, ordinance,
rule, regulation, or requirement affecting the Assets, except as
may be alleged in the pending Summary Suspension
Proceeding.
C.
The Assets have
full and free access to and from public highways, streets, and/or
roads adjacent to the Assets, and Lessor has no knowledge of any
fact or condition which would result in the termination of such
access.
D.
Lessor has not
received any notices, demands, or deficiency comments from any
mortgagee of the Assets or from any state, municipal, or county
government or any agency thereof with regard to the
Assets.
E.
Lessor has not
received any notice of, and has no other knowledge or information
of, any pending or contemplated change in any applicable law,
ordinance, or restriction; or of any pending or threatened judicial
or administrative action; or of any action pending or threatened by
adjacent landowners or of any natural or artificial condition upon
the Assets, or any part thereof, any of which would result in any
material change in the condition of the Assets, or any part
thereof, or in any way limit or impede the operation at
contemplated development of the Assets, or any part thereof, for
any purpose.
F.
Lessor has not
entered into any agreements with the City of Cripple Creek or the
County of Teller or the State of Colorado, or any other
governmental entity, with respect to the Assets that may result in
liability or expense to Lessee, and further that there are no
special improvement assessments relating to the Assets.
G.
Each and every
document, schedule, item, and other information to be delivered to
Lessee by Lessor hereunder shall be fully true, accurate, and
correct, and no such document, schedule, or information contains or
will contain any untrue statement of a material fact or omits or
will omit a material fact necessary to make the statement or facts
recited therein not misleading.
19.
GUARANTEE . Southwest Casino and
Hotel Corp. shall guarantee the financial obligations of Lessee
hereunder.
20.
MISCELLANEOUS
.
A.
No Implied
Waiver . No failure by either
Party to insist upon the strict performance of any term, covenant,
or agreement contained in this Lease, or to exercise any right or
remedy in connection therewith, and no acceptance of full or
partial payment during the continuance of any default by Lessor or
Lessee, shall constitute a waiver of any such term, covenant, or
agreement or any such right or remedy or any such default by Lessor
or Lessee.
B.
Survival of
Provisions . Notwithstanding any
termination of this Lease, the same shall continue in force and
effect as to any provisions hereof which specifically contemplate
and require observance or performance by Lessor or Lessee
subsequent to termination.
C.
Binding
Effect . This Lease shall
extend to and be binding upon the heirs, executors, legal
representatives, successors, and permitted assigns of the
respective Parties hereto. The terms, covenants, agreements,
and conditions in this Lease shall be construed as covenants
running with the Assets.
D.
Recording,
Subordination and Attornment . This Lease and/or any
Memorandum of this Lease may, at Lessee’s sole option, be
recorded in such manner and at such time as shall be selected by
Lessee in its sole discretion. Ins addition, upon execution
of this Lease, Lessee shall prepare, and Lessor shall use its best
efforts to obtain from Lessor’s mortgage lender(s),
attornment agreements in form and substance satisfactory to
Lessee. If Lessor fails to obtain such attornment agreements
by the expiration of the Due Diligence Period, Lessee may, at its
option, terminate this Lease without further obligation of any sort
or kind to Lessor or Lessor’s creditors.
E.
Notice
. All
notices required or permitted under this Lease shall be given by
registered or certified mail, return receipt requested, correctly
addressed and postage prepaid, or by hand or commercial carrier
delivery, or by telecopier as follows:
If to Lessor :
Cripple Creek Development
company
Attn: Mark Brockley,
President
195 Pine Cone Road
Spearfish, South Dakota
57783
Telecopier Number:
605/642-9366
Blue Building Development,
Inc.
Attn: Mark Brockley,
President
195 Pine Cone Road
Spearfish, South Dakota
57783
Telecopier Number:
605/642-9366
with copy to:
Timothy M. Tymkovich
Hale Hackstaff Tymkovich ErkenBrack
& Shih, L.L.C.
1675 Broadway, Suite 2000
Denver, Colorado
80202
Telecopier Number:
303/592-8710
If to Lessee :
James B. Druck
Gold Rush I, LLC
2001 Killebrew Drive, Suite
306
Minneapolis, Minnesota
55425
Telecopier Number:
612/853-9991
with copy to:
Christopher B. Whitney,
Esq.
Hulliken, Gleason, Weiner &
Whitney, P.C.
102 South Tejon street, Suite
700
Colorado Springs, Colorado
80903
Telecopier Number:
719/635-8706
If to Guarantor:
James B. Druck
President
Southwest Casino and Hotel
Corp.
2001 Killebrew Drive, Suite
306
Minneapolis, Minnesota
55425
Telecopier Number:
612/853-9991
Any notice delivered by mail in
accordance with this Section shall be deemed to have been duly
given on the third business day after the same is deposited in any
post office or postal box regularly maintained by the United States
Postal Service, properly addressed, postage prepaid. Any
notice delivered by telecopier shall be deemed to have been duly
given upon receipt if concurrently with sending by telecopier
receipt is confirmed mechanically or by the recipient.. Any
notice delivered by hand or commercial carrier shall be deemed to
have been given upon actual receipt. Either party, by notice
given as herein provided, may change the address to which future
notices may be sent.
F.
Time of the
Essence . Time is of the
essence under this Lease for the performance and observance of all
obligations of Lessor and Lessee, and all provisions of this Lease
shall be strictly construed.
G.
Captions for
Convenience . The headings and
captions hereof are for convenience only and shall not be
considered in interpreting the provisions of this
Lease.
H.
Severability
. If any
provision of this Lease shall be held invalid or unenforceable, the
remainder of the Lease shall not be affected thereby, it being the
intent of the Parties that the provisions of this Lease shall be
enforceable to the fullest extent permitted by law. There
shall be deemed substituted for any invalid or unenforceable
provision a valid and enforceable provision as similar as possible
to the invalid provision.
I.
Jurisdiction
and Governing Law . This Lease shall be
interpreted and enforced in the courts of the state of Colorado and
in accordance with the laws of the State of Colorado.
J.
Integration/Entire
Agreement . This Lease, the
Exhibits hereto, and the other documents expressly referenced
herein constitute the entire agreement between the Parties with
regard to the subject matter hereof, and any extrinsic covenants,
agreements, representations, warranties, conditions or terms are
superseded hereby and shall be of no force or effect.
K.
Modification
. No
provision of this Lease may be amended or modified except in a
written instrument signed by both Parties.
L.
Right of First
Refusal . Lessee shall, have a
right of first refusal to purchase the Assets in the event Lessor
desires to sell or assign all or any part of them.
M.
Assignment of
Trade Names . Lessor shall assign
and transfer to Lessee for Lessee’s use during the Lease Term
all Lessor’s right, title and interest in and to all
trademarks, trade names, service marks, and copyrights used in
connection with the Assets (the “Intellectual
Property”), and shall refrain from using the Intellectual
Property and any s
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