-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EdCN7DYW/b8KErbsRl7DVz+0I4DEBkJ/9C9oYdITyH549z5reOOZe06XwwKMqvX3 v8aTPt7GMwTo2O4cFIXL4Q== 0001047469-98-020780.txt : 19980518 0001047469-98-020780.hdr.sgml : 19980518 ACCESSION NUMBER: 0001047469-98-020780 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MTR GAMING GROUP INC CENTRAL INDEX KEY: 0000834162 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 841103135 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20508 FILM NUMBER: 98625565 BUSINESS ADDRESS: STREET 1: STATE ROUTE 2 SOUTH STREET 2: PO BOX 356 CITY: CHESTER STATE: WV ZIP: 26034 BUSINESS PHONE: 3043875712 FORMER COMPANY: FORMER CONFORMED NAME: WINNERS ENTERTAINMENT INC DATE OF NAME CHANGE: 19931117 FORMER COMPANY: FORMER CONFORMED NAME: EXCALIBUR HOLDING CORPORATION DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: EXCALIBUR SECURITY SERVICES INC DATE OF NAME CHANGE: 19920202 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1998. [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No.: 0-20508 MTR GAMING GROUP, INC. ---------------------- (exact name of registrant as specified in its charter) DELAWARE 84-1103135 -------- ---------- (State or other jurisdiction (IRS Employer of incorporation) Identification Number) STATE ROUTE 2 SOUTH, P.O. Box 358, CHESTER, WEST VIRGINIA 26034 ---------------------------------------------------------------- (Address of principal executive offices) (304) 387-5712 -------------- (Registrant's telephone number, including area code Indicate by check mark whether the Company: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.00001 par value ------------------------------- Class 20,021,049 ---------- Outstanding at May 11, 1998 MTR GAMING GROUP, INC. INDEX FOR FORM 10-Q SECTION PAGE PART 1 -- FINANCIAL INFORMATION Item 1 - Financial Statements Condensed and Consolidated Balance Sheets at March 31, 1998 and December 31, 1997 1 Condensed and Consolidated Statements of Operations for the Three Months Ended March 31, 1998 and 1997 3 Condensed and Consolidated Statements of Cash Flow for the Three Months Ended March 31, 1998 and 1997 4 Notes to Condensed and Consolidated Financial Statements 5 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II -- Other Information Item 6 - Exhibits and Reports on Form 8-K 23 Signature Page PART 1 FINANCIAL INFORMATION ITEM 1 -- FINANCIAL STATEMENTS MTR GAMING GROUP, INC. CONDENSED AND CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1998 1997 ------------ ---------- ASSETS Current assets: Cash and cash equivalents $ 8,747,000 $ 7,715,000 Restricted cash 185,000 188,000 Accounts receivable, net of allowance for doubtful accounts of $125,000 451,000 431,000 Deferred financing costs 1,502,000 1,617,000 Deferred income taxes 2,550,000 2,550,000 Other current assets 379,000 516,000 ------------ ----------- Total current assets 13,814,000 13,017,000 ------------ ----------- Property: Land 641,000 371,000 Buildings 19,014,000 19,014,000 Equipment and automobiles 6,518,000 6,388,000 Furniture and fixtures 3,145,000 3,131,000 Construction in progress 474,000 258,000 ------------ ----------- 29,792,000 29,162,000 Less accumulated depreciation (7,031,000) (6,363,000) ------------ ----------- 22,761,000 22,799,000 ------------ ----------- Net assets of discontinued oil and gas activities 2,616,000 2,616,000 ------------ ----------- Other assets: Excess of cost of investments over net assets acquired, net of accumulated amortization of $1,337,000 and $1,274,000 2,437,000 2,500,000 Deposits and other 202,000 102,000 ------------ ----------- 2,639,000 2,602,000 ------------ ----------- $ 41,830,000 $41,034,000 ------------ ----------- ------------ -----------
1 MTR GAMING GROUP, INC. CONDENSED AND CONSOLIDATED BALANCE SHEETS (Continued)
March 31, December 31, 1998 1997 ------------ ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 936,000 $ 594,000 Other accrued liabilities 1,677,000 2,465,000 Current portion of long-term debt 29,000 40,000 Current portion of deferred income taxes 133,000 133,000 ------------ ----------- Total current liabilities 2,775,000 3,232,000 ------------ ----------- Deferred income taxes, less current portion 1,097,000 1,130,000 ------------ ----------- Long-term debt, less current portion 21,570,000 21,559,000 ------------ ----------- Shareholders' equity: Common stock 2,000 2,000 Paid-in capital 35,326,000 35,326,000 Accumulated deficit (18,940,000) (20,215,000) ------------ ----------- Total shareholders' equity 16,388,000 15,113,000 ------------ ----------- $ 41,830,000 $ 41,034,000 ------------ ----------- ------------ -----------
2 MTR GAMING GROUP, INC. CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended --------------------------- March 31, March 31, 1998 1997 ----------- ----------- Revenues: Video lottery terminals $13,968,000 $10,053,000 Parimutuel commissions 1,162,000 1,049,000 Food, beverage and lodging 1,338,000 943,000 Other 222,000 197,000 ----------- ----------- Total revenues 16,690,000 12,242,000 ----------- ----------- Costs of revenues: Cost of video lottery terminals 8,812,000 6,398,000 Cost of parimutuel commissions 1,437,000 1,282,000 Cost of food, beverage and lodging 1,251,000 837,000 Cost of other revenues 180,000 283,000 ----------- ----------- Total cost of revenues 11,680,000 8,800,000 ----------- ----------- Gross profit 5,010,000 3,442,000 ----------- ----------- Selling, general and administrative expenses: Marketing and promotions 683,000 578,000 General and administrative 1,635,000 1,079,000 Depreciation and amortization 731,000 451,000 ----------- ----------- Total selling, general and administrative expenses 3,049,000 2,108,000 ----------- ----------- Operating income 1,961,000 1,334,000 ----------- ----------- Interest income 85,000 28,000 Interest expense (813,000) (1,094,000) ----------- ----------- (728,000) (1,066,000) ----------- ----------- Income before benefit for income taxes 1,233,000 268,000 Benefit for income taxes 42,000 33,000 ----------- ----------- Net income $ 1,275,000 $ 301,000 ----------- ----------- ----------- ----------- Net income per share $ 0.06 $ 0.02 ----------- ----------- ----------- ----------- Net income per share assuming dilution $ 0.05 $ 0.01 ----------- ----------- ----------- ----------- Weighted average number of shares outstanding: Basic 19,941,000 19,291,000 ----------- ----------- ----------- ----------- Diluted 23,690,000 21,068,000 ----------- ----------- ----------- -----------
3 MTR GAMING GROUP, INC. CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended --------------------------- March 31, March 31, 1998 1997 ----------- ----------- Cash flows from operating activities: Net income $ 1,275,000 $ 301,000 Adjustments to reconcile net income to net cash provided by operating activities: Deferred financing costs amortization 115,000 533,000 Depreciation and amortization 731,000 451,000 Deferred income taxes (33,000) (33,000) Changes in operating assets and liabilities: Other current assets 117,000 (150,000) Accounts payable and accrued liabilities (446,000) (677,000) ----------- ----------- Net cash provided by operating activities 1,759,000 425,000 ----------- ----------- Cash flows from investing activities: Restricted cash 3,000 - Settlement of prior acquisition costs - (105,000) Deposits and other (100,000) 22,000 Capital expenditures (630,000) (1,631,000) ----------- ----------- Net cash used in investing activities (727,000) (1,714,000) ----------- ----------- Cash flows used in financing activities: Principal payments - (69,000) ----------- ----------- Net change in cash 1,032,000 (1,358,000) Cash, beginning of period 7,715,000 4,226,000 ----------- ----------- Cash, end of period $ 8,747,000 $ 2,868,000 ----------- ----------- ----------- -----------
4 MTR GAMING GROUP, INC. NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed and consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included herein. Operating results for the three months ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. For further information, refer to the consolidated financial statements and notes thereto included in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997. NOTE 2 - EQUITY TRANSACTIONS SETTLEMENT OF MOUNTAINEER PARK ACQUISITION PRICE GUARANTEE. In connection with the December 1992 acquisition of Mountaineer Park, Inc., the Company issued certain shares of the Company's common stock which bore registration rights and were guaranteed at $6.00 per share. In January 1997, the Company reached a settlement with the holders of 118,948 shares which bore the $6.00 per share price guarantee. In exchange for a cancellation of the price guarantee, the Company paid a cash settlement of $102,000 and issued 100,000 additional shares of the Company's common stock in January 1997. During January 1998, the Company granted 800,000 options pursuant to its 1998 Stock Incentive Plan to employees. The options were granted at an exercise price of $2.15625, the estimated fair market value of the Company's common stock at the date of grant and vested immediately. During January 1998, the Company granted 50,000 and 10,000 options outside of the Company's stock option plans to employees and to a non-employee, respectively. The options were granted at an exercise price of $2.15625, the estimated fair market value of the Company's common stock at the date of grant and vested immediately. During March 1998, the Company granted 950,000 options pursuant to its 1992 Employee Stock Option Plan to employees. The options were granted at an exercise price of $2.41, the estimated fair market value of the Company's common stock at the date of grant and vested immediately. 5 MTR GAMING GROUP, INC. NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3 - INCOME TAXES The benefit for income taxes recorded in the accompanying statements of operations for the three months ended March 31, 1998 and 1997 results from non-tax deductible depreciation expense attributable to the purchase method of accounting for the investment in Mountaineer Park, Inc. At March 31, 1997, the Registrant recorded a valuation allowance of approximately $4.2 million against its primary deferred tax assets (net operating loss carryforwards for federal and state income tax purposes). At March 31, 1997, the Registrant has approximately $18.3 million in federal net operating loss carryforwards and approximately $4.6 million in state net operating loss carryforwards; the use of such net operating loss carryforwards earned from 1992 through 1995 are subject to certain limitations as a result of common stock issuances. Due to limitations under the Alternative Minimum Tax rules of the Tax Reform Act of 1986, the Registrant expects to make quarterly federal income tax payments. NOTE 4 - ACQUISITIONS ACQUISITIONS - The Company, through its newly formed, wholly owned subsidiaries, Speakeasy Gaming of Las Vegas, Inc. and Speakeasy Gaming of Reno, Inc., consummated the purchase on May 5, 1998, of two hotel/gaming properties in Nevada: the Cheyenne Hotel & Casino in North Las Vegas for $5.5 million and the Reno Ramada in Reno for $8 million, respectively. Both transactions were asset purchases for cash, and both properties are qualified for unrestricted casino gaming upon licensing of a casino operator pursuant to "grandfather" provisions of applicable state and municipal laws. The Company expects to apply for gaming approval and intends to lease the gaming area to a licensed casino operator. The Company also plans to pursue franchise agreements for both properties with Ramada Franchise Systems, Inc. THE CHEYENNE HOTEL & CASINO, NORTH LAS VEGAS, NEVADA - The Company purchased the Cheyenne Hotel & Casino from Banter, Inc. for $5.5 million. The Cheyenne is a 131-room hotel consisting of one two-story building and one three-story building located at 3227 Civic Center Drive in North Las Vegas at the intersection of Cheyenne Avenue and Interstate 15. I-15 is a major interstate freeway, which extends north into Utah and south into the Los Angeles Basin. The Property is approximately five miles from the Las Vegas Motor Speedway and three miles from Nellis Air Force Base. The hotel has a bar, restaurant, and a swimming pool as well as parking for approximately 172 cars. The prior owners had operated 25 slot machines at the hotel's bar and had commenced construction of an 18,000 square foot addition including a 10,000 square foot casino, which the Company intends to complete. The Company's plan for the casino calls for 350 slot machines, three blackjack tables, one roulette wheel, and one craps table. 6 MTR GAMING GROUP, INC. NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4 - ACQUISITIONS, CONTINUED The Company plans to implement a motor racing theme for the casino in an effort to accommodate patrons of the nearby Las Vegas Motor Speedway. The Company estimates that the cost of the construction of the casino and renovation of some of the hotel rooms will be approximately $2 million. The Company expects to complete construction within the next 120 days and will rename the project the "Speedway Hotel & Casino". THE RENO RAMADA HOTEL, RENO, NEVADA - The Company purchased the Reno Ramada Hotel from Reno Hotel, LLC, an affiliate of the Company's lender, for $8 million. The Reno property has a total of 262 hotel rooms, 236 of which are located in an eleven story tower and 26 of which are in a separate three-story structure. The property is located at 6th and Lake Streets in Reno and has parking for approximately 238 cars. The tower also has a restaurant, a deli and two bars. The Reno property has an 8,000 square foot casino area and a small convention facility. The property recently underwent renovations of approximately $4 million. The Company's development plans for the casino at the Reno property likewise will call for 350 slot machines, three blackjack tables, a roulette wheel, and a craps table. The Reno casino's theme will be similar to the Speakeasy concept in place at the Company's Mountaineer Racetrack & Gaming Resort in West Virginia. The Company also plans to spend approximately $500,000 on renovations of the hotel and expansion of the capacity of the convention facility and will rename the project the "Speakeasy Hotel & Casino". FINANCING OF THE ACQUISITIONS - The Company financed the acquisitions through its cash on hand and additional borrowings from its existing lender, Madeleine LLC. Pursuant to a Third Amended and Restated Term Loan Agreement entered as of April 30, 1998 by Mountaineer Park, Inc., Speakeasy Gaming of Las Vegas, Inc. and Speakeasy Gaming of Reno, Inc. jointly and severally as borrowers, the Company as guarantor, and Madeleine LLC as lender, the Company increased its borrowings (previously the principal sum of $21,476,500) by (i) $8 million, representing the full purchase price of the Reno Ramada Hotel; (ii) $3,765,000 toward the purchase of the Cheyenne Hotel & Casino; and (iii) $150,000 in lender's fees. The Company expended approximately $2 million of its cash reserves for the balance of the purchase price of the Cheyenne property and closing costs and expenses of the transactions. The loan amendment also provides a construction line of credit of up to $1.7 million for the Cheyenne property and increase Mountaineer's line of credit by $5 million (up to $1.5 million of which may be used for improvements at the Nevada properties). The loans, as well as draws against the lines of credit, continue to be for a term ending July 2, 2001 with monthly payments of interest only at the rate of 13% per year with all principal becoming due at the end of the term. The loans likewise remain secured by substantially all of the assets of Mountaineer and now Speakeasy Vegas and 7 MTR GAMING GROUP, INC. NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4 - ACQUISITIONS, CONTINUED Speakeasy Reno and are unconditionally guaranteed by the Company. The call premium applicable to prepayment of the loans (5% until July 2, 1998, 3% between July 3, 1998 and July 2, 1999, 2% from July 3, 1999 until July 2, 2000, and 1% from July 3, 2000 until the end of the term), however, does not apply to the $11.8 million borrowed for the acquisitions or draws on the $1.7 million Cheyenne construction line of credit. 8 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION: This document includes "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included in this document, including, without limitation, the statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Liquidity and Sources of Capital" and "Recent Developments" regarding the Company's strategies, plans, objectives, expectations, and future operating results are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable at this time, it can give no assurance that such expectations will prove to have been correct. Actual results could differ materially based upon a number of factors including, but not limited to, history of losses, leverage and debt service, gaming regulation, dependence on key personnel, competition, no dividends, continued losses from horse racing, road improvements, costs associated with maintenance and expansion of Mountaineer Park's infrastructure to meet the demands attending increased patronage, failure to liquidate discontinued operations, cyclical nature of business, limited public market and liquidity, lack of public market, shares eligible for future sale, impact of anti-takeover measures, the Company's common stock being subject to penny stock regulation, construction of improvements as well as its estimates of the time and expense involved in such construction at its recently acquired hotel properties; the entering of franchise agreements; licensing, operation, and configuration of gaming facilities at the Nevada properties; and the long-term prospects for the successful operation of acquired properties and other risks detailed in the Company's Securities and Exchange Commission filings. RESULTS OF OPERATIONS - Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997. The Company earned revenues for the respective three month periods in 1998 and 1997 as shown below:
Three Months Ended March 31 --------------------------- 1998 1997 ---- ---- Operating Revenues Video lottery operations $ 13,968,000 $ 10,053,000 Parimutuel commissions 1,162,000 1,049,000 Lodging, food and beverage 1,338,000 943,000 Other revenues 222,000 197,000 ------------ ----------- Total Revenues $16,690,000 $ 12,242,000 ------------ ----------- ------------ -----------
Mountaineer Park has exhibited steady, pronounced revenue growth under its expansion plan begun in September 1994. The emergence of video lottery as Mountaineer Park's dominant profit center and the 1996 amendment of the West Virginia video lottery law (the "Lottery Law") to 9 permit the addition of video game themes depicting symbols on reels commonly referred to as "line games" or "slot games" ("Slot Terminals") have allowed the Company to generate increased revenues. Primarily as a result of this significant increase in gaming revenues, the Company earned a $1,275,000 million profit from continuing operations in the first quarter of 1998. In March 1998, the Lottery law was further amended with respect to the permitted number and location of video lottery terminals pursuant to which Mountaineer Park is entitled, effective June 13, 1998, to change the ratio of Video Lottery Terminals ("VLTs") located in its lodge facility versus the racetrack building from 1:1 to 2:1. See "Liquidity and Sources of Capital - Capital Improvements". Total revenues increased from $12.2 million in the first quarter of 1997 to $16,690,000 million in 1998, an increase of 36.8%. Approximately $3.9 million of the increase was produced by video lottery operations, while the parimutuel commissions and lodging, food, beverage and other operations at Mountaineer Park contributed approximately $500,000 of additional revenues. Management believes the increase resulted primarily from increased patronage resulting from the Company's expanded advertising activities, the increase in revenue generated by having 800 Slot Terminals for the entire quarter (compared to only 400 Slot Terminals in the first quarter of 1997 until March 1997 when Mountaineer Park purchased additional Slot Terminals), greater familiarity of customers with the Company's gaming machines and other enhanced facilities. VIDEO LOTTERY OPERATIONS. Mountaineer has operated VLTs in West Virginia since December 1992; operations were conducted under a provisional license until September 1994. The West Virginia Racetrack Video Lottery Act, signed in March 1994, allowed the uninterrupted continuation of video lottery games at Mountaineer and permitted the Company to increase its number of VLTs from 165 to 400 on September 4, 1994. In July 1995, the Company placed into operation an additional 400 VLTs, bringing the total number of VLTs in operation to 800. The 800 VLTs then in operation offered only card games and keno ("Card Terminals"). Upon the enactment of an amendment of the video lottery law permitting Slot Terminals, in July of 1996 Mountaineer converted 350 Card Terminals into Slot Terminals. In October of 1996, Mountaineer converted an additional 50 Card Terminals to Slot Terminals. In March of 1997, Mountaineer purchased and installed 400 new Slot Terminals and removed 200 previously leased Card Terminals, bringing the total number of VLTs to 1,000 as of March 13, 1997, consisting of 800 Slot Terminals and 200 Card Terminals. In March 1998, the Lottery law was further amended with respect to the permitted number and location of video lottery terminals pursuant to which Mountaineer Park is entitled to change the ratio of VLTs located in its lodge facility versus the racetrack building from 1:1 to 2:1. See "Liquidity and Sources of Capital - Capital Improvements". The results of video lottery operations reflect a four-year trend of significantly increasing aggregate net win, coupled with an increase in average daily net win per terminal since the inception of Slot Terminals. The Company plans to pursue additional growth in its video lottery operations. The aggressive newspaper marketing campaign begun in July 1996 continued through March 31, 1998 and is still continuing coupled with an extensive direct mail campaign. In January of 1997, Mountaineer also began broadcasting a 30 minute "infomercial" advertisement on television affiliates within a two hour driving radius. The Company has completed a large scale redecoration of its video lottery facilities, including expansion of ancillary dining and bar areas at the lodge and racetrack. The Company has spent $18 million on this expansion and redecoration. For the three months ended March 31, 1998, 10 average daily net win on the VLTs placed at the racetrack was $66 (including $0 for days when there was no live racing), compared to $244 on the Lodge-based terminals for a facility-wide average of $155 per VLT per day. Although management believes that revenues will increase at the racetrack, the Company's primary focus is to expand its lodge operations. See "Parimutuel Commissions" and "Liquidity and Sources of Capital - Capital Improvements." A summary of the video lottery gross winnings less patron payouts ("net win") for the three months ended March 31, 1998 and 1997 is as follows:
Three Months Ended March 31 --------------------------- 1998 1997 ---- ---- Total gross wagers $ 49,588,000 $ 34,762,000 Less patron payouts (35,620,000) (24,709,000) ------------- -------------- Revenue -video lottery operations 13,968,000 10,053,000 ------------- -------------- Average daily net win per terminal $ 155 $ 132 ------------- -------------- ------------- --------------
Revenues from video lottery operations increased by 39% from $10.1 million in the first quarter of 1997 to $14 million in 1998. Management believes the increase resulted primarily from increased patronage resulting from the Company's expanded advertising activities, the increase to 800 Slot Terminals in March 1997, greater familiarity of customers with the Company's gaming machines and other enhanced facilities. In March of 1997, Mountaineer purchased and installed 400 new Slot Terminals and removed 200 previously leased Card Terminals, bringing the total number of VLTs to 1,000 as of March 13, 1997, consisting of 800 Slot Terminals and 200 Card Terminals. PARIMUTUEL COMMISSIONS. Parimutuel commissions revenue is a function of wagering handle, which means the total amount wagered without regard to predetermined deductions, with a higher commission earned on a more exotic wager, such as a trifecta, than on a single horse wager, such as a win, place, or show bet. In parimutuel wagering, patrons bet against each other rather than against the operator of the facility or with pre-set odds. The total wagering handle is composed of the amounts wagered by each individual according to the wagering activity. The total amounts wagered from a pool of funds from which winnings are paid based on odds determined solely by the wagering activity. The racetrack acts as a stakeholder for the wagering patrons and deducts from the amounts wagered a "take-out" or gross commission, from which the racetrack pays state and county taxes and racing purses. The Company's parimutuel commission rates are fixed as a percentage of the total wagering handle or total amounts wagered. Mountaineer's parimutuel commissions for the three months ended March 31, 1998 and 1997 are summarized below: 11
Three Months Ended March 31 ------------------------------ 1998 1997 ----------- ----------- Simulcast racing parimutuel handle $ 5,686,000 $ 5,435,000 Live racing parimutuel handle 4,906,000 4,161,000 Less patrons' winning tickets (8,375,000) (7,594,000) ----------- ----------- 2,217,000 2,002,000 Less: State and county parimutuel tax (125,000) (119,000) Purses and Horsemen's Association (930,000) (834,000) ----------- ----------- Revenues - parimutuel commissions $ 1,162,000 $ 1,049,000 ----------- ----------- ----------- -----------
For the three months ended March 31, 1998, simulcast handle rose by $250,000, an increase of approximately 5% compared to the same period in 1997. Live racing handle for the three months ended March 31, 1998 was $4.9 million, an increase of 18% from the corresponding period in 1997. Management believes these increases resulted primarily from increased video lottery attendance, cross-marketing from such activity and completing 52 days of the annually required 210 day racing requirement in the first quarter of 1998 compared to 50 days in the same period in 1997. Mountaineer Park paid average daily live purses of $52,900 in the three months ended March 31, 1998, a 32% increase over the $40,000 average daily live purses in the corresponding period of 1997, and sponsored stakes races of up to $25,000 in the three months ended March 31, 1998 as compared with $20,000 in the corresponding period in 1997. Management believes that periodic increases in average daily purses and purses for stakes races will attract higher quality race horses. Management believes that over time such increases and improvements should lead to increased live racing handle, or alternatively smaller decreases. Management also believes that the enhanced quality of race horses should improve the Company's prospects in export simulcasting. Commencement of export simulcasting activity would not only create a new source of revenue but the anticipated related increase in gross dollars wagered on the Company's live races should also generate increases in live handle (as a greater and more diverse wagering pool lessens the impact a particular wager will have on the pay-off odds). Management intends to continue its policy of increasing average daily purses in the remainder of fiscal year 1998 as well as sponsor substantially increased stakes races attempting to develop an export simulcast business. No assurance can be given, however, that the Company will successfully commence export simulcasting or that the anticipated results will be realized. See "Costs and Expenses" and "Parimutuel Commission Operating Costs". In 1997 the West Virginia legislature passed a bill which Management believes will help the Company's live racing operations. Pursuant to the bill, as of the beginning of 1998, the two thoroughbred tracks in West Virginia are required to schedule 210 days of live racing annually, down from the previous 220 day minimum. Additionally, the bill specified procedures which allow further reductions in the required number of live race days if certain conditions exist, subject to approval by the State Racing Commission. FOOD, BEVERAGE AND LODGING OPERATIONS. Food, beverage and lodging revenues accounted for a combined increase of 42% to $1.3 million for the three months ended March 31, 1998. 12 Restaurant, bar and concession facilities produced $315,000 of the revenue increase, while lodge revenues increased $80,000 Food and beverage operations accounted for approximately 75% and 73% of the revenues earned by this profit center in the first quarters of 1998 and 1997, respectively. Management believes that increased revenues from lodging, food and beverage resulted primarily from enhanced video lottery facilities and related advertising, which in turn led to increased consumption of food and beverages by the Company's customers. The ratio of revenue from food and beverage to revenue from lodging has generally remained constant, reflecting that Mountaineer Park has historically drawn more day traffic than overnight stays. OTHER OPERATING REVENUES. Other sources of revenues consist primarily of non-core businesses such as admission, programs, golf, tennis and swimming. While these lines of business are not the Company's most profitable, the Company believes they are necessary for it to continue to attract gaming patrons. Other revenues increased by $25,000, or 13% to $222,000 for the three month period ended March 31, 1998 compared to the same period in 1997. COSTS AND EXPENSES. Operating costs and gross profit earned from operations for the three month periods ended March 31, 1998 and 1997 are as follows:
Three Months Ended March 31 ------------------------------ 1998 1997 ----------- ----------- Operating Costs: Video lottery operations $ 8,812,000 $ 6,398,000 Parimutuel commissions 1,437,000 1,282,000 Lodging, food and beverage 1,251,000 837,000 Other revenues 180,000 283,000 ----------- ----------- Total Operating $11,680,000 $ 8,800,000 ----------- ----------- ----------- ----------- Costs Gross Profit (Loss): Video lottery operations $ 5,156,000 $ 3,655,000 Parimutuel commissions (275,000) (233,000) Lodging, food and beverage 87,000 106,000 Other revenues 42,000 (86,000) ----------- ----------- Total Gross Profit $ 5,010,000 $ 3,442,000 ----------- ----------- ----------- -----------
Mountaineer's 36.3% increase in revenues resulting from the expanded scope of entertainment offerings resulted in higher total costs, as expenses increased by 33% to $11.7 million in the first quarter of 1998. Approximately $2.4 million of the increase was attributable to the cost of operating video lottery terminals, which includes applicable state taxes and fees and related advertising. The Company's increase in revenues in the three months ended March 31, 1998 resulted in a 33% increase in cost of revenues, an 18% increase in marketing and promotions expense, a 52% increase in general and administrative expenses, and a 62.1% increase in depreciation and amortization. The increased marketing and promotion expenses were due primarily to the Company's "Hancock County: The Action's Closer Than You Think" infomercial, increases in direct mail, print, radio and television advertising and increased prize giveaways. The 13 increase in general and administrative expenses was due primarily to (1) additional personnel engaged in video lottery, housekeeping and security to accommodate Mountaineer Park's larger crowds; (2) additional marketing and promotional personnel, both to implement the Company's marketing plan and to analyze the effectiveness of the Company's marketing efforts to obtain the maximum long-term benefits of such efforts; and (3) professional fees related to financing activity. The Company is attempting to expand the video lottery business, while attempting to reduce the losses of the parimutuel business, by increasing productivity, expanding marketing efforts, increasing purse sizes and attracting higher quality jockeys and horses to increase parimutuel wagering. See "Parimutuel Commissions". Gross profit from the Company's four profit centers increased from $3.4 million for the first quarter of 1997 to $5.5 million for the same period in 1998. Video Lottery Terminals Operating Costs. Costs of video lottery revenue increased by $2.4 million or 38% from $6.4 million for the three months ended March 31, 1997, to $8.8 million for the three months ended March 31, 1998, primarily reflecting an increase in statutory expenses. Such expenses accounted for $2.2 million of the total cost increase. Additional expenses were incurred in connection with video lottery, housekeeping and security personnel. Under the March 17, 1994, Racetrack Video Lottery Act, the following statutory rates paid to certain entities are in effect. State of West Virginia............................................. 30.0% Hancock County..................................................... 2.0% Horseman's Association (racing purses)............................. 15.5% Other.............................................................. 5.5% ------ Total Statutory Payments........................................... 53.0% ------ ------
____________ (1) Excludes up to a 4% administrative fee charged by the State of West Virginia based on revenues. In addition, rates are applied to revenues net of this 4% administrative fee. Statutory costs and assessments, including the State Administrative Fee, for the respective three month periods are as follows: 14
Three Months Ended March 31 ------------------------------ 1998 1997 ----------- ----------- Employee Pension Fund $ 68,000 $ 48,000 Horsemen's Purse Fund 2,078,000 1,496,000 ----------- ----------- Subtotal $ 2,146,000 $ 1,554,000 State of West Virginia $ 4,582,000 $ 3,296,000 Tourism Promotion Fund 402,000 290,000 Hancock County 268,000 193,000 Stakes Races 134,000 97,000 Veteran's Memorial 134,000 97,000 ----------- ----------- Total $ 7,666,000 $ 5,517,000 ----------- ----------- ----------- -----------
The remaining significant expenses incurred by video lottery operations consist of VLT lease expense ($355,000 in the first quarter of 1998 compared to $320,000 in the first quarter of 1997), direct and indirect wages and employee benefits ($480,000 in the first quarter of 1998, compared to $391,000 in the first quarter of 1997), and utilities, property tax, waste and sewage disposal and insurance ($217,700 in the first quarter of 1998 versus $158,200 in the first quarter of 1997). This $59,500 increase resulted primarily from an increase in the cost of utilities and waste and sewage disposal related to VLT operations in the first quarter of 1998 as compared with the first quarter of 1997. The Company's total waste disposal costs are currently estimated by management to be approximately $200,000 per quarter, substantially as a result of the increase in patron attendance at Mountaineer. The State of West Virginia has authorized Hancock County to build an expanded sewage system that would serve the Chester area, which is scheduled to be completed in approximately October 1999. Wages and benefits expense increased from the first quarter of 1997 to the first quarter of 1998 in response to higher levels of patron play. Management believes these costs experienced a moderate increase in the first quarter of 1998 from the levels experienced in the first quarter of 1997 due to the increase from 800 VLTs to 1,000 VLTs in March, 1997 and growth in patron volume. PARIMUTUEL COMMISSIONS OPERATING COSTS. Costs (the individual components of which are detailed below) of parimutuel commission revenue attributable to live racing increased by $155,000, or 12%, from $1.3 million in the first quarter of 1997, to $1.4 million in the first quarter of 1998. Purse expense (consisting of statutorily determined percentages of live racing handle) rose 19% to $482,000 in the first quarter of 1998, which is consistent with the increase in live handle. In connection with simulcasting race operations, contractual fees paid to host tracks and additional statutorily determined percentages of simulcast commissions contributed to the purse fund for live racing increased $21,000 to $448,000 in the first quarter of 1998 consistent with the 4.6% increase in simulcasting wagers. Parimutuel commissions revenue is reported net of these expenses in the Consolidated Statement of Operations. 15 Totalisator and other lease expenses remained stable at approximately $120,000 in the first quarters of 1998 and 1997. Direct and indirect wages and employee benefits attributable to racing operations decreased slightly ($12,000 or 2%) to $637,000 in the three months ended March 1998. The number of live race performances increased by 2 days in 1998 to 52 days as compared to the same period in 1997. Other costs of parimutuel commission revenue increased in the aggregate by approximately $167,000 in the first quarter of 1998 from $513,000 in the first quarter of 1997 primarily as a result of allocation of overhead items including advertising, personnel and professional fees as determined by management. Mountaineer's labor agreement with approximately 50 mutuel and 9 video lottery employees has been extended to November 30, 2002. The Company's agreement with HBPA has been extended until January 1, 2001. FOOD, BEVERAGE AND LODGING OPERATING COSTS. Operating costs of the Company's lodging, food and beverage operations increased by $414,000 from $837,000 in the first quarter of 1997 to $1,251,000 in the first three months of 1998. Direct expenses of the Company's food and beverage operations increased by 40% from $580,000 in 1997 to $811,000 for the same period in 1998. The food and beverage operation earned a gross profit of $193,000, an increase of 87%, in the first three months of 1998 compared to $103,000 in 1997. Lodging direct costs totaled $440,000 for the first three months of 1998 as opposed to $257,000 in 1997. This increase resulted primarily from an increase in the cost of the lodge's waste and sewage disposal of $90,000 in 1998. Also lodge wages and employee benefits increased by $24,000 in 1998. This increase was caused by an increase in service personnel in these areas. Amenities and linens in the rooms were upgraded in the first quarter causing a $35,000 increase in the cost of supplies. See "Video Lottery Terminals Operating Costs". COST OF OTHER OPERATING REVENUES. Costs of other revenues consisting primarily of non-core businesses such as racing programs, golf, tennis and swimming decreased by $103,000 from $283,000 in the first quarter of 1997 to $180,000 in the first quarter of 1998. MARKETING AND PROMOTIONS EXPENSE. Marketing expenses at the Company's Mountaineer operation increased by 18% from $578,000 for the first quarter of 1997 to $683,000 for the same period in 1998. Management has started an aggressive regional marketing campaign centered on its 30-minute infomercial broadcasts throughout portions of a two hour driving radius of Mountaineer. In 1997, Mountaineer's marketing and promotion costs were defrayed by a state grant in the amount of $330,000 from a convention and visitors bureau of which Mountaineer is a member. The Company has been granted an additional $320,000 to be received in 1998 and expects to apply for a grant, also in 1998, of an additional $320,000. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES, AND INTEREST EXPENSE. The Company's general and administrative expense increased by $556,000 to $1.6 million, from $1.1 million for the three months ended March 31, 1998 as compared to the three months ended March 31, 1997. Such increase resulted primarily from an increase in acquisition costs, service personnel and professional fees. 16 In the first quarter of 1998, the Company incurred $800,000 of interest expense as compared with $1.1 million of interest expense in the first quarter of 1997. Interest expense in 1997 included a $1.8 million one-time cash fee paid over the first year of the extended loan term pursuant to the July 2, 1997 Seconded Amended and Restated Term Loan Agreement the Company and Mountaineer Park entered with Madeleine LLC. Approximately $287,434 of such fees remain to be expensed prior to July 1998. See "Recent Developments." Depreciation and amortization costs increased 62% from $451,000 in the first quarter of 1997 to $731,000 in the first quarter of 1998, reflecting increased capitalization of improvements completed at Mountaineer Park's facilities and the allocation of $3.1 million for the purchase of 400 VLTs in March of 1997 and $1.2 million for the paving of the Company's parking lots subsequent to the first quarter in 1997. CASH FLOWS The Company's operations produced $1,759,000 of cash flow in the three months ended March 31, 1998, compared to $425,000 produced in the first three months of 1997. Current year noncash expenses include $731,000 for depreciation and amortization and $115,000 for the amortization of deferred financing costs. The Company invested $630,000 for continued expansion and development of its properties at Mountaineer in the first three months of 1998, compared to a $1.6 million investment in the first three months of 1997. LIQUIDITY AND SOURCES OF CAPITAL The Company's working capital balance stood at $11,039,000 at March 31, 1998, and its unrestricted cash balance amounted to $8,747,000. Racing purses are paid from funds contributed by the Company to bank accounts owned by the horse owners who race at Mountaineer Park. At March 31, 1998, the balances in these accounts exceeded the purse payment obligations by $874,000; this amount is available for payment of future purse obligations at the discretion of the Company and in accordance with the terms of its agreement with the HBPA. LONG-TERM DEBT AND LINE OF CREDIT REFINANCING. Effective July 2, 1997, Mountaineer and the Company amended and restated the July 2, 1996 Term Loan Agreement, which had been previously amended and restated as of December 10, 1996. The December 10, 1996 Amended Term Loan Agreement reflected an increase in the amount borrowed from $5 million to $16.1 million, established a $5,376,500 revolving line of credit, and converted the lender's position from second to first trust holder. The July 2, 1997 Second Amended Term Loan Agreement (i) extended the term of the loan to July 2, 2001 (compared to July 2, 1999); (ii) increased the total amount borrowed to $21,476,500 (by virtue of Mountaineer Park drawing down the line of credit); (iii) eliminated from the Amended Term Loan Agreement annual fees of cash in the amount of 8% of the outstanding principal balance of the loan that would have been due each November 15 while the loan is outstanding; (iv) called for payments of interest only with the principal due at the end of the four year term; 17 (v) eliminated annual warrants to purchase 250,000 shares of the Company's common stock at $1.06 per share which would have been issued on November 15, 1997, 1998 and 1999; and (vi) eliminated annual warrants to purchase additional shares in a number to be calculated under a formula defined in the Amended Term Loan Agreement, which would have been issued on November 15, 1997, 1998 and 1999. The lender's rights pursuant to the Amended Term Loan Agreement with respect to the 550,000 shares of the Company's stock and warrants to purchase 1,632,140 additional shares issued thereunder were unaffected by the Second Amended Agreement. The Company continues to guarantee the loan. In addition, as a result of the Second Amended Term Loan Agreement the Company had excess funds available for investment (subject to negative covenants contained in the Second Amended Term Loan Agreement) and further expansion at Mountaineer Park. As consideration for the lender's entering into the Second Amended Term Loan Agreement, Mountaineer Park agreed (i) to pay a one time fee of approximately $1.8 million or 8.5% of the total amount borrowed, which may be paid over the first year of the term (as of March 31, 1998, the Company paid approximately 1,513,350 and is obligated to pay the remaining $287,434 in equal payments over the following three months); (ii) to pay interest at the rate of 13% (compared to 12% on the $16.1 million term loan and 15% on the $5.4 million line of credit under the Amended Term Loan Agreement); and (iii) to pay a call premium equal to 5% in the event of prepayment during the first year of the term, declining to 3% during the second year, 2% in the third year and 1% in the final year. The Company, as guarantor, entered into the Third Amended and Restated Term Loan Agreement, dated as of April 30, 1998, by and among Mountaineer Park, Inc., Speakeasy Gaming of Las Vegas, Inc., Speakeasy Gaming of Reno, Inc. and Madeleine LLC in order to finance certain acquisitions by subsidiaries of the Company which were consummated on May 5, 1998. See "Recent Developments". CAPITAL IMPROVEMENTS. The Company is contemplating significant further expansion of its Mountaineer Park facility including approximately doubling its hotel room capacity and constructing a regional convention center, most likely to occur in 1998 and 1999. The Company began to invest in significant infrastructure improvements beginning with extensive paving in the fourth quarter of 1997. The Company may separately finance any construction activities that it executes of this magnitude. Capital improvements of a near-term nature include numerous smaller renovations, including a new entrance to the racetrack clubhouse. On March 14, 1998, the West Virginia State Legislature passed House Bill 4632, which, among other things, amended Section 29-22A-12(b)(5) of the Racetrack Video Lottery Act of 1994 (regarding number and location of video lottery terminals). The amendment, which became effective in April 1998, permits Mountaineer Park to change the ratio of VLTs located in the Lodge versus the racetrack building from 1:1 to 2:1. As a result of the amendment, Mountaineer Park has applied to the Lottery Commission for permission to increase the number of VLTs from 1,000 to 1,200 and to install 200 new Slot Terminals (which the Company will purchase or lease) and move 100 VLTs from the track to the lodge. Mountaineer Park has commenced construction of a second addition of approximately 8,000 square feet to the Speakeasy Gaming Saloon to house the 300 additional VLTs. Pending Lottery Commission Approval of the increase and relocation of VLTs, management anticipates that the Speakeasy addition will be completed during the third quarter of 18 1998, at which time Mountaineer Park will operate 800 VLTs at the Lodge and 400 at the racetrack to maximize the success of the Company's lodge-based video lottery operations. See "Video Lottery Operations". On October 7, 1997, Mountaineer entered into an agreement by which it obtained an exclusive option to purchase 349 acres of real property located adjacent to its Hancock County, West Virginia operation. Mountaineer paid $100,000 in exchange for an irrevocable option to purchase the property for $600,000 before October 1, 1998, with payment to be made in the form of a $200,000 cash payment at closing and a $400,000 term note bearing interest at 9% payable over five years. In February 1998, Mountaineer Park purchased from Realm, Inc. 350 acres in Chester, West Virginia for a purchase price of $240,000, exclusive of brokerage fees and closing costs of approximately $30,000. The Company has no current plans to develop this unimproved property. ROAD IMPROVEMENTS. During the third quarter of 1997, construction projects were completed affecting West Virginia State Route 2 (the road Mountaineer Park fronts) both in Weirton (approximately 18 miles to the south) and in Chester (approximately 8 miles to the north), and Ohio State Routes 7 and 11. The Route 2 construction in Weirton was completed in April 1998 and the Route 2 construction in Chester and Route 7 in Ohio are scheduled to be completed in the next 45 days. The Company has experienced no discernible impact on patronage since such construction commenced. OUTSTANDING OPTIONS AND WARRANTS. As of March 31, 1998, there were outstanding options and warrants to purchase 8,597,247 shares of the Company's common stock below market price. Of this amount, options to purchase 4,738,914 shares are held by consultants, employees, former employees or directors of the Company, and warrants to purchase 2,471,874 shares are held by the Company's lender whose exercise rights are subject to a statutory ownership limitation not to exceed 5% of the Company's outstanding voting shares without prior approval of the West Virginia Lottery Commission. All but 70,000 of such shares are either subject to registration rights or the Company's intention to effect registration and will be included in a registration statement which the Company intends to file with the Securities and Exchange Commission. See Note 2 to the Condensed and Consolidated Financial Statements for the three months ended March 31, 1998 and 1997. If all such options and warrants were exercised, the Company would receive proceeds of approximately $12.3 million. DEFERRED INCOME TAX BENEFIT. Management believes that the substantial and steady revenue increases earned in the past three years will continue, and ultimately occur in amounts which will allow the Company to utilize its 18.3 million federal net operating loss tax carry forwards, although there are no assurances that sufficient income will be earned in future years to do so. The utilization of federal net operating losses may be subject to certain limitations. COMMITMENTS AND CONTINGENCIES. The Company has various commitments including those under various consulting agreements, operating leases, and the Company's pension plan and union contract. The Company has also entered into new employment agreements with certain employees for periods ranging from one to three years. Compensation under the employment agreements consists of both cash payments and stock option commitments. The Company 19 anticipates cash payments in the amount of approximately $809,000 over the next three years under the employment agreements. The Company believes that it has the ability to meet all of its obligations under the employment agreements. Although there can be no assurance, the Company believes that cash generated from operations will be sufficient to meet all of the Company's currently anticipated commitments and contingencies. (See "Recent Developments"). The Company also has commitments with respect to common stock registration rights, some of which include substantial cash penalties if the Company does not timely meet its obligations. The Company has analyzed Year 2000 issues with its computer and software advisors and has assessed the impact of Year 2000 issues on the Company's operations. The Company has come to the determination that there are no Year 2000 issues to be disclosed which would have a material adverse effect on the financial condition of the Company. RESULTS OF DISCONTINUED OPERATIONS On March 31, 1993, the Company's Board approved a formal plan to divest the Company of certain oil and gas operations the Company owns in Michigan through a plan of orderly liquidation. This decision was based upon several factors including (i) the anticipated potential of the Company's gaming operations and the anticipated time to be devoted to it by management, (ii) the expiration of "Section 29" credits, a credit against federal income taxes derived from gas produced from Devonian Shale and "tight sands" formations from wells commenced before January 1993, (iii) the impact of delays in connection with the West Virginia Supreme Court litigation and subsequent passage of enabling legislation for video lottery during 1994 which caused management to focus the Company's efforts and financial resources on Mountaineer Park, and (iv) the Company's desire to continue to place its primary emphasis on its gaming and recreational businesses. That plan of orderly liquidation provided for certain rework, remediation and development costs to address environmental matters, increased production and enhancement of the value of such properties for sale. Although the Company has prepared a plan of liquidation with respect to these properties, it has thus far been unable to effect a liquidation of its Michigan properties. The Company has valued such properties at $2,616,000 as of March 31, 1998, net of $252,000 of accrued rework costs, which it believes represents net realizable value for the properties. Nonetheless, given the Company's difficulty in finding a buyer for the properties, it may be required to sell the properties at a loss and on terms substantially less favorable to the Company than initially foreseen or, alternatively, to write down the value of such assets on its consolidated balance sheet. For the quarters ending March 31, 1997 and 1998, the Company had no revenues or expenses for discontinued operations. Currently, the Company is negotiating a sale of its remaining oil and gas interests to Fleur-David Corporation. There can be no assurance, however, that such sale will be concluded. 20 RECENT DEVELOPMENTS PURCHASE OF TWO NEVADA GAMING PROPERTIES The Company, through its newly formed, wholly owned subsidiaries, Speakeasy Gaming of Las Vegas, Inc. and Speakeasy Gaming of Reno, Inc., consummated the purchase on May 5, 1998, of two hotel/gaming properties in Nevada: the Cheyenne Hotel & Casino in North Las Vegas for $5.5 million and the Reno Ramada in Reno for $8 million, respectively. Both transactions were asset purchases for cash, and both properties are qualified for unrestricted casino gaming upon licensing of a casino operator pursuant to "grandfather" provisions of applicable state and municipal laws. The Company expects to apply for gaming approval and intends to lease the gaming area to a licensed casino operator. The Company also plans to pursue franchise agreements for both properties with Ramada Franchise Systems, Inc. THE CHEYENNE HOTEL & CASINO, NORTH LAS VEGAS, NEVADA. The Company purchased the Cheyenne Hotel & Casino from Banter, Inc. for $5.5 million. The Cheyenne is a 131-room hotel consisting of one two-story building and one three-story building located at 3227 Civic Center Drive in North Las Vegas at the intersection of Cheyenne Avenue and Interstate 15. I-15 is a major interstate freeway, which extends north into Utah and south into the Los Angeles Basin. The Property is approximately five miles from the Las Vegas Motor Speedway and three miles from Nellis Air Force Base. The hotel has a bar, restaurant, and swimming pool as well as parking for approximately 172 cars. The prior owners had operated 25 slot machines at the hotel's bar and had commenced construction of an 18,000 square foot addition including a 10,000 square foot casino, which the Company intends to complete. The Company's plan for the casino calls for 350 slot machines, three blackjack tables, one roulette wheel, and one craps table. The Company plans to implement a motor racing theme for the casino in an effort to accommodate patrons of the nearby Las Vegas Motor Speedway. The Company estimates that the cost of construction of the casino and renovation of some of the hotel rooms will be approximately $2 million. The Company expects to complete construction within the next 120 days and will rename the project the "Speedway Hotel & Casino". THE RENO RAMADA HOTEL, RENO, NEVADA. The Company purchased the Reno Ramada Hotel from Reno Hotel LLC, an affiliate of the Company's lender, for $8 million. The Reno property has a total of 262 hotel rooms, 236 of which are located in an eleven story tower and 26 of which are in a separate three-story structure. The property is located at 6th and Lake Streets in Reno and has parking for approximately 238 cars. The tower also has a restaurant, a deli and two bars. The Reno property has an 8000 square foot casino area and a small convention facility. The property recently underwent renovations of approximately $4 million. The Company's development plans for the casino at the Reno property likewise call for 350 slot machines, three blackjack tables, a roulette wheel, and a craps table. The Reno casino's theme will be similar to the Speakeasy concept in place at the Company's Mountaineer Racetrack & Gaming Resort in West Virginia. The Company also plans to spend approximately $500,000 on renovations of the hotel and expansion of the capacity of the convention facility and will rename the project the "Speakeasy Hotel & Casino". OPERATION OF THE PROPERTIES/GAMING LICENSING. The Company and its newly formed subsidiaries intend to apply as soon as practicable to the authorities in the State of Nevada for all 21 necessary permits and licenses required for the Company to operate casinos at the two properties. The Company is advised, however, that the licensing process may take approximately one year to complete and that there can be no assurances that the Company will obtain the necessary approvals. Until the Company obtains these approvals, it will not be permitted to conduct gaming or participate in any gaming revenues generated at the properties. In the interim, the Company will operate the hotels and restaurants and lease the casino area to an independent, licensed casino operator as permitted by Nevada law. The Company anticipates that Speakeasy Vegas will immediately hire approximately twenty-five new employees at the Cheyenne property and that Speakeasy Reno will hire approximately forty new employees at the Reno property. The Company has engaged Bruce E. Dewing to oversee the operation of the two Nevada properties as well as to assist the Company in the licensing process. Mr. Dewing has more than twenty years experience in upper level management of hotels and casinos and holds a non-restricted gaming license in the State of Nevada. Most recently, Mr. Dewing was President and CEO of the Ormsby House Hotel/Casino, a 200-room hotel with three restaurants and full service casino with entertainment in Carson City, Nevada. From 1981-1994, Mr. Dewing served variously as Vice President/Operations, General Manager/Chief Marketing Officer/Director of the Sands Regency Hotel & Casino in Reno, Nevada. He was responsible for management of the Sands Regency's 1,000 hotel rooms and supervised 950 employees and twenty-five departments. FINANCING OF THE ACQUISITIONS. The Company financed the acquisitions through its cash on hand and additional borrowings from its existing lender, Madeleine LLC. Pursuant to a Third Amended and Restated Term Loan Agreement entered as of April 30, 1998 by Mountaineer Park, Inc., Speakeasy Gaming of Las Vegas, Inc., and Speakeasy Gaming of Reno, Inc. jointly and severally as borrowers, the Company as guarantor, and Madeleine LLC as lender, the Company increased its borrowings (previously the principal sum of $21,476,500) by (i) $8 million, representing the full purchase price of the Reno Ramada Hotel; (ii) $3,765,000 toward the purchase of the Cheyenne Hotel & Casino; and (iii) $150,000 in lender's fees. The Company expended approximately $2 million of its cash reserves for the balance of the purchase price of the Cheyenne property and closing costs and expenses of the transactions. The loan amendment also provides a construction line of credit of up to $1.7 million for the Cheyenne property and increases Mountaineer's line of credit by $5 million (up to $1.5 million of which may be used for improvements at the Nevada properties). The loans, as well as any draws against the lines of credit, continue to be for a term ending July 2, 2001 with monthly payments of interest only at the rate of 13% per year with all principal becoming due at the end of the term. The loans likewise remain secured by substantially all of the assets of Mountaineer and now Speakeasy Vegas and Speakeasy Reno and are unconditionally guaranteed by the Company. The call premium applicable to prepayment of the loans (5% until July 2, 1998, 3% between July 3, 1998 and July 2, 1999, 2% from July 3, 1999 until July 2, 2000, and 1% from July 3, 2000 until the end of the term), however, does not apply to the $11.8 million borrowed for the acquisitions or draws on the $1.7 million Cheyenne construction line of credit. 22 PART II OTHER INFORMATION ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Articles of Incorporation, as amended (1) 3.2 Certificate of Amended of restated Certificate of Incorporation, filed as of October 18, 1996 (2) 3.3 Amended Bylaws of the Company (3) 10.1 Letter Agreement by and between the Company and James V. Stanton dated February 18, 1998 (3). 10.2 Letter Agreement by and between the Company and William D. Fugazy, Jr. dated February 18, 1998 (3). 10.3 Amendment of Employment Agreement by and between the Company and Thomas K. Russell dated February 16, 1998 (3). 10.4 Purchase Agreement by and between Mountaineer Park , Inc. and Realm, Inc., an Ohio corporation, dated February 12, 1998 (3). 10.5 Deed dated February 13, 1998, executed by Realm, Inc.(3) 10.6 Purchase Agreement by and between Speakeasy Gaming of Nevada, Inc., and Banter, Inc. dated as of May 5, 1998. 10.7 Purchase Agreement by and between Speakeasy Gaming of Reno, Inc. and Reno Hotel, LLC dated April 30, 1998. 23 10.8 First Amendment to Purchase Agreement by and between Speakeasy Gaming of Las Vegas, Inc. and Banter, Inc. dated May 5, 1998. 10.9 Second Amendment First Amendment to Purchase Agreement by and among Speakeasy Gaming of Las Vegas, Inc., Banter, Inc. and Southwest Exchange Corporation dated May 5, 1998. 10.10 Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing by Speakeasy of Las Vegas, Inc. as Trustor, Nevada Title Company, as Trustee for the benefit of Madeleine LLC, as Beneficiary dated April 30, 1998. 10.11 Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing by Speakeasy Gaming of Reno, Inc. as Trustor, United Title of Nevada, as Trustee for the benefit of Madeleine LLC, as Beneficiary dated April 30, 1998. 10.12 Third Amended and Restated Term Loan Agreement amended and restated as of April 30, 1998 by and among Mountaineer Park, Inc., Speakeasy Gaming of Las Vegas, Inc., Speakeasy Gaming of Reno, Inc., MTR Gaming Group, Inc. and Madeleine LLC. 10.13 Pledge and Security Agreement by and between MTR Gaming Group, Inc. and Madeleine LLC dated as of April 30, 1998. 10.14 General Security Agreement by and between Speakeasy Gaming of Reno, Inc. and Madeleine LLC dated as of April 30, 1998. 10.15 General Security Agreement by and between Speakeasy Gaming of Las Vegas, Inc. and Madeleine LLC dated as of May 5, 1998. 10.16 1998 Stock Incentive Plan 27.1 Financial Data Schedule. 99.1 Press Release dated May 7, 1998. FOOTNOTES (1) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (2) Incorporated by reference from the Company's Current Report on Form 8-K dated October 18, 1996, filed November 1, 1996. (3) Incorporated by reference from the Company's Current Report on Form 8-K dated and filed on February 20, 1998. (b) Reports on Form 8-K. The Company filed the following Current Reports on Form 8-K during the first quarter of 1998 and thereafter: Reports on Form 8-K The Company filed the following current reports on Form 8-K during the first quarter of 1998 and thereafter: 24 (1) A current report on Form 8-K was filed by the Company on February 20, 1998, (with the earliest event reported dated January 27, 1998) reporting the following items: (i) compliance with new corporate governance standards of NASDAQ's continued listing requirements; (ii) resignation of Thomas K. Russell; (iii) appointment of Officers; (iv) purchase of 350 acre property in Hancock County, West Virginia. 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1933, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. MTR GAMING GROUP, INC. May 15, 1998 By: /s/ Edson R. Arneault ----------------------------------- Edson R. Arneault, CHAIRMAN, CHIEF EXECUTIVE OFFICER, PRESIDENT, CHIEF FINANCIAL OFFICER 26 EX-10.6 2 EXHIBIT 10.6 EXHIBIT 10.6 PURCHASE AGREEMENT THIS PURCHASE AGREEMENT (this "Agreement") is made and entered into this 5th day of May, 1998, by and between Speakeasy Gaming of Nevada, Inc, a Nevada corporation ("Buyer"), and Banter, Inc., a Nevada corporation ("Banter"), and Cheyenne Hotel & Casino, Inc., a Nevada corporation ("Cheyenne") Banter together with Cheyenne being individually and collectively referred to from time to time as the "Seller"). RECITALS A. Banter is the owner of improved real property consisting of approximately 5.51 commonly known as the Cheyenne Hotel located at 3227 Civic Center Drive, North Las Vegas, in the County of Clark, State of Nevada more particularly described in EXHIBIT A attached hereto and incorporated herein by this reference including: (i) all right, title and interest of Banter in and to any easements, covenants and other rights appurtenance to such land; and (ii) all right, title and interest of Banter in and to any land lying in the bed of any existing dedicated street, road, avenue or alley, open or closed, in front of or adjoining such land (the "Real Property") together with buildings consisting of approximately 131 guest rooms, a restaurant, bar, and ancillary improvements (collectively the "Improvements"). B. A hotel, restaurant, bar and related businesses (collectively, the "Business") are operated on the Real Property. The Real Property is furnished and equipped with certain furniture, furnishings, fixtures, kitchen, televisions and other equipment and non-consumable items (collectively "FFE") and an assortment of operating supplies consisting of housekeeping and laundry supplies, food and beverage inventories, paper and accounting supplies and similar consumable items (collectively, the "Operating Supplies"). C. Seller is the sole owner of the Real Property, the Improvements, the FFE and the Operating Supplies. The FFE and the Operating Supplies are collectively called the "Personal Property." Attached hereto and incorporated herein, as Exhibit B-1 is Seller's inventory of the Personal Property. Attached hereto and incorporated herein, as Exhibit B-2 is Seller's inventory of any items of personal property leased by Seller from third parties and not owned by Seller (the "Contract Equipment"). No representation is given, express or implied, under this Agreement or any Exhibit or schedule attached or to be attached hereto that Seller is the owner of the Contract Equipment. Seller acknowledges that the Personal Property consists of those items set forth in Exhibit B-1 and that Exhibits B-1 and B-2 set forth all items of personal property used at the Real Property for the operation of the Real Property and Improvements and the operation of the Business and specifically excludes any gaming device as defined in Nevada Revised Statutes Section 463.0155 ("Gaming Device"). D. Desert Gaming, Inc., a Nevada corporation ("DGI"), a corporate affiliate of Seller, holds a nonrestricted gaming license from all applicable state, county and municipal governmental authorities with jurisdiction and regulatory control over gaming activities (the "Nevada Gaming Authorities"). American International Trade and Development, Inc., a Nevada corporation ("AITD"), a corporate affiliate of Seller, holds a liquor license issued by the City of North Las Vegas, Nevada. Notwithstanding anything contained in this Agreement to the contrary, Seller is not transferring, by sale or otherwise, any liquor or gaming license and this sale is not conditional upon Buyer obtaining any such licenses. E. The "Name" consists only of such rights as Seller may possess to the name "Cheyenne Hotel." Seller has not taken any steps, including, without limitation, any local, state or federal registration or other filing, to create any right on the part of Seller in or to the aforementioned name. Although Seller will assign rights of Seller in or to the aforementioned name to Buyer at the Closing, Seller expressly disclaims any representation or warranty, either express or implied, relating to Seller's right to exclusive use of such name. F. The Real Property, Improvements, Personal Property and Name are collectively referred to as the "Property." The operation of the Business is sometimes called the "Hotel" in this Agreement. The Property does not include any of the following items: Gaming Devices; cash; coins (including coins in slot and vending machines); bank accounts; accounts receivable; utility, or other deposits; choses in action; rights under insurance policies; or rights to any refund of insurance premiums. NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. DEFINITIONS (a) For all purposes of this Agreement, the following terms shall have the respective meanings set forth below: "Business Day" means any day other than a Saturday, Sunday, or other day on which commercial banks are authorized or required to close under the laws of the State of Nevada. "Closing" shall mean the closing of the purchase and sale of the Property in accordance with Section 13 hereof. "Closing Date" shall mean the date of Closing provided for in Section 13(a). "Contracts" means (i) all contracts, leases, agreements and obligations currently in force relating to the Property, including, without limitation, all sale, management, construction, leasing, commission, architectural, engineering, operating, employment, service, supply and maintenance agreements excluding any contracts relating to Gaming Devices; and (ii) all leases or other agreements for the use of any equipment, machines or related materials necessary for the Business on or about the Property, including all amendments and exhibits thereto and assignments thereof. "Escrow Agent" shall mean Nevada Title Company. "Existing Exceptions" means those matters affecting title to the Property as are set forth on Exhibit C attached hereto. 2 "Federal Tax Law" means the Federal Foreign Investment in Real Property Tax Act of 1980 and the 1986 Tax Reform Act, as amended. "Governmental Authorities" shall mean any governmental or quasi-governmental body or agency having jurisdiction over the Property and/or Seller, including, without limitation, the State of Nevada. "Governmental Regulation" shall mean any laws, ordinances, rules, requirements, resolutions, policy statements and regulations (including, without limitation, those relating to gaming, land use, subdivision, zoning, environmental, toxic or hazardous waste, occupational health and safety, water, earthquake hazard reduction, and building and fire codes) of the Governmental Authorities bearing on the construction, alteration, rehabilitation, maintenance, use, operation or sale of the Property. "Hazardous Materials" means toxic materials, hazardous waste, hazardous substances [as these terms are defined in the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. 6901, et seq.) or in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended (42 U.S.C. 9601, et seq.)], asbestos or asbestos-related products, oils, petroleum-derived compounds, radon, PCB'S, gas or oil storage tanks, or other such hazardous materials or pesticides as from time to time identified in any laws or regulations or from time to time applicable to the Property. "Permits" means all evidence in the possession of Seller that the present structure, use, operation and maintenance of the Property is authorized by, and in compliance with, Governmental Regulations including, but not limited to, true and correct legible copies of any or all gaming permits and licenses, zoning variances, certificates of occupancy (or the equivalent), any or all permits, licenses and other authorizations issued with respect to the Property, and each portion of space in the Property occupied by individual tenants. "Permitted Exceptions" shall mean those matters affecting title to the Property set forth on Exhibit D. "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority, or other entity of whatever nature. "Personal Property" means all personal property owned or used by Seller in connection with the operation and maintenance of the Hotel excluding any Gaming Device and alcoholic beverages. "Property" means the Real Property, the Improvements, the unimproved pad sites, the parking areas, the Personal Property, the condemnation, as defined in Section 6(bb), below, and all Leases, warranties and Contracts (but only to the extent accepted by Buyer) relating to the ownership and operation of the Property. "Property Documents" means the items specified in Section 2 (b) below that are in the 3 possession or under the control of Seller. "Purchase Price" shall have the same meaning as set forth in Section 5(a) below. "Studies" means title examinations, surveys, architecture, economic, marketing, engineering, and other tests, including test borings, inspections, investigations, reviews, and/or other similar studies. (b) Whenever required by the context of this Agreement, the singular shall include the plural and the masculine shall include the feminine and vice versa. 2. PROPERTY DOCUMENTS (a) [INTENTIONALLY DELETED]. (b) The Property Documents, to the extent such Property Documents are in the possession, custody and control of Seller of the Property's Property Manager which shall be attached as Exhibit E, constitute the following items: (i) The latest ALTA survey showing all improvements, rights of way, easements, dedications, etc.; plats; site plans; and certified as-built building plans, all relating to the Property. (ii) All architectural drawings and specifications, appraisals, zoning, and access documents relating to the Property. (iii) The Permits. (iv) Copies of all casualty, liability and other insurance policies presently in effect with respect to the Property. (v) Operating statements of income, operating expense and capital expense for the Property as prepared by the Property's hotel manager (affiliated or third party) which have been prepared in the normal course of business for the preceding twelve (12) months, substantially in accordance with generally accepted accounting standards. (vi) All assessments and bills for real estate, personal property and any other taxes affecting the Property and for special assessments for the preceding fiscal year, and a summary of any contested tax assessments. (vii) True, correct and complete copies of the written Contracts and a schedule of the Contracts to be attached hereto as Exhibit E, including without limitation any and all leases and all amendments, formal or informal, side agreements, concession arrangements or other matters related thereto. (viii) Seller's existing title insurance policy for the Property and all amendments, endorsements and exhibits thereto. 4 (ix) A list of all threatened, pending or ongoing claims or lawsuits and all outstanding judgments relating to the Property. (x) Copies of all promissory notes, loan agreements, mortgages and deeds of trust encumbering the Property. (xi) Copies of all engineering and physical inspection reports related to the Property, including but not limited to, those for Hazardous Materials. (xii) Copies of all employment agreements with any employees at the Property. (xiii) Copies of all correspondence with any of the Nevada Gaming Authorities. (xiv) A list of all part-time and full-time employees at the Property. (xv) A complete list of Personal Property (including copies of all warranties and guaranties related thereto) used by or on behalf of Seller in connection with operation and maintenance of the Property, plus a copy of any roof warranty or other warranty in effect with respect to any part of the Property. 3. FEASIBILITY PERIOD [INTENTIONALLY DELETED]. 4. PURCHASE AND SALE OF PROPERTY (a) On the Closing Date, and subject to the terms and conditions of this Agreement, Seller agrees to sell and convey, Seller's title to the Property and Buyer agrees to acquire the Property. It is a condition to Buyer's obligation to purchase the Property that title to the Property shall be free and clear of all liens, encumbrances, easements, covenants, conditions and other matters affecting title, except for the Permitted Exceptions, and shall be good of record and in fact merchantable and insurable at standard rates. (b) Seller agrees that it will, at any time and from time-to-time after the Closing Date, upon request of Buyer, do, execute, acknowledge or deliver, all such further acts, deeds, assignments, conveyances and assurances as may reasonably be required for the better conveying, transferring, assigning, assuring and confirming the Property to Buyer. 5. PURCHASE PRICE AND TERMS OF PAYMENT (a) Subject to any Closing adjustment, the Purchase Price for the Property shall be Five Million Three Hundred Forty Six Thousand Five Dollars ($5,346,500.00) payable at Closing as follows: (i) payment by Buyer to Seller of $1,581,500 in immediately available funds; and (ii) funding by Madeleine, LLC ("Lender") of an acquisition of a facility in the amount of $3,765,000. (b) On the Closing Date, Buyer will cause a federal wire transfer of funds to be made 5 to the Insurance Company, as applicable, in the amount indicated on the Settlement Statement approved by Buyer and Seller, which amount shall be disbursed in accordance with the joint instructions of Buyer and Seller. 6. REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Buyer as follows: (a) Banter is the record owner of fee simple title to the Property. To the best of Seller's knowledge, Banter's title is subject only to the Existing Exceptions, Contracts, and other matters referred to in this Agreement, and except as set forth in Schedule G to this Agreement, Seller is not in default under or in violation of the terms of any Existing Exceptions or Contracts. (b) Seller has not made, and prior to the Closing will not make, any commitments to any Governmental Authorities, utility company, school board, church or other religious body, or any homeowner or homeowners' association, or to any other organization, group or individual, relating to the Property which would impose any obligation on Buyer, or its successors or assigns, after the Closing to make any contributions of money, dedications of land or grant of easements or right-of-way, or to construct, install or maintain any improvements of a public or private nature on or off the Property. (c) DGI is presently licensed by the State of Nevada Gaming Authorities and is not aware of any pending proceeding or act of DGI or its principal Shawn A. Scott, which could cause the revocation, suspension or other penalties against DGI or its gaming license. (d) The Property is suitable for a nonrestricted gaming operation (as defined in Nevada Revised Statutes Section 463.0177) in every regard. (e) On the Closing Date, there will be no contract or agreement in effect for the Property which can not be terminated on 30 days notice, other than the Contracts. (f) Except as set forth in Schedule G to this Agreement, all bills and claims for labor performed and materials furnished to or for the benefit of the Property for all periods prior to the Closing Date have been (or prior to the Closing Date will be) paid in full or will be adequately bonded off, and there are no mechanics' liens or materialmen's liens (whether or not perfected) on or affecting the Property. (g) Seller has not received any notice that there are any wetlands of any nature located on the Property and, to the best of its knowledge, there are none. (h) Seller has not received any notice that there are any special assessments pending, noted or levied against the Property, and, to the best of its knowledge, there are none, nor is there any proposed increase in the assessed value of the Property in its condition as of the date of this Agreement. (i) To the best of Seller's knowledge, information and belief, no Hazardous Materials are located on or in the Property, including the surface, soil or subsurface of the Property. Seller 6 has received no notice that Hazardous Materials contaminate or otherwise affect the Property; and to its best knowledge, no Hazardous Materials are present on any adjacent property. To the best of Seller's knowledge, information and belief, the Property has not been previously used for the storage, manufacture, repair or disposal of Hazardous Materials, or machinery containing such Hazardous Materials other than in accordance with applicable law. To the best of Seller's knowledge, information and belief, no complaint, order, citation or notice with regard to air emissions, water discharges, noise emissions, Hazardous Materials, or any other environmental, health, or safety matters affecting the Property, or any portion thereof, from any person, government or entity, has been received by Seller. To the best of Seller's knowledge, information and belief, all federal, state and local environmental laws and regulations affecting the Property and Hazardous Materials have been fully complied with, and no heating equipment, incinerator or other burning equipment installed or located in or on the Property violates any law, ordinance, order or regulation of any Governmental Authority. (j) Seller is a "United States person" within the meaning of Sections 1445(f)(3) and 7701(a)(3) of the Internal Revenue Code of 1986, as amended. (k) Neither Seller nor any entity under common ownership, operation or control (an "affiliate") of Seller having any interest in the Property, specifically including but not limited to DGI, is a party to any Collective Bargaining Agreements, union contracts, union letters or similar agreements for the Property and its employees. (l) Exhibit E attached hereto represents a true and complete schedule of the Contracts, all of which shall be terminated by the Closing except as otherwise directed in writing by Buyer. There shall not be any continuing obligations of any nature whatsoever imposed on Buyer following Closing under any agreements existing prior to the Closing (other than obligations arising after Closing pursuant to those Contracts assumed by Buyer). Except for the sums required to discharge obligations of Seller under the Young Electric Sign Company Lease dated June 17, 1996 (the YESCO Lease"), which shall be paid by Buyer at the Closing (such amount not to exceed $43,025,50), to the extent any payments may be due and payable in connection with the termination of any agreements other than the Contracts set forth in Exhibit E, Seller shall make such payments. (m) To the best of Seller's knowledge, information and belief, there are no material structural defects with respect to the Property and the Buildings, and its roofs, machinery, electrical, heating, air conditioning, plumbing, ventilating and related operating equipment are in good working order. (n) No attachment, execution proceedings, assignments for the benefit of creditors, insolvency, bankruptcy, reorganization, or other similar proceedings are pending against Seller, its affiliates or principals. (o) Seller (and where applicable DGI) has paid or caused to be paid all real estate taxes, income taxes, special assessments and other taxes, that are due and payable on or before the Closing Date and, if not paid, could result in a lien or charge against the Property and/or Seller. 7 (p) No franchise, licensing and related software agreements with any hotel "flags", are in full force and effect according to the terms set forth therein and there are uncured defaults by Seller thereunder. (q) Seller has the legal power, right and authority to enter into this Agreement and the instruments referenced herein and to consummate the transactions contemplated hereby. (r) All requisite action (corporate) has been taken by Seller in connection with entering into this Agreement, the instruments referenced herein and the consummation of the transactions contemplated hereby, and no consent of any partner, shareholder, creditor, investor, judicial or administrative body, Governmental Authority or other party is required by Seller which has not been obtained other that the consent of the Days Inn of America, Inc. (s) This Agreement and all documents required hereby to be executed by Seller are and shall be valid, legal, binding obligations of, and enforceable against, Seller in accordance with their terms, subject only to applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws, or equitable principles affecting or limiting the rights of contracting parties generally. (t) Neither the execution and delivery of this Agreement and the documents referenced herein nor the consummation of the transactions contemplated herein nor compliance with the terms of this Agreement and the documents referenced herein conflict or result in the material breach of any terms, conditions or provisions of, or constitute a default under, any bond, note or other evidence of indebtedness or any contract, indenture, mortgage, deed of trust, loan, partnership agreement, lease or other agreements or instruments to which Seller or any of its affiliates is a party or affecting the Property or by which Seller or any of its affiliates may be bound other that the contracts with Days Inn of America, Inc. (u) Except for any right, title or interest of third parties under the Existing Exceptions and the Contracts, to the best of Seller's knowledge, no person other than Seller and the hotel guests, has any right, title or interest in or to the Property. (v) Seller has not received notice of any pending or threatened condemnation of all or of any portion of the Property, or notice of any violation of zoning restrictions in respect of the Property from any governmental authority or agency. (w) Neither Seller, its principals, nor DGI, where applicable, have received notice of any litigation, governmental or administrative proceedings or arbitrations pending or threatened with respect to any of the Property. (x) Seller has not entered into and does not know of any unrecorded rights of first offer to purchase, rights of first refusal to purchase, purchase options or similar rights or contractually required consents to transfer pertaining to the Property which would be breached by this Agreement or the consummation of the transaction provided for herein other that the consent of the Days Inn of America, Inc.. (y) Seller has not received from any insurance company which carries insurance on 8 the Property, or any Board of Fire Underwriters, any notice of any defect or inadequacy in connection with the Property or its operation which has not been cured. (z) Exhibit H contains a substantially complete and accurate list of the names of all employees of Seller and Banter employed in connection with the operation of the Business and their job classifications and wage rates, including any fringe benefits, vacation pay and bonuses. (aa) Neither Seller nor DGI maintains or contributes to any plan or arrangement which constitutes an "employee pension benefit plan" as defined in section 3(2) of the Employee Retirement Income Security Act of 1974 (ERISA) as amended, and is not obligated to contribute to or accrue or pay benefits under any deferred compensation, profit sharing, bonus, pensions or retirement funding agreement with respect to any persons employed in connection with the Business or any component thereof. (bb) Seller is not entitled to any further award, payment or compensation by virtue of that certain action styled, The State of Nevada on Relation of its Department of Transportation v. Banter, Inc., a Nevada Title Company, Inc., a Nevada corporation, et al. Case No. A 378187 (the "Condemnation"). 7 REPRESENTATIONS AND WARRANTIES OF BUYER. (a) Buyer represents, warrants and covenants to and with Seller that Buyer has the right, power, legal capacity and authority to execute, deliver and perform this Agreement. This Agreement constitutes the legal, valid and binding obligation of Buyer. 8. RIGHT OF INSPECTION [INTENTIONALLY DELETED]. 9. ADDITIONAL UNDERTAKINGS OF SELLER Seller shall perform the following undertakings: (a) On the Closing Date, Banter shall execute, acknowledge and deliver to Buyer a good and sufficient Grant, Bargain and Sale Deed (the "Deed") in proper form for recording, conveying Seller's title to the Real Property to Buyer, free and clear of all liens, leases encumbrances, covenants, conditions and other matters affecting title created by Seller or its affiliates, except for the Permitted Exceptions, and shall execute and acknowledge (as appropriate) and deliver originals of all the Permits, Contracts, Property Documents, warranty agreements and similar records relating to the Property and, as required by Buyer, assignments of and/or bills of sale for each of the foregoing (including appropriate indemnification to the extent provided for in this Agreement), and all keys to the Property in Seller's possession. (b) Seller shall give possession and occupancy of the Property to Buyer on the Closing Date, subject only to the Contracts and the rights of any short term guests or occupants of the Hotel, and in the event Seller shall fail to do so and Buyer nonetheless elects in its sole discretion to purchase the Property, Seller shall become and thereafter be a tenant by sufferance 9 of Buyer. (c) If requested to do so by Buyer, on the Closing Date Banter, and if applicable any affiliate of Banter, shall execute and deliver to the Buyer, or any title insurance company designated by it, an owner's affidavit, in the customary form, with respect to the absence of claims which would give rise to mechanics' liens and the absence of parties in possession of the Property other than Seller's hotel guests and tenants pursuant to the terms of Contracts or shall provide such other assurances as shall be reasonably required to enable Buyer to obtain the title insurance policy to be issued pursuant to the title commitment referred to herein. (d) Banter shall deliver to Buyer an IRC Affidavit under Section 1445 of the United States Internal Revenue Code, duly authorized and executed by Banter ("IRC Affidavit"). (e) Banter, DGI, AITD, and any other affiliate of Banter having an interest in or at the Property shall deliver to Buyer an Assignment of Intangible Property and Contract Obligations duly executed and acknowledged in recordable form by Seller (the "Assignment"). (f) Seller shall deliver to Buyer such other instruments or documents as may be reasonably required by Buyer or the Escrow Agent in order to consummate the transactions contemplated hereby. (g) Seller shall certify at Closing that all representations and warranties set forth at Paragraph 6 are true and correct in all material respects as of the Closing Date. Escrow Agent shall deliver a conformed copy of the Deed and the original IRC Affidavit and each of the other documents and instruments delivered into Escrow by Seller as set forth above to Buyer simultaneously with the recordation of the Deed. The Deed shall provide that it is to be returned to Escrow Agent or Buyer following recordation. If the original Deed is returned to Escrow Agent, Escrow Agent shall deliver the original Deed to Buyer, with a copy showing all recording information to Seller at the address noted in Paragraph 15, below. 10. UNDERTAKINGS OF BUYER. Buyer shall deliver or cause to be delivered to Escrow Agent on or before the Closing Date the Closing Funds as required under Paragraph 4, above, and such other instruments or documents as may reasonably be required by Seller or the Escrow Agent in order to consummate the transactions contemplated hereby. 11. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER The obligation of Buyer to purchase the Property shall be subject to the following conditions (all or any of which may be waived, in whole or in part, by Buyer): (a) The representations and warranties made by Seller in Section 6 above shall be certified true and correct in all material respects on and as of the Closing Date. (b) Seller shall have performed all covenants and obligations required by this 10 Agreement to be performed or complied with by Seller on or before the Closing Date. (c) On the Closing Date, (i) Seller's title to the Property shall be merchantable, insurable, marketable, good of record and in fact, and free-and-clear of all liens, mortgages, deeds of trust, encumbrances, easements, leases, conditions and other matters affecting title other than the Permitted Exceptions, and (ii) Buyer's title insurance company shall have committed unconditionally to issue to Buyer or its designee, at standard rates, an Extended ALTA Owner's Title insurance policy covering the Property, including such endorsements as Buyer may reasonably require, in an amount at least equal to the Purchase Price, insuring title to the Property subject only to: (i) The printed exceptions contained in the title company's owner's policy of title insurance; (ii) General and special taxes not then delinquent; (iii) The Permitted Exceptions; and (iv) Any matters created by or with the written consent of Buyer. (d) On the Closing Date, Madeleine, LLC shall: (i) have consented to provide acquisition financing to Buyer in the original principal amount of $3,765,000; and (ii) have agreed to provide construction financing in the amount of $1,700,000 under such terms as agreed upon by and between Buyer and Madeleine, LLC ("Madeleine"). (e) On the Closing Date, the Property shall be zoned under the applicable zoning ordinances of the State of Nevada as it is on the date of this Agreement, and such zoning shall permit as a matter of right the present and contemplated improvements and renovations and uses specifically including an unlimited, unconditional nonrestricted gaming operating (as defined in Nevada Revised Statutes Section 463.0177) of the Property. (f) Seller shall deliver to Buyer written evidence of the termination by Seller of the License Agreement by and between Cheyenne, as one party and Days Inn of America, Inc. ("Days Inn"), as the other party, and all amendments thereto and ancillary agreement in connection therewith (collectively the "Franchise Agreement"). (g) Buyer shall have received from Ramada Franchise Systems, Inc. ("Ramada") a comfort letter, in a form acceptable to Buyer in its sole discretion, such that Buyer and Madeleine shall have reasonable assurances as to the award to Buyer of a franchise from Ramada under such terms as are acceptable to Buyer and an estoppel as to any defaults, claims, causes of action or damage existing or which may exist to the benefit of Days Inn against Seller. (g) Representatives of both Purchaser and Seller shall have completed a walk through of the Property and jointly executed Schedule B-1 of all Personal Property to be delivered by Seller to Purchaser in "as is" condition as of the Closing Date. (h) Except as set forth in Exhibit G, Seller shall have delivered to Purchaser evidence 11 of termination of the Contracts, including but not limited to that certain management agreement for the Property. (i) Except as set forth in Exhibit G, both Seller and the Manager of the Property, each on their respective behalf, shall have delivered to Purchaser a certification as to the unavailability of such Property Documents which were not delivered to Purchaser. (j) As of the Closing Date, Seller, at its sole cost and expense, shall have delivered to Purchaser, for inspection, review and photocopying, true, correct and complete copies of all of the Property Documents. In the event a document identified as a Property Document is not in possession of Seller or the Property's manager then both Seller, to the best of its knowledge, and the Property Manager each on their respective behalf shall certify to Purchaser of the unavailability of such documents. 12. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. Seller's obligation to consummate the transactions contemplated hereby is subject to the satisfaction or waiver by Seller of the conditions set forth below before the dates specified below. The following conditions are for the benefit of Seller and can be waived only by Seller: (a) Buyer has timely delivered into Escrow the Closing Funds. (b) Buyer shall have performed all obligations and covenants required hereunder to be performed by Buyer on or before the Closing Date. (c) Buyer's representations and warranties contained herein and in any other documents furnished to Seller are true and correct as of the Closing Date. If any of the above conditions are not satisfied at or prior to the Closing for a reason other than a default by Seller under this Agreement, Seller may terminate this Agreement by written notice to Buyer and Escrow Agent, whereupon Escrow shall be canceled. 13 CLOSING (a) The Closing shall take place on or before April 30, 1998 (the "Closing Date"). Closing shall take place at the office of the Escrow Agent or at such other location as Buyer and Seller shall designate jointly. The Escrow Agent shall conduct the Closing. (b) The delivery to the Escrow Agent of the Purchase Price, the executed deed of conveyance, bill of sale, assignments and all other documents and instruments required to be delivered by either party by the terms of this Agreement shall be deemed to be a good and sufficient tender of performance of the terms hereof. Upon receipt of all referenced Closing Documents and the cash portion of the Purchase Price, the Escrow Agent shall be authorized to proceed to record the documents evidencing this transaction. The date of recordation of this transaction shall be the "Recordation Date". (c) The following items of income and expense shall be adjusted as of 6:00 o'clock 12 a.m. on the Recordation Date: (i) Real estate and personal property taxes with respect to the Property. (ii) Fuel, water and sewer service charges and charges for oil, electricity, telephone and all other public utilities. (iii) Rental income from hotel guests. (iv) All charges payable pursuant to the Contracts. (v) Buyer and Seller shall diligently attempt to agree upon all such amounts no later than one (1) business day prior to the Closing Date. If meters measure the consumption of water, gas and/or electric current at the Property by Seller, Seller shall attempt to cause such meters to be read on the day immediately preceding the Recordation Date and shall pay all utility bills resulting therefrom promptly upon receipt thereof. In making the adjustments required by this sub-section, Seller shall receive credit for all prepaid deposits made by Seller and expenses and similar items that are due on or after the Recordation Date, and Seller shall be charged with any unpaid accrued charges for the period prior to the Recordation Date. No adjustment shall be made for short term hotel guest room charges and other charges that are past due as of the Recordation Date. In the event that amounts are collected by Buyer from a hotel guest whose obligations are past due as of the Recordation Date, Buyer shall first apply such sum(s) against the amount then currently due Buyer, and then pay to Seller, from such collected funds, the balance owed Seller for the period prior to the Recordation Date. (vi) Buyer shall receive a transfer of funds or credit against the Purchase Price for the amount of the Advanced Guest Deposits as set forth on Exhibit "I" attached hereto and incorporated herein, held by Seller as of the date which is one (1) day prior to the Closing Date. (vii) Seller shall receive a credit at Closing from Buyer not to exceed $100,000 for those amounts actually advanced by Seller and properly documented by invoices marked paid, cancelled checks and lien releases (conditioned upon receipt of payment where applicable) for labor, materials and building permits issued in connection with those certain pending improvements at the Real Property (the "Building Expenditures") solely to the extent, however, that those Building Expenditures, all of which are more fully set forth on Exhibit F, attached hereto and incorporated herein, are capitalizable in accordance with Generally Accepted Accounting Principles. (d) CLOSING COSTS. (i) Seller shall pay: a. One-half (1/2) of the Escrow fees; b. The cost of documentary transfer taxes; c. The cost of issuing Buyer's title policy in CLTA Standard Form; 13 and d. The cost of any other obligations of Seller hereunder. (ii) Buyer shall pay: a. One-half (1/2) of the Escrow fees; b. The cost to record the Deed; c. Any additional premium charged for issuance of an ALTA Extended Form and any endorsements to Buyer's title policy; and d. The cost of any other obligations of Buyer hereunder. 14. TERMINATION (a) If (i) any of the representations and warranties made by the Seller in Section 6 be materially inaccurate or incorrect, (ii) the Seller shall fail to perform any of the covenants or agreements to be performed by the Seller under this Agreement, or (iii) the Buyer shall be relieved of its obligation to purchase the Property by operation of Section 11, then, in any such event, the Buyer, in its sole and absolute discretion, shall have the right either (A) to extend the Closing Date for a period of not more than one week to allow Seller to satisfy conditions specified in Section 11; (B) to terminate this Agreement by giving written notice to the Seller and the Escrow Agent; (C) in lieu of terminating this Agreement, to seek specific performance of this Agreement. In the event of (A) - (C) above, Buyer reserves all rights it may have to seek damages incurred by it. (b) (i) If all conditions precedent to the Buyer's obligation to purchase the Property have been satisfied and the Buyer defaults in purchasing the Property on the Closing Date as required by this Agreement, Seller's obligations to sell this Property under this Agreement shall terminate and Seller shall have the right to pursue all legal and equitable remedies to recover actual and direct damages but not special, indirect, punitive, consequential or lost profits that may be available to Seller as a result of Buyer's default. (ii) In the event, however, Buyer and Seller each discharge their obligations hereunder and the Settlement Agent does not break escrow within seven (7) business days from the Closing Date, either party may terminate this Agreement, the parties returned to their position status quo ante and neither party shall have any further liability or rights against each other for damages of any kind, all such claims being expressly waived. 15. CONDEMNATION AND DAMAGE BY FIRE OR OTHER CASUALTY [INTENTIONALLY DELETED]. 16. BROKERS. 14 Buyer and Seller each represent to the other that they have not dealt with any real estate broker, agent or person who may be entitled to a commission or fee or account of this Agreement, and Buyer and Seller each indemnifies and agrees to defend and hold the other party harmless from and against any loss, costs, liability and expense, including reasonable attorneys' fees, which may be incurred in the event its representations herein prove incorrect. 17. FOREIGN PERSON. If Seller is not a "foreign person," as defined in the Federal Tax Law, then at the Closing, Seller will deliver to Buyer a certificate so stating, in a form complying with the Federal Tax Law. If Seller is a "foreign person" or if Seller fails to deliver the required certificate at the Closing, then in either such event the funding to Seller at the Closing will be adjusted-to the extent required to comply with the withholding provisions of the Federal Tax Law; and although the amount withheld will still be paid at the Closing by Buyer, it will be retained by the Escrow Agent for delivery to the Internal Revenue Service, together with the appropriate Federal Tax Law forwarding forms (and with copies being provided both to Seller and to Buyer). 18. ENTIRE AGREEMENT. No change or modification of this Agreement shall be valid unless the same is in writing and signed by the parties hereto. No waiver of any of the provisions of this Agreement shall be valid unless in writing and signed by the party against whom it is sought to be enforced. This Agreement contains the entire agreement between the parties relating to the purchase and sale of the Property, all prior negotiations between the parties are merged in this Agreement and there are no promises, agreements, conditions, undertakings, warranties or representations, oral or written, express or implied, between them other than as set forth in this Agreement. 19. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The representations, warranties, covenants, agreements and indemnities set forth in or made pursuant to this Agreement shall remain operative and shall survive the Closing under this Agreement and the execution and delivery of the deed and other documents hereunder and shall not be merged therein, regardless of any investigation made by or on behalf of any party. 20. BENEFIT AND BURDEN. Seller may not assign its rights and obligations under this Agreement prior to the Closing Date without first obtaining the prior written consent of Buyer. All terms of this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective legal representatives, successors and assigns. If Buyer assigns its rights under this Agreement, Buyer shall promptly deliver an executed copy of the instrument of assignment to Seller. 21. GOVERNING LAW. This Agreement concerns property located in the County of Clark, State of Nevada, and shall be construed and enforced in accordance with the laws of the State of Nevada. 15 22. NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or if deposited in the United States mail, properly addressed and postage prepaid or if delivered to Federal Express or other recognized overnight delivery service, (i) if to Seller, c/o Banter, Inc., 1055 East Tropicana Avenue, Suite 200, Las Vegas, Nevada 89119, with a copy to Philip Murphy, Esquire, 3900 Paradise Road, Suite 283, Las Vegas, Nevada 89109; (ii) if to Buyer, c/o MTR Gaming Group, Inc., Attn: Edson R. Arneault, Route 2, South, P.O. Box 358. Chester, West Virginia, with a copy to James S. Mace, Esquire, Gordon & Silver, Ltd. 3800 Howard Hughes Parkway, 14th Floor, Las Vegas, Nevada 89109 and Louis M. Aronson, Esquire, Ruben & Aronson, LLP, 3299 K Street, N.W., Suite 403, Washington, D.C. 20007; or (iii) if to Escrow Agent: Nevada Title Company, 3320 West Sahara Avenue, Suite 200, Las Vegas, Nevada 89102; or (iv) at such other address as may be given by either party to the other party by notice in writing pursuant to provisions of this Section. 23. COLLECTION OF ACCOUNTS RECEIVABLE. (a) Seller will retain all accounts receivable relating to the Hotel accrued as of the Closing (including past due amounts), and shall have the right to collect the same. The accounts receivable shall include, without limitation, unpaid room, food and beverage charges, unpaid telephone charges; unpaid valet charges, unpaid charges for other services or merchandise; amounts owed to Seller from credit cards receipts, whether or not such credit card receipts have been delivered by Seller to the credit card companies; and refunds, prepayments, and like returns attributable to the period prior to the Closing Date. (b) All accounts receivable so retained by Seller are referred to as "Seller's Accounts Receivable." If any instruments representing payment of any Seller's Accounts Receivable come into the possession of Buyer, Buyer shall immediately deliver such instruments to Seller. All moneys collected by Buyer from Seller's Accounts Receivable shall be accounted for and be transmitted to Seller on or before the first (1st) and fifteenth (15th) days of each month with a statement showing the respective collections. All moneys collected by Buyer from Seller's Accounts Receivable shall be accounted for and be transmitted to Seller on or before the first (1st) and fifteenth (15th) days of each month with a statement showing the respective collections. All moneys collected from each payor of Seller's Accounts Receivable shall be applied in the reverse order of the age of the outstanding accounts receivable of that payor from the first to new order of the age of the outstanding accounts receivable of that payor from the most recent to the oldest, except where, due to a dispute, a particular payment is designated by the payor to be applied otherwise, in which case such specified application shall control. Buyer shall be accountable only from amounts actually received, and shall have no responsibility for, or duty to inquire into, any amounts deducted by the respective payers from amounts due Seller as service charges, offsets or otherwise. Buyer shall not be required to take any action to enforce the collection of Seller's Accounts Receivable. A charge of fifteen percent (15%) of the amount collected shall be made by Buyer to Seller for handling the collection of any Seller's Accounts Receivable requested by Seller. Buyer shall use reasonable efforts to keep proper records showing the results of collection of Seller's Accounts Receivable, which records shall be open to inspection by Seller or its agents at all reasonable times. Buyer shall not collect or be authorized 16 to collect any Accounts Receivable of Seller unless buyer is specifically requested to do so by Seller. Seller may not institute any action to enforce collection in any court of law to collect any unpaid Seller's Accounts Receivable absent the prior written consent of Buyer which may be withheld in Buyer's sole and absolute discretion. The provisions of this subparagraph shall survive the Closing. 24. INDEMNIFICATION. (a) Each party shall indemnify and hold the other party harmless from and, at the indemnifying party's expense, defend the other party against any and all claims, demands, causes of action, liabilities, damages, losses, costs and expenses, including, without limitation, reasonable attorneys' fees of the indemnified party's choice (collectively, "Claims") which (whether insured against or not) may be asserted against, incurred or suffered by the indemnified party from time to time by reason of or in connection with: (i) The inaccuracy or breach of any of the representations, warranties or covenants made by the indemnifying party herein; or (ii) Any transaction, contract, act, activity, occurrence, or event relating to the Property, the Franchise Agreement or the Business, or the use and operation of the Property, which transaction, contract, act, activity, occurrence or event occurred with respect to Seller as the indemnifying party prior to the Closing (except to the extent such liabilities were charged to Seller through the Section concerning prorations and except to the extent arising under any of the Contracts), or with respect to Buyer as the indemnifying party after the Closing. (b) Seller shall indemnify, defend, and hold harmless Buyer from and against all claims against Buyer relating to labor or employment claims of, or liabilities or obligations to, present and former employees of Seller (collectively, "Employee Claims") provided, however, that nothing herein is intended or shall construed as an indemnity for any liabilities or obligations arising out of Buyer's employment or discharge of any persons on or after the Closing Date. By way of illustration but not limitation, Employee Claims shall include claims, liabilities, or obligations relating to salaries, wages, minimum wages, compensation, overtime pay, holiday pay, vacation pay, raises, bonuses, employee benefits, severance pay, grievances under the union contracts, unfair labor practice charges before the National Labor Relations Board workers' compensation, WARN Act, FICA, ERISA obligations, disability, unemployment insurance, breach of employment contracts, whether sounding in contract or tort, wrongful discharge, safety and health, and employment discrimination, including, without limitation, claims before the Equal Opportunity Commission, Office of Federal Contract Compliance Program and the Department of Labor. (c) Seller shall indemnify, defend and hold harmless Buyer from and against all claims against Buyer arising from or relating to any contract or commitment of Seller. (d) The indemnity agreements under this Section shall survive the Closing. (e) Each of the parties shall promptly notify the other of the existence of any loss, claim, demand or other matter to which the foregoing indemnification obligations may apply and 17 give the indemnifying party a reasonable opportunity to defend the same at the indemnifying party's own expense and with counsel of the indemnifying party's own selection; provided that the indemnified party or parties shall at all times also have the right to fully participate in the defense at its or their own expense. If the indemnifying party shall fail to defend within a reasonable time, the indemnified party shall have the right, but not the obligation, to undertake the defense of, and to compromise and settle (exercising reasonable business judgment), the claim or other matter on behalf, for the account and at the risk of the indemnifying party, provided the indemnifies party obtains a release for the benefit of the indemnifying party. If the claim is one that cannot by its nature be defended solely by one party, the other parties shall make available all information and cooperation that any party may reasonably request. Unless an indemnifying party fails or refuses to defend a claim or action, an indemnified party shall not be entitled to any attorney's fees for services of the indemnified party's counsel in connection with the matter. 25. ATTORNEY'S FEES. If it shall be necessary for either Buyer or Seller to employ an attorney to enforce or defend its rights under this Agreement, the non-prevailing party shall reimburse the prevailing party for its reasonable attorneys' fees and costs of suit. 26. COUNTERPARTS. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. The parties further acknowledge that facsimile signatures may be accepted in lieu of originals on the signature pages of this Agreement and any related documents necessary for closing and agree that each such facsimile signature shall be replaced promptly with the original as soon as practicable following Closing, time being of the essence. 27. BENEFIT AND BURDEN The Seller may not assign its rights and obligations under this Agreement prior to the Closing Date without first obtaining the prior written consent of the Buyer. All terms of this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective legal representatives, successors and assigns. If the Buyer assigns its rights under this Agreement, the Buyer shall promptly deliver an executed copy of the instrument of assignment to the Seller. 28. RISK OF LOSS Except as otherwise expressly provided in Section 15 above, the risk of loss or damage to the property by fire or other casualty shall be borne by Seller until recordation of the deed of conveyance to Buyer. 29. GOVERNING LAW This Agreement concerns property located in the State of Nevada, and shall be construed 18 and enforced in accordance with the laws of the State of Nevada. 30. MISCELLANEOUS (a) Time is of the essence with respect to all provisions of this Agreement. If the date on which either Buyer or Seller is required to take action under this Agreement is not a Business Day, the action shall be taken on the next succeeding Business Day. (b) The captions of the various sections and paragraphs of this Agreement have been inserted only for the purpose of convenience; such captions are not a part of this Agreement and shall not be deemed in any manner to modify, explain, enlarge or restrict any of the provisions of this Agreement. (c) Each party to this Agreement has been afforded an opportunity to have this Agreement reviewed by his respective counsel. The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or of any amendments or exhibits to this Agreement. (d) Seller shall not have any liability under this Agreement for use or depletion of Operating Supplies in the normal course of business or for reasonable wear and tear to the Improvements or Personal Property subsequent to Seller's execution of this Agreement. (e) Each party's representations and warranties made herein are material to the other party's decision to enter into this Agreement and are being relied upon by the other party in undertaking its obligations hereunder. Except to the extent set forth in writing prior to the Closing the representations of each party made herein shall be deemed made again as of the Closing without the necessity of further documentation. The representations and warranties of each of the parties set forth above shall survive the Closing and the delivery of the Deed. Seller shall not have any liability to Buyer if a representation of Seller which was true as of the date of this Agreement is not true as of the Closing Date as a result of: (i) acts or omissions of Buyer or third parties after the execution of this Agreement by Seller, or (ii) circumstances beyond the reasonable control of Seller, so long as Seller notifies Buyer of the circumstances identified in (i) and (ii) herein prior to the Closing. (f) Seller does not warrant that any consent required as a condition to Seller's authority to execute, deliver or perform this Agreement will be obtained at or prior to the Closing, it being understood that the conditions to the respective obligations of Buyer and Seller speak for themselves and that neither Buyer or Seller is purporting hereunder to warrant or represent that any condition beyond its control will be satisfied. The representations and warranties of Seller set forth herein are hereby qualified by reference to the right of the Lender to refuse to consent to the transfer of the Property to Buyer. (g) Except for the matters set forth in Section 6 hereof, Buyer acknowledges that the Seller is not making and has not made any express or implied representation or warranty concerning the Property or any part or component thereof, including, without limitation, any 19 representation or warranty concerning the past, present or prospective revenues, expenses, income or results of operation thereof; the past or present uses thereof or the prospective uses which can be made thereof; the past, present or prospective value or profitability thereof; the past, present or prospective zoning, subdivision, building or other governmental regulations or controls relating thereto; or any other past, present or prospective matter whatsoever with respect thereto. IN WITNESS WHEREOF, Buyer and Seller have signed this Agreement on the day and year first above written. BUYER: SPEAKEASY GAMING OF NEVADA, INC. By: /s/ Edson R. Arneault -------------------------- Name: Edson R. Arneault Its: President SELLERS: BANTER, INC. By: /s/ Christopher S. Conboy ---------------------------- Christopher S. Conboy Assistant Vice President 20 DGI and AITD hereby acknowledge receipt and delivery of the foregoing Agreement and are executing this Agreement below for the limited purpose of joining in the representations and warranties set forth in Sections: (a) 5(c), 5(g), 5(m), 5(v), 5(y), and (b) _________________________________ DESERT GAMING, INC., A NEVADA CORPORATION By: /s/ Christopher S. Conboy ---------------------------- Christopher S. Conboy Assistant Vice President AMERICAN INTERNATIONAL TRADE AND DEVELOPMENT, INC., A NEVADA CORPORATION By: /s/ Christopher S. Conboy ---------------------------- Christopher S. Conboy Assistant Vice President EX-10.7 3 EXHIBIT 10.7 EXHIBIT 10.7 PURCHASE AGREEMENT THIS PURCHASE AGREEMENT ("Agreement") is made and entered into this 30th day of April, 1998 by and between SPEAKEASY GAMING OF RENO, INC., a Nevada corporation ("Purchaser"), and RENO HOTEL, LLC, a Delaware limited liability company ("Seller"). RECITALS A. Seller is the owner of improved real property commonly known as the Reno Hotel located at 200 East 6th Street, at Lake Reno, in the City of Reno, County of Washoe, State of Nevada more particularly described in EXHIBIT A attached hereto and incorporated herein including: (i) all right, title and interest of Seller in and to any easements, covenants and other rights appurtenance to such land; and (ii) all right, title and interest of Seller in and to any land lying in the bed of any existing dedicated street, road, avenue or alley, open or closed, in front of or adjoining such land (the "Real Property") together with buildings containing 250 guest rooms, a restaurant, bar, banquet rooms and all other improvements situated on the Real Property including all existing parking spaces (collectively the "Improvements"). B. A hotel, restaurant, bar and related businesses (collectively, the "Business") are operated on the Real Property. The Real Property is furnished and equipped with certain furniture, furnishings, fixtures, kitchen, televisions and other equipment and non-consumable items (collectively "FFE") and an assortment of operating supplies consisting of housekeeping and laundry supplies, food and beverage inventories, paper and accounting supplies and similar consumable items (collectively, the "Operating Supplies"). C. Seller is the sole owner of the Real Property, the Improvements, the FFE and the Operating Supplies. The FFE and the Operating Supplies are collectively called the "Personal Property." Attached hereto and incorporated herein, as Exhibit B-1 is Seller's inventory of the Personal Property. Attached hereto and incorporated herein, as Exhibit B-2 is Seller's inventory of any items of personal property leased by Seller from third parties and not owned by Seller (the "Contract Equipment"). No representation is given, express or implied, under this Agreement or any Exhibit or schedule attached or to be attached hereto that Seller is the owner of the Contract Equipment. Seller acknowledges that the Personal Property consists of those items set forth in Exhibit B-1 and that Exhibits B-1 and B-2 set forth all items of personal property used at the Real Property for the operation of the Real Property and Improvements and the operation of the Business and specifically excludes any gaming device as defined in Nevada Revised Statutes Section 463.0155 ("Gaming Device"). D. The "Intellectual Property" consists only of such rights, if any, as Seller may possess to the name "Reno Hotel." Seller will assign rights of Seller in or to the Intellectual Property to Purchaser at the Closing. E. The Real Property, Improvements, Personal Property and Intellectual Property, Tenants Security Deposits (as defined below), Contracts (as defined below), Leases (as defined below), Permits (as defined below), and all utility and other deposits including the advanced payments set forth on Exhibit F attached hereto and incorporated herein (the "Advanced Deposits") and warranties relating to the ownership and operation of the Business are collectively referred to as the "Property." The operation of the Business is sometimes called the "Hotel" in this Agreement. The Property does not include any of the following items: Gaming Devices; cash; coins (including coins in slot and vending machines); bank accounts or accounts receivable. NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. DEFINITIONS (a) For all purposes of this Agreement, the following terms shall have the respective meanings set forth below: "Americans With Disabilities Act" means 42 USC Section 12101, et seq. and all laws or regulations from time to time applicable to the Property governing use, access and accommodations. "Business Day" means any day other than a Saturday, Sunday, or other day on which commercial banks are authorized or required to close under the laws of the State of Nevada. "Closing" shall mean the closing of the purchase and sale of the Property in accordance with Section 11(a) hereof. "Closing Date" shall mean the date of Closing provided for in Section 11. "Contracts" means all contracts, agreements and obligations currently in force relating to the Property, including, without limitation, all sale, management, construction, leasing, insurance, commission, architectural, engineering, operating, employment, service, supply and maintenance agreements. "Effective Date" means the date on which both Seller and Purchaser have executed this Agreement. "Existing Exceptions" means a lien against the Property for real estate taxes not yet due and payable and those other matters affecting title to the Property as are set forth on Exhibit D attached hereto. 2 "Federal Tax Law" means the Federal Foreign Investment in Real Property Tax Act of 1980 and the 1986 Tax Reform Act, as amended. "Governmental Authorities" shall mean any governmental or quasi-governmental body or agency having jurisdiction over the Property and/or Seller, including, without limitation, the State of Nevada, City of Reno, Nevada and Washoe County, Nevada. "Governmental Regulation" shall mean any laws, ordinances, rules, requirements, resolutions, policy statements and regulations (including, without limitation, those relating to land use, subdivision, zoning, environmental, toxic or hazardous waste, occupational health and safety, water, earthquake hazard reduction, and building and fire codes) of the Governmental Authorities bearing on the construction, alteration, rehabilitation, maintenance, use, operation or sale of the Property. "Hazardous Materials" means toxic materials, hazardous waste, hazardous substances [as these terms are defined in the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. 6901, et seq.), in the Hazardous Materials Transportation Act, 49 U.S.C. 1802 and/or in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended (42 U.S.C. 9601, et seq.)], asbestos or asbestos-related products, oils, petroleum-derived compounds, radon, PCB'S, gas or oil storage tanks, or other hazardous materials or pesticides as from time to time identified in any laws or regulations from time to time applicable to the Property. "Insurance Company" shall mean United Title of Nevada. "Leases" means all leases or other agreements permitting the use or occupancy of space on, under, over or about the Property, including all amendments and exhibits thereto and assignments thereof. "Permits" means all evidence in the possession of Seller that the present structure, use, operation and maintenance of the Property is authorized by, and in compliance with, Governmental Regulations including, but not limited to, true and correct legible copies of any or all certificates of occupancy (or the equivalent), any or all permits, licenses and other authorizations issued with respect to the Property and gaming activities conducted on or permitted thereon, and each portion of space in the Property occupied by individual Tenants or hotel guests. "Permitted Exceptions" shall mean those matters affecting title to the Property set forth 3 on Exhibit E attached hereto and incorporated herein. "Person" means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, limited liability company, limited liability partnership, governmental authority, or other entity of whatever nature. "Personal Property" means all personal property owned or used by Seller in connection with the operation or maintenance of the Hotel excluding any gaming device and alcoholic beverages. "Property Documents" means the items specified in Section 2 (b) below. "Rent Roll" means a rent roll dated not earlier than one month before the date hereof listing for each Tenant, hotel guest and rents (including, without limitation, minimum rents and additional rents, pass-through obligations, room charges, movie charges and long distance phone charges). "Studies" means title examinations; surveys; architecture, financial, financing, economic, marketing, engineering, and other tests, including test borings, inspections, investigations, reviews, and/or other similar studies. "Tenant" means any Person or hotel guest (short or long term) entitled to occupy or use any portion of the Property pursuant to a Lease, or any similar written agreement. (b) Whenever required by the context of this Agreement, the singular shall include the plural and the masculine shall include the feminine and vice versa. 2. PROPERTY DOCUMENTS (a) [INTENTIONALLY DELETED] (b) The Property Documents constitute the following items to the extent in Seller's or its Property Manager's possession: (i) The latest ALTA survey, if any, prepared on behalf of Purchaser, showing all improvements, rights of way, easements, dedications; plats; site plans; and certified as-built building plans, all relating to the Property. (ii) All architectural drawings, plans and specifications, appraisals, zoning, 4 and access documents relating to the Property. (iii) The Permits. (iv) Copies of all casualty, liability and other insurance policies presently in effect with respect to the Property. (v) Cash operating statements of income, operating expense and capital expense for the Property which have been prepared in the normal course of business for the preceding calendar year (1997) and the months of January, 1998, February, 1998 and March, 1998 and substantially in accordance with generally accepted accounting principles. (vi) All assessments and bills for real estate, personal property and any other taxes affecting the Property and for special assessments for the current and the preceding calendar years, and a summary of any contested tax assessments. (vii) True, correct and complete copies of the Leases, including all amendments, formal or informal, side agreements, concession arrangements or other matters related thereto, all financial/credit information available for the Tenants including statements for Tenant deposit accounts, and the Rent Roll. (viii) True, correct and complete copies of the Contracts and a schedule of such Contracts, which schedule, upon receipt, shall be attached hereto as Exhibit G, and incorporated herein. (ix) Seller's existing title insurance policy for the Property, all amendments, endorsements and exhibits thereto. (x) A list of all threatened, pending or ongoing claims or lawsuits and all outstanding judgments against Seller, or to the best of Seller's knowledge, relating to the Property. (xi) Copies of all engineering and physical inspection reports related to the Property, including, but not limited to, any roof or structural inspection reports or environmental inspection/impact reports, soil reports or reports relating to Hazardous Materials and the Americans with Disabilities Act. (xii) A copy of all business and professional license/tax returns filed by Seller for the last fiscal year and copies of any correspondence from Governmental Authorities related 5 to such returns, and a summary of any contested tax assessments. (xiii) As more fully set forth in Exhibit B-1, a list of Personal Property (including, to the extent in Seller's possession, copies of all warranties and guarantees related thereto) used by or on behalf of Seller in-connection with the operation and maintenance of the Property, plus a copy of any roof warranty or other warranty in effect with respect to any part of the Property. (xiv) Copies of any and all insurance certificates pertaining to the Property. (xvi) Copies of all operational and correspondence files. (xvii) A list of all employees presently employed in the conduct of the Business, including all supporting immigration and naturalization information as may be required by Governmental authorities, which, upon receipt, shall be attached hereto as Exhibit H. 3. FEASIBILITY PERIOD [INTENTIONALLY DELETED]. 4. PURCHASE AND SALE OF PROPERTY (a) On the Closing Date, and subject to the terms and conditions of this Agreement, Seller agrees to sell and convey, and Purchaser agrees to acquire the Property. As a condition to Purchaser's obligation to close, title to the Property shall be free and clear of all liens, encumbrances, easements, covenants, conditions and other matters affecting title, except for the Permitted Exceptions, and shall be good of record and in fact merchantable and insurable at standard rates. (b) Seller agrees that it will, at any time and from time-to-time after the Closing Date, upon and at the expense of the Purchaser, do, execute, acknowledge or deliver, all such further acts, deeds, assignments, conveyances and assurances as may reasonably be required for the better conveying, transferring, assigning, assuring and confirming the Property to Purchaser. 5. PURCHASE PRICE AND TERMS OF PAYMENT (a) Subject to any Closing adjustments, the Purchase Price shall be Eight Million Dollars ($8,000,000.00), payable at Closing. (b) On the Closing Date, Purchaser will cause a federal wire transfer of funds to be 6 made to the Insurance Company, as applicable, in the amount indicated on the Settlement Statement approved by Purchaser and Seller, which amount shall be disbursed in accordance with the joint instructions of Purchaser and Seller. 6. RIGHT OF INSPECTION Purchaser shall indemnify, defend and hold harmless Seller and Seller's members, principals, agents and representatives in connection with Purchaser's due diligence activities and Studies at or around the Property occurring prior to the Closing Date and as a condition of Seller's obligation to close, Purchaser shall have delivered to Seller evidence of comprehensive general liability insurance from a reputable insurance company in an amount not less than $2,000,000 per occurrence which covers Purchaser's due diligence activities prior to Closing. 7. REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Purchaser as follows: (a) To Seller's knowledge: (i) Seller is the record owner of fee simple title to the Property subject only to the Existing Exceptions; and (ii) Seller is not in default under or in violation of the terms of any such Existing Exception. (b) Seller has not made, and prior to the Closing will not make, any material commitments to any Governmental Authorities, utility company, school board, church or other religious body, or any homeowner or homeowners' association, or to any other organization, group or individual, relating to the Property which would impose any obligation on Purchaser, or its successors or assigns, after the Closing to make any contributions of money, dedications of land or grant of easements or right-of-way, or to construct, install or maintain any improvements of a public or private nature on or off the Property. (c) Seller has received no written notice of violations of law or municipal ordinances, orders or requirements now existing with respect to the Property. (d) Pursuant to written notification by Purchaser to be attached hereto as Exhibit G-1 and incorporated herein by reference and except as otherwise provided in Exhibit G and G-1 (which shall collectively be referred to as Exhibit G), on the Closing Date, there will be no contract or agreement in effect for the management or leasing of the Property, or for other services, which cannot be terminated on 30 days notice. (e) All bills and claims for labor performed and materials furnished to or for the 7 benefit of the Property for all periods prior to the Closing Date have been (or prior to the Closing Date will be) paid in full or will be adequately bonded off or Seller will make arrangements to pay such bills and claims in such a manner that Purchaser shall be provided adequate evidence that no such claims will survive Closing and be enforceable against Purchaser or the Property, and there are no actual or potential mechanics' liens or materialmen's liens (whether or not perfected) on or affecting the Property. (f) Seller has not received any written notice that there are any wetlands of any nature located on the Property. (g) Seller has not received any written notice from any governmental authority that the Property is in violation of any Governmental Regulation including without limitation the Americans with Disabilities Act. (h) Seller has not received any notice that there are any special assessments pending, noted or levied against the Property, and, to the best of its knowledge, there are none, nor is there any proposed increase in the assessed value of the Property. (i) Except as set forth in that certain Phase I Environmental Report of Broadbent & Associates, Inc. dated March 6, 1998, Seller has received no notice that there are any Hazardous Materials located on or in the Property, including the surface, soil or subsurface of the Property in violation of any Environmental law. Seller has received no written notice from a Governmental Authority of any violation of any law, ordinance, order or regulation of any Governmental Authority having jurisdiction over Hazardous Materials. (j) Seller is a "United States person" within the meaning of Sections 1445(f)(3) and 7701(a)(3) of the Internal Revenue Code of 1986, as amended. (k) Exhibit G attached hereto, which represents a true and complete schedule of the Contracts, all of which shall be terminated by the Closing, except as set forth in Exhibit G. There shall not be any continuing obligations of any nature whatsoever imposed on Purchaser following Closing under any agreements existing prior to the Closing (other than obligations arising after Closing pursuant to the Leases and those Contracts that Purchaser accepts). To the extent any payments may be due and payable in connection with the termination of any such agreements, Seller either shall make such payments at or prior to Closing or shall escrow an amount equal to such obligations with the Escrow Agent at Closing, except as set forth in Exhibit G. (l) The operating statements for the Hotel delivered by Seller to Purchaser pursuant 8 to Section 2(b)(v) hereof are true and correct copies of those delivered to Seller. (m) No attachment, execution proceedings, assignments for the benefit of creditors, insolvency, bankruptcy, reorganization, or other proceedings are pending or threatened against Seller or its managing member. (n) Seller has paid or caused to be paid or will arrange at Closing to pay all real estate taxes, income taxes, special assessments and other taxes, that are due on or before the Closing Date which, if not paid, could result in a lien or charge against the Property. (o) Seller has the legal power, right and authority to enter into this Agreement and the instruments referenced herein and to consummate the transactions contemplated hereby. (p) All requisite action (corporate, partnership or otherwise) has been taken by Seller and its managing member or managers in connection with entering into this Agreement, the instruments referenced herein and the consummation of the transactions contemplated hereby, and no consent of any member, manager, judicial or administrative body, Governmental Authority or third party is required which has not been obtained. (q) This Agreement and all documents required hereby to be executed by Seller are and shall be valid, legal, binding obligations of, and enforceable against, Seller in accordance with their terms, subject only to applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws, or equitable principles affecting or limiting the rights of contracting parties generally. (r) Neither the execution and delivery of this Agreement and the documents referenced herein nor the consummation of the transactions contemplated herein nor compliance with the terms of this Agreement and the documents referenced herein conflict or result in the material breach of any terms, conditions or provisions of, or constitute a default under, any bond, note or other evidence of indebtedness or any contract, indenture, mortgage, deed of trust, loan, operating agreement, partnership agreement, lease or other agreements or instruments to which Seller or any of its members or managers is a party or affecting the Property or by which Seller or any of its partners may be bound. (s) Seller is not insolvent or the debtor in any bankruptcy, receivership or similar proceeding; and no party of the Property is currently subject to the jurisdiction or supervision of any court in any such proceeding. (t) Seller is not a party to any collective bargaining agreements, union contracts, union 9 letters or similar agreements for the Property and its employees. (u) Seller has not received notice of any pending or threatened condemnation of all or of any portion of the Property, or written notice of any violation of zoning restrictions in respect of the Property from any governmental authority or agency. (v) Seller has not received notice of any litigation governmental or administrative proceedings or arbitrations pending or threatened with respect to any of the Property. (w) Seller has not entered into and has received no written notice of and unrecorded rights of first offer to purchase, rights of first refusal to purchase, purchase options or similar rights or contractually required consents to transfer pertaining to the Property which would be breached by this Agreement or the consummation of the transaction provided for herein. (y) Seller has not received from any insurance company which carries insurance on the Property, or any Board of Fire Underwriters, any notice of any defect or inadequacy in connection with the Property or its operation which has not been cured. (z) Exhibit I attached hereto and incorporated herein a substantially complete and accurate list of the names of all employees of Seller employed in connection with the operation of the Business and their job classifications and wage rates, including any fringe benefits, vacation pay and bonuses. (aa) Seller does not maintain or contribute to any plan or arrangement which constitutes an "employee pension benefit plan" as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974 (ERISA) as amended, and is not obligated to contribute to or accrue or pay benefits under any deferred compensation, profit sharing, bonus, pensions or retirement funding agreement with respect to any persons employed in connection with the Property or any component thereof. 8. AS IS; PURCHASER'S REPRESENTATIONS. (a) (i) Subject to the Permitted Exceptions and Existing Exceptions, Purchaser expressly acknowledges and agrees to accept the Property on an "as-is-where-is and with all faults" basis, except as otherwise provided in this Agreement. (ii) This Agreement, as written, contains all the terms of the agreement entered into between the parties as of the date hereof, and Purchaser acknowledges that neither Seller nor any person controlling, controlled by or under common control with Seller 10 (collectively, "Seller's Affiliates"), nor any of their agents or representatives, has made any representations or warranties or held out any inducements to Purchaser, and Seller hereby specifically disclaim any representation or warranty, oral or written, past, present or future, other than those specifically set forth in Paragraph 7 and Paragraph 14. Without limiting the generality of the foregoing, neither Seller nor any of Seller's Affiliates, nor any of their agent or representatives has or is willing to make any representations or warranties, express or implied, other than as may be expressly set forth herein, as to: (a) the current or future real estate tax liability, assessment or valuation of the Property; (b) the potential qualification of the Property for any and all benefits conferred by any laws whether for subsidies, special real estate tax treatment, insurance, mortgages (except to the extent granted to an affiliate of Seller) or any other benefits, whether similar or dissimilar to those enumerated; (c) the compliance of the Property in its current or any future state with applicable laws or any violations thereof, including, without limitations, those relating to access for the handicapped, environmental or zoning matters, and the ability to obtain a change in the zoning or a variance in respect to the Property's non-compliance, if any, with zoning laws; (d) the nature and extent of any right-or-way, lease, possession, lien, encumbrance, license, reservation, condition or otherwise; (e) the current or future use of the Property; (f) the future condition and operational state of any personal property and the present or future structural and physical condition of the Buildings, their suitability for rehabilitation or renovation, or the need for expenditures for capital improvements, repairs or replacements thereto; (g) the viability or financial condition of any tenant; (h) the status of the market in which the Property is located; or (i) the actual or projected income or operating expenses of the Property. (iii) Purchaser acknowledges that Seller has afforded Purchaser the opportunity for full and complete investigations, examinations and inspections of the Property and all pertinent information. Purchaser acknowledges and agrees that: (a) the information delivered or made available to Purchaser and Purchaser's representatives by Seller of Seller's Affiliates, or any of their agents or representatives may have been prepared by third parties and may not be the work product of Seller and/or any of Seller's Affiliates; (b) neither Seller or any of Seller's Affiliates has made any independent investigation or verification of, or has any knowledge of, the accuracy or completeness of, the information furnished to Purchaser; (c) the information delivered or made available to Purchaser and Purchaser's representatives is furnished to each of them at the request, and for the convenience of Purchaser; (d) Purchaser is relying solely on its own investigations, examinations and inspections of the Property and those of Purchaser's representatives; and (e) Seller expressly disclaims any representations or warranties with respect to the accuracy or completeness of the information furnished to Purchaser, and Purchaser releases Seller and Seller's Affiliates, and their agents and representatives, from any and all liability with respect to information prepared by or on behalf of Purchaser. 11 (iv) Purchaser or anyone claiming by, through or under Purchaser, hereby fully and irrevocably releases Seller and Seller's Affiliates, and their agents and representatives, from any and all claims that it may now have or hereafter acquire against Seller or Seller's Affiliates, or their agents or representatives of any cost, loss, liability, damage, expense, action or cause of action, whether foreseen or unforeseen, arising from or related to any construction defects, errors, or omission on or in the Property, except to the extent created by Seller or its Affiliates, except for claims against Seller based upon any obligations and liabilities of Seller expressly provided in this Agreement. Purchaser further acknowledges and agrees that this release shall be given full force and effect according to each of its expressed terms and provisions, including, but not limited to, those relating to unknown and suspected claims, damages and causes of action. (v) The provisions of this paragraph shall survive the Closing or the earlier termination of this Agreement. (vi) To the extent that the Property Documents or other information obtained by Purchaser at or prior to the Closing contain provisions or information that are inconsistent with the representations and warranties of Seller contained in this Agreement, such representations and warranties shall be deemed modified to the extent necessary to eliminate such inconsistency and to conform such representations and warranties to such provisions or information discovered by Purchaser. Purchaser acknowledges that notwithstanding anything contained in the Property Documents or representations and warranties of Seller contained in Paragraph 7 above (collectively a "Seller Representation"), that to the extent a Study conducted by Purchaser or the Property Documents disclose a fact or condition which is different from a Seller Representation, then said Seller Representation shall be deemed modified and or amended by said the results and findings of that Study or the Property Documents. (b) Purchaser hereby represents and warrants to Seller as follows: (i) No attachment, execution proceedings, assignments for the benefit of creditors, insolvency, bankruptcy, reorganization, or other proceedings are pending or threatened against Purchaser or its managing member. (ii) Purchaser has the legal power, right and authority to enter into this Agreement and the instruments referenced herein and to consummate the transactions contemplated hereby. (iii) All requisite action (corporate, partnership or otherwise) has been taken by Purchaser in connection with entering into this Agreement, the instruments referenced herein and the consummation of the transactions contemplated hereby, and no consent of officer, director, shareholder, judicial or administrative body, Governmental Authority or third party is required 12 which has not been obtained. (iv) This Agreement and all documents required hereby to be executed by Purchaser are and shall be valid, legal, binding obligations of, and enforceable against, Purchaser in accordance with their terms, subject only to applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws, or equitable principles affecting or limiting the rights of contracting parties generally. (v) Neither the execution and delivery of this Agreement and the documents referenced herein nor the consummation of the transactions contemplated herein nor compliance with the terms of this Agreement and the documents referenced herein conflict or result in the material breach of any terms, conditions or provisions of, or constitute a default under, any bond, note or other evidence of indebtedness or any contract, indenture, mortgage, deed of trust, loan, lease or other agreements or instruments to which Purchaser is a party or by which Purchaser may be bound. (b) Purchaser is not insolvent or the debtor in any bankruptcy, receivership or similar proceeding. 9. ADDITIONAL UNDERTAKINGS OF SELLER Seller shall perform the following undertakings: (a) On the Closing Date, Seller shall execute, acknowledge and deliver to Purchaser a good and sufficient grant bargain and sale deed in proper form for recording, conveying the Real Property to Purchaser or Purchaser's designee, free and clear of all liens, leases encumbrances, covenants, conditions and other matters affecting title, except for the Permitted Exceptions, and shall execute and acknowledge (as appropriate), deliver to Purchaser the Security Deposits and deliver originals of all the Leases, the Rent Roll, Permits, Contracts, Property Documents, warranty agreements and similar records relating to the Property and, as required by Purchaser, assignments of and/or bills of sale and the Intellectual Property for each of the foregoing (including appropriate indemnification), and all keys to the Property in Seller's possession. (b) Seller shall give possession and occupancy of the Property to Purchaser on the Closing Date, subject to the Leases and the rights of Tenants thereunder. (c) If requested to do so by Purchaser, on the Closing Date Seller shall execute and deliver to Purchaser, or any title insurance company designated by it, an owner's Affidavit, in the customary form, with respect to the absence of claims which would give rise to mechanics' liens 13 and the absence of parties in possession of the Property other than Seller and Tenants pursuant to the terms of Leases or shall provide such other assurances as shall be reasonably required to enable Purchaser to obtain the title insurance policy to be issued pursuant to the title commitment referred to in Section 10(d). (d) [INTENTIONALLY DELETED] (e) Seller shall deliver an IRC Affidavit. (f) Seller shall deliver to Purchaser such other instruments or documents as may be reasonably required by Purchaser or the Insurance Company in order to consummate the transactions contemplated hereby. (g) Insurance Company shall deliver a conformed copy of the Deed and the original IRC Affidavit and each of the other documents and instruments delivered into Escrow by Seller as set forth above to Purchaser simultaneously with the recordation of the Deed. The Deed shall provide that it is to be returned to Insurance Company or Purchaser following recordation. If the original Deed is returned to Insurance Company, Insurance Company shall deliver the original Deed to Purchaser, with a copy showing all recording information to Seller at the address noted in Paragraph 21, below. 10. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER The obligation of Purchaser to purchase the Property shall be subject to the following conditions (all or any of which may be waived, in whole or in part, by Purchaser): (a) The representations and warranties made by Seller in Section 7 shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of such date, and Seller shall have executed and delivered to Purchaser a certificate dated as of the Closing Date to the foregoing effect. (b) Seller shall have performed all covenants and obligations required by this Agreement to be performed or complied with by Seller on or before the Closing Date, including but not limited to those set forth in Section 9 hereof. (c) The results of all environmental surveys or studies conducted on the Property are satisfactory to Purchaser. (d) On the Closing Date, (i) Seller's title to the Property shall be marketable, good of 14 record and in fact, and free-and-clear of all liens, mortgages, deeds of trust, encumbrances, easements, leases, conditions and other matters affecting title other than the Permitted Exceptions, and (ii) the Title Insurance Company shall have committed unconditionally to issue to Purchaser, or its designee, at standard rates, an ALTA Form B owner's title insurance policy covering the Property, including such endorsements as Purchaser may reasonably require, in an amount at least equal to the Purchase Price, insuring title to the Property in the condition required by clause (i) Section 9(a) hereof. In the event Seller is unable to deliver title as specified by this Paragraph 10(d), then Purchaser may either waive such defect and proceed to Closing, or cancel the Contract. In the event of such election by Purchaser, the parties shall each bear their respective costs and fees incurred in this transaction. (e) On the Closing Date, Madeleine, LLC ("Madeleine") shall have committed to fund and will fund the entire Purchase Price under such terms as are acceptable to Purchaser and Madeleine. (f) On the Closing Date, Purchaser shall have received from Ramada Franchising System, Inc. either a comfort letter, tri-party agreement or conditional assignment of the new franchise agreement in a form reasonably satisfactory to Purchaser and Madeleine. (g) Representatives of both Purchaser and Seller shall have completed a walk through of the Property and jointly executed Schedule B-1 of all Personal Property to be delivered by Seller to Purchaser in "as is" condition as of the Closing Date. (h) Except as set forth in Exhibit G, Seller shall have delivered to Purchaser evidence of termination of the Contracts, including but not limited to that certain Management Agreement with Northwest Hospitality, Inc. (i) Except as set forth in Exhibit G, both Seller and the Manager of the Property, Northwest Hospitality Inc, each on their respective behalf, shall have delivered to Purchaser a certification as to the unavailability of such Property Documents which were not delivered to Purchaser. (j) As of the Closing Date, Seller, at its sole cost and expense, shall have delivered to Purchaser, for inspection, review and photocopying, true, correct and complete copies of all of the Property Documents. In the event a document identified as a Property Document is not in possession of Seller or the Property's manager then both Seller, to the best of its knowledge, and the Property Manager each on their respective behalf shall certify to Purchaser of the unavailability of such documents. 15 11. CLOSING (a) Closing shall take place on April 30, 1998 (the "Closing Date"). Closing shall take place at the office of the Insurance Company or at such other location as Purchaser and Seller shall designate jointly. (b) The delivery to the Insurance Company of the Purchase Price, the executed deed of conveyance, bill of sale, assignments and all other documents and instruments required to be delivered by either party by the terms of this Agreement shall be deemed to be a good and sufficient tender of performance of the terms hereof. Upon receipt of all referenced Closing Documents and the cash portion of the Purchase Price, the Insurance Company shall be authorized to proceed to record the documents evidencing this transaction. The date of recordation of this transaction shall be the "Recordation Date". (c) The following items of income and expense shall be adjusted as of 6:00 o'clock a.m. on the Recordation Date: (i) Real estate and personal property taxes with respect to the Property. (ii) Fuel, water and sewer service charges and charges for oil, electricity, telephone and all other public utilities. (iii) Rental income from hotel guests. (iv) All charges payable pursuant to the Contracts. (v) Purchaser and Seller shall diligently attempt to agree upon all such amounts no later than one (1) business day prior to the Closing Date. If meters measure the consumption of water, gas and/or electric current at the Property by Seller, Seller shall attempt to cause such meters to be read on the day immediately preceding the Recordation Date and shall pay all utility bills resulting therefrom promptly upon receipt thereof. In making the adjustments required by this sub-section, Seller shall receive credit for all prepaid deposits and Advanced Deposits made by Seller and expenses and similar items that are due on or after the Recordation Date, and Seller shall be charged with any unpaid accrued charges for the period prior to the Recordation Date. No adjustment shall be made for short term hotel guest room charges and other charges that are past due as of the Recordation Date. In the event that amounts are collected by Purchaser from a hotel guest whose obligations are past due as of the Recordation Date, Purchaser shall first apply such sum(s) against the amount then currently due Purchaser, and then pay to Seller, from such collected funds, the balance owed Seller for the period prior to 16 the Recordation Date. (vi) Purchaser shall receive either a transfer of funds or credit against the Purchase Price in the amount of Advanced Deposits. (d) CLOSING COSTS. (i) Seller shall pay: a. One-half (1/2) of the Escrow fees; b. The cost of documentary transfer taxes; c. The cost of issuing Purchaser's title policy in CALTA Standard Form; and d. The cost of any other obligations of Seller hereunder. e. All charges owed under the contracts through the Recordation Date. (ii) Purchaser shall pay: a. One-half (1/2) of the Escrow fees; b. The cost to record the Deed; c. Any additional premium charged for issuance of an ALTA Extended Form and any endorsements to Purchaser's title policy; and d. The cost of any other obligations of Purchaser hereunder. (e) All other costs and expenses attendant to settlement, including title company charges, shall be at the cost of the party that incurred same. If clear title cannot be tendered by Seller and no settlement occurs, then Seller shall pay all title company charges. 17 12. TERMINATION (a) If (i) any of the representations and warranties made by Seller in Section 8 shall be materially inaccurate or incorrect, (ii) Seller shall fail to perform any of the covenants or agreements to be performed by Seller under this Agreement, or (iii) Purchaser shall be relieved of its obligation to purchase the Property by operation of Section 10, then, in any such event, Purchaser, in its sole and absolute discretion, shall have the right either (A) to extend the Closing Date for a sufficient period to allow Seller to satisfy conditions specified in Section 10; (B) to terminate this Agreement by giving written notice to Seller and the Escrow Agent; (C) waive such defects and elect to proceed to Closing; or (D) if Seller's default is willful, in lieu of terminating this Agreement, to seek specific performance of this Agreement. 13. CONDEMNATION AND DAMAGE BY FIRE OR OTHER CASUALTY. [INTENTIONALLY DELETED] 14. BROKERS Seller and Purchaser each represent and warrant to the other than no broker has been involved in this transaction on behalf of Seller or Purchaser, respectively. Seller, at its cost and expense, shall pay any commissions due these brokers and indemnify and hold harmless Purchaser and its partners from any claims, damages or expenses, including reasonable attorneys fees, incurred in connection with or arising from these brokers' activities in this transaction. Seller and Purchaser shall indemnify and hold the other, its partners, agents and employees, harmless against any and all claims, damages and expenses, including reasonable attorneys fees, incurred by the other party due to a claim by any other broker or agent alleging to be entitled to a fee or commission due to work on this transaction on behalf of Seller or Purchaser, respectively. 15. FOREIGN PERSON Seller represents and warrants that it is not a "foreign person," as defined in the Federal Tax Law, then at the Closing, Seller will deliver to Purchaser a certificate so stating, in a form complying with the Federal Tax Law. If Seller is a "foreign person" or if Seller fails to deliver the required certificate at the Closing, then in either such event the funding to Seller at the Closing will be adjusted-to the extent required to comply with the withholding provisions of the Federal Tax Law; and although the amount withheld will still be paid at the Closing by Purchaser, it will be retained by the Escrow Agent for delivery to the Internal Revenue Service, together with the appropriate Federal Tax Law forwarding forms (and with copies being provided both to Seller and to Purchaser). 18 16. ENTIRE AGREEMENT No change or modification of this Agreement shall be valid unless the same is in writing and signed by the parties hereto. No waiver of any of the provisions of this Agreement shall be valid unless in writing and signed by the party against whom it is sought to be enforced. This Agreement contains the entire agreement between the parties relating to the purchase and sale of the Property, all prior negotiations between the parties are merged in this Agreement and there are no promises, agreements, conditions, undertakings, warranties or representations, oral or written, express or implied, between them other than as set forth in this Agreement. 17. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS The representations, warranties, covenants, agreements and indemnities set forth in or made pursuant to Section 23 shall survive for one (1) year; Section 14 shall survive indefinitely; and Sections 7 and 8(b) and elsewhere in this Agreement shall survive for ninety (90) days, each date calculated from the Closing Date. 18. BENEFIT AND BURDEN Seller may not assign its rights and obligations under this Agreement prior to the Closing Date without first obtaining the prior written consent of Purchaser. All terms of this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective legal representatives, successors and assigns. If Purchaser assigns its rights under this Agreement, Purchaser shall promptly deliver an executed copy of the instrument of assignment to Seller. 19. COLLECTION OF ACCOUNTS RECEIVABLE. (a) Seller will retain all accounts receivable relating to the Hotel accrued as of the Closing (including past due amounts), and shall have the right to collect the same. The accounts receivable shall include, without limitation, unpaid room, food and beverage charges, unpaid telephone charges; unpaid valet charges, unpaid charges for other services or merchandise; amounts owed to Seller from credit cards receipts, whether or not such credit card receipts have been delivered by Seller to the credit card companies; and refunds, prepayments, and like returns attributable to the period prior to the Closing Date. (b) All accounts receivable so retained by Seller are referred to as "Seller's Accounts Receivable." If any instruments representing payment of any Seller's Accounts Receivable come into the possession of Purchaser, Purchaser shall immediately deliver such instruments to Seller. All moneys collected by Purchaser from Seller's Accounts Receivable shall be accounted for and 19 be transmitted to Seller on or before the fifteenth (15th) day of each month with a statement showing the respective collections. All moneys collected from each payor of Seller's Accounts Receivable shall be applied in the reverse order of the age of the outstanding accounts receivable of that payor from the most recent to the oldest. Purchaser shall be accountable only from amounts actually received, and shall have no responsibility for, or duty to inquire into, any amounts deducted by the respective payers from amounts due Seller as service charges, offsets or otherwise. Purchaser shall not be required to take any action to enforce the collection of Seller's Accounts Receivable. A charge of "actual costs of collection" of the amount collected shall be made by Purchaser to Seller for handling the collection of any Seller's Accounts Receivable requested by Seller. Purchaser shall use reasonable efforts to keep proper records showing the results of collection of Seller's Accounts Receivable, which records shall be open to inspection by Seller or its agents at all reasonable times. Purchaser shall not collect or be authorized to collect any Accounts Receivable of Seller unless Purchaser is specifically requested to do so by Seller. Seller may not institute any action to enforce collection in any court of law to collect any unpaid Seller's Accounts Receivable absent the prior written consent of Purchaser which may be withheld in Purchaser's sole and absolute discretion. The provisions of this subparagraph shall survive the Closing. 20. RISK OF LOSS [INTENTIONALLY DELETED] 21. GOVERNING LAW This Agreement concerns property located in the State of Nevada, and shall be construed and enforced in accordance with the laws of the State of Nevada. 22. NOTICES All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or if deposited in the United States mail, properly addressed and postage prepaid or if delivered to Federal Express or other recognized overnight delivery service, (i) if to Seller, Reno Hotel LLC c/o Blackacre Capital Group, 450 Park Avenue, New York, New York 10022. Attention: Stephen A. Enquist, with a copy to Schulte, Roth & Zabel, 900 Third Avenue, New York, NY 10022, Attention: Michael Feinman, Esquire and Philip Murphy, Jr., Esquire, 3900 Paradise Road, Suite 283, Las Vegas, Nevada 89109; (ii) if to Purchaser, c/o MTR, Inc. Route 2 South, Chester, West Virginia 26034, Attention: Edson R. Arneault, with a copy to Louis M. Aronson, Esquire, Ruben & Aronson, LLP., 3299 K Street, N.W., Suite 403, Washington, D.C. 20007 and James S. Mace, Esquire, 20 Gordon & Silver, Ltd. 3800 Howard Hughes Parkway, 14th Floor, Las Vegas, Nevada 89109; or (iii) at such other address as may be given by either party to the other party by notice in writing pursuant to provisions of this Section. 23. INDEMNIFICATION. (a) Seller shall indemnify, defend, and hold harmless Purchaser from and against all claims against Purchaser relating to labor or employment claims of, or liabilities or obligations to, present and former employees of Seller to the extent accruing prior to the Closing Date (collectively, "Employee Claims") provided, however, that nothing herein is intended or shall construed as an indemnity for any liabilities or obligations arising out of Purchaser's employment of any persons on or after the Closing Date. By way of illustration but not limitation, Employee Claims shall include claims, liabilities, or obligations relating to salaries, wages, minimum wages, compensation, overtime pay, holiday pay, vacation pay, raises, bonuses, employee benefits, severance pay, grievances under the union contracts, unfair labor practice charges before the National Labor Relations Board workers' compensation, WARN Act, FICA, ERISA obligations, disability, unemployment insurance, breach of employment contracts, whether sounding in contract or tort, wrongful discharge, safety and health, and employment discrimination, including, without limitation, claims before the Equal Opportunity Commission, Office of Federal Contract Compliance Program and the Department of Labor. (b) Seller shall indemnify, defend and hold harmless Purchaser from and against all claims against Purchaser arising from or relating to any contract or commitment of Seller undertaken by Seller prior to the Closing Date absent the written consent of Purchaser; except with respect to any claim, cause of action, damage or penalty arising from the Franchise Agreement by and between Seller and Ramada Franchise System, Inc. (c) The indemnity agreements under this Section shall survive the Closing for the period of the statute of limitations governing the claims asserted hereunder. (e) Each of the parties shall promptly notify the other of the existence of any loss, claim, demand or other matter to which the foregoing indemnification obligations may apply and give the indemnifying party a reasonable opportunity to defend the same at the indemnifying party's own expense and with counsel of the indemnifying party's own selection; provided that the indemnified party or parties shall at all times also have the right to fully participate in the defense at its or their own expense. If the indemnifying party shall fail to defend within a reasonable time, the indemnified party shall have the right, but not the obligation, to undertake the defense of, and to compromise and settle (exercising reasonable business judgment), the claim or other matter on behalf, for the account and at the risk of the indemnifying party, 21 provided the indemnifies party obtains a release for the benefit of the indemnifying party. If the claim is one that cannot by its nature be defended solely by one party, the other parties shall make available all information and cooperation that any party may reasonably request. Unless an indemnifying party fails or refuses to defend a claim or action, an indemnified party shall not be entitled to any attorney's fees for services of the indemnified party's counsel in connection with the matter. (f) Purchaser shall indemnify, defend, and hold harmless Seller from and against all claims against Seller relating to labor or employment claims of, or liabilities or obligations to, present and former employees of Seller to the extent accruing from and after the Closing Date (collectively, "Employee Claims") provided, however, that nothing herein is intended or shall be construed as an indemnity for any liabilities or obligations arising out of Seller's employment of any persons prior to the Closing Date. By way of illustration but not limitation, Employee Claims shall include claims, liabilities, or obligations relating to salaries, wages, minimum wages, compensation, overtime pay, holiday pay, vacation pay, raises, bonuses, employee benefits, severance pay, grievances under the union contracts, unfair labor practice charges before the National Labor Relations Board workers' compensation, WARN Act, FICA, ERISA obligations, disability, unemployment insurance, breach of employment contracts, whether sounding in contract or tort, wrongful discharge, safety and health, and employment discrimination, including, without limitation, claims before the Equal Opportunity Commission, Office of Federal Contract Compliance Program and the Department of Labor. 24. COUNTERPARTS This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 25. MISCELLANEOUS (a) If the date on which either Purchaser or Seller is required to take action under this Agreement is not a Business Day, the action shall be taken on the next succeeding Business Day. (b) The captions of the various sections and paragraphs of this Agreement have been inserted only for the purpose of convenience; such captions are not a part of this Agreement and shall not be deemed in any manner to modify, explain, enlarge or restrict any of the provisions of this Agreement. 22 (c) Seller and Purchaser agree that the proposed terms and conditions, and all information (other than information which is a matter of public record or is provided by other sources readily available to the public) shared or developed in the context of this transaction shall be kept strictly confidential, except that Seller acknowledges that Purchaser's parent company may describe the terms hereof (as well as provide copies of this Agreement) in reports that the parent is required to file with Governmental Authorities, the United States Securities and Exchange Commission, and Purchaser's financiers. Any disclosures, press releases, or announcements concerning this agreement and the sale contemplated herein shall be approved unanimously by the parties in writing in the exercise of each parties reasonably discretion. IN WITNESS WHEREOF, Purchaser and Seller have signed this Agreement on the day and year first above written. PURCHASER: SPEAKEASY GAMING OF RENO, INC., a Nevada corporation By: /s/ Edson R. Arneault ------------------------------------- Name: Edson R. Arneault Title: President, Chief Executive Officer SELLER: RENO HOTEL, LLC, a Delaware limited liability company By: BLACKACRE RENO, L.L.C., a Delaware limited liability company Its: Manager /s/ Stephen P. Enquist ------------------------------ By: Stephen P. Enquist Its: Secretary 23 EX-10.8 4 EXHIBIT 10.8 EXHIBIT 10.8 5/4/98 FIRST AMENDMENT TO PURCHASE AGREEMENT THIS FIRST AMENDMENT TO PURCHASE AGREEMENT (this "Agreement") is made and entered into this 5 day of May, 1998, by and between SPEAKEASY GAMING OF LAS VEGAS, INC. a Nevada corporation ("Buyer"), and BANTER, INC., a Nevada corporation ("Banter"). RECITALS Buyer and Banter entered into a Purchase Agreement (the "Original Purchase Agreement") dated on or prior to the date of this Agreement relating to the purchase and sale of, among other things, land and improvements located in Clark County, Nevada commonly known as the Cheyenne Hotel. Buyer and Banter wish to amend and supplement the Original Purchase Agreement. Unless otherwise defined herein, capitalized terms in this Agreement have the meanings ascribed to them in the Original Purchase Agreement. NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. To the extent of any conflict or inconsistency between the provisions of this Agreement and the provisions of the Original Purchase Agreement, the provisions of this Agreement shall control. 2. Cheyenne Hotel & Casino, Inc., a Nevada corporation ("Cheyenne"), is hereby eliminated as a party to the Original Purchase Agreement, as amended by this Agreement. All references to the party "Cheyenne" shall be deemed to refer only to Banter. All references to the Seller shall be deemed to refer only to Banter. All references in the Original Purchase Agreement to Speakeasy Gaming of Nevada, Inc., a Nevada corporation, as the Buyer are hereby amended to refer to Speakeasy Gaming of Las Vegas, Inc. All references to the Buyer shall be deemed to refer only to Speakeasy Gaming of Las Vegas, Inc., a Nevada corporation. 3. The first sentence of Paragraph D of the Recitals to the Original Purchase Agreement is hereby deleted in its entirety. The parties understand that the gaming license formerly held by Desert Gaming, Inc. has expired and was not renewed. 1 4. In Paragraph F of the Recitals, the following parenthetical comment is hereby added immediately after the phrase "chases in action": "(with the sole exception of the fifty percent (50%) interest in certain future net proceeds of the Condemnation Action, as hereinafter defined)." 5. In the definition of the term "Property" in Section 1 of the Original Purchase Agreement: (i) the phrase "the condemnation, as defined in Section 6(bb), below" is hereby deleted; and (ii) the following sentence is hereby added at the end of the definition: "The Property also includes a fifty percent (50%) interest in the "net proceeds" (as hereinafter defined) in excess of $50,000 realized by Banter on or after April 28, 1998 in the action commenced in the District Court by the State of Nevada, on relation of its Department of Transportation, on or about September 9, 1997 as Case Number A 378187 (the "Condemnation Action")." 6. The phrase "of the Property's Property Manager" in Section 2(b) of the Original Purchase Agreement is hereby deleted. 7. All references to Exhibit E-1 in the Original Purchase Agreement are hereby amended to be references to Exhibit "E." 8. Section 5(a) of the Original Purchase Agreement is hereby amended and restated in its entirety to read as follows: "The Purchase Price for the Property shall be the sum of $5,349,449 payable at Closing. This statement of the Purchase Price is not intended and shall not be construed to affect the rights of Seller or Buyer to the prorations and any other monetary adjustments specifically provided in the Original Purchase Agreement, as amended by this Agreement." 9. Section 5(b) of the Original Purchase Agreement is hereby amended and restated in its entirety to read as follows: "(b) On the Closing Date, Buyer shall cause a wire transfer to be made to Nevada Title Company, as Escrow Agent, of immediately available federal funds in an amount equal to the cash required to close (the "Closing Funds"). The Closing Funds shall be increased or decreased as appropriate to reflect Buyer's share of prorations and expenses. The Closing Funds shall include, in addition to the Purchase Price, all sums payable by Buyer pursuant to Section 13(c)(vii) of the Original Purchase Agreement. The Closing Funds shall not be reduced or set off against any sums payable by Banter to any third party, including, without limitation, sums payable to Madeleine, LLC, without the express written consent of Banter to the set off or reduction. Banter's execution or approval of escrow 2 instructions or a settlement statement indicating that sums are due or payable to a third party out of the proceeds of the Closing shall not be construed as an authorization by Banter for the Buyer to make payment arrangements directly with the third party or to set off any payments made by Buyer pursuant to any "side" payment arrangements against Closing Funds. 10. The phrase "fee simple title to" in Section 6(a) is hereby deleted. 11. Section 6(c) of the Original Purchase Agreement is hereby deleted in its entirety. 12. The word "legally" is hereby inserted immediately before the word "suitable" in Section 6(b) of the Original Purchase Agreement. The Buyer acknowledges, in connection with this representation and warranty, Buyer's understanding that the eligibility of the Real Property for a non-restricted gaming operation will not remain in effect unless a non-restricted gaming license is issued to Buyer or Buyer's successors or assigns within a specified "grandfather" period. 13. Section 6(l) is hereby amended and restated in its entirety to read as follows: "Exhibit E attached hereto represents a true and complete schedule of all Contracts but not any agreements with Day's Inn of America, Inc. or any affiliates of Day's Inn of America, Inc. (all of which affiliates together with Day's Inn of America, Inc. are hereinafter collectively referred to as "Day's Inn"). On or prior to the Recordation Date, Seller shall notify all parties to the Contracts that the Property is being or has been sold and that the relevant Contract is being terminated. Notwithstanding such notice of termination, Buyer agrees to permit the thirty to ninety day notice periods required for the Contracts identified in Exhibit E-1 attached hereto to commence on the Recordation Date and to pay any sums accruing at regular rates (as distinguished from any termination charge or other sanction imposed as a result of termination of a Contract) during the thirty to ninety day periods to the third parties identified in Exhibit E-1. To the extent any payments are due and payable as a result of the termination of any of the Contracts identified in Exhibit E other than continuing payments during the notice periods referred to in the preceding sentence, Seller shall make such payments. Sums payable during the thirty to ninety day periods referred to above shall be subject to proration. 14. Buyer acknowledges Buyer's understanding that road widening and/or realignments in the neighborhood of the Property have resulted in the prior expropriation of one 3 or more areas of land that were formerly part of the Real Property. 15. Section 6(bb) of the Original Purchase Agreement is hereby deleted in its entirety. 16. The reference to "Paragraph 6" in Section 9(g) of the Original Purchase Agreement is hereby amended to refer to "Section 7." 17. The reference to "Paragraph 4" in Section 10 of the Original Purchase Agreement is hereby amended to refer to "Section 5." 18. Section 10 of the Original Purchase Agreement is hereby supplemented by adding the following paragraphs: "At the Closing, Buyer shall pay the sum of $35,683.48 to Young Electric Sign Company ("YESCO") in payment of all sums due and to become due under the agreement with YESCO dated June 16, 1996. "All sums payable by Buyer pursuant to Section 10 of the Original Purchase Agreement, as amended hereby, and all sums payable by Buyer pursuant to Section 13(c)(vii) of the Original Purchase Agreement, shall be in addition to the Purchase Price. "Buyer shall extend reasonable cooperation, offer access to the Property on reasonable terms and offer a reasonable opportunity to remove their property on and after the Recordation Date to parties whose Contracts are being terminated in connection with the Closing and who have items of personal property on the Real Property." "Buyer shall extend reasonable cooperation, offer access to the Property on reasonable terms and offer a reasonable opportunity to remove its property to Day's Inn. In addition, Buyer agrees that Buyer will not operate the Property as a "Day's Inn," use any trademarks or other proprietary rights or materials owned or controlled by Day's Inn, or hold itself or the Property out as part of any Day's Inn "System" or as having any affiliation or contractual arrangement with Day's Inn. In addition, Buyer will remove or cause to be removed all signs and other items 4 on the Property that refer to "Day's Inn" or contain any trademarks or service marks owned or controlled by Day's Inn and/or its licensees. Finally, Buyer will undertake commercially reasonable efforts to promptly paint over or remove any distinctive trade dress, color schemes and architectural features that are distinctive to members of the Day's Inn "System." As between Seller and Buyer, Buyer shall not have an obligation to take an action or refrain from taking an action that would otherwise be required under this subparagraph if and to the extent Day's Inn waives the requirement and the waiver applies to Seller and Cheyenne Hotel & Casino, Inc. as well as to Buyer. 19. Section 11(f) of the Original Purchase Agreement is hereby deleted in its entirety. 20. Section 12 of the Original Purchase Agreement is hereby supplemented by adding the following: "(d) Buyer shall have approved Building Expenditures (as defined in Section 13(c)(vii) of the Original Purchase Agreement) in the aggregate amount of $100,000. "(e) Seller shall have approved the form and substance of any settlement statement and any joint instructions to be provided to Nevada Title Company. 21. The "April 29, 1998" date in Section 13(a) is hereby amended to read "May 4, 1998." No party shall have any right or obligation to proceed if the Recordation Date does not occur on or before May 5, 1998. Time is of the essence in the provisions of Section 13(a) and in the provisions of this Paragraph 21. 22. The phrase "the Franchise Agreement" is hereby deleted in Section 24(a)(ii) of the Original Purchase Agreement. 23. Section 24(c) of the Original Purchase Agreement is hereby supplemented by adding, before the period at the end thereof, the following: "other than the Contracts." 24. Section 24 of the Original Purchase Agreement is hereby supplemented by adding a new subsection (f) at the end thereof reading as follows: 5 "(f) Notwithstanding any other provision of the Original Purchase Agreement or this Agreement to the contrary, Seller is not indemnifying Buyer against any Claims of or arising from Day's Inn." 25. Buyer understands that Seller intends to exchange the Property for other property or properties under Section 1031 of the Internal Revenue Code of 1986, as amended (the "1031 Exchange"). Buyer shall not have any obligation to take any administrative action in connection with the 1031 Exchange following the Closing under the Original Purchase Agreement, as amended, unless Buyer is specifically requested to do so by Seller. In the event Seller makes any such post closing requests, Seller shall pay or reimburse Buyer for all reasonable costs and expenses incurred by Buyer in accommodating Seller's requests including, without limitation, reasonable attorney's fees and disbursements incurred by Buyer in connection with such requests and the accommodation thereof. 26. The text following the signature blank for Seller and preceding the signature blanks for Desert Gaming, Inc. and American International Trade and Development, Inc. is hereby amended and restated in its entirety to read as follows: "DGI and AITD hereby acknowledge receipt and delivery of the foregoing Agreement and are executing this Agreement below for the limited purpose of joining in the representations and warranties set for in Section 6(g), 6(k), 6(m), 6(v) and 6(y)." 27. Except as modified and supplemented by this Agreement, all of the provisions of the Original Purchase Agreement shall remain in full force and effect. 28. This First Amendment may be executed in counterparts, each of which when executed shall, irrespective of the date of its execution and delivery, be deemed an original, and said counterparts together shall constitute one and the same Agreement. 29. This Agreement may be executed by one or more facsimile signatures and delivered by facsimile transmission. Facsimile transmission of a copy of this Agreement that has been signed by an authorized officer or agent of a party shall have the same force and effect as physical delivery to the recipient of a manually signed copy of this Agreement. IN WITNESS WHEREOF, Buyer and Seller have signed 6 this Agreement on the day and year first above written. BUYER: SPEAKEASY GAMING OF LAS VEGAS, INC. a Nevada corporation By: -------------------------------- Edson R. Arneault, President SELLER: BANTER, INC., a Nevada corporation By: /s/ Christopher S. Conboy ---------------------------------- Its: Assistant Vice President --------------------------------- 7 EX-10.9 5 EXHIBIT 10.9 EXHIBIT 10.9 SECOND AMENDMENT TO PURCHASE AGREEMENT THIS SECOND AMENDMENT TO PURCHASE AGREEMENT (this "Agreement") is made and entered into this 5 day of May, 1998, by and among SPEAKEASY GAMING OF LAS VEGAS, INC., a Nevada corporation ("Buyer"); BANTER, INC., a Nevada corporation ("Banter"); and SOUTHWEST EXCHANGE CORPORATION, a Nevada corporation ("Exchange Party"). RECITALS Buyer and Banter entered into a Purchase Agreement (the "Original Purchase Agreement") dated on or prior to the date of this Agreement relating to the purchase and sale of, among other things, land and improvements located in Clark County, Nevada commonly known as the Cheyenne Hotel. Buyer and Banter entered into a First Amendment to Purchase Agreement (the "First Amendment") dated on or prior to the date of this Agreement. Buyer and Banter wish to further amend and supplement the Original Purchase Agreement, as amended by the First Amendment. The Original Purchase Agreement, as amended by the First Amendment, is hereinafter sometimes referred to as the "Amended Purchase Agreement." Unless otherwise defined herein, capitalized terms in this Agreement have the meanings ascribed to them in the Original Purchase Agreement, as amended by the First Amendment. NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. EXCHANGE. Notwithstanding any provisions in the Amended Purchase Agreement to the contrary, it is the overriding intent of Banter not to sell but instead to exchange the Property (the "Relinquished Property") for other property or properties (the "Replacement Property") so as to qualify such exchange under Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code"). 2. TAX CONSEQUENCES. Banter understands that the provisions of Section 1031 of the Code are complex and Banter's attempt to qualify the series of transactions as a tax deferred exchange under Section 1031 of the Code requires advice of competent tax counsel. Banter hereby acknowledges that Banter is not relying on any representations that may be made by Exchange Party or Buyer regarding the tax consequences of the transactions contemplated by the parties to this Rider and Banter shall hold harmless Exchange Party and Buyer from any adverse tax consequences to Banter resulting from any and all provisions of this Second Amendment. 3. BUYER'S CONSENT. Buyer consents to Banter's assignment to Exchange Party of Banter's rights under the Agreement, but not the delegation of duties and such assignment in no way relieves Banter of any of its obligations, covenants or warranties set forth in the Amended Purchase Agreement. Furthermore, Buyer is entering into this Second Amendment as an accommodation to Banter and shall not incur any costs or expense as a result thereof. 4. ADDITIONAL DOCUMENTS. Banter, Buyer and Exchange Party shall execute such additional documents and instructions to escrow not inconsistent with the provisions of the Amended Purchase Agreement as may be reasonably required to complete the exchange. 5. USE OF FUNDS. It is understood by Banter and Buyer that all funds which Exchange Party obtains from Buyer upon or before its transfer of the Relinquished Property to Buyer will be paid (through the closing escrow) to and held by Exchange Party in accordance with that certain Exchange Agreement between Banter and Exchange Party. Exchange Party hereby agrees to deposit for Banter all sums it obtains from Buyer upon or before the transfer of the Relinquished Property to Buyer in one or more financial institutions whose accounts are insured by the Federal Deposit Insurance Corporation or as otherwise directed by Banter. 6. FIRPTA WITHHOLDING ON BANTER. Exchange Party may choose, but shall not be obligated, to comply with the provisions of Section 1445 of the Code by withholding 10% of the value of the Relinquished Property and reporting and paying over such amount to the Internal Revenue Service unless it receives (i) a certification of non-foreign status from Banter in substantially the form provided in Exhibit "A," or (ii) a qualifying statement or withholding certificate from the Internal Revenue Service stating that Banter's maximum tax liability is zero or a reduced amount. 7. EXCHANGE PARTY INDEMNIFICATION. Banter agrees to indemnify, defend and hold Exchange Party harmless from any and all loss, claims, liabilities, damages, fees, attorney's fees, or costs, including any taxes, interest and penalties hereon, arising under or from the transactions contemplated hereby; provided, however, that the indemnification and hold harmless covenant shall not extend to any claims, liabilities, costs, etc., which result from Exchange Party's gross negligence or willful misconduct. Banter further agrees to indemnify, defend and hold Exchange Party harmless from any federal, state, local or other taxes including interest and ownership or transfer of any property pursuant to this Agreement. 8. DIRECT DEEDING. Notwithstanding anything contained herein to the contrary, Exchange Party shall in- 2 struct closing agents for both the Relinquished Property and the Replacement Property, to prepare and record a deed or deeds transferring title from Banter directly to the Buyer in the case of the Relinquished Property, or from the seller thereof directly to Banter in the case of the Replacement Property. Said Direct Deeding shall be accomplished for convenience only and shall in no way be construed as a circumvention of Exchange Party's interest in and to either the Relinquished Property or the Replacement Property. 9. INDEMNIFICATION. Banter agrees to indemnify, defend and hold Buyer harmless from any and all loss, claims, liabilities, damages, fees, attorney's fees or costs, including any taxes, interest and penalties thereon, arising under or from this Second Amendment; provided that the foregoing indemnification and hold harmless covenant shall not extend to any claims, liabilities, costs, etc., which result from Buyer's acts or omissions. The indemnity provisions of this Section 9 of this Second Amendment are limited to loss, claims, liabilities, damages, fees, attorney's fees or costs that: (i) arise from claims or allegations against Buyer; and (ii) would not have been incurred by Buyer but for the provisions of this Second Amendment. Without limiting the generality of the preceding sentence, the indemnity provisions of this Section 9 of this Second Amendment are not intended and shall not be construed to cover any loss, claims, liabilities, damages, fees, attorney's fees or costs that the Buyer would have suffered or incurred if this Second Amendment had never been entered into and if Buyer acquired the Property under the Original Purchase Agreement, as amended by the First Amendment. Nothing in this Section 9 is intended or shall be construed to abrogate or otherwise impair any of Buyer's rights to indemnification for various matters under the Original Purchase Agreement, as amended by the First Amendment. 10. SURVIVAL. The provisions of this Second Amendment relating to the acquisition of property and all representations, warranties, covenants, agreements and indemnities made and all other obligations to be performed hereunder, to the extent not performed at or before the closing of any escrow, shall survive the closing of such escrow and shall not be deemed to merge with the deed to the Relinquished Property or the Replacement Property upon delivery or acceptance thereof. 11. BINDING. This Second Amendment shall inure to the benefit of, and shall be binding upon the parties hereto, their successors in interest and assigns. 12. ASSIGNMENT. The rights under this Second Amendment may not be assigned without the prior written 3 consent of the parties. 13. COUNTERPARTS. This Second Amendment may be executed in counterparts, each of which when executed shall, irrespective of the date of its execution and delivery, be deemed an original, and said counterparts together shall constitute one and the same Agreement. 14. MISCELLANEOUS. Except as modified and supplemented by this Agreement, all of the provisions of the Original Purchase Agreement, as amended by the First Amendment, shall remain in full force and effect. 15. FACSIMILES. This Second Amendment may be executed by one or more facsimile signatures and delivered by facsimile transmission. Facsimile transmission of a copy of this Second Amendment that has been signed by an authorized officer or agent of a party shall have the same force and effect as physical delivery to the recipient of a manually signed copy of this Agreement. IN WITNESS WHEREOF, Buyer, Banter and Exchange Party have executed this Agreement on this _____ day of ________, 1998. BUYER: SPEAKEASY GAMING OF LAS VEGAS, INC., a Nevada corporation By: --------------------------------- Edson R. Arneault, President SELLER: BANTER, INC., a Nevada corporation By: Christopher S. Conboy --------------------------------- Its: Asst. V.P. -------------------------------- SOUTHWEST EXCHANGE CORPORATION, a Nevada corporation By: --------------------------------- Its: -------------------------------- 4 EX-10.10 6 EXHIBIT 10.10 EXHIBIT 10.10 DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING (this "DEED OF TRUST"), dated as of April 30, 1998, by SPEAKEASY GAMING OF LAS VEGAS, INC., a Nevada corporation having an office c/o Mountaineer Park, Inc., Route 2 South, Chester, Virginia 26034 ("TRUSTOR"), to NEVADA TITLE COMPANY, a Nevada corporation, having an office at 3320 West Sahara Avenue, Suite 200, Las Vegas, Nevada 89102 ("TRUSTEE"), for the benefit of MADELEINE LLC, a New York limited liability company, having an office at 450 Park Avenue, New York, New York 10022 ("BENEFICIARY"). W I T N E S S E T H: Trustor hereby covenants and agrees as follows: SECTION 1 GRANT OF SECURITY INTERESTS 1.01. Trustor irrevocably grants, bargains, sells, transfers and assigns to Trustee, in trust, for the benefit of Beneficiary, with power of sale, all of the following-described property, whether now owned or hereafter acquired by Trustor (which property is hereinafter collectively referred to as the "PROPERTY"): 1.01.1. The real property and all estate, right, title and interest therein, situated, lying and being in the County of Clark, State of Nevada, as more particularly described on EXHIBIT A attached hereto and made a part hereof (the "REAL PROPERTY"). 1.01.2. All buildings, structures and improvements of every nature whatsoever now or hereafter situated on the Real Property (the "IMPROVEMENTS"), including all goods, fixtures, inventory and articles of personal property and accessions thereof and renewals, replacements thereof and substitutions therefor, if any (including, but not limited to, beds, bureaus, chiffoniers, chests, chairs, desks, lamps, mirrors, bookcases, tables, rugs, carpeting, drapes, draperies, curtains, shades, venetian blinds, screens, paintings, hangings, pictures, divans, couches, luggage carts, luggage racks, stools, sofas, chinaware, linens, pillows, blankets, glassware, foodcarts, cookware, dry cleaning facilities, dining room wagons, keys or other entry systems, bars, bar fixtures, liquor and other drink dispensers, icemakers, radios, television sets, intercom and paging equipment, electric and electronic equipment, dictating equipment, private telephone systems, medical equipment, potted plants, heating, lighting and plumbing fixtures, fire prevention and extinguishing apparatus, cooling and air-conditioning systems, elevators, escalators, fittings, plants, apparatus, stoves, ranges, refrigerators, laundry machines, tools, machinery, engines, dynamos, motors, boilers, incinerators, switchboards, conduits, compressors, vacuum cleaning systems, floor cleaning, waxing and polishing equipment, call systems, brackets, electrical signs, bulbs, bells, ash and fuel, conveyors, cabinets, lockers, shelving, spotlighting equipment, dishwashers, garbage disposals, washers and dryers), other customary hotel equipment, fittings, building materials, machinery, equipment, furniture and furnishings and personal property of every nature whatsoever now or hereafter owned by Trustor or in which Trustor has rights and used or intended to be used in connection with or with the operation of the Real Property and/or the Improvements, including all improvements, landscaping, fixtures, trade fixtures, equipment and building materials and supplies (whether or not annexed thereto or located thereon) now or hereafter used in connection therewith, including all machinery, materials, appliances and fixtures for generating or distributing air, water, heat, electricity, light, fuel, refrigeration, for ventilating, cooling or sanitary purposes, for the exclusion of vermin or insects and for the removal of dust, refuse or garbage, telephone, computer, surveillance, security and other electronic systems, engines, machinery, boilers, furnaces, oil burners, coolers, refrigeration plants, motors, irrigating systems, plumbing, water systems and power systems, incinerators, communication systems, appliances, and all other and further installations and appliances on the Real Property and/or the Improvements, all of said items, whether now or hereafter located thereon, shall, at the option of Beneficiary, be deemed to be for all purposes of this instrument a part of the realty and including all extensions, additions, improvements, betterments, renewals, substitutions and replacements to any of the foregoing, whether such fixtures, furnishings and personal property are actually located on or adjacent to the Real Property and/or the Improvements or not, and whether in storage or otherwise, wheresoever the same may be located (including any and all personal property named in any Uniform Commercial Code financing statement executed in conjunction with or in furtherance of this Deed of Trust). 1.01.3. All easements, reciprocal easement and similar agreements, rights of way, strips and gores of land, streets, ways, alleys, passages, sewer rights, waters, water courses, water rights and powers (whether riparian, appropriative or otherwise and whether or not appurtenant), all shares of stock evidencing any such water rights, mineral rights, air rights and all development rights, estates, leases, rights, titles, interest, privileges, liberties, tenements, hereditaments, and appurtenances whatsoever, in any way belonging, relating or appertaining to any of the Real Property and/or the Improvements, or which hereafter shall in any way belong, relate or be appurtenant thereto, whether now owned or hereafter acquired by Trustor, and the reversion and reversions, remainder and remainders, rents, issues, profits thereof, and all estate, right, title, interest, property, possession, claim and demand whatsoever at law, as well as in equity, of Trustor of, in and to the same, including: (a) All of lessor's interest in any and all leases, licenses (except licenses that are not assignable and/or transferable) and occupancy agreements of the Real Property and/or the Improvements, or any portion thereof, now or hereafter owned or entered into by Trustor or any other party claiming by, through or under Trustor (all of said leases, licenses and occupancy agreements and any and all interest therein shall hereinafter be referred to as the "LEASES"), together with all rents, royalties, profits, issues, revenues, receipts, income, deposits, operating revenues, cash, benefits, account receivables and accounts which may accrue from the Real Property, the Improvements and/or any business or other activity conducted thereon from time to time, including, without limitation, all revenues and credit card receipts collected from guest rooms, restaurants, bars, meeting rooms, banquet rooms and recreational facilities, all receivables, customer obligations, installment payment obligations and other obligations now existing or hereafter arising or created out of the sale, lease, sublease, license, concession or other grant of the right of the use and occupancy of property or rendering of services by Trustor or any operator or manager of the hotel or the commercial space located in the Improvements or acquired from others (including, without limitation, from the rental of any office space, retail space, guest rooms or other space, halls, stores, and offices, and deposits securing reservations of such space), license, lease, sublease and concession fees and rentals, health club membership fees, food and beverage wholesale and retail sales, service charges, vending machine sales and proceeds, if any, from business interruption or other loss of income insurance (collectively, the "RENTS") together with all benefits and advantages to be derived from the Leases including, without limitation, all rights under any guarantees and other security delivered in connection with the Leases, it being agreed that the foregoing assignment of Leases and Rents is a perfected, absolute and present assignment; PROVIDED, HOWEVER, that until a default (beyond applicable grace and cure periods, if any) shall occur under this Deed of Trust, the Note (as hereinafter defined) and/or any of the other Loan Documents (as hereinafter defined), Beneficiary grants Trustor a license to receive, collect and enjoy the Rents. (b) All causes of action, claims, compensation, judgments, insurance proceeds, awards of damages and settlements hereafter made resulting from condemnation proceedings or the taking of the Property or any part thereof under the power of eminent domain, or for any damage (whether caused by such taking, by casualty or otherwise) to any and all of the Property or any part thereof, or to any rights appurtenant thereto, including any award for change of grade or streets. (c) All option rights, books and records, and general intangibles of Trustor relating to the Property, and all franchise agreements, accounts, contract rights, instruments, chattel paper and other rights of Trustor for payment of money, for property sold or lent, for services rendered, for money lent, or for advances or deposits made relating to the Property, including all tax refunds and refunds of any other monies paid by or on behalf of Trustor relating to the Property and all contract rights, plans, specifications and other similar documents, rights as declarant or developer under any declaration or plan. (d) All rights of Trustor to use, in connection with the Real Property and/or the Improvements, any and all plans and specifications, designs, drawings and other matters prepared for any construction on or improvements to the Real Property and/or the Improvements and all studies, data and drawings related thereto. (e) All rights of Trustor to use, in connection with the Property, any contracts executed by Trustor with any provider of goods or services for or in connection with any construction undertaken or to be undertaken or services performed or to be performed in connection with the Property (as any of the foregoing may be amended and/or restated from time to time). (f) Any and all permits, licenses (except licenses that are not assignable and/or transferable), certificates, approvals and authorizations, however characterized, issued or in any way furnished whether necessary or not, for the construction, operation, use, occupancy and/or sale of the Real Property, Improvements and/or Leases including building permits, environmental certificates, certificates of operation, warranties, guarantees and general intangibles. (g) All proceeds of the conversion, voluntary or involuntary, of the items listed in subparagraphs (a) through (f) above into cash, liquidated claims or other property. 1.01.4. All rights of Trustor, if any, in and to the names, trade names, service marks, logos, designs, copyrights, patents and other similar propriety rights, to the extent assignable under the terms of any applicable license, franchise or similar agreement, and all registrations and applications for registration of such rights, used by Trustor in the operation and identification of the Real Property and/or the Improvements or any portion thereof, and the goodwill associated therewith. TO HAVE AND TO HOLD the Property, together with the rights, privileges and appurtenances belonging thereto, unto Trustee and its successors and assigns, forever, subject, however, to the absolute assignment of Leases and Rents contained herein; and Trustor does hereby bind itself and its successors and assigns, to specially warrant and forever defend the Property unto such Trustee, its successors, substitutes and assigns, against all persons whomsoever claiming, including all rights and benefits hereunder by virtue of the homestead exemption laws of the State in which the Real Property and/or the Improvements are located (which rights and benefits are hereby expressly released and waived), for the uses and purposes herein set forth. Trustor makes the foregoing grant to Trustee to hold the Property in trust for the benefit of Beneficiary and for the purposes and upon the terms and conditions hereinafter set forth. Trustor does hereby empower Beneficiary, its agents and attorneys, to collect, sue for, settle, compromise and give acquittance for all such rents, issues, profits and proceeds. 1.02. This Deed of Trust is for the purpose of securing: 1.02.1. Performance of each and every term, covenant and condition incorporated by reference or contained herein; 1.02.2. Payment of the indebtedness evidenced by that certain Promissory Note (the "Term Note") dated the date hereof, from Trustor and Mountaineer Park, Inc., a West Virginia corporation ("Mountaineer"), as makers, to Beneficiary, as payee, in the original principal amount of Twenty Seven Million Eight Hundred Sixty Five Thousand and 00/100 Dollars ($27,865,000.00), or so much thereof as shall have been advanced and remain outstanding from time to time, and any extension, modification or renewal thereof, evidencing the loan from Beneficiary to Trustor and Mountaineer (the "Term Loan"). 1.02.3. Payment of the indebtedness evidenced by a certain Promissory Note (the "Line Note") dated the date hereof, from Trustor and Mountaineer, as makers, to Beneficiary, as payee, in the original principal amount of Ten Million Three Hundred Seventy Six Thousand Five Hundred and 00/100 Dollars, or so much thereof as shall have been advanced and remain outstanding from time to time and any extension, modification or renewal thereof, evidencing the loan from Beneficiary to Trustor and Mountaineer (the "Line Loan"). 1.02.4. Payment of the indebtedness evidenced by a certain Promissory Note (the "Construction Note") dated the date hereof, from Trustor and Mountaineer, as makers to Beneficiary, as payee, in the original principal amount of One Million Seven Hundred Thousand and 00/100 Dollars, and any extension, modification or renewal thereof, evidencing the loan from Beneficiary to Trustor and Mountaineer (the "Construction Loan"). 1.02.5. The Term Note, Line Note and Construction Note are hereinafter collectively referred to as the "NOTE". The Term Loan, Line Loan and Construction Loan are hereinafter collectively referred to as the "LOAN". 1.02.6. Payment and performance of each and every term, covenant and condition required to be paid or performed by Trustor and/or Mountaineer under a certain Third Amended and Restated Term Loan Agreement dated as of the date hereof between Beneficiary, as lender, and Trustor and Mountaineer, as borrowers, (as modified from time to time the "LOAN AGREEMENT"); 1.02.7. Performance of each and every other instrument and agreement securing payment of the Note or executed in connection therewith, including, without limitation the Cheyenne Deed of Trust, the West Virginia Deed of Trust and the General Security Agreement (each as defined in the Loan Agreement), as any of the foregoing documents may be amended or otherwise modified from time to time (the Note, the Loan Agreement and such other instruments and agreements being hereinafter referred to collectively as the "LOAN DOCUMENTS"); and 1.02.8 Payment of such additional sums as may hereafter be advanced pursuant to this Deed of Trust, the Loan Agreement, or any other Loan Document for the account of Trustor or Mountaineer, or their respective assigns by Beneficiary, with interest thereon as provided herein or in the applicable Loan Document. 1.03. Trustor acknowledges and agrees: (i) that this Deed of Trust shall constitute a Security Agreement within the meaning of the Nevada Uniform Commercial Code (the "CODE") with respect to all sums on deposit with Beneficiary ("DEPOSITS") and with respect to any property included in the definition herein of the words "Property" which property may not be deemed to form a part of the real estate described in EXHIBIT A or may not constitute a "fixture" (within the meaning of NRS 104.9313 of the Code), and all replacements of such property, and the proceeds thereof (said property, replacements, substitutions, additions and the proceeds thereof being sometimes herein collectively referred to as the "COLLATERAL"); (ii) that a security interest in and to the Collateral and the Deposits is hereby granted to Beneficiary; and (iii) that the Deposits and all of Trustor's rights, title and interest therein are hereby pledged and assigned to Beneficiary; all to secure payment of the indebtedness evidenced by the Note and to secure performance by Trustor of the terms, covenants and provisions contained in this Deed of Trust. In addition to the foregoing, the lien and security interest hereof will automatically attach without further act to all after-acquired Collateral. 1.04. To the extent permitted by law, with respect to all of the goods and personal property described herein which are or are to become fixtures on the Real Property described in EXHIBIT A attached hereto and/or the Improvements, this instrument, upon recording in the real estate records of the proper office shall constitute a "FIXTURE FILING" within the meaning of NRS 104.9402(6) and NRS 104.9313 of the Code. Trustor is the record owner of the land described in EXHIBIT A attached hereto. The address of Beneficiary set forth in the opening paragraph of this Deed of Trust is the address of the secured party from which information concerning the security interest granted to Beneficiary may be obtained. SECTION 2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF TRUSTOR 2.01. Trustor represents and warrants that: 2.01.1. Trustor has full, complete and marketable fee simple title to the Property, subject only to the title encumbrances specified in the title insurance policy issued to and approved by Beneficiary concurrently with the execution and delivery of this Deed of Trust (the "Permitted Encumbrances"). 2.01.2. This Deed of Trust is and will remain a valid and enforceable first lien on the Property, subject only to the Permitted Encumbrances. 2.01.3. Trustor has not performed any act and is not bound by any instrument which would prevent Beneficiary from enforcing any of the Loan Documents including the Note and this Deed of Trust. 2.01.4. Trustor has all requisite power and corporate authority to own and operate the Property, and, subject to Section 2.15 hereof, will use its best efforts to obtain as promptly as possible after the date hereof and maintain in full force and effect, all licenses, certificates, approvals, permits and authorizations necessary to own, use, occupy and operate its properties and businesses as currently operated and conducted or proposed to be operated and conducted. 2.01.5. The Loan Documents (including the Note and this Deed of Trust) and the transactions in connection with which the Note was given are valid and binding obligations of the parties thereto, enforceable in accordance with their terms. 2.01.6. Except as set forth in the survey dated as of the 3rd day of March, 1998 (the "Survey") delivered to Beneficiary concurrently herewith, the Real Property is accessible by way of abutting public streets or to public streets over properly granted or dedicated private rights-of-way. 2.01.7. Except as indicated by the Permitted Encumbrances and the Survey, no person or entity other than Trustor, its management company, lessee of the casino and hotel guests has any right to occupy any portion of the Property. 2.01.8. The Leases and Rents are subject to no encumbrances of any kind except for this Deed of Trust. 2.01.9. To Trustor's best knowledge, neither Trustor nor to Trustor's knowledge the Property (i) is in violation of or in default under any applicable laws or regulations; (ii) is in violation of or in default under any order, writ, injunction, demand or decree of any court or any person or entity; and (iii) is in violation of or in default under any indenture, agreement or other instrument, except to the extent that the pre-existing franchise agreement (the "Pre-Existing Days Inn Franchise Agreement") dated _____________ between Cheyenne Hotel Casino, Inc. and Days Inn of America, Inc. remains in effect with respect to the Property and is in default. 2.01.10. To the best of Trustor's knowledge, the Real Property and the Improvements have been issued all required certificates of occupancy, if any, and Trustor has received no written notice that such certificates of occupancy, if any, have been suspended or revoked. 2.01.11. Trustor has not granted any option, right of first refusal and/or right of first offer pursuant to which any other party could acquire any right to purchase or lease any interest in the Real Property and/or the Improvements. 2.01.12. There are no management agreements affecting the Real Property or any portion thereof, except to the extent any third party management agreements for the Property exist with the prior owner, all of which shall be terminated upon execution of this Deed of Trust. 2.01.13. To Trustor's best knowledge, there are no actions, suits or proceedings pending against Trustor and/or the Property, at law or in equity, or by any person or entity, including without limitation, any federal, state, municipal or other governmental department, commission, board, agency or instrumentality. 2.02. Trustor shall complete and maintain in a good and workmanlike manner any building or other improvements which are being or in the future may be constructed on the Property and pay when due all claims for labor performed and materials furnished therefor. Trustor shall comply with all laws, rules, ordinances, regulations, covenants, conditions, restrictions, easements and agreements pertaining to the Property or Trustor's use thereof. Trustor shall not commit, suffer or permit any act to be done in or upon the Property in violation of law. 2.03. Trustor shall not initiate or acquiesce in any change in any zoning or other land use classification now or hereafter in effect and affecting the Property or any part thereof, nor shall Trustor otherwise change or attempt to change the use of the Property or any portion thereof without in each case obtaining Beneficiary's prior written consent thereto, PROVIDED, HOWEVER, that Beneficiary shall not unreasonably withhold its consent to an application by Grantor for a change in zoning to the extent that such application will enhance the ability of Trustor to operate the Property for gaming purposes or will otherwise improve the operations of the Property as a hotel. 2.04. Trustor shall not commit or permit waste on the Property and will keep and maintain or cause to be kept and maintained at its own expense the Property in a first-class condition and state of repair (the term first-class condition and state of repair shall be deemed to be a condition and state of repair equal to or better than the existing condition and state of repair of the Property). 2.05. Trustor shall not permit any building, structure, fixture or other improvement to be erected, removed, demolished, or materially changed or altered without the prior written consent of Beneficiary. Trustor will not remove or permit the removal of any of the personal property or any part thereof (including renewals, replacements and other after acquired property) from the Real Property and/or the Improvements without the prior written consent of Beneficiary; PROVIDED, HOWEVER, that, no consent shall be required to replace obsolete and worn out articles concurrently with the replacement or renewal thereof with property of at least equal value and of equal usefulness in the operation of the Real Property and/or the Improvements. Trustor will promptly notify Beneficiary of any fire or other casualty causing damage to the Property. Trustor will promptly and in good and workmanlike manner repair and restore any improvement which may be damaged or destroyed to the condition existing immediately prior to such damage or destruction. Trustor will promptly replace any lost, stolen, damaged or destroyed personal property. 2.06. Trustor shall pay and discharge (i) Beneficiary's legal fees and disbursements in connection with the preparation, execution and delivery of this Deed of Trust and any of the other Loan Documents and the consummation of the transactions contemplated herein and therein as more particularly set forth in Sections 5.01, 5.03 and 10.04 of the Loan Agreement (ii) except as may be expressly limited in Section 10.04 of the Loan Agreement, Beneficiary's and Trustee's fees and expenses in connection with its performance of due diligence, including fees and expenses incurred by Beneficiary with respect to third-party providers of due diligence reports, (iii) Beneficiary's title insurance premium, fees and expenses and the cost of affirmative insurance and endorsements, (iv) all costs to record documents and instruments required by this Deed of Trust and the other Loan Documents, and all mortgage, documentary, recording and other similar taxes and expenses relating to the Note, this Deed of Trust and any of the other Loan Documents, and (v) Trustee's fees and expenses in connection with its obligations hereunder (including Trustee's fees and expenses in connection with a sale of the Property, whether completed or not), which amounts shall become due upon demand by either Beneficiary or Trustee 2.07. Trustor shall pay when due, all taxes, impositions, assessments, levies, utility fees and all other fees and charges of every kind and nature, whether of a like or different nature, imposed upon or assessed against or which may become a lien on the Property, or any part thereof, or arising from, by reason of or in connection with, the use thereof or this Deed of Trust. In addition, Trustor shall file all required tax forms with the appropriate governmental authorities on or before the day on which they become due. Trustor will promptly deliver to Beneficiary receipts evidencing payment of taxes, impositions, assessments, levies, utility fees and all other fees and charges as required in the Loan Agreement. Beneficiary may require Trustor to obtain and pay for a tax service satisfactory to Beneficiary in order to assure Beneficiary such taxes are paid. 2.08. If any suit, action, arbitration, or other proceeding shall be instituted for any purpose affecting the Property, any portion thereof, any interest therein, title thereto or this Deed of Trust, or should Trustor receive any notice from any governmental agency relating to the structure, use or occupancy of the Property, Trustor shall immediately upon service thereof but in any event not later than five (5) business days after service of process with respect thereto, or the obtaining of knowledge thereof, deliver to Beneficiary true copies of each notice, petition, summons, complaint, notice of motion, order to show cause, and all other process, pleadings and papers, however designated, served in any action or proceeding. Immediately upon becoming aware of any development or other information which may materially and adversely affect the business, prospects, profits or condition (financial or otherwise) of Trustor or the Property or the ability of Trustor to perform the obligations secured hereby, Trustor shall promptly and in writing notify Beneficiary of the nature of such development or information and such anticipated effect. 2.09. Trustor promises and agrees that if during the existence of this Deed of Trust there be commenced or pending any suit, action, arbitration, or other proceeding for any purpose affecting the Property, any portion thereof, any interest therein, title thereto or this Deed of Trust, or if any adverse claim for or against said Property, or any portion thereof, any interest therein, title thereto or this Deed of Trust, be made or asserted, Trustor shall appear in and defend any such proceeding and will pay all costs and damages arising because of such proceeding. Beneficiary may elect to appear in any such proceeding in its discretion. If Beneficiary elects to appear in any such action or proceeding, Beneficiary shall have the right to retain counsel of its choice. Trustor shall be solely responsible for any and all expenses and costs, including the reasonable fees of counsel retained by Beneficiary, which are incurred pursuant to this section. If Beneficiary elects to appear in any action or proceeding, Trustor agrees to indemnify Beneficiary against, release Beneficiary from, and hold Beneficiary harmless from any damages, liability, costs, expenses, litigation, or claims incurred in or in connection with such action or appearance, except as a result of Beneficiary's gross negligence or willful misconduct. 2.10. Trustor shall not permit or suffer the filing of any mechanics', materialmen's, or other liens against the Property, any part thereof, any interest therein, or the revenue, rents, issues, income and profits arising therefrom. If any such lien shall be filed against the Property, any part thereof, or any interest therein, Trustor agrees to bond or discharge the same of record within thirty (30) days after the same shall have been filed. 2.11. Trustor shall take any and all actions which may be necessary to prevent any third parties from acquiring any prescriptive easement upon, over or across any part of the Property, or from acquiring any rights whatsoever to or against the Property by virtue of adverse possession. 2.12. Trustor shall not enter into any Lease (or amendment thereof) for all or any portion of the Property without the prior written consent of Beneficiary. All such Leases shall be on a lease form satisfactory to Beneficiary, and shall be on terms and conditions and with a tenant satisfactory to Beneficiary, which consent shall not be unreasonably withheld if Trustor enters into a Lease with a duly licensed and reputable casino operator reasonably satisfactory to Beneficiary. Trustor shall pay on demand all costs of Beneficiary (including, attorneys' fees and costs) in connection with any review and/or approval pursuant to this Section 2.12, Section 2.13 and Section 2.14. 2.13. Trustor shall not without Beneficiary's prior written consent (i) enter into any assignment or pledge or agreement to assign or pledge any of Trustor's interest in the Leases and Rents; (ii) accept any payment of any installment of Rents more than thirty (30) days before the due date thereof, excluding reasonable security deposits and payment of last month's rent; (iii) except as otherwise expressly provided hereinabove or in the Loan Agreement, enter into any Lease or management agreement for all or any portion of the Property; (iv) make any Lease or other contract for goods and/or services with any entity that is a successor, affiliate or subsidiary of Trustor, other than the "Approved Management Agreement" (as defined in the Loan Agreement); or (v) amend, modify or waive any rights under any Lease, the Approved Management Agreement or any other or management agreement. Trustor shall promptly advise Beneficiary in writing of the giving of any notice by the lessee under any Lease. Trustor shall execute and deliver, on request of Beneficiary, such instruments as Beneficiary may deem useful or required to permit Beneficiary to cure any default under any of the foregoing or permit Beneficiary to take such other actions as Beneficiary considers desirable to cure or remedy the matter in default and preserve the interest of Beneficiary in such agreements and the Property. 2.14. Trustor shall at its sole cost and expense enforce, short of termination thereof, the performance of all terms, covenants and conditions of the Leases to be performed by the lessees thereunder. Trustor shall appear in and defend any action or proceeding arising under, growing out of or in any manner connected with the Leases or the obligations, duties or liabilities of Trustor or of any tenants thereunder. 2.15. Trustor shall at all times, be in compliance with any and all approvals, licenses and permits required to be obtained pursuant to Nevada law; provided, however that to the extent that any such approval, license or permit is not in place solely by reason of the acts or omission of Cheyenne Hotel Casino, Inc., Trustor shall use its best efforts to obtain, or cause to be obtained, at Trustor's sole cost and expense, such approval, license or permit. Nothing in the Note, this Deed of Trust or in any of the other Loan Documents shall be construed to obligate Trustor to obtain from the State of Nevada licenses or permits to conduct gaming on the Real Property, but all gaming activities coducted on any portion of the Real Property shall be condcuted in accordance with applicable law. 2.16. Nothing in the Note, this Deed of Trust or in any of the other Loan Documents, shall be construed to obligate Beneficiary, expressly or by implication, to perform any of the covenants of landlord under any Leases or to pay any sum or money or damages therein provided to be paid by the landlord each and all of which covenants and payments Trustor agrees to perform and pay or cause to be performed and paid. 2.17. To the extent not provided by applicable law, all future Leases shall provide that, in the event of the enforcement by Trustee or Beneficiary of the remedies provided for by law or by this Deed of Trust, the tenant thereunder shall, if requested by Beneficiary or by any person succeeding to the interest of Trustor as the result of said enforcement, automatically become the tenant of any such successor-in-interest, without any change in the terms or other provisions of such Lease; PROVIDED, HOWEVER, that said successor-in-interest shall not be bound by (i) any payment of Rent for more than one (1) month in advance, except prepayments in the nature of security for the performance by tenant of its obligations under said Lease not in excess of an amount equal to one (1) month's rental, (ii) any amendment or modification in such Lease made without the consent of Beneficiary or any successor-in-interest; or (iii) any prior acts and/or omissions in violation of any of the terms, covenants and conditions contained in the Lease. 2.18. The lessee under the Leases may and shall rely upon the receipt of any notice from Beneficiary that Trustor is in default thereunder and thereafter Beneficiary, or Beneficiary's designee, shall be paid all rents due under the Leases until the lessees thereunder are notified otherwise in writing by Beneficiary or until directed otherwise by a final judgment of a court of competent jurisdiction. All amounts collected hereunder, after deducting the expenses of operating the Property and after deducting the expenses of collection and all other expenses incurred hereunder, including attorneys' fees, shall be applied in such manner as Beneficiary may elect in its sole and absolute discretion. Trustor shall cause to be included as terms in all Leases hereafter executed or renewed the provisions of the first sentence of this Section 2.18, and shall further cause the refusal of any lessee under any such Lease to pay all rents due under the Leases to Beneficiary as aforesaid to be a breach of such Lease by the lessee thereof. Nothing herein shall be deemed to impose on Beneficiary any obligation to operate or maintain the Property or to enforce any Lease. Notwithstanding the conveyance or transfer of title to any or all of the Property to any lessee under any of the Leases, the lessee's leasehold estate under such Lease shall not merge into the fee estate and the lessee shall remain obligated under such lease as assigned by this Deed of Trust. 2.19. All lessees under the Leases shall agree that the Leases are and shall be subordinate hereto and that upon any sale or deed in lieu of sale hereunder such lessees shall attorn to the purchaser or grantee, as the case may be, and recognize the same as lessor under the Leases as fully as if such purchaser or grantee had been named as lessor under the Leases, but without any claim or offset against such purchaser or grantee for any liability of any previous lessor. Such lessees shall, from time to time during the term hereof, within ten (10) days after demand therefor by Beneficiary, execute and deliver to Beneficiary, or any party designated by Beneficiary, a certificate in recordable form certifying that attached thereto is a true and correct copy of such lessee's Lease, the term of such Lease, the date to which all rentals and other charges have been paid, the amount of any security deposit, that no rent has been prepaid or discounted, that such Lease is in full force and effect, and that no defaults have occurred thereunder (or specifying the nature of such defaults), together with such other information with respect to such Lease and/or lessee as Beneficiary may reasonably request. 2.20. Trustor will pay all amounts required to be paid under the Note, as and when required under the terms of the Note, and Trustor will comply with all terms and conditions of the Loan Agreement within the time periods specified in the Loan Agreement for such compliance. 2.21. Trustor agrees at any time and from time to time during the term hereof and within ten (10) days after demand therefor from Beneficiary, to execute and deliver to Beneficiary, or any party designated by Beneficiary, a certificate in recordable form certifying the amount then due pursuant to this Deed of Trust and the obligations secured hereby, the terms of payment thereof, the dates to which payments have been paid, that this Deed of Trust and all instruments and obligations secured hereby are in full force and effect and that there are no defenses or offsets thereto, or specifying in what regards this Deed of Trust or such obligations are not in full force and effect and the nature of any defense or offsets thereto, together with such other information as Beneficiary may request. 2.22. Notwithstanding anything in this Deed of Trust to the contrary, and except to the extent expressly permitted under the terms of the Loan Agreement, Trustor shall not enter into leases, conditional sale agreements and/or security agreements relating to fixtures, trade fixtures, furniture, furnishings and equipment without the prior written consent of Beneficiary. 2.23. Trustor will enforce the covenants, agreements, terms and conditions to be performed by any other parties to any agreements, bonds, leases, licenses, rental agreements, geological surveys, plans and specifications, documents, chattel paper, instruments, and other contracts and policies of insurance encumbered hereby in accordance with their terms and will not enter into, modify or amend or permit the modification or amendment thereof and will not cancel, surrender, fail to renew or permit the cancellation, surrender or failure to renew of any of the foregoing without, in each case, the prior written consent of Beneficiary. 2.24. Trustor shall execute, acknowledge and deliver to Beneficiary, and, if applicable, cause to be recorded or filed at Trustor's cost and expense, any and all such mortgages, assignments, transfers, assurances, financing statements and other instruments and documents and do such acts as Beneficiary shall from time to time require for the better perfecting, assuring, conveying, assigning, transferring and confirming unto Beneficiary the Property and rights herein conveyed or assigned or intended now or hereafter so to be. Unless prohibited by law, Trustor hereby authorizes Beneficiary to execute and file any such financing statements or continuation statements on Trustor's behalf. The parties agree that this Deed of Trust shall constitute a security agreement under the Code and that a carbon, photographic or other reproduction of this Deed of Trust or of a financing statement shall be sufficient as a financing statement. Trustor shall not change its name, identity or corporate structure from and after the date hereof without notifying Beneficiary at least sixty (60) days in advance. 2.25. Trustor shall procure, pay for and maintain and shall not transfer, assign or pledge or agree to transfer, assign or pledge any of Trustor's interest in the permits, licenses and other authorizations required by any law, rule or regulation to be procured and/or maintained by Trustor, and for the lawful and proper operation and maintenance of the Property, including, without limitation, certificates of completion and occupancy permits required for the legal use, occupancy and operation of the Real Property as a hotel and any applicable liquor license. 2.26. Except as expressly permitted pursuant to the Loan Agreement, Trustor shall not further encumber, create, assume, suffer to exist, alienate, hypothecate or grant a security interest in or grant a lien, charge or any other interest whatsoever in or with respect to the Property (whether superior or inferior to the liens of this Deed of Trust and the other documents executed in connection herewith) in favor of any person or entity. 2.27. [Intentionally Deleted]. 2.28. All contracts and licenses entered into by Trustor or on behalf of Trustor that relate to the Property are and shall be subordinate hereto. 2.29. If, at any time or times, regardless of the existence of a default (except with respect to clauses (iii) and (iv) below, which shall be subject to a default having occurred) Beneficiary shall employ counsel or other advisors for advice or other representation or shall incur legal or other costs and expenses in connection with: (i) any amendment, modification or waiver, or consent with respect to, any of the Loan Documents (unless or except to the extent such amendment, modification, waiver or consent is being made at Beneficiary's request and for Beneficiary's benefit); (ii) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Beneficiary, Trustor or any other party) in any way relating to the Property, any of the Loan Documents or any other agreements to be executed or delivered in connection herewith, unless Trustor prevails against Beneficiary therein; (iii) any attempt to enforce any rights of Beneficiary against Trustor, or any other party, that may be obligated to Beneficiary by virtue of any of the Loan Documents, unless Trustor prevails against Beneficiary therein; (iv) any attempt to verify, protect, collect, sell, liquidate or otherwise dispose of the Property; or (v) any exercise of remedies, collection of amounts due under any of the Loan Documents, or protection of the security for the obligations, or the enforcement of any covenant or agreement by Trustor, under the Note or any of the other Loan Documents, unless Trustor prevails against therein; then, and in each and any such event, the attorneys' and other parties' fees actually and necessarily arising from such services, including those of any trial court proceedings, appellate proceedings, bankruptcy proceedings, arbitration proceedings and mediation proceedings and all expenses, costs, charges and other fees incurred by such counsel and others in any way or respect arising in connection with or relating to any of the events or actions described in this Section shall be payable, on demand, by Trustor to Beneficiary and shall be additional obligations of Trustor secured by this Deed of Trust and all of the other Loan Documents. 2.30. Trustor will not conceal from creditors any of its assets and will not participate in the concealing of assets of any other person or entity. 2.31. Trustor is not insolvent and the consummation of the transactions contemplated by this Deed of Trust and any of the other Loan Documents will not render Trustor insolvent. SECTION 3 CASUALTY, CONDEMNATION AND INSURANCE 3.01. Until the Loan has been fully satisfied, Trustor shall obtain, or cause to be obtained, and shall maintain or cause to be maintained with respect to the Property, at their own cost and expense, and shall deposit with Beneficiary on or before the Closing Date the following (unless otherwise indicated): (a) PROPERTY INSURANCE. To the extent the Property is improved, Trustor shall maintain an "All Risk," including flood, perils policy covering the building and improvements, and any other permanent structures for one hundred percent (100%) of the replacement cost. Upon the request of Beneficiary replacement cost for insurance purposes will be established by an independent appraiser selected by Beneficiary. The policy will include Agreed Amount (waiving co-insurance), Replacement Cost Valuation and Building Ordinance endorsements. The policy will include a standard Beneficiary clause (ISO form or equivalent) and provide that all losses in excess of Five Hundred Thousand Dollars ($500,000) be adjusted with Beneficiary. (b) PERSONAL PROPERTY. (including machinery, equipment, furniture, fixtures, stock.) Trustor shall maintain "All Risk" property coverage for all personal property owned, leased or for which Trustor's are legally liable (to the extent such personal property exists). The policy(ies) providing real and personal property coverages may include a deductible of no more than Ten Thousand Dollars ($10,000) for any single occurrence. Flood and Earthquake deductibles can be no more than One Hundred Thousand Dollars ($100,000), if a separate deductible applies. (c) Rental loss and/or business interruption insurance in an amount equal to the greater of (A) estimated annual gross revenues for twelve (12) months from the operation of the Real Property or (B) the projected operating expenses (including debt service) for twelve (12) months for the maintenance and operation of the Real Property. The amount of such insurance shall be increased from time to time during the term of this Deed of Trust as and when the estimate of (or the actual) gross revenue or operating expenses, as may be applicable, increases. (d) CRIME INSURANCE. To the extent Trustor maintains a business on the Property, Trustor shall, within ninety (90) days from the date hereof, obtain and at all times thereafter maintain a comprehensive crime policy, including the following coverages: (i) Employee Dishonesty - One Million Dollars ($1,000,000); (ii) Money and Securities - (inside) - Five Hundred Thousand Dollars ($500,000); (iii) Money and Securities - (outside) - Five Hundred Thousand Dollars ($500,000); (iv) Depositor's Forgery - One Million Dollars ($1,000,000); (v) Computer Fraud - One Million Dollars ($1,000,000). The policy may contain deductibles of no greater than One Hundred Thousand Dollars ($100,000) for Employee Dishonesty and Fifty Thousand Dollars ($50,000) for all other coverages listed above. (e) COMMERCIAL GENERAL LIABILITY (1993 FORM OR EQUIVALENT). Trustor shall maintain a Commercial General Liability policy with a One Million Dollar ($1,000,000) combined single limit for bodily injury and property damage, including Contractual Liability, and all standard policy form extensions. The policy must provide Two Million Dollar ($2,000,000) general aggregate (per location, if multi-location risk) and be written on an "occurrence form". If the general liability policy contains a self-insured retention, it shall be no greater than Ten Thousand Dollars ($10,000) per occurrence, with an aggregate retention of no more than One Hundred Thousand Dollars ($100,000). The policy shall be endorsed to include Beneficiary as an additional insured. Definition of additional insured shall include all officers, directors, employees, agents and representatives of the additional insured. The coverage for the additional insured shall apply on a primary basis irrespective of any other insurance whether collectible or not. (f) AUTOMOBILE. To the extent Trustor owns any automobiles, Trustor shall within ninety (90) days from the date hereof, obtain and at all times thereafter maintain a comprehensive Automobile Liability Insurance Policy written under coverage "symbol 1," providing a One Million Dollar ($1,000,000) combined single limit for bodily injury and property damage covering all owned, non-owned and hired vehicles of the Trustor. If a policy contains a self-insured retention it shall be no greater than Ten Thousand Dollars ($10,000) per occurrence, with an aggregate retention of no more than One Hundred Thousand Dollars ($100,000). (g) WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE. To the extent Trustor employs any employees, Trustor shall within ninety (90) days from the date hereof, obtain and at all times thereafter maintain standard Workers Compensation Policy, as required by law. (h) UMBRELLA LIABILITY. An Umbrella Liability policy shall be purchased with a limit of not less than Twenty-Five Million Dollars ($25,000,000) providing excess coverage over all limits and coverages indicated in paragraphs (e), (f) and (g) above (to the extent Trustor owns no automobiles and employs no employees then Trustor shall maintain such excess coverage with respect to (e)). The limits can be obtained by a combination of Primary and Excess Umbrella polices, provided that all layers follow form with the underlying policies indicated in (e), (f) and (g) and are written on an "occurrence" form. This policy shall be endorsed to include the Beneficiary as an additional insured, as defined under paragraph (e) above. If Trustor's general liability and automobile policies include a self-insured retention, it is agreed and fully understood that Trustor is solely responsible for payment of all amounts due within said self-insured retentions. Any Indemnification/Hold Harmless provision is extended to cover all liabilities associated with said self-insured retentions. (i) All policies indicated above shall be written with insurance companies licensed and admitted to do business in the State of Nevada and rated no lower than "AVIII" in the most recent edition of A. M. Best and "AA" in the most recent edition of Standard & Poor's, or such other carrier reasonably acceptable to Beneficiary. All policies discussed above shall be endorsed to provide that in the event of a cancellation, non-renewal or material modification, Beneficiary shall receive thirty (30) days prior written notice thereof. All policies providing property (first party) coverages under this agreement shall provide that any loss be payable to Beneficiary notwithstanding (i) any act or negligence by Trustor or any lessee or other occupant of the Property which might otherwise result in forfeiture of said insurance, (ii) use of all or any portion of the Property for purposes more hazardous than permitted by such policy, (iii) any sale or other proceeding pursuant hereto, or (iv) any change in title to or ownership of the Property or any portion thereof. Trustor shall be furnished with a Certificate of Insurance executed by an authorized agent evidencing compliance with all insurance provisions above on an annual basis. Certificates of Insurance executed by an authorized agent of each carrier providing insurance evidencing continuation of all coverages will be provided on the Closing Date and thirty (30) days prior to the expiration of each policy. All certificates and other notices related to the insurance program shall be delivered to Beneficiary concurrently with the delivery of such certificates or notices to Trustor. Trustor shall obtain and maintain any other insurance reasonably requested by Beneficiary in such amounts and covering such risks as may be reasonably required by Beneficiary. 3.02. Trustor shall immediately notify Beneficiary of the pendency of any proceedings for the condemnation of the Property, any part thereof, or any interest therein upon obtaining knowledge of the institution of the pendency of such proceedings. Beneficiary may, but shall not be required to, participate in any such proceedings and Trustor from time to time will deliver to Beneficiary all instruments requested by it to permit such participation. Trustor shall pay all of Beneficiary's costs and expenses, including attorneys' fees, incurred in any such proceedings. In the event of such condemnation proceedings, any award or compensation shall be paid to Beneficiary and shall be applied, after payment of all costs and expenses of Beneficiary or Trustee incurred in collecting the same, in such manner as Beneficiary elects in its sole and absolute discretion, without regard to whether or not its security hereunder has been impaired. For the purposes hereof, any proceeding to acquire any interest in or affecting the value of the Property, or seeking damages therefor, including severance or change of grade, whether by court action or purchase in lieu thereof, shall be deemed a proceeding for condemnation and any award for inverse condemnation shall be deemed condemnation proceeds. 3.03. Notwithstanding any provision in this Deed of Trust to the contrary but subject to Section 3.04 below, Beneficiary may, in its sole and absolute discretion, whether or not its security hereunder has been impaired, and notwithstanding any other provision hereof, direct that any casualty insurance or condemnation proceeds, or any portion thereof, remaining after payment of all costs and expenses of Beneficiary or Trustee in collecting the same ("NET PROCEEDS"), be paid, in such manner as Beneficiary elects, including to apply the Net Proceeds to any and all amounts due hereunder or under any of the other Loan Documents without regard to whether or not its security hereunder has been impaired. If Beneficiary elects to apply all or any portion of the Net Proceeds for the restoration and repair of the improvements and/or personal property, then such Net Proceeds shall be disbursed by Beneficiary pursuant to such disbursement procedures as Beneficiary may provide, in its sole and absolute discretion. The amount of such proceeds used toward payment of the cost of repair or restoration that is released to Trustor shall not be deemed a payment of any indebtedness or obligation secured hereby and shall be disbursed to Trustor pursuant to such disbursement procedures as Beneficiary may provide, in its sole and absolute discretion, to ensure the full, prompt and lien-free completion of such restoration, repair or alteration 3.04. Notwithstanding the foregoing provisions of Section 3.03, provided no Event of Default which remains uncured has occurred with respect to the Loan, and provided, that, the restoration costs for damage due to an insured casualty is $250,000.00 or less, any Net Proceeds in respect of casualty insurance shall, at the request of the Trustor made in writing to the Beneficiary, be disbursed by the Beneficiary to Trustor, in accordance the conditions of Beneficiary's construction provisions contained in the Loan Agreement (or, if there are none, in accordance with customary construction loan disbursement procedures), for the payment (or reimbursement) of necessary costs actually incurred by Trustor in the restoration or replacement of the Improvements or the Personalty, under the following conditions: (a) Prior to the commencement of the restoration or replacement of the Improvements or the Personalty, other than such work as may be reasonably necessary to protect the same from further damage, the Beneficiary shall have approved the Plans and Specifications for such restoration or replacement, which approval shall not be unreasonably withheld, delayed or conditioned; (b) In the event the Net Proceeds are not sufficient, in the reasonable judgment of the Beneficiary, for the purpose of accomplishing the restoration or replacement of the Improvements or the Personalty in accordance with the Plans and Specifications aforesaid, Trustor shall provide evidence reasonably satisfactory to the Beneficiary of the availability of additional funds for the purpose of accomplishing the restoration or replacement of the Improvements or the Personalty and such additional funds shall be expended for that purpose before the Beneficiary shall have any obligation to disburse insurance proceeds; and (c) Each request for an advance of the Net Proceeds shall be made to the Beneficiary at least two (2) business days prior to the date upon which such advance is sought and shall be accompanied by evidence reasonably satisfactory to the Beneficiary to the effect that (i) all work then completed has been performed substantially in accordance with the Plans and Specifications aforesaid and in accordance with all applicable building codes and similar governmental requirements; (i) the amount requested to be advanced is required for payments due to the contractor responsible for the work, or to subcontractors, materialmen, laborers, engineers, architects or to other persons responsible for services, labor or materials in connection with the restoration or replacement of the Improvements or the Personalty, or for third party fees or the like necessarily incurred in connection with the same; (ii) all governmental permits and consents required for the performance of the work have been obtained and are in full force and effect; (iii) funds remaining available to Trustor and the Beneficiary for the purpose of accomplishing the restoration or replacement of the Improvements or the Personalty are sufficient for that purpose; and (iv) there has not been filed with respect the Property any mechanic's or similar lien, or notice of intention to file the same, which has not been dismissed, bonded or satisfied of record. SECTION 4 TRANSFERS, ETC. 4.01 Trustor shall not, directly or indirectly, sell, transfer, assign, mortgage, pledge, hypothecate or encumber, including the granting of any option to mortgage, pledge, hypothecate or encumber, whether voluntary or involuntary, by agreement, operation of law or otherwise, of the whole or any portion of Trustor's right, title or interest in and to the Collateral, the Property or Trustor, or any portion thereof or any right or interest therein, without the prior written consent of Beneficiary. SECTION 5 TRUSTEE AND BENEFICIARY'S RIGHTS 5.01. The waiver or release by Beneficiary or Trustee of any default or of any of the provisions, covenants and conditions hereof on the part of Trustor to be kept and performed shall not be a waiver or release of any preceding or subsequent breach of the same or any other provision, covenant or condition contained herein. The subsequent acceptance of any sum in payment of any indebtedness secured hereby or any other payment hereunder by Trustor to Beneficiary or Trustee shall not be construed to be a waiver or release of any preceding breach by Trustor of any provision, covenant or condition of this Deed of Trust other than the failure of Trustor to pay the particular sum so accepted, regardless of Beneficiary's or Trustee's knowledge of such preceding breach at the time of acceptance of such payment. No payment by Trustor or receipt by Beneficiary of a lesser amount than the amount therein provided shall be deemed to be other than on account of the earliest sums due and payable hereunder, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed an accord and satisfaction, and Beneficiary may accept any check or payment without prejudice to Beneficiary's right to recover the balance of such sum or pursue any other remedy provided in this Deed of Trust. The consent by Beneficiary or Trustee to any matter or event requiring such consent shall not constitute a waiver of the necessity for such consent to any subsequent matter or event. 5.02. Beneficiary shall be subrogated to the lien of any and all prior encumbrances, liens, or charges paid or discharged from the proceeds of the Note, and even though said prior liens may have been released of record, the repayment of the Note shall be secured by such liens on the portions of the Property affected thereby to the extent of such payments. In consideration of the advances made to Trustor, Trustor hereby waives and releases all demands and causes of action for offsets, payments and rentals to, and in connection with said prior indebtedness. 5.03. Notwithstanding the right otherwise provided to Trustor to collect rent and other payments pursuant to any Leases while Trustor is not in default under the Note, this Deed of Trust or any other Loan Document, if there is filed any petition in bankruptcy by or against any lessee under any of the Leases or there is appointed a receiver or trustee to take possession of all or a substantial portion of the assets of such lessee or there is a general assignment by such lessee for the benefit of creditors, or any action is taken by or against such lessee under any state or federal insolvency law or bankruptcy act, or any similar law now or hereafter in effect, Beneficiary is appointed a creditor of such lessee and is entitled to recover on any claim or right of recovery that Trustor may have against such lessee or its receiver or trustee; PROVIDED, HOWEVER, that Beneficiary shall not be obligated to pursue any such claim or right of recovery. Beneficiary may apply any such recovery against any obligation secured hereby in such manner as it may deem desirable, in its sole and absolute discretion. 5.04. Beneficiary may, upon not less than one (1) business day advance notice, make or cause to be made reasonable entries upon and inspection of the Property, provided however, Beneficiary shall use reasonable efforts not to interfere with any use or enjoyment of the guests, occupants or visitors of the Property. 5.05. Beneficiary may, at any time, by instrument in writing, appoint a successor or successors to Trustee named herein or acting hereunder, which instrument, executed and acknowledged by Beneficiary, and recorded in the Office of the County Recorder, Clark County, Nevada, shall be conclusive proof of the proper substitution of such successor trustee, who shall have all the estate, powers, duties and trusts in the premises vested in or conferred on the original trustee. If there be more than one trustee, either may act alone and execute these trusts upon the request of Beneficiary and his acts shall be deemed to be the acts of all trustees, and the recital in any conveyance executed by such sole trustee of such requests shall be conclusive evidence thereof, and of the authority of such sole trustee to act. 5.06. Without affecting the liability of Trustor or any other person, except any person expressly released in writing, for payment of any indebtedness secured hereby or for performance of any of the obligations or any of the terms, covenants and conditions hereof, and without affecting the rights of Trustee and Beneficiary with respect to any security not expressly released in writing, at any time and from time to time, without notice or consent other than consent of Beneficiary, Trustee and/or Beneficiary may: (a) Release any person liable for payment of all or any part of the indebtedness or for the performance of any obligation; (b) Make any agreement extending the time or otherwise altering the terms of payment of all or any part of said indebtedness or modifying or waiving any obligation or subordinating, modifying or otherwise dealing with the lien or charge hereof; (c) Exercise or refrain from exercising or waive any right either of them may have; (d) Accept additional security of any kind; and (e) Release or otherwise deal with any property, real or personal, securing the obligations secured hereby. 5.07. If, after an event of default, Trustor fails to execute, acknowledge or deliver to Beneficiary any and all mortgages, assignments, transfers, assurances, financing statements, maps, and other instruments or documents required to be so executed, acknowledged or delivered hereunder, within fifteen (15) days after Beneficiary's demand or such lesser period as may be provided elsewhere herein, then Trustor hereby appoints Beneficiary as Trustor's true and lawful attorney-in-fact to act in Trustor's name, place and stead to execute, acknowledge and deliver the same. 5.08. Whenever under any provision of this Deed of Trust Trustor shall be obligated to make any payment or expenditure, or to do any act or thing, or to incur any liability whatsoever, and Trustor fails, refuses or neglects to perform as herein required, Beneficiary shall be entitled, but shall not be obligated, to make any such payment or expenditure or to do any such act or thing, or to incur any such liability, all on behalf of and at the cost and for the account of Trustor. Beneficiary shall not be bound to inquire into the validity of any apparent or threatened tax, assessment, adverse title, lien, encumbrance, claim, or charge before making an advance for the purpose of preventing, removing or paying the same. Beneficiary shall be subrogated to all rights, equities and liens discharged by any such expenditure. 5.09. A. It is expressly agreed that the entire unpaid principal amount of the Note, together with any and all accrued and unpaid interest and any and all other sums due thereunder, under this Deed of Trust and/or under any of the other Loan Documents shall, except as otherwise explicitly provided hereunder, under the Note and/or under any of the other Loan Documents, at the option of Beneficiary, become immediately due and payable (a) without notice, upon the failure of Trustor to make any payment of principal, interest or other sums due hereunder, under the Note and/or under any of the other Loan Documents (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise); (b) Trustor fails to pay any interest due under the Note and/or any other Loan Document or any fee or other amount (whether by scheduled payment, acceleration, demand or otherwise) within three (3) business days of the date when due; PROVIDED HOWEVER, that failure to make payments when due with respect to the obligations of this Subsection 5.09.(b) more than three (3) times in any twelve (12) month period shall constitute an event of default hereunder; (c) upon the occurrence of any "Event of Default" (as defined in the Loan Agreement) or (d) upon the occurrence and continuation for ten (10) days after notice from Beneficiary to Trustor of any other default hereunder; PROVIDED, HOWEVER, that in the case of a default which cannot with due diligence be cured within such ten (10) day period, Trustor shall have up to ninety (90) days from the date of such notice to cure such default, provided that such default is capable of being cured within such ninety (90) day period, as determined by Beneficiary, and Trustor commences to cure such default within such ten (10) day period and thereafter diligently prosecutes such cure to completion. B. It shall also be a default hereunder if Trustor breaches (beyond applicable notice and cure periods, if any) any representation, warranty or covenant contained in any of the Loan Documents. In addition, Trustor shall be in default hereunder (without any obligation on the part of Beneficiary to provide any notice and cure period) if (a) any license or permit necessary for operation of the Property or any portion thereof is revoked or any proceeding to revoke the same is commenced or threatened; (b) if without Beneficiary's prior consent, (i) except as provided under the Loan Agreement, the hotel manager for the Real Property under the Approved Management Agreement (as defined in the Loan Agreement) (or any successor management agreement) resigns or is removed, or (ii) the ownership, management or control of such hotel manager is transferred to a person or entity other than an affiliate of the Trustor, or (iii) except as permitted in the Loan Agreement, there is any material change in the Approved Management Agreement (or any successor management agreement); (c) [intentionally deleted]; (d) if without Beneficiary's prior consent, there is any material change in the Approved Franchise Agreement (as defined in Section 7.02) (or any successor franchise agreement) or if the Approved Franchise Agreement expires pursuant to its terms or a successor franchise agreement is executed by Trustor and such successor franchise agreement is not approved by Beneficiary; (e) if a default has occurred and continues beyond any applicable cure period under the Approved Franchise Agreement (or any successor franchise agreement) if such default permits the franchisor to terminate or cancel the Approved Franchise Agreement (or any successor franchise agreement); or (f) if Trustor ceases to do business as a hotel or motel on the Real Property or terminates such business for any reason whatsoever (other than temporary cessation in connection with any renovations to the Real Property which does not exceed such reasonable number of days from the date hereof necessary for Trustor to undertake the renovation of the Real Property). Trustor shall give Beneficiary prompt notice of the occurrence of any default under this Section 5.09B. but such notice shall not be a condition precedent to Beneficiary exercising any of its remedies hereunder, under the Note and/or under any of the other Loan Documents. Notwithstanding the foregoing, if any event of default under Section 5.09(B)(a) hereof shall occur, and such default arises solely from (i) a default by Cheyenne Hotel Casino, Inc. under the Pre-Existing Days Inn Franchise Agreement or (ii) the operation of the Property by Cheyenne Hotel Casino, Inc. prior to the date hereof, then no default shall be deemed to have occurred; PROVIDED HOWEVER that Trustor hereby covenants and agrees that from and after the date hereof, Trustor will use its best and diligent efforts to cure as promptly as possible any such default or enter into a new franchise agreement or pursuant to the Loan Agreement, operate the Property independently (it being expressly understood that Trustor shall not be obligated to expend any monies to cure any monetary default of Cheyenne Hotel Casino, Inc.). 5.10. The collection of rents and the application thereof by Beneficiary or any receiver obtained by Beneficiary shall not cure or waive any default or notice thereof, or invalidate any act of Beneficiary pursuant thereto. In the exercise of the powers herein granted Beneficiary, Beneficiary shall not be deemed to have affirmed any Lease or subordinated the lien hereof thereto nor shall any liability be asserted or enforced against Beneficiary, all such liability being hereby expressly waived and released by Trustor. Neither Beneficiary nor any receiver shall be obligated to perform or discharge any obligation, duty or liability under any Lease under or by reason of the assignment contained in this Deed of Trust and Trustor shall and does hereby agree to indemnify Beneficiary and such receiver from and to hold them harmless of and from any and all liability, loss, costs, charges, penalties, obligations, expenses, attorneys' fees, litigation, judgments, damages, claims and demands which they may or might incur by reason of, arising from, or in connection with the Leases, such assignment, any alleged obligations or undertakings on their part to perform or discharge any of the terms, covenants or agreements contained in the Leases, any alleged affirmation of or subordination to the Leases, or any action taken by Beneficiary or such receiver pursuant to any provision of this Deed of Trust. Without limiting the generality of the foregoing, no security deposited by the lessee with the lessor under the terms of any Lease hereby assigned has been transferred to Beneficiary, and Beneficiary assumes no liability for any security so deposited. 5.11. In the event of any default hereunder or in the performance of any of the obligations secured hereby, Beneficiary may exercise any and all of its rights provided hereunder or by law. Without limiting the generality of the foregoing, any personal property may, at the sole and absolute option of Beneficiary (i) be sold hereunder, (ii) be sold pursuant to the Code, or (iii) be dealt with by Beneficiary in any other manner provided by statute, law or equity. The proceeds of any such sale may be applied against the amounts due and owing Beneficiary hereunder. Without limiting the foregoing, Beneficiary may require Trustor to assemble the personal property and make it available to Beneficiary at a place to be designated by Beneficiary. In the event of default, Beneficiary shall be the attorney-in-fact of Trustor with respect to any and all matters pertaining to the Property with full power and authority to give instructions with respect to the collection and remittance of payments, to endorse checks, to enforce the rights and remedies of Trustor, and to execute on behalf of Trustor and in Trustor's name any instruction, agreement or other writing required therefor. This power shall be irrevocable and deemed to be a power coupled with an interest. Beneficiary may, in its sole discretion, appoint Trustee as the agent of Beneficiary for the purpose of disposition of the personal property in accordance with the Code. Trustor acknowledges and agrees that a disposition of the personal property in accordance with Beneficiary's rights and remedies in respect to real property as hereinabove provided is a commercially reasonable disposition thereof. 5.12. In the event of any default hereunder or in the performance of the obligations secured hereby, Beneficiary may, to the full extent permitted by law, in addition to all other rights and remedies, forthwith after any such default enter upon and take possession of the Property, complete any buildings or other improvements under construction, construct new improvements and make modifications to and/or demolish any of the foregoing. In connection therewith Beneficiary shall have the power to file any and all notices and obtain any and all permits and licenses which Beneficiary, in its sole and absolute discretion, deems necessary or appropriate, including the filing of notices of completion and the obtaining of certificates of occupancy. Beneficiary shall also have the right to receive all of the rents, issues and profits of the Property, overdue, due or to become due, and to apply the same, after payment of all necessary charges and expenses, including attorneys' fees, on account of the indebtedness secured hereby. Beneficiary may do any and all of the foregoing in its own name or in the name of Trustor and Trustor hereby irrevocably appoints Beneficiary as its attorney-in-fact for such purposes. Beneficiary may also, at any time after such default, apply to any court of competent jurisdiction for the appointment of a receiver and Trustor agrees that such appointment shall be made upon a PRIMA FACIE showing of a claimed default without reference to any offsets or defenses against such default. Such receiver shall have all the rights and powers provided Beneficiary pursuant to this section or otherwise provided hereunder or by law. Said receiver may borrow monies and issue certificates therefor. Said certificates shall be a lien on the Property subordinate only to this Deed of Trust and the Leases; PROVIDED, HOWEVER, that should any of said certificates be acquired by Beneficiary the amount thereof shall constitute additional indebtedness secured hereby. Subject to compliance with applicable laws, such receiver may lease all or any portion of the Property on such terms and for such a term (which may extend beyond the terms of such receiver's appointment and/or, if Beneficiary so consents, sale of the Property hereunder) as such receiver may deem appropriate in its sole and absolute discretion. The entering upon and taking possession of the Property pursuant to this section and the collection of the rents, issues and profits therefrom shall not cure or waive any default or notice of default hereunder or invalidate any act of Beneficiary pursuant thereto. 5.13. Should default be made by Trustor in payment or performance of any indebtedness or other obligation or agreement secured hereby and/or in performance of any agreement herein, or should Trustor otherwise be in default hereunder, Beneficiary may, subject to NRS 107.080, declare all sums secured hereby immediately due by delivery to Trustee of a written notice of breach and election to sell (which notice Trustee shall cause to be recorded and mailed as required by law) and shall surrender to Trustee this Deed of Trust and the Note. 5.14. After three (3) months shall have elapsed following recordation of any such notice of breach, Trustee shall sell the property subject hereto at such time and at such place in the State of Nevada as Trustee, in its sole discretion, shall deem best to accomplish the objects of these trusts, having first given notice of such sale as then required by law. In the conduct of any such sale Trustee may act itself or through any auctioneer, agent or attorney. The place of sale may be either in the county in which the property to be sold, or any part thereof, is situated, or at an office of Trustee located in the State of Nevada: (a) Upon the request of Beneficiary or if required by law Trustee shall postpone sale of all or any portion of said property or interest therein by public announcement at the time fixed by said notice of sale, and shall thereafter postpone said sale from time to time by public announcement at the time previously appointed. (b) At the time of sale so fixed, Trustee shall sell the property so advertised or any part thereof or interest therein either as a whole or in separate parcels, as Beneficiary may determine in its sole and absolute discretion, to the highest bidder for cash in lawful money of the United States, payable at time of sale, and shall deliver to such purchaser a deed or deeds or other appropriate instruments conveying the property so sold, but without covenant or warranty, express or implied. Beneficiary and Trustee may bid and purchase at such sale. To the extent of the indebtedness secured hereby, Beneficiary need not bid for cash at any sale of all or any portion of the Property pursuant hereto, but the amount of any successful bid by Beneficiary shall be applied in reduction of said indebtedness. Trustor hereby agrees, if it is then still in possession, to surrender, immediately and without demand, possession of said property to any purchaser. 5.15. Trustee shall apply the proceeds of any such sale to payment of expenses of sale and all charges and expenses of Trustee and of these trusts, including cost of evidence of title and Trustee's fee in connection with sale; all sums expended under the terms hereof, not then repaid, with accrued interest at the rate equal to the Default Rate; all other sums then secured hereby, and the remainder, if any, to the person or persons legally entitled thereto. 5.16. Beneficiary, from time to time before Trustee's sale, may rescind any notice of breach and election to sell by executing, delivering and causing Trustee to record a written notice of such rescission. The exercise by Beneficiary of such right of rescission shall not constitute a waiver of any breach or default then existing or subsequently occurring, or impair the right of Beneficiary to execute and deliver to Trustee, as above provided, other notices of breach and election to sell, nor otherwise affect any term, covenant or condition hereof or under any obligation secured hereby, or any of the rights, obligations or remedies of the parties thereunder. 5.17 Trustor agree(s) that in the event that Trustor shall (a) file with any bankruptcy court of competent jurisdiction or become the subject of any petition under Title 11 of the United States Code, as amended, (b) be the subject of any order for relief issued under Title 11 of the United States Code, as amended, (c) file or be the subject of any petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or future federal or state act or law relating to bankruptcy, insolvency or other relief for debtors, (d) have sought or consented to or acquiesced in the appointment of any trustee, receiver, conservator or liquidator, (e) be the subject of any order, judgment or decree entered by any court of competent jurisdiction approving a petition filed against such party for any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future federal or state law relating to bankruptcy, insolvency or relief for debtors, then, in such event, Beneficiary or any designee or nominee, as the case may be, shall thereupon be entitled to relief from any automatic stay imposed by Section 362 of Title 11 of the United States Code, as amended, on or against the rights and remedies otherwise available to Beneficiary and designee or nominee as provided in any of the Loan Documents, it being the intent of the parties hereto that Trustor, without direct cost or expense to its shareholders, agrees to take or consent to any and all action necessary to effectuate such relief from the automatic stay. SECTION 6 MISCELLANEOUS 6.01 Upon receipt of written request from Beneficiary reciting that all sums secured hereby have been paid and upon surrender of this Deed of Trust and the Note secured hereby to Trustee for cancellation and upon payment of its fees, Trustee shall reconvey without warranty the property then held hereunder. The recitals in such reconveyance of any matters of fact shall be conclusive proof of the truth thereof. The grantee in such reconveyance may be described in general terms as "the person or persons legally entitled thereto." 6.02. Trustor, for itself and for all persons hereafter claiming through or under it or who may at any time hereafter become holders of liens junior to the lien of this Deed of Trust, hereby expressly waives and releases all rights to direct the order in which any of the Property shall be sold in the event of any sale or sales pursuant hereto and to have any of the Property and/or any other property now or hereafter constituting security for any of the indebtedness secured hereby marshaled upon any sale under this Deed of Trust or of any other security for any of said indebtedness. 6.03. All notices, demands or requests relating to any matter set forth herein shall be in writing and shall be served by delivery, certified mail, return receipt requested, or by a reputable commercial carrier that provides a receipt. All such notices or demands served shall be with postage thereon fully prepaid, and addressed to the party so to be served at its address stated below, or at such other address of which said party shall have theretofore given notice in writing as provided herein. Any such notices or demands shall be deemed effective on the day of actual delivery as shown by the addressee's return receipt or upon the second (2nd) business day after the date of mailing, whichever is earlier in time. Notices shall be addressed as follows: If to Beneficiary, to it at the following address: Madeleine LLC 450 Park Avenue New York, New York 10022 Attention: Mr. Kevin P. Genda with a copy to: Schulte Roth & Zabel LLP 900 Third Avenue New York, New York 10022 Attention: Michael J. Feinman, Esq. If to Trustor, to it at the following address: Speakeasy Gaming of Las Vegas, Inc. c/o Mountaineer Park, Inc. Route 2 South Chester, West Virginia 26034 Attention: Mr. Edson Arneault, President with copy to: Ruben & Aronson, LLP 3299 K Street N.W. Suite 403 Washington, D.C. 20007 Attention Robert L. Ruben, Esq. If to Trustee, to it at the following address: Nevada Title Compay 3320 West Sahara Avenue Suite 200 Las Vegas, Nevada 89102 Attention: Roger A. Waite Any party hereto may change its address for the purpose of receiving notices or demands as herein provided by a written notice given in the manner aforesaid to the other party hereto, which notice of change of address shall not become effective, however, until the actual receipt thereof by the other party. Whenever any law requires Beneficiary to give reasonable notice of any act, election, or event, or proposed act, election, or event, said requirement shall be deemed complied with if Beneficiary gives Trustor ten (10) days written notice as herein provided. Information concerning the security interest may be obtained from Beneficiary at the above address. 6.05. This Deed of Trust applies to, inures to the benefit of, and binds all parties hereto, their heirs, legatees, devisees, administrators, executors, successors and assigns (where permitted). 6.06. Trustee accepts these trusts when this Deed of Trust, duly executed and acknowledged, is made a public record as provided by law. 6.07. Where any provision in this Deed of Trust refers to action to be taken by Trustor, or which Trustor is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by Trustor. 6.08. In the event of any conflict between the provisions of this Deed of Trust and the provisions of the Loan Agreement, the provisions of the Loan Agreement shall govern and control, except that this Deed of Trust shall govern and control with respect to (i) the provisions contained in the Granting Clauses of Section 1 and in Sections 2, 4, and 5 hereof and/or (ii) any other provisions contained in this Deed of Trust relating to Beneficiary's rights or remedies or Trustor's obligations or liabilities in respect of the Trust Property. In the event of any conflict between any provision hereof with respect to any Trust Property which is personal property and any term or provision of the Security Agreement, then such term or provision of the Security Agreement shall govern and control with respect to such personal property to the extent of such conflict. Trustor acknowledges that the provisions of this Deed of Trust may impose additional or greater obligations on Trustor, or afford Beneficiary additional or greater rights and remedies, in respect of the Trust Property than the provisions of the Loan Agreement and such additional or greater obligations and/or rights and remedies shall not be deemed to be a conflict for purposes of the foregoing two sentences. 6.09. If any term, provision, covenant or condition of this Deed of Trust, or any application thereof, should be held by a court of competent jurisdiction to be invalid, void, or unenforceable, all provisions, covenants and conditions of this Deed of Trust and all applications thereof not held invalid, void or unenforceable, shall continue in full force and effect and shall in no way be affected, impaired or invalidated thereby. If the lien of this Deed of Trust is invalid or unenforceable as to any part of the Property, or if the lien is invalid or unenforceable as to any part of the indebtedness secured hereby, the unsecured or partially unsecured portion of such indebtedness shall be completely paid prior to the payment of the remaining and secured or partially secured portion of such indebtedness, and all payments made on such indebtedness, whether voluntary or under foreclosure or other enforcement action or procedure, shall be considered to have been first paid on and applied to the full payment of that portion of such indebtedness which is not secured or fully secured by the lien of this Deed of Trust. 6.10. In the event that Trustor consists of more than one person, firm or corporation then and in such event all of such persons, firms or corporations shall be jointly and severally liable hereunder. 6.11. This Deed of Trust shall be governed by and construed in accordance with the internal laws of the State of Nevada, without regard to principles of conflicts of law. 6.12. This Deed of Trust shall be construed in accordance with its intent and without regard to any presumption or other rule requiring construction against the party causing the same to be drafted. 6.13. The various rights, options, elections and remedies of Beneficiary and Trustee hereunder shall be cumulative and no one of them shall be construed as exclusive of any other, or of any right, option, election or remedy provided in any agreement or by law. 6.14. Time is of the essence of this Deed of Trust and all of the terms, provisions, covenants and conditions hereof applicable to Trustor. 6.15. In this Deed of Trust, whenever the context so requires the masculine gender includes the feminine and/or neuter, and the singular number includes the plural, and vice-versa, the term Beneficiary shall include any future holder, including pledgees, of the Note secured hereby, and the term Trustor shall mean the original signatory hereof, the successors and assigns thereof and any future owners of the Property or any portion thereof. In the event the ownership of all or any portion of the Property becomes vested in a person other than the signatory hereof, Beneficiary may, without notice to such signatory, deal with such successor or successors with reference to this Deed of Trust and to the indebtedness hereby secured in the same manner as with the signatory, without in any way vitiating or discharging such signatory's liability hereunder or upon the indebtedness hereby secured. In this Deed of Trust, the use of words such as "including" or "such as" shall not be deemed to limit the generality of the term or clause to which they have reference, whether or not nonlimiting language (such as "without limitation," or "but not limited to," or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that could reasonably fall within the broadest possible scope of such general statement, term or matter. In any instance in which Beneficiary's consent, approval or satisfaction is required hereunder, such consent, approval or satisfaction shall be deemed to require the consent, approval or satisfaction of Beneficiary and, at Beneficiary's election, Beneficiary's counsel, and unless otherwise provided in this Deed of Trust, may be granted or withheld in Beneficiary's (or Beneficiary's counsel's) reasonable discretion. In any instance in which Beneficiary may elect to undertake any act hereunder, Beneficiary's election shall be made in its sole and absolute discretion. In any instance in which Beneficiary may elect to undertake any acts hereunder, Beneficiary's election shall be made in its sole and absolute discretion. The captions appealing at the commencement of the sections hereof are descriptive only and for convenience in reference to this Deed of Trust and in no way whatsoever define, limit or describe the scope or intent of this Deed of Trust, nor in any way affect this Deed of Trust. 6.16. Trustor and Beneficiary each represents and warrants to the other that it has not dealt with any broker or finder in connection with this Deed of Trust. Trustor and Beneficiary shall indemnify, protect, defend and hold each other harmless from and against any and all claims for brokerage, leasing, finders or similar fees arising out of the breach on their respective parts of any representation or agreement contested in this Section. 6.17. Trustor hereby knowingly, voluntarily and intentionally waives (to the extent permitted by applicable law) trial by jury in any action or proceeding of any kind or nature that may arise out of this Deed of Trust, the Property or any other matter related thereto or by reason of any other cause or dispute of any kind or nature between Trustor and Beneficiary. 6.18. Where not inconsistent with the above, the following covenants, Nos. 1; 2 (full replacement value); 3; 4 (Default Rate as defined in the Note); 5; 6; 7 (a reasonable percentage); 8 and 9 of NRS 107.030 are hereby adopted and made a part of this Deed of Trust. IN WITNESS WHEREOF, Trustor has executed this Deed of Trust on the day and year first above written. SPEAKEASY GAMING OF LAS VEGAS, INC., a Nevada corporation By: /S/ EDSON R. ARNEAULT -------------------------------------- Name: Edson R. Arneault Title: President STATE OF NEVADA ) ) ss.: COUNTY OF ____________) On the ____ day of April, 1998, before me personally came Edson R. Arneault, to me known to be the individual who executed the foregoing instrument, and who, being duly sworn by me, did depose and say that he is President of Speakeasy Gaming of Las Vegas, Inc., a Nevada corporation, and that he has authority to sign the same, and acknowledged that he executed the same as the act and deed of said corporation. Sworn to before me this ____ day of April, 1998. - -------------------------------------------- Notary Public EX-10.11 7 EXHIBIT 10.11 EXHIBIT 10.11 DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING (this "DEED OF TRUST"), dated as of April 30, 1998, by SPEAKEASY GAMING OF RENO, INC., a Nevada corporation having an office c/o Mountaineer Park, Inc., Route 2 South, Chester, Virginia 26034 ("TRUSTOR"), to UNITED TITLE OF NEVADA, as agent for Chicago Title Insurance Company, having an office at 201 West Liberty Street, Reno, Nevada 89509 ("TRUSTEE"), for the benefit of MADELEINE LLC, a New York limited liability company, having an office at 450 Park Avenue, New York, New York 10022 ("BENEFICIARY"). W I T N E S S E T H: Trustor hereby covenants and agrees as follows: SECTION 1 GRANT OF SECURITY INTERESTS 1.01. Trustor irrevocably grants, bargains, sells, transfers and assigns to Trustee, in trust, for the benefit of Beneficiary, with power of sale, all of the following-described property, whether now owned or hereafter acquired by Trustor (which property is hereinafter collectively referred to as the "PROPERTY"): 1.01.1. The real property and all estate, right, title and interest therein, situated, lying and being in the County of Washoe, State of Nevada, as more particularly described on EXHIBIT A attached hereto and made a part hereof (the "REAL PROPERTY"). 1.01.2. All buildings, structures and improvements of every nature whatsoever now or hereafter situated on the Real Property (the "IMPROVEMENTS"), including all goods, fixtures, inventory and articles of personal property and accessions thereof and renewals, replacements thereof and substitutions therefor, if any (including, but not limited to, beds, bureaus, chiffoniers, chests, chairs, desks, lamps, mirrors, bookcases, tables, rugs, carpeting, drapes, draperies, curtains, shades, venetian blinds, screens, paintings, hangings, pictures, divans, couches, luggage carts, luggage racks, stools, sofas, chinaware, linens, pillows, blankets, glassware, foodcarts, cookware, dry cleaning facilities, dining room wagons, keys or other entry systems, bars, bar fixtures, liquor and other drink dispensers, icemakers, radios, television sets, intercom and paging equipment, electric and electronic equipment, dictating equipment, private telephone systems, medical equipment, potted plants, heating, lighting and plumbing fixtures, fire prevention and extinguishing apparatus, cooling and air-conditioning systems, elevators, escalators, fittings, plants, apparatus, stoves, ranges, refrigerators, laundry machines, tools, machinery, engines, dynamos, motors, boilers, incinerators, switchboards, conduits, compressors, vacuum cleaning systems, floor cleaning, waxing and polishing equipment, call systems, brackets, electrical signs, bulbs, bells, ash and fuel, conveyors, cabinets, lockers, shelving, spotlighting equipment, dishwashers, garbage disposals, washers and dryers), other customary hotel equipment, fittings, building materials, machinery, equipment, furniture and furnishings and personal property of every nature whatsoever now or hereafter owned by Trustor or in which Trustor has rights and used or intended to be used in connection with or with the operation of the Real Property and/or the Improvements, including all improvements, landscaping, fixtures, trade fixtures, equipment and building materials and supplies (whether or not annexed thereto or located thereon) now or hereafter used in connection therewith, including all machinery, materials, appliances and fixtures for generating or distributing air, water, heat, electricity, light, fuel, refrigeration, for ventilating, cooling or sanitary purposes, for the exclusion of vermin or insects and for the removal of dust, refuse or garbage, telephone, computer, surveillance, security and other electronic systems, engines, machinery, boilers, furnaces, oil burners, coolers, refrigeration plants, motors, irrigating systems, plumbing, water systems and power systems, incinerators, communication systems, appliances, and all other and further installations and appliances on the Real Property and/or the Improvements, all of said items, whether now or hereafter located thereon, shall, at the option of Beneficiary, be deemed to be for all purposes of this instrument a part of the realty and including all extensions, additions, improvements, betterments, renewals, substitutions and replacements to any of the foregoing, whether such fixtures, furnishings and personal property are actually located on or adjacent to the Real Property and/or the Improvements or not, and whether in storage or otherwise, wheresoever the same may be located (including any and all personal property named in any Uniform Commercial Code financing statement executed in conjunction with or in furtherance of this Deed of Trust). 1.01.3. All easements, reciprocal easement and similar agreements, rights of way, strips and gores of land, streets, ways, alleys, passages, sewer rights, waters, water courses, water rights and powers (whether riparian, appropriative or otherwise and whether or not appurtenant), all shares of stock evidencing any such water rights, mineral rights, air rights and all development rights, estates, leases, rights, titles, interest, privileges, liberties, tenements, hereditaments, and appurtenances whatsoever, in any way belonging, relating or appertaining to any of the Real Property and/or the Improvements, or which hereafter shall in any way belong, relate or be appurtenant thereto, whether now owned or hereafter acquired by Trustor, and the reversion and reversions, remainder and remainders, rents, issues, profits thereof, and all estate, right, title, interest, property, possession, claim and demand whatsoever at law, as well as in equity, of Trustor of, in and to the same, including: (a) All of lessor's interest in any and all leases, licenses (except licenses that are not assignable and/or transferable) and occupancy agreements of the Real 2 Property and/or the Improvements, or any portion thereof, now or hereafter owned or entered into by Trustor or any other party claiming by, through or under Trustor (all of said leases, licenses and occupancy agreements and any and all interest therein shall hereinafter be referred to as the "LEASES"), together with all rents, royalties, profits, issues, revenues, receipts, income, deposits, operating revenues, cash, benefits, account receivables and accounts which may accrue from the Real Property, the Improvements and/or any business or other activity conducted thereon from time to time, including, without limitation, all revenues and credit card receipts collected from guest rooms, restaurants, bars, meeting rooms, banquet rooms and recreational facilities, all receivables, customer obligations, installment payment obligations and other obligations now existing or hereafter arising or created out of the sale, lease, sublease, license, concession or other grant of the right of the use and occupancy of property or rendering of services by Trustor or any operator or manager of the hotel or the commercial space located in the Improvements or acquired from others (including, without limitation, from the rental of any office space, retail space, guest rooms or other space, halls, stores, and offices, and deposits securing reservations of such space), license, lease, sublease and concession fees and rentals, health club membership fees, food and beverage wholesale and retail sales, service charges, vending machine sales and proceeds, if any, from business interruption or other loss of income insurance (collectively, the "RENTS") together with all benefits and advantages to be derived from the Leases including, without limitation, all rights under any guarantees and other security delivered in connection with the Leases, it being agreed that the foregoing assignment of Leases and Rents is a perfected, absolute and present assignment; PROVIDED, HOWEVER, that until a default (beyond applicable grace and cure periods, if any) shall occur under this Deed of Trust, the Note (as hereinafter defined) and/or any of the other Loan Documents (as hereinafter defined), Beneficiary grants Trustor a license to receive, collect and enjoy the Rents. (b) All causes of action, claims, compensation, judgments, insurance proceeds, awards of damages and settlements hereafter made resulting from condemnation proceedings or the taking of the Property or any part thereof under the power of eminent domain, or for any damage (whether caused by such taking, by casualty or otherwise) to any and all of the Property or any part thereof, or to any rights appurtenant thereto, including any award for change of grade or streets. (c) All option rights, books and records, and general intangibles of Trustor relating to the Property, and all franchise agreements, accounts, contract rights, instruments, chattel paper and other rights of Trustor for payment of money, for property sold or lent, for services rendered, for money lent, or for advances or deposits made relating to the Property, including all tax refunds and refunds of any other monies paid by or on behalf of Trustor relating to the Property and all contract rights, plans, specifications and other similar documents, rights as declarant or developer under any declaration or plan. (d) All rights of Trustor to use, in connection with the Real Property and/or the Improvements, any and all plans and specifications, designs, drawings and other 3 matters prepared for any construction on or improvements to the Real Property and/or the Improvements and all studies, data and drawings related thereto. (e) All rights of Trustor to use, in connection with the Property, any contracts executed by Trustor with any provider of goods or services for or in connection with any construction undertaken or to be undertaken or services performed or to be performed in connection with the Property (as any of the foregoing may be amended and/or restated from time to time). (f) Any and all permits, licenses (except licenses that are not assignable and/or transferable), certificates, approvals and authorizations, however characterized, issued or in any way furnished whether necessary or not, for the construction, operation, use, occupancy and/or sale of the Real Property, Improvements and/or Leases including building permits, environmental certificates, certificates of operation, warranties, guarantees and general intangibles. (g) All proceeds of the conversion, voluntary or involuntary, of the items listed in subparagraphs (a) through (f) above into cash, liquidated claims or other property. 1.01.4. All rights of Trustor, if any, in and to the names, trade names, service marks, logos, designs, copyrights, patents and other similar propriety rights, to the extent assignable under the terms of any applicable license, franchise or similar agreement, and all registrations and applications for registration of such rights, used by Trustor in the operation and identification of the Real Property and/or the Improvements or any portion thereof, and the goodwill associated therewith. TO HAVE AND TO HOLD the Property, together with the rights, privileges and appurtenances belonging thereto, unto Trustee and its successors and assigns, forever, subject, however, to the absolute assignment of Leases and Rents contained herein; and Trustor does hereby bind itself and its successors and assigns, to specially warrant and forever defend the Property unto such Trustee, its successors, substitutes and assigns, against all persons whomsoever claiming, including all rights and benefits hereunder by virtue of the homestead exemption laws of the State in which the Real Property and/or the Improvements are located (which rights and benefits are hereby expressly released and waived), for the uses and purposes herein set forth. Trustor makes the foregoing grant to Trustee to hold the Property in trust for the benefit of Beneficiary and for the purposes and upon the terms and conditions hereinafter set forth. Trustor does hereby empower Beneficiary, its agents and attorneys, to collect, sue for, settle, compromise and give acquittance for all such rents, issues, profits and proceeds. 4 1.02. This Deed of Trust is for the purpose of securing: 1.02.1. Performance of each and every term, covenant and condition incorporated by reference or contained herein; 1.02.2. Payment of the indebtedness evidenced by that certain Promissory Note (the "Term Note") dated the date hereof, from Trustor and Mountaineer Park, Inc., a West Virginia corporation ("Mountaineer"), as makers, to Beneficiary, as payee, in the original principal amount of Twenty Seven Million Eight Hundred Sixty Five Thousand and 00/100 Dollars ($27,865,000.00), or so much thereof as shall have been advanced and remain outstanding from time to time, and any extension, modification or renewal thereof, evidencing the loan from Beneficiary to Trustor and Mountaineer (the "Term Loan"). 1.02.3. Payment of the indebtedness evidenced by a certain Promissory Note (the "Line Note") dated the date hereof, from Trustor and Mountaineer, as makers, to Beneficiary, as payee, in the original principal amount of Ten Million Three Hundred Seventy Six Thousand Five Hundred and 00/100 Dollars, or so much thereof as shall have been advanced and remain outstanding from time to time and any extension, modification or renewal thereof, evidencing the loan from Beneficiary to Trustor and Mountaineer (the "Line Loan"). 1.02.4. Payment of the indebtedness evidenced by a certain Promissory Note (the "Construction Note") dated the date hereof, from Trustor and Mountaineer, as makers to Beneficiary, as payee, in the original principal amount of One Million Seven Hundred Thousand and 00/100 Dollars, and any extension, modification or renewal thereof, evidencing the loan from Beneficiary to Trustor and Mountaineer (the "Construction Loan"). 1.02.5. The Term Note, Line Note and Construction Note are hereinafter collectively referred to as the "NOTE". The Term Loan, Line Loan and Construction Loan are hereinafter collectively referred to as the "LOAN". 1.02.6. Payment and performance of each and every term, covenant and condition required to be paid or performed by Trustor and/or Mountaineer under a certain Third Amended and Restated Term Loan Agreement dated as of the date hereof between Beneficiary, as lender, and Trustor and Mountaineer, as borrowers, (as modified from time to time the "LOAN AGREEMENT"); 1.02.7. Performance of each and every other instrument and agreement securing payment of the Note or executed in connection therewith, including, without limitation the Cheyenne Deed of Trust, the West Virginia Deed of Trust and the General Security Agreement (each as defined in the Loan Agreement), as any of the foregoing documents may be amended or otherwise modified from time to time (the Note, the Loan Agreement and such other instruments and agreements being hereinafter referred to collectively as the "LOAN DOCUMENTS"); and 5 1.02.8 Payment of such additional sums as may hereafter be advanced pursuant to this Deed of Trust, the Loan Agreement, or any other Loan Document for the account of Trustor or Mountaineer, or their respective assigns by Beneficiary, with interest thereon as provided herein or in the applicable Loan Document. 1.03. Trustor acknowledges and agrees: (i) that this Deed of Trust shall constitute a Security Agreement within the meaning of the Nevada Uniform Commercial Code (the "CODE") with respect to all sums on deposit with Beneficiary ("DEPOSITS") and with respect to any property included in the definition herein of the words "Property" which property may not be deemed to form a part of the real estate described in EXHIBIT A or may not constitute a "fixture" (within the meaning of NRS 104.9313 of the Code), and all replacements of such property, and the proceeds thereof (said property, replacements, substitutions, additions and the proceeds thereof being sometimes herein collectively referred to as the "COLLATERAL"); (ii) that a security interest in and to the Collateral and the Deposits is hereby granted to Beneficiary; and (iii) that the Deposits and all of Trustor's rights, title and interest therein are hereby pledged and assigned to Beneficiary; all to secure payment of the indebtedness evidenced by the Note and to secure performance by Trustor of the terms, covenants and provisions contained in this Deed of Trust. In addition to the foregoing, the lien and security interest hereof will automatically attach without further act to all after-acquired Collateral. 1.04. To the extent permitted by law, with respect to all of the goods and personal property described herein which are or are to become fixtures on the Real Property described in EXHIBIT A attached hereto and/or the Improvements, this instrument, upon recording in the real estate records of the proper office shall constitute a "FIXTURE FILING" within the meaning of NRS 104.9402(6) and NRS 104.9313 of the Code. Trustor is the record owner of the land described in EXHIBIT A attached hereto. The address of Beneficiary set forth in the opening paragraph of this Deed of Trust is the address of the secured party from which information concerning the security interest granted to Beneficiary may be obtained. SECTION 2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF TRUSTOR 2.01. Trustor represents and warrants that: 2.01.1. Trustor has full, complete and marketable fee simple title to the Property, subject only to the title encumbrances specified in the title insurance policy issued to and approved by Beneficiary concurrently with the execution and delivery of this Deed of Trust (the "Permitted Encumbrances"). 2.01.2. This Deed of Trust is and will remain a valid and enforceable first lien on the Property, subject only to the Permitted Encumbrances. 6 2.01.3. Trustor has not performed any act and is not bound by any instrument which would prevent Beneficiary from enforcing any of the Loan Documents including the Note and this Deed of Trust. 2.01.4. Trustor has all requisite power and corporate authority to own and operate the Property, and subject to Section 2.15 hereof, will use its best efforts to obtain as promptly as possible after the date hereof, and, to maintain in full force and effect thereafter, all licenses, certificates, approvals, permits and authorizations necessary to own, use, occupy and operate its properties and businesses as currently operated and conducted or proposed to be operated and conducted. 2.01.5. The Loan Documents (including the Note and this Deed of Trust) and the transactions in connection with which the Note was given are valid and binding obligations of the parties thereto, enforceable in accordance with their terms. 2.01.6. Except as set forth in the survey dated as of the 21st day of March, 1998 (the "Survey") delivered to Beneficiary concurrently herewith, the Real Property is accessible by way of abutting public streets or to public streets over properly granted or dedicated private rights-of-way. 2.01.7. Except as indicated by the Permitted Encumbrances and the Survey, no person or entity other than Trustor, its management company, lessee of the casino and hotel guests has any right to occupy any portion of the Property. 2.01.8. The Leases and Rents are subject to no encumbrances of any kind except for this Deed of Trust. 2.01.9. To Trustor's best knowledge, neither Trustor nor to Trustor's knowledge the Property (i) is in violation of or in default under any applicable laws or regulations; (ii) is in violation of or in default under any order, writ, injunction, demand or decree of any court or any person or entity; and (iii) is in violation of or in default under any indenture, agreement or other instrument, except to the extent that the pre-existing franchise agreement (the "Pre-Existing Ramada Franchise Agreement") dated April 10, 1997 between Reno Hotel, LLC and Ramada Franchising Systems, Inc. remains in effect with respect to the Property and is in default. 2.01.10. To the best of Trustor's knowledge, without independent inquiry, and as evidenced by the permit, a copy of which was delivered by Reno Hotel, LLC to Trustor, the Real Property and the Improvements have been issued all required certificates of occupancy, if any, and Trustor has received no written notice that such certificates of occupancy, if any, have been suspended or revoked. 7 2.01.11. Trustor has not granted any option, right of first refusal and/or right of first offer pursuant to which any other party could acquire any right to purchase or lease any interest in the Real Property and/or the Improvements. 2.01.12. There are no management agreements affecting the Real Property or any portion thereof, except for the management agreement between Reno Hotel LLC and NHG LLP d/b/a Northwest Hospitality Group, which will be terminated by Reno Hotel LLC upon the execution of this Deed of Trust. 2.01.13. To Trustor's best knowledge, there are no actions, suits or proceedings pending against Trustor and/or the Property, at law or in equity, or by any person or entity, including without limitation, any federal, state, municipal or other governmental department, commission, board, agency or instrumentality. 2.02. Trustor shall complete and maintain in a good and workmanlike manner any building or other improvements which are being or in the future may be constructed on the Property and pay when due all claims for labor performed and materials furnished therefor. Trustor shall comply with all laws, rules, ordinances, regulations, covenants, conditions, restrictions, easements and agreements pertaining to the Property or Trustor's use thereof. Trustor shall not commit, suffer or permit any act to be done in or upon the Property in violation of law. 2.03. Trustor shall not initiate or acquiesce in any change in any zoning or other land use classification now or hereafter in effect and affecting the Property or any part thereof, nor shall Trustor otherwise change or attempt to change the use of the Property or any portion thereof without in each case obtaining Beneficiary's prior written consent thereto. PROVIDED, HOWEVER, that Beneficiary shall not unreasonably withhold its consent to an application by Grantor for a change in zoning to the extent that such application will enhance the ability of Trustor to operate the Property for gaming purposes or will otherwise improve the operations of the Property as a hotel. 2.04. Trustor shall not commit or permit waste on the Property and will keep and maintain or cause to be kept and maintained at its own expense the Property in a first-class condition and state of repair (the term first-class condition and state of repair shall be deemed to be a condition and state of repair equal to or better than the existing condition and state of repair of the Property). 2.05. Trustor shall not permit any building, structure, fixture or other improvement to be erected, removed, demolished, or materially changed or altered without the prior written consent of Beneficiary. Trustor will not remove or permit the removal of any of the personal property or any part thereof (including renewals, replacements and other after acquired 8 property) from the Real Property and/or the Improvements without the prior written consent of Beneficiary; PROVIDED, HOWEVER, that, no consent shall be required to replace obsolete and worn out articles concurrently with the replacement or renewal thereof with property of at least equal value and of equal usefulness in the operation of the Real Property and/or the Improvements. Trustor will promptly notify Beneficiary of any fire or other casualty causing damage to the Property. Trustor will promptly and in good and workmanlike manner repair and restore any improvement which may be damaged or destroyed to the condition existing immediately prior to such damage or destruction. Trustor will promptly replace any lost, stolen, damaged or destroyed personal property. 2.06. Trustor shall pay and discharge (i) Beneficiary's legal fees and disbursements in connection with the preparation, execution and delivery of this Deed of Trust and any of the other Loan Documents and the consummation of the transactions contemplated herein and therein as more particularly set forth in Sections 5.01, 5.03 and 10.04 of the Loan Agreement (ii) except as may be expressly limited in Section 10.04 of the Loan Agreement, Beneficiary's and Trustee's fees and expenses in connection with its performance of due diligence, including fees and expenses incurred by Beneficiary with respect to third-party providers of due diligence reports, (iii) Beneficiary's title insurance premium, fees and expenses and the cost of affirmative insurance and endorsements, (iv) all costs to record documents and instruments required by this Deed of Trust and the other Loan Documents, and all mortgage, documentary, recording and other similar taxes and expenses relating to the Note, this Deed of Trust and any of the other Loan Documents, and (v) Trustee's fees and expenses in connection with its obligations hereunder (including Trustee's fees and expenses in connection with a sale of the Property, whether completed or not), which amounts shall become due upon demand by either Beneficiary or Trustee 2.07. Trustor shall pay when due, all taxes, impositions, assessments, levies, utility fees and all other fees and charges of every kind and nature, whether of a like or different nature, imposed upon or assessed against or which may become a lien on the Property, or any part thereof, or arising from, by reason of or in connection with, the use thereof or this Deed of Trust. In addition, Trustor shall file all required tax forms with the appropriate governmental authorities on or before the day on which they become due. Trustor will promptly deliver to Beneficiary receipts evidencing payment of taxes, impositions, assessments, levies, utility fees and all other fees and charges as required in the Loan Agreement. Beneficiary may require Trustor to obtain and pay for a tax service satisfactory to Beneficiary in order to assure Beneficiary such taxes are paid. 2.08. If any suit, action, arbitration, or other proceeding shall be instituted for any purpose affecting the Property, any portion thereof, any interest therein, title thereto or this Deed of Trust, or should Trustor receive any notice from any governmental agency relating to the structure, use or occupancy of the Property, Trustor shall immediately upon service thereof but in any event not later than five (5) business days after service of process with respect thereto, or the 9 obtaining of knowledge thereof, deliver to Beneficiary true copies of each notice, petition, summons, complaint, notice of motion, order to show cause, and all other process, pleadings and papers, however designated, served in any action or proceeding. Immediately upon becoming aware of any development or other information which may materially and adversely affect the business, prospects, profits or condition (financial or otherwise) of Trustor or the Property or the ability of Trustor to perform the obligations secured hereby, Trustor shall promptly and in writing notify Beneficiary of the nature of such development or information and such anticipated effect. 2.09. Trustor promises and agrees that if during the existence of this Deed of Trust there be commenced or pending any suit, action, arbitration, or other proceeding for any purpose affecting the Property, any portion thereof, any interest therein, title thereto or this Deed of Trust, or if any adverse claim for or against said Property, or any portion thereof, any interest therein, title thereto or this Deed of Trust, be made or asserted, Trustor shall appear in and defend any such proceeding and will pay all costs and damages arising because of such proceeding. Beneficiary may elect to appear in any such proceeding in its discretion. If Beneficiary elects to appear in any such action or proceeding, Beneficiary shall have the right to retain counsel of its choice. Trustor shall be solely responsible for any and all expenses and costs, including the reasonable fees of counsel retained by Beneficiary, which are incurred pursuant to this section. If Beneficiary elects to appear in any action or proceeding, Trustor agrees to indemnify Beneficiary against, release Beneficiary from, and hold Beneficiary harmless from any damages, liability, costs, expenses, litigation, or claims incurred in or in connection with such action or appearance, except as a result of Beneficiary's gross negligence or willful misconduct. 2.10. Trustor shall not permit or suffer the filing of any mechanics', materialmen's, or other liens against the Property, any part thereof, any interest therein, or the revenue, rents, issues, income and profits arising therefrom. If any such lien shall be filed against the Property, any part thereof, or any interest therein, Trustor agrees to bond or discharge the same of record within thirty (30) days after the same shall have been filed. 2.11. Trustor shall take any and all actions which may be necessary to prevent any third parties from acquiring any prescriptive easement upon, over or across any part of the Property, or from acquiring any rights whatsoever to or against the Property by virtue of adverse possession. 2.12. Trustor shall not enter into any Lease (or amendment thereof) for all or any portion of the Property without the prior written consent of Beneficiary. All such Leases shall be on a lease form satisfactory to Beneficiary, and shall be on terms and conditions and with a tenant satisfactory to Beneficiary, which consent shall not be unreasonably withheld if Trustor enters into a Lease with a duly licensed and reputable casino operator reasonably satisfactory to Beneficiary. Trustor shall pay on demand all costs of Beneficiary (including, 10 attorneys' fees and costs) in connection with any review and/or approval pursuant to this Section 2.12, Section 2.13 and Section 2.14. 2.13. Trustor shall not without Beneficiary's prior written consent (i) enter into any assignment or pledge or agreement to assign or pledge any of Trustor's interest in the Leases and Rents; (ii) accept any payment of any installment of Rents more than thirty (30) days before the due date thereof, excluding reasonable security deposits and payment of last month's rent; (iii) except as otherwise expressly provided hereinabove or in the Loan Agreement, enter into any Lease or management agreement for all or any portion of the Property; (iv) make any Lease or other contract for goods and/or services with any entity that is a successor, affiliate or subsidiary of Trustor, other than the "Approved Management Agreement" (as defined in the Loan Agreement); or (v) amend, modify or waive any rights under any Lease, the Approved Management Agreement or any other or management agreement. Trustor shall promptly advise Beneficiary in writing of the giving of any notice by the lessee under any Lease. Trustor shall execute and deliver, on request of Beneficiary, such instruments as Beneficiary may deem useful or required to permit Beneficiary to cure any default under any of the foregoing or permit Beneficiary to take such other actions as Beneficiary considers desirable to cure or remedy the matter in default and preserve the interest of Beneficiary in such agreements and the Property. 2.14. Trustor shall at its sole cost and expense enforce, short of termination thereof, the performance of all terms, covenants and conditions of the Leases to be performed by the lessees thereunder. Trustor shall appear in and defend any action or proceeding arising under, growing out of or in any manner connected with the Leases or the obligations, duties or liabilities of Trustor or of any tenants thereunder. 2.15. Trustor shall at all times, be in compliance with any and all approvals, licenses and permits required to be obtained pursuant to Nevada law; PROVIDED HOWEVER, that to the extent that any such approval, license or permit is not in place solely by reason of the acts or omission of Reno Hotel, LLC, Trustor shall use its best efforts to obtain, or cause to be obtained, at Trustor's sole cost and expense, such approval, license or permit. Nothing in the Note, this Deed of Trust or in any of the Loan Documents shall be construed to obligate Trustor to obtain from the State of Nevada licenses or permits to conduct gaming on the Real Property, but all gaming activities coducted on any portion of the Real Property shall be condcuted in accordance with applicable law. 2.16. Nothing in the Note, this Deed of Trust or in any of the other Loan Documents, shall be construed to obligate Beneficiary, expressly or by implication, to perform any of the covenants of landlord under any Leases or to pay any sum or money or damages therein provided to be paid by the landlord each and all of which covenants and payments Trustor agrees to perform and pay or cause to be performed and paid. 11 2.17. To the extent not provided by applicable law, all future Leases shall provide that, in the event of the enforcement by Trustee or Beneficiary of the remedies provided for by law or by this Deed of Trust, the tenant thereunder shall, if requested by Beneficiary or by any person succeeding to the interest of Trustor as the result of said enforcement, automatically become the tenant of any such successor-in-interest, without any change in the terms or other provisions of such Lease; PROVIDED, HOWEVER, that said successor-in-interest shall not be bound by (i) any payment of Rent for more than one (1) month in advance, except prepayments in the nature of security for the performance by tenant of its obligations under said Lease not in excess of an amount equal to one (1) month's rental, (ii) any amendment or modification in such Lease made without the consent of Beneficiary or any successor-in-interest; or (iii) any prior acts and/or omissions in violation of any of the terms, covenants and conditions contained in the Lease. 2.18. The lessee under the Leases may and shall rely upon the receipt of any notice from Beneficiary that Trustor is in default thereunder and thereafter Beneficiary, or Beneficiary's designee, shall be paid all rents due under the Leases until the lessees thereunder are notified otherwise in writing by Beneficiary or until directed otherwise by a final judgment of a court of competent jurisdiction. All amounts collected hereunder, after deducting the expenses of operating the Property and after deducting the expenses of collection and all other expenses incurred hereunder, including attorneys' fees, shall be applied in such manner as Beneficiary may elect in its sole and absolute discretion. Trustor shall cause to be included as terms in all Leases hereafter executed or renewed the provisions of the first sentence of this Section 2.18, and shall further cause the refusal of any lessee under any such Lease to pay all rents due under the Leases to Beneficiary as aforesaid to be a breach of such Lease by the lessee thereof. Nothing herein shall be deemed to impose on Beneficiary any obligation to operate or maintain the Property or to enforce any Lease. Notwithstanding the conveyance or transfer of title to any or all of the Property to any lessee under any of the Leases, the lessee's leasehold estate under such Lease shall not merge into the fee estate and the lessee shall remain obligated under such lease as assigned by this Deed of Trust. 2.19. All lessees under the Leases shall agree that the Leases are and shall be subordinate hereto and that upon any sale or deed in lieu of sale hereunder such lessees shall attorn to the purchaser or grantee, as the case may be, and recognize the same as lessor under the Leases as fully as if such purchaser or grantee had been named as lessor under the Leases, but without any claim or offset against such purchaser or grantee for any liability of any previous lessor. Such lessees shall, from time to time during the term hereof, within ten (10) days after demand therefor by Beneficiary, execute and deliver to Beneficiary, or any party designated by Beneficiary, a certificate in recordable form certifying that attached thereto is a true and correct copy of such lessee's Lease, the term of such Lease, the date to which all rentals and other charges have been paid, the amount of any security deposit, that no rent has been prepaid or discounted, that such Lease is in full force and effect, and that no defaults have occurred 12 thereunder (or specifying the nature of such defaults), together with such other information with respect to such Lease and/or lessee as Beneficiary may reasonably request. 2.20. Trustor will pay all amounts required to be paid under the Note, as and when required under the terms of the Note, and Trustor will comply with all terms and conditions of the Loan Agreement within the time periods specified in the Loan Agreement for such compliance. 2.21. Trustor agrees at any time and from time to time during the term hereof and within ten (10) days after demand therefor from Beneficiary, to execute and deliver to Beneficiary, or any party designated by Beneficiary, a certificate in recordable form certifying the amount then due pursuant to this Deed of Trust and the obligations secured hereby, the terms of payment thereof, the dates to which payments have been paid, that this Deed of Trust and all instruments and obligations secured hereby are in full force and effect and that there are no defenses or offsets thereto, or specifying in what regards this Deed of Trust or such obligations are not in full force and effect and the nature of any defense or offsets thereto, together with such other information as Beneficiary may request. 2.22. Notwithstanding anything in this Deed of Trust to the contrary, and except to the extent expressly permitted under the terms of the Loan Agreement, Trustor shall not enter into leases, conditional sale agreements and/or security agreements relating to fixtures, trade fixtures, furniture, furnishings and equipment without the prior written consent of Beneficiary. 2.23. Trustor will enforce the covenants, agreements, terms and conditions to be performed by any other parties to any agreements, bonds, leases, licenses, rental agreements, geological surveys, plans and specifications, documents, chattel paper, instruments, and other contracts and policies of insurance encumbered hereby in accordance with their terms and will not enter into, modify or amend or permit the modification or amendment thereof and will not cancel, surrender, fail to renew or permit the cancellation, surrender or failure to renew of any of the foregoing without, in each case, the prior written consent of Beneficiary. 2.24. Trustor shall execute, acknowledge and deliver to Beneficiary, and, if applicable, cause to be recorded or filed at Trustor's cost and expense, any and all such mortgages, assignments, transfers, assurances, financing statements and other instruments and documents and do such acts as Beneficiary shall from time to time require for the better perfecting, assuring, conveying, assigning, transferring and confirming unto Beneficiary the Property and rights herein conveyed or assigned or intended now or hereafter so to be. Unless prohibited by law, Trustor hereby authorizes Beneficiary to execute and file any such financing statements or continuation statements on Trustor's behalf. The parties agree that this Deed of Trust shall constitute a security agreement under the Code and that a carbon, photographic or other reproduction of this Deed of Trust or of a financing statement shall be sufficient as a 13 financing statement. Trustor shall not change its name, identity or corporate structure from and after the date hereof without notifying Beneficiary at least sixty (60) days in advance. 2.25. Trustor shall procure, pay for and maintain and shall not transfer, assign or pledge or agree to transfer, assign or pledge any of Trustor's interest in the permits, licenses and other authorizations required by any law, rule or regulation to be procured and/or maintained by Trustor, and for the lawful and proper operation and maintenance of the Property, including, without limitation, certificates of completion and occupancy permits required for the legal use, occupancy and operation of the Real Property as a hotel and any applicable liquor license. 2.26. Except as expressly permitted pursuant to the Loan Agreement, Trustor shall not further encumber, create, assume, suffer to exist, alienate, hypothecate or grant a security interest in or grant a lien, charge or any other interest whatsoever in or with respect to the Property (whether superior or inferior to the liens of this Deed of Trust and the other documents executed in connection herewith) in favor of any person or entity. 2.27. [Intentionally Deleted]. 2.28. All contracts and licenses entered into by Trustor or on behalf of Trustor that relate to the Property are and shall be subordinate hereto. 2.29. If, at any time or times, regardless of the existence of a default (except with respect to clauses (iii) and (iv) below, which shall be subject to a default having occurred) Beneficiary shall employ counsel or other advisors for advice or other representation or shall incur legal or other costs and expenses in connection with: (i) any amendment, modification or waiver, or consent with respect to, any of the Loan Documents (unless or except to the extent such amendment, modification, waiver or consent is being made at Beneficiary's request and for Beneficiary's benefit); (ii) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Beneficiary, Trustor or any other party) in any way relating to the Property, any of the Loan Documents or any other agreements to be executed or delivered in connection herewith, unless Trustor prevails against Beneficiary therein; (iii) any attempt to enforce any rights of Beneficiary against Trustor, or any other party, that may be obligated to Beneficiary by virtue of any of the Loan Documents, unless Trustor prevails against Beneficiary therein; (iv) any attempt to verify, protect, collect, sell, liquidate or otherwise dispose of the Property; or 14 (v) any exercise of remedies, collection of amounts due under any of the Loan Documents, or protection of the security for the obligations, or the enforcement of any covenant or agreement by Trustor, under the Note or any of the other Loan Documents, unless Trustor prevails against therein; then, and in each and any such event, the attorneys' and other parties' fees actually and necessarily arising from such services, including those of any trial court proceedings, appellate proceedings, bankruptcy proceedings, arbitration proceedings and mediation proceedings and all expenses, costs, charges and other fees incurred by such counsel and others in any way or respect arising in connection with or relating to any of the events or actions described in this Section shall be payable, on demand, by Trustor to Beneficiary and shall be additional obligations of Trustor secured by this Deed of Trust and all of the other Loan Documents. 2.30. Trustor will not conceal from creditors any of its assets and will not participate in the concealing of assets of any other person or entity. 2.31. Trustor is not insolvent and the consummation of the transactions contemplated by this Deed of Trust and any of the other Loan Documents will not render Trustor insolvent. SECTION 3 CASUALTY, CONDEMNATION AND INSURANCE 3.01. Until the Loan has been fully satisfied, Trustor shall obtain, or cause to be obtained, and shall maintain or cause to be maintained with respect to the Property, at their own cost and expense, and shall deposit with Beneficiary on or before the Closing Date the following (unless otherwise indicated): (a) PROPERTY INSURANCE. To the extent the Property is improved, Trustor shall maintain an "All Risk," including earthquake, perils policy covering the building and improvements, and any other permanent structures for one hundred percent (100%) of the replacement cost. Upon the request of Beneficiary replacement cost for insurance purposes will be established by an independent appraiser selected by Beneficiary. The policy will include Agreed Amount (waiving co-insurance), Replacement Cost Valuation and Building Ordinance endorsements. The policy will include a standard Beneficiary clause (ISO form or equivalent) and provide that all losses in excess of Five Hundred Thousand Dollars ($500,000) be adjusted with Beneficiary. 15 (b) PERSONAL PROPERTY. (including machinery, equipment, furniture, fixtures, stock.) Trustor shall maintain "All Risk" property coverage for all personal property owned, leased or for which Trustor's are legally liable (to the extent such personal property exists). The policy(ies) providing real and personal property coverages may include a deductible of no more than Ten Thousand Dollars ($10,000) for any single occurrence. Flood and Earthquake deductibles can be no more than One Hundred Thousand Dollars ($100,000), if a separate deductible applies. (c) Rental loss and/or business interruption insurance in an amount equal to the greater of (A) estimated annual gross revenues for twelve (12) months from the operation of the Real Property or (B) the projected operating expenses (including debt service) for twelve (12) months for the maintenance and operation of the Real Property. The amount of such insurance shall be increased from time to time during the term of this Deed of Trust as and when the estimate of (or the actual) gross revenue or operating expenses, as may be applicable, increases. (d) CRIME INSURANCE. To the extent Trustor maintains a business on the Property, Trustor shall, within ninety (90) days from the date hereof, obtain and at all times thereafter maintain a comprehensive crime policy, including the following coverages: (i) Employee Dishonesty - One Million Dollars ($1,000,000); (ii) Money and Securities - (inside) - Five Hundred Thousand Dollars ($500,000); (iii) Money and Securities - (outside) - Five Hundred Thousand Dollars ($500,000); (iv) Depositor's Forgery - One Million Dollars ($1,000,000); (v) Computer Fraud - One Million Dollars ($1,000,000). The policy may contain deductibles of no greater than One Hundred Thousand Dollars ($100,000) for Employee Dishonesty and Fifty Thousand Dollars ($50,000) for all other coverages listed above. (e) COMMERCIAL GENERAL LIABILITY (1993 FORM OR EQUIVALENT). Trustor shall maintain a Commercial General Liability policy with a One Million Dollar ($1,000,000) combined single limit for bodily injury and property damage, including Contractual Liability, and all standard policy form extensions. The policy must provide Two Million Dollar ($2,000,000) general aggregate (per location, if multi-location risk) and be written on an "occurrence form". If the general liability policy contains a self-insured retention, it shall be no 16 greater than Ten Thousand Dollars ($10,000) per occurrence, with an aggregate retention of no more than One Hundred Thousand Dollars ($100,000). The policy shall be endorsed to include Beneficiary as an additional insured. Definition of additional insured shall include all officers, directors, employees, agents and representatives of the additional insured. The coverage for the additional insured shall apply on a primary basis irrespective of any other insurance whether collectible or not. (f) AUTOMOBILE. To the extent Trustor owns any automobiles, Trustor shall, within ninety (90) days from the date hereof, obtain and at all times thereafter maintain a comprehensive Automobile Liability Insurance Policy written under coverage "symbol 1," providing a One Million Dollar ($1,000,000) combined single limit for bodily injury and property damage covering all owned, non-owned and hired vehicles of the Trustor. If a policy contains a self-insured retention it shall be no greater than Ten Thousand Dollars ($10,000) per occurrence, with an aggregate retention of no more than One Hundred Thousand Dollars ($100,000). (g) WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE. To the extent Trustor employs any employees, Trustor shall, within ninety (90) days from the date hereof, obtain and at all times thereafter maintain standard Workers Compensation Policy, as required by law. (h) UMBRELLA LIABILITY. An Umbrella Liability policy shall be purchased with a limit of not less than Twenty-Five Million Dollars ($25,000,000) providing excess coverage over all limits and coverages indicated in paragraphs (e), (f) and (g) above (to the extent Trustor owns no automobiles and employs no employees then Trustor shall maintain such excess coverage with respect to (e)). The limits can be obtained by a combination of Primary and Excess Umbrella polices, provided that all layers follow form with the underlying policies indicated in (e), (f) and (g) and are written on an "occurrence" form. This policy shall be endorsed to include the Beneficiary as an additional insured, as defined under paragraph (e) above. If Trustor's general liability and automobile policies include a self-insured retention, it is agreed and fully understood that Trustor is solely responsible for payment of all amounts due within said self-insured retentions. Any Indemnification/Hold Harmless provision is extended to cover all liabilities associated with said self-insured retentions. (i) All policies indicated above shall be written with insurance companies licensed and admitted to do business in the State of Nevada and rated no lower than "AVIII" in the most recent edition of A. M. Best and "AA" in the most recent edition of Standard & Poor's, or such other carrier reasonably acceptable to Beneficiary. All policies discussed above shall be endorsed to 17 provide that in the event of a cancellation, non-renewal or material modification, Beneficiary shall receive thirty (30) days prior written notice thereof. All policies providing property (first party) coverages under this agreement shall provide that any loss be payable to Beneficiary notwithstanding (i) any act or negligence by Trustor or any lessee or other occupant of the Property which might otherwise result in forfeiture of said insurance, (ii) use of all or any portion of the Property for purposes more hazardous than permitted by such policy, (iii) any sale or other proceeding pursuant hereto, or (iv) any change in title to or ownership of the Property or any portion thereof. Trustor shall be furnished with a Certificate of Insurance executed by an authorized agent evidencing compliance with all insurance provisions above on an annual basis. Certificates of Insurance executed by an authorized agent of each carrier providing insurance evidencing continuation of all coverages will be provided on the Closing Date and thirty (30) days prior to the expiration of each policy. All certificates and other notices related to the insurance program shall be delivered to Beneficiary concurrently with the delivery of such certificates or notices to Trustor. Trustor shall obtain and maintain any other insurance reasonably requested by Beneficiary in such amounts and covering such risks as may be reasonably required by Beneficiary. 3.02. Trustor shall immediately notify Beneficiary of the pendency of any proceedings for the condemnation of the Property, any part thereof, or any interest therein upon obtaining knowledge of the institution of the pendency of such proceedings. Beneficiary may, but shall not be required to, participate in any such proceedings and Trustor from time to time will deliver to Beneficiary all instruments requested by it to permit such participation. Trustor shall pay all of Beneficiary's costs and expenses, including attorneys' fees, incurred in any such proceedings. In the event of such condemnation proceedings, any award or compensation shall be paid to Beneficiary and shall be applied, after payment of all costs and expenses of Beneficiary or Trustee incurred in collecting the same, in such manner as Beneficiary elects in its sole and absolute discretion, without regard to whether or not its security hereunder has been impaired. For the purposes hereof, any proceeding to acquire any interest in or affecting the value of the Property, or seeking damages therefor, including severance or change of grade, whether by court action or purchase in lieu thereof, shall be deemed a proceeding for condemnation and any award for inverse condemnation shall be deemed condemnation proceeds. 3.03. Notwithstanding any provision in this Deed of Trust to the contrary but subject to Section 3.04 below, Beneficiary may, in its sole and absolute discretion, whether or not its security hereunder has been impaired, and notwithstanding any other provision hereof, 18 direct that any casualty insurance or condemnation proceeds, or any portion thereof, remaining after payment of all costs and expenses of Beneficiary or Trustee in collecting the same ("NET PROCEEDS"), be paid, in such manner as Beneficiary elects, including to apply the Net Proceeds to any and all amounts due hereunder or under any of the other Loan Documents without regard to whether or not its security hereunder has been impaired. If Beneficiary elects to apply all or any portion of the Net Proceeds for the restoration and repair of the improvements and/or personal property, then such Net Proceeds shall be disbursed by Beneficiary pursuant to such disbursement procedures as Beneficiary may provide, in its sole and absolute discretion. The amount of such proceeds used toward payment of the cost of repair or restoration that is released to Trustor shall not be deemed a payment of any indebtedness or obligation secured hereby and shall be disbursed to Trustor pursuant to such disbursement procedures as Beneficiary may provide, in its sole and absolute discretion, to ensure the full, prompt and lien-free completion of such restoration, repair or alteration 3.04. Notwithstanding the foregoing provisions of Section 3.03, provided no Event of Default which remains uncured has occurred with respect to the Loan, and provided, that, the restoration costs for damage due to an insured casualty is $250,000.00 or less, any Net Proceeds in respect of casualty insurance shall, at the request of the Trustor made in writing to the Beneficiary, be disbursed by the Beneficiary to Trustor, in accordance the conditions of Beneficiary's construction provisions contained in the Loan Agreement (or, if there are none, in accordance with customary construction loan disbursement procedures), for the payment (or reimbursement) of necessary costs actually incurred by Trustor in the restoration or replacement of the Improvements or the Personalty, under the following conditions: (a) Prior to the commencement of the restoration or replacement of the Improvements or the Personalty, other than such work as may be reasonably necessary to protect the same from further damage, the Beneficiary shall have approved the Plans and Specifications for such restoration or replacement, which approval shall not be unreasonably withheld, delayed or conditioned; (b) In the event the Net Proceeds are not sufficient, in the reasonable judgment of the Beneficiary, for the purpose of accomplishing the restoration or replacement of the Improvements or the Personalty in accordance with the Plans and Specifications aforesaid, Trustor shall provide evidence reasonably satisfactory to the Beneficiary of the availability of additional funds for the purpose of accomplishing the restoration or replacement of the Improvements or the Personalty and such additional funds shall be expended for that purpose before the Beneficiary shall have any obligation to disburse insurance proceeds; and (c) Each request for an advance of the Net Proceeds shall be made to the Beneficiary at least two (2) business days prior to the date upon which such advance is sought and shall be accompanied by evidence reasonably satisfactory to the Beneficiary to the 19 effect that (i) all work then completed has been performed substantially in accordance with the Plans and Specifications aforesaid and in accordance with all applicable building codes and similar governmental requirements; (i) the amount requested to be advanced is required for payments due to the contractor responsible for the work, or to subcontractors, materialmen, laborers, engineers, architects or to other persons responsible for services, labor or materials in connection with the restoration or replacement of the Improvements or the Personalty, or for third party fees or the like necessarily incurred in connection with the same; (ii) all governmental permits and consents required for the performance of the work have been obtained and are in full force and effect; (iii) funds remaining available to Trustor and the Beneficiary for the purpose of accomplishing the restoration or replacement of the Improvements or the Personalty are sufficient for that purpose; and (iv) there has not been filed with respect the Property any mechanic's or similar lien, or notice of intention to file the same, which has not been dismissed, bonded or satisfied of record. SECTION 4 TRANSFERS, ETC. 4.01 Trustor shall not, directly or indirectly, sell, transfer, assign, mortgage, pledge, hypothecate or encumber, including the granting of any option to mortgage, pledge, hypothecate or encumber, whether voluntary or involuntary, by agreement, operation of law or otherwise, of the whole or any portion of Trustor's right, title or interest in and to the Collateral, the Property or Trustor, or any portion thereof or any right or interest therein, without the prior written consent of Beneficiary. SECTION 5 TRUSTEE AND BENEFICIARY'S RIGHTS 5.01. The waiver or release by Beneficiary or Trustee of any default or of any of the provisions, covenants and conditions hereof on the part of Trustor to be kept and performed shall not be a waiver or release of any preceding or subsequent breach of the same or any other provision, covenant or condition contained herein. The subsequent acceptance of any sum in payment of any indebtedness secured hereby or any other payment hereunder by Trustor to Beneficiary or Trustee shall not be construed to be a waiver or release of any preceding breach by Trustor of any provision, covenant or condition of this Deed of Trust other than the failure of Trustor to pay the particular sum so accepted, regardless of Beneficiary's or Trustee's knowledge of such preceding breach at the time of acceptance of such payment. No payment by Trustor or receipt by Beneficiary of a lesser amount than the amount therein provided shall be deemed to be other than on account of the earliest sums due and payable hereunder, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed an 20 accord and satisfaction, and Beneficiary may accept any check or payment without prejudice to Beneficiary's right to recover the balance of such sum or pursue any other remedy provided in this Deed of Trust. The consent by Beneficiary or Trustee to any matter or event requiring such consent shall not constitute a waiver of the necessity for such consent to any subsequent matter or event. 5.02. Beneficiary shall be subrogated to the lien of any and all prior encumbrances, liens, or charges paid or discharged from the proceeds of the Note, and even though said prior liens may have been released of record, the repayment of the Note shall be secured by such liens on the portions of the Property affected thereby to the extent of such payments. In consideration of the advances made to Trustor, Trustor hereby waives and releases all demands and causes of action for offsets, payments and rentals to, and in connection with said prior indebtedness. 5.03. Notwithstanding the right otherwise provided to Trustor to collect rent and other payments pursuant to any Leases while Trustor is not in default under the Note, this Deed of Trust or any other Loan Document, if there is filed any petition in bankruptcy by or against any lessee under any of the Leases or there is appointed a receiver or trustee to take possession of all or a substantial portion of the assets of such lessee or there is a general assignment by such lessee for the benefit of creditors, or any action is taken by or against such lessee under any state or federal insolvency law or bankruptcy act, or any similar law now or hereafter in effect, Beneficiary is appointed a creditor of such lessee and is entitled to recover on any claim or right of recovery that Trustor may have against such lessee or its receiver or trustee; PROVIDED, HOWEVER, that Beneficiary shall not be obligated to pursue any such claim or right of recovery. Beneficiary may apply any such recovery against any obligation secured hereby in such manner as it may deem desirable, in its sole and absolute discretion. 5.04. Beneficiary may, upon not less than one (1) business day advance notice, make or cause to be made reasonable entries upon and inspection of the Property, provided however, Beneficiary shall use reasonable efforts not to interfere with any use or enjoyment of the guests, occupants or visitors of the Property. 5.05. Beneficiary may, at any time, by instrument in writing, appoint a successor or successors to Trustee named herein or acting hereunder, which instrument, executed and acknowledged by Beneficiary, and recorded in the Office of the County Recorder, Washoe County, Nevada, shall be conclusive proof of the proper substitution of such successor trustee, who shall have all the estate, powers, duties and trusts in the premises vested in or conferred on the original trustee. If there be more than one trustee, either may act alone and execute these trusts upon the request of Beneficiary and his acts shall be deemed to be the acts of all trustees, and the recital in any conveyance executed by such sole trustee of such requests shall be conclusive evidence thereof, and of the authority of such sole trustee to act. 21 5.06. Without affecting the liability of Trustor or any other person, except any person expressly released in writing, for payment of any indebtedness secured hereby or for performance of any of the obligations or any of the terms, covenants and conditions hereof, and without affecting the rights of Trustee and Beneficiary with respect to any security not expressly released in writing, at any time and from time to time, without notice or consent other than consent of Beneficiary, Trustee and/or Beneficiary may: (a) Release any person liable for payment of all or any part of the indebtedness or for the performance of any obligation; (b) Make any agreement extending the time or otherwise altering the terms of payment of all or any part of said indebtedness or modifying or waiving any obligation or subordinating, modifying or otherwise dealing with the lien or charge hereof; (c) Exercise or refrain from exercising or waive any right either of them may have; (d) Accept additional security of any kind; and (e) Release or otherwise deal with any property, real or personal, securing the obligations secured hereby. 5.07. If, after an event of default, Trustor fails to execute, acknowledge or deliver to Beneficiary any and all mortgages, assignments, transfers, assurances, financing statements, maps, and other instruments or documents required to be so executed, acknowledged or delivered hereunder, within fifteen (15) days after Beneficiary's demand or such lesser period as may be provided elsewhere herein, then Trustor hereby appoints Beneficiary as Trustor's true and lawful attorney-in-fact to act in Trustor's name, place and stead to execute, acknowledge and deliver the same. 5.08. Whenever under any provision of this Deed of Trust Trustor shall be obligated to make any payment or expenditure, or to do any act or thing, or to incur any liability whatsoever, and Trustor fails, refuses or neglects to perform as herein required, Beneficiary shall be entitled, but shall not be obligated, to make any such payment or expenditure or to do any such act or thing, or to incur any such liability, all on behalf of and at the cost and for the account of Trustor. Beneficiary shall not be bound to inquire into the validity of any apparent or threatened tax, assessment, adverse title, lien, encumbrance, claim, or charge before making an advance for the purpose of preventing, removing or paying the same. Beneficiary shall be subrogated to all rights, equities and liens discharged by any such expenditure. 5.09. A. It is expressly agreed that the entire unpaid principal amount of the Note, together with any and all accrued and unpaid interest and any and all other sums due thereunder, under this Deed of Trust and/or under any of the other Loan Documents shall, except 22 as otherwise explicitly provided hereunder, under the Note and/or under any of the other Loan Documents, at the option of Beneficiary, become immediately due and payable (a) without notice, upon the failure of Trustor to make any payment of principal, interest or other sums due hereunder, under the Note and/or under any of the other Loan Documents (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise); (b) Trustor fails to pay any interest due under the Note and/or any other Loan Document or any fee or other amount (whether by scheduled payment, acceleration, demand or otherwise) within three (3) business days of the date when due; PROVIDED HOWEVER, that failure to make payments when due with respect to the obligations of this Subsection 5.09.(b) more than three (3) times in any twelve (12) month period shall constitute an event of default hereunder; (c) upon the occurrence of any "Event of Default" (as defined in the Loan Agreement) or (d) upon the occurrence and continuation for ten (10) days after notice from Beneficiary to Trustor of any other default hereunder; PROVIDED, HOWEVER, that in the case of a default which cannot with due diligence be cured within such ten (10) day period, Trustor shall have up to ninety (90) days from the date of such notice to cure such default, provided that such default is capable of being cured within such ninety (90) day period, as determined by Beneficiary, and Trustor commences to cure such default within such ten (10) day period and thereafter diligently prosecutes such cure to completion. B. It shall also be a default hereunder if Trustor breaches (beyond applicable notice and cure periods, if any) any representation, warranty or covenant contained in any of the Loan Documents. In addition, Trustor shall be in default hereunder (without any obligation on the part of Beneficiary to provide any notice and cure period) if (a) any material license or permit necessary for operation of the Property or any portion thereof is revoked or any proceeding to revoke the same is commenced or threatened; (b) if without Beneficiary's prior consent, (i) except as permitted under the Loan Agreement, the hotel manager for the Real Property under the Approved Management Agreement (as defined in the Loan Agreement) (or any successor management agreement) resigns or is removed, or (ii) the ownership, management or control of such hotel manager is transferred to a person or entity other than an affiliate of the Trustor, or (iii) except as permitted in the Loan Agreement, there is any material change in the Approved Management Agreement (or any successor management agreement); (c) [intentionally deleted]; (d) if without Beneficiary's prior consent, there is any material change in the Approved Franchise Agreement (as defined in Section 7.02) (or any successor franchise agreement) or if the Approved Franchise Agreement expires pursuant to its terms or a successor franchise agreement is executed by Trustor and such successor franchise agreement is not approved by Beneficiary; (e) if a default has occurred and continues beyond any applicable cure period under the Approved Franchise Agreement (or any successor franchise agreement) if such default permits the franchisor to terminate or cancel the Approved Franchise Agreement (or any successor franchise agreement); or (f) if Trustor ceases to do business as a hotel or motel on the Real Property or terminates such business for any reason whatsoever (other than temporary cessation in connection with any renovations to the Real Property which does not exceed such reasonable number of days from the date hereof necessary for Trustor to undertake the 23 renovation of the Real Property). Trustor shall give Beneficiary prompt notice of the occurrence of any default under this Section 5.09B. but such notice shall not be a condition precedent to Beneficiary exercising any of its remedies hereunder, under the Note and/or under any of the other Loan Documents. Notwithstanding the foregoing, if any event of default under Section 5.09(B)(a) hereof shall occur, and such default arises solely from (i) a default by Reno Hotel, LLC under the Pre-Existing Ramada Franchise Agreement or (ii) the operation of the Property by Reno Hotel, LLC prior to the date hereof, then no default shall be deemed to have occurred; PROVIDED HOWEVER that Trustor hereby covenants and agrees that from and after the date hereof, Trustor will use its best and diligent efforts to cure as promptly as possible any such default or enter into a new franchise agreement (it being expressly understood that Trustor shall not be obligated to expend any monies to cure any monetary default of Reno Hotel LLC). 5.10. The collection of rents and the application thereof by Beneficiary or any receiver obtained by Beneficiary shall not cure or waive any default or notice thereof, or invalidate any act of Beneficiary pursuant thereto. In the exercise of the powers herein granted Beneficiary, Beneficiary shall not be deemed to have affirmed any Lease or subordinated the lien hereof thereto nor shall any liability be asserted or enforced against Beneficiary, all such liability being hereby expressly waived and released by Trustor. Neither Beneficiary nor any receiver shall be obligated to perform or discharge any obligation, duty or liability under any Lease under or by reason of the assignment contained in this Deed of Trust and Trustor shall and does hereby agree to indemnify Beneficiary and such receiver from and to hold them harmless of and from any and all liability, loss, costs, charges, penalties, obligations, expenses, attorneys' fees, litigation, judgments, damages, claims and demands which they may or might incur by reason of, arising from, or in connection with the Leases, such assignment, any alleged obligations or undertakings on their part to perform or discharge any of the terms, covenants or agreements contained in the Leases, any alleged affirmation of or subordination to the Leases, or any action taken by Beneficiary or such receiver pursuant to any provision of this Deed of Trust. Without limiting the generality of the foregoing, no security deposited by the lessee with the lessor under the terms of any Lease hereby assigned has been transferred to Beneficiary, and Beneficiary assumes no liability for any security so deposited. 5.11. In the event of any default hereunder or in the performance of any of the obligations secured hereby, Beneficiary may exercise any and all of its rights provided hereunder or by law. Without limiting the generality of the foregoing, any personal property may, at the sole and absolute option of Beneficiary (i) be sold hereunder, (ii) be sold pursuant to the Code, or (iii) be dealt with by Beneficiary in any other manner provided by statute, law or equity. The proceeds of any such sale may be applied against the amounts due and owing Beneficiary hereunder. Without limiting the foregoing, Beneficiary may require Trustor to assemble the personal property and make it available to Beneficiary at a place to be designated by Beneficiary. In the event of default, Beneficiary shall be the attorney-in-fact of Trustor with respect to any and all matters pertaining to the Property with full power and authority to give instructions with 24 respect to the collection and remittance of payments, to endorse checks, to enforce the rights and remedies of Trustor, and to execute on behalf of Trustor and in Trustor's name any instruction, agreement or other writing required therefor. This power shall be irrevocable and deemed to be a power coupled with an interest. Beneficiary may, in its sole discretion, appoint Trustee as the agent of Beneficiary for the purpose of disposition of the personal property in accordance with the Code. Trustor acknowledges and agrees that a disposition of the personal property in accordance with Beneficiary's rights and remedies in respect to real property as hereinabove provided is a commercially reasonable disposition thereof. 5.12. In the event of any default hereunder or in the performance of the obligations secured hereby, Beneficiary may, to the full extent permitted by law, in addition to all other rights and remedies, forthwith after any such default enter upon and take possession of the Property, complete any buildings or other improvements under construction, construct new improvements and make modifications to and/or demolish any of the foregoing. In connection therewith Beneficiary shall have the power to file any and all notices and obtain any and all permits and licenses which Beneficiary, in its sole and absolute discretion, deems necessary or appropriate, including the filing of notices of completion and the obtaining of certificates of occupancy. Beneficiary shall also have the right to receive all of the rents, issues and profits of the Property, overdue, due or to become due, and to apply the same, after payment of all necessary charges and expenses, including attorneys' fees, on account of the indebtedness secured hereby. Beneficiary may do any and all of the foregoing in its own name or in the name of Trustor and Trustor hereby irrevocably appoints Beneficiary as its attorney-in-fact for such purposes. Beneficiary may also, at any time after such default, apply to any court of competent jurisdiction for the appointment of a receiver and Trustor agrees that such appointment shall be made upon a PRIMA FACIE showing of a claimed default without reference to any offsets or defenses against such default. Such receiver shall have all the rights and powers provided Beneficiary pursuant to this section or otherwise provided hereunder or by law. Said receiver may borrow monies and issue certificates therefor. Said certificates shall be a lien on the Property subordinate only to this Deed of Trust and the Leases; PROVIDED, HOWEVER, that should any of said certificates be acquired by Beneficiary the amount thereof shall constitute additional indebtedness secured hereby. Subject to compliance with applicable laws, such receiver may lease all or any portion of the Property on such terms and for such a term (which may extend beyond the terms of such receiver's appointment and/or, if Beneficiary so consents, sale of the Property hereunder) as such receiver may deem appropriate in its sole and absolute discretion. The entering upon and taking possession of the Property pursuant to this section and the collection of the rents, issues and profits therefrom shall not cure or waive any default or notice of default hereunder or invalidate any act of Beneficiary pursuant thereto. 5.13. Should default be made by Trustor in payment or performance of any indebtedness or other obligation or agreement secured hereby and/or in performance of any agreement herein, or should Trustor otherwise be in default hereunder, Beneficiary may, subject to NRS 107.080, declare all sums secured hereby immediately due by delivery to Trustee of a 25 written notice of breach and election to sell (which notice Trustee shall cause to be recorded and mailed as required by law) and shall surrender to Trustee this Deed of Trust and the Note. 5.14. After three (3) months shall have elapsed following recordation of any such notice of breach, Trustee shall sell the property subject hereto at such time and at such place in the State of Nevada as Trustee, in its sole discretion, shall deem best to accomplish the objects of these trusts, having first given notice of such sale as then required by law. In the conduct of any such sale Trustee may act itself or through any auctioneer, agent or attorney. The place of sale may be either in the county in which the property to be sold, or any part thereof, is situated, or at an office of Trustee located in the State of Nevada: (a) Upon the request of Beneficiary or if required by law Trustee shall postpone sale of all or any portion of said property or interest therein by public announcement at the time fixed by said notice of sale, and shall thereafter postpone said sale from time to time by public announcement at the time previously appointed. (b) At the time of sale so fixed, Trustee shall sell the property so advertised or any part thereof or interest therein either as a whole or in separate parcels, as Beneficiary may determine in its sole and absolute discretion, to the highest bidder for cash in lawful money of the United States, payable at time of sale, and shall deliver to such purchaser a deed or deeds or other appropriate instruments conveying the property so sold, but without covenant or warranty, express or implied. Beneficiary and Trustee may bid and purchase at such sale. To the extent of the indebtedness secured hereby, Beneficiary need not bid for cash at any sale of all or any portion of the Property pursuant hereto, but the amount of any successful bid by Beneficiary shall be applied in reduction of said indebtedness. Trustor hereby agrees, if it is then still in possession, to surrender, immediately and without demand, possession of said property to any purchaser. 5.15. Trustee shall apply the proceeds of any such sale to payment of expenses of sale and all charges and expenses of Trustee and of these trusts, including cost of evidence of title and Trustee's fee in connection with sale; all sums expended under the terms hereof, not then repaid, with accrued interest at the rate equal to the Default Rate; all other sums then secured hereby, and the remainder, if any, to the person or persons legally entitled thereto. 5.16. Beneficiary, from time to time before Trustee's sale, may rescind any notice of breach and election to sell by executing, delivering and causing Trustee to record a written notice of such rescission. The exercise by Beneficiary of such right of rescission shall not constitute a waiver of any breach or default then existing or subsequently occurring, or impair the right of Beneficiary to execute and deliver to Trustee, as above provided, other notices of breach and election to sell, nor otherwise affect any term, covenant or condition hereof or under any obligation secured hereby, or any of the rights, obligations or remedies of the parties thereunder. 26 5.17 Trustor agree(s) that in the event that Trustor shall (a) file with any bankruptcy court of competent jurisdiction or become the subject of any petition under Title 11 of the United States Code, as amended, (b) be the subject of any order for relief issued under Title 11 of the United States Code, as amended, (c) file or be the subject of any petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or future federal or state act or law relating to bankruptcy, insolvency or other relief for debtors, (d) have sought or consented to or acquiesced in the appointment of any trustee, receiver, conservator or liquidator, (e) be the subject of any order, judgment or decree entered by any court of competent jurisdiction approving a petition filed against such party for any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future federal or state law relating to bankruptcy, insolvency or relief for debtors, then, in such event, Beneficiary or any designee or nominee, as the case may be, shall thereupon be entitled to relief from any automatic stay imposed by Section 362 of Title 11 of the United States Code, as amended, on or against the rights and remedies otherwise available to Beneficiary and designee or nominee as provided in any of the Loan Documents, it being the intent of the parties hereto that Trustor, without direct cost or expense to its shareholders, agrees to take or consent to any and all action necessary to effectuate such relief from the automatic stay. SECTION 6 MISCELLANEOUS 6.01 Upon receipt of written request from Beneficiary reciting that all sums secured hereby have been paid and upon surrender of this Deed of Trust and the Note secured hereby to Trustee for cancellation and upon payment of its fees, Trustee shall reconvey without warranty the property then held hereunder. The recitals in such reconveyance of any matters of fact shall be conclusive proof of the truth thereof. The grantee in such reconveyance may be described in general terms as "the person or persons legally entitled thereto." 6.02. Trustor, for itself and for all persons hereafter claiming through or under it or who may at any time hereafter become holders of liens junior to the lien of this Deed of Trust, hereby expressly waives and releases all rights to direct the order in which any of the Property shall be sold in the event of any sale or sales pursuant hereto and to have any of the Property and/or any other property now or hereafter constituting security for any of the indebtedness secured hereby marshaled upon any sale under this Deed of Trust or of any other security for any of said indebtedness. 6.03. All notices, demands or requests relating to any matter set forth herein shall be in writing and shall be served by delivery, certified mail, return receipt requested, or by a reputable commercial carrier that provides a receipt. All such notices or demands served shall be with postage thereon fully prepaid, and addressed to the party so to be served at its address stated 27 below, or at such other address of which said party shall have theretofore given notice in writing as provided herein. Any such notices or demands shall be deemed effective on the day of actual delivery as shown by the addressee's return receipt or upon the second (2nd) business day after the date of mailing, whichever is earlier in time. Notices shall be addressed as follows: If to Beneficiary, to it at the following address: Madeleine LLC 450 Park Avenue New York, New York 10022 Attention: Mr. Kevin P. Genda with a copy to: Schulte Roth & Zabel LLP 900 Third Avenue New York, New York 10022 Attention: Michael J. Feinman, Esq. If to Trustor, to it at the following address: Speakeasy Gaming of Reno, Inc. c/o Mountaineer Park, Inc. Route 2 South Chester, West Virginia 26034 Attention: Mr. Edson Arneault, President with copy to: Ruben & Aronson, LLP 3299 K Street N.W. Suite 403 Washington, D.C. 20007 Attention Robert L. Ruben, Esq. 28 If to Trustee, to it at the following address: United Title of Nevada 201 West Liberty Street Reno, Nevada 89509 Attention: Wayne Bergevin Any party hereto may change its address for the purpose of receiving notices or demands as herein provided by a written notice given in the manner aforesaid to the other party hereto, which notice of change of address shall not become effective, however, until the actual receipt thereof by the other party. Whenever any law requires Beneficiary to give reasonable notice of any act, election, or event, or proposed act, election, or event, said requirement shall be deemed complied with if Beneficiary gives Trustor ten (10) days written notice as herein provided. Information concerning the security interest may be obtained from Beneficiary at the above address. 6.05. This Deed of Trust applies to, inures to the benefit of, and binds all parties hereto, their heirs, legatees, devisees, administrators, executors, successors and assigns (where permitted). 6.06. Trustee accepts these trusts when this Deed of Trust, duly executed and acknowledged, is made a public record as provided by law. 6.07. Where any provision in this Deed of Trust refers to action to be taken by Trustor, or which Trustor is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by Trustor. 6.08. In the event of any conflict between the provisions of this Deed of Trust and the provisions of the Loan Agreement, the provisions of the Loan Agreement shall govern and control, except that this Deed of Trust shall govern and control with respect to (i) the provisions contained in the Granting Clauses of Section 1 and in Sections 2, 4, and 5 hereof and/or (ii) any other provisions contained in this Deed of Trust relating to Beneficiary's rights or remedies or Trustor's obligations or liabilities in respect of the Trust Property. In the event of any conflict between any provision hereof with respect to any Trust Property which is personal property and any term or provision of the Security Agreement, then such term or provision of the Security Agreement shall govern and control with respect to such personal property to the extent of such conflict. Trustor acknowledges that the provisions of this Deed of Trust may impose additional or greater obligations on Trustor, or afford Beneficiary additional or greater rights and remedies, in respect of the Trust Property than the provisions of the Loan Agreement and such additional or greater obligations and/or rights and remedies shall not be deemed to be a conflict for purposes of the foregoing two sentences. 29 6.09. If any term, provision, covenant or condition of this Deed of Trust, or any application thereof, should be held by a court of competent jurisdiction to be invalid, void, or unenforceable, all provisions, covenants and conditions of this Deed of Trust and all applications thereof not held invalid, void or unenforceable, shall continue in full force and effect and shall in no way be affected, impaired or invalidated thereby. If the lien of this Deed of Trust is invalid or unenforceable as to any part of the Property, or if the lien is invalid or unenforceable as to any part of the indebtedness secured hereby, the unsecured or partially unsecured portion of such indebtedness shall be completely paid prior to the payment of the remaining and secured or partially secured portion of such indebtedness, and all payments made on such indebtedness, whether voluntary or under foreclosure or other enforcement action or procedure, shall be considered to have been first paid on and applied to the full payment of that portion of such indebtedness which is not secured or fully secured by the lien of this Deed of Trust. 6.10. In the event that Trustor consists of more than one person, firm or corporation then and in such event all of such persons, firms or corporations shall be jointly and severally liable hereunder. 6.11. This Deed of Trust shall be governed by and construed in accordance with the internal laws of the State of Nevada, without regard to principles of conflicts of law. 6.12. This Deed of Trust shall be construed in accordance with its intent and without regard to any presumption or other rule requiring construction against the party causing the same to be drafted. 6.13. The various rights, options, elections and remedies of Beneficiary and Trustee hereunder shall be cumulative and no one of them shall be construed as exclusive of any other, or of any right, option, election or remedy provided in any agreement or by law. 6.14. Time is of the essence of this Deed of Trust and all of the terms, provisions, covenants and conditions hereof applicable to Trustor. 6.15. In this Deed of Trust, whenever the context so requires the masculine gender includes the feminine and/or neuter, and the singular number includes the plural, and vice-versa, the term Beneficiary shall include any future holder, including pledgees, of the Note secured hereby, and the term Trustor shall mean the original signatory hereof, the successors and assigns thereof and any future owners of the Property or any portion thereof. In the event the ownership of all or any portion of the Property becomes vested in a person other than the signatory hereof, Beneficiary may, without notice to such signatory, deal with such successor or successors with reference to this Deed of Trust and to the indebtedness hereby secured in the same manner as with the signatory, without in any way vitiating or discharging such signatory's liability hereunder or upon the indebtedness hereby secured. In this Deed of Trust, the use of words such as "including" or "such as" shall not be deemed to limit the generality of the term or 30 clause to which they have reference, whether or not nonlimiting language (such as "without limitation," or "but not limited to," or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that could reasonably fall within the broadest possible scope of such general statement, term or matter. In any instance in which Beneficiary's consent, approval or satisfaction is required hereunder, such consent, approval or satisfaction shall be deemed to require the consent, approval or satisfaction of Beneficiary and, at Beneficiary's election, Beneficiary's counsel, and unless otherwise provided in this Deed of Trust, may be granted or withheld in Beneficiary's (or Beneficiary's counsel's) reasonable discretion. In any instance in which Beneficiary may elect to undertake any act hereunder, Beneficiary's election shall be made in its sole and absolute discretion. In any instance in which Beneficiary may elect to undertake any acts hereunder, Beneficiary's election shall be made in its sole and absolute discretion. The captions appealing at the commencement of the sections hereof are descriptive only and for convenience in reference to this Deed of Trust and in no way whatsoever define, limit or describe the scope or intent of this Deed of Trust, nor in any way affect this Deed of Trust. 6.16. Trustor and Beneficiary each represents and warrants to the other that it has not dealt with any broker or finder in connection with this Deed of Trust. Trustor and Beneficiary shall indemnify, protect, defend and hold each other harmless from and against any and all claims for brokerage, leasing, finders or similar fees arising out of the breach on their respective parts of any representation or agreement contested in this Section. 6.17. Trustor hereby knowingly, voluntarily and intentionally waives (to the extent permitted by applicable law) trial by jury in any action or proceeding of any kind or nature that may arise out of this Deed of Trust, the Property or any other matter related thereto or by reason of any other cause or dispute of any kind or nature between Trustor and Beneficiary. 6.18. Where not inconsistent with the above, the following covenants, Nos. 1; 2 (full replacement value); 3; 4 (Default Rate as defined in the Note); 5; 6; 7 (a reasonable percentage); 8 and 9 of NRS 107.030 are hereby adopted and made a part of this Deed of Trust. [ NO FURTHER TEXT ON THIS PAGE] 31 IN WITNESS WHEREOF, Trustor has executed this Deed of Trust on the day and year first above written. SPEAKEASY GAMING OF RENO, INC., a Nevada corporation By:/s/ Edson R. Arneault ----------------------------------- Name: Edson R. Arneault Title: President STATE OF NEVADA ) ) ss.: COUNTY OF ____________) On the ____ day of ______, 1998, before me personally came Edson R. Arneault, to me known to be the individual who executed the foregoing instrument, and who, being duly sworn by me, did depose and say that he is President of Speakeasy Gaming of Reno, Inc., a Nevada corporation, and that he has authority to sign the same, and acknowledged that he executed the same as the act and deed of said corporation. Sworn to before me this ____ day of _____________, 1998. _________________________________ Notary Public EX-10.12 8 EXHIBIT 10.12 EXHIBIT 10.12 THIRD AMENDED AND RESTATED TERM LOAN AGREEMENT THIRD AMENDED AND RESTATED TERM LOAN AGREEMENT (the "AGREEMENT"), dated as of July 2, 1996, as amended and restated as of December 10, 1996, as further amended and restated as of July 2, 1997, and as further amended and restated as of April 30, 1998, among MOUNTAINEER PARK, INC., a West Virginia corporation ("MOUNTAINEER"), SPEAKEASY GAMING OF LAS VEGAS, INC., a Nevada corporation ("SPEAKEASY VEGAS"), SPEAKEASY GAMING OF RENO, INC., a Nevada corporation ("SPEAKEASY RENO", and together with Mountaineer and Speakeasy Vegas, collectively the "BORROWERS"), MTR Gaming Group, Inc. f/k/a WINNERS ENTERTAINMENT, INC., a Delaware corporation (the "GUARANTOR" and together with the Borrowers, collectively, the "LOAN PARTIES" and individually each a "LOAN PARTY"), and MADELEINE LLC, a New York limited liability company (the "LENDER"). RECITALS WHEREAS, Mountaineer, the Guarantor and the Lender are parties to a Term Loan Agreement, dated as of July 2, 1996, pursuant to which the Lender has made a term loan to Mountaineer in the original principal amount of $5,000,000; WHEREAS, Mountaineer, the Guarantor and the Lender are parties to an Amended and Restated Term Loan Agreement, dated as of July 2, 1996, as amended and restated as of December 10, 1996, pursuant to which the Lender has made (i) a term loan to Mountaineer in the original principal amount of $16,100,000 (including the prior $5,000,000 term loan), and (ii) a three year line of credit available for loans in the aggregate maximum principal amount not to exceed $5,376,500 at any time outstanding; WHEREAS, Mountaineer, the Guarantor and the Lender are parties to a Second Amended and Restated Term Loan Agreement, dated as of July 2, 1996, as amended and restated as of December 10, 1996, and as further amended and restated as of July 2, 1997 (the "Second Amended Agreement"), pursuant to which the Lender and Mountaineer agreed to amend the Loan Agreement to extend the maturity date of the Loans and change the terms of payment of certain fees in respect of the loans; WHEREAS, Mountaineer and the Guarantor have requested that the Lender agree to further amend and restate the Loan Agreement for the purposes of, among other things, adding Speakeasy Reno and Speakeasy Vegas as Borrowers under the Agreement, increasing the Term Commitment and the Line Commitment to the Borrowers, adding a construction loan facility, and amending the terms of payment of certain fees in respect of the Loans; and WHEREAS, the Lender is willing, on the terms and conditions herein, to amend and restate the Second Amended Agreement. NOW, THEREFORE, in consideration of the premises and the agreements herein and in order to induce the Lender to make and maintain the Loans, the Lender, the Borrowers and the Guarantor hereby agree as follows: ARTICLE I DEFINITIONS; CERTAIN TERMS SECTION 1.01. Definitions. As used in this Agreement, the following terms shall have the respective meanings indicated below, such meanings to be applicable equally to both the singular and plural forms of such terms: "AFFILIATE" means, as to any Person, (i) any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, or (ii) any trade or business (whether or not incorporated) which is a member of a group of which such Person is a member and which is under common control within the meaning of Section 414 of the Internal Revenue Code and the rules and regulations promulgated thereunder from time to time. "AMENDED AND RESTATED SECURITY AGREEMENT" means the Amended and Restated General Security Agreement, dated as of July 2, 1996, as amended and Restated on December 10, 1996, made by Mountaineer in favor of the Lender, as amended or otherwise modified from time to time. "AMENDED CLOSING DATE" means December 10, 1996. "AMENDED LOAN AGREEMENT" means the Amended and Restated Term Loan Agreement, dated July 2, 1996, as amended and restated as of December 10, 1996, by and between Mountaineer, the Guarantor, and the Lender. "BORROWERS" has the meaning specified therefor in the preamble hereto. "BUSINESS DAY" means any day not a Saturday, Sunday or legal holiday on which the Lender is open for business in New York City and banks in the States of West Virginia and Nevada are not required or authorized to close. "CAPITAL LEASES" means, with respect to any Person, leases or agreements to lease by such Person and its Consolidated Subsidiaries that, in accordance with GAAP, have been or should be capitalized on the books of such Person. "CAPITALIZED LEASE OBLIGATIONS" means, with respect to any Person, any obligation of such Person and its Consolidated Subsidiaries for the payment of rent for any real or personal property under Capital Leases and, for purposes hereof, the amount of any such obligation shall be the capitalized amount thereof, all computed and consolidated in accordance with generally accepted accounting principles applied on a consistent basis. "CHEYENNE CONSTRUCTION LOANS" means one or more construction loans to be made by the Lender to Speakeasy Vegas pursuant to Article IV hereof in an original principal amount not to exceed the Construction Commitment amount, to be used by Speakeasy Vegas for the purpose of improving the Cheyenne Hotel Property. "CHEYENNE DEED OF TRUST" means the Deed of Trust, Assignment of Rents, Security Agreement, and Fixture Filing, dated the date hereof, made by Speakeasy Vegas in favor of the Lender, with respect to the Cheyenne Hotel Property. "CHEYENNE HOTEL PROPERTY" means the property described on Exhibit C hereto, together with the Cheyenne Hotel situated on such land. "CHEYENNE TERM LOAN" means the term loan made by the Lender to Speakeasy Vegas in the aggregate principal amount of $3,765,000, pursuant to Article II hereof, to be used by Speakeasy Vegas for the purpose of acquiring the Cheyenne Hotel Property from Banter, Inc. "CHEYENNE PURCHASE AGREEMENT" means the Purchase Agreement, dated as of April 30, 1998, by and among Speakeasy Vegas, Banter, Inc. and Cheyenne Hotel, Inc. with respect to the purchase by Speakeasy Vegas of the Cheyenne Hotel Property. "CLOSING DATE" means as of April 30, 1998. "COLLATERAL" means all of the property (real and personal) of the Borrowers purported to be subject to the lien or security interest purported to be created by any mortgage, deed of trust, security agreement, pledge agreement, assignment or other security document heretofore or hereafter executed by the Borrowers in favor of the Lender as security for all or any part of the Obligations, including, without limitation, any asset purchased, in whole or in part, with proceeds of a Line Loan, a Cheyenne Construction Loan or with a Term Loan, subject to the limitation set forth in Section 7.01(k) hereof. "COMMITMENT" means the Term Commitment, the Line Commitment and the Construction Commitment. "COMMON STOCK" means the common stock of the Guarantor, par value $0.00001 per share. "CONSOLIDATED EBITDA" means for each fiscal quarter of any Person, all earnings of such Person and its Consolidated Subsidiaries for such period as determined in accordance with GAAP, before (a) the sum, without duplication, of (i) gross interest expense for such period minus gross interest income for such period, in each case determined in accordance with GAAP, (ii) income tax expense, (iii) depreciation expense, (iv) amortization expense net of negative goodwill amortization, and (v) extraordinary or unusual non-cash losses (provided such extraordinary or unusual losses do not at any time result in a cash outlay by such Person), less (b) extraordinary gains of such Person and each Consolidated Subsidiary, each determined on a consolidated basis for such Person and its Consolidated Subsidiaries in accordance with GAAP. "CONSOLIDATED SUBSIDIARY" of a Person at any time shall mean those Subsidiaries of such Person whose accounts are or should in accordance with GAAP be consolidated with those of such Person. "CONSTRUCTION COMMITMENT" means the commitment of the Lender to make one or more Cheyenne Construction Loans to Speakeasy Vegas pursuant to Article IV hereof in an original aggregate principal amount outstanding not to exceed $1,700,000. "CONSTRUCTION NOTE" means the promissory note of the Borrowers, dated the date hereof, in the original principal amount of not more than $1,700,000, evidencing the Indebtedness resulting from the making of the Cheyenne Construction Loans and delivered to the Lender pursuant to Article IV hereof, as such promissory note may be modified or amended from time to time, and any promissory note or notes issued in exchange or replacement therefor. "CONSTRUCTION OBLIGATIONS" means all Obligations in respect of the Cheyenne Construction Loans. "DEFAULT" means any event that, with the giving of notice or the passage of time or both, would result in an Event of Default. "EBITDA AVERAGE" means, as of any date, the average Consolidated EBITDA for each of the six calendar months immediately preceding such date; PROVIDED, HOWEVER, that for the purpose of the calculation of EBITDA Average, at the discretion of Mountaineer, the months of December and January may be excluded from such calculation and such months shall be deemed not to have occurred. "EFFECTIVE DATE" means the date on which all of the conditions precedent under Article V of the Initial Loan Agreement were met. "EMPLOYEE PLAN" means an employee benefit plan (other than a Multiemployer Plan) covered by Title IV of ERISA and maintained for employees of a Borrower or any of its Affiliates. "ENVIRONMENTAL LAW" means the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601, ET SEQ.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801, ET SEQ.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901, ET SEQ.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 ET SEQ.), the Clean Air Act (42 U.S.C. Section 7401 ET SEQ.), the Toxic Substances Control Act (15 U.S.C. Section 2601 ET SEQ.), the Occupational Safety and Health Act (29 U.S.C. Section 6451 ET SEQ.), and the Medical Waste Tracking Act of 1988, Pub. L. No. 100-582, 102 Stat. 2950 (1988), as such laws have been amended or supplemented from time to time, and any similar present or future Federal, state or local statute, ordinance, rule or regulation. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and, unless the context otherwise requires, the rules and regulations promulgated thereunder from time to time. "EVENT OF DEFAULT" means any of the events set forth in Section 9.01 hereof. "FINANCIAL STATEMENTS" means the audited financial statements of the Guarantor and its Subsidiaries as set forth in the Guarantor's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and, upon filing with the Securities and Exchange Commission, the unaudited financial statements of the Guarantor and its Subsidiaries as set forth in the Guarantor's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1998. "FUNDING DATE" has the meaning assigned to such term in Section 6.01 hereof. "FUNDING DATE LOAN AMOUNT" means the amount of (a) the Reno Loan, (b) the Cheyenne Loan, (c) any Line Loan and (d) any Cheyenne Construction Loan, made by Lender to any Borrower on the Funding Date. "GAAP" means generally accepted accounting principles as in effect from time-to-time in the United States, consistently applied. "GOVERNMENTAL AUTHORITY" means any nation or government, any federal, state, city, town, municipality, county, local or other political subdivision thereof or thereto and any department, commission, board, bureau, instrumentality, agency or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and having jurisdiction over the Parties to the Loan Documents. "GUARANTY" means the Guaranty made by the Guarantor in favor of the Lender pursuant to Article X hereof, guaranteeing the Obligations under the Loan Documents. "GUARANTOR" has the meaning specified therefor in the preamble hereto. "HAZARDOUS MATERIALS" means, without limit, any pollutant, waste, flammable explosives, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances, or other materials defined in or regulated under any Environmental Law. "INDEBTEDNESS" means (i) all indebtedness or other obligations of any Borrower for borrowed money or for the deferred purchase price of property or services, (ii) Capitalized Lease Obligations of each Borrower, (iii) all obligations of each Borrower under direct or indirect guaranties, contingent or other obligations of a Borrower to purchase or otherwise acquire or assure a creditor against loss in respect thereof, indebtedness or other obligations of any other Person for borrowed money or for the deferred purchase price of property or services or Capitalized Lease Obligations of any other Person, (iv) all indebtedness or other obligations of each Borrower for borrowed money or for the deferred purchase price of property or services secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any lien, security interest or other charge or encumbrance upon or in property owned by any Borrower, (v) all obligations of any Borrower in respect of letters of credit and bankers' acceptances with the exception of any such letter of credit or bankers' acceptance issued in favor of, or required by, a Governmental Authority, (vi) liabilities incurred under Title IV of ERISA with respect to any plan covered by Title IV of ERISA and maintained for employees of any Borrower or any of its Affiliates, and (vii) withdrawal liability incurred under ERISA by any Borrower or any of its Affiliates to any Multiemployer Plan. "INITIAL CLOSING DATE" means July 2, 1996. "INITIAL LOAN AGREEMENT" means the Term Loan Agreement, dated July 2, 1996, by and between Mountaineer, the Guarantor, and the Lender. "INITIAL TERM LOAN" means the term loan made by the Lender to the Borrower in the aggregate principal amount of $16,100,000, pursuant to Article II of the Second Amended Agreement and maintained pursuant to Article II hereof. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended from time to time. "LENDER" has the meaning specified therefor in the preamble hereto. "LIEN" means any security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property to secure payment of a debt or performance of an obligation or other priority or preferential arrangement of any kind or nature whatsoever. "LINE COMMITMENT" means the commitment of the Lender to make one or more Line Loans to the Borrowers pursuant to Article III hereof in the original aggregate principal amount outstanding not to exceed $10,376,500. "LINE LOAN" has the meaning assigned to such term in Section 3.02 hereof. "LINE NOTE" means the promissory note of the Borrowers, dated the Closing Date, in the original principal amount outstanding, not to exceed $10,376,500, evidencing the Indebtedness resulting from the making of the Line Loans and delivered to the Lender pursuant to Article III of this Agreement, as such promissory note may be modified or amended from time to time, and any promissory note or notes issued in exchange or replacement therefor. "LINE OBLIGATIONS" means all Obligations in respect of the Line Loans. "LOAN" or "LOANS" means the Term Loans, the Line Loans and the Cheyenne Construction Loans. "LOAN DOCUMENTS" means this Agreement, the Notes, the West Virginia Deed of Trust, the Amended and Restated Security Agreement, the West Virginia First Priority Deed of Trust, the Guaranty, the Stock Certificates, the Warrants, the Registration Rights Agreement, Amendment No. 1 to Registration Rights Agreement, Amendment No. 2 to Registration Rights Agreement, the Stock Transfer Agreement, the Cheyenne Deed of Trust, the Reno Deed of Trust, the Speakeasy Security Agreement, the Cheyenne Purchase Agreement, the Reno Purchase Agreement and all other instruments, documents and agreements executed and delivered pursuant hereto or thereto. "LOAN FEE" shall have the meaning assigned to such term in Section 5.01 hereof. "LOAN FEES" means all of the fees and expenses payable, whether in cash, in kind, in Common Stock or in Warrants, by each Borrower and the Guarantor, jointly and severally, under Section 5.01 of this Agreement. "LOAN PARTIES" means the Borrowers and the Guarantor. "MATURITY DATE" means July 2, 2001, or such earlier date on which the Loans shall become due and payable, in whole or in part, in accordance with the terms of this Agreement, whether by acceleration or otherwise. "MOUNTAINEER" means Mountaineer Park, Inc., a West Virginia corporation. "MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA. "NOTE" or "NOTES" means the Term Note, the Line Note and the Construction Note, as applicable. "OBLIGATIONS" means (i) the obligation of any Loan Party to pay, jointly and severally, as and when due and payable (by scheduled maturity or otherwise), all amounts from time to time owing by it in respect of any Loan Document, whether for principal (including, without limitation, an amount equal to the product of (a) the Prepayment Factor and (b) the aggregate outstanding principal amount of the Loans), interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to any Borrower or the Guarantor, whether or not a claim for post-filing interest is allowed pursuant to 11 U.S.C. Section 506 or otherwise in such cases), fees or otherwise and (ii) the obligation of any Loan Party to perform or observe all of its other obligations from time to time existing under any Loan Document. "OPERATING LEASES" means leases or agreements to lease of each Borrower, other than Capital Leases. "OPERATING LEASE OBLIGATIONS" means all obligations of a Borrower for the payment of rent for any real or personal property under leases or agreements to lease, other than Capitalized Lease Obligations, all computed in accordance with GAAP. "PAYMENT OFFICE" means Madeleine LLC, 450 Park Avenue, New York, New York 10022, Attn.: Mr. Kevin P. Genda. "PERMITTED INVESTMENTS" means (i) marketable direct obligations issued or unconditionally guaranteed by the United States Government, or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof, (ii) commercial paper, maturing not more than 270 days after the date of issue, issued by a corporation rated P-1 by Moody's Investors Service, Inc. or A-1 by Standard & Poor's Corporation or issued by the Lender or its Affiliates, (iii) time certificates of deposit, issued by commercial banking institutions, each of which is a member of the Federal Reserve System and has a combined capital and surplus of not less than $100,000,000, (iv) money market accounts maintained with mutual funds having assets in excess of $2,500,000,000, and (v) tax exempt securities rated A or better by Moody's Investors Service, Inc. or A+ or better by Standard & Poor's Corporation; PROVIDED, HOWEVER, that deposits or certificates of deposits with commercial banking institutions which are a member of the Federal Reserve System are Permitted Investments so long as any such deposit does not exceed $250,000. "PERSON" means an individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, joint venture or governmental authority. "PLAN OF REMEDIATION" means collectively (i) the Corrective Action Plan, dated August 14, 1995, (ii) the Phase I Environmental Site Assessment of the Cheyenne Hotel Property, dated March 16, 1997, and (iii) the Phase I Environmental Site Assessment of the Reno Hotel Property, dated March, 1998. "PLEDGE AGREEMENTS" mean the Pledge and Security Agreement made on the date hereof by the Guarantor in favor of the Lender, whereunder the Guarantor's interests in Speakeasy Reno and Speakeasy Vegas are pledged. "POST-DEFAULT RATE" means a rate per annum equal to 22%. "PREPAYMENT FACTOR" means (i) at any time during the period beginning on the Second Amended Closing Date to and including the first anniversary thereof, 1.05; (ii) at any time during the period beginning on the day after the first anniversary of the Second Amended Closing Date to and including the second anniversary of the Second Amended Closing Date, 1.03; (iii) at any time during the period beginning on the day after the second anniversary of the Second Amended Closing Date to and including the third anniversary of the Second Amended Closing Date, 1.02; (iv) at any time during the period beginning on the day after the third anniversary of the Second Amended Closing Date to and including the fourth anniversary of the Second Amended Closing Date, 1.01; and on the scheduled Maturity Date, 1.00. "PROPERTY" means (i) the Reno Hotel Property, (ii) the Cheyenne Hotel Property, and (iii) the West Virginia Property. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement, dated July 2, 1996, between the Lender and the Guarantor, as amended or otherwise modified from time to time. "RENO DEED OF TRUST" means the Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing, dated the date hereof, made by Speakeasy Reno in favor of the Lender, with respect to the Reno Hotel. "RENO HOTEL PROPERTY" means the property described on Exhibit D hereto, together with the Reno Hotel situated on such land. "RENO LOAN" means the term loan made by the Lender to the Borrower in an aggregate principal amount of $8,000,000, pursuant to Article II hereof, to be used by Speakeasy Reno for the purpose of acquiring the Reno Hotel from Reno Hotel LLC. "RENO PURCHASE AGREEMENT" means the Purchase Agreement, dated as of April 30, 1998, by and between Speakeasy Reno and Reno Hotel LLC with respect to the purchase by Speakeasy of the Reno Hotel Property. "SECOND AMENDED CLOSING DATE" means July 2, 1997. "SECOND AMENDED LOAN AGREEMENT" means the Second Amended and Restated Term Loan Agreement, dated July 2, 1996, as amended and restated as of December 10, 1996, as further amended and restated as of July 2, 1997, by and between Mountaineer, the Guarantor, and the Lender. "SECURITY AGREEMENTS" means the Speakeasy Security Agreements and the Amended and Restated Security Agreement. "SPEAKEASY RENO" means Speakeasy Gaming of Reno, Inc., a Nevada corporation. "SPEAKEASY VEGAS" means Speakeasy Gaming of Las Vegas Inc., a Nevada corporation. "SPEAKEASY SECURITY AGREEMENTS" means collectively (i) the General Security Agreement, dated as of the date hereof, made by Speakeasy Reno in favor of the Lender, as amended or otherwise modified from time to time and (ii) the General Security Agreement, dated as of the date hereof, made by Speakeasy Vegas in favor of the Lender, as amended or otherwise modified from time to time. "STOCK CERTIFICATE" means any original stock certificate issued by the Guarantor representing shares of Common Stock. "STOCK TRANSFER AGREEMENT" means the Stock Transfer Agreement, dated as of July 2, 1996, between the Lender and the Guarantor. "SUBSIDIARY" means any corporation of which more than 50% of the outstanding capital stock or similar rights of holders of equity having (in the absence of contingencies) ordinary voting power to elect directors (or Persons performing similar functions) of such corporation is, at the time of determination, owned directly, or indirectly through one or more intermediaries, by any Person. "TAXES" means any tax imposed by the States of West Virginia or Nevada or any subdivision thereof. "TERM COMMITMENT" means the commitment of the Lender to make Term Loans to the Borrower pursuant to Article II hereof in the principal amount not to exceed $27,865,000. "TERM LOANS" means (a) the Initial Term Loan, (b) the Reno Loan, and (c) the Cheyenne Term Loan, each as described in Article II hereof. "TERM NOTE" means the promissory note of the Borrowers, dated the Closing Date, in the original principal amount of $27,865,000, evidencing the Indebtedness resulting from the making of the Term Loans and delivered to the Lender pursuant to Article II hereof, as such Term Note may be modified or amended from time to time, and any promissory note or notes issued in exchange or replacement therefor. "TERM OBLIGATIONS" has the meaning assigned to such term in Section 10.13 hereof. "TERMINATION DATE" means the earlier to occur of (a) the Maturity Date and (b) the date on which all of the Obligations have been fully performed. "TRANSACTION COSTS" has the meaning specified therefore in Section 10.04 hereof. "UNFUNDED LIABILITY" has the meaning specified therefore in Subsection 7.01(j) hereof. "WARRANTS" means validly issued warrants for the purchase of shares of Common Stock, in substantially the form attached hereto as Exhibit A. "WEST VIRGINIA DEED OF TRUST" means the Deed of Trust, Leasehold Deed of Trust Security Agreement, Assignment, Fixture Filing, and Financing Statement, dated July 2, 1996, made by Mountaineer in favor of the Lender, with respect to the West Virginia Property. "WEST VIRGINIA FIRST PRIORITY DEED OF TRUST" means the Credit Line Deed of Trust, Leasehold Deed of Trust, Security Agreement, Assignment, Fixture Filing and Financing Statement, dated as of December 10, 1996, by and among Mountaineer, the Lender and the trustees named therein, as amended or otherwise modified from time to time, with respect to the West Virginia Property. "WEST VIRGINIA PROPERTY" means the property described on Exhibit E hereto. SECTION 1.02. Accounting and Other Terms. Unless otherwise expressly stated herein, all accounting determinations hereunder shall be made, all accounting terms used herein shall be interpreted, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP. All terms used in this Agreement which are defined in Article 9 of the Uniform Commercial Code in effect in the State of New York on the date hereof and which are not otherwise defined herein shall have the same meanings herein as set forth therein. ARTICLE II AMOUNT AND TERMS OF THE TERM LOANS SECTION 2.01. TERM COMMITMENT. Any principal amount of any Term Loan which is repaid or prepaid by the Borrowers may not be reborrowed. SECTION 2.02. MAKING THE TERM LOANS. The Lender has made or will on the Funding Date make Term Loans to the Borrowers in the form of (a) the Initial Term Loan made under the Amended Loan Agreement in the original principal amount of $16,100,000 disbursed to Mountaineer in the amounts of $5,000,000 on July 3, 1996 and $11,100,000 on December 26, 1996, (b) the Reno Loan in the original principal amount of $8,000,000 disbursed to Speakeasy Reno on the Funding Date, and (c) the Cheyenne Term Loan in the original principal amount of $3,765,000 disbursed to Speakeasy Vegas on the Funding Date. The Term Loans shall continue to be outstanding until the Termination Date. The amount of the Term Loans may be increased to provide for the funding and payment of the Lender's fees and costs incurred in connection herewith, together with interest due thereon, which are unpaid as of the Termination Date and which accrue thereafter. The books and records of the Lender shall be presumptive evidence of the amount of Obligations under the Term Loans outstanding from time to time, whether in excess of the principal amount of the Term Note or otherwise, absent manifest error. SECTION 2.03. TERM LOAN INTEREST. (a) LOAN. The Term Loans shall bear interest on the principal amount thereof from time to time outstanding from the Effective Date until such principal amount becomes due at an interest rate per annum of thirteen percent (13%). (b) INTEREST PAYMENT. Interest on the Term Loans shall be payable monthly, in arrears, on the last day of each month, commencing April 30, 1998, and ending on the Termination Date (whether by demand, acceleration or otherwise). Interest at the Post-Default Rate shall be payable on demand. SECTION 2.04. REPAYMENT. The Term Loans shall be payable as to principal in full on the Maturity Date, together with all such other amounts as may be necessary to repay in full all unpaid Term Obligations to the Lender. In the event that the Term Loans are prepaid due to acceleration of the Term Loans after the occurrence of an Event of Default, the amount of the outstanding principal of the Term Loans shall be determined by multiplying the outstanding principal amount under the Term Note by the Prepayment Factor (excluding the Cheyenne Construction Loans, the Cheyenne Term Loan and the Reno Term Loan). SECTION 2.05. OPTIONAL PREPAYMENT OF THE TERM LOANS. Any Borrower may, on the same Business Day's telephone notice no later than 11:00 A.M. (New York City time) (promptly confirmed in writing) prepay the outstanding amount of the Term Loans in whole, but not in part, by payment of the sum of (i) an amount equal to the product of (a) the Prepayment Factor and (b) the outstanding principal amount of the Term Loans (excluding the Cheyenne Construction Loans, the Cheyenne Term Loan and the Reno Term Loan), plus (ii) accrued interest to the date of such prepayment, plus (iii) the balance of the Loan Fees not previously paid to the Lender, plus (iv) all other Term Obligations; PROVIDED, HOWEVER, that the Borrowers may not prepay the Term Loans unless, simultaneously therewith, the Borrowers also prepay the Line Loan as set forth in Section 3.05 hereof and the Cheyenne Construction Loans as set forth in Section 4.05 hereof. Upon such payment in accordance with Section 2.05, at the sole cost and expense of the Borrowers, the Lender will return to the Borrowers appropriate and proper releases of the Cheyenne Deed of Trust, the Reno Deed of Trust, the West Virginia Deed of Trust, the West Virginia First Priority Deed of Trust, and such other documents as the Loan Parties may reasonably request to effect a release of the Lender's security interest in the Collateral. SECTION 2.06. USE OF PROCEEDS. (a) The proceeds of the Line Loans will be used for general working capital purposes of Mountaineer and up to an aggregate amount of $1,500,000 of the principal amount of the Line Loans may be borrowed to fund general working capital of Speakeasy Reno and Speakeasy Vegas relating to the Reno Hotel Property or the Cheyenne Hotel Property, respectively; (b) the proceeds of the Reno Loan will be used solely to finance the acquisition by Speakeasy Reno of the Reno Hotel Property from Reno Hotel LLC; (c) the proceeds of the Cheyenne Loan will be used solely to finance the acquisition by Speakeasy Vegas of the Cheyenne Hotel Property from Banter, Inc.; and (d) the proceeds of the Cheyenne Construction Loans will be used solely by Speakeasy Vegas to finance improvements to the Cheyenne Hotel Property. ARTICLE III AMOUNT AND TERMS OF THE LINE LOANS SECTION 3.01. LINE COMMITMENT. Any principal amount of the Line Loan which is repaid or prepaid by the Borrowers subsequent to the Funding Date may not be reborrowed. SECTION 3.02. MAKING THE LINE LOANS. Two (2) Business Days after receipt by the Lender of a written request for a loan in substantially the form of Exhibit B attached hereto, the Lender shall make available to the Borrower requesting such loan an amount set forth in such borrowing notice not less than $100,000 nor more than an amount (the "ADDITIONAL LINE AMOUNT") equal to the positive difference between the outstanding principal amount of the Line Loans on the funding date of the requested Line Loan and the Line Commitment, and the Borrowers shall, upon satisfaction of all of the conditions relating thereto contained herein and in the other Loan Documents, borrow such amount on the terms and conditions set forth hereunder. The sum of (a) the outstanding principal amount of the Line Loans as of the opening of business on the Funding Date and (b) the Additional Line Amount shall be evidenced by the Line Note and shall be the "LINE LOANS". The Lender may act without liability upon the basis of written notice believed by the Lender in good faith to be from a Borrower (or from any officer thereof designated in writing to the Lender). On the funding date of the applicable Line Loan, and upon fulfillment of the applicable conditions set forth in Article VI hereof, the Lender will make available the applicable Line Loan to the applicable Borrower by delivering the proceeds thereof, in immediately available funds (either in the form of a certified bank check or wire transfer) less the fees and expenses then due and payable under Sections 5.01(a) and 10.04 hereof. The applicable Line Loan will be disbursed to the Borrower requesting the applicable Line Loan. The outstanding amount of a Line Loan may be increased to provide for the funding and payment of the Lender's fees and costs incurred in connection with the applicable Line Loan, together with interest due thereon, which are unpaid as of the Termination Date and which accrue thereafter. The records of the Lender shall be presumptive evidence of the amount of Obligations under the Line Loans outstanding from time to time whether in excess of the initial principal amount of the Line Note or otherwise, absent manifest error. SECTION 3.03. LINE LOAN INTEREST. (a) LOANS. The Line Loans shall bear interest on the principal amount thereof from time to time outstanding from the Effective Date until such principal amount becomes due at an interest rate per annum of thirteen percent (13%). (b) INTEREST PAYMENT. Interest on the outstanding principal amount of the Line Loans shall be payable monthly, in arrears, on the last day of each month, commencing April 30, 1998, and on the Termination Date (whether by demand, acceleration or otherwise). Interest at the Post-Default Rate shall be payable on demand. SECTION 3.04. REPAYMENT. The Line Loans shall be payable as to principal in full on the Maturity Date, together with all such other amounts as may be necessary to repay in full all unpaid Line Obligations to the Lender. In the event that the Line Loans are prepaid due to acceleration of the Line Loans after the occurrence of an Event of Default, the amount of the outstanding principal of the Line Loans shall be determined by multiplying the outstanding principal amount under the Line Note by the Prepayment Factor. SECTION 3.05. PREPAYMENT OF THE LINE LOAN. The Borrowers may, on the same Business Day's telephone notice no later than 11:00 A.M. (New York City time) (promptly confirmed in writing) prepay the outstanding amount of the Line Loans in whole, but not in part, by payment of the sum of (i) an amount equal to the product of (a) the Prepayment Factor and (b) the outstanding amount of the Line Loans, plus (ii) accrued interest to the date of such prepayment, plus (iii) the balance of the Loan Fees not previously paid to the Lender; PROVIDED, HOWEVER, that the Borrowers may not prepay the Line Loans unless, simultaneously therewith, the Borrowers also prepay the Term Loans as set forth in Section 2.05 hereof and the Cheyenne Construction Loans as set forth in Section 4.05 hereof. ARTICLE IV AMOUNT AND TERMS OF THE CHEYENNE CONSTRUCTION LOANS SECTION 4.01. CONSTRUCTION COMMITMENT. Any principal amount of the Cheyenne Construction Loans which is repaid or prepaid by the Borrowers subsequent to the Funding Date may not be reborrowed. SECTION 4.02. MAKING THE CHEYENNE CONSTRUCTION LOANS. (a) BORROWING PROCEDURES. Two (2) Business Days after receipt by the Lender of a written request for a loan in substantially the form of Exhibit B attached hereto, the Lender shall make available to Speakeasy Vegas an amount set forth in such borrowing notice in an amount not to exceed the amount (the "ADDITIONAL CONSTRUCTION AMOUNT") equal to the positive difference between the outstanding principal amount of the Cheyenne Construction Loans on the funding date of the requested Cheyenne Construction Loan and the Construction Commitment, and the Borrowers shall, upon satisfaction of all of the conditions relating thereto contained herein and in the other Loan Documents, borrow such amount on the terms and conditions set forth hereunder. The sum of (i) the outstanding principal amount of the Cheyenne Construction Loans as of the opening of business on the Funding Date and (ii) the Additional Construction Amount shall be evidenced by the Construction Note and shall be the "CONSTRUCTION LOANS". The Lender may act without liability upon the basis of written notice believed by the Lender in good faith to be from a Borrower (or from any officer thereof designated in writing to the Lender). On the funding date of the applicable Cheyenne Construction Loan, and upon fulfillment of the applicable conditions set forth in Section 4.02(b) and Article VI hereof, the Lender will make available the applicable Cheyenne Construction Loan to the applicable Borrower by delivering the proceeds thereof, in immediately available funds (either in the form of a certified bank check or wire transfer) less the fees and expenses then due and payable under Sections 5.01(a) and 10.04 hereof. The applicable Cheyenne Construction Loan will be disbursed to Speakeasy Vegas. The outstanding amount of the applicable Cheyenne Construction Loan may be increased to provide for the funding and payment of the Lender's fees and costs incurred in connection with the applicable Cheyenne Construction Loan, together with interest due thereon, which are unpaid as of the Termination Date and which accrue thereafter. The records of the Lender shall be presumptive evidence of the amount of Obligations under the Cheyenne Construction Loans outstanding from time to time whether in excess of the initial principal amount of the Construction Note or otherwise, absent manifest error. (b) CONDITIONS PRECEDENT. Notwithstanding anything herein to the contrary, no Cheyenne Construction Loan shall exceed an amount equal to the out-of-pocket costs and expenses paid to unaffiliated third parties and incurred by Speakeasy with respect to improvements constructed on the Cheyenne Hotel Property, and the amount so advanced shall thereupon be added to the outstanding principal balance of the Construction Note and shall thereafter bear interest as set forth herein. Any disbursement by the Lender hereunder shall be subject to there having occurred no Default or Event of Default which shall then be continuing. SECTION 4.03. CHEYENNE CONSTRUCTION LOAN INTEREST. (a) LOANS. The Cheyenne Construction Loans shall bear interest on the principal amount thereof from time to time outstanding from the Effective Date until such principal amount becomes due at an interest rate per annum of thirteen percent (13%). (b) INTEREST PAYMENT. Interest on the outstanding principal amount of the Cheyenne Construction Loans shall be payable monthly, in arrears, on the last day of each month, commencing April 30, 1998, and on the Termination Date (whether by demand, acceleration or otherwise). Interest at the Post-Default Rate shall be payable on demand. SECTION 4.04. REPAYMENT. The Cheyenne Construction Loans shall be payable as to principal in full on the Maturity Date, together with all such other amounts as may be necessary to repay in full all unpaid Construction Obligations to the Lender. SECTION 4.05. PREPAYMENT OF THE CHEYENNE CONSTRUCTION LOANS. The Borrowers may, on the same Business Day's telephone notice no later than 11:00 A.M. (New York City time) (promptly confirmed in writing) prepay the outstanding amount of the Cheyenne Construction Loans in whole, but not in part, by payment of the sum of (i) an amount equal to the outstanding amount of the Cheyenne Construction Loans, plus (ii) accrued interest to the date of such prepayment, plus (iii) the balance of the Loan Fees not previously paid to the Lender; PROVIDED, HOWEVER, that the Borrowers may not prepay the Cheyenne Construction Loans unless, simultaneously therewith, the Borrowers also prepay the Term Loan as set forth in Section 2.05 hereof and the Line Loans as set forth in Section 3.05 hereof. ARTICLE V FEES, PAYMENTS, DEFAULT INTEREST AND OTHER COMPENSATION SECTION 5.01. FEES AND OTHER CONSIDERATION. The fees and other consideration provided for herein are in addition to the fees and other consideration which were due and payable on the Initial Closing Date, the Amended Closing Date and the Second Amended Closing Date. (a) LINE LOAN FEES. On the Closing Date, the Borrowers, jointly and severally, shall pay to the Lender, in immediately available funds, a non-refundable fee (the "LOAN FEE") of $150,000 in consideration of the Lender's agreement to increase the Line Commitment from $5,376,500 to $10,376,500. Each of the Borrowers and the Guarantor hereby acknowledges and confirms that the Line Loan Fee has been unconditionally earned by the Lender as of the Closing Date. The Borrowers hereby instruct the Lender to withhold such portion of the Line Loan Fee due on the Closing Date, as elected by the Borrowers, from the proceeds of the Funding Date Loan Amount, and the amount so withheld shall constitute a part of the Line Loan for all purposes hereunder. (b) AUDIT AND COLLATERAL MONITORING FEES. The Borrowers shall pay to the Lender, jointly and severally, on each anniversary of the Effective Date, the costs and expenses incurred by the Lender in connection with the periodic collateral appraisals and audit reviews performed by or on behalf of the Lender in such year; PROVIDED, HOWEVER, that so long as no Event of Default has occurred and is continuing, the Borrowers' obligation under this Subsection 5.01(c) shall be limited to $25,000 for each 365 (or 366, as applicable) day period following the Effective Date. (c) COMMON STOCK AND WARRANTS. The Lender hereby acknowledges and agrees that the Guarantor has delivered to the Lender all Stock Certificates and Warrants required to be delivered pursuant to Section 4.01(c) and (d) of the Second Amended Loan Agreement (except for such Stock Certificates and Warrants that may be required to be delivered to the Lender in connection with a complete or partial exercise of such Warrants by the Lender). SECTION 5.02. PAYMENTS AND COMPUTATIONS. The Borrowers, jointly and severally, will make each payment under the Loan Documents to which they are a party not later than 2:30 P.M. (New York City time) on the day when due, in lawful money of the United States of America and in immediately available funds, to the Lender at the Payment Office, or at such other place or to such account as the Lender may designate by notice to the Borrowers. All payments shall be made by the Borrowers without defense, set-off or counterclaim to the Lender. Subject to Section 9.01 below, all interest, fees, costs and expenses for which the Borrowers are obligated under any Loan Document shall, if not timely paid by the Borrowers, be added to the principal amount of the Line Loan, Term Loan or Cheyenne Construction Loan, and the Borrowers hereby authorize the Lender to, and the Lender may, from time to time, increase the principal amount of the Line Loan, the Term Loan or Cheyenne Construction Loan by any such amounts due under any Loan Document to which the Borrowers are a party. The Borrowers confirm that any addition to principal which the Lender so makes to a Loan as herein provided will be made as an accommodation to the Borrowers and solely at the Lender's discretion. Whenever any payment to be made under any such Loan Document shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall in such case be included in the computation of interest and fees. All computations of interest under this Agreement and any other Loan Document and all fees shall be made by the Lender on the basis of a year of 360 days for the actual number of days occurring in the period for which such interest is payable; PROVIDED, HOWEVER, that with respect to any date on which any Borrower makes a repayment or prepayment of principal, interest in respect of such principal repayment or prepayment amount shall be calculated on the basis of a year of 360 days for the actual number of days occurring in the period for which such interest is payable but excluding the day on which such repayment or prepayment of principal is made. In no event shall prior recourse to any Collateral be a prerequisite to the Lender's right to demand payment of any Obligation. The Lender's records kept in the ordinary course of its business shall be presumed to be correct and shall constitute PRIMA FACIE evidence of the amount owing or paid with respect to any Obligation, absent manifest error. SECTION 5.03. TAXES. (a) If any Borrower shall be required by any applicable law, rule or regulation to deduct or withhold any Taxes from or in respect of any amount payable hereunder, then (i) the amount so payable shall be increased to the extent necessary so that after making all required deductions and withholdings (including Taxes on amounts payable to the Lender pursuant to this sentence) the Lender shall receive an amount equal to the sum it would have received had no such deductions or withholdings been made, (ii) the Borrowers shall make such deductions or withholdings and (iii) the Borrowers, jointly and severally, shall pay to the relevant taxation authority the full amount required to be so deducted or withheld. Whenever any Taxes are payable by any Borrower, as promptly as possible thereafter such Borrower shall send the Lender an official receipt or other documentation satisfactory to the Lender evidencing such payment to such authority. If, due to the imposition of any Taxes, the Lender's tax liability with respect to any amounts payable hereunder to any other taxing authority is reduced, the amount of such reduction shall be paid by the Lender to the Borrowers upon Borrowers' demand therefor; PROVIDED, HOWEVER, that in no event shall the Lender be required to pay to any Borrower an amount in excess of the amount withheld by such Borrower in respect of Taxes due from or in respect of any amount payable hereunder. (b) If the Lender shall be required to pay any West Virginia Taxes in respect of any amount payable by any Borrower hereunder, then the Borrowers shall, upon demand by the Lender, jointly and severally, pay to the Lender an amount equal to the difference between (i) the Taxes required to be paid by the Lender, and (ii) the amount, if any, of the reduction of the Lender's tax liability to any other taxing authority resulting from the payment of such Taxes; PROVIDED, HOWEVER, that in no event shall the Lender be required to pay to the Borrowers an amount in excess of the amount paid by such Borrower to the Lender pursuant to this paragraph 5.03(b). SECTION 5.04. DEFAULT INTEREST. Any Obligation hereunder with respect to the Loans, including the principal of the Loans, fees and (to the extent permitted by law) interest which is not paid when due (after any applicable grace period therefor set forth in Section 9 hereof), whether upon demand, by acceleration or otherwise, and all amounts payable after the occurrence and during the continuance of an Event of Default, shall bear interest from the day when due until such amount is paid in full at a rate per annum equal to the Post-Default Rate. In the event that any amount of principal of, or interest on, any Loan is not paid within 10 days of the due date thereof (whether by demand, acceleration or otherwise) when due, the Borrowers shall, upon demand, pay an additional fee equal to 5% of the amount of such principal and/or interest not timely paid and such fee shall be owed, jointly and severally, by each Borrower. ARTICLE VI CONDITIONS TO EFFECTIVENESS AND LENDING SECTION 6.01. CONDITIONS TO FUNDING OF THE FUNDING DATE LOAN AMOUNT. The Lender shall have no obligation to fund the Funding Date Loan Amount until the date (the "FUNDING DATE") on which each of the following conditions precedent shall have been satisfied: (a) PAYMENT OF FEES, ETC. The Borrowers shall have paid on or before the Funding Date all fees, costs, expenses and Taxes then payable by the Borrowers pursuant to Sections 5.01, 5.03 and 10.04 hereof. (b) REPRESENTATIONS AND WARRANTIES; NO EVENT OF DEFAULT. The representations and warranties contained in Section 7.01 of this Agreement and in each other Loan Document and certificate or other writing delivered to the Lender pursuant hereto on or prior to the Funding Date, shall be correct on and as of the Funding Date as though made on and as of such date; and no Event of Default, or event which with the giving of notice or the lapse of time or both would constitute an Event of Default, shall have occurred and be continuing on the Funding Date or would result from the increase in the Line Loans, the Cheyenne Construction Loans and the Term Loan by the Funding Date Loan Amount. (c) LEGALITY. The making of the Loans shall not contravene any law, rule or regulation applicable to the Lender, the Borrowers or the Guarantor. (d) DELIVERY OF DOCUMENTS. The Lender shall have received on or before the Funding Date the following, each in form and substance satisfactory to the Lender and, unless indicated otherwise, dated the Funding Date (except for items 6.01(d)(vi) and (vii), which shall be dated December 10, 1996) in each case duly executed by the parties thereto: (i) this Agreement; (ii) the Reno Purchase Agreement; (iii) the Cheyenne Purchase Agreement; (iv) the Reno Deed of Trust; (v) the Cheyenne Deed of Trust; (vi) the Term Note made by the Borrowers to the order of the Lender in the amount of $27,865,000, dated the Closing Date, pursuant to Article II hereof.; (vii) the Line Note made by the Borrowers to the order of the Lender in the amount of $10,376,500, dated the Closing Date, pursuant to Article III hereof; (viii) the Construction Note made by the Borrowers to the order of the Lender in the amount of $1,700,000, dated the Closing Date, pursuant to Article IV hereof; (ix) the Speakeasy Security Agreements; (x) the Pledge Agreements; (xi) financing statements on Form UCC-1, duly executed by Speakeasy Reno, Speakeasy Vegas and the Guarantor and duly filed in such office or offices as may be necessary or, in the opinion of the Lender, desired to perfect the security interests purported to be created by the Speakeasy Security Agreements; (xii) certified copies of the requests for information on Form UCC-11, listing all effective financing statements which name Speakeasy Reno, Speakeasy Vegas and the Guarantor as debtors, together with copies of such financing statements; (xiii) notice of borrowing from the Borrowers and the Guarantor in favor of the Lender, as required pursuant to Section 3.02 of this Agreement; (xiv) evidence of the recording of the Cheyenne Deed of Trust in such other office or offices as may be necessary or, in the opinion of the Lender, desirable to perfect each Lien purported to be created thereby or to otherwise protect the rights of the Lender thereunder; (xv) evidence of the recording of the Reno Deed of Trust in such other office or offices as may be necessary or, in the opinion of the Lender, desirable to perfect each Lien purported to be created thereby or to otherwise protect the rights of the Lender thereunder; (xvi) the Title Insurance Policy for the Cheyenne Hotel Property; (xvii) the Title Insurance Policy for the Reno Hotel Property; (xviii) a Survey of the Cheyenne Hotel Property; (xix) a Survey of the Reno Hotel Property; (xx) a title report with respect to the Cheyenne Hotel Property showing only those exceptions as are acceptable to the Lender, in its sole and absolute discretion; (xxi) a title report with respect to the Reno Hotel Property showing only those exceptions as are acceptable to the Lender, in its sole and absolute discretion; (xxii) a certificate of insurance evidencing insurance on all Property of the Borrowers as is required by Section 8.01(g) hereof, naming the Lender as additional insured as its interests may appear for all insurance maintained by the Borrowers; (xxiii) all of the Property Documents in the possession of any Loan Party as described in Section 2(b) of the Cheyenne Purchase Agreement; (xxiv) all of the Property Documents in the possession of any Loan Party as described in Section 2(b) of the Reno Purchase Agreement; (xxv) a copy of the resolutions adopted by the Board of Directors of each Loan Party, certified as of the Funding Date by an authorized officer thereof, authorizing (A) the borrowings hereunder and the transactions contemplated by the Loan Documents to which such entity is or will be a party, and (B) the execution, delivery and performance by each Loan Party of each Loan Document to which it is or will be a party and the execution and delivery of the other documents to be delivered by the Loan Parties in connection herewith; (xxvi) a certificate of an authorized officer of each Loan Party certifying the names and true signatures of the officers of such Loan Party authorized to sign each Loan Document to which such entity is or will be a party and the other documents to be executed and delivered by the Loan Parties in connection herewith, together with evidence of the incumbency of such authorized officers; (xxvii) a copy of the corporate charter of each Loan Party, certified as of the Funding Date by an authorized officer of each Loan Party; (xxiii) a copy of the by-laws of each Loan Party, certified as of the Funding Date by an authorized officer of such Loan Party; (xxix) an opinion of (i) Ruben & Aronson, LLP, and (ii) Nevada counsel to the Borrowers and the Guarantor, in each case as to such matters as the Lender may reasonably request; (xxx) a copy of the Financial Statements, together with a certificate of the chief executive officer or chief financial officer of each of the Borrowers, setting forth all existing guarantees and other contingent liabilities of the Borrowers; (xxxi) a certificate, dated as of a date not more than ten (10) Business Days prior to the Closing Date, of the appropriate official of the jurisdiction of incorporation and each jurisdiction of foreign qualification, both inside and outside the United States, of each Loan Party, certifying as to the subsistence in good standing of, and the payment of taxes by, each Loan Party in such jurisdictions and listing all charter documents of each Loan Party on file with such official(s), together with confirmation by telephone or telegram (where available) on the Closing Date from such official(s) as to such matters; and (xxxii) such other agreements, instruments, approvals, opinions and other documents as the Lender may reasonably request. (e) PROCEEDINGS; RECEIPT OF DOCUMENTS. All proceedings in connection with the transactions contemplated by this Agreement, and all documents incidental thereto, shall be satisfactory to the Lender and its counsel, and the Lender and such counsel shall have received all such information and such counterpart originals or certified or other copies of such documents as the Lender or such counsel may reasonably request. (f) MATERIAL ADVERSE CHANGE. The Lender shall have determined, in its sole and absolute discretion, that no material adverse change shall have occurred in the business, operations, assets, financial condition or prospects of any Borrower or the Guarantor after December 31, 1997. (g) DUE DILIGENCE. The Lender shall have completed its due diligence with respect to the Loan Parties and the results thereof shall be acceptable to the Lender, in its sole and absolute discretion. ARTICLE VII REPRESENTATIONS AND WARRANTIES SECTION 7.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS AND THE GUARANTOR. The Borrower and the Guarantor, as appropriate, each represent and warrant, jointly and severally, as follows: (a) ORGANIZATION, GOOD STANDING, ETC. Each Loan Party (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) has all requisite power and authority to conduct its business as now conducted and as presently contemplated to make the borrowings hereunder and to consummate the transactions contemplated hereby and by each of the Loan Documents to which it is a party, and (iii) is duly qualified to do business and is in good standing in each jurisdiction and territory, inside and outside of the United States, in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary. Each Borrower is a wholly-owned subsidiary of the Guarantor. (b) AUTHORIZATION, ETC. The execution, delivery and performance by each Loan Party of each Loan Document to which it is a party (i) have been duly authorized by all necessary corporate action, (ii) do not and will not contravene the charter or by-laws, law or any contractual restriction binding on or otherwise affecting it or any of its properties, (iii) do not and will not result in or require the creation of any lien, security interest or other charge or encumbrance (other than pursuant to any such Loan Document) upon or with respect to any of its properties, and (iv) do not and will not result in any suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to its operations or any of its properties. (c) GOVERNMENTAL APPROVALS. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or other regulatory body is required in connection with the due execution, delivery and performance by each Borrower or the Guarantors of any Loan Document to which such Persons are or will be parties. (d) ENFORCEABILITY OF LOAN DOCUMENTS. This Agreement is, and each other Loan Document to which each Borrower or the Guarantor is or will be a party, when delivered hereunder, will be a legal, valid and binding obligation of such Person, enforceable against such Person in accordance with its terms. (e) CERTIFICATES. Each Stock Certificate issued and delivered pursuant to subsection 5.01(c) or pursuant to the terms of any Warrant shall, upon issuance and delivery pursuant to the terms hereof or the terms of such Warrant, as may be the case, represent validly issued, fully paid and non-assessable shares of Common Stock. (f) SUBSIDIARIES. There are no Subsidiaries of Mountaineer other than Mountaineer Magic, Inc. There are no subsidiaries of Speakeasy Reno or Speakeasy Vegas. There are no subsidiaries of the Guarantor other than (i) Mountaineer, (ii) Speakeasy Reno, (iii) Speakeasy Vegas, (iv) Excal Energy Corporation, a Michigan Corporation, and (v) Golden Palace Casinos, Inc., a Minnesota Corporation. The Guarantor owns 100% of the common stock of each of the foregoing subsidiaries. (g) LITIGATION. Except as set forth on Schedule I and in the Financial Statements, there is no pending or threatened action, suit or proceeding affecting any Borrower or the Guarantors before any court or other Governmental Authority or any arbitrator. There is no pending or threatened action, suit or proceeding affecting any Borrower or the Guarantor before any court or other Governmental Authority or any arbitrator which may materially adversely affect the operations or condition, financial or otherwise, of such Person or the ability of such Person to perform its obligations under any Loan Document to which such Person is or will be a party. (h) FINANCIAL CONDITION. The Financial Statements, copies of which have been delivered to the Lender, fairly present the financial condition of the Loan Parties as of the respective dates thereof and the results of operations of the Loan Parties for the fiscal periods ended on such respective dates, all in accordance with GAAP. Since December 31, 1997, there has been no material adverse change in such condition or operations. There has been no change in the number of shares of Common Stock outstanding since March 20, 1998, as reported on the Form 10-K of the Guarantor for the period ending December 31, 1997, other than as set forth on Schedule II. (i) COMPLIANCE WITH LAW, ETC. Any Borrower nor the Guarantor is in violation of its charter or by-laws, any law or any material term of any agreement or instrument binding on or otherwise affecting it or any of its properties. (j) ERISA. Neither Loan Party maintains, or is obligated to maintain or contribute to, any Employee Plan or Multiemployer Plan. As of the Closing Date, neither Loan Party has any employee benefit plan with respect to which the present value of all vested, nonforfeitable benefits under such plan exceeds the fair market value of the assets of such plan allocable to such benefits (any such amount constituting an "UNFUNDED LIABILITY"). (k) TAXES, ETC. After giving effect to any lawful extension, all Federal, state and local tax returns and other reports required by applicable law to be filed by each Borrower or the Guarantor have been filed, and all taxes, assessments and other governmental charges imposed upon each Borrower or the Guarantor or any property of any Borrower or the Guarantor which have become due and payable on or prior to the date hereof have been paid, except to the extent contested in good faith by proper proceedings which stay the imposition of any penalty, fine or lien resulting from the non-payment thereof and with respect to which adequate reserves have been set aside for the payment thereof. (l) REGULATION U. Any Borrower nor the Guarantor is or will not be engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of the Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. (m) ADVERSE AGREEMENTS, ETC. Any Borrower nor the Guarantor is a party to any agreement or instrument, or subject to any charter or other corporate restriction or any judgment, order, regulation, ruling or other requirement of a court or other Governmental Authority or regulatory body, which materially adversely affects, or, to the best knowledge of any Borrower or the Guarantor, in the future is reasonably likely to materially adversely affect, the condition or operations, financial or otherwise, of any Borrower or the Guarantor or the ability of any Borrower or the Guarantor to perform its obligations under any Loan Document to which any Loan Party is or will be a party. (n) HOLDING COMPANY AND INVESTMENT COMPANY ACTS. Any Borrower nor the Guarantor is (i) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended, or (ii) an "investment company" or an "affiliated person" or "promoter" of, or "principal underwriter" of or for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended. (o) PERMITS, ETC. Each of the Borrowers and the Guarantor has all permits, licenses, authorizations and approvals required for it to lawfully own and operate its respective businesses other than those that, if not obtained or in effect, would not in the aggregate have a material adverse effect on the business of the Borrowers and the Guarantor, respectively; PROVIDED, HOWEVER, that the permits, licenses, authorizations and approvals of Speakeasy Vegas and Speakeasy Reno with respect to gaming and hotel operation in Nevada, set forth on Schedule X hereto, have not been obtained and Speakeasy Reno and Speakeasy Vegas hereby agree to use their best efforts to obtain all such licenses, permits, authorizations and approvals as soon as practicable. Schedule III sets forth all licenses, permits, authorizations and approvals required by any Governmental Authority for the lawful conduct of each Borrowers' business, and, except for those listed on Schedule X, each of the foregoing has been obtained by the Borrowers and is in full force and effect as of the Closing Date. On the last Business Day of each month, until all such permits have been obtained, Borrowers will supplement Schedules III and X. (p) TITLE TO PROPERTIES. Each Borrower has good and marketable title to all of its properties and assets, free and clear of all liens, security interests and other charges and encumbrances and other types of preferential arrangements, except such as are permitted by Section 8.02(a) hereof. All of the properties of any Borrower are titled in such Borrower's legal name. Any Borrower has used, or filed a financing statement (or other evidence of a lien, charge or Security Interest) under, any other name in any United States jurisdiction or territory outside the United States for at least the last five (5) years. (q) FULL DISCLOSURE. Except for any misstatements or omissions which may be contained in any Property Document (other than any and all Property Documents prepared by or on behalf of any Borrower), no Loan Document or schedule or exhibit thereto and no certificate, report, statement or other document or information furnished to the Lender in connection herewith or with the consummation of the transactions contemplated hereby, contains any misstatement of material fact or omits to state a material fact or any fact necessary to make the statements contained herein or therein not misleading. There is no contingent liability or other material fact of which any Borrower or the Guarantor is aware after reasonable inquiry that may adversely affect the condition or operations, financial or otherwise, or the business or prospects of any Borrower or the Guarantor which has not been set forth in a footnote included in the Financial Statements or a Schedule thereto or hereto. (r) OPERATING LEASE OBLIGATIONS. No Borrower has any obligation as lessee for the payment of rent for any real or personal property other than as set forth in Schedule IV. (s) INDEBTEDNESS. The Borrowers have no Indebtedness other than Indebtedness set forth on Schedule V. (t) ENVIRONMENTAL MATTERS. Except as set forth in the Plan of Remediation, (i) each Borrower is in compliance with all applicable Environmental Laws, and (ii) none of the operations of any Borrower is the subject of any Federal, state or local investigation to determine whether any remedial action is needed to address the presence, disposal, release or threatened release of any Hazardous Material into the environment which may have a material adverse effect on the business, operations, property, assets or financial or other condition of any Borrower, and no Borrower has any contingent liability in connection with any release of any Hazardous Material into the environment which may have a material adverse effect on its business, operations, property, assets or financial or other condition. (u) SCHEDULES. All of the information which is scheduled to this Agreement is correct and accurate in all material respects, and all of the information that would be required to accurately revise each such schedule to bring it current as of the Closing Date has been disclosed to the Lender by the Borrowers or the Guarantor in writing delivered to the Lender. No subsequent event except for operating losses incurred by Speakeasy Vegas with respect to the Cheyenne Hotel Property and by Speakeasy Reno with respect to the Reno Hotel Property, could reasonably be expected to have a material adverse effect on any of (a) the business, assets, properties or condition of a Loan Party, (b) the ability of either Loan Party to perform any of the obligations of such Loan Party under any Loan Document, (c) the legality, validity or enforceability of this Agreement or any of the other Loan Documents, (d) the rights and remedies of the Lender under this Agreement or any of the other Loan Documents, or (e) the creation, perfection or priority of the Lender's lien on, or security interest in, any of the Collateral, securing the payment of any of the Obligations. (v) INSURANCE. Each Borrower and the Guarantor keeps its insurable properties adequately insured and maintains (i) insurance to such extent and against such risks, including fire, as is customary with companies in the same or similar businesses, (ii) workmen's compensation insurance in the amount required by applicable law, (iii) personal liability insurance and public liability insurance, in the amount customary with companies in the same or similar business against claims for personal injury or death or properties owned, occupied or controlled by it, and (iv) such other insurance as may be required by law or as may be reasonably required in writing by the Lender. (w) SOLVENCY OF MOUNTAINEER. As of the date first written above, and after giving effect to the Loans and to liens created by Mountaineer in connection therewith, (i) the sum of the assets, at a fair valuation, of Mountaineer will exceed its debts ("debt" means any liability on a claim, and "claim" means (A) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured or (B) right to an equitable remedy for breach of performance if such breach gives rise to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured); (ii) Mountaineer has not incurred and does not intend to incur, and does not believe that it will incur, debts beyond its ability to pay such debts as such debts mature; and (iii) Mountaineer has, and will have, sufficient capital with which to conduct its business. (x) SOLVENCY OF THE GUARANTOR. As of the date first written above, and after giving effect to the Loans and to liens created by each Borrower in connection therewith, (i) the sum of the consolidated assets, at a fair valuation, of the Guarantor will exceed its consolidated debts ("debt" means any liability on a claim, and "claim" means (A) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured or (B) right to an equitable remedy for breach of performance if such breach gives rise to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured); (ii) the Guarantor has not incurred and does not intend to incur, and does not believe that it will incur, debts beyond its ability to pay such debts as such debts mature; and (iii) the Guarantor will have sufficient capital with which to conduct its business. (y) BUSINESS OF SPEAKEASY. Other than the transactions contemplated hereby, Speakeasy Reno and Speakeasy Vegas have conducted no business, have no assets or liabilities and have incurred no Indebtedness. SECTION 7.02. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LENDER. Lender hereby represents and warrants to and covenants with the Borrowers and the Guarantor that: All shares of Common Stock acquired by Lender in accordance with this Agreement are being acquired by Lender without a view to distribute any of the shares of Common Stock in any transaction which would be in violation of the Securities Act of 1933, as amended. ARTICLE VIII COVENANTS OF THE BORROWER AND THE GUARANTOR SECTION 8.01. AFFIRMATIVE COVENANTS. So long as any principal of or interest on any Loan shall remain unpaid or the Lender shall have any commitment to make a Loan hereunder, each Borrower, jointly and severally, and, where appropriate, the Guarantor will, unless the Lender shall otherwise consent in writing: (a) REPORTING REQUIREMENTS. Furnish to the Lender: (i) as soon as available and in any event within 45 days after the end of each month, an interim (A) consolidated and consolidating balance sheets of each Borrower as at the end of such month and for the period commencing at the end of the immediately preceding fiscal year and ending with the end of such month, (B) consolidated and consolidating statement of income of each Borrower as at the end of such month and for the period commencing at the end of the immediately preceding fiscal year and ending with the end of such month, and (C) consolidated and consolidating statement of cash flow of each Borrower for such month and for the period commencing at the end of the immediately preceding fiscal year and ending with the end of such month, setting forth in comparative form the corresponding figures for the corresponding date or period of the immediately preceding fiscal year and setting forth the budget for such period all in reasonable detail and prepared in accordance with generally accepted accounting principles consistently applied, each duly certified by the chief financial officer of such Borrower as (1) fairly presenting the financial condition of such Borrower at the end of such month, and the results of the operations of such Borrower for such month (subject to normal year-end audit adjustments), and (2) having been prepared in accordance with generally accepted accounting principles consistently applied; (ii) as soon as available and in any event within 45 days after the end of each fiscal quarter of each Borrower, an interim (A) consolidated and consolidating balance sheet of each Borrower as at the end of such quarter and for the period commencing at the end of the immediately preceding fiscal year and ending with the end of such quarter, (B) consolidated and consolidating statement of income of each Borrower as at the end of such quarter and for the period commencing at the end of the immediately preceding fiscal year and ending with the end of such quarter, and (C) consolidated and consolidating statement of cash flow of each Borrower for such quarter and for the period commencing at the end of the immediately preceding fiscal year and ending with the end of such quarter setting forth in comparative form the corresponding figures for the corresponding date or period of the immediately preceding fiscal year and setting forth the budget for such period, all in reasonable detail and prepared in accordance with generally accepted accounting principles consistently applied, each duly certified by the chief financial officer of such Borrower as (1) fairly presenting the financial condition of such Borrower at the end of such quarter, and the results of the operations of such Borrower for such quarter (subject to normal year-end audit adjustments), and (2) having been prepared in accordance with generally accepted accounting principles consistently applied; (iii) as soon as available and in any event within 90 days after the end of each fiscal year of each Borrower or such time that the information required to be delivered pursuant to subparagraph 7.01(a)(v) is delivered to the Securities and Exchange Commission without violation of any rule, regulation or order thereof, a (A) consolidated and consolidating balance sheet of each Borrower as at the end of such fiscal year, (B) consolidated and consolidating statement of income of each Borrower as at the end of such fiscal year, and (C) consolidated and consolidating statement of cash flow of each Borrower for such fiscal year setting forth in comparative form the corresponding figures for the immediately preceding fiscal year and setting forth the budget for such fiscal year, all in reasonable detail and prepared in accordance with generally accepted accounting principles consistently applied and, in the case of balance sheets and statement of income, accompanied by a report and an unqualified opinion, prepared in accordance with generally accepted auditing standards, of an independent certified public accountant of recognized standing selected by each Borrower and satisfactory to the Lender, together with any management letter prepared by such accountant and a written statement of such accountant (1) to the effect that in making the examination necessary for its certification of such financial statements, it has not obtained any knowledge of the existence of an Event of Default, or an event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default, or (2) if such accountant shall have obtained any knowledge of the existence of an Event of Default, or an event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default, describing the nature thereof; (iv) within 45 days after the end of any fiscal quarter of the Guarantor or such time that the information required to be delivered pursuant to this subparagraph 7.01(a)(iv) is delivered to the Securities and Exchange Commission without violation of any rule, regulation or order thereof, balance sheets of the Guarantor and its subsidiaries as of the end of such fiscal quarter and statements of income and retained earnings of the Guarantor and its subsidiaries for the period commencing at the beginning of the fiscal year in which such fiscal quarter falls through the end of such fiscal quarter, certified as accurate and correct by the chief financial officer of the Guarantor; (v) within 120 days after the end of each fiscal year of the Guarantor or such time that the information required to be delivered pursuant to this subparagraph 7.01(a)(v) is delivered to the Securities and Exchange Commission without violation of any rule, regulation or order thereof, a copy of the annual report for such fiscal year for the Guarantor and its subsidiaries containing financial statements for such year certified in a manner acceptable to Lender by independent public accountants of recognized standing; (vi) promptly after the sending or filing thereof, copies of all reports that the Guarantor sends to any of its security holders, reports and copies of all reports and registration statements that the Guarantor or any subsidiary files with the Securities and Exchange Commission or any national securities exchange; (vii) promptly upon delivery thereof, all reports and filings made by each Borrower and/or the Guarantor to the West Virginia Racing Commission or the West Virginia Lottery Commission; (viii) simultaneously with the delivery of the financial statements required by clauses (i), (ii), (iii), (iv) and (v) of this Section 8.01(a), (A) a certificate of the chief financial officer of the appropriate Loan Party, stating that such officer has reviewed the provisions of this Agreement and the other Loan Documents to which such Loan Party is a party and has made or caused to be made under his supervision a review of the condition and operations of such Loan Party during the period covered by such financial statements with a view to determining whether each Borrower was in compliance with all of the provisions of such Loan Documents, and that such review has not disclosed, and such officer has no knowledge of, the existence during such period of an Event of Default, or an event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default; (ix) as soon as available, and in any event no later than 90 days after the end of each year, annual financial projections (including forecasted income statements, cash flow statements, schedules of cash receipts and disbursements and borrowings hereunder) of each Borrower and the Guarantor for the next succeeding three-year period, all in reasonable detail, together with all such supporting information as the Lender shall reasonably request; (x) promptly after submission to any Governmental Authority not otherwise referred to in this subsection 8.01(a), all documents and information furnished to such Governmental Authority, unless such documents and information are furnished in the ordinary course of business and will not result in any adverse action to be taken by such Governmental Authority; (xi) promptly after obtaining knowledge thereof but in any event not later than five (5) days after the occurrence of an Event of Default, or an event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default, or a material adverse change in the condition or operations, financial or otherwise, of each Borrower, the written statement of the chief executive officer or the chief financial officer of such Borrower, setting forth the details of such Event of Default, event or material adverse change and the action which such Borrower proposes to take with respect thereto; (xii) as soon as possible and in any event within 10 days after any Borrower, the Guarantor or any of their Affiliates knows or has reason to know of the existence of any Unfunded Liability, a notice setting forth the amount of such Unfunded Liability, certified by the chief financial officer of the applicable Loan Party. (xiii) promptly after the commencement thereof but in any event not later than ten (10) days after service of process with respect thereto on, or the obtaining of knowledge thereof by, any Borrower or the Guarantor, notice of each action, suit or proceeding before any court or other Governmental Authority or other regulatory body or any arbitrator which may materially adversely affect the condition or operations, financial or otherwise, of any Borrower or the Guarantor; and (xiv) promptly upon request, such other information concerning the condition or operations, financial or otherwise, of each Borrower or the Guarantor as the Lender from time to time may reasonably request. (b) COMPLIANCE WITH LAWS, ETC. Comply in all material respects with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, (i) paying before the same become delinquent all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or upon any of their properties, and (ii) paying all lawful claims which if unpaid might become a lien or charge upon any of their properties, except to the extent contested in good faith by proper proceedings which stay the imposition of any penalty, fine or lien resulting from the non-payment thereof and with respect to which adequate reserves have been set aside for the payment thereof. (c) PRESERVATION OF EXISTENCE, ETC. Maintain and preserve its existence, rights and privileges, and become or remain duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary. Maintain all licenses and accreditations necessary to conduct the business of each Borrower and the Guarantor. (d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep adequate records and books of account, with complete entries made in accordance with GAAP. (e) INSPECTION RIGHTS. Permit the Lender or any agent or representative thereof at any reasonable time and from time to time to examine and make copies of and abstracts from its records and books of account, to visit and inspect its properties, to conduct audits or examinations, and to discuss its affairs, finances and accounts with any of the directors, officers, employees, independent accountants or other representatives thereof. The Borrowers, jointly and severally, agree to pay the cost of each such audit or examination as provided in subsection 5.01(c). (f) MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve all of its properties which are necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted, and comply at all times with the provisions of all leases to which a Borrower or the Guarantor is a party as lessee or under which a Borrower or the Guarantor occupies property, so as to prevent any loss or forfeiture thereof or thereunder. (g) MAINTENANCE OF INSURANCE. Maintain insurance with responsible and reputable insurance companies or associations (including, without limitation, comprehensive general liability, personal liability and hazard insurance) with respect to its properties and business, in such amounts and covering such risks, as is required by (i) any Governmental Authority or other regulatory body having jurisdiction with respect thereto (ii) any Loan Document or (iii) as is carried generally in accordance with sound business practice by companies in similar businesses similarly situated. The Borrowers shall pay over to the Lender any amount of insurance proceeds received by any Borrower or the Guarantor payable in respect of a casualty loss in excess of $250,000.00 (as a mandatory prepayment (without application of the Prepayment Factor) of the then outstanding Loans, to be applied by the Lender to such Loans in its discretion). (h) ENVIRONMENTAL INDEMNITY. Comply with the requirements of all applicable Environmental Laws, provide to the Lender all documentation in connection with such compliance that the Lender may reasonably request, and defend, indemnify, and hold harmless the Lender, its employees, agents, officers, and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs, or expenses (including, without limitation, attorney and consultant fees, investigation and laboratory fees, court costs, and litigation expenses) arising out of (i) the presence, disposal, release, or threatened release of any Hazardous Materials on any property at any time owned or occupied by any Borrower (or its predecessors in interest or title); (ii) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to such Hazardous Materials; (iii) any investigation, lawsuit brought or threatened, settlement reached, or government order relating to such Hazardous Materials; and/or (iv) any violation of any Environmental Law; PROVIDED, HOWEVER, that with respect to the Reno Hotel Property and the Cheyenne Hotel Property, the foregoing environmental indemnity shall not apply to or relate to any condition to the extent such condition existed on the Reno Hotel Property or the Cheyenne Hotel Property during the period of time prior to the acquisition by Speakeasy Reno of the Reno Hotel Property or Speakeasy Vegas of the Cheyenne Hotel Property. (i) NOTIFICATION OF EVENT OF DEFAULT. Immediately notify Lender in writing of any default of nonpayment or any other default or event of default or notice thereof under any agreements or instruments representing material Indebtedness of a Borrower or the Guarantor or any Lien on their respective assets. (j) FURTHER ASSURANCES. Each Loan Party shall do, execute, acknowledge and deliver, at the sole cost and expense of such Loan Party, all such further acts, deeds, conveyances, mortgages, assignments, estoppel certificates, financing statements, notices of assignment, transfers and assurances as the Lender may reasonably require from time to time in order to better assure, convey, grant, assign, transfer and confirm unto the Lender the rights now or hereafter intended to be granted to the Lender under this Agreement, any Loan Document or any other instrument under which such Loan Party may be or may hereafter become bound to convey, mortgage or assign to the Lender to effect the intention or facilitate the performance of the terms of the Agreement. (k) ADDITIONAL SECURITY. The Borrowers shall, within 14 days of the acquisition of any asset by any Borrower with the proceeds of a Line Loan or a Cheyenne Construction Loan (whether such acquisition is funded in whole or in part by such proceeds), execute and deliver all documents necessary or desirable, in the opinion of counsel to the Lender, to perfect a first priority security interest in such asset in favor of the Lender; PROVIDED, HOWEVER, that with respect to any asset that is partially funded by a purchase money mortgage or purchase money security interest in accordance with subsection 8.02(a)(vii) hereof, the Lender's security interest may be subject to such purchase money mortgage or security interest; and PROVIDED, FURTHER, HOWEVER, that the Lender shall not have additional security in the event such purchase money mortgage or security agreement precludes junior financing. Each Borrower and the Guarantor hereby acknowledge and agree that (i) any asset other than an equity interest in a Person acquired by it after the date hereof shall be automatically subject to a Lien in favor of the Lender pursuant to the Security Agreements and be subject to the terms thereof, and (ii) any asset that is an equity interest in another Person shall be subject to the terms and conditions of a pledge agreement in form and substance reasonably satisfactory to the Lender. (l) ENVIRONMENTAL ACTIONS The Borrowers shall take all remedial and other actions as set forth in the Plan of Remediation in a timely manner. (m) SPEAKEASY RENO FRANCHISE AGREEMENTS. Speakeasy Reno is currently in negotiations with Ramada Franchise Systems, Inc. or an affiliate thereof ("Ramada") regarding the Reno Hotel Property. Speakeasy Reno will use its best efforts to finalize with Ramada or another franchise company reasonably satisfactory to Lender, a new license agreement for the Reno Hotel Property which shall include (or be coupled with) a termination of the pre-existing franchise agreement dated April 10, 1997 (the "Pre-Existing Ramada Franchise Agreement") between Reno Hotel, LLC and Ramada Franchising Systems, Inc. without requiring Lender or Reno Hotel LLC to pay Ramada liquidated damages pursuant to the existing franchise agreement. Concurrently with the execution of any new franchise agreement, Speakeasy Reno shall require the franchise company to execute, for the benefit of Lender, either a comfort letter, tri-party agreement or conditional assignment of the new franchise agreement, in each case in a form reasonably satisfactory to Lender. Speakeasy Reno shall immediately deliver such instrument to Lender along with a copy of the executed franchise agreement. (n) SPEAKEASY VEGAS FRANCHISE AGREEMENTS. Speakeasy Vegas has determined not to pursue a franchise agreement with Days Inn of America Inc. with respect to the Cheyenne Hotel Property and is currently in negotiations with Ramada regarding the Cheyenne Hotel Property. Speakeasy Vegas will use its best efforts to finalize with Ramada or another reputable franchise company (including a new agreement with Days Inn of America Inc.) as soon as practicable (it being understood that (i) Speakeasy Vegas intends to close the Cheyenne Hotel Property for a period of time during construction of improvements and renovation of hotel rooms; and (ii) no franchise agreement will be in place during such "dark" time) a new license agreement for the Cheyenne Hotel Property. In the event Speakeasy Vegas cannot, despite its best efforts, conclude a franchise agreement for the Cheyenne Hotel Property on terms acceptable to it, then Speakeasy Vegas shall operate the Cheyenne Hotel Property as an "independent" hotel without any affiliation with a hotel franchise company and shall do so in a prudent manner, in accordance with the customary business practices of the hotel and/or casino industry. (o) MANAGEMENT AGREEMENT, FRANCHISE AGREEMENTS. Any management agreement which shall be entered into by any Borrower, pursuant to which the Reno Hotel Property or the Cheyenne Hotel Property are managed, or any subsequent modification thereto or replacement thereof, shall be in a form satisfactory to the Lender and shall be approved by the Lender in writing (an "Approved Management Agreement"). Concurrently with the execution of any Approved Management Agreement, the Borrowers shall require the management company to execute, for the benefit of Lender, either a comfort letter, tri-party agreement or conditional assignment of the Approved Management Agreement, in each case in a form reasonably satisfactory to Lender. With respect to (i) an Approved Management and/or (ii) the license agreement or agreements entered into pursuant to Section 8.01 (m) or (n) above, or any modifications or replacements thereof approved in writing by Lender, or any substitute hotel franchise or license agreement approved in writing by Lender (collectively, an "Approved Franchise Agreement"), each of Speakeasy Reno and Speakeasy Vegas hereby covenants and agrees with Lender that it shall: (i) promptly notify Lender of any default under the Approved Franchise Agreement or the Approved Management Agreement of which it is aware; and (ii) promptly deliver to Lender a copy of each financial statement, business plan, capital expenditures plan, default notice and other material report received by it under the Approved Franchise Agreement or the Approved Management Agreement. (p) MANAGEMENT AGREEMENT, FRANCHISE AGREEMENTS. Each of Speakeasy Reno and Speakeasy Vegas further covenants to Lender that it shall not, without Lender's prior consent: (i) surrender, terminate or cancel any Approved Franchise Agreement or Approved Management Agreement; or (ii) otherwise modify, change, supplement, alter or amend, or waive or release any of its rights and remedies under the Approved Franchise Agreement or the Approved Management Agreement in any materially adverse respect. Notwithstanding the foregoing provisions of this subsection (p), with respect to an Approved Franchise Agreement, so long as no Event of Default or event which with the giving of notice or the passage of time or both would constitute an Event of Default exists, Speakeasy Reno and/or Speakeasy Vegas shall have the right, upon written notice to but without the prior consent of Lender, to effect a termination or cancellation of an Approved Franchise Agreement if it is coupled with the execution of a new Franchise Agreement which is (i) on business terms at least as favorable as the Approved Franchise Agreement and (ii) with a reputable franchise company which licenses properties that have a standard average daily rate equal to or greater than the average daily rate required under the Approved Franchise Agreement. (q) LEASES WITH CASINO OPERATORS. Speakeasy shall have the right to terminate the lease entered into (and consented to by Lender pursuant to Section 2.12 of the Reno Deed of Trust and/or the Cheyenne Deed of Trust) for the operation of a casino in a portion of the Reno Hotel Property or the Cheyenne Hotel Property at such time as Speakeasy or an affiliate thereof shall have obtained all governmental approvals required to operate a casino at one or both of such properties and, in such event, Speakeasy (or its affiliate, pursuant to an agreement reasonably acceptable to Lender) shall thereafter operate such casino(s) in accordance with the applicable terms of this Agreement and in accordance with law. SECTION 8.02. NEGATIVE COVENANTS. So long as any principal of or interest on any Loan, or any Obligation, shall remain unpaid or the Lender shall have any commitment to make any Loan, the Borrowers will not and, where appropriate, the Guarantor will not, without the prior written consent of the Lender: (a) LIENS, ETC. Create or suffer to exist any Lien upon or with respect to any of its properties, rights or other assets, whether now owned or hereafter acquired, or assign or otherwise transfer any right to receive income, other than: (i) Liens created pursuant to the Loan Documents; (ii) With respect to Mountaineer, liens existing on the date hereof as set forth on Schedule VI to the Amended Loan Agreement, or, with respect to Speakeasy Reno or Speakeasy Vegas, liens existing on the date hereof, as set forth in Schedule VI hereto, and the renewal and replacement of such liens, provided that any such renewal or replacement lien shall be limited to the property or assets covered by the lien renewed or replaced and the indebtedness secured by any such renewal or replacement lien shall be in an amount not greater than the amount of indebtedness secured by the lien renewed or replaced; (iii) Liens for taxes, assessments or governmental charges or levies to the extent that the payment thereof shall not be required by Section 8.01(b)(i) hereof; (iv) Liens created by operation of law, such as materialmen's liens, mechanics' liens and other similar liens, arising in the ordinary course of business and securing claims the payment of which shall not be required by Section 8.01(b)(ii) hereof; (v) deposits, pledges or Liens (other than liens arising under ERISA) securing (A) obligations incurred in respect of workers' compensation, unemployment insurance or other forms of governmental insurance or benefits, (B) the performance of bids, tenders, leases, contracts (other than for the payment of money) and statutory obligations, or (C) obligations on surety or appeal bonds, but only to the extent such deposits, pledges or liens are incurred or otherwise arise in the ordinary course of business and secure obligations which are not past due; (vi) restrictions on the use of real property and minor irregularities in the title thereto which do not (A) secure obligations for the payment of money or (B) materially impair the value of such property or its use by any Loan Party in the normal conduct of such Loan Party's business; (vii) (A) purchase money liens on or purchase money security interests in equipment acquired or held by any Borrower in the ordinary course of its business to secure the purchase price of such property or Indebtedness incurred solely for the purpose of financing the acquisition of such property, or (B) liens or security interests existing on such property at the time of its acquisition, PROVIDED, that (1) no such lien or security interests shall extend to cover any other property of the Borrowers, and (2) the principal amount of the Indebtedness secured by any such lien or security interest shall not exceed 100% of the lesser of the fair market value or the cost of the property so held or acquired; and (viii) any other Lien in favor of the Lender. (b) INDEBTEDNESS. Create, incur or suffer to exist any Indebtedness, other than: (i) Indebtedness to the Lender; (ii) Indebtedness created hereunder or under the Notes; (iii) Indebtedness existing on the date hereof, as set forth in Schedule V hereto, and any extension of maturity, refinancing or other modification of the terms thereof, PROVIDED, HOWEVER, that such extension, refinancing or modification (A) is pursuant to terms that are not less favorable to the Borrowers than the terms of the Indebtedness being extended, refinanced or modified, and (B) after giving effect to the extension, refinancing or modification of such Indebtedness, the amount of such Indebtedness outstanding is not greater than the amount of such Indebtedness outstanding immediately prior to such extension, refinancing or modification; (iv) Indebtedness represented by accounts payable incurred in the ordinary course of business; (v) Indebtedness secured by liens or security interests permitted by clause (vii) of subsection (a) of this Section 8.02; (vi) Subordinated Indebtedness of the Borrowers on terms approved, in writing, by the Lender; and (vii) Indebtedness under Operating Leases permitted by Section 8.02(g) hereof. (c) GUARANTIES, ETC. Assume, guarantee, endorse or otherwise become directly or contingently liable (including, without limitation, liable by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in the debtor or otherwise to assure the creditor against loss), in connection with any Indebtedness of any other Person, other than: (i) guaranties created hereunder or under any Loan Document; (ii) guaranties by endorsement of negotiable instruments for deposit or collection in the ordinary course of business; (iii) guaranties existing on the date hereof, as set forth in Schedule VII, including any renewal or other modification thereof, PROVIDED, HOWEVER, that such renewal or modification (A) is pursuant to terms that are not less favorable to the Borrowers than the terms of the guaranty being renewed or modified, and (B) after giving effect to the renewal or modification of such guaranty, the amount of the outstanding indebtedness guaranteed by such guaranty is not greater than the amount of the outstanding indebtedness guaranteed by such guaranty immediately prior to such renewal or modification; and (iv) guaranties of any other Indebtedness to the Lender or Indebtedness permitted by subsection (b) of this Section 8.02; PROVIDED, HOWEVER, that the Guarantor may: (i) form subsidiaries which incur Indebtedness ("NEW SUBSIDIARY DEBT"); and (ii) in the discretion of the Guarantor, guarantee such New Subsidiary Debt pursuant to a guarantee of collection (but not a guarantee of payment), in each case subject to the conditions that such guarantee of collection or other obligation of any kind of the Guarantor in respect of such New Subsidiary Debt, or guarantee thereof, contains provisions reasonably satisfactory to the Lender to the effect that (A) no Person with any rights to any payment in respect of such New Subsidiary Debt shall have the right, at any time prior to the date which is one year and one day after the date on which all of the Obligations have been satisfied in full, to acquiesce, petition or otherwise invoke, or cause any other Person acquiesce, petition or otherwise to invoke, the process of any court or other Governmental Authority for the purpose of commencing or sustaining a case against the Guarantor under any federal or state bankruptcy, insolvency or similar law, or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Guarantor or any substantial part of its property, or ordering the winding up or liquidation of the affairs of the Guarantor, (B) no recourse may be had against the common stock of the borrower owned by the Guarantor, or any assets of any Borrower, in respect of such New Subsidiary Debt or guarantee thereof, and (C) no term or covenant with respect to such New Subsidiary Debt may, directly or indirectly, impair Lender's Liens, security interests and claims granted or arising under this Agreement or the other Loan Documents. (d) MERGER, CONSOLIDATION, SALE OF ASSETS, ETC. (i) merge or consolidate with any Person; or (ii) sell, assign, lease, engage in sale leaseback transactions or otherwise transfer or dispose of, whether in one transaction or in a series of related transactions, any substantial portion of its properties, rights or other assets (whether now owned or hereafter acquired) to any Person. (e) CHANGE IN NATURE OF BUSINESS. Make any material change in the nature of its business as conducted on at the date hereof. (f) INVESTMENTS, ETC. Make any loan, advance or contribution to any Person or purchase or otherwise acquire any capital stock, properties, assets or obligations of, or any interest in, any Person, other than (i) Permitted Investments, (ii) investments existing on the date hereof, as set forth in Schedule VIII, (iii) advances to employees or vendors made in the ordinary course of its business as presently conducted, not to exceed at any one time outstanding an aggregate of $500,000 for all such loans and advances, (iv) advances, loans or contributions to Affiliates of the Guarantor with the consent of the Lender, such consent not to be unreasonably withheld and (v) the acquisition by Speakeasy Reno of the Reno Hotel Property and the acquisition by Speakeasy Vegas of the Cheyenne Hotel Property. (g) LEASE OBLIGATIONS. Create, incur or suffer to exist any obligation as lessee (i) for the payment of rent for any real or personal property in connection with any sale and leaseback transaction, or (ii) for the payment of rent for any real or personal property under Operating Leases which would cause the aggregate amount of all obligations in respect of Operating Leases payable by any Borrower in any fiscal year of such Borrower to exceed 105% of the Operating Leases outstanding as of the end of the prior fiscal year; PROVIDED, HOWEVER, that the Borrowers may incur such obligations with respect to Capital Leases and capital purchases for video lottery terminals and other gaming equipment in an aggregate amount not to exceed $5,000,000 per year; and PROVIDED FURTHER that Speakeasy Vegas and Speakeasy Reno may enter into office leases, the monthly lease payments for which shall not exceed, in the aggregate, $3,000.00. Nothing herein shall be deemed to place a general limit on capital expenditures which are not specifically limited herein. (h) SALARIES AND WITHDRAWALS. Pay or become obligated to pay any fees, wages, distributions, salary, bonus, commission, contributions to deferred benefit plans or any other compensation (with the exception of options to purchase common stock of the Guarantor for a price not less than the market price on the date of grant) ("Compensation") to, or for the benefit of, the Guarantor or any officers of any Borrower or the Guarantor in any calendar year in excess of 120% of such Persons Compensation in the immediately preceding calendar year to the extent such Persons were employed in the preceding year. (i) DIVIDENDS, ETC. Declare or pay any dividend, purchase or otherwise acquire for value any of its capital stock now or hereafter outstanding, return any capital to its stockholders as such, or make any other payment or distribution of assets to its stockholders as such or to purchase or otherwise acquire for value any stock of any Borrower; PROVIDED, HOWEVER, that nothing herein shall prevent any Borrower from making distributions to the Guarantor in the aggregate in any fiscal year equal to the lesser of (i) the amount necessary to pay the expenses of the Guarantor, and (ii) $500,000.00 plus expenses paid to any third parties, in each case minus the funds available to the Guarantor from other sources other than through the issuance of securities. (j) FEDERAL RESERVE REGULATIONS. Permit the Loan or the proceeds of the Loan under this Agreement to be used for the purpose which violates or is inconsistent with the provisions of Regulations G, T, U or X of the Board of Governors of the Federal Reserve System. (k) TRANSACTIONS WITH AFFILIATES. Permit a Borrower to enter into or be a party to any transaction with any of its Affiliates, except in the ordinary course of business for fair consideration and on terms no less favorable to such Borrower as are available from unaffiliated third parties; PROVIDED that the Guarantor may form a wholly-owned Subsidiary to enter into management contracts with (i) its Affiliates to operate gaming and hotel properties, and (ii) non-Affiliates for gaming and hotel property services, in each case subject to (x) approval by the Lender of the form and substance of such contracts and the receipt by the Lender of a collateral assignment of each such contract pursuant to documentation reasonably satisfactory to the Lender, (y) the pledge by the Guarantor of all of the capital stock of such wholly-owned Subsidiary, and (z) subject to the requirements of the law the granting by such wholly-owned Subsidiary of a first priority, perfected security interest in all of such wholly-owned Subsidiary's assets pursuant to documentation reasonably satisfactory to the Lender. (l) FISCAL YEAR, ACCOUNTING POLICIES. Permit any material change in the fiscal year or accounting policies and procedure of each Borrower without the prior written consent of the Lender. (m) IMPROVEMENTS. Make or commit to make any improvements on the Property with a total cost in excess of $250,000.00 without the prior written consent of the Lender, after Lender's review of all plans, permits and other items necessary to ensure that any such improvement will comply with all applicable building and safety requirements as the Lender, in its sole and absolute discretion, may determine; PROVIDED, HOWEVER, that the foregoing limitations shall not apply to the proceeds of the Line Loans or the Cheyenne Construction Loans, which proceeds shall be used primarily for such improvements. (n) ISSUANCE OF STOCK. Permit the issuance by any Borrower of (i) any additional shares of any class of capital stock, (ii) any securities convertible voluntarily by the holder thereof or automatically upon the occurrence or non-occurrence of any event or condition into, or exchangeable for, any such shares of capital stock or (iii) any warrants, options, contracts or other commitments that entitle any Person to purchase or otherwise acquire any such shares of capital stock. SECTION 8.03. ADDITIONAL COVENANTS OF THE GUARANTOR. So long as any of the Obligations remains outstanding, the Guarantor: (a) shall not take any action to increase the par value of the Common Stock (except to the extent required in the event of a reverse split of the Common Stock); (b) shall not issue any Common Stock, any preferred stock or any security providing for the purchase of or convertibility into, or exchangeable for, Common Stock or preferred stock, other than; (i) in connection with stock rights, warrants and options existing on the date hereof as set forth on Schedule IX; (ii) in connection with future incentive stock options or warrants for employees of the Guarantor not to exceed 4% of the number of outstanding shares of Common Stock in any fiscal year, it being understood that the re-granting (upon expiration or other cancellation thereof) of any stock options previously granted pursuant to a plan set forth in Schedule IX shall not be included in such 4%; (iii) in the ordinary course of business of the Guarantor not to exceed 2% of the number of outstanding shares of Common Stock in any fiscal year; (iv) in connection with any merger, acquisition or sale of a major portion of the assets of the Guarantor approved in writing by the Lender, such approval not to be unreasonably withheld; and (v) to the Lender; (c) shall not create or suffer to exist any Lien upon or with respect to any of the common stock of any Borrower other than a Lien in favor of the Lender; and (d) shall, after the filing with the West Virginia Lottery Commission by the Lender of its application for approval under the license of any Borrower, use its best efforts to obtain the approval of each applicable Governmental Authority to the pledge of all of the shares of the common stock of such Borrower pursuant to a pledge agreement and, upon such approval, or the written opinion of counsel to the Guarantor that such pledge would not result in a revocation of any approval, license or permit required by such Borrower for the conduct of its gaming businesses, shall execute and deliver a pledge agreement to the Lender in form and substance reasonably satisfactory to the Lender, together with such other documents as are customarily delivered and /or executed and delivered in connection therewith. SECTION 8.04. ADDITIONAL COVENANT. So long as any of the Obligations remains outstanding, Mountaineer shall maintain an EBITDA Average of at least $500,000. ARTICLE IX EVENTS OF DEFAULT SECTION 9.01. EVENTS OF DEFAULT. If any of the following Events of Default shall occur and be continuing: (a) any Borrower shall fail to pay any principal on any Loan when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise); (b) any Borrower shall fail to pay any interest on any Loan or any fee or other amount (whether by scheduled payment, acceleration, demand or otherwise) within three (3) Business Days of the date when due; PROVIDED, HOWEVER, that failure to make payments when due with respect to Obligations in this Subsection 8.01(b) more than three (3) times in any twelve (12) month period shall constitute an Event of Default hereunder; (c) any representation or warranty made by any Loan Party or any officer of any Loan Party under or in connection with any Loan Document shall have been incorrect in any material respect when made; (d) any Loan Party shall fail to perform or observe any of the covenants contained in Sections 8.01, 8.02, or 8.03 hereof, or Article XI hereof; (e) any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in any Loan Document and to be performed or observed by such Loan Party within twenty-eight (28) days of the receipt by such Loan Party of notice of the failure to perform or observe such term, covenant or agreement; (f) there shall occur any breach or default under any other agreement involving the borrowing of money under which such Loan Party or any of its subsidiaries may be obligated as borrower or guarantor; (g) any Loan Party (i) shall institute any proceeding or voluntary case seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for such Person or for any substantial part of its property, (ii) shall be generally not paying its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, (iii) shall make a general assignment for the benefit of creditors, or (iv) shall take any action to authorize or effect any of the actions set forth above in this subsection (g); (h) any proceeding shall be instituted against any Loan Party seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, liquidation, winding up, reorganization, arrangement, adjustment, protection, relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for such Person or for any substantial part of its property, and either such proceeding shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against it or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property) shall occur; (i) any provision of any Loan Document shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by any Loan Party, or a proceeding shall be commenced by any Loan Party, or by any Governmental Authority or other regulatory body having jurisdiction over any Loan Party, seeking to establish the invalidity or unenforceability thereof, or any Loan Party shall deny that such Loan Party has any liability or obligation purported to be created under any Loan Document; (j) the Security Agreements, the West Virginia Deed of Trust, the West Virginia First Priority Deed of Trust, the Reno Deed of Trust, the Cheyenne Deed of Trust or any other security document, after delivery thereof pursuant hereto, shall for any reason fail or cease to create a valid and perfected and, to the extent provided for by the terms hereof or thereof, first or second priority lien on or security interest in any Collateral purported to be covered thereby; (k) one or more judgments or orders (other than a judgment or award described in subsections (g) and (h) of this Section 9.01) for the payment of money exceeding any applicable insurance coverage shall be rendered against any Loan Party, and either (i) enforcement proceedings shall have been commenced by any creditor upon any such judgment or order, or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of any such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (l) any Loan Party or any Affiliate of a Loan Party shall suffer to exist any Unfunded Liability in excess of $100,000; or (m) Mountaineer shall fail to perform or observe the covenant contained in Section 8.04 hereof; then, and in any such event, the Lender may, by notice to the Borrowers, (i) declare its Commitment to make any Loan hereunder to be terminated, whereupon such Commitment shall forthwith terminate, (ii) declare the Loans, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Loans (including, without limitation, all of the Term Obligations then accrued and an amount equal to the product of (a) the Prepayment Factor and (b) the outstanding principal amount of the Loans), all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrowers; PROVIDED, HOWEVER, that upon the occurrence of an Event of Default described in subsections (g) and (h) of this Section 9.01, the Commitment to make any Loan hereunder shall immediately terminate and the Loans, all such interest thereon and all other amounts shall become payable and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are expressly waived by the Borrowers; PROVIDED FURTHER, that upon the occurrence of an Event of Default other than the events described in Subsections (a), (b), (g) and (h), the Borrowers shall have three (3) Business Days in which to cure such Event of Default and (iii) exercise any and all of its other rights under applicable law, hereunder and under the other Loan Documents; PROVIDED, FURTHER, that the Event of Default described in subsection (m) of this Section 9.01 shall apply to the Line Loan only, and shall not be deemed a default under subsection (f) of this Section 9.01 with respect to the Term Loan and, accordingly, not result in the acceleration of amounts due under the Term Note. ARTICLE X MISCELLANEOUS SECTION 10.01. NOTICES, ETC. All notices and other communications provided for hereunder shall be in writing and shall be mailed, telecopied, with a copy sent promptly thereafter by U.S. mail, return receipt requested or delivered, if to a Borrower or the Guarantor, at the following address: Mountaineer Park, Inc. Route 2 South Chester, West Virginia 26034 Attention: Mr. Edson Arneault, President Telephone No.: (304) 387-2400 Telecopy No.: (304) 387-1598 with copies to: Ruben & Aronson, LLP 3299 K Street, N.W., Suite 403 Washington, D.C. 20007 Attention: Robert L. Ruben, Esq. Telephone No.: (202) 965-3600 Telecopy No.: (202) 965-3700 and if to the Lender, to it at the following address: Madeleine LLC 450 Park Avenue New York, New York 10022 Attention: Mr. Kevin P. Genda Telephone No.: (212) 891-2117 Telecopy No.: (212) 758-5305 with copies to: Schulte Roth & Zabel LLP 900 Third Avenue New York, New York 10022 Attention: Paul E. Weber, Esq. Telephone No.: (212) 756-2232 Telecopy No.: (212) 593-5955 or, as to each party, at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section 10.01. All such notices and other communications shall be effective (i) if mailed, when received or three days after mailing, whichever first occurs, (ii) if telecopied, when transmitted, provided same is on a Business Day and, if not, on the next Business Day, or (iii) if delivered, upon delivery, provided same is on a Business Day and, if not, on the next Business Day, except that notices to the Lender pursuant to Article II hereof shall not be effective until received by the Lender. SECTION 10.02. AMENDMENTS, ETC. No amendment of any provision of this Agreement, any Note or any other Loan Document shall be effective unless it is in writing and signed by each Borrower, the Guarantor and the Lender, and no waiver of any provision of this Agreement, any Note or any other Loan Document, nor consent to any departure by a Borrower or the Guarantor therefrom, shall be effective unless it is in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 10.03. NO WAIVER; REMEDIES, ETC. No failure on the part of the Lender to exercise, and no delay in exercising, any right hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right under any Loan Document preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of the Lender provided herein and in the other Loan Documents are cumulative and are in addition to, and not exclusive of, any right or remedy provided by law. The rights of the Lender under any Loan Document against any party thereto are not conditional or contingent on any attempt by the Lender to exercise any of its rights under any other Loan Document against such party or against any other Person. SECTION 10.04. FEES, COSTS, EXPENSES AND TAXES. The Borrowers will pay, jointly and severally, on demand (i) all fees, costs and expenses in connection with the preparation, execution, delivery, filing, recording, amendment, modification and waiver of the Loan Documents and the other documents to be delivered pursuant to the Loan Documents, including, without limitation, the reasonable fees, out-of-pocket expenses and other client charges of Schulte Roth & Zabel LLP, counsel to the Lender, Lionel Sawyer & Collins, Nevada counsel to the Lender, and Bowles Rice McDavid Graff & Love, West Virginia counsel to the Lender, and the reasonable fees, out-of-pocket expenses and other client charges of all accountants, auditors and consultants retained by the Lender in connection with the transactions contemplated by this Agreement, and (ii) all costs and expenses, if any (including reasonable counsel fees, out-of-pocket expenses and other client charges), in connection with the enforcement of the Loan Documents and the other documents to be delivered pursuant to the Loan Documents. In addition, the Borrowers will pay, jointly and severally, any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of the Loan Documents and the other documents to be delivered pursuant to the Loan Documents, and will save the Lender harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. All of the foregoing fees, costs, expenses and taxes are herein referred to as "Transaction Costs". Upon the occurrence of the Closing Date, the Borrowers' obligation to pay the fees of Schulte Roth & Zabel LLP and Lionel Sawyer & Collins relating solely to the sale to Speakeasy Vegas of the Cheyenne Hotel Property and to Speakeasy Reno of the Reno Hotel Property shall terminate. For the avoidance of doubt, the Borrowers shall continue to be obligated to pay all of the fees of Schulte Roth & Zabel LLP and Lionel Sawyer & Collins with respect to all matters other than the sale of such properties. In no event, however, shall the Borrowers be obligated to pay any of the fees of Schulte Roth & Zabel LLP or Lionel Sawyer & Collins with respect to Lender's application for license by, or exemption from, the licensing requirements of any Governmental Authority in the State of Nevada. SECTION 10.05. RIGHT OF SET-OFF. Upon the occurrence and during the continuance of any Event of Default, the Lender may, and is hereby authorized to, at any time and from time to time, without notice to the Borrowers (any such notice being expressly waived by the Borrower) and to the fullest extent permitted by law, set off and apply any and all indebtedness at any time owing by the Lender to or for the credit or the account of the Borrowers against any and all Obligations now or hereafter existing, irrespective of whether or not the Lender shall have made any demand hereunder or thereunder and although such Obligations may be contingent or unmatured. The Lender agrees to notify the Borrowers promptly after any such set-off and application made by the Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Lender under this Section 10.05 are in addition to the other rights and remedies (including, without limitation, other rights of set-off) which the Lender may have. SECTION 10.06. SEVERABILITY. Any provision of this Agreement, or of any other Loan Document to which each Borrower or the Guarantor is a party, which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 10.07. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of each Borrower, the Guarantor and the Lender and their respective successors and assigns, except that any Borrower nor any Guarantor may assign its rights hereunder or any interest herein without the prior written consent of the Lender. The Lender may assign to one or more banks or other entities all or any part of, or may grant participations to one or more banks or other entities in or to all or any part of the Commitment, the Loans or the Notes and, to the extent of any such assignment or participation (unless otherwise stated therein), the assignee of such assignment shall have the same rights and benefits hereunder and under such Note(s) as it would have if it were the Lender hereunder. In connection with any assignment by the Lender pursuant hereto, the Borrowers shall, promptly upon request by the Lender, execute and deliver a new Note or Notes, in replacement of the then effective Note or Notes, in an aggregate principal amount equal to the outstanding principal amount of the applicable Loan or Loans at such time, payable to the order of the Lender and/or an assignee(s). The Lender may, in connection with any such assignment or participation or as may be required by law or any Governmental Authority or other regulatory body, disclose any public and non-public information relating to each Borrower and the Guarantor furnished by or on behalf of such Borrower or the Guarantor or any of their Affiliates to the Lender. SECTION 10.08. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. SECTION 10.09. HEADINGS. Section headings herein are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. SECTION 10.10. GOVERNING LAW. This Agreement, each Note, and the other Loan Documents shall be governed by, and construed in accordance with, the law of the State of New York applicable to contracts made and to be performed in such State without regard to conflicts of law principles. Any legal action or proceeding with respect to this Agreement or any other Loan Document may be brought in the courts of the State of New York or of the United States for the Southern District of New York, and, by execution and delivery of this Agreement, each Borrower and the Guarantor hereby irrevocably accept for themselves in respect of their property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each Borrower and the Guarantor further irrevocably consent to the service of process out of any of the aforementioned courts and in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such Borrower at its address for notices contained in Section 10.01, such service to become effective thirty (30) days after such mailing. Both Borrower and the Guarantor hereby irrevocably appoint Mr. Robert A. Blatt, c/o CRC Group, 1890 Palmer Avenue, Suite 303, Larchmont, New York 10538, or such other Person as shall be acceptable to the Lender, as their agent for service of process in respect of any such action or proceeding. Nothing herein shall affect the right of the Lender to service of process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against any Borrower and the Guarantor in any other jurisdiction. SECTION 10.11. WAIVER OF JURY TRIAL, ETC. EACH OF THE BORROWERS, THE GUARANTOR AND THE LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHT UNDER THIS AGREEMENT, ANY NOTE, OR OTHER LOAN DOCUMENT, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH OF THE BORROWERS AND THE GUARANTOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. EACH BORROWER AND THE GUARANTOR CERTIFY THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDER WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. EACH BORROWER AND THE GUARANTOR HEREBY ACKNOWLEDGE THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THIS AGREEMENT. SECTION 10.12. REINSTATEMENT; CERTAIN PAYMENTS. If a claim is ever made upon the Lender for repayment or recovery of any amount or amounts received by the Lender in payment or on account of any of the Obligations under this Agreements, the Lender shall give prompt notice of such claim to the Borrowers, and if the Lender repays all or part of said amount by reason of (i) any judgment, decree or order of any court or administrative body having jurisdiction over the Lender or any of its property, or (ii) any settlement or compromise of any such claim effected by the Lender with any such claimant, then and in such event each of the Borrowers and the Guarantor (A) agree that any such judgment, decree, order, settlement or compromise shall be binding upon the Borrowers and the Guarantor notwithstanding the cancellation of any Note or other instrument evidencing the Obligations under this Agreement or the other Loan Documents or the termination of this Agreement or the other Loan Documents, and (B) shall be and remain liable to the Lender hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by the Lender. SECTION 10.13. INDEMNIFICATION. In addition to all of their other Obligations under this Agreement, each of the Borrowers and the Guarantor, jointly and severally, agree to defend, protect, indemnify and hold harmless the Lender and any assignee of the Lenders rights hereunder, and all of their respective officers, directors, employees, attorneys, consultants and agents (including, without limitation, those retained in connection with the satisfaction or attempted satisfaction of any of the conditions set forth in this Agreement) (collectively called the "INDEMNITEES") from and against any and all losses, damages, liabilities, obligations, penalties, fees, costs and expenses (including, without limitation, attorneys' fees, costs and expenses) incurred by such Indemnitees, whether prior to or from and after the Effective Date, whether direct, indirect or consequential, as a result of or arising from or relating to any suit, investigation, action or proceeding by any Person, whether threatened or initiated, asserting a claim for any legal or equitable remedy against any Person under any statute or regulation, including, without limitation, any Federal or state securities or labor laws, or under any Federal, state or local environmental, health or safety laws, regulations or, common law principles, arising from or in connection with the past, present or future operations of each Borrower or its predecessors in interest, arising from or in connection with any of the following: (i) the negotiation, preparation, execution or performance of this Agreement or of any document executed in connection with the transactions contemplated by this Agreement, (ii) the Lender's furnishing of funds to the Borrowers under this Agreement, including, without limitation, the management of the Loans, or (iii) any matter relating to the financing transactions contemplated by this Agreement or by any document executed in connection with the transactions contemplated by this Agreement (collectively, the "INDEMNIFIED MATTERS"); PROVIDED, HOWEVER, that the Borrowers and the Guarantor shall have no obligation to any Indemnitee hereunder for any Indemnified Matter (i) caused by or resulting from the gross negligence or willful misconduct of such Indemnitee, as determined by a final judgment of a court of competent jurisdiction, or (ii) relating to any environmental condition, or impairment of title to, either the Cheyenne Hotel Property or the Reno Hotel Property to the extent such conditions or impairment existed prior to the acquisition by Speakeasy Reno of the Reno Hotel Property or the acquisition by Speakeasy Vegas of the Cheyenne Hotel Property. Such indemnification for all of the foregoing losses, damages, fees, costs and expenses of the Lender shall be part of the Obligations in respect of the Term Loan (the "TERM OBLIGATIONS"), secured by the Collateral and added to the principal amount of the Term Loan; PROVIDED, FURTHER, HOWEVER, that if the Term Loan has been paid in full, then all of the foregoing losses, damages, fees, costs and expenses of the Lender shall be part of the Line Obligations, secured by the Collateral and added to the principal amount of the Line Loan. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section 10.13 may be unenforceable because it is violative of any law or public policy, each of the Borrowers and the Guarantor shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees. The provisions of this Section 10.13 shall survive termination of this Agreement. ARTICLE XI GUARANTY SECTION 11.01. GUARANTY. the Guarantor, and each other Guarantor that may become party hereto, hereby (i) irrevocably, absolutely and unconditionally guarantees the prompt payment, as and when due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), of (A) all the Obligations, including, without limitation, all amounts now or hereafter owing in respect of the Loan Documents, whether for principal, interest, fees, expenses or otherwise, and (B) all indebtedness, obligations and other liabilities, direct or indirect, absolute or contingent, now existing or hereafter arising of each of the Borrowers to the Lender and (ii) agrees, to pay any and all expenses (including reasonable counsel fees and expenses) incurred by the Lender in enforcing its rights under this Agreement, the Guarantee and each other Loan Document. SECTION 11.02. OBLIGATIONS UNCONDITIONAL. (i) the Guarantor and each other Guarantor that may become party hereto, hereby guarantees that the Obligations will be paid strictly in accordance with the terms of the Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Lender with respect thereto. the Guarantor and each other Guarantor agrees that its guarantee constitutes a guaranty of payment when due and not of collection, and waives any right to require that any resort be had by the Lender to any security held for payment of the Obligations or to any balance of any deposit account or credit on the books of the Lender in favor of any Borrower or for any other reason. The liability of the Guarantor and each other Guarantor hereunder shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of any Loan Document or any agreement or instrument relating thereto; (ii) any extension or change in the time, manner or place of payment of, or in any other term in respect of, all or any of the Obligations (including, without limitation, any extension for longer than the original period), or any other amendment or waiver of or consent to any departure from any provision of any Loan Document; (iii) any exchange or release of, or non-perfection of any lien on or security interest in, any Collateral, or any release or amendment or waiver of or consent to any departure from any other guaranty, for all or any of the Obligations; or (iv) any other circumstance which might otherwise constitute a defense available to, or a discharge of, any Borrower or any other Guarantor in respect of the Obligations or the Guarantor and each other Guarantor in respect hereof. (ii) This Guaranty (i) is a continuing guaranty and shall remain in full force and effect until such date on which all of the Obligations and all other expenses to be paid by the Guarantor or any other Guarantor pursuant hereto shall have been satisfied in full after the Commitment shall have been terminated, (ii) shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by the Lender upon the insolvency, bankruptcy or reorganization of each of the Borrowers or otherwise, all as though such payment had not been made, and (iii) shall be binding upon the Guarantor, any other Guarantor or their respective heirs, executors, successors and assigns. SECTION 11.03. WAIVERS. The Guarantor hereby waives, to the extent permitted by applicable law, (i) promptness and diligence, (ii) notice of acceptance and notice of the incurrence of any Obligation, (iii) notice of any action taken by the Lender or each of the Borrowers or any other agreement or instrument relating thereto, (iv) all other notices, demands and protests, and all other formalities of every kind in connection with the enforcement of the Obligations or of the obligations of the Guarantor and each other Guarantor hereunder, the omission of or delay in which, but for the provisions of this Section 11.03, might constitute grounds for relieving the Guarantor or any other Guarantor of its obligations hereunder, and (v) any requirement that the Lender protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action against any Person or any Collateral. All such waivers by the Guarantor shall be effective only to the extent permitted by applicable law. SECTION 11.04. SUBROGATION. The Guarantor hereby waives and agrees that it will not exercise any rights which it may acquire by way of subrogation hereunder, by any payment made by it hereunder or otherwise. If the amount shall be paid to the Guarantor or such other Guarantor on account of such subrogation rights at any time when all of such Obligations and all other Obligations shall not have been paid in full, such amount shall be held in trust for the benefit of the Lender, shall be segregated from the other funds of the Guarantor or such other Guarantor and shall forthwith be paid over to the Lender to be applied in whole or in part by the Lender against the Obligations, whether matured or unmatured, in accordance with the terms of this Agreement. SECTION 11.05. NO WAIVER; REMEDIES. No failure on the part of the Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedy provided by law. SECTION 11.06. TAXES. (a) Each payment by the Guarantor under this Loan Agreement shall be made without withholding for or on account of any present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of the Lender, taxes imposed on its income, and franchise taxes imposed on it by the jurisdiction (or any political subdivision thereof) under the laws of which the Lender is organized (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "OTHER TAXES"); PROVIDED, HOWEVER, that if such Other Taxes are required by law to be withheld from any such payment, the Guarantor shall make such withholding for the account of the Lender, make timely payment thereof to the appropriate governmental authority, and forthwith pay for the account of the Lender such additional amount as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 11.06.) the Lender receives an amount equal to the sum it would have received had no such deductions been made. All such Other Taxes shall be paid by the Guarantor prior to the date on which penalties attach thereto or interest accrues thereon; PROVIDED, HOWEVER, that, if any such penalties or interest become due, the Guarantor shall make prompt payment thereof to the appropriate governmental authority. (b) the Guarantor will indemnify the Lender for the full amount of Other Taxes (including any Other Taxes on amounts payable under this Section 10.06.) paid by the Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Other Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date the Lender makes written demand therefor. (c) Within 30 days after the date of any payment of Other Taxes, the Guarantor will furnish to the Lender the original or a certified copy of a receipt evidencing payment thereof. If no Other Taxes are payable in respect of any payment hereunder or under any Note, the Guarantor will furnish to the Lender a certificate from each appropriate taxing authority, or an opinion of counsel acceptable to the Lender, in either case stating that such payment is exempt from or not subject to Other Taxes. SECTION 11.07. STAY OF ACCELERATION. If acceleration of the time for payment of any amount payable by any of the Borrowers in respect of the Obligations is stayed upon the insolvency, bankruptcy or reorganization of any of the Borrowers, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless be payable by the Guarantor forthwith on demand by the Lender. ARTICLE XII REAFFIRMATION; AMENDMENTS SECTION 12.01. REAFFIRMATION. Each Loan Party hereby agrees that the amending and restating of the Second Amended Loan Agreement in no way releases such Loan Party from any obligation under any other Loan Document, each of which shall remain in full force and effect and is hereby ratified and confirmed in all respects. The Guarantor, by execution hereof, confirms that the Guaranty is in full force and effect pursuant to its terms in respect of all of the Obligations. SECTION 12.02. AMENDMENTS. Each party hereto agrees and confirms that all references in any Loan Document to the Loan Agreement, the Second Amended and Restated Term Loan Agreement, the Amended and Restated Term Loan Agreement, the Initial Term Loan Agreement, the Term Loan Agreement or any other similar term which refers to the agreement among the parties in respect of the making by the Lender of the Loans and the terms and conditions thereof in effect shall, as of any date on and after the Closing Date, be deemed to refer to this Agreement as amended and restated hereby. By way of example, but in no way in limitation of the foregoing, all references in the West Virginia Deed of Trust or the West Virginia First Priority Deed of Trust to "Restated Loan Agreement" shall be deemed to refer to this Agreement, as amended and restated hereby. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. MOUNTAINEER PARK, INC. By: /s/ Edson R. Arneault ------------------------------------------ Name: Edson R. Arneualt Title: President, Chief Executive Officer SPEAKEASY GAMING OF LAS VEGAS, INC. By: /s/ Edson R. Arneault ------------------------------------------ Name: Edson R. Arneualt Title: President, Chief Executive Officer SPEAKEASY GAMING OF RENO, INC. By: /s/ Edson R. Arneault ------------------------------------------ Name: Edson R. Arneualt Title: President, Chief Executive Officer MTR GAMING GROUP, INC. By: /s/ Edson R. Aneault ------------------------------------------ Name: Edson R. Arneualt Title: President, Chief Executive Officer MADELEINE LLC By: /s/ Mark A. Neporent ------------------------------------------ Name: Mark A. Neporent Title: Attorney-in-Fact EX-10.13 9 EXHIBIT 10.13 Exhibit 10.13 PLEDGE AND SECURITY AGREEMENT PLEDGE AND SECURITY AGREEMENT dated as of April 30, 1998, made by MTR GAMING GROUP, INC. (f/k/a WINNERS ENTERTAINMENT, INC.), a Delaware corporation (the "Pledgor"), in favor of Madeleine LLC (the "Lender"). W I T N E S S E T H: WHEREAS, the Pledgor, Mountaineer Park, Inc. ("Mountaineer"), Speakeasy Gaming of Reno, Inc. ("Speakeasy Reno"), Speakeasy Gaming of Las Vegas, Inc. ("Speakeasy Vegas", together with Speakeasy Reno and Mountaineer, collectively, the "Borrowers") and the Lender are entering into a Third Amended and Restated Loan Agreement, dated as of July 2, 1996, as amended and restated as of December 10, 1996, as further amended and restated as of July 2, 1997, and as further amended and restated as of the date hereof, (such agreement, as further amended or otherwise modified from time to time, being hereinafter referred to as the "Loan Agreement"); WHEREAS, pursuant to the Loan Agreement, the Lender has agreed to make (and has from time to time made) (i) certain term loans (collectively the "Term Loans") to the Borrowers in an aggregate principal amount not to exceed the Term Commitment (as defined in the Loan Agreement), and (ii) a line of credit available for loans to the Borrowers (the "Line Loans" and, collectively with the Term Loan, the "Loans") in an aggregate principal amount not to exceed the Line Commitment (as defined in the Loan Agreement); WHEREAS, the Pledgor, Mountaineer, Speakeasy Reno, Speakeasy Vegas and the Lender are entering into the third amendment and restatement of the Loan Agreement for the purposes of making increases to the Term Commitment and the Line Commitment and for the purpose of adding the Speakeasy Reno and Speakeasy Vegas as Borrowers under the Loan Agreement to be bound by the terms of such agreement as Borrowers; WHEREAS, the Pledgor owns the number of issued and outstanding shares of capital stock of the Speakeasy Reno and Speakeasy Vegas as set forth on Schedule I hereto, and will receive direct and substantial economic benefit from the transactions contemplated by the Loan Agreement; and WHEREAS, it is a condition precedent to the making of the Loans by the Lenders pursuant to the Loan Agreement that the Pledgor shall have executed and delivered to the Lender a pledge and security agreement providing for the pledge to the Lender, and the grant to the Lender, of a security interest in, all of the issued and outstanding capital stock of Speakeasy Reno and Speakeasy Vegas owned by the Pledgor; NOW, THEREFORE, in consideration of the premises and the agreements herein and in order to induce the Lenders to make and maintain the Loans pursuant to the Loan Agreement, the Pledgor hereby agrees with the Lender as follows: SECTION 1. DEFINITIONS. Reference is hereby made to the Loan Agreement for a statement of the terms thereof. All terms used in this Agreement which are defined in the Loan Agreement or in Article 8 or 9 of the Uniform Commercial Code (the "Code") currently in effect in the State of New York and which are not otherwise defined herein shall have the same meanings herein as set forth therein. SECTION 2. PLEDGE AND GRANT OF SECURITY INTEREST. As collateral security for all of the Obligations (as defined in Section 3 hereof), the Pledgor hereby pledges and assigns to the Lender, and grants to the Lender a continuing security interest in, the following (the "Pledged Collateral"): (a) the shares of stock described in Schedule I hereto (the "Pledged Shares") issued by Speakeasy Reno and Speakeasy Vegas, the certificates representing the Pledged Shares (the "Certificates"), all options and other rights, contractual or otherwise, in respect thereof and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (b) all additional shares of stock, from time to time acquired by the Pledgor, of Speakeasy Reno and Speakeasy Vegas, the certificates representing such additional shares, all options and other rights, contractual or otherwise, in respect thereof and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such additional shares; (c) all securities entitlements of the Pledgor with respect to any and all of the foregoing; and (d) all proceeds of any and all of the foregoing; in each case, howsoever its interest therein may arise or appear (whether by ownership, security interest, claim or otherwise). SECTION 3. SECURITY FOR OBLIGATIONS. The security interest created hereby in the Pledged Collateral constitutes continuing collateral security for all of the Obligations (as that term is defined in Section 1.01 of the Loan Agreement) whether now existing or hereafter incurred. SECTION 4. DELIVERY OF THE PLEDGED COLLATERAL. (a) All Certificates currently representing the Pledged Shares shall be delivered to the Lender on or prior to the execution and delivery of this Agreement. All other Certificates constituting Pledged Collateral from time to time shall be delivered to the Lender promptly upon the receipt thereof by or on behalf of the Pledgor. All such Certificates shall be held by or on behalf of the Lender pursuant hereto and shall be delivered in suitable form for transfer by delivery or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Lender. (b) If the Pledgor shall receive, by virtue of its being or having been an owner of any Pledged Collateral, any (i) stock certificate (including, without limitation, any certificate representing a stock dividend or distribution in connection with any increase or reduction of capital, reclassification, merger, consolidation, sale of assets, combination of shares, stock split, spin-off or split-off), promissory note or other instrument, (ii) option or right, whether as an addition to, substitution for, or in exchange for, any Pledged Collateral, or otherwise, (iii) dividends payable in cash (except such dividends permitted to be retained by the Pledgor pursuant to Section 7 hereof) or in securities or other property or (iv) dividends or other distributions in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in surplus, the Pledgor shall receive such stock certificate, promissory note, instrument, option, right, payment or distribution in trust for the benefit of the Lender, shall segregate it from the Pledgor's other property and shall deliver it forthwith to the Lender in the exact form received, with any necessary endorsement and/or appropriate stock powers duly executed in blank, to be held by the Lender as Pledged Collateral and as further collateral security for the Obligations. SECTION 5. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and warrants as follows: (a) The Pledgor (i) is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation as set forth on the first page hereof, and (ii) has all requisite power and authority to execute, deliver and perform this Agreement. (b) The execution, delivery and performance by the Pledgor of this Agreement (i) have been duly authorized by all necessary corporate action, (ii) do not and will not contravene its charter or by-laws, law or any contractual restriction binding on or affecting the Pledgor or any of its properties; except as may be required in connection with any sale of any Pledged Collateral by laws affecting the offering and sale of securities generally and the gaming laws of the States of Nevada or West Virginia or any rules or regulations of any regulatory agency thereof having jurisdiction over Speakeasy Reno or Speakeasy Vegas or Pledgor with respect to the sale or change in control of Speakeasy Reno or Speakeasy Vegas; and (iii) do not and will not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties, except as contemplated by this Agreement. (c) This Agreement is a legal, valid and binding obligation of the Pledgor, enforceable against the Pledgor in accordance with its terms. (d) To the best of its knowledge, after due inquiry, the Pledged Shares have been duly authorized and validly issued, are fully paid and nonassessable, and constitute 100% of the issued shares of capital stock of the Speakeasy Reno and Speakeasy Vegas. All other shares of stock constituting Pledged Collateral will be duly authorized and validly issued, fully paid and nonassessable. (e) The Pledgor is and will be at all times the legal and beneficial owner of the Pledged Collateral free and clear of any lien, security interest, option or other charge or encumbrance except for the security interest created by this Agreement. (f) Assuming that the Lender's sale of the Pledged Collateral and the purchaser or purchasers of the Pledged Collateral from Lender have complied with the laws of the States of Nevada or West Virginia or any rules or regulations of any regulatory agency thereof having jurisdiction over Speakeasy Reno or Speakeasy Vegas or Pledgor with respect to the sale or change in control of Speakeasy Reno or Speakeasy Vegas, the exercise by the Lender of any of its rights and remedies hereunder will not contravene any law or any contractual restriction binding on or affecting the Pledgor or any of its properties and will not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties. (g) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or other regulatory body is required for (i) the due execution, delivery and performance by the Pledgor of this Agreement, (ii) the grant by the Pledgor, or the perfection, of the security interest purported to be created hereby in the Pledged Collateral or (iii) the exercise by the Lender of any of its rights and remedies hereunder, except as may be required in connection with any sale of any Pledged Collateral by laws affecting the offering and sale of securities generally and the laws of the States of Nevada or West Virginia or any rules or regulations of any regulatory agency thereof having jurisdiction over Speakeasy Reno or Speakeasy Vegas or Pledgor with respect to the sale or change in control of Speakeasy Reno or Speakeasy Vegas. (h) This Agreement creates a valid security interest in favor of the Lender in the Pledged Collateral, as security for the Obligations. The Lender's having possession of the promissory notes evidencing the Loans, the Certificates representing the Pledged Shares and all other certificates, instruments and cash constituting Pledged Collateral from time to time results in the perfection of such security interest. Such security interest is, or in the case of Pledged Collateral in which the Pledgor obtains rights after the date hereof, will be, a perfected, first priority security interest. All action necessary or desirable to perfect and protect such security interest has been duly taken, except for the Lender's having possession of certificates, instruments and cash constituting Pledged Collateral after the date hereof. SECTION 6. COVENANTS AS TO THE PLEDGED COLLATERAL. So long as any of the Obligations shall remain outstanding, the Pledgor will, unless the Lender shall otherwise consent in writing: (a) keep adequate records concerning the Pledged Collateral and permit the Lender or any agents or representatives thereof at any reasonable time and from time to time to examine and make copies of and abstracts from such records; (b) at its expense, promptly deliver to the Lender a copy of each notice or other communication received by it in respect of the Pledged Collateral; (c) at its expense, defend the Lender's right, title and security interest in and to the Pledged Collateral against the claims of any Person; (d) at its expense, at any time and from time to time, promptly execute and deliver all further instruments and documents and take all further action that may be necessary or desirable or that the Lender may request in order to (i) perfect and protect the security interest purported to be created hereby, (ii) enable the Lender to exercise and enforce its rights and remedies hereunder in respect of the Pledged Collateral, or (iii) otherwise effect the purposes of this Agreement, including, without limitation, delivering to the Lender irrevocable proxies in respect of the Pledged Collateral; (e) not sell, assign (by operation of law or otherwise), exchange or otherwise dispose of any Pledged Collateral or any interest therein except as permitted by Section 7(a)(i) hereof; (f) not create or suffer to exist any lien, security interest or other charge or encumbrance upon or with respect to any Pledged Collateral except for the security interest created hereby; (g) not make or consent to any amendment or other modification or waiver with respect to any Pledged Collateral or enter into any agreement or permit to exist any restriction with respect to any Pledged Collateral other than pursuant hereto; (h) not consent to the issuance of (i) any additional shares of any class of capital stock of the Speakeasy Reno or Speakeasy Vegas, (ii) any securities convertible voluntarily by the holder thereof or automatically upon the occurrence or non-occurrence of any event or condition into, or exchangeable for, any such shares of capital stock or (iii) any warrants, options, contracts or other commitments entitling any Person to purchase or otherwise acquire any such shares of capital stock; and (i) not take or fail to take any action which would in any manner impair the value or enforceability of the Lender's security interest in any Pledged Collateral. SECTION 7. VOTING RIGHTS, DIVIDENDS, ETC. IN RESPECT OF THE PLEDGED COLLATERAL. (a) So long as no Event of Default or event which, with the giving of notice or lapse of time or both, would constitute an Event of Default, shall have occurred and be continuing: (i) the Pledgor may exercise any and all voting and other consensual rights pertaining to any Pledged Collateral for any purpose not inconsistent with the terms of this Agreement or the other Loan Documents; PROVIDED, HOWEVER, that (A) the Pledgor will not exercise or refrain from exercising any such right, as the case may be, if the Lender gives it notice that, in the Lender's judgment, such action would have a material adverse effect on the value of any Pledged Collateral and (B) the Pledgor will give the Lender at least five days' notice of the manner in which it intends to exercise, or the reasons for refraining from exercising, any such right; (ii) the Pledgor may receive and retain any and all dividends and interest paid in respect of the Pledged Collateral; PROVIDED, HOWEVER, that any and all (A) dividends and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of or in exchange for, any Pledged Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Pledged Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in surplus and (C) cash paid, payable or otherwise distributed in redemption of, or in exchange for, any Pledged Collateral, shall be, and shall forthwith be delivered to the Lender to hold as, Pledged Collateral and shall, if received by the Pledgor, be received in trust for the benefit of the Lender, shall be segregated from the other property or funds of the Pledgor, and shall be forthwith delivered to the Lender in the exact form received with any necessary endorsement and/or appropriate stock powers duly executed in blank, to be held by the Lender as Pledged Collateral and as further collateral security for the Obligations; and (iii) the Lender will execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and other rights which it is entitled to exercise pursuant to paragraph (i) of this Section 7(a) and to receive the dividends which it is authorized to receive and retain pursuant to paragraph (ii) of this Section 7(a). (b) Upon the occurrence and during the continuance of an Event of Default or an event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default: (i) all rights of the Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to paragraph (i) of subsection (a) of this Section 7, and to receive the dividends and interest payments which it would otherwise be authorized to receive and retain pursuant to paragraph (ii) of subsection (a) of this Section 7, shall, in the discretion of the Lender upon notice to the Pledgor, cease, and all such rights shall thereupon become vested in the Lender which shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Pledged Collateral such dividends and interest payments; (ii) without limiting the generality of the foregoing, the Lender may at its option exercise any and all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to any of the Pledged Collateral as if it were the absolute owner thereof, including, without limitation, the right to exchange, in its discretion, any and all of the Pledged Collateral upon the merger, consolidation, reorganization, recapitalization or other adjustment of Speakeasy Reno or Speakeasy Vegas, or upon the exercise by Speakeasy Reno or Speakeasy Vegas of any right, privilege or option pertaining to any Pledged Collateral, and, in connection therewith, to deposit and deliver any and all of the Pledged Collateral with any committee, depository, transfer agent, registrar or other designated agent upon such terms and conditions as it may determine; and (iii) all dividends and interest payments which are received by the Pledgor contrary to the provisions of paragraph (i) of this Section 7(b) shall be received in trust for the benefit of the Lender, shall be segregated from other funds of the Pledgor, and shall be forthwith paid over to the Lender as Pledged Collateral in the exact form received with any necessary endorsement and/or appropriate stock powers duly executed in blank, to be held by the Lender as Pledged Collateral and as further collateral security for the Obligations. SECTION 8. ADDITIONAL PROVISIONS CONCERNING THE PLEDGED COLLATERAL. (a) The Pledgor hereby authorizes the Lender to file, without the signature of the Pledgor where permitted by law, one or more financing or continuation statements, and amendments thereto, relating to the Pledged Collateral. (b) The Pledgor hereby irrevocably appoints the Lender the Pledgor's attorney-in-fact and proxy, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in the Lender's discretion, to take any action and to execute any instrument which the Lender may deem necessary or advisable to accomplish the purposes of this Agreement (subject to the rights of the Pledgor under Section 7(a) hereof), including, without limitation, to receive, indorse and collect all instruments made payable to the Pledgor representing any dividend or other distribution in respect of any Pledged Collateral and to give full discharge for the same. (c) If the Pledgor fails to perform any agreement or obligation contained herein, the Lender may itself perform, or cause performance of, such agreement or obligation, and the expenses of the Lender incurred in connection therewith shall be payable by the Pledgor pursuant to Section 10 hereof. (d) Other than the exercise of reasonable care to assure the safe custody of the Pledged Collateral while held hereunder, the Lender shall have no duty or liability to preserve rights pertaining thereto and shall be relieved of all responsibility for the Pledged Collateral upon surrendering it or tendering surrender of it to the Pledgor. The Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which the Lender accords its own property, it being understood that the Lender shall not have responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Pledged Collateral, whether or not the Lender has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral. SECTION 9. REMEDIES UPON DEFAULT. If any Event of Default shall have occurred and be continuing: (a) The Lender may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all of the rights and remedies of a secured party on default under the Code then in effect in the State of New York; and without limiting the generality of the foregoing and without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange or broker's board or elsewhere, at such price or prices and on such other terms as may be commercially reasonable. Any sale of the Pledged Collateral conducted in conformity with reasonable commercial practices of banks, commercial finance companies, insurance companies, or other financial institutions disposing of property similar to the Pledged Collateral shall be deemed to be commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least 10 days' notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Lender shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) In the event that the Lender determines to exercise its right to sell all or any part of the Pledged Collateral pursuant to subsection (a) of this Section 9, the Pledgor will, at the Pledgor's expense and upon request by the Lender: (i) execute and deliver, and cause Speakeasy Reno or Speakeasy Vegas and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of the Lender, advisable to register such Pledged Collateral under the provisions of the Securities Act of 1933, as amended (the "Securities Act"), and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of the Lender, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto, (ii) cause each issuer of such Pledged Collateral to qualify such Pledged Collateral under the state securities or "Blue Sky" laws of each jurisdiction, and to obtain all necessary governmental approvals for the sale of the Pledged Collateral, as requested by the Lender, (iii) cause Speakeasy Reno or Speakeasy Vegas to make available to its securityholders, as soon as practicable, an earnings statement which will satisfy the provisions of Section 11(a) of the Securities Act, and (iv) do or cause to be done all such other acts and things as may be necessary to make such sale of such Pledged Collateral valid and binding and in compliance with applicable law. (c) Notwithstanding the provisions of subsection (b) of this Section 9, the Pledgor recognizes that the Lender may deem it impracticable to effect a public sale of all or any part of the Pledged Shares or any other securities constituting Pledged Collateral and that the Lender may, therefore, determine to make one or more private sales of any such securities to a restricted group of purchasers who will be obligated to agree, among other things, to acquire such securities for their own account, for investment and not with a view to the distribution or resale thereof. The Pledgor acknowledges that any such private sale may be at prices and on terms less favorable to the seller than the prices and other terms which might have been obtained at a public sale and, notwithstanding the foregoing, agrees that such private sales shall be deemed to have been made in a commercially reasonable manner and that the Lender shall have no obligation to delay sale of any such securities for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the Securities Act. In conducting any such private sale, the Lender may solicit offers to buy the Pledged Collateral, or any part of it, from a limited number of investors deemed by the Lender, in its reasonable judgment, to be financially responsible parties who might be interested in purchasing the Pledged Collateral. If the Lender solicits such offers from not fewer than three such investors, then acceptance by the Lender of the highest offer obtained therefrom shall be deemed to be a commercially reasonable method of disposing of such Pledged Collateral. The Pledgor further acknowledges and agrees that any offer to sell such securities which has been (i) publicly advertised on a bona fide basis in a newspaper or other publication of general circulation in the financial community of New York, New York (to the extent that such an offer may be so advertised without prior registration under the Securities Act) or (ii) made privately in the manner described above (upon at least 10 days' notice to Pledgor) to not less than fifteen BONA FIDE offerees shall be deemed to involve a "public sale" for the purposes of Section 9-504(3) of the Code (or any successor or similar, applicable statutory provision) as then in effect in the State of New York, notwithstanding that such sale may not constitute a "public offering" under the Securities Act, and that the Lender may, in such event, bid for the purchase of such securities. (d) Any cash held by the Lender as Pledged Collateral and all cash proceeds received by the Lender in respect of any sale of, collection from, or other realization upon, all or any part of the Pledged Collateral may, in the discretion of the Lender, be held by the Lender as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Lender pursuant to Section 10 hereof) in whole or in part by the Lender against, all or any part of the Obligations in such order as the Lender shall elect. Any surplus of such cash or cash proceeds held by the Lender and remaining after payment in full of all of the Obligations shall be paid over to the Pledgor or to such Person as may be lawfully entitled to receive such surplus. (e) In the event that the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Lender is legally entitled, the Pledgor shall be liable for the deficiency, together with interest thereon at the highest rate specified in each Note for interest on overdue principal thereof or such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees of any attorneys employed by the Lender to collect such deficiency. SECTION 10. INDEMNITY AND EXPENSES. (a) The Pledgor agrees to indemnify the Lender from and against any and all claims, losses and liabilities growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting solely and directly from the Lender's gross negligence or willful misconduct. (b) The Pledgor will upon demand pay to the Lender the amount of any and all reasonable costs and expenses, including the fees and disbursements of the Lender's counsel and of any experts and agents, which the Lender may incur in connection with (i) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Pledged Collateral, (ii) the exercise or enforcement of any of the rights of the Lender hereunder or (iii) the failure by the Pledgor to perform or observe any of the provisions hereof. SECTION 11. NOTICES, ETC. All notices and other communications provided for hereunder shall be in writing and shall be mailed (by certified mail, return receipt requested), telecopied or delivered, if to the Pledgor, to it at its address specified in the Loan Agreement; and if to the Lender, to it at its address specified in the Loan Agreement; or as to either such Person at such other address as shall be designated by such Person in a written notice to such other Person complying as to delivery with the terms of this Section 11. All such notices and other communications shall be effective (i) if mailed, three (3) days after deposit in the mails, (ii) if telecopied, when delivered and receipt confirmed to sender or (iii) if delivered by overnight courier or other means of personal delivery, upon delivery. SECTION 12. MISCELLANEOUS. (a) No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by the Pledgor and the Lender, and no waiver of any provision of this Agreement, and no consent to any departure by the Pledgor therefrom, shall be effective unless it is in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (b) No failure on the part of the Lender to exercise, and no delay in exercising, any right hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of the Lender provided herein and in the other Loan Documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights of the Lender under any Loan Document against any party thereto are not conditional or contingent on any attempt by the Lender to exercise any of its rights under any other Loan Document against such party or against any other Person. (c) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. (d) This Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) remain in full force and effect until the indefeasible payment in full or release of the Obligations and (ii) be binding on the Pledgor and its successors and assigns and shall inure, together with all rights and remedies of the Lender hereunder, to the benefit of the Lender and its successors, transferees and assigns. Without limiting the generality of clause (ii) of the immediately preceding sentence, the Lender may assign or otherwise transfer all or any portion of any Note, and its rights under any other Loan Document, as set forth in Section 10.07 of the Loan Agreement, and such other assignee shall thereupon become vested with all of the benefits in respect thereof granted to or obligations of the Lender herein or otherwise. None of the rights or obligations of the Pledgor hereunder may be assigned or otherwise transferred without the prior written consent of the Lender. (e) Upon the satisfaction in full of the Obligations (as defined in the Loan Agreement), (i) this Agreement and the security interest created hereby shall terminate and all rights to the Pledged Collateral shall revert to the Pledgor, and (ii) the Lender will, upon the Pledgor's request and at the Pledgor's expense, (A) return to the Pledgor such of the Pledged Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms hereof and (B) execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence such termination. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, except to the extent that the validity and perfection or the perfection and the effect of perfection or non-perfection of the security interest created hereby, or remedies hereunder, in respect of any particular Pledged Collateral are governed by the law of a jurisdiction other than the State of New York. IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be executed and delivered by its officer thereunto duly authorized, as of the date first above written. MTR GAMING GROUP, INC. By: /s/ EDSON R. ARNEAULT ------------------------------------ Name: Edson R. Arneault Title: President, Chief Executive Officer EX-10.14 10 EXHIBIT 10.14 EXHIBIT 10.14 GENERAL SECURITY AGREEMENT GENERAL SECURITY AGREEMENT dated as of April 30, 1998, made by SPEAKEASY GAMING OF RENO, INC., a Nevada corporation (the "Grantor"), in favor of MADELEINE LLC, as lender (the "Lender"). W I T N E S S E T H : WHEREAS, the Grantor, Speakeasy Gaming of Las Vegas, Inc., a Nevada corporation ("Speakeasy Vegas"), Mountaineer Park, Inc., a West Virginia corporation ("Mountaineer" and together with the Grantor and Speakeasy Vegas, collectively, the "Borrowers"), MTR Gaming Group, Inc., a Delaware corporation, (the "Guarantor" and together with the Grantor, Speakeasy Vegas and Mountaineer, collectively, the "Loan Parties"), and the Lender are entering into a Third Amended and Restated Loan Agreement, dated as of July 2, 1996, as amended and restated as of December 10, 1996, as further amended and restated as of July 2, 1997, and as further amended and restated as of the date hereof, (such agreement, as further amended or otherwise modified from time to time, being hereinafter referred to as the "Loan Agreement"); WHEREAS, pursuant to the Loan Agreement, the Lender has agreed to make (and has from time to time made) (i) certain term loans (collectively the "Term Loans") to the Borrowers in an aggregate principal amount not to exceed the Term Commitment (as defined in the Loan Agreement), and (ii) a line of credit available for loans to the Borrowers (the "Line Loans" and, collectively with the Term Loan, the "Loans") in an aggregate principal amount not to exceed the Line Commitment (as defined in the Loan Agreement); WHEREAS, the Grantor, Mountaineer, the Guarantor, Speakeasy Vegas and the Lender are entering into the third amendment and restatement of the Loan Agreement for the purposes of making increases to the Term Commitment and the Line Commitment and for the purpose of adding the Grantor and Speakeasy Vegas as Borrowers under the Loan Agreement to be bound by the terms of such agreement as Borrowers; and WHEREAS, it is a condition precedent to the making and continuing (as applicable) of the Loans by the Lender pursuant to the Loan Agreement that the Grantor shall have executed and delivered to the Lender a security agreement providing for the grant to the Lender of a security interest in all personal property and fixtures of the Grantor; NOW, THEREFORE, in consideration of the premises and the agreements herein and in order to induce the Lender to make and maintain the Loans pursuant to the Loan Agreement, the Grantor hereby agrees with the Lender as follows: SECTION 1. DEFINITIONS. Reference is hereby made to the Loan Agreement for a statement of the terms thereof. All terms used in this Agreement which are defined in the Loan Agreement or in Article 9 of the Uniform Commercial Code (the "Code") currently in effect in the State of New York and which are not otherwise defined herein shall have the same meanings herein as set forth therein. SECTION 2. GRANT OF SECURITY INTEREST. As collateral security for all of the Obligations (as defined in Section 3 hereof), the Grantor hereby pledges and assigns to the Lender, and grants to the Lender a continuing security interest in, all personal property and fixtures of the Grantor, wherever located and whether now or hereafter existing and whether now owned or hereafter acquired, of every kind and description, tangible or intangible (the "Collateral"), including, without limitation, the following: (a) all equipment of any kind including, without limitation, the equipment described in Schedule I hereto, all furniture, fixtures, machinery and all motor vehicles, tractors and other like property, whether or not the title thereto is governed by a certificate of title or ownership (hereinafter collectively referred to as the "Motor Vehicles"), wherever located and whether now or hereafter existing and whether now owned or hereafter acquired, together with all substitutes, replacements, accessions and additions thereto, and all tools, parts, accessories and attachments used in connection therewith (hereinafter collectively referred to as the "Equipment"); (b) all of the Grantor's right, title and interest in and to all inventory of any kind, wherever located and whether now or hereafter existing and whether now owned or hereafter acquired, and all accessions thereto and products thereof (any and all such inventory, accessions and products being hereinafter referred to as the "Inventory"); (c) all of the Grantor's right, title and interest in and to (i) all accounts, contract rights, chattel paper, instruments, documents, general intangibles and other rights or obligations of any kind, whether now or hereafter existing and whether now owned or hereafter acquired, arising out of or in connection with the sale or lease of goods or the rendering of services or otherwise and (ii) all rights now or hereafter existing in and to all security agreements, leases and other contracts, now or hereafter existing and securing or otherwise relating to any such accounts, contract rights, chattel paper, instruments, general intangibles or obligations (including without limitation, the contracts described in Schedule II hereto) (any and all such accounts, contract rights, chattel paper, instruments, general intangibles and obligations being hereinafter referred to as the "Receivables", and any and all such security agreements, leases and other contracts being hereinafter referred to as the "Related Contracts"); and (d) all proceeds of any and all of the foregoing Collateral and, to the extent not otherwise included, all payments under insurance (whether or not the Lender is the loss payee thereof) (subject, however, to those provisions in that certain Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated of even date herewith, between the Grantor and the Lender, for the Reno Hotel Property (as defined in the Loan Agreement) with respect to making insurance proceeds available for restorations), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral; in each case, howsoever the Grantor's interest therein may arise or appear (whether by ownership, security interest, claim or otherwise). SECTION 3. SECURITY FOR OBLIGATIONS. The security interest created hereby in the Collateral constitutes continuing collateral security for all of the following obligations, whether now existing or hereafter incurred (the "Obligations"): (a) the prompt payment by the Grantor, as and when due and payable, of all amounts from time to time owing by it in respect of the Loan Agreement, the Notes and the other Loan Documents; and (b) the due performance and observance by the Grantor of all of its other obligations from time to time existing in respect of the Loan Documents. SECTION 4. REPRESENTATIONS AND WARRANTIES. The Grantor represents and warrants as follows: (a) The Grantor (i) is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation as set forth on the first page hereof, and (ii) has all requisite power and authority to execute, deliver and perform this Agreement. (b) The execution, delivery and performance by the Grantor of this Agreement (i) have been duly authorized by all necessary corporate action, (ii) do not and will not contravene its charter or by-laws, law or any contractual restriction binding on or affecting the Grantor or any of its properties, and (iii) do not and will not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties, except as contemplated by the Loan Documents. (c) This Agreement is a legal, valid and binding obligation of the Grantor, enforceable against the Grantor in accordance with its terms. (d) All Equipment and Inventory now existing is, and all Equipment and Inventory hereafter existing will be, located at the address(es) specified therefor in Schedule III hereto. The Grantor's chief place of business and chief executive office, the place where the Grantor keeps its records concerning Receivables and all originals of all chattel paper which constitute Receivables are located at the address specified therefor in Schedule III. None of the Receivables is evidenced by a promissory note or other instrument. Set forth as Schedule IV hereto is a complete and correct list of each trade name used by the Grantor. (e) The Grantor has delivered to the Lender complete and correct copies of each Related Contract in its possession described in Schedule II hereto, including all schedules and exhibits thereto. Each such Related Contract sets forth the entire agreement and understanding of the parties thereto relating to the subject matter thereof, and there are no other agreements, arrangements or understandings, written or oral, relating to the matters covered thereby or the rights of the Grantor or any of its Affiliates in respect thereof. Other than those Related Contracts which the Grantor acquired in connection with its acquisition of the Reno Hotel Property and to which the Grantor is not a signatory, each Related Contract now existing is, and each other Related Contract will be the legal, valid and binding obligation of the parties thereto, enforceable against such parties in accordance with its terms. To the best of the Grantor's knowledge, without independent inquiry, all Related Contracts which have been assigned to Grantor are legal, valid and binding obligations of the Grantor. (f) The Grantor is and will be at all times the owner of the Collateral free and clear of any lien, security interest or other charge or encumbrance except for (i) the security interest created by this Agreement and (ii) the security interests and other encumbrances described in Schedule V hereto. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording or filing office except (i) such as may have been filed in favor of the Lender relating to this Agreement and (ii) such as may have been filed to perfect or protect any security interest or encumbrance described in Schedule V hereto. (g) The exercise by the Lender of its rights and remedies hereunder will not contravene any law or contractual restriction binding on or affecting the Grantor or any of its properties and will not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties. (h) Except as otherwise provided in the Loan Agreement, no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or other regulatory body is required for (i) the due execution, delivery and performance by the Grantor of this Agreement, (ii) the grant by the Grantor, or the perfection, of the security interest purported to be created hereby in the Collateral or (iii) the exercise by the Lender of any of its rights and remedies hereunder, except for the filing under the Code of the financing statement(s) required to be filed pursuant to the Loan Agreement, all of which financing statements have been duly filed and are in full force and effect. (i) This Agreement creates a valid security interest in favor of the Lender in the Collateral as security for the Obligations. The Lender's having possession of all instruments and cash constituting Collateral from time to time and the filing of the financing statements required to be filed pursuant to the Loan Agreement results in the perfection of such security interest. Such security interest is, or in the case of Collateral in which the Grantor obtains rights after the date hereof, will be, a perfected, first priority security interest, subject only to the security interests and other encumbrances described in Schedule V hereto. Such filings and all other action necessary or desirable to perfect and protect such security interest have been duly taken, except for the Lender's having possession of instruments and cash constituting Collateral after the date hereof. SECTION 5. COVENANTS AS TO THE COLLATERAL. So long as any of the Obligations (as such term is defined in clause (i) of Section 1.01 of the Loan Agreement) shall remain outstanding, unless the Lender shall otherwise consent in writing: (a) FURTHER ASSURANCES. The Grantor will at its expense, at any time and from time to time, promptly execute and deliver all further instruments and documents and take all further action that may be necessary or desirable or that the Lender may request in order (i) to perfect and protect the security interest purported to be created hereby, (ii) to enable the Lender to exercise and enforce its rights and remedies hereunder in respect of the Collateral or (iii) to otherwise effect the purposes of this Agreement, including, without limitation: (A) marking conspicuously each chattel paper included in the Receivables and each Related Contract and, at the request of the Lender, each of its records pertaining to the Collateral with a legend, in form and substance satisfactory to the Lender, indicating that such chattel paper, Related Contract or Collateral is subject to the security interest created hereby, (B) if any Receivable shall be evidenced by a promissory note or other instrument or chattel paper, delivering and pledging to the Lender hereunder such note, instrument or chattel paper duly indorsed and accompanied by executed instruments of transfer or assignment, all in form and substance satisfactory to the Lender, (C) executing and filing such financing or continuation statements, or amendments thereto, as may be necessary or desirable or that the Lender may request in order to perfect and preserve the security interest purported to be created hereby, (D) furnishing to the Lender from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Lender may reasonably request, all in reasonable detail, and (E) upon the acquisition after the date hereof by the Grantor of any Equipment covered by a certificate of title or ownership, cause the Lender to be listed as the lienholder (or, in the event such Equipment is subject to a purchase money security interest (a "Permitted Lien"), as a junior lienholder) on such certificate of title and within 60 days of the acquisition thereof and deliver evidence of the same to the Lender. (b) LOCATION OF EQUIPMENT AND INVENTORY. The Grantor will keep the Equipment and Inventory (other than Inventory and used Equipment sold in the ordinary course of business) at the location[s] specified therefor in Section 4(d) hereof. (c) CONDITION OF EQUIPMENT. The Grantor will cause the Equipment to be maintained and preserved in the same condition, repair and working order as when acquired, ordinary wear and tear excepted, and in accordance with any manufacturer's manual, and will forthwith, or in the case of any loss or damage to any Equipment as quickly as practicable after the occurrence thereof, make or cause to be made all repairs, replacements, and other improvements in connection therewith which are necessary or desirable or that the Lender may request to such end. The Grantor will promptly furnish to the Lender a statement respecting any loss or damage in excess of $10,000 to any Equipment. (d) TAXES. The Grantor will pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Equipment and Inventory, except to the extent the validity thereof is being contested in good faith by proper proceedings which stay the imposition of any penalty, fine or lien resulting from the non-payment thereof and with respect to which adequate reserves have been set aside for the payment thereof. (e) INSURANCE. (i) The Grantor will, at its own expense, maintain insurance with respect to the Equipment and Inventory in such amounts, against such risks, in such form and with such insurers, as shall be satisfactory to the Lender from time to time. Each policy for liability insurance shall provide for all losses to be paid on behalf of the Lender and the Grantor as their respective interests may appear, and each policy for property damage insurance shall provide for all losses to be adjusted with, and paid directly to, the Lender ; PROVIDED, HOWEVER, that with respect to Equipment subject to a Permitted Lien, or as otherwise provided in the Loan Documents, the Lender's rights may be subject to the rights of the holder of such Permitted Lien. Except as required by any agreement which creates a Permitted Lien, each such policy shall in addition (A) name the Grantor and the Lender as insured parties thereunder (without any representation or warranty by or obligation upon the Lender) as their interests may appear, (B) contain the agreement by the insurer that any loss thereunder shall be payable to the Lender notwithstanding any action, inaction or breach of representation or warranty by the Grantor, (C) provide that there shall be no recourse against the Lender for payment of premiums or other amounts with respect thereto and (D) provide that at least 30 days' prior written notice of cancellation or of lapse shall be given to the Lender by the insurer. The Grantor will, if so requested by the Lender, deliver to the Lender original or duplicate policies of such insurance and, as often as the Lender may reasonably request, a report of a reputable insurance broker with respect to such insurance. The Grantor will also, at the request of the Lender, duly execute and deliver instruments of assignment of such insurance policies and cause the respective insurers to acknowledge notice of such assignment. (ii) Reimbursement under any liability insurance maintained by the Grantor pursuant to this Section 5(e) may be paid directly to the Person who shall have incurred liability covered by such insurance. In the case of any loss involving damage to Equipment or Inventory as to which paragraph (iii) of this Section 5(e) is not applicable, the Grantor will make or cause to be made the necessary repairs to or replacements of such Equipment or Inventory, and any proceeds of insurance maintained by the Grantor pursuant to this Section 5(e) shall be paid to the Grantor as reimbursement for the costs of such repairs or replacements. (iii) Except as otherwise provided in the Loan Documents, upon the occurrence and during the continuance of an Event of Default or the actual or constructive total loss (in excess of $10,000 per occurrence) of any Equipment or Inventory, all insurance payments in respect of such Equipment or Inventory shall be paid to the Lender and applied as specified in Section 7(b) hereof. (f) PROVISIONS CONCERNING THE RECEIVABLES AND THE RELATED CONTRACTS. (i) The Grantor will (A) give the Lender prompt notice of any change in the Grantor's name, identity or corporate structure, (B) keep its chief place of business and chief executive office and all originals of all chattel paper which constitute Receivables at the location[s] specified therefor in Section 4(d) hereof, and (C) keep adequate records concerning the Receivables and such chattel paper and permit representatives of the Lender at any time during normal business hours to inspect and make abstracts from such records and chattel paper. (ii) The Grantor will duly perform and observe all of its obligations under each Related Contract and, except as otherwise provided in this Subsection (f), continue to collect, at its own expense, all amounts due or to become due under the Receivables. In connection with such collections, the Grantor may (and, at the Lender's direction, will) take such action as the Grantor or the Lender may deem necessary or advisable to enforce collection or performance of the Receivables; PROVIDED, HOWEVER, that the Lender shall have the right at any time, upon the occurrence and during the continuance of an Event of Default or an event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default, and upon written notice to the Grantor of its intention to do so, to notify the account debtors or obligors under any Receivables of the assignment of such Receivables to the Lender and to direct such account debtors or obligors to make payment of all amounts due or to become due to the Grantor thereunder directly to the Lender and, upon such notification and at the expense of the Grantor and to the extent permitted by law, to enforce collection of any such Receivables and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as the Grantor might have done. After receipt by the Grantor of the notice from the Lender referred to in the proviso to the immediately preceding sentence, (A) all amounts and proceeds (including instruments) received by the Grantor in respect of the Receivables shall be received in trust for the benefit of the Lender hereunder, shall be segregated from other funds of the Grantor and shall be forthwith paid over to the Lender in the same form as so received (with any necessary indorsement) to be held as cash collateral and either (1) released to the Grantor so long as no Event of Default shall have occurred and be continuing or (2) if any Event of Default shall have occurred and be continuing, applied as specified in Section 7(b) hereof, and (B) the Grantor will not adjust, settle or compromise the amount or payment of any Receivable or release wholly or partly any account debtor or obligor thereof or allow any credit or discount thereon. (iii) Upon the occurrence and during the continuance of any breach or default under any Related Contract referred to in Schedule II hereto or otherwise specified by the Lender from time to time by any party thereto other than the Grantor, (A) the Grantor will, promptly after obtaining knowledge thereof, give the Lender written notice of the nature and duration thereof, specifying what action, if any, it has taken and proposes to take with respect thereto, (B) the Grantor will not, without the prior written consent of the Lender, declare or waive any such breach or default or affirmatively consent to the cure thereof or exercise any of its remedies in respect thereof, and (C) the Grantor will, upon written instructions from the Lender and at the Grantor's expense, take such action as the Lender may deem necessary or advisable in respect thereof. (iv) The Grantor will, at its expense, promptly deliver to the Lender a copy of each notice or other communication received by it by which any other party to any Related Contract referred to in Schedule II hereto or otherwise specified by the Lender from time to time purports to exercise any of its rights or affect any of its obligations thereunder, together with a copy of any reply by the Grantor thereto. (v) Except as otherwise permitted in the Loan Agreement, the Grantor will not, without the prior written consent of the Lender, cancel, terminate, amend, modify, or waive any provision of, any Related Contract referred to in Schedule II hereto or otherwise specified by the Lender from time to time. (g) MOTOR VEHICLES. (i) Within 60 days of the date hereof, the Grantor shall deliver to the Lender photocopies of the certificates of title or ownership for the Motor Vehicles owned by it with the Lender listed as lienholder. (ii) Upon the acquisition after the date hereof by the Grantor of any Motor Vehicle, the Grantor shall deliver to the Lender photocopies of the certificates of title or ownership for such Motor Vehicle, together with the manufacturer's statement of origin, with the Lender listed as lienholder. (iii) The Grantor hereby appoints the Lender as its attorney-in-fact, exercisable upon the occurrence of an Event of Default, effective the date hereof and terminating upon the termination of this Agreement, for the purpose of (i) executing on behalf of the Grantor title or ownership applications for filing with appropriate Governmental Authorities to enable Motor Vehicles now owned or hereafter acquired by the Grantor to be retitled and the Lender listed as lienholder thereof, (ii) filing such applications with such state agencies and (iii) executing such other documents and instruments on behalf of, and taking such other action in the name of, the Grantor as the Lender may deem necessary or advisable to accomplish the purposes hereof (including, without limitation, for the purpose of creating in favor of the Lender a perfected lien on the Motor Vehicles and exercising the rights and remedies of the Lender hereunder). This appointment as attorney-in-fact is irrevocable and coupled with an interest. (iv) Any photocopies of certificates of title or ownership delivered pursuant to the terms hereof shall be accompanied by odometer statements for each Motor Vehicle covered thereby. (v) So long as no Event of Default or event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default shall have occurred and be continuing, upon the request of the Grantor, the Lender shall execute and deliver to the Grantor such instruments as the Grantor shall reasonably request to remove the notation of the Lender as lienholder on any certificate of title for any Motor Vehicle; provided that any such instruments shall be delivered, and the release effective, only upon receipt by the Lender of a certificate from the Grantor, stating that the Motor Vehicle the lien on which is to be released is to be sold or has suffered a casualty loss (with title thereto passing to the casualty insurance company therefor in settlement of the claim for such loss) and any proceeds of such sale or casualty loss being paid to the Lender hereunder to be applied to the Obligations then outstanding in the manner contemplated by Section 7(b) hereof. (h) INSPECTION AND REPORTING. The Grantor shall permit representatives of the Lender, upon reasonable notice and at any time during normal business hours, to inspect and make abstracts from its books and records pertaining to the Collateral, and permit representatives of the Lender to be present at the Grantor's place of business to receive copies of all communications and remittances relating to the Collateral, and to forward copies of any notices or communications received or made by the Grantor with respect to the Collateral, all in such manner as the Lender may require. (i) TRANSFERS AND OTHER LIENS. The Grantor will not (i) sell, assign (by operation of law or otherwise), exchange or otherwise dispose of any of the Collateral (except for sales or other dispositions of Inventory and used Equipment in the ordinary course of business) or (ii) create or suffer to exist any lien, security interest or other charge or encumbrance upon or with respect to any of the Collateral except for (A) the security interest created hereby and (B) the security interests and other encumbrances described in Schedule V hereto. SECTION 6. ADDITIONAL PROVISIONS CONCERNING THE COLLATERAL. (a) The Grantor hereby authorizes the Lender to file, without the signature of the Grantor where permitted by law, one or more financing or continuation statements, and amendments thereto, relating to the Collateral. (b) The Grantor hereby irrevocably appoints the Lender the Grantor's attorney-in-fact and proxy, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time in the Lender's discretion, and following the occurrence of an Event of Default, to take any action and to execute any instrument which the Lender may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation: (i) to obtain and adjust insurance required to be paid to the Lender pursuant to Section 5(e) hereof, (ii) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any Collateral, (iii) to receive, indorse, and collect any drafts or other instruments, documents and chattel paper in connection with clause (i) or (ii) above and (iv) to file any claims or take any action or institute any proceedings which the Lender may deem necessary or desirable for the collection of any Collateral or otherwise to enforce the rights of the Lender with respect to any Collateral. (c) If the Grantor fails to perform any agreement contained herein after the expiry of any applicable grace period, the Lender may itself perform, or cause performance of, such agreement or obligation, and the expenses of the Lender incurred in connection therewith shall be payable by the Grantor pursuant to Section 8 hereof. (d) The powers conferred on the Lender hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Lender shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. (e) Anything herein to the contrary notwithstanding, (i) the Grantor shall remain liable under the Related Contracts to the extent set forth therein to perform all of its obligations thereunder to the same extent as if this Agreement had not been executed, (ii) the exercise by the Lender of any of its rights hereunder shall not release the Grantor from any of its obligations under the Related Contracts and (iii) the Lender shall not have any obligation or liability by reason of this Agreement under the Related Contracts nor shall the Lender be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. SECTION 7. REMEDIES UPON DEFAULT. If an Event of Default shall have occurred and be continuing: (a) The Lender may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all of the rights and remedies of a secured party on default under the Code (whether or not the Code applies to the affected Collateral), and also may (i) require the Grantor to, and the Grantor hereby agrees that it will at its expense and upon request of the Lender forthwith, assemble all or part of the Collateral as directed by the Lender and make it available to the Lender at a place to be designated by the Lender which is reasonably convenient to both parties and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Lender's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Lender may deem commercially reasonable. The Grantor agrees that, to the extent notice of sale shall be required by law, at least 10 days' notice to the Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Lender shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Grantor hereby waives any claims against the Lender arising by reason of the fact that the price at which the Collateral may have been sold at a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if the Lender accepts the first offer received and does not offer the Collateral to more than one offeree. (b) Any cash held by the Lender as Collateral and all cash proceeds received by the Lender in respect of any sale of, collection from, or other realization upon, all or any part of the Collateral shall be applied as follows: (i) First, to the payment of the reasonable costs and expenses, including reasonable attorneys' fees and legal expenses, incurred by the Lender in connection with (A) the administration of this Agreement, (B) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Collateral, (C) the exercise or enforcement of any of the rights of the Lender hereunder or (D) the failure of the Grantor to perform or observe any of the provisions hereof; (ii) Second, at the option of the Lender, to the payment or other satisfaction of any liens and other encumbrances upon any of the Collateral; (iii) Third, ratably to the payment of the Obligations, first in respect of any fees not covered by clause (i) above, second, in respect of accrued but unpaid interest on the Loans, and third, in respect of unpaid principal of the Loans; (iv) Fourth, to the payment of any other amounts required by applicable law (including, without limitation, Section 9-504(1)(c) of the Code or any successor or similar, applicable statutory provision); and (v) Fifth, the surplus proceeds, if any, to the Grantor or to whomsoever shall be lawfully entitled to receive the same or as a court of competent jurisdiction shall direct. (c) In the event that the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Lender is legally entitled, the Grantor shall be liable for the deficiency, together with interest thereon at the highest rate specified in any Note for interest on overdue principal thereof or such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees of any attorneys employed by the Lender to collect such deficiency. SECTION 8. INDEMNITY AND EXPENSES. (a) The Grantor agrees to indemnify the Lender from and against any and all claims, losses and liabilities growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting solely and directly from the Lender's gross negligence or willful misconduct. (b) The Grantor will upon demand pay to the Lender the amount of any and all costs and expenses, including the reasonable fees and disbursements of the Lender's counsel and of any experts and Lenders, which the Lender may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Collateral, (iii) the exercise or enforcement of any of the rights of the Lender hereunder, or (iv) the failure by the Grantor to perform or observe any of the provisions hereof. SECTION 9. NOTICES, ETC. All notices and other communications provided for hereunder shall be in writing and shall be mailed, telegraphed or delivered, if to the Grantor, to it at its address specified in the Loan Agreement; if to the Lender, to it at its address specified in the Loan Agreement; or as to either such Person at such other address as shall be designated by such Person in a written notice to such other Persons complying as to delivery with the terms of this Section 9. All such notices and other communications shall be effective (i) if mailed, when deposited in the mails, (ii) if telegraphed, when delivered to the telegraph company, or (iii) if delivered, upon delivery. SECTION 10. MISCELLANEOUS. (a) No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by the Grantor and the Lender, and no waiver of any provision of this Agreement, and no consent to any departure by the Grantor therefrom, shall be effective unless it is in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (b) No failure on the part of the Lender to exercise, and no delay in exercising, any right hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of the Lender provided herein and in the other Loan Documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights of the Lender under any Loan Document against any party thereto are not conditional or contingent on any attempt by the Lender to exercise any of its rights under any other Loan Document against such party or against any other Person. (c) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or invalidity without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. (d) This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the indefeasible payment in full or release of the Obligations (as such term is defined in clause (i) of Section 1.01 of the Loan Agreement), (ii) be binding on the Grantor and its successors and assigns and shall inure, together with all rights and remedies of the Lender hereunder, to the benefit of the Lender and its respective successors, transferees and assigns. Without limiting the generality of the foregoing, the Lender may assign or otherwise transfer any Note or portion thereof held by it, and the Lender may assign or otherwise transfer its rights under any other Loan Document to any other Person, and such other Person shall thereupon become vested with all of the benefits in respect thereof granted to the Lender, herein or otherwise. None of the rights or obligations of the Grantor hereunder may be assigned or otherwise transferred without the prior written consent of the Lender. (e) Upon the satisfaction in full of the Obligations, (i) this Agreement and the security interest created hereby shall terminate and all rights to the Collateral shall revert to the Grantor, and (ii) the Lender will, upon the Grantor's request and at the Grantor's expense, (A) return to the Grantor such of the Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms hereof and (B) execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination. (f) This Agreement shall be governed by and construed in accordance with the law of the State of New York, except as required by mandatory provisions of law and except to the extent that the validity or perfection or the perfection and the effect of the perfection or non-perfection of the security interest created hereby, or remedies hereunder, in respect of any particular Collateral are governed by the law of a jurisdiction other than the State of New York. (g) Any legal action or proceeding with respect to this Agreement or any document related thereto may be brought in the courts of the State of New York or the United States of America for the Southern District of New York, and, by execution and delivery of this Agreement, the Grantor hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The Grantor hereby irrevocably waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of FORUM NON CONVENIENS, which it may now or hereafter have to the bringing of any such action or proceeding in such respective jurisdictions and consents to the granting of such legal or equitable relief as is deemed appropriate by the court. (h) The Grantor irrevocably consents to the service of process of any of the aforesaid courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such Grantor at its address provided herein, such service to become effective 30 days after such mailing. (i) Nothing contained herein shall affect the right of the Lender to serve process in any other manner permitted by law or commence legal proceedings or otherwise proceed against the Grantor or any of the Grantor's property in any other jurisdiction. (j) EACH OF THE GRANTOR AND (BY ITS ACCEPTANCE OF THIS AGREEMENT) THE LENDER WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, VERBAL OR WRITTEN STATEMENT OR OTHER ACTION OF THE PARTIES HERETO. IN WITNESS WHEREOF, the Grantor has caused this Agreement to be executed and delivered by its officer thereunto duly authorized, as of the date first above written. SPEAKEASY GAMING OF RENO, INC. By: /S/ EDSON R. ARNEAULT -------------------------------- Name: Edson R. Arneault Title: President, Chief Executive Officer EX-10.15 11 EXHIBIT 10.15 EXHIBIT 10.15 GENERAL SECURITY AGREEMENT GENERAL SECURITY AGREEMENT dated as of May 5, 1998, made by SPEAKEASY GAMING OF LAS VEGAS, INC., a Nevada corporation (the "Grantor"), in favor of MADELEINE LLC, as lender (the "Lender"). W I T N E S S E T H : WHEREAS, the Grantor, Speakeasy Gaming of Reno, Inc., a Nevada corporation ("Speakeasy Reno"), Mountaineer Park, Inc., a West Virginia corporation ("Mountaineer" and together with the Grantor and Speakeasy Reno, collectively, the "Borrowers"), MTR Gaming Group, Inc., a Delaware corporation, (the "Guarantor" and together with the Grantor, Speakeasy Reno and Mountaineer, collectively, the "Loan Parties"), and the Lender are entering into a Third Amended and Restated Loan Agreement, dated as of July 2, 1996, as amended and restated as of December 10, 1996, as further amended and restated as of July 2, 1997, and as further amended and restated as of the date hereof, (such agreement, as further amended or otherwise modified from time to time, being hereinafter referred to as the "Loan Agreement"); WHEREAS, pursuant to the Loan Agreement, the Lender has agreed to make (and has from time to time made) (i) certain term loans (collectively the "Term Loans") to the Borrowers in an aggregate principal amount not to exceed the Term Commitment (as defined in the Loan Agreement), and (ii) a line of credit available for loans to the Borrowers (the "Line Loans" and, collectively with the Term Loan, the "Loans") in an aggregate principal amount not to exceed the Line Commitment (as defined in the Loan Agreement); WHEREAS, the Grantor, Mountaineer, the Guarantor, Speakeasy Reno and the Lender are entering into the third amendment and restatement of the Loan Agreement for the purposes of making increases to the Term Commitment and the Line Commitment and for the purpose of adding the Grantor and Speakeasy Reno as Borrowers under the Loan Agreement to be bound by the terms of such agreement as Borrowers; and WHEREAS, it is a condition precedent to the making and continuing (as applicable) of the Loans by the Lender pursuant to the Loan Agreement that the Grantor shall have executed and delivered to the Lender a security agreement providing for the grant to the Lender of a security interest in all personal property and fixtures of the Grantor; NOW, THEREFORE, in consideration of the premises and the agreements herein and in order to induce the Lender to make and maintain the Loans pursuant to the Loan Agreement, the Grantor hereby agrees with the Lender as follows: SECTION 1. DEFINITIONS. Reference is hereby made to the Loan Agreement for a statement of the terms thereof. All terms used in this Agreement which are defined in the Loan Agreement or in Article 9 of the Uniform Commercial Code (the "Code") currently in effect in the State of New York and which are not otherwise defined herein shall have the same meanings herein as set forth therein. SECTION 2. GRANT OF SECURITY INTEREST. As collateral security for all of the Obligations (as defined in Section 3 hereof), the Grantor hereby pledges and assigns to the Lender, and grants to the Lender a continuing security interest in, all personal property and fixtures of the Grantor, wherever located and whether now or hereafter existing and whether now owned or hereafter acquired, of every kind and description, tangible or intangible (the "Collateral"), including, without limitation, the following: (a) all equipment of any kind including, without limitation, the equipment described in Schedule I hereto, all furniture, fixtures, machinery and all motor vehicles, tractors and other like property, whether or not the title thereto is governed by a certificate of title or ownership (hereinafter collectively referred to as the "Motor Vehicles"), wherever located and whether now or hereafter existing and whether now owned or hereafter acquired, together with all substitutes, replacements, accessions and additions thereto, and all tools, parts, accessories and attachments used in connection therewith (hereinafter collectively referred to as the "Equipment"); (b) all of the Grantor's right, title and interest in and to all inventory of any kind, wherever located and whether now or hereafter existing and whether now owned or hereafter acquired, and all accessions thereto and products thereof (any and all such inventory, accessions and products being hereinafter referred to as the "Inventory"); (c) all of the Grantor's right, title and interest in and to (i) all accounts, contract rights, chattel paper, instruments, documents, general intangibles and other rights or obligations of any kind, whether now or hereafter existing and whether now owned or hereafter acquired, arising out of or in connection with the sale or lease of goods or the rendering of services or otherwise and (ii) all rights now or hereafter existing in and to all security agreements, leases and other contracts, now or hereafter existing and securing or otherwise relating to any such accounts, contract rights, chattel paper, instruments, general intangibles or obligations (including without limitation, the contracts described in Schedule II hereto) (any and all such accounts, contract rights, chattel paper, instruments, general intangibles and obligations being hereinafter referred to as the "Receivables", and any and all such security agreements, leases and other contracts being hereinafter referred to as the "Related Contracts"); and (d) all proceeds of any and all of the foregoing Collateral and, to the extent not otherwise included, all payments under insurance (whether or not the Lender is the loss payee thereof) (subject, however, to those provisions in that certain Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated of even date herewith, between the Grantor and the Lender, for the Cheyenne Hotel Property (as defined in the Loan Agreement) with respect to making insurance proceeds available for restorations), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral; in each case, howsoever the Grantor's interest therein may arise or appear (whether by ownership, security interest, claim or otherwise). SECTION 3. SECURITY FOR OBLIGATIONS. The security interest created hereby in the Collateral constitutes continuing collateral security for all of the following obligations, whether now existing or hereafter incurred (the "Obligations"): (a) the prompt payment by the Grantor, as and when due and payable, of all amounts from time to time owing by it in respect of the Loan Agreement, the Notes and the other Loan Documents; and (b) the due performance and observance by the Grantor of all of its other obligations from time to time existing in respect of the Loan Documents. SECTION 4. REPRESENTATIONS AND WARRANTIES. The Grantor represents and warrants as follows: (a) The Grantor (i) is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation as set forth on the first page hereof, and (ii) has all requisite power and authority to execute, deliver and perform this Agreement. (b) The execution, delivery and performance by the Grantor of this Agreement (i) have been duly authorized by all necessary corporate action, (ii) do not and will not contravene its charter or by-laws, law or any contractual restriction binding on or affecting the Grantor or any of its properties, and (iii) do not and will not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties, except as contemplated by the Loan Documents. (c) This Agreement is a legal, valid and binding obligation of the Grantor, enforceable against the Grantor in accordance with its terms. (d) All Equipment and Inventory now existing is, and all Equipment and Inventory hereafter existing will be, located at the address(es) specified therefor in Schedule III hereto. The Grantor's chief place of business and chief executive office, the place where the Grantor keeps its records concerning Receivables and all originals of all chattel paper which constitute Receivables are located at the address specified therefor in Schedule III. None of the Receivables is evidenced by a promissory note or other instrument. Set forth as Schedule IV hereto is a complete and correct list of each trade name used by the Grantor. (e) The Grantor has delivered to the Lender complete and correct copies of each Related Contract in its possession described in Schedule II hereto, including all schedules and exhibits thereto. To the best of the Grantor's knowledge, each such Related Contract sets forth the entire agreement and understanding of the parties thereto relating to the subject matter thereof, and there are no other agreements, arrangements or understandings, written or oral, relating to the matters covered thereby or the rights of the Grantor or any of its Affiliates in respect thereof. Other than those Related Contracts which the Grantor acquired in connection with its acquisition of the Cheyenne Hotel Property and to which the Grantor is not a signatory, each Related Contract now existing is, and each other Related Contract will be the legal, valid and binding obligation of the parties thereto, enforceable against such parties in accordance with its terms. To the best of Grantor's knowledge, without independent inquiry, all Related Contracts which have been assigned to Grantor are legal, valid and binding obligations of the Grantor. (f) Except as otherwise provided in the Loan Agreement, the Grantor is and will be at all times the owner of the Collateral free and clear of any lien, security interest or other charge or encumbrance except for (i) the security interest created by this Agreement and (ii) the security interests and other encumbrances described in Schedule V hereto. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording or filing office except (i) such as may have been filed in favor of the Lender relating to this Agreement and (ii) such as may have been filed to perfect or protect any security interest or encumbrance described in Schedule V hereto. (g) The exercise by the Lender of its rights and remedies hereunder will not contravene any law or contractual restriction binding on or affecting the Grantor or any of its properties and will not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties. (h) Except as otherwise provided in the Loan Agreement, no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or other regulatory body is required for (i) the due execution, delivery and performance by the Grantor of this Agreement, (ii) the grant by the Grantor, or the perfection, of the security interest purported to be created hereby in the Collateral or (iii) the exercise by the Lender of any of its rights and remedies hereunder, except for the filing under the Code of the financing statement(s) required to be filed pursuant to the Loan Agreement, all of which financing statements have been duly filed and are in full force and effect. (i) This Agreement creates a valid security interest in favor of the Lender in the Collateral as security for the Obligations. The Lender's having possession of all instruments and cash constituting Collateral from time to time and the filing of the financing statements required to be filed pursuant to the Loan Agreement results in the perfection of such security interest. Such security interest is, or in the case of Collateral in which the Grantor obtains rights after the date hereof, will be, a perfected, first priority security interest, subject only to the security interests and other encumbrances described in Schedule V hereto. Such filings and all other action necessary or desirable to perfect and protect such security interest have been duly taken, except for the Lender's having possession of instruments and cash constituting Collateral after the date hereof. SECTION 5. COVENANTS AS TO THE COLLATERAL. So long as any of the Obligations (as such term is defined in clause (i) of Section 1.01 of the Loan Agreement) shall remain outstanding, unless the Lender shall otherwise consent in writing: (a) FURTHER ASSURANCES. The Grantor will at its expense, at any time and from time to time, promptly execute and deliver all further instruments and documents and take all further action that may be necessary or desirable or that the Lender may request in order (i) to perfect and protect the security interest purported to be created hereby, (ii) to enable the Lender to exercise and enforce its rights and remedies hereunder in respect of the Collateral or (iii) to otherwise effect the purposes of this Agreement, including, without limitation: (A) marking conspicuously each chattel paper included in the Receivables and each Related Contract and, at the request of the Lender, each of its records pertaining to the Collateral with a legend, in form and substance satisfactory to the Lender, indicating that such chattel paper, Related Contract or Collateral is subject to the security interest created hereby, (B) if any Receivable shall be evidenced by a promissory note or other instrument or chattel paper, delivering and pledging to the Lender hereunder such note, instrument or chattel paper duly indorsed and accompanied by executed instruments of transfer or assignment, all in form and substance satisfactory to the Lender, (C) executing and filing such financing or continuation statements, or amendments thereto, as may be necessary or desirable or that the Lender may request in order to perfect and preserve the security interest purported to be created hereby, (D) furnishing to the Lender from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Lender may reasonably request, all in reasonable detail, and (E) upon the acquisition after the date hereof by the Grantor of any Equipment covered by a certificate of title or ownership, cause the Lender to be listed as the lienholder (or, in the event such Equipment is subject to a purchase money security interest (a "Permitted Lien"), as a junior lienholder) on such certificate of title and within 60 days of the acquisition thereof and deliver evidence of the same to the Lender. (b) LOCATION OF EQUIPMENT AND INVENTORY. The Grantor will keep the Equipment and Inventory (other than Inventory and used Equipment sold in the ordinary course of business) at the location[s] specified therefor in Section 4(d) hereof. (c) CONDITION OF EQUIPMENT. The Grantor will cause the Equipment to be maintained and preserved in the same condition, repair and working order as when acquired, ordinary wear and tear excepted, and in accordance with any manufacturer's manual, and will forthwith, or in the case of any loss or damage to any Equipment as quickly as practicable after the occurrence thereof, make or cause to be made all repairs, replacements, and other improvements in connection therewith which are necessary or desirable or that the Lender may request to such end. The Grantor will promptly furnish to the Lender a statement respecting any loss or damage in excess of $10,000 to any Equipment. (d) TAXES. The Grantor will pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Equipment and Inventory, except to the extent the validity thereof is being contested in good faith by proper proceedings which stay the imposition of any penalty, fine or lien resulting from the non-payment thereof and with respect to which adequate reserves have been set aside for the payment thereof. (e) INSURANCE. (i) The Grantor will, at its own expense, maintain insurance with respect to the Equipment and Inventory in such amounts, against such risks, in such form and with such insurers, as shall be satisfactory to the Lender from time to time. Each policy for liability insurance shall provide for all losses to be paid on behalf of the Lender and the Grantor as their respective interests may appear, and each policy for property damage insurance shall provide for all losses to be adjusted with, and paid directly to, the Lender; PROVIDED, HOWEVER, that with respect to Equipment subject to a Permitted Lien, the Lender's rights may be subject to the rights of the holder of such Permitted Lien. Except as required by any agreement which creates a Permitted Lien, or as otherwise provided in the Loan Documents, each such policy shall in addition (A) name the Grantor and the Lender as insured parties thereunder (without any representation or warranty by or obligation upon the Lender) as their interests may appear, (B) contain the agreement by the insurer that any loss thereunder shall be payable to the Lender notwithstanding any action, inaction or breach of representation or warranty by the Grantor, (C) provide that there shall be no recourse against the Lender for payment of premiums or other amounts with respect thereto and (D) provide that at least 30 days' prior written notice of cancellation or of lapse shall be given to the Lender by the insurer. The Grantor will, if so requested by the Lender, deliver to the Lender original or duplicate policies of such insurance and, as often as the Lender may reasonably request, a report of a reputable insurance broker with respect to such insurance. The Grantor will also, at the request of the Lender, duly execute and deliver instruments of assignment of such insurance policies and cause the respective insurers to acknowledge notice of such assignment. (ii) Reimbursement under any liability insurance maintained by the Grantor pursuant to this Section 5(e) may be paid directly to the Person who shall have incurred liability covered by such insurance. In the case of any loss involving damage to Equipment or Inventory as to which paragraph (iii) of this Section 5(e) is not applicable, the Grantor will make or cause to be made the necessary repairs to or replacements of such Equipment or Inventory, and any proceeds of insurance maintained by the Grantor pursuant to this Section 5(e) shall be paid to the Grantor as reimbursement for the costs of such repairs or replacements. (iii) Except as otherwise provided in the Loan Documents, upon the occurrence and during the continuance of an Event of Default or the actual or constructive total loss (in excess of $10,000 per occurrence) of any Equipment or Inventory, all insurance payments in respect of such Equipment or Inventory shall be paid to the Lender and applied as specified in Section 7(b) hereof. (f) PROVISIONS CONCERNING THE RECEIVABLES AND THE RELATED CONTRACTS. (i) The Grantor will (A) give the Lender prompt notice of any change in the Grantor's name, identity or corporate structure, (B) keep its chief place of business and chief executive office and all originals of all chattel paper which constitute Receivables at the location[s] specified therefor in Section 4(d) hereof, and (C) keep adequate records concerning the Receivables and such chattel paper and permit representatives of the Lender at any time during normal business hours to inspect and make abstracts from such records and chattel paper. (ii) The Grantor will duly perform and observe all of its obligations under each Related Contract and, except as otherwise provided in this Subsection (f), continue to collect, at its own expense, all amounts due or to become due under the Receivables. In connection with such collections, the Grantor may (and, at the Lender's direction, will) take such action as the Grantor or the Lender may deem necessary or advisable to enforce collection or performance of the Receivables; PROVIDED, HOWEVER, that the Lender shall have the right at any time, upon the occurrence and during the continuance of an Event of Default or an event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default, and upon written notice to the Grantor of its intention to do so, to notify the account debtors or obligors under any Receivables of the assignment of such Receivables to the Lender and to direct such account debtors or obligors to make payment of all amounts due or to become due to the Grantor thereunder directly to the Lender and, upon such notification and at the expense of the Grantor and to the extent permitted by law, to enforce collection of any such Receivables and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as the Grantor might have done. After receipt by the Grantor of the notice from the Lender referred to in the proviso to the immediately preceding sentence, (A) all amounts and proceeds (including instruments) received by the Grantor in respect of the Receivables shall be received in trust for the benefit of the Lender hereunder, shall be segregated from other funds of the Grantor and shall be forthwith paid over to the Lender in the same form as so received (with any necessary indorsement) to be held as cash collateral and either (1) released to the Grantor so long as no Event of Default shall have occurred and be continuing or (2) if any Event of Default shall have occurred and be continuing, applied as specified in Section 7(b) hereof, and (B) the Grantor will not adjust, settle or compromise the amount or payment of any Receivable or release wholly or partly any account debtor or obligor thereof or allow any credit or discount thereon. (iii) Upon the occurrence and during the continuance of any breach or default under any Related Contract referred to in Schedule II hereto or otherwise specified by the Lender from time to time by any party thereto other than the Grantor, (A) the Grantor will, promptly after obtaining knowledge thereof, give the Lender written notice of the nature and duration thereof, specifying what action, if any, it has taken and proposes to take with respect thereto, (B) the Grantor will not, without the prior written consent of the Lender, declare or waive any such breach or default or affirmatively consent to the cure thereof or exercise any of its remedies in respect thereof, and (C) the Grantor will, upon written instructions from the Lender and at the Grantor's expense, take such action as the Lender may deem necessary or advisable in respect thereof. (iv) The Grantor will, at its expense, promptly deliver to the Lender a copy of each notice or other communication received by it by which any other party to any Related Contract referred to in Schedule II hereto or otherwise specified by the Lender from time to time purports to exercise any of its rights or affect any of its obligations thereunder, together with a copy of any reply by the Grantor thereto. (v) Except as otherwise permitted in the Loan Agreement, the Grantor will not, without the prior written consent of the Lender, cancel, terminate, amend, modify, or waive any provision of, any Related Contract referred to in Schedule II hereto or otherwise specified by the Lender from time to time. (g) MOTOR VEHICLES. (i) Within 60 days of the date hereof, the Grantor shall deliver to the Lender photocopies of the certificates of title or ownership for the Motor Vehicles owned by it with the Lender listed as lienholder. (ii) Upon the acquisition after the date hereof by the Grantor of any Motor Vehicle, the Grantor shall deliver to the Lender photocopies of the certificates of title or ownership for such Motor Vehicle, together with the manufacturer's statement of origin, with the Lender listed as lienholder. (iii) The Grantor hereby appoints the Lender as its attorney-in-fact, exercisable upon the occurrence of an Event of Default, effective the date hereof and terminating upon the termination of this Agreement, for the purpose of (i) executing on behalf of the Grantor title or ownership applications for filing with appropriate Governmental Authorities to enable Motor Vehicles now owned or hereafter acquired by the Grantor to be retitled and the Lender listed as lienholder thereof, (ii) filing such applications with such state agencies and (iii) executing such other documents and instruments on behalf of, and taking such other action in the name of, the Grantor as the Lender may deem necessary or advisable to accomplish the purposes hereof (including, without limitation, for the purpose of creating in favor of the Lender a perfected lien on the Motor Vehicles and exercising the rights and remedies of the Lender hereunder). This appointment as attorney-in-fact is irrevocable and coupled with an interest. (iv) Any photocopies of certificates of title or ownership delivered pursuant to the terms hereof shall be accompanied by odometer statements for each Motor Vehicle covered thereby. (v) So long as no Event of Default or event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default shall have occurred and be continuing, upon the request of the Grantor, the Lender shall execute and deliver to the Grantor such instruments as the Grantor shall reasonably request to remove the notation of the Lender as lienholder on any certificate of title for any Motor Vehicle; provided that any such instruments shall be delivered, and the release effective, only upon receipt by the Lender of a certificate from the Grantor, stating that the Motor Vehicle the lien on which is to be released is to be sold or has suffered a casualty loss (with title thereto passing to the casualty insurance company therefor in settlement of the claim for such loss) and any proceeds of such sale or casualty loss being paid to the Lender hereunder to be applied to the Obligations then outstanding in the manner contemplated by Section 7(b) hereof. (h) INSPECTION AND REPORTING. The Grantor shall permit representatives of the Lender, upon reasonable notice and at any time during normal business hours, to inspect and make abstracts from its books and records pertaining to the Collateral, and permit representatives of the Lender to be present at the Grantor's place of business to receive copies of all communications and remittances relating to the Collateral, and to forward copies of any notices or communications received or made by the Grantor with respect to the Collateral, all in such manner as the Lender may require. (i) TRANSFERS AND OTHER LIENS. The Grantor will not (i) sell, assign (by operation of law or otherwise), exchange or otherwise dispose of any of the Collateral (except for sales or other dispositions of Inventory and used Equipment in the ordinary course of business) or (ii) create or suffer to exist any lien, security interest or other charge or encumbrance upon or with respect to any of the Collateral except for (A) the security interest created hereby and (B) the security interests and other encumbrances described in Schedule V hereto. SECTION 6. ADDITIONAL PROVISIONS CONCERNING THE COLLATERAL. (a) The Grantor hereby authorizes the Lender to file, without the signature of the Grantor where permitted by law, one or more financing or continuation statements, and amendments thereto, relating to the Collateral. (b) The Grantor hereby irrevocably appoints the Lender the Grantor's attorney-in-fact and proxy, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time in the Lender's discretion, and following the occurrence of an Event of Default, to take any action and to execute any instrument which the Lender may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation: (i) to obtain and adjust insurance required to be paid to the Lender pursuant to Section 5(e) hereof, (ii) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any Collateral, (iii) to receive, indorse, and collect any drafts or other instruments, documents and chattel paper in connection with clause (i) or (ii) above and (iv) to file any claims or take any action or institute any proceedings which the Lender may deem necessary or desirable for the collection of any Collateral or otherwise to enforce the rights of the Lender with respect to any Collateral. (c) If the Grantor fails to perform any agreement contained herein after the expiry of any applicable grace period, the Lender may itself perform, or cause performance of, such agreement or obligation, and the expenses of the Lender incurred in connection therewith shall be payable by the Grantor pursuant to Section 8 hereof. (d) The powers conferred on the Lender hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Lender shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. (e) Anything herein to the contrary notwithstanding, (i) the Grantor shall remain liable under the Related Contracts to the extent set forth therein to perform all of its obligations thereunder to the same extent as if this Agreement had not been executed, (ii) the exercise by the Lender of any of its rights hereunder shall not release the Grantor from any of its obligations under the Related Contracts and (iii) the Lender shall not have any obligation or liability by reason of this Agreement under the Related Contracts nor shall the Lender be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. SECTION 7. REMEDIES UPON DEFAULT. If an Event of Default shall have occurred and be continuing: (a) The Lender may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all of the rights and remedies of a secured party on default under the Code (whether or not the Code applies to the affected Collateral), and also may (i) require the Grantor to, and the Grantor hereby agrees that it will at its expense and upon request of the Lender forthwith, assemble all or part of the Collateral as directed by the Lender and make it available to the Lender at a place to be designated by the Lender which is reasonably convenient to both parties and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Lender's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Lender may deem commercially reasonable. The Grantor agrees that, to the extent notice of sale shall be required by law, at least 10 days' notice to the Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Lender shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Grantor hereby waives any claims against the Lender arising by reason of the fact that the price at which the Collateral may have been sold at a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if the Lender accepts the first offer received and does not offer the Collateral to more than one offeree. (b) Any cash held by the Lender as Collateral and all cash proceeds received by the Lender in respect of any sale of, collection from, or other realization upon, all or any part of the Collateral shall be applied as follows: (i) First, to the payment of the reasonable costs and expenses, including reasonable attorneys' fees and legal expenses, incurred by the Lender in connection with (A) the administration of this Agreement, (B) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Collateral, (C) the exercise or enforcement of any of the rights of the Lender hereunder or (D) the failure of the Grantor to perform or observe any of the provisions hereof; (ii) Second, at the option of the Lender, to the payment or other satisfaction of any liens and other encumbrances upon any of the Collateral; (iii) Third, ratably to the payment of the Obligations, first in respect of any fees not covered by clause (i) above, second, in respect of accrued but unpaid interest on the Loans, and third, in respect of unpaid principal of the Loans; (iv) Fourth, to the payment of any other amounts required by applicable law (including, without limitation, Section 9-504(1)(c) of the Code or any successor or similar, applicable statutory provision); and (v) Fifth, the surplus proceeds, if any, to the Grantor or to whomsoever shall be lawfully entitled to receive the same or as a court of competent jurisdiction shall direct. (c) In the event that the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Lender is legally entitled, the Grantor shall be liable for the deficiency, together with interest thereon at the highest rate specified in any Note for interest on overdue principal thereof or such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees of any attorneys employed by the Lender to collect such deficiency. SECTION 8. INDEMNITY AND EXPENSES. (a) The Grantor agrees to indemnify the Lender from and against any and all claims, losses and liabilities growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting solely and directly from the Lender's gross negligence or willful misconduct. (b) The Grantor will upon demand pay to the Lender the amount of any and all costs and expenses, including the reasonable fees and disbursements of the Lender's counsel and of any experts and Lenders, which the Lender may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Collateral, (iii) the exercise or enforcement of any of the rights of the Lender hereunder, or (iv) the failure by the Grantor to perform or observe any of the provisions hereof. SECTION 9. NOTICES, ETC. All notices and other communications provided for hereunder shall be in writing and shall be mailed, telegraphed or delivered, if to the Grantor, to it at its address specified in the Loan Agreement; if to the Lender, to it at its address specified in the Loan Agreement; or as to either such Person at such other address as shall be designated by such Person in a written notice to such other Persons complying as to delivery with the terms of this Section 9. All such notices and other communications shall be effective (i) if mailed, when deposited in the mails, (ii) if telegraphed, when delivered to the telegraph company, or (iii) if delivered, upon delivery. SECTION 10. MISCELLANEOUS. (a) No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by the Grantor and the Lender, and no waiver of any provision of this Agreement, and no consent to any departure by the Grantor therefrom, shall be effective unless it is in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (b) No failure on the part of the Lender to exercise, and no delay in exercising, any right hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of the Lender provided herein and in the other Loan Documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights of the Lender under any Loan Document against any party thereto are not conditional or contingent on any attempt by the Lender to exercise any of its rights under any other Loan Document against such party or against any other Person. (c) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or invalidity without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. (d) This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the indefeasible payment in full or release of the Obligations (as such term is defined in clause (i) of Section 1.01 of the Loan Agreement), (ii) be binding on the Grantor and its successors and assigns and shall inure, together with all rights and remedies of the Lender hereunder, to the benefit of the Lender and its respective successors, transferees and assigns. Without limiting the generality of the foregoing, the Lender may assign or otherwise transfer any Note or portion thereof held by it, and the Lender may assign or otherwise transfer its rights under any other Loan Document to any other Person, and such other Person shall thereupon become vested with all of the benefits in respect thereof granted to the Lender, herein or otherwise. None of the rights or obligations of the Grantor hereunder may be assigned or otherwise transferred without the prior written consent of the Lender. (e) Upon the satisfaction in full of the Obligations, (i) this Agreement and the security interest created hereby shall terminate and all rights to the Collateral shall revert to the Grantor, and (ii) the Lender will, upon the Grantor's request and at the Grantor's expense, (A) return to the Grantor such of the Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms hereof and (B) execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination. (f) This Agreement shall be governed by and construed in accordance with the law of the State of New York, except as required by mandatory provisions of law and except to the extent that the validity or perfection or the perfection and the effect of the perfection or non-perfection of the security interest created hereby, or remedies hereunder, in respect of any particular Collateral are governed by the law of a jurisdiction other than the State of New York. (g) Any legal action or proceeding with respect to this Agreement or any document related thereto may be brought in the courts of the State of New York or the United States of America for the Southern District of New York, and, by execution and delivery of this Agreement, the Grantor hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The Grantor hereby irrevocably waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of FORUM NON CONVENIENS, which it may now or hereafter have to the bringing of any such action or proceeding in such respective jurisdictions and consents to the granting of such legal or equitable relief as is deemed appropriate by the court. (h) The Grantor irrevocably consents to the service of process of any of the aforesaid courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such Grantor at its address provided herein, such service to become effective 30 days after such mailing. (i) Nothing contained herein shall affect the right of the Lender to serve process in any other manner permitted by law or commence legal proceedings or otherwise proceed against the Grantor or any of the Grantor's property in any other jurisdiction. (j) EACH OF THE GRANTOR AND (BY ITS ACCEPTANCE OF THIS AGREEMENT) THE LENDER WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, VERBAL OR WRITTEN STATEMENT OR OTHER ACTION OF THE PARTIES HERETO. IN WITNESS WHEREOF, the Grantor has caused this Agreement to be executed and delivered by its officer thereunto duly authorized, as of the date first above written. SPEAKEASY GAMING OF LAS VEGAS, INC. By: /s/ Edson R. Arneault -------------------------------------- Name: Edson R. Arneault Title: President, Chief Executive Officer EX-10.16 12 EXHIBIT 10.16 EXHIBIT 10.16 1998 STOCK INCENTIVE PLAN of MTR GAMING GROUP, INC. 1. PURPOSES OF THE PLAN. This stock incentive plan (the "Plan") is designed to provide an incentive to key employees (including directors and officers who are key employees) and to consultants and directors who are not employees of MTR GAMING GROUP, INC., a Delaware corporation (the "Company"), or any of its Subsidiaries (as defined in Paragraph 17), and to offer an additional inducement in obtaining the services of such persons. The Plan provides for the grant of "incentive stock options" ("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), nonqualified stock options which do not qualify as ISOs ("NQSOs"), and stock of the Company which may be subject to contingencies or restrictions (collectively, "Awards"). The Company makes no representation or warranty, express or implied, as to the qualification of any option as an "incentive stock option" under the Code. 2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph 10, the aggregate number of shares of Common Stock, $.0001 par value per share, of the Company ("Common Stock") for which Awards may be granted under the Plan shall not exceed 800,000. Such shares of Common Stock may, in the discretion of the Board of Directors of the Company (the "Board of Directors"), consist either in whole or in part of authorized but unissued shares of Common Stock or shares of Common Stock held in the treasury of the Company. Subject to the provisions of Paragraph 11, any shares of Common Stock subject to an option which for any reason expires, is canceled or is terminated unexercised or which ceases for any reason to be exercisable or a restricted stock Award which for any reason is forfeited, shall again become available for the granting of Awards under the Plan. The Company shall at all times during the term of the Plan reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of the Plan. 3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Board of Directors or a committee of the Board of Directors consisting of not less than two directors, each of whom shall be a "non-employee director" within the meaning of Rule 16b-3 (as defined in Paragraph 17) (collectively, the "Committee"). Unless otherwise provided in the By-laws of the Company or by resolution of the Board of Directors, a majority of the members of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, and any acts approved in writing by all members without a meeting, shall be the acts of the Committee. Subject to the express provisions of the Plan, the Committee shall have the authority, in its sole discretion, to determine: the key employees, consultants and directors who shall be granted Awards; the -1- type of Award to be granted; the times when an Award shall be granted; the number of shares of Common Stock to be subject to each Award; the term of each option; the date each option shall become exercisable; whether an option shall be exercisable in whole or in installments and, if in installments, the number of shares of Common Stock to be subject to each installment, whether the installments shall be cumulative, the date each installment shall become exercisable and the term of each installment; whether to accelerate the date of exercise of any option or installment thereof; whether shares of Common Stock may be issued upon the exercise of an option as partly paid and, if so, the dates when future installments of the exercise price shall become due and the amounts of such installments; the exercise price of each option; the price, if any, to be paid for a share Award; the form of payment of the exercise price of an option; whether to restrict the sale or other disposition of a stock Award or the shares of Common Stock acquired upon the exercise of an option and, if so, to determine whether such contingencies and restrictions have been met and whether and under what conditions to waive any such contingency or restriction; whether and under what conditions to subject all or a portion of the grant or exercise of an option, the vesting of a stock Award or the shares acquired pursuant to the exercise of an option to the fulfillment of certain contingencies or restrictions as specified in the contract referred to in Paragraph 9 hereof (the "Contract"), including without limitation, contingencies or restrictions relating to entering into a covenant not to compete with the Company, any of its Subsidiaries or a Parent (as defined in Paragraph 17), to financial objectives for the Company, any of its Subsidiaries or a Parent, a division of any of the foregoing, a product line or other category, and/or to the period of continued employment of the Award holder with the Company, any of its Subsidiaries or a Parent, and to determine whether such contingencies or restrictions have been met; whether an Award holder is Disabled (as defined in Paragraph 17); the amount, if any, necessary to satisfy the obligation of the Company, a Subsidiary or Parent to withhold taxes or other amounts; the Fair Market Value (as defined in Paragraph 17) of a share of Common Stock; to construe the respective Contracts and the Plan; with the consent of the Award holder, to cancel or modify an Award, PROVIDED, that the modified provision is permitted to be included in an Award granted under the Plan on the date of the modification, and FURTHER, PROVIDED, that in the case of a modification (within the meaning of Section 424(h) of the Code) of an ISO, such Award as modified would be permitted to be granted on the date of such modification under the terms of the Plan; to prescribe, amend and rescind rules and regulations relating to the Plan; to approve any provision which under Rule 16b-3 requires the approval of the Board of Directors, a committee of non-employee directors or the stockholders to be exempt (unless otherwise specifically provided herein); and to make all other determinations necessary or advisable for administering the Plan. Any controversy or claim arising out of or relating to the Plan, any Award granted under the Plan or any Contract shall be determined unilaterally by the Committee in its sole discretion. The determinations of the Committee on the matters referred to in this Paragraph 3 shall be conclusive and binding on the parties. No member or former member of the Committee shall be liable for any action, failure to act or determination made in good faith with respect to the Plan or any Award or Contract hereunder. Prior to the creation and designation of the Committee by the Board of Directors, all powers and authority allocated hereby to the Committee shall be allocated to the Board of Directors and all references to the Committee shall be deemed to be references to the Board of Directors. -2- 4. OPTIONS (a) GRANT. The Committee may from time to time, consistent with the purposes of the Plan, grant options to such key employees (including officers and directors who are key employees) of, and consultants to, the Company or any of its Subsidiaries, and such Outside Directors, as the Committee may determine, in its sole discretion. Such options granted shall cover such number of shares of Common Stock as the Committee may determine, in its sole discretion, as set forth in the applicable Contract; PROVIDED, HOWEVER, that the maximum number of shares subject to options that may be granted to any employee during any calendar year under the Plan (the "162(m) Maximum") shall be 350,000 shares; and FURTHER, PROVIDED, that the aggregate Fair Market Value (determined at the time the option is granted) of the shares of Common Stock for which any eligible employee may be granted ISOs under the Plan or any other plan of the Company, of any of its Subsidiaries or of a Parent, which are exercisable for the first time by such optionee during any calendar year shall not exceed $100,000. Such ISO limitation shall be applied by taking ISOs into account in the order in which they were granted. Any option granted in excess of such ISO limitation amount shall be treated as a NQSO to the extent of such excess. (b) EXERCISE PRICE. The exercise price of the shares of Common Stock under each option shall be determined by the Committee, in its sole discretion, as set forth in the applicable Contract; PROVIDED, HOWEVER, that the exercise price per share of an ISO shall not be less than the Fair Market Value of a share of Common Stock on the date of grant; and FURTHER, PROVIDED, that if, at the time an ISO is granted, the optionee owns (or is deemed to own under Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, of any of its Subsidiaries or of a Parent, the exercise price per share of such ISO shall not be less than 110% of the Fair Market Value of a share of Common Stock on the date of grant. (c) TERM. The term of each option granted pursuant to the Plan shall be determined by the Committee, in its sole discretion, and set forth in the applicable Contract; PROVIDED, HOWEVER, that the term of each ISO shall not exceed 10 years from the date of grant thereof; and FURTHER, PROVIDED, that if, at the time an ISO is granted, the optionee owns (or is deemed to own under Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, of any of its Subsidiaries or of a Parent, the term of the ISO shall not exceed five years from the date of grant. Options shall be subject to earlier termination as hereinafter provided. (d) EXERCISE. An option (or any part or installment thereof), to the extent then exercisable, shall be exercised by giving written notice to the Company at its then principal office stating which option is being exercised, specifying the number of shares of Common Stock as to which such option is being exercised and accompanied by payment in full of the aggregate exercise price therefor (or the amount due upon exercise if the Contract -3- permits installment payments) (a) in cash or by certified check or (b) if the applicable Contract permits, with previously acquired shares of Common Stock having an aggregate Fair Market Value on the date of exercise equal to the aggregate exercise price of all options being exercised, or with any combination of cash, certified check or shares of Common Stock having such value. The Company shall not be required to issue any shares of Common Stock pursuant to any such option until all required payments, including any required withholding, have been made. The Committee may, in its sole discretion, permit payment of all or a portion of the exercise price of an option by delivery by the optionee of a properly executed notice, together with a copy of his irrevocable instructions to a broker acceptable to the Committee to deliver promptly to the Company the amount of sale or loan proceeds sufficient to pay such exercise price. In connection therewith, the Company may enter into agreements for coordinated procedures with one or more brokerage firms. An optionee entitled to receive Common Stock upon the exercise of an option shall not have the rights of a stockholder with respect to such shares of Common Stock until the date of issuance of a stock certificate for such shares or, in the case of uncertificated shares, until an entry is made on the books of the Company's transfer agent representing such shares; PROVIDED, HOWEVER, that until such stock certificate is issued or book entry is made, any optionee using previously acquired shares of Common Stock in payment of an option exercise price shall continue to have the rights of a stockholder with respect to such previously acquired shares. In no case may an option be exercised with respect to a fraction of a share of Common Stock. In no case may a fraction of a share of Common Stock be purchased or issued under the Plan. (e) RELOAD OPTIONS. An optionee who, at a time when he is eligible to be granted options under the Plan, uses previously acquired shares of Common Stock to exercise an option granted under the Plan (the "prior option"), shall, upon such exercise, be automatically granted an option (the "reload option") to purchase the same number of shares of Common Stock so used (or if there is not a sufficient number of shares available for grant under the Plan remaining, such number of shares as are then available). Such reload options shall be of the same type and have the same terms as the prior option (except to the extent inconsistent with the terms of the Plan); PROVIDED, HOWEVER, that the exercise price per share of the reload option shall be equal to the Fair Market Value of a share of Common Stock on the date of grant of the reload option, and FURTHER, PROVIDED, that if the prior option was an ISO and at the time the reload option is granted, the optionee owns (or is deemed to own under Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, of any of its Subsidiaries or of a Parent, the exercise price per share shall be equal to 110% of the Fair Market Value of a share of Common Stock on the date of grant and the term of such option shall not exceed five years. -4- 5. RESTRICTED STOCK. The Committee may from time to time, consistent with the purposes of the Plan, grant shares of Common Stock to such key employees (including officers and directors who are key employees) of, or consultants to, the Company or any of its Subsidiaries, as the Committee may determine, in its sole discretion. The grant may cover such number of shares as the Committee may determine, in its sole discretion, and require the Award holder to pay such price per share therefor, if any, as the Committee may determine, in its sole discretion. Such shares may be subject to such contingencies and restrictions as the Committee may determine, as set forth in the Contract. Upon the issuance of the stock certificate for a share Award, or in the case of uncertificated shares, the entry on the books of the Company's transfer agent representing such shares, notwithstanding any contingencies or restrictions to which the shares are subject, the Award holder shall be considered to be the record owner of the shares, and subject to the contingencies and restrictions set forth in the Award, shall have all rights of a stockholder of record with respect to such shares, including the right to vote and to receive distributions. Upon the occurrence of any such contingency or restriction, the Award holder may be required to forfeit all or a portion of such shares back to the Company. The shares shall vest in the Award holder when all of the restrictions and contingencies lapse. Accordingly, the Committee may require that such shares be held by the Company, together with a stock power duly endorsed in blank by the Award holder, until the shares vest in the Award holder. 6. TERMINATION OF RELATIONSHIP. Except as may otherwise be expressly provided in the applicable Contract, if an Award holder's relationship with the Company, its Subsidiaries and Parent as an employee or a consultant has terminated for any reason (other than as a result of his death or Disability), the Award holder may exercise the options granted to him as an employee of, or consultant to, the Company or any of its Subsidiaries, to the extent exercisable on the date of such termination, at any time within three months after the date of termination, but not thereafter and in no event after the date the Award would otherwise have expired; PROVIDED, HOWEVER, that if such relationship is terminated either (a) for Cause (as defined in Paragraph 17), or (b) without the consent of the Company, such option shall terminate immediately. For the purposes of the Plan, an employment relationship shall be deemed to exist between an individual and the Company, any of its Subsidiaries or a Parent if, at the time of the determination, the individual was an employee of such corporation for purposes of Section 422(a) of the Code. As a result, an individual on military, sick leave or other bona fide leave of absence shall continue to be considered an employee for purposes of the Plan during such leave if the period of the leave does not exceed 90 days, or, if longer, so long as the individual's right to reemployment with the Company, any of its Subsidiaries or a Parent is guaranteed either by statute or by contract. If the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed by statute or by contract, the employment relationship shall be deemed to have terminated on the 91st day of such leave. Except as may otherwise be expressly provided in the applicable Contract, options granted under the Plan shall not be affected by any change in the status of the Award holder so long as he continues to be an employee of, or a consultant to, the Company, or any of -5- its Subsidiaries or a Parent (regardless of having changed from one to the other or having been transferred from one corporation to another). Except as may otherwise be expressly provided in the applicable Contract, if an Award holder's relationship with the Company as an Outside Director ceases for any reason (other than as a result of his death or Disability) then options granted to such holder as an Outside Director may be exercised, to the extent exercisable on the date of such termination, at any time within three months after the date of termination, but not thereafter and in no event after the date the Award would otherwise have expired; PROVIDED, HOWEVER, that if such relationship is terminated for Cause, such Award shall terminate immediately. An Award granted to an Outside Director, however, shall not be affected by the Award holder becoming an employee of, or consultant to, the Company, any of its Subsidiaries or a Parent. Except as may otherwise be expressly provided in the Contract, upon the termination of the relationship of an Award holder as an employee of, or consultant to, the Company, and its Subsidiaries and Parent, or as an Outside Director, for any reason (including his death or Disability), the share Award shall cease any further vesting and the unvested portion of such Award as of the date of such termination shall be forfeited to the Company for no consideration. Nothing in the Plan or in any Award granted under the Plan shall confer on any Award holder any right to continue in the employ of, or as a consultant to, the Company, any of its Subsidiaries or a Parent, or as a director of the Company, or interfere in any way with any right of the Company, any of its Subsidiaries or a Parent to terminate the Award holder's relationship at any time for any reason whatsoever without liability to the Company, any of its Subsidiaries or a Parent. 7. DEATH OR DISABILITY. Except as may otherwise be expressly provided in the applicable Contract, if an Award holder dies (a) while he is an employee of, or consultant to, the Company, any of its Subsidiaries or a Parent, (b) within three months after the termination of such relationship (unless such termination was for Cause or without the consent of the Company) or (c) within one year following the termination of such relationship by reason of his Disability, the options that were granted to him as an employee of, or consultant to, the Company or any of its Subsidiaries, may be exercised, to the extent exercisable on the date of his death, by his Legal Representative (as defined in Paragraph 17) at any time within one year after death, but not thereafter and in no event after the date the option would otherwise have expired. Except as may otherwise be expressly provided in the applicable Contract, if an Award holder's relationship as an employee of, or consultant to, the Company, any of its Subsidiaries or a Parent has terminated by reason of his Disability, the options that were granted to him as an employee of, or consultant to the Company or any of its Subsidiaries may be exercised, to the extent exercisable upon the effective date of such termination, at any time within one year after such date, but not thereafter and in no event after the date the option would otherwise have expired. -6- Except as may otherwise be expressly provided in the applicable Contract, if an Award holder's relationship as an Outside Director terminates as a result of his death or Disability, the options granted to him as an Outside Director may be exercised, to the extent exercisable on the date of such termination, at any time within one year after the date of termination, but not thereafter and in no event after the date the Award would otherwise have expired. In the case of the death of the Award holder, the Award may be exercised by his Legal Representative. 8. COMPLIANCE WITH SECURITIES LAWS. It is a condition to the issuance of any share Award and exercise of any option that either (a) a Registration Statement under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the shares of Common Stock to be issued upon such grant or exercise shall be effective and current at the time of exercise, or (b) there is an exemption from registration under the Securities Act for the issuance of the shares of Common Stock upon such exercise. Nothing herein shall be construed as requiring the Company to register shares subject to any Award under the Securities Act or to keep any Registration Statement effective or current. The Committee may require, in its sole discretion, as a condition to the receipt of an Award or the exercise of any option that the Award holder execute and deliver to the Company his representations and warranties, in form, substance and scope satisfactory to the Committee, which the Committee determines are necessary or convenient to facilitate the perfection of an exemption from the registration requirements of the Securities Act, applicable state securities laws or other legal requirement, including, without limitation, that (a) the shares of Common Stock to be received under the Award or issued upon the exercise of the option are being acquired by the Award holder for his own account, for investment only and not with a view to the resale or distribution thereof, and (b) any subsequent resale or distribution of shares of Common Stock by such Award holder will be made only pursuant to (i) a Registration Statement under the Securities Act which is effective and current with respect to the shares of Common Stock being sold, or (ii) a specific exemption from the registration requirements of the Securities Act, but in claiming such exemption, the Award holder shall prior to any offer of sale or sale of such shares of Common Stock provide the Company with a favorable written opinion of counsel satisfactory to the Company, in form, substance and scope satisfactory to the Company, as to the applicability of such exemption to the proposed sale or distribution. In addition, if at any time the Committee shall determine, in its sole discretion, that the listing or qualification of the shares of Common Stock subject to any Award or option on any securities exchange, Nasdaq or under any applicable law, or the consent or approval of any governmental agency or regulatory body, is necessary or desirable as a condition to, or in connection with, the granting of an Award or the issuing of shares of Common Stock thereunder, such Award may not be granted and such option may not be exercised in whole or in part unless such listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. -7- 9. AWARD CONTRACTS. Each Award shall be evidenced by an appropriate Contract which shall be duly executed by the Company and the Award holder, and shall contain such terms, provisions and conditions not inconsistent herewith as may be determined by the Committee. The terms of each Award and Contract need not be identical. 10. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding any other provision of the Plan, in the event of a stock dividend, recapitalization, merger in which the Company is the surviving corporation, spin-off, split-up, combination or exchange of shares or the like which results in a change in the number or kind of shares of Common Stock which is outstanding immediately prior to such event, the aggregate number and kind of shares subject to the Plan, the aggregate number and kind of shares subject to each outstanding Award, the exercise price of each option, any contingencies and restrictions based on the number or kind of shares, and the 162(m) Maximum shall be appropriately adjusted by the Board of Directors, whose determination shall be conclusive and binding on all parties. Such adjustment may provide for the elimination of fractional shares which might otherwise be subject to Awards without payment therefor. In the event of (a) the liquidation or dissolution of the Company, (b) a merger in which the Company is not the surviving corporation or a consolidation, or (c) any transaction (or series of related transactions) in which (i) more than 50% of the outstanding Common Stock is transferred or exchanged for other consideration or (ii) shares of Common Stock in excess of the number of shares of Common Stock outstanding immediately preceding the transaction are issued (other than to stockholders of the Company with respect to their shares of stock in the Company), any outstanding options, unvested stock shall terminate upon the earliest of any such event, unless other provision is made therefor in the transaction. 11. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by the Board of Directors on as of January 27, 1998. No ISO may be granted under the Plan after January 27, 2008. The Board of Directors, without further approval of the Company's stockholders, may at any time suspend or terminate the Plan, in whole or in part, or amend it from time to time in such respects as it may deem advisable, including, without limitation, in order that ISOs granted hereunder meet the requirements for "incentive stock options" under the Code, to comply with the provisions of Rule 16b-3, Section 162(m) of the Code, or any change in applicable law, regulations, rulings or interpretations of any governmental agency or regulatory body; PROVIDED, HOWEVER, that no amendment shall be effective without the requisite prior or subsequent stockholder approval which would (a) except as contemplated in Paragraph 10, increase the maximum number of shares of Common Stock for which Awards may be granted under the Plan or the 162(m) Maximum, (b) change the eligibility requirements to receive Awards hereunder, or (c) make any change for which applicable law, regulation, ruling or interpretation by the applicable governmental agency or regulatory authority requires stockholder approval. No termination, suspension or amendment of the Plan shall adversely affect the rights of any Award holder under an Award without his prior consent. The power of the Committee to construe and administer any Awards granted under the Plan prior to the termination or suspension of the Plan nevertheless shall continue after such termination or during such suspension. -8- 12. NON-TRANSFERABILITY. No option granted under the Plan shall be transferable otherwise than by will or the laws of descent and distribution, and options may be exercised, during the lifetime of the Award holder, only by him or his Legal Representatives. Except as may otherwise be expressly provided in the Contract, a stock Award, to the extent not vested, shall not be transferable otherwise than by will or the laws of descent and distribution. Except to the extent provided above, Awards may not be assigned, transferred, pledged, hypothecated or disposed of in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process, and any such attempted assignment, transfer, pledge, hypothecation or disposition shall be null and void AB INITIO and of no force or effect. 13. WITHHOLDING TAXES. The Company, a Subsidiary or Parent may withhold (a) cash or (b) with the consent of the Committee, shares of Common Stock to be issued under a stock Award or upon exercise of an option having an aggregate Fair Market Value on the relevant date, or a combination of cash and shares having such value, in an amount equal to the amount which the Committee determines is necessary to satisfy the obligation of the Company, any of its Subsidiaries or a Parent to withhold federal, state and local taxes or other amounts incurred by reason of the grant, vesting, exercise or disposition of an Award, or the disposition of the underlying shares of Common Stock. Alternatively, the Company may require the holder to pay to the Company such amount, in cash, promptly upon demand. 14. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such legend or legends upon the certificates for shares of Common Stock issued under a stock Award or upon exercise of an option under the Plan and may issue such "stop transfer" instructions to its transfer agent in respect of such shares as it determines, in its discretion, to be necessary or appropriate to (a) prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act and any applicable state securities laws, (b) implement the provisions of the Plan or any agreement between the Company and the Award holder with respect to such shares of Common Stock, or (c) permit the Company to determine the occurrence of a "disqualifying disposition," as described in Section 421(b) of the Code, of the shares of Common Stock issued or transferred upon the exercise of an ISO granted under the Plan. The Company shall pay all issuance taxes with respect to the issuance of shares of Common Stock under a stock Award or upon the exercise of an option granted under the Plan, as well as all fees and expenses incurred by the Company in connection with such issuance. 15. USE OF PROCEEDS. The cash proceeds received upon the exercise of an option, or grant of a stock Award under the Plan shall be added to the general funds of the Company and used for such corporate purposes as the Board of Directors may determine. -9- 16. SUBSTITUTIONS AND ASSUMPTIONS OF AWARDS OF CERTAIN CONSTITUENT CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board of Directors may, without further approval by the stockholders, substitute new Awards for prior options, or restricted stock of a Constituent Corporation (as defined in Paragraph 17) or assume the prior options or restricted stock of such Constituent Corporation. 17. DEFINITIONS. For purposes of the Plan, the following terms shall be defined as set forth below: (a) "Cause" shall mean (i) in the case of an employee or consultant, if there is a written employment or consulting agreement between the Award holder and the Company, any of its Subsidiaries or a Parent which defines termination of such relationship for cause, cause as defined in such agreement, and (ii) in all other cases, cause as defined by applicable state law. (b) "Constituent Corporation" shall mean any corporation which engages with the Company, any of its Subsidiaries or a Parent in a transaction to which Section 424(a) of the Code applies (or would apply if the option assumed or substituted were an ISO), or any Subsidiary or Parent of such corporation. (c) "Disability" shall mean a permanent and total disability within the meaning of Section 22(e)(3) of the Code. (d) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (e) "Fair Market Value" of a share of Common Stock on any day shall mean (i) if the principal market for the Common Stock is a national securities exchange, the average of the highest and lowest sales prices per share of Common Stock on such day as reported by such exchange or on a composite tape reflecting transactions on such exchange, (ii) if the principal market for the Common Stock is not a national securities exchange and the Common Stock is quoted on Nasdaq, and (A) if actual sales price information is available with respect to the Common Stock, the average of the highest and lowest sales prices per share of Common Stock on such day on Nasdaq, or (B) if such information is not available, the average of the highest bid and lowest asked prices per share of Common Stock on such day on Nasdaq, or (iii) if the principal market for the Common Stock is not a national securities exchange and the Common Stock is not quoted on Nasdaq, the average of the highest bid and lowest asked prices per share of Common Stock on such day as reported on the OTC Bulletin Board Service or by National Quotation Bureau, Incorporated or a comparable service; PROVIDED, HOWEVER, that if clauses (i), (ii) and (iii) of this subparagraph are all inapplicable, or if no trades have been made or no quotes are available for such day, the Fair Market Value of a share of Common Stock shall be determined by the Board of Directors by any method consistent with applicable regulations adopted by the Treasury Department relating to stock options. -10- (f) "Legal Representative" shall mean the executor, administrator or other person who at the time is entitled by law to exercise the rights of a deceased or incapacitated optionee with respect to an option granted under the Plan. (g) "Nasdaq" shall mean the Nasdaq Stock Market. (h) "Outside Director" shall mean a person who is a director of the Company, but on the date of grant is not an employee of, or consultant to, the Company, any of its Subsidiaries or a Parent. (i) "Parent" shall have the same definition as "parent corporation" in Section 424(e) of the Code. (j) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act, as the same may be in effect and interpreted from time to time. (k) "Subsidiary" shall have the same definition as "subsidiary corporation" in Section 424(f) of the Code. 18. GOVERNING LAW; CONSTRUCTION. The Plan, the Awards and Contracts hereunder and all related matters shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to conflict of law provisions that would defer to the substantive laws of another jurisdiction. Neither the Plan nor any Contract shall be construed or interpreted with any presumption against the Company by reason of the Company causing the Plan or Contract to be drafted. Whenever from the context it appears appropriate, any term stated in either the singular or plural shall include the singular and plural, and any term stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. 19. PARTIAL INVALIDITY. The invalidity, illegality or unenforceability of any provision in the Plan, any Award or Contract shall not affect the validity, legality or enforceability of any other provision, all of which shall be valid, legal and enforceable to the fullest extent permitted by applicable law. 20. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by a majority of the votes present in person or by proxy and entitled to vote hereon at the next duly held meeting of the Company's stockholders at which a quorum is present. No Award granted hereunder may vest or be exercised prior to such approval; PROVIDED, HOWEVER, that the date of grant of any Award shall be determined as if the Plan had not been subject to such approval. Notwithstanding the foregoing, if the Plan is not approved by a vote of the stockholders of the Company on or before January 27, 1999, the Plan and any Awards granted hereunder shall terminate. -11- EX-27 13 EXHIBIT 27
5 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 8,932,000 0 576,000 125,000 0 13,814,000 29,792,000 7,031,000 41,830,000 2,775,000 21,599,000 0 0 2,000 16,386,000 41,830,000 16,690,000 16,690,000 11,680,000 11,680,000 3,049,000 0 813,000 1,233,000 (42,000) 1,275,000 0 0 0 1,275,000 0.06 0.05
EX-99.1 14 EXHIBIT 99.1 Exhibit 99.1 F O R I M M E D I A T E R E L E A S E COMPANY CONTACT: EDSON R. ARNEAULT, PRESIDENT (304) 387-2400 MTR GAMING GROUP PURCHASES TWO NEVADA GAMING PROPERTIES -- CHEYENNE HOTEL & CASINO FOR $5.5 MILLION TO BE RENAMED "SPEEDWAY HOTEL & CASINO" -- -- RENO RAMADA FOR $8 MILLION TO BE RENAMED "SPEAKEASY HOTEL & CASINO" -- Chester, West Virginia, May 7, 1998 -- MTR Gaming Group, Inc. (NASDAQ: MNTG) announced that on May 5, through its newly formed, wholly owned subsidiaries, Speakeasy Gaming of Las Vegas, Inc. and Speakeasy Gaming of Reno, Inc., it closed the purchase of two hotel/gaming properties in Nevada: the Cheyenne Hotel & Casino in North Las Vegas for $5.5 million and the Reno Ramada in Reno for $8 million, respectively. Both transactions were asset purchases for cash, and both properties are qualified for unrestricted casino gaming upon licensing of a casino operator pursuant to "grandfather" provisions of applicable state and municipal laws. The Company expects to apply for gaming approval and intends to lease the gaming area to a licensed casino operator. The Company also plans to pursue franchise agreements for both properties with Ramada Franchise Systems, Inc. THE CHEYENNE HOTEL & CASINO, NORTH LAS VEGAS, NEVADA The Company purchased the Cheyenne Hotel & Casino from Banter, Inc. for $5.5 million. The Cheyenne is a 131-room hotel consisting of one two-story building and one three-story building located at 3227 Civic Center Drive in North Las Vegas at the intersection of Cheyenne Avenue and Interstate 15. I-15 is a major interstate freeway, which extends north into Utah and south into the Los Angeles Basin. The Property is approximately five miles from the Las Vegas Motor Speedway and three miles from Nellis Air Force Base. The hotel has a bar, restaurant, and swimming pool as well as parking for approximately 172 cars. The prior owners had operated 25 slot machines at the hotel's bar and had commenced construction of an 18,000 square foot addition including a 10,000 square foot casino, which the Company intends to complete. The Company's plan for the casino calls for 350 slot machines, three blackjack tables, one roulette wheel, and one craps table. The Company plans to implement a motor racing theme for the casino in an effort to accommodate patrons of the nearby Las Vegas Motor Speedway. The Company estimates that the cost of construction of the casino and renovation of some of the hotel rooms will be approximately $2 million. The Company expects to complete construction within the next 120 days and will rename the project the "Speedway Hotel & Casino". THE RENO RAMADA HOTEL, RENO, NEVADA The Company purchased the Reno Ramada Hotel from Reno Hotel LLC, an affiliate of the Company's lender, for $8 million. The Reno property has a total of 262 hotel rooms, 236 of which are located in an eleven story tower and 26 of which are in a separate three-story structure. The property is located at 6th and Lake Streets in Reno and has parking for approximately 238 cars. The tower also has a restaurant, a deli and two bars. The Reno property has an 8000 square foot casino area and a small convention facility. The property recently underwent renovations of approximately $4 million. The Company's development plans for the casino at the Reno property likewise call for 350 slot machines, three blackjack tables, a roulette wheel, and a craps table. The Reno casino's theme will be similar to the Speakeasy concept in place at the Company's Mountaineer Racetrack & Gaming Resort in West Virginia. The Company also plans to spend approximately $500,000 on renovations of the hotel and expansion of the capacity of the convention facility and will rename the project the "Speakeasy Hotel & Casino". OPERATION OF THE PROPERTIES/GAMING LICENSING The Company and its newly formed subsidiaries intend to apply as soon as practicable to the authorities in the State of Nevada for all necessary permits and licenses required for the Company to operate casinos at the two properties. The Company is advised, however, that the licensing process may take approximately one year to complete and that there can be no assurances that the Company will obtain the necessary approvals. Until the Company obtains these approvals, it will not be permitted to conduct gaming or participate in any gaming revenues generated at the properties. In the interim, the Company will operate the hotels and restaurants and lease the casino area to an independent, licensed casino operator as permitted by Nevada law. The Company anticipates that Speakeasy Vegas will immediately hire approximately twenty-five new employees at the Cheyenne property and that Speakeasy Reno will hire approximately forty new employees at the Reno property. The Company has engaged Bruce E. Dewing to oversee the operation of the two Nevada properties as well as to assist the Company in the licensing process. Mr. Dewing has more than twenty years experience in upper level management of hotels and casinos and holds a non-restricted gaming license in the State of Nevada. Most recently, Mr. Dewing was President and CEO of the Ormsby House Hotel/Casino, a 200-room hotel with three restaurants and full service casino with entertainment in Carson City, Nevada. From 1981-1994, Mr. Dewing served variously as Vice President/Operations, General Manager/Chief Marketing Officer/Director of the Sands Regency Hotel & Casino in Reno, Nevada. He was responsible for management of the Sands Regency's 1,000 hotel rooms and supervised 950 employees and twenty-five departments. FINANCING OF THE ACQUISITIONS The Company financed the acquisitions through its cash on hand and additional borrowings from its existing lender, Madeleine LLC. Pursuant to a Third Amended and Restated Term Loan Agreement entered as of April 30, 1998 by Mountaineer Park, Inc., Speakeasy Gaming of Las Vegas, Inc., and Speakeasy 2 Gaming of Reno, Inc. jointly and severally as borrowers, the Company as guarantor, and Madeleine LLC as lender, the Company increased its borrowings (previously the principal sum of $21,476,500) by (i) $8 million, representing the full purchase price of the Reno Ramada Hotel; (ii) $3,765,000 toward the purchase of the Cheyenne Hotel & Casino; and (iii) $150,000 in lender's fees. The Company expended approximately $2 million of its cash reserves for the balance of the purchase price of the Cheyenne property and closing costs and expenses of the transactions. The loan amendment also provides a construction line of credit of up to $1.7 million for the Cheyenne property and increases Mountaineer's line of credit by $5 million (up to $1.5 million of which may be used for improvements at the Nevada properties). The loans, as well as any draws against the lines of credit, continue to be for a term ending July 2, 2001 with monthly payments of interest only at the rate of 13% per year with all principal becoming due at the end of the term. The loans likewise remain secured by substantially all of the assets of Mountaineer and now Speakeasy Vegas and Speakeasy Reno and are unconditionally guaranteed by the Company. The call premium applicable to prepayment of the loans (5% until July 2, 1998, 3% between July 3, 1998 and July 2, 1999, 2% from July 3, 1999 until July2, 2000, and 1% from July 3, 2000 until the end of the term), however, does not apply to the $11.8 million borrowed for the acquisitions or draws on the $1.7 million Cheyenne construction line of credit. Commenting on the acquisitions, MTR Gaming Group's president, Ted Arneault, explained that, "These acquisitions present a number of opportunities for our Company and are consistent with our long term growth strategy of identifying entertainment facilities, coupled with gaming, in niche markets in which we cater to the small to mid-level player. "Focusing on properties that have not been aggressively marketed and where the gaming potential has not been fully utilized has allowed us to acquire these properties at attractive prices and thus enter two additional gaming markets for a relatively modest investment and without dilution. The Cheyenne Hotel & Casino is an opportunity to expand gaming in the North Las Vegas market, which enjoyed a healthy 24% increase in gaming revenues during February of 1998 versus 1997. The Reno property allows us to replicate our Speakeasy concept that has been so successful in West Virginia. "We also view these properties as an opportunity for cross marketing with Mountaineer, enhanced purchasing power, and enhanced ability to attract various forms of entertainment to all of our properties. "We look forward to working with state and local government in Nevada as well as the residents of the communities we are now entering to build our infrastructure and management team and to make these properties successful. These are long-term projects that we believe will ultimately prove beneficial to our communities, our employees, and our shareholders." MTR Gaming Group, Inc., a West Virginia based corporation, through subsidiaries, owns and operates the Mountaineer Racetrack and Gaming Resort in Chester, West Virginia and has just acquired the Cheyenne Hotel & Casino in North Las Vegas, Nevada, and the Reno Ramada Hotel in Reno, Nevada as described above. The Mountaineer complex currently encompasses a thoroughbred racetrack, including off track betting, 1000 video lottery terminals, a 101 room hotel, 3 nine hole executive golf course, fine dining and entertainment, the Speakeasy Gaming Saloon, Big Al's Deli, the Gatsby Lounge, and the Hollywood Knights Saloon. THIS PRESS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS CONCERNING THE COMPANY'S PLANS FOR CONSTRUCTION OF IMPROVEMENTS AS WELL AS ITS ESTIMATES OF THE TIME AND EXPENSE INVOLVED IN SUCH CONSTRUCTION AT ITS RECENTLY ACQUIRED HOTEL PROPERTIES; THE ENTERING OF FRANCHISE AGREEMENTS; LICENSING, OPERATION, AND CONFIGURATION OF GAMING FACILITIES AT THE NEVADA PROPERTIES; AND THE LONG-TERM PROSPECTS FOR THE SUCCESSFUL OPERATION OF THE ACQUIRED PROPERTIES. SUCH STATEMENTS ARE BASED ON THE COMPANY'S CURRENT PLANS AND EXPECTATIONS. ACTUAL RESULTS COULD DIFFER MATERIALLY BASED UPON A NUMBER OF FACTORS, INCLUDING BUT NOT LIMITED TO WEATHER CONDITIONS, INABILITY TO OBTAIN GAMING LICENSES IN THE STATE OF NEVADA, COMPETITION, GENERAL ECONOMIC CONDITIONS AFFECTING THE RESORT BUSINESS, DEPENDENCE UPON KEY PERSONNEL, AND OTHER FACTORS DESCRIBED IN THE COMPANY'S PERIODIC REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. 4 -----END PRIVACY-ENHANCED MESSAGE-----